shutdown, no default?

The House GOP’s shutdown plan is great news by Ezra Klein

Spielberg's Lincoln is on cable tonight.

The Debt-Ceiling Showdown Is the Fight of Obama’s Life by Jonathan Chait

The progression of events begins with a dynamic I described in a print piece at the beginning of 2012 – conservatives had come to regard the 2012 race as their last chance to win an election as authentic conservatives against a rising Democratic majority. Since their crushing defeat, they have ignored the task of refurbishing the party’s national appeal for its next national electoral bid, and instead have recommitted themselves to waging increasingly millenarian confrontations from their existing red state power base in Congress.
...
If outsiders have failed to grasp the motivations of the House Republicans, puzzling at their odd redoubling of ideological fervor since November, they have likewise mistaken Obama. Everything I have seen from Obama suggests he understands that he cannot repeat his blunder of 2011, when he mistook the GOP’s debt-ceiling threat for an invitation to engage in normal fiscal bargaining.
...
Yet Obama simply has no alternative but to accept that risk. The stakes are higher than resisting the specific demands Republicans are making, and higher even than the economic havoc of a debt breach. Obama is fighting to save his presidency.

Ted Cruz Now Ruining John Boehner’s Life, Too by Jonathan Chait

(world's smallest violin)

The Republican Party right now most closely resembles a Weatherman gathering from about 1969, with various factions debating the feasibility of immediate communist revolution versus building a working-class movement as a prelude to smashing the state. As such, distinguishing the various gradients of ideological fanaticism has become an increasingly abstruse task.

The agenda has largely been driven by the “Defund Obamacare” faction, led by Ted Cruz, which proposes to shut down the federal government until such time as President Obama agrees to abolish his health-care plan, which would of course be never. That faction has failed in the Senate, which voted today to keep the government open without demanding the defunding of Obamacare. (Twenty-three Republican senators joined all of the Democrats.)

Breaking Bad

Front page NYTimes story on how Netflix and word of mouth helped Breaking Bad.

Race to End for ‘Breaking Bad’ Fans Who Got Behind

Whatever happens, there will be no real justice by Yglesias

With Breaking Bad, on the other hand, I’m endlessly curious about what we haven’t seen and don’t yet know. There’s just no way the final episode can pack in everything I would conceivably want to see—a full backstory on Gray Matter, the internal politics of the Nazi gang, more insight into Lydia and Todd, Saul in Nebraska, Skyler under an entirely new sort of pressure.
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And the one thing we’d really all like to see—justice—is something that’s probably impossible at this point.

At least we'll get a prequel with Saul.

In one of Aaron Paul's favorite episodes, "Problem Dog," Jesse talks about there being no justice in the universe at an AA meeting. Not that long ago, he had shot the meth cook Gale in order to save Mr. White and himself. He didn't have to shoot him. He could have ran.

Fed communication

Investors and Fed Talk Past Each Other by James B. Stewart

At least some market professionals read the Fed’s signals right. Michael Hanson and Brian Smedley, analysts at Bank of America Merrill Lynch, presciently warned before the Fed’s meeting that “the markets believe a September taper is a done deal,” but “we anticipate the Fed will attempt to recalibrate market expectations at this meeting. In our view, the best way to do that is by not tapering in September.”

Bill Gross, Pimco’s founder and widely followed bond and interest rate expert, also warned that market expectations had gotten ahead of reality, suggesting the Fed was more likely to “tinker” than “taper.”

Justin Wolfers, a professor of economics at the University of Michigan who is currently at the Brookings Institution in Washington, told me this week that investors shouldn’t have been so surprised. “Bernanke never promised to taper in September,” Professor Wolfers said. “He always said the decision was data-dependent.” It turned out that “the data were worse than when he first started talking about tapering.” And with a fiscal showdown looming in Congress, tightening monetary policy now would have been reckless, he said.

Blinder and Woodford are quoted.

Some bond traders were upset that the Fed didn't taper as they said they might. The analysts above who guessed right recognized that Bernanke said their decision was data-dependent and the data wasn't good. Plus there's the debt ceiling clown show.

debt ceiling clown show

More on Dysfunctionology: Minority Rules by Jared Bernstein

Ryan Lizza of The New Yorker has raised interesting points about this in an article that maps the districts of Republican representatives who signed a letter urging Speaker Boehner to use the threat of a government shutdown to defund Obamacare.  

