Jacob Lew, the head of President Obama's Office of Management and Budget, had a column in the New York Times that should really scare the American people. While the purpose of the column was ostensibly to tell the American people that there are few easy budget cuts left, the scary part is that Mr. Lew seems to have little understanding of the economy.
Lew boasts about the huge budget surplus at the end of the Clinton administration. He shows no understanding of the fact that these surpluses were largely the result of a stock bubble, which was inevitably going to burst. The story of the economy's growth at that point was that the $10 trillion stock bubble fueled a consumption boom, which led to strong economic growth.
Of course the bubble was not sustainable, when it burst, the consumption it supported also disappeared. We only recovered from the recession when the housing bubble created enough demand to replace the demand lost from the collapse of the stock bubble.
The underlying problem was the over-valued dollar. This was a conscious policy of the Treasury Secretary Robert Rubin, who actively pushed a "strong dollar" policy. This policy effectively gave a large subsidy to imports and imposed a large tax on U.S. exports. The result was a huge U.S. trade deficit.
Given a large trade deficit, the economy needs either large government deficits or very low private savings to sustain high levels of employment. This is not a partisan issue; it is an accounting identity.
Mr. Lew shows no understanding of this basic point. Either this top Obama official is ignorant of basic economics or he is not being honest with the American people. Either way, it is an incredibly scary column.
Needless to say, there has also been a great deal of consternation as to how the West’s supposedly vaunted intelligence apparatus failed to see this one coming. This lapse is as bad as the inability to foresee the collapse of the Soviet Union (it’s arguably worse: a lot of people profited from the Cold War, and they’d have every reason to fan fears and thus look for evidence that would support the idea that the USSR was a formidable threat...
(And there was the CIA's George Tenet on the "slam dunk" of finding WMD's in Iraq)
If this isn’t bad enough, other sections of the report are downright embarrassing. The IMF does acknowledge that poverty is a bit of a problem, and look at the remedies it suggests:
Reforms for Sustained Growth
9. Continuing the reform momentum and reducing fiscal vulnerabilities remain the key medium-term challenges. Rapid growth is crucial to tackling poverty and the high level of unemployment. In this context, reinvigorating the structural reform agenda should help raise productivity and reinforce Egypt’s competitiveness.
Prioritizing reforms that promote macroeconomic stability and improve the investment climate will support the resumption of foreign direct investment. As noted, the planned fiscal adjustment and tax reforms are an important element of generating confidence, improving the business environment, and ensuring space for the private sector. Resumption of privatization and development of public-private partnerships (PPPs) will help mobilize private sector financing and know-how. Contingent liabilities associated with PPPs, however, should be monitored closely.
Reinforcing financial soundness and promoting financial sector deepening will help mobilize savings needed to finance private sector-led growth. The stability of the financial sector during and since the crisis is a testament to reforms since 2004. Staff supports the continuation of reform efforts with the CBE’s Phase II agenda. Introducing Basel II standards and supporting financial sector development will help facilitate intermediation of savings and increase private sector access to credit. Staff supports plans to adopt additional prudential measures to contain vulnerabilities that will arise with greater integration with the global economy and the introduction of new asset classes. Close coordination between the new nonbank supervisory authority and CBE will be a priority, and consideration should be given to introducing forward-looking risk management and developing global standards on liquidity and leverage.
Strengthening data quality and transparency will help improve the policy debate and business environment, and enhance Fund surveillance. The need for greater transparency and higher frequency data was underscored by the global financial crisis, and enhancements would help ensure that data availability is on par with other emerging markets. In particular, there is a need for more robust CPI and GDP deflators, and for publishing higher-frequency aggregate financial soundness indicators (as planned), and encouraging banks to make available detailed performance and soundness indicators.
This is all neoclassical trickle down twattle. People are hungry and can’t find work, and what does the IMF have in its toolkit? "Public private partnerships".
However Tunisia was a relatively wealthy Arab country and the Egyptian protesters were inspired by the successful Tunisian revolt.
The real test of Harvey’s 1982 theory of crisis is how well it serves in the face of the thing itself. The Enigma of Capital can be read as an effort to meet the challenge. Naturally, its success or failure depends on whether it can offer a more comprehensive and persuasive account than rival theories. On the score of comprehensiveness there can be little doubt that Harvey’s work and that of other Marxists goes beyond the alternatives. 'The idea that the crisis had systemic origins is scarcely mooted in the mainstream media,' Harvey writes, and that might be extended to include even the trenchant work of the neo-Keynesians. The crisis, after all, is that of a capitalist system, and no account of it, however searching, can be truly systematic if it neglects to consider property relations: that is, the preponderant ownership of capital by one class, and of little or nothing but its labour power by another.
Paul Krugman, discussing Roubini’s book in the New York Review of Books, agreed with him that what Ben Bernanke called the 'global savings glut' lay at the heart of the crisis, behind the proximate follies of deregulation, mortgage-securitisation, excessive leverage and so on. Originating in the current account surpluses of net-exporting countries such as Germany, Japan and China, this great tide of money flooded markets in the US and Western Europe, and floated property and asset values unsustainably. Why was so much capital so badly misallocated? In the LRB of 22 April 2010, Joseph Stiglitz observed that the savings glut 'could equally well be described as an "investment dearth"', reflecting a scarcity of attractive investment opportunities. Stiglitz suggests that global warming mitigation or poverty reduction offers new 'opportunities for investments with high social returns'.
The neo-Keynesians’ 'savings glut' can readily be seen as a case of what a more radical tradition calls overaccumulated capital. But it is the broader and more systematic Marxist perspective that ultimately and properly contains Keynesianism within it, and a crude Marxist catechism may be in order. Where does an excess of savings come from? From unpaid labour -- for example, that of Chinese or German workers. And why would such funds inflate asset bubbles rather than create useful investment? Because capital pursues not 'high social returns', but high private returns. And why should these have proved difficult to achieve, except by financial shell-games? Keynesians complain of an insufficiency of aggregate demand, restraining investment. The Marxist will simply add that this bespeaks inadequate wages, in the index of a class struggle going the way of owners rather than workers.
