inflation and expectations; Shiller

PPP and Japanese Inflation Expectations (Extremely Wonkish) by Krugman

I have my doubts about the apparent decline in recent months. It’s being driven not by events in Japan but by the taper scare, which drove up US rates. There is a question about why that rise in US rates didn’t produce a lot more yen depreciation, but something seems off here.

The main point, however, is that this measure does suggest a substantial rise in expected inflation since Abenomics began, which is good news.

Sharing Nobel Honors, and Agreeing to Disagree by Robert J. Shiller

In Fed and Out, Many Now Think Inflation Helps by Binyamin Appelbaum

Faster Inflation Would Help…Really! by Jared Bernstein

Bill de Blasio for Mayor by the NYTimes Editorial Board

Election is in 10 days?

Positive Outlook: Abenomics is succeeding. Obamacare will succeed. Republicans will lose House next year. Yellen. Economy should pick up even if inflation is below target.

Update:
The Economics of Rip Van Winkle by Krugman 

Binyamin Applebaum’s piece on the growing acknowledgment that moderate inflation can help, especially under current circumstances. But I can’t help thinking, only now they notice? I mean, this was all worked out and carefully explained fifteen years ago.

Oh, and the hard thing now is how you get inflation when we’re already at the zero lower bound. You really want this tied to expansionary fiscal policy, not austerity.

Still, any intellectual forward motion is welcome.

NSA Spying

In Spy Uproar, ‘Everyone Does It’ Just Won’t Do

Diplomats at the United Nations on Friday said that Germany and Brazil, two of the countries whose leaders have been subjected to N.S.A. invasions of their communications, were drafting a General Assembly resolution that would seek to strengthen Internet privacy.

The diplomats, who spoke on the condition of anonymity because the drafting is still in the early stages, said momentum for the measure, begun in the summer, had been invigorated by the most recent disclosures of American eavesdropping. A formal resolution could be ready for consideration next month in what would be the first internationally coordinated response to the N.S.A. spying. Word of the German-Brazilian initiative was first reported on the Web site of Foreign Policy.

In Europe, where Ms. Merkel and Mr. Hollande demanded Friday that the United States open negotiations on a “code of conduct” that would limit surveillance, there is a sense that the steady stream of revelations may give them an upper hand. Ms. Merkel keeps repeating the phrase that the Americans must “restore trust.” One way the French and Germans intend to do that is to seek some form of inclusion in the inner circle of American intelligence allies, or at least for a deeper intelligence alliance.

Right now that inner circle, called the “Five Eyes,” consists of the United States and four English-speaking partners: Britain, Canada, Australia and New Zealand. Those partners agree not to spy on one another and to share in many of the United States’ deepest intelligence secrets, as the trove of highly classified documents made public by Edward J. Snowden, the former N.S.A. contractor, makes clear.

But Europe’s demands may go further than a stronger spying relationship with the United States. The European Union wants to require American companies, led by Internet powerhouses like Google and Yahoo, to get the approval of European officials before complying with warrants issued in the United States seeking information, e-mails or search histories about European citizens. The European Union would slap the technology companies with huge fines if they failed to agree to those rules, meaning that the companies would be caught between two masters and several legal systems.

Those kinds of demands would have been hard to imagine during the cold war, when European nations relied on the United States for protection from the Soviet Union, and American spying and rule-setting were tolerated.

Borgen

AV Club reviews "One Man's Loss" from Borgen





Birgitte, not Brigitte, still.

macro

Brad DeLong: Review of Alan Blinder's "After the Music Stopped": Foreign Affairs Version

DeLong goes soft on Democratic presidents. Johnson privatized Fannie and Freddie for a one-time boost to his budget numbers. Clinton "reformed" welfare which boosted poverty levels. Clinton and Carter deregulated. Clinton reappointed Greenspan who allowed a shadow banking system to arise, unregulated.

Macrofoundations (Wonkish) by Krugman

The macro foundations of microeconomics by John Quiggin

macro and the financial crisis

What We’ve Learned from the Financial Crisis by Justin Fox

greatest show that ever was or will be

The Women and the Thrones by Daniel Mendelsohn

I disagree with Mendelsohn about Lena Headey and Emilia Clarke. Headey is compelling in an unsympathetic role and Clarke is wonderful. She was nominated for an Emmy this year.

Possibly he felt he needed to put something negative in his review since it's mostly positive.

Under the Dumb

Fox News says The Walking Dead is brainwashing Americans, without irony by Sean O'Neal

Always out to decry brainwashing in any form that doesn’t directly serve it, Fox News has exposed yet more TV making viewers witless and single-minded in the wrong way by arguing that The Walking Dead is “seriously hurting American society”—that bumbling assemblage of oafs who are always but one unsavory pop culture moment away from killing each other and having sex with the skulls. Fortunately, the more healthily paranoid Fox News audience have received early warning to don their protective anti-skull-sex helmets from Fox Health News senior managing editor Dr. Manny Alvarez, whose years of experience as an OB-GYN has made him expertly qualified to handle babies.

“Hate me all you want, or call me paranoid and misinformed,” says “Dr. Manny,” instantly predicting and therefore negating all criticism, “but there is one common theme that is pervasive in American pop culture today: violence. Even more specifically, zombie violence. The idea of a zombie-infested world inspires fantasies of monsters possessed by an uncontrollable rage to kill, and viewers get a thrill imagining what it would be like to participate in this new world order.” And, he argues, those daydreams of an ominous, monster-filled “new world order” only serve as distractions from the other, slightly less monstrous new world order Fox News would prefer you focus on.

“With this country heading towards a socialized system of government, in which officials don’t want you to think or focus on what is important for your own personal growth, I’m sure they’re more than happy to let you obsess over something as stupid as zombies. And in turn you ultimately become the zombie,” said Alvarez of this nefarious attempt to cloud a dulled and impressionable public’s thinking with nightmares of imaginary bogeymen coming for their very lives, which only draws attention away from worrying about how Obamacare will end freedom.

Alvarez implicates everything from zombie video games to "Zombie Runs" to the National Institute of Health’s “how-to guide on dealing with a zombie outbreak”—a guide that was actually created by the Center for Disease Control, as a successfully publicity-grabbing way of getting otherwise-disinterested Americans to learn about disaster preparedness—as part of this system shamelessly indoctrinating the public with imagination and useful information. 

“Give me a break. As a doctor and scientist, I know one thing for sure: When you’re dead, you’re dead,” writes Dr. Manny, providing the kind of blunt, tell-it-like-it-is truth Fox is known for, and which can only be achieved after a career of studying vaginas, then correctly identifying which one belongs to a dead person. “Our brains should be less focused on imaginary zombie hordes and more focused on harnessing the tools that we need in order to enhance our lives, whether it be music, education, science or the classics. Entertainment should help us soothe our brains so that we can ease our minds of some of the stress from our daily lives,” he concludes.

Alvarez then returned to work at the one channel entirely devoted to stoking panic about faceless groups of enemies, in between spreading fear and disaste for culture, education, and science.

what a fucking joke

Binyamin Applebaum Gives a More-Polite-Version-of-Pearlstein's Review of ‘The Map and the Territory’ by Alan Greenspan:Noted

The most provocative part of the book is Mr. Greenspan’s assertion that government spending on Social Security, Medicare and other entitlement programs is the reason that the American economy has grown more slowly in recent decades…. Yet it is not obvious that the American economy has been suffering from a lack of financing. While Americans saved less, the rest of the world was only too happy to shovel money into the United States. Mr. Greenspan in this same book subscribes to the view that the housing crash was caused in part by an overabundance of foreign investment in the American economy.

