Obama's economic history

Andy Harless comments on DeLong's blogpost

You can call it neo-Austrian if you want, but I think the "bubble level of aggregate demand was unsustainable" view is quite consistent with standard Keynesian (actually neo-Wicksellian) macro theory. The Fed is and was targeting the inflation rate at 2%. Given the existence of a risk premium, it's quite possible (and, in my opinion, was the case in 2005) that the natural risk-free real interest rate is less than -2%. If that's the case, there is no full employment equilibrium that is consistent with the Fed's target. The only way to hit the inflation target while maintaining full employment is by creating a disequilibrium, which is by its nature unsustainable. In particular, in this case, the Fed did it by allowing people to be convinced that certain unsafe assets were in fact safe and thus, in effect, temporarily reducing the risk premium and allowing a positive nominal risk-free interest rate to support full employment.

Summers-fest

Larry Summers' Bad Math by Dean Baker

Furthermore, we still have the basic math problem that he left us from his years in the Clinton administration, how do we fill the gap in demand that resulted from his high dollar policy. While a subsequent fall in the dollar has reduced the trade deficit, it is still close to 4.0 percent of GDP ($640 billion). This can be filled by the government’s deficit spending, but Summers has repeatedly warned that this is only a short-term strategy. 

So how does Summer want to solve the math problem? Is he going to push for another bubble to juice the economy again or perhaps he has changed his mind and decided that a strong dollar really wasn’t such a good idea after all. 

Anyhow, there is no way around this math. You either want a lower dollar, you want to sustain high budget deficits, you want another bubble, or you want high unemployment. That is the math, what is Summers’ answer? We should know this before he gets appointed to the country’s most important economic post.

EZRA KLEIN AND EVAN SOLTAS: "IF THE PRESIDENT IS MAKING ANY CALLS HIMSELF, HE IS MAKING VERY FEW OF THEM" by DeLong

Obama's economic history

Stiglitz, Minsky, and Obama by Krugman

Personally, I’m more of a Minskyite than a Stiglitzian, although not 100%; although things like subprime lending were, I believe, mainly about forgetting the past, Elizabeth Warren’s old work on bankruptcy pretty clearly shows that at least some families took on excess debt as a result of rising inequality. But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too; making soaring inequality the cause of our macro woes too is a bit too, well, comfortable for us liberals. 

Also, there’s a danger in the Stiglitzian approach, namely that people might conclude that fixing the short-run shortfall in demand must wait until we fix the long-run problem of inequality, which is going to be very hard and a long time coming. We need stimulus, or at least an end to austerity, now, even if restoring a middle-class society isn’t going to happen any time soon. 

I wouldn’t make too much of these differences; in practice Stiglitzians and Minskyites agree on what should be done,and it’s good to see the president finally talking about the right things. Still, it is interesting to see where he put his emphasis.

(emphasis added)

The Way Way Back

It's a good movie starring Negative Outlook? favorite Annasophia Robb. She's 19 now so it's not SO creepy to blog about her.* It's a funny, touching movie made by the same folks who made Juno and Little Miss Sunshine. 

Robb plays Susanna, who is vacationing at a summer home with her fun alcoholic mother played by Allison Janney and her younger brother Peter who has a wandering eye along the lines of Peter Lorre and Marty Feldman. Susanna's father had come out of the closet in the recent past and left her mother. She loves her father very much and misses him and so is kind of down in the dumps. Plus her mother is hurting even if she puts on a good front in public.

Susanna doesn't really connect with the other girls her age who are hanging out on the beach and so seems kind of lonesome. Things turn around when people arrive at the summer home next door. They are an unmarried couple who have recently started dating. Each has a child they have brought along. One is a 14-year-old boy named Duncan who is down in dumps like Susanna because his mom (Toni Collette) has a boyfriend (Steve Carrell) who's a dick. The boyfriend brought along a daughter who is rude to Duncan as well. Even though Duncan is younger, Susanna sees something in him and sympathizes with his misery, and she repeatedly attempts to strike up conversations with the awkward and socially-inept Duncan.

