(see above)

Looks like Ryan: Mitt's Pick by Ryan Lizza

Lizza: "After spending weeks looking into Ryan’s history for The New Yorker, visiting his home town, and interviewing him twice, I am genuinely surprised that Romney chose him."

My prediction on oil prices isn't looking so good as gas prices here rise to $4.06/gallon. Although I did read in the paper that oil prices continue to decline.

A new (conditional) prediction. It could be that the Republican party "jumped the shark" this morning at 9:00 a.m. with Romney announcing Paul Ryan as his VP pick. Will the Republican party enter another period in the wilderness.

Jonathan Chait:

Most Americans have not formed an opinion about him. He has a long record of radical votes and is the functional leader of a wildly unpopular Congressional wing. The one real electoral test of his plan’s political tolerability came in a special election in a Republican district in upstate New York in 2011, in which an underdog Democrat swept to victory by relentlessly pounding Ryan’s plan, and especially its provision to privatize Medicare.

THE BUZZ FROM MICHAEL GRUNWALD'S BOOK ABOUT OBAMA ECONOMIC POLICYMAKING... by DeLong

And, of course, Grunwald gives Christy Romer's side of the anecdote told by Ron Suskind--the one where Suskind claimed that when Obama first met Romer, "before exchanging hellos or even shaking hands", Obama said that monetary policy had "shot its wad" thus shocking Romer with the sexualized reference.

Romer has maintained--from the day Suskind's book came out--that Suskind had it wrong: that Obama had not said it, she had; that she had meant it as a reference to seventeenth-century firearms musketry technology. This means that Suskind's "before exchanging hellos or even shaking hands" is, in the words of Pooh-Bah: "merely corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative".

On page 472, Grunwald writes that Suskind has promised to correct the scene in his paperback.

Moral: if you tell your sources that you are going to let them see relevant portions of the ms. to make sure there are no errors, show your sources the relevant portions of the ms. to make sure there are no errors, or you may wind up in substantial trouble.

...

Obama: Look, I get the Keynesian thing. But it's not where the electorate is… p. 338.

If Obama isn't re-elected it will be because of this bipartisan approach of indulging those who are wrong, where a "partisan" Keynesian approach would have helped the economy.

DeLong lies by omission though. If you follow the link, it actually reads "P. 338, Obama tells his team to stop bugging him to make stimulus speeches. “Look, I get the Keynesian thing. But it's not where the electorate is.”

Housing vs. Financial Sector

Decomposing the Recession by Yglesias

You see that the back-and-forth swing of business investment has been the main motor of the recession. When it falls off the cliff is when the economy was collapsing, and its comeback has brought the stabilization of growth and return to a steady path. But it's not a steady path of full employment. Why? The way Brad puts it is "Fix spending on residential construction, and you will have fixed the downturn."

But the chart also shows us that contrary to a lot of myth-making, the recession is notidentical to the downturn in housing.

TEACHING THE MACRO HISTORY OF 2005-2012: "LONG RUN" AND "SHORT RUN" by DeLong

Then, in the second half of 2007, things began to change and the balance of probabilities began to shift. Financiers began trying to deleverage and move their assets into safer portfolios--and, in collectively doing so, did nothing but make all of their portfolios more unsafe. Rising credit spreads made risky borrowers think twice about leveraging up, and business equipment investment began to fall alongside the continuing decking in residential construction. By mid-2008 it was clear that we were in for a financial crisis and downturn of uncertain magnitude, and that it was time to start pushing the Big Red Policy Buttons.

Dean Baker has pointed out that in the bubble bust $8 trillion was lost. That's 8 trillion dollars of demand that no longer needs workers to provide. This was partly compensated via exports and business investment from 2009 onwards as economic growth resumed thanks to the stimulus and banking policy like bailouts and stress tests. But there was no catch-up growth as residential construction remains depressed. And government spending has been a drag rather than a stimulus. Baker doesn't really mention the financial system aspect of it and emphases the housing bubble and trade deficit. He says the stock bubble/ housing bubble supplied demand was replacing demand lost by the trade deficit. DeLong rarely mentions trade except to show that exports were going up. He and Yglesias correctly point out that Says law was in effect from 2006-2008 as exports stood up and residential construction stood down. Those obsessed with debt fail to note this (Baker is not one of those.) Then the financial crisis happened and exports and businesses investment declined as credit markets froze.

