debt ceiling clown show

More on Dysfunctionology: Minority Rules by Jared Bernstein

Ryan Lizza of The New Yorker has raised interesting points about this in an article that maps the districts of Republican representatives who signed a letter urging Speaker Boehner to use the threat of a government shutdown to defund Obamacare.  

Representative Mark Meadows, who drafted the letter, represents North Carolina’s 11th District — one that Mr. Lizza notes was gerrymandered after the 2010 census to become the most Republican district in the state.

There are 80 of these members, and Mr. Lizza points out that “[t]he ability of eighty members of the House of Representatives to push the Republican Party into a strategic course that is condemned by the party’s top strategists is a historical oddity.”  

“These eighty members represent just eighteen per cent of the House and just a third of the two hundred and thirty-three House Republicans. They were elected with fourteen and a half million of the hundred and eighteen million votes cast in House elections last November, or twelve per cent of the total. In all, they represent fifty-eight million constituents. That may sound like a lot, but it’s just eighteen per cent of the population…

“Obama defeated Romney by four points nationally. But in [these] districts, Obama lost to Romney by an average of twenty-three points. The Republican members themselves did even better. In these eighty districts, the average margin of victory for the Republican candidate was thirty-four points.

“…these eighty members represent an America where the population is getting whiter, where there are few major cities, where Obama lost the last election in a landslide, and where the Republican Party is becoming more dominant and more popular. Meanwhile, in national politics, each of these trends is actually reversed.”

Game of Thrones

Actor cast for Hizdahr zo Loraq.

Like wood for the fire that somebody will probably die in, Game Of Thrones has added yet another new cast member to its upcoming fourth season: Joel Fry, the British actor perhaps best known from the film 10,000 B.C., set in that tranquil prehistoric age when humans were still safe from vicious predators like George R.R. Martin. Fry will star as Hizdahr zo Loraq, a name that no doubt doubles as the sound of the death rattle he’ll eventually make—though, as TV Line and some guy in the comments who’s read the books and will now tell you all about it are pointing out, it won’t be for a while. Hizdahr, the scion of the Meereeneese family, becomes a part of Daenerys’ life for a while, until all the life inevitably drains out of everyone, forming a sea of red, only red. So much red.

With that in mind, Kit Harington—who portrays Jon “Not Dead Yet” Snow—redundantly promised Access Hollywood (via /Film) that we will see “more deaths this season than any other!” in such a way that presumes we’re not familiar with Game Of Thrones or something. “I can’t tell you who dies. You’d think they’d tone the deaths down, but they don’t. They’ve realized that’s a successful option, so they’re just killing more people than we’ve ever killed,” Harington said gleefully, shortly before dying.

Masters of Sex

Lizzy Caplan is awesome.

AV Club review: A-

From episode three on, however, he begins to give one of the most fascinating performances on TV, a man who shattered into pieces long ago but keeps acting as if he’s perfectly assembled. He seems rather like a robot replicating human behavior in places, and that makes the moments of genuine emotion that seep through more devastating. Sheen has long been a great actor Hollywood had no idea what to do with, but this project utilizes every bit of his talent. The chemistry—of all sorts—between Sheen and Caplan is so electric, the series likely could have coasted off of it.

The Joy of Watching Sex by Willa Paskin

The show is set in 1956, before the sexual revolution, but Masters of Sex is never condescending about the past. This is another contrast with Mad Men: Think of the infamous scene in which Don and Betty have a bucolic picnic and then leave all their trash behind, inviting us too pooh-pooh customs before environmentalism. Masters of Sex doesn’t pooh-pooh, it sympathizes, even with the most sexually clueless.

The falling deficit has been a disaster for the GOP by Ezra Klein

Debt and demand by Ryan Avent

I don't get this. I don't understand why we would assume that pre-crisis demand was supported by or in any way dependent on higher levels of indebtedness.

I have a sense for what the story is (or one story is). Imagine (if you can) that America has experienced steady growth in income inequality, which has effectively concentrated an ever larger share of income in the hands of households with a lower marginal propensity to consume. Other things equal, such a shift in the income distribution will reduce demand and require a lower real interest rate to match desired saving with desired investment. The Federal Reserve, conscious of the need to keep demand near potential, dutifully pushed down its policy interest rate in an effort to reduce real interest rates (and was successful). This encouraged non-rich households to take on ever more debt, the better to generate higher levels of investment, mostly in the form of single-family homes. It simultaneously encouraged yield-conscious rich households to seek ways to channel their savings, via new financial products, into higher yielding debt instruments. Desired saving and desired investment balanced through the magic of Wall Street wizardry and everyone made out like bandits until the world nearly ended. Now, the Fed is trying to balance desired saving and desired investment once again, but it is finding it difficult to do. In part this is because deleveraging continues, but it may also be because new financial rules are blocking the flow of credit from rich households to non-rich, which is necessary to restore adequate demand.  

Does this story make sense? I'm not so sure. Part of the difficulty is in knowing what is driving what. But let's consider one thing. The trend in private-sector indebtedness moves very closely with the trend in America's current-account balance.

Weimar myth

Unveiled! Lenin's Brilliant Plot to Destroy Capitalism. by Matt O'Brien

Taper talk

The Taper and Its Shadow: Central Bankers Need to Explain the Risks of Further Quantitative Easing by DeLong

They are not saying that they will break their promises not to prematurely raise interest rates. But they are saying that their tolerance for continuing to enlarge their balance sheets by purchasing long-term bonds for cash is very limited[.] Indeed--the so-called "taper". The problem is that financial markets simply do not believe the central bankers when they say that a present desire to "taper" is completely unconnected with any future desire to raise short-term interest rates. Financial markets thing, not unreasonably, [t]he same central bankers grasp for excuses to cut off quantitative easing now will also grasp for excuses in the future to say that things have changed and that forward guidance promises should not be kept. And financial markets will think this unless and until central bankers come up with reasons for believing that further extensions of quantitative easing do in fact run substantial risks.

So let us try to help central bankers explain why the [t]aper now is unconnected with future forward-guidance promise breaking. Let us listen for the reasons that further enlargement of North Atlantic central bank balance sheets carries substantial risks:

[Silence...]

The Key To Power At The Federal Reserve? Running The Meetings by Joe Gagnon (sort of)

(via DeLong)

Breaking Bad: Kafkaesque

AMC is running all 61 episodes up until the finale. Episode 29 is titled "Kafkaesque."

Jesse Pinkman uses the word in a meeting with Badger and Skinny Pete.

Last night on his show, Stephen Colbert brought up his Americone Dream flavored Ben & Jerry's ice cream which was mentioned on Breaking Bad. Vince Gillgan will be on the show Monday night.

The next episode, 30, is titled "The Fly." Walter White speculates that if he had died before going to Jesse's house the night Jane died, it would have been perfect, but things went bad after that after his bad decision to let Jane die and then he coincidently runs into her father (Q) at a bar. Before bringing the money to Jesse - he was withholding it until Jesse got clean, but Jane blackmailed him into bringing it - he was at home listening to Skyler sing a lullabye to Holly via the baby moniter. And he was watching a Nature program on TV. Skyler hadn't found out about his cooking yet.

