the rich are ruthless

Unmentioned Myth About Billionaires: They Know Anything About Public Policy by Dean Baker

The Washington Post treated us to "five myths about billionaires" this morning. Incredibly, they missed the most obvious one: that billionaires know anything special about what is good for the country and the world. 

Most billionaires (at least those who didn't inherit the money) are probably smart and hard-working, but so are millions of other people. What most distinguishes someone like Bill Gates from the hundreds of thousands of other software entrepreneurs is luck and sharp elbows. Suppose IBM had refused to allow Gates to keep control of the Dos operating system? Gates might still be very rich, but certainly not the richest man in the world. Alternatively, if the government still enforced anti-trust laws Microsoft might have faced serious penalties for engaging in textbook anti-competitive practices to get and keep a near monopoly in operating systems, Gates also would not have the fortune he has today. 

Anyhow, there is no reason to think that Gates' luck and ruthlessness make him particularly competent to pass judgement on world poverty, education, or any of the other issues for which he is now viewed as an authority. The same applies to the other billionaire policy types cited in the piece. While these people obviously have the money to ensure that their views carry force in the world, there is no more reason to think that these billionaires' judgements on public policy carry particular value than the judgements of people who win the lottery.

French government collapses

Objecting to Austerity, French Style by John Cassidy

Austerians

While thinking about public choice theory, Daniel Kuehn links to Krugman and Noah Smith about the push for austerity. Krugman links to Naomi Klein and Mike Konczal.

why we can't have nice things

Another one on the austerity meme, after Piketty's K21, Floor System, macro wars, German trade, etc. (Need to clean up and link).

Neil Irwin sparked this discussion.

Ritholtz

Kevin Drum

Ritholtz and Biven mostly blame the Republicans and they do deserve the lion's share. But we must also remember Geithner saying stimulus gives a "sugary high" and Orzag saying we must cut the deficit so we can spend money on what we want. Obama even gave in to "sound finance" rhetoric when he said the government needs to tighten its belt like households are doing.

budget deal - unprecedented austerity

The Budget Deal Is a Win for Democrats. And the GOP doesn't know it yet by Noam Scheiber

Unprecedented Austerity by Krugman

"You can see that there was a brief, modest spurt in spending associated with the Obama stimulus — but it has long since been outweighed and swamped by a collapse in spending without precedent in the past half century. Taking it further back is tricky given data non-comparability, but as far as I can tell the recent austerity binge was bigger than the demobilization after the Korean War; you really have to go back to post-World-War-II demobilization to get anything similar.

And to do this when the private sector is still deleveraging and interest rates are at the zero lower bound is just awesomely destructive."

fiscal stagnation

Fiscal Drag in 2013 by Menzie Chinn

From Torsten Slok at Deutsche Bank:

[F]iscal drag in 2013 is 2.4%, ie if GDP growth in 2013 ends up being 1.7% then if we had not had the fiscal drag then GDP growth would instead have been 4.1% (=1.7% + 2.4%). ..

...Translated into nonfarm payrolls this means that instead of having nonfarm payrolls at 186k - the average monthly number so far for this year - then nonfarm payrolls would have been more than 400k...

Grand Bargain and fiscal policy

A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain’ by Jackie Calmes

“It’s a lot harder than you’d think to find Republicans who’d actually want to cut entitlements, or Democrats who want to raise taxes,” said Jared Bernstein, a former economic adviser to Vice President Joseph R. Biden Jr. and now a senior fellow at the liberal Center on Budget and Policy Priorities. “The only person who seems to have consistently been interested in a grand bargain is the president, and frankly I’m not even sure about him.”
...
Mr. Obama put the proposed changes to entitlement programs in his budget, including one that would reduce annual cost-of-living benefits for Social Security, over his party’s opposition. His hope was to entice Republican leaders back to the bargaining table, or at least to expose their unwillingness to compromise. Republicans were not enticed.

“One of the big differences between budget discussions now and previous ones back to the ’80s is that I’m not sure anyone here really wants to cut a deal,” said Stan Collender, a longtime fiscal policy analyst and the national director of financial communication at Qorvis, a public relations firm.