Duncan is grateful for Susanna's kindness towards him but is too unhappy to really do anything about it. His fortune turns for the better as he meets Owen, played by Sam Rockwell, a manager of the local water park. Owen hires Duncan and becomes his fun, insightful guru thereby helping Duncan pull himself out of his funk.

Duncan is secretive about where he goes during the day, but Susanna finally takes some initiative and follows him to work one day. The new improved Duncan** is now more receptive and confident and a friendship blooms between the two.***

Still, the Way Way Back is a dramady, not a pure comedy, so some drama upsets Duncan's summer fun. His mother's boyfriend is still a dick and he cheats on her with a woman played by Amanda Peet**** So they decide to go back home and take Duncan with them. Before he leaves, Duncan does receive a parting kiss on the lips from Susanna and seems strangely content when his mom joins him in the way, way back seat***** of the station-wagon right before the fade-to-black music and credits role. And yet I believe he fails to appreciate how close to nirvana he really came. For a person as unhappy as he was, it was enough to come across two kind souls like Owen and Susanna and share some summer adventures. Now the future doesn't look so bleak.

Susanna herself seemed to brighten after making a connection with the lost Duncan. She was no longer alone among the girls she couldn't connect with and a mom in mourning for her marriage and husband.

-------------------------
*Nonetheless it still is, we are forced admit.
**Thanks to Sam Rockwell's Owen.
***Basically Duncan has just hit the jackpot.
****Wife of David Benioff, HBO's Game of Thrones' co-creator.
*****Hence the title.

Chinn on Yellen's prescience

Prescience, 2007 edition by Menzie Chinn

Konczal on Summers and Housing

Yellen, Summers and Rebuilding After the Fire by Mike Konczal

...Given what this blog normally covers, I’d be remiss to not mention housing and financial reform. During the Obama transition, Larry Summers promised “substantial resources of $50-100B to a sweeping effort to address the foreclosure crisis” as well as “reforming our bankruptcy laws.” This letter was crucial in securing votes from Democrats like Jeff Merkley for the second round of TARP bailouts. A recent check showed that the administration ended up using only $4.4 billion on foreclosure mitigation through the awful HAMP program, while Summers reportedly was not supportive of bankruptcy reform.

More Battles to Come, but First a ‘Sunny’ Interlude by David Itzkoff

...For most episodes of “It’s Always Sunny,” the proudly depraved FX comedy about miscreant friends who run their own bar, the stars and producers Rob McElhenney, Glenn Howerton and Charlie Day keep the writing assignments to themselves and their like-minded colleagues. 

But for this installment, the three (presently gathered beneath an overhang, waiting for the rain to pass) entrusted those duties to David Benioff and D. B. Weiss, the creators and show runners of the starkly brutal HBO fantasy “Game of Thrones.”

...When Mr. Weiss and Mr. Benioff hit upon an idea for “It’s Always Sunny” — a gloss on the novel and short story “Flowers for Algernon,” in which Mr. Day’s ne’er-do-well character is convinced that a scientific experiment is making him smarter — they suggested it to Mr. McElhenney.

DeLong: Obama turns neo-austrian

*facepalm*

OBAMA ON THE ECONOMY IN GALESBURG: STUBBORN POWER OF FALSE NEO-AUSTRIAN NARRATIVES WEBLOGGING by DeLong

Obama turns neo-Austrian:

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.

This analysis is, you will not be surprised to see, in my view simply wrong.

We have had three things go wrong:

1. A thirty-year failure of economic growth to be equitable growth.
2. A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel.
3. An economy that in the mid-2000s spent too much of its energy building houses and transferring financial assets.

Of these, the first is by far the biggest, the second is also huge, and the third is relatively minor.

But there is no sense in which the level of employment or of GDP that we had in the mid-2000s was unsustainable, or the result of any artificial juicing of an economy. We know what an economy that is artificially juiced beyond its sustainable productive potential looks like: it has rising inflation. That is not what the economy of the mid-2000s looked like:

That is not at all what the economy of the mid-2000s looked like.

