Obama Administration Government Failure: Hoisted from the NEC Archives from May 11, 2010: ObamaCare Implementation Weblogging: Noted by DeLong

In the "blue states"--where 60% of the country's population making 70% of the nation's income and owning 80% of the nation's wealth live--the implementation of the Affordable Care Act is likely to be like the implementation of RomneyCare was in Massachusetts: a somewhat bumpy ride, but a clear success that nobody wishes to repeal after the fact. In the "red states" where the Republican political infrastructure digs in its heels? Who knows?

positive outlook

Economy keeps plugging along despite shutdown and sequester.* Deficit is down to ~$650 billion/year. Debt is up but deficit will continue to shrink as economy grows faster.

Snapshot: November gets off to healthy start

The stock market started November on a strong note as investors reacted to an expansion in US manufacturing last month. The improvement came during what could have been a difficult month for the economy, with a partial government shutdown. The Institute for Supply Management said its manufacturing index rose to 56.4, the highest since April 2011. The positive start to this month’s trading follows a strong October. But some investors are skeptical stocks can keep up this pace. Stocks are also starting to look expensive by some measures. Investors are paying more than $16 for every $1 of earnings in the S&P 500, the most since February 2011.

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*That is despite the Republicans' best efforts. And if they gain power they'll try to cut taxes for the rich, deficits be damned. See the Bush tax cuts.

Germany

The Changing Geography of Beggar-thy-Neighbor by Krugman

German Surpluses: This Time Is Different by Krugman

There’s a tendency, in discussing Germany’s position in world trade, to assume that massive surpluses have always been the German norm — that the country’s high-quality products have always fueled an export engine that inevitably sold much more abroad than Germans bought. But it’s not true. Here’s Germany’s current account balance as a percentage of GDP since 1980:  

There was an earlier period of surpluses in the mid-80s, largely the counterpart of America’s Reagan-era deficits. But Germany didn’t run a surplus at all in the 90s. Its big move came with the introduction of the euro, and corresponding huge capital flows to the European periphery.

Along with this move came a sharp decline in German relative labor costs; here’s the OECD number:

Again, the point is that this made sense during the great euro area capital transfer. The problem is that Germany has continued to maintain highly competitive labor costs and run huge surpluses since the bubble burst — and that in a depressed world economy, this makes Germany a significant part of the problem.

agita

Adjusting the Taylor Rule for the Unemployment Rate Bias by Jared Bernstein

There are various different rules and techniques for estimating the optimal FFR (Federal Funds Rate), but John Taylor’s rule is probably the most common.*

*Janet Yellen’s recent “optimal control” work is also gaining prominence in this space.  By simulating a path toward a goal like full employment, optimal control techniques return both a path for the FFR and inflation (other variables could easily be included but these are the key ones).

See the figures on pages 28-30 from this Yellen paper.  Relative to various Taylor rules, the technique allows inflation to temporarily exceed the target rate (2%) as the unemployment rate falls (I should note that optimal control assumes inflation expectations remain well-anchored, an assumption that will produce agita for some price hawks).

 agita - heartburn

Greenspan

Alan Greenspan Tries Unsuccessfully to Have It Both Ways: Whiskey-Tango-Foxtrot Weblogging by DeLong

The first point, of course, is that subprime mortgage-based securities in the hands of Fannie Mae and Freddie Mac were not a source of systemic risk, and not a source of the financial crisis and Lesser Depression

And the second point is that Alan Greenspan cannot, on the one hand, say "it's all the fault of the U.S. guviment!" and on the other hand say "the housing bubble looks the same whether you're going to Canada, Australia or any of 20 other countries". That just does not compute.

a split: is their a parting on the right? Is there a parting on the left?

Republican Campaign Committee Pushes Back Against Conservative Group

In a warning shot to outside conservative groups, the National Republican Senatorial Committee this week informed a prominent Republican advertising firm that it would not receive any contracts with the campaign committee because of its work with a group that targets incumbent Senate Republicans.

Even more striking, a senior official at the committee called individual Republican Senate campaigns and other party organizations this week and urged them not to hire the firm, Jamestown Associates, in an effort to punish them for working for the Senate Conservatives Fund, a group founded by Jim DeMint, then a South Carolina senator, that is trying to unseat Senator Mitch McConnell of Kentucky, the Republican leader, and some other incumbents up for re-election next year whom it finds insufficiently conservative.

