Krugman, DeLong and Baker on inflation and the 1970s

Are Investors Less Confused About Real and Nominal Interest Rates Than They Were 40 Years Ago? by Dean Baker

Thoma commenter anne writes: 

There were 2 characteristics of investment structure and understanding in the 1970s that have changed markedly since. 

As for bond portfolios, the concept of duration and how a constant duration bond portfolio can be used to control principle loss during a period of significantly rising interest rates was not developed till late in the 1970s. Bond portfolio managers know how to protect portfolios against increasing inflation or interest rates now. 

As for stock portfolios, there has been a significant change for well established companies in which stock buybacks are demanded by investment managers and accepted by corporate management as a way in which to increase stock prices when economic conditions such as increasing inflation or interest rates make for bear markets.

Frank Luntz, Occupy and the Battle for Economic Freedom by Mike Konczal

How Congress Occupied Wall Street by Sarah Palin

We need equality under the law. From now on, laws that apply to the private sector must apply to Congress, including whistleblower, conflict-of-interest and insider-trading laws. Trading on nonpublic government information should be illegal both for those who pass on the information and those who trade on it. (This should close the loophole of the blind trusts that aren't really blind because they're managed by family members or friends.)

No more sweetheart land deals with campaign contributors. No gifts of IPO shares. No trading of stocks related to committee assignments. No earmarks where the congressman receives a direct benefit. No accepting campaign contributions while Congress is in session. No lobbyists as family members, and no transitioning into a lobbying career after leaving office. No more revolving door, ever.

This call for real reform must transcend political parties. The grass-roots movements of the right and the left should embrace this. The tea party's mission has always been opposition to waste and crony capitalism, and the Occupy protesters must realize that Washington politicians have been "Occupying Wall Street" long before anyone pitched a tent in Zuccotti Park.

(via Nancy Folbre)

How Occupy stopped the supercommittee by Dean Baker

How I Stopped Worrying and Learned to Love the OWS Protests by Matt Taibbi

Much more than a movement against big banks, they're a rejection of what our society has become.

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That's what I was thinking during the first few weeks of the protests. But I'm beginning to see another angle. Occupy Wall Street was always about something much bigger than a movement against big banks and modern finance. It's about providing a forum for people to show how tired they are not just of Wall Street, but everything. This is a visceral, impassioned, deep-seated rejection of the entire direction of our society, a refusal to take even one more step forward into the shallow commercial abyss of phoniness, short-term calculation, withered idealism and intellectual bankruptcy that American mass society has become. If there is such a thing as going on strike from one's own culture, this is it. And by being so broad in scope and so elemental in its motivation, it's flown over the heads of many on both the right and the left.

The right-wing media wasted no time in cannon-blasting the movement with its usual idiotic clichés, casting Occupy Wall Street as a bunch of dirty hippies who should get a job and stop chewing up Mike Bloomberg's police overtime budget with their urban sleepovers. Just like they did a half-century ago, when the debate over the Vietnam War somehow stopped being about why we were brutally murdering millions of innocent Indochinese civilians and instead became a referendum on bralessness and long hair and flower-child rhetoric, the depraved flacks of the right-wing media have breezily blown off a generation of fraud and corruption and market-perverting bailouts, making the whole debate about the protesters themselves – their hygiene, their "envy" of the rich, their "hypocrisy."

The protesters, chirped Supreme Reichskank Ann Coulter, needed three things: "showers, jobs and a point." Her colleague Charles Krauthammer went so far as to label the protesters hypocrites for having iPhones. OWS, he said, is "Starbucks-sipping, Levi's-clad, iPhone-clutching protesters [denouncing] corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over." Apparently, because Goldman and Citibank are corporations, no protester can ever consume a corporate product – not jeans, not cellphones and definitely not coffee – if he also wants to complain about tax money going to pay off some billionaire banker's bets against his own crappy mortgages.

Protesters Vow to Retake Emptied Park

OWS crackdown?

Doug Henwood posts a letter whose author believes it's coming.

