Maybe Robert Waldmann Should Calm Down by David Glaesner

New label: "The Bet" regarding the Kelton-Woodford-DeLong wager.

The Real World Is Nominal by Yglesias

Debt Ceiling Strategies by Jared Bernstein

Bernanke - the Rebel with a Cause by Sebastian Mallaby

This revolution recalls the 1990s, when the earlier fixation on the money supply was replaced (tacitly in the US, explicitly in other advanced economies) by a target for inflation. Then and now, the focus on a proxy for inflationary pressure – the quantity of money circulating in the economy, or the quantity of bonds on the central bank's balance sheet – gives way to a focus on the outcome that policy makers actually care about, which is non-inflationary growth. 

This switch is commonsensical. Why target a proxy when you can target the real thing? But its true genius is that it builds an automatic stabiliser into the economy. If the Fed specifies how many bonds it will buy monthly, a sudden slowdown will not change what people expect from monetary policy; investors and consumers will react to slower growth by cutting spending, creating a snowball effect. But if the Fed pledges to do whatever it takes to keep the economy advancing, a slowdown will cause people to expect offsetting Fed action. Interest rates will fall in anticipation of easing. With luck, the snowball melts. 

But that is just half of Mr Bernanke's recent shift. In moving the focus from the size of the Fed's balance sheet to its objectives for the economy, he has explained that these objectives include lower unemployment even if that means temporarily higher inflation. This is genuinely radical: for more than three decades, the Fed's leaders have avoided any such statement. Over the long term, central banks alone determine the level of inflation, whereas long-run employment is determined by the flexibility of the labour market and other structural factors. Central bankers have seen no advantage in claiming responsibility for something they could affect only partially, especially since they needed to build credibility as foes of inflation. 

In his academic career, Mr Bernanke contributed to the consensus in favour of targeting inflation. He always said that the target should be pursued flexibly, meaning that temporary deviations might be acceptable. Yet now he has seized that footnote and made it the headline. In declaring himself open to a temporary price spike, he is betting that long-term inflation expectations are well anchored, so that wage claims remain moderate and no inflationary spiral sets in. Janet Yellen, the Fed's vice-chair, has explored how much looser Fed policy should be under these assumptions. The answer is: a lot. 

There are risks here, clearly. The Fed is gambling on expectations about prices, which may prove fickle. It is hoping that massively stimulatory policies in the short run will not be mistaken for a loss of inflation-fighting resolve over the long run. But the Fed confronts an economy in which 5m Americans have been jobless for six months or more. The risks of inaction outweigh the risks of action. Mr Bernanke has rebelled against a monetary consensus to which he himself contributed. But he is a rebel with a cause.

Fundamentals and Mechanics

Please Internet-Mine Shaft remember this one:

COFFEE WITH STEPHANIE KELTON by DeLong

Were there bets on the Stimulus/ARRA? Don't make the mistake Romer-Bernstein made. What does Mark Zandi say?

The Fed's New Target Looks A Lot Like Its Old Target by Yglesias

That Terrible Trillion by Krugman

Column: Why not drop money out of a helicopter? by Duncan Black

When it Comes to the Fed and Jobs, Robert Samuelson Is Worried About Inflation and Martians by Dean Baker

LDP Wins Landslide in Japan by Yglesias

Can Shinzo Abe Save Japan? by Yglesias (Nov. 30, 2012)

Robin Harding in the "Financial Times" "Central Bankers give voice to a Revolution."

Search for the title with Google and you can bypass the paywall.

(via DeLong)

The chairman of the US Federal Reserve had reason for cheer and for a little pride: his committee had just said it would keep interest rates close to zero until the US unemployment rate falls below 6.5 per cent (it is 7.7 per cent today). For a central bank, let alone the Fed, to tie rates to the economy in this way was without precedent. 

The move speaks of a quiet revolution that is sweeping over central banks. A day earlier, Mark Carney, currently governor of the Bank of Canada, soon-to-be governor of the Bank of England, became the most senior central banker to praise an even more radical policy: targeting the level of nominal gross domestic product. Instead of having apoplexy, Britain’s chancellor said he wanted a debate. 

Like most revolutions, it seems to come from nowhere but has deep roots. Like most revolutions, it holds the promise of great good but has the potential for harm. It is crucial that politicians and the public understand what this revolution in central bank thinking is and is not about. 

“A revolution is impossible without a revolutionary situation,” said Vladimir Lenin, something of an authority in these matters. (A view from Lenin on recent monetary innovations would be interesting. “The best way to destroy the capitalist system is to debauch the currency” is another of his dainty little remarks.) 

The past five years have led central banks to a revolutionary situation. When the crisis hit, they played their best moves, but to modest effect. Quantitative easing – the ugly term for buying long-term assets in order to drive down long-term interest rates – looks radical thanks to the many-zeroed numbers involved. In reality it is just another way to cut interest rates. 

Monetary policy, and every other kind of policy, failed to engineer a strong recovery in advanced economies. Dissatisfaction with that outcome has led central bankers, spurred on by a healthy dose of external criticism, towards ideas that have been percolating in academia since Japan’s bubble burst in 1990. 

Japan’s long slump drew attention to the vexing problem of what to do if you cut interest rates to zero and the economy remains in the doldrums. Mr Bernanke was vocal in that debate, along with economists such as Paul Krugman, Lars Svensson and Michael Woodford. 

One option is quantitative easing. But there is another option: tell people that you will keep interest rates low in the future. If they believe you then it makes sense for them to borrow now. If rates are to stay low even after the economy recovers then why would they not? 

