The Floor System

The new thing for me is the realization - reading Waldman - that we will be in a liquidity trap for a long time. Atlanta's Lockhart says QE is not "QE infinity."

Yesterday Steve Williamson blogged:

The quantity of reserves held by US financial institutions is now approaching $1.6 trillion, and the Fed has promised to increase that stock by $85 billion per month for the indefinite future. Thus, it seems safe to say that the Fed will be working within a monetary regime with a large quantity of excess reserves for a very long time.

All Your Base Are Belong To Us, Continued (Still Wonkish) by Krugman

Yet more on the floor with Paul Krugman by Steve Randy Waldman

Krugman "And I think he’s implying that there’s really no difference between 2(b) and 3." 3 is what MMTers argue something Krugman has discussed before.

Waldman "But Waldman definitely does not at all believe that 2(b) and (3) are equivalent when the interest rate is positive." So he's not a subscriber to MMT?

At Economic View, Sadowski links to "the Money Illusion":

Currency matters even with IOR by Scott Sumner

Which I can't make sense of. As I understand it, there are three schools of demand management: the Modern Monetary Theoryist (MMTers, far left), the Market Monetarists (rightwing) and the mainstream DeLong-Krugman-Thoma axis to which I subscribe.

A link history of this discussion:

Debt in a Time of Zero by Krugman 

It’s true that printing money isn’t at all inflationary under current conditions— that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public. 

We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry.

Which led to Ip's blogpost which linked to the above:

Platinomics by Greg Ip

But the politics are utterly different. We have a central bank to separate fiscal from monetary policy. The Fed implements QE when it has decided that’s the best way to carry out its monetary policy objectives. Buying a coin solely to finance the deficit is monetizing the debt, precisely the sort of thing central bank independence was meant to prevent. How could any Federal Reserve chairman justify cooperating in such a scheme, in particular since the Fed would be taking the White House’s side in a fight with Congress over a matter of dubious legality? 

Yes, the Fed has sacrificed its independence for the sake of the national interest before, such as maintaining a ceiling on Treasury yields between 1942 and 1951; but that was (initially) in wartime, and it eventually led to inflation. Would avoiding the debt ceiling be important enough to compromise the Fed's independence? Perhaps not in this one case; but it would set a precedent future presidents will happily exploit and feed the perception that America’s economic institutions are in terminal decline. America has had debt ceiling crises before (in 1957, 1985, 1996 and 2011) and survived; are the unknown risks of the platinum coin option obviously preferable to the known risks of hitting the debt ceiling?

Duy linked to both Krugman and Ip:

On The Disruptiveness of the Platinum Coin by Tim Duy

Carrying the argument further, the illusion of a difference between cash and debt at the zero bound is counterproductive because it prevents the full application of fiscal policy.  Fears about the magnitude of the government debt prevent sufficient fiscal policy, but such fears are not rational if debt and cash are perfect substitutes. If cash and debt are the same, the fiscal authority should prefer to issue cash if debt concerns create a false barrier to fiscal policy.  Still, I would argue that this is best done in cooperation with the monetary authority.  Note that this is not really a new idea, as then Governor Ben Bernanke drew a similar conclusion with regards to Japan:

However, besides possibly inconsistent application of fiscal stimulus, another reason for weak fiscal effects in Japan may be the well-publicized size of the government debt...In addition to making policymakers more reluctant to use expansionary fiscal policies in the first place, Japan's large national debt may dilute the effect of fiscal policies in those instances when they are used....My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt--so that the tax cut is in effect financed by money creation.

And then we come to the platinum coin, which threatened to expose the illusion that cash and debt are different at the zero bound.... 

...
Ultimately, I don't believe deficit spending should be directly monetized as I believe that Paul Krugman is correct - at some point in the future, the US economy will hopefully exit the zero bound, and at that point cash and government debt will not longer be perfect substitutes. Note that Greg Ip disagreed with this point:

I disagree. The Fed does not have to sell its bonds, or the $1 trillion coin, to control inflation (though it may do so anyway). It only needs to retain control of interest rates, and that does not depend on the size of its balance sheet.

Waldman links to Duy and Ip:

There’s no such thing as base money anymore by Steve Randy Waldman

Krugman responds

All Our Base Are Belong To Us (Wonkish) by Krugman

Waldman responds

Do we ever rise from the floor? by Steve Randy Waldman

and then Krugman responds again (see above) and Waldman responds again (see above)

Update:

Tim Duy has another post:

My takeaway from Waldman is that under some institutional structures, there is little difference between platinum coins and government debt (or because we have debt we have a particular institutional structure?) In effect, the the zero-bound issue and platinum coin debate have forced us to think down paths that blur the lines between fiscal and monetary policy. The longer we are in at the zero-bound, the more we will challenge the existing status-quo. 

Alternatively, this can also be simply a misunderstanding on Krugman's part if he believes that Waldman is saying that we can use platinum coins to literally monetize deficit spending with neither budgetary nor inflationary implications. I don't think Waldman is thinking this, and if he is, then I think he would be wrong.

And  commenter RebelEconomist (from the UK) at Waldman's latest:

What a lot of fuss about nothing! Americans might save themselves much confusion if they paid more attention to practices in other countries. Well before the financial crisis and QE, the Bank of England switched to paying interest on reserves to make the demand for reserves more elastic and hence make moneymarket interest rates, through which the BoE regulated its monetary stance, less volatile. Provided that the interest rate paid on reserves is a bit less than low credit risk private sector debt, the banks will still hold reserves primarily as a settlement asset, but simply hold more reserves. On May 18 2006, the day the new regime was introduced, reserves held by British banks rose about twenty fold, a demand met by the BoE, without any disturbance to inflation, sterling exchange rates or government debt markets. I explain the reasoning in more detail in this old post of mine:  

http://reservedplace.blogspot.co.uk/2009/04/easing-understanding.html 

(especially paragraphs 20-24). I suspect that the Fed always wanted to introduce such a system themselves, but found it difficult to get past populist congressmen whining about giving money away to banks, and now they have it, they are going to hang onto it for operational reasons long after they cease paying interest on reserves for QE purposes!