And yet there's Dean Baker's point of the $8 trillion housing bubble. That demand was artificial in that it wasn't sustainable and it was "juicing" the economy. It could have been juiced up to its potential instead of beyond its potential.

It needed replacing after it vanished. And yet monetary and fiscal policy in the recovery has been subpar in that there has been the opposite of "juicing" from the state and local governments. Obama's stimulus was by and large canceled out by cuts at the state and local level. After 2010, there were cuts at the federal level as the private sector picked up modestly with help from the Fed.

My half-baked comment (probably will be moderated away):

The housing bubble "juiced-up" the economy in the sense that it wasn't sustainable. Once it popped, the demand generated by the bubble would need to be replaced by something else. I do think there is more to the story which he describes in point 2: "A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel." Before the credit channel collapsed, it was misallocating into an unsustainable area. Now it's not even misallocating.

Ygelsias: it was an anti-Summers leak

Probably.

The Extremely Effective Leak Campaign Against Larry Summers by Yglesias

Yellen for Fed chair (Romer would be better!)

Larry Summers is the Front-Runner? WTF? by Thoma

and via commenter Sadowski:

Larry Summers is unqualified to be Fed chair by Scott Sumner

Just shoot me by Scott Sumner

Do Larry Summers and Janet Yellen Disagree About Monetary Policy? by Yglesias

In the financial crisis behind-the-scenes books Summers comes off better than I would have guessed. He sided with Romer on somethings. He wanted to nationalize Citigroup. He has argued for more fiscal policy stimulus.

Scott Sumner on blogs:

Saturos asked me for areas where my views have been changed by bloggers.  I’d rather talk about bloggers who have influenced me.  MR is probably my favorite blog, but I’d single out 4 bloggers who often get me to rethink my assumptions; Bryan Caplan, Robin Hanson, Matt Yglesias and Paul Krugman.  In all four cases they often make claims with which I disagree.  After reading their arguments I still often disagree.  But I find that they seriously undermine my confidence in my own position.  That is, I find it hard to refute their arguments, even if the conclusion seems annoying.  Once and a while I am converted. 

In some cases (such as the Cowen and the Tabarrok/Yglesias examples mentioned by Noah Smith), I have vague and free-floating intuitions that suddenly solidify into strong coherent arguments.  In others I go from strongly supporting X, to having some doubts.  It’s rarely a 180 degree turn. 

I’d add that Yglesias influences me more than Krugman for two reasons.  First, he focuses more on narrow issues that interest me, such as progressive consumption taxes. (Has Krugman ever mentioned those?)  Yglesias does read my blog, and seems to be more a part of the monetary policy conversation as I see it.  Krugman almost never even nods to the monetary offset point.  He has a wider audience.  And second, Yglesias seems to come to positions from a more ideologically neutral perspective than Krugman.  That allows me to dismiss some Krugman arguments as “biased,” even if I really should not be doing so. 

I probably shouldn’t have started this list, as I don’t know where to stop.  I like lots of the MM bloggers, but tend to already agree on most points.  Ditto for Ryan Avent.  Other talented bloggers like DeLong I don’t read as often, purely due to lack of time.  I’m always running behind these days.  Even the two teenage econ bloggers (Soltas and Wang), have influenced me on a few points.

 I wouldn't be that surprised if Summers was relatively good as Fed chair. But then again I wouldn't be that surprised if he was complacent as Bernanke was.

McDonalds and bubble-fighting

"The Labouring Classes Should Have a Taste for Comforts and Enjoyments" by JW Mason

Graeber Cycles and the Wicksellian Judgment Day by JW Mason

Is money a liability? by Nick Rowe

Beyond Capital: The Case for a Harmonized Response to Asset Bubbles by Sarah Bloom Raskin

The last two links via Carola Binder. (via Thoma)

Hitch

Amis, McEwan and Rushdie Properly Celebrate the Not-So-Proper Modern British Novel

On Monday, as corks were still popping across London in celebration of the new royal baby, a sellout crowd gathered at the 92nd Street Y in Manhattan for a different celebration of Englishness. 