Central banks are now pursuing that basic insight. The Fed’s new 6.5 per cent unemployment condition is a way to tell everybody that rates will stay low until the economy gets better. The nominal GDP target is a more drastic version of the same thing. In essence it combines growth and inflation into one number. Targeting this not only puts more weight on growth, it means promising to make up for low inflation now with more in the future – another way of saying the central bank will keep interest rates low.

The Man Who Occupied the Fed: How Charles Evans Saved the Recovery by Matt O'Brien

Inaction is the Greatest Risk (Wonkish) by Krugman

Ben Bernanke has not yet begun to fight by Neil Irwin

Monetary Policy Innovations by Simon Wren-Lewis

A Fed Focused on the Value of Clarity by Binyamin Appelbaum

The Federal Reserve’s decision on Wednesday to announce specific economic objectives for its policies would have stunned and dismayed earlier generations of central bankers, who regarded secrecy as a virtue and obfuscation as a prized technique for manipulating financial markets. 

“Since I’ve become a central banker, I’ve learned to mumble with great coherence,” Alan Greenspan, a former Fed chairman, told reporters in 1987. “If I seem unduly clear to you, you must have misunderstood what I said.” 

But a greater appreciation for the virtues of transparency has been one of the most important shifts in central banking in recent decades. It is a response to public demands for increased accountability and an embrace of economic research on monetary policy that finds speaking clearly is more effective than mumbling. The Fed’s vice chairwoman, Janet Yellen, last month described the result as a “revolution.” 

... 

But the change could have more important consequences in the future. Until now, when economic conditions changed, markets were left to wonder whether Fed policy would change, too. Now, if the pace of growth increases and unemployment falls more quickly, the Fed has already said that it will move to raise interest rates sooner. If the recovery once again falters and unemployment rises, the Fed has already said that it will continue to suppress rates.

Better yet, investors can respond immediately, an effect that Mr. Bernanke described on Wednesday as a kind of “automatic stabilizer” for the economy.

“If the outlook worsens and that leads markets to think that the increase in rates is further out in the future, that will tend to lower long-term rates and that will be supportive of the economy,” he said. “It kind of offsets adverse shocks.”

Fed Ties Rates to Joblessness, With Target of 6.5% by Binyamin Appelbaum

The forecasts published Wednesday show that Fed officials expect the economy to expand 2.3 percent to 3 percent in 2013, slightly below the September forecast of 2.5 percent to 3 percent. Fed officials have repeatedly overestimated the health of the economy and the pace of the recovery, and the latest changes, while relatively small, continue that pattern.

12/12/12 Paradigm Shift

Bernanke's Non-Stupidity Pact by Krugman

Lost Decade Watch by Krugman

THE FEDERAL RESERVE'S SHIFT FROM A TIME- TO A STATE-BASED POLICY RULE: WILL IT END OUR "LOST DECADE"? by DeLong

A Fed Bank President's Idea Comes to Life by Michael S. Derby

Mark Carney - the current Governor of the Bank of Canada and new Governor of the Bank of England - is advocating NGDP level targeting.

This guy is really funny. Showtime has been running one of his standup routines from this year.

"Stanhope appeared on the FX television show Louie as Eddie, a fictional comedian that Louis C.K. knew 20 years earlier when they first started performing, in the season 2 episode titled "Eddie". It first aired on August 11, 2011."

"In 2003 and 2004, Stanhope co-hosted the fifth and sixth seasons of The Man Show withJoe Rogan. He hosted his own radio show on SIRIUS Satellite Radio in 2005.^[2] That year, Stanhope hosted Girls Gone Wild: America Uncovered. When asked what it was like working with Girls Gone Wild creator Joe Francis, Stanhope admitted "He's pure, unadulterated evil,"^[3] and "The most awful human being I've ever met in all of my time in the entertainment business." ^[4]

"In cooperation with the mayor of Reykjavik, comedian Jón Gnarr, Stanhope has scheduled a performance in Iceland's only maximum security prison, Litla-Hraun, for September 25th 2011. Fans who want to watch the show would have to commit a crime; for them he invented The Stanhope Defense."

"In August 2008, Stanhope endorsed Democratic presidential candidate Barack Obama, citing his disappointment with the libertarian candidates and a desire to have "a strong, handsome black man in the White House", as well as referring to himself as "the head of the one-man Libertarians for Obama group.""

Stanhope has the ultimate bullshit detector gene. He HAS to see how full of shit many Libertarians are on an array of subjects.

In the recent "Vanity Fair" Louis C.K. says he admires Obama. For those with a dark sense of humor, America with a black president is kind of funny. Obama's re-election must be driving the racists (both overt and closeted varieties) batshit crazy. See the Tea Party.

Dave Attell is darkly funny too.

Prolier-than-thou types are commenting at Yglesias's blog that monetary policy doesn't work. They've been saying this for years.

To me this is analogous conservatives' argument that the ARRA/stimulus didn't work. There have been studies that showed it worked. Just as the Fed assets that QE has worked. The onus is on critics to show that it didn't work.

Michael Woodford on the new Fed policy

FOMC Adopts Game-Changing Conditional Inflation Targeting Rule by Yglesias

More Bond Buying and Thresholds by Tim Duy

THE FEDERAL RESERVE: THREE YEARS LATE--BUT THEY DID IT!! by DeLong

Clearer Policy by Ryan Avent

Fed shifts approach in how it gauges U.S. economy by Thoma

Irwin: Five Things to Watch for on Fed Day by Bill McBride

3. "What’s the threshold?". This probably will not happen at this meeting (setting thresholds for raising the Fed Funds rate based on the unemployment rate, inflation, and possibly other economic indicators). As Irwin notes, if they do announce thresholds it "would be a surprise and would be the big headline out of the meeting." 

