Detroit Rock City

Detroit Rock City

Hawk (Edward Furlong), Lex (Giuseppe Andrews), Trip (James DeBello), and Jam (Sam Huntington) are four rebellious teenagers who love rock and roll and idolize KISS. The group are elated to have tickets to see KISS in Detroit the following night. Having discovered a secret cache of KISS albums, Jam's ultra-conservative and religiously hysterical mother, Mrs. Bruce (Lin Shaye), races up to the house where the boys are hanging out and drags Jam home. Jam's mother discovers the tickets the next day and destroys them in front of Jam and the others. She then pulls Jam from his school and has him transferred to a Catholic boarding school.

While in class, the three remaining boys hear a radio contest for tickets to the show. Trip leaves class to call the contest line and ends up winning the tickets. The boys then ditch school to bust Jam out. At the Catholic school, Hawk disguises himself as a pizza delivery guy and delivers a pizza spiked with hallucinogenic psilocybin mushrooms to Father McNulty. The priest gets high, allowing the group to whisk Jam away.

On the freeway, Trip throws a slice of pizza out of the window, where it hits the windshield of a tailgating Trans Am, driven by two Italian-American Disco fanatics, Kenny and Bobby, along with their girlfriends Christine (Natasha Lyonne) and Barbara (Emmanuelle Chriqui). The enraged Kenny forces the station wagon off the road and proceeds to pull Hawk out of the car and rub his face on the cheese-covered windshield. The bullying upsets Christine who leaves, walking down the freeway. Hawk then knees Kenny in the groin and knocks him out, leaving Bobby to contend with all four boys who suddenly pull out weapons (A metal KISS belt buckle, a wallet chain, and Jam's drumsticks). They leave the disco fans tied to the guardrail with KISS makeup on and drive the Trans Am into a ditch. They come upon Christine walking down the freeway and offer a ride to the city.

Upon arrival, the groups discovers that Trip did not stay on the phone long enough to give the radio station his information, forcing the station to give the tickets to the next caller. Back outside, Lex notices that the car has been stolen. They suspect Christine, who they left sleeping in the car. Hawk then suggests that the boys go their separate ways in order to find KISS tickets, and agree to meet in the same place in an hour.

Hawk finds a scalper who suggests that he enter a strip contest to raise money for tickets. He doesn't win, but is offered payment for his company by an older woman (Shannon Tweed). They go to her car and she takes his virginity. Afterwards, Hawk declines the money she offered, but she insists. When Hawk locates the scalper again he runs off, indicating he's all sold out, much to Hawk's dismay.

Trip goes to a local convenience store in the hopes of mugging a younger child to get tickets. He grabs a kid in Ace Frehley makeup, but the kid has an older brother, Chongo; a hulking jock who, with his gang of thugs, threaten to beat him up unless Trip pays them $200.00. Trip plans to rob the convenience store with a fake gun (in reality a Stretch Armstrong toy), but ends up thwarting a real robbery attempt at the store, earning him a $150.00 reward and a passionate kiss from the cashier (Kristin Booth). Trip meets the thugs in an alleyway behind the store. The kid takes Trip's wallet and has Chongo punch Trip in the stomach.

Lex sneaks backstage with the KISS loading crew, but is soon discovered, causing him to flee from arena security. He is eventually caught and tossed over a fence. He is then menaced by a group of vicious dogs, but earns their trust when he plays frisbee with them. In a nearby building he discovers a chained-up Christine and his car in a chop shop with two car thieves. Lex then uses his newly befriended dogs to chase the two thugs into a back office room, saving Christine and his mom's car. Lex and Christine share a passionate kiss.

Jam encounters his mother leading an anti-KISS rally. Mrs. Bruce grabs him and drags him to a church across the street for confession, taking away his drumsticks. He is seen by Beth (Melanie Lynskey), a girl from his school who is in the process of moving with her parents. She rushes into the church and into the confessional booth. There she reveals to Jam that she's been in love with him since freshman year, but never had the courage to tell him. Jam and Beth then make love, losing their virginity to one another. Jam, now imbued with new confidence, goes back to the rally. Jam finally stands up for himself, berating his mother for her domineering ways, her lack of understanding and her hypocrisy at telling other people how to live their lives when she can't even relate to her own son. Jam then demands his drumsticks back and Mrs. Bruce acquiesces, though she's broken one of them.

When the boys meet up again, at Jam's suggestion, they beat each other up in order to say that muggers took their tickets. Upon arrival at the concert the guards are skeptical despite the boys nursing bloody wounds, but suddenly Trip points out the kid and his thugs from the convenience store, who are just entering the concert hall. The guards finds Trip's wallet (with his KISS Army picture ID and the $150.00 he got as reward for thwarting the robbery) on the kid's person. The tickets are taken from the kid and handed to Trip and security escorts the kid and his goons off the premises.

Astonished and elated, the boys enter the concert hall and KISS plays the title song of the movie, "Detroit Rock City". Jam catches a drum stick thrown by drummer Peter Criss as the film ends.

The New New Economy

The United States is doing better than Europe but not better than Germany.

In Germany, Union Culture Clashes With Amazon’s Labor Practices

Jeff Bezos Buys Washington Post—Not The Washington Post Company by Yglesias

post-war Fed

The Fed & Big Banking at the Crossroads by Paul Volcker

I have been struck by parallels between the challenges facing the Federal Reserve today and those when I first entered the Federal Reserve System as a neophyte economist in 1949.

Most striking then, as now, was the commitment of the Federal Reserve, which was and is a formally independent body, to maintaining a pattern of very low interest rates, ranging from near zero to 2.5 percent or less for Treasury bonds. If you feel a bit impatient about the prevailing rates, quite understandably so, recall that the earlier episode lasted fifteen years.

The initial steps taken in the midst of the depression of the 1930s to support the economy by keeping interest rates low were made at the Fed’s initiative. The pattern was held through World War II in explicit agreement with the Treasury. Then it persisted right in the  face of double-digit inflation after the war, increasingly under Treasury and presidential pressure to keep rates low.

The growing restiveness of the Federal Reserve was reflected in testimony by Marriner Eccles in 1948:

"Under the circumstances that now exist the Federal Reserve System is the greatest potential agent of inflation that man could possibly contrive."

This was pretty strong language by a sitting Fed governor and a long-serving board chairman. But it was then a fact that there were many doubts about whether the formality of the independent legal status of the central bank—guaranteed since it was created in 1913—could or should be sustained against Treasury and presidential importuning. At the time, the influential Hoover Commission on government reorganization itself expressed strong doubts about the Fed’s independence. In these years calls for freeing the market and letting the Fed’s interest rates rise met strong resistance from the government.