Representative Mark Meadows, who drafted the letter, represents North Carolina’s 11th District — one that Mr. Lizza notes was gerrymandered after the 2010 census to become the most Republican district in the state.

There are 80 of these members, and Mr. Lizza points out that “[t]he ability of eighty members of the House of Representatives to push the Republican Party into a strategic course that is condemned by the party’s top strategists is a historical oddity.”  

“These eighty members represent just eighteen per cent of the House and just a third of the two hundred and thirty-three House Republicans. They were elected with fourteen and a half million of the hundred and eighteen million votes cast in House elections last November, or twelve per cent of the total. In all, they represent fifty-eight million constituents. That may sound like a lot, but it’s just eighteen per cent of the population…

“Obama defeated Romney by four points nationally. But in [these] districts, Obama lost to Romney by an average of twenty-three points. The Republican members themselves did even better. In these eighty districts, the average margin of victory for the Republican candidate was thirty-four points.

“…these eighty members represent an America where the population is getting whiter, where there are few major cities, where Obama lost the last election in a landslide, and where the Republican Party is becoming more dominant and more popular. Meanwhile, in national politics, each of these trends is actually reversed.”

Game of Thrones

Actor cast for Hizdahr zo Loraq.

Like wood for the fire that somebody will probably die in, Game Of Thrones has added yet another new cast member to its upcoming fourth season: Joel Fry, the British actor perhaps best known from the film 10,000 B.C., set in that tranquil prehistoric age when humans were still safe from vicious predators like George R.R. Martin. Fry will star as Hizdahr zo Loraq, a name that no doubt doubles as the sound of the death rattle he’ll eventually make—though, as TV Line and some guy in the comments who’s read the books and will now tell you all about it are pointing out, it won’t be for a while. Hizdahr, the scion of the Meereeneese family, becomes a part of Daenerys’ life for a while, until all the life inevitably drains out of everyone, forming a sea of red, only red. So much red.

With that in mind, Kit Harington—who portrays Jon “Not Dead Yet” Snow—redundantly promised Access Hollywood (via /Film) that we will see “more deaths this season than any other!” in such a way that presumes we’re not familiar with Game Of Thrones or something. “I can’t tell you who dies. You’d think they’d tone the deaths down, but they don’t. They’ve realized that’s a successful option, so they’re just killing more people than we’ve ever killed,” Harington said gleefully, shortly before dying.

Masters of Sex

Lizzy Caplan is awesome.

AV Club review: A-

From episode three on, however, he begins to give one of the most fascinating performances on TV, a man who shattered into pieces long ago but keeps acting as if he’s perfectly assembled. He seems rather like a robot replicating human behavior in places, and that makes the moments of genuine emotion that seep through more devastating. Sheen has long been a great actor Hollywood had no idea what to do with, but this project utilizes every bit of his talent. The chemistry—of all sorts—between Sheen and Caplan is so electric, the series likely could have coasted off of it.

The Joy of Watching Sex by Willa Paskin

The show is set in 1956, before the sexual revolution, but Masters of Sex is never condescending about the past. This is another contrast with Mad Men: Think of the infamous scene in which Don and Betty have a bucolic picnic and then leave all their trash behind, inviting us too pooh-pooh customs before environmentalism. Masters of Sex doesn’t pooh-pooh, it sympathizes, even with the most sexually clueless.

The falling deficit has been a disaster for the GOP by Ezra Klein

Debt and demand by Ryan Avent

I don't get this. I don't understand why we would assume that pre-crisis demand was supported by or in any way dependent on higher levels of indebtedness.

I have a sense for what the story is (or one story is). Imagine (if you can) that America has experienced steady growth in income inequality, which has effectively concentrated an ever larger share of income in the hands of households with a lower marginal propensity to consume. Other things equal, such a shift in the income distribution will reduce demand and require a lower real interest rate to match desired saving with desired investment. The Federal Reserve, conscious of the need to keep demand near potential, dutifully pushed down its policy interest rate in an effort to reduce real interest rates (and was successful). This encouraged non-rich households to take on ever more debt, the better to generate higher levels of investment, mostly in the form of single-family homes. It simultaneously encouraged yield-conscious rich households to seek ways to channel their savings, via new financial products, into higher yielding debt instruments. Desired saving and desired investment balanced through the magic of Wall Street wizardry and everyone made out like bandits until the world nearly ended. Now, the Fed is trying to balance desired saving and desired investment once again, but it is finding it difficult to do. In part this is because deleveraging continues, but it may also be because new financial rules are blocking the flow of credit from rich households to non-rich, which is necessary to restore adequate demand.  

