Deflation feeds global fears.

Was the taper a mistake?

Risk of Deflation Feeds Global Fears
By JON HILSENRATH and BRIAN BLACKSTON

Updated Oct. 16, 2014 12:01 p.m. ET

Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.

A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.

Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.

The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.

However, recent declines in commodities prices suggest that downward pressure on inflation—if not all-out deflation—could become a wider-ranging phenomenon, and one with some mixed implications for economies like the U.S. and emerging markets.

Investor worries about the global economy appeared to gather force Wednesday. European stock markets sagged; the Stoxx Europe 600 index fell 3.2% to its lowest level since last December. U.S. stocks pared steep losses, but still finished down for the fifth straight day; after falling more than 450 points at one point, the Dow Jones Industrial Average fell 173.45, or 1.1%, to 16141.74.

Meantime, yields on 10-year U.S. Treasury notes fell to 2.091%, their lowest level since June 2013, and are down nearly a percentage point from the beginning of the year. Bond yields fell to new lows in Germany, too. Crude-oil prices dropped further; crude futures on the New York Mercantile Exchange fell to $81.78 a barrel, the lowest level since June 2012.

The deflation concerns are particularly acute in Europe, where annual inflation in the 18 nations that use the euro was 0.3% last month, a five-year low that is far below the European Central Bank’s target of just under 2%.

With inflation so low, it wouldn’t take much of a shock—such as weakness in Germany’s economy or geopolitical tensions in nearby Ukraine—to tip the whole region into a deflationary downturn. Some eurozone countries, such as Italy, have already tipped into deflation. Even countries outside the currency bloc are feeling the pain. Sweden’s statistics agency said Tuesday that consumer prices fell 0.4% in annual terms last month after a 0.2% fall in August, well below its central bank’s 2% target.

The risk of deflation in Europe is “a real worry,” Harvard University professor and former Federal Reserve governor Jeremy Stein said in an interview. “The right prescription [for policy makers] is to be aggressive.”

ECB President Mario Draghi acted against deflation risks in June and September, pushing the central bank to slash interest rates to record lows each time—including a negative rate on bank deposits at the ECB—and unveiling new bank-lending and asset-purchase plans for asset-backed securities and covered bonds.

But there is little consensus for more-dramatic measures—the kind of monetary stimulus the Fed, the Bank of England and the Bank of Japan have deployed—namely large-scale purchases of government bonds to raise the money supply.

The head of Germany’s central bank, Jens Weidmann, has signaled his opposition to such bond buying, and other members of the ECB’s governing council appear sympathetic to his argument that with government and corporate borrowing costs already superlow, the policy wouldn’t even do much good.

“I am very much for a steady-hand approach, and I think this is what we are doing,” Austria’s central bank governor, Ewald Nowotny, said in an interview last week.

Hard fiscal problems are part of Europe’s problem. Last week, Standard & Poor’s stripped Finland of its triple-A credit rating and downgraded France’s outlook. On Tuesday, Fitch put France on review for a possible downgrade.

Struggling economies such as France and Italy face a tough choice: Take additional austerity measures to shrink budget deficits, inflicting more pain on their economies, or attempt to flaunt the EU’s budget rules calling for low deficits, which could damage their credibility in Europe.

The resistance Mr. Draghi faces has shaken the faith of some investors that policy makers in Europe will address the threat.

“Market valuations, especially for rich countries, have been well above what was warranted by fundamentals. What kept them up there was a belief that central banks were markets’ best friends,” said Mohamed El-Erian, chief economic adviser at Allianz Group. “Most people now recognize that the ability of central banks to address what ails the global economy is weaker than they believed.”

Meanwhile, Japan had recently begun to stir sustained growth, which helped to push its inflation rate above 1%, after years of on-again, off-again deflation. But inflation decelerated again in recent months as the economy softened after an April sales-tax increase meant to restrain mounting government debt. Many private economists forecast a slip back below 1% this year.

Japanese officials must now decide whether to follow through on another planned sales-tax increase that could dent growth even more. And the Bank of Japan is weighing whether it needs to provide even more stimulus. BOJ Governor Haruhiko Kuroda launched new asset purchase programs last year to reverse two decades of deflation and has pledged to persist until he reaches the 2% target.

Japan’s struggles to exit deflation, even with massive central-bank stimulus, illustrate just how difficult it is for an economy to pull out of the trap, once it has settled in.

A weak global outlook “has to be a worry for every economy,” Reserve Bank of India Governor Raghuram Rajan told The Wall Street Journal in an interview last week.

The U.S. confronts much different circumstances than Europe and Japan. U.S. inflation had been rising toward the Fed’s 2% objective earlier this year but now faces a downward tug amid the weakening global growth and a strengthening U.S. dollar. The Labor Department reported Wednesday that producer prices in the U.S. fell in September. Sharp drops in commodities prices this month could add to downward pressure.

Yet falling commodities prices have silver linings. For one, the decline is being driven in part by a U.S. energy production boom—not just sagging global demand for goods. Moreover, falling gasoline prices are a boon to U.S. consumers: One rule of thumb is that every one-cent drop in the price of gasoline amounts to a $1 billion boost to U.S. household incomes, and gasoline prices have dropped by 13 to 17 cents from a year ago, according to the automobile group AAA.

“All else equal, when energy gets cheaper, we benefit,” Mr. Stein said.

Meanwhile, the Fed is on track this month to end its bond-buying stimulus program launched in September 2012. And Fed officials have largely stuck to their line that they expected to start raising short-term interest rates by the middle of 2015. Still, traders in futures markets have been pushing up the prices of contracts tied to the Fed’s benchmark interest rate—a sign they see diminishing odds that the Fed will follow through on that plan.

Harvard’s Mr. Stein said he didn’t think the U.S. central bank needed to alter its thinking much in light of recent developments. “I wouldn’t dramatically revise my expectations,” he said. “The balance of the job-market news in the U.S. has been very positive.”

A Commerce Department report Wednesday showed U.S. retail sales dropped in September, but many economists are sticking to estimates that the U.S. economy expanded at a rate in excess of 3% in the third quarter, potentially the fourth time in the past five quarters it exceeded 3%. Moreover job growth has been stronger than Fed officials expected.

Wolf and Rogoff

Ken Rogoff reviews Martin Wolf's The Shifts and Shocks


Darryl FKA Ron's history:

[BIG TIME!

The end of Bretton-Woods is generally considered to have been the end of US dollar convertibility (into precious metals) and the establishment of the US dollar as the global reserve currency upon which to anchor exchange rates, trade reserves, and trading prices. Even OPEC nationalization tipped its hat to the US dollar as the global price tag.]

http://en.wikipedia.org/wiki/Bretton_Woods_system

...On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.[1] This action, referred to as the Nixon shock, created the situation in which the United States dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as the pound sterling, for example), also became free-floating...

*

[Meantime you had commercial banks going inter-state which broke up some of the relationships between local banks and traditional constituents in agriculture and small business when those local banks were bought. MOstly though it just positioned commercial banking for the post Glass-Steagal world of the current century, a lamb being fattened for later slaughter.