From start to finish, Breaking Bad has echoed the uncannily similar—and equally good—cop show The Shield. by Mark Peters

I enjoyed The Shield which put F/X on the map. It was no-holds-barred and pretty crazy as a pressure cooker where the protagonists turned on one another. Breaking Bad seems more intellectual and more darkly comic like a Coen brothers film. It's very, very slightly cartoonish with charactes that can be funny like Walt, Jesse, Hank and the assorted hoodlums and it's very realistic in the dark themes it explores. The Shield was kind of cynical as a cop can get cynical dealing with criminals day in and day out. The cops view civil liberties and following the rules as overrated. It had a lot of "enemy of my enemy is my friend" where the protagonists used bad guys against one another. Realpolitik. Small misdomeaners were overlooked.

Emily Rios who played Andrea is on The Bridge. Michelle MacLaren who directed and produced also directed episodes for Game Of Thrones.

Germany: work sharing and weak currency

Angela Merkle's approval ratings are around 80 percent while Obama's are dropping. Merkel's party won a rare clear majority in the German parliament. Germany's unemployment is around 5 percent while the U.S.'s is at 7.3 percent and the civilian-employment ratio hasn't recovered from the crisis. The surplus countries need to help out the deficit countries with closing their output gaps and achieving full employment. Granted the U.S. would be at Germany's unemployment level with a fiscal policy that was at the same level as the early 2000s recovery.

Germany As Currency Manipulator by Krugman

A correspondent — whose email and name I have lost! — makes a good point. In talking about trade and secular stagnation, I described Germany, with its huge surpluses, as not a currency manipulator. As the correspondent said, however, the euro can be seen as a de facto foreign exchange intervention to keep the de facto Deutsche mark weak. Before 2008, the euro encouraged private capital outflows from Germany to the periphery. Since then, both official rescue packages and also lending among national central banks in the euro area can be seen as taking the place of these private flows. The interbank portion is shown in this chart from Pimco:  

The general point is that if we imagine a euro breakup, I think everyone would agree that the new mark would soar in value, making German manufacturing much less competitive. The German public imagines that it is being cruelly exploited for the benefit of lazy southerners; arguably, what’s really happening is more like China’s purchases of dollars, which are intended not to subsidize America but to boost industry.

Kocherlakota

Fed official: It is time for resolve in fighting unemployment by Neil Irwin

The U.S. economy has the opposite problem now: too-high unemployment and too-low inflation. But Kocherlakota is arguing that, again, resolve by the central bank is the solution. Here is his key argument:

I’ve spent a lot of time talking about 1979, because I see three key parallels between the economic situation in 1979 and the economic situation in 2013. First, just like in 1979, the Federal Open Market Committee faces a challenging macroeconomic problem—although this time, the problem is stubbornly low employment as opposed to stubbornly high inflation. Second, there is a widespread perception that monetary policymakers lack either the tools or the will to solve this problem. 

And third, the perception of monetary policy ineffectiveness is itself a key factor in generating the problem. Let me elaborate on this last point. If the public thinks that monetary policy is ineffective, then it will expect relatively weak macroeconomic conditions in the future. But these expectations about the future have a direct impact on current macroeconomic outcomes. If households expect their incomes to be low in the future, they will save more and spend less today. If businesses expect low future demand for their products, they will invest less today and hire fewer people today. In this way, any perceptions of future FOMC ineffectiveness in generating favorable macroeconomic outcomes are hurting current employment.

Rooseveltian resolve! Reiterating Christina Romer. Bullard and Kocherlakota have really impressed me with how they altered their views as new evidence came in. They dispaly some realy integrity.

Narayana Kocherlakota's Brilliant Speech by Matthew Yglesias

Yglesias on debt ceiling clown show

House GOP Just Showed Why Obama Can't Compromise on the Debt Ceiling by Matthew Yglesias

The absolute worst mistake Obama has made as president came back in 2011 when Republicans first pulled this stunt. At that time, Obama desperately wanted a bargain over long-term fiscal policy. So he tried a bit of too-clever-by-half political jujitsu in which GOP debt ceiling hostage taking became a pretext to start negotiations over long-term budgeting. All manner of evils have fallen forth from that fateful decisions, including an economic weak patch in 2011 the ongoing mess of sequestration, and worst of all the setting of a precedent for future crises. The good news is that the White House recognizes they made a mistake, and the last time Republicans tried to pull this they didn't give in. And they can't give in now. Not even a little bit. A terrible monster was let out of the box in 2011 and the best thing Obama can possibly do for the country at this point is to stuff it back in and hopefully kill it.

The Bridge

AV Club reviews "All About Eva" from The Bridge

Secular Stagnation

Trade and Secular Stagnation by Krugman

Krugman on Bubbles and Secular Stagnation by Dean Baker

Bubbles, Regulation, and Secular Stagnation by Krugman

But it is, I think worthwhile – or at any rate soothing – to think about the longer-term future for monetary and fiscal policy. I recently talked about some of these issues with Adair Turner, and I thought I might write up my version of the story so far (just to be clear, Adair bears no responsibility for any errors or confusion in what follows). In brief, there is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent – that we may face something like the “secular stagnation” many economists feared after World War II.

Yes. Paul Samuelson and most economists expect the economy to tank after WWII. Instead we had the Golden Age of upper mobility American social democracy and the creation of the middle class and a consumer society.

Part of it was inflation as Krugman knows.

This meant that monetary policy could no longer do the job of stabilizing the economy: Central banks found themselves up against the zero lower bound. Fiscal policy could and should have helped, and automatic stabilizers did help mitigate the slump. But fiscal discourse went completely off the rails, and overall we had unprecedented austerity when we should have had stimulus.

They could target a higher rate of inflation and signal an NGDP level target and do more QE. The problem is political in that the creditors would push back. Of course it would be better if there was fiscal stimulus with aid to the states, etc. and work sharing etc. Deficit problems? Tax the excess leverage in the financial sector.

Our current episode of deleveraging will eventually end, which will shift the IS curve back to the right. But if we have effective financial regulation, as we should, it won’t shift all the way back to where it was before the crisis. Or to put it in plainer English, during the good old days demand was supported by an ever-growing burden of private debt, which we neither can nor should expect to resume; as a result, demand is going to be lower even once the crisis fades.

And here’s the worrisome thing: what if it turns out that we need ever-growing debt to stay out of a liquidity trap? What if the economy looks like Figure 4 even after deleveraging is over? Then what?

This is not a new fear: worries about secular stagnation, about a persistent shortfall of demand even at low interest rates, were very widespread just after World War II. At the time, those fears proved unfounded. But they weren’t irrational, and second time could be the charm.

Depends on fiscal and currency policy which could be changed. Even monetary policy could be changed.

Recovery Winter

How Bad Data Warped Everything We Thought We Knew About the Job Recovery by Matt O'Brien

Looking at you Yglesias.

New Girl

AV Club reviews "Nerd" from New Girl

Eva Amurri on New Girl is awesome.

individualism/collectivism

Ersatz individualism makes the American collective strong by Steve Randy Waldman

Dinklage

In Which Sesame Street Posits Peter Dinklage as Our New God by Stubby the Rocket

(via DeLong)

wage growth

A Brad DeLong Smackdown of Sorts by Lawrence Mishel

data and Fed communication

Does the Fed have a communication problem, or do markets have a listening problem? by Neil Irwin

Hop in your time machine and set the dial for, say, this past April. Once there, call up any of the smarter people who make their living analyzing what the Federal Reserve is doing, and ask them two questions: How much bond-buying will the Fed be doing in the fall, and who will be the next chairman of the Fed? 

Their answer back in April would have been "$85 billion a month" and "Janet Yellen." Those answers now look correct. But the voyage from there to here has been a doozy.

the Green Lantern Left / Firebaggers

Atrios links to Naked Capitalism

Yves, at Naked Capitalism isn't too impressed with all the posturing about raising the credit limit. 

