"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, December 22, 2012

From this past year Part Two

Cold Winds Are Rising (April 2, 2012)
Also during the small council meeting, Maester Pycelle displayed the white raven from the Citadel in Oldtown which means the maesters had determined the long summer was over and Winter is Coming. Littlefinger noted they had enough wheat for 5 years but if the winter lasted longer, well they'd have fewer peasants, of course.

For some reason this reminded me of macroeconomic policy discussion. In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions just as the conclave of maesters date the seasons in Westeros. And it reminded me of the way elite policymakers take an "objective" view of the fates of the "small people." Fewer peasants if they didn't store enough wheat? No biggie. Transforming cyclical unemployment into long-term unemployment and degrading the nation's productive capacity with a prolonged output gap? Oh well, won't really effect our social circle, just the common people, who as Jorah Mormont said "don't care about the games the high lords play" and only "pray for rain, health and a summer that never ends."
Alas poor Yoren! I knew him well. (April 16, 2012)
(or the dragons are gone....) 

"What's Dead May Never Die" Onion recap (for experts)

Good comments.

"What's Dead May Never Die" Onion recap (for newbies) 

More good comments.
The commenter "Archmage of the Aether" made me laugh with his avatar and comments:

Me: "Game of Thrones: the greatest show that ever was or will be!"

Fantasy, Modernism, and Capitalism (April 24, 2012)
What's attractive about the fantasy genre for me is that modernism entails capitalism and the cash nexus. The cash nexus dissolves bonds of social solidarity and value until you are left with nothing but price and cost. After the Cold War, welfare capitalism has given way to "greed is good" capitalism.  There is no (or not much) honor, chivalry, loyalty, integrity, or virtue which were once the the redeeming aspects of capitalism's predecessor Feudalism. (Although obviously not everyone was honorable back especially given material circumstances.) Also late capitalism entails consumerism, and wall-to-wall advertising (flashing billboards, telemarketers calling during dinner, spam and pop-up ads), environmental disaster, urban blight, and an economy dominated by the financial sector and speculation/gambling. The Fantasy genre is a respite from all of that. Perhaps it's escapist to harken back to a lost age, but the fantasy genre does hold up the good virtues even if like in Game of Thrones, it's a brutal time of war.

Capitalism is undeniably a giant progress in a number of areas. Feminism and notions of human rights arrived in late-capitalism and welfare capitalism had less of a stratified, class structure. One of the undeniable reactionary aspects of Feudalism is its authoritarian appeal to a rigid social structure where everyone knows their place. Also obviously capitalism has less starvation during winter. Westeros is chock full of prostitution and the suffering small people. Esteros is full of slaves and brutality. What is compelling about Game of Thrones is that it explores the dark side of Feudalism in a realistic manner and doesn't romanticize it.

Why Two Percent Inflation Targeting is the New Gold Standard by Yglesias (May 22, 2012)

Season 2 Game of Thrones finale (June 4, 2012)
"Valar Morghulis" Onion review (for newbies)
"Valar Morghulis" Onion review (for experts)
Election Forecast: Obama Begins With Tenuous Advantage by Nate Silver (June 10, 2012)

It's the Fed's Time to Step Up by Christina Romer (June 10, 2012)
Instead, the policy-making committee could adopt the proposal of Charles Evans, the president of the Federal Reserve Bank of Chicago, that the Fed pledge to keep rates near zero until unemployment is down to 7 percent or inflation has risen to 3 percent. Such conditional guidance assures people that the Fed will keep at the job until unemployment is down or the toll on inflation becomes unacceptable. 
True Blood starts the new season off with a bang. Banging siblings, that is (io9 recap) by Meredith Woerner(!) (June, 11, 2012)

Pam! Pam! Pam! (or "One what?" as in Sookie will "owe one," a favor, to Pam.) (June 11,2012)

Lost Girl (June 12, 2012)

True Blood’s got 99 plot lines, and now Rick Santorum’s one? by Meredith Woerner (June 20, 2012)

Haters Gonna Hate (June 22, 2012)

Stabilizing prices is immoral by Steve Randy Waldman (June 24, 2012)

Supreme Court rules on Obamacare (June 29, 2012)
In this season's True Blood, the backdrop is a conflict between the vampire Authority and the vampire Sanguinista movement. The Authority desires co-existence with humans via its strategy of "mainstreaming" as a matter of survival since vampires are outnumbered. The Sanguinistas believe in the literal interpretation of the vampire bible which says that humans are no more than food and to treat them as other than such is blasphemy.

