Will: Rogues Gallery Stalwart

The sequester’s a public health hazard by George Will

Unfortunately, recent government behavior has damaged the cause of basic science. It has blurred the distinction between fundamental research and technical refinements (often of 19th-century technologies — faster trains, better batteries, longer-lasting light bulbs). It has sown confusion about the difference between supporting scientific research and practicing industrial policy with subsidies — often incompetently and sometimes corruptly dispensed — for private corporations oriented to existing markets rather than unimagined applications. And beginning with the indiscriminate and ineffective 2009 stimulus, government has incited indiscriminate hostility to public spending.

"Government has incited indiscriminate hostility to public spending?" What a dishonest hack. What a hypocrite!

George Will Wants the Government to Do Scientific Research  by Dean Baker

George Will Now Against Intentional Irrationality by Jonathan Chait

Gerson - rogues gallery troll

Michael Gerson Doesn't Like Quantitative Easing and Misrepresents Bernanke's Statements to Make His Case by Dean Baker

Michael Gerson used his column today to warn of the bad effects of quantitative easing, telling readers that it is concealing structural problems. To make his case, he completely misrepresented statements from Federal Reserve Board Chairman Ben Bernanke. 

After referring to comments from Mario Draghi, the President of the European Central Bank, urging governments take steps to increase potential growth, Gerson tells readers 

"Outgoing Fed Chairman Ben Bernanke has been gently suggesting there are limits to what the Fed can accomplish and warning against counterproductive fiscal policies and confidence-shaking political confrontations. Jeffrey Lacker, president of the Richmond Federal Reserve, argues that economic growth is limited 'in large part, by structural factors that monetary policy is not capable of offsetting.'" 

In this context readers would naturally believe that Bernanke was also warning about structural obstacles to growth, which is the theme pushed in the rest of Gerson's column. This is not true. 

Bernanke was very clearly warning about the negative effects of the sequester and ending of the payroll tax cut, both of which reduced demand. Gerson is being dishonest when he is trying to enliist Bernanke as an ally in his assertion that the obstacles to economic growth at the moment are primarily structural. He quite clearly believes the opposite which is what he told Congress in arguing for expansionary fiscal policy and also the reason why he would pursue his quantitative easing policy. 

It is also ironic that Gerson cites Germany as a success story that has effectively dealt with its structural problems. Germany's growth since 2007 has been no better than growth in the United States. (Part of this is explained by its lower population growth, which means that it has lower potential growth.) 

The main reason why Germany has an unemployment rate of just 5.4 percent, compared to 7.5 percent at the start of the downturn, is measures such as work sharing which encourage employers to keep workers on the job but with fewer hours. The average work year in Germany is almost 20 percent shorter than in the United States. This is a huge factor in explaining its high employment levels. Unfortunately Gerson neglected to mention this fact.

Phony Fear Factor by Krugman

The rightwing lies and lies about politics and political economy.

St. Louis Fed President James Bullard has exited the rogues gallery. Dallas Fed President Fisher has joined its ranks. As has Mankiw.

N. Gregory Mankiw is wrong and Harvard sucks.

Arthur M. Okun, who served under President Lyndon B. Johnson as chairman of the Council of Economic Advisers, wrote that the big trade-off faced by society is between equality and efficiency. We can redistribute income to give everyone a more equal slice of the economic pie, but as we do so we blunt work incentives and the economic pie shrinks, he said. From this perspective, the Democrats are the party of more equality, and the Republicans are the party of more efficiency. 

Republican policies are incredibly inefficient. Example number one is the housing bubble and financial crisis. Their health care system is also one based on extracting rent, like the financial system. Extracting rents, destroying the middle class and raising inequality is inefficient. You get a large output gap and idle resources.

Another view is that the important tradeoff is between community and liberty. As members of society, we have goals we want to achieve with others. But as we reach those shared goals, we are asked to sacrifice some personal freedoms. From this perspective, the Democrats are the party that emphasizes communal values, and the Republicans are the party that emphasizes individual liberty. 