In The Enigma of Capital, Harvey coincides with other Marxists in locating the origins of the present crisis in the troubles of the 1970s, when the so-called Golden Age of capitalism following the Second World War -- blessed with high rates of profitability, productivity, wage growth and expansion of output -- gave way to what Brenner named 'the long downturn' after 1973. Brenner argued in The Economics of Global Turbulence that this long downturn, with deeper recessions and weaker expansions across every business cycle, reflects chronic overcapacity -- another variety of overaccumulation -- in international manufacturing, a condition brought about by the maturation of Japanese and German industry by the end of the 1960s, and later compounded by the industrialisation of East Asia. As competition to supply export markets increased faster than those markets expanded, the price of international tradeables naturally fell, reducing both the profits of manufacturers and the wages paid to workers. Such impaired profitability moreover discouraged further investment in production, so that finance capital turned increasingly to speculation in asset values. Yet this view, however formidably presented, doesn’t appear to have won general assent. Harvey, content to follow Brenner elsewhere, inclines towards a more conventional profit-squeeze explanation of the crisis of the early 1970s.
Not much evidence of hoarding, as far as I can tell. So this is straightforward supply and demand. Demand may be up to some extent because of that emerging-market boom. But if you look at the FAO reports it becomes clear that the key thing for cereals prices is that production is down in advanced countries, largely owing to terrible weather. And yes, it’s likely that climate change has played a role.
Oh, and what about Ben Bernanke? Well, to the extent that emerging markets are insisting on a fixed exchange rate against the dollar in the face of obvious overvaluation, that contributes to the boom and hence to demand. But I don’t think it’s reasonable to demand that the Fed stop fighting US unemployment in order to keep Chinese currency manipulation from leading to cotton hoarding by Chinese farmers.
So the story on commodity prices is somewhat different from the story during the last spike. As always, though, it’s crucial to keep your eye on the bale -- that is, whatever your logic, it must translate into actions that affect the physical supply and demand for raw materials.
Friday, January 28, 2011
As I watch the rioting in Cairo on CNN I think about the so-called "liberal left."
I've been following foreign affairs since the Cold War ended and have been disappointed with the so-called "liberal-left" on the subject. I agree on Vietnam, but most were uninspiring about Bosnia or Rwanda. They were good on South Africa but not much else. During the Naughties they mocked color revolutions. On Egypt they are silent.
There's a lot of focus right now on what members of the administration have said publicly about the situation in Egypt; if you're a conservative, Joe Biden saying that Hosni Mubarak is no dictator, or Robert Gibbs meekly saying the country should turn the Internet back on, tell you everything you need to know about the weakness of the Obama administration.
It's rather worse than that. The Obama administration is flat-footed here, sure, but it's only acting out the role we've been playing with Egypt for decades. It continued sending $800 million in direct economic aid and $1.3 billion in military aid -- that's the military on your TV now, trying to break up riots. Mubarak has been an incredibly resilient and effective strongman who has kept us from worrying about a fundamentalist takeover of the country. It's worth reading the WikiLeaked cable our ambassador wrote in 2009:
He is a tried and true realist, innately cautious and conservative, and has little time for idealistic goals. Mubarak viewed President Bush (43) as naive, controlled by subordinates, and totally unprepared for dealing with post-Saddam Iraq, especially the rise of Iran,s regional influence.
On several occasions Mubarak has lamented the U.S. invasion of Iraq and the downfall of Saddam. He routinely notes that Egypt did not like Saddam and does not mourn him, but at least he held the country together and countered Iran. Mubarak continues to state that in his view Iraq needs a "tough, strong military officer who is fair" as leader. This telling observation, we believe, describes Mubarak's own view of himself as someone who is tough but fair, who ensures the basic needs of his people.
The Obama administration's response to this has not been uniquely distaff. It's been traditional. It's worth reading Shadi Hamid on this.
President Obama has also weighed in, but more by what he chose not to say. On Jan. 18, he phoned his Egyptian counterpart, President Hosni Mubarak. They discussed a number of issues, including Iran and the Arab-Israeli conflict. They did not, however, discuss the need for political reform in Egypt.
The United States has backed its rhetoric, or lack of it, with action. On Jan. 12, more than three weeks into the Tunisia uprising -- and after protests had spread across the region -- the State Department granted $100 million in new funding to the Jordanian government to boost employment and strengthen the health and education sectors. Presumably, this will help the Kingdom diffuse popular anger over worsening economic conditions.
These actions have a clear intent -- to protect the stability of a state perceived as strategically vital to US interests.
Behind closed doors, Ben S. Bernanke, the Federal Reserve chairman, called it "the worst financial crisis in global history, including the Great Depression."
He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse "within a week or two." (The apparent exception: JPMorgan Chase.)
While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.
...
The report does knock down -- at least partly -- several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the "aggressive homeownership goals" set by the government as part of a "philosophy of opportunity" were not major culprits.
It’s kind of shocking if you think about it. Here we have a huge, hard-won intellectual achievement, one that accounts very well for the world we actually see, and yet it’s being thrown away because it doesn’t go along with ideological preconceptions. Once that sort of thing starts, where does it stop? The next thing you know, the theory of evolution will get the same treatment. Oh, wait.
Seriously, though, this is truly sad -- and dangerous. Demand-side understanding, in my view, played a big role in helping us avoid a full replay of the Great Depression; if enough people had shared that understanding, we might have avoided even the minor-league Depression we’re going through. But willful ignorance is on the march -- and the odds are that we’ll handle the next crisis very badly.
I doubt there will be bailouts next time, a scary thought. Anyway, Krugman's post reminded me of "Agora."