Chief Judge John Roberts just acted like Christopher Meloni's Roman, the lead "Guardian" of the Authority. Roberts saw that if the conservative judges continued to act like super Senators with super vetoes - see Bush v. Gore and Citizens United - it would provoke a backlash. It would turn the U.S. into a banana republic instantly (rather than the slow erosion of Citizens United.) Likewise, Roman concludes that the Sanguinistas have not learned the historical lesson that it would be suicidal for the vastly outnumbered vampire population to start a war with humanity.
Why Is Ben Bernanke The Only Man in Washington Who Care About Jobs? by Timothy Noah

central banker vigilantes

The right policy, we thought--and I think the evidence is pretty clear that we were 100% right--was to aggressively move to reduce the budget deficit in 1993 even thought the recovery was weak in order to eliminate any market expectations that high deficits would lead to higher inflation, and--more importantly--to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far [sic?] to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral. 
That was not an attack but a horizon-sighting of bond-market vigilantes--or perhaps only the market thinking the Federal Reserve thought it was about to get a horizon-sighting of bond market vigilantes.
This is the famous episode where Clinton throws a tantrum over being pressured by Rubin and Greenspan to drop his campaign promise of enacting a middle class tax cut-spending bill  and where Carville says he now wishes to come back as the bond market. Here is where the social democratic, Eisenhower-Republican elite political class bend the knee to the giant vampire squid financial sector. Clinton should have pulled a Shinzo Abe and replaced Greenspan.

DeLong  writes "I think the evidence is pretty clear that we were 100% right." What's the evidence? A recent meme and topic of discussion has been the declining labor share of productivity gains. Ever since the 1980s we've a had a shampoo economy: bubble, bust, rinse, repeat. The 1990s look better in light of the 2000s, but they ended with a stock-tech bubble which morphed into a disastrous housing bubble. 

Every recovery from a recent recession have been a slow "jobless recovery."

...and--more importantly--to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far [sic?] to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral. 
George W. Bush increased deficits and failed to renew an inflationary spiral.

Friday, December 21, 2012

From this past year Part One

"They will bend the knee or be destroyed."

Excerpt from "Winds of Winter" (Jan. 2, 2012)
...Theon's laugh was half a titter, half a whimper.  "Lord Ramsay is the one Your Grace should fear." 
Stannis bristled at that.  "I defeated your uncle Victarion and his Iron Fleet off Fair Isle, the first time your father crowned himself.  I held Storm's End against the power of the Reach for a year, and took Dragonstone from the Targaryens.  I smashed Mance Rayder at the Wall, though he had twenty times my numbers.  Tell me, turncloak, what battles has the Bastard of Bolton ever won that I should fear him?"
Inflation target tyranny by John Quiggen (Jan. 27, 2012)
Last but not least, a nominal GDP target would create room for fiscal policy as well as monetary policy. What is needed now is the abandonment of counterproductive austerity policies as a response to the slump in Europe and the US. Austerity should be replaced by a combination of short-term fiscal stimulus and long-run measures aimed at a sustainable budget balance. That can only be achieved if central banks co-operate with pro-growth fiscal policy, instead of seeking to counteract it in the name of inflation targets.
Christina Romer on Learning from the Great Depression (Feb. 18, 2012)
 I think that what the Fed needs instead is a regime shift. A number of economists have suggested that the Fed adopt a new framework for monetary policy, like targeting a path for nominal GDP. If the Fed adopted such a nominal GDP target, they would start in some normal year before the crisis and say nominal GDP should have grown at a steady rate since then. Compared with that baseline, nominal GDP is dramatically lower today. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive policy – perhaps more quantitative easing and deliberate actions to talk down the dollar. Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses.
Game of Thrones: Season 2 teaser (Feb. 27, 2012)

Valar Morghulis (March 3, 2012)

Kenyan Socialism has two mottos. Eppur Si Muove and Valar Morghulis (Old Valyrian for: "all men must die").
"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."

"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"

Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."

"Your father," said Prince Oberyn, "may not live forever."

Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."

