Lost Decades

Do we ever rise from the floor? by Steve Randy Waldman

The Game Theory of the Post-Platinum Coin Debt Ceiling by Mike Konczal

Aaron Swartz's Lawyer: Prosecutor Stephen Heymann Wanted 'Juicy' Case For Publicity

Secrets of the crisis revealed: What to expect from transcripts of 2007 Fed meetings by Neil Irwin

Why Obama May Drive a Hard Bargain by Nate Silver (1.15.13)

A long time ago I mentioned the fact Obama doesn't need to be re-elected.

Memes of the Moment (Silly) by Krugman (1.15.13)

On the debt ceiling, the White House tries to solve its credibility problem by Ezra Klein (1.14.13)

Why Nobody Believes Obama on the Debt Ceiling by Yglesias (1.14.13)

He says "Now there is a credibility problem." Why? Because he was negotiated up/down to 400k?

Are Klein and Yglesias glaringly wrong? Were they spreading disinformation? Is that overthinking it?

Political Economy

Japan, the Platinum Coin, the ZLB and central bank independence

This is regarding my earlier post linking to Waldman and Duy.

Andy Harless comments at interfluidity:

“Printing money will always be exactly as inflationary as issuing short-term debt, because short-term government debt and reserves at the Fed will always be near-perfect substitutes” 

Depends on what you mean by “printing money.” We’ve grown up using the phrase figuratively, but the people who started doing so never anticipated that electronic bank reserves would some day bear interest. I suggest we should go back to using the phrase literally, in which case your statement is not true: printing money will be inflationary (assuming we exit the ZLB), more so than issuing short-term debt (and arguably issuing short-term debt will be inflationary only because it reduces the demand for printed money). 

Back in the days before IOR, the Fed would from time to time change reserve requirements. And if the Fed were to raise the reserve requirement and offset this change with an increase in reserves, we would probably not say that the Fed had “printed money,” even though it had done so in the “literally figurative” sense of having created reserves. But imposing a reserve requirement is essentially the same as paying IOR and then taxing it away. These days the Fed can use adjustments in the IOR rate to prevent the need to literally print money, just as it could use reserve requirements in the past (and still, if it chooses). 

I submit that what is actually relevant is the literal printing of money. (Note that platinum coinage, assuming it were to remain in circulation after the ZLB exit, would not constitute net printing of money, because it would be offset by reduced printing of Federal Reserve notes — or else, if it remained on deposit at the Fed, it would be essentially nonexistent from the private sector’s point of view) The Fed has promised to print money under certain circumstances, but it can control those circumstances (at a cost). Creating reserves is potentially inflationary inasmuch as it raises the cost of refraining from printing money and thus raises the chance that the Fed will print money, but it does not constitute printing of money. Issuance of interest-bearing debt is potentially inflationary inasmuch as it reduces the demand for printed money (by raising the opportunity cost of holding it), thus reducing the amount of money that has to be printed to create a given amount of inflation. 

What is critical here is that there is a demand for Federal Reserve notes — a product that the Fed is licensed to provide monopolistically and can therefore choose a point on the demand curve so as to set the price where it wishes. The fact that the Fed also competitively supplies the market for interest-bearing assets is of less importance. Of course the Fed’s monopoly also becomes less important when normally interest-bearing assets become close substitutes for the Fed’s monopoly product (i.e., when we are at the ZLB).

The interest on reserves seems to be the new thing. As Duy wrote quoting Ip:

I disagree. The Fed does not have to sell its bonds, or the $1 trillion coin, to control inflation (though it may do so anyway). It only needs to retain control of interest rates, and that does not depend on the size of its balance sheet.

Ip argues that interest on reserves gives the Fed the power to control interest rates, and consequently the power to control inflation, regardless of the size of the balance sheet. If you follow Ip's analysis through to its logical conclusion, then why should the Treasury issue debt at all?

Krugman chimes in:

 All Our Base Are Belong To Us (Wonkish)

Well, almost all, at least in normal times. 

Via Mark Thoma, I see that Steve Randy Waldman believes that the distinction between monetary base — the stuff only the central bank can create — and short-term debt in general has disappeared, not just for the moment, but permanently. It’s a point of view I hear fairly often, along with the view that in fact there never was a difference. But it’s a view based, I think, on a slip of the tongue. 

