Krugman on 2008

 Frustrations of the Heterodox

It is true that economists failed to predict the 2008 crisis (and so did almost everyone). But this wasn’t because economics lacked the tools to understand such things — we’ve long had a pretty good understanding of the logic of banking crises. What happened instead was a failure of real-world observation — failure to notice the rising importance of shadow banking. Economists looked at conventional banks, saw that they were protected by deposit insurance, and failed to realize that more than half the de facto banking system didn’t look like that anymore. This was a case of myopia — but it wasn’t a deep conceptual failure. And as soon as people did recognize the importance of shadow banking, the whole thing instantly fell into place: we were looking at a classic financial crisis. 

What about the lousy policy response — austerity and all that? The key point here was that policymakers weren’t basing their decisions on conventional economics. On the contrary, they decided to blow off textbook macroeconomics and embrace exotic doctrines like expansionary austerity and a mysterious growth cliff at 90 percent debt relative to GDP. The disastrous policy responses that have perpetuated the slump are the result of mainstream economics having too little influence, not too much.

Baker on Piketty

Capital in the 21 Century: Still Mired in the 19th (See correction) by Dean Baker

While the book presents this story with the sort of the determinism that many have seen in Marx's theory of the falling rate of profit, there are serious grounds for challenging Piketty's vision of the future. First, there are many aspects to the dynamics that have led to the redistribution to profit and high earners in the last three decades that are likely to change in the not too distant future. 

The top of my list is the loss of China as a source of extremely low cost labor. According to the International Labor Organization, real wages in China tripled in the decade from 2002-2012. While these data are not very accurate, there is little doubt that wages in China are rising rapidly. While Chinese wages still have a long way to go before they are on a par with wages in the United States or Europe, its huge cost advantage is rapidly disappearing. Manufacturers can look for other low-wage havens, but there are no other Chinas out there. The loss of extreme low wage havens is likely to enhance the bargaining power of large segments of the workforce. 

However, perhaps a more fundamental objection to Pikettys' grim future is the fact that a very large share, perhaps a majority, of corporate profit hinges on rules and regulations that could in principle be altered. My favorite example is drug patents. This industry accounts for more than $340 billion a year in sales (@ 2 percent of GDP and 15 percent of all corporate profits). The source of its profits is government granted patent monopolies. 

Suppose the government weakened patent rights or allowed low-cost generics from India to enter the country, profits and presumably the value of corporate stock in the sector would crumble. Is there a fundamental law of capital that prevents this from happening? The same could be said about the patents that provide the basis for enormously profitable tech companies like Apple. Are we pre-destined never to take steps to weaken these laws which lead to enormous corruption and economic waste? 

Another big profit sector is cable and telecommunications where we seem to have unlearned the lesson from intro-econ that monopolies are supposed to be regulated to prevent them from gouging consumers. Obviously the monopolists won't like to see their profits eroded, but allowing near monopolies to operate without regulation does seem like an aspect of capitalism that can be altered in the future as it was in the past. 

The financial sector has gone from accounting for less than 10 percent of corporate profits in the 1960s to over 20 percent in recent years. Is there a law of capitalism preventing us from instituting financial transaction taxes like the UK has had on stock trades for more than three centuries or breaking up too big to fail banks?

Piketty

The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital” by Thomas Palley

A better response is for critics to stick with the rate of profit versus growth argument while dumping the neoclassical marginal productivity aspect of Piketty’s theoretical argument. Mainstream economists will assert the conventional story about the profit rate being technologically determined. However, as Piketty occasionally hints, in reality the profit rate is politically and socially determined by factors influencing the distribution of economic and political power. Growth is also influenced by policy and institutional choices. That is the place to push the argument, which is what critics of mainstream economics have been doing (unsuccessfully) for decades. The deep contribution of Piketty’s book is it creates a fresh opportunity in this direction.

From Yglesias interview:

Picketty:

It's not only in US. It's economists everywhere. I think what they're doing wrong is that in order to distinguish themselves from other disciplines, in order to look like we all are scientists, they use too much complicated math just for the sake of it. 

Math is fine. Math is very cool. But very often, they tend to push for more sophisticated math just to push off other people. It's an easy way to have the appearance of scientificity. For a real mathematician or physicist, the math will not be terribly impressive but it's enough to impress those economics departments that are less good at math and those social scientists who are less good at math. 

I think math is useful, if you have a good ratio of facts to theory. But most of the time the economists do the opposite. There are incredibly sophisticated mathematical models with a very tiny empirical component. 

For the most part it's like [Pierre] Bourdieu, "La Distinction," with art taste. It's a way to distinguish your self from the commoners and to look more sophisticated.