My story of the new finger on the scale of capital gains preference in 1954 is one of corporate and private equity leverage upon which investment banks grew their more speculative bond markets for buyouts and takeover financing. Schumpeter's argument against competition won the day for firm consolidation AND investment banks. Fast forwards to the end of first Bretton Woods and then the Cold War and the hegemony of multi-national corporations allied with major investment banks all resting on the shoulders of Uncle Sam's imperial dollar is a feat of global conquest that would have made Ghenghis Khan blush.]

*

http://en.wikipedia.org/wiki/Nationalization_of_oil_supplies

Early nationalizations

Prior to 1970, there were ten countries that nationalized oil production: the Soviet Union in 1918, Bolivia in 1937 and 1969, Mexico in 1938, Iran in 1951, Iraq in 1961, Burma and Egypt in 1962, Argentina in 1963, Indonesia in 1963, and Peru in 1968. Although these countries were nationalized by 1971, all of the “important” industries that existed in developing countries were still held by foreign firms. In addition, only Mexico and Iran were significant exporters at the time of nationalization...

*

[And then all hell broke loose. Oil shortages got us rising oil prices and by the time it all settled out global finance had its claws deep into crude. What Reagan and Thatcher did is make a narrative of all this or maybe just the backup band to Milton Fridman's narrative of all this that blame it on public spending and deficits instead of an imperialistic dollar in the hands of multinational corporations and investment banks taking advantage of financialization and globalization. Autos and steel were among the first to fall in the US because their managements were the most over-confident and unprepared to deal with change. BOth failed modernize, both in production and in marktet focus.]

The reason it is so difficult to accept that our problems originate from Ike and Nixon instead of Ronnie Rayguns is that such a narrative would not give our feeling of intellectual superiority and moral self-righteous a leg to stand on.

Rayguns was so blatantly contemptuous of liberalism that it must have been his fault. THat is like thinking that a psychopath has no guile and can easily be picked out of a crowd. It is not the guy that spits in your face that catches you unawares, but the one that puts the knife in your back while patting you on the shoulder.

Clinton probably did more to roll back the New Deal than Reagan did what with Welfare "reform" (or was that deform) and financial deregulation. Reagan screwed unions, but he was not their first time, and his recession ushered in the Great Moderation, which fathered contemporary secular stagnation. Mergers accelerated under Reagan era anti-trust "enforcement." But Reagans foulest contribution and legacy was less about legislation or administration than it was the Alfred E. Newman "Whot, me worry" attitude of the people regarding their own economic affairs. THe tonic he sold to ward off the nanny state was the individualistic patriarchal state. The public bought it and ate it up. "I got mine and screw everyone else" became the new pledge of disallegiance. Ronnie's start was as a PR man and a pitch man and he had gotten pretty good at it.

Yellen, the Fed, K21 and inequality

Perspectives on Inequality and Opportunity from the Survey of Consumer Finances by Chair Janet L. Yellen

Chair Yellen Holds Forth on the Inequality of Opportunity by Jared Bernstein

What Janet Yellen Said, and Didn’t Say, About Inequality by Neil Irwin

World's Richest Man Tries to Defend Wealth Inequality by Dean Baker

Waldman on "Econometrics, open science, and cryptocurrency"

Econometrics, open science, and cryptocurrency by Steve Randy Waldman

Mark Thoma wrote the wisest two paragraphs you will read about econometrics and empirical statistical research in general:

You are testing a theory you came up with, but the data are uncooperative and say you are wrong. But instead of accepting that, you tell yourself "My theory is right, I just haven't found the right econometric specification yet. I need to add variables, remove variables, take a log, add an interaction, square a term, do a different correction for misspecification, try a different sample period, etc., etc., etc." Then, after finally digging out that one specification of the econometric model that confirms your hypothesis, you declare victory, write it up, and send it off (somehow never mentioning the intense specification mining that produced the result). 

Too much econometric work proceeds along these lines. Not quite this blatantly, but that is, in effect, what happens in too many cases. I think it is often best to think of econometric results as the best case the researcher could make for a particular theory rather than a true test of the model.

What Thoma is describing here cannot be fixed. Naive theories of statistical analysis presume a known, true model of the world whose parameters a researcher need simply to estimate. But there is in fact no "true" model of the world, and a moralistic prohibition of the process Thoma describes would freeze almost all empirical work in its tracks. It is the practice of good researchers, not just of charlatans, to explore their data. If you want to make sense of the world, you have to look at it first, and try out various approaches to understanding what the data means. In practice, that means that long before any empirical research is published, its producers have played with lots and lots of potential models. They've examined bivariate correlations, added variables, omitted variables, considered various interactions and functional forms, tried alternative approaches to dealing with missing data and outliers, etc. It takes iterative work, usually, to find even the form of a model that will reasonably describe the space you are investigating. Only if your work is very close to past literature can you expect to be able to stick with a prespecified statistical model, and then you are simply relying upon other researchers' iterative groping.

...

rising wealth inequality's "snowball effect."

See the Bernstein link below about the decoupling of productivity and compensation for the wage class.

If not r > g, what’s behind rising wealth inequality? By Nick Bunker

The Initiative on Global Markets at the University of Chicago yesterday released a survey of a panel of highly regarded economists asking about rising wealth inequality. Specifically, IGM asked if the difference between the after-tax rate of return on capital and the growth rate of the overall economy was the “most powerful force pushing towards greater wealth inequality in the United States since the 1970s.” 

The vast majority of the economists disagreed with the statement. As would economist Thomas Piketty, the originator of the now famous r > g inequality. He explicitly states that rising inequality in the United States is about rising labor income at the very top of the income distribution. As Emmanuel Saez, an economist at the University of California, Berkeley and a frequent Piketty collaborator, points out r > g is a prediction about the future. 

But if wealth inequality has risen in the United States over the past four decades, what has been behind the rise? A new paper by Saez and the London School of Economics’ Gabriel Zucman provides an answer: the calcification of income inequality into wealth inequality.

“Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” their new working paper, is firstly an impressive documentation of the significant changes in wealth distribution in the United States. 

Saez and Zucman create a data series using tax records to measure wealth inequality going back to 1913. The trend is similar to the one for income inequality in the United States: a high level of inequality at the beginning of 20th century that declined substantially during the mid-century only to climb starting in the late 1970s and reaching high levels again in recent years. 

Rising wealth inequality since the late 1970s has been a case of the top of the distribution pulling away from everyone else. Specifically, the rise of the 0.1 percent is the dominant story. In 1979, the top tenth of the top 1 percent held 7 percent of the wealth in the United States. By 2012, the share held increased threefold to 22 percent. (An earlier version of this data was highlighted at Equitable Growth’s annual conference in September.) In fact, almost half of the total increase in wealth from 1986 to 2012 went to the top 0.1 percent of wealth holders. The increase is dramatic and brings wealth inequality to a level around that prevailing in 1929. 

What caused this increasing concentration of wealth? In short, an increase in income inequality coupled with rising savings inequality. As income flowed upward to those at the top, rich individuals increased the rate at which they saved income. Saez and Zucman refer to this phenomenon as the “snowballing effect.” And Piketty does consider the calcification of top incomes into wealth inequality in “Capital in the 21st Century.” 