What do I mean by that? That people saying these things — you can see it clearly in Waldman’s post — slide much too easily into identifying monetary base with bank reserves. And since bank reserves now pay interest, well, aren’t they just debt? 

But bank reserves are just one component of the monetary base — and in normal times, a trivial component. Here (pdf) is a useful table:

 

Before the crisis, only about 5 percent of the monetary base consisted of bank reserves. The rest was basically currency. 

This meant that the simple textbook description of how an open-market operation increases the money supply — a bank lends out 1-r of its new reserves (with r the reserve ratio), which return to the banking system, leading to another round of lending, and eventually the money supply rises by 1/r times the injection — is deeply misleading. What actually limits the growth in the money supply is the fact that a substantial part of each round of lending leaks out of the banking system, getting added to hoards of green paper bearing the faces of dead presidents. 

And dead presidents, as you may have noticed, don’t pay interest. 

Now, under current conditions that doesn’t matter; dead presidents don’t pay interest, but neither do T-bills, so short term debt and currency form an aggregate (a Hicksian composite commodity, for the serious nerds out there), whose composition doesn’t matter. But interest rates won’t always be zero, and at that point the size of the monetary base — dead presidents plus a sliver of bank reserves that can be converted into dead presidents at will — will matter again. 

It’s true that the Fed could sterilize the impact of a rise in the monetary base by raising the interest rate it pays on reserves, thereby keeping that base from turning into currency. But that’s just another form of borrowing; it doesn’t change the result that under non-liquidity trap conditions, printing money and issuing debt are not, in fact, the same thing.

The last paragraph is where he disagrees with Ip and Waldman and possibly Duy. I take it Krugman is saying that in non-liquidity trap conditions, printing money would be inflationary while issuing debt would not be. I take it that it's another way of saying deficit spending in a liquidity trap isn't inflationary while, deficit spending in non-liquidity trap conditions even if sterilized would still be borrowing and increasing the debt even if it doesn't add to the monetary base and inflation. I think.

Internet Activist, a Creator of RSS, Is Dead at 26, Apparently a Suicide

Different obit in the print edition I picked up. It ended with his last blog post, a review of "The Dark Knight Rises" where he discusses how Bruce Wayne faked his suicide. Was the writer hinting that perhaps Swartz is alive in another country?

"Thus Master Wayne is left without solutions. Out of options, it's no wonder the series ends with his staged suicide."

There’s no such thing as base money anymore by Steve Randy Waldman

Fed Watch: A Trap of My Own Making by Tim Duy

Remembering Aaron Swartz by Rick Perlstein

I remember always thinking that he always seemed too sensitive for this world we happen to live in, and I remember him working so mightily, so heroically, to try to bend the world into a place more hospitable to people like him, which also means hospitable to people like us. I like what the blogger Lambert Strether wrote on my Facebook page (in Aaron’s memory, friend me!): “Our society should be selecting for the Aaron Swartz’s of this world. Instead, generous and ethical behavior, especially when combined with technical brilliance, turns out to be maladaptive, indeed lethal. If Swartz had been Wall Street’s youngest investment banker, he would be alive today.” 

Aaron Swartz: A Tragic Early Death by Dean Baker

It is difficult not to be outraged by this part of the story. Here is an administration that could find nothing to prosecute at the Wall Street banks who enriched themselves by passing on hundreds of billions of dollars of fraudulent mortgages in mortgage backed securities and complex derivative instruments, but found the time and resources to prosecute a young man who wanted to make academic research freely available to the world.

It would be an appropriate tribute to Aaron if his death prompted a re-examination of copyright and patent laws. These laws are clearly acting as an impediment to innovation and progress. If economists had the allegiance to efficiency that they claim, and not just serving the rich and powerful, the profession would be devoting its energies to finding more modern mechanisms for promoting creative work and innovation.

On the Geithner Legacy by Mike Konczal

How Tim Geithner Saved the Banks—with Ben Bernanke's Help by Matt O'Brien

Sometimes I wonder if Dean Baker/Atrios/Matt Taibbi are right and we should have let the whole thing crash and burn thereby ridding us of the parasitic financial sector. I do believe that Obama should have flipped/nationalized Citigroup as he did with the auto makers.