“We’re not going to do business with people who profit off of attacking Republicans,” said Brad Dayspring, a spokesman for the committee. “Purity for profit is a disease that threatens the Republican Party.”
...
And on Friday, one of Mr. McConnell’s closest aides offered a vivid metaphor about the leader’s determination.

“S.C.F. has been wandering around the country destroying the Republican Party like a drunk who tears up every bar they walk into,” said Josh Holmes, Mr. McConnell’s chief of staff, now detailed to the National Republican Senatorial Committee through the election. “The difference this cycle is that they strolled into Mitch McConnell’s bar and he doesn’t throw you out, he locks the door.”

ACA

Insurance Policies Not Worth Keeping by NYTimes editorial board

Most people in Medicare, Medicaid or employer coverage. People in substandard individual plans may lose them but will be offered better plans which may cost a little more if people can afford them. Overall though, the ACA should work and help to bring down costs, make people more healthy and financially secure. Republicans don't like it because it involves government regulations and intrusion into the atypical health care market.

This Is Why We Need Obamacare by Nicholas Kristof

plutocrats versus populists

Plutocrats vs. Populists by Chrystia Feeland

De Blasio will probably be elected Tuesday Nov. 5. Democratic Senators blocked Larry Summers, Obama's pick.

Changing Her Game: Actress to Author: Amanda Peet

Germany

Germany's Export Obsession Is Dooming Europe to a Depression by Matthew O'Brien

Sin and Unsinn by Krugman

France 1930, Germany 2013 by Krugman

Did France cause the Great Depression? It sounds a bit like a joke (Billy Crystal in Moscow, 1989: “I was raised thinking you were the enemy; you were raised thinking I was the enemy. We were both wrong: it’s the French”) But it’s the actual title of a very good paper by Doug Irwin, who points out that France, with its undervalued currency, soaked up a huge proportion of the world’s gold reserves in 1930-31, and suggests that France was responsible for about half the global deflation that took place over that period.

The thing is, France itself didn’t do that badly in the early stages of the Great Depression — again thanks to that undervalued currency. In fact, it was less affected than most other advanced countries (pdf) in 1929-31:

[chart]

Notice, by the way, that the French weren’t evil or malicious here — they were just adhering to their hard-money ideology in an environment where that had terrible adverse effects on other countries.

Obviously the details are different, but I would argue that Germany is playing a somewhat similar role today — not as drastic, but with less excuse. For Germany is an economic hegemon in a way France never was; it has responsibilities, which it isn’t meeting.

Germany and the paradox of thrift

Defending Germany  by Krugman

OK, I’ve just written a couple of posts talking about the harm German policy is doing. But this is dumb and destructive:

Berlin’s attention to its own domestic priorities seems likely to stir resentment that the medicine of austerity prescribed by Berlin abroad is administered with less zeal at home. Analysts say the contrast is angering voters throughout Europe, where populist and anti-European Union parties are steadily gaining strength outside Germany.

No, no, no! This is the euro equivalent of “American families are having to tighten its belts, so the government should tighten its belt too.” We want Germany to spend more, so that it provides a market for other countries and stops adding so much to the world’s excess savings. The last thing European debtors, or anyone else for that matter, should demand is that Germany put on a hair shirt.

So please, Germany, live it up.

The Revenants

AV Club review of "Camille" from The Returned

Never expected to see a NOFX poster in a French show.

German macro

More Notes On Germany  by Krugman

A few more things to say about Germany’s trade surplus and the US report saying, correctly, that it’s harmful to the world economy.

The worst thing, if you ask me, in the Spiegel report on the controversy is the statement by Germany’s Economics Ministry that Germany’s surplus is

a sign of the competitiveness of the German economy and global demand for quality products from Germany.

Economists everywhere should read this and weep. It is a basic accounting identity that

Current account = Savings – Investment

Any story about the determination of the current account balance must take this identity into account. Suppose you have wonderful products that the world loves; even so, if you have low savings and high investment, you must run deficits. How can this happen? Simple: you end up with a high value of your currency and/or high wages relative to competitors.

So while it’s impressive that Germany can run a surplus despite quite high labor costs, and that’s a testimony to the quality of its stuff, ultimately the surplus reflects high savings relative to investment.