This effect certainly isn’t the well-known r > g phenomenon. But Saez and Zucman’s research shows that there’s more than one way for wealth inequality to arise.

Bernstein on productivity share and wage growth or lackthereof

Inequality, opportunity, and growth are all really important. So is wage stagnation. by Jared Bernstein

Note: From 1948 to 1979, productivity rose 108.1 percent, and hourly compensation increased 93.4 percent. From 1979 to 2013, productivity rose 64.9 percent, and hourly compensation rose 8.0 percent.

Fed Fail

When will they learn? by Ryan Avent

Manhattan was renewed for a second season

Yeah, science! The new trend in TV drama by Brandon Nowalk

global economic signals: bond rates, inflation expectations, commodity prices

The Depressing Signals the Markets Are Sending About the Global Economy by Neil Irwin

Carrie Coon

Carrie Coon got started in Chicago at the Steppenwolf Theatre Company and was in The Leftovers and Gone Girl.

Ada Lovelace

It’s Ada Lovelace Day, So Here’s A Brief History Of Her EXTREME RADNESS

(via DeLong)

new SyFy show on corporations

Ben Affleck and Matt Damon are making a Syfy show about evil corporations

Thoma and Inequality

What’s the Best Way to Overcome Rising Economic Inequality? by Mark Thoma

Person of Interst and cannibals

Eat the poor and weak.

AV Club reviews The Walking Dead: “No Sanctuary”

Samaritan versus The Machine is price versus value in economics or rather political economy.  Terminus is more like Price/Samaritan. Rick Grimes, Glenn and the gang are more like Value/The Machine. Every life is valuable (although feminists will quibble and rightly so.)

Robert Waldmann anchored inflation expectations

What's the name Noah Smith gave to the economics of CNBC? Chris Dillow calls it mediamacro.

Anchored Perceived Inflation or How Fox News Helped Obama by Robert Waldmann (July 20, 2014)

Obama at Northwestern

He's wrong here: 

Between a growing economy, some prudent spending cuts, health care reform, and asking the wealthiest Americans to pay a little bit more on their taxes, over the past five years we’ve cut our deficits by more than half. When I took office, the deficit was nearly 10 percent of our economy. Today, it’s approaching 3 percent. (Applause.) In other words, we can shore up America’s long-term finances without falling back into the mindless austerity or manufactured crises or trying to find excuses to slash benefits to seniors that dominated Washington budget debates for so long.

And:

By every economic measure, we are better off now than we were when I took office.

The labor force participation rate?

progressive fiscal policy

Don’t Soak the Rich by Edoward D. Kleinbard

Our peer countries typically rely on large, regressive tax systems to mitigate income inequality far more than we do. For example, I compared Germany and the United States, using 2007 data (the last year unaffected by the Great Recession) collected by the Organization for Economic Cooperation and Development. The two countries had virtually equivalent levels of income inequality. Moreover, the American tax system as a whole was quite progressive, while Germany’s actually was regressive. 

Nonetheless, the American fiscal system as whole (including state and local government spending) reduced inequality in market income — that is, income before subtracting taxes and adding back government benefits — by only 22 percent, while Germany’s reduced it by 41 percent. The reason is that the German fiscal system was significantly larger in overall terms: Taxes accounted for about 36 percent of German gross domestic product, against 28 percent for the United States. It’s the spending side, not the taxes, that makes the difference.

Book Review: Edward Kleinbard’s “We Are Better Than This.” by Jared Bernstein

monetary policy and financial instability

Over at Equitable Growth: Financial Stability and Instability, Ultra-Low Interest Rates, Quantitative Easing, and the Mammon of Unrighteousness: (Late) Tuesday Focus for October 7, 2014 by DeLong

Gone Girl and Garry Webb

What “Gone Girl” Is Really About by Joshua Rothman

Jeremy Renner chases leads in the overly familiar Kill The Messenger

gay marriage

The Right Outcome for the Wrong Reasons by Dahlia Lithwick

This morning, without explanation, the justices of the Supreme Court refused to hear any of the seven cases pending before them regarding same-sex marriage. The unexpected action allows lower court rulings that overturned statewide bans to stand. This means that same-sex couples in Utah, Oklahoma, Virginia, Wisconsin, and Indiana will be free to marry almost immediately. It also suggests that couples in West Virginia, North Carolina, South Carolina, Kansas, Colorado, and Wyoming—all covered by appeals courts that have struck down the bans—may be able to marry in the near future. The decision takes the parties who were waiting for a decision in these various states off hold and allows them to marry. But the Supreme Court today declined to issue any kind of guiding opinion about the constitutionality of gay marriage in all 50 states.

Scalia called it.

The Roberts Court’s Brief Progressive Moment by Jeffrey Toobin

It’s hard enough to know what the Justices of the Supreme Court are talking about when they write opinions, which tend to be dense, convoluted, and laden with coded references that are decipherable only to a few. But, on Monday, the Court presented an even greater interpretive challenge: determining what it meant when it said nothing at all. Without comment, the Court let stand successful challenges to the bans on same-sex marriage in five states. Those lower-court rulings had been stayed while the parties waited to hear from the Justices. Now that they won’t be saying anything, same-sex weddings can go forward in those states and, soon, in others in their circuits. Clerks in Utah and Virginia were already issuing marriage licenses on Monday afternoon. 

What was behind the Court’s action? Several theories make sense. The conservatives wanted to kick the can down the road until President Ted Cruz could replace Justice Ruth Bader Ginsburg. The liberals wanted to kick the can down the road until same-sex marriage was boring and routine in most of the country. Chief Justice John Roberts didn’t want to be on the wrong side of history but couldn’t bring himself to vote with the liberals. Justice Ginsburg didn’t want to repeat the trauma of Roe v. Wade and let the Court get too far in front of the country. All are plausible. 

Ultimately, at the Supreme Court, what matters is the result, not the motives. So, because of Monday’s non-decision decision, gay people in thirty states, representing well more than half the country, will now enjoy the right to marry. A decade ago, marriage equality existed only in Massachusetts. It is a remarkable legal and social transformation—an astonishing victory for progressive legal thought and action.

Democrats are assholes too

Kocherlakota

Kocherlakota 

Why do I see symmetry as important? Without symmetry, inflation might spend considerably more time below 2 percent than above 2 percent. Inflation persistently below the 2 percent target could create doubts in households and businesses about whether the FOMC is truly aiming for 2 percent inflation, or some lower number. This kind of unmooring of inflation expectations would reduce the effectiveness of monetary policy as a mitigant against adverse macroeconomic shocks. 

Second, I believe that the FOMC should consider articulating a benchmark two-year time horizon for returning inflation to the 2 percent goal. (Two years is a good choice for a benchmark because monetary policy is generally thought to affect inflation with about a two-year lag.) Right now, although the FOMC has a 2 percent inflation objective over the long run, it has not specified any time frame for achieving that objective. This lack of specificity suggests that appropriate monetary policy might engender inflation that is far from the 2 percent target for years at a time and thereby creates undue inflation (and related employment) uncertainty."

