(A "New Beginning" indeed)

War on Poverty Over: Poverty Won.

Financial Times reports  "US workers’ poverty reaches 50-year high."

Poverty among the working-age population of the US rose to the highest level for almost 50 years in 2009, as the human cost of the deepest economic downturn since the Great Depression was laid bare in new census data.

Poverty among those aged 18 to 64 rose by 1.3 percentage points to 12.9 per cent -- the highest level since the early 1960s, prior to then-president Lyndon Johnson’s "War on Poverty. The overall poverty rate rose by 1.1 percentage points to 14.3 per cent, the highest since 1994.

Whereas the New York Times reported a 15-year high? According to Census data? Note the difference in the links.

Again you have to wonder about the efficacy of Bill Clinton's triangulating "welfare reform." Three members of his administration resigned over the signing of the "Personal Responsibility and Work Opportunity Act."

It was part of the reason I was for Nader against Gore and for Obama against Hillary, even if Obama has said welfare "reform" was a good thing.

Update: The Financial Times reports poverty "among those aged 18 to 64" is at a 50-year high. They don't say it, but much-maligned Social Security seems to have blunted poverty amongst those over 64, something the Catfood Commission intends to remedy.

More Inflation Please

Washington Post journalist extraordinaire Neil Irwin is on a roll.

Dean Baker is shocked and awed by the high quotient of truth content in Irwin's Post piece titled "How a touch of inflation could boost the economy." (Baker usual spends his blog time correcting the various, erroneous memes the Post is spreading about the economy. Inevitably it is on the wrong side of the debate.)

Consumer prices rose 1.2 percent over the 12 months that ended in August, the Labor Department said Friday, and only 0.9 percent when volatile prices for food and energy are excluded. That is well below the range of 1.5 to 2 percent sought by the Federal Reserve.

The low inflation numbers reflect the reluctance of businesses to raise prices amid weak demand for their products and the inability of most workers to get raises at a time of high unemployment.

Somewhat higher inflation could strengthen the ailing economy. Inflation would make the heavy debt that Americans carry a bit more manageable as wages rise but the amount owed stays the same. And it would create more incentive for businesses to invest their cash rather than sit on it, because inflation would reduce the value of hoarded money.

Some economists fear outright deflation, a destructive, self-reinforcing cycle of falling prices that can cause a long period of economic misery.

Baker adds "Of course the article did not go so far as to mention the idea of the Fed deliberately targeting a higher inflation rate in the range of 3-4 percent. This policy has been advocated by such well-known radicals as Greg Mankiw, President Bush's former top economic advisor, Olivier Blanchard, the chief economist at the IMF, and Federal Reserve Board Chairman Ben Bernanke." Krugman, DeLong, Yglesias and others have advocated this also.

The IMF seems to be getting better in its analysis, as pointed out here by Krugman. He notes the OECD has also done an about face.

Jacobin magazine has

an interview with Azar Nafisi

a review of Thomas Geoghagen's new book Were You Born on the Wrong Continent?

(Doug Henwood liked the editor's piece on the Zapatistas.)

Mental Health Break



What I like about Andrew Sullivan is that he does a Mental Health Break post every other day.

Yglesias points to a new paper by Gary Gorton. Here's the abstract:

The "shadow" banking system played a major role in the financial crisis, but was not a central focus of the recent Dodd-Frank Law and thus remains largely unregulated. This paper proposes principles for the regulation of shadow banking and describes a specific proposal to implement those principles. We first document the rise of shadow banking over the last three decades, helped by regulatory and legal changes that gave advantages to the main institutions of shadow banking: money-market mutual funds to capture retail deposits from traditional banks, securitization to move assets of traditional banks off their balance sheets, and repurchase agreements ("repo") that facilitated the use of securitized bonds in financial transactions as a form of money. All of these features rely on an evolution of the bankruptcy code that allows securitized bonds to be used as a form of privately created money in large financial transactions, a usage that can have significant efficiency gains and would be costly to eliminate. History has demonstrated two successful methods for the regulation of privately created money: strict guidelines on collateral (used to stabilize national bank notes in the 19th century), and government-guaranteed insurance (used to stabilize demand deposits in the 20th century). We propose the use of strict rules on collateral for both securitization and repo as the best approach for shadow banking, with compliance required in order to enjoy the safe-harbor from bankruptcy.

Ben Bernanke testified to the Financial Crisis Inquiry Commission that Gorton is worth reading on the subject of the crisis.

Yglesias mentions Gorton's book Slapped by the Invisible Hand.

Recession raises poverty rate to 15 year high.

Well Clinton's "welfare reform" sure seems to be working!

At least his triangulations helped get Democrats like Al Gore and Hillary elected to the Presidency. Oh wait...

Glenzilla is just wrong in this post. 

As Atrios responded -- and I couldn't agree more -- Tea Party extremism isn't an aberration from what the GOP has been; it's perfectly representative of it, just perhaps expressed in a less obfuscated and more honest form.

No, if the Tea Party had been in charge they wouldn't have passed TARP and we'd currently have 30 percent unemployment and all that entails. How can Greenwald and Atrios be so flip and unserious? In my opinion it's because they have become thoroughly embittered for various reasons and they enjoy being hyperbolic.

George H.W. Bush raised taxes and paid for it. The Tea Party will never raise taxes. In her book the Dark Side, Jane Mayer discussed the various conservatives who fought Cheney and Addington over checks and balances on the executive branch.

What makes things confusing is that the Tea Party is essentially astroturf, a corporate and rich person-sponsored entity and not a grass roots phenomenon. (To the extent it has been grass roots, I would bet it's because the unemployment rate is at 9.5 percent. And the crazies always come out when there's a liberalish President.) Granted, the Republican party has been extreme in its opposition to Obama, that is refusing to compromise on anything. For example, they refuse to compromise at all about confirming Obama's nominees to the Federal Reserve or Elizabeth Warren or Dawn Johnson to the OLC, etc. Since Obama won the election, he should be allowed to govern. That's how democracy is supposed to work.

Glenzilla and Atrios don't know how to make distinctions. Either that or they just dishonestly refuse to. For example like other anti-war types they can't distinguish between George W. Bush and Osama bin Laden or Saddam Hussein. Partly it's an overreaction to the conservative right and partly it's because is some way they're spoiled and refuse to acknowledge the stakes.

Glenzilla says

A Washington political/media culture that rolls out the red carpet for every extremist Bush official is now suddenly offended by these Tea Partiers' extremist views?  Please. 