“Do Republicans want to propose changes in entitlements?” he added. “Basically you’re talking about Medicare and Social Security, which a lot of Tea Party folks get, given their ages. Do Democrats want to propose changes in taxes for upper-income individuals? Well, given the support they’re getting from upper-income individuals, I’m not sure they want to take the lead on that.”
...
The declining deficit reflects economic growth as well as the spending cuts and tax increases that Mr. Obama and Congress previously agreed to. It is not expected to begin climbing again until about 2018, as more baby boomers draw from Medicare, Medicaid and Social Security. With the unemployment rate stuck above 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs.

good chart on Lehman + 5 years

The Arguments of the Great Recession Are Over. Hooray by Jonathan Chait

From July 1, 2007 to today:

Financial profits: +59 percent
Corporate profits: +42 percent
S&P 500: +8
Employment/population ratio: -6.7 percent

(via DeLong)

GDP Grew at Anemic 1.7% Rate Last Quarter. Thanks, Sequester! by Kevin Drum

As I recall, CBO estimated that the sequester alone would cut about 0.8 percent from GDP growth. The fiscal cliff deal might have added another 0.4 percent. If they were right, it means that 2.9 percent growth has been pared back to 1.7 percent. My rough eyeballing of the figures suggests to me that this was probably an overestimate, but probably only by a bit. I'll bet that without the latest round of austerity, growth would have been in the range of 2.5 percent.

Profit Shares Even Higher With New GDP Measures by Dean Baker

The government sector continued to contract, declining at a 0.4 percent annual rate. A 1.5 percent drop in federal spending more than offset a 0.3 percent rise in state and local government spending. The revisions show that government spending has been more of a drag on the economy than had been previously reported. The growth rate of spending was revised down by 0.5 percentage points in both 2009 and 2010 and by 0.7 percentage points in 2011; although growth for 2012 was revised up by 0.7 percentage points. 

One distressing sign in the second-quarter data was a 9.5 percent surge in imports. As a result of this sharp rise, trade subtracted 0.8 percentage points from growth in the quarter.
...

The new data also show profit shares rising even more than had earlier been reported. The profit share of net corporate output rose to 25.5 percent in 2012, the fourth-highest share in the post-war era. The after-tax share was over 19.0 percent in each year from 2010-2012. 

This is a full percentage point below the economy's potential GDP growth. This growth rate would usually be associated with a rise in the unemployment rather than the decline that we have seen over this period.

the urge to purge

Austerians, deficit scolds, Mellonheads, the sequester, Pete Peterson, Ren & Stimpy.

Is this what Michael Kinsley wants?

Societal Ills Spike in Crisis-Stricken Greece By LIZ ALDERMAN

ATHENS — “Five euros only, just 5 euros,” whispered Maria, a young prostitute with sunken cheeks and bedraggled hair, as she pitched herself forward from the shadows of a graffiti-riddled alley in central Athens on a recent weeknight. 

As a chill wind swept paper and trash across a grimy sidewalk, Angelos Tzortzinis, a Greek photographer, caught sight of Maria lowering her price to the equivalent of about $6.50. Maria, who would only give a pseudonym, had hoped to get some money for food — and for a cheap but dangerous new street drug that has emerged during Greece’s crisis, guaranteed to obliterate her sorrows, if only for a moment. 

With the country heading into the fifth year of economic depression, and unemployment near 60 percent for young people, greater numbers of women and men are offering their bodies for next to nothing to get any scrap of money. According to the National Center for Social Research, the number of people selling sex has surged 150 percent in the last two years. 

Many prostitutes have been selling their services for as little as 10 to 15 euros, a price that has shrunk along with the income of clients afflicted by the crisis. Many more prostitutes are taking greater health risks by having unprotected sex, which sells for a premium. Still more are subject to violence and rape. 

Now a new menace has arisen: a type of crystal methamphetamine called shisha, after the Turkish water pipe, but otherwise known as poor man’s cocaine, brewed from barbiturates and other ingredients including alcohol, chlorine and even battery acid

I had hoped the change in ownership would improve the New Republic.

How the Case for Austerity Has Crumbled by Krugman

U.S. Budget Deficit Shrinks Far Faster Than Expected by Annie Lowrey

The Facts Are In and Paul Ryan Is Wrong by Jonathan Chait

(via DeLong)

Emperor has no clothes

Wow what a week. This story in the New York Times by Jackie Calmes really struck me:

Economists See Deficit Emphasis as Impeding Recovery

When the emphasis has been the Deficit and government spending since 2010 thanks to Geithner, Obama, and the Tea Party. It's as if the boy yelled "The emporer has no clothes."

