Abenomics

Yes more exports, but even more imports than exports as domestic demand increases.

Mark A. Sadowski on Abenomics

Observations on the Efficacy of Monetary and Fiscal Policy - Econbrowser

"Real net exports have increased since the last quarter of 2012. While the increase is modest, it is an increase; in contrast, in nominal terms, net exports continue to decline in both absolute terms, and as a share of nominal GDP."

Although Japanese nominal exports have surged by 15.2% between 2012Q4 and 2013Q3, nominal imports are up by even more, or by 16.5%:

http://research.stlouisfed.org/fred2/graph/?graph_id=149566&category_id=0

Devaluation improves a country’s trade balance only if the Marshall-Lerner condition on trade elasticities holds, and research shows that they’re not met in the majority of cases, either past or present:

http://www.emeraldinsight.com/journals.htm?articleid=17056473

That's not to say that currency devaluation isn't beneficial, of course it is, but the benefit flows primarily from increased domestic demand. Here is a study of the competitive devaluations of the Great Depression by Barry Eichengreen and Douglas Irwin:

http://www.dartmouth.edu/~dirwin/w15142.pdf

The Great Depression is a particularly important historical example because then, as now, most of the advanced world was up against the zero lower bound in policy interest rates.

An examination of Figure 4 on page 48 reveals that the only countries that experienced import growth from 1928 to 1935 (the UK, Japan, Sweden and Norway) were members of the sterling block that devalued early (1931). In most of these countries net exports actually declined over the period because imports rose more than exports.

The order of recovery from the Great Depression follows the order in which they abandoned the gold standard perfectly:

http://fabiusmaximus.files.wordpress.com/2009/03/gold.png

But this wasn't because of increased net exports.

The US devalued in 1933 which immediately led to a swift recovery from the Great Depression. Nominal exports doubled from 1933 to 1937. But nominal imports increased by 110.5%:

https://research.stlouisfed.org/fred2/graph/?graph_id=120991&category_id=0

As a result net exports went from a small surplus (about 0.2% of nominal GDP) to being roughly in balance.

France was part of the Gold bloc of countries that devalued late (1936). From 1936 to 1938 nominal exports increased by 95.4% and nominal imports increased by 80.9%:

https://research.stlouisfed.org/fred2/graph/?graph_id=120992&category_id=0

However, since imports were already substantially greater than exports, the nominal deficit actually increased by 55.4%.

Japan’s original ryōteki kin’yū kanwa (QE) was officially announced in March 2001 and concluded in March 2006. The following is a graph of the BOJ’s estimate of Japan’s real effective exchange rate which is trade weighted with respect to 16 different currencies and takes into account their relative inflation rates:

http://thefaintofheart.files.wordpress.com/2013/06/sadowski2b_1.png

The real effective exchange rate fell from 116.25 in February 2001 to 91.09 by March 2006, when the BOJ announced the completion of QE, a decline of 21.6%.

Exports rose from 10.2% of nominal GDP in 2001Q4 to 19.3% of GDP in 2008Q3. Imports rose from 9.4% of GDP in 2001Q4 to 19.5% of GDP in 2008Q3. From 2002Q1 to 2008Q1 real (adjusted by the GDP implicit price deflator) grew at an average annual rate of 11.0%. Real imports grew at an average annual rate of 12.1%.

So there was boom in both exports and imports. But imports grew faster than exports, and net exports actually moved from surplus (0.8% of GDP) to deficit
(-0.2% of GDP) between 2001Q4 and 2008Q3:

http://research.stlouisfed.org/fred2/graph/?graph_id=120989&category_id=0

It's very telling that today the only major currency area up against the zero lower bound in interest rates that hasn't done QE (the Euro Area) is also the only major currency zone where the trade balance has improved substantially since 2009, going from 0.6% of GDP in 2009Q1 to 3.5% of GDP in 2013Q2:

https://research.stlouisfed.org/fred2/graph/?graph_id=149559&category_id=0

But this has occurred in large part because nominal imports have been falling since 2012Q3 due to falling domestic demand. Nominal exports have barely changed since 2012Q3.

post-bubble inflation

Economists and Inflation: It's Also Interest Rates, not Just Wages by Dean Baker

Binyamin Appelbaum had an interesting post about how many economists would like to see a higher rate of inflation to help recover from the downturn. The piece emphasizes the role of inflation in lowering real wages, with the argument that lower real wages are necessary to increase employment.

While there may be some truth to this point, it is worth fleshing out the argument more fully. At any point in time, there are sectors in which demand is increasing and we would expect to see rising real wages and also sectors where demand is falling and we would expect to see real wages do the same (e.g. Wall Street traders -- okay, that was a dream).

Anyhow, when inflation is very low, the only way to bring about declines in real wages in these sectors is by having lower nominal wages. Since workers resist nominal pay cuts, we end up not having this adjustment and therefore we end up with fewer jobs than would otherwise be the case. However it is an important qualification in this story that it is not about reducing real wages for all workers, only for some subset.

The other important point is that higher inflation promotes growth in other ways. First and foremost it makes investment more profitable by reducing real interest rates. Firms are considering spending money today to sell more output (e.g. software, computers, Twitter derivatives etc.) in the future. If they expect to sell this output for higher prices because of inflation, then they will find it more profitable to invest today. If we can keep interest rates more or less constant and raise the expected rate of inflation, then firms will have much more incentive to invest. This process seems to be working successfully in Japan at the moment.

Finally, inflation reduces debt burdens. Everyone who has debt in nominal dollars, such as homeowners, students, state and local governments, and the national government, will see the real value of its debt fall in response to inflation. This reduces their debt burden and makes it easier to spend. This would likely also be an important source of demand growth from higher inflation.

While many economists do emphasize the wage story, to my mind the other parts are likely more important. And, if higher inflation leads to more employment, this will increase workers' bargaining power and allow them to acheive wage gains that are likely to quickly offset any losses due to inflation -- although the Wall Street traders may not make up the lost ground.

positive outlook

“Disgust” as Political Motivator by Jared Bernstein

Let me get this straight:

–Sen. Murray and Rep. Ryan may actually agree on a budget, i.e., top line discretionary spending numbers, that shaves a bit off of the mindless 2014/15 sequester cuts?

–The healthcare.gov website is on the mend—not perfect, but much better.

–Speaker Boehner, as per the link above, is solidly on record against another shutdown; Sen. Cruz is nowhere in sight.

Must one pinch oneself? Is Dysfunction Junction applying for a name change? Is this the beginning of some sort of turnabout?

Surely not, but instead of the usual “everything’s as bad as ever, don’t be fooled!” let’s contemplate one aspect of this (briefly, as I’m on the road, scrunched in an airplane seat that would be a tight fit for a four-year old; btw, here’s a thought: you can’t lean your seat back in coach! Sorry, but unless I’m your dentist, it just doesn’t work).

That aspect is not pretty, I grant you, but it is: disgust. Polls quite clearly reveal that most people, even if they’re not paying that much attention, have pretty much come to loathe the DC dysfunction act.

Three things we learned from today’s Obamacare update by Sarah Kliff

There were 1 million visitors to HealthCare.gov Monday. And there have been 380,000 visitors to HealthCare.gov as of noon today. This is slightly higher traffic than Monday, when 375,000 visitors came to the Web site by noon.