Budget Brinkmanship is Baaaaaack by Yves Smith

So hang tight for way too much unnecessary melodrama over the next month. It’s another round of watching the two parties play chicken, with each posturing that it won’t be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he’s been trying to do for years: sacrifice old people since he perversely believes that “reforming” Social Security and Medicare will get him brownie points in the presidential legacy ledger. This staged impasse is hard to take it as seriously until there’s evidence that this iteration of budget farce really is different from its predecessors.

Smith links to Joe Firestone at New Economic Perspectives

So, Sam Stein thinks the zombie “chained CPI” lives again, and Ezra agrees, but also thinks that the Republicans will not agree to that unless they get the deals they want. So, once again, the right wing, through their intransigence, may save us from President Obama’s continuing insistence that seniors must suffer now, and future seniors must suffer as well, for the sake of an illusory long-term debt/insolvency problem that doesn’t really exist, and that he can dispel at any moment by minting a $60 T coin.

Meanwhile, the four Versailles “progressives” on this panel laugh at the stupidity of the Republicans who are marching to the doom of their party, while refusing to call attention to the fact that this “funding” crisis, and the previous ones since 2010 were and are all kabuki, since the President could and still can dispel the illusion of possible insolvency any time he chooses to use the power Congress has given him to mint that coin. The big $60 T one; not just the timid TDC.

All sounds too facile* to me. Obama can propose entitlement "reforms" and make compromise noises without having to compromise or makes those reforms. He hasn't cut entitlements in previous budget deals. As DeLong blogged, the deficit won't be a problem for at least the next three Presidential terms.**

The sequester is bad enough.

The Big Budget Battle the GOP Has Already Won by David Dayen

-------------------------------------
*Appearing neat and comprehensive by ignoring the complexities of an issue; superficial.

**or until the Republicans blow it up again and/or the next bubble pops.

Samantha Power

A New U.S. Player, Put On The Stage by Syria

The Unsung Hero Who Coined the Term "Genocide" by Michael Ignatieff

Tyler Cowen is baffled and claims nobody understands when in fact his political opponents do understand

Monetary policy is a really big deal by Scott Sumner

Tyler Cowen is surprised by the size of the various emerging market reactions to the non-taper:

Pay special heed to quantitative magnitudes. For how long are we delaying the taper? One or two months? How much is the taper anyway, relative to the stock of relevant financial assets? Taking $10 to $15 billion off of $85 billion a month in purchases, when the asset stocks are in the trillions? Woo hoo.
. . .
I’ll say it again: none of you understand what is going on here, and neither do I. I am not seeing enough admission of this basic fact.

I certainly admit to not understanding the specific market reactions that he points to, but don’t really agree with the larger point he is making.

Monetary policy drives NGDP; nothing else really matters. But people care about real variables, not nominal variables. So how important is NGDP anyway? It turns out that in the short and medium term it’s really, really important, even in real terms. In the long run not so much.
...
The markets went into Wednesday thinking the Fed was determined to taper for Larry Summers-type reasons. Fear of a big balance sheet. At the end of the day the markets realized that the Fed was serious about letting the data drive policy. That’s not just a different policy; it’s a completely different policy regime. And it will have important implications for when and under what conditions the Fed will start raising rates.


So yes, most of us can’t explain why the rupee did this or that on a given day. But who ever claimed they could? On the other hand the US stock market reaction makes perfect sense.

Krugman: "state of the practical art"

Modern Applied Macro by Krugman

Makes me think back to this post from last week. Is monetary policy assumed to be sub-optimal in Romer's model as deflation is expected. (But as Krugman says DNWR is keeping the price level up.)

Breaking Bad - Emmys night

AV Club reviews "Granite State" from Breaking Bad

Breaking Bad wins best drama and Anna Gunn wins best supporting actress. Stephen Colbert wins variety show and writing.

On last night's Breaking Bad, Todd brought Jesse some Ben & Jerry's [Stephen Colbert's] Americone Dream flavor ice cream.

The Last Dragon Emilia Clarke presented with Breaking Bad/Under the Dome's Dean Norris.

coincidence and the Times

Two memes in today's New York Times echo recent blogposts.

One blog post was on how DeLong compared the London Whale and the hedge funds who bet against him with the hedge funds who get angry about losing bets to the greatest hedge fund in history, the Fed, which can literally print money. I noted Warren Buffet gave a speech at Georgetown where he called the Fed the greatest hedge fund in history. Maureen Dowd noted Buffet's observation in her column today on Buffet's speech:

He calls the Fed “the greatest hedge fund in history,” and observed of the moment America nearly went off the cliff: “I give enormous credit to Ben Bernanke and Hank Paulson and Tim Geithner and frankly, even though I didn’t vote for him, President Bush.”  

W.’s “great insight,” one worthy of Adam Smith, he said, was expressed in 10 words in September 2008: “He went out there from the White House and he said, ‘If money doesn’t loosen up this sucker could go down.’ ”

The other blogpost dwelled on the lack of a viable socialist movement.

In the Times, two authors wrote about novelists and radical movements.

Confronted with the facts of mass politics and ideological fervor, John Updike and Martin Amis psychologized them away as symptoms of sexual frustration. Presumably free of male anxieties, fiction by women — Deborah Eisenberg, Jennifer Egan, Susan Choi, Barbara Kingsolver, Ann Patchett, Dana Spiotta — has seemed much more sensitive to the variety, ambiguities and contradictions of radical thought and action. (Depicting Robespierre in “A Place of Greater Safety,” Hilary Mantel may have given us contemporary fiction’s richest portrait of a revolutionary.) Remarkably, almost all events and characters in these works are drawn from the past. But then the few people pushed to radical gestures in our own era of unparalleled conformity and political passivity are more likely to be scorned than admired.

More ominously, the future holds none of the possibilities of far-reaching transformation that galvanized a writer like Bolaño. Indeed, his example shows that Trotsky, unreasonably doctrinaire with Malraux, was right in one respect: The writer chronicling political events in fiction is most effective when participating in a historical process or movement. No such tonic immersion is available to most contemporary writers, who, as sequestered as ever, must strive alone to transcend the general impoverishment of the political imagination.

demand manager of last resort

The Fed Decides the Economy Still Sucks by Kevin Roose

The no-taper decision is sending stocks to all-time highs, since Wall Street had anticipated a taper of at least $10 or $15 billion in monthly buying. But the bigger takeaway is that this is a sentient Fed — a Fed capable of setting its compass not simply by the data in front of it, but also by the stories it hears. Ben Bernanke was on solid logical footing when he proposed the taper last May; it has to end sometime, after all, and a housing recovery coupled with a falling headline unemployment rate had given him the cover to begin tightening. But progressive economists and consumer advocates objected loudly, on the grounds that the labor participation rate and wage stagnation meant that not all was well in the economy, despite appearances.
...
That's probably true. But it also shows how widely influential doves like Yellen have been in reorienting the Fed's priorities around helping to create jobs. Part of the reason today's move shocked Wall Street is that this is a much different Fed from the one most traders are used to dealing with. It's a more compassionate Fed, a more holistic Fed, and a Fed that sees its role as not only fulfilling the official mandate of price control and low unemployment, but as filling the gaps where legislators are failing. It's also a political body, deeply aware that the fiscal shenanigans likely to occur in this fall's debt-ceiling debate could undo months of its efforts to stabilize the economy. It's the most subtle ideological transformation of a major monetary policy body in decades, but one of the most important. The Fed, with few exceptions, is all Yellens now.  

