Republican Keynesianism

Reaganomics

Bush tax cuts (which Paul Ryan supported)

Bush's 2008 stimulus

The Military Spending Fairy by Dean Baker

A Brief History of Europe

1) Germany inflicts a Carthaginian Peace on France.

2) France inflicts a Carthaginian Peace on Germany.

3) The U.S. enacts the Marshall plan (while warily watching Stalin and the Soviet Union).

4) Soviet Union collapses

5) Together, France and Germany inflict a Carthaginian Peace on Greece, Ireland, Portugal, Spain, Italy, etc.

Carthaginian Peace

John Cassidy has a good interview about his New Yorker piece on Keynes. The article is now available. 

(via Mark Thoma)

Cassidy uses the phrase "Carthaginian peace" in the context of discussing what Keynes would think about Greece. In Cassidy's opinion Keynes would argue for debt relief since he described the Treaty of Versailles as a Carthaginian Peace and it lead to the rise of fascism. (The beatings will continue until morale improves or until you elect a demagogic, genocidal monster as your leader.)

From the Wikipedia entry:

Carthaginian Peace can refer to two things: either (1) the peace imposed on Carthage by Rome in 146 BC, whereby the Romans systematically burned Carthage to the ground, or (2) the imposition of a very brutal 'peace' in general.

Origin

The term refers to the outcome of a series of wars between Rome and the Phoenician city of Carthage, known as the Punic Wars. The two empires fought three separate wars against each other, beginning in 264 BC and ending in 146 BC.

At the end of the Third Punic War, the Romans laid siege to Carthage. When they took the city, they killed most of the inhabitants, sold the rest into slavery, and destroyed the entire city. As Tacitus wrote in a different context, quoting or paraphrasing the Caledonian chieftain Calgacus, "they make a wasteland and call it peace". Some modern accounts say they plowed over the city and sowed the ground with salt, but this is not supported by ancient sources.[1]

By extension, the term "Carthaginian Peace" can refer to any brutal peace treaty demanding total subjugation of the defeated side. 

Modern Use

Modern use of the term is often extended to any peace settlement in which the peace terms are overly harsh and designed to perpetuate the inferiority of the loser. Thus many (the economist John Maynard Keynes among them[2]) deemed the Treaty of Versailles to be a "Carthaginian Peace." The Morgenthau Plan, which was dropped in favor of the Marshall Plan (1948–1952), might be described as a Carthaginian Peace, as it advocated the 'pastoralization' (de-industrialization) of Germany following her 1945 defeat in World War II.

General Lucius D. Clay, deputy to general Dwight D. Eisenhower who in 1945 was military governor of the U.S. occupation Zone in Germany, and who would go on to replace Eisenhower as governor and as commander in chief, U.S. Forces in Europe, would later remark regarding the occupation directive guiding his and General Eisenhower's actions in occupied Germany: "there was no doubt that JCS 1067 contemplated the Carthaginian peace which dominated our operations in Germany during the early months of occupation."[3]

The key to reading Yglesias is that everything Clinton is good, everything Bush is bad and he'll fudge facts over it. 1992-2000 is utopia, 2001-2008 is hell on earth. DeLong is similar. Usually the key maneuver is to leave relevant facts out of the narrative.

Yglesias on globalization:

It seemed to me both then and now that the big problem with the global justice movement of that era wasn’t that the issues it was grappling with were too complicated for the average person to understand, it’s that the movement’s analysis was mistaken. The late 1990s were a very prosperous time for America. And the analysis that the spread of global capitalism to what we used to call “the third world” would be immiserating for those countries was wrong. China has not been immiserated. Nor has India. Nor has Brazil. Nor has Turkey. Africa’s just wrapped up a very solid decade. It’s true, as Dani Rodrik will tell you, that none of the development success stories (except maybe Chile) has come from a carbon copy implementation of the full Washington Consensus. But it’s even more true that none of the development success stories have come from developing a radical alternative to participation in a globalized market economy.

By contrast, the main analytic points of Occupy Wall Street and its offshoots are correct. Policymakers promised us broadly shared prosperity and macroeconomic stability. We didn’t get the former, and now we can see that we didn’t get the latter either. Having failed to deliver prosperity or stability, the global elite pivoted to the claim that owing to the lack of past prosperity it would be irresponsible to return us to macroeconomic stability without first cutting pensions. It’s crap, and people shouldn’t stand for it. And in America, at least, it’s already working. Conservative politicians are expressly talking about inequality, and the Obama administration has gone back to talking about aggregate demand instead of grand bargains. There’s more to life than being right, but being right helps a lot. And that’s the main difference here.

The Battle in Seattle was in 1999. Ralph Nader's third party candidacy was in 2000. 9-11 and Afghanistan in 2001 and Iraq in 2003.

The Greeks will agree with the anti-globalization protesters analysis of the IMF. (It was entirely predictable given that the IMF put Argentina through the ringer.) And global trade imbalances led to Bernanke's Global Savings Glut. Globalization and trade via corporate priorities on labor and the enivironment led us to where we are today.

I agree with Yglesias that trade is not the problem and capitalism has worked - sort of- in the BRIC countries like China, India and Brazil. But at what cost?