Treasury debt had enormously increased during World War II, exceeding 100 percent of the GDP, so there was concern about an intolerable impact on the budget if interest rates rose strongly. Moreover, if the Fed permitted higher interest rates this might lead to panicky and speculative reactions. Declines in bond prices, which would fall as interest rates rose, would drain bank capital. Main-line economists, and the Fed itself, worried that a sudden rise in interest rates could put the economy back in recession.

All of those concerns are in play today, some sixty years later, even if few now take the extreme view of the first report of the then new Council of Economic Advisers in 1948: “low interest rates at all times and under all conditions, even during inflation,” it said, would be desirable to promote investment and economic progress. Not exactly a robust defense of the Federal Reserve and independent monetary policy.

Eventually, the Federal Reserve did get restless, and finally in 1951 it rejected overt presidential pressure to maintain a ceiling on long-term Treasury rates. In the event, the ending of that ceiling, called the “peg,” was not dramatic. Interest rates did rise over time, but with markets habituated for years to a low interest rate, the price of long-term bonds remained at moderate levels. Monetary policy, free to act against incipient inflationary tendencies, contributed to fifteen years of stability in prices, accompanied by strong economic growth and high employment. The recessions were short and mild.

(Emphasis added.) "Short and mild" unlike Vocker's recession. His "exit strategy" was overrated.  Didn't the double-digit inflation/financial repression help with deleveraging. Many economists at the time like Paul Samuelson expected the economy to return to Depression after the war.

GREEN LANTERNISM: AN INFANTILE DISORDER by DeLong

Summers-fest

Can We Blame Larry Summers for the Collapse of Russia? by Dean Baker

Between 1990 and 1998, Russia’s economy suffered perhaps the worst downturn of any major country that was not the victim of either war or natural disaster. The proximate cause of course was the collapse of the Soviet Union and the replacement of its system of central planning with a market economy. Larry Summers played a large role in shaping this transition, first as chief economist for the World Bank, then as the undersecretary for international affairs at the Treasury Department and later as the Deputy Treasury Secretary.

Since Russia’s economy had been guided largely by central planning for close to 70 years, this transition would have been difficult even under the best of circumstances. However the actual transition was hardly the best of circumstances. Corruption infested every aspect of the privatization. Those with connections in the government were able to become billionaires almost overnight, as they were allowed to buy Russia’s businesses and resources at a small fraction of their market value. 

According to the World Bank, Russia’s government was paid just $8.3 billion from privatizing assets over the years 1990-1998, a period when most of its economy was turned over to private control. By comparison, Lukoil, Russia’s largest private oil company, had a market value of $268.8 billion on August 2, more than 30 times as much as the payments that Russia’s government received for all the assets it sold over this 8-year period.

The data clearly show the devastation that this failed transition imposed on the Russian people. According to the United Nation’s Human Development Report,Russia’s per capita income fell by one-third between 1990 and 2000, a decline that dwarfs the falloff in the Great Depression in the United States. This had enormous consequences in the daily lives of the Russian people as the system of social supports that provided basic services collapsed with nothing to replace it. The Development Report shows a drop in life expectancy fell from 68 in 1990 to 65 in 2000, a drop implying that millions of people would be dying at a younger age than would have been the case a decade earlier. 

The Development Report has no shortage of grim statistics about the plight of the Russian people in the 1990s. (Those getting depressed by this story should know that Russia made rapid progress in most measures of economic and social well-being after breaking with the Summers agenda in 1998. By 2012, the losses of the 1990s had been more than completely reversed.) However, the question remains whether we can blame Larry Summers for this disaster? 

At the American Economic Association convention in January of 1994, Larry Summers gave a talk about the successes of the first year of the Clinton administration. He boasted how “this administration” (a phrase repeated many times) had created more than 1.8 million jobs. He also boasted about the 2.0 percent growth the economy had seen to date. 

This was peculiar for two reasons. First, the economy almost always creates jobs and grows; the relevant question is the rate of job creation and the pace of economic growth. Boasting that jobs are being created and the economy is growing is a bit like taking credit for the sun rising. The other reason that Summers’ talk was peculiar was that he was making these boasts to economists, all of whom know that the economy typically creates jobs and grows. 

Alan Blinder, who was also on the panel and one of Summers’ colleagues in the administration as a member of the Council of Economic Advisers, provided an interesting contrast in his own presentation. Blinder managed to talk forthrightly about the fact that the economy was not growing as fast as the administration wanted, nor was it creating as many jobs as was hoped. He did this in a way that provided useful insights to the audience while not providing any of the reporters in the room with fodder for embarrassing headlines in the next day’s paper. 

But the point of this digression is Summers, not Blinder. Summers apparently felt that the Clinton administration deserved credit for the meager number of jobs and slow growth that the economy had generated up to that point. If that’s the case, then by the Summers standard, surely we can hold Mr. Summers accountable for the devastation that Russia’s transition inflicted on its people in the 1990s. 

Call it item # 412 in the case for Larry Summers for Federal Reserve Board chair.

savings glut

"Savings Glut" Means Much of Economics Is WRONG by Dean Baker

This exchange (here, here, and here) between my friend Jared Bernstein and Casey Mulligan is worth a brief comment. As I've told several people who followed it, Mulligan is absolutely presenting the mainstream position in the profession, but Jared is right.

The question, if we ignore silly semantics, is whether the economy typically faces a problem of insufficient demand. In other words, if companies, families, or the government went out spent $500 billion tomorrow would this boost growth or just cause inflation. (Yes, I used all three interchangeably because if the problem is a lack of demand it doesn't matter who spends the money, the short-term effect on the economy is the same.)

Mulligan presents the orthodoxy, periods where lack of demand is a problem are the exception. As a general rule the economy is at or near full employment. In that context the primary result of more spending is higher inflation as we lack the ability to actually produce more goods and services. In this view, the way we get the economy to grow is by increasing supply side factors, like giving workers more incentive to work, training them better, getting more and better capital, and improving technology. By contrast, Jared is making the argument that if workers had higher wages they would be spending more money, which would lead to more output and possibly more investment as well (yes, a supply side effect).

Mulligan acknowledges that we could be in such a situation now, but that this is an exception. This sort of demand shortfall would not generally be an issue. (There was a similar sort of exchange between Paul Krugman and Joe Stiglitz earlier this year with Krugman taking the Mulligan position . [It is the mainstream position.])