Alan Greenspan's Bad Memory by Dean Baker

It is more than a bit silly to compare the bursting of the stock bubble (not dot-com, the market in general was hugely over-valued) and the housing bubble to the 1987 crash. The market had gained a great deal of value in the year of 1987. After the crash in October it quickly began to make back lost ground and by the end of the year the market was at virtually the same level as the beginning of the year. No one thinks that the economy is affected in any significant way by short-terms movements in the market, so there was really nothing to clean up in this story.

The picture was very different following the 2001 crash which resulted in the elimination of roughly $10 trillion in stock bubble wealth, an amount approximately to the economy's GDP. The economy did not recovery quickly following this crash. While the recession was officially short and mild, ending in 2001, the economy did not begin to create jobs again until the fall of 2003, almost two years after the recession was over. It did not get back the jobs lost in the recession until January of 2005. At the time, this was the longest period without job growth since the Great Depression.

The Fed seemed to take notice of the weakness of the economy keeping the federal funds rate at just 1.0 percent until the summer of 2004. This can be seen as effectively the zero lower bound. No one thinks that there is any great stimulatory effect from dropping the rate from 1.0 percent to zero, which is why people routinely talked about the European Central Bank as being at its zero lower bound even when its overnight interest rate was 1.0 percent.

Charles Evans

Yglesias tweet:

Charlie Evans, hero of good sense:  

http://blogs.wsj.com/economics/2013/10/18/feds-evans-bad-idea-to-use-monetary-policy-to-burst-bubbles/ …

Fed’s Evans: Bad Idea to Use Monetary Policy to Burst Bubbles by Michael S. Derby 

Federal Reserve Bank of Chicago President Charles Evans said those who would prefer to tighten monetary policy to reduce the threat of new financial bubbles are barking up the wrong tree.

The central banker, who has been a strong supporter of the Fed taking aggressive actions to aid the economy, said that instead of using monetary policy actions to bolster stability in markets, the central bank should use its expanding portfolio of regulatory powers to target imbalances.

“Without adequate safeguards, excessive and persistently low interest rates could lead to excessive risk-taking by some investors,” Mr. Evans said in the text of a speech to be given in Chicago before the Financial Management Association Annual Meeting Luncheon. But those safeguards now exist: “Regulatory efforts can effectively minimize the risks of another crisis and increase the resiliency of the financial system,” the official said.

Academia, the corporate media and the corruption of the Republican party, for the most part, are the problem.

Shutdown takeaway: the US wants a fair society, not 'defund Obamacare' crazy by MarkWeisbrot

zero lower bound / liquidity trap & the monetary base

ZLB Denial by Krugman

Yes — if back in 2007 you denied the existence of liquidity traps, that is, denied that the zero lower bound on short-term interest rates places limits on monetary policy, you should long since have acknowledged that you were very, very wrong: 

Since late 2007 the monetary base has risen more than 300 percent, while GDP and consumer prices have risen less than 20 percent. And no, the disconnect is not all due to the 0.25 percent interest rate the Fed pays on reserves.

You can argue that the Fed could have done more — it could have expanded its balance sheet even further, and/or moved into riskier assets, and/or done more to change expectations. But I don’t see how you can deny that making monetary policy effective has been far harder since we hit the ZLB than it was before, and that this retroactively casts great doubt on Friedman’s claims that the Fed could easily have prevented the Great Depression.

Borgen

AV Club reviews "The Right Shade of Brown" from Borgen

Obamacare will be fine and will be improved

Many more Americans will have health insurance and financial security.  That's progress.

Noble Prize in Economics

Sveriges Riksbank prize actually, blah blah blah by Daniel Davies

as we regroup, the CW

review of Reign

In the end, though, “Reign” is kept from being a true camp classic by the strong house style of CW, whose young-adult soap operas have an overriding strain of melancholy (catnip to angsty 18- to 34-year-olds). That, and the network’s quality control: none of its shows are great, but none of them are entirely laughable, either. “Reign” looks good (the pilot was shot in Ireland), moves smoothly and features CW’s characteristic bland but competent performances. Alas.

Ten Takeaways From The Great G.O.P. Cave-In by John Cassidy

debt ceiling clown show over

Supposedly Boehner will violate Hastert rule and allow up or down vote on Senate plan.

A conspiracy theory of the debt ceiling by Steve Rand Waldman

currency policy, exchange rates, exports, and trade deficit

If the Dollar Stopped Being the Preeminent Reserve Currency It Would Mean More Jobs and Growth by Dean Baker

Can Somebody Please Check on Scott Sumner? In the Wake of the Nobel-Like Prize Announcement, He May Need His Meds Adjusted…: Noted by DeLong

Shiller wins Nobel Prize

Inefficient Markets: A Nobel for Shiller (and Fama) by John Cassidy

Nobody could say Chicago School economists aren’t resourceful, especially when it comes to defending their world view against attack. The Nobel committee, in recognizing yet another one of them at the same time it was honoring one of their most effective critics, was perhaps enjoying an inside joke. Or maybe it was displaying a newfound and welcome willingness to countenance rival and mutually contradictory views. Or, possibly, its members are suffering from cognitive dissonance. Whatever the explanation, the 2013 prize represents progress, of a sort.

debt ceiling clown show

Dems think they’re killing debt limit GOP extortion for good by Greg Sargent

The question about the deal is this: Given that the next debt limit deadline looms just after the date on which government funding runs out, doesn’t this just mean we’ll find ourselves in roughly the same situation in a few months, with Republicans demanding concessions in exchange for averting default and economic chaos?

Senate Democratic aides tell me they think the possibility that conservatives will insist on another round of debt limit brinksmanship is very real. But they think they’re on the verge of rendering any such threat an entirely empty one. The idea: Decoupling the debt limit from the budget talks, and placing the debt limit deadline further out, will effectively isolate the debt limit debate and make another default extortion crisis even harder politically. By refusing any meaningful concessions in exchange for a debt limit hike this time — and earlier this year – Dems will have finally killed the “Boehner Rule” (which demands spending cuts in exchange for any hike) and driven home that GOP debt ceiling extortion will never be rewarded again.

“Of course extending the debt limit for a longer period of time would be preferable, but under the circumstances, with Republicans trying to figure out a way to get out of this mess, the idea that the debt limit has been defanged as an extortion tool was enough,” a Senate Dem leadership aide tells me. “Conservatives will still try to bring this up and they still may end up damaging the economy, because it’s been so ingrained that this is a tool that should extract concessions. But it will be hard for anyone to take that claim seriously.” GOP leaders included, presumably.

As I reported yesterday, Dem aides believe Republican tactics have delivered such a massive hit to the GOP that leaders will be even more wary of another default crisis once the 2014 elections are underway. As one aide told me, pressure from the right for another hostage standoff could divide Republicans — particularly if GOP leaders are even more eager to avoid a crisis – and put pressure on 2014 candidates to hew to extremism at an even worse political moment for the party.

Germany and minimum wage

To Form German Coalition, Merkel’s Party May Need to Support a Minimum Wage

Over the weekend Ms. Nahles insisted that without an agreement to introduce a minimum wage, her party would not be interested in forming a government with the conservatives. Germany is one of the few European countries to lack a legal minimum wage, which critics charge has allowed employers to exploit workers and contributed to a rise in income inequality since cuts to minimum benefits were introduced in 2005.   