"We know that consumers are actively shopping and enrolling in coverage every day," Medicare spokeswoman Julie Bataille said. "We believe there's an indication that these will grow over time." 

 According to Massachusetts, all of the healthy people will sign up last minute in March.

Timothy Geithner is writing a book with Michael Grunwald and it is scheduled to be published in May.

(via David Warsh)

Mark A. Sadowski on Bernanke and Fed policy from 2006 - 2008:

In fact the passage quoted in this post almost makes my head explode.

Bernanke took over the Chair in January 2006. At that point the fed funds rate was 4.25%. The FOMC continued to raise the fed funds rate in quarter point steps until it reached 5.25% in June. By August the yield curve was inverted and remained so through May 2007: 

http://research.stlouisfed.org/fred2/graph/?graph_id=75581&category_id=0

Every recession since WW II has been preceded by an inverted yield curve in the previous 6-18 months. This is something which is easily controlled by setting short term interest rates. At the time Bernanke dismissed it as something that was not important and partially attributable to things outside of the FOMC's control which really is fundamentally BS.

Year on year nominal GDP growth in the US fell from 6.5% in 2006Q1 to 5.3% in 2006Q3 to 4.3% in 2007Q1 to 3.1% in 2008Q1 to 2.7% in 2008Q2: 

http://research.stlouisfed.org/fred2/graph/?graph_id=135856&category_id=0

Lehmans Brothers filed for bankruptcy in 2008Q3. So the rate of change in nominal GDP had been falling significantly and steadily for two years before the financial crisis hit with full force. Financial crises are the inevitable result of steadily and significantly falling rates of growth in nominal incomes.

In my opinion this is at least partially attributable to the change in leadership at the Fed. Greenspan, for all of his many failings, was very sensitive to the state of the economy, and I doubt he would have let monetary policy become so contractionary for so long. Bernanke on the other hand is a great believer in Inflation Targeting (IT) and was paying too much attention to inflation. (One can make an argument that this was a regime change, from flexible "constrained discretion" to a rigid IT.)

This probably became an even greater problem in late 2007 and early 2008 when headline inflation surged due to the boom in commodity prices. The FOMC was aware the economy was in the midst of a financial crisis as early as August 2007 due to the spike in credit spreads, and yet they took their time in lowering the fed funds rate. In fact the "credit and liquidity programs" which started in December 2007 were fully sterilized until the very week Lehmans filed for bankruptcy, effectively borrowing liquidity from the general economy to keep the the more troubled parts of the financial sector above water.

I could go on and on about all the monetary policy mistakes made during Bernanke's first three years but the point is this. Warsh is pinning medals on Bush and Bernanke for how well they handled a crisis which they ultimately were responsible for tipping the economy into.

bubblenomics and Baker

No stock bubble.

Is There a Stock Bubble? Joining the NYT Debate by Baker

Housing, regulation and MBS

Subprime MBS With a Govenment Guarantee by Baker

vast majority Sunday

White House Says Healthcare.Gov Finally Working for Most People by Jonathan Cohn

The White House says it met its Obamacare goal. There’s still more work ahead. by Sarah Kliff


Inflationistas at Bayes by Krugman

Minimum Wages, Bargaining Power, Poverty, and Work by Jared Bernstein

Mark Thoma’s classic crack — “I’ve learned that new economic thinking means reading old books”

We don't need new ideas, we need "old" ideas.

New Thinking and Old Books Revisited by Krugman

I learn from Francesco Saraceno that some people are attacking me for, as they see it, defending an economic orthodoxy that has failed. It’s kind of an odd place to find myself, given how critical I’ve been of the way the economics profession has dealt with the crisis. But it’s not entirely unfair: I am quite skeptical of people whose response to the sorry state of affairs is to declare that what we need is a whole new field.

Why my skepticism? I’m all for new ideas that add to our understanding. But ideas like that aren’t easy to come by! Mark Thoma’s classic crack — “I’ve learned that new economic thinking means reading old books” — has a serious point to it. We’ve had a couple of centuries of economic thought at this point, and quite a few smart people doing the thinking. It’s possible to come up with truly new concepts and approaches, but it takes a lot more than good intentions and casual observation to get there.

So, for example, what do I say when I read something like this from someone who apparently considers himself a bold rebel against orthodoxy?

“Rational thinking is an important aspect of human nature, but we have imagination, we have ambition, we have irrational fear, we are swayed by other people, we get indoctrinated and we get influenced by advertising,” he says. “Even if we are actually rational, leaving it to the market may produce collectively irrational outcomes. So when a bubble develops it is rational for individuals to keep inflating the bubble, thinking that they can pull out at the last minute and make a lot of money. But collectively speaking . . . ”

My answer, to put it in technical terms, is “Well, duh.” Maybe grad students at some departments, who are several generations into the law of diminishing disciples, really don’t know that rational behavior is at best a useful fiction, that markets aren’t perfect, etc, etc. But does this come as news to Robert Shiller? To Ben Bernanke? To Janet Yellen? To Larry Summers? Would it have come as news to Irving Fisher or Walter Bagehot?

The question is what you do with this insight.

There is definitely a faction within economics that considers it taboo to introduce anything into its analysis that isn’t grounded in rational behavior and market equilibrium. But what I do, and what everyone I’ve just named plus many others does, is a more modest, more eclectic form of analysis. You use maximization and equilibrium where it seems reasonably consistent with reality, because of its clarifying power, but you introduce ad hoc deviations where experience seems to demand them — downward rigidity of wages, balance-sheet constraints, bubbles (which are hard to predict, but you can say a lot about their consequences).

You may say that what we need is reconstruction from the ground up — an economics with no vestige of equilibrium analysis. Well, show me some results. As it happens, the hybrid, eclectic approach I’ve just described has done pretty well in this crisis, so you had better show me some really superior results before it gets thrown out the window.

Oh, and if you think you’ve found a fundamental logical flaw in one of our workhorse economic models, the odds are very strong that you’ve just made a mistake.

Does this mean that nothing should change in the way we teach economics? By no means — it’s quite clear that the teaching of macroeconomics has gone seriously astray. As Saraceno says, the simple models that have proved so useful since 2008 are by and large taught only at the undergrad level — they’re treated as too simple, too ad hoc, whatever, to make it into the grad courses even at places that aren’t very ideological.

Furthermore, to temper your modeling with a sense of realism you need to know something about reality — and not just the statistical properties of U.S. time series since 1947. Economic history — global economic history — should be a core part of the curriculum. Nobody should be making pronouncements on macro without knowing a fair bit about the collapse of the gold standard in the 1930s, what actually happened in the stagflation of the 1970s, the Asian financial crisis of the 90s, and, looking forward, the euro crisis.

I’d put my oar in for history of thought, too. Watching highly trained economists reinvent old economic fallacies suggests to me that there would be real payoff to requiring that students have some idea how the current leading doctrines got to where they are.

But must we reconstruct all of economics? No. Most of what we need, at least for now, is in those old books.

textbook economics

Colleges are teaching economics backwards by Mike Konczal

It used to be different. The preeminent economist Robert Samuelson once said "I don't care who writes a nation's laws, or crafts its treatises, if I can write its economics textbooks." And he was the one writing its textbooks for a long while. In the first version of his blockbuster textbook Economics (1948), the study of macroeconomics came first. And institutions were emphasized before the more abstract microeconomics that start off the education now. One of the central ideas was the “fallacy of composition,” or how things true of individual people or markets were not true of the aggregate behavior of the economic system.