Does this story make sense? I'm not so sure. Part of the difficulty is in knowing what is driving what. But let's consider one thing. The trend in private-sector indebtedness moves very closely with the trend in America's current-account balance.

Weimar myth

Unveiled! Lenin's Brilliant Plot to Destroy Capitalism. by Matt O'Brien

Taper talk

The Taper and Its Shadow: Central Bankers Need to Explain the Risks of Further Quantitative Easing by DeLong

They are not saying that they will break their promises not to prematurely raise interest rates. But they are saying that their tolerance for continuing to enlarge their balance sheets by purchasing long-term bonds for cash is very limited[.] Indeed--the so-called "taper". The problem is that financial markets simply do not believe the central bankers when they say that a present desire to "taper" is completely unconnected with any future desire to raise short-term interest rates. Financial markets thing, not unreasonably, [t]he same central bankers grasp for excuses to cut off quantitative easing now will also grasp for excuses in the future to say that things have changed and that forward guidance promises should not be kept. And financial markets will think this unless and until central bankers come up with reasons for believing that further extensions of quantitative easing do in fact run substantial risks.

So let us try to help central bankers explain why the [t]aper now is unconnected with future forward-guidance promise breaking. Let us listen for the reasons that further enlargement of North Atlantic central bank balance sheets carries substantial risks:

[Silence...]

The Key To Power At The Federal Reserve? Running The Meetings by Joe Gagnon (sort of)

(via DeLong)

Breaking Bad: Kafkaesque

AMC is running all 61 episodes up until the finale. Episode 29 is titled "Kafkaesque."

Jesse Pinkman uses the word in a meeting with Badger and Skinny Pete.

Last night on his show, Stephen Colbert brought up his Americone Dream flavored Ben & Jerry's ice cream which was mentioned on Breaking Bad. Vince Gillgan will be on the show Monday night.

The next episode, 30, is titled "The Fly." Walter White speculates that if he had died before going to Jesse's house the night Jane died, it would have been perfect, but things went bad after that after his bad decision to let Jane die and then he coincidently runs into her father (Q) at a bar. Before bringing the money to Jesse - he was withholding it until Jesse got clean, but Jane blackmailed him into bringing it - he was at home listening to Skyler sing a lullabye to Holly via the baby moniter. And he was watching a Nature program on TV. Skyler hadn't found out about his cooking yet.

From start to finish, Breaking Bad has echoed the uncannily similar—and equally good—cop show The Shield. by Mark Peters

I enjoyed The Shield which put F/X on the map. It was no-holds-barred and pretty crazy as a pressure cooker where the protagonists turned on one another. Breaking Bad seems more intellectual and more darkly comic like a Coen brothers film. It's very, very slightly cartoonish with charactes that can be funny like Walt, Jesse, Hank and the assorted hoodlums and it's very realistic in the dark themes it explores. The Shield was kind of cynical as a cop can get cynical dealing with criminals day in and day out. The cops view civil liberties and following the rules as overrated. It had a lot of "enemy of my enemy is my friend" where the protagonists used bad guys against one another. Realpolitik. Small misdomeaners were overlooked.

Emily Rios who played Andrea is on The Bridge. Michelle MacLaren who directed and produced also directed episodes for Game Of Thrones.

Germany: work sharing and weak currency

Angela Merkle's approval ratings are around 80 percent while Obama's are dropping. Merkel's party won a rare clear majority in the German parliament. Germany's unemployment is around 5 percent while the U.S.'s is at 7.3 percent and the civilian-employment ratio hasn't recovered from the crisis. The surplus countries need to help out the deficit countries with closing their output gaps and achieving full employment. Granted the U.S. would be at Germany's unemployment level with a fiscal policy that was at the same level as the early 2000s recovery.