The occasion was a rare joint appearance by Martin Amis, Ian McEwan and Salman Rushdie, the literary equivalent of a concert by the Three Tenors — or perhaps a friendlier version of the Yalta conference, with three longtime allies jostling to carve up whatever territory might still be controlled by big-dude British literary novelists of a certain age.

...Those things, on Monday, included wry and often unprintable reminiscences about 1970s London literary life and the trio’s late and still-lamented friend Christopher Hitchens.

“I feel there should almost be an empty chair here,” Mr. Rushdie said, before going on to recall Mr. Hitchens’s fondness for word-substitution games. One of the more family-friendly ones: substitute “hysterical sex” for “love” in famous titles, as in “Hysterical Sex in the Time of Cholera.” 

...Another person asked about the legacy of Mr. Hitchens, who died of cancer in 2011. 

Mr. McEwan recalled helping Mr. Hitchens out of bed in his last days to finish a 3,000-word essay about G. K. Chesterton, with facts and quotations pulled largely from memory. 

The world will “never get that same combination of life and genes again,” Mr. McEwan said.

Middle-Out Economics

Middle-Out Economics by Thoma

Has the administration finally realized that we ought to do something about stagnating wages, the millions of unemployed, etc.? Is this a serious effort, or is it, as in the past, mostly just for show (I'll believe it when I see some of it actually happening)?:

President Obama Needs to Ground “Middle-Out” Economics in Broad-Based Wage Growth

by Larry Mishel, EPI

Tomorrow at Knox College, President Obama will kick off a series of speeches outlining his vision for rebuilding the U.S. economy. He is expected to talk about how the economy works best when it grows from the “middle-out,” not from the top down.

Growing from the middle out is indeed the right approach to economic growth. I hope that President Obama will get to the heart of the matter, which is that, adjusted for inflation, wages and benefits for the vast majority of workers have not grown in ten years. This is true even for college graduates, including those in business occupations or in STEM fields, whose wages have been stagnant since 2002. Low and middle-wage workers, meanwhile, have not seen much wage growth since 1979. Corporate profits, on the other hand, are at historic highs. Income growth in the United States has been captured by those in the top one percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector.

The real challenge is how to generate broad-based real wage growth, which was only present during the last three decades for a few short years at the end of the 1990s.

To generate wage growth, we will need to rapidly lower unemployment, which can only be accomplished by large scale public investments and the reestablishment of state and local public services that were cut in the Great Recession and its aftermath. The priority has to be jobs now, rather than any deficit reduction... Overall, it means paying attention to job quality and wage growth as a key priority in and of itself, and as a mechanism for economic growth and economic security for the vast majority. ...

The econ blogosphere has changed my mind about... by Cardiff Garcia

Jaegers versus Kaiju

The Pacific Rim economies of California and Japan point the way forward. Progressive demand management versus austerity, rent-seeking and the redistribution of wealth upwards. 

via commenter "paine"

We're Taxing the Rich... and So Can You

“There is no alternative to austerity,” insist the rich, along with their politicians, foundations, think tanks, and media. 

They’ve been saying it for decades. “Taxes are bad,” they also claim. “Government doesn’t work. And public employees are greedy.” 

Consequently, common wisdom had it that “you can’t raise taxes.” Even people who should have known better believed this—while the public sector slid down the tubes. 

So how did Proposition 30 succeed? This measure, passed by voters last November, raises $6 billion a year for schools and services—in California, a supposedly “anti-tax” state. The money comes mostly through an income tax hike on rich people, along with a tiny sales tax increase of ¼ percent. 

The story should be better known, because with the right preparation, you could make it happen in your state, too.

Election Win by Ruling Party Signals Change in Japan

TOKYO — Japanese voters handed a landslide victory to the governing Liberal Democrats in parliamentary elections on Sunday, strengthening the grip of a party that promises accelerated changes to Japan’s economy and a shift away from its postwar pacifism. 