Commenter Tom Hinkey at interfluidity:

I think that it is unlikely that the Fed will continue the setting floor rate by paying IOR for political reasons similar to the reason that the platinum coin was smothered in the crib. It gives the game away and threatens the illusion that government finance is like firm or household finance under the current monetary regime. This is not an operational requirement since there is no operational reason for government not to fund itself directly. The illusion that government needs to be funded from revenue or borrowing from the private sector is created by political means, that is legislation, regulation, and interpretation. There is serious speculation that the central bankers’ club nixed the platinum coin gambit for this reason, and I would not be surprised to see TPTB nix payment of IOR when it no longer suits their purposes. 

Another Updated(!) 

Once you turn base money into short-term debt, can you go back? by Izabella Kaminska

All Your Base Are Belong To Us: What Is the Question? by Krugman

Lost Decades

Do we ever rise from the floor? by Steve Randy Waldman

The Game Theory of the Post-Platinum Coin Debt Ceiling by Mike Konczal

Aaron Swartz's Lawyer: Prosecutor Stephen Heymann Wanted 'Juicy' Case For Publicity

Secrets of the crisis revealed: What to expect from transcripts of 2007 Fed meetings by Neil Irwin

Why Obama May Drive a Hard Bargain by Nate Silver (1.15.13)

A long time ago I mentioned the fact Obama doesn't need to be re-elected.

Memes of the Moment (Silly) by Krugman (1.15.13)

On the debt ceiling, the White House tries to solve its credibility problem by Ezra Klein (1.14.13)

Why Nobody Believes Obama on the Debt Ceiling by Yglesias (1.14.13)

He says "Now there is a credibility problem." Why? Because he was negotiated up/down to 400k?

Are Klein and Yglesias glaringly wrong? Were they spreading disinformation? Is that overthinking it?

Political Economy

Japan, the Platinum Coin, the ZLB and central bank independence

This is regarding my earlier post linking to Waldman and Duy.

Andy Harless comments at interfluidity:

“Printing money will always be exactly as inflationary as issuing short-term debt, because short-term government debt and reserves at the Fed will always be near-perfect substitutes” 

Depends on what you mean by “printing money.” We’ve grown up using the phrase figuratively, but the people who started doing so never anticipated that electronic bank reserves would some day bear interest. I suggest we should go back to using the phrase literally, in which case your statement is not true: printing money will be inflationary (assuming we exit the ZLB), more so than issuing short-term debt (and arguably issuing short-term debt will be inflationary only because it reduces the demand for printed money). 

Back in the days before IOR, the Fed would from time to time change reserve requirements. And if the Fed were to raise the reserve requirement and offset this change with an increase in reserves, we would probably not say that the Fed had “printed money,” even though it had done so in the “literally figurative” sense of having created reserves. But imposing a reserve requirement is essentially the same as paying IOR and then taxing it away. These days the Fed can use adjustments in the IOR rate to prevent the need to literally print money, just as it could use reserve requirements in the past (and still, if it chooses). 

I submit that what is actually relevant is the literal printing of money. (Note that platinum coinage, assuming it were to remain in circulation after the ZLB exit, would not constitute net printing of money, because it would be offset by reduced printing of Federal Reserve notes — or else, if it remained on deposit at the Fed, it would be essentially nonexistent from the private sector’s point of view) The Fed has promised to print money under certain circumstances, but it can control those circumstances (at a cost). Creating reserves is potentially inflationary inasmuch as it raises the cost of refraining from printing money and thus raises the chance that the Fed will print money, but it does not constitute printing of money. Issuance of interest-bearing debt is potentially inflationary inasmuch as it reduces the demand for printed money (by raising the opportunity cost of holding it), thus reducing the amount of money that has to be printed to create a given amount of inflation. 

What is critical here is that there is a demand for Federal Reserve notes — a product that the Fed is licensed to provide monopolistically and can therefore choose a point on the demand curve so as to set the price where it wishes. The fact that the Fed also competitively supplies the market for interest-bearing assets is of less importance. Of course the Fed’s monopoly also becomes less important when normally interest-bearing assets become close substitutes for the Fed’s monopoly product (i.e., when we are at the ZLB).

The interest on reserves seems to be the new thing. As Duy wrote quoting Ip:

I disagree. The Fed does not have to sell its bonds, or the $1 trillion coin, to control inflation (though it may do so anyway). It only needs to retain control of interest rates, and that does not depend on the size of its balance sheet.

Ip argues that interest on reserves gives the Fed the power to control interest rates, and consequently the power to control inflation, regardless of the size of the balance sheet. If you follow Ip's analysis through to its logical conclusion, then why should the Treasury issue debt at all?

Krugman chimes in:

 All Our Base Are Belong To Us (Wonkish)

Well, almost all, at least in normal times. 

Via Mark Thoma, I see that Steve Randy Waldman believes that the distinction between monetary base — the stuff only the central bank can create — and short-term debt in general has disappeared, not just for the moment, but permanently. It’s a point of view I hear fairly often, along with the view that in fact there never was a difference. But it’s a view based, I think, on a slip of the tongue. 

What do I mean by that? That people saying these things — you can see it clearly in Waldman’s post — slide much too easily into identifying monetary base with bank reserves. And since bank reserves now pay interest, well, aren’t they just debt? 

But bank reserves are just one component of the monetary base — and in normal times, a trivial component. Here (pdf) is a useful table:

 

Before the crisis, only about 5 percent of the monetary base consisted of bank reserves. The rest was basically currency. 

This meant that the simple textbook description of how an open-market operation increases the money supply — a bank lends out 1-r of its new reserves (with r the reserve ratio), which return to the banking system, leading to another round of lending, and eventually the money supply rises by 1/r times the injection — is deeply misleading. What actually limits the growth in the money supply is the fact that a substantial part of each round of lending leaks out of the banking system, getting added to hoards of green paper bearing the faces of dead presidents. 