Emphasis added.

(via DeLong)

India and Indonesia react to potential tightening/tapering

Amid Economic Stress, Differing Strategies Emerge

why liberals blocked Summers

Summers lost because liberals don’t trust Obama on financial reform by Ezra Klein

Summers fell because at least five Democrats on the Senate Banking Committee doubted his bona fides as a bank regulator. But even that doesn’t get at the whole truth. Summers really fell because those Senate Democrats — and many other liberals — don’t trust the Obama administration’s entire approach to regulating Wall Street. For all the talk of Summers’s outsized personality and polarizing past, he really lost because he was a stand-in for Obama.

QE mulitplier

The surprising value of not tapering by Felix Salmon

I’m very late to this — I was a bit distracted by other things today — but the big storyline of the day seems clear: the Fed didn’t taper, and markets surged in response.

So here’s my question. If you take the amount of tapering that the market expected yesterday, and the amount of tapering that the market expects today, what’s the difference, in dollar terms? In other words, by the time tapering ends, and the Fed is no longer engaging in quantitative easing, how much extra money will it have spent buying bonds, if current market expectations hold, compared to what the market expected on Wednesday?

Then comes the next question, which is this: how much did the value of US fixed-income assets rise on Thursday? And, for that matter, how much did the value of US stocks rise on Thursday?

I don’t know the exact answers to the questions, but I’m pretty sure that the latter numbers are much larger than the former — that the market reaction, in dollar terms, was hugely greater than the extra amount of QE that the market now expects.

If that is indeed the case, then what we’re seeing is what you might call the QE multiplier — the amount by which every dollar of QE effects the markets as a whole. I don’t know what we thought the QE multiplier was on Wednesday, but in light of Thursday’s market action we might need to revise our guesses: the QE multiplier is, I suspect, much larger than most of us would have pegged it at.

And that, in turn, is surely a reason to keep on easing. If QE does no good, then you might as well not do it. But the lesson we learned on Thursday is that the markets really, really love QE. And insofar as robust markets feed through into a healthier economy, the logical conclusion is that we should retain current policy well into 2014. The downside is limited — and the upside is much bigger than we thought it was.

(via DeLong)

The Widowmaker

Moby Ben, or, The Washington Super-Whale: Hedge Fundies, the Federal Reserve, and Bernanke-Hatred by DeLong (May 11, 2013)

Harpooning Ben Bernake by Krugman

Brad DeLong has the best piece I’ve seen on Bernanke rage among the hedge funders. His point is that the hedgies keep thinking of the Fed as if it were a rogue trader driving prices away from their natural value, like JP Morgan’s London Whale, rather than as a central bank trying to achieve full employment and target inflation. Hence their rage at the failure of bond prices to collapse the way they “should”.

I’d riff on this a bit further. I suspect that the hedge fund guys are relying a lot on historical correlations that worked pretty well for decades: mean reversion of yields, correlations with deficits, etc., most of it pretty much model-free. The trouble is that a once-in-three-generations deleveraging shock makes such correlations useless. Cross-national analogies — i.e., Japan — would have been better, but don’t seem to have been applied.

What you should be doing is macro analysis, using something like IS-LM — something like what I did here, almost three years ago. (The forecasts have gotten worse since, so the implied long-term rate would be even lower).

But instead of saying that maybe this macro IS-LM stuff has a point, they’re raging against the man with the beard.

Warren Buffett compares US Fed to a hedge fund (9.21.13)

Billionaire investor Warren Buffett compared the US Federal Reserve to a hedge fund because of the central bank's ability to profit from bond purchases while accumulating a balance sheet of more than $3 trillion.

"The Fed is the greatest hedge fund in history," Buffett told students yesterday at Georgetown University in Washington.

It's generating "$80 billion or $90 billion a year probably" in revenue for the US government, he said. "And that wasn't the case a few years back."

The central bank has been buying $85 billion of bonds a month to help the US recover as it emerges from the deepest slump since the Great Depression. Chairman Ben S Bernanke and other Federal policy makers unexpectedly opted this week to sustain that pace of asset purchases instead of tapering it, saying they need to see more signs of lasting improvement in the economy. 

The Fed remitted $88.4 billion to the US Treasury Department last year. The payments have ballooned as the central bank built its balance sheet during the past five years.

The Fed "is under no pressure, none whatsoever to have to deleverage," Buffett said. "So it can pick its time, and if you have somebody wise there -- and I think Bernanke is wise, and I certainly expect his successor to be -- it can be handled. But it is something that's never quite been done on this scale. It will be interesting to watch."

Soros bet against the British hedge fund in the early 90s and won. In the end it helped Great Britain via devaluation.

Calgarian candidate

The blame should lie with Boeher, but Cruz gave the not-credible impression that sending the CR defunding Obamacare to the Senate was somehow worthwhile. The other Senate Republicans are saying it's stupid.

Looks like it's a way for the Tea Party to single out Republican Senators who vote for Romneycare.

Knowing When to Worry by Gail Collins

Ted Cruz Turns Obamacare Defunding Plan From Disaster to Utter Fiasco by Jonathan Chait

Step one of this far-fetched scheme was the passage of a “continuing resolution,” which keeps the government open, attached to abolishing Obamacare. Now it goes to the Senate. Once that bill comes up for a vote in the Senate, the majority can vote to strip away the provision defunding Obamacare. That vote can’t be filibustered. It’s a simple majority vote, and Democrats have the majority.

What Senate Republicans can do is filibuster to prevent the bill from coming to a vote at all. That’s the only recourse the Senate defunders have. And Ted Cruz is promising to do just that: “ I hope that every Senate Republican will stand together,” he says, “and oppose cloture on the bill in order to keep the House bill intact and not let Harry Reid add Obamacare funding back in.” A “committed defunder” in the Senate likewise tells David Drucker, “Reid must not be allowed to fund Obamacare with only 51 votes.” 

In other words, the new stop-Obamacare plan now entails filibustering the defunders’ own bill. They can do this with just 41 votes in the Senate, if they can get them. But consider how terrible this situation is for the Republicans. If they fail, it will be because a handful of Republicans joined with Democrats to break the filibuster, betraying the defunders. This means the full force of the defund-Obamacare movement – which is itself very well funded by rabid grassroots conservatives eager to save the country from the final socialistic blow of Obamacare — will come down on the handful of Senate Republicans who hold its fate in their hands. The old plan at least let angry conservatives blame Democrats for blocking their goal of defunding Obamacare. Now the defunders can turn their rage against fellow Republicans, creating a fratricidal, revolution-eats-its-own bloodletting. 

But what if it succeeds? Well, success means the government shuts down because the Senate Republican majority has successfully filibustered a vote on the House bill preventing a shutdown.

Debt Default by the Hyperpower

I don't see it but Bernstein and Krugman both say it's a possibilty.

If Boehner defaults on the debt, he'll destroy the Republican party. If he doesn't he'll probably be replaced but c'est la vie.

market values from relationships to transactions and societal rot

On Panitch & Gindin and American decline by Doug Henwood

And now onto the psychological realm. I’ve been thinking lately about what we might call the neoliberal self. Gone seems to be the classically bourgeois executive ego, a relatively stable, if sometimes anal-retentive structure to guide the subject through life. In its place is a much more fragmented thing, adaptable to a world of unstable employment and volatile financial markets—but unable to think seriously about long-term things like social cohesion or, god save us, climate change. 