I also believe that we won't get bailouts the next time around, so we'll see how it plays out.

Wall Street thanks you for your service, Tim Geithner by Dean Baker

Treasury Secretary Timothy Geithner's departure from the Obama administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon. 

This was an impressive diplomatic feat – given the widespread popular contempt for Europe's monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.
During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed. 

The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachsif the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge. 

Of the six banks that dominate the US banking system, only Wells Fargo and JP Morgan could conceivably have survived without hoards of cash rained down on them by the federal government. Even these two are questionmarks, since both helped themselves to trillions of dollars of below market-rate loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets. 

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross. 

Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction. Even though the economy is still down more than 9 million jobs from its full employment level, none of the important people in Washington is talking about measures that would hasten job creation. 

Instead, the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.

technological change

Phrenology

Maybe "Django Unchained" will win at the Golden Globes* tonight?

Wage Inequality: Opening Salvo by Dean Baker

Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor's claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.

...

The other point is one of motives. Matthews quotes Autor: 

"Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, ...All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change." 

While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn't much we can do about it has plenty of rich and powerful adherents.

--------------------------------------
*hosted by favorites Tina Fey and Amy Poheler.

Fed Watch: On The Disruptiveness of the Platinum Coin by Tim Duy

Jon Stewart Flunks Econ by Jonathan Chait

National Income Accounting for the Washington Post and Robert Samuelson by Dean Baker

Aaron Swartz, Precocious Programmer and Internet Activist, Dies at 26

In 2007, Mr. Swartz wrote about his struggle with depression, distinguishing it from the emotion of sadness. “Go outside and get some fresh air or cuddle with a loved one and you don’t feel any better, only more upset at being unable to feel the joy that everyone else seems to feel. Everything gets colored by the sadness.” When the condition gets worse, he wrote, “you feel as if streaks of pain are running through your head, you thrash your body, you search for some escape but find none. And this is one of the more moderate forms.” Earlier that year, he gave a talk in which he described having had suicidal thoughts during a low period in his career.... 

Lawrence Lessig, who heads the Safra Center at Harvard and had worked for a time on behalf of Mr. Swartz’s legal defense, noted in an interview that Mr. Swartz had been arrested by the M.I.T. campus police two years to the day before his suicide. That arrest led to the eventual federal indictment and financial ruin for Mr. Swartz, who had made money on the sale of Reddit to Condé Nast but had never tried to turn his intellect to making money. “I can just imagine him thinking it was going to be a million-dollar defense,” Mr. Lessig said. “He didn’t have a million dollars.”

Tributes to a Digital Pioneer Follow Reports of His Death

Another friend, the legal scholar and copyright activist Lawrence Lessig, wrote an angry post, describing the federal government’s decision to indict Mr. Swartz in 2011 — when he was charged with downloading 4.8 million articles and other documents from JSTOR, a nonprofit online service for distributing scholarly articles, and plotting to make them available online for free — as a kind of “bullying.”

Here is where we need a better sense of justice, and shame. For the outrageousness in this story is not just Aaron. It is also the absurdity of the prosecutor’s behavior. From the beginning, the government worked as hard as it could to characterize what Aaron did in the most extreme and absurd way. The “property” Aaron had “stolen,” we were told, was worth “millions of dollars” — with the hint, and then the suggestion, that his aim must have been to profit from his crime. But anyone who says that there is money to be made in a stash of ACADEMIC ARTICLES is either an idiot or a liar. It was clear what this was not, yet our government continued to push as if it had caught the 9/11 terrorists red-handed.

Aaron had literally done nothing in his life “to make money.” He was fortunate Reddit turned out as it did, but from his work building the RSS standard, to his work architecting Creative Commons, to his work liberating public records, to his work building a free public library, to his work supporting Change Congress/FixCongressFirst/Rootstrikers, and then Demand Progress, Aaron was always and only working for (at least his conception of) the public good. He was brilliant, and funny. A kid genius. A soul, a conscience, the source of a question I have asked myself a million times: What would Aaron think? That person is gone today, driven to the edge by what a decent society would only call bullying.