In the Clinton years, Robert Rubin had a policy of pushing up the value of the dollar. He put muscle behind this effort through the U.S. control of the IMF at the time of the East Asian financial crisis. The conditions that the IMF imposed were so onerous that developing countries decided that they needed to accumulate massive amounts of reserves in order to avoid being put in a similar situation. This meant accumulating large amounts of dollars. They did this by keeping down the value of their currencies against the dollar (i.e. raising the value of the dollar).
It is very misleading to assert that the value of the dollar is outside of the government's control. President Obama, like his predecessors, has allowed the dollar to remain over-valued. An over-valued dollar effectively subsidizes imports and imposes a tariff on exports. There is nothing that President Obama's new competitiveness panel can realistically hope to do that would come close to offsetting the competitive disadvantage created by an over-valued dollar.
More than the first "True Grit," the new one emphasizes Mattie’s precocious, almost obsessive preoccupation with the law. She is forever citing law-book principles, invoking lawyers and affidavits, and threatening to go to court. "You must pay for everything in this world one way or another," says Mattie. "There is nothing free except the grace of God."
That kind of legal and moral cost-accounting seems as distant as a tintype now. The new "True Grit" lands in an America that’s still not recovered from a crash where many of the reckless perpetrators of economic mayhem deflected any accountability and merely moved on to the next bubble, gamble or ethically dubious backroom deal. When Americans think of the law these days, they often think of a system that can easily be gamed by the rich and the powerful, starting with those who pillaged Lehman Brothers, A.I.G. and Citigroup and left taxpayers, shareholders and pensioners in the dust. A virtuous soul like Mattie would be crushed in a contemporary gold rush even if (or especially if) she fought back with the kind of civil action so prized by the 19th-century Mattie.
Talk about Two Americas. Look at "The Social Network" again after seeing "True Grit,"and you’ll see two different civilizations, as far removed from each other in ethos as Silicon Valley and Monument Valley. While "Social Network" fictionalizes Mark Zuckerberg, it mines the truth of an era -- from the ability of the powerful and privileged to manipulate the system to the collapse of loyalty as a prized American virtue at the top of that economic pyramid.
In contrast to Mattie’s dictum, no one has to pay for any transgression in the world it depicts. Zuckerberg’s antagonists, Harvard classmates who accuse him of intellectual theft, and his allies, exemplified by a predatory venture capitalist, sometimes seem more entitled and ruthless than he is.
Last week, Penguin Press published Amy Chua's book Battle Hymn Of The Tiger Mother, which criticizes "Western" parenting and advocates an "Asian" approach that includes forbidding playdates and being highly critical of children in order to make them more successful. Here are some other tips from the book:
Take your children to Chuck E. Cheese's and let them play any game they choose, then make them watch as you burn their tickets
Ice cream is a great motivator for kids; promise them that if they do everything you ask, they can have some when they turn 18
Inform your child that televisions receive all of their power from flawless renditions of Brahms' Violin Concerto in D
Only let your children have a pet dog if they can tame the most rabid dog at the pound
Should your child express interest in spending more time with his or her friends, simply pack up and move several hundred miles away
To ensure academic excellence, inform your children that there is a mark higher than an A-plus and then shame them for failing to attain it
Replace their frail little limbs with less fragile prosthetics
Remember, you may have to put up with one or two suicides before you finally craft that perfect child you've always wanted
The column of the year so far. It hits on the issue. What he doesn't mention is that Bernanke and the Federal Reserve Bank are failing miserably at their mission. They have gone above and beyond, but it hasn't been enough.
The unemployment rate is higher in this country than in Britain or Russia and much higher than in Germany or Japan, according to a study of worldwide job markets that Gallup will release on Wednesday. The American jobless rate is also higher than China’s, Gallup found. The European countries with worse unemployment than the United States tend to be those still mired in crisis, like Greece, Ireland and Spain.
Economists are now engaged in a spirited debate, much of it conducted on popular blogs like Marginal Revolution, about the causes of the American jobs slump. Lawrence Katz, a Harvard labor economist, calls the full picture "genuinely puzzling."
Tyler Cowen at Marginal Revolution and libertarians of his type leach politics out of their discussion. What would he think of Leonhardt's pitch-perfect column?
Why? One obvious possibility is the balance of power between employers and employees.
Relative to the situation in most other countries -- or in this country for most of the last century -- American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.
Just consider the main measure of corporate health: profits. In Canada, Japan and most of Europe, corporate profits have still not recovered to precrisis levels. In the United States, profits have more than recovered, rising 12 percent since late 2007.
For corporate America, the Great Recession is over. For the American work force, it’s not.
Germany’s job-sharing program -- known as "Kurzarbeit," or short work -- has won praise from both conservative and liberal economists. Senator Jack Reed, Democrat of Rhode Island, has offered a bill that would encourage similar programs. So far, though, the White House has not pursued it aggressively. Perhaps Gene Sperling, the new director of the National Economic Council, can put it back on the agenda.
Restoring some balance to the relationship between employers and employees will be more difficult. One problem is that too many labor unions, like the auto industry’s, have been poorly run, hurting companies and, ultimately, workers. Of course, many other companies -- AT&T, General Electric, Southwest Airlines -- have thrived with unionized workers, and study after study has shown that unions usually do benefit workers. As one bumper sticker says, "Unions: The folks who brought you the weekend."
Today, unions are clearly playing on an uneven field. Companies pay minimal penalties for illegally trying to bar unions and have become expert at doing so, legally and otherwise. For all their shortcomings, unions remain many workers’ best hope for some bargaining power.
I didn't imagine Mark Wahlberg's The Fighter would be so funny. A great cast including Christian Bale, Amy Adams, Melissa Leo and many others. Jamming soundtrack too!
I really, really liked The Fighter, The Social Network and True Grit. King's Speech was good also. As Daniel Davies wrote, The Black Swan was nothing like the book.
Good piece by Brooks but I would just say that Brooks's championing of the establisment's program of "socialism for the rich, austerity for the rest" falls very hard on the seriously mentally ill and their families. He should take a serious look at that and his deficit hawkery.