And we are, as I said in a different context just the other day, in a world awash in savings, a world in which someone who decides to spend less and save more makes the whole world poorer. That’s not the normal situation, but it’s where we are now, and where we have been for five years.

Does the German Economics Ministry really not understand any of this? My guess is that it doesn’t — that Germany really does see itself as a role model, believes that all would be well if everyone behaved the same, and doesn’t see the notion of a world in which everyone runs big trade surpluses as being problematic in the least.

individual health care market

JS: I am not terribly different than some other writers who have been in the individual market: Noted

JS: I am not terribly different than some other writers who have been in the individual market....

We have BCBS covering a family of four.... BCBS of Illinois informed us that our policy would no longer be valid after January 1, 2014. They also informed us that they would role us automatically into a slightly more expensive (and largely comparable) plan if we did nothing. Here is where it gets a bit more interesting. The "cancellation letter" directed us to the BCBS website, where we could shop through various other options.... And, since getting the letter, we have gotten follow-up emails and telephone calls from BCBS encouraging us to compare our options at the BCBS website. It has become quite clear over the past couple of weeks that BCBS does not want us shopping on the Illinois Exchange....

We have suddenly become much more attractive and important to BCBS than we were. Getting through underwriting a few years ago was ridiculously difficult. Now we are being marketed heavily and encouraged... [to] shop exclusively at BCBS. Count me among those who think the ACA will ultimately work to the net benefit of the vast majority of people in the individual market--myself included.

economics and morality

Economics as a moral science by Ingrid Robeyns

Germany's trade surplus

Germany's Blind Spot

Germany, the biggest economy in the euro zone, has long been a major contributor to imbalances in the global economy. It exports far more than it imports and does too little to encourage the growth of domestic demand. That has made it hard for countries like Greece and France to increase their exports and revive their economies. Last year, Germany’s current account surplus was 7 percent of its gross domestic product; by contrast, China, which is often criticized for pursuing an aggressive export policy, had a surplus of just 2.3 percent.

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans?

The Harm Germany Does by Krugman

The Germans are outraged, outraged at the U.S. Treasury department, whose Semiannual Report On International Economic And Exchange Rate Policies says some negative things about how German macroeconomic policy is affecting the world economy. German officials say that the report’s conclusions are “incomprehensible” — which is just bizarre, because they’re absolutely straightforward.

Oh, and yes, the US inexcusably spied on Angela Merkel — but that has nothing to do with this, and anyone bringing it into this conversation thereby demonstrates his or her intellectual bankruptcy. Also, frank talk about German economic policies doesn’t make you anti-German or anti-European; again, anyone trying to evade the substance by bringing that kind of accusation in has in effect conceded the argument.

So, about the argument. Here’s a brief history of the euro zone, told through one number for two countries, Germany and Spain:  

The creation of the euro was followed by the emergence of huge imbalances, with vast amounts of capital flowing from the core to the periphery. Then came a “sudden stop” of private capital flows, forcing the peripheral nations to eliminate their current account deficits, albeit with the process slowed by the provision of official loans, mainly through loans among central banks. The really bad news for the periphery is that so far the adjustment has taken place mainly through depressed economies rather than regained competitiveness; so the counterpart of that “improvement” for Spain is 25 percent unemployment.

Normally you would and should expect the adjustment to be more or less symmetrical, with surplus countries reducing their surpluses as deficit countries reduced their deficits. But that hasn’t happened. Germany hasn’t adjusted at all; all of the rise in peripheral European current accounts has taken place at the expense of the rest of the world.

And that’s a very bad thing. We are still in a world ruled by inadequate demand, and very much subject to the paradox of thrift. By running inappropriate large surpluses, Germany is hurting growth and employment in the world at large. Germans may find this incomprehensible, but it’s just macroeconomics 101.

You might argue that it’s not the German government’s fault that it runs surpluses — but you’d be wrong. (I’ve fallen into this trap, but acknowledged the error.) For one thing, Germany has pursued fiscal austerity despite its creditor status, contributing to an overall tightening of policy in the eurozone. And one way to think about Germany’s role within the euro is that it is in effect engaging in huge foreign exchange intervention via Target 2, which holds down the “shadow Deutche Mark”:  

Of course, I don’t expect German officials to admit that there’s anything to what Treasury says. They’re not big on macroeconomics as we understand it; actually, they’re not big on accounting identities, since their view seems to be that everyone should be like Germany, and run huge trade surpluses.