The material basis of this transformation looks to be the replacement of the relationship by the transaction, to steal the language of corporate governance. Workers are told to run their lives like little entrepreneurs, moving from one ill-paying short-term job to another, or maybe holding two or three at a time. And at the top of the society, we see the erosion of the planning function, and any rationality beyond the most crudely instrumental. It’s been a long time since I read Polanyi, but this seems to me a perspective on the social rot produced by market-regulated societies, from the macro level of investment down to the socially shaped psychology of how we think and feel. I don’t see how the imperium can long survive this sort of pervasive rot.

Evans rule

Chicago Fed President’s ‘Evans Rule’ Completes Its Odyssey, As the Fed Gets Dovish by Whet Moser

Good picture and caption.

too few jobs = more bad jobs

Few Jobs Means Bad Jobs by Dean Baker

taper paradox

Taper Paradox by Andy Harless


What the blogosphere does best by Scott Sumner

Sumner is feeling good

trillion here and a trillion there . . by Scott Sumner

...PPS. A few days ago Andy Harless left a comment pointing out that when interest rates are falling, higher stock prices don’t necessarily imply higher NGDP expectations. BC left a comment with data suggesting that NGDP growth expectations have probably risen as a result of recent events:

I do have some inflation swaps data. Inflation swaps are usually a little higher than TIPS breakevens due to some differences in financing rates between TIPS and nominal treasuries in the repo market.

The most pronounced change in inflation swap rates was in 1-2 yr forward inflation (expected inflation between Sep 2014 and Sep 2015). It rose from 1.80% to 1.95% between Friday 9/13 and Monday 9/16, coincident with the Summers withdrawal. As of Wednesday, it had risen to 2.18% in response to the Fed surprise non-tapering. So, overall in increase of 0.38% between Friday and Wednesday. Over that period, 0-1 yr inflation has not changed much (increased from 1.59% to 1.63%), nor has 2-5 yr inflation (decreased from 2.54% to 2.49%). 5-10 yr inflation has increased from 2.70% to 2.93%.

And RGDP expectations? That’s why we need a . . . that’s right, an NGDP FUTURES MARKET!!!

 From yesterday's news about the Fed's non taper.

Instant reaction: All hail Ben Bernanke! by Scott Sumner

The Bridge

AV Club review of "Take the Ride, Pay the Toll' from The Bridge

on net positive meeting - inflation floor of 2.5 percent?

Septaper surprise by Ryan Avent

mechanisms, NK and Fed Fail

Whiskey-Tango-Foxtrot-Bang-Query-Bang-Query Thursday Weblogging: Simon Wren-Lewis and Chris Dillow on Robert Lucas's and John Cochrane's Mistakes and Ideology in Macroeconomics by DeLong

And Simon Wren-Lewis today on those who cling to their gods and guns RBC models and claims of the impotence of fiscal policy at the ZLB:

ZLB Models?: There was a little interchange between Noah Smith and Paul Krugman… on… Japan’s stagnation, and… the Great Recession…. In NK models recessions last for as long as it takes for prices to fully adjust. So how can NK models explain a lost decade or more?… Often the implication is that this is implausible, so the explanation must be supply side. The answer… is the Zero Lower Bound (ZLB). Noah replied…. I was unhappy about how his discussion was framed… [a] framing is common to a lot of macroeconomists…. 

It is often said that NK models just add price stickiness to RBC models, and if prices are sticky in the short run, aggregate demand matters in the short run…. I like to express it differently…. The mechanism by which we can or cannot ignore aggregate demand… is monetary policy…. [In] NK models… price adjustment induces a monetary policy response… that ensures demand shortfalls are not persistent. Break the monetary policy response, because you hit the ZLB, and you break the correction mechanism…. The ZLB therefore allows NK models to generate much more persistent recessions, if the recessionary shock is itself large and persistent…. 

The implications of the ZLB for RBC models are just as profound…. If the correction mechanism is broken because of the ZLB, then the foundation on which the model is built becomes problematic…. You cannot assume that the real interest rate will always be at the natural level if there is no way that real interest rate can be achieved…. 

Of course you can ignore this… try to use RBC models…. But there are two huge problems with this. First, it ignores a big piece of evidence--these economies are at the ZLB!… [Second] the model is not microfounded. Thinking about mechanisms rather than models helps you see that….

"gods and guns + RBC models and claims of the impotence of fiscal policy at the ZLB:" = the American rightwing.

interest rates and taper talk

When Bernanke broached the subject of tapering in June, the market took it as a tightening signal and interest rates on 10 year Treasuries went up as bonds were sold and money moved into stocks. Money also moved out of emerging market economies back to the mothership. When the Fed did not perform the expected tapering yesterday, interest rates went down but not back to where they were in June. The stock market went up again.

Interest rates and the face/vase problem by Scott Sumner

No Taper

FOMC Statement: No Taper by Bill McBride

He called it.

Edit: Bernstein did as well.

The Demand for Risk-Free Assets

What Are the Risks of Quantitative Easing, Really? by DeLong

Not fully versed in this fascinating subject. Mortgage-backed securities (MBS) filled this need during the "global savings glut." But S&P and Moodys were shown to be frauds.

My guess is that 4 percent inflation would help the situation but that's a no-go because Bernanke is afraid that the Fed my lose its street cred and we'd quickly turn into Weimar/Zimbabwe.

Creditors don't like seeing their contracts devalued.

What were "maestro" Greenspan's arguments in favor of the Bush tax cuts? What were the dangers of a budget balanced by his dot-com bubble? That it would morph into a housing bubble which would eventually pop with disastrous consequences? No I don't think that was it.
 

government shutdown!

Party like it's 1995!

Wikipedia:

United States federal government shutdown of 1995 and 1996

Clinton's approval rating fell significantly during the shutdown. According to media commentators, this indicated that the general public blamed the President for the government shutdown. However, once it had ended his approval ratings rose to their highest since his election.
...

The shutdown also influenced the 1996 Presidential election. Bob Dole, the Senate Majority Leader, was running for President in 1996. Because of his need to campaign, Dole wanted to solve the budget crisis in January 1996 despite the willingness of other Republicans to continue the shutdown unless their demands were met. In particular, as Gingrich and Dole had been seen as potential rivals for the 1996 Presidential nomination, they had a tense working relationship. The shutdown has also been cited as having a role in Clinton's successful re-election in 1996.

According to Gingrich, positive impacts of the government shutdown included the balanced-budget deal in 1997 and the first four consecutive balanced budgets since the 1920s. In addition, Gingrich stated that the first re-election of a Republican majority since 1928 was due in part to the Republican Party's hard line on the budget. The Republican Party had a net loss of eight seats in the House in the 1996 elections but retained a 228-207 seat majority. In the Senate, Republicans gained two seats.

--------------------------------

I Wish I Could Curse in Fluent Kangaroo by Mistermix

Love that “if” in the second paragraph–have two letters ever done heavier lifting? Anyway, back here on planet Earth, once this thing arrives stillborn on the floor of the Senate, we know that there are between 49-87 Republicans who will join in with Democrats and vote on something sane. The question is whether this vote will happen before or after a government shutdown. The Noam Scheiber piece that DougJ mentioned yesterday says that this vote will occur after a shutdown and he’s probably right.

Scheiber:

Boehner clearly prefers to avoid a government shutdown. He’s spent months figuring out how to do that, fully aware of the political debacle it would entail. Unfortunately, it’s now clear that the only way he can induce the political isolation he typically relies on to prod his caucus into semi-rational action is by shutting down the government and inviting the public backlash he’s been so desperate to avoid. Boehner simply has no other way of talking sense into his people, no other hope of making the House GOP governable. And so, in the end, a shutdown is in Boehner’s interest, too. 

