After reading the comments, let me make the point a bit more clearly. The right has found ways to use the market to kick our asses. Progressives should find ways to use the market to kick their asses. These ways are all over the place: opening up trade in health care, making it easier for foreign doctors and lawyers to practice in the country, make the financial sector pay the same sort of taxes as every other sector, ending too big to fail in the banking industry, etc. These are mechanisms that require the government to get out of the way (in the case of financial sector taxes -- not privileging one sector over others). If Occupy Wall Street was saying these things they were not very effective in getting their message out.
"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, March 09, 2013
Friday, March 08, 2013
The piece is a cornucopia of confusion, beginning with the first sentence:
"Dick Cheney and Paul Krugman have declared from opposite sides of the ideological divide that deficits don’t matter, but they simply have it wrong."
I am not in the defense of Paul Krugman business, but surely Jeffrey Sachs knows that Paul Krugman does not argue that deficits do not matter as a general proposition. What Krugman has argued very vociferously is that deficits do not matter in an economy that is operating far below its potential, as is the case with the United States today. The Congressional Budget Office (CBO) projects that economy's output will be more than 6 percent (@ $1 trillion) below potential this year. Projected 2013 output is almost 10 percent below the real level of output that CBO had projected in 2008 before it recognized the impact of the collapse of the housing bubble.
Debt in a Time of Zero by Krugman
But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no.
It’s true that printing money isn’t at all inflationary under current conditions— that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.
We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry.
Thursday, March 07, 2013
Correcting Brad DeLong on the Housing Bubble by Dean Baker
I see that Brad has a post saying that the economy was adjusting nicely to the bursting of the housing bubble until the financial crisis set in. He notes that housing construction fell by 2.5 percentage points of GDP between 2005 and 2008. This was replaced by an increase in gross exports of 2.0 pp of GDP and increase in equipment investment of 0.5 pp. Everything was moving along nicely until the financial crisis in 2008.
I see things a bit differently. First, gross exports don't create jobs, net exports do. When we move an auto assembly plant from Ohio to Mexico, we are not creating additional jobs with the car parts exported to Mexico. That's intro textbook stuff. If we look at the net export picture, the gain is only about 1 pp of GDP. Furthermore it is hard to see the improvement in the trade picture having gone very much further without a further decline in the dollar. (That was a possibility, but far from a certainty -- depends on policy decisions elsewhere.)This is what bothers me about his graph. It leaves out the loss of the wealth effect. The popping of the stock market bubble in 2000-2001 wasn't as damaging because it didn't have the same loss of demand related to the wealth effect.
The rest of the gap was made up by a surge in non-residential construction (can you say bubble?), which rose by more than 33 percent as a share of GDP, or more than 1 pp of GDP. This boom led to considerable overbuilding in retail, office space and most other categories of non-residential construction. Assuming the burst of spending in non-residential construction was another bubble, then the portion of the demand gap filled through this channel was destined to be temporary. It was inevitable that this bubble would also burst and we would need something else to make up the hole in demand.
The other factor in the mix is the drop off in consumption. Savings rates had been driven to nearly zero by the wealth created by the housing bubble. It seems to me inevitable that consumption would fall in response to the disappearance of this wealth. The financial crisis gave us a Wily E. Coyote moment where everyone stopped spending at the same time, but I would argue that this just brought the decline in spending forward in time.
The savings rate remains much higher today than at the peak of the bubble, although still low by historic standards. (It's currently around 4.0 percent, the pre-bubble average was over 8.0 percent.) We have two alternative hypotheses here. I gather Brad would say that people are spending at a lower rate because they are still freaked out by the financial crisis. I would argue that they are spending at a lower rate for the same reason that homeless people don't spend, they don't have the money.
Homeowners are down $8 trillion in housing equity as a result of the crash. I would expect that loss of wealth to have a substantial impact on their spending. I gather Brad does not.
Wednesday, March 06, 2013
This episode, though, offers plenty of examples of Raylan being more Frances-like. When he stops off at Wynn Duffy’s RV, for example, and Wynn offers his sincere condolences for Arlo’s death but insists he had nothing to do with it, Raylan pats Wynn on the leg (out of frame, but audibly), and says, “Thank you, Wynn. Whatever your other failings, I believe that’s true.” It’s a sweet moment, and typical of the way that Justified’s enemies have a “Sam and Ralph”-like ability to “clock out” when the situation isn’t requiring them to draw on each other. Similarly, when Raylan comes upon Constable Bob exchanging fire with Clover Hill assholes Paxton and Johns, he strides into the crossfire and gets everyone to lower their weapons. Then, when the Clover Hillers try to defend their treatment of Constable Bob, Raylan does what he always does, which is to ignore any crime that might be happening at the moment (“Save it. Don’t give a shit.”) so that he can get straight to what he actually wants.
Tuesday, March 05, 2013
Bernanke called attention to several different forecasts of where the 10-year yield might be a few years down the road, including the Blue Chip consensus, Survey of Professional
Forecasters, CBO, and the term-structure model that was used to construct Figure 1 above.
Source: Bernanke (2013).
I was quite surprised to see the Fed Chairman produce this graph. If it is indeed the case that the 10-year yield is going to rise from 2% to 4% relatively quickly, it would mean significant capital losses for someone who buys a 10-year bond today. If the market comes around to taking such forecasts more seriously, bond prices should fall on Monday.
However, Bernanke also emphasized that there is considerable uncertainty associated with these forecasts, on the down side as well as the up side.
Source: Bernanke (2013).
Bernanke offered the following explanation for why he wanted to call attention to forecasts of future ten-year rates:
"It is worth pausing to note that, not that long ago, central bankers would have carefully avoided this topic. However, it is now a bedrock principle of central banking that transparency about the likely path of policy, in general, and interest rates, in particular, can increase the effectiveness of policy. In the present context, I would add that transparency may mitigate risks emanating from unexpected rate movements."
Bernanke is clearly committed to keeping short-term interest rates low for quite a while yet. But a separate question is how much more the Fed wants to allow its balance sheet to grow with additional large-scale asset purchases. I think they'll want to give ample warning in advance of actually stopping the new purchases.
And perhaps before dropping more direct hints about ending LSAP, Bernanke would want to make a speech like this one.
Monday, March 04, 2013
AV Club reviews "Enlightened" season finale "Agent of Change."
A bigger-than-usual fuck-up must be the price of a huge victory, because that board-room scene is delicious, like the country club scene from “No Doubt” cranked to 11. Once again, Amy Jellicoe and Charles Szidon don’t really mess around. “I’m just a woman who’s over it. I’m tired of watching the world fall apart because of guys like you. I tried to take a little power back.” She refuses to cooperate and calmly tells him how rich he got by lying, cheating, and hurting. He resorts to the historical hysteric offense and tosses off a “cunt” or two. Amy makes us proud. She slowly looks back up and says, “Well, if caring about something other than money is dopey, I’m a fucking moron.” She gets up, walks out, and stands there almost laughing at Charles’ rage, and he’s the one who shouts obscenities through a closing elevator door this time. Enlightened is rarely so high-contrast. Amy is finally heroic, and Charles is utterly despicable. There’s that national catharsis I was looking for.
Amy watches footage of the Syrian uprising as she wonders whether she produces change or chaos (as if they’re mutually exclusive). Amy’s wake turns out to be fairly ordered, no? The ex-Cogentivans would have wound up free agents regardless, all the other main characters affirm connection at the end, and the response to Jeff’s story is characteristically corporate and lawyerly.My estimation of Laura Dern and Mike just went way up.
AV Club reviews "Clear" from "The Walking Dead."