And dead presidents, as you may have noticed, don’t pay interest. 

Now, under current conditions that doesn’t matter; dead presidents don’t pay interest, but neither do T-bills, so short term debt and currency form an aggregate (a Hicksian composite commodity, for the serious nerds out there), whose composition doesn’t matter. But interest rates won’t always be zero, and at that point the size of the monetary base — dead presidents plus a sliver of bank reserves that can be converted into dead presidents at will — will matter again. 

It’s true that the Fed could sterilize the impact of a rise in the monetary base by raising the interest rate it pays on reserves, thereby keeping that base from turning into currency. But that’s just another form of borrowing; it doesn’t change the result that under non-liquidity trap conditions, printing money and issuing debt are not, in fact, the same thing.

The last paragraph is where he disagrees with Ip and Waldman and possibly Duy. I take it Krugman is saying that in non-liquidity trap conditions, printing money would be inflationary while issuing debt would not be. I take it that it's another way of saying deficit spending in a liquidity trap isn't inflationary while, deficit spending in non-liquidity trap conditions even if sterilized would still be borrowing and increasing the debt even if it doesn't add to the monetary base and inflation. I think.

Internet Activist, a Creator of RSS, Is Dead at 26, Apparently a Suicide

Different obit in the print edition I picked up. It ended with his last blog post, a review of "The Dark Knight Rises" where he discusses how Bruce Wayne faked his suicide. Was the writer hinting that perhaps Swartz is alive in another country?

"Thus Master Wayne is left without solutions. Out of options, it's no wonder the series ends with his staged suicide."

There’s no such thing as base money anymore by Steve Randy Waldman

Fed Watch: A Trap of My Own Making by Tim Duy

Remembering Aaron Swartz by Rick Perlstein

I remember always thinking that he always seemed too sensitive for this world we happen to live in, and I remember him working so mightily, so heroically, to try to bend the world into a place more hospitable to people like him, which also means hospitable to people like us. I like what the blogger Lambert Strether wrote on my Facebook page (in Aaron’s memory, friend me!): “Our society should be selecting for the Aaron Swartz’s of this world. Instead, generous and ethical behavior, especially when combined with technical brilliance, turns out to be maladaptive, indeed lethal. If Swartz had been Wall Street’s youngest investment banker, he would be alive today.” 

Aaron Swartz: A Tragic Early Death by Dean Baker

It is difficult not to be outraged by this part of the story. Here is an administration that could find nothing to prosecute at the Wall Street banks who enriched themselves by passing on hundreds of billions of dollars of fraudulent mortgages in mortgage backed securities and complex derivative instruments, but found the time and resources to prosecute a young man who wanted to make academic research freely available to the world.

It would be an appropriate tribute to Aaron if his death prompted a re-examination of copyright and patent laws. These laws are clearly acting as an impediment to innovation and progress. If economists had the allegiance to efficiency that they claim, and not just serving the rich and powerful, the profession would be devoting its energies to finding more modern mechanisms for promoting creative work and innovation.

On the Geithner Legacy by Mike Konczal

How Tim Geithner Saved the Banks—with Ben Bernanke's Help by Matt O'Brien

Sometimes I wonder if Dean Baker/Atrios/Matt Taibbi are right and we should have let the whole thing crash and burn thereby ridding us of the parasitic financial sector. I do believe that Obama should have flipped/nationalized Citigroup as he did with the auto makers.

I also believe that we won't get bailouts the next time around, so we'll see how it plays out.

Wall Street thanks you for your service, Tim Geithner by Dean Baker

Treasury Secretary Timothy Geithner's departure from the Obama administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon. 

This was an impressive diplomatic feat – given the widespread popular contempt for Europe's monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.
During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed. 

The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachsif the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge. 

Of the six banks that dominate the US banking system, only Wells Fargo and JP Morgan could conceivably have survived without hoards of cash rained down on them by the federal government. Even these two are questionmarks, since both helped themselves to trillions of dollars of below market-rate loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets. 

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross. 

Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction. Even though the economy is still down more than 9 million jobs from its full employment level, none of the important people in Washington is talking about measures that would hasten job creation. 

Instead, the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.

technological change

Phrenology

Maybe "Django Unchained" will win at the Golden Globes* tonight?

Wage Inequality: Opening Salvo by Dean Baker

Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor's claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.

...

The other point is one of motives. Matthews quotes Autor: 

"Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, ...All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change." 

While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn't much we can do about it has plenty of rich and powerful adherents.

--------------------------------------
*hosted by favorites Tina Fey and Amy Poheler.

Fed Watch: On The Disruptiveness of the Platinum Coin by Tim Duy

Jon Stewart Flunks Econ by Jonathan Chait

National Income Accounting for the Washington Post and Robert Samuelson by Dean Baker

Aaron Swartz, Precocious Programmer and Internet Activist, Dies at 26

In 2007, Mr. Swartz wrote about his struggle with depression, distinguishing it from the emotion of sadness. “Go outside and get some fresh air or cuddle with a loved one and you don’t feel any better, only more upset at being unable to feel the joy that everyone else seems to feel. Everything gets colored by the sadness.” When the condition gets worse, he wrote, “you feel as if streaks of pain are running through your head, you thrash your body, you search for some escape but find none. And this is one of the more moderate forms.” Earlier that year, he gave a talk in which he described having had suicidal thoughts during a low period in his career.... 

Lawrence Lessig, who heads the Safra Center at Harvard and had worked for a time on behalf of Mr. Swartz’s legal defense, noted in an interview that Mr. Swartz had been arrested by the M.I.T. campus police two years to the day before his suicide. That arrest led to the eventual federal indictment and financial ruin for Mr. Swartz, who had made money on the sale of Reddit to Condé Nast but had never tried to turn his intellect to making money. “I can just imagine him thinking it was going to be a million-dollar defense,” Mr. Lessig said. “He didn’t have a million dollars.”

