Policy is designed of, by, and for the powerful, end of story.

Why On Earth Does Anyone Pay Economists for Their Work? by Dean Baker

That is what readers of this interview by Binyamin Appelbaum with Stephen King must be wondering. King's main point is that growth is grinding to a halt and we are facing an era of prolonged stagnation. Okay, how does this fit with the story that we will see mass unemployment because robots will do all the work? 

The answer is that it doesn't fit at all. The weather person on channel 5 told just told us that it will 95 degrees and sunny, while the weather person on channel 9 told us to expect blizzards and sub-zero weather. 

This is the state of economic debate in the United States. If either of these views are right, then the people arguing the other one are out of their gourds. Yet in this great country, both views are exposed side by side in elite circles, probably even by the same people. 

This says everything anyone needs to know about the quality of economic debate. It is complete nonsense. Policy is designed of, by, and for the powerful, end of story. If we can't do anything about policy, why don't we just save a few bucks and fire all the damn economists. 

Let's shut down the econ departments in universities, the Fed's research department, the I.M.F., the OECD. Let's get real, no one cares about economics, they are just going to pursue the policies they want to follow. 

(Yes, I'm happy to go too. If we get rid of the rest of the bastards, I would gladly spend the rest of my days shoveling poop in dog shelters.)

The Tea Party needs to be driven into the wilderness

March of the Munching Moochers by Krugman

ZLB and safe assets

Why is There Still a Shortage of Safe Assets? by David Beckworth

Still can't make sense of this.

I don't see any method at all, sir

JOHN TAYLOR ASKS: "YOU DISAPPROVE OF MY METHODS?" BUT I SEE NO METHOD AT ALL HERE... by DeLong

pace Dean Baker, the Fed tightens

YES, THE FEDERAL RESERVE PROSPECTIVELY TIGHTENED MASSIVELY IN LATE SPRING 2013. WHY DO YOU ASK? by DeLong

AV Club reviews The Bridge pilot

A Century of U.S. Central Banking: Goals, Frameworks, Accountability by Ben Bernanke

Behind the Music of Game of Thrones by Jennifer Vineyard

Baker: taper not a disaster

How Bad Is the Bernanke Taper? by Dean Baker

Does he factor in the rising cost of borrowing for state and local governments? What about the sequester?

electoral downside of high unemployment

I don't like this meme DeLong and Krugman are pushing about high unemployment not mattering in elections.

They say political scientists like John Sides say it's a political fact. Well politics is even less of a science than economics. It could be true, but I believe that social democrat programs like Social Security and Medicare are popular.

So how does it make sense that the social democrat program of full employment with the economy running at capacity unpopular and electorally irrelevant. They say it matters if the unemployment rate goes up but not if it is high. My view is that they're making a partisan argument to keep the Republicans out of power no matter what. DeLong was arguing against Republicans who said Obama wouldn't get re-elected because of the economy. Krugman says Hillary will get elected despite the Democrats poor perfomance (even though it's mostly because of the blocking Republican minority.) However I see it as them saying the social democrat program of proper demand management (monetary, fiscal and currency policies) of full employment and an economy running at capacity is not popular. Even though Medicare and Social Security are popular.

Here's Krugman echoing DeLong and Sides.  First from his blog he writes he believes Hillary will win. Then in his column he echoes DeLong.

Not Like Ike

That will, one hopes, eventually change — but it’s going to take several big electoral defeats, and it’s not going to happen by 2016. If she becomes president, which does look fairly likely, Clinton will almost surely face the same environment Obama has faced all along — a completely obstructionist, hate-filled opposition. The only thing that might change this would be if her victory is really shocking — say, Democrats retake both houses of Congress and Clinton herself carries Texas. 

Defining Prosperity Down

You might think that a persistently poor economy — an economy in which millions of people who could and should be productively employed are jobless, and in many cases have been without work for a very long time — would eventually spark public outrage. But the political science evidence on economics and elections is unambiguous: what matters is the rate of change, not the level. 