In agreeing with Jared and Stiglitz I would like to introduce the widely discussed "savings glut" from the last decade as a major piece of evidence. While many of the people who knowingly talked about this glut may not know it, a savings glut means a shortfall of demand. In a world with a savings glut the problem is that people are not spending enough money to buy up all the goods and services that the economy is capable of producing.

This means that anyone who believed there was a savings glut in the last decade agrees with Jared and Stiglitz, the economy had a serious problem of inadequate aggregate demand. In this world, if workers get higher pay, this translates into more jobs and higher GDP. (We won't call it "growth" in deference to Mulligan.)

There are some other propositions that would follow from the savings glut as well. In this world government deficits are helpful to the economy. They boost demand. That's bad news for the folks who want to say the Bush tax cuts wreck the economy. (No, I have not become a fan of giving money to rich people, but no one pays me to shill for the Democrats.)

The basic economic problem becomes how to find ways to either increase demand on a sustained basis or adjust to a situation in which we will maintain a lower level of output without hurting people with inadequate incomes. (Can anyone say reduced workweeks and longer vacations?)

Anyhow, this is about the most fundamental point that we can have in economics. It is amazing how much confusion exists on the topic.

The Global Saving Glut and the U.S. Current Account Deficit by Bernanke

Stiglitz, Minsky, and Obama by Krugman

Also, there’s a danger in the Stiglitzian approach, namely that people might conclude that fixing the short-run shortfall in demand must wait until we fix the long-run problem of inequality, which is going to be very hard and a long time coming. We need stimulus, or at least an end to austerity, now, even if restoring a middle-class society isn’t going to happen any time soon.

What Janet Yellen Did and Didn't Get Wrong About the Housing Bubble by Matt O'Brien

...As Scott Sumner points out, housing starts halved between January 2006 and April 2008, but unemployment only went from 4.7 percent to ... 4.9 percent. 

He seems to agree with DeLong more than Baker. DeLong has pointed to this and I remember commenters saying there's a lag. Two years is a long lag and then the jump was sudden as there was a financial crisis.

GDP revisions: not a conspiracy, Jack by Doug Henwood

deregulation and currency policy

Economists Behaving Badly, Redux by Krugman

Brad DeLong asks why the left views Larry Summers as a right-wing hyena. I think that’s a straw man, or maybe a straw hyena. What is true is that a lot of people even on the moderate left don’t trust Summers, even though much of his commentary over the years has been very much center-left — and since leaving office he has become one of our most prominent fiscal doves. 

Where does this mistrust come from? Well, let me give you an example: Jackson Hole, 2005, a conference dedicated to celebrating the record of, ahem, Alan Greenspan. Raghuram Rajan had presented a paper warning that the risks of financial instability were much higher than most people were acknowledging. (I think Rajan has been wrong on many issues since then, but that was certainly a prophetic paper). And the response, in general, took the form of ridicule. 

The principal discussant was Don Kohn (pdf), who was (barely) polite but completely wrong-headed, celebrating financial innovations such as “the growing ease of housing equity extraction”:
 

Leading off on the rest of the discussion (pdf) was Larry Summers, who wasn’t polite, dismissing Rajan for being “slightly Luddite” in questioning the value of financial innovation, which he compared (in a really bad analogy) to technological progress in transportation. 

Now, lots of people got this stuff wrong — although you want to bear in mind that we’re not talking about the 1990s now, we’re talking about 2005. And we all make mistakes. But have either Summers or Kohn ever acknowledged that they got it wrong, and explained why? 

And you can see, I think, why “the left” — while not, in fact, viewing Summers as a hyena — is a bit upset that the only people President Obama has mentioned as alternatives to Janet Yellen are Summers and Kohn. 

Larry Summers and Financial Crises: Is He Being Graded on Attendance? by Dean Baker

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 greatest show that ever was or will be

Game Of Thrones gambles on adding a character who likes to have sex

As part of a daring bid to finally introduce some sex to Game Of Thrones, the HBO series has cast Indira Varma as Ellaria Sand, described by TV Line as “the sexually frisky lady friend” of the recently cast Oberyn Martell. Without giving too much away, Ellaria Sand kills every single other character while they’re all attending a housewarming party—one, it bears mentioning, they didn’t even want to attend—then becomes queen of the known world, spending the rest of the series having frisky sex with their corpses. “I won the game of thrones!” she will proclaim while astride their slackened bodies, week after week. Anyway, Varma is a veteran of HBO shows that mix swordplay and the other kind of swordplay, as she is, like Mance Rayder portrayer Ciaran Hinds, a veteran of Rome—a canceled series that similarly concerned dynastic struggles, but lacked the foresight to have any cool dragons. It did have lots of sex, though; here's hoping that works out slightly better for Game Of Thrones.

Shit just got real

AV Club reviews "The Endless Thirst" from Under the Dome

This middle part of the episode is the closest Under The Dome has come to matching King’s vision of Chester’s Mill: It’s all tight-knit and neighborly until the shit hits the fan, and then it’s every man for himself. Of course, a handful of people are still trying to do the right thing...

Already-strong case for Yellen strengthens further, and a word about the inanity of “market” preferences by Cardiff Garcia

Alan Blinder:

Fast forward to her days leading the San Francisco Fed, where she warned, as early as 2005, that the titanic real-estate market was heading for an iceberg. Ms. Yellen was frustrated that the Fed’s Board of Governors would not even issue regulatory guidance to curb disgraceful lending practices like piggyback loans that exceeded 100% of the house’s value, or loans with little or no documentation. When the board finally did so, she was dismayed at how weak the guidance was. She later told the Financial Crisis Inquiry Committee: “You could take it out and rip it up and throw it in the garbage can.” The guidance, she added, “wasn’t of any use” to the San Francisco Fed.

Feisty, but true. Had Washington listened to her, it would have cracked down on bad lending practices sooner, and the crisis would have been less devastating. After a thorough recent review of her record as a bank regulator, the Center for Public Integrity entitled their report “Yellen as Fed chair would be tougher on banks”—which tells you why some of the big banks are not thrilled at the prospect.

So much for the lack of toughness. See also Carola Binder.

Abenomics

Japan and the consumption tax by Simon Wren-Lewis

...A key issue is the proposal to raise the national consumption/sales tax from 5% to 10% in two stages beginning in April next year. Japanese Prime Minister Shinzo Abe says he will wait until probably the autumn to make a final decision, and the macroeconomic outlook will be a key factor. The proposal has the support of Bank of Japan governor Haruhiko Kuroda. However the more interesting question for Kuroda is how the Bank will react to the sales tax increase.