(via Thoma)

Krugman on Wolf

Why Weren’t Alarm Bells Ringing? by Paul Krugman

Piketty

Thomas Piketty, Heather Boushey, and Anwar Shaikh at the New School of Social Reseach in New York.

cybernetic socialism

The Planning Machine: Project Cybersyn and the origins of the Big Data nation. by Evgeny Morozov

Thunderheart

Great movie.







"He wants to know if you ever watched Mr. Magoo. He says he's not to be trusted. He's crazy. He says Magoo needs to go up on the mountain and get himself focused."

Obama

Dean Baker sends us to Fred Hiatt

Podesta was highlighting President Obama’s speech at Northwestern University on Thursday in which he declared fiscal victory and an end to the “mindless austerity” and “manufactured crises” of Washington budget debates.

 I was pretty mad about the strenghening dollar but this has been overlooked.

Brazil

Why Dilma Rousseff Could Win Brazil’s Presidential Election by Mark Weisbrot

"This return to growth, plus the government’s use of increased revenues to boost social spending, has reduced Brazil’s poverty rate by 55 percent and extreme poverty by 65 percent. For those in extreme poverty, the government’s internationally renowned conditional cash transfer program (Bolsa Familia) provided 60 percent of their income in 2011, up from 10 percent in 2003. A hefty increase in the minimum wage – 84 percent since 2003 after adjusting for inflation – also helped quite a bit. 

Unemployment has fallen to a record low of 4.9 percent; it was 12.3 percent when Lula da Silva took office in 2003. The quality of jobs has also increased: the percentage of workers stuck in the informal sector of the economy shrank from 22 to 13 percent."

The Knick and Jerrod Carmichael

I Changed My Mind About The Knick by Emily Nussbaum

First she thought it was too political and preachy AND it didn't have enough of the female or black perspective. But now she's on the bandwagon so good for her. As Keynes said "When the facts change, I change my mind."

Jerrod Carmichael's HBO special was good. Shot by Spike Lee. Here's a good taste:




And I have a schoolboy crush on Sarah Silverman.

Steampunk - The Knick

AV Club reviews The Knick: “Working Late A Lot”

Obama recovery and wages

When Will the Obama Recovery Start Helping Democrats? by John Cassidy

Last month, in a post about the new census figures, I argued that the stagnation in wages is the defining fact about modern American politics. But it’s also a phenomenon that goes back a long way—to the Reagan years and beyond. Between 1969 and 1980, the median household income barely grew at all. (In inflation-adjusted 2013 dollars, it went from $47,124 to $47,668.) After the steadily rising living standards of the postwar decades, this stagnation came as a big shock to Americans, and it helps to explain the political backlash that Reagan rode to power. For the first two years of his Presidency, the economy was in recession and the median household income actually fell. But from then on, it started to grow. Between 1983 and 1988, when his second term ended, it went from $46,425 to $51,514—an increase of about eleven per cent. 

Rising incomes are what really distinguished the Reagan recovery from the Obama recovery, and that, I suspect, is why the two Presidents enjoyed such different political fortunes. (According to Gallup, Reagan’s average approval rating during his second term was 55.3 per cent. That’s about ten points higher than what Obama has averaged so far in his second term.)

and Democrats lose the Senate

What fuckers.

As Fed Retreats From Stimulus, Central Banks Overseas Expand Theirs by BINYAMIN APPELBAUM, JACK EWING and NEIL GOUGH

WASHINGTON — As the growth of the United States economy outstrips the rest of the developed world, American policy makers are allowing Europe, Japan and even China to seek a little more prosperity — at the expense of Americans.

The Obama administration and the Federal Reserve have watched quietly in recent years as foreign governments and central banks have chipped away at the dollar value of their currencies, strengthening their export industries in the hope of stimulating their economies.

The trend is likely to intensify over the next year as the Fed retreats from its own stimulus campaign while the European Central Bank and the Bank of Japan expand their efforts. Mario Draghi, the head of the European Central Bank, said on Thursday that it would begin a new round of bond purchases this month.

The United States has long argued that markets should determine the value of currencies and criticized nations that try to manipulate exchange rates. The current silence reflects both the simple reality that the American economy needs less help than the rest of the developed world and the judgment of officials that the United States would benefit greatly from stronger global growth. That, they say, would be true even if, in the short term, it makes the country’s goods a little harder to sell and jobs a little harder to find.

You’re seeing American officials turn a blind eye to Mario Draghi talking down the euro, and turn a blind eye to interventions by the Chinese, because in both cases they’re making the judgment that having a stabilized situation and decent growth prospects in these countries is far more important,” said Adam Posen, president of the Peterson Institute for International Economics. “I tend to agree with that.”

American leaders have embraced and celebrated a strong dollar as evidence of a strong economy. It lets Americans buy more foreign goods and borrow more cheaply from foreign countries. It also may draw foreign investors to American financial markets, supporting the rise of asset prices.

But the rise of the dollar carries large risks, too. It makes it harder for American companies to sell goods and services. It may be contributing to the sluggish pace of domestic inflation. And some economists warn that letting the dollar rise is not a sustainable method of encouraging growth.

“A strong dollar, fueled by higher U.S. interest rates, will likely expose vulnerabilities in other parts of the world,” Stephen King, chief global economist at HSBC, wrote in a research note on Thursday. “Latin American countries already flirting with recession would certainly not welcome a tightening of U.S. monetary conditions.” Some economists said the United States should seek to limit the dollar’s rise through diplomacy and policy, and that the Fed should seek to limit its divergence from other central banks by extending its stimulus campaign.

A recent report by the Bank for International Settlements, essentially the bank for central banks, also questioned the global benefits of a stronger dollar, predicting it would tighten financial conditions because foreign banks rely heavily on dollar funding.

Continue reading the main story

But Stephen Cecchetti, a professor at Brandeis University, said the world had a strong interest in Europe’s health. “It’s going to create some instability, but the alternative is worse,” said Mr. Cecchetti, former chief economist of the Bank for International Settlements. “You don’t want to be around if there’s a real depression in Europe.”

The central bank still has not fully deployed the arsenal of a modern central bank to improve growth in Europe. It has refrained from the large-scale purchases of government debt undertaken by the Fed, the Bank of Japan and the Bank of England.

But in recent months it has sought to push down the value of the euro through a variety of measures. In September, the central bank offered loans that were practically interest-free to commercial banks that promised to lend the money to businesses and consumers.

On Thursday, after a board meeting Naples, Italy, the central bank outlined a two-year plan to buy private sector assets, including bank loans packaged into securities. “These purchases will have a sizable impact,” Mr. Draghi said at a news conference after the meeting.

One euro, which bought $1.39 in April, bought only $1.26 at the end of September. “We needed to bring the euro down and we still need to bring the euro down,” Christian Noyer, a central bank board member from France, said in a recent interview with the French broadcaster Radio 1.

While such efforts are usually aimed at increasing exports, the central bank is focused on imports, too. A weaker euro raises the price of imported fuel and other products, which could help budge inflation. Prices in the eurozone last month increased at an annualized rate of just 0.3 percent, far below the 2 percent pace the central bank and other major central banks in the developed world regard as best for sustainable growth.