I hope this is an eye opener for young people with functioning brain cells who are trying to figure out what's going on instead of just focusing on getting by.
I like Nocera and agree with his openly stated views but it wasn't very smart of him to bash Hewlett Packard's board in his column while his wife was working as a lawyer against those same people.
And yet he was very smart to team up with Bethany McLean and I am looking forward to reading their book.
I always cut people who I admire a lot of slack. (Although I never cut Clinton much slack, I do cut Obama some). They're human.
Krugman once consulted for Enron, but he learned from his mistake - although I'm not clear on the details - and will write:
Or consider the California electricity crisis of 2001-2002. Years after we actually had tapes in which Enron traders could be heard telling power plants to shut down, news reports continued to repeat the conservative line that it was all about excessive regulation that wouldn’t let the power companies build capacity -- with no mention at all of the market manipulation.
"We are against forcing all citizens, regardless of need, into a compulsory government program," said one prominent critic of the new health care law. It is socialized medicine, he argued. If it stands, he said, "one of these days, you and I are going to spend our sunset years telling our children, and our children’s children, what it once was like in America when men were free."
The health care law in question was Medicare, and the critic was Ronald Reagan. He made the leap from actor to political activist, almost 50 years ago, in part by opposing government-run health insurance for the elderly.
Today, the supposed threat to free enterprise is a law that’s broader, if less radical, than Medicare: the bill Congress passed this year to create a system of privately run health insurance for everyone. On Monday, a federal judge ruled part of the law to be unconstitutional, and the Supreme Court will probably need to settle the matter in the end.
Echoing what Jonathan Alter wrote about the president in his recent book, "The Promise," Mr. Wolffe writes that "there were few around him who thought health care was the right way for Obama to define his first year," especially given the state of the economy. But the president pushed ahead anyway: in part, Mr. Wolffe suggests, because of memories of his mother’s worries about medical insurance in the months before her death from cancer; in part because it was a priority for the first lady; in part because he aspired to be a great, history-making president and liked to "take on the toughest political challenges he could find"
Reading David Plouffe's book, I learned that heath care reform was the number one priority for Democratic party primary voters.
One thing I like about blogs is when writers I admire discuss other writers from other fields who they admire. And one of the things I like about Krugman and DeLong is that they're polymaths and not soley focused on economics. Krugman blogs:
If you ask how it’s possible that a handful of bad actors can get their way so often, the answer has to be, wasn’t it ever thus? What we call civilization has usually been a form of kleptocracy, varying mainly in its efficiency (the Romans were no nicer than the barbarians, just more orderly). Yes, we’ve had a few generations of government somewhat of, by, for the people in some places -- but that’s an outlier in the broader sweep of things.
So never mind the hive-minds; good old greed still rules.
Yes but there is progress. Often the kleptocrats are helped by red herrings and distractions like racism and clerical demogoguery.
Nixon resigned when I was almost 4 years old. Recent released tapes of years in Presidency reveal his prejudice against Jews, blacks, Irish, and Italians. No doubt the Republican elite knew of it and probably shared his hate for the most part. Same thing with the voters and many Democrats.
And almost 40 years later we have a black President. That's progress.
Thursday, December 09, 2010
"We need a tow, not a jump-start."
Obama referenced Mark Zandi in defending the stimulus component of the tax cut deal.
Krugman responds that we're in a process of deleveraging at his blog here and here.
I disagree with Krugman's criticisms of Obama, but Krugman could be right if the engine of the private sector doesn't get going. My view is that he's wrong to personalize the issues when it comes to Obama by saying stuff like Obama isn't a fighter. He isn't tough enough? The first black President? The man has no fear. Obama, Axelrod, and Plouffe took on the Clinton machine in the Democratic primary and dealt with their hard ball tactics with "dirt off the shoulder."
It gets me down when he links to Digby or DeLong links to Jane Hamsher or Atrios.
The two companies received help even as their chief executives, Jeffrey R. Immelt of G.E. and Jamie Dimon of JPMorgan, sat on the nine-member board of the Federal Reserve Bank of New York.
Neither executive was involved in creating the emergency programs, which were approved by the Fed’s board of governors in Washington. Both companies also disclosed that they were among scores of institutions that received support from the Fed. Nevertheless, some policy experts expressed discomfort with the situation.
"In my view, it is an obvious conflict of interest for C.E.O.’s of banks and large corporations who serve on the Fed’s board of directors to have received cheap loans from the Fed," Senator Bernard Sanders, a Vermont independent who wrote the legal provision requiring the Fed to make the disclosures, said in a statement on Sunday.
...
Goldman, previously an investment bank, became a Fed-regulated bank holding company during the crisis. It tapped the Fed program to help investment banks 52 times, owing $18 billion to the Fed at one point -- receiving far greater support than JPMorgan.
The chairman of the New York Fed at the time, Stephen Friedman, was a Goldman director and former chairman of Goldman. The Fed granted Mr. Friedman a waiver so he could continue serving as chairman of the New York Fed.
While awaiting the waiver, Mr. Friedman bought shares of Goldman around the time the bank received Fed support. After The Wall Street Journal reported on the purchases, Mr. Friedman stepped down, saying the Fed "does not need this distraction." The New York Fed’s top lawyer said at the time that Mr. Friedman "did not violate any Federal Reserve statute, rule or policy."
Mr. Friedman’s successor as chairman of the New York Fed was Denis M. Hughes, president of the New York State A.F.L.-C.I.O. Fed observers say it is unlikely that a former banker will serve as the agency’s chairman any time soon.
TARP became a symbol of bailout policy gone awry. Actually, the program has succeeded for banks and, thus far, for the government. Taxpayers earned $795 million on the J. P. Morgan stake. Dimon is upset that people think he was bailed out. But there is at least some truth to the view of Christina Romer, a former economist for President Obama, who notes that Dimon "was part of the system that gave rise to the crisis. He certainly benefited. If the system went south, he’d have gone south with everybody else."