Individual liberty of the rich to be free of moral constraints. Privatize the gains, socialize the losses. With incomes stagnating and poverty growing you lose freedom. Pushing for a metadata panopitcon police-surveillance state does not emphasize individual liberty.

Finally, there is the issue of how much one trusts centralized governmental power. Democrats tend to want to expand the scope of the federal government to improve the lives of the citizenry, while Republicans are more fearful that centralized power leads to abuse and lack of accountability. 

Republicans are fearful that a democratically elected government will contest private power which is extracting rents, committing fraud and exploiting. They are happy to employ central government when it comes to keeping the people down and enforcing their priorities, like voter suppression and the surveillance state. Republicans employ centralized government power to bully labor and engage in patent trollery.

These three answers go a long way to explaining, for example, why Jason and I disagreed on President Obama’s health care reform. Jason saw it as a proper expansion of government’s role to promote the community value that everyone should have access to affordable health insurance. I saw it as a risky expansion of government’s power that reduces individual freedom, dulls incentives and will likely lead to a host of unintended consequences. 

Obamacare promotes efficiency and freedom (more bang for the buck for a healthier and hence more secure and free nation.) It employs accountable government to combat the inefficient health care system.

On health care, and many other public policy discussions, there is room for reasonable people to disagree. I don’t expect to agree with all the advice my friend will give the president in the years to come. But I am confident that the nation will be better off for Jason’s having the president’s ear.

There is room to disagree but not room for outright lies and strawmen arguments. Being a proven hardworking, expert at dishonest rhetoric must be the way one gets hired at Harvard.

FELIX SALMON FIRMLY BELIEVES NOT IN THE INFLATION-EXPECTATIONS IMP, BUT IN THE TIGHTENING TOMMYKNOCKERS... by DeLong

How the Fed lost control of short term interest rates by Gavyn Davies (HT DeLong)

 "The declines in the prices of bonds and many risk assets… have come as surprise to some Fed officials, who thought that their decision to taper the speed of balance sheet expansion in the next 12 months, subject to certain economic conditions, would be seen as entirely separate from their thinking on the path for short rates…. The FOMC under Chairman Bernanke has worked very hard on its forward policy guidance, so there is probably some frustration that the markets have 'misunderstood' the Fed’s intentions. Richard Fisher, the President of the Dallas Fed, said that 'big money does organise itself somewhat like feral hogs', suggesting that markets were deliberately trying to 'break the Fed' by creating enough market turbulence to force the FOMC to continue its asset purchases. This is dubious logic. Investors who dumped bonds after the FOMC meeting would make money if bond prices fell further. They therefore presumably want the Fed to tighten policy, which is the opposite of what Mr Fisher indicates. Nor is it right to suggest that big money 'organises itself' at all; investors act in competition with each other, not in collusion."

...

Narayana Kocherlakota, President of the Minneapolis Fed, has made some concrete suggestions this week on economic thresholds. In the present context, his most important suggestion is that the Fed should say that it will not increase the federal funds rate until the unemployment rate has fallen below 5.5 per cent, which would represent a full one percentage point reduction compared to the present 6.5 per cent threshold. This would be subject to the medium term outlook for inflation remaining below 2.5 per cent. 

It is not clear that all members of the FOMC, several of whom have clearly become very worried about the reach for yield in the financial system, would be willing to go that far. But if the Fed really does want to get short rate expectations back under control, they may need to think very seriously about Mr Kocherlakota’s thresholds.

There are other ways to combat "reaching for yield" other than slow growth and high unemployment. More regulation on leverage and margins (see Alan Blinder on this), financial transaction taxes, etc.

Historic Mistake Watch by Krugman

So what’s the point of Fed communication? Mainly it’s not about the specific numbers; it’s about conveying what kind of central bankers we’re dealing with, and hence what they’re likely to do in the future. Talk of extended easy money can help the economy now precisely because it makes the Fed sound like it’s not a conventionally-minded central bank, eager to snatch away the punch bowl; even asset purchases work mainly because they reinforce that impression of unconventionality. 