Dan Davies, whose Crooked Timber blogpost spawned the Occupy Wall Street protests which in turn sparked protests across the country and globe, twatted:

Just spoken to a couple of lads from MF Global. Am therefore not in mood for another round of "the bankers have not suffered!", thaksveymuch

I think he has a point. Bear Stearns gone. Lehman gone. Wachovia gone. Merrill Lynch* gone. Washington Mutual (Woot!) gone. Etc.

Wolfgang Schäuble, the German Federal Minister of Finance who Henry Farrell and John Quiggin applauded here for "floating the idea of real fiscal integration and accompanying democratic reforms of the EU," has recently come out for the EU to take the lead on a Tobin tax** although some people are skeptical that it will ever happen.

Plus it's heavy metal to have an umlaut in your name.***

Somewhat related: the Economist editor Zanny Minton Beddoes suggested on Charlie Rose that the German public isn't as Tea Party/NIMBYish as we've been led to believe.

Update: Looks like there was some skullduggery at MF Global. According to news accounts, Corzine made a bad bet and got caught in the Swirling European Vortex of Doom.

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*Margin Call's director's father spent forty years at Merrill Lynch.
**Financial Transaction Tax
***Fake Onion article on the topic.

Thomas Friedman is shrill.

Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.

We can’t afford this any longer. We need to focus on four reforms that don’t require new bureaucracies to implement. 1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from. The public needs to know.

Emphasis added.

You Say You Want a Revolution by Andrew Sullivan

Occupy Wall Street: It's Not a Hippie Thing by Roger Lowenstein

Henwood interview with Sam Seder

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.

Doug Henwood on OWS demands:

Full employment is no small demand to make. The bourgeoisie hates it, because it would strengthen the bargaining power of the working class. It, plus the other planks of an expanded welfare state mentioned in the Demands draft, would give people the confidence and freedom to think about a better world. This isn’t fictional: it happened in the 1970s, as the transformation of consciousness among middle-class college students spread into the working class. Quality of work life—in a real, not a GM sense—became a central concern in organized labor, at least among the rank and file. It was one of the things that alarmed elites, leading to the crackdown of the late 1970s and early 1980s.

I liked how Nick Rowe referred to people from the "concrete steppes" here in the context of targeting NGDP levels.

Simpson, eh?

This Burns cartoon is making the rounds. I saw the movie "Margin Call" last night and wow, talk about a timely movie. And it's good! Jeremy Irons plays a Burns-like character who heads a Lehman brothers-type firm and the film takes place during the day they experience a Minsky or Wile E. Coyote moment and realize they won't be able to meet their margin calls in the near future.

A few things struck me on first viewing. The film points out that two of the risk managers were drawn from different backgrounds, lured by higher pay. Zachary Quinto's* risk analyst has a Ph.D. in propulsion physics, literally is a rocket scientist. Stanley Tucci's veteran once built bridges as an engineer.

An irony is that Quinto's character is promoted in the end, because he and Tucci had developed a friendship or good working relationship. Tucci's character is fired at the beginning of the movie. At the time he was working on some risk analyses that were showing that the firm was in trouble. He hands it off - via a USB flash drive - to Quinto's analyst as he was leaving the building forever. Because they were sorta friends or had a mentor relationship, Quinto was walking Tucci to the door and received the mostly-completed risk analyses which he would explore further and then bring its conclusions to the attention of higher ups. So it's the guys from non-finance backgrounds who allow the company to be the first to dump its toxic assets and minimize the losses the firm will suffer before it goes under.

The film is quite dark and brutal in a David Mamet-social Darwinian manner, but there's also some laugh-out loud humor.

What I didn't quite get is that the film ended with Kevin Spacey's middle manager - who had a conscience somewhat - having sort of a breakdown. He's divorced (from the great Mary McDonnell) and unhappy although successful. Was this some sort of statement that yes these workaholics are rich but unhappy and unfulfilled?

Spacey could get an Oscar for this. He helped produce The Social Network so now he's had back-to-back projects that really, really resonate with the times and are good movies.

