"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, November 02, 2013


Germany's Export Obsession Is Dooming Europe to a Depression by Matthew O'Brien

Sin and Unsinn by Krugman

Did France cause the Great Depression? It sounds a bit like a joke (Billy Crystal in Moscow, 1989: “I was raised thinking you were the enemy; you were raised thinking I was the enemy. We were both wrong: it’s the French”) But it’s the actual title of a very good paper by Doug Irwin, who points out that France, with its undervalued currency, soaked up a huge proportion of the world’s gold reserves in 1930-31, and suggests that France was responsible for about half the global deflation that took place over that period.

The thing is, France itself didn’t do that badly in the early stages of the Great Depression — again thanks to that undervalued currency. In fact, it was less affected than most other advanced countries (pdf) in 1929-31:


Notice, by the way, that the French weren’t evil or malicious here — they were just adhering to their hard-money ideology in an environment where that had terrible adverse effects on other countries.

Obviously the details are different, but I would argue that Germany is playing a somewhat similar role today — not as drastic, but with less excuse. For Germany is an economic hegemon in a way France never was; it has responsibilities, which it isn’t meeting.

Germany and the paradox of thrift

Defending Germany  by Krugman
OK, I’ve just written a couple of posts talking about the harm German policy is doing. But this is dumb and destructive:
Berlin’s attention to its own domestic priorities seems likely to stir resentment that the medicine of austerity prescribed by Berlin abroad is administered with less zeal at home. Analysts say the contrast is angering voters throughout Europe, where populist and anti-European Union parties are steadily gaining strength outside Germany.
No, no, no! This is the euro equivalent of “American families are having to tighten its belts, so the government should tighten its belt too.” We want Germany to spend more, so that it provides a market for other countries and stops adding so much to the world’s excess savings. The last thing European debtors, or anyone else for that matter, should demand is that Germany put on a hair shirt.

So please, Germany, live it up.

Friday, November 01, 2013

The Revenants

AV Club review of "Camille" from The Returned

Never expected to see a NOFX poster in a French show.

German macro

More Notes On Germany  by Krugman
A few more things to say about Germany’s trade surplus and the US report saying, correctly, that it’s harmful to the world economy.

The worst thing, if you ask me, in the Spiegel report on the controversy is the statement by Germany’s Economics Ministry that Germany’s surplus is
a sign of the competitiveness of the German economy and global demand for quality products from Germany.
Economists everywhere should read this and weep. It is a basic accounting identity that

Current account = Savings – Investment

Any story about the determination of the current account balance must take this identity into account. Suppose you have wonderful products that the world loves; even so, if you have low savings and high investment, you must run deficits. How can this happen? Simple: you end up with a high value of your currency and/or high wages relative to competitors.

So while it’s impressive that Germany can run a surplus despite quite high labor costs, and that’s a testimony to the quality of its stuff, ultimately the surplus reflects high savings relative to investment.

And we are, as I said in a different context just the other day, in a world awash in savings, a world in which someone who decides to spend less and save more makes the whole world poorer. That’s not the normal situation, but it’s where we are now, and where we have been for five years.

Does the German Economics Ministry really not understand any of this? My guess is that it doesn’t — that Germany really does see itself as a role model, believes that all would be well if everyone behaved the same, and doesn’t see the notion of a world in which everyone runs big trade surpluses as being problematic in the least.

individual health care market

JS: I am not terribly different than some other writers who have been in the individual market: Noted

JS: I am not terribly different than some other writers who have been in the individual market....
We have BCBS covering a family of four.... BCBS of Illinois informed us that our policy would no longer be valid after January 1, 2014. They also informed us that they would role us automatically into a slightly more expensive (and largely comparable) plan if we did nothing. Here is where it gets a bit more interesting. The "cancellation letter" directed us to the BCBS website, where we could shop through various other options.... And, since getting the letter, we have gotten follow-up emails and telephone calls from BCBS encouraging us to compare our options at the BCBS website. It has become quite clear over the past couple of weeks that BCBS does not want us shopping on the Illinois Exchange....
We have suddenly become much more attractive and important to BCBS than we were. Getting through underwriting a few years ago was ridiculously difficult. Now we are being marketed heavily and encouraged... [to] shop exclusively at BCBS. Count me among those who think the ACA will ultimately work to the net benefit of the vast majority of people in the individual market--myself included.

economics and morality

Economics as a moral science by Ingrid Robeyns

Germany's trade surplus

Germany's Blind Spot
Germany, the biggest economy in the euro zone, has long been a major contributor to imbalances in the global economy. It exports far more than it imports and does too little to encourage the growth of domestic demand. That has made it hard for countries like Greece and France to increase their exports and revive their economies. Last year, Germany’s current account surplus was 7 percent of its gross domestic product; by contrast, China, which is often criticized for pursuing an aggressive export policy, had a surplus of just 2.3 percent.