And DeLong on Moby Ben and Washington-Whale.

Powerful shit. About the hedge fund cranks (DeLong mentions in a comment that conservative economists like Marty Feldstein feel the same way.)

BERNANKE-HATERS AT THE SOHN CONFERENCE by DeLong

And Matthew Yglesias:

Hedge fund Bernanke hate: A lot of folks have remarked on the amazing outpouring of hatred for Ben Bernanke's allegedly inflationary monetary policies from the hedge fund set at the recent Sohn Conference, but I don't think anyone's really nailed it. Here's the thing about rich hedge fund guys. They're people. And like other people you may have met, they like money and don't like paying taxes. Where rich people are different is that they have a lot of money, so it's really tempting to say "hey lets take that money and give it to people who need the money more."

Rich people who don't like paying taxes don't like the idea of macroeconomic stabilization policy. That's because it'd convenient for them if the market economy could be not just a practical tool for allocating goods, but an moral framework imbued with deep ethical significance.

And that, in turn, is an idea that sits oddly with the concept that actually you have a bunch of bureaucrats in the Federal Reserve System making the economy plug along. So rich guys indulge fantasies of shifting back to a gold standard or something else that would restore divine right to the monetary system. But beyond that, the central banker they like best is the central banker who's most obscure. Conventional monetary policy was something economists and bond traders paid attention to, but nobody else. Alan Greenspan raising or cutting rates by 25 basis points wasn't a big spectacle. Since the easing (or tightening) was based on interest-rate targeting rather than quantitative monetary creation, you didn't get articles about "printing money". It was all just there in the background.

Ben Bernanke is as if the Wizard of Oz stepped forward from behind the curtain and turned out to be a really powerful wizard. The whole market economy turns out to be an elaborately orchestrated affair, with deep involvement by government central planners who weigh a variety of situations before determining outcomes. In that kind of world, there may still be reasons to eschew certain kinds of tax hikes. But they're practical, pragmatic reasons. They're not moral reasons, in which taxes violate the natural hierarchy of the market because there clearly is no such hierarchy.

Time magazine lists Yglesias as one of 2013's best political Twitterers along with Franke-Ruta. Zero Hedge is listed for economics! WHY Zero Hedge??? Is Time trying to be seen as edgy? So Zero Hedge criticizes the banks, so what?

Reinhart-Rogoff One More Time: Why the 90 Percent Never Should Have Been Taken Seriously by Dean Baker

In effect, Reinhart and Rogoff were making the same sort of claim about debt and GDP. Let me try to explain this in a way that even an economist can understand it. 

I have often pointed out that the value of long-term debt fluctuates with the interest rate. I didn't think this is a secret, but apparently few economists have followed what happens to bond prices when interest rates change. The point is that the value of our debt will plummet if interest rates rise, as the Congressional Budget Office and other forecasters expect. This means that we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost.

Yes, this is really stupid, but if you believed the Reinhart-Rogoff 90 percent debt cliff, then you believe that we can sharply raise growth rates by buying back long-term bonds at a discount. It's logic folks, it's not a debatable point -- think it through until you understand it.

So, interest rates rise. A 30-year Treasury loses value, going from 2 percent interest to 5 percent interest, and from the price of 188 to 115. What happens when the Fed buys the debt back?

Is it an open market operation?

http://en.wikipedia.org/wiki/Open_market_operations

Since most money now exists in the form of electronic records rather than in the form of paper, open market operations are conducted simply by electronically increasing or decreasing (crediting or debiting) the amount of base money that a bank has in its reserve account at the central bank. 

...

In the United States, as of 2006, the Federal Reserve sets an interest rate target for the Federal funds (overnight bank reserves) market. When the actual Federal funds rate is higher than the target, the New York Reserve Bank will usually increase the money supply via a repo (effectively borrowing from the dealers' perspective; lending for the Reserve Bank). When the actual Federal funds rate is less than the target, the Bank will usually decrease the money supply via a reverse repo (effectively lending from the dealers' perspective; borrowing for the Reserve Bank). 