Housing

Why the Housing Market Is Still Stalling the Economy by Neil Irwin

None of that, however, can happen instantly through some policy change, like a tweak in federal housing rules to make it easier to get a loan, or further measures from the Federal Reserve to lower mortgage rates. More than anything, it takes time. 

Mr. Kelderhouse says that 2017 “is the year everybody throws out as when we’re back to normal. He adds, “That still seems believable to me.”

How and Why Is Housing Holding Back the Recovery by Dean Baker

The other point is that looking at the historic average share of residential construction in GDP may be somewhat misleading. If we go back to the 1980s, the share of medical care in GDP has risen by more than 6.0 percentage points. This increase must come from other categories of consumption. If we say non-health care consumption is roughly 60 percent of GDP, then a 6 percentage point rise in the share of health care in GDP would imply a reduction of 10 percent in non-health care consumption, if the consumption share of GDP stayed constant. 

In fact consumption has risen as a share of GDP, but if we assume the consumption share will not rise indefinitely, it means that a rising share of consumption going to health care means a smaller share going to everything else. The implication is that we might expect housing to comprise a smaller share of GDP going forward than in the past. In that story we should still expect housing to recover further, but perhaps not to its average share for 1970s, 1980s, and 1990s.

Maybe QE Was Helping A Little More than You Thought by Jared Bernstein

Still, one cannot help but notice the recent slowdown in the housing recovery and one further cannot help but wonder about the extent to which Fed actions to pull back on their LSAPs are implicated in said slowdown, though there are of course other moving parts here. 

First, there’s no doubt that the housing recovery has significantly slowed. According to a Credit Suisse index, homebuyer traffic is down more than a third from last year, and yesterday’s new home sales were off big-time, with sales down 13% from a year ago, the first yr/yr decline since 2011q2. Pending home sales have also been negative in recently months and recently hit their lowest level since late 2011.

Piketty and Krugman

Frustrations of the Heterodox by Krugman

On Gattopardo Economics by Krugman

Piketty and Pareto by Krugman

The Piketty Panic by Krugman

The Piketty Phenomenon by David Brooks

The Hourly Piketty: Paul Krugman, “Gattopardo Economics”, and Economic Modelling by DeLong

DeLong quotes:
Notes from Capital in the 21st Century Panel by Suresh Naidu

Wikipedia entry for Cambridge capital controversy

Fed Fail

Maybe QE Was Helping A Little More than You Thought by Jared Bernstein

Piketty

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: THE DAILY PIKETTY: THURSDAY FOCUS: APRIL 24, 2014 by DeLong

Over at the Washington Center for Equitable Growth: As Thomas Piketty Day at the University of California at Berkeley comes to an end, we eat Hawaiian poke and sausage-stuffed mushrooms catered from the truly excellent Assemble, and watch the sunset over the Golden Gate from the back patio of the Gourinchas/Fourcade palazzino. We muse on the extent to which Thomas Piketty's patterns of movement for the rate of profit r minus the economy's growth rate g are at bottom patterns of changing land valuation, with the fall of European agriculture as a source of wealth and the rise of urban location as the source of wealth. 

What was supposed to be a 20-person economics departmental seminar turned into a 400-person public lecture extravaganza--we really should have made him give two talks at least...

Piketty on inflation

From Yglesias's interview:

Inflation has proved to be very useful to reduce the large stocks of public debts that we had in the 20th century. Now the progressive wealth tax, in a way, is the same thing as inflation, but this is sort of a civilized form of inflation. 

It’s like inflation, but you can make sure that people with limited wealth would not be hurt, and people with billions would pay more. With inflation you have chaos, in that you don't actually know who's going to pay for it. 

Very often, not only do you destroy the public debt, but you also destroy the savings accounts of lower and middle class people. I think this is why Europe today, for instance, has a very hard time with inflation. 

That's why I think tax on private wealth or property tax on private wealth is a better way to go than inflation. Now, if we don't have the tax, inflation is better than austerity. If you only have budget surpluses to reduce a public debt of 100 percent GDP with zero inflation, which is what we have in the Euro zone right now, it can take decades and decades.

The Americans

AV Club reviews The Americans: "Martial Eagle"

Piketty

Picketty with Joseph Stiglitz, Paul Krugman, and Steven Durlauf participated in a panel moderated by Branko Milanovic."

rising Democratic majority

Is the Rising Democratic Majority Doomed? by Jonathan Chait

The Daily Show with Jon Stewart April 23, 2014

Great rant at about the 8:00 minute mark.