4. "What kind of year is 2013 going to be?" The projections will be released at 2:00 PM ET. Of course the projections depend on the "fiscal cliff" negotiations. 

5. "What’s our potential?" This is the Fed's longer term projections for GDP growth, the unemployment rate, and inflation, and these will be included in the projections. 

Inside the Risky Bets of Central Banks By JON HILSENRATH and BRIAN BLACKSTONE

Over Sunday dinners in Basel, which often stretch to three hours, they now talk of pressing, real-world problems with authority. The meals are part of two-day meetings held six times a year at the BIS. Dinner guests include leaders of the Fed, ECB, Bank of England and Bank of Japan, as well as central bankers from India, China, Mexico, Brazil and a few other countries. 

...

"It is a way in which people can talk completely privately," Mr. King said in an interview. "It is a big advantage if you have some feel for how central banks think about questions, what they're likely to do in the future if certain events were to occur." 

Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed. 

...

In November 2010, for example, the Fed launched a $600 billion bond-buying program known as quantitative easing. A few days later, New York Fed President William Dudley and Fed vice chairwoman Janet Yellen attended a weekend meeting here and were surprised by the furor the Fed's stimulus program had stirred among developing countries, according to people familiar with the talks. Mr. Dudley and Ms. Yellen spent much of the meeting explaining the Fed's actions, as other central bankers raised worries the program would cause inflation or spark an unwanted flood of capital into their markets. 

"Every time there is quantitative easing by the Fed, that gets discussed," said Mr. Subbarao. "We all have to reckon with the spillover impact of our policies on other countries." Basel, he said, is the place to air such concerns. 

The role of the Bank for International Settlements has broadened since it was formed in 1930 to handle reparation payments imposed on Germany after World War I. In the 1970s, it became the center of discussions on bank capital rules. In the 1990s, it became the meeting place for central bankers to talk about the global economy. 

The central bankers typically stop short of formally coordinating their moves. Mr. Bernanke, Mr. Draghi and Bank of Japan head Masaaki Shirakawa are more focused on domestic challenges. Mr. Shirakawa has often warned others in Basel about the effectiveness of easy money policies, according to people familiar with his statements. That hesitance has made the BOJ an issue in Sunday's Japan elections. Shinzo Abe, the front-runner to become prime minister, has promised to rein in the BOJ's independence and demand more aggressive efforts to end consumer price deflation.

My knee-jerk reaction is that "developing countries" are usually ruled by a tiny elite who like tight money and slack labor markets. Have to keep the masses in line. It also might be that they don't want U.S. exports to become cheaper and more competitive.

Workers Are Losing Out Globally by Yglesias

The bulk of the paper is dedicated to developing a technical model in which those factors can be linked and explained as a function of the declining cost of investment goods. That certainly could be right. 

In terms of discussions on the Web that militates in favor of something like the technology explanation and against something like the "robber baron" hypothesis since technology is more something that's the same everywhere. I think my conjecture about the impact of asymetrical macroeconomic stabilization holds up here in the sense that the "Great Moderation" move to strict inflation targeting regimes was more-or-less global, but you'd want to check on that. I'm less confident in that account than I was before seeing this, and more inclined to buy technology-based theories.

I don't know what to make of this.

Commenter Sadowski writes: "The technological story has been pushed aggresively by organizations like the BIS that are perpetually in favor of tight money and want to let policymakers off the hook."

The BIS is pretty bad.

Again:

The Cult of "Price Stability" Is Killing American Workers by Yglesias

Sticky (economics)

What has surprised Krugman and Jane Yellin lately is the extent of downward nominal wage rigidity.

Real rigidity

Krugman:

Why Are Wages Still Rising? (Wonkish)  (7.9.11)

Mysteries Of Deflation (Wonkish) (7.26.10)

Internal Devaluation, Inflation, and the Euro (Wonkish) (7.29.12)

Sticky Wages and the Macro Story  (7.22.12)

Nominally Legal  (7.12.12)

Pointless Pain in Spain (7.11.12)

Revenge of the Optimum Currency Area  (6.24.12)

Still more, searching NYTimes for downward nominal wage rigidity.

New Lizzy Caplan show next year.

via Dan Davies:

useful stylebook for "Bayesian" fanboys:

http://normaldeviate.wordpress.com/2012/11/17/what-is-bayesianfrequentist-inference/ 

In "Lincoln," David Costabile played James Ashley. I identified with the character's politics: hardcore abolitionist but not totally unrealistic. Costabile was also in "The Wire," "Flight of the Conchords," "Breaking Bad" and played a baddie on "Suits" a show I haven't watched.

Postive Outlook

Goldman's Top Economist Explains The World's Most Important Chart, And His Big Call For The US Economy by Joe Weisenthal

(via DeLong)

So if the Fed gets better at policy like adopting an Evans Rule and then later NGDP level targetting we could get better demand management. The private sector will deleverage and housing construction should spur more employment and demand next year. Late 2013 could be better than the tepid growth we've had since the collapse of the housing bubble.

The open question is whether we get another bubble having forgotten the most recent one.

The Cult of "Price Stability" Is Killing American Workers by Yglesias

My first introduction to the mysteries of monetary policy came when I was maybe 15 or 16 in the mid-to-late nineties and I was scanning the newspaper over breakfast. I saw a story about a strong Employment Situation Report from the BLS and how it sent the stock market falling in response because markets were anticipating a rise in interest rates. Why, I asked my dad, would an increase in employment be bad? He explained that when too few people were unemployed, the Federal Reserve tended to get worried because with so few unemployed people around workers would start agitating for higher pay. And higher pay leads to inflation. So it's important for the Fed to respond to low unemployment with high interest rates to push unemployment higher and prevent wage gains. This sometimes has the incidental impact of causing stock prices to fall.

