Rents and Patent Trolls

Profits Without Production by Krugman

What Makes Apple, Google, and Microsoft Different From the Corporate Titans of Yesteryear by Yglesias

Krugman Discovers Intellectual Property: The 1 Percent are the Takers by Dean Baker

The Second Great Depression: Why the Economic Crisis Is Worse Than You Think by J. Bradford DeLong

DeLong is less critical of Clinton and Summers than Blinder is. And Clinton blurbed it!

A Potentially Tragic Taper by Krugman

The Fed Provides “Forward Guidance” on the Taper and May Be, Once Again, Too Optimistic by Jared Bernstein

FOMC Statement: Second Reaction by Tim Duy

Tradeoffs by Steve Randy Waldmann

The Simulati

Why are the fiscalists (MMTers) such pricks?

The OMT Goes to Court by Carola Binder

What's a Central Banker To Do? by David Glasner

Commenter "PeterP" (prickish ID):

I think your post is a bit self contradictory. How can the Fed manage expectations if it is not running the economy? If it did manage expectations it would in fact be running the world economy, but it can’t.

Each time monetarists are asked to show mechanisms they either invoke some stuff that is experimentally not detectable (expectations Imp) or mechanisms that cannot work in the real world (like the hot potato effect or the money multiplier effect).

"Monetarists." 

Obama Raises Possibility of Change at the Fed by Binyamin Appelbaum

True Blood premiere switches from vampire politics to threesomes by Meredith Woerner

Fed Fiesta

So if Bernanke sticks with September to taper off QE and bending to the wishes of the inflation hawks then Zero Hege / Canandian investor were right in their reading of the tea leaves. They suggested there was a quid pro quo where Bernanke obtained consensus for more QE in the face of the fiscal cliff in exchange for tapering later if things weren't a disaster. Plausible but I'd bet against Zero Hege.

Fed Watch: FOMC Meeting Begins Tomorrow by Tim Duy

What the bond market is telling the Fed by Gavyn Davies

The “lower for longer” message on rates, which has been so carefully crafted by the FOMC’s forward guidance, seems to have been thrown overboard by the bond market with remarkable alacrity as soon as the Fed has indicated that it may slow the pace of policy easing. The reason for this is that past history is replete with episodes in which the Fed has tightened policy very rapidly once its enthusiasm for easing has started to wane.

The 1994 example, when the Fed failed to guide the markets about the likely pace of tightening, is of course part of the folklore of the bond market. Less well remembered is the example of 2003, when the first signal that the Fed was slowing the pace of easing was followed by a 100 basis point rise in bond yields within a few months, even though the Fed’s forward guidance about tightening at a moderate pace was increasingly explicit.

The problem is that, once the market starts to believe that the Fed is “done”, it will inevitably start to build into the yield curve a rising probability that the FOMC will embark on a normal path of tightening before too long. In order to mitigate this, Mr Bernanke is likely this week to remind the markets that the intention to slow asset purchases “in the next few meetings” is contingent on events in the labour market, is not the start of policy tightening, and is completely distinct from any intention to start raising rates.

The Fed has of course said that it will keep short rates at near zero until the unemployment rate has fallen to 6.5 per cent, subject to projected inflation remaining under 2.5 per cent. One way of forcing home the message that this will not happen soon would be to reduce the unemployment threshold to 6.0 per cent. This would be in line with the Fed’s fundamental view of labour market behaviour, as previously argued here.

If the chairman wishes to regain control of the market’s path for forward short rates, he may need to reduce the unemployment threshold to 6 per cent before too long. But I do not expect him to go that far this week.

It's not just the Fed by James Hamilton

When it does announce tapering, the Fed will try to reiterate that the rise in short-term rates will still not come until much later. But just as QE3 added emphasis to the declaration of a commitment to an extended period of low interest rates on the way down, ending QE3 will tend to detract from that message as we start to look at the path back up.

And just as a weak economy was the primary reason the Fed embarked on QE3, a strengthening economy will be the primary reason the Fed ends it. And if the economy is strengthening, interest rates will be headed up, regardless of whether the Fed keeps buying bonds or not. It's worth emphasizing that the recent rise in interest rates has been a global phenomenon, not just something seen in the United States.

Interest rates on 10-year government bonds, weekly, June 1, 2012 to June 13, 2013 for the US, Canada, and the UK.

If you want to claim that the recent rise in rates is just an anticipation of what the Fed is going to do, the story has to be that the U.S. Federal Reserve is causing the whole world to move.

The alternative view is that it's a big world out there that will ultimately force the Federal Reserve to move.

Why Orphan Black's Tatiana Maslany deserves an Emmy nomination by Lauren Davis

The Entire Premise of True Blood Explained in 36 GIFs by Meredith Woerner (Yes!)

And we kind of miss the V-juice sex trips....

And we miss Woerner's recaps. Hopefully this afternoon.

A quick note on “helicopter drops” by Steve Randy Waldmann

Kathleen Hanna of Bikini Kill fame and Kim Gordon of Sonic Youth fame played the Northside Festival in Brooklyn.

Hanna's new band is The Julie Ruin. Gordon's new band is Body/Head. She and Thurston Moore are divorcing.

From Wikipedia:

Gordon revealed details about the decision in April 2013: She first confronted Moore about a text message that she discovered from an unnamed woman; this was followed by counselling sessions; the separation then occurred as a result of Moore's inability to cease his extra-marital relationship—Gordon explained that her ex-husband was "like a lost soul."