But Treasury just stated the obvious and true.

The Axis of Fools is the Republican Party first and foremost, Germany, and China. China, however is a poor country managing the trick transition(?) from authoritarian to democracy. Germany and the Republican Party should know better.

Austerians

Perils in Philosophy for Austerity in the U.S. by Eduardo Porter

filibuster reform

Between Democrats and a Push for Filibuster Change, One Nominee

WASHINGTON — Senate Democrats plan to force a vote this week to fill a vacancy on the court widely considered the country’s second highest, threatening to reopen the bitter fight over limiting the filibuster if Republicans follow through on their pledge to block the nomination.

Unless one party backs down, the battle could escalate into a reprise of the partisan strife that paralyzed the Senate for several weeks over the summer. But this time the long-term implications could be far greater, both for the Senate as an institution and for the ability of any president to shape the ideological bent of the federal bench.

At the heart of the dispute are lifetime appointments to the United States Court of Appeals for the District of Columbia Circuit, which often renders judgments on whether a president’s policies are constitutional. The future of the Supreme Court is also a factor: Judges who sit on the circuit court have been elevated to the Supreme Court four times in the past 30 years.

...

(There were two bright spots for Democrats on Tuesday. First, Mr. Obama’s nominee for general counsel to the National Labor Relations Board narrowly cleared a filibuster vote, 62 to 37, and was confirmed. Later, the Senate voted unanimously to confirm the president’s two nominations to the Federal Communications Commission.)

taper talk

Rentiers, Entitlement, and Monetary Policy by Krugman

What is the role of interest in this world? Interest, classically (and I do mean classically, as in Mr. Keynes and the), is the reward for waiting: there’s supposedly a social function to interest because it rewards people for saving rather than spending. But right now we’re awash in excess savings with nowhere to go, and the marginal social value of a dollar of savings is negative. So real interest rates should be negative too, if they’re supposed to reflect social payoffs.

This really isn’t at all exotic — but obviously it’s a point wealth-owners don’t want to hear. Hence the constant agitation for monetary tightening.

And this agitation does real harm. Think about the Fed’s taper talk: ultimately, I think it’s clear that it was an attempt to throw a bone to the tight-money crowd, in a way the Fed hoped wouldn’t do real harm. But it did do harm: long-term rates popped up, and are a significant factor in slowing our economy.

Person of Interest, surveillance and privacy

AV Club review of "Mors Praematura" from Person of Interest

The Fed Becoming Insolvent: Things to Worry About After We're Dead by Dean Baker

ACA

The corporate media misinforms. People with critical thinking skills can deduce the facts see through the BS.

Jeff Bezos' Newspaper Works With Republicans to Create Scandal Over Obamacare by Dean Baker

There’s only one way to win the war over Obamacare by Greg Sargent

stock-to-flow

Dan Davies comments at Frances Coppola's blog:

Stock-to-flow ratios aren't per se silly or meaningless - return on capital is a ratio of stock to flow, as is labour productivity. But comparing stocks to flows is a dangerous business, because if you don't know what you're doing (as Nelson doesn't), you're always in danger of making the mistake that he has actually made in Chart 1, which is to compare a change in a stock to a flow.

This is a bit of a quibble as the key point here is the one you make - if you're borrowing £2 of "debt" for every £1 of "growth" then you're almost certainly doing very well, because the debt stays at £2 until you pay it back, but the growth gives you a new £1 every year (making the correct stock/flow division would tell you that the UK was getting a 50% return on marginal borrowing, which anyone can see is a pretty fantastic return on investment to be getting. This would still be dumb economics because it's wrongly aggregated, but at least the division would be giving you something at least potentially meaningful).

As I say more of a quibble than anything - I just worried that people might get the impression that comparing a stock with a flow was always wrong, rather than something like starting a sentence with a preposition - probably best avoided but sometimes necessary.

2014

Valium for Obamacare Worriers  by Krugman

Suppose that healthcare.gov isn’t fixed by the end of next month. How bad is it for Obamacare? Would the program be doomed?