“This is a currency war where stealing inflation rather than growth is the goal,” economists at the British bank HSBC wrote in a report published on Wednesday. The question, they said, “is whether the U.S. economy can generate sufficient inflation internally to tolerate the deflationary impact of a stronger dollar.”

So far, American officials primarily seem frustrated that the European Central Bank continues to act slowly. James Bullard, president of the Federal Reserve Bank of St. Louis, last year became the rare official to call publicly for stronger action when he told an audience in Frankfurt that the central bank should buy government bonds.

Another question is whether the programs will provide a sufficient jolt. A similar lending program started by the Bank of England in 2012 has not reversed the decline in small-business lending in that country.

“Nobody’s hiring, nobody’s investing, nobody’s spending,” said Stefano Micossi, the director general of Assonime, an Italian business group. “There is no demand for credit. The system is not constrained by the funding side. The banks are awash in liquidity.”

Japan, which has been grappling with the problems confronting Europe for more than two decades, is also seeking growth through currency moves. Under the “Abenomics” stimulus campaign that Prime Minister Shinzo Abe began in early 2013, the Bank of Japan has agreed to double the money supply, and the price of yen in dollars has dropped by about 24 percent.

The results have not met expectations. Japan’s trade deficit has increased while inflation remains weak. The Japanese economy shrank by 7.1 percent in the second quarter after a sales tax increase.

The country’s struggles may show the limits of devaluation, according to Mr. Posen of the Peterson Institute. He noted that demand was less sensitive to small changes in price for the kinds of high-end goods that dominate the exports of Japan and other developed countries.

The government remains publicly committed to its stimulus campaign. But some analysts see signs of tension between the head of the bank, Haruhiko Kuroda, and politicians who are wary that the rise in import prices will provoke consumer resistance.

“Kuroda is much more powerful than other board members for sure, but not necessarily than politicians,” said Hiromichi Shirakawa, Japan economist at Credit Suisse in Tokyo and a former central bank official. “This is scary as the markets have been expecting additional easing by the bank within a couple of months.”

China’s economic rise was built on the suppression of its currency to support cheap exports at the expense of domestic consumption. Then, beginning in 2010, China let the renminbi rise about 20 percent against the dollar as part of its effort to encourage a transition away from export-led growth. But this year, with the economy growing at the slowest pace in more than a decade, China once again pressed down on the renminbi. Its value has fallen about 2 percent against the dollar so far this year.

“It was a way to stimulate the economy without resorting to full blown credit and investment-driven stimulus,” said Diana Choyleva, the head of macroeconomic research at Lombard Street Research in London.

While that small change has prompted little criticism from the United States, the looming question is whether China will continue.

During the financial crisis, China’s government-controlled banking system pumped money into the economy, doubling its assets over a five-year period. Many companies and local governments are now struggling to repay those debts, and authorities are reluctant to treat the pain with another major burst of lending.

Yu Yongding, a senior fellow of the Chinese Academy of Social Sciences in Beijing and a former member of the central bank’s monetary policy committee, said it was imperative for the P.B.O.C. not to blink.

“China needs to adjust its economic structure urgently,” Mr. Yu said. “The combination of the high leverage ratio, high financing costs and low profitability is a serious threat to China’s financial stability.”

But Mr. Yu said the bank might be required to take new steps if the outlook darkened. Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch in Hong Kong, said further devaluation had obvious attractions. Noting the appreciation of the currency since 2010, Mr. Colquhoun said, “The authorities might think they could give some of that back through the renminbi in the event consumption faltered.”

NGDP futures market

Out of the Dark Ages: the first step by Scott Sumner

I’m finally ready to announce the first step in creating an NGDP future market.

Dan Davies

Bedtime for market efficiency by Dan Davies

"People have been calling on the economics profession to make some fairly serious revisions to the way the subject is taught.... I think there’s one thing that really can’t be denied: when this particular phoenix rises from the flames, it ought to leave the Efficient Markets Hypothesis back in the ash pit.... Efficient markets gets a chapter of its own in John Quiggin’s Zombie Economics as an idea that won’t go away, no matter how thoroughly it’s refuted.... The temptation will be to try and avoid going “cold turkey” on efficient markets, by reducing the overarching claims, but hanging on to the general story that markets are 'broadly efficient'.... The hypothesis that there is no information in the past history of share prices which can be used to predict the future... doesn’t work.... Companies like AQR have been offering funds based on them, and generally outperforming, for ages. And when you get to anything stronger than the very-weak form versions, the performance is really quite embarrassing. Robert Shiller’s share of the Nobel Prize was for noticing that securities prices are, in general, much too volatile to make sense as forecasts.... DeLong, Summers, Shleifer & Waldmann have shown that there is no real theoretical basis to the idea that 'traders competing against each other make markets efficient'--it’s just as likely that they create meaningless volatility. Market prices are... a weighted average of the views of a large group of well-resourced and intelligent people with an incentive to get things right. But nobody would build a theory of politics around the infallibility of opinion polls.... All that’s really left of market efficiency is a sort of woolly idea that 'it’s difficult to make money in the stock market'. Which it is, but it’s pretty difficult to make money in any other way too, a fact which has fewer implications for fundamental economic truth than you’d think..."

 (via DeLong)

New Classical economics

Explaining the Hegemony of New Classical Economics by David Glasner

Gone Girl

Gone Girl is one of the best movies ever made about marriage by Todd VanDerWerff

Affleck leans into his inner lunk to make Nick a bit of a doofus who only realizes how everybody else in the world sees him far too late. He's good here, as good as he's been on screen. But it's Pike whom audiences will be talking about and arguing about and discussing long after they've screened the film. She seizes hold of Flynn's conception of a woman slowly losing control over her own narrative with gusto, and Fincher reacts splendidly. There's a sequence around the midpoint — a monologue where Amy lays out everything that Nick has made her become over the course of their marriage — that might be the best thing the director has ever done. It's exhilarating and terrifying and nauseating, the roller coaster of that big fight at 3 a.m. that nearly ended everything, then somehow ended back in safe harbor, encapsulated in one woman's words.

....
"What have we done to each other?" Nick asks as the film begins, and at its heart, Gone Girl knows that for all of the blood shed and all of the horrors uncovered, the worst thing Nick and Amy ever did was assume the other would allow them to be the protagonist in the story of their lives. And as the whirlpool opened, each found, to their horror, the other swimming not to support them but for the opposite side of the drain.

AIG bailout

The A.I.G. Trial Is A Comedy by John Cassidy

Rather than hauling those three musketeers into Judge Thomas Wheeler’s court, which his lawyers will do next week, Greenberg should be taking them out to dinner. The only mystery about the lawsuit is why Wheeler allowed it to proceed this far. In 2012, Judge Paul Engelmayer, a federal judge in New York, tossed out a similar case, noting that A.I.G.’s board had voluntarily agreed to the terms of the September, 2008, bailout, seeing it as the only option to avoid bankruptcy. For whatever reason, Wheeler, whom George W. Bush appointed to the bench in 2005, decided that the case raises sufficient legal issues to proceed. 