You don't want another bubble, but you don't want the obverse of a bubble with credit conditions being too tight.

Imagine an alternate universe timeline where there had not been a bubble. What would have followed? 

Bankers Should Be Boring by Liaquat Ahamed

Fog Lights and the Reinhart-Rogoff Hypothesis by Jared Bernstein

What’s in True Blood’sVampire Jesus Juice? by Meredith Woerner

a song about the Kondratiev wave

I met Laetitia Sadier last year after she opened for Beirut. Mary Hansen tragically died in 2002 at the age of 36.

Post-Defeated Phoenixes

Noah Smith blogs about Japan. 

Despite its lost decade Japan kept unemployment low with worksharing.

Germany’s Jobless Numbers Buck Euro Zone Trend by Floyd Norris

IN unemployment, as in many other areas, Germany stands alone at the top of the euro zone.

Multimedia

Graphic

Off the Charts: In Jobs for Young, Germany Stands Alone

The European Union’s statistical agency, Eurostat, reported this week that the unemployment rate among German adults fell to 5.1 percent in June, the lowest figure since the country was unified in 1991.

Japan and Germany have done well despite having been destroyed at the end of World War II.

In the 1990s, Professor Bernanke and others criticized Japan's economic mismanangement. Today the U.S. has 8.3 unemployment and  we will have to wait 10 years or so until full employment. In the 1990s, American economists mocked European welfare states with their sky-high unemployment. Today the U.S. economy suffers from a large output gap and slow growth for the foreseeable future. The periphery of Europe like Spain is suffering Great Depression like conditions but the German welfare state is doing well with 5.1 percent unemployment. Although a Euro-wide recession is starting to weigh on Germany also.

Kenyan Socialism

Kenyan Socialism is my grand unified theory on progressive macroeconomics and political economy. In my dreams I write an ebook on the subject.

What policies would we* Kenyan Socialists enact to help ameliorate economic conditions? One way to think of it is to consider what we don't want. In recent decades, gains during boom times have flown to the top whereas labor's hand is weakened and concessions extracted during recessions. We would reverse this.

We would focus on two areas. One, the bargaining power of workers. We want tight labor markets with labor sharing in productivity gains. (This happened in the late 90s) This means adequate counter-cyclical policy, like Federal aid to the states. Also, we advocate work-sharing during downturns, something Japan and Germany have done well. This means good currency policy. Ideally this would entail a World Trade Organization that would rule against trade surplus nations like China and Germany who export their unemployment and demand diminishing policies to other nations with large consumer markets like the United States. China does this by buying up large amounts of dollars in order to prop up its value against their own currencies. Or the US could act unilaterly instead of via the WTO.  Or Congress could enact policies to boost employment regardless of the currency manipulation of other countries.

Two, we focus on debt. We want an adequate amount of credit in the system so that NGDP growth is at sustainable trend levels. We want growth without runaway inflation. Obviously bubbles and unsustainable, overleveraged bad debt of the kind we saw in the previous decade should be regulated out of existence. This means a Consumer Financial Produciton Bureau on stereoids and a systemic regulator like the Federal Reserve which does its job. A healthy amount of level-headed credit in the system is good. Bubbles are not. So we are against tight money-cross of gold politics, but we are in favor of a regulated financial sector where banking is treated like a public utility.

Ideally we wouldn't need so much debt if the Federal government helped supply demand during downturns. And then during boom times the government would try to run surpluses as good Keynesians argue.

The Elite Sells Out (or bye, bye Noblesse Oblige)
Looking at the macroeconomy holistically we would note the insight that Steve Randy Waldman recently blogged about: that World War II hit the "reset" button on inequality of the preceding decades. Krugman has also suggested the parallel idea that something happens in political culture analogous to Minskys' views on credit/debt in the economy. At the Bretton Woods anniversary conference in response to a question from Martin Wolf, Larry Summers said that pre-Great Recession regulators had become complacent. People get complacent and lose sight as the good times continue. People forget the painful lessons of the past. The elite becomes increasingly insular and solipsistic as inequality increases. A vicious feedback loop occurs wherein inequality corrupts the political process with ever increasing amounts of money flowing towards proponents of policies which increase inequality. Maybe this is just the way it is with humanity in late capitalism: a variation on the Kondratiev wave. 

We Kenyan Socialists look back to the past. After the industrial revolution, "socialist" policies were enacted which helped get working-class men the vote, provided land reform and had government running key industries and investing in infrastructure like canals and in human capital with public education. Then you had the Gilded age and the Progressive Era with many worthwhile reforms like the creation of a central bank and regulation of trusts and corporations. Then there was the roaring 20s and Great Depression followed by the Social Democratic Post-War period and golden age of 50s-60s.

--------------------
* Myself and my one follower, an elderly pensioner in Halifax, Canada.

NYT Tells Readers that President Obama's Economists Don't Believe in Economics When it Comes to Trade by Dean Baker

On the one hand, it notes the view of Ron Bloom, who had been the president's senior advisor on manufacturing policy, that the U.S. should take steps to push down the value of the dollar in order to make manufacturing in the United States more competitive. It then contrasts this view with that of Lawrence H. Summers, formerly the top economic adviser to Obama. The piece tells readers: 

"along with many economists, Mr. Summers argued that an overly aggressive trade stance could hurt manufacturing — by, for instance, pushing up the price of imported steel used by carmakers — and over time, drive companies away. " 

Actually, standard economic theory would argue that a lower valued dollar is exactlythe mechanism through which the trade deficit should be brought down. In a system of floating exchange rates, the excess supply of currency on world markets from a deficit country like the United States is supposed to bring down the value of its currency. This makes its goods more competitive in world markets, reducing the size of its trade deficit. 

The expected drop in the value of the currency is not taking place today with the dollar because a number of countries are buying up large amounts of dollars in order to prop up its value against their own currencies. By keeping the dollar over-valued they are able to sustain their trade surpluses with the United States.

The Wall Street Book Everyone Should Read by Justin Fox

Thank you, Justin Fox by Doug Henwood

Kickstarters I’d like to see by Henry Farrell

Why Washington Accepts Mass Unemployment by Jonathan Chait

Gore Vidal by Gay Talese

To Ease or Not to Ease By Rana Foroohar

political economy

Obama turns 51. His favorite Wire character is Omar Little. During the first campaign he said in an interview with BusinessWeek that labor hasn't shared in productivy gains since the late 1990s and that it isn't fair. During one of his State of the Union addresses with the Supreme Court judges sitting front row, he blasted their Citizens United decision. He gave the order at Zero Dark Thirty to capture or kill Bin Laden. He hasn't made any big gaffes besides listening to Geithner and Orszag's advice to turn to deficit cutting. Reappointing Bernanke was an understandable yet costly error given the fragility of the financial system at the time.

The Monetary Base is Irrelevant by Yglesias

Unemployment Insurance Claims Do Provide Information by Dean Baker

Hiring Picks Up in July, but Data Gives No Clear Signal by Catherine Rampell

America added more jobs than expected last month, offering a pleasant surprise after many months of disappointing economic news. Even so, hiring was not strong enough to shrink the army of the unemployed in the slightest.

...

“Nearly the entire reduction in unemployment since October 2009 has been accomplished through a significant drop in the percentage of adults participating in the labor force,” said Peter Morici, a professor in the business school at the University of Maryland.

Emphasis added. Looks like the economy has stagnated at a depressed equilibrium.

 The Job Market is Stuck in Place - NYTimes editorial

July’s job-growth figure brings the monthly average tally for 2012 to 151,000, compared with a monthly average in 2011 of 153,000. At that tepid pace, it would take roughly 10 more years to regain the jobs that were lost — or never created — as a result of the Great Recession.
...
Responding to the latest employment report, the White House noted correctly that major areas of job weakness — including positions in construction and teaching — are precisely those that would have been the subject of the jobs bill proposed in 2011 by President Obama. That legislation was blocked by Congressional Republicans.

2008-2012 is worse than the 1970s.

DeLong is shrill.

JONATHAN CHAIT HITS ONE OUT OF THE PARK: WASHINGTON D.C. MASQUE OF THE UNEMPLOYED EDITION by DeLong

Makes me think of the compelling idea - new to me - put forward by Steve Randy Waldman in his latest post: that World War II was sort of a "reset button" on the inequality of the preceding decades.

Why did World War II, one of the most destructive events in the history of world, engender an era of near-full employment and broad-based prosperity, both in the US where capital and infrastructure were mostly preserved, and in Europe where resources were obliterated? People have lots of explanations, and I’m sure there’s truth in many of them. But I think an underrated factor is the degree to which the war “reset” the inequalities that had developed over prior decades. Suddenly nearly everyone was poor in much of Europe. In the US, income inequality declined during the war. Military pay and the GI Bill and rationing and war bonds helped shore up the broad public’s balance sheet, reducing indebtedness and overall wealth dispersion. World War II was so large an event, organized and motivated by concerns so far from economic calculation, that squabbles between rich and poor, creditor and debtor, were put aside. The financial effect of the war, in terms of the distribution of claims in the US, was not very different from what would occur under Keen’s jubilee.

NO, MITT ROMNEY DOES NOT BELIEVE IN THIS "ARITHMETIC". WHY DO YOU ASK? KEVIN HASSETT-AND-SCRAPING-THE-BOTTOM-OF-THE-BARREL EDITION by DeLong

The Human Disaster in Unemployment by Dean Baker and Kevin Hassett

Bane (or Selina Kyle's choice)*

"There's a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you're all gonna wonder how you ever thought you could live so large and leave so little for the rest of us." 

―Selina Kyle 

Mercenary: We've started a fire?  

Bane: Yes! The flame grows higher!

Anne Hathaway's Selina Kyle is in my opinion the center of The Dark Knight Rises. She recognizes the corruption of the Gotham elite, is not of that elite and does not want to be part of it. She tells Bruce Wayne she doesn't care what they think of her. She has nothing but contempt  for them.

(Spoilers...)

The League of Shadows  (Ra's al Ghul, Talia al Ghul, Bane) sees this corruption (hedge fund manager Daggart, the mob, Wall Street) and wants to wipe Gotham clean and "restore balance." Batman/Bruce Wayne, commissioner Gordon, and Joseph Gordon-Levitt's Blake want to reform it. Obviously the League of Shadows' program would cost many innocent lives.

It's interesting to consider director/writer Christopher Nolan's take on what is corrupt about contemporary America. He includes Democratic Senator Leahy cameos in the last two films. Leahy is a big fan of Batman, but it's possible Nolan shares his politics. The opening of the film has the CIA engaging in its ruthless War on Terror and threatening terrorists with being dropped out of a plane (reminiscent of the Argentinian military junta's police state methods and Vietnam).  (The CIA officer is played by Aidan Gillen of The Wire and Game of Thrones. The black army officer on the bridge who negotiates with Bane's men is another actor from The Wire. He played the police chief who made a drug legalization haven.)

The last film with the Joker was more about 9-11, the war on terror, Binladenism, police-state/surveillance state, wiretapping and torture. This one brings in elements of the housing bust, financial crisis, nuclear proliferation, rising inequality and the Occupy movement. There are images of class warfare as the lower class has a revolution against the upper class thanks to Bane taking out the police force. In the assault on the stock market, Bane and his men disguise themselves as cheap labor: food deliveryman, a courier, a shoe-shine man, a construction worker, a janitor. (Selina Kyle sneaks into Wayne Manor disguised as a servant.) Nolan depicts the trader-banksters - and hedge fund manager Daggart - as stereotypical entitled douchebags. It's hard not to share in Bane's obvious disdain for them. One of the hostages they take looks like a young Mitt Romney.

Though not all of the rich are corrupt in Nolan's Gotham. Bruce Wayne and the Penny Pritzker-philanthropist Miranda Tate invest heavily in research into clean, sustainable energy, something "wise stewards" would do. And Bruce's wealthy parents invested in public transportation and other infrastructure projects that a non-corrupt elite would do, unlike, say, today's Republican Party and its financial backers. At Tate's charity event, reformer Bruce Wayne expresses his contempt for the elite to Miranda Tate. Tate in turn expresses her disdain for bankster Daggart when he comments on how she's losing money investing in clean, sustainable energy.

