"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Saturday, September 15, 2012

Bernanke's sudden turn towards Woodfordian open-ended policy was genuinely surprising, just as John Roberts ruling on Obamacare was.

Rahm Emanuel seems to have caved as I hear reports that the Chicago teachers strike will end with the teachers feeling victorious.

Yglesias writes about poverty.

This post to DeLong seems to be response to Binyamin Appelbaum's piece today in the New York Times - which I liked to below - where apparently he says that the Fed's focus on unemployment is somehow new.


Woodford on Optimal Monetary Policy Rules by Mark Thoma
Baltimore Ravens linebacker Brendon Ayanbadejo

Standing Up at an Early Age by Adam Himmelsbach

Charles Evans could be the one who laid the groundwork and created the space for Bernanke's change of direction towards open-ended commitments. I know he mentioned Woodford in a recent speech (this year?) and will look it up.

Reserve Bank Presidents' Speeches, 2007-2012

The Inflation that Concerns the Fed Does Not First Affect Food and Energy Prices by Dean Baker

Fed Responds to a Grim Reality by Binyamin Appelbaum
... Under the leadership of Mr. Bernanke - with considerable prodding and support from a board almost entirely appointed by President Obama - the central bank has gradually concluded that it has a responsibility to act more forcefully, and, equally important, that it has the ability to spur job creation directly.  
Mitt Romney, Liquidationist by Krugman
How times have changed. Back in 2004, Greg Mankiw declared, in the Economic Report of the President, that
Aggressive monetary policy can reduce the depth of a recession.
But now, after the Fed has finally moved a bit in the direction of doing something about the Lesser Depression, Mitt Romney – supposedly advised by Mankiw among others – is outraged:
[T]he American economy doesn’t need more artificial and ineffective measures. We should be creating wealth, not printing dollars.
That word “artificial” caught my eye, because it’s the same word liquidationists used to denounce any efforts to fight the Great Depression with monetary policy. Schumpeter declared that
Any revival which is merely due to artificial stimulus leaves part of the work of depressions undone
Hayek similarly decried any recovery led by the “creation of artificial demand”.
Milton Friedman – who thought he had liberated conservatism from this kind of nonsense –must be spinning in his grave. 
The Romney/liquidationist view only makes sense if you believe that the problem with our economy lies on the supply side – that workers lack the incentive to work, or are stuck with the wrong skills, or something. And that’s just not what the evidence says; instead, it points overwhelmingly to an insufficient overall level of demand.*
When dealing with ordinary, garden-variety recessions, we deal with inadequate demand through conventional monetary policy, namely by cutting short-term interest rates. Until recently even Republicans were OK with this. 
Now we face a more severe slump, probably driven by deleveraging, in which even a zero rate isn’t low enough, so monetary policy has to work in unconventional ways – in particular, by changing expectations about future inflation, so as to reduce real interest rates. This is no more “artificial” than conventional monetary policy – harder, yes, but it’s still about trying to get the market rate aligned with the “natural” rate consistent with full employment. 
So where are Romney and his party coming from? Basically, they’ve thrown out 80 years of economic analysis and evidence because it doesn’t fit their ideological preconceptions, and they’re resorting to dubious metaphors – “sugar high” and all that – as a substitute for clear thinking. 
What you really have to wonder about is all the not-stupid economists who have aligned themselves with this guy and that crew. Probably they imagine that once the election is past sensible economics will return. But the odds are that they are wrong, and that they’re sacrificing their own credibility to put charlatans and cranks in the driver’s seat.
* Mishmash Not
Props to Eddie Lazear; he’s a loyal Republican who’s been saying a lot of things I consider totally wrong lately, but his paper for Jackson Hole (pdf) is a professional, well-done piece that offers little aid and comfort to his political allies.

Friday, September 14, 2012


An Internet Success Story. Chicago Fed President Charles Evans should feel vindicated for all of his hard work and for sticking his neck out.