No, says Jonathan Cohn, because there are two layers of protection against poor signup. First, there is a system of cross-subsidies to insurance companies that was intended to prevent companies from surreptitiously gaining an advantage by only signing up healthy people (hey, our policy is available to anyone — but you have to sign up in our sixth-floor walkup office.) As it turns out, this system would end up compensating insurance companies in general if the risk pool is worse than expected. Second, the subsidies to individuals are designed to hold health costs down to 8 percent of income, which means that they will rise if costs are higher than expected.

Neither of these would be a good thing, since they would increase the budget cost, but they do mean that Obamacare’s survival probably isn’t on the line.

Actually, the biggest reason Obama and co. should be anxious to fix these things now, I’d argue, isn’t the fate of the program itself, which can survive even large early wobbles, but the midterm elections. If Obamacare is fixed, Republicans will be in the position of attacking a program that is benefiting millions of Americans; if it isn’t, they can still run against the legend, not the fact.

So a lot is riding on fixing the technological botch — but not in quite the way people imagine.

I think Chait is freaking out. Jared Bernstein responds also.

positive outlook

Abenomics and Japanese Inflation Expectations by Carola Binder

But there is a glimmer of hope. Consumers' perceptions of current economic conditions and of the economy's growth potential are both looking-- well, not bright, but brighter than before.

inflation

The Fed, Inflation, and Wages by Dean Baker

QE2, Baker on bubbles

Joe Gagnon on Quantitative Easing: Noted by DeLong

[QE2] did work. I think QE2 had two elements. One element was of moderate importance, one element was of minor importance. The moderate one is that QE2 convinced markets that the Federal Reserve would not allow deflation or a double dip recession to happen. This is good because it inspired confidence and kept inflation expectations from falling any further. That was the most important step, because it convinced financial markets that the United States wouldn’t turn into Japan, which they were worried about. The element of minor importance was that it lowered long-term bond rates a little bit. It takes a lot of purchases to move these interest rates even a little bit, and QE2 wasn’t big enough to move them dramatically. It’s not nothing, but it is small in the scheme of things.

The Fed Really Needs Someone Who Can Think Clearly on Bubbles by Dean Baker

The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn't necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.

In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.

There is no comparable story in the economy today as should be readable apparent to anyone who reads the data. The Fed's hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.

Cicero, Petrarch

Farscape is fun. Watching it on Pivot.

Farscape features a diverse ensemble of characters who are initially escaping from corrupt authorities in the form of a militaristic organisation called the Peacekeepers. The protagonists live inside a giant space-dwelling creature named Moya, which serves as their ship. In the first episode, they are joined by the main character, John Crichton (Ben Browder), a modern-day American astronaut who accidentally flew into the entrance of a wormhole near Earth during an experimental test flight. On the same day, another stranger is picked up by Moya: a stranded Peacekeeper named Aeryn Sun (Claudia Black).

Poetry and Blogging by Krugman

Standage’s argument is that the essential aspects of social media — exchange of information that runs horizontally, among people who are affiliated in some way, rather than top-down from centralized sources — have been pervasive through history, with the industrial age’s news media only a temporary episode of disruption. As he shows, Cicero didn’t get his news from Rome Today or Rupertus Murdochus — he got it through constant exchanges of letters with people he knew, letters that were often both passed on to multiple readers and copied, much like tweets being retweeted.

Cicero:

came from a wealthy municipal family of the Roman equestrian order, and is widely considered one of Rome's greatest orators and prose stylists. 

His influence on the Latin language was so immense that the subsequent history of prose in not only Latin but European languages up to the 19th century was said to be either a reaction against or a return to his style. 

Petrarch's rediscovery of Cicero's letters is often credited for initiating the 14th-century Renaissance in public affairs, humanism, and classical Roman culture. 

The peak of Cicero's authority and prestige came during the eighteenth-century Enlightenment, and his impact on leading Enlightenment thinkers such as John Locke, David Hume, and Montesquieu was substantial.

QE

The Fed’s dilemma: Continue cleaning up the last crisis, or prevent a new one? by Neil Irwin

Um, continue QE. Prevent bubble via means other than tight money. Money is already too tight.

On one side are the worriers: They include outright monetary hawks like Esther George of the Kansas City Fed and Richard Fisher of the Dallas Fed. They include a contingent at the Washington-based board of governors including governors Jeremy Stein and Jay Powell and former governor Elizabeth Duke, who have voted in favor of the QE3 program but with some reluctance.