Germany As Currency Manipulator by Krugman

A correspondent — whose email and name I have lost! — makes a good point. In talking about trade and secular stagnation, I described Germany, with its huge surpluses, as not a currency manipulator. As the correspondent said, however, the euro can be seen as a de facto foreign exchange intervention to keep the de facto Deutsche mark weak. Before 2008, the euro encouraged private capital outflows from Germany to the periphery. Since then, both official rescue packages and also lending among national central banks in the euro area can be seen as taking the place of these private flows. The interbank portion is shown in this chart from Pimco:  

The general point is that if we imagine a euro breakup, I think everyone would agree that the new mark would soar in value, making German manufacturing much less competitive. The German public imagines that it is being cruelly exploited for the benefit of lazy southerners; arguably, what’s really happening is more like China’s purchases of dollars, which are intended not to subsidize America but to boost industry.

Kocherlakota

Fed official: It is time for resolve in fighting unemployment by Neil Irwin

The U.S. economy has the opposite problem now: too-high unemployment and too-low inflation. But Kocherlakota is arguing that, again, resolve by the central bank is the solution. Here is his key argument:

I’ve spent a lot of time talking about 1979, because I see three key parallels between the economic situation in 1979 and the economic situation in 2013. First, just like in 1979, the Federal Open Market Committee faces a challenging macroeconomic problem—although this time, the problem is stubbornly low employment as opposed to stubbornly high inflation. Second, there is a widespread perception that monetary policymakers lack either the tools or the will to solve this problem. 

And third, the perception of monetary policy ineffectiveness is itself a key factor in generating the problem. Let me elaborate on this last point. If the public thinks that monetary policy is ineffective, then it will expect relatively weak macroeconomic conditions in the future. But these expectations about the future have a direct impact on current macroeconomic outcomes. If households expect their incomes to be low in the future, they will save more and spend less today. If businesses expect low future demand for their products, they will invest less today and hire fewer people today. In this way, any perceptions of future FOMC ineffectiveness in generating favorable macroeconomic outcomes are hurting current employment.

Rooseveltian resolve! Reiterating Christina Romer. Bullard and Kocherlakota have really impressed me with how they altered their views as new evidence came in. They dispaly some realy integrity.

Narayana Kocherlakota's Brilliant Speech by Matthew Yglesias

Yglesias on debt ceiling clown show

House GOP Just Showed Why Obama Can't Compromise on the Debt Ceiling by Matthew Yglesias

The absolute worst mistake Obama has made as president came back in 2011 when Republicans first pulled this stunt. At that time, Obama desperately wanted a bargain over long-term fiscal policy. So he tried a bit of too-clever-by-half political jujitsu in which GOP debt ceiling hostage taking became a pretext to start negotiations over long-term budgeting. All manner of evils have fallen forth from that fateful decisions, including an economic weak patch in 2011 the ongoing mess of sequestration, and worst of all the setting of a precedent for future crises. The good news is that the White House recognizes they made a mistake, and the last time Republicans tried to pull this they didn't give in. And they can't give in now. Not even a little bit. A terrible monster was let out of the box in 2011 and the best thing Obama can possibly do for the country at this point is to stuff it back in and hopefully kill it.

The Bridge

AV Club reviews "All About Eva" from The Bridge

Secular Stagnation

Trade and Secular Stagnation by Krugman

Krugman on Bubbles and Secular Stagnation by Dean Baker

Bubbles, Regulation, and Secular Stagnation by Krugman

But it is, I think worthwhile – or at any rate soothing – to think about the longer-term future for monetary and fiscal policy. I recently talked about some of these issues with Adair Turner, and I thought I might write up my version of the story so far (just to be clear, Adair bears no responsibility for any errors or confusion in what follows). In brief, there is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent – that we may face something like the “secular stagnation” many economists feared after World War II.

Yes. Paul Samuelson and most economists expect the economy to tank after WWII. Instead we had the Golden Age of upper mobility American social democracy and the creation of the middle class and a consumer society.

Part of it was inflation as Krugman knows.

This meant that monetary policy could no longer do the job of stabilizing the economy: Central banks found themselves up against the zero lower bound. Fiscal policy could and should have helped, and automatic stabilizers did help mitigate the slump. But fiscal discourse went completely off the rails, and overall we had unprecedented austerity when we should have had stimulus.