The deepest and most destructive uncertainty we face centers on the overall health of the economy and its prospects for growth. Unlike other postwar recessions that were caused by tight monetary policy and high interest rates, the recent downturn resulted from the bursting of a housing bubble and a financial crisis. Because we are in largely uncharted territory, figuring out how and when the economy will recover is much harder than usual.
I think we know what to do, it's Republican opposition that is the problem (see for example the lunacy Rep. Mike Pence of Indiana and Senator Corker of Tennesse about how the Fed shouldn't concern itself about unemployment. And so Republican Bernanke has to go on 60 Minutes to defend the Fed.) Othewise I agree strongly with Romer's Op-ed.
"I do human rights the way I played basketball," John Prendergast said. We were sitting in the outdoor restaurant of an unfinished hotel in Juba, a boomtown of mud and shanties beside the White Nile in southern Sudan. It’s a restaurant where the South’s liberation leaders tend to gather, and these days they are in a buoyant mood. They have traded their fatigues for dress shirts and suits. A half-century of civil war seems to be culminating in independence. If a referendum on Jan. 9 goes as expected, the map of Africa will be redrawn " with a new nation around the size of Texas. But for the moment, Prendergast, who is America’s most influential activist in Africa’s most troubled regions and who huddled on a White House patio with President Barack Obama a few days earlier, talked about basketball guards.
...
One way to understand Prendergast’s influence, suggested Samantha Power, who is the National Security Council’s senior director for multilateral affairs and human rights and who counts Prendergast among her close friends, is not to see Obama as lacking a sense of urgency on Sudan were it not for Prendergast’s recent activism, but rather to view the president as long-engaged on Sudan partly because of the highly successful advocacy movement Prendergast helped to start several years ago around the crisis in Darfur. And now, she continued, on North-South peace, Prendergast is "creating a political space; he’s putting political wind in the sails of people who care about this issue: the president, Denis" -- she nodded toward McDonough, the deputy national security adviser -- "me. He’s elevated Sudan to Himalayan proportions on the mattering map in Washington." While this may be an overstatement, Prendergast has surely helped to pull an expanse of scrub and swamp, and the people who live upon it, into American sightlines.(emphasis added)
The floating zloty, which has fallen about 18 percent against the euro since early 2009, acted as a pressure release valve, helping to keep Polish products competitive on world markets and insulating Poland from the effects of the sovereign debt crisis.
Poland has proved itself to be Europe’s most dogged economy during the last two years. It was the only member of the European Union to avoid recession, soldiering on even after a plane crash in April killed much of the political elite, including the president and the central bank governor. No banks needed to be rescued.
You want to think about just how hard it would be to cut wages 18 percent, as opposed to achieving it automatically via depreciation.
Just the other a day an employee at the local used book store in my neighborhood was shocked when Mick Jones and Paul Simonon entered the store, browsed and asked if they had a certain book. They were playing with Gorillaz who were performing at a local music venue that night.
With a sly hipness that is the trademark of Joel and Ethan Coen, a billboard just outside the Melrose Avenue gate at Paramount Pictures promotes their next film, "True Grit," with a promise: "Retribution. This Christmas."
It's funny but is it "hipness"?
But other film devotees were less charmed, particularly when they viewed "True Grit" through the filter of Vietnam-era politics and Wayne’s conservative principles -- which he had said were illustrated by a scene in which Cogburn shoots a rat after demonstrating the futility of trying to treat it under due process of law. (The new film has no such moment.)
Writing in The New Yorker, Penelope Gilliatt complained of the movie’s "very right-wing and authoritarian tang." She was particularly put off by the frontier stoicism, which she described as "near-Fascist admiration for a simplified physical endurance of pain"
In The New Republic, Stanley Kaufman said of Mr. Portis’s novel, "Although it was short it was overlong by about a third." The film’s director, Henry Hathaway, he described as "an old workhorse" who "hasn’t had a new idea since the beginning of his career"
President Richard M. Nixon, for whom Wayne had campaigned, apparently felt otherwise, if a snippet of conversation caught by his Oval Office taping system in February 1971 is any measure. Greg Cumming, an archivist with the Nixon Library, said that the audio quality of the tape was bad, but that he could make out Nixon’s discussing "True Grit: with his chief of staff, H. R. Haldeman. They talk of someone’s having gone "out in a blaze of glory," according to Mr. Cumming.
Of course, Wayne went on to make about 10 or so more films, including the 1975 sequel "Rooster Cogburn," before his death in 1979.
The Coens said they only dimly recalled having seen the earlier movie when they were young, and they did not watch it in preparing their own. "We didn’t do our homework," Ethan Coen said.
Joel Coen said they were drawn to the underlying book a few years ago after he had "re-read it out loud to my kid."
From December 2007 to October 2008, the Fed opened swap lines with foreign central banks, allowing them to temporarily trade their currencies for dollars to relieve pressures in their financial markets.
The European Central Bank drew the most heavily on these currency arrangements, the records show, but nine other central banks also made use of them: Australia, Denmark, England, Japan, Mexico, Norway, South Korea, Sweden and Switzerland.
But problems were developing under the surface. During the boom, prices and wages rose more rapidly in Spain than in the rest of Europe, helping to feed a large trade deficit. And when the bubble burst, Spanish industry was left with costs that made it uncompetitive with other nations.
Now what? If Spain still had its own currency, like the United States -- or like Britain, which shares some of the same characteristics -- it could have let that currency fall, making its industry competitive again. But with Spain on the euro, that option isn’t available. Instead, Spain must achieve "internal devaluation": it must cut wages and prices until its costs are back in line with its neighbors.
And internal devaluation is an ugly affair. For one thing, it’s slow: it normally take years of high unemployment to push wages down. Beyond that, falling wages mean falling incomes, while debt stays the same. So internal devaluation worsens the private sector’s debt problems.