That sounded insane to me, and my dad agreed that it was insane and explained that executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

...

Now don't get me wrong. The moral of the story isn't that inflation per se is a good thing. But if you watch Kevin Durant play a whole season of basketball and his free throws never miss to the right, that's not a sign of shooting skill it's a sign of shooting error. Some misses are inevitable, but you want the misses to be roughly symmetrical because you're aiming for the hoop. If all your free throw misses are misses to the left, something's going wrong.

The Food is Poison and the Portions are Too Small II: Krugman and Productivity Growth by Dean Baker

Michigan Goes Right-to-Work by Yglesias

The Republican party is in shambles and cocooning hard after their election losses. Obama was reaffirmed and Elizabeth Warren replaced Scott Brown. Republicans are facing the headwinds of fundamental forces like demographics and mechanics with nothing but rich cranks and resentful old-timers having their backs.

Maybe the unions need a wider supportive movement to survive and that simply is no longer there.

Krugman is pessismistic.

Yglesias responds.

Bloggy, too-much-info post.

Okay, something I'm putting in my book queue is Gone Girl by Gillian Flynn, a real-life female Richard Castle.

I read the latest Entertainment Weekly and they were slightly, sort of promoting Flynn who once was a TV critic for the magazine. The noire mystery is a best seller and is being made into a movie by Reese Witherspoon who loves the book.

I'm irrationally jingoistic about my generation and hometown and Flynn is about my age and lives in Chicago with her lawyer husband. In EW she writes that she thought Jonah Hill and "21 Jump Street" were hilarious and it was one of the funniest movies of recent memory. On her website, she says as a critic her favorite series was "The Wire" and is currently a "Game of Thrones" junkie. So I'm looking forward to checking out her book(s).

"America Is About Getting Paid. Now Where's My Money?" (A movie review in progress)

Felix Salmon has a #slatepitch:

"It took far too long for the unemployment rate to start falling, and it has been falling far too slowly. But “unemployment should be falling faster” is not a crisis."

Spoilers.

Andrew Dominik's Killing Them Softly was really good. You'll like it better if you're a fan of Quentin Tarantino and "The Wire" as I am. The reviews haven't been as good as I thought the movie deserves. Maybe it's the liberals who see it as bashing Obama's hopey-changey talk, but I didn't see it that way. To me, Brad Pitt's character Jackie is agreeing with Chris Haye's thesis* that America's meritocratic system and elite have failed. America is all about getting paid and nothing about solidarity. To use Jared Bernstein's terminology, Obama is saying America's tradition is  WITT (We're In This Together) while Pitt's Jackie asserts that it's YOYO (You're On Your Own) and all about business and getting paid. So I don't see the film as a critique of Obama (whose favorite character on the Wire was Omar) in the tradition of the Thaddeus Stevens ultra types like Duncan Black, Digby, Firedoglake, and Crooked Timber. Obama's speeches appeal to people who want to believe the US isn't a class society and that the elite isn't corrupt, but in passing real-world health care legislation, for example, he was able to engage in successful Lincolnesque politicking and horse-trading and didn't just relay on inspiring rhetoric.

The plot of the movie involves the heist of a mob poker game. A low level gangster (Vincent Curatola's Johnny "The Squirrel" Amato) gets the idea to rob one because the mobster who runs it (Ray Liotta's Markie Trattman) once ripped of his own game and then later bragged about it. For some reason he was given a pass and people now attend his games again because of the understanding that if he did it again he'd be dead and who would be stupid enough to do it again? Trattman doesn't come off as that stupid even if he was stupid enough to once brag about his first heist. Anyway, Amato's idea is to hold up the game since Trattman will get blamed and he wants to do it quickly before anyone else gets the idea. He asks a young ne're-do-well Frankie played by Scott McNairy to find a partner to do the job and then they'll split the proceeds.

The movie works because McNairy is a good actor and Frankie is well written. Pace Felix Salmon, Frankie is in constant crisis and can't get a good job despite the fact he's not that bad a guy. He's not a good guy though, being in and out of jail and ultimately agreeing to do the job. He brings in his only friend/acquaintance an Aussie junkie named Russel played by Ben Mendelsohn. Amato doesn't like the junkie but he's in a rush.

Frankie displays his naivite by repeatedly saying that Amato and Russell haven't been bad to him. And since that's the case in the YOYO world of gangsters he inhabits he feels he needs to stick up for them in turn. So he seems sort of redeemable in his naivite, if only he didn't pull an Omar and rob some mobsters.

Enter the hitman Jackie played by Pitt. He's been hired by the mob to figure out who ripped off the game and then kill them. Just as Trattman once bragged about robbing his own game, Russell the junkie unwisely brags about his successful robbery. So Jackie quickly finds out who he needs to kill. (Why are criminals so often so stupid and indiscreet?)

The mobsters who attend the various games around town believe Trattman did it again. So Jackie advises his mob contact and paymaster (played by Richard Jenkins) to kill Trattman also, just to get the games going again. Jenkins's middle-manager mobster agrees. Trattman knows Jackie, so Jackie brings in another hitman named Mikey played by James Gandolfini to kill him.

Mikey makes a nice contrast to Jackie   Mikey is rude to the "help", i.e. waiters and hookers, and stiffs them on tips. He's a miserable mess after years of being a hitman. Jackie on the other hand makes an effort to be courteous and polite to Felix Salmon's second class citizens. His thuggish driver tries to steal the tip Jackie  left for a waitress which pisses him off. Yet he's a killer. And yes he believes America isn't a family or one society, but rather a business of transactions and YOYO morality. Yet Jackie spares an effort for Salmon's luckless second class Americans. He would rather "kill them softly" at a distance than be sadistically up close and personal about it.