Traditionally, industry leaders have negotiated wages with trade unions, setting a minimum wage for individual branches, like chemical, construction or metal workers. Ms. Merkel praised that strategy as a cornerstone of Germany’s cherished social market economy in her regular weekend podcast.

“In recent years, the German government has introduced a sector-specific minimum wage for more than four million workers,” Ms. Merkel said.

Yet that number is roughly half of the 7.5 million Germans the Social Democrats and leading unions say earned less than the guaranteed $11.55 hourly base wage that the center-left party is seeking for workers in both the country’s former eastern states and the more affluent west.

hostage to fortune with Silver

Seth Ackerman attacking John Judis

In the last debt ceiling crisis, two years ago, the public expressed overwhelming revulsion and blamed the GOP by a wide margin; the next year, Republicans won the House again, and ended up with three-fifths of the governors and state legislatures. Most likely the same or worse will happen again in 2014.

2010 was post financial crisis with TARP etc.

over? until January?

Almost Over by Krugman

Senate Republicans have figured out what to do:





It ain’t over until the tanned man sings, but it looks as if Obama’s Michael Corleone strategy has succeeded.

Senators Near Deal on GOP Surrender by Jonathan Chair

This is a huge win for those Republicans who got into the shutdown to help unions. For those who had other goals, it's basically a total surrender. The policy changes attached to the deal appear to be minor, and reciprocal — each party got something of roughly equal value, so the deal could have occurred without the threat of default or shutdown. Democrats probably will have succeeded in their overall goal of giving Republicans nothing through extortion they could not have gotten through regular legislation.

Republicans are delusional about US spending and deficits by Dean Baker

2014 midterms

Poll: Basically Everyone Now Angry at GOP Over Shutdown by Dave Weigel

percentage of Americans disapproving of the way Republicans are handling negotations: 74 percent

Washington Post/ABC news poll for Oct. 9. On Sept 25 i was at 63 percent.

bubblicious

Fama, Shiller, and a modeler win Noble. Fama is a bubble denier.

Mark Schieritz:

great thing about bubble-deniers like fama: they can't tell the fed to tighten because of bubbles

Walking Dead (GOP)

AV Club reviews "30 Days Without An Accident" from The Walking Dead

Walking Dead huge hit in the ratings.

16.1M viewers for the season premiere of The Walking Dead.
10.4 million in 18-49 demo

Obamacare and the debt ceiling clown show

On Stephanopolous, Krugman was right to say that the ACA problems would be fixed this year and over time. The Republican talking heads were wrong - yet again - in predicting that Obamacare would be an open wound leading up to the elections.

Plouffe was right to say that the 2011 sequester budget is a Republican budget. That's the baseline.

He and Biden negotiated it. It's weird how Biden is taking blame. Is this for Hillary? More likely it's the truth.

Republicans won't admit that what is going on is extortion, that it is a new development, and that the Clean CR is a Republican budget.

Obamacare Success by Krugman

The Walking Dead (GOP)

Wow AMC's lengthy preview ad for the new season of The Walking Dead was emotionally powerful. Looks good! They used Sharon Van Etten's "Serpents" as the soundtrack.

Alex Gibney, filmmaker:

"FOLLOWING The Naked Capitalism blog gives you a very unvarnished look at the political economy. You find out things that don’t show up in the news until weeks later. Also, the Center on National Security Web site, which every day publishes a roundup of articles about national security issues."

Naked Capitalism and similar sites and commenter have said Obama will do a Grand Bargain.

From an article on the fiscal crisis:

Stuck on Usual Quarrel: Raising New Revenue by Jackie Calmes

“On the one hand, the speaker says he wants to have an open negotiation; on the other hand, he is shutting the door to eliminating a single tax break for the purpose of reducing the deficit,” said Representative Chris Van Hollen, Democrat of Maryland. 

On the Republican side, a senior Congressional aide who declined to be identified while the parties were trying to break the impasse, said flatly: “We’re never going to have a grand bargain with this president, I think that is safe to say. Ever.”

Mobility is no answer to dispersion by Steve Randy Waldman

12 Years a Slave

Steve McQueen, Chiwetel Ejiof, and Eric Foner discuss 12 Years a Slave

sticky wages and downward nominal wage rigidity

Sticky Wages and the Macro Wars by Krugman

Simon Wren-Lewis, following up on Bryan Caplan, makes the case that downward nominal rigidity of wages is simply a fact, attested to by overwhelming evidence. Furthermore, it’s a fact that we understand fairly well in terms of behavioral economics. So he suggests that the unwillingness of many macroeconomists to incorporate this fact in their models — because it doesn’t have “microfoundations” — says something disturbing about the state of the field.  

He’s right, but I have the sense that many of his readers — and just about all of Caplan’s commenters — don’t understand the significance of this observation for the history of macroeconomics over the past 40 years.  

You see, the question of wage (and price) stickiness, and hence of real effects of changes in nominal demand, was what the great rejection of Keynesianism was all about. And I mean all about. Back in the 70s, there was hardly any discussion of the determinants of nominal demand; what Lucas and his followers were arguing was that Keynesianism must be rejected because it was unable to derive wage stickiness from maximizing behavior.

Lucas initially argued that unexpected nominal shocks still mattered, because people couldn’t initially distinguish them from real shocks, but that this offered no room for useful policy. Later, freshwater economics rejected even that proposition; the business cycle was all about real shocks, with demand playing no role at all.

At no point was this rejection of Keynesianism driven by superior empirical performance; it was all about the principle, about refusing to incorporate anything that wasn’t derived from maximization all the way.

So you can’t say, “Well, OK, maybe people aren’t hyperrational, and wages really are sticky” and then go back to hating on Keynesians. Grant that one point — as you should, because the evidence is overwhelming — and you’ve conceded, whether you know it or not, that much of macroeconomics spent three-plus decades following a blind alley.

I see that some of Caplan’s commenters are willing to accept that nominal demand matters, but draw the line at “nonsense” like the liquidity trap. Well, the zero lower bound is also a fact, and once you start admitting that demand matters, you’ll find yourself inexorably arriving at liquidity-trap analysis. But leave that for another day. The key point here is that to concede the obvious about nominal wages is, like it or not, to concede that Lucas, Prescott, and so on were just a great detour away from useful macroeconomics.

and

Wage Flexibility in Doctrine and Policy (Wonkish)

GOP fail: You're doing it wrong

The Last Days of the GOP: We could be witnessing the death throes of the Republican Party by John Judis

cyber activists

How Anonymous Picks Targets, Launches Attacks, and Takes Powerful Organizations Down by Quinn Norton

A Eulogy for #Occupy by Quinn Norton

debt ceiling clown show

At Risk: Currency Privilege of the Dollar by Floyd Norris

If He Has to, Obama Should Raise the Debt Ceiling Unilaterally by Emily Bazelon and Eric Posner

Nerdfury Hive Mind

AV Club reviews The Walking Dead (aka the GOP)

AV Club review "We Are Everyone" from Elementary

commenter Meander:

"It's so consistent with this characterization of Holmes that you can
completely believe how obsessive it would make him trying to prove to
people on the internet that they are wrong.

He also knew he would get clues and directions from people trying to prove HIM wrong. Which he did twice."

xkcd: Duty Calls: "Someone Is Wrong on the Internet."

Rob Donoghue

"The question at hand was how to find good restaurants, and his answer was to take the city you want to go to and just google up some restaurant names that serve the dish you're after. Then go to chowhound or another foodie site, and rather than asking about restaurants, you put up an enthusiastic post talking about how you just had the best whatever you're looking for at one of these restaurants. 