Much of the reporting on this issue is along the familiar lines of whether it is better to focus on reducing the government’s very high level of debt (raise sales taxes) or ending deflation in Japan (don’t raise sales taxes). While this debate is a familiar one, there is an additional twist with a sales tax. An anticipated increase in sales taxes, by raising expected inflation, will - other things being equal - provide an incentive for consumers to bring forward their spending. Macroeconomists would describe this as a real interest rate effect, but in simpler terms it makes sense to buy before prices go up.

How does an anticipated increase in sales tax raise expected inflation? It brings spending forward in anticipation of higher prices?

This incentive effect has been observed in Japan in the past, and in other countries. (See page 12 of this IMF report on the issue.) The UK cut VAT for just one year in response to the recession in 2009, a measure I have described as New Keynesian countercyclical fiscal policy, and this may have raised consumption by over 1%, in part because consumers anticipated that prices would rise again in 2010. (The over 1% figure comes from here, although this analysis is more conservative.)

Didn't the UK "cut" VAT not raise taxes?

More on tax increases versus spending cuts in an austerity programme by Simon Wren-Lewis

Commenters, butteflys, etc. by Scott Sumner

Baker disagrees with DeLong on housing

Why Better Housing Policy Would Not Fill the Demand Gap by Dean Baker

Brad has two contentions. First that years of very low building has led to huge pent-up demand for new housing units and second that if underwater homeowners could refinance their homes then we would see much more consumption...

Obama's unforced error

MORE JOBS AND HIGHER MIDDLE CLASS INCOMES AS ECONOMIC POLICY JOB #1: HOUSING POLICY EDITION by DeLong

Clinton Fail

The Battle of Fed Succession, 1994 Edition by Dean Baker

The current efforts by Larry Summers' acolytes to have him replace Ben Bernanke as Fed Chair reminded me of a past battle. Back in the first term of the Clinton administration it was not assumed that Alan Greenspan had a lifetime position as Fed chair. Some folks thought that the Democratic president might want to take the opportunity to appoint a Democrat as Fed chair. The Vice-Chair at the time, Alan Blinder, was an obvious choice. Blinder had been a highly respected Princeton professor before joining President Clinton's Council of Economic Advisers and then moving over to the Fed at the start of 1994. 

Anyhow, Alan Greenspan wanted to head off this possibility. Towards this end, he managed to get a major piece in the NYT over a Blinder scandal. At a speech at the annual meeting of central bankers in Jackson Hole, Blinder suggested that central banks, instead of focusing exclusively on inflation, might actually worry a bit about unemployment (the horrors). Anyhow, the resulting outcry sent Blinder back to Princeton and left Greenspan in charge of the Fed for another decade. 

Ah, the good old days!

Quiet Rivalry Over the Next Fed Leader Comes Out of the Shadows by Binyamin Appelbaum

Juicy Juice: Growth and Inequality

Growth and Inequality: Thinking About the Middle-Out Hypothesis by Jared Bernstein

Interesting to think of this in terms of Krugman's objections.

From Obama's Galesburg speech:

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain – a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids. 

But over time, that engine began to stall. That bargain began to fray. Technology made some jobs obsolete. Global competition sent others overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people’s wages and salaries was severed – the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged. 

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.

What happened? The bargain begin to fray? Impersonal forces like technology, globalization and the decline of unions? Washington policy skewed in favor of the rich. "The link between higher productivity and people’s wages and salaries was severed." After 3 decades the economy was growing as much as it was because of an "artificial juicing." 

Yellen versus Summers

In Tug of War Over New Fed Leader, Some Gender Undertones by Binyamin Appelbaum and Annie Lowrey

Obama's economic history

Andy Harless comments on DeLong's blogpost

You can call it neo-Austrian if you want, but I think the "bubble level of aggregate demand was unsustainable" view is quite consistent with standard Keynesian (actually neo-Wicksellian) macro theory. The Fed is and was targeting the inflation rate at 2%. Given the existence of a risk premium, it's quite possible (and, in my opinion, was the case in 2005) that the natural risk-free real interest rate is less than -2%. If that's the case, there is no full employment equilibrium that is consistent with the Fed's target. The only way to hit the inflation target while maintaining full employment is by creating a disequilibrium, which is by its nature unsustainable. In particular, in this case, the Fed did it by allowing people to be convinced that certain unsafe assets were in fact safe and thus, in effect, temporarily reducing the risk premium and allowing a positive nominal risk-free interest rate to support full employment.

Summers-fest

Larry Summers' Bad Math by Dean Baker

Furthermore, we still have the basic math problem that he left us from his years in the Clinton administration, how do we fill the gap in demand that resulted from his high dollar policy. While a subsequent fall in the dollar has reduced the trade deficit, it is still close to 4.0 percent of GDP ($640 billion). This can be filled by the government’s deficit spending, but Summers has repeatedly warned that this is only a short-term strategy. 

So how does Summer want to solve the math problem? Is he going to push for another bubble to juice the economy again or perhaps he has changed his mind and decided that a strong dollar really wasn’t such a good idea after all. 

Anyhow, there is no way around this math. You either want a lower dollar, you want to sustain high budget deficits, you want another bubble, or you want high unemployment. That is the math, what is Summers’ answer? We should know this before he gets appointed to the country’s most important economic post.

EZRA KLEIN AND EVAN SOLTAS: "IF THE PRESIDENT IS MAKING ANY CALLS HIMSELF, HE IS MAKING VERY FEW OF THEM" by DeLong

Obama's economic history

Stiglitz, Minsky, and Obama by Krugman

Personally, I’m more of a Minskyite than a Stiglitzian, although not 100%; although things like subprime lending were, I believe, mainly about forgetting the past, Elizabeth Warren’s old work on bankruptcy pretty clearly shows that at least some families took on excess debt as a result of rising inequality. But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too; making soaring inequality the cause of our macro woes too is a bit too, well, comfortable for us liberals. 

Also, there’s a danger in the Stiglitzian approach, namely that people might conclude that fixing the short-run shortfall in demand must wait until we fix the long-run problem of inequality, which is going to be very hard and a long time coming. We need stimulus, or at least an end to austerity, now, even if restoring a middle-class society isn’t going to happen any time soon. 

I wouldn’t make too much of these differences; in practice Stiglitzians and Minskyites agree on what should be done,and it’s good to see the president finally talking about the right things. Still, it is interesting to see where he put his emphasis.

