The Fed reaction function

The FRB/US Model: A Tool for Macroeconomic Policy Analysis by Flint Brayton, Thomas Laubach, and David Reifschneider

The foxy Fed by Noah Smith

Transparency for Policy Wonks by John Taylor

Who’s to Blame for the Power Shift at the Fed? by Mark Thoma

deflation threat

Now is the time to preempt deflation by John H. Makin (American Enterprise Institute)

Explainer: Why is deflation so harmful? by Mark Thoma

Krugman, DeLong and Baker on inflation and the 1970s

Are Investors Less Confused About Real and Nominal Interest Rates Than They Were 40 Years Ago? by Dean Baker

Thoma commenter anne writes: 

There were 2 characteristics of investment structure and understanding in the 1970s that have changed markedly since. 

As for bond portfolios, the concept of duration and how a constant duration bond portfolio can be used to control principle loss during a period of significantly rising interest rates was not developed till late in the 1970s. Bond portfolio managers know how to protect portfolios against increasing inflation or interest rates now. 

As for stock portfolios, there has been a significant change for well established companies in which stock buybacks are demanded by investment managers and accepted by corporate management as a way in which to increase stock prices when economic conditions such as increasing inflation or interest rates make for bear markets.

positive outlook

A Favorable Flow? by Jared Bernstein

Game of Thrones

AV Club reviews Game Of Thrones (Experts): “Two Swords”

AV Club reviews Game Of Thrones (newbies): “Two Swords”

Everyone's favorite Game of Thrones character is secretly George W. Bush by Zach Beauchamp (Vox.com)

Wrong. Wrong. Wrong. She's John Brown/Joan of Arc. No commenting system at Vox?

Piketty and capital

THOMAS PIKETTY UNSUCCESSFUL ATTEMPTED SMACKDOWN WATCH: I FIND MYSELF DISAPPOINTED BY THE USUALLY-RELIABLE JAMES GALBRAITH AND PETHOKOUKIS by DeLong

Piketty

Piketty on Capital: A Footnote by Henry Farrell (Crooked Timber)

Capital in the 21 Century: Still Mired in the 19th by Dean Baker (Huffington Post)

Philip Pilkington: Misdirection – Galbraith on Thomas Piketty’s New Book on Capital by Yves Smith (Naked Capitalism)

Kapital for the Twenty-First Century? by James K. Galbraith (Dissent)

New Inquiry

China as the Doozers by Izabella Kamiska
She links to New Inquiry which has contributions from her, J.W. Mason, Mike Konczal, and Steve Randy Waldman.

Game of Thrones

good comment section.

Post-Red Wedding, Game Of Thrones works to find itself by Sonia Saraiya

the left such as it is

On The Pathetic Left by Krugman

Simon Wren-Lewis asks,

Why does the economic policy pursued or proposed by the left in Europe often seem so pathetic? 

citing the Hollande government as the prime example, but also the limpness of Labour in Britain. And he suggests that it’s a question of resources and organization:

Seeking out good advice (and distinguishing it from bad advice) takes either money or time. An established government finds this much easier than an opposition or a new government. 

Well, I can’t speak to the European situation, but we had our own version of the sorta-kinda left utterly failing to take on austerian macro — Obama’s “pivot” from jobs to deficits, which actually began in 2009, back when Democrats still controlled both houses of Congress. And you can’t make the resources argument there; not only was Obama a sitting president with a Congressional majority, but modern U.S. progressivism has a large policy-analysis apparatus outside the government, much of which was arguing strenuously against the pivot. Yet there was Obama in November 2009 (!) warning, on Fox News no less, that excessive deficits mightcause a double-dip recession. 

So how did that happen? Based on my observations, I’d put it down to the influence of the Very Serious People, whose views on economics tend in turn to be driven largely by the financial industry. It’s hard to believe, but back when Obama was telling Fox that the deficit was a huge threat, there were also widespread rumors that he would soon replace Tim Geithner with … Jamie Dimon. 

And what those finance-industry people were telling Obama was tobeware of the invisible bond vigilantes. 

I would guess that it’s much the same in Europe. Labour should be listening to Jonathan Portes and, well, Simon Wren-Lewis, but I’m sure that it’s listening much more to well-tailored men from the City. Hollande may be a man of the left in a way that nobody in US politics is, but he’s still getting advice from bankers telling him that fiscal rectitude is all (and although France may be well to the left of the United States in most respects, it has nothing like the intellectual infrastructure of the US progressive movement to counter the alleged wisdom of big money.) 

I guess you could say that it was ever thus. But the nature of our current economic situation is that smart policy requires that you ignore what supposedly responsible people, who sound as if they know what they’re talking about — and hey, they’re rich, so they must know something — have to say. And no government of the moderate left has had the intellectual and moral courage to do that.

A Working Class Disarmed by Doug Henwood

deflation

A sign of the times? Conservatism and denial of reality.

Bitcoin's deflation problem by Ryan Avent

TWO weeks ago we published a Free exchange column examining whether Bitcoin could be considered a true money, and if not, why not. Mike Hearn, one of Bitcoin's most prominent software developers, responded to the column somewhat dismissively. I wrote an e-mail response to Mr Hearn, the gist of which I will reproduce here. He makes two broad criticisms. The first is that we have lazily repeated the argument that deflation will kill Bitcoin, which in his view has been debunked. And the second is that we are naive to think put much faith in official inflation statistics. 

I think Mr Hearn may have misunderstood the piece's argument. It was not that deflation would kill Bitcoin. Rather, it is that deflation will prevent Bitcoin from becoming a unit of account, and that, in turn, will keep it from displacing traditional currencies. But Bitcoin could survive and indeed thrive without becoming the coin of the realm. 