The anti-globalization protest movement, which was international also, was against corporate priorties at the expense of the 99 percent and the OWS movement is similar except its focus is Wall Street rather than the World Bank and IMF. All three are citadels of elite policy making.

I'll agree that the IMF has gotten better. Krugman has written about it. The IMF has done a 180 on capital controls and expansionary austerity. It's analyses are often reality based. Maybe the anti-globalization protests played some small part in the shift.

It's Consumer Spending, Stupid by James Livingston

Dean Baker comments:

While part of the story sounds very good -- reverse the upward redistribution from wages to profits -- some of the rest does not make sense. Yes, consumption has grown more than investment over the last century. That happens in every country as it develops. When it is poor, there is a real focus on building up the capital stock to get richer.

In China investment accounts for close to 50 percent of GDP now, compared to around 20 percent in the U.S. This doesn't change the fact that it is investment, not consumption, that provide the basis for productivity gains which will make the country wealthier in the future.

Also Livingstone tells us that we should not worry about the large trade deficit because many of the goods we import are made by U.S. owned companies. I understand how this helps the shareholders in these companies, but I can't see what this does for the rest of us.

The basic accounting identity here is inescapable. If we have a large trade deficit then must have either large budget deficits or negative private saving or some combination of the two. Over the long-run, that is not a pretty picture.

NGDP Targeting in Real Life by Karl Smith

Kelly Evans Strange Case Against NGDP Targeting by Yglesias

MMTer Kervick conjures up more arguments againt NGDP Targeting:

There is no reason in principle why you couldn't sustain a continuously growing economy in some country with 15% or 20% of the country's people permanently unemployed.

Seriously? You'd have massive deflation. There's a real relationship between employment levels and growth rates.

Another troll writes

"One of the great advantages of an NGDP target is that it combines prices and real output (which is to say employment) in a single index".

You can have high inflation and negative real GDP growth and still get to your target NGDP. Which tells you its a terrible benchmark.

Stephen Eldrige replies

You *could*, but there's nothing about the present situation that says we *would*. High levels of inflation right now would spur spending and investment rather than hoarding cash and also help highly-leveraged players deleverage, which would help real growth. It's hard to imagine a scenario right now where we get stagflation without a serious supply shock somewhere. Oil issues make that not impossible, of course...

The Problem with Competitiveness Is That We All Can't Win by Yglesias

Ryan Adams interview with Onion AV Club

AVC: But why pay attention to people on the Internet? You’ve reached a point in your career when you can pretty much do whatever you want, can’t you? 

RA: Yeah, I am doing what I want, but one of the interesting things about the Internet when you’re a musician is the sociology of the fans, the psychology of being a fan, and observing this negative and positively weird behavior. It’s kind of hard to explain this, but there’s this weird illness with people where it’s almost like they view their [favorite] artist as a football team or something, and all other artists are another team. [Laughs.] Or even sometimes, your records become sports teams. You put out a new record, and it’s like, “Tonight at Dodger Stadium, it’s the Easy Tigers vs. the Heartbreakers.” It’s super-competitive, and it’s a highly judgmental place for a place that should be free of judgment. My feeling about music is that it’s a place to go to get away from fucking negative creeps. And now, what’s really weird is that music is full of negative fucking creeps.

Same with the Left. From comments at Yglesias's blog post on NGDP level targeting:

Adam Short: I don't think that much of NGDP targeting in the abstract, but honestly it's a damn sight better than what we've got now. So, huzzah! Let's do it!

Steve LaBonne: At first blush it seems as though NGDP targeting would just end up providing cover for the reinflation of asset bubbles (and there's certainly a strong political constituency for that.) And that's not better than what we have now, it indeed helped to get us where we are now. Can you convince me that I'm wrong?

Adam Short: Steve LaBonne under our current system any recovery is going to reinflate asset bubbles. Asset bubbles are a natural consequence of our financial system.

So, do you really think not recovering is superior to recovering? If so, I guess I can't convince you.

Steve LaBonne: Adam Short I don't accept your premise. A properly designed Keynesian stimulus should increase inflation on a broad front rather than creating bubbles in particular sectors of the economy. Yes, I know we can't have that politically, so certainly new asset bubbles may be better right NOW than not doing it. But as a long-term policy (which is what the "targeting" implies")? Sorry, no. There, the only thing that will work is fixing the political system so that decently competent management of the economy is possible.

Translated:

Short: It's better than what we have now.

LaBonne: No it isn't. (it will just reflate asset bubbles, nothing more)

Short: A recovery is better than no recovery. (Any recovery will reflate asset bubbles.)

LaBonne: Yes a recovery is better than no recovery (admittedly my earlier comment was one hundred percent wrong). A Keynesian fiscal stimulus would be better (DID SHORT EVER SAY IT WOULDN'T?!?!? - ed.) But a long-term policy (WHICH SHORT SAID NOTHING ABOUT) targeting NGDP levels would be bad.

And negative fucking creep MMTer Dan Kervick comments:

NGDP targeting has a number of features that appeal to upper middle class knowledge elites:

It allows them to target increased inflation without saying "I want increased inflation."