Paul Bettany should get an award for his portrayal as one of the firm's knowledgable sergeants.  (The rest of the cast is great too.) He gives a pungent, rationalizing speech explaining to a junior colleague that yes they'll be vilified but they're just doing what people want, providing a service, turning their money into more money, like old-timey alchemy. That's why they get paid so much.

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*Quinto played Spock in J.J. Abrams' Star Trek and recently came out of the closet. That explains why Spock was giving hunky Kirk those longing looks.

Lots of stuff on OWS being written and published.

Michael Hardt and Antonio Negri in Foreign Affairs:

The political face of the Occupy Wall Street protests comes into view when we situate it alongside the other "encampments" of the past year. Together, they form an emerging cycle of struggles. In many cases, the lines of influence are explicit. Occupy Wall Street takes inspiration from the encampments of central squares in Spain, which began on May 15 and followed the occupation of Cairo's Tahrir Square earlier last spring. To this succession of demonstrations, one should add a series of parallel events, such as the extended protests at the Wisconsin statehouse, the occupation of Syntagma Square in Athens, and the Israeli tent encampments for economic justice. The context of these various protests are very different, of course, and they are not simply iterations of what happened elsewhere. Rather each of these movements has managed to translate a few common elements into their own situation.

In Tahrir Square, the political nature of the encampment and the fact that the protesters could not be represented in any sense by the current regime was obvious. The demand that "Mubarak must go" proved powerful enough to encompass all other issues. In the subsequent encampments of Madrid's Puerta del Sol and Barcelona's Plaça Catalunya, the critique of political representation was more complex. The Spanish protests brought together a wide array of social and economic complaints -- regarding debt, housing, and education, among others -- but their "indignation," which the Spanish press early on identified as their defining affect, was clearly directed at a political system incapable of addressing these issues. Against the pretense of democracy offered by the current representational system, the protesters posed as one of their central slogans, "Democracia real ya," or "Real democracy now."

Keith Gessen

Caleb Crain plugs Henwood's newsletter

NYTimes article on OWS and the 99 percent movement.

There may be no common manifesto or list of goals — something that has drawn criticism from both inside and outside the movement — but there is one common thread: anger. Some have looked for jobs for months; others have lost their homes to foreclosure. Angry, they all are.
...
In Chicago, where 175 protesters were arrested over the weekend for curfew violations, a crowd outside the Federal Reserve Bank marched to the beat of improvised drums. “Education is a part of it; housing is a part of it; jobs are a part of it,” said Maryem Alyhabib, 34, who left her three children with her mother to protest for an hour and a half on Monday for the first time.

Without the symbolic power of a Wall Street, many local activists have improvised by occupying parks, street corners, always someplace with a link to the power structure they denounce. The many arrests that have taken place across the country have linked protesters in spirit.

Charles Evans of the Chicago Fed is one of the good guys...

Thoughts by one who supported Nader in 2000, supported Obama since Iowa, and is a supporter of the 99 percent movement (me) 
(or circle firing-squad time)

Henwood:

No doubt you’ve all heard and read about the huge and wonderful Occupy Wall Street satellite rally in Times Square this afternoon.

This crowd was anything but the shiftless hippies of Ann Coulter’s imagining. I bet a lot of them were Democrats, which means that the process of productive disillusionment I’d hoped for in the summer of 2008 is finally kicking into gear, after a long delay:

I could have told you by looking at the polls that Democrats are not happy with Obama. The economy is horrible.

Why is it so awful? Well there was the Reagan revolution. Thirty years of anti-government propaganda arguing that deregulation and privatization are the route to prosperity have raised inequality, spawned financial panics and slowed growth. The Republican party has become the party of tax cuts uber alles. As Cheney said, deficits don't matter.