Tributes to a Digital Pioneer Follow Reports of His Death

Another friend, the legal scholar and copyright activist Lawrence Lessig, wrote an angry post, describing the federal government’s decision to indict Mr. Swartz in 2011 — when he was charged with downloading 4.8 million articles and other documents from JSTOR, a nonprofit online service for distributing scholarly articles, and plotting to make them available online for free — as a kind of “bullying.”

Here is where we need a better sense of justice, and shame. For the outrageousness in this story is not just Aaron. It is also the absurdity of the prosecutor’s behavior. From the beginning, the government worked as hard as it could to characterize what Aaron did in the most extreme and absurd way. The “property” Aaron had “stolen,” we were told, was worth “millions of dollars” — with the hint, and then the suggestion, that his aim must have been to profit from his crime. But anyone who says that there is money to be made in a stash of ACADEMIC ARTICLES is either an idiot or a liar. It was clear what this was not, yet our government continued to push as if it had caught the 9/11 terrorists red-handed.

Aaron had literally done nothing in his life “to make money.” He was fortunate Reddit turned out as it did, but from his work building the RSS standard, to his work architecting Creative Commons, to his work liberating public records, to his work building a free public library, to his work supporting Change Congress/FixCongressFirst/Rootstrikers, and then Demand Progress, Aaron was always and only working for (at least his conception of) the public good. He was brilliant, and funny. A kid genius. A soul, a conscience, the source of a question I have asked myself a million times: What would Aaron think? That person is gone today, driven to the edge by what a decent society would only call bullying.

Tributes also appeared on Twitter, where Mr. Swartz had recently posted a note [his last] drawing attention to the campaign for the Treasury to mint a $1 trillion platinum coin to avoid a showdown over the debt ceiling.

"Philip Diehl, the most respected U.S. Mint director America's ever had, joins the campaign to #mintthecoin: buff.ly/Zp58iM" 8 Jan. 13

Mint the coin. For Aaron. Regarding the bullying of prosecutors, I always thought the anti-bullying campaign targeting school kids was worthwhile but kind of weird. American culture is all about the bullying. It's how you get ahead. Where do these bully kids learn it but from their older siblings and parents?

Public choice = Marxism by John Quiggin

Can an exploitation movie be a great movie? with Tasha Robinson and Scott Tobias

Henry Farrell on Aaron Swartz.

His guest posts at Crooked Timber.

I sort of agree with the generous broad view he takes in the post on Toward a Larger Left.

Corey Doctorow via DeLong

JSTOR

JSTOR (pronounced jay-stor;[3] short for Journal Storage) is a digital library founded in 1995. Originally containing digitized back issues of academic journals, it now also includes books and primary sources, and current issues of journals.[4] It provides full-text searches of more than a thousand journals, dating back to 1665 in the case of the Philosophical Transactions of the Royal Society. More than 7,000 institutions in more than 150 countries have access to JSTOR. Most access is by subscription, but some old public domain content is freely available to anyone, and in 2012 JSTOR launched a program of free access to some further articles for individual scholars and researchers who register.

On July 19, 2011, internet activist Aaron Swartz was charged with data theft in relation to bulk-downloading academic journal articles from JSTOR.[9] According to the indictment against him, Swartz surreptitiously attached a laptop to MIT's computer network, which allowed him to "rapidly download an extraordinary volume of articles from JSTOR".[10] Prosecutors in the case say Swartz acted with the intention of making the papers available on P2P file-sharing sites.[11] Swartz surrendered to authorities, pleaded not guilty to all counts and was released on $100,000 bail. Prosecution of the case is ongoing.[12] Two days later, on July 21, Greg Maxwell published a torrent file of a 32-GB archive of 18,592 academic papers from JSTOR's Royal Society collection, via The Pirate Bay, in protest against Swartz' prosecution.[13][14] 

From September 6, 2011, JSTOR has made some public domain content freely available to anyone.[15] JSTOR stated that they had been working on making it free for some time, and the Swartz controversy made them "press ahead" with the initiative.[16]

Swartz committed suicide yesterday at the age of 26.

Swartz's father worked in the computer industry, and from a young age Aaron was interested in computing, frequently studying computers, the Internet and Internet culture.[3] At the age of 14 Swartz co-authored RSS 1.0 Specification. He later attended Stanford University, however he left after one year of studying, stating 'I didn't find it a very intellectual atmosphere, since most of the other kids seemed profoundly unconcerned with their studies'.[3]. Instead he founded the software company Infogami, a startup that was funded by Y Combinator's first Summer Founders Program.[4] 

Through the Y Combinator program, Swartz found himself working on the Reddit website. Initially finding it difficult to make money from the project, the site later gained in popularity, with millions of users visiting it each month. In late 2006, after months of negotiations, Reddit was sold to CondéNet, owners of Wired magazine.[3] Swartz moved with his company to San Francisco to work on Wired, but grew unhappy with the set-up[3] and in January, 2007, he was asked to resign from his position.[5] Swartz described himself as being ill and suffering from a constant depressed mood throughout 2007.[6] In September, 2007, Swartz joined with Simon Carstensen and launched Jottit. In 2010-2011 he was a fellow at Harvard University's Edmond J. Safra Center for Ethics.[7] 

Swartz was also the creator of the web.py web application framework,[8] and co-founded Demand Progress,[7] a progressive advocacy group that organizes people via email and other media for "contacting Congress and other leaders, funding pressure tactics, and spreading the word" about targeted issues.

Platinomics by Greg Ip

I disagree with Ip more often than with most economic writers I read in that he seems to take it easy on Bernanke and the Fed, often writing with skepticism about what the Fed can accomplish. That's exactly what Romer and Romer warn about.

Fed Watch: More on Central Bank Independence by Tim Duy

Fox News Doesn't Understand How Coins Work by Yglesias

There are multiple equilibria

How effective is fiscal policy: Guest post from Roger Farmer by John Quiggin

Thought-provoking.