The issue, as the piece explains, is that deflation in the unit of account leads to unemployment, thanks to the fact that wages generally don't adjust downward. Mr Hearn suggests that the idea that deflation might be costly is controversial among economists. I must disagree; it really isn't. Economists would love it if he were right that deflation didn't matter—that money, in economists' parlance, is neutral. If wages adjusted quickly and cleanly then they could go back to applying really straightforward classical economic models and everyone's life would be simpler. But the data are very clear on this point; wages are "sticky", and so deflation in the currency in which wages are set is costly.

(emphasis added.)

Baker has a contrarian take which has some truth to it.

Baker on HFT

High Speed Trading and Slow-Witted Economic Policy by Dean Baker

By contrast, the front-running high speed trader, like the inside trader, is providing no information to the market. They are causing the price of stocks to adjust milliseconds more quickly than would otherwise be the case. It is implausible that this can provide any benefit to the economy. This is simply siphoning off money at the expense of other actors in the market.

There are many complicated ways to try to address this problem, but there is one simple method that would virtually destroy the practice. A modest tax on financial transactions would make this sort of rapid trading unprofitable since it depends on extremely small margins. A bill proposed by Senator Tom Harkin and Representative Peter DeFazio would impose a 0.03 percent tax on all trades of stocks, bonds, and derivatives. This would quickly wipe out the high-frequency trading industry while having a trivial impact on normal investors....

Game of Thrones

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

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

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

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

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

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

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

Stop freaking out about debt by Yglesias

Samuelson

LITTLE KEYNESIAN ECONOMICS PURGE ON THE PRAIRIE WEBLOGGING: LIVE FROM THE ROASTERIE CXXVIII: MARCH 27, 2014 by DeLong

Paul Samuelson: "Like the mini-skirt, the radical faction gradually subsided..."

Game of Thrones

Only ten days until season 4.

New excerpt from the Winds of Winter.

The Americans

AV Club reviews The Americans: “The Deal”

Liberal Arts (film)

Dickens

Charles Dickens’s Inner Child by Hitchens

The Dark Side of Dickens by Hitchens

Piketty

Doug Henwood reviews Thomas Piketty's Capital in the Twenty-First Century

Forces of Divergence: Is surging inequality endemic to capitalism? by John Cassidy

PIKETTY’S INEQUALITY STORY IN SIX CHARTS by John Cassidy

Dialogue: Eleven (so Far) Worthwhile Reviews of and Reflections on Thomas Piketty’s “Capital in the Twenty-First Century”: Wednesday Focus: March 26, 2014 by DeLong

Fed governor Jeremy Stein

Leaning, then toppling by Ryan Avent

Baker and DeLong

DeLong responds to Krugman and others below:

A Dialogue on the Resolution of the Financial Crisis of 1989 and the Non-Resolution of the Financial Crisis of 2007: Tuesday Focus: March 25, 2014

and Dean Baker again (he commented at DeLong's blog)

Krugman and DeLong on Avoiding Secular Stagnation

Demand Management, DeLong and the Great Clusterfuck

What Krugman is reacting to in the post below is this post from DeLong.

DeLong post a chart he has used often which shows government purchases declining significantly.

If I had the time and energy I would make a chart that includes how the Fed reacted in 2007 onwards. It would also show how the 50 little Hoovers of state government offset Obama's stimulus. It would show how the sequester screwed us but the sequester is ending.

Krugman

What It Would Have Taken by Krugman 

Brad DeLong is wrong. He thinks we have a disagreement, but he’s misinterpreting what I said when I argued that the Fed’s 2008 inflation phobia wasn’t responsible for the Great Recession and the Lesser Depression that have followed and continue to this day. 

What Brad says — and I agree with — is that there is no economic necessity behind our ongoing employment and output disaster. We could and should have moved the resources employed in the housing boom to other uses, and needn’t have paid this immense cost. 

But what would it have taken — what would it take now — to have maintained or restored full employment? My argument is that it would have required more radical, aggressive policies than anyone close to the levers of power has been willing to contemplate, at any point along the way. So the fact that the Fed was wrongly obsessed with inflation for most of 2008, the original subject of my post, was just a contributing factor; things would have been a bit better, but nowhere near OK, if the Fed had stayed focused on underlying inflation and ignored the effects of the commodity-price blip. 

Think of it this way: what would a really effective set of policies be right now? First of all, we should aggressively reverse the fiscal austerity of the last few years, getting government at all levels spending several points of GDP more to boost demand. 

Monetary policy should accommodate that boost; interest rates should not go up even if inflation goes somewhat above 2 percent. In fact, there’s an overwhelming prudential case for raising the inflation target — even if we’re not sure about secula(r) stagnation, it might be true, and we definitely know that the risk of hitting the zero lower bound is much higher than Fed officials imagined when they settled on 2 percent as the magic number. 

I’m not totally wedded to these particular numbers, but let’s say for the sake of argument that the right policy is two years of fiscal expansion amounting to 3 percent of GDP each year, plus a permanent rise in the inflation target to 4 percent. These wouldn’t be radical moves in terms of Econ 101 — they are in fact pretty much what textbook models would suggest make sense given what we have learned about macroeconomic vulnerabilities. But they are completely outside the bounds of respectable discussion. 

That’s the sense in which we are “doomed” to long-term stagnation. We have met the enemy, and it’s not the economic fundamentals, it’s us.

Jon Hilsenrath in the WSJ:

"The Fed, in its official policy statement, said it planned to keep short-term rates below what it sees as appropriate for a normal economy even after the unemployment rate and inflation revert to typical levels.