This contingent looks around and sees all kinds of ugly side effects of the Fed's easy money policies. There is "reaching for yield" in which investors take on inappropriate risks in order to try to goose their returns. There is a shortage of Treasury bonds, used as ultra-safe collateral for a wide range of transactions. There are possible bubbles in everything from Iowa farmland to Indonesian government bonds.

The other contingent has included monetary doves like Charles Evans, Eric Rosengren, and Narayana Kocherlakota of the Chicago, Boston, and Minneapolis Fed banks. It has included, recently at least, James Bullard of St. Louis, who is particularly exercised about the Fed consistently undershooting its 2 percent inflation target. And it includes Janet Yellen, the president's nominee to succeed Ben Bernanke as chair.

This contingent looks around and sees an economy that still isn't gathering any real steam, held back by tightening fiscal policy. They see too-high unemployment as the paramount problem facing the economy, at a time when inflation is too low. Their job is to try to find ways to address this.

They may concede that the financial market disruptions the skeptics point to are worth watching, but at this juncture don't see enough evidence of bubbles or other problems to justify backing away from easing. If investors are plowing into riskier investments, well, that's a big part of the point of QE (it's called the portfolio balance channel: When the Fed takes treasury bonds off the market, investors have to plow into riskier assets, driving up the stock and bond markets).

Greece

Interesting pushback by Krugman and DeLong on "Greece!," capital flight and debt crises. The European periphery were constrained by the Euro. In the late 90s Asian crisis, the crisis nations had their debt denominated in foreign currencies.

DeLong links to "Bernard" and Robert Waldmann:

Monday DeLong Smackdown Watch: When Were Expectations of Inflation Forward-Looking? Weblogging

Bernard:

Just to set the historical record straight: Inflation in France topped under the previous (conservative) administration that Mitterands' election threw into opposition. Inflation fell throughout Mitterands first term from 13.4% to 2.7% (see http://france-inflation.com/inflation-depuis-1901.php), even though there were devaluations of the FRF against the DEM (inside what later would become known as the ERM).

Of course any economic historian will remember that the second oil shock linked to the Iranian Revolution took place in 1979-1980 and was rather instrumental for inflationary trends on the one hand, and that the conservative government in France led by R. Barre in the late seventies had abolished price controls on most things.

What Mitterand's election in May 1981 did produce was not inflation, it was instant massive capital flight, which in turn led to a serious current account financing problem by the summer of 1981 as forex reserves collapsed, and that was the immediate reason for the devaluation and the imposition of capital controls. The capital flight of course was linked to political fears as the first socialist administration involved a number of Ministers from the communist party - four as I recall, mostly in junior positions - and a number of industries (mostly banks) were to be nationalised.

confidence gnomes

The Confidence Gnomes by Krugman

Liberals warn of the dangers of inequality, large output gaps and slow growth. Neo-liberals and conservatives warn of the non-existent dangers of government spending and social insurance in advanced economies.

The Walking Dead

AV Club reviews "Isolation" from The Walking Dead

AV Club reviews "The Yoga Play" from Homeland

Inspecting the Mechanism: Dealing with Sudden Stops, the Euro Periphery, the Exorbitant Privilege-Possessing Floating-Rate Sovereigns of the Global North, and the Debt by DeLong

Currency Regimes, Capital Flows, and Crises (Wonkish) by Krugman

Romer, FDR and regime shift

Monetary Policy in the Post-Crisis World by Christina Romer

Roosevelt staged a regime shift—by which I mean he had a very dramatic change in policy. A month after his inauguration, he took the United States off the gold standard, which had been the basis for our monetary operations since the late 1800s. Then the Treasury, not the Fed, used the revalued gold stock and the gold that flowed in as means to increase the U.S. money supply by about 10 percent per year.  

This regime shift had a powerful effect on expectations. Figure 5 shows stock prices, which can tell us about expectations of future growth, and a measure of expected inflation. In each panel, I have drawn in a line at March 1933, just before the dramatic change in policy. Stock prices surged instantly, suggesting that expectations of future growth improved dramatically. And price expectations also switched radically. These estimates were derived by James Hamilton, an economist at the University of California, San Diego, who backed out estimates of inflation expectations from commodity futures prices in the early 1930s. Hamilton finds that people went from expecting deflation of close to 10 percent a year early in 1933 to expecting inflation of 3 percent just a few months later.

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.