This is his target. Plus moderate liberals who see some value in Senators like Collins and Snowe even though the Maine Senators along with mainstream Democrats went along with the most egregious Bush administration post-911 policies.

The Tea Party candidate for the Delaware Senate seat is a religious nut named Christine O'Donnell who believes "homosexuality is an identity disorder." Glenzilla dishonestly fails to mention this which is surprising given that he is gay.

He does mention Jesse Helms:

During the Clinton years, Jesse Helms was the Chairman of the Foreign Relations Committee and threatened the President not to go on Southern military bases lest he be killed.

Yeah but he was from North Carolina. John Ashcroft and Tom Coburn are nuts too, but this is Delaware, not Missouri or Oklahoma. Plus Helms wasn't part of a "movement," he was a lone nutcase.

Update: After some consideration I think the issue is that in back in the "bad old days" Helms atavistic views weren't as rare among the population. Whereas today, you have movies like "The Kids Are All Right," you have Hillary Clinton as a viable Presidential candidate and Barack Hussein Obama as the leader of the Free World. So it's more that the country has moved which makes the Tea Party seem more crazy relatively speaking. Glenzilla may have a point on the class issue. Establishment Republicans should know better, but then Christine O'Donnell isn't poor compared to, say, a starving Afghan, Pakistani or African.

Glenzilla and Atrios are being patronizing in other words.

Excellent journalist Neil Irwin at the Washington Post writes about the Fed meeting next week.

These measures are likely to be the focus of a vigorous debate at a Fed policy meeting next week, setting the stage for a definitive decision in November or December on whether to purchase hundreds of billions of dollars of bonds in an effort to strengthen the economy. No action is likely at the policy meeting scheduled for Tuesday, which means monetary policy could remain in a holding pattern until the Fed committee reconvenes later in the fall.

Fed policymakers face two major questions: Will the weak economic recovery of the past few months persist through 2011? And would pumping vast new sums of money into the economy pack enough punch to be worth the risks?

Top Fed officials will be preparing formal forecasts for the economy over the coming years in advance of their meeting Nov. 2 and 3. If their consensus is that growth will be too slow next year to bring down the unemployment rate significantly, they will be more inclined to take action, even if the exact economic impact is modest and hard to predict, according to analysts who study the Fed.

I think there is no question growth will be too slow next year. The stimulus will end soon. Maybe they will wait until after the election.

The Recent Clusterfuck and the Ongoing Unpleasantness

DeLong has some thoughts on the recent crisis and slump here and here.

It's too bad more bloggers haven't engaged Robin Wells and Paul Krugman's "The Slump Goes On: Why?", their article in the New York Review of Books.  Maybe they are waiting for the second part. There were some comments at Krugman's New York Times Blog.

I summed it up here. Here, I focused on the books and authors Wells and Krugman were ostensibly critiquing.

This time I'll focus on the way they structured the article. There's a prologue of sorts and then two sections or parts set off by the numbers 1. and 2. Section 1 is broken up by subheadings. Wells and Krugman use an international context which is helpful in combating erroneous ideas.

The prologue explains what they're doing and what their general thoughts are on the matter. What caused the financial panic and tight credit was the bursting of the housing bubble. The first four headings under Part 1 are each of the popular explanations. Three of them are wrong, one is correct.

1) Loose monetary policy: the Fed held rates too low for too long in the past decade. Wells and Krugman point out that this is wrong. The Fed was responding to a slowdown at the beginning of the decade and there was a housing bubble in Britain, Spain, and Ireland as well. The European Central Bank didn't follow a loose policy as the Fed did.

2) The global savings glut. Wells and Krugman believe this is correct and helps explain the fact that the bubble wasn't contained to just the United States. Bernanke gave a speech in 2005 outlining the ideas behind the concept of the global savings glut.Wells and Krugman write:

Historically, developing countries have run trade deficits with advanced countries as they buy machinery and other capital goods in order to raise their level of economic development. In the wake of the financial crisis that struck Asia in 1997-1998, this usual practice was turned on its head: developing economies in Asia and the Middle East ran large trade surpluses with advanced countries in order to accumulate large hoards of foreign assets as insurance against another financial crisis.

Germany also contributed to this global imbalance by running large trade surpluses with the rest of Europe in order to finance reunification and its rapidly aging population. In China, whose trade surplus accounts for most of the US trade deficit, the desire to protect against a possible financial crisis has morphed into a policy in which the currency is kept undervalued, which benefits politically connected export industries, often at the expense of the general working population.

For the trade deficit countries like the United States, Spain, and Britain, the flip side of the trade imbalance is large inflows of capital as countries with surpluses bought vast quantities of American, Spanish, and British bonds and other assets. These capital inflows also drove down interest rates--not the short-term rates set by central bank policy, but longer-term rates, which are the ones that matter for spending and for housing prices and are set by the bond markets. In both the United States and the European nations, long-term interest rates fell dramatically after 2000, and remained low even as the Federal Reserve began raising its short-term policy rate. At the time, Alan Greenspan called this divergence the bond market "conundrum," but it’s perfectly comprehensible given the international forces at work.

Bernanke noticed the conundrum too, but both he and Greenspan missed the housing bubble.  Maybe the "conundrum" was a sign?

3) Out of control financial innovation. Wells and Krugman don't believe this was essential because it wasn't as bad in Europe, which suffered similarly. However I would guess that the financial gimmickery helped disguise what was going on and helped the ratings agencies become complacent. Also this seems to be tied in with Minsky's theories which they discuss at the end of the article.

4) Moral hazard created by the GSEs. Wells and Krugman dismiss the common arguments of conservatives by pointing out that private actors like Countrywide Financial and negligent regulators created the subprime fiasco. Fannie and Freddie were latecomers.

The fifth subheading of section one is titled "The Bubble as a White Swan" and points out that bubbles are more common than one would guess, given the way almost everyone missed the most recent bubble.

In Section/Part 2, they discuss Minsky's theories about how in periods of stability people become less risk averse and how after a bubble bursts you can get a "balance sheet recession." This didn't happen with the tech stock bubble at the end of the 1990s, but it did happen with the real estate bubble in Japan with non-financial corporations and it did happen most recently with American household debt and the decline in housing prices.

In the next article, Wells and Krugman will discuss what needs to be done.

Work as if you lived in the early days of a better nation. -- Alasdair Gray.

Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough. -- Franklin D. Roosevelt


Star Shock  The disproportionate way that meeting celebrities feels slightly like being told a piece of life-changing news. (From Douglas Coupland's dictionary of the near future.)


I've never been keen on aphorisms, but the two above are pretty good. The first comes from Ken McLeod's blog Early Days of a Better Nation, whose title is inspired by the Gray quote and by the following:

If these are the early days of a better nation, there must be hope, and a hope of peace is as good as any, and far better than a hollow hoarding greed or the dry lies of an aweless god.

-- Graydon Saunders

I had some star shock moments this summer. At the beginning of the summer I saw a She & Him concert at the Jay Pritzker Pavillion. She & Him is Zooey Deschanel  and M. Ward. Then I saw an event at the University of Chicago with James Fallows, Tom Geoghagen and Rick Perlstein. Next at the Printers Row Book Fair I saw Barabara Ehrenreich who discussed what she encountered while undergoing treatment for breast cancer. Before her, I had witnessed Christopher Hitchens's last public appearance before he learned he had cancer of the esophagus. This past Monday I saw Pavement play at the Jay Pritzker Pavillion. Penny Pritzker was the head of the Obama campaign's finance committee.

Martin Wolf: Basil rules not enough

Two years ago today, Lehman Brothers filed for bankruptcy.

Barry Ritholtz says the worst of the housing correction is behind us.

Prices certainly can fall much further; it is possible. However, I am making (what I believe is) a higher probability argument due to fair value. My basis for saying the worst is likely over are prices: We are off 33% from the peak, and as of the end of Q1, were ~5-15% over fair value by traditional metrics.  So a return to fair value -- even a 15% drop in 2011 -- still means the worst is (was) behind us.

If houses were to careen far below fair value -- they were about 40% overvalued, so in theory, they could overshoot 40% to the downside -- then my valuation thesis would be wrong. There are lots of ways house prices could drop much further: If jobs and income plummet from here, home prices will be too high. If interest rates spike, prices will adjust downward. If the mortgage deduction were to be eliminated, prices fall also. IMO, these are smaller possibilities -- say 20-25% chance -- then merely mean reverting towards historic relationships with median income, cost of renting, and home equity as a percentage of GDP.

(via Ezra Klein)

Michael Tomasky on the filibuster

The International

Felix Salmon on Basel III.

(via Yglesias)

Austan Goolsbee is the new CEA Chair.

(via Calculated Risk)

Eugoogly

Thomas Guinzburg dies at 84.  As a marine he survived the battle of Iwo Jima in World War II. As head of Viking Press, he published Thomas Pynchon's "Gravity's Rainbow."

On the occasion of Mr. Pynchon’s receiving the National Book Award, Mr. Guinzburg arranged for the comic actor Professor Irwin Corey to accept the award for the famously reclusive author.

I witnessed Corey ask a question at a Nation event in New York City in the mid 1990s.

There He Goes Again

David Brooks's column for today:

Britain soon dominated the world. But then it declined. Again, the crucial change was in people’s minds. As the historian Correlli Barnett chronicled, the great-great-grandchildren of the empire builders withdrew from commerce, tried to rise above practical knowledge and had more genteel attitudes about how to live.

This history is relevant today because 65 percent of Americans believe their nation is now in decline, according to this week’s NBC/Wall Street Journal poll. And it is true: Today’s economic problems are structural, not cyclical. We are in the middle of yet another jobless recovery. Wages have been lagging for decades. Our labor market woes are deep and intractable.

Um, not really. Two world wars and a Great Depression did in the British Empire. Plus some other stuff. In America, conservatives have won politically in some ways so tax rates and union membership are down from where they were during the Golden Age* of the post-war years, 1945-1973.

The recent crisis and slump was caused by the global savings glut and a housing bubble which was enabled by conservative policy decisions.

Krugman writes that Japan actually did an okay job after its real estate bubble burst in the late 1980s. Not enough, but could have been worse.

Yet the picture is grayish rather than pitch black. Japan’s economy may be depressed, but it’s not in a depression. The employment picture has been troubled, with a growing number of "freeters" living from temporary job to temporary job. But thanks to those government job-creation plans, the country isn’t suffering mass unemployment. Debt has risen, but despite constant warnings of imminent crisis -- and even downgrades from rating agencies back in 2002 -- the government is still able to borrow, long term, at an interest rate of only 1.1 percent.

In short, Japan’s performance has been disappointing but not disastrous.

DeLong on CPAN. He mentions what he would have recommended to Obama in December 2008.

--------------------------
* Obviously wasn't a golden age for women, blacks, Latinos, and LGBTs.

James Warren on Rahm Emanuel

At his press conference, Obama seemed to hint that he'd pick Elizabeth Warren to head the Consumer Financial Protection Agency.

Yes we can!

Matt's Talking Loco and I Like It!

Yglesias on the Federal Reserve System:

Given the destructive impact the Dallas, Minneapolis, Richmond, and Kansas City Feds are having on national policy, it’s really time to revisit the absurd governance structure of these entities. The regional Fed presidents exercise important public policy authority, but they’re primarily selected by local for-profit business interests rather than by public officials. It would be as half the Supreme Court justices were selected by corporate law firms dispersed around the country. As long as the Fed seemed to be performing well, I suppose most people took an "if it ain’t broke don’t fix it" line. But the country is mired in tight money, and the regional feds seem to be behind it.

Mark Thoma comments on a Wall Street Journal "symposium" on monetary policy. Long story short: conservative policy makers respond with the usual tripe.

These guys and their type missed the housing bubble and missed the rise of the shadow banking system - the two prime causes of the crisis and slump. Actually not only did they miss the causes, their policy recommendations actively enabled the causes. And not only that, conservatives* tried to block policies like TARP and the stimulus that helped prevent another Great Depression!

As Krugman wrote:

But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.

I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

The governance structure of the Federal Reserve System and the United States Senate need to be revisited.

--------------------------
* Bush was actually good on immigration, AIDS in Africa, and Islam as a religion of peace. He also appointed okay guys in Bernanke and Paulson who saved our asses. In his memoir Hank Paulson said Congressional Republicans were worthless during the crisis, especially the number two guy in the House, Eric Cantor. From a Newsweek summary:

Meetings with Senate Republicans were "a complete waste of time for us, when time was more precious than anything" (page 275). Ideas that Republicans do add are "unformed," like Virginia Rep. Eric Cantor’s plan to replace TARP with an insurance program. In a rare moment of sarcasm, Paulson goes off on the minority Whip: "I got a better idea. I’m going to go with Eric Cantor’s insurance program. That’s the idea to save the day" (page 285).