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans?

The Harm Germany Does by Krugman
The Germans are outraged, outraged at the U.S. Treasury department, whose Semiannual Report On International Economic And Exchange Rate Policies says some negative things about how German macroeconomic policy is affecting the world economy. German officials say that the report’s conclusions are “incomprehensible” — which is just bizarre, because they’re absolutely straightforward.

Oh, and yes, the US inexcusably spied on Angela Merkel — but that has nothing to do with this, and anyone bringing it into this conversation thereby demonstrates his or her intellectual bankruptcy. Also, frank talk about German economic policies doesn’t make you anti-German or anti-European; again, anyone trying to evade the substance by bringing that kind of accusation in has in effect conceded the argument.

So, about the argument. Here’s a brief history of the euro zone, told through one number for two countries, Germany and Spain:  

The creation of the euro was followed by the emergence of huge imbalances, with vast amounts of capital flowing from the core to the periphery. Then came a “sudden stop” of private capital flows, forcing the peripheral nations to eliminate their current account deficits, albeit with the process slowed by the provision of official loans, mainly through loans among central banks. The really bad news for the periphery is that so far the adjustment has taken place mainly through depressed economies rather than regained competitiveness; so the counterpart of that “improvement” for Spain is 25 percent unemployment.

Normally you would and should expect the adjustment to be more or less symmetrical, with surplus countries reducing their surpluses as deficit countries reduced their deficits. But that hasn’t happened. Germany hasn’t adjusted at all; all of the rise in peripheral European current accounts has taken place at the expense of the rest of the world.

And that’s a very bad thing. We are still in a world ruled by inadequate demand, and very much subject to the paradox of thrift. By running inappropriate large surpluses, Germany is hurting growth and employment in the world at large. Germans may find this incomprehensible, but it’s just macroeconomics 101.

You might argue that it’s not the German government’s fault that it runs surpluses — but you’d be wrong. (I’ve fallen into this trap, but acknowledged the error.) For one thing, Germany has pursued fiscal austerity despite its creditor status, contributing to an overall tightening of policy in the eurozone. And one way to think about Germany’s role within the euro is that it is in effect engaging in huge foreign exchange intervention via Target 2, which holds down the “shadow Deutche Mark”:  

Of course, I don’t expect German officials to admit that there’s anything to what Treasury says. They’re not big on macroeconomics as we understand it; actually, they’re not big on accounting identities, since their view seems to be that everyone should be like Germany, and run huge trade surpluses.

But Treasury just stated the obvious and true.
The Axis of Fools is the Republican Party first and foremost, Germany, and China. China, however is a poor country managing the trick transition(?) from authoritarian to democracy. Germany and the Republican Party should know better.

Thursday, October 31, 2013

Wednesday, October 30, 2013

filibuster reform

WASHINGTON — Senate Democrats plan to force a vote this week to fill a vacancy on the court widely considered the country’s second highest, threatening to reopen the bitter fight over limiting the filibuster if Republicans follow through on their pledge to block the nomination.

Unless one party backs down, the battle could escalate into a reprise of the partisan strife that paralyzed the Senate for several weeks over the summer. But this time the long-term implications could be far greater, both for the Senate as an institution and for the ability of any president to shape the ideological bent of the federal bench.

At the heart of the dispute are lifetime appointments to the United States Court of Appeals for the District of Columbia Circuit, which often renders judgments on whether a president’s policies are constitutional. The future of the Supreme Court is also a factor: Judges who sit on the circuit court have been elevated to the Supreme Court four times in the past 30 years.