That should be Paul not Robert, as a commenter notes.

Abenomics

Forget the PS4. Here’s what’s really saving the Japanese economy by Neil Irwin

...Even using the inflation measure favored by the Bank of Japan, which includes energy but excludes fresh foods, Japanese prices rose 0.9 percent over the last year, which is still far below the 2 percent that the bank is aiming for.

Just as currency markets priced in higher inflation last winter and spring, inflation that is just now starting to materialize, if markets perceive that the government is taking the uptick in prices as victory, things could swing the other way just as quickly.

In other words, the record on Abenomics is so-far, so-good. There is a lot more reason for optimism that the world's third-largest economy has a true recovery underway than there was a year ago, and the most recent inflation data is an important part of that story. But nobody in Japan should be partying like it's 1989.

via DeLong:

Jennifer Thompson and Ben McLannahan: Japan inflation data offer fillip to Shinzo Abe: "Japan is on track to win its war on deflation with the latest consumer price inflation figures showing the highest reading since the country slipped into deflation 15 years ago. Core consumer price index inflation, which excludes fresh food but includes energy, hit 0.9 per cent in October, up from 0.7 per cent the previous month and in line with economists’ expectations. Excluding both fresh food and energy, it reached 0.3 per cent, the highest reading since 1998, indicating that rising energy costs alone were not the sole factor in inflationary pressure..."

On the Importance of Little Arrows (Wonkish) by Krugman

Williamson has a lot of equations running around — fearful plumbing, as Rudi Dornbusch would have put it — but the essence of this story, whether he realizes it or not, involves movements in the Wicksellian natural rate of interest — the real interest rate that would match savings and investment at full employment.

George Selgin Relives the Sixties by David Glasner

Obamacare

DeLong linked to John Cassidy on healthcare.gov.

Liberalism Will Survive Obamacare  by John Cassidy

On one level, the “bed-wetters”—according to Franklin Foer, the editor of the revitalized New Republic, this is the term that White House officials reserve for the Administration’s worrywart supporters—are obviously right. The launch of healthcare.gov has been horrendously botched, and Obama’s misleading statements about what would happen to Americans who wanted to keep their individual policies have come back to bedevil him. In Foer’s words, the Administration “has stifled bad news and fudged promises; it has failed to translate complex mechanisms of policy into plain English; it can’t even launch a damn website. What’s more, nobody responsible for the debacle has lost a job or suffered a demotion.” 

Actually, that isn’t quite accurate...

On one hand it's obviously bad that White House officials didn't nail healthcare.gov's launch. But it's heartening that they aren't panicking over the media feeding frenzy. They seem to be making progress. One possible explanation is they got more confidence after winning the government shutdown and being proven right.

Germany

German Rivals Reach Pact for Coalition Government

BERLIN — After five weeks of negotiations, Chancellor Angela Merkel’s conservatives reached an agreement on Wednesday with their Social Democratic rivals on a program for a new coalition government, with concessions to the left that pleased labor leaders and almost immediately drew criticism from business interests.
...
The 185-page document calls for establishing a national minimum wage — a first for the country — as well as increased pensions for some recipients and early retirement eligibility for others. It would offer dual citizenship to Turks and other foreigners who are born and raised in Germany, and it promises a new law by next summer to revitalize plans for renewable energy.

More broadly, though, it reaffirms Germany’s current course in Europe, much criticized by southern Europeans as burdening them with austerity. And the plans for improving Germany’s ailing infrastructure seemed likely to fall far short of the extra 7 billion euros, or $9.5 billion, a year in spending that a commission of government experts said was needed.
...
Germany’s important business lobby echoed fears expressed by the government’s Council of Economic Advisers this month that Ms. Merkel and her partners were moving away from the labor and welfare overhaul policies of the last Social Democratic chancellor, Gerhard Schröder. Those policies [sic] are widely seen as a foundation for the country’s success in overcoming the 2008 financial crisis and weathering the euro zone’s troubles since.
...

bubbles and Obamacare

Two Simple Reasons to Not Fight Bubbles With Higher Interest Rates by Mike Konczal

Dead Filipinos and Housing Bubbles Are Not Good News by Dean Baker

Neil Irwin gave us a list of five economic trends to be thankful for this Thanksgiving. Two of the items do not belong there, or at least not without serious qualification.

Three good items from Irwin:

2) Fewer layoffs.

4) More job openings.

5) Debt burdens keep on falling. The ratio of Americans' income going to meet debt obligations has plummeted in recent years, as consumers have both reduced debt burdens (by paying them down and in some cases defaulting) and benefited from lower interest rates. The debt service ratio was only 9.89 percent in the second quarter, hovering near an all-time low of 9.84 percent from late 2012 (the data go back to 1980). That ratio was 13.5 percent in the third quarter of 2007, before the crisis. Congratulations, America! You're making progress in getting your household debts to a more manageable level.

And all five trends are a reminder that, even, as dark as the economy has looked in recent years, there are still some happier things going on that are worth toasting.

John Cassidy Explains That Those Parts of ObamaCare That Are “Liberal” Are Working Very Well by DeLong

And what about the liberals—the ones who pushed the White House to pursue something more radical than a souped-up version of Romneycare? Even if the A.C.A. were to collapse before it got going—and as I’ve said several times, I don’t expect this will happen—they wouldn’t be routed; they would be vindicated. Far from slinking away and conceding that their grand plans had failed, they would once again take up the campaign, which has been active in various forms since the nineteen-sixties, for the public option, and perhaps even a single-payer system…

mainstream macro

Attacks on mainstream economics and reforming economics teaching by Simon Wren-Lewis

The Trouble With Economics Is Economists by Krugman

I thought Bill Maher's final show of 2013 was good with guests Dan Savage, Katty Kay, Wendell Pierce, and Paul Begala.

fiscal stagnation

Fiscal Drag in 2013 by Menzie Chinn

From Torsten Slok at Deutsche Bank:

[F]iscal drag in 2013 is 2.4%, ie if GDP growth in 2013 ends up being 1.7% then if we had not had the fiscal drag then GDP growth would instead have been 4.1% (=1.7% + 2.4%). ..

...Translated into nonfarm payrolls this means that instead of having nonfarm payrolls at 186k - the average monthly number so far for this year - then nonfarm payrolls would have been more than 400k...

IMF bailouts

NYT Says Obama Administration Thinks the Government Has Obligation to Protect Investors Who Are Too Dumb to Judge Risk by Dean Baker

I.M.F. Shifts Its Approach to Bailouts

Minneapolis Fed

New Quartz article: A battle for the soul of macroeconomics by Noah Smith

Musings on Minnesota Macro by Krugman

Minnesota Fed President and Research Department by Thoma

Edit: added No, I Do Not Know What Is Going on at Minneapolis Fed Research... by DeLong

The Obamacare Worm Turns by Krugman

Soon, Obamacare Will Become Benghazi by Krugman

The Importance of Bubbles: Who's Pocketing the Cash by Dean Baker

China and job creation

China's Central Bank Announces Job Creation Program for the United States by Dean Baker

That may be a bit of an overstatement, but the comments from Yi Gang, a deputy governor at China's central bank, deserved much more attention than they received. According to Bloomberg, YI announced that the bank would no longer accumulate reserves since it does not believe it to be in China's interest. The implication is that China's currency will rise in value against the dollar and other major currencies.