Although she did so unintentionally, Hanna came up with the name for Nirvana's 1991 breakthrough single, "Smells Like Teen Spirit", when she wrote "Kurt Smells Like Teen Spirit" on Kurt Cobain's wall. At the time, Kurt was unaware that Kathleen was referring to a deodorant marketed specifically to young women, and thought that besides having a nice ring to it, the phrase also helped to succinctly summarize, organize and unify the then-nascent song's seemingly-disparate lyrical content into a theme  

On the Fourth of July, 1995— while watching Sonic Youth play at the Lollapalooza Music Festival, Courtney Love punched Hanna in the face, after pelting her with candy and holding a lit cigarette next to her face. This is also referenced in the below-mentioned NOFX song "Kill Rock Stars" with the lines "I wish I could have seen Courtney/demonstrate some real misogyny."

Film director Sofia Coppola and musician Kathleen Hanna have openly praised Gordon for the influence that she has exerted on their own art. Hanna explained in 2013:

     She was a forerunner, musically. Just knowing a woman was in a band trading lead vocals, playing bass, and being a visual artist at the same time made me feel less alone. As a radical feminist singer, I wasn’t particularly 
well liked. I was in a punk underground scene dominated by hardcore dudes who yelled mean shit at me every night, and journalists routinely called my voice shrill, unlistenable. Kim made me feel accepted in a way I hadn’t before. Fucking Kim Gordon thought I was on the right track, haters be damned. It made the bullshit easier to take, knowing she was in my corner.

Hanna started dating Ad-Rock from Beastie Boys in 1997. They got married in 2006. 

In the early 1990s, Gordon co-directed The Breeders' "Cannonball" music video with Spike Jonze. Over a decade later, Gordon appeared in Gus Van Sant's 2005 fictionalized biopic of Kurt Cobain Last Days (Cobain was a close friend).  

Canadian Housing Bubble

Worthwhile Canadian Comparison by Krugman

How Do You Say "Housing Bubble" In Canadian? by Dean Baker

Yes but the Stimulati were not running things.

ORIGINS OF THE CRISIS by Chris Dillow

After 1997, Asian economies wanted to run big current account surpluses, either as a policy of export-led growth or in order to rebuild reserves depleted by the 97 crisis. By definition, this meant they were net savers, which put incipient downward pressure upon global interest rates. In a parallel universe, these high savings might have financed a boom in real capital spending in the west. But because firms couldn't see good investment opportunities, this didn't happen.Instead, the lower interest rates fuelled a housing boom and the hunt for yield led to strong demand for mortgage derivatives. These bubbles in housing and derivatives then burst, giving us the crisis. 

In this way, we've seen what Marx saw in the 19th century - that a lack of profitable opportunities in the real economy pushes people down "the adventurous road of speculation, credit frauds, stock swindles, and crises." 

I say all this as a corrective to a common view on the non-Marxist left - that our economic problems are due to greedy bankers and to austerity. But this is nothing like the whole story. This has been a crisis of real, and not just financial, capitalism - which is why it is so intractable

IMF Urges Repeal of 'Ill-Designed' Spending Cuts by Mark Thoma

In case you missed this, the IMF estimates that economic growth would be nearly double what it is now without the "excessively rapid and ill-designed" government spending cuts:

IMF Urges Washington to Repeal ‘Ill-Designed’ Spending Cuts, Reuters: The International Monetary Fund urged the United States on Friday to repeal sweeping government spending cuts and recommended that the Federal Reserve continue a bond-buying program through at least the end of the year. 

In its annual check of the health of the U.S. economy, the IMF forecast economic growth would be a sluggish 1.9 percent this year. The IMF estimates growth would be as much as 1.75 percentage points higher if not for a rush to cut the government's budget deficit. ... 

"The deficit reduction in 2013 has been excessively rapid and ill-designed," the IMF said. "These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues." 

The IMF warned cuts to education, science and infrastructure spending could reduce potential growth. ... 

The Fund recommended that the U.S. Federal Reserve keep up its massive asset purchases at least through the end of the year to support the U.S. recovery, but should also prepare for a pull-back in the future. ...

The recovery of output and employment didn't have to be so slow. I'm not saying that reversing these policies (or replacing them with more aggressive fiscal policy measures) would have brought miracles, it was going to be a difficult recovery no matter what polices we pursued. But we certainly could have done better than we did, particularly on the fiscal policy front.

Eye on Emmy: Orphan Black Star Tatiana Maslany Surveys the 'Most Intense' Acting Gig of Her Life

She won a Critica' Choice Award for Best Actress in a Drama Series

Justices, 9-0, Bar Patenting Human Genes

After Patent Ruling, Availability of Gene Tests Could Broaden

Almost immediately after the Supreme Court ruled that human genes could not be patented, several laboratories announced they, too, would begin offering genetic testing for breast cancer risk, making it likely that that test and others could become more affordable and more widely available. 

The ruling in effect ends a nearly two-decade monopoly by Myriad Genetics, the company at the center of the case. 

“It levels the playing field; we can all go out and compete,” said Sherri Bale, managing director of GeneDx, a testing company, which plans to offer a test for breast cancer risk. “This is going to make a lot more genetic tests available, especially for rare diseases.” 

The Stimulati

Fiscalists vs market monetarists, a bloggy taxonomy by Cardiff Garcia

Fiscalists, Monetarists, Credibility, and Turf by Krugman

How much of the books will we see next year on Game of Thrones? by Charlie Jane Anders

Game of Thrones's George RR Martin: 'I'm a feminist at heart'

(via Rachael Larimore)

The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. It is an exercise which always involves a certain number of internal contradictions and even a few absurdities. The conspicuously wealthy turn up urging the character-building value of privation for the poor.