It allows them to support backdoor debt deleveraging for the middle class without supporting the kind of moral hazard that offends bourgeois sensibilities.

It allows them depress the real wages of the most struggling members of our society, whom the knowledge elite believe are overpaid.

It allows them to avoid calling for any redistribution of income, the avoidance of which is a goal they share in solidarity with the very affluent.

Demanding the perfect in place of the good allows MMTers to name-call and insult others as sellouts so as to make themselves feel hardcore.

It allows them to continue believe what they will because their proposals will never see the light of day.

It allows them to keep unemployment at high levels because their policy proposals will never see the light of day.

What would Kervick say about Argentina's recent experience?

Krugman blogs about Dean Bakers commentary on a New York Times story:

Dean Baker is once again on the warpath over Argentina, this time over news reports that treat Kirchner’s reelection as somehow mysterious. The economy is booming and the opposition is hopelessly divided; how on earth did she win?

There is indeed a remarkable unwillingness in press coverage to face up to the reality that Argentina has done very well since its default and devaluation. Yes, there are problems. But there is a stunning contrast between the consistently negative tone of reporting on Argentina and, say, the fawning coverage of Latvia –which has now achieved such vigorous growth that real GDP is only 18 percent below its peak!

But I realized that this is just a sovereign version of Keynes’s dictum:

Worldly wisdom teaches that it is better for reputation to fail conventionally then to succeed unconventionally.

Keynes meant it as a description of bankers, but it goes for economic policy makers too.

Emphasis added.

The Hole in Europe's Bucket by Krugman

...If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

But such action, we keep being told, is off the table....

The Moral Case for NGDP targeting by Steve Randy Waldman

DeLong on the Great Crash, Great Slump and "Liquidationist" ideology

(via Krugman)

Study on Earned-Income Tax Credit

EITC Wikipedia entry

Welcome to the Desert of Real GDP by Yglesias

Jared Berstein on fiscal problems:

Ironically, on the next page was an oped from the WaPo by Robert Samuelson touting this deeply annoying theme of a pox on both houses for our fiscal problems.  Bush, Clinton, Obama—all bad.

I’m not saying they’ve all been pillars of fiscal rectitude but come on, Bob.  Clinton raised taxes, progressively, I might add, and achieved a surplus (that was “good luck” according to RS)!  President Obama has done precisely what you keep badgering him to do: proposed significant cuts—over $300 billion—in entitlements (Mcare and Mcaid).  I get that this doesn’t go far enough for you, but seems worthy of mention, no??

The primary drivers of our structural deficits at this point are the Bush tax cuts, the fact that revenues are off the R’s table, and longer term pressures from the health care costs.  If you’re writing about fiscal challenges and you’re not writing about those challenges, I’m not sure what you’re up to.

Well done!

Great Recession may cost US economy $5,900 billions by Gavyn Davies

The 6-6-6 plan by John Quiggin

From the WSJ:

Economists expect Thursday’s GDP report from the Commerce Department will show the economy grew at a 2.7% annual rate in the third quarter. That would still leave economic output 6.7% below what the Congressional Budget Office estimates its potential is.  In other words, in a world where employment and economic activity were as high as they could be without the economy running into inflationary trouble, the U.S. would be producing about $900 billion more in goods and services a year than it is now.

Would it have been 2.7% without QE1 and 2?

(via Mark Thoma)

One of my favorite scenes in Will Ferrell's one man show about Bush, was the dance sequence with Condi set to Michael McDonald's "I Keep Forgeting." Everytime I read about Condi I think of it.

She has a memoir of her time during the Bush years coming out.

First as national security adviser and later as secretary of state, Ms. Rice often argued against the hard-line approach that Mr. Cheney and others advanced. The vice president’s staff was “very much of one ultra-hawkish mind,” she writes, adding that the most intense confrontation between her and Mr. Cheney came when she argued that terrorism suspects could not be “disappeared” as in some authoritarian states.

As for Col. Muammar el-Qaddafi of Libya, who was killed Thursday after a revolution, Ms. Rice adds details about his well-known “eerie fascination with me.” She writes that he made a video showing pictures of her while a song called “Black Flower in the White House” played. “It was weird,” she writes, “but at least it wasn’t raunchy.”
...

For the most part, though, Ms. Rice defends the most controversial decisions of the Bush era, including the invasion of Iraq. The wave of popular uprisings known as the Arab Spring this year, she writes, has vindicated Mr. Bush’s focus on spreading freedom and democracy.

My rogues gallery is full of hack writers. Welcome Greg Mankiw to the pantheon! Former CEA to Bush Jr. and current Romney advisor, Mankiw penned an especially hackish column today. He writes "Economists debate whether higher taxation in France and other European nations is the cause of the reduced work effort and incomes there."

I'd take Germany's performance over the U.S.'s. Also, towards the end of Clinton's onerous tax regime, wages rose thanks to economic growth and a tight labor market. The budget was balanced. Then we got the wasteful Bush tax cuts and the crappy Bush years. They weren't more crappy because of the wealth effect of the housing boom.