At that point, what drivingblind likes to call the nerdfury will begin. Posters will show up from nowhere to shower you with disdain, tell you how that place used to be good but has now totally sold out and - most important to your quest - will tell you where you would have gone if you were not some sort of mouth breathing water buffalo."

From 2007.

Silver wrong?

Nate Silver gives a hostage to fortune. Granted, a year is a long time in politics. Going to the mat over defaulting on the debt is a new phenomenon.

The Six Big Takeaways From the Government Shutdown by Nate Silver on October 10, 2013

The Shutdown Probably Won't Kill the GOP in 2014 by Yglesias. Probably wrong like Recovery Winter.

vs. Sam Wang (via DeLong)

Sam Wang: What the Gerrymander giveth with one hand… House 2014, prediction #1:

Provisionally, it looks like the following: In a little over a week, the shutdown has increased the probability of a Democratic House takeover in 2014 from 13% to as high as 50%.

 John Boehner Is Borrowing a Plan From Homer Simpson by Jonathan Chait

Here’s the best rule for determining what John Boehner will do in any situation: If there is a way for him to delay a moment of confrontation or political risk, he will do it. That’s why Boehner’s current plan is to raise the debt ceiling for six weeks while keeping the government shut down.

Business is freaked out and will be furious with him if he triggers a default. So he’s raising the debt ceiling for long enough to get them off his back. And tea-partiers will be furious if he abandons their quest to defund Obamacare by shutting down the government. So he’s leaving that part in place.

Is there a plausible strategic logic to this plan? None that I can see. The putative reason for delaying the debt limit is to open fiscal negotiations with Democrats. But Republicans have been dodging fiscal negotiations with Democrats for most of the year. Why? Because they don’t want to compromise on the budget. They want unilateral concessions.

Obama won’t give Republicans unilateral concessions. Any deal Boehner strikes with Democrats will have to contain some concessions to Democrats, which will further enrage the tea party. So there’s no deal Boehner can cut on the budget that won’t anger the base, which brings us back to the same stalemate — waiting until the next debt-limit hike, when he needs to prevent catastrophe again.

retcon

Retroactive continuity - "or retcon for short,^[1] is the alteration of previously established facts in the continuity of a fictional work.^[2]"

So a “futures market” in Federal tax receipts would not be a bad approximation of a futures market in nominal GDP!

Why Scott Sumner should love the debt ceiling by Steve Randy Waldman

The Daily Show hires actual hostage negotiator to negotiate with GOP strategist.

Yellen, the Fed, bubble fighting

Yellen for the Fed by Jared Bernstein

Welcome to the Humanist Federal Reserve, Led By Janet Yellen By Kevin Roose

Is Raising Interest Rates the Fed's Only Tool for Bursting Bubbles? by Dean Baker

A Federal Reserve clown show by Ryan Avent

You Don't Need a Rigorous Microfoundationeer to Know Which Way the--Well, to Know Much of Anything, Really by DeLong

First Woman Fed Chair

Janet Yellen Will Be The Next Fed Chair by Yglesias

Evans rule

In Which I Reiterate My Conclusion That Non-Explicit Regime-Shift Changes in Monetary Policy Cannot Summon the Inflation Expectations Imp: A Note on Our Post-2009 Failure to Achieve Equitable Growth by DeLong

The Fed has been dealing with Congress's austerity. December 2012, the Evans rule provided the economy with insurance against the Fiscal Cliff and ongoing sequester. In June there was taper-talk in that they thought maybe things had calmed down. In September there was the non-taper in that the debt ceiling crisis was coming down the pipe and the data didn't support a taper.

2014

Bruce Bartlett: This Government Shutdown Will Defeat the GOP in 2014

(via DeLong)

The Midterms: Sam Wang Weighs In by Krugman

"If the election were held today, Democrats would pick up around 30 seats, giving them control of the chamber. I do not expect this to happen. Many things will happen in the coming 12 months, and the current crisis might be a distant memory. But at this point I do expect Democrats to pick up seats next year, an exception to the midterm rule." 

...As he says, November 2014 is a long way away. But it’s at least possible that the Republican brand will get worse, not better, over the course of the year, in which case an upset will indeed be in the cards.  

Republicans could lose their House majority because of the shutdown by Sam Wang

A breach of the debt ceiling and they definitely lose the House.

I believe the Republicans are going to suffer much more than anyone realizes. They're assaulting the constitutional order of the American government. They're causing economic chaos. People are pissed and will be pissed. Polls show 70 percent of respondents disapprove of their handling of the shutdown showdown. Yglesias hedges:

One Piece of Good News About the Debt Ceiling

And so what this means is that if Republicans force us to default on payments that come due on November 1, that doesn't put the U.S. government in the legal position of having defaulted on all its debts. In principle, you could have a minor disaster on the 1st followed by a hasty congressional recognition of the error of its ways and then the problem is addressed on November 2 before the whole world burns.

The thing is this could all end in a second of Boehner would violate the Hastert rule again and allow a vote.

Virginia's Republican candidate for governor looks like he'll lose bigtime on Tues. Nov. 5th.

The Shutdown Prophet by Jonathan Chait 

In our Founders’ defense, it’s hard to design any political system strong enough to withstand a party as ideologically radical and epistemically closed as the contemporary GOP. (Its proximate casus belli—forestalling the onset of universal health insurance—is alien to every other major conservative party in the industrialized world.) The tea-party insurgents turn out to be right that the Obama era has seen a fundamental challenge to the constitutional order of American government. They were wrong about who was waging it.

The debt ceiling needs to go away

One More Reason the Debt Ceiling Needs to Go Away by Jonathan Cohn

Blame the Deficit Scolds by Krugman

Point/Counterpoint

The Republican Party Cannot Stand By And Let Obamacare Destroy This Country vs. Help Me by John Boehner

Age of Niallism: the turn towards deficits and away from Obamacare

Whiskey-Tango-Foxtrot Wall Street Journal Bang-Query-Bang-Query: Is This Some Strange Berkeley Acid Trip I Am on? Weblogging by DeLong

Republicans will probably lose the House.

GOP wins with Ryan discretionary budget austerity, but no changes to entitlements, and the deficit is no longer an issue

But they'll probably pay electorally.

For the GOP, when Democrats are in power, the deficit is an issue. When they are it isn't but they push for tax cuts and deregulation to spur "economic growth."

Boehner Urges G.O.P. Unity in ‘Epic Battle’ by Jonathan Weisman and Ashley Parker

Democrats say they simply cannot trust the speaker to deliver. Mr. Reid said in an interview in his office on Friday that Mr. Boehner came to him at the end of July with a proposition: If Senate Democratic leaders could accept a stopgap spending measure in the fall at levels that reflected across-the-board spending cuts, the speaker would refrain from adding extraneous measures that could precipitate a clash.

Mr. Reid was leery, since that level — $988 billion in discretionary spending for the 2014 fiscal year — would be $70 billion less than the Senate-passed budget. “I didn’t like it. I’ve got a couple of tough women to deal with,” he said, referring to Senators Patty Murray of Washington, the chairwoman of the Budget Committee, and Barbara A. Mikulski of Maryland, chairwoman of the Appropriations Committee.