Washington Post Discovers Worksharing by Dean Baker

Piketty

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: PIKETTY DAY HERE AT BERKELEY: THE HONEST BROKER FOR THE WEEK OF APRIL 26, 2014 by DeLong

Thomas Piketty doesn’t hate capitalism: He just wants to fix it by Yglesias

The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital” by Thomas Palley

The Capital Creators, Piketty and Growth Theory by Joshua Gans (Digitopoly)

Capital Punishment: Why a Global Tax on Wealth Won't End Inequality by Tyler Cowen

Piketty

Thomas Piketty Is Right: Everything you need to know about 'Capital in the Twenty-First Century' by Robort M. Solow

Adam Smith is not the antidote to Thomas Piketty by Deborah Boucoyannis

the Singularity, Picketty, and Climate Change

Why Her suggests it’s time for a Steel Beach movie (or three) by Tasha Robinson

Transcendence and the techno-paranoia thriller by Tasha Robinson, Scott Tobias

Capital in the 21st Century is the bestselling book on Amazon by Yglesias

Two degrees: How the world failed on climate change by Brad Plumer

Game of Thrones

'Game Of Thrones' Director Calls That Controversial Rape Scene Consensual

George R.R. Martin, Nikolaj Coster-Waldau, and director Alex Graves respond to that scene from Game Of Thrones by Sonia Saraiya

Inflation

Does inflation make you poorer? by Noah Smith

A Reply to "Does Inflation Make You Poorer?" by Carola Binder

The Economy is Not Like a Household by Krugman

Krugman and DeLong

Sweden Turns Japanese by Krugman

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: NOTES AND FINGER EXERCISES ON THOMAS PIKETTY'S "CAPITAL IN THE TWENTY-FIRST CENTURY": THE HONEST BROKER FOR THE WEEK OF APRIL 19, 2014 by DeLong

Piketty

"Capital" and its discontents by Ryan Avent

Dude, Where’s Your Piketty Review??!! by Jared Bernstein

Game of Thrones

AV Club reviews Game Of Thrones (experts): “Breaker Of Chains”

AV Club reviews Game Of Thrones (newbies): “Breaker Of Chains”

Podrick Payne and Tyrion bid farwell.

Brienne put his age at ten, but she was terrible at judging how old a child was. She always thought they were younger than they were, perhaps because she had always been big for her age. Feakish big, Septa Roselle used to say, and mannish. "This road is too dangerous for a boy alone."

"Not for a squire. I'm his squire. The Hand's squire."

"Lord Tywin?" Brienne sheathed her blade.

"No. Not that Hand. The one before. His son. I fought with him in the battle. I shouted 'Halfman! Halfman!'"

The Imp's squire. Brienne had not even known he had one. Tyrion Lannister was no knight. He might have been expected to have a serving boy or two attend him, she supposed, a page and a cupbearer, someone to help dress him. But a squire? "Why are you stalking me?" she said. "What do you want?"

 "To find her." The boy got to his feet. "His lady." You're looking for her. Brella told me. She's his wife. Not Brella, Lady Sansa. So I thought, if you found her..." His face twisted in sudden anguish. "I'm his squire," he repeated, as the rain ran down his face, "but he left me."

-- George R.R. Martin, A Feast for Crows 

Obamacare

The Number of People Helped by Obamacare is Far Larger Than the NYT Says by Dean Baker

In an article on the likely political implications of the Affordable Care Act (ACA) in the November election, the NYT wrongly implied that the beneficiaries are a relatively small segment of the population. It told readers: 

"Democrats could ultimately see some political benefit from the law. But in this midterm election, they are confronting a vexing reality: Many of those helped by the health care law — notably young people and minorities — are the least likely to cast votes that could preserve it, even though millions have gained health insurance and millions more will benefit from some of its popular provisions." 

Actually, virtually the entire pre-Medicare age population stands to benefit from the ACA. Millions of insured people lose their insurance every year, typically because they lose their job. These people will now be able to get insurance through the exchanges, in most cases at prices far below what they would have paid in the individual market previously. In this way, the ACA is effectively giving the insured population security in their insurance that they did not previously have.This is especially important in cases where the reason people lost their job was due to bad health. 

This is a huge benefit that is being extended to tens of millions of people who will be voting in November. Due to poor coverage of the impact of the law, it is likely that most of these people do not recognize the extent to which the ACA provides them with security in their insurance coverage.

Orphan Black

AV Club reviews Orphan Black: "Nature Under Constraint and Vexed"

Krugman on Picketty

secstags or policy-induced paralysis

When It Comes to Generating Jobs It Pays Not to Listen to the Experts by Dean Baker

It is remarkable that no country has outlawed economics as a dangerous occupation on a par with drug dealing or murder for hire. The damage done to the world over the last seven years based on policies designed by economists has been incredible. 