A shutdown perhaps. A debt-ceiling default, not-so-much.

(via DeLong)

priorities

NYT Says Ignore Those 9 Million Missing Jobs, the Budget Is Projected to Be Out of Balance in Ten Years by Dean Baker

Fed meeting

Ten Questions About Today's Federal Reserve Meeting by Ygelsias 

6. So what's Woodford's argument? Part one for Woodford is that giving the economy a monetary boost is all about expectations, not about bond-buying. He thinks you boost the economy by telling people to expect faster nominal growth in the future—saying the Fed will give us faster real growth or faster inflation, but will absolutely refuse to countenance a slow-growth low-inflation combination. In that framework, QE is unnecessary.

7. But even if it's unnecessary, is it doing any harm? Yes, Woodford's view is that taking the bonds off the market is dangerous. Government debt plays a crucial role as a "safe asset" in the broader financial and economic situation. Public policy ought to ensure that this government debt is around in ample supply.

8. Doesn't that also imply that the budget deficit should be higher? Woodford hasn't said this, but it does appear to follow from his logic. For that matter, the Fed's own statement that it will tolerate inflation in the 2-2.5 percent range as long as unemployment stays high also argues for a higher deficit. It's a clear signal from the Fed that if fiscal stimulus gave the economy a boost, monetary policy wouldn't calm it down again. Either way you look at it, the government should be collecting less in taxes and doing more opportunistic investment. But the Fed can't make that stuff happen.

Oldie But Goodie

Lovecraftian School Board Member Wants Madness Added To Curriculum

ARKHAM, MA—Arguing that students should return to the fundamentals taught in the Pnakotic Manuscripts and the Necronomicon in order to develop the skills they need to be driven to the very edge of sanity, Arkham school board member Charles West continued to advance his pro-madness agenda at the district's monthly meeting Tuesday.

"Fools!" said West, his clenched fist striking the lectern before him. "We must prepare today's youth for a world whose terrors are etched upon ancient clay tablets recounting the fever-dreams of the other gods—not fill their heads with such trivia as math and English. Our graduates need to know about those who lie beneath the earth, waiting until the stars align so they can return to their rightful place as our masters and wage war against the Elder Things and the shoggoths!"

The controversial school board member reportedly interrupted a heated discussion about adding fresh fruit to school lunches in order to bring his motion to the table. With the aid of a flip chart, West laid out his six-point plan for increased madness, which included field trips to the medieval metaphysics department at Miskatonic University, instruction in the incantations of Yog-Sothoth, and a walkathon sponsored by local businesses to raise money for the freshman basketball program.


"Our schools are orderly, sanitary places where students dwell in blissful ignorance of the chaos that awaits," West said. "Should our facilities be repaired? No, they must be razed to the ground and rebuilt in the image of the Cyclopean dwellings of the Elder Gods, the very geometry of which will drive them to be possessed by visions of the realms beyond."

West has served on the school board since 1997, when he defeated 89-year-old incumbent Doris Pesce by promising to enforce dress codes and refer repeat disciplinary cases to the three-lobed burning eye. He has run unopposed ever since.
 
"Charles sure likes to bang on that madness drum," fellow school board member Danielle Kolker said. "I'm not totally sold on his plan to let gibbering, half-formed creatures dripping with ichor feed off the flesh and fear of our students. But he is always on time to help set up for our spaghetti suppers, and his bake sale goods are among the most popular."
 
"I must admit, he's very convincing," Kolker added.
 
West's previous failed proposals include requiring the high school band to perform the tuneless flute songs of the blind idiot god Azathoth and offering art students instruction in the carving of morbid and obscene fetishes from otherworldly media.
 
Several parents attending the meeting were not impressed by West's outburst.
 
"Last month, he wanted us to change the high school's motto from 'Many Kinds of Excellence' to 'Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn,'" PTA member Cathy Perry said. "I asked if it was Latin, and he said that it was the eldritch tongue of Shub- Niggurath, the Black Goat of the Woods with a Thousand Young. I don't know from eldritch tongues, but I'm not sure that's such a good idea."
 
"We already changed the name of the school from Abraham Lincoln High to Nyarlathotep Academy," Perry added. "What more does he want?"
 
Immediately before the vote on his motion, which was defeated eight to one, West gave his final remarks, arguing that the children are our future and that it's the school board's obligation to make sure they are fully versed in the unspeakable horrors still to come.
 
"In the information age, it is easier than ever to gather knowledge about things that should not be but nonetheless are, and such wisdom could prepare our students to be better citizens amid the ruins of sunken cities infested with swarms of ravenous, bloated rats," West said. "Also, I believe that birth control should not be distributed by the guidance counselor."
 
All of West's remaining proposals were tabled so the board could debate repairing the hole in the locker-room wall, as five students have disappeared in the adjacent skull-filled catacombs since the opening was discovered last week.

Republicans and Obamacare

The Plot to Kill Obamacare: Why it continues to drive many Republicans to madness by Jonathan Chait

The Republican party has voted unanimously against establishing the Affordable Care Act in the Senate and then in the House of Representatives, then voted some 40 times to repeal or cripple it; it has mounted a nearly successful campaign to nullify it through the courts and a failed presidential campaign that promised to repeal it; and it has used its control of state governments to block the law’s implementation across vast swaths of the country, at enormous economic cost to those states. Yet somehow, in the wake of all this, the party is consumed with the question Have we done enough to stop Obamacare?

This peculiar subject of introspection, as if Joe Francis were lying awake at night cursing himself for his prudery, reflects the deepening mix of terror and rage with which conservatives await the enrollment of millions of uninsured Americans beginning in October. On the substantive merits of the law, only the subtlest variations can be detected in the GOP’s evaluation. Mitch McConnell calls it the “single worst piece of legislation passed in the last 50 years in the country.” Representative John Fleming of Louisiana calls it “the most dangerous piece of legislation ever passed by a Congress” and “the most existential threat to our economy … since the Great Depression.” Virginia gubernatorial candidate Ken Cuccinelli harks back to the Fugitive Slave Acts for a comparative affront to liberty.

Sleepy Hollow: Could Flop

AV Club reviews the Pilot for Sleepy Hollow

Still, there are some critical flaws baked in from the start, the most obvious being a loopy mythology that tries to cram about five seasons of Supernatural into forty minutes. To sum up: Ichabod Crane (Tom Mison), a college professor turned soldier turned spy was tasked by General George Washington with killing a very nasty man who just might be the first of the Four Horsemen of the Apocalypse.

Crane is the pointed-headed liberal who tells his soon-to-be partner that he was in favor of the abolition of slavery. He also switched sides against his homeland in favor of the American revolutionaries, so he could be considered an international humanitarian. His partner is a black female police officer who was on the way to the F.B.I. but decides to remain in Sleepy Hollow. They agree to team up to try to prevent the end of the world.

I recently saw two apocalyptic films; This Is the End and The World's End. Both were entertaining.

Another review by the AV Club.

Summers bows out

How Larry Summers Paid for Obama’s Sins by Jonathan Chait

Democrats on the Senate Banking Committee came out against Summers. Merkley of Oregon and Brown of Ohio are liberals I guess. Tester of Montana represents rural interests and community banks. I'd guess Elizabeth Warren would have voted no also. New York Times reports North Dakota Senator Heidi Heitkamp was also wavering. Obama, Geithner, Bernanke and Summers allowed the community banks to face the harsh free market while the big banks benefitted from the socialism of the rich. Their reps didn't appreciate it.