Below I sketched out the gist of the arguments made by Robin Wells and Paul Krugman* in their piece The Slump Goes On: Why? as I understood it.

What's great about their article is that they confront some widely-held misperceptions on what has occurred and what's happening now.

Ostensibly, the piece is a book review of three books: Rajan's Fault Lines; Roubini and Mihm's Crisis Economics; and Koo's The Holy Grail of Macroeconomics.

Wells and Krugman are extremely dismissive of Rajan and argue he's just peddling conservative propaganda. Rajan believes that the Fed held rates too low in the past decade and Roubini and Mihm give this view qualified support. However as Wells and Krugman point out, the Fed was facing possible deflation after the tech stock crash when it lowered rates from 6.5 percent in 2000 to just 1 percent in 2003. Inflation had been at a thirty-five year low and Japan's lost decade was on people's minds at the time.

Rajan blames Democrats, the Community Reinvestment Act and Fannie and Freddie for the subprime crisis. Wells and Krugman say Roubini correctly points out how Rajan is wrong in that the huge growth in the subprime market was primarily underwritten by private mortgage lenders like Countrywide Financial.

Wells and Krugman say Roubini and Mihm give a good overview of Hyman Minsky's highly relevant work and that Crisis Economics  "is a very good primer on how finance gone bad can wreck an otherwise healthy economy." The book makes the essential point that bubbles are not uncommon. "Bubbles have happened in small economies and large, in individual nations and in the global economy as a whole, in periods of heavy public intervention and in eras of minimal government."

Koo's book focuses on the problems economies face in the aftermath of a "Minsky moment" (although he doesn't use that term or mention Minsky). Basically, there is a problem of red ink and deleveraging. Koo focuses on Japan whose nonfinancial corporations were saddled with debt after the real estate bubble burst in the late 1980s. Currently it is households who are deleveraging in America, not corporations. In a blog post Krugman argues that after the Great Depression, World War II inflated away much of the debt.

It will be interesting to see what Wells and Krugman argue in their second article. The current slow growth in GDP is reminiscent of the recoveries after the recessions of 1991 and 2001. However, "only once since World War II has the unemployment rate stood this high on Labor Day -- during the steep recession of 1982 under President Reagan. It has remained at 9 percent or higher for 16 straight months and is likely to surpass the 19-month record of such high rates set in 1982 and 1983."

The 1982 recession was caused in part by Fed Chairman Volcker jacking interest rates and it was ended by Volcker lowering rates once inflation was tamed. We went into the 2008-2009 recession with rates already low, whereas from 2000-2003 the Fed had room to lower rates from 6.5 to 1 percent.

Bernanke says the Fed has more tools to use if there's a double dip, but apparently these tools aren't worth using to maintain low unemployment. Instead we just get pathetic excuses about structural changes in the job market and the fact that "central bankers alone can't solve the world's economic problems." No, but the Fed's only missions are price stability and maintaining low unemployment and currently it's failing at both.

Yesterday I linked to "The Slump Goes On: Why?", the impressive tour d'horizon of the recent economic crisis by Robin Wells and Paul Krugman which ran in the New York Review of Books.

It might be the best comprehensive piece on the subject yet.* In their view, what happened:

1. a global savings glut
2. which led to a North Atlantic** housing bubble
3. which led to a "Minsky moment"***
4. which led to an old-fashioned bank run on the "shadow banking system"****
5. which led to a deleveraging of the American household*****

-------------------------------
* A second article on what needs to be done is coming.
** the U.S., England, Ireland, Spain
*** "Minsky’s theory, in brief, was that eras of financial stability set the stage for future crisis, because they encourage a wide variety of economic actors to take on ever-larger quantities of debt and engage in ever-more-risky speculation. As long as asset prices keep rising, driven by debt-fueled purchases, all looks well. But sooner or later the music stops: there is a "Minsky moment" when all the players realize (or are forced by creditors to realize) that asset prices won’t rise forever, and that borrowers have taken on too much debt."
**** A crisis of confidence in the banking system. In the United States, the banking system gave way to the more profitable "shadow banking system." As much as 60 percent of business now used "repo" (repurchase) agreements - very short-term loans to hedge funds and investment banks - to finance their business. In Europe, there was a crisis of confidence in governments' ability to backstop their overextended banks. So in addition to a run on the banks, there was a "sovereign debt crisis" in countries such as Iceland, Greece and Ireland.
***** American businesses are profitable and sitting on liquidity, however American households are collectively paying down debt so there is a lack of aggregate demand and government needs to step in and fill the gap.

Federal Appeals Court sides with C.I.A. over its rendition program and torture charges, which means it sided with Holder and the Obama Justice department over the "state secrets doctrine." The court was divided 6-5 and the Supreme Court may hear the case.

The lead plaintiff is Binyam Mohamed, an Ethiopian citizen and legal resident of Britain who was arrested in Pakistan in 2002. He claimed he was turned over to the C.I.A., which flew him to Morocco and handed him off to its security service.

Moroccan interrogators, he said, held him for 18 months and subjected him to an array of tortures, including cutting his penis with a scalpel and then pouring a hot, stinging liquid on the open wounds.

Mr. Mohamed was later transferred back to the C.I.A., which he said flew him to its secret prison in Afghanistan. There, he said, he was held in continuous darkness, fed sparsely and subjected to loud noise -- like the recorded screams of women and children -- 24 hours a day.

He was later transferred again to the military prison at Guantánamo Bay, Cuba, where he was held for an additional five years. He was released and returned to Britain in early 2009 and is now free.

There were signs in the court’s ruling that the majority felt conflicted. In a highly unusual move, the court ordered the government to pay the plaintiffs’ legal costs, even though they lost the case and had not requested such payment.

Judge Fisher, who was a senior Justice Department official before President Bill Clinton appointed him to the bench in 1999, also urged the executive branch and Congress to grant reparations to victims of C.I.A. "misjudgments or mistakes" that violated their human rights if government records confirmed their accusations, even though the courthouse was closed to them.
_
He cited as precedent payments made to Latin Americans* of Japanese descent who were forcibly sent to United States internment camps during World War II. But the five dissenting judges criticized the realism of that idea, noting that those reparations took five decades.