This could have very important implications for the United States since it would likely mean a lower trade deficit. Since other developing countries have allowed their currencies to follow China's, a higher valued yuan is likely to lead to a fall in the dollar against many developing country currencies. A reduction in the trade deficit would mean more growth and jobs. If the deficit would fall by 1 percentage point of GDP (@$165 billion) this would translate into roughly 1.4 million jobs directly and another 700,000 through respending effects for a total gain of 2.1 million jobs.

Since there is no politically plausible proposal that could have anywhere near as much impact on employment, this announcement from China's central bank is likely the best job creation program that the United States is going to see. It deserves more attention than it has received.

dsquared, DeLong & Dean Baker

The Global Bezzle – whence it came, where it went and why it matters (repost from 2011) by Dan Davies

Over at Crooked Timber, Daniel Davies Turns into an Internet Troll... by DeLong (repost from 2011)

Why did they do this? It wasn't because, as Daniel claims, of "the disappearance of a huge amount of household sector wealth. It did disappear. But wealth had disappeared before--remember Black Monday on the stock market in 1987, or the collapse of the dot-com boom?--without it triggering a Lesser Depression. It was because people recognized that banks that were supposed to have originated-and-distributed mortgage-backed securities had held on to them instead, that as a result a large chunk of the $500 billion in subprime losses had eaten up the capital base of highly leveraged financial institutions, and that you were running grave risks if you lent to a bank. The run on the shadow banking system that followed was the source of the crash as financing for exports and for equipment investment vanished, and then the whole thing snowballed.

No banks losing track of the risks they were running and holding on to assets that were supposed to be originate-and-distribute, no financial crisis, no credit crunch, and no Lesser Depression. The housing bubble would have deflated, unemployment would now be near 5%, exports would have boomed, and our biggest worry right now would probably be a "weak dollar".

It seems the disagreement is short-term versus long-term crisis. DeLong says it was a short-term crisis caused by a "seize up" that turned into a long-term crisis because of inadequate policies. Davies agrees their have been inadequate policies since the crisis, but wrong-headed policies before the crisis helped bring on the crisis.

Dan Davies and "secular stagnation"

If this is “secular stagnation”, I want my old job back by Dan Davies

When Thought Experiments Encounter the Unthinking by Krugman

Bonus Thursday Idiocy Department: Clive Crook Misreports Larry Summers by DeLong

IOER and money markets

Fed Looks for Other Ways to Aid Economy by Binyamin Appelbaum

The account said that most officials were open to the idea of encouraging bank lending by reducing the interest rate on funds that banks keep on deposit with the central bank. Those reserves have ballooned with the Fed’s bond purchases, because the Fed buys bonds from the banks and then credits their reserve accounts.

The Fed currently pays annual interest of 0.25 percent on bank reserves, which sounds like a pittance but cost $199 million in 2012. Officials have described the payments as a way of keeping inflation under control, because the reserves stay at the Fed. But with inflation sagging, economists including Princeton University’s Alan Blinder have argued that the Fed should revisit its priorities.

The account the Fed released on Wednesday said the idea “could be worth considering at some stage,” though it noted the benefits were likely to be small.

Janet L. Yellen, President Obama’s nominee to lead the Fed for the next four years, said at her confirmation hearing last week that the idea “certainly is a possibility.” She added, however, that officials remain concerned that a rate cut would disrupt financial markets. Keeping the interest rate on reserves above zero, for example, has created an incentive for banks to borrow from money market funds and then deposit the money with the Fed. In the absence of those payments, the money funds might actually be forced to pay the banks to take that same money.

“We’ve worried that if we were to lower that rate to close to zero, we would begin to impair money-market function,” Ms. Yellen said at the hearing.

Is zero the new normal? by Simon Wren-Lewis

The solution that cannot be named by Ryan Avent

Do Negative Rates Call For a Permanent Expansion of the Government? by Mike Konczal

Social Security and Secular Stagnation by Krugman

Obamacare

The State of Obamacare by Krugman

But at this point there’s enough information coming in to make semi-educated guesses — and it looks to me as if this thing is probably going to stumble through to the finish line. State-run enrollments are mostly going pretty well; Medicaid expansion is going very well (and it’s expanding even in states that have rejected the expansion, because more people are learning they’re eligible.) And healthcare.gov, while still pretty bad, is starting to look as if it will be good enough in a few weeks for large numbers of people to sign up, either through the exchanges or directly with insurers.

If all this is right, by the time open enrollment ends in March, millions of previously uninsured Americans will in fact have received coverage under the law, and reform will be irreversible. Obama personally may never recover his reputation; Democratic hopes of a wave election in 2014 are probably gone, although you never know. But anyone counting on Obamacare to collapse is probably making a very bad bet.

People's memories are short. If it's fixed by the spring people will have all summer to forget. The Republicans probably won't want to change the subject to shutting down the government again.

secular stagnation and solutions

Monetary and Fiscal Implications of Secular Stagnation by Krugman

The point is that the case against austerity is as strong as it ever was.

And maybe even stronger, once you think about debt dynamics.

Right now the real interest rate on US government borrowing is about 0.5 percent on 10-year securities, negative 0.4 percent on 5-year. Meanwhile, even pessimistic estimates of US potential growth put it in the 1.5-2 percent range. So r is less than g — the real interest rate on debt is less than the normal growth rate.

This in turn means that the usual worry about a rising debt level — that it will require that we eventually run big non-interest surpluses to pay down the debt — is all wrong. As long as we run a primary (non-interest) balance, or in fact not too large a deficit, the debt/GDP ratio will tend to erode over time. What’s more, an increase in the primary deficit won’t cause a runaway debt spiral, it will lead to a gradual rise in debt to a higher level, but it will stabilize there.

Suppose, for example, that r is 0.5 and g is 1.5 — not too unrealistic. Suppose that you start with debt at 50 percent of GDP, and then begin running primary deficits of 1 percent of GDP. What will happen? Debt will rise to 100 percent of GDP, and stay there, even if nothing is done to address the deficit.

I don’t want to push this too hard, but I just want to make it clear that if we really believe in low or even negative normal real interest rates, conventional views of fiscal prudence make even less sense than people like me have been saying.

So fear not: I’m still bitterly against austerity, and even less impressed by the fiscal scolds than before. Secular stagnation just adds to the reasons to believe that we’re doing things very, very wrong.

Obamacare working where people can sign up

Americans Like Obamacare Where They Can Get It. by John Cassidy

QE

The Internal Contradiction of Quantitative Easing by David Glasner

Grand Bargain and fiscal policy

A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain’ by Jackie Calmes

“It’s a lot harder than you’d think to find Republicans who’d actually want to cut entitlements, or Democrats who want to raise taxes,” said Jared Bernstein, a former economic adviser to Vice President Joseph R. Biden Jr. and now a senior fellow at the liberal Center on Budget and Policy Priorities. “The only person who seems to have consistently been interested in a grand bargain is the president, and frankly I’m not even sure about him.”
...
Mr. Obama put the proposed changes to entitlement programs in his budget, including one that would reduce annual cost-of-living benefits for Social Security, over his party’s opposition. His hope was to entice Republican leaders back to the bargaining table, or at least to expose their unwillingness to compromise. Republicans were not enticed.