John Kenneth Galbraith.

From the link:

 John Kenneth Galbraith (1908-2006) Canadian-American economist, diplomat, author“Stop the Madness,” Interview with Rupert Cornwell, Toronto Globe and Mail (6 Jul 2002)

The above citation is no longer online. A number of books cite this as a 2002 utterance, but the quote can be found in Peter Lawrence, Peter's Quotations (1993). 

In Max Perultz, I Wish I’d Made You Angry Earlier (1998), he quotes a variant: "The modern conservative is in fact, not especially modern. He is engaged, on the contrary, in one of man’s oldest pursuits, best financed and most applauded and, on the whole least successful exercises in moral philosophy. This is the search for a truly superior moral justification for selfishness."

NICK EBERSTADT AND THE "TAKERS" ONCE AGAIN: MORE REFLECTIONS ON THE GENERAL THEORY OF THE MOOCHER CLASS by DeLong

Unemployment insurance beneficiaries believe that they paid for their benefits, and they are right. Social Security beneficiaries believe that they paid for their benefits, and they are more than three-quarters right. Medicare beneficiaries believe that they paid for their Medicare, and they are more than half right. Farm subsidy recipients believe that the market is stacked against them, that what they do is a special and noble profession deserving greater rewards than a rapacious world market would offer, and that their farm subsidies are only raising their incomes back to what would be fair--and they have a case. Recipients of the Earned Income and Child Tax Credits see themselves as working very hard for very little money, and performing a truly important service for America's next generation by bringing their children up right--and they are correct. None of these groups ever imagines that they might be Moochers. And since they do not imagine that they might be Moochers, how can the fact that they regard themselves as Moochers harm their self-esteem and poison their work ethic?

What about the moochers of the financial sector which receives massive subsidies and is in effect an arm of the Federal government? Or the healthcare industry which is managed in such a way to provide rents to corporations? 

And most of all, the demand management policies (a combination of trade, monetary and fiscal policies) which maintain high unemployment and a loose labor market. This keeps wage inflation down and profits up for corporations.

The greatest show that ever was or will be

AV Club: Nikolaj Coster-Waldau, a.k.a. Jaime Lannister, talks his big Game Of Thrones season

in which he mistakenly disagrees with Krugman

ARE THERE RISKS TO ABENOMICS? by DeLong

Moreover, to the extent Abenomics succeeds in boosting the economy's risk tolerance, the wedge between the private and public real interest rates will fall. Thus Paul might be completely correct in his belief that Abenomics will lower the real interest rate--but which real interest rate? The real interest rate it lowers might be the private rate, and that could be accompanied by a collapse in spreads that would raise the JGB interest rate and make the debt unsustainable. 

Do I think that these are worries that should keep Japan from undertaking Abenomics? I say: Clearly and definitely not. Do I think that these are things that we should worry about and keep a weather eye out as we watch for them? I say: Clearly and definitely yes. Do I think these are things that might actually happen? I say: maybe.

I think it was a mistake for the Clinton Treasury where DeLong worked to worry about Greenspan raising rates at the slightest pretext. Clinton should not have bent the knee to an Ayn Rand disciple. 

non-stable elasticities

Brad DeLong Says We Can't Do Anything to Raise Employment Because Billionaire Wall Street Bankers Are Still Too Dumb to Breathe by Dean Baker

DeLong doesn't mention the Fed's interest on excess reserves. The question is whether the banks will unload the trillions on reserve into the economy once the economy picks up. We'll get inflation. We'll get bubbles. But the Fed has said they will raise the IOER to prevent this. The IOER will also shore up the banks' balance sheets.

Made me think of what Bernstein was saying about non-stable elasticities. 

What the banks do with their reserves is one of those elasticities which could jump.

AV Club review of "Mhysa" from Game of Thrones (for experts)

AV Club review of "Mhysa" from Game of Thrones (for newbies)

I was surprised by Sansa and Tyrion's easy banter. And Yara going after Theon. 

Tyrion to Podrick Payne: "If it were easy, everyone would do it."

Weekend Papers: Parts I and II (skittish bond markets and phone records) by Jared Bernstein

More on Skittish Markets: Check out the figures in this piece on another dimension of skittish markets as per my commentary earlier in the week: tanking bond prices. As bond yields begin to rise—because the must, they should, and they will—their price moves inversely. But it’s striking how sharply they’ve turned. 

The broader economic lesson here is one of my favorites because it’s one of the most interesting aspects of relationships between economic variables: non-stable elasticities. 

Economists often cite elasticities–how one variable moves relative to another–as if they’re etched in stone: an A% increase in unemployment leads to a B% decrease in inflation; an X% increase in the minimum wage leads to a Y% change in employment (with “Y” tiny, but that’s another story); a R% increase in bond yields triggers an S% decline in bond prices. But B, Y, and S are not fixed! The change with underlying conditions, demographics, policy, and more. 

The large elasticity documented in the article—the movement in bond prices with respect their yields—is especially large at turning points, and is even further amped up by the length of time that bond rates have been so historically low. 

So I humbly submit that you keep this lesson in mind: if a price or an interest rate or some other important economic variable has been where it is for a long time—and in financial markets a long time isn’t necessarily that long—and it starts to change course, or even people think it’s about to change course, be prepared for a much larger response in related variables than you were expecting.

CONFUSION: HIGH PUBLIC DEBT LEVELS AND OTHER SOURCES OF RISK IN TODAY’S MACROECONOMIC ENVIRONMENT by DeLong

I have to say it is admirable the way DeLong admits how he was wrong and how he goes through his thinking about the data and history of recent macroeconomics, his field of focus.