Put it this way: If unemployment rises from 6 to 7 percent during an election year, the incumbent will probably lose. But if it stays flat at 8 percent through the incumbent’s whole term, he or she will probably be returned to power. And this means that there’s remarkably little political pressure to end our continuing, if low-grade, depression.

The evidence is unambiguous? I doubt that even though I'd much rather have Hillary than a Republican as President. I read DeLong and Krugman every other day and agree with their goals. I just think they may be wrong here. His link in support is:

Are Elections Too Much Like Musical Chairs? by Larry Bartels

Oberyn Martell

Game of Thrones has cast its Red Viper of Dorne

I would have preferred Toby Kebbell, who was good in RocknRolla among other films.

"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."

"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"

Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."

"Your father," said Prince Oberyn, "may not live forever."

Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."

"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."

        George R.R. Martin -- A Storm of Swords

Justice Kennedy, Bork, Obama and DOMA

ADIEU, DOMA! by Jeffrey Toobin 

(via DeLong)

downward nominal wage rigidity

Potential Mistakes (Wonkish) by Krugman

But right now we have high unemployment combined with more or less stable core inflation. Typical models would interpret this as a sharp rise in the natural rate, from maybe 5.5 to 8 percent. But what it almost surely reflects instead is the stickiness of inflation at low levels; the long-run Phillips curve isnot vertical thanks mainly to downward nominal wage rigidity,and that reality is central to what’s happening now. 

I wish that these were narrow technical issues, of no importance for real-world policy. Unfortunately, they’re not. Understating output gaps leads to excessive demands for austerity and excessive complacency at central banks; this perpetuates the depression; and the longer the depression goes on, the more misleading the standard estimates become. 

So it’s good news that at least somebody in Brussels is aware that there might be a problem.

MMT and never say never

Warren Mosler, a Deficit Lover With a Following by Annie Lowrey

Still, even for those with some knowledge of economics, the tenets of the modern monetary theory can make your head spin. The government does not tax its citizens to pay for federal spending. It taxes them to ensure they use the dollar and to help to regulate demand. Since the government prints the dollar, it can never run out of money and it need never balance its budget, not even to prevent the crowding out of private investment when the economy is humming along.

I have a problem with the hyperbolic claims. It's Keynesiansism with some suspect claims tacked on employing the word "never." Perhaps it is a straw man. But they are right that we shouldn't be worrying about the deficit and that fiscal policy could take the place of monetary policy. The problem is politics and a corrupt elite. But monetary policy has offest fiscal austerity to some extent so I don't understand the MMTers who denigrate the focus on monetary policy. The more mainstream economists are right to focus on it.

Reconciling Modern Monetary Theory with the Wisdom of Mark Thoma by Dean Baker

Stephanie Kelton has a comment.

On a different point: MMT supports tax increases and/or spending cuts to address demand-pull inflation. No different from, say, Abba Lerner or Marriner Eccles. 

The real point of departure for MMTers and textbook Keynesians is, I think, very much bound up in the loanable funds theory of the interest rate (the former rejecting and the latter accepting it). From that follow all sorts of differences re: fiscal sustainability. Scott Fullwiler has written brilliantly on this. 

Wikipedia entry on loanable funds

St. Louis Fed President James Bullard has exited the rogues gallery. Dallas Fed President Fisher has joined its ranks. As has Mankiw.

N. Gregory Mankiw is wrong and Harvard sucks.

Arthur M. Okun, who served under President Lyndon B. Johnson as chairman of the Council of Economic Advisers, wrote that the big trade-off faced by society is between equality and efficiency. We can redistribute income to give everyone a more equal slice of the economic pie, but as we do so we blunt work incentives and the economic pie shrinks, he said. From this perspective, the Democrats are the party of more equality, and the Republicans are the party of more efficiency. 