They could target a higher rate of inflation and signal an NGDP level target and do more QE. The problem is political in that the creditors would push back. Of course it would be better if there was fiscal stimulus with aid to the states, etc. and work sharing etc. Deficit problems? Tax the excess leverage in the financial sector.

Our current episode of deleveraging will eventually end, which will shift the IS curve back to the right. But if we have effective financial regulation, as we should, it won’t shift all the way back to where it was before the crisis. Or to put it in plainer English, during the good old days demand was supported by an ever-growing burden of private debt, which we neither can nor should expect to resume; as a result, demand is going to be lower even once the crisis fades.

And here’s the worrisome thing: what if it turns out that we need ever-growing debt to stay out of a liquidity trap? What if the economy looks like Figure 4 even after deleveraging is over? Then what?

This is not a new fear: worries about secular stagnation, about a persistent shortfall of demand even at low interest rates, were very widespread just after World War II. At the time, those fears proved unfounded. But they weren’t irrational, and second time could be the charm.

Depends on fiscal and currency policy which could be changed. Even monetary policy could be changed.

Recovery Winter

How Bad Data Warped Everything We Thought We Knew About the Job Recovery by Matt O'Brien

Looking at you Yglesias.

New Girl

AV Club reviews "Nerd" from New Girl

Eva Amurri on New Girl is awesome.

individualism/collectivism

Ersatz individualism makes the American collective strong by Steve Randy Waldman

Dinklage

In Which Sesame Street Posits Peter Dinklage as Our New God by Stubby the Rocket

(via DeLong)

wage growth

A Brad DeLong Smackdown of Sorts by Lawrence Mishel

data and Fed communication

Does the Fed have a communication problem, or do markets have a listening problem? by Neil Irwin

Hop in your time machine and set the dial for, say, this past April. Once there, call up any of the smarter people who make their living analyzing what the Federal Reserve is doing, and ask them two questions: How much bond-buying will the Fed be doing in the fall, and who will be the next chairman of the Fed? 

Their answer back in April would have been "$85 billion a month" and "Janet Yellen." Those answers now look correct. But the voyage from there to here has been a doozy.

the Green Lantern Left / Firebaggers

Atrios links to Naked Capitalism

Yves, at Naked Capitalism isn't too impressed with all the posturing about raising the credit limit. 

Budget Brinkmanship is Baaaaaack by Yves Smith

So hang tight for way too much unnecessary melodrama over the next month. It’s another round of watching the two parties play chicken, with each posturing that it won’t be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he’s been trying to do for years: sacrifice old people since he perversely believes that “reforming” Social Security and Medicare will get him brownie points in the presidential legacy ledger. This staged impasse is hard to take it as seriously until there’s evidence that this iteration of budget farce really is different from its predecessors.

Smith links to Joe Firestone at New Economic Perspectives

So, Sam Stein thinks the zombie “chained CPI” lives again, and Ezra agrees, but also thinks that the Republicans will not agree to that unless they get the deals they want. So, once again, the right wing, through their intransigence, may save us from President Obama’s continuing insistence that seniors must suffer now, and future seniors must suffer as well, for the sake of an illusory long-term debt/insolvency problem that doesn’t really exist, and that he can dispel at any moment by minting a $60 T coin.

Meanwhile, the four Versailles “progressives” on this panel laugh at the stupidity of the Republicans who are marching to the doom of their party, while refusing to call attention to the fact that this “funding” crisis, and the previous ones since 2010 were and are all kabuki, since the President could and still can dispel the illusion of possible insolvency any time he chooses to use the power Congress has given him to mint that coin. The big $60 T one; not just the timid TDC.

All sounds too facile* to me. Obama can propose entitlement "reforms" and make compromise noises without having to compromise or makes those reforms. He hasn't cut entitlements in previous budget deals. As DeLong blogged, the deficit won't be a problem for at least the next three Presidential terms.**

The sequester is bad enough.

The Big Budget Battle the GOP Has Already Won by David Dayen

-------------------------------------
*Appearing neat and comprehensive by ignoring the complexities of an issue; superficial.