On Sept. 12, in a meeting of the top four Congressional leaders, Mr. Boehner said he was running into problems with a conservative groundswell demanding that a gutting of the health law accompany any spending measure. Mr. Reid and Senator Mitch McConnell of Kentucky, the Republican leader, suggested a procedural step that would allow the House to vote on a stopgap spending bill with a side provision removing funds from the health care law that the Senate could strip out before sending the spending measure to the president.

Again, the speaker agreed. And again, he could not carry through, Mr. Reid said. “If I told him I would do something, I would do that,” the Senate leader said.

At a White House meeting with the president this week, Mr. Boehner twice brought up quiet talks between Ms. Murray and Representative Paul D. Ryan of Wisconsin, the House Budget Committee chairman, as a way to end the impasse with a broad budget deal. The third time, Mr. Reid laughed out loud.

GOP fail

Shorting Out The Wiring by Krugman

For the moment, at least, the shutdown and the general scene of insanity in Congress is clearly hurting the Republican brand. And there’s a whole small industry of crunching numbers on the 1995-6 shutdown, etc., to estimate the likely impact on next year’s elections. For now the conventional wisdom is that the impact will be small, not nearly enough to restore Democratic control.

I have no idea whether that’s right. But as I was reading the various news reports, it occurred to me that there’s a subtler but possibly profound form of damage the GOP is doing to itself, one that will cast its shadow for a long time.

It goes back to something Josh Marshall of Talking Points Memo used to say — that Washington is, in effect, wired for Republicans. Ever since Reagan, the Beltway has treated Republicans as the natural party of government. Sunday talk shows would feature a preponderance of Republicans even if Democrats held the White House and one or both houses of Congress. John McCain was featured on those shows so often you would think he won in 2008.

And there was a general presumption of Republican competence. It’s hard to believe now, but Bush was treated as a highly effective leader who knew what he was doing right up to Katrina, while Clinton — now viewed with such respect — was treated as a bungling interloper for much of his presidency. Even in the last few years there was a rush to canonize Paul Ryan as a superwonk, when it was quite obvious if you looked that politics aside, he was just incompetent at number-crunching.

But I think the last two years have finally killed that presumption. It wasn’t just that Romney lost — his shock, the obvious degree to which his campaign was deluded, was an eye-opener. And now the antics of the Boehner bumblers. 

Suddenly the old Will Rogers line — I’m not a member of any organized political party,I’m a Democrat — has lost its sting; the upper hand is on the other foot. And that’s going to color narratives and shape campaigns for a long time.

prediction

via Bill McBride who got the non-taper right

Some thoughts from Alec Phillips at Goldman Sachs: Will the Federal Shutdown End with a Debt Ceiling Increase?   

In our view, the most likely outcome of the current fiscal dispute is an agreement that combines an increase in the debt limit and a "continuing resolution" that reopens the federal government. We would expect this to pass no earlier than the end of next week (i.e., October 11-12) and more likely sometime around the Treasury's projected deadline of October 17.

Other outcomes are possible, but we believe they have lower probabilities. It is possible that political pressure to end the shutdown could build, but polling thus far does not indicate this has happened yet. It is also possible that if the effort to resolve the two issues together fails, the shutdown could remain unresolved even after the debt limit has been increased. This is a possibility, but we see it as less likely than a combined continuing resolution and debt limit increase.

The intense public focus on the shutdown may have actually raised the possibility of a "clean" debt limit increase. While the situation could go a number of ways, it still appears that the risk of a failure to raise the debt limit is low and that the shutdown has not had a negative effect on the prospects for increasing it.  

And Phillips also mentions:  

Congress is scheduled to go on recess the week of October 13, but this would presumably have to be cancelled if the debt limit had not yet been addressed. In the past, seemingly intractable political disputes have often been resolved around the start of planned congressional recesses.
emphasis added

Can't miss recess ...

capitulation on shutdown and debt ceiling simultaneously

From the Times, on John Boehner’s position:

The overarching problem for the man at the center of the budget fight, say allies and opponents, is that he and his leadership team have no real idea how to resolve the fiscal showdown. 

They are only trying to survive another day, Republican strategists say, hoping to maintain unity as long as possible so that when the Republican position collapses, they can capitulate on two issues at once — financing the government and raising the debt ceiling — and head off any internal party backlash. 

(via Krugman)

The Republicans Are Starting to Reek of Desperation by Jonathan Chait

Giap

Vo Nguyen Giap dies at 102.

Times obit.

Warm Bodies

reserve currency

More Which Way Is Up Problems in Washington by Dean Baker

... 

The implication of course is that the United States benefits from being the world's reserve currency. This is not obviously true.  

The increased demand for dollars as a result of being a reserve currency raises the value of the dollar. Higher demand leads to higher prices. (Sorry for the repetition of simple concepts, but there could be some economists reading.) A higher valued dollar makes our exports more expensive to people living in other countries. This means that we will have fewer exports. A higher dollar means that imports will be cheaper for people living in the United States, which means that we will import more goods.  

Fewer exports and more imports means a larger trade deficit and less demand in the domestic economy. That in turn means lower GDP and higher unemployment. This increase in unemployment hits middle and lower income workers especially hard, since they will not be in a position to achieve wage gains during periods of high unemployment. On the other hand, high unemployment and the resulting low wages, could be good for corporate profits and highly paid professionals like doctors and lawyers.  

There is not only reason to believe that having the dollar as the major reserve currency is bad for the economy, it is also contrary to stated policy. Ostensibly the Obama administration has been pushing to have China raise the value of its currency against the dollar. (For the directionally challenged, that means a lower valued dollar.) The line coming from the administration is that we always press China to raise the value of its currency, but they are just stubborn and won't do what we ask. 

Of course if the dollar stopped being the world's major reserve currency then we would likely get what we are ostensibly asking for in our negotiations with China. The dollar would fall in value against China's currency and against the other currencies where many have suspected "manipulation." In other words, ending the dollar's status as the world's major reserve currency would allow us to achieve a lower valued currency, which has supposedly been a major policy goal in negotiations with China as well as some other countries. 

So ending the dollar's status as the world's reserve currency could boast growth and create jobs and would be consistent with longstanding goals of both the Obama administration and Bush administration for ending currency manipulation, but we are supposed to be scared that it could be an outcome from a debt default. Like I said, people doing economic policy are not very good at economics.

debt ceiling clown show: Boehner assures a nervous Republican

Republicans Say Boehner Has Offered Assurances on Default by Ashley Parker

WASHINGTON — With a budget deal still elusive and a deadline approaching on raising the debt ceiling, Speaker John A. Boehner has told colleagues that he is determined to prevent a federal default and is willing to pass a measure through a combination of Republican and Democratic votes, according to one House Republican.

The lawmaker, who spoke on the condition of not being named, said Mr. Boehner indicated he would be willing to violate the so-called Hastert rule if necessary to pass a debt limit increase. The informal rule refers to a policy of not bringing to the floor any measure that does not have a majority of Republican votes.

Other Republicans also said Thursday that they got the sense that Mr. Boehner, who held two meetings Wednesday with groups of House moderates, would do whatever was necessary to ensure that the country did not default on its debt.

Representative Michael G. Fitzpatrick, Republican of Pennsylvania, was one of just 22 House Republicans this year who helped Mr. Boehner pass three crucially important bills — to avert a fiscal showdown, to provide relief for the victims of Hurricane Sandy, and to pass the Violence Against Women Act — with a majority of Democratic support. He said he expected he might be asked to do so again.