Perhaps he is taking seriously Boies’s contention that the bailout violated the Fifth Amendment, which prevents the federal government from seizing private property without proper compensation. But, of course, this wasn’t a seizure—it was a bailout. Or perhaps Wheeler wants to explore whether the Fed overreached the lending authorities that Section 13.3 of the 1932 Federal Reserve Act grants it. There’s no doubt that this statute was drawn up vaguely, but that was deliberate. During the Great Depression, as in September, 2008, the Fed faced a potential cataclysm, and it needed some freedom to maneuver, which Congress granted it.

Person of Interest

AV Club reviews Person Of Interest: “Nautilus”

Bill Gross

Over at Equitable Growth: Why Was Bill Gross so Certain Interest Rates Were on the Rise Back in February 2011?: Tuesday Focus for September 30, 2014 by DeLong

The Pimco Perplex by Krugman

It’s fairly clear that the events of 2011 are a large part of the story of Bill Gross’s abrupt departure from Pimco; as Neil Irwin says,

A disastrous bet he made against United States Treasury bonds in 2011 led to three years of underperformance and billions in withdrawals.
And Joshua Brown has some choice quotes:

Gross compounded the move by being extremely vocal about his rationale – he went so far as to call Treasury bonds a “robbery” of investors given their ultra-low interest rates and the potential for inflation. He talked about the need for investors to “exorcise” US bonds from their portfolios, as though the asset class itself was demonic. He called investors in Treasury bonds “frogs being cooked alive in a pot.” 

But why was Gross betting so heavily against Treasuries? Brad DeLong tries to rationalize Gross’s behavior in terms of a coherent story about an impending U.S. recovery, which would lift us out of the liquidity trap. But Gross wasn’t saying anything like that. Instead, he was claiming that the Fed’s asset purchases — QE2 — were holding rates down, and warned that the impending spike in rates when QE2 ended would derail recovery. 

So why did he believe all that? It all comes down, I’d argue, to liquidity trap denial. 

Since 2008 the basic logic of the economic situation has been that the private sector is trying to run a huge surplus, and the public sector isn’t willing to run a corresponding deficit. The result is an economy awash in desired savings with nowhere to go. This in turn means that budget deficits aren’t competing with private borrowing, and therefore need not drive up interest rates. This isn’t hindsight; it’s what I and others have been saying since the very beginning. 

But a lot of people — politicians, of course, but also a lot of people in finance — have just refused to accept this account. They have clung to the view that budget deficits must lead to higher interest rates. You might think the failure of higher rates to materialize, year after year, would cause them to reassess — indeed, would have caused them to reassess years ago. 

Instead, however, many of them made excuses. Above all, the big excuse was that rates would have gone higher if only the Fed weren’t buying up the stuff. So QE2 acquired a much bigger role in their thinking than it deserved, leading to confident predictions of soaring rates as soon as it ended. And Gross put his money — and more importantly, his investors’ money — where his mouth was. 

And he was wrong. QE2 ended, and nothing happened to rates. 

You can see why I found Gillian Tett’s apologia for Gross — that he was blindsided by central bank intervention — frustrating. For one thing, that’s accepting a model that has failed with flying colors; but beyond that, Gross’s really bad call was almost exactly the opposite, his claim that rates would soar when the Fed’s intervention ended. 

As I’ve said, Gross of all people shouldn’t have fallen into this trap, since his own chief economist understood liquidity trap logic better than almost anyone. But finance people seem weirdly determined to believe in a macro canon whose hold on their perceptions appears to be completely unbreakable, no matter how much money it causes them to lose.

inequality and demand

Inequality and demand by Steve Randy Waldman

JFK and Masters of Sex

Masters Of Sex: “The Revolution Will Not Be Televised”

They show part of JFK's 1961 inaugaration speech and he goes on about how prosperity doesn't depend on the generosity of the state but come from God. It didn't start with Ronnie Raygun. Reminded me about the hopefulness about Obama and how it's been a disappointment. SNL's new News Update segment ended with a joke about a street named after Obama and how parents would warn their kids not to travel north of that street.

SNL skit

SNL "Bad Boys" skit with Chris Pratt, Kyle Mooney, and Beck Bennett

Sketch with Andrew Garfield

the rich are ruthless

Unmentioned Myth About Billionaires: They Know Anything About Public Policy by Dean Baker

The Washington Post treated us to "five myths about billionaires" this morning. Incredibly, they missed the most obvious one: that billionaires know anything special about what is good for the country and the world. 

Most billionaires (at least those who didn't inherit the money) are probably smart and hard-working, but so are millions of other people. What most distinguishes someone like Bill Gates from the hundreds of thousands of other software entrepreneurs is luck and sharp elbows. Suppose IBM had refused to allow Gates to keep control of the Dos operating system? Gates might still be very rich, but certainly not the richest man in the world. Alternatively, if the government still enforced anti-trust laws Microsoft might have faced serious penalties for engaging in textbook anti-competitive practices to get and keep a near monopoly in operating systems, Gates also would not have the fortune he has today. 

Anyhow, there is no reason to think that Gates' luck and ruthlessness make him particularly competent to pass judgement on world poverty, education, or any of the other issues for which he is now viewed as an authority. The same applies to the other billionaire policy types cited in the piece. While these people obviously have the money to ensure that their views carry force in the world, there is no more reason to think that these billionaires' judgements on public policy carry particular value than the judgements of people who win the lottery.

the cliff

dilbert dogbert comments over at DeLong:

"Re: "Last week, Fisher argued that a so-far unpublished (i.e. secret) paper by his staff showed that “declines in the unemployment rate below 6.1 percent exert significantly higher wage pressures than if the rate is above 6.1 percent.” 

First we had the 90% cliff and now we have the 6.1% cliff. OMG! Where are the grad students when we need them?"

Dorothy Parker quote

Dorothy Parker in the 1956 Paris Review:

At the moment, however, I like to think of Maurice Baring’s remark: “If you would know what the Lord God thinks of money, you have only to look at those to whom he gives it.” I realize that’s not much help when the wolf comes scratching at the door, but it’s a comfort.

Wikiquote:

Man and the Gospel (1865) by Thomas Guthrie "and you may know how little God thinks of money by observing on what bad and contemptible characters he often bestows it." 

“We may see the small Value God has for Riches, by the People he gives them to.” -- Alexander Pope (1727).

 And via MaxSpeak:

“In Capital in the Twenty-First Century, French economist Thomas Piketty documents how wealth is becoming concentrated in ever fewer hands. 

This might not be a problem, were it not that capital is increasingly owned by shitheads.” 

— Harry Hutton

Charles Evans

Weekend Reading: Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy by DeLong

Steampunk - The Knick

AV Club reviews The Knick: “Get The Rope”

macro

The entirely predictable recession by Simon Wren-Lewis

How did America's austerity beginning in 2011 compare? How did QE compenstate?

The Dismal Science 'Seven Bad Ideas,' by Jeff Madrick reviewed by Paul Krugman

Nicholas Nickleby

Nicholas Nickleby

With Charlie Hunnam who's in Sons of Anarchy and was in Pacific Rim. And Jamie Bell who is in TURN. And Jim Broadbent, Christopher Plummer, Romola Garai, Anne Hathaway, Nathan Lane and Alan Cumming.