Clinton merely reinforced that message with words ("era of big government is over") and actions (his dismantling of Glass-Steagall and his ending of welfare as we knew it.) (Clinton reinforced big government with regards to the police state and the war on drugs.) Obama's primary victory over Hillary was in part a repudiation of Clintonism. In a campaign interview with David Leonhardt, Obama argued that workers' wages haven't risen alongside productivity gains over the last 30 years and we need government to even things out. That's big government liberalism. (My disagreement with the Reagan revolution and Clinton's reinforcement of it is why I supported Nader in 2000. In hindsight, given what happened because of 9-11 and the Bush tax cuts, it was a mistake.)

Obama got the biggest stimulus he could get out of Congress in 2009, probably the biggest stimulus ever. He brought government regulation into the bloated, dysfunctional health care system, getting the most he could out of Congress, pushing the ball down the field. The Dodd-Frank Act falls short too, but moves the ball in the right direction. Again Obama probably got the most he could out of Congress.

Since I played football I recognize how important it is to move ball down the field and get the first down. You need first downs to get a touch down. Hail mary's rarely work hence the name "Hail Mary" a prayer. One can't depend on prayers. My idea of what a touchdown would mean is probably aligned with Henwood. I just don't see OWS as mostly a repudiation of Obamamania. It is in a way but Henwood for some reason just wants to bait good people like Barabara Ehreinreich and Christopher Hayes for indulging in a hope that things could change for the better and for putting a positive spin on Obama's election.

In the 2008 Democratic primary, people wanted something new. That's why Hillary lost. (Plus Obama ran a better campaign.) His message to Hillary supporters after the election was that "we're on the same team" and he brought her into the cabinet as Secretary of State, a prestigious position.  Obama's message to independents in the general was I don't care about the blue versus red cable news culture wars, I will do things that work and move the country in the right direction.

The problem is he didn't. (Well he did but not enough.) The Republicans have been unusually obstructionist but Obama had many unforced errors. As the Fed's iPad App will tell you, Obama left two seats open on the Federal Open Market Committee. Bernanke has gone above and beyond to such an extent that the Fed has drawn the glare of the great Sauron's Eye of conservative Republicans. The victorious House Republicans put Fed Abolitionist Ron Paul in charge of the committee overseeing the Federal Reserve. Viable Presidential candidate Rick Perry called Bernanke's accommodating monetary policy treasonous. Bachmann railed at the Fed for printing money. Republican leaders of Congress mailed Bernanke a threatening letter warning him not to try to help the economy recover. And so on. Still the Fed has not done enough. Their forecasts have been reliably over-optimistic. Opportunistic disinflation continues apace.

Right now the votes on the FOMC have been 7-3. Maybe 9-3 vote splits wouldn't make that much of a difference but two more rational voice echoing what Charles Evans has been saying about having their hair on fire over the jobs recession could make a difference. Narayana Kocherlakota recently gave a speech where he described the process of a regular Fed meeting:

At a typical meeting, there are two so-called go-rounds, in which every president and every governor has the opportunity to speak without interruption. The first of these is referred to as the economics go-round. It is kicked off by a presentation on current economic conditions by Federal Reserve staff economists. Then, the presidents and governors describe their individual views on current economic conditions and their respective outlooks for future economic conditions. The presidents typically start by providing information about their district’s local economic performance. We get that information from our research staffs, but also from our interactions with business and community leaders in industries and towns from across our districts.

The chairman speaks at the end of the first go-round. He briefly but thoroughly summarizes the preceding 16 perspectives. I can assure you that this is no easy task—and the chairman’s balanced and thoughtful treatment of our remarks is one of the many reasons that he commands such respect among his colleagues. He then provides his own views on the economy.

The Committee next turns to the second go-round, which focuses on policy. Again, the staff begins, with a presentation of policy options. After that, each of the 17 meeting participants has a chance to speak on what each views as the appropriate policy choice. This set of remarks is followed with a summary by the chairman, in which he lays out what he sees as the Committee’s consensus view for future policy. The voting members of the FOMC then cast their votes on this policy statement and thereby set monetary policy for the next six to seven weeks.

Two additional voices of reason could make a difference.