He forgets to mention that the Fed is paying the banks IOER, so I don't fear a financial crisis there. The bank system is essentially a quasi-public-private venture like Fannie/Freddie. Obama should do what he did with the auto companies and sort them out. He should privatize Citigroup, but then he just nominated a guy from Citigroup to be US Trade Representative. I wouldn't be surprised to learn that Citi is an arm of the CIA like USAID.


The Confidence Fairy, The Expectations Imp, and the Rate-Hike Obsession by Krugman

Tipping point and equilibrium

What Gives? Has the Market Stopped Loving Inflation? by David Glasner

Low Inflation Is the Same Sort of Problem as Deflation by Dean Baker

Crisis Withdrawal Syndrome by Krugman

Oh, since I’m praising Dean, let me say that while it’s true that he has for a long time been making the case that low inflation is a problem even if it’s not actual deflation, his implication that I’m saying this for the first time is a bit unfair. In the European context, in particular, I’ve been beating this drum for a while.

 Krugman has emphasized deflation and the liquidity trap and the press have echoed what the Fed and Bernanke say about deflation being a bad thing. Baker has made the fair point that sup-par inflation is just as bad as deflation.

We'll see if Japan can get out of deflation and if the U.S. or Europe can get out of low inflation.

More Thoughts on Job Creation in the Recovery by Dean Baker

That being said, as the NYT points out, other countries have done better. Germany stands out in this respect, having seen a sharp rise in its employment to population ratio since the beginning of the downturn, and a decline in its unemployment rate of 5.4 percent, in spite of a recovery that has been no stronger than in the United States. 

Part of Germany's story is a slower rate of growth of its labor force, but the main part of the story is work sharing and other policies that encourage employers to keep workers on the payroll, even if they work fewer hours. These policies have been remarkably successful in shielding German workers from the worst effects of the downturn. 

So to sum up, the main reason that so many people are unemployed four years into the recovery is weak GDP growth. This was predictable given the nature of the downturn. Given the weakness of this growth, the U.S. has done a pretty good job creating jobs. However other countries, most notably Germany, have done much better in translating weak GDP growth into jobs and they provide important lessons to the United States.

Catelyn Stark

Q&A with Michelle Fairley

Spoilers

Towards the end of book five of A Song of Ice and Fire, Jon Connington, Prince Aegon Targaryen, and the Golden Company have returned to Westeros and taken the castle of Griffin's Roost on the Cape of Wrath near Storm's End. Haldon the Halfmaester has been looking over parchments in the maester's tower to learn what is the state of the game in Westeros. Connington asks him

"Have those parchments told you anything of use?"

"Oh, much and more, my lord." Haldon gave him a thin smile. "The Lannisters make enemies easily but seem to have a harder time keeping friends. Their alliance with the Tyrells is fraying, to judge from what I read here. Queen Cersei and Queen Margaery are fighting over the little king like two bitches with a chicken bone, and both have been accused of treason and debauchery. Mace Tyrell has abandoned his siege of Storm's End to march back to King's Landing and save his daughter, leaving only a token force behind to keep Stannis's men penned up inside the castle."

Connington sat. "Tell me more."

"In the north the Lannisters are relying on the Boltons and in the riverlands upon the Freys, both houses long renowned for treachery and cruelty. Lord Stannis Baratheon remains in open rebellion and the ironborn of the islands have raise up a king as well. No one ever seems to mention the Vale, which suggests to me that the Arryns have taken no part in any of this."

George R.R. Martin, "A Dance With Dragons,"  page 808

We Just Had the Lowest Core Inflation in 50 Years. What Does This Mean for "Expectations" and Monetary Policy? by Mike Konczal

Last Friday, the BEA announced the lowest year-over-year rise in core inflation it has ever recorded. The year-over-year PCE core inflation, or inflation stripped of volatile energy and food prices, was 1.05 percent. As Doug Short notes, the previous all-time low was 1.06, and that is from March 1963. (The records go back to 1959.) Inflation is collapsing in 2013, both for observed values and future expectations. This is noteworthy because, as you may remember, the Federal Reserve took extraordinary actions at the end of last year to hit its inflation target.

the urge to purge

Austerians, deficit scolds, Mellonheads, the sequester, Pete Peterson, Ren & Stimpy.

Wow, Susan Rice for National Security Adviser and Samantha Power for ambassador to the UN.

And three nominations to the DC Circuit Court.

It Isn't Trade Deals That Prevent the Obama Administration from Lowering the Value of the Dollar by Dean Baker

Harold Meyerson has an interesting column warning of conditions that are likely to be in the Trans-Pacific Partnership. However it is misleading in one important respect.

At one point the article notes efforts by Senator Sherrod Brown to require rules that will the United States to retaliate against currency "manipulators," countries that deliberately prop up the value of the dollar against their own currency in order to increase their trade surplus. This is misleading because the United States already has this authority (see this piece, for example) and under almost any conceivable set of circumstances will possess ample means to force down the value of the dollar relative to other currencies.

The reason that the United States runs an over-valued currency, placing U.S. goods and services at a competitive disadvantage, is that powerful interest groups profit from having an over-valued currency. Retailers like Walmart have spent large amounts of money setting up low-cost supply chains in China and other developing countries. This is an important source of their advantage over smaller competitors. They are not anxious to see this advantage eroded by a fall in the value of the dollar.