"Permitting the executive to police its own errors and determine the remedy dispensed would not only deprive the judiciary of its role, but also deprive plaintiffs of a fair assessment of their claims by a neutral arbiter," Judge Michael Daly Hawkins wrote.

After the A.C.L.U. filed the case in 2007, the Bush administration asked a district judge to dismiss it, submitting public and classified declarations by the C.I.A. director at the time, Michael Hayden, arguing that litigating the matter would jeopardize national security.

The case could lead to prosecutions of George Tenet, Bush, Cheney and/or their lieutenants. My view is that Obama and Holder want to "turn the page" as Obama said recently about Iraq. It's analogous to when fascist or Communist dictatorships give way to democratic governments who in turn go out of their away not to provoke previous regimes lest the military re-enter politics. See Chile or Spain for example.

NYTimes editorial

Glenn Greenwald

----------------------------------
* huh?

Tony Blair's memoir selling very well.

George Soros is a mensch.

He gave $100 million to Human Rights Watch. 

Maybe I was sort of wrong in this post.

Bond Vigilantes Ignored

If they're not saying what people want to hear. Krugman and Steve Collender highlight the hypocrisy.

Another Example of Why I Distrust Polls

A week ago Gallup said Democrats were down ten points in a generic ballot. This week Gallup says it's even.

(via DeLong, also reported in the NYTimes today)

Dean Baker writes about David Leonhardt's interesting piece on housing.

The Slump Goes On: Why? by Robin Wells and Paul Krugman

1938 in 2010 by Krugman

Forever Is a Long Time

The Obama administration and the Federal Reserve Bank say we're on the (very) slow road to recovery but Krugman begs to differ:

I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion -- and I’ve discovered that there are two comforting delusions still out there.

Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.

But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.

John Cassidy on the Financial Crisis Inquiry Commission delving into the circumstances around Lehman's collapse.

Felix Salmon links to Cassidy and writes

Bernanke is now saying that Lehman was in such bad shape that it would have failed whether or not the Fed had stepped in to guarantee its debts; like Cassidy, I’m very suspicious of that argument, since a Fed guarantee would have stopped any bank run cold in its tracks.

So what does Bernanke mean when he says that "the view was that failure was essentially certain in either case"? My feeling is that Bernanke, along with Hank Paulson, had an unnecessarily binary idea of what exactly "failure" meant. They were faced with a choice between the chaotic collapse that we saw, on the one hand, and a much more orderly failure, on the other; and they utterly failed to grok how much worse the first option was than the second

Bernanke has long said that the Treasury "did not have the authority to absorb billions of dollars of expected losses to facilitate Lehman’s acquisition by another firm" -- but now it seems that he’s also saying something which demonstrates much weaker leadership. If we lose billions of dollars and Lehman still fails, goes the argument as I understand it, then we will have failed too. So we might as well just let Lehman fail on its own. Even if the consequences of that decision are orders of magnitude worse.

A leader will take a hit for the greater good. A profit-driven trader like Hank Paulson, not so much. As Cassidy puts it:

Many people from Lehman and Barclays suspect that the real barrier to the Barclays rescue wasn’t the legal niceties in London but a reluctance on the part of Bernanke and others -- Treasury Secretary Hank Paulson in particular -- to fill the gaping gap in Lehman’s balance sheet by providing a Bear-style loan from the Fed, which could have topped fifty billion dollars.

With hindsight, $50 billion would have been a very small price to pay for an orderly wind-down of Lehman Brothers. But Bernanke and Paulson, it seems, were too caught up in wanting to avoid "failure" to work that out.

Cassidy and Salmon may be right, but they don't mention other ramifications. Would another financial firm have failed? Would there have been a panic anyway? Would Congress have passed TARP otherwise?

Bernanke's summer reading list.

Try eBay's Half.com iPhone app to save money on textbooks.

Mea Culpa

Bernanke appeared before the Financial Crisis Inquiry Commission and admitted
he had been wrong.

Mr. Bernanke said that when he made his remarks in 2007 he thought the subprime problems were "manageable."

"What I did not recognize was the extent to which the system had flaws and weaknesses in it that were going to amplify the initial shock from subprime and make it into a much bigger crisis," he said.

He basically agrees with Yale professor Gary Gorton, who I blogged about here.

Professor Gorton has compared the crisis to a classic bank run, but with the "banks" in this case being short-term wholesale financing markets -- a loosely regulated, uninsured system known as shadow banking.

About the housing bubble, Sewell Chan - author of the linked NYTimes piece - writes,

In a 2002 speech when he was a Fed governor, Mr. Bernanke argued that central banks should not try to use monetary policy to pop asset bubbles. As part of his nearly three hours of testimony on Thursday, Mr. Bernanke held to that view, but said that at the time he had called for careful supervision and regulation to maintain financial stability.

"We didn’t do that," conceded Mr. Bernanke, who became Fed chairman in 2006. "Going forward, we need to be able to do that."

and

While Mr. Bernanke stuck with his long-held stance that the Fed had not aided the housing bubble by keeping interest rates too low for too long in 2002-4, he embraced the view of Gary B. Gorton, an influential Yale finance professor.

Dean Baker writes:

Any serious weighing of the benefits and risks of bursting the bubble in 2003-2004 would have surely come down in favor of bursting the bubble. The Fed's decision not to burst the bubble was one of the most disastrous failures of monetary policy in history.

Will the Financial Crisis Inquiry Commission's report reflect that?

Happy Labor Day Weekend!

America's workers remind me of the workhorse Boxer in George Orwell's "Animal Farm."

Robert Reich on how to end the Great Job Recession.

... Organized labor is down to about 7 percent of the private work force. Members of non-organized labor -- most of the rest of us -- are unemployed, underemployed or underwater....

Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless -- as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst -- and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

...

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns -- sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point -- 1929 and 2008 offer ready examples -- the bill comes due.

Christina Romer is My Heroine.


Earlier I noted Yglesias linked to her farewell speech she gave at the National Press Club.

DeLong quotes from her farewell speech.

Thoma links to DeLong and adds a few words.

She ended it with:

On election night almost two years ago, my husband and I did a most uncharacteristic thing. We’d had friends over to watch the returns and had celebrated the Obama victory with a sedate glass of champagne around 8:00 California time. By 8:30 our friends had gone home and we were left wondering what to do with our joy. I finally declared that I needed to be part of a crowd.