By securing control of both houses of Parliament for up to three years, the win offers Prime Minister Shinzo Abe — an outspoken nationalist who promises to revitalize Japan’s deflationary economy and strengthen its military — the chance to be the most transformative leader in a decade. Although a lackluster turnout indicated that Mr. Abe might not have as much of a mandate as his supporters hoped, the margin of victory was large enough to suggest he has an opportunity to also bring stability to the country’s leadership after years of short-lived and ineffective prime ministers.

2008-2013 and beyond

Liquidity Trap

There Is No Liquidity Trap: Understanding 21st Century Monetary Policy by Joseph E. Gagnon

(via DeLong)

The Time Bernanke Got It Wrong by Floyd Norris

The Fed chairman conceded that “one cannot look back at the Great Moderation today without asking whether the sustained economic stability of the period somehow promoted the excessive risk-taking that followed. The idea that this long period of calm lulled investors, financial firms and financial regulators into paying insufficient attention to building risks must have some truth in it.” 

One economist who would have expected that development was Hyman Minsky. In 1995, the year before Minsky died, Steve Keen, an Australian economist, used his ideas to set forth a possibility that now seems prescient. It was published in The Journal of Post Keynesian Economics. 

He suggested that lending standards would be gradually reduced, and asset prices would rise, as confidence grew that “the future is assured, and therefore that most investments will succeed.” Eventually, the income-earning ability of an asset would seem less important than the expected capital gains. Buyers would pay high prices and finance their purchases with ever-rising amounts of debt. 

When something went wrong, an immediate need for liquidity would cause financiers to try to sell assets immediately. “The asset market becomes flooded,” Mr. Keen wrote, “and the euphoria becomes a panic, the boom becomes a slump.” Minsky argued that could end without disaster, if inflation bailed everyone out. But if it happened in a period of low inflation, it could feed upon itself and lead to depression. 

“The chaotic dynamics explored in this paper,” Mr. Keen concluded, “should warn us against accepting a period of relative tranquillity in a capitalist economy as anything other than a lull before the storm.” 

When I talked to Mr. Keen this week, he called my attention to the fact that Mr. Bernanke, in his 2000 book “Essays on the Great Depression,” briefly mentioned, and dismissed, both Minsky and Charles Kindleberger, author of the classic “Manias, Panics and Crashes.” 

They had, Mr. Bernanke wrote, “argued for the inherent instability of the financial system but in doing so have had to depart from the assumption of rational economic behavior.” In a footnote, he added, “I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go.” 

It seems to me that he had both Minsky and Kindleberger wrong. Their insight was that behavior that seems perfectly rational at the time can turn out to be destructive. As Robert J. Barbera, now the co-director of the Center for Financial Economics at Johns Hopkins University, wrote in his 2009 book, “The Cost of Capitalism,” “One of Minsky’s great insights was his anticipation of the ‘Paradox of Goldilocks.’ Because rising conviction about a benign future, in turn, evokes rising commitment to risk, the system becomes increasingly vulnerable to retrenchment, notwithstanding the fact that consensus expectations remain reasonable relative to recent history.”

Copperhead isolationists

http://en.wikipedia.org/wiki/Copperhead_(politics)

The Copperheads were a vocal group of Democrats located in the Northern United States of the Union who opposed the American Civil War, wanting an immediate peace settlement with the Confederates. Republicans started calling antiwar Democrats "Copperheads", likening them to the venomous snake. The Peace Democrats accepted the label, reinterpreting the copper "head" as the likeness of Liberty, which they cut from copper pennies and proudly wore as badges. 

They comprised the more extreme wing of the "Peace Democrats" and were often informally called "Butternuts" (for the color of the Confederate uniforms). The most famous Copperhead was Ohio's Clement L. Vallandigham, a Congressman and leader of the Democratic Party. Republican prosecutors accused some leaders of treason in a series of trials in 1864. 