Similarly, large manufacturers like GE have much of their production overseas. These companies also do not want to see their profits eroded by a fall in the value of the dollar. Major financial companies like Goldman Sachs and JP Morgan also tend to favor a high dollar since it means that their money goes further elsewhere in the world and it minimizes the risk of inflation in the United States.

These and other powerful domestic interests are the main reason that the United States does not take steps to reduce the value of the dollar and bring the trade deficit closer to balance. It is misleading to imply that the problem is trade agreements that prevent the Obama administration from acting.

Note -- "rise" was changed to "fall" in 3rd paragraph, thanks David H.

Why Game Of Thrones’ Red Wedding packs such an emotional impact by Tasha Robinson

I really loved Michelle Fairley, and Richard Madden was good too. I disagree with the whole macho "Starks were dumb" meme. They made mistakes sure, but they were unlucky.

To me it's smacks of blaming the victims.

The Fed, Inequality and Accounting Identities by Dean Baker

However, a little income accounting here would go along way in helping this discussion. The country has an output gap of around 6 percent of GDP. This is due to the plunge in residential construction following the collapse of the housing bubble and also the lost consumption that resulted from the loss of $8 trillion in housing equity. Standard measures of the housing wealth effect imply that a reduction of $400 billion to $560 billion in annual consumption. 

There are a limited number of channels to fill this lost demand and thereby make up the 9 million jobs deficit we now face. One route is large government deficits, either from increased spending or tax cuts. That is probably the quickest and surest way to make up the demand gap, but the Serious People insist that we can't run large deficits. 

Another obvious route, and probably the best long-term solution, is to get the dollar down. This will improve the international competitiveness of U.S. goods and bring the trade deficit closer to balance. Unfortunately this has not been a high priority for the Obama administration. There are powerful interests like Walmart, many large manufacturers, and the financial sector which benefit from an over-valued dollar. As a result, getting the dollar back to a more sustainable level has not been a priority for the administration. 

When these routes are excluded there are not many other options to increase growth and create jobs. Low interest rates will help by allowing homeowners to refinance their mortgages and free up money for other spending. However this effect will be limited. Even if all $8 trillion in mortgage debt were refinanced at a 1.0 percentage point lower interest rate that would only free up $80 billion. And, this is offset by the fact that those lending the money will have less to spend.

Reality-Based

Ben Bernanke’s surprisingly excellent, radical speech by Ezra Klein and Evan Soltas

Ben Bernanke Demolishes Meritocracy and Shows Us All Why We Should Eagerly Await Professor Bernanke's Return by Yglesias

Ben Bernanke Endorses A 73 Percent Tax Rate by Krugman

rose-colored glasses

Larry Summers Still Hasn't Heard About the Stock Bubble by Dean Baker

It looks like more trouble with Harvard economists (e.g. Reinhart-Rogoff). It seems Larry Summers, who was Treasury Secretary in the last two years of the Clinton administration, is still unaware of the stock bubble that propelled growth in those years.
In a Post column today he tells readers: 

"As a consequence of policy steps in 1990, 1993 and 1997 [deficit reduction measures], it was possible by 2000 for the Treasury to retire federal debt. Deficit reduction and the associated reduction in capital costs and increase in investment were important contributors to the nation’s strong economic performance during the 1990s, when productivity growth soared and unemployment fell below 4 percent. We enjoyed a virtuous circle in which reduced deficits led to lower capital costs and increased confidence, which led to more rapid growth, which further reduced deficits." 

Of course the reason that the country was repaying debt was that a $10 trillion stock bubble led to an investment boom (much of it in junk dot.com investment) and a much larger consumption boom through the stock wealth effect. This bubble fueled the strong growth at the end of the 1990s. 

While the growth and resulting low unemployment rate were great news, bubbles are inherently unsustainable. This bubble burst beginning in 2000 and led to the recession of 2001. It is difficult to recover from a recession caused by a bursting bubble. The economy did not begin to create jobs following the 2001 recession until September of 2003. It did not make up the jobs lost in the downturn until January of 2005. Until the current downturn this was the longest period without job growth since the Great Depression. 

The demand from the stock bubble was necessary to support the economy as a result of large trade deficit the country was running at the time. Robert Rubin, Larry Summers' predecessor as Treasury Secretary, pushed a strong dollar policy. He put force behind this policy with his control of the IMF's bailout from the East Asian financial crisis. The sharp run-up in the value of the dollar over these years made U.S. goods uncompetitive in the world economy leading to a sharp rise in the trade deficit. The deficit eventually peaked at 6.0 percent of GDP in 2005. The demand from the stock bubble and later the housing bubble were needed to offset the demand lost due to the trade deficit. 

It is remarkable that Summers does not seem to be aware of this history, but I guess economics at Harvard is different from economics elsewhere in the world.

AV Club review of "The Rains of Castamere" (newbies) from Game of Thrones

AV Club review of "The Rains of Castamere" (experts) from Game of Thrones

Patent trolls

Health Care Costs: Don't Blame the Free Market by Dean Baker

Perhaps more importantly, it grants patent monopolies to drugs and medical devices. These monopolies allow pharmaceutical companies and manufacturers of medical devices to charge prices that are many thousand percent above their free market price. Not only does this raise the cost for these items it also perversely is likely to lead to unnecessary procedures, like the proliferation of colonoscopies that are a main theme of the piece. 

Because the equipment used in colonoscopies is subject to patent protection, hospitals and other medical facilities are able to charge exorbitant prices. Since colonoscopies provide large profits (which would not be the case in a free market), there is a strong incentive to push their use on patients in circumstances where they may not be needed. 