IOUs

The Debt Ceiling’s Escape Hatch by Edward Kleinbard

A Trillion-Dollar Coin Brings a Jackpot of Jests by Annie Lowrey

The inflation dragon is just around the corner by Simon Wren-Lewis

Django is a BAMF*

I recently saw Tarntino's "Django Unchained," the first part of PBS's "The Abolitionsists," and the season opener of "Justified."

"Justified" was entertaining and had a number of sudden turns. A conflict is being set up between Boyd Crowder and an evangelical preacher who is successfully weening the residence of Harlan County off of Oxycotin and the other drugs Crowder is peddling by turning them on to the opiate of religion. A down on her luck prostitute could be the Crowder's downfall. And it was gratifying to hear Walton Goggins quote Asimov and Keynes to one of his pushers who had found the Lord and stolen Boyd's money.

Goggins was also in the highly entertaining "Django Unchained." Great performances by the actors: Jamie Foxx, Christoph Waltz, Leonardo DiCaprio, Samuel Jackson, and Don Johnson (and Jonah Hill,etc.) I loved the soundtrack. While Tarantino helped the Germans look bad in "Inglorious Basterds," in "Django Unchained" one of the protagonists is a anti-slavery German bounty hunter played by Waltz. Waltz's Dr. Schultz is a great humanist and shows that Germans have a great liberal, pro-enlightentment tradition - see Goethe, Schiller, Beethoven, Marx - one that was crushed by war, economic depression and fascism.** Southerners come off really bad as the Germans did in Basterds. All the actors do an outstanding job, but Jackson's Uncle Tom Steven is the one who stuck with me. What a nasty fellow. I liked DiCaprio's speech on phrenology and the supposed submissiveness of blacks (everyone tossed about the N word.) And I liked how Tarantino had that one slave who hated Django because he thought he was a black slave trader. Pretty brutal but entertaining movie. DiCaprio could get some awards. Jackson should.

"The Abolitionists" was kind of brutal too but very thought-provoking and educational. It was the first of three episodes and focused on Frederick Douglass, Garrison, William Lloyd Garrison, Angelina Grimké, John Brown and Harriet Beecher Stowe. All of the whites were hardcore evangelical Christians who believed slavery was a sin. Douglass was a slave at first. He wasn't submissive enough for his owner so he brought in someone out of Tarantino movie, a guy who would "break" slaves by beating them once a week. Douglass fought back, even though it meant death, and bested the "breaker" guy who never told or came back, because if word got out his reputation would be damaged. Douglass said up to that point he had been a boy, but from there on he was a man. Grimké's story was very interesting as she was a black sheep of one of the wealthiest Southern (slave-owning of course) families, if not one of the wealthiest in the world at the time. But she felt slavery was a sin and worried for the souls of her fellow white southerners. So she moved north. In one dramatized scene, Garrison was attacked by a pro-slavery mob in the North and was so rattled he bowed out of the movement for a while. A lot of drama about Slavery these days, see "Lincoln" also.

-----------------------------
*Bad ass mother fucker.
**Dr Shultz at one point asks a southern musician at the plantation to stop playing Beethoven, because I assume it's offensive to him to hear such beautiful music in such a context. He notes the irony of the plantation owner admiring the black French novelist Dumas. He holds up the idealism and morality of art in contrast to corrupt institutions. On a personal, emotional level, Shultz also has bad flashbacks over the recent mauling of a runaway slave by dogs he witnessed. This reminded me of similar episodes or stories about Europeans like Nietzsche and William Wilberforce, both of whom became unhinged after witnessing the beatings of a horse by its master.

I have some German ancestry. On my father's side my great-grandmother emigrated from Germany to New York City where she married another German immigrant who died young. One of her nephews (my grandfather's cousin) was conscripted late in WWII and sent to the Eastern Front. He disappeared as the Red Army advanced westward. My grandfather fought in the Pacific.
    "Inglorious Basterds" did have some good Germans, so to speak: the starlette played by Diane Krueger and Til Shweiger's Sgt. Hugo Stiglitz. And the German soldier who had heard of Stiglitz was pretty tough and honorable in a way:

My third blog post back in March 2004 on the first day of the blog's existence.

Titled: "Fast, badass zombies versus slow, dumbass zombies" and linked to "My Stupid Dog" blog.

Dawn of the Dead and ressentiment

I probably won't see the remake of George Romero's Dawn of the Dead. I love the original, though I think Romero lost the eeriness of Night of the Living Dead when he decided to make Dawn in color. But the remake has one major problem that I could see from a mile away.

To paraphrase James Carville, it's the zombies, stupid. In the remake, they're first-rate badasses. They act as if they were on a constant adrenaline high. They have extra speed and super strength. They are powerful. They're much like the beefed-up, overcaffeinated, perpetually angry "infecteds" in Danny Boyle's recent 28 Days Later. And they're all wrong.

Romero's zombies are weak, slow and stupid. You could outsmart one, outrun it, or if need be, take it down in a fair fight. The only problem is, these zombies vastly outnumber any humans still alive. The ratio is several dozen zombies to one warm body in Night; by Day of the Dead it's grown to something like several hundred thousand to one.

In Romero's Dead trilogy, zombie attacks become an objective correlative for what Nietzsche called ressentiment. They involve a mobocratic tyranny, as weak and incompetent corpses band together and achieve a dominance over the living minority that they could not otherwise attain. It's no surprise, then, that Romero's zombie attacks usually involve a surrender of the individual "live" person to a mob of walking dead. Dawn and Day both feature an attack in which dozens of zombie bodies burst from an enclosed space (in Dawn, an elevator; in Day, a locked roof) and overwhelm a human in a wave attack. Most telling, though, is that when the zombies attack, their arms are outstretched toward the victim, as if they were begging for something. Which, in a manner of speaking, they are: They all want a little piece (or maybe a big piece) of the human victim. Engulfed in this mob's sudden coercive demand, the living human falls to the ground, where seething masses literally devour him.