In 2016, for example, the Fed projects the jobless rate will reach 5.4%, economic output will be growing at a rate near 3% and inflation will be just below 2%. That level of unemployment would be lower than the average over the past 50 years.

Yet officials see the Fed's target short-term interest rate at just over 2% at the end of 2016, well below the 4% they consider appropriate for an economy running on all cylinders."

(via Calculated Risk)

positive and negative indicators

Bank says money multiplier is wrong - should we be shocked? by Simon Wren-Lewis

You Can’t Connect the [Fed’s] Dots Looking Forward by John Taylor

(via Thoma)

Abenomics

Abenomics a Short-Run Success: Reading Hausman and Wieland: Friday Focus: March 21, 2014 by DeLong

Yellen

Yellen’s words vs what you heard by Cardiff Garcia

"In other words, she doesn’t think inflation will threaten to breach the 2 per cent level so long as unemployment is “quite high”. 

This could be read either hawkishly or dovishly."

In other words they could close the output gap more quickly by breaching the 2 percent ceiling, but they won't have to raise interest rates while unemployment is still "quite high."

The Americans

AV Club reviews The Americans: “A Little Night Music”

"Breaking curses is kind of my thing."

Bo in Lost Girl's "Wave."

Overheat to Raise Potential Growth?  by Gloomy European Economist

Orphan Black

Entertainment Weekly Orphan Black cover photo

overshooting

Try overshooting for two years by Ryan Avent

THIS afternoon, Janet Yellen will release her first Federal Open Market Committee statement as chair and give her first post-meeting press conference. Conventional wisdom is that tapering will continue at its recent pace, and that the FOMC will clarify its forward guidance. It almost certainly won't be announcing a plan to tolerate above-target inflation in order to accelerate the recovery, despite the wisdom of that course.
...
It's a good post. I certainly agree that the mood of the Fed is not what one would call favourably disposed toward some overshooting. FOMC members came of age in the 1970s; as far as most of them are concerned it is never a bad time to trade off a little more unemployment for a little less inflation. Markets certainly don't expect any overshooting. 

But I don't think it is as completely off the table as Mr Duy suggests, for a few reasons. First, policy statements are there to be changed, particularly when the facts justify a switch. At the time the 2% target was set, the median FOMC member projected that the fed funds rate would be 0.75% by the end of this year. Markets now anticipate rates reaching that level in 2016. The longer the Fed maintains its anachronistic policy position, the longer the American economy remains stuck against the zero lower bound. At some point, someone at the Fed may notice this. 

Second, while hopes for a more ambitious policy agenda from Ms Yellen have diminished, it is still the case that there is no time for a regime change like a regime change. It's Ms Yellen's Fed now, and her committee may arrive at a different judgment than Mr Bernanke's. It almost certainly won't, but it could. 

Third, there is actually a lot of wiggle room around that 2% target. As recent experience has shown: the annual change in the price index for personal consumption expenditures—the magic indicator in the target statement—has been below 2% since April of 2012. Indeed, over the past year inflation has been below 1.2% on average. One might argue that a steadfast commitment to a 2% inflation target demands some overshooting to make up for this long period of underperformance; after all, a central bank that tolerates undershooting of its target but not overshooting is missing its target on average. 

Fourth, it's not clear that the Fed has entirely ruled out something of that nature. On the one hand, statements continue to note that the Fed will take a "balanced approach" as it begins to pull back on accommodation. On the other, it was not long ago seen as significant that the the head of the Fed's monetary affairs division was putting his name to researchdemonstrating the benefits of overshooting. 

Though it would be the right thing to do, I don't expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don't expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don't expect those things, I don't think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.

Game of Thrones

Entertainment Weekly Game of Thrones cover photo

inflationphobia

How the interest rate increase of 2015 caused the Great Recession by Scott Sumner

via Andy Harless

Congressman Bill Foster

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: IN WHICH I TRY AND FAIL TO UNDERSTAND THE CURRENT STATE OF RIGHT-WING MONETARY ECONOMICS: WEDNESDAY FOCUS: MARCH 19, 2014 by DeLong

Lawrence White: On the right and on the left.

Congressman Bill Foster: Those on the left did not share this mania about runaway inflation. Dr. Bivens, do you have a diagnosis of this failure to understand the problem? 

Josh Bivens: Yes. I think inflation remained so low in spite of those predictions because people totally underestimated how long it would take the economy to recover. We still have deeply depressed aggregate demand in the economy. That is what is keeping prices low. I just do not buy that a quarter of a percent [per year] interest rate on reserves is what is keeping all those reserves from flying out into the economy. What is keeping prices low is the enormous gap between potential supply and aggregate demand in the economy, even today.

Catherine Keener and Sally Hawkins

Charlie Kaufman’s FX pilot gains a Catherine Keener and a Sally Hawkins

(Plus John Hawkes and Michael Cera.)

mortgage fraud

Why the Justice Department Inspector General Report on Mortgage Fraud Matters by David Dayen

Person of Interest

AV club reviews Person Of Interest: “Root Path”

One is always tempted to think of the plot as a metaphor. The Machine is the good potential of social organization and Open Source sharing. Its nemesis is Samaritan which will be used for social control and ultimately serving itself. Surveillance state. Patent trolls. Rent-seeking.

Vigilance may have good points about drone strikes, the surveillance state and legal black hole of enemy combatants, i.e. the absence of democratic checks and balances, but as Shaw says it's the way they go about it.

The Butlerian Jihad.

But it does seem like a "hinge moment" in history. Open Source versus the One Percent.