(emphasis added)

The Way Way Back

It's a good movie starring Negative Outlook? favorite Annasophia Robb. She's 19 now so it's not SO creepy to blog about her.* It's a funny, touching movie made by the same folks who made Juno and Little Miss Sunshine. 

Robb plays Susanna, who is vacationing at a summer home with her fun alcoholic mother played by Allison Janney and her younger brother Peter who has a wandering eye along the lines of Peter Lorre and Marty Feldman. Susanna's father had come out of the closet in the recent past and left her mother. She loves her father very much and misses him and so is kind of down in the dumps. Plus her mother is hurting even if she puts on a good front in public.

Susanna doesn't really connect with the other girls her age who are hanging out on the beach and so seems kind of lonesome. Things turn around when people arrive at the summer home next door. They are an unmarried couple who have recently started dating. Each has a child they have brought along. One is a 14-year-old boy named Duncan who is down in dumps like Susanna because his mom (Toni Collette) has a boyfriend (Steve Carrell) who's a dick. The boyfriend brought along a daughter who is rude to Duncan as well. Even though Duncan is younger, Susanna sees something in him and sympathizes with his misery, and she repeatedly attempts to strike up conversations with the awkward and socially-inept Duncan.

Duncan is grateful for Susanna's kindness towards him but is too unhappy to really do anything about it. His fortune turns for the better as he meets Owen, played by Sam Rockwell, a manager of the local water park. Owen hires Duncan and becomes his fun, insightful guru thereby helping Duncan pull himself out of his funk.

Duncan is secretive about where he goes during the day, but Susanna finally takes some initiative and follows him to work one day. The new improved Duncan** is now more receptive and confident and a friendship blooms between the two.***

Still, the Way Way Back is a dramady, not a pure comedy, so some drama upsets Duncan's summer fun. His mother's boyfriend is still a dick and he cheats on her with a woman played by Amanda Peet**** So they decide to go back home and take Duncan with them. Before he leaves, Duncan does receive a parting kiss on the lips from Susanna and seems strangely content when his mom joins him in the way, way back seat***** of the station-wagon right before the fade-to-black music and credits role. And yet I believe he fails to appreciate how close to nirvana he really came. For a person as unhappy as he was, it was enough to come across two kind souls like Owen and Susanna and share some summer adventures. Now the future doesn't look so bleak.

Susanna herself seemed to brighten after making a connection with the lost Duncan. She was no longer alone among the girls she couldn't connect with and a mom in mourning for her marriage and husband.

-------------------------
*Nonetheless it still is, we are forced admit.
**Thanks to Sam Rockwell's Owen.
***Basically Duncan has just hit the jackpot.
****Wife of David Benioff, HBO's Game of Thrones' co-creator.
*****Hence the title.

Chinn on Yellen's prescience

Prescience, 2007 edition by Menzie Chinn

Konczal on Summers and Housing

Yellen, Summers and Rebuilding After the Fire by Mike Konczal

...Given what this blog normally covers, I’d be remiss to not mention housing and financial reform. During the Obama transition, Larry Summers promised “substantial resources of $50-100B to a sweeping effort to address the foreclosure crisis” as well as “reforming our bankruptcy laws.” This letter was crucial in securing votes from Democrats like Jeff Merkley for the second round of TARP bailouts. A recent check showed that the administration ended up using only $4.4 billion on foreclosure mitigation through the awful HAMP program, while Summers reportedly was not supportive of bankruptcy reform.

More Battles to Come, but First a ‘Sunny’ Interlude by David Itzkoff

...For most episodes of “It’s Always Sunny,” the proudly depraved FX comedy about miscreant friends who run their own bar, the stars and producers Rob McElhenney, Glenn Howerton and Charlie Day keep the writing assignments to themselves and their like-minded colleagues. 

But for this installment, the three (presently gathered beneath an overhang, waiting for the rain to pass) entrusted those duties to David Benioff and D. B. Weiss, the creators and show runners of the starkly brutal HBO fantasy “Game of Thrones.”

...When Mr. Weiss and Mr. Benioff hit upon an idea for “It’s Always Sunny” — a gloss on the novel and short story “Flowers for Algernon,” in which Mr. Day’s ne’er-do-well character is convinced that a scientific experiment is making him smarter — they suggested it to Mr. McElhenney.

DeLong: Obama turns neo-austrian

*facepalm*

OBAMA ON THE ECONOMY IN GALESBURG: STUBBORN POWER OF FALSE NEO-AUSTRIAN NARRATIVES WEBLOGGING by DeLong

Obama turns neo-Austrian:

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.

This analysis is, you will not be surprised to see, in my view simply wrong.

We have had three things go wrong:

1. A thirty-year failure of economic growth to be equitable growth.
2. A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel.
3. An economy that in the mid-2000s spent too much of its energy building houses and transferring financial assets.

Of these, the first is by far the biggest, the second is also huge, and the third is relatively minor.

But there is no sense in which the level of employment or of GDP that we had in the mid-2000s was unsustainable, or the result of any artificial juicing of an economy. We know what an economy that is artificially juiced beyond its sustainable productive potential looks like: it has rising inflation. That is not what the economy of the mid-2000s looked like:

That is not at all what the economy of the mid-2000s looked like.

And yet there's Dean Baker's point of the $8 trillion housing bubble. That demand was artificial in that it wasn't sustainable and it was "juicing" the economy. It could have been juiced up to its potential instead of beyond its potential.

It needed replacing after it vanished. And yet monetary and fiscal policy in the recovery has been subpar in that there has been the opposite of "juicing" from the state and local governments. Obama's stimulus was by and large canceled out by cuts at the state and local level. After 2010, there were cuts at the federal level as the private sector picked up modestly with help from the Fed.

My half-baked comment (probably will be moderated away):

The housing bubble "juiced-up" the economy in the sense that it wasn't sustainable. Once it popped, the demand generated by the bubble would need to be replaced by something else. I do think there is more to the story which he describes in point 2: "A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel." Before the credit channel collapsed, it was misallocating into an unsustainable area. Now it's not even misallocating.

Ygelsias: it was an anti-Summers leak

Probably.

The Extremely Effective Leak Campaign Against Larry Summers by Yglesias

Yellen for Fed chair (Romer would be better!)

Larry Summers is the Front-Runner? WTF? by Thoma

and via commenter Sadowski:

Larry Summers is unqualified to be Fed chair by Scott Sumner

Just shoot me by Scott Sumner

Do Larry Summers and Janet Yellen Disagree About Monetary Policy? by Yglesias

In the financial crisis behind-the-scenes books Summers comes off better than I would have guessed. He sided with Romer on somethings. He wanted to nationalize Citigroup. He has argued for more fiscal policy stimulus.