Republican policies are incredibly inefficient. Example number one is the housing bubble and financial crisis. Their health care system is also one based on extracting rent, like the financial system. Extracting rents, destroying the middle class and raising inequality is inefficient. You get a large output gap and idle resources.

Another view is that the important tradeoff is between community and liberty. As members of society, we have goals we want to achieve with others. But as we reach those shared goals, we are asked to sacrifice some personal freedoms. From this perspective, the Democrats are the party that emphasizes communal values, and the Republicans are the party that emphasizes individual liberty. 

Individual liberty of the rich to be free of moral constraints. Privatize the gains, socialize the losses. With incomes stagnating and poverty growing you lose freedom. Pushing for a metadata panopitcon police-surveillance state does not emphasize individual liberty.

Finally, there is the issue of how much one trusts centralized governmental power. Democrats tend to want to expand the scope of the federal government to improve the lives of the citizenry, while Republicans are more fearful that centralized power leads to abuse and lack of accountability. 

Republicans are fearful that a democratically elected government will contest private power which is extracting rents, committing fraud and exploiting. They are happy to employ central government when it comes to keeping the people down and enforcing their priorities, like voter suppression and the surveillance state. Republicans employ centralized government power to bully labor and engage in patent trollery.

These three answers go a long way to explaining, for example, why Jason and I disagreed on President Obama’s health care reform. Jason saw it as a proper expansion of government’s role to promote the community value that everyone should have access to affordable health insurance. I saw it as a risky expansion of government’s power that reduces individual freedom, dulls incentives and will likely lead to a host of unintended consequences. 

Obamacare promotes efficiency and freedom (more bang for the buck for a healthier and hence more secure and free nation.) It employs accountable government to combat the inefficient health care system.

On health care, and many other public policy discussions, there is room for reasonable people to disagree. I don’t expect to agree with all the advice my friend will give the president in the years to come. But I am confident that the nation will be better off for Jason’s having the president’s ear.

There is room to disagree but not room for outright lies and strawmen arguments. Being a proven hardworking, expert at dishonest rhetoric must be the way one gets hired at Harvard.

FELIX SALMON FIRMLY BELIEVES NOT IN THE INFLATION-EXPECTATIONS IMP, BUT IN THE TIGHTENING TOMMYKNOCKERS... by DeLong

How the Fed lost control of short term interest rates by Gavyn Davies (HT DeLong)

 "The declines in the prices of bonds and many risk assets… have come as surprise to some Fed officials, who thought that their decision to taper the speed of balance sheet expansion in the next 12 months, subject to certain economic conditions, would be seen as entirely separate from their thinking on the path for short rates…. The FOMC under Chairman Bernanke has worked very hard on its forward policy guidance, so there is probably some frustration that the markets have 'misunderstood' the Fed’s intentions. Richard Fisher, the President of the Dallas Fed, said that 'big money does organise itself somewhat like feral hogs', suggesting that markets were deliberately trying to 'break the Fed' by creating enough market turbulence to force the FOMC to continue its asset purchases. This is dubious logic. Investors who dumped bonds after the FOMC meeting would make money if bond prices fell further. They therefore presumably want the Fed to tighten policy, which is the opposite of what Mr Fisher indicates. Nor is it right to suggest that big money 'organises itself' at all; investors act in competition with each other, not in collusion."

...

Narayana Kocherlakota, President of the Minneapolis Fed, has made some concrete suggestions this week on economic thresholds. In the present context, his most important suggestion is that the Fed should say that it will not increase the federal funds rate until the unemployment rate has fallen below 5.5 per cent, which would represent a full one percentage point reduction compared to the present 6.5 per cent threshold. This would be subject to the medium term outlook for inflation remaining below 2.5 per cent. 

It is not clear that all members of the FOMC, several of whom have clearly become very worried about the reach for yield in the financial system, would be willing to go that far. But if the Fed really does want to get short rate expectations back under control, they may need to think very seriously about Mr Kocherlakota’s thresholds.