“One of the big differences between budget discussions now and previous ones back to the ’80s is that I’m not sure anyone here really wants to cut a deal,” said Stan Collender, a longtime fiscal policy analyst and the national director of financial communication at Qorvis, a public relations firm.

“Do Republicans want to propose changes in entitlements?” he added. “Basically you’re talking about Medicare and Social Security, which a lot of Tea Party folks get, given their ages. Do Democrats want to propose changes in taxes for upper-income individuals? Well, given the support they’re getting from upper-income individuals, I’m not sure they want to take the lead on that.”
...
The declining deficit reflects economic growth as well as the spending cuts and tax increases that Mr. Obama and Congress previously agreed to. It is not expected to begin climbing again until about 2018, as more baby boomers draw from Medicare, Medicaid and Social Security. With the unemployment rate stuck above 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs.

negative interest rates

Can we get rid of inflation and recessions forever? by Dylan Matthews

Krugman, Summers and "secular stagnation"

A Permanent Slump? by Krugman

Paul, Larry, Secular Stagnation, Sand the Impact of Negative Real Rates by Jared Bernstein

Krugman blogged about the same themes as Summers's radical IMF presentation back in September.
 
Me Too! Blogging by Krugman

Bubbles, Regulation, and Secular Stagnation by Krugman

The trouble with this line of argument is that if monetary policy is assigned the task of discouraging people from excessive borrowing, it can’t pursue full employment and price stability, which are also worthy goals (as well as being the Fed’s legally binding mandate). Specifically, since the US economy shows no signs of having been overheated on average from 1985 to 2007, the argument that the Fed should nonetheless have set higher rates is an argument that the Fed should have kept the real economy persistently depressed, and unemployment persistently high – and also run the risk of deflation – in order to keep borrowers and lenders from making bad decisions. That’s quite a demand.

Many of us would therefore argue that the right answer isn’t tighter money but tighter regulation: higher capital ratios for banks, limits on risky lending, but also perhaps limits for borrowers too, such as maximum loan-to-value ratios on housing and restrictions on second mortgages. This would guard against bubbles and excessive leverage, while leaving monetary policy free to pursue conventional goals.

Or would it?

Our current episode of deleveraging will eventually end, which will shift the IS curve back to the right. But if we have effective financial regulation, as we should, it won’t shift all the way back to where it was before the crisis. Or to put it in plainer English, during the good old days demand was supported by an ever-growing burden of private debt, which we neither can nor should expect to resume; as a result, demand is going to be lower even once the crisis fades.

We need sustainable demand to compensate for the missing debt-fueled demand. Sequester austerity isn't helping at the fiscal level. The trade deficit isn't helping. Monetary policy can't completely compensate because of political limitations. (Abenomics may highlight the political constraints.) Supply policies like more leisure time can help as well.

DeLong on East Asian Crisis & European Feedback Cycle of Doom

DeLong seems to be partly reacting to Baker's criticism of Summers and the Clinton administration's handling of the East Asian Financial Crisis. At least it is the same subject.

The Long and Large Shadows Cast by Financial Crises: The Future of the European Periphery in the Mirror of the Asian Pacific Rim 1997-98 by DeLong

And yet that is not what happened. On the Asian Pacific Rim in 1997-8, the fact that so much of the region’s debt was denominated in dollars meant that bouncing the value of the currency and thus of domestic production down far enough raised universal and valid fears of bankruptcy, and sharply raised risk premia: the Asian Pacific Rim thus had to, to a certain extent at least, defend its currency. And in Europe’s periphery nations are tied by treaty, by the deep and close technical integration of the financial system, and by hopes for a united and peaceful European future into the euro zone. Thus when the crisis comes both regions must generate rapid adjustment of the current account: a sudden stop.

The problem is general. There are lots of reasons why the natural market’s bounce-the-value-of-the-currency-down adjustment mechanism will not work. Overwhelming reasons to maintain a fixed parity. High levels of harder-currency debt. A tight coupling of import prices to domestic inflation and a belief that the costs of accepting domestic inflation are unacceptable–cough cough, why we all today feel sorry for Raghu Rajan. In any of these cases, when the crisis comes you must generate a rapid adjustment in your current account, and the easiest and the most straightforward way to do this are via domestic investment collapse. This is the first failure of the veil of the financial system to be merely a veil–the first coupling of financial distress to destructive real economic consequences.

bubbles (updated)

Secular Stagnation, Coalmines, Bubbles, and Larry Summers by Krugman

Bubbles Are Not Funny by Dean Baker

Bubbles, Regulation, and Secular Stagnation by Krugman (Sept. 25, 2013)

Need to increase demand to achieve full employment without bubbles or above moderate inflation. Inflation will help with deleveraging. Increase demand via more exports. Via monetary policy (see Abenomics). Via fiscal policy. State and local governments are now small tailwind. Federal has the sequester but deficit/debt no longer and issue so probably less austerity going forward. Via supply (shorter hours) and organized labor.

Borgen & The Returned

AV club reviews "The Drop" from Borgen

AV club reviews "Julie" from The Returned

Mogwai. Scotland and France, like Reign.

Rand Paul's Fed audit

Here’s what’s wrong with Rand Paul’s ‘Audit the Fed’ bill by Mike Konczal

2014

It looks like the economy might actually recover in 2014. But will it? by Neil Irwin

The good news for 2014 is that those headwinds--the ones we know about--are already priced in. U.S. government spending cuts and tax hikes took place, but there aren't likely to be additional ones next year. Emerging markets continue on their moderate growth path, but there doesn't seem to be a collapse in activity. Europe's problems may have finally bottomed out, and its sense of acute crisis has long passed.

In other words, the forseeable things that dragged down growth the last few years look unlikely to recur. So the good news is that the natural resilience of the world's leading economies should have a greater ability to assert itself, driving the kind of expansion embedded in projections from the IMF, the Fed, and presaged by the new OECD numbers. 

State and local governments are a slight tailwind. 

Many false dawns however, as Irwin notes. How hard did the sequester hit the economy?

German current account balance & Euro

NYT Reinvents History of Euro Crisis by Dean Baker
15 November 2013 06:09

The Money Trap by Krugman
Nov. 14, 2013


latest German current account balance linklist

German current account balance updated linklist

One list to rule them all! (updated)

German Trade Balance Isn't About Hard Work by Yglesias
Nov. 14, 2013

Europe’s (Low) Inflation Problem by Krugman
Nov. 13, 2013 9:15 p.m.

German Economists Exist to Make Economists Elsewhere Look Good by Dean Baker
Nov. 13, 2013 14:59

In a Good World, Would We Have to Deal with “Global Imbalances”? by DeLong
Nov. 13, 2013  7:45 a.m.

Germany’s Neighbors Admonish It Over Surplus
Nov. 13, 2013

Pressure Is on Germany to Narrow Its Trade Gap
Nov. 12, 2013

Germany’s Lack of Reciprocity by Krugman
Nov. 12, 2013 1:26 a.m.