Scott Sumner on blogs:

Saturos asked me for areas where my views have been changed by bloggers.  I’d rather talk about bloggers who have influenced me.  MR is probably my favorite blog, but I’d single out 4 bloggers who often get me to rethink my assumptions; Bryan Caplan, Robin Hanson, Matt Yglesias and Paul Krugman.  In all four cases they often make claims with which I disagree.  After reading their arguments I still often disagree.  But I find that they seriously undermine my confidence in my own position.  That is, I find it hard to refute their arguments, even if the conclusion seems annoying.  Once and a while I am converted. 

In some cases (such as the Cowen and the Tabarrok/Yglesias examples mentioned by Noah Smith), I have vague and free-floating intuitions that suddenly solidify into strong coherent arguments.  In others I go from strongly supporting X, to having some doubts.  It’s rarely a 180 degree turn. 

I’d add that Yglesias influences me more than Krugman for two reasons.  First, he focuses more on narrow issues that interest me, such as progressive consumption taxes. (Has Krugman ever mentioned those?)  Yglesias does read my blog, and seems to be more a part of the monetary policy conversation as I see it.  Krugman almost never even nods to the monetary offset point.  He has a wider audience.  And second, Yglesias seems to come to positions from a more ideologically neutral perspective than Krugman.  That allows me to dismiss some Krugman arguments as “biased,” even if I really should not be doing so. 

I probably shouldn’t have started this list, as I don’t know where to stop.  I like lots of the MM bloggers, but tend to already agree on most points.  Ditto for Ryan Avent.  Other talented bloggers like DeLong I don’t read as often, purely due to lack of time.  I’m always running behind these days.  Even the two teenage econ bloggers (Soltas and Wang), have influenced me on a few points.

 I wouldn't be that surprised if Summers was relatively good as Fed chair. But then again I wouldn't be that surprised if he was complacent as Bernanke was.

McDonalds and bubble-fighting

"The Labouring Classes Should Have a Taste for Comforts and Enjoyments" by JW Mason

Graeber Cycles and the Wicksellian Judgment Day by JW Mason

Is money a liability? by Nick Rowe

Beyond Capital: The Case for a Harmonized Response to Asset Bubbles by Sarah Bloom Raskin

The last two links via Carola Binder. (via Thoma)

Hitch

Amis, McEwan and Rushdie Properly Celebrate the Not-So-Proper Modern British Novel

On Monday, as corks were still popping across London in celebration of the new royal baby, a sellout crowd gathered at the 92nd Street Y in Manhattan for a different celebration of Englishness. 

The occasion was a rare joint appearance by Martin Amis, Ian McEwan and Salman Rushdie, the literary equivalent of a concert by the Three Tenors — or perhaps a friendlier version of the Yalta conference, with three longtime allies jostling to carve up whatever territory might still be controlled by big-dude British literary novelists of a certain age.

...Those things, on Monday, included wry and often unprintable reminiscences about 1970s London literary life and the trio’s late and still-lamented friend Christopher Hitchens.

“I feel there should almost be an empty chair here,” Mr. Rushdie said, before going on to recall Mr. Hitchens’s fondness for word-substitution games. One of the more family-friendly ones: substitute “hysterical sex” for “love” in famous titles, as in “Hysterical Sex in the Time of Cholera.” 

...Another person asked about the legacy of Mr. Hitchens, who died of cancer in 2011. 

Mr. McEwan recalled helping Mr. Hitchens out of bed in his last days to finish a 3,000-word essay about G. K. Chesterton, with facts and quotations pulled largely from memory. 

The world will “never get that same combination of life and genes again,” Mr. McEwan said.

Middle-Out Economics

Middle-Out Economics by Thoma

Has the administration finally realized that we ought to do something about stagnating wages, the millions of unemployed, etc.? Is this a serious effort, or is it, as in the past, mostly just for show (I'll believe it when I see some of it actually happening)?:

President Obama Needs to Ground “Middle-Out” Economics in Broad-Based Wage Growth

by Larry Mishel, EPI

Tomorrow at Knox College, President Obama will kick off a series of speeches outlining his vision for rebuilding the U.S. economy. He is expected to talk about how the economy works best when it grows from the “middle-out,” not from the top down.

Growing from the middle out is indeed the right approach to economic growth. I hope that President Obama will get to the heart of the matter, which is that, adjusted for inflation, wages and benefits for the vast majority of workers have not grown in ten years. This is true even for college graduates, including those in business occupations or in STEM fields, whose wages have been stagnant since 2002. Low and middle-wage workers, meanwhile, have not seen much wage growth since 1979. Corporate profits, on the other hand, are at historic highs. Income growth in the United States has been captured by those in the top one percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector.

The real challenge is how to generate broad-based real wage growth, which was only present during the last three decades for a few short years at the end of the 1990s.

To generate wage growth, we will need to rapidly lower unemployment, which can only be accomplished by large scale public investments and the reestablishment of state and local public services that were cut in the Great Recession and its aftermath. The priority has to be jobs now, rather than any deficit reduction... Overall, it means paying attention to job quality and wage growth as a key priority in and of itself, and as a mechanism for economic growth and economic security for the vast majority. ...

The econ blogosphere has changed my mind about... by Cardiff Garcia

Jaegers versus Kaiju

The Pacific Rim economies of California and Japan point the way forward. Progressive demand management versus austerity, rent-seeking and the redistribution of wealth upwards. 

via commenter "paine"

We're Taxing the Rich... and So Can You

“There is no alternative to austerity,” insist the rich, along with their politicians, foundations, think tanks, and media. 

They’ve been saying it for decades. “Taxes are bad,” they also claim. “Government doesn’t work. And public employees are greedy.” 

Consequently, common wisdom had it that “you can’t raise taxes.” Even people who should have known better believed this—while the public sector slid down the tubes. 

So how did Proposition 30 succeed? This measure, passed by voters last November, raises $6 billion a year for schools and services—in California, a supposedly “anti-tax” state. The money comes mostly through an income tax hike on rich people, along with a tiny sales tax increase of ¼ percent. 

The story should be better known, because with the right preparation, you could make it happen in your state, too.

Election Win by Ruling Party Signals Change in Japan

TOKYO — Japanese voters handed a landslide victory to the governing Liberal Democrats in parliamentary elections on Sunday, strengthening the grip of a party that promises accelerated changes to Japan’s economy and a shift away from its postwar pacifism. 