There are other ways to combat "reaching for yield" other than slow growth and high unemployment. More regulation on leverage and margins (see Alan Blinder on this), financial transaction taxes, etc.

Historic Mistake Watch by Krugman

So what’s the point of Fed communication? Mainly it’s not about the specific numbers; it’s about conveying what kind of central bankers we’re dealing with, and hence what they’re likely to do in the future. Talk of extended easy money can help the economy now precisely because it makes the Fed sound like it’s not a conventionally-minded central bank, eager to snatch away the punch bowl; even asset purchases work mainly because they reinforce that impression of unconventionality. 

But when the Fed starts talking about tapering at a time when unemployment is still very high and inflation below target, it undoes all of that good work; suddenly the FOMC starts sounding once again like a group whose fingers are already twitching as they fight the urge to grab that punch bowl. 

Undoing this damage is going to be very hard. One thing that will matter a lot, however, is the choice of Bernanke’s successor. If she’s a well-known dove, that could help a lot. If he’s, say, someone known for saying things like “stimulus is sugar“, look out below.

Yellen or Romer, not Geithner. My sense is that the Republicans like Corker will filibuster whoever it is.

The Service of Snowden by Roger Cohen

Zen

Asian Markets Fall Like Cherry Blossoms In Gentle Spring Rain

Currency devaluation reflects silently on still and glassy water.

(H/T Bernstein)

"Go Zen" is good advice. I'm trying, Mr. Bernstein.

Fed Officials Play Down Fears of Quick Retreat on Stimulus by Binyamin Appelbaum

No Taper? Tapering the Taper Talk.

When Fed Transparency Fails, Go Zen by Jared Bernstein

As usual, the Onion was way ahead on this strategy: here’s a 2008 article titled: “Asian Markets Fall Like Cherry Blossoms In Gentle Spring Rain.”  Note the brilliant haikus sprinkled like soy sauce on my tuna roll throughout the piece.

Sony failed to provide confidence in a market already as skittish as the aging husband of a teenage bride, forcing investors to shore up cash reserves with orders of durable goods and agricultural products. “Fading dollar’s gleam, a feeble warning beacon: Seek bellies of pork.

Cost of Public Projects Is Rising, and Pain Will Be Felt for Years

States and cities across the nation are starting to learn what Wall Street already knows: the days of easy money are coming to an end. 

Interest rates have been inching up everywhere, sending America’s vast market formunicipal bonds, a crucial source of financing for roads, bridges, schools and more, into its steepest decline since the dark days of the financial crisis in 2008. 

For one state, Illinois, the higher interest rates will add up to $130 million over the next 25 years — and that is for just one new borrowing. All told, the interest burden of states and localities is likely to grow by many billions, sapping tax dollars that otherwise might have been spent on public services.

But tax receipts will increase if the economy is stronger. 

Supreme Court 2013: The Year in Review:  Entry 22: Justice Alito’s defense of DOMA is entirely emotional. From: Richard A. Posner

Caveman Lawyer

Searching for Plosser via Google I found a Zero Hedge link from 2009 where Tyler Durden reposted Plosser's predictions of inflation favorably. As wrong as wrong could be. Today I look and Google isn't turning up the link.

New York Magazine article on Zero Hedge:

The Dow Zero Insurgency by Joe Hagan

Taibbi defends Zero Hedge. Taibbi's good but sloppy. He's just wrong here.

it was a crime at the time but the laws we changed them

That's Nicki Clyne from BSG and Ryan Robbins from BSG, Sanctuary and Falling Skies.

It was crime at the time, but the laws, we changed them by John Holbo

Holbo in comments:

Of course. It’s a great song, indeed! I was playing it over and over yesterday, after I thought of it as a title for the post.

Then Belle and I were talking about how we misheard the lyrics at first. They are really hard to understand. Belle said that she thought the “Pharaoh on the microphone!” bit was “There are no marmosets!” Which I think is a totally awesome, anthemic cry from the heart.