To me it seems like Jackie is upset at the end because he was forced to kill the naive Frankie up close after spending some time with him. He rants at Jenkin's corporate paymaster, the symbol of our YOYO system and its meritocratic elite. Maybe he'll end up miserable like Mikey and he's also upset because he understands that possibilty.

Pace the liberal movie critics, I believe Jackie isn't so much upset at Obama as upset at his situation at the end of the movie: seeing his future self in Mickey; having to kill the naive luckless Frankie up close and not softly, and finally the aggravation of being nickle and dimed by the meritocratic elite via Jenkins. That's the last straw. Obama's pieties just set him off.
----------------------------------------------------
*Throughout the movie, set in the fall of 2008, television and radios play in the background reporting news of the meritocratic elite's epic failure: the financial crisis and credit crunch. The name of the city where the movie takes place is never mentioned, but the film was shot in New Orleans even though George Higgins's book was set in Boston. Filmmaker Dominik also has a radio commentator expressly link the financial crisis with the poor execution of the Iraq war, which is Hayes's thesis: Our elite suck.

It's Official: Austerity Economics Doesn't Work by John Cassidy

(via Thoma)

Why Does a Q&A on the "National Debt Crisis" Appear in the Washington Post? by Dean Baker

(via Krugman)

Raise the Economy's Speed Limit by Jared Bernstein

Dave Brubeck died

Unionizing the Bottom of the Pay Scale by Eduardo Porter

They both work in the fast-food industry — Mr. Carrillo at a McDonald’s in Midtown Manhattan and Mr. Williams at a Wendy’s in Brooklyn. They both earn a little more than $7 an hour. And they both need food stamps to survive. Last Thursday, both did something they had never done before: they went on strike.

...
On a full-time schedule, they could make a little over $18,000 a year, just about enough to keep a family of two parents and one child at the threshold of poverty. But full-time work is hard to come by. With fast-food restaurants increasingly using scheduling software to adjust staffing levels, workers can no longer count on a steady stream of work. Their hours can be cut sharply from one week to the next based on the business outlook or even the weather.

More than two million workers toil in food preparation jobs at limited-service restaurants like McDonald’s, according to government statistics. They are the lowest-paid workers in the country, government figures show, typically earning $8.69 an hour. A study by the Economic Policy Institute, a liberal-leaning research organization, concluded that almost three-quarters of them live in poverty. And they are unlikely to have ever contemplated joining a union.  

...

If unions alone may be powerless, the thinking goes, they can be powerful as part of a broader social movement. “We need workers to come together in formations they haven’t done before,” says Mary Kay Henry, who heads the S.E.I.U. “The tipping point is the entire low-wage economy.” 

The odds that organized labor can tip the scales remain long, however. The S.E.I.U. did organize many janitors, but it did not stem the decline of unions across the economy. Despite the victories, janitors in the United States today earn about 10 percent less on average than they did in 1990, in inflation-adjusted terms. 

Still, if employers can’t be swayed to take on more responsibility for the welfare of their workers, the burden will fall on taxpayers. To put it succinctly, the bottom 40 percent of families earn less than they did almost a quarter of a century ago. If that trend continues, we may need a much bigger government.

Reminds me of the movie "Cloud Atlas." The government is subsidizing these companies' profits with food stamps. I guess it's better than the alternative:  higher unemployment and more poverty.

Review of "The Revolution Was Televised" by Michiko Kakutani

I liked the "Sopranos" but wasn't a hard-core fan. However I was a big fan of the "The Wire," "Deadwood," and "Battlestar Galactica." "The Shield" and "Homeland" are also good. My one or two readers will  know I'm a big fan of "Game of Thrones," "True Blood" and "The Walking Dead."  

bubble, bust, rinse, repeat.

Capital Controls Washing Out the Shampoo Economy by Jared Bernstein

OTE readers know I worry about the advent of the “shampoo economy:” bubble, bust, repeat. 

The last few business cycles both here and in other advanced economies have been characterized by this pattern. To be clear, economies are cyclical…that’s a given. But nowhere is it written—well, outside of Minsky—that the cycles have to be driven by debt driven asset (or investment, as in dot.com) bubbles that are particularly damaging when they inevitably burst. (And Minsky didn’t believe financial busts were inevitable. He believed the bubbles naturally grew out of diminished risk adversity as the business cycle heats up, but could be adequately regulated.)

It's Tight Money That's Causing Low Interest Rates And Lax Fiscal Policy by Yglesias

The IMF and Capital Controls by Krugman

Krugman links to:

Capital Control Freaks by Krugman (Slate, 1999)

26 Economists You Should Be Following On Twitter

(via Thoma)

Economics Lesson for Charles Lane by Dean Baker

Corporate Profit Share of GDP Reaches All-Time High Despite Sharia Socialism by Yglesias

Part of this is an underlying trend away from reliance on the corporate income tax as a source of revenue. But a big part of this is the cyclical weakness of the labor market. In a full employment economy, workers get antsy and start to threaten to quit unless you pay them more. If your business happens to be doing poorly, you probably can't afford to pay them more and either they leave in search of better jobs and you go out of business or else you offer a raise you can't afford and you go out of business. But if your firm is doing well, then you respond to employee antsy-ness by sharing some of the spoils. That's why the profit share of GDP plummeted during the boom economy of the late-nineties.