(There were two bright spots for Democrats on Tuesday. First, Mr. Obama’s nominee for general counsel to the National Labor Relations Board narrowly cleared a filibuster vote, 62 to 37, and was confirmed. Later, the Senate voted unanimously to confirm the president’s two nominations to the Federal Communications Commission.)

taper talk

What is the role of interest in this world? Interest, classically (and I do mean classically, as in Mr. Keynes and the), is the reward for waiting: there’s supposedly a social function to interest because it rewards people for saving rather than spending. But right now we’re awash in excess savings with nowhere to go, and the marginal social value of a dollar of savings is negative. So real interest rates should be negative too, if they’re supposed to reflect social payoffs.

This really isn’t at all exotic — but obviously it’s a point wealth-owners don’t want to hear. Hence the constant agitation for monetary tightening.

And this agitation does real harm. Think about the Fed’s taper talk: ultimately, I think it’s clear that it was an attempt to throw a bone to the tight-money crowd, in a way the Fed hoped wouldn’t do real harm. But it did do harm: long-term rates popped up, and are a significant factor in slowing our economy.

Person of Interest, surveillance and privacy

AV Club review of "Mors Praematura" from Person of Interest

The Fed Becoming Insolvent: Things to Worry About After We're Dead by Dean Baker


The corporate media misinforms. People with critical thinking skills can deduce the facts see through the BS.

Jeff Bezos' Newspaper Works With Republicans to Create Scandal Over Obamacare by Dean Baker

There’s only one way to win the war over Obamacare by Greg Sargent

Tuesday, October 29, 2013


Stock-to-flow ratios aren't per se silly or meaningless - return on capital is a ratio of stock to flow, as is labour productivity. But comparing stocks to flows is a dangerous business, because if you don't know what you're doing (as Nelson doesn't), you're always in danger of making the mistake that he has actually made in Chart 1, which is to compare a change in a stock to a flow.

This is a bit of a quibble as the key point here is the one you make - if you're borrowing £2 of "debt" for every £1 of "growth" then you're almost certainly doing very well, because the debt stays at £2 until you pay it back, but the growth gives you a new £1 every year (making the correct stock/flow division would tell you that the UK was getting a 50% return on marginal borrowing, which anyone can see is a pretty fantastic return on investment to be getting. This would still be dumb economics because it's wrongly aggregated, but at least the division would be giving you something at least potentially meaningful).

As I say more of a quibble than anything - I just worried that people might get the impression that comparing a stock with a flow was always wrong, rather than something like starting a sentence with a preposition - probably best avoided but sometimes necessary.


Valium for Obamacare Worriers  by Krugman
Suppose that healthcare.gov isn’t fixed by the end of next month. How bad is it for Obamacare? Would the program be doomed?

No, says Jonathan Cohn, because there are two layers of protection against poor signup. First, there is a system of cross-subsidies to insurance companies that was intended to prevent companies from surreptitiously gaining an advantage by only signing up healthy people (hey, our policy is available to anyone — but you have to sign up in our sixth-floor walkup office.) As it turns out, this system would end up compensating insurance companies in general if the risk pool is worse than expected. Second, the subsidies to individuals are designed to hold health costs down to 8 percent of income, which means that they will rise if costs are higher than expected.

Neither of these would be a good thing, since they would increase the budget cost, but they do mean that Obamacare’s survival probably isn’t on the line.

Actually, the biggest reason Obama and co. should be anxious to fix these things now, I’d argue, isn’t the fate of the program itself, which can survive even large early wobbles, but the midterm elections. If Obamacare is fixed, Republicans will be in the position of attacking a program that is benefiting millions of Americans; if it isn’t, they can still run against the legend, not the fact.

So a lot is riding on fixing the technological botch — but not in quite the way people imagine.
I think Chait is freaking out. Jared Bernstein responds also.

positive outlook

Abenomics and Japanese Inflation Expectations by Carola Binder
But there is a glimmer of hope. Consumers' perceptions of current economic conditions and of the economy's growth potential are both looking-- well, not bright, but brighter than before.