Seldom do these zombies succeed at a one-on-one attack, and when they do, it's usually because the victim has a misplaced sense of compassion. Of course, Nietzsche claimed that along with democracy, compassion and religion were other weapons that the weak routinely use against the strong. But in Romero's Dead trilogy, victims of one-on-one attacks seldom die quickly; instead, they malinger for days, "infected" by a deadly virus which apparently all walking dead carry. Upon their death, they become assimilated into the faceless mob. Compassion for the weak comes with a very heavy penalty.

Of course, the survivors in Romero's films don't fare too well, either: Their individualistic tendencies lead to squabbling and bickering. In the Dead trilogy this infighting becomes an all-too-predictable motif. Individuals seem more concerned with battling each other than with defeating the hordes of walking dead, and as a result they are unable to form the coalitions necessary to turn the tables on the mob.

Nietzsche's vision of individualism was no less tragic. The social apparatus, fueled by ressentiment, stacks the deck against the great-souled man (or ubermensch) to the point that his only real options are to withdraw or perish. Dawn and Day opt for withdrawal; Night, the most bracing and unnerving of the three, chooses death instead. Ayn Rand attempted to resolve this basic problem in Atlas Shrugged by uniting all productive men and women. Yet she fails to recognize that John Galt's crypto-fascist consensus of resistance is no more conducive to individual activity than the repressive societies these productive folk attempt to resist.

Whatever we can say of Romero, he is at least smarter than Rand. His zombie flicks frighten us not just because they're gory or shocking, but because they insinuate that, much as we may like the idea of individualism, it may not have much of a future in an increasingly mobocratic society. The idea of being overwhelmed by stinking masses, of being forced into a way of life (or death) we would not choose for ourselves, lies at the maggot-infested heart of the original Dead trilogy. That's why it disturbs us long after the lights come up.

The slow, dumbass zombies of "The Walkind Dead" return in February. The zombie phenomenon is now rivaling the vampire one. These are the fastest, badass zombies I've seen to date:

Coin of Freedom

The platinum coin idea is idiotic. That is the point. by Neil Irwin (Jan. 9)

This idea is positively idiotic, though it has gained a more and more respectable set of fans. (They now include Bill Gross, the nation’s biggest bond investor, a Bush administration economist named Donald Marron, and the Nobel laureate and New York Times columnist Paul Krugman). Some of the critics are misunderstanding what it would do and wouldn’t do. The fact that it is idiotic is kind of the point.

Everything You Need to Know About the Crazy Plan to Save the Economy With a Trillion-Dollar Coin by Matt O'Brien

Enter the trillion-dollar coin. It sounds nuts. But there's a loophole that actually lets the Treasury create coins in whatever value it wants, even $1 trillion. It's all straightforward enough. The Treasury would create one of these coins, deposit it at the Federal Reserve, and use the new money in its account to pay our bills if the debt ceiling isn't increased. This has gone from being just another wacky idea in the world of internet comments to something that's getting taken seriously due, in large part, to the efforts of Joe Weisenthal of Business Insider and Josh Barro of Bloomberg View to promote it. (Which you can follow on Twitter at #MintTheCoin). Their logic is that as silly as the trillion-dollar coin sounds, the debt ceiling is far sillier -- and much more destructive.

As this terrifying report from the Bipartisan Policy Center shows, the consequences of going over the debt ceiling are unthinkable and unpredictable. At best, it will mean immediate 40 percent austerity; at worst, it will mean an outright default on our debt. Both are bad enough that a legal gimmick like the trillion dollar coin sounds sane in comparison, if it comes to that. At least that's what Representative Jerry Nadler, Paul Krugman, and, as of pixel time, over 6,000 other patriotic Americans think.

The Hobson's choice is either let the economy crash and burn or further the banana-republicization of America.

Jeffrey Lacker, a Man Who Never Changes His Mind No Matter How Often He's Wrong by Yglesias

A Bold Dissenter at the Fed, Hoping His Doubts Are Wrong by Binyamin Appelbaum

Okun, Unemployment, and Wages by Jared Bernstein

Keith Phipps leaves the A.V. Club.

ROUGH TRANSCRIPT: STIMULUS OR STYMIED?: THE MACROECONOMICS OF RECESSIONS

Panel Moderator: J. BRADFORD DELONG (University of California-Berkeley)

Panelists:
CARLO COTTARELLI (International Monetary Fund)
PAUL KRUGMAN (Princeton University)
VALERIE A. RAMEY (University of California-San Diego)
HARALD UHLIG (University of Chicago)

The Frustrating Fiscal Stimulus Debate by Yglesias

Is he right? Will rightwingers admit they don't care about the unemployed, inequality or the output gap? You would think that rightwingers would like to close the output gap and then funnel the gains to the 1 percent and/or cut taxes.

Nate Silver on Reddit today at 1 p.m. CST.

Bobo Brooks pushes the Pete Peterson agenda and lies by omission once again by failing to mention the housing bubble.

Andrew Ross Sorkin waves away the housing bubble and financial crisis by classifying them as a once-in-a lifetime event:

While there is no question that the original rules would do a better job preventing the next 100-year flood in the banking system, their quick adoption most likely would have created their own drag on the economy because bank lending would most likely have been curtailed.

Hopefully Yellen is right and Bernanke will raise rates on reserves to slow the economy when it needs slowing in 2018 or whenever the output gap is closed.

Why Is Our Policy Agenda So Biased Toward Fiscal Policy? (As Opposed to Jobs…) by Jared Bernstein
TARP didn't buy a recovery as Geithner promised and it discredited ARRA in the public's confused mind. We spend all of this money for such a tepid recovery.

Romer & Romer on Monetary Policy Complacency by Yglesisas

The Fire Next Time

Or Hostage-taking extortion by the banks and Republicans

Rebranding the “trillion-dollar coin” by Steve Randy Waldman

Kicking the can down the road, either by Waldman's reasonable suggestion or by a deal that doesn't include cuts to entitlement benefits but does have spending cuts, may buy time for the Republicans to be voted out of office. My preference would be for a confrontation.