But when the Fed starts talking about tapering at a time when unemployment is still very high and inflation below target, it undoes all of that good work; suddenly the FOMC starts sounding once again like a group whose fingers are already twitching as they fight the urge to grab that punch bowl. 

Undoing this damage is going to be very hard. One thing that will matter a lot, however, is the choice of Bernanke’s successor. If she’s a well-known dove, that could help a lot. If he’s, say, someone known for saying things like “stimulus is sugar“, look out below.

Yellen or Romer, not Geithner. My sense is that the Republicans like Corker will filibuster whoever it is.

Caveman Lawyer

Searching for Plosser via Google I found a Zero Hedge link from 2009 where Tyler Durden reposted Plosser's predictions of inflation favorably. As wrong as wrong could be. Today I look and Google isn't turning up the link.

New York Magazine article on Zero Hedge:

The Dow Zero Insurgency by Joe Hagan

Taibbi defends Zero Hedge. Taibbi's good but sloppy. He's just wrong here.

Robert Samuelson Finds Economics Is Way Too Complicated by Dean Baker

Samuelson is a founding member of my rogues gallery.

Robert Samuelson is Optimistic About the Economy by Dean Baker

In short, some of the factors that Samuelson cites at the end of his piece, like the sequester and the end of the payroll tax cut, are likely to prevent much of an economic takeoff. It is worth noting that we probably don't have to share his concern about:

"Obamacare’s disincentives for job creation (example: Because firms with fewer than 50 workers aren’t required to provide health insurance, the temptation is to stop hiring at 49)"

There are few firms in this situation. (Some small firms already offer health care coverage.) The impact of firms struggling with the 50 employee problem is likely to be invisible in the data.

Along with George Will, Robert Samuelson is a founding member of my Rogues Gallery.

Robert Samuelson Is Tired of Stimulus by Dean Baker

Commenters at various blogs - Dan Kervick, etc. - have been echoing conservative Samuelson about monetary policy for years now. Do they have some relatively prominent blogger who shares their views or no? Naked Capitalism?

Bernanke has said unconventional monetary policy has helped create (or save?) 2 million jobs. That's not nothing. It's better than tax cuts for the rich. Where is Samuelson's evidence that this is wrong?

Recently Bernanke has made a qualitative change in policy in response to the weakness of the labor market. We'll see if it works. I'd like to think he changed his mind in part due to the tireless efforts of the community of bloggers and economists - like Krugman and Mr. Baker! - who discuss the issues day in and day out. No thanks to the naysayers like Robert Samuelson or various commenters who believe fiscal stimulus is somehow going to arrive one day flying on the back of a unicorn all rainbows and sunshine.

I'm tired of Samuelson. We should place David Brooks, George Will and Samuelson in a rocket ship and launch them into space. 

Will is a founding member of my Rogues Gallery.

How the Fed Boosts the Economy: Lessons for George Will by Dean Baker

In his column today George Will notes the Fed's responsibility to maintain price stability and high employment and tells readers:

"Achieving the former is the best thing the Fed can do for the latter."

Apparently Will has not been following what has happened in the economy recently. While inflation has remained low and relatively stable, unemployment has soared. He also apparently does not recognize how the Fed hopes to boost economic growth through quantitative easing.

The biggest impact from lower interest rates is probably from mortgage refinancing. This both directly generates economic activity through people employed in the process (e.g. banking staff, appraisers etc.) and indirectly by reducing payments and freeing up money for other consumption.

The second biggest impact is on lowering the value of the dollar relative to other currencies, which will reduce the trade deficit. Anyone who does not want a large budget deficit and/or negative private savings (like we had at the peak of the housing bubble) must want to see the trade deficit move closer to balance. This is an accounting identity -- there is no way around it. And, there is no plausible mechanism to get the trade deficit closer to balance except by reducing the value of the dollar.