In today's economy, by contrast, outside of a handful of sectors people are going to have a very difficult time credibly threatening to leave and get a better job elsewhere. So if sales rise, that goes into profits rather than being recycled out as wages. In theory, profits should finance investments and therefore ultimately boost economic activity. But excessively tight money at the Fed has kept the profits/savings/investment link out of equilibrium leaving us with high unemployment, low wages, and high-but-unproductive profits.

AV Club review of the Walking Dead, "Made to Suffer"

NYTimes editorial: The Mortgage Challenge 

AV Club review of Killing Them Softly which has the 2008 financial crisis in the background. One commenter writes:

Cogan's Trade (the novel this movie is based on) is perhaps my favorite crime novel -- only Hammett's Red Harvest comes close. But I'm concerned about anyone adapting that 70s masterpiece into a 2012 state-of-America David Simony thinkpiece. I'll probably just queue up The Friends of Eddie Coyle again and watch that instead.

 I loved the Wire so will probably check it out.

Destructive Responsibility by Krugman

Varieties of Error by Krugman

Why So Serious?

The Walking Dead just set a basic-cable record with being the number one show among the 18-49 demographic. NBC's popular show Revolution sort of has the same theme of society being a step away from systemic collapse, the rule of militias, YOYO morality (You're-On-Your-Own), and the rise of Fascism.

On a ligher note, I also like Castle which is being rerun on basic cable pretty regularly. It stars Nathan Fillion from Firefly (I came late to that show also) and Stana (sounds like Madonna) Katic one of the most beautiful women in the history of the planet.*(!) Katic's parents are Serbian Croatian and she grew up in Canada and Aurora, Illinois. In one re-runned episode her somewhat dour/serious character detective Kate Beckett, lightens up and blurts out "Shut the Front Door!" with a smile. I could feel the emotions of a hopeless schoolboy crush overcoming my defenseless brain. It's one of those things that's simultaneously a rush and depressingly embarrassing. The show has some good writing (like one episode was about zombies) and cameos by cool actors, but what gives it that extra something is the implausibility of there being such a gorgeously beautiful and distractingly attractive police detective in existence. (No wonder mystery thriller writer Richard Castle wanted to work with her.) You have to suspend your disbelief just as you have to do with shows about the existence of zombies. Good to see Fillion land another good show and we wish Katic the best.

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*That's centuries of beautiful women all over the globe.

Monetary Policy in Challenging Times by Charles Evans (speech in Toronto)

(via Thoma)

First, assume a can-opener by Ryan Avent

The Fed has been pursuing a process of opportunistic disinflation and keeping the labor market weak longer than necessary. It has permitted a large output gap to grind away at the nation's productive capacity and actively destroy human capital. Why? Have to keep the rabble in line.

Doug Henwood on Ezra Klein and Walmart

On the latest episode of the TV show Leverage, "The crew sabotages a mega-store in order to keep it from destroying a small town."

What's Holding the Economy Back? The Collapsed Housing Bubble, End of Story by Dean Baker

BRAD DELONG: THREE DIMENSIONS OF INEQUALITY: GLOBAL, EDUCATIONAL/TECHNOLOGICAL, AND PLUTOCRATIC

We used to have a framework for understanding the time dimension of inequality in the United States: we called it the "Kuznets Curve". The United States starts out as a country that is relatively equal--at least among white guys who speak English. Free land, lack of serfdom, the possibility of moving the west if you don’t like the wages you’re being offered in the east--all of these produce a middle-class society. Then comes 1870 or so, and things shift. The frontier closes. Industrial technologies emerge and they are highly productive and also capital intensive. So we move into a world of plutocrats and merchant princes: people in the cities, either off the farms or from overseas, competing against each other for jobs. And we get the extraordinarily stark widening of American income inequality up until the mid-1920’s or so.

This then calls forth a political reaction. Call it progressivism, call it social democracy, call it--in Europe--socialism. The idea is that the government needs to put its thumbs on the scale, heavily, to create an equal income distribution and a middle class society. Progressivism and its candidates are elected to power in democratic countries in the North Atlantic in the twentieth century--in spite of everything you say about Gramsci and hegemony and the ability of money to speak loudly in politics. Thus from 1925 to 1980 we see substantial reductions in inequality in the United States--the creation of a middle-class society, at first only for white guys and then, gradually, for others.

In 1980 things shift again. Since 1980 we have had an extraordinary explosion of inequality in the United States. This explosion has taken place along two dimensions.

First, we have seen extraordinarily rapid growth between the top twenty percent and the lower eighty percent. The benefits to achieving a college education skyrocket--for reasons that I don’t really have time to go into, and for reasons that are still somewhat uncertain.

Second, we have an even larger explosion of inequality between the top .01 percent, the top 15,000 households, and the rest of the top twenty percent. This second explosion is the most puzzling and remarkable feature of the past generation. 

AV Club reviews The Walking Dead, "When The Dead Come Knocking"

The Fake Skills Shortage by Krugman

That Shortage of Skilled Manufacturing Workers is Really a Shortage of Employers Willing to Pay the Market Wage by Dean Baker

HOW TO GOVERN AMERICA IN 2013 II: MORTGAGES, HOUSING, AND THE RECOVERY by DeLong

The claim that cuts in state and local (and federal!) spending are dragging down the economy are well-founded. The claim that mortgage debt overhang and depressed consumption are not dragging down the economy is not well-founded.

Baker says that right now: 

The claim is the dropoff in consumption due to the debt burden of these homeowners explains the weakness of the recovery.

Some simple arithmetic shows the absurdity of this view. The amount of underwater equity is estimated at between $700 billion (Core Logic) and $1.1 trillion (Zilliow). Suppose that we can disappear this debt through some decree, how much additional consumption would we see? If we assume that these households spend an incredibly large share of this increase in their net wealth, say 15 cents on the dollar, this would imply additional consumption of between $105 billion (Core Logic estimate) and $165 billion a year (Zillow estimate).