Secret and Lies of the Bailout by Matt Taibbi

Yellen: Fed Likely to Vary Interest Rates for Reserves in Future (via Thoma)

I don't believe there will be bailouts next time. And there will be another bubble as the financial industry successfully blocked reforms.

So we should just shoot the hostages in both cases and let the banks and Republicans deal with the consequences.

Sen. John Cornyn's Outrageous Op-Ed on the Debt Ceiling by Yglesias

Politicians are often successful shakedown artists and the debt ceiling clown show is just a big shakedown. Republicans lost the Presidential race and Senate seats hopefully in part because of the clown show in 2011.

JW Mason comments on Quiggins's post:

 I suspect this is a major direction realistic policy-oriented macroeconomics is going to go in — that if you want central banks to be responsible for stabilization policy, it’s not enough for them to set the short-term risk-free rate, they need to also control interest rate spreads and the composition of lending, implying. a much more comprehensive set of controls on credit markets.

MATT O'BRIEN VS. MARTIN FELDSTEIN ON QUANTITATIVE EASING by DeLong

Tax Code May Be the Most Progressive Since 1979 by Annie Lowrey

Construction Numbers May Not be What They Seem by Dean Baker

The state of macroeconomics: it all went wrong in 1958 by John Quiggen

Third, Friedman used his critique of fine-tuning that macro policy should be confined to a rules-based monetary policy, with no role for fiscal policy. Although Friedman’s own prescription (a rule controlling the rate of growth of the money supply) was unsuccessful and quickly abandoned, these ideas were the basis of the policy regime, based on the use of interest rates as an instrument to meet inflation targets, that prevailed from the 1980s to the financial crisis, and to which central banks plan to return as soon as the crisis is over. 

The real decline was in the 1970s and 1980s, as Friedman’s already overstated critique of Keynesianism was pushed to the limits of credibility and beyond. The big ideas of the period: Ricardian equivalence, Rational Expectations, Policy Ineffectiveness, Microfoundations, Real Business Cycle theory and the (strong-form) Efficient Markets Hypothesis were based on plausible (to economists, anyway) arguments. They didn’t have much empirical support but, given that Keynesian models weren’t working well either, this wasn’t enough to stop them taking over the debate. 

The main response was New Keynesianism which showed that with plausible tweaks to the standard micro assumptions, some Keynesian results were still valid, at least in the short run. New Keynesianism gave a rationale for the countercyclical monetary policies pursued by central banks in the inflation targeting era, whereas the classical view implied that a purely passive policy, such as Friedman’s money supply growth rule, was superior. Broadly speaking the pre-crisis consensus consisted of New Keynesians accepting the classical position in the long run, and most of Friedman’s views on short-term macro issues, and abandoning advocacy of fiscal policy, while the New Classicals acquiesced in moderately active short-term monetary policy 

How you evaluate this consensus depends on your view of the period from 1990 to the crisis. Noah Smith, quoting Simon Wren-Lewis says 

Implicit in this view is the idea that the Great Moderation was a policy success and that the subsequent Great Recession was the result of unrelated failures in financial market regulation. My view is that the two can’t be separated. In the absence of tight financial repression, asset price bubbles are regularly and predictably[3] associated with low and stable inflation. Central banks considered and rejected the idea of using interest-rate policies to burst bubbles, and the policy framework of the Great Moderation was inconsistent with financial repression, so the same policies that gave us the moderation caused the recession.

To sum up, work done in macroeconomics since the discovery of the Phillips curve has offered an improved understanding of a wide range of issues. On the other hand, it has produced and sustained the dominance, in central banks and in much of the economics profession, of an empirically unsupportable position that is resolutely opposed to fiscal stimulus, or to any large-scale countercyclical policy. It has also diverted most of the intellectual energy of academic macroeconomists into a largely fruitless search for microfoundations, at the expense of an improved understanding of the various co-ordination failures that are at the heart of the macroeconomic problem. 

I don’t suggest throwing out everything that’s been done since 1958 and starting all over from there. But, in many ways, that would be a better choice than continuing on the current path.

The New Tell-All Fed by RANDALL S. KROSZNER

After the Japanese economy declined in the early 1990s and fell into deflation, the Bank of Japan dropped interest rates to nearly zero and embarked on a huge asset-purchase program (the pioneering “quantitative easing” program). The actions were on a much larger scale relative to G.D.P. than what the Fed has done. 

Japan’s central bank, however, made the mistake of emphasizing that these purchases were only temporary and would be reversed at the first signs of the proverbial “green shoots” of recovery. Despite the bank’s large-scale asset purchases, the uncertainty that these statements created undermined confidence and the willingness to borrow. The bank’s words spoke louder than actions. 

The highest priority in the economic revival plan of the newly elected prime minister, Shinzo Abe, is to strong-arm the Bank of Japan into acknowledging that it will do simply “whatever it takes” to reverse deflation there and allow a recovery to take root. 

Mark J. Carney, the head of Canada’s central bank and soon to be the governor of the Bank of England, also seems to be embracing the “whatever it takes” theory of communications: tying monetary policy to a single measure of overall economic health (like nominal income) rather than multiple metrics (inflation, inflation expectations, unemployment numbers) that may be even easier to understand. 

The Fed might well consider alternative economic indicators as it assesses whether its interventions are reducing uncertainty and promoting recovery. But the key, it seems, is to be forthcoming about its thinking with the American people. For now, the bank’s smart, calibrated open-mouth policy has been a step in the right direction.

(via Thoma)

Coin of Freedom

What goes on the other side of Ronnie Raygun's face?

Deo vindice often translated as "God will vindicate us."