Jupiter Ascending

the rich's hypocritical attitude

Cartoon: Unemployment isn't a bug -- it's a feature by Reuben Bolling

Legends and Hitchens

Legends is a show on TNT starring Sean Bean as an undercover FBI agent. It also has Tina Majorino who was in Veronica Mars and other shows. In the latest episode Bean's cover is as a journalist who is exactly like Hitchens: "contrarian, a drinker, etc." except for one thing: he isn't very prolific. He goes undercover to get close to a woman who resembles Ayaan Hirsi Ali, who is suspected of possibly being involved in an upcoming hit on a Saudi prince, haha.

Person of Interest

Why X-Files fans owe it to themselves to check out Person of Interest by Todd VanDerWerff

Lake Michigan

Heaven is a switchboard that you want to fight
She would even miss you if you taught her sight
Power politician leaning to the right
Baby's got a trust fund
That she'll want to go off like that
Get off of my stack
Leave a little window
Get off of my stack

Charles Evans

Patience Is a Virtue When Normalizing Monetary Policy by Charles Evans

Piketty

video of Heidi Moore, Tyler Cowen, Bob Solow, Russ Roberts and DeLong on Piketty

focus groups

Liza Featherstone on Focus Groups by JW Mason

household income

Median Household Income Began to Stagnate in 1980, not 2000 by Dean Baker

Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers. 

While Edsall's discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers: 

"Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household income abruptly stopped keeping pace with economic growth and has fallen steadily behind then." 

While median household income did keep pace with economic growth from 1993 to 1999, it actually lagged far behind in the years from 1978 to 1993. Over this period real per capital income rose by 30.0 percent, while median household income barely changed. This divergence of median income from growth was associated with an upward redistribution of wage income, with high end earners (e.g. Wall Street types, CEOs, and doctors) gaining at the expense of most workers. 

In this period, most college graduates (@ 25 percent of the workforce at the time) were among the winners. By contrast, in the period since 2000 only workers at the very top of the income distribution and owners of capital have been winners.

America Out of Whack by Thomas Edsall
I asked Shawn Fremstad, a senior fellow at the Center for American Progress, a pro-Democratic think tank, to address current income and wealth disparities, and he wrote back by email:

“a big-picture solution involves higher marginal income tax rates for the top 1 percent and some sort of wealth tax on the top of the top, combined with stronger labor market institutions (minimum wage, unions, paid leave/sick days/vacations, etc.).”

We need wage inflation and full employment via demand management (fiscal, monetary, trade/currency) policy.

Yglesias:

Obama's biggest economic policy mistake

Blame Obama for bad monetary policy, not Republicans

Sarah Silverman

AV Club interview: Sarah Silverman talks boobs, and answers our 11 questions

SS: I did this interview for various reasons. One: I’m a fan of The A.V. Club. That’s always who I look up to look at television reviews. Two: I have a love-hate withThe A.V. Club because they broke my heart many times reviewing my show. And three: I’ve got a record coming out! Come on! The We Are Miracles album comes out September 22. September 23 worldwide.

Piketty

Piketty's Fence by Jeffrey Frankel

Thomas Piketty has power that heterodox economists never had by Ingrid Robeyns

Piketty and the Money View: A Reply to MisterMR by JW Mason

To own a piece of land means you have certain legal rights with respect to other people — to exclude them from the use of that land, to receive some equivalent from them if you do permit use of the land, to transfer those rights to someone else — and that no one else has those rights with respect to you. However, that’s only the first step. Next, we have to recognize that what constitutes “use” of piece of an asset is not a physical fact, but a social one. (As in the old story, the baker can exclude others from eating his rolls, but not from enjoying the smell of them.) So it would be more accurate to say that ownership of a piece of property is simply a form of social authority — a bundle of rights over other people. Indeed, if we want to relate the world of money flows to broader social reality, the most fundamental fact is probably this: The person who receives a money payment labeled “profit” gives orders, and the people who receive money payments labeled “wages” have to follow them. To say you own a piece of property is simply to say there is a set of commands that, if you issue them, other people are compelled to obey. Those rights are metonymously referred to by a label which bears a picture of some tangible good, just like the insignia on an officer’s uniform bear a picture of a leaf or a bird.

austerity vs. monetary policy

The Love Affair Conservatives Should Be Having by David Beckworth

UBI

Economic security and “the great disturbing factors of life” by Max Sawicky

Why Not Just Mail Out Checks? by JW Mason

"savings glut" explanations

Losing Interest by Barry Eichengreen

Stone Roses

Reminds me of Fall, or puts me in a Fall mood.

debt

The lessons of student debt by Gillian Tett

old Keynesian critique

Milton Friedman’s economics and political economy: an old Keynesian critique by Thomas Palley

Steampunk - The Knick

AV Club reviews The Knick: “Start Calling Me Dad”

Woodford

Minneapolis interview with Michael Woodford

You're the Worst

AV Club reviews You’re The Worst: “Fists And Feet And Stuff”

UBI

The political economy of a universal basic income. by Steve Randy Waldman

Scotland and the Global elites

Scotland’s Independence Vote Shows a Global Crisis of the Elites by Neil Irwin

The Fed

The Fed and Inequality by Dean Baker

Obama's biggest economic policy mistake by Yglesias

Blame Obama for bad monetary policy, not Republicans by Ygelsias

Federal Reserve resists hawkish signal, continues to view economy as needing their monetary support…and that’s as it should be. by Jared Bernstein

The Fed is out with their statement and the words “considerable time” live to see another day!

wtf Scotland edition

Clive Crook says yes while Niall Ferguson says no.

regulation and IT

One bank’s cost is another firm’s revenue by Dan Davies

New Left Review criticizes Lords of Finance

War, Crash, Slump by Tom Mertes

Keynes and the Macmillan committee by Simon Wren-Lewis

1926 United Kingdom general strike

Scotland

DeLong tweets

.@cstross (1/2) a vote for “yes” is a vote to abandon the progressives of England to a state where UKIP & Tories command 60% of the vote!” 

.@cstross (2/2) progressive internationalism requires a “no” vote! (Also that Canada agree to its annexation by Merka)…

Ugh Niall Ferguson pushed me towards Yes, but now DeLong has pushed me back towards No.

Obama and education

Want to Fix Obama's Bad Education Policy? Start With These Two New Books: The problem with the Left's embrace of center-Right policies by Richard D. Kahlenberg

What the Chicago mayor's race says about the future of education politics updated by Libby Nelson

economic debate

Influencing the Debate from Outside the Mainstream: Keep it Simple by Dean Baker

Ultimately what killed the Boskin Commission report was the refusal of Richard Gephardt, the leader of the Democrats in the House to go along with the plan.[6] His opposition was key, because Gephardt was the most credible challenger at the time to then Vice-President Al Gore for the Democratic Presidential nomination in 2000. There was no better issue that Gephardt could have been given in the Democratic primaries than a cut in Social Security benefits. Gephardt could point to Gore as the person who cut your Social Security benefits, while he was the guy who tried to stop him. 