In the U.S., the Federal Reserve most commonly uses overnight repurchase agreements (repos) to temporarily create money, or reverse repos to temporarily destroy money, which offset temporary changes in the level of bank reserves.[4] The Federal Reserve also makes outright purchases and sales of securities through the System Open Market Account (SOMA) with its manager over the Trading Desk at the New York Reserve Bank. The trade of securities in the SOMA changes the balance of bank reserves, which also affects short term interest rates. The SOMA manager is responsible for trades that result in a short term interest rate near the target rate set by the Federal Open Market Committee (FOMC), or create money by the outright purchase of securities.[5] More rarely will it permanently destroy money by the outright sale of securities. These trades are made with a group of about 22 (currently 18 as an immediate aftermath of 08/09 credit crisis) banks or bond dealers that are called primary dealers. 

Money is created or destroyed by changing the reserve account of the bank with the Federal Reserve. The Federal Reserve has conducted open market operations in this manner since the 1920s, through the Open Market Desk at the Federal Reserve Bank of New York, under the direction of the Federal Open Market Committee. The open market operation is also a means through which inflation can be controlled because when treasury bills are sold to commercial banks these banks can no longer give out loans to the public for the period and therefore money is being reduced from circulation.

 http://en.wikipedia.org/wiki/Primary_dealers

As of October 31, 2011 according to the Federal Reserve Bank of New York the list includes:^[10]

• Scotiabank Global Banking and Markets
• BMO Capital Markets Corp.
• BNP Paribas Securities Corp.
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Capital Markets America Inc.
• Deutsche Bank Securities Inc.
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• Jefferies & Company Inc.
• J.P. Morgan Securities LLC
• Merrill Lynch, Pierce, Fenner & Smith Incorporated
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. Incorporated
• Nomura Securities International Inc.
• RBC Capital Markets, LLC
• RBS Securities Inc.
• SG Americas Securities LLC.
• UBS Securities LLC.

The New York Fed has a list of changes since 1999.

So they're part of the system and get free money deposited to their accounts when the Fed wants to create jobs. They get money pulled from their accounts when labor markets are "too tight" and workers are able to bid up their wages.

Can the Fed offset contractionary fiscal policy? by Ryan Avent

Monetarism Falls Short (Somewhat Wonkish) by Krugman

Washington Post Editorial Condemns Austerity in Europe! by Dean Baker

I double-checked to see that this is in fact April 28 and not April 1. This does seem to be real, a Washington Post lead editorial on Europe that calls for Germany to ease up on austerity and to allow the peripheral euro zone countries to grow again. 

I could nit-pick and point out that the editorial doesn't get everything right (nothing wrong with Germany running trade surpluses, if the surpluses were with fast-growing countries in the developing world), but we should just sit back and enjoy this one for a moment. Perhaps evidence and logic can actually have an impact on economic policy debates, even at the Washington Post.

The Urge to Purge by Krugman

The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight. Disguise it with a bit of political cross-dressing, and even liberals can fall for it.

Will Republicans come to regret the payroll tax hikes and Sequestration, electorally speaking.

'A Serious Warning That Consumers May Be Tightening Their Belts' by Mark Thoma

Consumer Confidence Index (the one that matters) Declines by Dean Baker

Ben Bernanke to Congress: You’re doing it wrong by Ezra Klein

Allan Sloan Explains the Relationship Between Interest Rates and Bond Prices and How the Government Can Costlessly Eliminate Large Amounts of Debt by Dean Baker

Allan Sloan used his column today to explain a simple but often overlooked point, when interest rates rise, bond prices fall. This means that if long-term interest rates rise substantially in a few years, as the Congressional Budget Office predicts, then the bonds issued at very low interest rates today will be selling at large discounts. 

The implication of this fact is that in 2015 or 2016, the Treasury would be able to purchase back much of the debt issued today at substantial discounts. This would allow it to drastically reduce the government's debt at no cost. For example, if it bought back debt with a face value of $4 trillion at an average discount of 20 percent, it could instantly eliminate $800 billion in debt, reducing the debt to GDP ratio by almost 5 percentage points. 

This step would be pointless from either an economic or financial standpoint since it would not change the interest burden facing the country, but it should make many of the deficit cultists happy. Since these cultists, who largely control the economic debate in the United States, assign some mystical power to specific debt to GDP ratios, they should be pacified by the knowledge that we can buy bonds back at a discount to keep the debt burden under their magic number. This route is much simpler than raising taxes or cutting spending.