Fifth Amendment to the United States Constitution*

Supreme Court 2013: Entry 20: Kennedy’s DOMA opinion is a historic, thrilling, full-throated stand for equality. by Emily Bazelon

*from Wikipedia:

The Fifth Amendment (Amendment V) to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to Magna Carta in 1215. For instance, grand juries and the phrase due process (also found in the 14th Amendment) both trace their origin to Magna Carta.

Text:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.^[1] 

In Light of DOMA Ruling, Glenn Greenwald May Move Back to the United States

Does Wednesday's ruling mean Greenwald will move back? Here's what he said in an email to Slate senior editor Emily Bazelon today:

It's certainly something we'll consider. It's a huge choice with many complicated factors, and it's not the kind of thing you seriously evaluate when the option isn't available to you. We haven't made up our minds in the 90 minutes or so since the decision was announced!

We've lived here together for 8 years and built a life. My partner is finishing school. All of his family is here. So it's something that will take time to resolve. But it's definitely something that we both have a desire at some point to do, and will now spend the time figuring out how and when we can do it.

Greenwald tweets: "It is ironic that I waited 8 years for this decision, and now that it happened, I have that other small matter."

Massachusetts Senate Race off year election

Markey beats Gomez by 10 percent. It's not 2010 anymore.

Wendy Davis, Texas state senator for Fort Worth, successfully filibusters* most restrictive abortion bill in the nation

Huffington Post article

------------------------
*a classic, epic filibuster.

The Religious Right takes a Hit as the Supreme Court strikes down DOMA and California's ban

The Better Angels of Our Nature (Off-topic) by Krugman

Just an aside: I’m sitting in a coffee shop near the hospital, waiting for word, and they have news TV on in the corner, so I’m watching coverage of the Supremes on marriage out of the corner of my eye (along with “New Jersey woman unaware of pregnancy, gives birth on front lawn”). Not my department, of course; but also of course, I’m very much for equality, and gratified by the tone of the coverage, which clearly is that this is normal, natural, and inevitable. 

This is really amazing when you bear in mind that this very issue was used to mobilize the right-wing base in 2004. The change in attitudes in such a short period is awesome. 

I haven’t seen a good analysis of this transformation. But whatever caused it, it’s a testament to American tolerance and open-mindedness. We have our fanatical minorities — but they are minorities, and they’re getting smaller all the time.

Blackhawks' 2013 Stanley Cup Champions Roster

link

Forwards

29 BRYAN BICKELL
36 DAVE BOLLAND
52 BRANDON BOLLIG
13 DANIEL CARCILLO
67 MICHAEL FROLIK
26 MICHAL HANDZUS
81 MARIAN HOSSA
88 PATRICK KANE
16 MARCUS KRUGER
22 JAMAL MAYERS
20 BRANDON SAAD
10 PATRICK SHARP "A"
65 ANDREW SHAW
28 BEN SMITH
25 VIKTOR STALBERG
19 JONATHAN TOEWS "C"

Defensemen

17 SHELDON BROOKBANK
4 NIKLAS HJALMARSSON
2 DUNCAN KEITH "A"
8 NICK LEDDY
27 JOHNNY ODUYA
32 MICHAL ROZSIVAL 

7 BRENT SEABROOK 

55 RYAN STANTON 

Goalies

50 COREY CRAWFORD
30 RAY EMERY
38 HENRIK KARLSSON

True Blood: A Totally Normal Show For Normal People by Meredith Woerner

whistle-blowers and the industrial-scale Leviathan surveillance state

DEMONIZING EDWARD SNOWDEN: WHICH SIDE ARE YOU ON? POSTED BY JOHN CASSIDY

demand management and leakage

Labor’s Declining Share Is an International Problem by Bruce Bartlett

Insufficient monetary and demand management policies?