Summers didn't apologize for his Kaleckian views of growth through deregulation. Or rather he didn't admit to his mistakes or his "group's" mistakes.

Brown organized a letter of 20 Senators supporting Yellen after it became apparent that she wasn't the frontrunner and Obama wanted Summers. Kudos to Durbin for signing that letter in July.

Kohn was a Greenspan man and Bush appointee. It would be disappointing for Obama to go with him.

It was disappointing how the Summers partisans with the exception of DeLong attacked Yellen anonymously in the press.

repo market & "shadow banking system"

After a Financial Flood, Pipes Are Still Broken by Gretchen Mortgenson

AV Club reviews "Ozymandias" from Breaking Bad

Pynchon and Lethem; wage inflation and the Death of God

Pynchonopolis, review of ‘Bleeding Edge,’ by Thomas Pynchon reviewed by Jonathan Lethem

A Calamity Tailor-Made for Internet Conspiracy Theories by Michiko Kakutani

Turn Left, and Head for Queens: ‘Dissident Gardens,’ Jonathan Lethem’s New Novel reviewed by Janet Maslin

Red Queens: Jonathan Lethem’s ‘Dissident Gardens’ reviewed by Yiyun Li

A little pop philosophy of history. Along with the theories of evolution and science and relativity theory, etc. came Modernism and the "Death of God." The wasteland of T.S. Eliot. Nietzsche etc. and the losing of religion.

For the ideological left, the disillusionment with the Soviet Union in 1956 and much earlier for other leftists, was like the loss of God. Today it is politics without a viable socialist movement. Could the turn away from Bloomberg in New York City and the turn towards de Blasio mean something? Could the back-to-back elections of Obama mean something related to demographics and the conservative movement collapsing in upon itself in an enclosed ideological bubble? Could the election of Elizabeth Warren (who replaced Scott Brown); the flash of Occupy Wall Street and Jerry Brown's success in California auger something more hopeful than a political wasteland devoid of a strong, viable socialist movement? Could the legalization of gay marriage and the sidelining of the Right's useful religious idiots?

The political economy's record is not good. It could be that Steve Randy Waldman is correct and that the 1970s inflation was the least-bad option for Arthur Burns and the Fed. Lower inflation would have meant much higher unemployment and social unrest for the uppity 1970s.

But what happened next? The 1970s could be the last bout of "excessive" wage inflation tolerated by the Fed. What followed was Volcker slamming on the breaks; global competition with Japan and Germany with their export economies coming online (and now the Chinese); Reagan breaking organized labor and PATCO; the metastasization of the financial industry and global capital flows; the end of the Cold War and "there is no alternative (TINA)".

We will not see excessive wage inflation again. Instead the Fed will pop financial sector bubbles ahead of time (early 90s, early 2000s, 2007-) and the result will be balance sheet recessions.

The final result? Growing inequality.

Shadow banking system

Time’s Foroohar Responds to Treasury: Our Financial System Is Not Stronger

Treasury's Anthony Cole blogged:

Point Four: Shadow Banking

The risk in the so-called “shadow banking system” – the financial firms that operated outside of the protections and constraints we impose on banks – has fallen substantially since the crisis.

Assets in the “shadow banking system” are roughly half the level seen in 2007. Funding through tri-party repurchase agreements has fallen 40 percent from its peak in 2007, and asset-backed commercial paper outstanding – which was often used to fund leveraged off-balance sheet vehicles – is a third of what it was in 2007.

​We now have the authority to subject, through designation by the Council, major financial companies operating in the United States to consolidated supervision and adherence to heightened prudential standards, such as enhanced capital, liquidity, and risk management requirements. That represents a dramatic change from before the crisis, when there was no authority for such regulation of such institutions, which comprised more than half of the financial activity in the nation.

Since the housing bubble popped, business people are now gun-shy. But the assets levels in the shadow banking system will rise again as the crisis fades from view and people become complacent yet again. They'll need to be risky in order to compete. There needs to be an FDIC system for the shadow banking system as there is for the regular banking system. But that will make it less profitable. Instead it depends on the regulators.

As Konczal reports, Jack Lew is not regulating very well. And he's a Democrat.

AIG failed because its derivatives position became impossible for it to manage. The Commodity Futures Trading Commission (CFTC) has made major progress in bringing the light of transparency to the over-the-counter derivatives market, making sure collateral and price transparency clean up the market.

They have hit resistance, though. As the economist Alan Blinder wrote earlier this week, the CFTC’s Gary Gensler “ran into a wall of resistance from the industry, from European regulators, and from some of his American colleagues when he tried to implement even the weak Dodd-Frank provisions for derivatives.”

It’s important to name the actual agents involved. Instead of a nebulous and nefarious blob of interests called “the industry,” there’s an actual human being putting pressure on Gensler to stop these cross-border regulations that tie U.S. firms in Europe to U.S. regulations. And, as Silla Brush & Robert Schmidt reported in a great Bloomberg piece, his name is Jack Lew, and he’s the Treasury secretary of the United States. 

It's possible Larry Summers will be a good regulator as Fed Chair. It could happen. But my bet would be that he'll turn out to be like Jack Lew here. More of the same.

Lehman 5 years on

What we get wrong when we talk about ‘the financial crisis’ by Mike Konczal

Back to Boehner by Gail Collins

Jan. 1: New sequester cuts really kick in and first Obamacare insurance policies go into effect. The moon turns to blood. Thor, son of Odin, fights in combat with the serpent Jörmungandr. The president contemplates the fact that he has three more years in office.       

duty to protect

The Duty to Protect, Still Urgent by Michael Ignatieff

Hitchens once called UN Representative Samantha Power a disciple of Ignatieff. I couldn't tell if it was a criticism or what.

good chart on Lehman + 5 years

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

From July 1, 2007 to today:

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

(via DeLong)

Abenomics

The line from 9/11 to Lehman to Syria by Greg Ip 

How long will the divisive effects of the financial crisis last? No country is the same, and in America, polarisation has many causes that predate the crisis: rising income inequality, gerrymandering and the continued post-civil rights migration of southern voters from the Democratic to the Republican Party. But I see two plausible answers to that question when it comes to economic matters.

One, a fully recovering economy will restore private and public balance sheets, erasing the divide between creditors and debtors and obviating the need for zero-sum austerity. Or two, the economy will stagnate for years until the country coalesces behind a single, bolder vision for economic reform. I used to think Japanese voters would never vote for higher inflation because as its population ages, the proportion of voters who favour falling prices expands. Happily, I may soon be proven wrong. Shinzo Abe seems to have united the country behind a call for fiscal, monetary and structural stimulus. Japan, which showed the way in to post-crisis politics, may yet show the way out.

insane clown posse debt ceiling clown show (ICPDCCS)

Boehner to Obama: Can I Please Take You Hostage? by Jonathan Chait

But Boehner isn’t proposing to attach a perfunctory debt-ceiling hike to “bipartisan solutions,” as has happened in the past. He is proposing that the opposition party extract unacceptable conditions as the price of lifting the debt ceiling. That is an unprecedented demand. Under the Bush presidency, Democrats objected that tax cuts had created un unsustainable fiscal position for the government, but it never even occurred to them to threaten to trigger a debt default to force Bush to repeal his tax cuts. Before 2011, the debt ceiling was an occasion for posturing by the out-party and was sometimes raised in conjunction with mutually agreeable policy changes, but the opposition never used the threat of default as a hostage.