“Hurricane Sandy, the fiscal cliff — all of the big votes require reasonable Republicans and Democrats to come together in order to pass it and get it to the president’s desk,” he said. “This will be no different.”

debt ceiling clown show

Aggressive Blunderers by Krugman

My bet now is that we actually do go over the line for a day or two. And what ends the immediate crisis is not Republican action but a decision by Obama to declare himself not bound by the debt ceiling. He can’t even hint at this possibility until the thing actually happens, because he has to keep the focus on the Republicans, and he has to make them demonstrate their utter irresponsibility before he can take any extraordinary action.

I think this is why the markets are not freaking. They believe Obama will invoke the 14th Amendment or something.

AV Club review of "The Crazy Place" from The Bridge

"Thou shalt not make a machine in the likeness of a human mind."

Butlerian Jihad

The Butlerian Jihad is an event in the back-story of Frank Herbert's fictional Dune universe. Occurring over 10,000 years before the events chronicled in his 1965 novel Dune, this jihad leads to the outlawing of certain technologies, primarily "thinking machines", a collective term for computers and artificial intelligence of any kind. This prohibition is a key influence on the nature of Herbert's fictional setting.

Herbert may have coined the name from 19th-century author Samuel Butler, who has the citizens of Erewhon enact a prohibition on machines newer than 270 years fearing that "it was the race of the intelligent machines and not the race of men which would be the next step in evolution."

 AV Club reviews "Nothing to Hide" from Person of Interest

The new organization seems to be for privacy rights and against infringments by either the government or private sector.

Wall Street paymasters won't allow default

Frank Rich on the National Circus: GOP Can’t Impeach Obama, Closes Government Instead

The federal government shut down yesterday after House Republicans refused to pass any budget that didn't defund Obamacare. The president's signature domestic initiative passed by the skin of its teeth in 2010 and survived both a Supreme Court challenge and a national election in 2012. Are you surprised the GOP is staking so much on a fight it has already lost three times?
Not at all. Let’s be clear what this is about: the refusal of a defeated political party to accept the legitimacy of the democratic process when it didn’t get its way. The focus on Obamacare as a means to delegitimize a twice-elected president is just the latest pretext after previous pretexts failed, from the president’s supposedly fake birth certificate to the “Fast and Furious” scandal to Benghazi and all the other would-be impeachable offenses investigated by the House’s Inspector Clouseau, Representative Darrell Issa of California. Think of the Obamacare-driven shutdown as parallel to the Monica Lewinsky–driven impeachment of Bill Clinton: a handy — though ultimately backfiring — vehicle for an attempted right-wing coup against a Democratic president. If the GOP’s real aim was to get government out of Americans’ medical care, it would be resuming its campaign to “reform” (e.g., gradually defund) Medicare, for starters. But you don’t hear anything about that anymore now that the party realizes that its base loves Medicare — so much so that tea-partiers carried signs saying “Keep Government Out of My Medicare!” in ignorance of the fact that it is a program of the government they loathe. So Obamacare is the chosen weapon instead. Unfortunately for the Republicans, it is going to detonate in their own caucus. 

...

So, what will change the equation? Paul Ryan got it half-right when he said yesterday that the battle on tap two weeks from now, over the debt limit, will be “the forcing mechanism to bring the two parties together.” But the parties won’t come together then — the Republicans will have to retreat. The moment the radicals seriously threaten to push America into default and toss our economy and the world’s into an uncharted cataclysm, Wall Street, which still writes far more checks for the GOP than the outside right-wing groups supporting the shutdown, will pull the plug on the revolution.

bullying

‘Carrie’ Is Back. So Is Kimberly Peirce. by Mary Kay Schilling 

Peirce and I had arranged to meet at her friend’s house in Malibu, near where she lived after the success of “Boys Don’t Cry.” We intended to take an early-afternoon walk along the beach, but she forgot to check for high tide, which left us with only a foot-wide strip of sand. So we stood there rather comically, our backs pressed against the wall of the house, two very pale people in excessive clothing on a sweltering August afternoon. Peirce has lived in Los Angeles since 2003, but still regards herself as a New Yorker, which explained her beachwear: red pants, long-sleeved T-shirt, black motorcycle jacket and boots. She reminds me of Swank as Teena: small-boned, gently seductive, androgynous yet pretty — a butch sprite.
...
DePalma’s film is an undisputed horror classic, not exactly crying out for a remake (though Hollywood has never shied from tampering with perfection). But Jonathan Glickman, MGM’s president of the Motion Picture Group, saw two good reasons to do it: The evolution of special effects, and the fact that bullying is now a national, social-media-inflamed crisis. A fan of Peirce’s films, he felt that no one could better capture that teenage moment “where everything matters in such a huge way,” he says.

Peirce was initially surprised by Glickman’s interest in her. “Then I read ‘Carrie’ again,” she said, “and realized, Oh, these are all my issues: I deal with misfits, with what power does to people, with humiliation and anger and violence. Like Brandon, Carrie has gone through life getting beaten up by everyone. She’s got no safe place. And then she finds telekinesis — her talent, her skill — and it becomes her refuge. And I thought, Wow, this is an opportunity to make a superhero-origin story. With her period comes the power. With adolescence comes sexuality, and with sexuality comes power.”

The first thing Peirce did after getting the offer was to call DePalma, who happens to be a longtime friend. “I asked him what he thought, and he says” — here she did her best impression of his New Jersey accent — " ‘Well, you have to do it!’ ” They discussed some of the changes that would have to be made. “I couldn’t cast a 26-year-old, as he did with Sissy Spacek,” Peirce said. “Girls who are 26 don’t look that young anymore.” She ended up casting Chloë Grace Moretz, who recently turned 16, the same age as Carrie White. “You also can’t turn Carrie into a calculated killer — not in a post-Columbine, post-Virginia Tech, post-all-these-campus-tragedies world.” But she wouldn’t have wanted DePalma’s vision of robotic destruction anyway, she said, entertaining as that was. “The pure horror of that disconnected you from Carrie. I say this with all due respect to Brian, but his film is semicampy. I wanted to get inside this girl’s journey. And particularly her bond with her mother, which was huge for me.”

hostage taking

Obama Summons Congressional Leaders to White House 

To many Senate Republicans, the House conservatives’ position has become mystifying. In a meeting of Senate Republicans, Senator Lamar Alexander of Tennessee rose to ask how the party would respond if it controlled the White House and the Senate and a Democratic House insisted it would not finance the government unless Washington rolled back laws hampering unions.

shutdown

Conservatives Have Already Lost Control of the Shutdown Narrative by Noam Scheiber

glitches

Obamacare Glitches Are Real—and Matter Less Than You Think by Jonathan Cohn  

Republicans and their allies are reveling in Obamacare’s implementation glitches. But their solution isn’t to provide people with some easier, quicker, and more reliable source of insurance. It’s to replace a system that has some early, fixable technological problems with no system at all. It’s to stop people from getting health insurance—and take it away from those, like Mr. Stryker, who are already getting it. That's a tough sell.

With every day, more and more people are discovering that Obamacare is a source of security—and a way to get the heath care ethey have always needed. This is the reality Republicans have always feared. Confronted with the reality of Obamacare, rather than the right’s distorted version of it, people will cherish it.

Abenomics and sales tax

Japan Sales Tax to Increase Next Year, Abe Says

Japan’s consumption tax: a test of modern macro? by Simon Wren-Lewis

The common theme here is the importance that modern macro places on expectations of a fairly rational kind. Yet even if you are happy to go along with this, there is an important proviso that does not get emphasised enough. How did consumers know that the budget deficit would be reduced by raising taxes rather than cutting spending? If they had expected the deficit to be reduced by lower government spending, they will not have expected a fall in their post-tax real income. For these consumers the Prime Minister’s announcement will come as a surprise, and they will reduce their consumption as a result.