By securing control of both houses of Parliament for up to three years, the win offers Prime Minister Shinzo Abe — an outspoken nationalist who promises to revitalize Japan’s deflationary economy and strengthen its military — the chance to be the most transformative leader in a decade. Although a lackluster turnout indicated that Mr. Abe might not have as much of a mandate as his supporters hoped, the margin of victory was large enough to suggest he has an opportunity to also bring stability to the country’s leadership after years of short-lived and ineffective prime ministers.

2008-2013 and beyond

Liquidity Trap

There Is No Liquidity Trap: Understanding 21st Century Monetary Policy by Joseph E. Gagnon

(via DeLong)

The Time Bernanke Got It Wrong by Floyd Norris

The Fed chairman conceded that “one cannot look back at the Great Moderation today without asking whether the sustained economic stability of the period somehow promoted the excessive risk-taking that followed. The idea that this long period of calm lulled investors, financial firms and financial regulators into paying insufficient attention to building risks must have some truth in it.” 

One economist who would have expected that development was Hyman Minsky. In 1995, the year before Minsky died, Steve Keen, an Australian economist, used his ideas to set forth a possibility that now seems prescient. It was published in The Journal of Post Keynesian Economics. 

He suggested that lending standards would be gradually reduced, and asset prices would rise, as confidence grew that “the future is assured, and therefore that most investments will succeed.” Eventually, the income-earning ability of an asset would seem less important than the expected capital gains. Buyers would pay high prices and finance their purchases with ever-rising amounts of debt. 

When something went wrong, an immediate need for liquidity would cause financiers to try to sell assets immediately. “The asset market becomes flooded,” Mr. Keen wrote, “and the euphoria becomes a panic, the boom becomes a slump.” Minsky argued that could end without disaster, if inflation bailed everyone out. But if it happened in a period of low inflation, it could feed upon itself and lead to depression. 

“The chaotic dynamics explored in this paper,” Mr. Keen concluded, “should warn us against accepting a period of relative tranquillity in a capitalist economy as anything other than a lull before the storm.” 

When I talked to Mr. Keen this week, he called my attention to the fact that Mr. Bernanke, in his 2000 book “Essays on the Great Depression,” briefly mentioned, and dismissed, both Minsky and Charles Kindleberger, author of the classic “Manias, Panics and Crashes.” 

They had, Mr. Bernanke wrote, “argued for the inherent instability of the financial system but in doing so have had to depart from the assumption of rational economic behavior.” In a footnote, he added, “I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go.” 

It seems to me that he had both Minsky and Kindleberger wrong. Their insight was that behavior that seems perfectly rational at the time can turn out to be destructive. As Robert J. Barbera, now the co-director of the Center for Financial Economics at Johns Hopkins University, wrote in his 2009 book, “The Cost of Capitalism,” “One of Minsky’s great insights was his anticipation of the ‘Paradox of Goldilocks.’ Because rising conviction about a benign future, in turn, evokes rising commitment to risk, the system becomes increasingly vulnerable to retrenchment, notwithstanding the fact that consensus expectations remain reasonable relative to recent history.”

Copperhead isolationists

http://en.wikipedia.org/wiki/Copperhead_(politics)

The Copperheads were a vocal group of Democrats located in the Northern United States of the Union who opposed the American Civil War, wanting an immediate peace settlement with the Confederates. Republicans started calling antiwar Democrats "Copperheads", likening them to the venomous snake. The Peace Democrats accepted the label, reinterpreting the copper "head" as the likeness of Liberty, which they cut from copper pennies and proudly wore as badges. 

They comprised the more extreme wing of the "Peace Democrats" and were often informally called "Butternuts" (for the color of the Confederate uniforms). The most famous Copperhead was Ohio's Clement L. Vallandigham, a Congressman and leader of the Democratic Party. Republican prosecutors accused some leaders of treason in a series of trials in 1864. 

Copperheadism was a highly contentious, grassroots movement, strongest in the area just north of the Ohio River, as well as some urban ethnic wards. Some historians have argued it represented a traditionalistic element alarmed at the rapid modernization of society sponsored by the Republican Party, and looked back to Jacksonian Democracy for inspiration. Weber (2006) argues that the Copperheads damaged the Union war effort by fighting the draft, encouraging desertion, and forming conspiracies, but other historians say the draft was in disrepute and that the Republicans greatly exaggerated the conspiracies for partisan reasons. 

Some historians argue the Copperheads' goal of negotiating a peace and restoring the Union with slavery was naive and impractical, for the Confederates refused to consider giving up their independence.[citation needed] Copperheadism was a major issue in the 1864 presidential election; its strength increased when Union armies were doing poorly, and decreased when they won great victories. After the fall of Atlanta in September 1864, military success seemed assured, and Copperheadism collapsed.

When the Fight Came Home: In ‘Copperhead,’ Opposing the Civil War Brings Trouble by Neil Genzlinger

It was, apparently, a war to end all subtlety. Ron Maxwell, director of the Civil War drama “Copperhead,” renders everything in capital letters in this story of dissent and repression on the home front. Though the tale, based on a novel by Harold Frederic, remains relevant to our time, the film is too self-conscious and tedious for the message it delivers. 

Billy Campbell is Abner Beech, a New York dairy farmer who was no fan of slavery but was opposed to the war —a Copperhead, in the political labeling of the day. An overzealous antislavery firebrand (Angus Macfadyen) turns the town against him, and principles of free speech and the right to dissent are put to the test. 

Abner’s son (Casey Thomas Brown) falls for the daughter of his father’s tormentor (Lucy Boynton) and enlists to impress her. Practically every scene runs too long, as if intent on documenting exactly how a country dance was done or a courtship conducted, and an oppressive musical score makes sure you don’t miss a single emotion or point.

Greatest Show That Ever Was Or Will Be

AV Club on Emmy nominations.

No Tatiana Maslany, nor The Americans, nor New Girl, but Game of Thrones received many nominations. Outstanding Drama Series, Supporting Actor: Peter Dinklage, Supporting Actress: Emilia Clarke, Writing for Drama Series: David Benioff and D.B. Weiss, “The Rains Of Castamere." I also like Homeland which received nominations for Outstanding Drama Series and for Damien Lewis, Claire Danes, Mandy Patinkin, and Morena Baccarin.

Bernanke blames Congress again, notes deflation

Fed Chief Reaffirms Fervor for Stimulus by Binyamin Appelbaum

The Federal Reserve’s chairman, Ben S. Bernanke, emphasized on Wednesday that the central bank remains committed to bolstering the economy, insisting that any deceleration in the Fed’s stimulus campaign will happen because it is achieving its goals, not because it has lowered its sights. 