What all this means for Spain is very poor economic prospects over the next few years. America’s recovery has been disappointing, especially in terms of jobs -- but at least we’ve seen some growth, with real G.D.P. more or less back to its pre-crisis peak, and we can reasonably expect future growth to help bring our deficit under control. Spain, on the other hand, hasn’t recovered at all. And the lack of recovery translates into fears about Spain’s fiscal future.
Iceland versus Ireland; heterodox versus orthodox.
What’s going on here? In a nutshell, Ireland has been orthodox and responsible -- guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring -- notice that wonderful line from the IMF, above, about how "private sector bankruptcies have led to a marked decline in external debt". Bankrupting yourself to recovery! Seriously.
And guess what: heterodoxy is working a whole lot better than orthodoxy.
Competent budget analysts know that the long-term budget problem is a health care cost problem. If U.S. per person health care costs were comparable to those in any other wealthy country, we would be looking at huge projected surpluses not deficits. Because health care costs are rising rapidly in the private sector, it means that the public sector programs that pay for these benefits (most important Medicare and Medicaid) also have rapidly rising costs.
If Medicare and Medicaid are lumped together with any other programs then the combination of Medicare, Medicaid, and the other program will be the cause of the deficit. For example, the categories of Medicare, Medicaid, and foreign aid explain the vast majority of the projected increase in the deficit over the next quarter century. Similarly, the combination of Medicare, Medicaid, and school lunch programs also explains the vast majority of the projected increase in the deficit over the next quarter century.
Robert Samuelson throws in Social Security as the third program so that he can tell readers:
"America's budget problem boils down to a simple question: How much will we let programs for the elderly displace other government functions."
Social Security does not in any honest way since it is fully financed over the period in question by the designated Social Security tax. But Samuelson does not feel bound by such details.
Of course there are easy ways to prevent health care costs from bankrupting the country, most obviously by taking advantage of the lower cost health care available in other countries. But, Samuelson never discusses such possibilities, focusing exclusively on cutting benefits on which the vast majority of retirees depend.
here is, for example, Glenn Hubbard, who was featured on the New York Times op-ed page recently in defense of the deficit commission, describing the problem this way: "We have designed entitlements for a welfare state we cannot afford." This is the same Glenn Hubbard who served as George W. Bush’s chief economic adviser when Dick Cheney was saying that "Reagan proved deficits don’t matter." One imagines that if Hubbard was so concerned about deficits, he might have resigned in protest from an Administration dedicated to creating them. But, no, he’s here to speak truth to the powerless -- to the middle-class folks whose major asset, their home, was trashed by financial speculators, thereby wrecking their retirement plans and creating the consumer implosion we’re now suffering. Hubbard is telling them they now have to take yet another hit, on their old-age pensions and health insurance, for the greater good.
His model forecasts real annualized growth in gross domestic product of 3.69 percent for the first three quarters of 2012. A survey of leading economists by Blue Chip Economic Indicators shows an average forecast of 3.2 percent growth in real G.D.P. in 2012, while the Congressional Budget Office estimates 3.4 percent. Plug either of these estimates into his election algorithm and the result is the same: President Obama wins.
Others have illuminated facets of the crisis in more depth. John Cassidy’s "How Markets Fail" explained the economic history and theory with greater sophistication. Gillian Tett’s "Fool’s Gold" offered a journey into one investment bank, J. P. Morgan, and a close look at how it helped create a financial instrument, the credit derivative, that amplified risk rather than minimizing it. "In Fed We Trust," by David Wessel, took the reader behind the scenes in Washington, where politicians and regulators missed all the warning signs. For their part, McLean and Nocera concentrate on the basics and bring them together in brisk, well-organized chapters.
I've read Cassidy's book and Wessel's book, but need to get Tett's.
Barrett writes
Another public quarrel McLean and Nocera bring into focus is the esoteric debate about Federal Reserve monetary policy. Ben S. Bernanke, the chairman of the Federal Reserve, has pushed interest rates practically to zero to try to stimulate growth and reduce an unemployment rate that currently hovers near 10 percent. Dissenters from this policy, like Thomas M. Hoenig, the president of the Kansas City Federal Reserve Bank, warn that Bernanke is repeating the mistake of his predecessor, Greenspan, who employed similar measures to combat the recession that followed the dot-com crash of 2000.
There are two different issues about Greenspan. His approach to regulation and his approach to interest rates. Hoenig and Barrett erroneously conflate the two.
Bernanke and Krugman point to the global savings glut rather than the Fed's policy of keeping rates low after the dot-com crash of 2000 as the source of the housing bubble which took on a life its own once it had momentum.
Historically, we have had three types of excess demand for finance that have produced big downturns in economies.
In 2002 there was an excess demand for bonds and so logically there was less demand for currently produced goods and services. Brad doesn't say it, but that was in the aftermath of the Tech Bubble crash. He writes that in 2008 there wasn't excess demand for bonds because they are still cheap. They would be expensive if there was an increased demand.
Second is excess demand for liquid cash money.
It is possible to tell when there is monetarist downturn: since everybody is trying to build up their stocks of liquid cash money, everybody is selling their other financial assets and thus their prices--stocks, bonds, whatever--and all their prices are low. That is not the kind of downturn we have today: today the prices of some financial assets--the liabilities of credit-worthy governments, for example--are very high.
Third is an excess demand for safety after the housing bubble popped and the ensuing panic.
We conclude that the excess demand in financial markets right now on the part of investors is an excess demand for safety: for high quality AAA-rated assets for people that hold in their portfolios. Prices of risky financial assets are low--there is no excess demand for them. Prices of safe financial assets are high--there is an excess demand for them.
Thus businesses and households have cut back on their spending on currently-produced goods and services as they all have concluded: "We don’t have enough safe assets in our portfolios. We need to stop spending so much until we build up our holdings of safe assets to a higher level." And the fact that they cannot do so because there is a shortage of safe assets in the economy is what is keeping us wedged in this current situation of high unemployment and low capacity utilization.