Game of Thrones

Vanity Fair George R.R. Martin interview

Yellen

Before the Fed Meeting: Inflation Hawks, Draw in Your Talons! by Jared Bernstein 

I’m confident one can trust the Yellen-led Fed to largely tune out the building chorus telling them to pre-emptively tighten because somewhere, somehow, there’s some inflation out there. 

That doesn’t mean they’re all inflation doves—remember, Yellen was bugging Greenspan to tighten in the mid-1990s (thankfully, he didn’t take her advice as the economy hit full employment and price pressures failed to appear). It just means that in weighting their dual goals, based on the data, they should still be up-weighting full employment over price stability. Output gaps remain a much larger challenge than price pressures.

Leverage

One of my favorite shows, Leverage, was probably underrated like Firefly but like Firefly lives on in syndication. I've seen Aldis Hodge in A Good Day to Die Hard, The East and Walking Dead. Mark Sheppard has been on White Collar and Supernatural. Rick Hoffman from Suits was on Leverage as was Saul Rubinek who has been in many shows like Warehouse 13, Person of Interest and Psych. Tom Skerritt played Nate Ford's dad (and was on White Collar). Goran Visnjic. Bruce Davison. Clancy Brown. Jeri Ryan had a recurring part. John Billingsley. James Frain. Adam Baldwin from Firefly was in a couple episodes. John Schneider was in an episode as a baddie as was Luke Perry. Paul Blackthorne from Arrow. Richard Kind was in a couple. Will Wheaton and Richard Chamberlain had recurring parts also. D.B. Sweeney was in an episode. Cary Elwes was in an episode and also on Psych. Giancarlo Esposito was in Leverage and of course went on to Breaking Bad.

Along with Leverage and Firefly, I'm a cult fan of Arrested Development and Party Down.

Fans rally for favorite shows, but is it worth it? by Meghan Lewit

Of course, fan power still has its limits. As was oft-discussed in the wake of the Mars Kickstarter launch, it’s the studio and creators who stand to benefit financially from the film, while supporters will have to be satisfied with the T-shirts, stickers, and signed posters they received as rewards for contributing (along with the movie itself, of course). But detractors who reasonably question the wisdom of people sending their hard-earned dollars to Warner Bros. tend to overlook the illogical, myopic love that beats in the heart of every long-suffering fan. As Captain Malcolm Reynolds says of his ship at the end of Serenity (which could just as easily be applied to the franchise’s scrappy fans): “You can learn all the math in the ’verse, but you take a boat in the air that you don’t love, she’ll shake you off just as sure as the turning of the worlds. Love keeps her in the air when oughta fall down, tells you she’s hurtin’ ’fore she keens. Makes her a home.”

Tony Benn

POSTSCRIPT: TONY BENN, 1925-2014 by John Cassidy

WAS THE WORLD ECONOMY A LOW-SHOCK SYSTEM FROM 1984-2007?: MY CONFUSED THOUGHTS AS OF 2003: NOT-LIVE FROM THE JACKSON LAKE, WY, LODGE CXIX: MARCH 14, 2014 by DeLong

The founding of the Federal Reserve brought the possibility of an elastic currency, and of avoiding the great liquidity catastrophes that afflicted the U.S. in the late nineteenth century. The silver-agitation crises of the 1890s, the great crash of 1873 when British investors grew nervous about the "crony capitalism" of America (a crisis with remarkable similarities to the 1997-1998 East Asian crisis), the Panic of 1907 (mitigated by J.P. Morgan's getting the New York Clearing House to expand the effective money supply via printing Clearing House Loan Certificates, and then cramming them down the throats by telling banks that they would incur his permanent displeasure if they did not accept them as valid and liquid instruments). 

...

Second, let me underscore Antonio Fraga's point. Any interpretation of recent events that points to a smaller magnitude of shocks to the world economy has to explain why things have looked so different from a developing-country standpoint. Looking back at my career, I see many local analytical low points. But my personal global analytical nadir came in early 1994, when I wrote a memo for my Treasury boss saying that yes, the Bank of Mexico's policy was inappropriate and overstimulative, but that the magnitude of the policy mistake was small and there was no reason to expect it to generate a serious problem.

Stanley Fischer

The Root of Many U.S. Economic Problems Lie In Stanley Fischer's East Asian Bailout by Dean Baker

Morning Edition engaged in ritualistic praise of Stanley Fischer, in discussing his prospects for approval as President Obama's pick to be vice-chair of the Federal Reserve Board. It accurately reported that economists on both the left and right of the political mainstream respect Fischer and see him as central to shaping the current state of macroeconomics. 

The small point left out of this discussion is that this macroeconomics led us into the worst economic downturn since the Great Depression, giving the country and the world a slump from which we have not yet recovered. Tens of millions of people have seen their lives ruined as a result of failed economic management. 

Fischer personally played a direct role in creating the imbalances that led to the crisis. As first managing director at the I.M.F., he played a central role in directing the bailout from the East Asian financial crisis. The harsh conditions imposed by the I.M.F. led the countries of the region, along with countries throughout the developing world, to begin to accumulate massive amounts of reserves (dollars) in order to avoid ever being in the same situation as the East Asian countries. 

This led to a huge rise in the value of the dollar and an explosion in the size of the U.S. trade deficit. The trade deficit created a huge gap in demand. This gap in demand was filled in the late 1990s with the demand generated by the stock bubble. The demand gap was filled in the last decade by the housing bubble. This is not a stable mechanism for generating demand. 