Tributes also appeared on Twitter, where Mr. Swartz had recently posted a note [his last] drawing attention to the campaign for the Treasury to mint a $1 trillion platinum coin to avoid a showdown over the debt ceiling.

"Philip Diehl, the most respected U.S. Mint director America's ever had, joins the campaign to #mintthecoin: buff.ly/Zp58iM" 8 Jan. 13

Mint the coin. For Aaron. Regarding the bullying of prosecutors, I always thought the anti-bullying campaign targeting school kids was worthwhile but kind of weird. American culture is all about the bullying. It's how you get ahead. Where do these bully kids learn it but from their older siblings and parents?

Public choice = Marxism by John Quiggin

Can an exploitation movie be a great movie? with Tasha Robinson and Scott Tobias

Henry Farrell on Aaron Swartz.

His guest posts at Crooked Timber.

I sort of agree with the generous broad view he takes in the post on Toward a Larger Left.

Corey Doctorow via DeLong

JSTOR

JSTOR (pronounced jay-stor;[3] short for Journal Storage) is a digital library founded in 1995. Originally containing digitized back issues of academic journals, it now also includes books and primary sources, and current issues of journals.[4] It provides full-text searches of more than a thousand journals, dating back to 1665 in the case of the Philosophical Transactions of the Royal Society. More than 7,000 institutions in more than 150 countries have access to JSTOR. Most access is by subscription, but some old public domain content is freely available to anyone, and in 2012 JSTOR launched a program of free access to some further articles for individual scholars and researchers who register.

On July 19, 2011, internet activist Aaron Swartz was charged with data theft in relation to bulk-downloading academic journal articles from JSTOR.[9] According to the indictment against him, Swartz surreptitiously attached a laptop to MIT's computer network, which allowed him to "rapidly download an extraordinary volume of articles from JSTOR".[10] Prosecutors in the case say Swartz acted with the intention of making the papers available on P2P file-sharing sites.[11] Swartz surrendered to authorities, pleaded not guilty to all counts and was released on $100,000 bail. Prosecution of the case is ongoing.[12] Two days later, on July 21, Greg Maxwell published a torrent file of a 32-GB archive of 18,592 academic papers from JSTOR's Royal Society collection, via The Pirate Bay, in protest against Swartz' prosecution.[13][14] 

From September 6, 2011, JSTOR has made some public domain content freely available to anyone.[15] JSTOR stated that they had been working on making it free for some time, and the Swartz controversy made them "press ahead" with the initiative.[16]

Swartz committed suicide yesterday at the age of 26.

Swartz's father worked in the computer industry, and from a young age Aaron was interested in computing, frequently studying computers, the Internet and Internet culture.[3] At the age of 14 Swartz co-authored RSS 1.0 Specification. He later attended Stanford University, however he left after one year of studying, stating 'I didn't find it a very intellectual atmosphere, since most of the other kids seemed profoundly unconcerned with their studies'.[3]. Instead he founded the software company Infogami, a startup that was funded by Y Combinator's first Summer Founders Program.[4] 

Through the Y Combinator program, Swartz found himself working on the Reddit website. Initially finding it difficult to make money from the project, the site later gained in popularity, with millions of users visiting it each month. In late 2006, after months of negotiations, Reddit was sold to CondéNet, owners of Wired magazine.[3] Swartz moved with his company to San Francisco to work on Wired, but grew unhappy with the set-up[3] and in January, 2007, he was asked to resign from his position.[5] Swartz described himself as being ill and suffering from a constant depressed mood throughout 2007.[6] In September, 2007, Swartz joined with Simon Carstensen and launched Jottit. In 2010-2011 he was a fellow at Harvard University's Edmond J. Safra Center for Ethics.[7] 

Swartz was also the creator of the web.py web application framework,[8] and co-founded Demand Progress,[7] a progressive advocacy group that organizes people via email and other media for "contacting Congress and other leaders, funding pressure tactics, and spreading the word" about targeted issues.

Platinomics by Greg Ip

I disagree with Ip more often than with most economic writers I read in that he seems to take it easy on Bernanke and the Fed, often writing with skepticism about what the Fed can accomplish. That's exactly what Romer and Romer warn about.

Fed Watch: More on Central Bank Independence by Tim Duy

Fox News Doesn't Understand How Coins Work by Yglesias

There are multiple equilibria

How effective is fiscal policy: Guest post from Roger Farmer by John Quiggin

Thought-provoking.

