SCHMOOZE OR LOSE: Obama doesn’t like cozying up to billionaires. Could it cost him the election? by Jane Mayer

WHAT ECONOMISTS CAN LEARN FROM EVOLUTIONARY THEORISTS by Krugman 

via

Neo Fights (Slightly Wonkish and Vague) by Krugman

I just read Krugman's End This Depression Now! and consider it to be the book to give to younger folks inquisitive about economics. It is very, very good. Also I'd hand them Liaquat Ahmed's The Lords of Finance for a little history.

Warlow and Season 6

Some Thoughts on Global Risks and Monetary Policy by Charles Evans

...In June we decided to continue our Maturity Extension Program, which puts downward pressure on long-term interest rates by extending the average maturity of the Federal Reserve’s securities portfolio. I thought that was a useful step. However, I believe it is time to take even stronger steps, such as the purchase of more mortgage-backed securities, to increase the degree of monetary support for the recovery. As suggested recently by my colleagues Eric Rosengren and John Williams, these could be open-ended purchases, meaning that they would continue at a certain rate until there was clear evidence of improvement in economic conditions. To me, one example of clear evidence would be a resumption of relatively steady monthly declines in unemployment for two or three quarters. Once this momentum was confidently established, the Fed could stop adding to our balance sheet but keep the funds rate at zero.

(via Mark Thoma)

True Blood’s finale climaxes in a tornado of vampire true death by Meredith Woerner

A PLATONIC DIALOGUE ABOUT QUANTITATIVE EASING, OR, SUMMONING THE INFLATION EXPECTATIONS IMP

 by DeLong

We Need Inflation-Tolerance, Not Inflation by Yglesias

That's the situation I think American monetary policy is in. It's not that three or four percent inflation is such a wonderful goal. It's that extreme aversion to three or four percent inflation is causing the Federal Reserve to persistently "shoot too low" in terms of aggregate demand. Ben Bernanke's acting as if someone's holding his daughter hostage. Specifically, the reigning dogma is that if inflation were to go from 2 percent to 3 or 4 percent that long-term expectations might become "unanchored" and drift higher and higher, undermining the "hard won gains" of the Volcker years. But there's no empirical evidence that this is true, and no particularly strong theoretical reason to believe that the worst-case scenario if inflation tolerance goes wrong is worse that the current strategy of grinding the recession out by letting America's long-term productive capacity collapse.

The Age of Niallism: Ferguson and the Post-Fact World by Matthew O'Brien

Housing Recovery: It's Better Than the NYT Thinks by Dean Baker

Housing's Slim Recovery by NYTimes editorial

Many at Fed Ready to Act if Necessary by Annie Lowrey

Since Lowrey's report, St. Louis Fed President Bullard said the data has gotten better since the last meeting, dashing hopes.

Update: Baker again:

Housing Sales Are Back to Trend

Both the NYT and USA Today have convinced themselves that house sales are well below their trend level, with the latter telling us that a 5.5 million annual sales rate of existing homes considered healthy. In fact, we are pretty much back to trend levels of sales. In the mid-90s before the bubble began to distort the market, sales averaged about 3.5 million a year. A simple adjustment for the 15 percent population growth over this period would imply an annual sales rate of 4 million existing homes. That is somewhat below the current 4.5 million sales rate.

The gap between the current sales rate and the trend more than makes up for the continued weakness in new home sales. So, what are these folks talking about?

Westeros' Uneven Level of Technological Progress by Yglesias

What Daenerys Targaryen Needs To Know About Occupational Licensing by Yglesias

A couple other good scenes in a Song of Ice and Fire on economics:

In book one, the new Hand of the King learns that his friend King Robert Baratheon has buried the kingdom in debt. At his first small council meeting he argues against the tournament being thrown in his name. He says its an extravagance they can't afford, whereas Littlefinger, Varys and Renly argue that he doesn't understand the paradox of thrift and the tournament would provide a good economic stimulus and distraction.

At a later small council meeting - in book two - they receive a white raven from the Citadel in Oldtown. It means the maesters have determined Fall has arrived and a lengthy Winter is coming. Master of Coin Lord Petyr Baelish announces they have enough grain to last a 4 - or 5? - year winter but if it lasts longer, well, they'll have fewer peasants. 

This is a nice example of the "hard choices" elite policy makers have to make to gain "street cred" with their fellow international elite. Yglesias himself once used the example of Bill Cowen of Fianna Fail. If Littlefinger had any peasant friends or family members of course he might err on the side of caution and set aside enough grain for 6 years.

lolwut?

Pregnant Woman Relieved To Learn Her Rape Was Illegitimate

Tampa Bay Gay Prostitutes Gearing Up For Flood Of Closeted Republicans

Republicans Condemn Akin's Comments As Blemish On Party's Otherwise Spotless Women's Rights Record

Yglesias sides with Baker against DeLong (?)

Cautious Moves on Foreclosures Haunting Obama by Binyamin Appelbaum

Is Bad Housing Policy Really the Key to the Recession? by Yglesias

Yglesias links to:

Still Getting the Housing Bubble Wrong by Baker

Suppose we had instantly written off all underwater mortgages, would that have kept construction going? That's hard to see, since the enormous oversupply of homes would still be there. 