So, we hopped in the car and followed the sounds of honking horns into downtown Oakland. We stopped at the first street corner where people were gathering. There we were, two middle-aged economists, dancing in the street with the Oakland teenagers. Like so many that evening, we were celebrating the promise of a new President who shared our values and our dreams for a better America.

I did the same thing! We went to Chicago's Grant Park to celebrate with Obama and Oprah on that fateful evening.

She didn't mention the $1.2 trillion number they came up for the stimulus which Summers didn't pass on to Obama, but did say that Congress only wanted $500 billion. So anyway, it doesn't look like she'll speak out of school and add to Ryan Lizza's classic account.

Atrios was a dick about the famous unemployment chart and today of course some jackass is being ungracious once more which is why I don't read Eschaton. When your're right it's okay to be rude. It's Okay if You're a Hardcore Liberal.

Maybe Obama will pick another woman to chair the CEA like Laura Tyson? Hopefully he'll pick Elizabeth Warren for the Consumer Financial Protection Agency.

Strangely, DeLong links to an Arcade Fire video. Here's a "Ready to Start" house party:

Sorry, I'm Just Really Bad With Names And Faces Of People Who Are Not Attractive And Can't Help Advance My Career

The Fear
(or a bubble in money)

Roubini says there's a bond bubble which will have a disasterous correction. Nick Rowe explains the "bond bubble" in plain English and points out it's bad but not for the reasons Roubini says.

A bubble in house prices is a bad thing. It will cause over-investment in building new houses, under-investment in other things, and under-consumption. A bubble in bond prices is a much worse thing. It will cause under-investment in everything, and under-consumption in everything, because it causes under-employment of everything. That's because bonds and money are close substitutes. A bubble in bonds causes a bubble in money. And a bubble in money can cause a bubble in bonds. Or perhaps they are just different aspects of the same bubble, in both money and bonds.

It's not the bubble in bonds per se that is the big problem. If there were only a bubble in bonds, and no bubble in money, it would be no worse than a bubble in houses. It might lead to the wrong mix of real investment and consumption (presumably too little real investment and too much consumption, due to a wealth effect). It's when a bubble in bonds spills over into a bubble in money, the medium of exchange, that we get a big problem. An excess demand for the medium of exchange is what causes, and is the only thing that can cause, a general glut of all goods. And that causes employment and output to fall, and both consumption and investment to fall.

That's why we should be worried about the bond bubble.

If the US and world economy returned immediately to long-run equilibrium, and expected and actual inflation increased to target, the price of US government bonds would immediately fall. And people who held bonds would suffer a large loss when the bubble burst. But perhaps it won't return to long-run equilibrium for a long time. That is what holders of bonds must be forecasting, because if they are right in this forecast, their decisions to hold bonds at current prices are rational.

And maybe they are right. Who am I to know better? But, like all bubbles, the beliefs that sustain the bond bubble are, at least partly, self-fulfilling. The bond bubble, and the associated money bubble, create the general glut, and prevent the economy returning to long-run equilibrium. And the belief that the economy will not return soon to long-run equilibrium is what sustains the bond bubble.

We need to burst the bond bubble. Bursting the bond bubble will help the economy recover more quickly.

(via Andy Harless, via DeLong)

But maybe he agrees with Roubini? In the comment section Rowe is asked

Or alternatively, why the old-fashioned Keynesian idea of liquidity preference -- which is all that excess bond demand amounts to -- is usefully re-labeled as a bubble?

and he responds:

Precisely because the people who are now saying that bonds are not a bubble, might be lead to rethink their position, and think that in some important sense, the demand for bonds and money is too high, and that the thing we ought to be doing is worrying about this, and bursting that bubble, not propping it up. Rhetorical? Sure.

Someone else in the comments writes along the lines of what DeLong has written

The bubble in bond prices exists only in crazy minds of fixed income traders. Shut them down and get to something more productive and worth talking about. Any bond of US government will pay 100 at maturity with coupons which were fixed at issue date.

Yes the government's debt costs will go up if rates rise, but the United States is not Greece.

Rowe links to Daniel Gross's "The Bubble that Isn't." So I don't think he agrees with Dr. Doom.

Krugman on "Eurosclerosis:"

Kurzarbeit

I’m not the first to make this point, but when people make Germany-US comparisons, there’s an important contrast between the GDP comparison, in which Germany actually does slightly worse:

 

Eurostat

and the employment picture, in which Germany does much better:

 

OECD

What is this telling us? German growth hasn’t been great, one quarter notwithstanding; but it avoided US-style mass layoffs even when it was slumping badly. Part of the explanation is the Kurzarbeit program of work-sharing; also, Germany’s labor laws and its strong unions have led to a situation in which workers aren’t treated as much as variable costs as they are here.

So American conservatives now holding up Germany as a role model are actually praising the virtues of Eurosclerosis, and disparaging American-style capitalism.

The differences in GDP change I'd argue reflect the fact that Germany is more export-oriented. They probably would have had bigger losses except for their "automatic stablilizers." Meanwhile the U.S. had "50 little Hoovers" - the states whose budget cutting made a bad situation worse. So in effect austerity-obsessed Germany had a bigger Keynesian stimulus.

Inflate Away the Debt

Krugman seems to be changing his course here, along with expanding on an earlier blog posting about WWII. He used to argue that the Fed needs to create inflation, just what Bernanke used to argue with respect to Japan. Now he says:

Just saying "monetary policy" doesn’t cut it. Yes, the Fed has tools available even though short-term rates are up against the zero lower bound, and it should be using them to the max. But their effect is highly uncertain; I don’t think anyone can count on the Fed to deliver, on cue, Rogoff’s "two or three years of slightly elevated inflation." In fact, the whole logic of the liquidity trap suggests that if central banks can gain any leverage at all, it’s only by credibly committing to inflation over a fairly sustained period.

So how might inflation be achieved? Actually, we have a good example: the end of the Great Depression.

The immediate cause of the depression’s end was, of course, a very large fiscal stimulus, also known as World War II. But why didn’t the US slide back into depression when the war was over? Many people thought it would; the decline of Montgomery Ward had a lot to do with Sewell Avery’s policy of refusing to expand and hoarding cash in preparation for the return of depression.

Why, then, didn’t depression return? The best answer I’ve come up with is that the depression was, at least in part, a Koo-type balance sheet slump -- and the private sector emerged from World War II with much-improved balance sheets.