IOUs

The Debt Ceiling’s Escape Hatch by Edward Kleinbard

A Trillion-Dollar Coin Brings a Jackpot of Jests by Annie Lowrey

The inflation dragon is just around the corner by Simon Wren-Lewis

Django is a BAMF*

I recently saw Tarntino's "Django Unchained," the first part of PBS's "The Abolitionsists," and the season opener of "Justified."

"Justified" was entertaining and had a number of sudden turns. A conflict is being set up between Boyd Crowder and an evangelical preacher who is successfully weening the residence of Harlan County off of Oxycotin and the other drugs Crowder is peddling by turning them on to the opiate of religion. A down on her luck prostitute could be the Crowder's downfall. And it was gratifying to hear Walton Goggins quote Asimov and Keynes to one of his pushers who had found the Lord and stolen Boyd's money.

Goggins was also in the highly entertaining "Django Unchained." Great performances by the actors: Jamie Foxx, Christoph Waltz, Leonardo DiCaprio, Samuel Jackson, and Don Johnson (and Jonah Hill,etc.) I loved the soundtrack. While Tarantino helped the Germans look bad in "Inglorious Basterds," in "Django Unchained" one of the protagonists is a anti-slavery German bounty hunter played by Waltz. Waltz's Dr. Schultz is a great humanist and shows that Germans have a great liberal, pro-enlightentment tradition - see Goethe, Schiller, Beethoven, Marx - one that was crushed by war, economic depression and fascism.** Southerners come off really bad as the Germans did in Basterds. All the actors do an outstanding job, but Jackson's Uncle Tom Steven is the one who stuck with me. What a nasty fellow. I liked DiCaprio's speech on phrenology and the supposed submissiveness of blacks (everyone tossed about the N word.) And I liked how Tarantino had that one slave who hated Django because he thought he was a black slave trader. Pretty brutal but entertaining movie. DiCaprio could get some awards. Jackson should.

"The Abolitionists" was kind of brutal too but very thought-provoking and educational. It was the first of three episodes and focused on Frederick Douglass, Garrison, William Lloyd Garrison, Angelina Grimké, John Brown and Harriet Beecher Stowe. All of the whites were hardcore evangelical Christians who believed slavery was a sin. Douglass was a slave at first. He wasn't submissive enough for his owner so he brought in someone out of Tarantino movie, a guy who would "break" slaves by beating them once a week. Douglass fought back, even though it meant death, and bested the "breaker" guy who never told or came back, because if word got out his reputation would be damaged. Douglass said up to that point he had been a boy, but from there on he was a man. Grimké's story was very interesting as she was a black sheep of one of the wealthiest Southern (slave-owning of course) families, if not one of the wealthiest in the world at the time. But she felt slavery was a sin and worried for the souls of her fellow white southerners. So she moved north. In one dramatized scene, Garrison was attacked by a pro-slavery mob in the North and was so rattled he bowed out of the movement for a while. A lot of drama about Slavery these days, see "Lincoln" also.

-----------------------------
*Bad ass mother fucker.
**Dr Shultz at one point asks a southern musician at the plantation to stop playing Beethoven, because I assume it's offensive to him to hear such beautiful music in such a context. He notes the irony of the plantation owner admiring the black French novelist Dumas. He holds up the idealism and morality of art in contrast to corrupt institutions. On a personal, emotional level, Shultz also has bad flashbacks over the recent mauling of a runaway slave by dogs he witnessed. This reminded me of similar episodes or stories about Europeans like Nietzsche and William Wilberforce, both of whom became unhinged after witnessing the beatings of a horse by its master.

I have some German ancestry. On my father's side my great-grandmother emigrated from Germany to New York City where she married another German immigrant who died young. One of her nephews (my grandfather's cousin) was conscripted late in WWII and sent to the Eastern Front. He disappeared as the Red Army advanced westward. My grandfather fought in the Pacific.
    "Inglorious Basterds" did have some good Germans, so to speak: the starlette played by Diane Krueger and Til Shweiger's Sgt. Hugo Stiglitz. And the German soldier who had heard of Stiglitz was pretty tough and honorable in a way: