"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, August 16, 2014
AV Club reviews The Knick: "Mr. Paris Shoes"
Pitchfork streams Cliff Martinez's soundtrack
My dream project is a steampunk "prestige drama" about Ada Lovelace along the lines of The Knick.
Bono's daughter plays nurse Lucy Elkins.
Friday, August 15, 2014
Secular Stagnation: Missing the Forest for the Trees by David Beckworth
There is a new VoxEU ebook on secular stagnation. The book is a collection of essays by many prominent economists, most of whom are proponents of secular stagnation. As readers know, I am not convinced that this problem lingers over the U.S. economy and have explained why at the Washington Post and on this blog. This latest book does nothing to ease my skepticism. Many of the authors continue to mismeasure the real interest rate and ignore what I see as important technology and demographic developments that undermine the case for secular stagnation. Let's review these key issues.
First, real interest rates adjusted for the risk premium have not been in a secular decline. Everyone from Larry Summers to Paul Krugman to Olivier Blanchard ignore this point in the book. They all claim that real interest rates have been trending down for decades. The editors of the book, Coen Teulings and Richard Baldwin, even claim that this development is the 'prima facie' evidence for secular stagnation. What they are doing wrong is only subtracting expected inflation from the observed nominal interest rate. They also need to subtract the risk premium to get the natural interest rate, the interest rate at the heart of the story. For it is the natural interest rate that is affected by expected growth of technology and the labor force.Beckworth is optimistic saying we just had a bad business cycle. Edward Lambert says we'll have a startling bad recession in the next three years with signs showing the next six months because of the "effective demand" limit.
Matt O'Brien had a good piece in Wonkblog pointing out that the current downturn in the euro zone has been worse for these countries than the Great Depression. However it does get part of the story wrong.
At one point it outlines the troubles of the region:
"The combination of zombie banks, a rapidly aging population and, most importantly, too-tight money have pushed it into a "lowflationary" trap that makes it hard to grow, and is even harder to escape from. That's what happened to Japan in the 1990s, and now, 20 years later, its nominal GDP is actually smaller than it was then. "
The aging of the population, and therefore a slow-growing or declining labor force, does not belong on the list of problems here. What matters for well-being is per capita growth. (That is not the only thing that matters, but insofar as GDP matters it is GDP per capita.) If the population is growing very slowly or even shrinking slowly, it will likely be associated with lower overall growth, but not necessarily with lower per capita GDP growth.
Germany has managed to get its unemployment rate down to 5.1 percent, compared to 7.8 percent before the downturn, in spite of having considerably lower growth than the United States over this period. Its employment rate for prime age workers (ages 25-54) has risen by 3.0 percentage points, compared to a drop of 3.5 percentage points in the United States.
As a result of its slow population growth, few in Germany would see its slow economic growth as being a problem. In fact, most view the economy as being relatively prosperous right now. This is one of the reasons that the country is reluctant to support measures that would help its neighbors, since Germany is not really sharing in their pain at the moment. Similiarly, Japan's slow population growth meant that most people in the country were not suffering in the way that its weak GDP growth may have suggested.
What was needed was for someone (probably Baroness Ashton) to go and deliver the message "Don't worry Vlad, not while the Ukrainian people have holes in their arses will they be members of the EU and as far as NATO membership is concerned they are somewhere behind North Korea. We fully appreciate that Ukraine is your back yard, not ours and we have no interest in doing anything that makes you feel threatened". At which point it could all have been stood down in a cloud of bad temper, but kept relations on the same broadly productive track they were before.Reminds me of the increased partisanship in Congress where old-style, bipartisan deals can no longer be made.
Thing is, this is now the post-Wikileaks era. And the trouble with the little speech I indicated in the last paragraph is that a) it's a total lie and obviously so, and b) it involves selling out the Ukrainian opposition in a really unedifying way - we keep financing these people and providing the expectation of help that we're never going to deliver, in order to use them as pawns in our game of chip-bits, and I suspect they might kind of know that, but we can't rub their faces in it and expect to keep their support. There is no way that any official is going to be prepared to have that speech attached to their name, and so no way anyone's going to do it if there is a risk of it being plastered all over the internet (and there is; EU diplomats have screwed up their comms at least once already and seen embarrassing conversations appear in the papers). There's a symmetry too here - there are all sorts of threats and deals that Putin might want to communicate but can't.
So the normal channels of diplomatic communication aren't working, and people are working blind, while trying to communicate strategies and alternatives to each other by the traditional Cold War means of costly signalling theory. My answer to the question of "why did Putin invade Crimea?" is that it is quite likely that he did it "in order to transmit a single bit of information". We're trying to use various forms of sanctions as a communication tool, but we haven't got an agreed code to match them up with - we need to develop a set of bidding conventions, like bridge players have. My guess is that because it has now become someone's job to develop a new substitute diplomatic communication channel, and fast, it will get done, and things will get a lot more normal. But it's also possible that they won't, and that we will be seeing a lot more use of the tactic of annexation of territory as a means of self-expression.\
In the discussion of Piketty a main focus is the aggregate of capital and labor income share. Larry Summers suggest free trade is in the process of working itself out. Dean Baker, another great teacher and populizer like DeLong and Krugman, has suggested the same in regards to China.
But there has been a long run of the working out. Now, both DeLong and Krugman say the U.S. could lower its trade deficit by devaluing the currency but don't emphasize it the way Baker does.