Copperheadism was a highly contentious, grassroots movement, strongest in the area just north of the Ohio River, as well as some urban ethnic wards. Some historians have argued it represented a traditionalistic element alarmed at the rapid modernization of society sponsored by the Republican Party, and looked back to Jacksonian Democracy for inspiration. Weber (2006) argues that the Copperheads damaged the Union war effort by fighting the draft, encouraging desertion, and forming conspiracies, but other historians say the draft was in disrepute and that the Republicans greatly exaggerated the conspiracies for partisan reasons. 

Some historians argue the Copperheads' goal of negotiating a peace and restoring the Union with slavery was naive and impractical, for the Confederates refused to consider giving up their independence.[citation needed] Copperheadism was a major issue in the 1864 presidential election; its strength increased when Union armies were doing poorly, and decreased when they won great victories. After the fall of Atlanta in September 1864, military success seemed assured, and Copperheadism collapsed.

When the Fight Came Home: In ‘Copperhead,’ Opposing the Civil War Brings Trouble by Neil Genzlinger

It was, apparently, a war to end all subtlety. Ron Maxwell, director of the Civil War drama “Copperhead,” renders everything in capital letters in this story of dissent and repression on the home front. Though the tale, based on a novel by Harold Frederic, remains relevant to our time, the film is too self-conscious and tedious for the message it delivers. 

Billy Campbell is Abner Beech, a New York dairy farmer who was no fan of slavery but was opposed to the war —a Copperhead, in the political labeling of the day. An overzealous antislavery firebrand (Angus Macfadyen) turns the town against him, and principles of free speech and the right to dissent are put to the test. 

Abner’s son (Casey Thomas Brown) falls for the daughter of his father’s tormentor (Lucy Boynton) and enlists to impress her. Practically every scene runs too long, as if intent on documenting exactly how a country dance was done or a courtship conducted, and an oppressive musical score makes sure you don’t miss a single emotion or point.

Greatest Show That Ever Was Or Will Be

AV Club on Emmy nominations.

No Tatiana Maslany, nor The Americans, nor New Girl, but Game of Thrones received many nominations. Outstanding Drama Series, Supporting Actor: Peter Dinklage, Supporting Actress: Emilia Clarke, Writing for Drama Series: David Benioff and D.B. Weiss, “The Rains Of Castamere." I also like Homeland which received nominations for Outstanding Drama Series and for Damien Lewis, Claire Danes, Mandy Patinkin, and Morena Baccarin.

Bernanke blames Congress again, notes deflation

Fed Chief Reaffirms Fervor for Stimulus by Binyamin Appelbaum

The Federal Reserve’s chairman, Ben S. Bernanke, emphasized on Wednesday that the central bank remains committed to bolstering the economy, insisting that any deceleration in the Fed’s stimulus campaign will happen because it is achieving its goals, not because it has lowered its sights. 

Mr. Bernanke said he still expected to reach that point in the coming months but, in what may have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth. 

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he told the committee....

Analysts said that the strongest new signal Mr. Bernanke delivered in recent weeks concerned the sluggish pace of inflation. Prices rose just 1 percent during the 12 months ending in May, well below the 2 percent pace that the Fed considers healthy. Fed officials insisted for much of the year that inflation would rebound from the lowest pace on record.In recent weeks, the Fed has emphasized that it will take action if inflation does not. On Wednesday, Mr. Bernanke put inflation alongside unemployment as the justification for the Fed’s continuing efforts. 

“Our intention is to keep monetary policy highly accommodative for the foreseeable future, and the reason that’s necessary is because inflation is below our target and unemployment is still quite high,” Mr. Bernanke told the committee. 

Michael Feroli, chief United States economist at JPMorgan Chase, noted that Mr. Bernanke also cited the risk of deflation, something he had not done for several years. “The mention of deflation risks, rather than just low inflation, is a fairly strong statement coming from a sitting central bank chief,” Mr. Feroli wrote. 

Mr. Bernanke also emphasized that the Fed would not be satisfied with a decline in the unemployment rate if it was driven by people giving up the search for work rather than people finding new jobs. Importantly, he described this as a reason the Fed might extend its policy of low interest rates but not asset purchases.