Would that have sustained house prices? It's hard to see how or why, the problem is that the bubble had raised prices far above any level that could be justified by the fundamentals of the housing market. House prices today are pretty much in line with their long-term trend as we can see from the real Case-Shiller house prices index.If house prices are basically right, why should we expect more consumption than we are now seeing. In fact, consumption remains unusually high, not low, relative to disposable income as shown below. (Adjusted disposable income has to do with the statistical discrepancy for those nerds out there.)

If consumption isn't low, then what is the story of how rescuing underwater homeowners would have saved the economy? There are some economists who argue that the consumption of underwater homeowners has a hugely disproportionate impact on the economy. That seems a bit hard to imagine. 

Let's try some simple numbers. The total amount of underwater equity is estimated at around $700 billion. Suppose that we wiped that out tomorrow. If our underwater homeowners spent 15 percent of their equity each year, more than twice as large as the wealth effect more generally, this new equity would generate $105 billion a year in additional consumption, about 0.7 percent of GDP. That's helpful, but not close to enough to get us back to full employment.
Furthermore, this impact is probably not even realistic. Let imagine someone with a median home, worth roughly $180k. We'll give $60,000 a year in income, roughly 20 percent more than the overall median. (Homeowners have higher income on average.) 

Let's assume that they are 25 percent underwater, which means that they have a mortgage of $225,000. We now wipe that out, in effect giving them $45,000 of additional equity. If they spend 15 percent of this equity, it would translate into $6,750 a yearin additional consumption. Did this family earning $60,000 a year have $6,750 in annual savings that they now can divert to consumption since we set their mortgage above water? That seems unlikely. Perhaps they will borrow to support additional consumption, but how much and for how long? On average, people do have to save over their working lifetime if we expect them to have anything other than their Social Security in retirement. (Paying down a mortgage counts as savings.) 

The story is even more dramatic if we give them a loan to value ratio of 150 percent. Then their mortgage is $270,000 and they are $90,000 underwater. if we write that one off and expect them to spend 15 percent of their new equity it comes to $13,500 a year. That doesn't seem very likely. 

In short, the story of underwater homeowners holding up the recovery doesn't hold water. It is a tragedy for homeowners facing the loss of their homes and foreclosures can devastate communities, but it is not the story of the recession. 

The simple story is that we need a new source of demand to fill the gap left by the collapse of the housing bubble. In the short term that can only be the government. In the longer term it will have to be trade, which means a reduction in the trade deficit. That means first and foremost getting the value of the dollar down, but macho politicians in Washington don't talk about a lower valued dollar. The folks on Wall Street don't like it. 

I had linked to DeLong's post on the lack of recovery in the housing sector.

I'm still not clear on the debate. DeLong seems to be saying if housing recovered as it has in past recoveries overall demand would be much better. Baker seems to be saying that the recent housing bust recession was different from normal recessions. Are there any historical analogies. The Great Depression?

Obama should have fired Bernanke a long time ago by John Cassidy

Advised by Treasury Secretary Tim Geithner, who had worked closely with Bernanke, Obama ended up giving Bernanke another four years. With the markets and the economy still fragile, it seemed the sensible thing to do. In retrospect, it looks like a mistake. By putting Bernanke in charge for the run-up to the 2012 election, Obama jeopardized the recovery and put at risk his own reelection prospects. As the economy has sputtered badly over the past six months, the Fed chairman has failed to do anything about it. Even today he continues to equivocate. Looking back, Obama should have canned Bernanke when he had the chance.

(via Yglesias)

The key evidence is that Bernanke is hardly the only member of the Federal Reserve's Open Market Committee who Obama has appointed, and none of his appointees are calling for monetary expansion. Instead the strongest voices at the Fed for expansionary policy are regional bank presidents—Charles Evans of Chicago has been the champion, followed by Eric Rosengren of Boston and John Williams of San Francisco. 

Christina Romer, Alan Blinder, Joe Gagnon, Olivier Blanchard are other respected economists calling for more Fed activism.

True Blood starts a Fairy War… in Eric’s pants by Meredith Woerner

sums up the Republican Party of the 21st Century

commenter Joe Smith at DeLong's Grasping Reality with Both Invisible Hands: Fair, Balanced, and Reality-Based: A Semi-Daily Journal post on Yglesias on Paul Ryan:

MATTHEW YGLESIAS (2010): WHY WE SHOULD FEAR THAT PAUL RYAN TALKS TO JOHN COCHRANE…

Matthew Yglesias (2010):

Paul Ryan's Monetary Economics: Paul Ryan says that “monetary policy was always my first love” but he doesn’t seem to know very much about it: “There is nothing more insidious that a government can do to its people than to debase its currency,” Ryan said. Just as harmful, Ryan warns, is that the proliferation of newly printed dollars inevitably unleashes inflation and throws the economy out of kilter in other ways. “Inflation is a killer of wealth. It wipes out the middle class. It eviscerates the standard of living for people who have retired or are living on fixed incomes,” he said. “Name me a nation in history that has prospered by devaluing its currency.” [...]