Mr. Bernanke said he still expected to reach that point in the coming months but, in what may have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth. 

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he told the committee....

Analysts said that the strongest new signal Mr. Bernanke delivered in recent weeks concerned the sluggish pace of inflation. Prices rose just 1 percent during the 12 months ending in May, well below the 2 percent pace that the Fed considers healthy. Fed officials insisted for much of the year that inflation would rebound from the lowest pace on record.In recent weeks, the Fed has emphasized that it will take action if inflation does not. On Wednesday, Mr. Bernanke put inflation alongside unemployment as the justification for the Fed’s continuing efforts. 

“Our intention is to keep monetary policy highly accommodative for the foreseeable future, and the reason that’s necessary is because inflation is below our target and unemployment is still quite high,” Mr. Bernanke told the committee. 

Michael Feroli, chief United States economist at JPMorgan Chase, noted that Mr. Bernanke also cited the risk of deflation, something he had not done for several years. “The mention of deflation risks, rather than just low inflation, is a fairly strong statement coming from a sitting central bank chief,” Mr. Feroli wrote. 

Mr. Bernanke also emphasized that the Fed would not be satisfied with a decline in the unemployment rate if it was driven by people giving up the search for work rather than people finding new jobs. Importantly, he described this as a reason the Fed might extend its policy of low interest rates but not asset purchases.

DeLong's Tour d'horizon

WHAT I WISH THAT I HAD SAID ON THE DELONG-POSEN-ROSE "FOREIGN AFFAIRS" MONETARY POLICY CONFERENCE CALL by DeLong

Now, one of the risks that Jeremy Stein, Esther George, and company fear is that if the Federal Reserve buys up all the safe, long-term paper that banks needing to report profits so their CEOs can keep their jobs will have a hard time making the three cents per dollar of liabilities, and they will do things we won't understand and take risks we don't understand until it's too late, and then they will get into big trouble. And, this time, the political political climate will besuch that we cannot bail out the banks again. And then we have Great Depression II. That is the risk that the Stein wing is trying to insure against.

Or such is my inference. But I don't know whether that's the tail risk that is driving Federal Reserve decisions right now or not--they aren't being terribly communicative. And if that is not the risk that is driving their decision-making, I don't see what significant tail risk from the Federal Reserve having a larger balance sheet is. If people get sick of holding cash, it can always raise the interest rate on the reserves by a little bit. I the prices of the bonds it holds fall, it can always hold them to maturity--it is the ultimate, patient, long-term investor.

EZRA KLEIN ON JANET YELLEN, SEXISM, AND THE FEDERAL RESERVE SUCCESSION by DeLong

As somebody who had an office next to Janet Yellen's in the period between when the Clinton administration ended and she was installed as president of the San Francisco Fed, let me say that she is plenty smart.

since crisis labor share redistributed to capital

Before crisis, it was going to high income workers.

Is Productivity Being Translated Into Pay Increases? by Dean Baker

...
I had made these points myself a few years back. My conclusion was that we were really looking at a story of upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs. Distribution from wages to profits was not a big part of the picture. 

But that was back in 2007. The picture looks a bit different today. The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.
...

In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower that at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.

We can throw in the usual qualifications about the data being erratic and cyclical, but it's pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.

In the late 90s, Greenspan allowed unemployment to reach 4 percent as he was fighting international financial crises and the stock market bubbled. There is no structural decline because of techology or globalization or oil, etc. It's politics all the way down. The Great Clusterfuck wasn't planned in advance - it dealt the ideology of the system a body blow - but it was a crisis that wasn't wasted.

Andy Harless comments on Japan and the liquidity trap:

These fancy-schmancy DSGE models just lead to confusion. I have a pretty good intuitive idea of what's happening in Japan. There is a hypothetical bad equilibrium -- essentially a speculative bubble with money as the bubble asset, although, since money is the unit of account, most people think of the bubble as a "loss of confidence" in everything except money -- but you never really get to the bad equilibrium (we kind of did in 1929-1933, until devaluation popped the bubble), because central banks (which either won't or can't do what's needed to pop the bubble) stir up the water as much as possible to avoid moving toward equilibrium, and also because nominal wages are sticky downward, which slows down the progress of the bubble, and also probably because, if the bubble were allowed to progress, people would eventually realize that it's silly to hoard an asset without intrinsic value. (The 1929-1933 contraction was essentially a bubble in monetary gold. I imagine that bubble would eventually have ended on its own, as people realized how ridiculous the value of gold was getting relative to everything else, but it might have taken a whole lot of deflation to get to that point.) The ability to capture my intuition in an DSGE model is limited, because we're always far away from the actual bad equilibrium. Maybe a DSGD model, but that's even more confusing.

Krugman vs. Noah Smith: the first rule of macro is that it's folly to disagree with Krugthulhu

Japan and the liquidity trap by Noah Smith (July 16, 2013)

Wage-Price Flexibility in a Liquidity Trap, Again Again Again by Krugman

Japan's stagnation: demand-side or supply-side? by Noah Smith (July 15, 2013)

QE is self-financing

JOE GAGNON: YES, QUANTITATIVE EASING IS SELF FINANCING by DeLong

A Quote from Samuelson and Solow, 1960 by Robert Waldmann

(via DeLong & Thoma)

Policy is designed of, by, and for the powerful, end of story.

Why On Earth Does Anyone Pay Economists for Their Work? by Dean Baker

That is what readers of this interview by Binyamin Appelbaum with Stephen King must be wondering. King's main point is that growth is grinding to a halt and we are facing an era of prolonged stagnation. Okay, how does this fit with the story that we will see mass unemployment because robots will do all the work? 

The answer is that it doesn't fit at all. The weather person on channel 5 told just told us that it will 95 degrees and sunny, while the weather person on channel 9 told us to expect blizzards and sub-zero weather. 

This is the state of economic debate in the United States. If either of these views are right, then the people arguing the other one are out of their gourds. Yet in this great country, both views are exposed side by side in elite circles, probably even by the same people. 

This says everything anyone needs to know about the quality of economic debate. It is complete nonsense. Policy is designed of, by, and for the powerful, end of story. If we can't do anything about policy, why don't we just save a few bucks and fire all the damn economists. 

Let's shut down the econ departments in universities, the Fed's research department, the I.M.F., the OECD. Let's get real, no one cares about economics, they are just going to pursue the policies they want to follow. 

(Yes, I'm happy to go too. If we get rid of the rest of the bastards, I would gladly spend the rest of my days shoveling poop in dog shelters.)