**or until the Republicans blow it up again and/or the next bubble pops.

Samantha Power

A New U.S. Player, Put On The Stage by Syria

The Unsung Hero Who Coined the Term "Genocide" by Michael Ignatieff

Tyler Cowen is baffled and claims nobody understands when in fact his political opponents do understand

Monetary policy is a really big deal by Scott Sumner

Tyler Cowen is surprised by the size of the various emerging market reactions to the non-taper:

Pay special heed to quantitative magnitudes. For how long are we delaying the taper? One or two months? How much is the taper anyway, relative to the stock of relevant financial assets? Taking $10 to $15 billion off of $85 billion a month in purchases, when the asset stocks are in the trillions? Woo hoo.
. . .
I’ll say it again: none of you understand what is going on here, and neither do I. I am not seeing enough admission of this basic fact.

I certainly admit to not understanding the specific market reactions that he points to, but don’t really agree with the larger point he is making.

Monetary policy drives NGDP; nothing else really matters. But people care about real variables, not nominal variables. So how important is NGDP anyway? It turns out that in the short and medium term it’s really, really important, even in real terms. In the long run not so much.
...
The markets went into Wednesday thinking the Fed was determined to taper for Larry Summers-type reasons. Fear of a big balance sheet. At the end of the day the markets realized that the Fed was serious about letting the data drive policy. That’s not just a different policy; it’s a completely different policy regime. And it will have important implications for when and under what conditions the Fed will start raising rates.


So yes, most of us can’t explain why the rupee did this or that on a given day. But who ever claimed they could? On the other hand the US stock market reaction makes perfect sense.

Krugman: "state of the practical art"

Modern Applied Macro by Krugman

Makes me think back to this post from last week. Is monetary policy assumed to be sub-optimal in Romer's model as deflation is expected. (But as Krugman says DNWR is keeping the price level up.)

Breaking Bad - Emmys night

AV Club reviews "Granite State" from Breaking Bad

Breaking Bad wins best drama and Anna Gunn wins best supporting actress. Stephen Colbert wins variety show and writing.

On last night's Breaking Bad, Todd brought Jesse some Ben & Jerry's [Stephen Colbert's] Americone Dream flavor ice cream.

The Last Dragon Emilia Clarke presented with Breaking Bad/Under the Dome's Dean Norris.

coincidence and the Times

Two memes in today's New York Times echo recent blogposts.

One blog post was on how DeLong compared the London Whale and the hedge funds who bet against him with the hedge funds who get angry about losing bets to the greatest hedge fund in history, the Fed, which can literally print money. I noted Warren Buffet gave a speech at Georgetown where he called the Fed the greatest hedge fund in history. Maureen Dowd noted Buffet's observation in her column today on Buffet's speech:

He calls the Fed “the greatest hedge fund in history,” and observed of the moment America nearly went off the cliff: “I give enormous credit to Ben Bernanke and Hank Paulson and Tim Geithner and frankly, even though I didn’t vote for him, President Bush.”  

W.’s “great insight,” one worthy of Adam Smith, he said, was expressed in 10 words in September 2008: “He went out there from the White House and he said, ‘If money doesn’t loosen up this sucker could go down.’ ”

The other blogpost dwelled on the lack of a viable socialist movement.

In the Times, two authors wrote about novelists and radical movements.

Confronted with the facts of mass politics and ideological fervor, John Updike and Martin Amis psychologized them away as symptoms of sexual frustration. Presumably free of male anxieties, fiction by women — Deborah Eisenberg, Jennifer Egan, Susan Choi, Barbara Kingsolver, Ann Patchett, Dana Spiotta — has seemed much more sensitive to the variety, ambiguities and contradictions of radical thought and action. (Depicting Robespierre in “A Place of Greater Safety,” Hilary Mantel may have given us contemporary fiction’s richest portrait of a revolutionary.) Remarkably, almost all events and characters in these works are drawn from the past. But then the few people pushed to radical gestures in our own era of unparalleled conformity and political passivity are more likely to be scorned than admired.

More ominously, the future holds none of the possibilities of far-reaching transformation that galvanized a writer like Bolaño. Indeed, his example shows that Trotsky, unreasonably doctrinaire with Malraux, was right in one respect: The writer chronicling political events in fiction is most effective when participating in a historical process or movement. No such tonic immersion is available to most contemporary writers, who, as sequestered as ever, must strive alone to transcend the general impoverishment of the political imagination.