However we would have also destroyed the wealth of the mortgage holders. Let's assume that they just spend 2 cents on the dollar of their wealth. This would imply a net boost to demand of $91 billion to $143 billion. While this would be a helpful boost to the economy, equivalent to a government stimulus program of this size, this would hardly be sufficent to make up a shortfall in annual output that the Congressional Budget Office puts at close to $1 trillion.

I'm confused.

Underwater Homeowners Cannot Explain the Weak Recovery by Dean Baker

The claim is the dropoff in consumption due to the debt burden of these homeowners explains the weakness of the recovery.

Some simple arithmetic shows the absurdity of this view. The amount of underwater equity is estimated at between $700 billion (Core Logic) and $1.1 trillion (Zilliow). Suppose that we can disappear this debt through some decree, how much additional consumption would we see? If we assume that these households spend an incredibly large share of this increase in their net wealth, say 15 cents on the dollar, this would imply additional consumption of between $105 billion (Core Logic estimate) and $165 billion a year (Zillow estimate).

However we would have also destroyed the wealth of the mortgage holders. Let's assume that they just spend 2 cents on the dollar of their wealth. This would imply a net boost to demand of $91 billion to $143 billion. While this would be a helpful boost to the economy, equivalent to a government stimulus program of this size, this would hardly be sufficent to make up a shortfall in annual output that the Congressional Budget Office puts at close to $1 trillion.

Calculated Risk:

Next Thursday, the BEA will release the second estimate of Q3 GDP. The consensus is GDP will be revised up to 2.8% annualized growth, from the advance estimate of 2.0%. This would be a pretty sharp upward revision.

Five economic trends to be thankful for by Neil Irwin

To look on the bright side, I'm also grateful that Nate Silver was right.

Interview with Bill McBride of Calculated Risk by Joe Weisenthal

But the state and local gov’t drag is pretty much over, and getting rid of that is really going to help and then of course, housing is a big plus.

...

A lot of it is simple. I read a lot of different economists to try to understand theory, because I’m not an economist – I have an MBA – I kind of understand business, I’ve always been good with numbers, but I read economic theory and I’m glad to read…when we were going into this crisis, I was reading Krugman all the time because it was clear to me that he had a handle on what was going on, from what was going to happen to interest rates….I’d read what he would write and read what other people would write and go, this makes a lot more sense to me. And all that has worked out.

(via DeLong and Krugman)

AV Club reviews the Walking Dead, "Hounded"

The Crystal Ball

Hari Seldon and the Psychohistorians.

As Yglesias and others argue, what's needed is better economic forecasting. Part of this I would argue is Risk Topography, something Alan Greenspan failed to do very well. Not only Greenspan though. The entire financial services industry nearly destroyed itself because of its rampant gluttony And of course the regulators and ratings agencies were bought-off enablers.

After election night, Nate Silver's The Signal and the Noise shot up 850% to 2nd place on Amazon.

3.31.13

Game of Thrones Season 3

New Cast Members

DeMarco should be fired STAT

Can the Federal Reserve Help Prevent a Second Recession? by William Greider

What’s missing from Fed politics is the left: the countervailing voices of progressives, liberals and labor, who could make the case for more drastic action by the Fed. In effect, they could put an arm around Bernanke and encourage him to try more aggressive measures. Liberal-labor advocates could also defend the Fed against its right-wing enemies and act as principled critics who can pressure the central bank’s governors and push them further in a sensible direction than they might want to go.
* * *
Joseph Gagnon, a twenty-five-year veteran of monetary policy at the Fed and now an economist at the Peterson Institute, lamented the one-sided nature of elite debate. “What bothers me,” he said, “is one side is nothing but critical of what the Federal Reserve is doing, and the other side is just silent. I just don’t understand. Why aren’t a lot of voices complaining that the Fed isn’t doing enough? The progressive side has been absolutely silent, and yet the conservatives have been jumping up and down. And this totally distorts the Fed’s environment.”

...

Joseph Stiglitz, a Nobel Memorial Prize–winning economist at Columbia University, and Mark Zandi, chief economist at Moody’s Analytics, propose an excellent use for Fed-created money: funding a massive refinancing of home mortgages, which would cut monthly payments dramatically and free personal income for consumption. “Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed,” the two wrote in an August 13 New York Times op-ed.

A plan proposed by Oregon Senator Jeff Merkley, they explained, could boost disposable income for some 20 million families with underwater mortgages, including those not backed by the government-sponsored housing enterprises Fannie Mae and Freddie Mac. A “government-financed trust” would buy up the refinanced mortgages, thus giving private lenders the capital to make more loans. Several federal agencies could handle this, but Zandi told me that using the Federal Reserve would be the most efficient way. “The biggest impediment is the banking system,” Zandi said. “The pipeline for origination of lending has shrunk—a lot of midsize banks and mortgage companies got out—so the big banks now account for even more of the volume. They manage the flow by raising their eligibility standards. That’s why they are making so much money.” 

The Federal Reserve could change that, Zandi said, but he added, “I think the Fed would never go down this path unless the national economy is sliding back into recession.”

Lizzy Caplan and Alison Brie on their new movie, Save The Date, and their TV shows by Nathan Rabin

Janet Yellen’s Game-Changing Speech for Monetary Policy by: David Dayen (at Firedoglake?)

I kind of view Firedoglake, Duncan Black, Digby and Crooked Timber as the pain-in-the-ass-but-in-the-right Tommy Lee Jones as Thaddeus Stevens. They're right but wrong.