This argument is completely consistent with consumers being rational and forward looking, as I emphasise here. All the behavioural assumptions required for Ricardian Equivalence can still be there. What Ricardian Equivalence implicitly does is hold the path of future government spending fixed, but that is an artificial assumption which cannot be true in practice, if only because of political uncertainty. (The argument applies more generally to the small amount of modelling that has attempted to demonstrate ‘expansionary austerity’.)

So we can summarise as follows. If consumption remains on average unperturbed by the sales tax increase (perhaps showing a positive spike before April 2014 which is only partially offset by falls thereafter), then modern macro can pat itself on the back. On the other hand if consumption does take a significant hit, modern macro has an escape clause. Let us hope it does not need it.

Edit: Abe Increases Both Stimulus Spending and Taxes!? What’s Up with That? by Jared Bernstein

"I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

Daddy, Why Do They Hate Obamacare? by Jared Bernstein

Are you reading Ed Porter’s Economic Scene columns over at the NYT? Because you should be—they’re consistently well-crafted, muscular, reality-based, topical arguments on econ current events.

In today’s column, Porter takes a closer look at a point that you frequently hear these days: why does the extreme right hate Obamacare so much? As I noted the other day, I’ve lately run into people asking me that same question, including my 14 year-old (imagine being a kid trying to make sense of the grown-ups’ world right now…ugh).

A common, and correct, answer to this is that the law expands the scope of government, and once it’s in effect, its beneficiaries will like the security it provides them and their families, making it harder to destroy. Porter adds another important angle to this analysis, by considering more closely who the law will help most and why that matters.

That is, while the Medicaid expansions (in the states that accepted them) clearly target the poor, the subsidies that will make coverage more affordable for those without insurance through their jobs target the broad middle class. And that’s a group that a) has seen persistently negative wage and income trends, b) is the target of few social benefits (e.g., they’re ineligible for Medicaid), and c) is a critical voting bloc.

idiosyncratic economics

Not sure what to make of this investor's ideas.


The Rut We Can’t Get Out Of by Daniel Alpert

 

no default prediction

The Shutdown and the Economy by Jared Bernstein

If you think that the extremist wing of the Republican party will have been sated by shutting down the government, or, more realistically, if you believe that the moderate R’s will decide that it’s time to turn off the Cruz control and regain control of the vehicle, then you believe that the shutdown lowers the odds of default.

But if you think this just heightens their blood lust, and the moderates have lost, or ceded, control, then you believe the shutdown heightens the odds of default.

I’m in the former camp—I don’t think we’ll default. But I’m not sure, and you simply can’t over-estimate the recklessness of the House R’s and the dyfunctionality of the current governing process.

Just for fun, and admittedly using made up numbers, let’s say there’s a 15% chance of default, and that this would raise the risk premium on government bonds of the average maturity by 75 basis points (0.75%). The debt held by the public is now $12 trillion (that number is not made up). That means my expected increase in debt service as a result of this dysfunction is $14 billion. If you think there’s a 40% chance of default, you’re at $36 billion.

That’s real money.

Breaking Bad

Breaking Bad ended the anti-hero genre by introducing good and evil

Both Walter White and Vic Makey on The Shield were charismatic and exciting - always making ballsy moves - which is what made the shows popular.

positive outlook

No bubble yet in the economy. Private sector sort of chugging along with banks still tight on credit to home buyers. Germany doing well with 5 percent unemployment. They did worksharing. (If the U.S. had rational fiscal policy, we'd be at more like 6 percent. Toss in worksharing and we're at 5 percent.) The Fed hopefully will be headed by Yellen and they will either maintain or improve their management. Hopefully Japan's growth overcomes the sales tax and Abenomics proves so successful that even the skeptics will have to admit it worked - that or they'll twist the explanation of the mechanisms of success to fit their views.

The deficit is no longer a problem in the U.S. Any deficit cutting is merely political (actually it has been with the sequester.) Affordable Care Act takes effect. It's working according to Krugman:

Yes, there may be some negative news stories about the glitches. But Obamacare is not up for a revote. As Jonathan Bernstein says, the only thing that matters is whether it works. And today’s heavy volume is yet another sign — along with abating health costs and below-expected premiums — that it will.

From David Warsh via Thoma:

The responsibility to take care of oneself will have been joined, however loosely, to the long-established right to emergency medical care.

Something like 25 million citizens, more than half of those who are currently uninsured, will enter into a relationship with a medical practice within the next few years. They’ll join more than 250 million Americans who are currently insured in the biggest undertaking to improve public health since the days of city sanitation and the war on communicable disease more than a century ago.

In many states, collective well-being will begin to improve almost immediately (the initial enrollment period extends through the end of March). In other states, especially those in the Southeast, where Republican governors have dug in against implementation of the law, a more complicated political game will play on. Everywhere, changes within the enormous health care sector, already underway, will gather momentum.

No wonder the fuss is so great.

At first glance, the statute bears a striking resemblance to mandatory vehicle insurance in the United States. Massachusetts led the way in broadening that market, too, followed closely by Connecticut. In 1925, the Commonwealth required automobile owners to get liability insurance in order to register their automobiles. New York followed suit, in 1956, and North Carolina, in 1957; other states quickly fell in line. Today only Virginia requires no insurance; residents of the state must at least post a $500 bond instead, and an overwhelming majority purchase insurance.

It will become the norm like Medicare and Social Security and it will be improved. The American healthcare system will move toward the international norm for advanced countries with lower costs and a healthier population with more security. Health care costs are driving government debt to the extent that the debt is a problem. With the cost curve bent, health care spending won't crowd out other priorities.

Obama signed Obamacare into law in 2010 and was re-elected in 2012. Scott Brown replaced Kennedy in 2010 as a Massachusettes Senator. Then Elizabeth Warren replaced Brown. Liberal De Blasio looks likely to be the next Mayor of NYC after Giulanni and Bloomberg. Warsh:

On Tuesday the Affordable Care Act goes into effect. It was passed by the Congress and upheld by the Supreme Court. The White House holds all the cards. The Defunders, the operating arm of the Tea Party in Congress, are certain to lose if the president remains firm. He should simply state: you don’t negotiate with terrorists.

As if to underscore the point, Senator Tom Coburn (R-Oklahoma), a veteran of the government shutdowns of 1995-96, told Politico last week that if If the Republicans succeed in shutting down the government Tuesday, “they’ll fold like hotcakes” after a week or two, when constituents begin to complain about the lack of service. “You do not take a hostage you are not going to for sure shoot. And we will not for sure shoot this hostage.”

And in the longer term? My guess is that Tea Party dissidents will lose ground in the midterm elections next year; that the GOP will split in the 2016 campaign and that a Democrat will be elected president; that in 2018 the Tea Party will further fade. And by 2020, the Republican governors who are successful in implementing the Affordable Health Care Act will be running for president, strongly, on the strength of their records.