Godley and Krugman

Wynne Godley and the Hydraulics by Krugman

The second big problem involved inflation. We can argue how many economists really believed in a stable tradeoff between inflation and unemployment, but that’s certainly what got taught to many students. In came Friedman and Phelps to argue that rational price-setters would build expected inflation into their choices, so that sustained low unemployment would produce accelerating inflation. And the stagflation of the 70s seemed to vindicate their argument.

Did it vindicate their argument though? Possibly Arthur Burns allowed inflation to accelerate because the alternative - allowing a steep rise in unemployment during the uppity 70s - was politically undesirable. As Steve Randy Waldman argues, by the time Volcker comes on the scene, the demographic goat has mostly passed through the snake.

Krgthulu

Paul Krugman Won the Crisis—and Lost the Argument by Peter Coy

As of 2013, End This Depression Now! has been translated into 25 languages. “Paul is a rock star overseas,” says Drake McFeely, president of W.W. Norton, his U.S. publisher.

The Rise of the New New Left by Peter Beinart

financial crisis

The origins of the financial crisis by The Economist

The Bridge

AV Club reviews "Old Friends" from The Bridge

1970s and Arthur Burns reconsidered

Terminal demographics by Steve Randy Waldman

He links to multiple responses.

On the meaning of inflation by Ryan Avent

"auto" correction and the deadly zero

The Deadly Zero Holding America Back by Yglesias


Original memestarter blogpost.

sectoral modeling

Embracing Wynne Godley, an Economist Who Modeled the Crisis by Jonathan Schlefer

Greatest show that ever was or will be

Game Of Thrones' next season will have Sigur Rós, as well as Mark Gatiss and Michiel Huisman in familiar roles

Following third-season cameos in which the frontman of Snow Patrol and the drummer from Coldplay appeared on Game Of Thrones then were immediately killed, ending those bands’ careers forever, Entertainment Weekly has announced that Sigur Rós will appear on, then likely die in, the show’s fourth season. The band is reportedly a favorite of showrunners David Benioff and Dan Weiss, as EW notes that the duo “would often listen to their music while shooting in Iceland,” as Sigur Rós is broadcast on a constant loop from speakers embedded in the nation’s mountains. Like their songs, their death cries will no doubt be hauntingly beautiful, though you won’t understand a word. 

While the exact nature of the band’s role remains a secret, Winter Is Coming claims to have uncovered the mystery of another recent Game Of Thrones casting—that of Sherlock’s Mark Gatiss. According to the actor’s own résumé, Gatiss will play the role of Tycho Nestoris, a representative of the Iron Bank of Braavos, the financial institution with a terrifying reputation for always collecting its debts, like a slightly less fearsome Wells Fargo. Fans will note that Nestoris is being introduced a bit ahead of schedule than he appears in the books, presumably as part of HBO’s strategy to start burning through them faster and faster and force George R.R. Martin to finish some new ones already.  

And finally, The Hollywood Reporter recently cleared up the casting of Michiel Huisman, better known as that guitar-wrangling bad boy whom you should know better than to get involved with on Treme and Nashville. According to its report, Huisman will actually be taking over the role of Daario Naharis from Ed Skrein, replacing Skrein as Daenerys' love interest for as-yet-unknown reasons. Though most likely he just pulled out a guitar and acted all sweet yet tormented and the show just fell for him, like so many before it.

Rooseveltian lack of resolve (circa '37) or dithering

Make Japan Chaste and Continent, But Not Yet by Krugman

Japanese Q2 growth revised upwards but Abe might enact sales tax.

stagnation, Fed Fail, and auto-correction

License To Stagnate by Krugman

So what’s wrong with this pretty picture? Two ugly zeroes.

First is the zero lower bound on the interest rate: after a sufficiently large shock, the Taylor rule may say that you should keep cutting rates, but you can’t. Second is downward nominal rigidity, which isn’t quite as binding a constraint, but does lead the Phillips curve to be non-vertical in the face of very low inflation; as an IMF study of persistent large output gaps found, even years of a deeply depressed economy tend to produce at most slow, grinding deflation, and more usually slight positive inflation, not the ever-accelerating deflation the standard model would have predicted.

So here’s what happens after a large negative shock to the economy: the central bank finds itself up against the zero lower bound, so that all it can do is resort to controversial unorthodox measures. It might do that, or fiscal policy might be forced into action, if the economy really were suffering from accelerating deflation; but instead all you see is low inflation, which might even lead some central bankers to declare that they were doing their job just fine.

In the Bond movies, two zeroes meant a license to kill. In monetary policy, two zeroes — the hard zero on interest rates and the soft zero on wage changes — can, all too easily, give central bankers a de facto license to let the economy stagnate, remaining far below potential for an indefinite length of time.

Original memestarter blogpost.

auto-correction and self-equilibration

Old and New Keynesians and self-equilibration by Nick Rowe

New Keynesians really need the Pigou effect by Nick Rowe

Original memestarter.

auto-correction

The Failure of the Self-Correcting Economy in Times Past by Dean Baker

Original memestarter.

Under the Dumb

AV Club reviews "Exigent Circumstances" from Under the Dome

post-modern recoveries

C’est La V No More by Krugman

Business cycle recessions used to be induced by the Fed raising rates. Fiscal spending and consumer demand (wage inflation) would drive inflation. Until the late 80s S&L recession and the dot com bubble recession.

Ever since Reagan broke PATCO and the Japanese came online, inflation and the overheating of the economy  wasn't being driven by wage demands and consumer demand. The problem was popped asset bubbles. Recession were now balance sheet recessions. Deregulation and the upward redistribution of weath was the cause of the overheating, not wage inflation, trade or fiscal policy.

Original memestarter.

New vs. Old Keynesians and self-correction

Why Keynes wouldn’t have too rosy a view of our economic future by Mike Konczal

Auto-Corect Nt Wokring (Wonkish) by Krugman

Cheap Thoughts on the Self-Correcting Economy: Konczal vs. Krugman by Dean Baker

In short, it doesn't look like the long-term holds out much hope for much of a rebound in these components of private sector spending. Net exports, the one major item that both Konczal and Krugman left out, is more promising. We continue to run a trade deficit of more than 3 percent of GDP, which would likely be over 4 percent of GDP if we were at full employment. This is sustained by developing countries buying up vast amounts of dollars to hold as reserves. This props up the dollar and allows them to keep their export markets in the United States. In effect, they are paying us to buy their stuff.

At some point developing countries will realize that they don't have to pay us to buy their stuff, they can pay their own people to buy their stuff. When they come to understand this fact, they will stop buying dollars and the dollar will fall against the currencies of our trading partners. This will make U.S. goods more competitive internationally, leading to more exports and fewer imports, and a return to full employment.

Anyway, this is the happy long-run story, but don't hold your breath on it. If you want to see people get back to work anytime soon the government is going to have to do it. And that's true no matter how much you like the private sector.

UPDATE: More here (Krugman), here (Baker), here (Rowe), here (Yglesias) and here (more Krugman).

baby boom and the 1970s

Agreeing in Different Languages by Steve Randy Waldman

Waldman comments:

...But based on the same experience, one might argue with Burns that inflation was a “wage-price” “cost-push” effect of labor bargaining power, a phenomenon addressed by Reagan and Japanese auto manufacturers more Volcker. We only have one dramatic disinflation experiment, and despite the self-congratulation of some economists ex post, Burns’ view of inflation an multi-causal remains current and wins on parsimony.

Demographics and inflation: international graphs by Steve Randy Waldman