Where does Bane get his zealous recruits? At the orphanage, officer Blake interviews an orphan who says that boys who "age out" and are put on the streets - like his older brother whose body Blake found - have no job prospects, but there's work available in the sewers. Bane has a jobs program while the nation's central bank fails to fulfill its mandate by targeting a 2 percent inflation-ceiling-cross-of-gold. Another instance of the priorities of Gotham's elite.

Anne Hathaway's Catwoman must decide whether its worth it to risk her life to try to help Batman save Gotham and its corrupt elite, ground-down poor, and "silent majority." Nolan vaguely makes references to the French Revolution, Robespierre, and the storming of the Bastille. Things are so crappy for the lower orders and the corruption of the elite is so obvious, that many of Gotham's citizens do riot and rise up against the one percent. (Think of Selina Kyle's young friend or the "aged out" orphans.) They are able to do so because of Bane. He neutralizes the police force and the possibility of any intervention from the Federal government.


So it looks like the League of Shadows will succeed in wiping the slate clean, but Batman foils their plans with assists from Gordon, Blake, Matthew Modine's police chief and Catwoman. Levitt's Robin quits the police force to become a vigilante maybe because the police wouldn't let him cross the bridge, following orders. But it was Commissioner Gordon whose kindness towards a young Bruce Wayne helped Wayne become the do-gooder he became (also thanks to Alfred and Fox). Bruce Wayne/Batman also helped inspire the young orphan Blake and helped give Catwoman the chance to do the right thing and earn a clean slate.


Police officer Gordon's humanity towards the young Wayne helped create Batman.  Thanks to Catwoman decision to involve herself and save Batman from Bane, Batman is able save Gotham from a nuclear holocaust.

On a side note, the film had a number of exciting action sequences: the opening scene with the kidnapping of  a Russian nuclear scientist; the assault on the stock exchange and motorcycle chase; Catwoman and Batman versus Daggart's henchmen and the brief appearance of Bane at the end; the pièce de résistance  with massive streetfighting on the steps of City Hall with snow falling all around.

Conservatives have argued that the film is a conservative film in that it makes the left look bad. Rather I think it makes some accurate diagnoses of the current political scene. In his speech at the football stadium, Bane mentions the "myth of opportunity." That's an accurate description of contemporary America. Moviegoers are often said to pay to watch dreams and The Dark Knight Rises is a lefty dream with many details displaying a lefty take on things, including another series cameo by Senator Leahy. The outcomes aren't ideal, but this is a comic book movie. The Orwellian talk of the hanging judge at the people's court reminds me very much of the constant "2 + 2 = 5" up-is-down rhetoric of Republicans and their paid-for pundits. The class conflict portrayed on screen is a reversal of what's really happening currently with the upper classes mauling the lower class. It's a fantasy where entitled, douchebag banksters get roughed-up by avenging everyday people and where a classy jewel thief articulates our revulsion at an elite as corrupt as Marie Antoinette's 18th Century French aristocracy.

----------------
* revision from July 26th version

Trade-offs between inequality, productivity, and employment by Steve Randy Waldman

currency exchange rates

The Value of the Yen, the Dollar, and Generational Issues by Dean Baker

Remarkably, while the value of the currency is apparently a hotly debated issue in Japan (at least according to the NYT), it is rarely mentioned in the United States. This could be due to the fact that more powerful interests than retired workers support an over-valued dollar in the United States.

The financial sector typically supports an over-valued currency since it reduces the risk of inflation and it makes them bigger actors overseas. Also, major retailers like Wal-Mart have established extensive supply networks overseas that rely on being able to buy goods cheaply. Most major manufacturers have also established subsidiaries in China and other countries with low wages.

These powerful interest groups would strongly resist any effort to lower the value of the dollar and thereby make U.S. goods more competitive in world markets. This could explain why the value of the currency is debated in Japan, while the NYT tells us that is only a matter of historical concern (the 1980s) in the United States.

Mitt Romney's Big Polish Idea: Let's Debase the Dollar! by Matt O'Brian

Pole's Apart by Krugman

Monetary Expansion Works: Poland Edition by Yglesias

Gore Vidal died

Gore Vidal Dead at 86