Yglesias on the the payroll tax cut extension and the Austerity Bomb.

John Cassidy on the Austerity Bomb:

But has Obama given the Republicans sufficient reason to believe he won’t eventually roll over? 

At least to me, that’s not yet clear. During his press conference, a reporter asked the President, “(W)hy should the American people and the Republicans believe that you won’t cave again this time?” This was Obama’s reply:

Well, two years ago the economy was in a different situation. We were still very much in the early parts of recovering from the worst economic crisis since the Great Depression. And ultimately, we came together, not only to extend the Bush tax cuts, but also a wide range of policies that were going to be good for the economy at the point—unemployment-insurance extensions, payroll-tax extension—all of which made a difference, and is a part of the reason why what we’ve seen now is thirty-two consecutive months of job growth, and over five and a half million jobs created, and the unemployment rate coming down. But what I said at the time is what I meant, which is this was a one-time proposition. And you know, what I have told leaders privately as well as publicly is that we cannot afford to extend the Bush tax cuts for the wealthy.

I find your lack of faith disturbing

Grand Moff Tarkin's team of rivals:

Nov. 19th is Uranus Day:

However, Hitler was so focused on the city itself that requests from the flanks for support were refused. The Chief of the Army General Staff, Franz Halder, expressed concerns about Hitler's preoccupation with the city, pointing out that if the situation on the weak German flanks was not rectified, "there would be a disaster." Hitler told Halder that Stalingrad would be captured and the weakened flanks would be held with "...national socialist ardour, clearly I cannot expect this of you (Halder)," and replaced him with General Kurt Zeitzler in mid-October.

And there's a new movie about about another "hinge moment" in history.  The reviewers are saying Spielberg's Lincoln is pretty good. Tony Kushner's script has a scene where Union soldiers are quoting the Gettysburg Address back to the celebrity Lincoln:

Four score and seven years ago our fathers brought forth on this continent a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal. 

Now we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this. 

But, in a larger sense, we can not dedicate, we can not consecrate, we can not hallow this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.

"When my information changes, I change my opinion. What do you do, sir?" 

- Keynes

PUBLIC DEFENDER: Diane Ravitch takes on a movement. by David Denby

Sounding like Charles Evans, Minneapolis Fed President Narayna Kocherlakota at a town hall in Duluth on October 30th:

In light of the unusually large macroeconomic shock, I believe that it is misleading to assess the FOMC’s actions by comparing its current choices to policy steps taken over the past 30 years. Instead, we have to assess monetary policy by comparing the economy’s performance relative to the FOMC’s goals of price stability and maximum employment. In particular,if the FOMC’s policy is too accommodative, that should manifest itself in inflation above the Fed’s target of 2 percent. This has not been true over the past year: Personal consumption expenditure inflation—including food and energy—is running closer to 1.5 percent than the Fed’s target of 2 percent.¹

But this comparison using inflation over the past year is at best incomplete. Current monetary policy is typically thought to affect inflation with a one- to two-year lag. This means that we should always judge the appropriateness of current monetary policy using our best possible forecast of inflation, not current inflation. Along those lines, most FOMC participants expect that inflation will remain at or below 2 percent over the next one to two years. Given how high unemployment is expected to remain over the next few years, these inflation forecasts suggest that monetary policy is, if anything, too tight, not too easy.

He used to talk about structural unemployment. What changed his mind? Perhaps it was the visit to the North Dakota "mancamps."

Risk Topography

Found it. My blogpost on Robert Shiller's "risk topography" piece "Needed:  a Clearer Crystal Ball."

Is this the actuarial science, something the ratings agencies (Moody's, _____, _____ ) failed at by giving toxic sludge AAA ratings?

Yglesias's review of Nate Silver's new book urges the "curious fox (not hedgehog)" to look into economic forecasting. It's hard because as Yglesias says future economic conditions depend upon political outcomes.

Ygelsias also wrote about this research paper put out by the Reserve Bank of Australia, which says that central banks are poor forecasters. From the paper:

Our estimates suggest that uncertainty about forecasts is high. We find that the RBA's forecasts have substantial explanatory power for the inflation rate but not for GDP growth.

Probably because central banks target inflation rates and not GDP growth/full employment.

Zombie-killer Krugman says Brian Beutler was the one to coin "austerity bomb."

Michonne is my new favorite on The Walking Dead. The show has motivated me to pick up the graphic novel series.

In the latest episode, she left The Village - Woodbury - and Andrea stayed.

Austerity Bomb (see the European Feedback Cycle of Doom)

Robert Reich:

This is why any “grand bargain” to avert the fiscal cliff should contain a starting trigger that begins spending cuts and any middle-class tax increases only when the economy is strong enough. I’d make that trigger two consecutive quarters of 6 percent unemployment and 3 percent economic growth.

To make sure this doesn’t become a means of avoiding deficit reduction altogether, that trigger should be built right into any “grand bargain” legislation – irrevocable unless two-thirds of the House and Senate agree, and the President signs on.

(via Thoma)

The Progressive Echo Chamber

Which popular blogs are predicting a sell-out by Obama over the Grand Bargain?

Crooked Timber? Firedoglake? Digby?

Unrelated:

Janet Yellin Says She's "Strongly Supportive" of Evans-Style Approach To Monetary Stimulus by Yglesias

The Signal and the Noise

Good name for a band.

Central Banks Aren't Very Good at Macroeconomic Forecasting by Yglesias

Yglesias's review of Nate Silver's book.

What we need is a Nate Silver of forecasting. Robert Shiller had a NYTimes article on forecasting a while back. Need to look it up.