For some reason Will fails to mention either the impact of quantitative easing on mortgage refinancing or the impact on the trade deficit. There is also zero evidence of the hyper-inflation that he and other opponents of more aggressive Fed actions have been warning about for years.

Rogues Gallery

Casey Mulligan's Reality on Unemployment Insurance and Reality for the Rest of Us  by Dean Baker

In a blogpost yesterday Case Mulligan told readers:

"in reality, cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs."

Unfortunately Mulligan provides no evidence to back up his version of reality. By contrast, Jesse Rothstein, an economist at Berkeley, looked at the behavior of unemployed workers. He found that at most, the supply-side effect from the extended duration of unemployment benefits in this downturn increased measured unemployment by 0.1-0.5 percentage points, 

Furthermore, most of this increase was due to keeping workers looking for work and therefore being counted as unemployed. (When a worker stops looking for work, they are no longer counted as being unemployed.)

Rothstein's calculations are only designed to pick up the incentive effect that Mulligan focuses on in his blogpost. Since the benefits gave workers tens of billions of dollars that they would not have otherwise, they undoubtedly had a large demand side effect. The Congressional Budget Office estimates the multiplier for unemployment benefits as being 1.6, meaning that the $40 billion a year in extended benefits (roughly the amount at stake) would lead to an increase in GDP of $64 billion or more than 0.4 percent of GDP. If the increase in employment is proportionate, it would imply 560,000 additional jobs. This would swamp the negative supply side effect that Rothstein found in his research.

Ryan Avent Is Sick of Arnold Kling: Invisible Wage-Push Inflation Vigilantes Watch by DeLong

commenter dwb writes:

there are other, better arguments against this.
1) never reason from a price change: wage push is demand side inflation. Just because we have "inflation" does mean we have demand-side inflation. In fact, right now its all supply side (gasoline etc) because demand is cranking up. We really should not compare commodities prices to rock-bottom lows on 2009-2010 when demand sank. Gasoline prices are up but we've become a net exporter of refined products (combination of energy efficieny, vehicle-miles, and infrastructure issues).

2) inflation indices do a very poor job when there is a substantial change in relative prices. Home ownership got cheaper (-35%) rentals are much more expensive (+7%) because people are locked from the housing market. inflation or substitution??

supply-side inflation is something the Fed should ingore because the SRAS is fairly inelastic but eventually will shift as capital projects are completed.

Even Critics of Safety Net Increasingly Depend on It by Binyamin Appelbaum and Robert Gebeloff

Bubbles and Economic Potential by Krugman

Asset Prices and Potential Output by DeLong

The Daily Douchehat:

Can the Working Class Be Saved? by Ross Douthat

The Logic of Recovery Winter by Yglesias

Recovery Winter Arrives With HUGE 243,000 Increase in Payroll Employment by Yglesias

Hooray! First Genuinely Good Employment Report of the Recovery! by DeLong

Bad news for my Rogues Gallery:

Greg Mankiw (who was skeptical of stimulus according to the Larry Summers memo)

Tyler Cowen

Richmond Fed President Jeff Lacker speech: 

A key part of any forecast is inflation. In 2011, we were reminded that inflation can rise despite elevated unemployment. In 2010, the inflation rate was 1.4 percent.³ In the first 11 months of 2011, inflation has averaged 2.5 percent at an annual rate. Obviously the run-up in energy and food prices earlier this year played a big role in this increase. But the pickup in inflation last year was broad based. Core inflation ― which strips out food and energy prices ― was 0.9 percent in 2010, but averaged 1.7 percent in 2011 through November. This higher inflation rate in 2011, despite unemployment averaging 9 percent, undercuts the hoary notion that "slack" in the labor market can be counted on to keep inflation contained. This lesson is of course not new; we learned this all too well during the 1970s.

Despite last year's run-up, I believe the inflation outlook is reasonably good right now. Recent price trends have been quite favorable, and indeed, headline inflation has been quite low in recent months. The most likely outcome this year, in my view, is for overall inflation to average close to 2 percent. A rate noticeably below 2 percent is possible, particularly if global growth should soften enough to further ease pressures on commodity prices. But I still view the risks to inflation as tilted to the upside. A comparison of 2011 with the experience of 2004 through 2007, for example, suggests that an upswing in inflation at this stage of the business cycle is typically long-lasting.