Without Gephardt’s buy in, Clinton was not about to go forward. It also helped that the stock bubble and faster than projected growth led the deficit to fall much more than had been projected. It is worth noting that in spite of the near unanimity of the leading lights in the economics profession on the existence of a large bias in the CPI, the Bureau of Labor Statistics did not take steps to correct most of the bias identified by the Boskin Commission. The Government Accountability Office surveyed the four surviving members of the Boskin Commission in 2000. (Zvi Grilliches had died the prior year.) In their assessment, more than 0.8 percentage points of the bias they identified in the CPI remained even after BLS had made a series of changes in the index.[7] Yet few economists take account of this bias in their work or in discussions of economics policy.

...

This was a simple way to show the 7.0 percent assumption was nonsense. Either price to earnings ratios would have to rise into the hundreds or it would be necessary to have stories of the whole corporate sector paying out more than their 100 percent of their after-tax profits in dividends. No self-respecting economist wanted to be associated with either of these positions. 

We first posted this challenge on our website, however we were already in the early days of the blogosphere. Many progressive econ bloggers soon picked it up. This led to howls of anguish and outrage by conservatives. Some threw in the towel and acknowledged that it could not be done. Others wanted to change the assumptions so that we had more rapid GDP growth or a shift in income from wages to profits. 

Finally Paul Krugman blasted the test into the national debate with a column in early February.[11] This exposed the fact that the privatizers were essentially just making up numbers. By showing there was no pot of gold in the private accounts, we were able to take the money out of it for typical workers. This drove home the point that there was no real potential for gain with privatization along the lines being proposed, just additional risk. This helped prevent the privatization plan from gaining any momentum. By the spring, most Republican members of Congress were running away from privatization as fast as they could.

Stross on Scotland

Charlie Stross on the Scottish referendum.

In the long term I favour a Europe—indeed, a world—of much smaller states. I don't just favour breaking up the UK; I favour breaking up the United States, India, and China. Break up the Westphalian system. We live today in a world dominated by two types of group entity; the nation-states with defined borders and treaty obligations that emerged after the end of the 30 Years War, and the transnational corporate entities which thrive atop the free trade framework provided by the treaty organizations binding those Westphalian states together.

...

One final note: what about left-internationalism? Isn't nationalism the enemy of the working class? (And to the extent that all of us who aren't in the 0.1% are "working class"—if you have to work to earn a living, you're working class, even if you're a brain surgeon or an accountant—the enemy of all of us?) Well yes: but the kind of nationalism that brought us the Great European War (for the Second World War may best be viewed with the perspective of long-term history as simply a flare-up of the war that began in 1914, after the combatants time out to breed a new generation of cannon-fodder) is pretty much dead. As dead as the Westphalian states that had territorial integrity they could defend, because getting from one to the other still took days or weeks by railway or steam ship, and invading another from the one took days or weeks of marching infantry divisions. Nor is the working "class" still obviously an entity you can point at, with which people share a strong sense of solidarity: where is the solidarity between lawyer and street-sweeper, nursing home care worker and robot designer? Yes, capitalism and the crisis of capitalism is still with us: but the continuing and ongoing recomplication of the world around us makes the traditional movement of masses one of questionable relevance. We need better structures, it's true. But I don't see them emerging from the kind of monolithic, territorially hegemonic state that thinks its place in the world is best secured by building bigger aircraft carriers. Firepower doesn't build external stability, as the past decade in Iraq demonstrates beyond a shadow of a doubt. We need consensus, and we need a finer granularity of constitutional decision making. Hence smaller nation-states.

Arya Stark talks with Thoros of Myr and Beric Dondarrion

Youtube link, ebedding disabled by request

Scotland and TV

AV Club reviews Outlander: “The Garrison Commander”

AV Club reviews Doctor Who: “Listen”

Capaldi is Scottish.

But “Listen” suggests something even scarier: Lurking underneath that daffy curiosity and sense of adventure that so animated his immediate predecessors is an obsessive need to know everything, to take the unknown and the unknowable and bring it all to heel. As Clara suggests toward the end of this episode, it’s okay for the Doctor to be scared. What’s not okay—and what’s absolutely, captivatingly terrifying in the hands of Capaldi—is that he won’t admit that he’s just afraid for no good reason.

Scotland

Krugman and Wren-Lewis worry about the Euro disaster replicating itself in London.

The radical Left:

"So what, then, are socialist arguments for independence that would meet these requirements? The most obvious is the possibility of breaking up the British imperialist state."

A referendum called while the occupation of Afghanistan was still ongoing, with the Iraqi and Libyan interventions a recent memory, is inseparable from the arguments against these wars and the British state’s subordinate alliance with the American empire. Scottish secession would at the very least make it more difficult for Britain to play this role, if only by reducing its practical importance for the US.

Why Scotland Should Vote Yes by Neil Davidson

I guessed correctly. No Tony Blair poodle. American imperialism isn't great but Chinese or Russian imperialism won't be better and will probably be worse.

Steampunk - The Knick

AV Club reviews The Knick: “They Capture The Heat”

NGDP path level targeting

Level versus Growth Targeting by Scott Sumner

Here’s Lars Christensen:

In fact I am pretty sure that if somebody had told Scott in July 2009 that from now on the Fed will follow a 4% NGDP target starting at the then level of NGDP then Scott would have applauded it. He might have said that he would have preferred a 5% trend rather than a 4% trend, but overall I think Scott would have been very happy to see a 4% NGDP target as official Fed policy. 

Actually I would have been very upset, as indeed I was as soon as I saw what they were doing. I favored a policy of level targeting, which meant returning to the previous trend line. 

Now of course if they had adopted a permanent policy of 4% NGDP targeting, I would have had the satisfaction of knowing that while the policy was inappropriate at the moment, in the long run it would be optimal. Alas, they did not do that. The recent 4% growth in NGDP is not the result of a credible policy regime, and hence won’t be maintained when there is a shock to the economy. 

However I do agree with Lars that the Fed has done much better than the ECB.

Piketty & the euthanasia of the rentier

Piketty and the Money View by JW Mason

social insurance

In defense of social insurance by Max Sawicky

macro, Keynes and monetarism

Their Own Imaginary Keynes (Wonkish) by Krugman

IS-LM as “Obfuscation”? No: Thursday Focus for September 11, 2014 by DeLong

Nick Rowe on Money and Coordination Failures by David Glasner

What Is Special About Recessions in a “Monetary Economy”: Trollng Nick Rowe: Wednesday Focus for September 10, 2014 by DeLong

Adam Posen on the Old Normal

(via DeLong)

universal basic income

Preferences vs Interests by Chris Dillow

America is running out of jobs. It's time for a universal basic income. by Ryan Cooper

The Replacements

By chance I caught the reunited Replacements playing on Jimmy Fallon's show which was weird.

Veronica Mars

Okay, Kristen Bell has gone way up in my book. I saw the Veronica Mars movie on HBO and since then have been watching the TV show. My future dream project is a steampunk The Knick-Outlander mashup about Ada Lovelance, but instead of being exactly like the Outlander heroine she'd be more like the witty, melancholic class warrior of Veronica, a teenage outlook in an adult body. But with computer smarts so a combo Veronica-Cindy "Mac" Macenzie. I'll have to check if that squares with the historical Lovelace.