This is a more general problem in U.S. medicine. Because drug companies can sell drugs for hundreds or even thousands of dollars per prescription, when they can be profitably sold for $5-$10, they have an enormous incentive to mislead the public about the safety and effectiveness of their drugs. 

This is why we regularly see stories about drug companies concealing evidence that their drugs are ineffective or even harmful. That is a direct result of the enormous mark-ups that are provided by patent monopolies. If drugs were sold in a free market these incentives would not exist. 

Patent monopolies are one mechanism to provide an incentive for innovation, however they are a tremendously inefficient mechanism. There are other possible routes for financing innovation (the government already spends $30 billion a year on biomedical research through the National Institutes of Health). 

Of course the industry will fiercely contest any changes that threaten their profits, but no alternatives can even be considered until the public understands the nature of the problem. This piece missed a great opportunity to inform readers.

the grand unified theory

A Sad Story — I Mean, AS-AD Story (Wonkish) by Krugman

As it happens, I’ve thought about this issue quite a lot; it comes up with each revision of Krugman/Wells, where we have to ask whether AS-AD belongs in the exposition. The problem is not that the “real” model is DSGE (New Keynesian theory with intertemporal optimization yada yada); in practice, when it comes to thinking about macro policy Robert Waldmann has it right:

most have gone all the way back to an IS curve (real interest and output) assuming AS doesn’t matter and with the LM curve replaced with something like a Taylor rule. AS if anything, is an adaptive expectations augmented Phillips curve which matters only because of real interest rates, the monetary authority’s response to inflation and debt deflation/inflation.

...

Second — and this plays a surprisingly big role in my own pedagogical thinking — we do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run. That’s a relatively easy case to make in AS-AD; it raises all kinds of expositional problems if you replace the AD curve with a Taylor rule, which is, as I said, essentially a model of Bernanke’s mind. 

So there is a place for AS-AD, although it’s an awkward one, and the transition to IS curve plus Taylor rule plus Phillips curve, which is the model you really want to use for America right now, is a moment that fills me with dread every time we take it on in a new edition.

The Return of MaxSpeak

Fact versus Fraud, in the words of Krugman

We Are Not Having A Serious Discussion, Obamacare Edition by Krugman

What’s more, this isn’t some obscure issue. When people try to explain the logic of ObamaRomneyCare — certainly when I try to explain it — they often start from precisely this point, pointing out that unregulated insurance markets give the healthy and wealthy a pretty good deal but leave everyone else out in the cold, then work from that point toward the “three-legged stool” of community rating, mandates,and subsidies that supports reform. So Roy has to know that he’s making an essentially fraudulent argument — and does it anyway.

Bringing people, in from the cold is just not a priority.

EVERYTIME SOMEONE MORE-THAN-HALF PERSUADES ME THAT PAUL KRUGMAN REALLY IS TYPICALLY TOO SHRILL TO BE EFFECTIVE... by DeLong

open source versus patent trolls headtrip Orphan Black

AV Club reviews "Endless Forms Most Beautiful" from Orphan Black

Review of book on the Stone Roses

the contradictions of contemporary capitalism and a review of "The East"

Falling for the Anarchy She Was Sent to Fight by A.O. Scott

Back home in Washington, Jane has a scruffy, sensitive, bland boyfriend. Out in the woods, she falls under the spell of Benji (Alexander Skarsgard), who is scruffy, sensitive and dangerous. While the East, being a group of anarchists, has no formal leader, Benji is clearly the alpha dog. His main lieutenants are an elfin zealot named Izzy (Ellen Page) and Doc (Toby Kebbell), a troubled former medical student. All of them come from relatively privileged backgrounds and have painful, intimate reasons for taking up the cause.

I wish Benioff and Weiss would cast Kebbell as Oberyn Martell, the Red Viper of Dorne.

This intimation of large, lurking danger is appropriate to this movie’s vague environmental theme. The damaged, idealistic young people plotting to terrorize the wealthy and comfortable are seen as canaries in the coal mine, their rage a sign that something is terribly wrong. But their animus is also explained in ways that strain credibility and undermine the film’s topicality. Benji, Izzy and Doc are motivated by grief, filial resentment and a desire for revenge. For them the political is personal, which makes it a little less urgent for everybody else. 

But it may be asking too much of “The East” — which is, after all, a twisty, breathless genre film — to wish that it would frame the contradictions of contemporary capitalism more rigorously. The movie is aware that they exist, and wishes that they could be resolved more or less happily, which is hard to argue with, though also hard to believe.

Is Japan a Currency Manipulator? by David Glasner

What’s with Japan? by David Glasner

I'm still hopeful about Abenomics.

Fuck the rich kid, fuck the rich kid, fuck the rich kid

Gaunt

This Time is Not So Different: The Euro Crisis and the 1840s by Carola Binder

Central Banks Act With a New Boldness to Revitalize Economies

Don't Forget the Fed! by Jared Bernstein

Rate Stories by Krugman

THE TRIBAL DISLIKE OF JOHN HICKS AND IS-LM: WEDNESDAY HOISTED FROM THE ARCHIVES FROM 1 1/2 YEARS AGO: HISTORY OF ECONOMIC THOUGHT WEBLOGGING by DeLong

In monetary economics the simplest model is the bare two-good one-period quantity theory of money model:

• There is a peculiar commodity called "money".

• Total economy-wide spending is roughly proportional to it.

There are lots of valid insights to be gained from this model. But does it help us understand the real world today enough to satisfy us? No: the money stock is very large, but the flow of spending is not.
So we complicate the model:

• The incentive to spend money is lower when the short-term safe nominal interest rate is low.