Europe’s Macro Muddle (Wonkish) by Krugman
Nov. 11, 2013

Sadowski on sterilization
Nov. 4 at 1:34 pm

How Do Those Germans Do It and What Does it Mean for the US? by Jared Bernstein
Nov 04, 2013 at 12:12 pm

China and the EU: Beggaring Neighbors by Dean Baker
Sunday, 03 November 2013 16:26

Eureka! Paul Krugman Discovers the Bank of France by David Glasner
November 3, 2013

The real problem with German macroeconomic policy by Simon Wren-Lewis
Sunday, 3 November 2013

Blame Germany, or Frankfurt? by Ryan Avent
Nov 3rd 2013, 21:41

Europe’s Inflation Problem by Krugman
November 4, 2013, 10:20 am 

The Changing Geography of Beggar-thy-Neighbor by Krugman
November 3, 2013, 3:16 pm

German Surpluses: This Time Is Different by Krugman
November 3, 2013, 6:41 am

Those Depressing Germans by Krugman
November 3, 2013

Is the Paradox of Thrift Actually a Paradox? by Henry Farrell
Nov. 2, 2013

France 1930, Germany 2013 by Krugman
November 2, 2013, 6:00 pm

Sin and Unsinn by Krugman
November 2, 2013, 4:35 pm 

Germany's Export Obsession Is Dooming Europe to a Depression by Matt O'Brien
Nov 2 2013, 9:30 am

Defending Germany by Krugman
November 2, 2013, 9:23 am

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans? by Charlemagne (The Economist)
Novemeber 2, 2013

More Notes On Germany by Krugman
November 1, 2013, 4:54 pm

The Harm Germany Does by Krugman
November 1, 2013, 11:41 am

Germany’s Blind Spot by New York Times Editorial Board
October 31, 2013

Raw Nerve: Germany Seethes at US Economic Criticism  By Christopher Alessi (Spiegel Online)
October 31, 2013 – 06:26 PM 

U.S. Accuses Germany of Causing Instability by Sarah Wheaton
October 30, 2013

Semiannual Report on International Economic and Exchange Rate Policies by U.S. Treasury
October 30, 2013

Yellen Senate hearing

The Yellen Doctrine: Robust Growth Is the Priority, but Bubbles Matter by John Cassidy

Janet Yellen should worry GOP policy elites. A lot. by Ryan Cooper


Hard Money Senators' Big Contradiction by Yglesias

Yellen

Three Interesting Points From Janet Yellen's Testimony by Yglesias

Yellen to Back Stimulus Plan in Remarks to Senators by Binyamin Appelbaum

Germany and global imbalances

German Economists Exist to Make Economists Elsewhere Look Good by Dean Baker
Nov. 13, 2013

Europe’s (Low) Inflation Problem by Krugman
Nov. 13, 2013

Germany current account balance linklist

Part of why this is coming up is that Merkel and the Christian Democrats are in negotiations to form a coalition government with the Social Democrats who are demanding concessons.

academic economics, old and new Keynesian theory

 Keynesian Economics and the Journals by Krugman

So consider two hypotheses. One — which Cochrane appears to believe — is that being inside the Beltway has rotted Janet’s and Olivier’s brains, not to mention that of all their researchers, causing them to revert to primitive concepts that “everyone” knows are false. The other — which is what I hear from young economists — is that there is an equilibrium business cycle claque in academic macroeconomics that has in effect blockaded the journals to anyone trying to publish models and evidence that stress the demand side.

Obviously you know which story I believe. The main point, though, is that trying to argue from authority is even sillier here than in most situations. There’s a huge difference between “nobody believes that” and “none of my friends will let that get published in the journals they control”.

Oh Dear: Megan McArdle Relies on John Cochrane, and so Goes Badly Astray… by DeLong

How to be a New Keynesian and an Old Keynesian at the same time by Simon Wren-Lewis

QE

Don't shoot the messenger by Joseph Gagnon

Yellen and inequality

Yellen’s Challenge at the Fed: Speaking Persuasively to Investors by Binyamin Appelbaum

Some analysts see these shifts as relatively inconsequential. They argue that Ms. Yellen would retain the strongest hand in setting the Fed’s course, and that tapering asset purchases would be a sufficient concession to maintain a majority.

“The institutional momentum is there even as the people in the chairs change,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Ms. Swonk said the new voices probably would cause some confusion, but “it increases uncertainty more than it changes the course of monetary policy.”

Rethinking the Rise of Inequality by Eduardo Porter

Inequality: The Democrats' Next Frontier by Yglesias

global imbalances

In a Good World, Would We Have to Deal with “Global Imbalances”? by Brad DeLong

German Economists Join Country’s Chorus of Critics

Pressure Is on Germany to Narrow Its Trade Gap


other links

Summers

People Opposed Summers Because He Helped Give Us an Over-Valued Dollar and Massive Trade Deficit by Dean Baker

Governor of the Bank of England

Mark Carney: "the glass is half full, the recovery has taken hold"

housing and monetary policy

House Prices and the One-Armed Policymaker’s Dilemma by John Cassidy

Subprime and general euphoria. Wealthy get better credit.

Ichabod Crane

The AV Club reviews "The Midnight Ride" from Sleepy Hollow

Germany-Eurozone link list

Germany’s Lack of Reciprocity by Krugman
Nov. 12, 2013

updated linklist

Yellen-Greenspan

'Greenspan’s Dilemma Revived' by Thoma

Izabella Kaminska at FT Alphaville:

Greenspan’s dilemma revived, by Izabella Kaminska: Deficit continues to be a dirty word in the US..., whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.

But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate... And, bar the employment situation..., all of this comes in the context of an ever more quickly reviving economy...

Which leaves the following as the most notable point being made by Harris, in reference to the natural unemployment rate (NAIRU):

    If inflation persists below 1.5%, we would expect the interest rate forecast to drop further. We also expect the FOMC to cut its unemployment rate guidepost for hiking rates from 6.5% to 5.5% or lower. Ultimately, the Fed may decide to “overshoot” the inflation-neutral NAIRU to force inflation back up to target.

This in itself could become ever more crucial in the months to come. In short, it echoes exactly the same sort of dilemma Alan Greenspan faced all the way back in 1996. Do you raise rates despite little obvious inflationary pressure and risk stagnating growth? Or do you give the notion of a “new economy” — the idea that technological change is fuelling a boom in productivity and alleviating inflationary pressures — the benefit of the doubt?

Janet Yellen, it must be said, is uniquely positioned to make that call if she is confirmed. Not only was she there the first time around, she may have had more input on Greenspan’s ultimate decision than many remember. Call it something akin to mea culpa dotcom crash hindsight. 

Europe/Germany

Europe’s Macro Muddle (Wonkish) by Krugman

One last point: the Germans are very proud of their own adjustment between the late 1990s and 2007, during which they emerged from economic doldrums and became very competitive. But that adjustment, from a European point of view, looked like my first figure: German belt-tightening was accompanied by what amounted to a highly expansionary monetary policy, which led to fairly high inflation in Southern Europe. So when Germany asks why other countries can’t do what it did, it isn’t just forgetting that we can’t all run trade surpluses; it’s also insisting that other countries replicate its success while denying them the kind of external environment that made its success possible.

updated German current account surplus link list

original link

Edit: added
Europe’s Macro Muddle (Wonkish) by Krugman
Nov. 11, 2013

Sadowski on sterilization
Nov. 4 at 1:34 pm

How Do Those Germans Do It and What Does it Mean for the US? by Jared Bernstein
Nov 04, 2013 at 12:12 pm

China and the EU: Beggaring Neighbors by Dean Baker
Sunday, 03 November 2013 16:26

Eureka! Paul Krugman Discovers the Bank of France by David Glasner
Published November 3, 2013

The real problem with German macroeconomic policy by Simon Wren-Lewis
Sunday, 3 November 2013

Blame Germany, or Frankfurt? by Ryan Avent
Nov 3rd 2013, 21:41

Europe’s Inflation Problem by Krugman
November 4, 2013, 10:20 am 

The Changing Geography of Beggar-thy-Neighbor by Krugman
November 3, 2013, 3:16 pm

German Surpluses: This Time Is Different by Krugman
November 3, 2013, 6:41 am

Those Depressing Germans by Krugman
Published: November 3, 2013

Is the Paradox of Thrift Actually a Paradox? by Henry Farrell
Nov. 2, 2013

France 1930, Germany 2013 by Krugman
November 2, 2013, 6:00 pm

Sin and Unsinn by Krugman
November 2, 2013, 4:35 pm 

Germany's Export Obsession Is Dooming Europe to a Depression by Matt O'Brien
Nov 2 2013, 9:30 am

Defending Germany by Krugman
November 2, 2013, 9:23 am

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans? by Charlemagne (The Economist)
Novemeber 2, 2013

More Notes On Germany by Krugman
November 1, 2013, 4:54 pm

The Harm Germany Does by Krugman
November 1, 2013, 11:41 am

Germany’s Blind Spot by New York Times Editorial Board
October 31, 2013

Raw Nerve: Germany Seethes at US Economic Criticism  By Christopher Alessi (Spiegel Online)
October 31, 2013 – 06:26 PM 

U.S. Accuses Germany of Causing Instability by Sarah Wheaton
October 30, 2013

Semiannual Report on International Economic and Exchange Rate Policies by U.S. Treasury
October 30, 2013

'State and Local Government Austerity is Over'  by Thoma

Calculated Risk has good news: State and local government austerity is over, by Bill McBride :

Borgen

AV Club review of "Sins of the Past" from Borgen

Right Wing’s Surge in Europe Has the Establishment Rattled

health care reform

This chart should be getting more attention by Adrianna McIntyre

films

Mumford 

written and directed by Lawrence Kasdan

The film co-stars Jane Adams, Ted Danson, Hope Davis, Loren Dean, Zooey Deschanel, Dana Ivey, Jason Lee, Mary McDonnell, Elisabeth Moss, David Paymer, Jason Ritter, Martin Short, Kevin Tighe, Pruitt Tayor Vince, and Alfre Woodard.

Hysteria

directed by Tanya Wexler

The film co-stars Hugh Dancy, Maggie Gyllenhaal, Felicity Jones, Jonathan Pryce and Rupert Everett.

Doug Ireland, an Acerbic Activist and Left-Wing Writer, Is Dead at 67

trade deficit

Taking Aim at the Wrong Deficit by Jared Bernstein and Dean Baker

Japan's current account balance

Japan's Missing Wall of Money by  Thomas Klitgaard

Market commentary at that time suggested that flooding the economy with liquidity would lead to a “wall of money” flowing out of Japan in search of higher yields, affecting asset prices worldwide. So far, however, Japan’s wall of money remains missing in action, with no pickup in Japanese foreign investment since the April policy shift....

...The Bank’s asset purchase program set off no wall-of-money outflow from Japan. Instead, funds were brought back into the country.

Cross-border inflows and outflows typically move in tandem because net financial flows are tied to the current account balance. There could be a surge in outflows if the current account surplus were also to surge, but current account balances tend to be sticky. The weakening in the yen since the April meeting will boost exports, but it will also boost import prices in yen terms, leaving Japan’s current account balance largely unaffected. Given the stickiness of the current account, there can be no wall of money flowing out of Japan without a wall of money flowing into Japan.

(via Thoma)

economics as science

Is Economics a Science? by Robert J. Shiller

de Blasio

Brooklyn Calling: From the Beastie Boys to Bill de Blasio by John Cassidy

Last night, as I left Bill de Blasio’s victory party at the Park Slope Armory, the sound of the Beastie Boys’ “No Sleep Till Brooklyn” was streaming through the loudspeakers, which seemed fitting. When I first moved to New York, almost thirty years ago, the white-boy rappers were setting out to put their home borough on the rock-music map. (At The World, in Alphabet City, I was lucky enough to see some of their early gigs.) And now, another Brooklynite, not a native but not exactly a blow-in, either, has won the biggest landslide by a non-incumbent since the five boroughs were united in 1898. 

Why (and when) interest-on-reserves matters... by Steve Randy Waldman

After the Music Stopped

You Got Me Feelin Hella Good So I'm Gonna Keep on Dancing: Alan Blinder: "After the Music Stopped": Tuesday Book Reviews Extended Version Weblogging by DeLong

If fiscal policy was similar to the way it was during previous downturns we'd be at 6 percent unemployment if the Fed performed the same actions. The private sector deleveraged, badly scared after the financial crisis. State governments were like 50 little Hoovers. Then came 2011 and the sequester and government shutdown. Bernanke threw a bone to the hawks in June with his taper talk and that slowed the momentum of the economy as well. Japan is using activist monetary policy to good effect and hopefully continues. There is no danger of another bubble anytime soon. If the House goes Democratic, things could turn around somewhat. If the Democrats win in 2016, likewise. Commenter bakho: "Our big hope going forward is that the ACA will unchain employees (shackled to their jobs by health care benefits) to strike out on their own, wrest control from the one percent and revive the economy. Hopefully the availability of affordable health care will give more power to labor and bid up wages."

DeLong is right. Blinder and Gorton are good on the crisis. Bernanke referenced Gorton in Congressional testimony. We know what to do. Bernanke and other central banks flooded the financial system with liquidity preventing another banking crisis. The U.S., Germany, China, etc. all did fiscal stimulus programs to help the central banks with the turn around. They all retrenched too quickly because of politics.

German current account surplus link list

Edit: added
Europe’s Macro Muddle (Wonkish) by Krugman

Nov. 11, 2013

Sadowski on sterilization
Nov. 4 at 1:34 pm

How Do Those Germans Do It and What Does it Mean for the US? by Jared Bernstein
Nov 04, 2013 at 12:12 pm

China and the EU: Beggaring Neighbors by Dean Baker
Sunday, 03 November 2013 16:26

Eureka! Paul Krugman Discovers the Bank of France by David Glasner
Published November 3, 2013

The real problem with German macroeconomic policy by Simon Wren-Lewis
Sunday, 3 November 2013

Blame Germany, or Frankfurt? by Ryan Avent
Nov 3rd 2013, 21:41

Europe’s Inflation Problem by Krugman
November 4, 2013, 10:20 am 

The Changing Geography of Beggar-thy-Neighbor by Krugman
November 3, 2013, 3:16 pm

German Surpluses: This Time Is Different by Krugman
November 3, 2013, 6:41 am

Those Depressing Germans by Krugman
Published: November 3, 2013



Is the Paradox of Thrift Actually a Paradox? by Henry Farrell
Nov. 2, 2013

France 1930, Germany 2013 by Krugman
November 2, 2013, 6:00 pm

Sin and Unsinn by Krugman
November 2, 2013, 4:35 pm 

Germany's Export Obsession Is Dooming Europe to a Depression by Matt O'Brien
Nov 2 2013, 9:30 am

Defending Germany by Krugman
November 2, 2013, 9:23 am

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans? by Charlemagne (The Economist)
Novemeber 2, 2013

More Notes On Germany by Krugman
November 1, 2013, 4:54 pm

The Harm Germany Does by Krugman
November 1, 2013, 11:41 am

Germany’s Blind Spot by New York Times Editorial Board
October 31, 2013

Raw Nerve: Germany Seethes at US Economic Criticism  By Christopher Alessi (Spiegel Online)
October 31, 2013 – 06:26 PM 

U.S. Accuses Germany of Causing Instability by Sarah Wheaton
October 30, 2013

Semiannual Report on International Economic and Exchange Rate Policies by U.S. Treasury
October 30, 2013

industrial policy, ULC and macro/accounting

How Do Those Germans Do It and What Does it Mean for the US? by Jared Bernstein

sterilization

Mark A. Sadowski comments:

"The U.S. could weaken the currency and help exports however. That's what Japan is doing as Krugman has said."

It's important to distinguish between currency manipulation and expansionary monetary policy.

China engaged in currency manipulation and I suppose an argument could be made that the German/eurozone situation is effectively currency manipulation in Germany's favor. But Japan has simply conducted expansionary monetary policy.

You can see this in terms of the differing impacts on their respective trade balances.

Both China and Germany have had large trade surpluses. But Japan has a trade deficit, and since the latest QE was initiated, both imports and exports have grown quickly with imports growing even faster than exports.

So Japan's trade balance has actually grown worse. The benefit of expansionary monetary policy comes from increased aggregate demand, not from higher net exports. China (and perhaps Germany) has held the value of its currency low while sterilizing the effect of this policy on domestic demand.

Both policies result in lower exchange rates, but one allows domestic to demand to rise and one does not. That's why currency manipulation is "beggaring thy neighbor", and expansionary monetary policy is not.

Japan allowed inflation to rise, while China and Germany did not.

Iran and Homeland

Talk to Iran, It Works by Ryan Crocker

Compared to the TV show Homeland where Iran is the bad guy. Or at least they have a rogue agent who's embezzling money from the Revolutionary Guard.

Baker on Germany

China and the EU: Beggaring Neighbors  by Dean Baker

Paul Krugman is wrongly beating up on the EU for its current account surplus, showing that it is now larger than China's. The problem with the comparison is that China is an extremely fast growing developing country. This is the sort of place that in the good old days we expected to run trade deficits.

The EU on the other hand is a bloc of slow growing rich countries. We would expect them to be running trade surpluses. This does not negate the fact that the EU could and should be doing much more to stimulate its economy with larger budget deficits and more aggressive monetary policy, but that fact that it has a larger trade surplus with the rest of the world than China really doesn't tell us much of anything.

Addendum:

I'm not gratuitously beating up on Krugman here, there is a real point. If a country is growing rapidly, like China, we would expect it would have a high return on capital. On the other hand, the return on capital is likely to be lower in low in the slow growing rich countries. This means that we should see a flow of capital from rich countries to developing countries. That would imply a trade surplus for the rich countries and a trade deficit for developing countries.

Another way to think about this is that the developing countries need to both build up their capital stocks at the same time that they continue to feed and house their people. By running trade deficits with rich countries, they can get the extra goods and services that allows them to do both simultaneously.

In reality, the capital flows from rich to poor countries have been at best uneven. This is a case where the real world has stubbornly resisted the textbook story. To my mind this is an indictment of the international financial system which has not generally accommodated this flow of capital from rich countries to poor countries. This is quite evident in the most recent reversal, which followed the botched bailout by the IMF-U.S. Treasury form the East Asian financial crisis in 1997.

But if we could somehow get things right and create a mechanism whereby excess capital in the EU and other rich countries helped finance investment in the developing world, that would be a good thing. This is why showing that the EU has a larger trade surplus than China does not necessarily mean that the EU is a bad actor in the world (although it is).

Baker says normally China would be running trade deficits since it should have a high return on capital. Slow growing rich economies like those of the U.S. and the E.U. would have trade surpluses because of a low return on capital. "To my mind this is an indictment of the international financial system which has not generally accommodated this flow of capital from rich countries to poor countries. This is quite evident in the most recent reversal, which followed the botched bailout by the IMF-U.S. Treasury form the East Asian financial crisis in 1997."

4% / 6%

from the German link list in the post below:

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

Many urge Germany to stimulate its economy to help its crisis-hit partners. On October 30th America’s Treasury Department criticised Germany’s export-led growth model, in unusually sharp language, as a reason for the weakness of the euro zone’s recovery. But in an open trading area the connection between one country’s surplus and another’s deficit is complex. Boosting demand in Germany may suck imports from America, China or eastern Europe, more than from the Mediterranean. Even so, say Eurocrats, that would help indirectly. Buying more imports could help arrest the rise of the euro, which is making it harder for southern countries to rebalance their economies.

The euro zone’s toughened rules of “economic governance” are lopsided. Under the so-called macroeconomic imbalances procedure, a current-account deficit greater than 4% of GDP can trigger an alert, possibly followed by “in-depth analysis” carried out by the European Commission, policy recommendations and, ultimately, the threat of sanctions. Yet a country’s surplus must rise above 6% of GDP before Eurocrats start to take notice. Germany was let off last year because its surplus (averaged over three years) was a shade below the warning threshold and was expected to shrink. Now statisticians have revised that figure to 6.1%, and it has grown since then. It stood at 7% in 2012.

So will the EU dare to mention the surplus? The test will come later this month, when the commission issues its latest economic forecasts and launches the “European semester”, an annual cycle of economic and budgetary assessments that culminate in the spring with “country-specific recommendations”. These edicts from Brussels have already irritated France, which told the commission not to “dictate” reforms. But given France’s slow progress in pension and labour reforms, more criticism is inevitable. Now that America’s Treasury has blazed a trail, can the commission afford not to speak out if it wants to be seen as independent?

 And yet the commission is wrong about France.

positive outlook: Kocherlakota

A Tale of Two Fed Presidents by Krugman

There’s an interesting contrast with one of the real intellectual heroes here, Narayana Kocherlakota of the Minneapolis Fed, who has actually reconsidered his views in the light of overwhelming evidence. In our political culture, this kind of switch is all too often made into an occasion for gotchas: you used to say that, now you say this. But learning from experience is a good thing, not a sign of weakness.

Eureka! Paul Krugman Discovers the Bank of France by David Glasner

I believe he has discussed it before.

Germany and economic myths

The real problem with German macroeconomic policy by Simon Wren-Lewis

The Walking Dead

AV Club reviews "Indifference" from The Walking Dead

monetary policy

Blame Germany, or Frankfurt? by Ryan Avent