After a week or two Boehner will fold. The consituents will complain. Led by Peter King, moderates revolted and Boehner assured them he'd work it out. With the deficits, debt and Obamacare no longer on the radar and with the economy improving, the Tea Party will fade.

debt ceiling clown show work around - different from 2008

The Debt Ceiling Intelligence Test for the Wall Street Boys by Dean Baker

This is an interesting scenario. On the other hand, it is interesting to look at the fundamentals here. The vast majority of bonds that might be used as collateral will not have defaulted. Even the ones that are technically in default will have only lost a small fraction of their value. Think it through. You have a government bond that was supposed to have a coupon payment on October 17th which was not made because of the debt ceiling standoff. How much less are you willing to sell this bond for on October 18th? (If you say 3 percent or more, send me a note.)

While this set of events could possibly undermine the system as it functions today, if the bankers could not develop a workaround pretty quickly, they are a lot dumber than people give them credit for. Remember, this situation is fundamentally different than what we saw in 2008. In 2008 there was trillions of dollars worth of genuinely bad collateral tied to defaulting mortgages, which were in turned tied to houses that had lost much of their value. This was a case where the music stopped and the money really wasn't there. In the current situation, does anyone really doubt that at some point the government will make the interest and principle payments on its debt?

None of this is to dispute that Lowrey's scenario of a financial crisis may not be right. The Wall Street boys really don't seem to be very good with numbers. Put to the test, they may well fail.

MMT

John Quiggin: MMT: Noted by DeLong

John Quiggin: MMT:

My brief summary is that MMT pretty much coincides with traditional Keynesian views in the context of a liquidity trap, but that I reject the claim commonly made in popular presentations of MMT, that increased government spending doesn’t imply increased taxation…. MMT… is based on the idea of functional finance.…

What happens… if governments decide that an increase in public expenditure is warranted? Assuming that levels of money creation and debt issue were already set appropriately… there is no obvious reason for them to change. But then… the increase in public expenditure must translate, dollar for dollar into an increase in tax revenue. Perhaps there is an explanation for why an increase in desired public spending would change the settings of macro policy in the direction of more money creation, but if so, I haven’t seen it…. 

There are plenty of examples of governments trying to finance their operations through the printing press, and the outcome is always the same: inflation at first, then hyperinflation, then the end of the currency. Zimbabwe, which now has no currency of its own, is just the latest example. There are various possible mechanisms by which this outcome occurs, but the central point is that the monetary base is typically around 10 per cent of GDP…. Any substantial increase in the monetary base can be sustained only if interest rates are pushed down to low levels, ultimately to zero. And, except in crisis conditions like those of the present, zero interest rates will lead fairly rapidly to inflation in asset prices and ultimately in consumer prices…. 

The higher the debt ratio, the stronger the incentive for the government to default or inflate their way out of trouble, and therefore the higher the interest rates they will face. At some point the capacity to borrow runs out.

Breaking Bad

Cool of Vince Gilligan to fly out to be on the Stephen Colbert show tonight after the series finale last night. Hopefully his next project will be successful as well.

Funny mini-skit at the end of the show, where Colbert has Gilligan chained in a basement-closet and he's barking at him to write more Breaking Bad episodes. "What about Badger and Skinny Pete?!?!" "Did Jesse crash he was driving pretty fast?!?!"

A Clear Ending to a Mysterious Beginning: The Final Episode of ‘Breaking Bad’ Leaves One Question Unanswered by Alessandra Stanley

GOP's Waterloo?

Countdown to Shutdown Think 1996 was bad for the GOP? This time will be much, much worse by Noam Scheiber

credit in housing still overly tight

Opening Up the Credit Box by Jared Bernstein

Breaking Bad

Badfinger, Yo!

Badger: "The whole thing felt kinda shady, morality wise."

Donna Bowman reviews "Felina" from Breaking Bad

Wait a minute: Did no one else find the plot totally absurd?! by Yglesias

In the end, Breaking Bad was a brutal show—about love. by Emily Bazelon

Breaking Bad Series Finale Recap: ‘Do It Yourself’ by Matt Zoller Seitz

Creating a New Responsibility by David Warsh

(via Thoma)

no bubble

George Will Shoots at the Fed and Misses, Big Time by Dean Baker 

Will is also convinced that the stock market has been artificially inflated by the Fed's quantitative easing and zero interest rate policy. The S&P 500 peaked at over 1550 in the fall of 2007. If it had risen in step with the trend growth rate of GDP it would be over 1950 today, almost 20 percent higher than its current level. For some reason Will never complained about the 2007 stock market level in spite of the fact that it was markedly higher relative to the value of GDP at the time.

Breaking Bad

Breaking Bad series finale tonight. Aaron Paul did a cameo as Pinkman on Saturday Night Live last night in a skit about Obamacare. He talked about Walter White's trajectory.

Ross Douthat wrote a column on it in the Sunday New York Times titled "The World According to Team Walt."

But one thing he hasn’t done, as this weekend’s series finale looms, is entirely forfeit the sympathies of his audience. As a cultural phenomenon, this is the most striking aspect of “Breaking Bad” — the persistence, after everything he’s done, of a Team Walt that still wants him to prevail.

I wonder how prevalent this phenomenon is. I wonder how many fans recognize it's just a TV show and they don't share White's values in their daily life. Douthat is a conservative who professes religious values.  But Walt's values - myself and my family (my tribe) above everyone else where the ends justify means is very much a conservative Republican outlook. See the government shutdown and hostage taking over the debt ceiling. Liberals share Rawls's vision of society where one prefers a society of true equality of opportunity because they believe in a vision where it's as if one doesn't know where one will be class-wise. Progressives favor social insurance because it benefits society as a whole and helps ensure equality of opportunity.

Walt dealing meth is analogous to corporations dealing bad consumer items like tobacco only worse. Granted he did do many things that were obviously criminal and wrong like killling people, especially innocents like Jesse's girlfriend Jane, even if she was threatening his family. He's obviously an anti-hero. The show *is* called Breaking Bad. But Douthat doesn't discuss Jesse Pinkman who did some bad things and has made many poor choices but is more sympathetic. He has a conscience.

..[Walter White] isn’t the product of a lawless environment who never knew another way. He’s a protagonist who made a conscious decision to embrace what society regards as evil, to step permanently outside our civilization’s moral norms.

Walt made many bad choices, but he was at first desperate and dying of cancer. He thought he could get in and out clean; thanks to the drug war which Douthat doesn't discuss there's ample demand fro drugs. But he was mistaken to think that the drug trade wouldn't drag him down and turn him evil, break him bad. Jesse who has more of conscience was driven crazy.

This means “Breaking Bad” implicitly challenges audiences to get down to bedrock and actually justify those norms. Why is it so wrong to kill strangers — often dangerous strangers! — so that your own family can survive and prosper? Why is it wrong to exploit people you don’t see or care about for the sake of those inside your circle? Why is Walter White’s empire-building — carried out with boldness, brilliance and guile — not an achievement to be admired?

Emphasis added. That's Douthat's Republicans who are cutting food stamps which are very small part of the budget, but will hurt people badly. That's societal rot as discussed by Doug Henwood.

I think the vast majority of viewers identify with Hank who wanted to take Walt down. Walt is a very interesting character though, because of the great writing and acting, one who became worse the longer the show went on. Nonetheless he was fun to watch. And he did care for Jesse who was outside his tribe. And Jesse was a person with a conscience whose conscience caused him to have a break down.

And why did Jesse turn to drugs? Badger? Skinny Pete? Part of it is their responsibility and choice obviously, but part of it is the choices available to them. If Jesse had better options maybe as making a living as an artist he could have avoided drugs. Maybe not but may be if society was more prosperous and there was equality of opportunity people wouldn't turn to drugs. Maybe the punitive drug war makes it worse.