So to sum up, right now inflation is running lower than it was in the 1990s and 2000s. What’s more, in the 1990s and 2000s it was running lower than it was in the 1980s. And what the Fed is trying to do is to bring inflation back not to the levels of the Ronald Reagan Era, but to the rate we enjoyed in the 1990s and 2000s. Maybe Ryan’s a madman rather than a hypocrite…

Joe Smith said... "Ryan was sharing $350.00 bottles of wine with Cochrane and a hedge fund manager."

It's the Housing Stupid by Dean Baker

In a Washington Post column today, Kevin Hassett and Glenn Hubbard, two of the top economists on Governor Romney's economic team, rightly take President Obama to task for blaming the weakness of the economy since the downturn on the financial crisis. They cite a recent study from the Federal Reserve Bank of Cleveland as showing that recoveries following financial crises tend to be stronger not weaker than other recoveries. 

While there are some questions that can be raised about this study (was the financial crisis in the 1990 recession really comparable to what we saw in the fall of 2008?) the basic point seems right. After all, we do know how to set an economy in motion again following a financial crisis. Argentina managed to regain all the ground lost after a complete financial meltdown in December of 2001 in just 1.5 years. Our financial policy crew can't be that much less competent than the folks calling the shots in Argentina. The idea that a financial crisis puts a mysterious curse on an economy was always more than a bit suspect.

...

 Ultimately we will need an increase in foreign demand, meaning a lower trade deficit, to fill the gap. This will require a lower valued dollar which will make U.S. goods more competitive internationally. Unfortunately neither candidate seems willing to make the case for a lower valued dollar, which means that we can probably expect a weak economy for many years into the future, regardless of who gets elected.

interview with Time correspondent Michael Grunwald on his book about Obama's stimulus

Obama and his team did try to push a few big physical legacy projects. During his transition, he called for a massive nationwide effort to rebuild and retrofit public schools. But Republican Sen. Susan Collins of Maine hated it, and Obama needed her vote to get the stimulus through the Senate, so it got deleted. Obama also wanted to build a smart grid, with digital meters for all Americans (the smart part) and a new national network of high-voltage wires (the grid part). His aides explained that couldn’t happen quickly and didn’t even make sense as a federal project. Instead, the stimulus included about $11 billion of seed money for the smart grid, which has launched a new era for the utility sector but hasn’t really penetrated the national psyche. Finally, the White House slipped $8 billion into the stimulus for high-speed rail, the largest new transportation initiative since the interstates. But Florida’s Republican governor, Rick Scott, killed a bullet train from Tampa to Orlando that was supposed to be the showcase project, and the only other bullet train, connecting San Francisco to Los Angeles in less than three hours, is still decades away from completion. The shovel-readier projects—like improvements that will slice an hour off the Amtrak train from Chicago to St. Louis—won’t produce the oohs and aahs of bullet trains. They’re really higher-speed rail—worthy, but not iconic.

...

Well, it was too small. More aid to states would have prevented more layoffs of public employees. More infrastructure projects would have put more unemployed laborers to work. More tax cuts would have put more money into the hands of consumers. What my reporting shows is that the disillusionment addicts of the left are wrong to blame President Obama for the size of the stimulus.

... 

In general, I’d have to say my reporting backs up the Norm Ornstein-Thomas Mann thesis that the Republicans have gone off the policy deep end—denying global warming, denying Keynesian economics (except when it comes to business tax cuts and defense spending!), trashing Obama’s government takeover of health care and also his Medicare cuts, drumming stimulus supporters like Crist and Specter out of the party. Then again, one Republican who comes off pretty well is Mark Sanford, a rare voice of honest small-government conservatism in the party. (He also says some pretty surprising things about his trip down the Appalachian Trail.) 

...

The top priority for many local Republican politicians and Republican-leaning business organizations was avoiding a depression. They saw that the Obama stimulus wasn’t radical leftism; it was textbook countercyclical stimulus. Republicans had called for $300 billion worth of tax cuts, and that’s exactly what it had. Republican governors like Crist, Arnold Schwarzenegger of California, Jodi Rell of Connecticut, Jim Douglas of Vermont, and Jon Hunstman of Utah understood that its aid to states—over $160 billion worth—would prevent massive cutbacks of public services and massive layoffs of public employees. As the lobbyist for the Chamber of Commerce told me: When you sit where I sit, you don’t want to see an epic collapse of aggregate demand. Depressions are bad for business. I also tell a fun story of a Democratic aide screaming and cursing at some business lobbyists, warning that they’d get nothing from the Democratic Congress if they couldn’t support an economic recovery bill during an economic emergency. 

Forget Paul Ryan's Budget: His Scariest Idea Is About the Federal Reserve by Matthew O'Brien

True Blood breaks our heart into a pile of gooey vampire pudding by Meredith Woerner

Last night on Alphas - which has a great cast like David Strathairn as Dr. Lee Rosen and a wonderful Ryan Cartwright as Gary Bell - they played the first part of the  Yes song "I've Seen All Good People" called "Your Move."