And inflation was an important part of that improvement. Here’s the GDP deflator (a measure of the overall price of things America produces) from 1929 to 1948:

 

Bureau of Economic Analysis 

Prices rose about 70 percent during the buildup to war, the war itself, and the immediate aftermath. This greatly reduced the real value of outstanding debt– the reverse of the debt deflation that took place in the early stages of the depression. 

What this example suggests is that yes, inflation can be helpful in getting out of a prolonged slump -- but that getting that inflation probably requires a combination of loose monetary policy with strong fiscal stimulus.

... During WWII we saw something like a 35 percent of GDP rise in government spending; this led to a big rise in GDP.

Emphasis added.

Christina Romer's farewell speech.

(via Yglesias)

Scott Tobias reviews the 1999 film adaptation of Bret Easton Ellis’ American Psycho, for the Onion's A.V. Club's New Cult Canon.

Mea Culpa

Krugman admits a couple of mistakes. 

I sincerely believe he and the other economists I link to on the right have been fantastic since the current crisis hit. It's very, very encouraging to witness the good guys make mincemeat out of their intellectual opponents, not to mention with humor and style. Really they have been life savers during a scary time.

However the mistakes I would argue Krugman has made our as follows: in the late 1990s he was very pro Free Trade whereas free trade really didn't do much for the middle or lower classes. He's changed on that somewhat.

He argued that the banks needed to be nationalized along the lines of what Sweden successfully did or else we'd have disaster. Maybe he exaggerated to push his case, but I don't believe the banks are as bad as Japan's were. This remains to be seen.

He ignores what happened with the European sovereign debt crisis and how that unexpectedly added some headwinds for the American economy. He doesn't want to give Obama/Summers any breaks.

After being attacked by Krugman, Ken Rogoff went after him about productivity gains in the 90s which Krugman cops to being wrong about, but Krugman has been pretty prescient and right on the arguments whereas Rogoff - former Chief Austerian at the IMF - has been all over the map lately. I'd be a little more modest if I was Rogoff given his inconsistencies.

He was right about Bernanke. If a guy like Hoenig had been in charge we would be in the midst of second Great Depression right now.

I might have been naive to place too much hope in Obama, unlike many older wiser people I respect, but again there's still a lot of time in the game left to play.

Gattaca

William Gibson on Google's Earth.

If Google were sufficiently concerned about this, perhaps the company should issue children with free "training wheels" identities at birth, terminating at the age of majority. One could then either opt to connect one’s adult identity to one’s childhood identity, or not. Childhoodlessness, being obviously suspect on a résumé, would give birth to an industry providing faux adolescences, expensively retro-inserted, the creation of which would gainfully employ a great many writers of fiction. So there would be a silver lining of sorts.

To be sure, I don’t find this a very realistic idea, however much the prospect of millions of people living out their lives in individual witness protection programs, prisoners of their own youthful folly, appeals to my novelistic Kafka glands. Nor do I take much comfort in the thought that Google itself would have to be trusted never to link one’s sober adulthood to one’s wild youth, which surely the search engine, wielding as yet unimagined tools of transparency, eventually could and would do.

I imagine that those who are indiscreet on the Web will continue to have to make the best of it, while sharper cookies, pocketing nyms and proxy cascades (as sharper cookies already do), slouch toward an ever more Googleable future, one in which Google, to some even greater extent than it does now, helps us decide what we’ll do next.

Jonathan Franzen and Lorrie Moore at the 92nd Street Y on Monday November 15th.

When President Obama was vacationing at Martha's Vineyard, a bookstore gave him Franzen's new book "Freedom."

I've long had an unrequited - obviously - literary crush on Moore, like the bird (of America) in this video has on Pete Yorn although the genders are switched about.

Onion's A.V. Club interview with Franzen.

Matt Taibbi once famously wrote of Goldman Sachs,

The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

And yet just as the Wall Street Journal's reporting is world-class* - as opposed to its loco Op-Ed pages - Goldman Sachs's economic analysts have always been very accurate in spite of the firm's destructive looting behavior. Krugman reprints the reaction of Jan Hatzius, the head of Goldman's econ group, to the FOMC August 10 minutes:

Second, the confidence that deflation will be avoided is at odds with the recent moves in some measures of inflation expectations. Survey expectations have not changed much, but the decline in forward measures of breakeven inflation is noticeable.

...

Third, the statement seems to be at odds with a recent article by President Bullard of St. Louis suggesting that a continuation of the Fed’s current stance on short-term interest rates could result in deflation (see "Seven Faces of 'The Peril'", July 28, 2010). The first sentence of the abstract reads: "In this paper I discuss the possibility that the U.S. economy may become enmeshed in a Japanese-style, deflationary outcome within the next several years"

...

Fourth, the statement about the risk of deflation follows the observation a few paragraphs earlier that "[o]ne [participant] noted that survey measures of longer-run inflation expectations had remained positive in Japan throughout that country’s bout of deflation." This is at least noteworthy because Fed officials have frequently pointed to the stability of inflation expectations as a reason to downplay deflation concerns.

Hatzius noticed the same things I did, and it looks like Bullard is turning out to be the anti-Hoenig.  Bernanke has said he'll do whatever it takes to prevent deflation, but as Krugman, Hatzius, and presumably Bullard would argue, you need to get out in front of deflation and not merely react, especially when you're at the zero bound.
 --------------------------
* It wouldn't be surprising to see the Wall Street Journal's reporting lose its quality with Fox "News's" Rupert Murdoch as the new owner. He recently gave a $1,000,000 to the Republican Governors Association.

We're Turning Japanese I Really Think So

Interesting e-mail from St. Louis Fed President Jim Bullard to blogger Tim Duy. (via Mark Thoma)

Which is funny because Duy seems despondent lately.* Bullard seems to say that he sees more positive data than Duy does and suggests that Fed policy will happen incrementally not in big "shock and awe" doses. I do remember reading that Bullard was warning of deflation. So maybe the Fed will keep acting incrementally until the data turns positive. Also according to the committee minutes, they believe the economy will turn around very, very slowly, so maybe that's what we're experiencing and the negative data points are just "noise." But they keep having to revise downwards, just at the Obama administration low-balled the stimulus.
--------------------------------
 * He links Krugman about America turning Japanese.

The whole point of that paper was that when you’re up against the zero lower bound, it doesn’t matter how much money you print -- not unless you credibly promise higher inflation.

And of course, now we’re all Japanese.