A Quick Note on the Fed by Krugman
In effect, the Fed seems to be trying to “credibly promise to be irresponsible”, which is what I advocated way back when in this kind of situation. 
3. That’s all good. However, it’s kind of vague. No clear target, whether nominal GDP or some kind of inflation/unemployment mix. Put it this way: you could imagine a future Fed chairman tightening policy in line with the same Taylor rule that seemed to describe policy before the crisis — a rule that suggests that interest rates wouldn’t start to go up until unemployment was below, say, 7 percent — and still being able to claim that he had not violated any promise Bernanke made. In other words, it’s not totally clear that we really do have a shift in future policy. And since the whole point is to move expectations, leaving this kind of wiggle room is not a good thing. 
To paraphrase an old joke: what do you get when you cross a Godfather with a central banker? Someone who makes you an offer you can’t understand. 
4. Romney is talking destructive nonsense.
The Scott Summer Rally by Yglesias

It Is What It Is by Scott Sumner
On a lighter note, yesterday was “Scott Sumner day” and yet I had to go to work.  That doesn’t seem fair!  I’d also note that Cardiff Garcia at FT Alphavillementioned David Beckworth and I (along with Woodford), in their discussion of economists who had played a role in the debate. Don’t get me wrong, I realize that Woodford’s 100 times more influential than I am.  But I also think we’ve had some impact, mostly by putting out ideas that other more famous people have discussed and/or advocated (Christy Romer, Krugman, DeLong, Jeffrey Frankel, Jan Hatzius, etc.)  So it’s a good day for market monetarism.
Why QE3 Matters by Yglesias

Federal Reserve Finally Working Expectations Channel With Open-Ended QE by Yglesias

Other fiscal measures have more reliable job-creation chains.  Increasing unemployment benefits or food stamps helps because those folks typically spend the money.  And new infrastructure is a pretty direct way to go.  Same with state fiscal relief.  I remember during the Recovery Act, mayors cancelling planned layoffs the day they received Recovery Act funds.
The punch line is a simple one, but it’s one that seems to have been forgotten amidst our increasing love affair in America with laissez-faire economics: the more direct the policy measure—i.e., the fewer links in the chain between the policy and the job—the better it will work.
There Will Be Meglomania: "The Master," from Paul Thomas Anderson by A.O. Scott

Thursday, September 13, 2012

Will is a founding member of my Rogues Gallery.
How the Fed Boosts the Economy: Lessons for George Will by Dean Baker

In his column today George Will notes the Fed's responsibility to maintain price stability and high employment and tells readers:

"Achieving the former is the best thing the Fed can do for the latter."

Apparently Will has not been following what has happened in the economy recently. While inflation has remained low and relatively stable, unemployment has soared. He also apparently does not recognize how the Fed hopes to boost economic growth through quantitative easing.

The biggest impact from lower interest rates is probably from mortgage refinancing. This both directly generates economic activity through people employed in the process (e.g. banking staff, appraisers etc.) and indirectly by reducing payments and freeing up money for other consumption.

The second biggest impact is on lowering the value of the dollar relative to other currencies, which will reduce the trade deficit. Anyone who does not want a large budget deficit and/or negative private savings (like we had at the peak of the housing bubble) must want to see the trade deficit move closer to balance. This is an accounting identity -- there is no way around it. And, there is no plausible mechanism to get the trade deficit closer to balance except by reducing the value of the dollar.

For some reason Will fails to mention either the impact of quantitative easing on mortgage refinancing or the impact on the trade deficit. There is also zero evidence of the hyper-inflation that he and other opponents of more aggressive Fed actions have been warning about for years.
Yglesias seems to be flip-flopping here. First he posted how much teachers were getting paid as if it was excessive. Now he says they should get paid. I do think the financial industry has more of problem with rent-seeking than inner city teachers. As Kristof says, in the Chicago Public Schools "86 percent of the children are black or Hispanic and 87 percent come from low-income families."

Chicago's Teachers Are Pretty Well-Paid (As They Should Be) by Yglesias

Students over Unions by Nicholas Kristof

Wednesday, September 12, 2012

Matt Yglesias is not one of those union-hating liberals, he swears! by Doug Henwood

The Pay of Chicago School Teachers and Selected Others by Dean Baker

The New York Times Editorial Page and Yglesias harped on Chicago school teacher's pay.

Does It Pay to Become a Teacher? by Catherine Rampbell

Tuesday, September 11, 2012

This should lend some certainty to "job creators" and campaign contributors.