Where did this excess demand for safe assets come from?
It came as a consequence of the deregulation of finance and of the securitization of mortgages, from the housing bubble and the crash, from the fact that then it turned out that investment banks that had created brand new derivative securities based on mortgages had not originated-and-distributed them but had, to a remarkable and astonishing degree, originated and kept them. They were supposed to sell off all the pieces o[f] real estate risk in small bundles to savers all over the world. They did not.
The Republicans who signed the letter were the Senate minority leader, Mitch McConnell of Kentucky; Senator Jon Kyl of Arizona; Representative John A. Boehner of Ohio, who is in line to become the House speaker in January; and Representative Eric Cantor of Virginia, the No. 2 House Republican. They emphasized that the Fed should be insulated from political pressure but also said the central bank "should be open to receiving input and data from a wide range of sources."
However, the letter was more moderate in tone than recent complaints voiced by other Republican critics, like Representatives Mike Pence of Indiana, the chairman of the House Republican Conference, and Kevin Brady of Texas, who is in line to lead a subcommittee on trade.
By contrast, in the Fed’s corner on Wednesday was Thomas J. Donohue, president of the United States Chamber of Commerce, which poured money into the midterm campaigns to defeat Democrats.
"The Fed has over many, many, many years been particularly helpful to this government and to this country in dealing with financial crises, and by the way, they always make money on it," Mr. Donohue told reporters, referring to the fact that the Fed each year turns over to the government the profit it makes as a byproduct of its investments. "We’re hopeful that the Fed’s judgments turn out to be very positive for job creation and economic expansion."
Mr. Donohue suggested that some of the criticism of Mr. Bernanke had gone too far, praising Mr. Bernanke as a scholar of the Depression and saying, "We must maintain the independence of the Fed and be very, very careful not to louse that up on Capitol Hill:"
Isaac Asimov relates a joke in his Treasury of Humor (1971) that claims that Otto von Bismarck challenged Rudolf Virchow to a duel. As the challenged party had the choice of weapons, Virchow chose two sausages, one of which had been infected with cholera. Bismarck is said to have called off the duel at once.
As Catherine Rampell points out, this is the lowest level of core inflation ever.
But I have a question here: why do economic forecasters keep predicting a near-time rise in core inflation, even though they are also predicting high unemployment? The Survey of Professional Forecasters now predicts average unemployment of 8.7 percent in 2012, which would seem to be a recipe for continuing disinflation and quite possibly deflation; but the same forecasters predict a noticeable rise in core inflation over the next two years:
I don’t really understand this, except as a fundamental unwillingness to face up to the Nipponization of the US economy.
Ireland is in the headlines these days as its government struggles with insolvency. Remarkably, none of the news stories remember to point out that Ireland was a model of fiscal responsibility in the years leading up to its current disaster. Not only did it balance its budget, Ireland ran large budget surpluses in the 5 years preceding its collapse in 2008. Its peak surplus in 2006 was 2.9 percent of GDP, the equivalent of a surplus of roughly $420 billion in the United States.
Like the deficit hawks in the United States, Ireland's political leaders ignored the country's massive housing bubble, the collapse of which sank its economy. It is interesting to note that, while Ireland's background to the deficit crisis is generally ignored, news reports on Greece's financial difficulties routinely referred to its large budget deficits in the years leading up to the crisis.
And yet here we are in the US talking about deficits and the Catfood Commission.
Bernanke and the Fed have been attacked by China, Germany etc., Greenspan and conservative letter writing economists.
Yglesias directs us to this by Greg Mankiw. He didn't sign the letter, nor did Mark Zandi. Both have gone up in my book. Greenspan seems to have reverted to form after admitting he was wrong about self-regulating banks.
Bottom Line: In general, the retail sales report was good news, as it is another indicator that drives a stake into the heart of the double-dip story. But keep in mind that the data continues to illustrate the good cop, bad cop conflict in the economy. Policymakers should be concerned about the distance between new trends and old, lest they risk falling into the trap of diminished expectations, believing that 9% unemployment should be the new normal. Market participants, however, may simply be content with confirmation that the foundation for ongoing corporate revenue growth remains secure.
The economic approach embraced by the most prominent liberals over the past few years is mostly mechanical. The economy is treated like a big machine; the people in it like rational, utility maximizing cogs. The performance of the economic machine can be predicted with quantitative macroeconomic models.
I protest, on several grounds.
First, it’s conservative economists who insist that people are always rational and utility-maximizing; liberal economists are the ones willing to invoke bounded rationality, animal spirits, etc.. The whole salt-water fresh-water split was about which you were going to believe: the assumption of perfect maximization, or your own lying eyes. And the Keynesians were the ones who preferred to believe their eyes.
Second, David would have us believe that the Obama people were misled by their excessive faith in models. But we actually know what happened when the stimulus was being discussed: the modelers, who said that we needed something much bigger, were dismissed in favor of gut feelings about market psychology.
The truth is that we would have been much better off if Obama et al had relied on old-fashioned hydraulic Keynesianism.
Update: It’s here. And it really is that bad. The idea that co-chairs of a commission whose charge is fiscal sustainability should take it upon themselves to (a) declare that federal revenue must not exceed 21 percent of GDP -- that’s right, putting a cap on receipts and (b) call for reducing the top rate from 35 to 23 is just awesome.
This is how history will judge Obama. I can't believe he will go there. If so he will really demoralize his base. Hopefully the economy will recover by 2012 and the independents will come back as the Republicans implode. But Boehner seem smarter than Gringrich.
Now that the campaign’s been over for a while can we all step back and ponder how nutty it was for Meg Whitman to spend $140 million on a failed bid to become Governor of California?
Gretchen Morgenson writes about an analyst who saw the housing bubble and is now seeing the economy turning the corner by August 2011 based on his analysis of small business.