And at Jackson Hole, Bernanke said there is no desire on the committee to promise higher inflation. So either the private sector will pick up on its own or we're up a creek without a paddle. Japanese punk:

GISM was a Japanese mid-paced hardcore punk band (with heavy metal influence) formed in Tokyo, Japan in 1980. Even though the guitar style resembled heavy metal style riffs and solos, GISM were one of the first Japanese hardcore bands, while at the same time drawing influence from the early industrial/avant-garde music scene; something extremely uncommon in punk bands at that time.

The acronym GISM had many different variations; they include: God In the Schizoid Mind, Guerrilla Incendiary Sabotage Mutineer, General Imperialism Social Murder, Genocide Infanticide Suicide Menticide & Gnostic Idiosyncrasy Sonic Militant.

...

In Lady Gaga's video for the song "Telephone," released in March of 2010, the performer wears a spiked leather jacket featuring a GISM back patch. Whether Lady Gaga is actually a fan of the band is unclear. However, the director of the music video, Jonas Akerlund, is former member of the Swedish metal band Bathory and could very well be the reason for the jacket's appearance in the video. The jacket also features patches for the UK crust bands Icons of Filth and Doom.

Lady Gaga knows we're turning Japanese. The difference with the Japanese Lost Decade is that our banking system seems to be in better shape with lots of bad banks going under or being absorbed by other banks. The banks are still profitable but are not lending because of a lack of demand. This seems different to me than the Japanese Lost Decade's legions of "zombie banks."

The Fed released the August 10th FOMC minutes and there's no nice chart like there was in June:

Instead they say "Thus, while they saw growth as likely to be more modest in the near term, participants continued to anticipate that growth would pick up in 2011." So, 3.5 to 4.2 percent in 2011 with unemployment going down to 8.3 to 8.7 percent? Doubt it.

Many said they expected underlying inflation to stay, for some time, below levels they judged most consistent with the dual mandate to promote maximum employment and price stability. Participants viewed the risk of deflation as quite small, but a number judged that the risk of further disinflation had increased somewhat despite the stability of longer-run inflation expectations. One noted that survey measures of longer-run inflation expectations had remained positive in Japan throughout that country's bout of deflation.

Yeah markets are wrong sometimes. Like with the housing bubble.

He who does battle with monsters needs to watch out lest he in the process becomes a monster himself. And if you stare too long into the abyss, the abyss will stare right back at you.

----- Friedrich Nietzsche, Beyond Good and Evil

John Burns on the end of the Iraq War.

In Korea, a Model for Iraq by Paul Wolfowitz.

Ever since 9/11 and the toppling of Saddam Hussein I have really lost a lot of respect for the so-called "anti-war" left. Their arguments are almost always disingenuous and self-righteous. Very few will face up to how bad Saddam Hussein actually was. It's all about pointing fingers at America and how wrong Republicans are.

I've never had much respect for conservatives as it was, but after 9/11, Afghanistan and Iraq they really let the mask slip. Cheney, Bush, David Addington, George Tenet, John Yoo, Jay Bybee, Rumsfeld, etc. decided to "take the gloves off" and make America into a lawless torture-state, not unlike Saddam's Baathist police state. Now I have even less respect for conservatives.

Hitchens: Glenn Beck's rally was the Waterworld of white self-pity.

Robert Reich is wrong when he says the Fed can't do anything more.

Yes help from the demand side would be more effective in bringing down unemployment. Yes there should be more help on the demand side but that isn't coming. To pretend that it is coming or might be on the way is disingenuous, i.e. lacking in sincerity or candor.

We Have the Technology and Know-How

If the Democrats do lose the House - see post below - it will be because A) the ARRA stimulus wasn't big enough B) Obama didn't nominate people to the Fed right away / Bernake is failing at his job C) a combo of A and B.

Part of the problem I think is that Obama's economic advisers didn't see the European sovereign debt crisis coming and it hit hard in May 2010.

However, Obama and his advisers should have known that financial crises of the type we just experienced are tough to come back from in a timely manner. They seemed to believe that they could come back for more stimulus if they needed it, but as Krugman pointed out, they were wrong. Plus the Fed is up against the zero bound and the FOMC is made up of dipshits.

The one good thing about this crisis is that it once again proves how Keynsian theories are correct for the most part, even though people want to have the debate all over again. Krugman blogs:

On the analytical front: many economists these days reject out of hand the Keynesian model, preferring to believe that a fall in supply rather than a fall in demand is what causes recessions. But there are clear implications of these rival approaches. If the slump reflects some kind of supply shock, the monetary and fiscal policies followed since the beginning of 2008 would have the effects predicted in a supply-constrained world: large expansion of the monetary base should have led to high inflation, large budget deficits should have driven interest rates way up. And as you may recall, a lot of people did make exactly that prediction. A Keynesian approach, on the other hand, said that inflation would fall and interest rates stay low as long as the economy remained depressed. Guess what happened?

On the policy front: there’s certainly a real debate over whether Obama could have gotten a bigger stimulus. What we do know, however, is that his top advisers did not frame the argument for a small stimulus compared with the projected slump purely in political terms. Instead, they argued that too big a plan would alarm the bond markets, and that anyway fiscal stimulus was only needed as an insurance policy. Neither of these arguments came from macroeconomic theory; they were doctrines invented on the fly. Samuelson 1948 would have said to provide a stimulus big enough to restore full employment -- full stop.

So what we have here isn’t really a lack of a workable analytical framework. The disaster we’re facing is the result of the refusal of economists, both in and out of the corridors of power, to go with the perfectly good framework we already had.

Which is reassuring in a way. The Pain Caucus, the Austerians, the "structuralists," the ones who are trying to usher in a new Dark Ages, all believe in conservative economic "thought" and are uncomfortable with Big Government. They can't admit that if it had not been for Big Government we'd currently be experiencing a second Great Depression.

Nate Silver's FiveThrityEight moves to the New York Times website.

I'm always skeptical of polls, but I link to Silver's site. He writes:

A casual reading of trends is somewhat unhelpful: Americans are unhappy with the direction of the country and, increasingly, with President Obama. But in contrast to 1994, the Republicans’ favorability ratings are also near all-time lows. Meanwhile, looking at a single statistical indicator does not provide for precision, and some indicators disagree with one another. It is perhaps necessary to dig a bit deeper -- to look at more data, and to do so in a more robust way -- in order to have a truly good handle on how things are most likely to proceed. And even then there can still be a lot of uncertainty in the forecast. FiveThirtyEight and its statistical models are willing to admit what they don’t know.

I don't think the Democrats will lose either the House or Senate.