Were the G.O.P. Votes Against Boehner a Historic Rejection? by Micah Cohen

Lessons From Europe on Averting Disaster by Floyd Norris

The reality is that the current budget deficit largely reflects two things: exceptionally low government revenue and the continuing problems caused by the financial crisis and recession that followed the bursting of the housing bubble. Bringing tax revenue back to historical levels, as well as the growth in revenue and reductions in spending that will automatically follow an improving economy, will make a major difference. 

There are issues that must be addressed regarding health care costs and Medicare, as well as the fact that there will be fewer workers for each retiree as the baby boomers retire. But those who see a Greek-type crisis here should ask themselves why the government can borrow at interest rates that remain extraordinarily low. The world’s trust in Uncle Sam’s ability to pay its debts has remained high. 

What are not high are taxes, although a poll would no doubt show that many people think otherwise. 

Federal taxes, relative to the size of the economy, are significantly lower than they were after Ronald Reagan cut them. During 2012 federal revenue amounted to around 17 percent of gross domestic product. At the Reagan low point, the figure was a full percentage point higher. In 2009, when the deficit was ballooning, the figure fell below 16 percent, something that had happened only once during the more than 60 years for which comparable data is available. 

Back in 2000, federal revenue approached 21 percent of G.D.P. The assumption that such strong collections would continue played a major role in the forecasts of budget surpluses as far as the eye could see. In 2001, aides to President George W. Bush pointed to the figure as proof that Americans were overtaxed. It turned out that tax revenue figures were temporarily inflated in two ways by the bull market in technology stocks. Not only were there a lot of capital gains to be taxed, but soaring share prices also produced a lot of ordinary income for those employees and executives who could cash in stock options. 

At the time, it was assumed that such options had no significant impact on tax revenue, because the income that went to the employee provided an offsetting tax deduction for the company that issued the options. That might have been true had the companies been paying taxes, but many of the most bubbly stocks were in companies that never had, and never would, pay a dollar in income taxes.

That revenue would have come down sharply after the technology stock bubble burst, even without the Bush tax cuts. But those tax cuts worsened the situation and are a major cause of the current deficits.

Los Angeles Times Effort to Promote Generational Conflict Flunks Reality Test by Dean Baker

Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.

Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.

The Coin Option

Atrios:

It's perfectly legal so just do it, or threaten to anyway.

Put Reagan on it, just for giggles.

Ronnie Raygun on the coin would be hilarious. Call it the Freedom Coin.

Liberalism Is Alive and Well—America May Be Doomed by Yglesias

What we learned, in other words, is that even with a Democratic President in the White House who's eager to cut spending on retirement programs they still don't get cut. That's how robust the welfare state is. Recall that the last time we had a Republican President in the White House what he did was make Medicare benefits significantly more generous. Recall also that Mitt Romney ran on a pledge to increase Medicare benefits for ten years and then offset that by cutting benefits for younger people in the future. That's how robust the welfare state is. Concern trolling about Democratic senators' willingness to blink on taxes is neat, but all we're seeing again and again is confirmation of Paul Pierson's thesis from Dismantling the Welfare State?, namely that dismantling the welfare state is incredibly difficult.

Depressing reading

Does "Changes" Mean Something Different at the NYT Than in Normal English? by Dean Baker

"In the 2008 campaign, Mr. Obama said that his top priority as president would be to “create bottom-up economic growth” and reduce inequality. He has governed as such." 

This is at best debatable. President Obama bailed out the big Wall Street banks, allowing them to get trillions of dollars in loans at below market interest rates. This massive subsidy allowed many of the richest people in the country to preserve their wealth when market forces left to themselves almost certainly would have put most of the major banks out of business. 

Obama has also refused to make a reduction in the value of the dollar a top goal in trade policy. A lower valued dollar would create millions of new manufacturing jobs by making U.S. goods more competitive in the world economy. This would provide a strong boost to labor demand and wages.

Some Perspective on the Fiscal Cliff Deal by Jared Bernstein

Social Security: Principles, Facts, and Fixes by Bernstein

My Views on Spending Cuts and Entitlements by Bernstein

In Case You Were Dying For More Polemics On the Chained CPI…Here Ya Go: by Jared Bernstein

But They Will Always Smash It On The Floor by Duncan Black

But Republicans will inevitably see a balanced budget as an opportunity to give money to rich people (tax cuts and crony capitalism). The reward for liberals for this well done very important work? Tax cuts for rich people and unpaid for disastrous wars. 

Liberals should spend their time in office figuring out how to implement a sticky liberal agenda, one which is hard to dislodge, not figuring out how to create a pot of money for Republicans to steal when it is their turn.

As Baker points out, the tax cuts for rich people and unpaid disastrous wars didn't bust the budget, the housing bubble did that. We need a way to fix the shampoo economy.

Exciting reading:

Commenter at Beat the Press writes:

"President Obama is a huge fan of Lincoln's second inaugural address. Hopefully, President Obama's second inaugural won't disappoint."

Yes! I hope he lays into the debt ceiling clown show, more Jamie Foxx on jobs spending than Samuel Jackson on deficit reduction and "shared sacrifice."* This will be his legacy.

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*Reference to the new film "Django Unchained."

Krugman against Dan Kervick and the MMTers:

But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no. 

It’s true that printing money isn’t at all inflationary under current conditions— that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public. 

We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry.

Scary comment from Lee A. Arnold at DeLong:

Wedges driven in, by clockwork. It looks to me like Speaker Boehner is fed up with the Tea Party, and so he asked the Senate Republicans to come up with something the Senate Democrats would pass, in order to put the intractable House members on the spot. So one wedge is being driven into the Republican Party between the moderates (such as they are) and the wingnuts. The next debate becomes rhetorically very simple: debt ceiling vs. cuts to Social Security and Medicare. And those cuts can be blamed squarely and publicly on the House Republicans. So the second wedge will be driven between the Republican Party and the rest of the country. If the Dems can get back the House in 2014, we could finally start taxing the people who can afford it.

If he means the cuts will be enacted, that's scary. If not, hopefully this wedge action happens and the Republicans lose the House.