"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."
        George R.R. Martin -- A Storm of Swords


Charles Evans and friends on the Odyssean strategy
Circumstances will tempt the FOMC to renege on these promises precisely because the policy rule describes its preferred behavior. Hence this kind of forward guidance resembles Odysseus commanding his sailors to tie him to the ship's mast so that he can enjoy the Sirens' music.
And a little meta-humor in the first footnote! Very David Foster Wallacian. (below)
1 Since one of the authors regularly attends meetings of the FOMC, perhaps it is tempting to just ask him this question directly. The vantage point of this paper is a research inquiry: how can these questions be answered from the standpoint of economic researchers with only publicly-available information?

A Broken Heart Is Blind

Shrink this e-dollar by Ryan Avent

Quoting Miles Kimball:
There are only two important things that economists talk about that are worse at zero inflation than at 2% inflation. One that has attracted some interest is that a little inflation makes it easier to cut the real buying power of workers who are performing badly. But by far the biggest reason major central banks set their long-run inflation targets at 2% is so that they have room to push interest rates at least 2% below the level of inflation. With electronic dollars or euros or yen as the units of account, there is no limit to how low short-term interest rates can go regardless of how low inflation is. So inflation at zero would be no barrier at all to effective monetary policy. It might be that we would still choose inflation a bit above zero to help make it easier to cut the real (inflation-adjusted) wage of poor performers at work, but I doubt it.
Emphasis added. And also:  DNWR (downward nominal wage rigidity).

In Japan, a Test of Inflation Targets by Floyd Norris
“Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation.”
-- Ben Bernanke 2002 
It is, however, very doable, as Switzerland has shown. When the euro zone debt crisis was at its worst, Switzerland became a safe haven for European investors worried that the euro might blow up. That drove up the value of the Swiss franc versus the euro and damaged 
Switzerland’s ability to compete. The Swiss government responded by announcing that the euro would not be allowed to fall below 1.2 Swiss francs. If necessary, the government would simply sell francs to meet any demand. 
That has been necessary, and the Swiss have accumulated a huge portfolio of foreign currency. So, too, could the Japanese if they chose to announce that the dollar would henceforth be worth at least 100 yen, a level not seen since 2009. 
Doing so would instantly restore at least some competitiveness to Japanese industry, which has experienced something that would have seemed impossible only a few years ago: Japan has a trade deficit.

Bank of Japan Will Talk About Inflation Target

Marijuana, Not Yet Legal for Californians, Might as Well Be

Thrill-Seeking Beats Take the Scenic Route by Stephen Holden
The sex and drugs Kerouac described with a sense of thrilled discovery in the novel come across in the movie as the same old sex and drugs that lost their mystery in the mass hippie freakout of the 1960s. I would much rather imagine it than see all the banal mechanics. The movie doesn’t bother to evoke the conflict between the lives of these bohemian wild men and the square America of the 1940s and ’50s.
Has Kristen Stewart, Amy Adams and Kirsten Dunst. The square America of the 1940s and 50s also had the PTS war veterans and alcoholics like Joaquin Phoenix's character in "The Master." No doubt it was a much more authoritarian place, where father was always right and mom's place was in the kitchen. Jews and Blacks weren't allowed at the golf club. Gays were seen as deviant. A milieu where Robert Bork would have felt more comfortable.

Wednesday, December 19, 2012

Maybe Robert Waldmann Should Calm Down by David Glaesner

New label: "The Bet" regarding the Kelton-Woodford-DeLong wager.