• For each counterfactual level of the money stock there is a curve, with total spending on the horizontal axis and the short-term safe nominal interest rate on the vertical axis, that tells us how the level of spending varies with counterfactual variations in the short-term safe nominal interest rate.

• We call this family of curves--one for each counterfactual level of the money stock--the LM relationship.

• But this is not a complete model: we need to figure out what the short-term safe nominal interest rate is. So we add a bond market to our model and look at its equilibrium level of asset prices to pin down the interest rate.

• We call that pinning-down the interest rate by the name of the IS relationship.

• That is the IS-LM model.

It is a three-good one-period model.

(post-Keynesian?) commenter chris:

John Hicks: IS-LM: An Explanation

I liked Drive, the Nicolas Winding Refn/Gosling collaboration. Their new movie was booed at Cannes. I love the Coen brothers and their new movie Inside Llewyn Davis is said to be their best yet. So I'm excited.

Coincidently, the lead in the Coen's new movie, Oscar Isaac, was in Drive. He played Carey Mulligan's ex-con husband. He has been in Che: Part One, The Bourne Legacy, Body of Lies, Agora, Robin Hood and Sucker Punch.

wherein I take Escaton off the blogroll again

Since Atrios says John McCain is worse than Bashar al-Assad.

Several Hours 

I have no idea what the point of John McCain going to Syria is, though at least now his conspicuous absence from the Sunday shows has been explained. 

I'm sure he's an expert now. 

by Atrios at 17:33

I remember a time when the liberal-left or some of it at least was concerned about humanitarian disasters and the fates of foreigners.  I see the humanitarian disaster in Syria as not just a pre-text for war and as worse than John McCain or the Republicans.

If you just read DeLong, Yglesias, or Krugman you would never know there's an ongoing disaster in Syria which is spreading.

exit strategy (Yoda Kuroda)

Nikkei Sinks Again Amid Mixed Signals From Central Bank

In Tokyo, the minutes of the Bank of Japan’s policy meeting on April 26 revealed a degree of doubt about the bank’s ability to inject a healthy dose of inflation into an economy that has suffered from crippling deflation for years. 

According to the minutes, “a few members” pointed out that the goal of 2 percent inflation appeared “difficult to achieve” in the planned time frame of about two years, “since it was highly uncertain whether changes in inflation expectations would lead to a rise in the actual rate of inflation.” 

Some board members also noted that the bank’s aggressive easing policies appeared to have been perceived by the markets as “contradictory” — comments that highlighted the challenges that the bank and policy makers are wrestling with. 

The bank, on one hand, has committed to ending deflationary expectations and starting an economic recovery by flooding the economy with money, which would cause long-term interest rates to rise. But the bank has also committed to keeping those interest rates in check, partly by buying large amounts of government bonds. That has sowed confusion among market players over whether they should welcome or worry about the recent rise in long-term rates.

Haruhiko "The Keymaster Yoda" Kuroda should say "we want long-term interest rates to remain low until we hit 2 percent inflation, with the economy running at full capacity and potential levels and with the output gap closed. This means 2 percent inflation, not runaway inflation. To prevent runaway inflation we'll allow long-term rates to rise at the appropriate time. This will contain inflation. Hope that clears things up. Market players should look for signs that the output gap is closed. That's when rates will rise. We estimate output gap closure in two years depending on the international economic context (see China, the U.S. and Europe.)"

35 percent

No Villagers, this is not a center-right country by digby

CNN with the latest polling on Obamacare: 

Fifty-four percent of Americans oppose President Barack Obama’s signature domestic policy achievement, according to a CNN poll released Monday, while 43 percent support the law. 

But, for once they asked the most relevant follow-up question: 

Thirty-five percent of the country opposes the law because it’s too liberal, while 16 percent argues it isn’t liberal enough. 

That's right. It is not a majority position against a national health care plan or "big gummint" or any other of the typical beltway signifiers of a "center right nation." It turns out that only 35% of the country has that attitude. The majority either support the plan or want more. I doubt that most people every understand that from the way the polls are presented.

(via Thoma)

Robert Samuelson Mostly Right on Over-Valued Dollar by Dean Baker

The part of the story that Samuelson misses is that the over-valued dollar is a relatively recent phenomenon, not something that dates from the U.S. becoming the world's leading reserve currency. The dollars soared in 1997 as a result of the U.S. government and IMF"s mismanagement of the East Asian bailout from the financial crisis.

The conditions they imposed on the countries of the region led developing countries around the world to begin to accumulate massive amounts of dollars as a cushion so that they would not ever be in the situation that the East Asian countries found themselves in 1997. This means that the imbalances of the last 15 years can be directly attributed to the failures of the Greenspan-Rubin-Summers team (a.k.a. "The Committee that Saved the World") that directed the bailout.

AV Club reviews "Unconscious Selection" from Orphan Black

Monetary Policy

Mixed feelings. I consider myself liberal/progressive/left-of-center. But I'm in favor of monetary policy and humanitarian intervention. (See Bosnia and Rwanda and Darfur. Syria now is what Iraq would have been like without intervention. Probably worse.)

Waldmann's jihad against monetary policy.

I didn't get this first time around. Mike Konczal was reacting to Ramesh Ponnuru and David Beckworth in the worse and worse New Republic. They say fiscal policy doesn't work. He says monetary policy doesn't work. Krugman agrees saying that monetary policy hasn't offset austerity. But could it? Could if they set a 4 percent inflation target?

(What would it take for Ponnuru and Beckworth to be convinced that the focus on debts and deficits now is wrong and fiscal policy can help?)