Like Mr Mallaby I regret the retreat from financial globalisation, but if it substitutes for naked protectionism, I can live with it. One thing other countries should not do is ask America to leave unused one of the few effective policy tools it has left to stimulate the domestic economy. The world needs higher unemployment and deflation in America like a hole in the head.
I was talked into seeing the new Clint Eastwood/Matt Damon movie Hereafter* even though communing with the dead isn't my cup of tea. (However I do love the Mexican holiday Day of the Dead which sounds like a zombie horror flick**) I do like Eastwood and Damon however and was willing to give it a go even if burblings from the beyond bore me.
Damon's character is psychic and can communicate with people's dead loved ones, but it is upsetting for him. To calm himself down at night he listens to audio recordings of Charles Dickens' works, which I thought was interesting. There can be something soothing to an articulate old-timey British accent for an American for some reason.
The video is a recording of the new Chicago-based band the Secret Colours whose influences are Blur, The Jesus and Mary Chain, Stone Roses, Charlatans UK and the '67 London UFO scene. I'm looking forward to seeing them in concert.
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* Saddest movie ever made is Atom Egoyan's The Sweet Hereafter. I like to give "hippie peaceniks" a hard time but this scene about hippies is great.
**Maybe because there is one. AMC's new program The Walking Dead is pretty good zombie fun.
Because what sort of non-conservative - one perceives Williams to be some degree of liberal; he'd probably protest that he's just a reporter; in either case, he's not a conservative - agreed to be an in-house flunky at Fox? I'm sure they offered him nice money, and money is money, and I can't say with certainty that I'd have turned it down if Rupert had waved it under my nose.
But if you're any kind of liberal at all, even in the softest and most non-political possible sense, it's basically an indefensible thing to do. Fox News wants liberalism to perish from the face of the earth. Going on their air on a regular basis and lending your name and reputation to their ideological razzle-dazzle is like agreeing to be the regular kulak guest columnist at Pravda in 1929. For "balance".
I disagree. That analogy is wrong. Plus Williams was better than Colmes. Colmes is/was horrible.
Indeed, there has been a noticeable change in the rhetoric of the government of Prime Minister David Cameron over the past few weeks -- a shift from hope to fear. In his speech announcing the budget plan, George Osborne, the chancellor of the Exchequer, seemed to have given up on the confidence fairy -- that is, on claims that the plan would have positive effects on employment and growth.
Instead, it was all about the apocalypse looming if Britain failed to go down this route. Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the "brink of bankruptcy"
What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.
The NYT had a piece on the recent decline in the value of the dollar and effort by other countries to offset its impact. The article noted in particular developing country efforts to reduce capital inflows that are raising the value of their currency.
It would have been worth noting that in standard economic theory, developing countries are supposed to be borrowers. The logic is that capital is relatively scarce in the developing countries, which means that it gets a higher return. Capital therefore should flow from relatively to slow growing rich countries to more rapidly growing developing countries.
This was the direction of flows until the East Asian financial crisis in 1997. The harsh conditions that the IMF imposed on the East Asian countries led developing countries throughout the world to focus on building up reserves so that they would not have to deal with the IMF. This reversal coincided with the "high dollar" policy touted by then Treasury Secretary Robert Rubin. It helped to lay the basis for the imbalances associated with the stock and housing bubbles.
To a large extent, the decline in the value of the dollar would effectively reverse the distortions to the world economy resulting from the IMF-Rubin policy of the late 90s. It is also worth noting the recent decline in the dollar is largely just reversing its run-up as a result of the financial crisis in 2008. Money flowed into the U.S. as a safe haven, pushing the dollar well above its pre-crisis levels. It is now falling back toward the level it was at before the crisis.
What would you call the reasonable reaction of China and others to the harsh conditions imposed by the IMF in the wake of the 1997 crisis? It would be the opposite of morale hazard. Once can be too indulgent and too harsh or strict.
This New York Times piece argues that England's current austerity measures are partly due to memories of the IMF bailing them out in the 1970s.
Tuesday, October 19, 2010
Of Turning Japanese
A scary chart from Mary Daly, vice president of the Federal Reserve Bank of San Francisco. (via Krugman, via Mark Thoma)
Brad DeLong doesn't believe the QE2 will be enough. (sorry no link) Dean Baker argues that we are already - as they used to say in Vietnam - in the shit. (sorry no link) If we cross past zero, it won't mark anything new just that we are continuing our descent of disinflation. The point when we entered a Keynesian situation is where we crossed the rubicon.
What is needed is a larger QE and more fiscal stimulus.
But that seems unlikely, as long as the recovery plods along slowly. "It would be a mistake to attribute the distancing from Obama’s stimulus entirely to political caution or opportunism," said Robert S. Weisbrot, a historian at Colby College. "As much as those factors may be important, it is dismaying how little evidence there is to show for it. Maybe we need even more, but surely $800 billion should have counted for something"
During the pre-crisis period, spending grew slightly faster than GDP --that’s Medicare plus the Bush wars -- while revenue grew more slowly, presumably reflecting tax cuts.
What happened after the crisis? Spending continued to grow at roughly the same rate -- a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled -- which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.
But I’m sure that the usual suspects will find ways to keep believing that it’s all about runaway spending.
What the usually good Sewell Chan fails to report is that the much of the stimulus was ineffective tax cuts and that much of the rest was canceled out or negated by the anti-stimulus of the 50 state governments and the stalling of GDP growth. Currently the economy is growing too slow to create enough jobs and aggregate demand which is why we'll see more action from the Fed.
It is believed that Senate Republicans will ultimately not try a filibuster to block Professor Diamond now that he has been renominated. (His nomination was said to have been initially blocked in retaliation for a refusal by Democrats to give a full 14-year term to Randall S. Kroszner, who served on the Fed board from 2006 to 2009.)
If confirmed, Professor Diamond would complete a 14-year term that expires on Feb. 1, 2014.
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