The Real World Is Nominal by Yglesias

Debt Ceiling Strategies by Jared Bernstein

Bernanke - the Rebel with a Cause by Sebastian Mallaby
This revolution recalls the 1990s, when the earlier fixation on the money supply was replaced (tacitly in the US, explicitly in other advanced economies) by a target for inflation. Then and now, the focus on a proxy for inflationary pressure – the quantity of money circulating in the economy, or the quantity of bonds on the central bank's balance sheet – gives way to a focus on the outcome that policy makers actually care about, which is non-inflationary growth. 
This switch is commonsensical. Why target a proxy when you can target the real thing? But its true genius is that it builds an automatic stabiliser into the economy. If the Fed specifies how many bonds it will buy monthly, a sudden slowdown will not change what people expect from monetary policy; investors and consumers will react to slower growth by cutting spending, creating a snowball effect. But if the Fed pledges to do whatever it takes to keep the economy advancing, a slowdown will cause people to expect offsetting Fed action. Interest rates will fall in anticipation of easing. With luck, the snowball melts. 
But that is just half of Mr Bernanke's recent shift. In moving the focus from the size of the Fed's balance sheet to its objectives for the economy, he has explained that these objectives include lower unemployment even if that means temporarily higher inflation. This is genuinely radical: for more than three decades, the Fed's leaders have avoided any such statement. Over the long term, central banks alone determine the level of inflation, whereas long-run employment is determined by the flexibility of the labour market and other structural factors. Central bankers have seen no advantage in claiming responsibility for something they could affect only partially, especially since they needed to build credibility as foes of inflation. 
In his academic career, Mr Bernanke contributed to the consensus in favour of targeting inflation. He always said that the target should be pursued flexibly, meaning that temporary deviations might be acceptable. Yet now he has seized that footnote and made it the headline. In declaring himself open to a temporary price spike, he is betting that long-term inflation expectations are well anchored, so that wage claims remain moderate and no inflationary spiral sets in. Janet Yellen, the Fed's vice-chair, has explored how much looser Fed policy should be under these assumptions. The answer is: a lot. 
There are risks here, clearly. The Fed is gambling on expectations about prices, which may prove fickle. It is hoping that massively stimulatory policies in the short run will not be mistaken for a loss of inflation-fighting resolve over the long run. But the Fed confronts an economy in which 5m Americans have been jobless for six months or more. The risks of inaction outweigh the risks of action. Mr Bernanke has rebelled against a monetary consensus to which he himself contributed. But he is a rebel with a cause.

Tuesday, December 18, 2012

Fundamentals and Mechanics

Please Internet-Mine Shaft remember this one:


Were there bets on the Stimulus/ARRA? Don't make the mistake Romer-Bernstein made. What does Mark Zandi say?

Sunday, December 16, 2012

Robin Harding in the "Financial Times" "Central Bankers give voice to a Revolution."

Search for the title with Google and you can bypass the paywall.

(via DeLong)
The chairman of the US Federal Reserve had reason for cheer and for a little pride: his committee had just said it would keep interest rates close to zero until the US unemployment rate falls below 6.5 per cent (it is 7.7 per cent today). For a central bank, let alone the Fed, to tie rates to the economy in this way was without precedent. 
The move speaks of a quiet revolution that is sweeping over central banks. A day earlier, Mark Carney, currently governor of the Bank of Canada, soon-to-be governor of the Bank of England, became the most senior central banker to praise an even more radical policy: targeting the level of nominal gross domestic product. Instead of having apoplexy, Britain’s chancellor said he wanted a debate. 
Like most revolutions, it seems to come from nowhere but has deep roots. Like most revolutions, it holds the promise of great good but has the potential for harm. It is crucial that politicians and the public understand what this revolution in central bank thinking is and is not about. 
“A revolution is impossible without a revolutionary situation,” said Vladimir Lenin, something of an authority in these matters. (A view from Lenin on recent monetary innovations would be interesting. “The best way to destroy the capitalist system is to debauch the currency” is another of his dainty little remarks.) 
The past five years have led central banks to a revolutionary situation. When the crisis hit, they played their best moves, but to modest effect. Quantitative easing – the ugly term for buying long-term assets in order to drive down long-term interest rates – looks radical thanks to the many-zeroed numbers involved. In reality it is just another way to cut interest rates. 
Monetary policy, and every other kind of policy, failed to engineer a strong recovery in advanced economies. Dissatisfaction with that outcome has led central bankers, spurred on by a healthy dose of external criticism, towards ideas that have been percolating in academia since Japan’s bubble burst in 1990. 
Japan’s long slump drew attention to the vexing problem of what to do if you cut interest rates to zero and the economy remains in the doldrums. Mr Bernanke was vocal in that debate, along with economists such as Paul Krugman, Lars Svensson and Michael Woodford. 
One option is quantitative easing. But there is another option: tell people that you will keep interest rates low in the future. If they believe you then it makes sense for them to borrow now. If rates are to stay low even after the economy recovers then why would they not? 
Central banks are now pursuing that basic insight. The Fed’s new 6.5 per cent unemployment condition is a way to tell everybody that rates will stay low until the economy gets better. The nominal GDP target is a more drastic version of the same thing. In essence it combines growth and inflation into one number. Targeting this not only puts more weight on growth, it means promising to make up for low inflation now with more in the future – another way of saying the central bank will keep interest rates low.