The Fed, Inflation, and Wages by Dean Baker

QE2, Baker on bubbles

Joe Gagnon on Quantitative Easing: Noted by DeLong
[QE2] did work. I think QE2 had two elements. One element was of moderate importance, one element was of minor importance. The moderate one is that QE2 convinced markets that the Federal Reserve would not allow deflation or a double dip recession to happen. This is good because it inspired confidence and kept inflation expectations from falling any further. That was the most important step, because it convinced financial markets that the United States wouldn’t turn into Japan, which they were worried about. The element of minor importance was that it lowered long-term bond rates a little bit. It takes a lot of purchases to move these interest rates even a little bit, and QE2 wasn’t big enough to move them dramatically. It’s not nothing, but it is small in the scheme of things.

The Fed Really Needs Someone Who Can Think Clearly on Bubbles by Dean Baker
The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn't necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.

In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.

There is no comparable story in the economy today as should be readable apparent to anyone who reads the data. The Fed's hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.

Monday, October 28, 2013

Cicero, Petrarch

Farscape is fun. Watching it on Pivot.
Farscape features a diverse ensemble of characters who are initially escaping from corrupt authorities in the form of a militaristic organisation called the Peacekeepers. The protagonists live inside a giant space-dwelling creature named Moya, which serves as their ship. In the first episode, they are joined by the main character, John Crichton (Ben Browder), a modern-day American astronaut who accidentally flew into the entrance of a wormhole near Earth during an experimental test flight. On the same day, another stranger is picked up by Moya: a stranded Peacekeeper named Aeryn Sun (Claudia Black).

Poetry and Blogging by Krugman
Standage’s argument is that the essential aspects of social media — exchange of information that runs horizontally, among people who are affiliated in some way, rather than top-down from centralized sources — have been pervasive through history, with the industrial age’s news media only a temporary episode of disruption. As he shows, Cicero didn’t get his news from Rome Today or Rupertus Murdochus — he got it through constant exchanges of letters with people he knew, letters that were often both passed on to multiple readers and copied, much like tweets being retweeted.
came from a wealthy municipal family of the Roman equestrian order, and is widely considered one of Rome's greatest orators and prose stylists. 
His influence on the Latin language was so immense that the subsequent history of prose in not only Latin but European languages up to the 19th century was said to be either a reaction against or a return to his style. 
Petrarch's rediscovery of Cicero's letters is often credited for initiating the 14th-century Renaissance in public affairs, humanism, and classical Roman culture. 
The peak of Cicero's authority and prestige came during the eighteenth-century Enlightenment, and his impact on leading Enlightenment thinkers such as John Locke, David Hume, and Montesquieu was substantial.


The Fed’s dilemma: Continue cleaning up the last crisis, or prevent a new one? by Neil Irwin

Um, continue QE. Prevent bubble via means other than tight money. Money is already too tight.
On one side are the worriers: They include outright monetary hawks like Esther George of the Kansas City Fed and Richard Fisher of the Dallas Fed. They include a contingent at the Washington-based board of governors including governors Jeremy Stein and Jay Powell and former governor Elizabeth Duke, who have voted in favor of the QE3 program but with some reluctance.

This contingent looks around and sees all kinds of ugly side effects of the Fed's easy money policies. There is "reaching for yield" in which investors take on inappropriate risks in order to try to goose their returns. There is a shortage of Treasury bonds, used as ultra-safe collateral for a wide range of transactions. There are possible bubbles in everything from Iowa farmland to Indonesian government bonds.

The other contingent has included monetary doves like Charles Evans, Eric Rosengren, and Narayana Kocherlakota of the Chicago, Boston, and Minneapolis Fed banks. It has included, recently at least, James Bullard of St. Louis, who is particularly exercised about the Fed consistently undershooting its 2 percent inflation target. And it includes Janet Yellen, the president's nominee to succeed Ben Bernanke as chair.

This contingent looks around and sees an economy that still isn't gathering any real steam, held back by tightening fiscal policy. They see too-high unemployment as the paramount problem facing the economy, at a time when inflation is too low. Their job is to try to find ways to address this.

They may concede that the financial market disruptions the skeptics point to are worth watching, but at this juncture don't see enough evidence of bubbles or other problems to justify backing away from easing. If investors are plowing into riskier investments, well, that's a big part of the point of QE (it's called the portfolio balance channel: When the Fed takes treasury bonds off the market, investors have to plow into riskier assets, driving up the stock and bond markets).


Interesting pushback by Krugman and DeLong on "Greece!," capital flight and debt crises. The European periphery were constrained by the Euro. In the late 90s Asian crisis, the crisis nations had their debt denominated in foreign currencies.