BEYOND THE MATRIX: The Wachowskis travel to even more mind-bending realms. by Aleksandar Hemon
Usually, I experience an erosion of confidence around famous people—an inescapable conviction that they know more than I do, because the world is somehow more available to them. But I got along splendidly with the Wachowskis. Seemingly untouched by Hollywood, they did not project the jadedness that is a common symptom of stardom. Lana was one of the best-read people I’d ever met; Andy had a wry sense of humor; they were both devout Bulls fans. We also shared a militant belief in the art of narration and a passionate love for Chicago. 
Eventually, I asked them to consider letting me write about the making of “Cloud Atlas.” They talked it over and decided to do it. By then, they’d sent the script to every major studio, after Warner Bros. had declined to exercise its option. Everyone passed. “Cloud Atlas” seemed too challenging, too complex. The Wachowskis reminded Warner Bros. that “The Matrix” had also been deemed too demanding, and that it had taken them nearly three years to get the green light on it. But the best the studio could do for “Cloud Atlas” was to keep open the possibility of buying the North American distribution rights, payment for which would cover a portion of the projected budget.
“The problem with market-driven art-making is that movies are green-lit based on past movies,” Lana told me. “So, as nature abhors a vacuum, the system abhors originality. Originality cannot be economically modelled.” The template for “The Matrix,” the Wachowskis recalled, had been “Johnny Mnemonic,” a 1995 Keanu Reeves flop. 

In the parking lot outside Hanks’s office, the Wachowskis and Tykwer shook off the bad news before going in. Hanks had read the screenplay, though not the book. “The script was not user-friendly,” he told me. “The demands it put upon the audience and everybody, the business risk, were off the scale.” But he was interested in working with the directors and intrigued by the challenge of playing six different roles in one film. Hanks was in the middle of reading “Moby-Dick” and, when the filmmakers sat down, he engaged them in a discussion of Melville’s masterpiece. Lana pointed at a poster for “2001: A Space Odyssey,” which was serendipitously hanging on the wall of Hanks’s office, and said, “ ‘Moby-Dick’ and this—that’s what we want to do.” “I’m in,” Hanks said. “When do we start?” Looking back at that meeting, Hanks told me that he had been particularly impressed that the Wachowskis “were not ashamed to say, ‘We make art!’ ” 

With Hanks on board, the directors went back to Warner Bros. to plead their case. They insisted that a project as narratively complex as “Cloud Atlas” had no precedent and therefore no template. They presented the overarching story as a tale of redemption, of the continuity of essential human goodness, whereby individual acts of kindness have unforeseeable repercussions. They broke the story down into a simple progression: “Tom Hanks starts off as a bad person,” they said, “but evolves over centuries into a good person.” Warner Bros. was convinced, and the studio was in for distribution, but with a lower offer than the directors had hoped for.

Did Education Secretary Arne Duncan Really Leave Chicago Schools a Mess? by Dean Baker
That might be a good question for reporters to pose to Chicago Mayor Rahm Emanuel given his strong stand against Chicago's public school teachers. (It is appropriate to refer to this as a battle between Emanuel and the teachers. Almost 90 percent of the members of the bargaining unit voted to authorize a strike. This is clearly not a case of a union imposing its will on its members.) Emanuel has insisted that the schools need a major overhaul because they are badly failing Chicago's students. 
Emanual's position is striking because Chicago's schools had been run for seven and half years, from June of 2001 until January of 2009, by Arne Duncan. Duncan then went on to become education secretary for President Obama, based on his performance as head of the Chicago public school system. Apparently Emanuel does not believe that Duncan was very successful in improving Chicago's schools since he claims that they are still in very bad shape. 
There is no dispute that students in Chicago public schools are not faring well. Only a bit over 60 percent graduate high school in five years or less. However, this doesn't mean that the reforms that Emanuel wants to impose will improve outcomes, just as Duncan's reforms apparently did not have much impact, if Emanuel is to be believed. 
As Diana Ravitch, a one-time leading school "reformer" and assistant education secretary in the Bush administration, argues that charter schools on average perform no better than the public schools they replace. The main determinants of childrens' performance continues to be the socioeconomic conditions of their parents. Those unwilling to take the steps necessary to address the latter (e.g. promote full employment) are the ones who do not care about our children.
Seems like a confused article.

some repeat videos

Barack Obama to Michael Lewis on a Presidential Loss of Freedom: “You Don’t Get Used to It—At Least, I Don’t”

It's notable that Obama as the first black President of a nation founded upon slavery and white supremacy doesn't really discuss race at all. He did move a bust of MLK to the Oval office as Lewis reports. It's also funny that Lewis's Vanity Fair article on Iceland painted a picture of Icelanders that was a caricature if not racist. Iceland, like Australia and Argentina, followed some wise macroeconomic polices that allowed its economy to bounce back well after a financial crisis/Minsky moment. Lewis should do a follow up. It does say alot that Obama allowed him access. 

I'll be interest to see if he's on Charlie Rose and to read about Obama's decision to go into Libya.