Floyd Norris documents this fact in a nice piece comparing the change in employment rates (the percentage of the population employed) in rich countries since 2007. The only two countries with higher employment to population ratios today than at the start of the downturn are Germany and Japan. Both countries have broken with the economic orthodoxy in important ways. 

In Germany, the government has adopted policies that encourage employers to keep workers on the payroll by cutting back hours rather than laying them off. As a result, their unemployment rate is almost three percentage points below its pre-recession level even though its growth has actually been somewhat slower than in the United States. 

Japan has adopted a policy of aggressive deficit spending even though its debt to GDP ratio is already more than twice that of the United States. It also has deliberately targeted a higher rate of inflation as a way of lowering real interest rates and reducing debt burden. As a result, it has created a number of jobs that would be the equivalent of more than 4 million in the United States. 

In short, ignoring the economic orthodoxy works. Listening to orthodox economists brings destruction to the economy and devastates peoples' lives.

Piketty

‘Capital in the Twenty-First Century’, by Thomas Piketty by Martin Wolf

The Americans

AV Club reviews The Americans "New Car"

Obamacare

Everything you need to know about Obamacare by Sarah Kliff

Orphan Black

"Gold Lion" by the Yeah Yeah Yeahs.

Purple Wedding

AV Club reviews Game Of Thrones (newbies): “The Lion And The Rose”

AV Club reviews Game Of Thrones (experts): “The Lion And The Rose”

Piketty

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: NOTES AND FINGER EXERCISES ON THOMAS PIKETTY'S "CAPITAL IN THE TWENTY-FIRST CENTURY": THE HONEST BROKER FOR THE WEEK OF APRIL 19, 2014 by DeLong

Piketty

The Doom Loop of Oligarchy by Ezra Klein & Vox

monetary policy

Only the ignorant live in fear of hyperinflation by Martin Wolf

Empire

The making of global capitalism book club

Piketty list

Why We’re in a New Gilded Age by Paul Krugman (5.8.14 issue)

The short guide to Capital in the 21st Century by Matt Yglesias (4.8.14)

THOMAS PIKETTY UNSUCCESSFUL ATTEMPTED SMACKDOWN WATCH: I FIND MYSELF DISAPPOINTED BY THE USUALLY-RELIABLE JAMES GALBRAITH AND PETHOKOUKIS by DeLong (4.6.14)

Kapital for the Twenty-First Century? by James K. Galbraith (Spring 2014 issue)

The New Marxism, Part Two  by James Pethokoukis (3.31.14)

Piketty on Capital: A Footnote by Henry Farrell (4.5.14)

Capital in the 21 Century: Still Mired in the 19th (See correction) by Dean Baker (3.9.14 / 4.5.14)

Philip Pilkington: Misdirection – Galbraith on Thomas Piketty’s New Book on Capital (4.3.14)

The Top of the World: An ambitious study documents the long-term reign of the 1 percent by Doug Henwood (April/May 2014 issue)

Forces of Divergence: Is surging inequality endemic to capitalism? by John Cassidy (March 31, 2014)

Piketty's Inequality Story in Six Charts by John Cassidy (March 26, 2014)

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 (3.25.14)

Fed exit

Monetary policy after quantitative easing: The case for asset based 
reserve requirements (ABRR) by Thomas Palley

The Americans

AV Club reviews The Americans: " Arpanet"

Piketty

Why We’re in a New Gilded Age by Paul Krugman

Baker and trade

Krugman, Greider, and the Continuing Saga of Sustained Secular Stagnation by Dean Baker

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: IN WHICH I AM PERTURBED BY KENNETH ROGOFF'S EVEN-HANDED HIPPIE- AND AUSTERIAN-PUNCHING: EARLY THURSDAY FOCUS ON WEDNESDAY by DeLong

The Central Bank

What Is Going on with the Federal Reserve?: Watching an Ongoing Discussion by DeLong

With unemployment above and inflation below its formal targets, Why is the Federal Reserve talking about withdrawing stimulus? Why is it talking about moving to a regime in which it is no longer purchasing long-term securities as part of quantitative easing? And why is it forecasting that it will begin to increase interest rates six months after quantitative easing ends?

The Secstags

A Model of Secular Stagnation by Gauti Eggertsson Neil Mehrotray

Piketty

The short guide to Capital in the 21st Century by Matthew Yglesias

Tea Party

AV Club reviews the pilot from "Turn"

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