J.W. Mason has been focused on the euthanasia of the rentier and that's another matter of debate under Piketty's K21. It's part of the process of what's being worked out as Summers put it. But with rising inequality, the 1 percent gain in political power and can keep the their returns up.
DeLong and Krugman mistankenly focused on "sound finance" sort of. Krugman on how the Bush tax cuts and deficits would drive up rates. DeLong on Clinton's deal with Greenspan. But both were the pushed to the left by the Bush years, the housing bubble/financial crisis and the Insane Clown Posse Show/ Dark Age of Economics. To be reality-based is to be radical.
Thursday, August 14, 2014
Investors Pay for Hedge-Fund Illusions by Noah Smith
Innovation in Higher Ed, 1680 Edition by J.W. Mason
Makes me think of Nate Silver's Signal and the Noise and wishes he had a chapter on hedge funds.
Wednesday, August 13, 2014
lawlshane: Can you come to Canada so I can hug you? I love you for naming your daughter Zelda.
RW: I will be there as soon as I can! You have to give me a more specific location, you are a big country. You are the kindest country in the world. You are like a really nice apartment over a meth lab.
And thank you. My other son, Mario, sends his greetings.
The Walking Dead on AMC has been a huge hit. This summer on his HBO Show, Bill Maher ticked off Republican "Zombie lies" like trickle-down economics. I thought of Quiggin's book. Maybe Maher and his writers got it via Krugman. Right now the FX channel has the alien vampire zombies of The Strain. (Patient zero is "The Master," a squid-like vampire alien.) In September, the Syfy channel will have a series titled "Z Nation" about a zombie apocalypse.
Since I pay attention, the 2008 financial crisis was scary as was the recent debt ceiling clown show. I've become less worried and a little inured to it since Obama faced the Republicans down and the Fed has resolution authority, bit if we hit the next recession while at the Zero Lower Bound - and given the hatred for bailouts - we could enter Mad Max territory:
Fortunately Yellen seems to get it and understands the danger of raising rates too quickly. Also the debt-to-GDP ratio is low again, not that it ever was seriously a problem. There will be less fiscal drag going forward.
I'd add that shows like Masters of Sex and The Knick are more hopeful from a progressive perspective. They suggest a hope in science and empiricism like we've seen in the Obama stimulus, QE, and Obamacare. And progress on the social front like gay marriage, a black two-term President and marjuana decriminalization. There's a lot of shows about hospitals, like House.
Tuesday, August 12, 2014
In 1990 the Kiwis were the first to adopt inflation targeting, and now there is a report that they may be the first to give the central bank control over both monetary policy and an important tool of fiscal policy:
New Zealand’s main opposition Labour Party plans to change legislation governing the country’s central bank in its first term if it wins next month’s election, finance spokesman David Parker said.
The plans, which include giving the Reserve Bank of New Zealand an alternative tool for managing inflation, have been discussed with Governor Graeme Wheeler, though “not in detail,” Parker told reporters in Auckland today after Labour began its election campaign. The vote takes place Sept. 20.
Labour wants to give the central bank the ability to recommend changes to the rate of contribution to the national pension savings program, Kiwisaver. The RBNZ could use the new tool as an alternative to the official cash rate to “take the heat out of the economy,” Parker said in April, when the policy was announced.
1. It would be better to rely 100% of monetary policy, particular as NZ doesn’t face the zero bound problem.
2. But if others insist we need a combined monetary/fiscal approach, then this is far, far better than other forms of fiscal policy. I would think it would appeal to people like Brad DeLong, who focus a lot on the savings/investment imbalance perspective.
The stance of U.S. fiscal policy in recent years constituted a significant drag on growth as the large budget deficit was reduced. Historically, fiscal policy has been a support during both recessions and recoveries. In part, this reflects the operation of automatic stabilizers, such as declines in tax revenues and increases in unemployment benefits, that tend to accompany a downturn in activity. In addition, discretionary fiscal policy actions typically boost growth in the years just after a recession. In the U.S., as well as in other countries--especially in Europe--fiscal policy was typically expansionary during the recent recession and early in the recovery, but discretionary fiscal policy shifted relatively fast from expansionary to contractionary as the recovery progressed. In the United States, at the federal level, the end of the payroll tax cut, the sequestration, the squeeze on discretionary spending from budget caps, and the declines in defense spending have all curtailed economic growth. Last year, for example, the Congressional Budget Office estimated that fiscal headwinds slowed the pace of real GDP growth in 2013 by about 1-1/2 percentage points relative to what it would have been otherwise. Moreover, state and local governments, facing balanced budget requirements, have responded to the large and sustained decline in their revenues owing to the deep recession and slow recovery by reducing their purchases of real goods and services. Job cuts at federal, state, and local governments have reduced payrolls by almost 3/4 of a million workers, resulting in a decline in total government civilian employment of 3-1/4 percent since its peak in early 2009. The fiscal adjustments of the last few years have reduced the federal government deficit to an expected level of 3 percent of GDP in 2014 and fiscal drag over the next few years is likely to be relatively low.
Monday, August 11, 2014
I don't buy it. He's predicting recession.
The Pathos of Aggregate Demand Management by Sandwichman
Sunday, August 10, 2014
In Connecticut, If Businesses Are Upset By Rising Wages, It Doesn't Matter What the Facts Are by Dean Baker