Awful. Remember Godfather pizzaman Herbert Cain was a Fed vice president and Missouri has 2 Fed banks.

Cochrane: Just don't call it "stimulus"! by Noah Smith

Cochrane blogs: "But many advocates, like Krugman and Delong, want more government spending even for times and for countries (Greece) with high interest rates."

I think they have a more nuanced answer. Austerity won't solve Greece's problems for many, many years.


David Brooks' Ignorance is Showing Again by Dean Baker

In his column today David Brooks provided a brief discussion that purports to show that the growing inequality is attributable to a mix of globalization and technology and the moral failings of the working class. A little reflection would lead people to reject both parts of this explanation.

John Cocharen welcome to my Rogues Gallery! Brooks is a longstanding member of good standing.

David Brooks is Projecting His Self Indulgence Again by Dean Baker

Robert Samuelson Gets it RIGHT! by Dean Baker

He reads like an Ezra Klein column during the health care reform debate except at the end he seems to be flogging a President Romney /Glen Hubbard voucher alternative to Obamacare. Samuelson may exit my rogues gallery if he keeps this up. In his column he mentions OECD figures which shows how they can be good technocrats. In response to a Krugman blog post I mentioned how they have recently been bad technocrats who pushed the expansionary austerity snake oil. Here, Krugman writes about how the OECD has come to realize the urgency of the situation in Europe and so are once again good technocrats.

Good post by a guy who worked for Ronnie Raygun, Jack Kemp and Ron Paul. Krugman worked in the Reagan administration. Doug Henwood was a young Republican in college. Often the left's smartest members are turncoats and class traitors.*

Can the Fed Stimulate Growth or Only Inflation? by Bruce Bartlett

But conservatives want nothing to do with N.G.D.P. targeting. Amity Shlaes, a columnist with Bloomberg News and a former Wall Street Journal editorial writer, denounced the idea in a Nov. 2 column, calling it “a license to inflate.”

Her view is that if a recession causes growth to fall, unemployment to rise and home prices to crash, people should just suck it up and learn to live with it. Allowing prices to rise from wherever they are, even if there has been a deflation that caused them to fall, opens the door to stagflation and even hyperinflation. It’s a risk too great to take. The risk of continuing the status quo is, apparently, nothing to be concerned about.

It’s tiresome to read such rationalizations for doing nothing about the second-greatest economic crisis in our history, especially from someone like Ms. Shlaes, who is well versed in the history of the Great Depression.

Then, too, there were those just like her, like Henry Hazlitt, an editorial writer for The New York Times, and Benjamin M. Anderson, an economist with Chase National Bank, who also said people should just suck it up, that unemployment was only caused by excessive wages and greedy workers and that inflation was a cure worse than the disease, even as the price level fell 25 percent from 1929 to 1933.

Amity Shlaes, welcome to my rogues gallery!
-------------------------
*like Hugo Stiglitz --- video montage of Stiglitz scenes

 

My rogues gallery is full of hack writers. Welcome Greg Mankiw to the pantheon! Former CEA to Bush Jr. and current Romney advisor, Mankiw penned an especially hackish column today. He writes "Economists debate whether higher taxation in France and other European nations is the cause of the reduced work effort and incomes there."

I'd take Germany's performance over the U.S.'s. Also, towards the end of Clinton's onerous tax regime, wages rose thanks to economic growth and a tight labor market. The budget was balanced. Then we got the wasteful Bush tax cuts and the crappy Bush years. They weren't more crappy because of the wealth effect of the housing boom.

U Mad Bro? 
(or why so serious?)

Krauthammer in Full Rant Mode by Dean Baker

Krauthammer is a longstanding member of my rogues gallery so it's good to see Obama's rhetoric sending him into fits of rage.