DeLong links to "Bernard" and Robert Waldmann:

Monday DeLong Smackdown Watch: When Were Expectations of Inflation Forward-Looking? Weblogging

Just to set the historical record straight: Inflation in France topped under the previous (conservative) administration that Mitterands' election threw into opposition. Inflation fell throughout Mitterands first term from 13.4% to 2.7% (see http://france-inflation.com/inflation-depuis-1901.php), even though there were devaluations of the FRF against the DEM (inside what later would become known as the ERM).

Of course any economic historian will remember that the second oil shock linked to the Iranian Revolution took place in 1979-1980 and was rather instrumental for inflationary trends on the one hand, and that the conservative government in France led by R. Barre in the late seventies had abolished price controls on most things.

What Mitterand's election in May 1981 did produce was not inflation, it was instant massive capital flight, which in turn led to a serious current account financing problem by the summer of 1981 as forex reserves collapsed, and that was the immediate reason for the devaluation and the imposition of capital controls. The capital flight of course was linked to political fears as the first socialist administration involved a number of Ministers from the communist party - four as I recall, mostly in junior positions - and a number of industries (mostly banks) were to be nationalised.

confidence gnomes

The Confidence Gnomes by Krugman

Liberals warn of the dangers of inequality, large output gaps and slow growth. Neo-liberals and conservatives warn of the non-existent dangers of government spending and social insurance in advanced economies.

The Walking Dead

AV Club reviews "Isolation" from The Walking Dead

AV Club reviews "The Yoga Play" from Homeland

Sunday, October 27, 2013

Inspecting the Mechanism: Dealing with Sudden Stops, the Euro Periphery, the Exorbitant Privilege-Possessing Floating-Rate Sovereigns of the Global North, and the Debt by DeLong

Currency Regimes, Capital Flows, and Crises (Wonkish) by Krugman

Romer, FDR and regime shift

Monetary Policy in the Post-Crisis World by Christina Romer
Roosevelt staged a regime shift—by which I mean he had a very dramatic change in policy. A month after his inauguration, he took the United States off the gold standard, which had been the basis for our monetary operations since the late 1800s. Then the Treasury, not the Fed, used the revalued gold stock and the gold that flowed in as means to increase the U.S. money supply by about 10 percent per year.  
This regime shift had a powerful effect on expectations. Figure 5 shows stock prices, which can tell us about expectations of future growth, and a measure of expected inflation. In each panel, I have drawn in a line at March 1933, just before the dramatic change in policy. Stock prices surged instantly, suggesting that expectations of future growth improved dramatically. And price expectations also switched radically. These estimates were derived by James Hamilton, an economist at the University of California, San Diego, who backed out estimates of inflation expectations from commodity futures prices in the early 1930s. Hamilton finds that people went from expecting deflation of close to 10 percent a year early in 1933 to expecting inflation of 3 percent just a few months later.

inflation and expectations; Shiller

PPP and Japanese Inflation Expectations (Extremely Wonkish) by Krugman
I have my doubts about the apparent decline in recent months. It’s being driven not by events in Japan but by the taper scare, which drove up US rates. There is a question about why that rise in US rates didn’t produce a lot more yen depreciation, but something seems off here.

The main point, however, is that this measure does suggest a substantial rise in expected inflation since Abenomics began, which is good news.
Sharing Nobel Honors, and Agreeing to Disagree by Robert J. Shiller

In Fed and Out, Many Now Think Inflation Helps by Binyamin Appelbaum

Faster Inflation Would Help…Really! by Jared Bernstein

Bill de Blasio for Mayor by the NYTimes Editorial Board

Election is in 10 days?

Positive Outlook: Abenomics is succeeding. Obamacare will succeed. Republicans will lose House next year. Yellen. Economy should pick up even if inflation is below target.

The Economics of Rip Van Winkle by Krugman 
Binyamin Applebaum’s piece on the growing acknowledgment that moderate inflation can help, especially under current circumstances. But I can’t help thinking, only now they notice? I mean, this was all worked out and carefully explained fifteen years ago.

Oh, and the hard thing now is how you get inflation when we’re already at the zero lower bound. You really want this tied to expansionary fiscal policy, not austerity.

Still, any intellectual forward motion is welcome.