DeLong's Tour d'horizon

WHAT I WISH THAT I HAD SAID ON THE DELONG-POSEN-ROSE "FOREIGN AFFAIRS" MONETARY POLICY CONFERENCE CALL by DeLong

Now, one of the risks that Jeremy Stein, Esther George, and company fear is that if the Federal Reserve buys up all the safe, long-term paper that banks needing to report profits so their CEOs can keep their jobs will have a hard time making the three cents per dollar of liabilities, and they will do things we won't understand and take risks we don't understand until it's too late, and then they will get into big trouble. And, this time, the political political climate will besuch that we cannot bail out the banks again. And then we have Great Depression II. That is the risk that the Stein wing is trying to insure against.

Or such is my inference. But I don't know whether that's the tail risk that is driving Federal Reserve decisions right now or not--they aren't being terribly communicative. And if that is not the risk that is driving their decision-making, I don't see what significant tail risk from the Federal Reserve having a larger balance sheet is. If people get sick of holding cash, it can always raise the interest rate on the reserves by a little bit. I the prices of the bonds it holds fall, it can always hold them to maturity--it is the ultimate, patient, long-term investor.

EZRA KLEIN ON JANET YELLEN, SEXISM, AND THE FEDERAL RESERVE SUCCESSION by DeLong

As somebody who had an office next to Janet Yellen's in the period between when the Clinton administration ended and she was installed as president of the San Francisco Fed, let me say that she is plenty smart.

since crisis labor share redistributed to capital

Before crisis, it was going to high income workers.

Is Productivity Being Translated Into Pay Increases? by Dean Baker

...
I had made these points myself a few years back. My conclusion was that we were really looking at a story of upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs. Distribution from wages to profits was not a big part of the picture. 

But that was back in 2007. The picture looks a bit different today. The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.
...

In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower that at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.

We can throw in the usual qualifications about the data being erratic and cyclical, but it's pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.

In the late 90s, Greenspan allowed unemployment to reach 4 percent as he was fighting international financial crises and the stock market bubbled. There is no structural decline because of techology or globalization or oil, etc. It's politics all the way down. The Great Clusterfuck wasn't planned in advance - it dealt the ideology of the system a body blow - but it was a crisis that wasn't wasted.

Andy Harless comments on Japan and the liquidity trap:

These fancy-schmancy DSGE models just lead to confusion. I have a pretty good intuitive idea of what's happening in Japan. There is a hypothetical bad equilibrium -- essentially a speculative bubble with money as the bubble asset, although, since money is the unit of account, most people think of the bubble as a "loss of confidence" in everything except money -- but you never really get to the bad equilibrium (we kind of did in 1929-1933, until devaluation popped the bubble), because central banks (which either won't or can't do what's needed to pop the bubble) stir up the water as much as possible to avoid moving toward equilibrium, and also because nominal wages are sticky downward, which slows down the progress of the bubble, and also probably because, if the bubble were allowed to progress, people would eventually realize that it's silly to hoard an asset without intrinsic value. (The 1929-1933 contraction was essentially a bubble in monetary gold. I imagine that bubble would eventually have ended on its own, as people realized how ridiculous the value of gold was getting relative to everything else, but it might have taken a whole lot of deflation to get to that point.) The ability to capture my intuition in an DSGE model is limited, because we're always far away from the actual bad equilibrium. Maybe a DSGD model, but that's even more confusing.

Krugman vs. Noah Smith: the first rule of macro is that it's folly to disagree with Krugthulhu

Japan and the liquidity trap by Noah Smith (July 16, 2013)

Wage-Price Flexibility in a Liquidity Trap, Again Again Again by Krugman

Japan's stagnation: demand-side or supply-side? by Noah Smith (July 15, 2013)

QE is self-financing

JOE GAGNON: YES, QUANTITATIVE EASING IS SELF FINANCING by DeLong

A Quote from Samuelson and Solow, 1960 by Robert Waldmann

(via DeLong & Thoma)

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?