More Thoughts on Patents and Copyrights by Dean Baker

Whose low rates are these? by Ryan Avent

My views on St. Louis Fed President James Bullard have changed. I remember Tim Duy was critical of his reasoning a while back at his blog and Bullard responded. The two had a polite dialogue and I was impressed by that even if I disagreed with Bullard. Now he's making sense and has become reality-based. Commenter and Fed-watcher Mark A. Sadowski says he has always been reality-based.

James Bullard: This is why I dissented at the Fed meeting this week by Neil Irwin and Ylan Q. Mui

J.B.: I was a big advocate of QE2, and if you remember what happened with QE2, we adopted the program in November 2010. At that point, inflation was quite low, and inflation expectations had dropped a lot. That all turned around in the first half of 2011. There was a global commodities boom. The Fed got criticized for that. By the end of 2011, even core inflation, even with all this slack int he economy, core inflation had gone to 2 percent. My feeling at that point was our work here is done. Because i though the Fed had done exactly what we needed to do to keep us out of the Japanese situation and push inflation back to target, and that we could start to think about how to normalize policy. 

But since the first part of 2012, inflation measures have been coming back down, so now we’re back in a low inflation environment, lower than i expected. yet the committee has sort of turned maybe a little bit more circumspect about how they want to respond to that. 

That’s where we are. One thing that hasn’t happened this time, when we adopted this QE3, and really the full-fledged QE3 is really December of 2012. We’ve been in this game for about 5 months. And we have not had the. What’s missing? It’s the global commodities price boom that occurred with QE2 , that is not occurring this time. It’s really clear why that is. Europe’s in recession and China’s slowing. That’s why. From our perspective, we could say let’s continue and provide more accommodation, because that channel isn’t hitting us so hard this time as it did during QE2. Why don’t we just continue the program, and eventually inflation will go back up to target? I guess that’s how I’m thinking about it right now.

No mention of the sequester?

The Fed as "Pusher"

I strongly disagree with this op-ed, the NYTimes ran:

At Long Last, Stocks Get a Jolt by William D. Cohan

What happened to change the mood so dramatically, so quickly? Is the panic selling justified — or is it just the first glimmer of hope that the Fed will finally take the metaphorical morphine drip out of the arm of the capital markets and allow the forces of supply and demand[!] to set long-term interest rates?

Like the Great Depression happened because the forces of supply and demand and panic were allowed to run rampant.

Demand management is set by the government in concert with the private sector. The government utilizes monetary and fiscal policy to set demand levels - up to a point. If the private sector is bubblicious, the government should take away the punch bowl and reign it back int. If the private sector is fearful, depressed and sitting on their cash, the government should inject some "metaphorical morphine drip" and help boost demand and employment.

The economy should not have a large output gap (which grinds away at long-term growth potential and productivity) just because the private sector is malfunctioning.

Fear Is Contagious by David Glasner

...

But for a contrary view, have a look at theeditorial (“Monetary Withdrawal Symptom”) in Friday’s Wall Street Journal, as well as an op-ed piece by an asset fund manager, Romain Hatchuel, (“Central Banks and the Borrowing Addiction”). Both characterize central banks as drug pushers who have induced hundreds of millions, if not billions, of people around the world to become debt addicts. Hatchuel sees some deep significance in the fact that total indebtedness has, since 1980, increased as fast as GDP, while from 1950 to 1980 total indebtedness increased at a much slower rate.

Um, if more people are borrowing, more people are lending, so the mere fact that total indebtedness has increased faster in the last 30 years than it did in the previous 30 years says nothing about debt addiction. It simply says that more people have been gaining access to credit markets in recent years than had access to credit markets in the 1950s, 1960s and 1970s. If we are so addicted to debt, how come real interest rates are so low? If a growing epidemic of debt addiction started in 1980, shouldn’t real interest rates have been rising steadily since then? Guess what? Real interest rates have been falling steadily since 1982. The Wall Street Journal strikes (out) again.

The NYTimes editorial board did run this editorial which agrees with Krugman that the Fed has little to be optimistic about.

The Fed’s Next Move by the Editorial Board

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.