The Four Percent Solution by Krugman

Larry Ball makes the case that we would be a lot better off with a 4 percent inflation target rather than the 2 percent that is now central bank orthodoxy. Intellectually, this position is hardly outlandish; indeed, Ball’s case is very similar to the case Olivier Blanchard made three years ago, just stated more forcefully and with more evidence. 

The basic point is that a higher baseline for inflation would make liquidity traps, in which conventional monetary policy is up against the zero lower bound, less likely and less costly when they happen. Ball estimates that if we had come into this crisis with an underlying inflation rate of 4 percent, average unemployment over the past three years would have been two percentage points lower. That’s huge — it amounts to millions of jobs and trillions of dollars of extra output. 

There are two main arguments against a higher inflation target. One is that events like the current crisis almost never happen. My view would be that the costs of this crisis are so large — and the difficulties we’ve had in responding so grotesque — that even if they were once-in-75-year events, that should be enough to warrant different policies. But Ball also argues that the risk of liquidity-trap events is much greater than conventional wisdom would have you believe. Just looking at US experience, the last three recessions were all “postmodern” recessions caused by private-sector overreach, not Fed tightening — and in each case the Fed had a very hard time getting traction. Both 1990-91 and 2001 were near misses in terms of the liquidity trap; 2007 onwards was actually in line with what had become the normal pattern, not a bizarre exception. 

By the way, one point Ball doesn’t mention is that to the extent that we consider Japan’s issues partly demographic, that’s becoming the norm too: low fertility and, perhaps, low resulting investment returns are also becoming standard among advanced countries. Again, this calls for a higher inflation target. 

The other argument is some kind of slippery slope thing: you decide that 4 percent is OK, and the next thing you know you’re Jimmy Carter, or maybe Weimar. As Ball says, there is really no evidence for this fear. It’s true that it’s what almost all central bankers believe; but they can’t really explain why, and we should never forget that there was once a time when almost all central bankers believed that going off the gold standard would mean the end of civilization. 

The point is that the conventional 2 percent target is a prejudice, nothing more; it once rested to some extent on studies suggesting that 2 percent was enough to make the zero lower bound a non-problem, but we now know how utterly wrong that view was; so we’re left with a target that’s considered respectable because it’s what all the respectable people say, and is what all the respectable people say because it’s considered respectable. 

What do we want? Four percent! When do we want it? Now!

My take is that monetary policy could have offest austerity. This doesn't mean fiscal policy won't work better.

Words are Wind and Empty Air

(P)IMP

The Liquidity Trap and Macro Textbooks by Simon Wren-Lewis

Obamacare Is Creating Uncertainty! Better Ditch It by Dean Baker

Obamacare Will Be A Debacle — For Republicans by Krugman

Bernanke, less than year left in office

Federal fiscal policy, taking into account both discretionary actions and so-called automatic stabilizers, was, on net, quite expansionary during the recession and early in the recovery. However, a substantial part of this impetus was offset by spending cuts and tax increases by state and local governments, most of which are subject to balanced-budget requirements, and by subsequent fiscal tightening at the federal level. Notably, over the past four years, state and local governments have cut civilian government employment by roughly 700,000 jobs, and total government employment has fallen by more than 800,000 jobs over the same period. For comparison, over the four years following the trough of the 2001 recession, total government employment rose by more than 500,000 jobs.

Bernanke's statement The Economic Outlook given before the Joint Economic Committee

'Not Too Late for the Social Credit Helicopters!' by Mark Thoma

Is this what Michael Kinsley wants?

Societal Ills Spike in Crisis-Stricken Greece By LIZ ALDERMAN

ATHENS — “Five euros only, just 5 euros,” whispered Maria, a young prostitute with sunken cheeks and bedraggled hair, as she pitched herself forward from the shadows of a graffiti-riddled alley in central Athens on a recent weeknight. 

As a chill wind swept paper and trash across a grimy sidewalk, Angelos Tzortzinis, a Greek photographer, caught sight of Maria lowering her price to the equivalent of about $6.50. Maria, who would only give a pseudonym, had hoped to get some money for food — and for a cheap but dangerous new street drug that has emerged during Greece’s crisis, guaranteed to obliterate her sorrows, if only for a moment. 

With the country heading into the fifth year of economic depression, and unemployment near 60 percent for young people, greater numbers of women and men are offering their bodies for next to nothing to get any scrap of money. According to the National Center for Social Research, the number of people selling sex has surged 150 percent in the last two years. 

Many prostitutes have been selling their services for as little as 10 to 15 euros, a price that has shrunk along with the income of clients afflicted by the crisis. Many more prostitutes are taking greater health risks by having unprotected sex, which sells for a premium. Still more are subject to violence and rape. 

Now a new menace has arisen: a type of crystal methamphetamine called shisha, after the Turkish water pipe, but otherwise known as poor man’s cocaine, brewed from barbiturates and other ingredients including alcohol, chlorine and even battery acid

I had hoped the change in ownership would improve the New Republic.

Amy Klobuchar Asks Ben Bernanke A Great Question And the Fed Chairman Has No Good Answer by Yglesias

Japan’s New Optimism Has Name: Abenomics

Is the Economy Saving Obama’s Approval Ratings? by Nate Silver

The Unemployed Need Bold, Creative Moves from the Fed by Mark Thoma

AV Club reviews "Second Sons" from Game of Thrones (newbies)

AV Club reviews "Second Sons" from Game of Thrones (experts)

AV Club reviews "Entangled Bank" from Orphan Black