Green Shoots
Another big failure was that Obama smoked some Hawaiian green shoots. As early as 2009-2010 he turned to deficit-reduction. Instead of taking out insurance in case the recovery was "L" shaped instead of "V" shaped, Obama turned to happy talk and mistaken analogies about how the government needs to tighten its belt just as families do. And so the economy still sucks and people have become motivated to protest Wall Street's complicity in this state of affairs. Yes the American Jobs Act would help, and I'm not surprised as an Obama supporter that Obama proposed it, but the Senate is blocking it. They might get the payroll tax cuts through, that's something but it may not be enough to help Obama get re-elected and certainly not enough to bring down the unemployment rate much.

As an Obama supporter I was very disappointed the way Obama got rolled during the debt-ceiling clown show. The Republican establishment wanted to take Obama's regressive deal even it meant raising taxes. They saw it for what it was. The Tea Party stopped it. (Maybe it was partly a re-election ploy by the White House to demonstrate to independents how looney the Republican Party has become. Even if that's true, the spectacle demoralized Democrats.)

As an Obama supporter I'm deeply worried about another possible scenario being true. The Obama administration cares about re-election uber alles. So much so that it's plausible to me that the Obama administration brought Romneycare to the Federal level in part to alienate their likely opponent in the re-election contest from his conservative base. Early on, Obama said he wanted to win re-election because he said he didn't want to have spent all that time and energy fixing the economy only to hand it over to Romney so he could take credit.

According to this graph Obama won the electoral college and the Presidency by winning states where voters have high levels of eduction, such as purple states like Virginia and North Carolina. They will be focusing more on these states than redish swing states like Ohio in order to win. The unemployment rate of people with a four-year degree is only 4.3 percent. Maybe this is why they didn't take out any insurance against a "L"-shaped recovery even though the last two recoveries were L-shaped with weak job growth and as Reinhart-Rogoff showed in their book "This Time It's Different" recoveries usually take longer after a financial crisis. They thought the stimulus would cushion the blow and that the private sector would pick up the growth baton and the economy would reach escape velocity. Maybe they thought the Fed would do more but according to Ron Suskind's book they didn't give the Federal Reserve much thought except to mistakenly believe their continually overly-optimistic forecasts. Suskind's portrayal certainly rings true given that there are two vacant seats on the FOMC. What would people say if Obama was leaving two seats open on the U.S. Supreme Court?

If Obama does win in 2012 - and the Republicans certainly are not enchanted with Romney: first Bachmann, now Perry, now Cain - I will grind my teeth constantly over glib news analyses about how the unemployment rate doesn't matter. I remember Yglesias linking to an obnoxious blog post by a poli-sci professor arguing this very exact thing. If Obama isn't re-elected maybe the next Democrat elected in the midst of the next lesser depression would create a 21st century WPA modeled on the National Science Foundation and how it goes about doling out grants. This would provide much bang for the buck in stimulus and certainly help said Democrat get re-elected. (That is if the Senate didn't block its creation.) If Obama isn't re-elected though, the Republicans may severely traumatize the country. It's possible. Although the talk is now that the Senate and House will flip parties.

You would think Henwood would recognize the fact that the 99 percent movement would want to appeal to Obama supporters - when asked, Obama himself said the protesters were legitimately frustrated with a  financial system that is responsible for the mess we're in. They're protesting on Wall Street not in front of the White House.

Does Henwood believe Elizabeth Warren's candidacy for the US Senate has some potential for "productive disillusionment"? According to Ron Suskind's book Confidence Men, Obama was impressed with her early on. The Consumer Finance Protection Agency - created by Frank-Dodd - could be good if the Republicans don't gut it.

In Protest, the Power of Place by Michael Kimmelman

We tend to underestimate the political power of physical places. Then Tahrir Square comes along. Now it’s Zuccotti Park, until four weeks ago an utterly obscure city-block-size downtown plaza with a few trees and concrete benches, around the corner from ground zero and two blocks north of Wall Street on Broadway. A few hundred people with ponchos and sleeping bags have put it on the map.

interview with Frances Fox Piven