In standard textbook economics capital is supposed to flow from rich countries to poor countries where in principle it will derive a higher rate of return. Fischer's policies at the I.M.F. led to a reversal of this pattern in a very big way. The consequences for the world economy have been disastrous. This point could have been made to NPR's audience if it had spoken to anyone who was not complicit in this momentous mistake.

Slack

Debate: How Much Slack? by DeLong

Me? I would say that “normal” monetary policy would call for the first rate increases when the JOLTS quit rate crosses 2% heading north. But I would also say that right now and for the foreseeable future “normal” monetary policy is not appropriate: the inflation rate was clearly too low going into the financial crisis to give monetary policy enough room to maneuver–an inflation target of 3% or 4%/year is clearly much more appropriate than a symmetric inflation target of 2%/year, let alone the asymmetric inflation target of 2%/year that we have. And I would say that right now the benefits of a high-pressure economy before our current cyclical unemployment has completed its transformation into structural unemployment are unusually large.

So, yes, I would say that pretty much any sensible cost-benefit analysis would postpone the first rate increases on the current track until 2016 or 2017…

The Fed Absolutely Shouldn't Give Up on the Long-Term Unemployed by Matt O'Brien

The Americans

AV Club reviews The Americans: “The Walk In”

"but full employment is two years away."

Evan Soltas and the Inflation Hawks by Dean Baker

Wages of Fear (Somewhat Wonkish) by Krugman

I’m a Slacker Not a Quitter and You Should be Too by Jared Bernstein

We'll see how Soltas's prediciton holds up. I'd go with Bernstein, Baker, Krugman, etc.

Game On!

my idiosyncrasies

The Five Minutes Hate of Chait by Robert Waldmann

I agree more with Chait. Antiwar lefties were against doing anything about Bosnia.

The old rules still apply (What the rest of the profession could learn from Ben Bernanke) by Scott Sumner

I agree more with Sumner and Yglesias than with the supposed lefties who say "loose monetary policy" helps bondholders.

What is at stake in Crimea?

"A key factor behind the Russian aggression is that Putin is strongly determined to make the February revolution in Ukraine a failure. For the second time in less than ten years, Ukrainians have mobilised to oppose corrupt and authoritarian governments. There is a strong determination among a large majority of Ukrainians to live under democratic institutions of high quality, similar to those in the West."

Game of Thrones

Abenomics

Japan’s Wages Mask Rise of Hottest Job Market Since 70s: Economy by Masaaki Iwamoto

trade deficit

Baker unlike Krugman and others emphasizes the trade deficit.

In the Real World the Trade Deficit Is More Important Than the Budget Deficit by Dean Baker

The Great Clusterfuck

Macroeconomics and the Crisis by DeLong

There's no free lunch in economics!

Why the Fed’s taper could still cause a market meltdown by Ylan Mui

The Fed and the Skittish Financial Markets by Jared Bernstein

2014 US Monetary Policy Forum

Elementary: “The One Percent Solution” by By Genevieve Valentine

I liked how Sherlock disparaged the financial sector as "three card monte." And the episode got at the sense of entitlement of the one percent.

Econospeak and Krugman

Fiscal Stimulus Deniers: John Versus John by ProGrowthLiberal

A Transparency Paradox At The Fed by Barkley Rosser

CBO Mix-And-Match by Krugman

American Austerity, Charted Yet Again by Krugman

How the Fed Let the World Blow Up in 2008 by Matthew O'Brien

Social Security

Ain’t It Not Grand? by Krugman

Hurray: President Obama has dropped his notion of using a change in the price index to cut Social Security benefits. 

This is a big deal, not just because of the concrete implications for retirees, but because it signals the end of an era. BowlesSimpsonism is dead; “responsible” policy will no longer be defined as the search for a fiscal Grand Bargain. 

We might even be on the path to grappling with America’s real problems.

Guardians of the Galaxy

Game of Thrones

Philip Seymour Hoffman

I remember his early movies like Twister (1996) Boogie Nights (1997) and Next Stop Wonderland and The Big Lebowski (both in 1998). Then of course he made a ton of movies, most recently Moneyball, The Master and The Hunger Games. He made both independents and big budget movies.

liberal versus conservative

Obama's Big Gamble by Greg Sargent

...But he then doubled down on precisely the argument that is the main point of contention with Republicans, arguing that the primary challenge we face is stagnating economic mobility and widening inequality, and crucially, that only an agenda of robust government intervention can reverse the larger trends underlying those problems and restore economic mobility and the American dream.

The current political tug of war breaks down as follows. Republicans want the Obama era to be seen as one of excess liberal governance thwarting our economic potential, leading to widespread misery. The primary vehicle for this argument is Obamacare — government interference is only leading to lost coverage, higher premiums, and crushed jobs. Only electing Republicans to Congress can act as a check on unbridled liberal governance and restore market-powered prosperity.

Democrats want to persuade Americans that only they have an actual policy program to deal with our primary problems — that the gains from the recovery are not broadly shared, that wages have stagnated, and that there aren’t enough jobs. The Dem case is that the Republican arguments against Obama’s signature domestic achievement are really a proxy for the same old GOP trickle down ideology, that only getting government out of the way — and keeping taxes and regulations low on rich people and job creators — can unleash the market potential that will miraculously lift up everyone below them.

White House advisers say they think that if the argument is understood on the latter terms — in the 2014 elections in particular — they will have the advantage. So yesterday’s speech was the start of a broader effort to use whatever “bully pulpit” powers the presidency has to shift the argument onto that turf.

But as Dean Baker points out, conservatives use the government to redistribute upwards.

Fed day

Fed Decision Day: What to Watch For by Binyamin Appelbaum

President Obama gave a long speech Tuesday night about the things government can do to help the economy without ever mentioning the Federal Reserve. Presidents rarely do. But it’s also the case that folks at the White House, like most Fed officials, think the central bank already has done as much as it should.

The Fed ended 2013 by announcing that it would begin to reduce its extraordinary efforts to stimulate the economy. At the end of its first policy-making meeting of 2014 on Wednesday, it is likely to announce that the retreat will continue.

This is also the last meeting for the Fed chairman, Ben S. Bernanke, who will step down on Friday after leading the central bank for eight years. After failing to foresee the financial crisis, he led the Fed’s aggressive efforts to contain the damage, and then its more tentative campaign to help restore the flow of economic activity.

He said at the beginning of his second term that he hoped to see that effort through to completion, but with the retreat barely begun, a significant part of Mr. Bernanke’s legacy will be shaped by the performance of his successor, Janet L. Yellen.

Here are three things to watch on Wednesday:  

1. Twice is a pattern

Fed officials have given every indication that they plan to reduce their monthly accumulation of Treasury and mortgage-backed securities by $10 billion at the January meeting, just as they did at their last meeting in December. That, in turn, would reinforce the expectation that the Federal Open Market Committee will do the same thing when it next meets in March.

Investors will be watching the language of Wednesday’s statement for any sign that the Fed has doubts about the wisdom of maintaining that pace, like a weakening in the Fed’s description of the economic outlook.  

2. What happens after the unemployment rate hits 6.5 percent?

The unemployment rate used to be a pretty decent proxy for the health of the labor market. But its rapid fall to 6.7 percent in December, from a peak of 10 percent in 2009, probably overstates the actual improvement in the labor market. The rate is based on the number of people who are looking for work, and a lot of people have given up. Some have settled into retirement or qualified for disability benefits, but others may simply be waiting for economic conditions to improve.

The Fed has said since December 2012 that it plans to keep short-term interest rates near zero at least as long as the unemployment rate is above 6.5 percent. With the unemployment rate about to drop below that threshold, a number of Fed officials have said that the central bank needs to clarify its plans.

The Fed took a stab at the problem in December, saying that it intended to keep interest rates near zero “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation” remains modest.

That’s a thin reed, particularly for a central bank that has described forward guidance as its most powerful means of stimulating the economy. But in deciding whether to say more, the Fed is wrestling with the balance between precision and accuracy. Precision increases the power of forward guidance, but only if investors believe the Fed will hew to its plans. And the decision to taper bond purchases has already shown that officials are nervous about doing too much.  

3. Hey, aren’t you guys in charge of inflation?

The pace of price increases remains sluggish and, with each passing month, the confidence of Fed officials that inflation will rebound gets a little harder to justify.

The Fed says that it wants annual inflation of about 2 percent, but last year the Consumer Price Index rose by just 1.5 percent. (A second measure, which the Fed regards as more reliable, will be published Friday.)

The Fed’s official statements have reflected growing concern about low inflation. In its December statement, the Fed said that “inflation persistently below its 2 percent objective could pose risks to economic performance.”

Strikingly, a number of Fed officials also have expressed puzzlement, saying that they do not understand why prices are rising so slowly.

Lost Girl

(Zoie Palmer as Lauren on the run.)

i09 reviews "Lovers.apart" from Lost Girl

Obama's 2013

What Obama Is Really Trying to Do in the State of the Union Address by Jonathan Chait

...What, then, has the administration done with the last year? The first thing it did was wage a political war to assert, or reassert, the basic legitimacy of the executive branch. In my preview of Obama’s second term, I wrote, “The necessary predicate [for a successful second term] is for Republicans to accept Obama as a legitimate president.” 

In 2013, Republicans were not prepared to make that concession. The congressional GOP undertook a campaign to strip Obama of the normal presidential powers, in two ways. One was by using the threats of a government shutdown and a debt default as “leverage,” which could force the president to surrender policy concessions to Congress without any policy trades. The second was an unprecedented move to blockade any appointment at all to vacant executive branch and judicial positions. Much of the drama of 2013 was consumed with Obama and his Democratic allies successfully beating back this ambitious Republican effort to reshape the power dynamic between the branches of government. 

The end results — new limits on the filibuster, and the crushing of the hostage-taking strategy — were not preordained. (Indeed, most pundits predicted Obama’s counterattack would fail. Here’s Chris Cillizza predicting last summer that Senate Democrats would never limit the filibuster; here are various pundits predicting Obama would have to pay a debt-ceiling ransom.) But if Obama had not beaten back the assault on the presidency, he would now be in no position to carry out the work his administration is undertaking. 

For instance, having managed to install a chairman of the Consumer Financial Protection Bureau, the administration has finalized key rules in the Dodd-Frank law. Those regulations have received little attention, but the end result is that even many liberal skeptics now say the law is far tougher on Wall Street than they originally believed. And having filled the vacancies on the crucial D.C. Circuit Court, the administration is much better positioned to defend itself from the inevitable legal attacks on its regulations on the environment and elsewhere. 

The other major implementation project of 2013 was the Obamacare rollout. That, of course, was an utter debacle of such a scale that even mentioning the administration’s successes alongside it has a mordant, pitiful ring of “Other than that, how did you enjoy the play, Mrs. Lincoln?” The shoddy website helped launch a wave of disastrous news coverage, spreading out to other, more predictable transition problems, like people who received cancellation notices. The failed Obamacare launch has dragged the president’s approval ratings into anomalously low territory, threatening to turn the midterm elections, which already favored the GOP, into a chance to hand Republicans control of the Senate.

Those low approval ratings provide the impetus for Obama’s splashy new message. Everything about Obama’s messaging — the image of vigorous unilateral action, the laser focus on jobs, the small but popular policy initiatives attached to it — serve the goal of patching up the president’s standing and framing the Washington story in the most favorable terms possible. The State of the Union address is not an effort to fundamentally reorient the administration’s strategy. It’s a campaign to mend the political damage from the botched Obamacare launch.

Catherine Rampell

David Leonhardt: "The wheel keeps spinning in the econo-journo-world: Congrats to my friend @crampell, now an op-ed columnist at WaPo. She'll be great."

Kocherlakota

Kocherlakota and the Cultists by Krugman

Uncle Tupelo

24 years later, does No Depression live up to its reputation? by Annie Zaleski

Narayana Kocherlakota

A Federal Reserve Policy Maker Urges It to Do More by Binyamin Appelbaum

"The evolution of N.K."

Project X (working title)

Project X (working title) with Ezra Klein, Matt Yglesias, Dylan Matthews and Melissa Bell.

David Leonhardt tweets about "Vox is our next"

Ezra Klein Is Joining Vox Media as Web Journalism Asserts Itself by David Carr

Helix

Annalee Newitz reviews "Single Strand" from Helix

housing bubble

Why Was the Housing Bubble So Much More Damaging than the Dot.Com Bubble? by Jared Bernstein

same love

Macklemore & Lewis’ “Same Love” is more than a pro-gay marriage anthem

Josh Barro

I thought Josh Barro did an excellent job on Real Time with Bill Maher last night, especially when he argued monetary policy with Carly Fiorina.

Atlantic article by Jonathan Chait.

Germany and debt ceiling clown show

The Myth of the German Boom Persists in Roger Cohen's Columns by Dean Baker

House Republicans Make Saddest Hostage Threat Ever by Jonathan Chait

GOP Preparing New Farcical Debt Ceiling Standoff by Yglesias

Legend of the Seeker

therealtabrettbethell via Bridget Regan's twitter

My post on Cara back in 2009

Keynes on the rentiers

The Euthanasia of the Rentier by Krugman 

A commenter quotes John Maynard Keynes:

The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

It is, of course, a perfect quote for our times, too. It comes from the last chapter of the General Theory — a chapter that definitely bears rereading in the light of current debates.

For what Keynes describes in this chapter is, pretty much, a condition of secular stagnation — of persistently low returns on investment, in which there is a chronic oversupply of saving. He believed, in 1936, that this would be the state of affairs in the decades ahead, and was of course wrong in that belief. But he wasn’t wrong about the possibility of such a state of affairs, and since Larry Summers came out as a secular stagnationist, the view that we may well be there now has gone mainstream.

What struck me, looking at what Keynes wrote, were his remarks on interest rates and the return to capital: low rates of interest, he suggested,

would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.

Actually, for now at least profits remain high — but bond yields are very low.

What Keynes didn’t say, but now seems obvious, is that the rentiers are unlikely to accept their euthanasia gracefully. And therein, I’d argue, lies the ultimate explanation of the persistent clamor for monetary tightening despite weak economies and low inflation. I’ve described on a number of occasions how tight-money advocates are constantly shifting their arguments — it’s about inflation; no, it’s about sound market functioning; no, it’s about financial stability — but always with the same bottom line: rates must rise now now now.

Well, what I think we’re hearing is the sound of rentiers and those who, explicitly or implicitly, work for them, demanding their natural right to earn good returns even if the resource they control isn’t actually scarce anymore. They are not willing to go gently into their euthanasia.

Broad City

The characters of Broad City don’t want to be liked—they want to be funny

Both episodes screened for critics—the premiere, “What A Wonderful World,” and the February 5 installment, “Working Girls”—depict impossible quests wrapped around schedules that are superficially demanding. But to the benefit of the show’s tangent-prone sense of humor, those itineraries have a lot of wiggle room, geographically and temporally.

.... Executive producer Amy Poehler has been visible and vocal in her promotion for the series; “Working Girls” boasts appearances by Janeane Garofalo and Rachel Dratch.

workaholic brownoses

Three-Piece Suits, Breakfast Meetings, and Overwork by Krugman

That's been my experience. It's why the culture has been suffering and will further decay.

E.L. Doctrow

E. L. Doctorow: By the Book

If you could require the president to read one book, what would it be?

He’s a reader and doesn’t need my instruction. On the other hand, if I could require Republican members of Congress to read one book it would be Keynes’s “The General Theory of Employment, Interest and Money.”

James Tobin

James Tobin doesn't seem to get enough credit or recognition. In this interview, Krugman points to a book of his. In the recent Time magazine cover story, it describes how Yellen was his graduate teaching assistant and took marvelous notes which he used.

Game of Thrones Spoilers

My amateur, impressionistic commentary about what's in the trailer.

A dragon flying over the Red Keep at King's Landing. From a dream?

Daenerys rules a city - Yunkai or Mereen? She is advised by Mormont, Selmy, and Missandei. Melisandre the Red Priestess is burning heretics.

Jaime's the new Lord Commander of the Kingsguard. Tywin and Cersei are still around. Tyrion is taken prisoner after Joffrey's death.

Oberyn Martell, the Red Viper, talking with Varys. Ygritte, Tormund Giantsbane and the Wildlings attack Castle Black which is defended by Jon Snow, Alliser Thorne and the Nightswatch. Theon's sister Yara Greyjoy and the Iron Islanders rescue Theon who is shown in armor. Rast leaves a baby in the snow for the White Walkers. Arya, Brandon, Littlefinger and Hodor are still around.

The Red Viper and the Mountain fight in a trial by combat over Tyrion's guilt.

Joffrey and Margaery wed. The Hound is shown fighting. Sansa escapes to the Eyrie.

Stannis Baratheon and Davos Seaworth are still around. Stannis's cavalry rides down the Wildlings at the Wall and saves Castle Black.

QE

Of Quantitative Easing, Political Economists, and Marshallian Parrots... by DeLong

So put me with Ryan Avent, who tweets:

[The] risk [is that] of not being considered a [very] serious person by peers [unless you claim to greatly fear the risks of quantitative easing]

Person of Interest's Prescience is Eerie

"Person of Interest”: The TV Show That Predicted Edward Snowden by Joshua Rothman

Interplanet Janet

Janet Yellen: The Sixteen Trillion Dollar Woman by Rana Foroohar

"I'd like to see real wages going up," Yellen says, adding that the average American male worker's inflation-adjusted wages have been flat or down for the past 20 years."

And via Thoma:

Recurring Themes for the New Year by Charles Evans

positive outlook

Fiscal Drag and Less Thereof by Jared Bernstein

My guess is that the deficit as a share of GDP will be around the same this year as last year, meaning little or no “negative fiscal impulse.”



So, granted that a lot can still go wrong—debt ceiling!—and that the failure to extend UI benefits would counteract some of the pro-growth results I show here, we may have reached a do-less-harm moment from our elected officials. Woohoo!

"But as a macroeconomic phenomenon, overcapacity is bullshit."

"Overcapacity" by Steve Randy Waldman

(via Ryan Avent)

Hitchens

Article on Hitchens. Came up in discussion about Bill Keller. I don't remember it being the best piece.

secstags and demand management*

What Market Failures Underlie Our Fears of "Secular Stagnation"? by DeLong

What Policy Conclusions Follow from Our Fears of “Secular Stagnation”? by DeLong

---------------
*supply can also be managed of course.

the blogosphere

Heroes of blogging by Noah Smith

Game of Thrones

Golden Globes

Khaleesi Emilia Clarke* (and Chris O'Donnell) present Amy Poehler with an award, beating out other favorites Deschanel and Louis-Dreyfus. (I really like Veep where they did filibuster reform.) Tatiana Maslany didn't win in her category unfortunately.

-----------
*She made in interesting-looking film called Spike Island. It's about some young people in 1990 trying to attend the Stone Roses' now "increasingly legendary" gig.

Wikipedia:

The Stone Roses' outdoor concert at Spike Island in Widnes on 27 May 1990 was attended by some 27,000 people. The event, considered a failure at the time due to sound problems and bad organisation, has become legendary over the years as a "Woodstock for the baggy generation".^[69] In mid-2010 footage of the concert was published on Youtube.

Abenomics works

Government Stimulus Lifts Japan by Floyd Norris

positive outlook

Is Larry Summers Right About “Secular Stagnation”? by John Cassidy

On this point, I am a bit more optimistic, for a couple of reasons. The comparison with Japan, although worrying, isn’t fully persuasive. For many years after the stock-market and real-estate busts of the early nineties, stricken Japanese banks hoarded money, refusing to lend, and Japanese consumers saved more, crimping consumer spending. In this country, following the Great Recession, banks repaired their balance sheets much more rapidly and started lending again. Indeed, as Summers notes, there are already signs that credit standards are deteriorating again. Consumer spending, after an initial fall, has rebounded surprisingly well.

What has held the economy back is restrictive fiscal policy and a reluctance on the part of businesses to invest in new capacity. (For the first time in decades, gross capital investment has fallen below twenty per cent of G.D.P.) Looking ahead, there are hopeful signs in both areas. The budget deal at the start of the year modified the sequester, and investment, particularly in new home construction, appears to be picking up. Barring some unforeseen calamity, it’s quite likely that 2014 will be the first year since the housing bubble in which G.D.P. growth reaches three per cent. And with plenty of slack left in the economy, there’s no obvious reason why 2015 shouldn’t be another good year.

demand managment scoreboard in 2013

The Relative Efficacy of Fiscal and Monetary Policy at the Zero Lower Bound: Where Are the Goalposts, Anyway?: The Honest Broker for the Week of January 5, 2013 by DeLong

positive outlook

Happy New Year? by Krugman

de Blasio

Bill de Blasio and the Progressive Dilemma by John Cassidy

Obamacare

Four ways to tell if Obamacare is working by Sarah Kliff

Do more people have health insurance? ...

Do Americans have better access to health care? ...

Are Americans getting healthier? ...

Is health care becoming more affordable? 

Does the U.S. become more like other advanced nations?

Inside Llewyn Davis

A Striver’s Ramble in Greenwich Village by Luc Sante

De Blasio

De Blasio Draws All Liberal Eyes to New York City

...“My sense is, he is going to be very intent and dedicated to showing that he can construct this new model of municipal governance,” said Katrina vanden Heuvel, the editor of The Nation, a left-leaning periodical that has dedicated a journalist full time to covering the early days of the new administration.

“He needs to deliver, and he understands that,” Ms. vanden Heuvel added.
...
Cornel West, the professor and political activist who recently returned to New York to teach at Union Theological Seminary, said the mayor represented “a sigh of relief from the reign of Bloomberg.”

But he invoked his own disappointment with President Obama in sounding a note of caution.

“There’s got to be a connection between vision and speeches, and execution and policy,” Dr. West said. “Our beloved president — that brother gives beautiful speeches, but he is milquetoast oftentimes when it comes to execution.”

Dr. West allowed himself a laugh. “We don’t want de Blasio going down that Obama lane, or we’ll be in trouble,” he said.