Isaac Asimov relates a joke in his Treasury of Humor (1971) that claims that Otto von Bismarck challenged Rudolf Virchow to a duel. As the challenged party had the choice of weapons, Virchow chose two sausages, one of which had been infected with cholera. Bismarck is said to have called off the duel at once.
As Catherine Rampell points out, this is the lowest level of core inflation ever.
But I have a question here: why do economic forecasters keep predicting a near-time rise in core inflation, even though they are also predicting high unemployment? The Survey of Professional Forecasters now predicts average unemployment of 8.7 percent in 2012, which would seem to be a recipe for continuing disinflation and quite possibly deflation; but the same forecasters predict a noticeable rise in core inflation over the next two years:
Meanwhile in Europe, the debt crisis resurfaces. Dean Baker blogs:I don’t really understand this, except as a fundamental unwillingness to face up to the Nipponization of the US economy.
Ireland is in the headlines these days as its government struggles with insolvency. Remarkably, none of the news stories remember to point out that Ireland was a model of fiscal responsibility in the years leading up to its current disaster. Not only did it balance its budget, Ireland ran large budget surpluses in the 5 years preceding its collapse in 2008. Its peak surplus in 2006 was 2.9 percent of GDP, the equivalent of a surplus of roughly $420 billion in the United States.
Like the deficit hawks in the United States, Ireland's political leaders ignored the country's massive housing bubble, the collapse of which sank its economy. It is interesting to note that, while Ireland's background to the deficit crisis is generally ignored, news reports on Greece's financial difficulties routinely referred to its large budget deficits in the years leading up to the crisis.And yet here we are in the US talking about deficits and the Catfood Commission.
(via Mark Thoma)Bottom Line: In general, the retail sales report was good news, as it is another indicator that drives a stake into the heart of the double-dip story. But keep in mind that the data continues to illustrate the good cop, bad cop conflict in the economy. Policymakers should be concerned about the distance between new trends and old, lest they risk falling into the trap of diminished expectations, believing that 9% unemployment should be the new normal. Market participants, however, may simply be content with confirmation that the foundation for ongoing corporate revenue growth remains secure.
So David Brooks claims that
The economic approach embraced by the most prominent liberals over the past few years is mostly mechanical. The economy is treated like a big machine; the people in it like rational, utility maximizing cogs. The performance of the economic machine can be predicted with quantitative macroeconomic models.I protest, on several grounds.
First, it’s conservative economists who insist that people are always rational and utility-maximizing; liberal economists are the ones willing to invoke bounded rationality, animal spirits, etc.. The whole salt-water fresh-water split was about which you were going to believe: the assumption of perfect maximization, or your own lying eyes. And the Keynesians were the ones who preferred to believe their eyes.
Second, David would have us believe that the Obama people were misled by their excessive faith in models. But we actually know what happened when the stimulus was being discussed: the modelers, who said that we needed something much bigger, were dismissed in favor of gut feelings about market psychology.
David Brooks: Math is Hard, Just Give Money to Rich People by Dean BakerThe truth is that we would have been much better off if Obama et al had relied on old-fashioned hydraulic Keynesianism.
Update: It’s here. And it really is that bad. The idea that co-chairs of a commission whose charge is fiscal sustainability should take it upon themselves to (a) declare that federal revenue must not exceed 21 percent of GDP -- that’s right, putting a cap on receipts and (b) call for reducing the top rate from 35 to 23 is just awesome.This is how history will judge Obama. I can't believe he will go there. If so he will really demoralize his base. Hopefully the economy will recover by 2012 and the independents will come back as the Republicans implode. But Boehner seem smarter than Gringrich.
Now that the campaign’s been over for a while can we all step back and ponder how nutty it was for Meg Whitman to spend $140 million on a failed bid to become Governor of California?
Like Mr Mallaby I regret the retreat from financial globalisation, but if it substitutes for naked protectionism, I can live with it. One thing other countries should not do is ask America to leave unused one of the few effective policy tools it has left to stimulate the domestic economy. The world needs higher unemployment and deflation in America like a hole in the head.(via DeLong)
Because what sort of non-conservative - one perceives Williams to be some degree of liberal; he'd probably protest that he's just a reporter; in either case, he's not a conservative - agreed to be an in-house flunky at Fox? I'm sure they offered him nice money, and money is money, and I can't say with certainty that I'd have turned it down if Rupert had waved it under my nose.
But if you're any kind of liberal at all, even in the softest and most non-political possible sense, it's basically an indefensible thing to do. Fox News wants liberalism to perish from the face of the earth. Going on their air on a regular basis and lending your name and reputation to their ideological razzle-dazzle is like agreeing to be the regular kulak guest columnist at Pravda in 1929. For "balance".I disagree. That analogy is wrong. Plus Williams was better than Colmes. Colmes is/was horrible.
Indeed, there has been a noticeable change in the rhetoric of the government of Prime Minister David Cameron over the past few weeks -- a shift from hope to fear. In his speech announcing the budget plan, George Osborne, the chancellor of the Exchequer, seemed to have given up on the confidence fairy -- that is, on claims that the plan would have positive effects on employment and growth.
Instead, it was all about the apocalypse looming if Britain failed to go down this route. Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the "brink of bankruptcy"
What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.
.svg.png)
The NYT had a piece on the recent decline in the value of the dollar and effort by other countries to offset its impact. The article noted in particular developing country efforts to reduce capital inflows that are raising the value of their currency.
It would have been worth noting that in standard economic theory, developing countries are supposed to be borrowers. The logic is that capital is relatively scarce in the developing countries, which means that it gets a higher return. Capital therefore should flow from relatively to slow growing rich countries to more rapidly growing developing countries.
This was the direction of flows until the East Asian financial crisis in 1997. The harsh conditions that the IMF imposed on the East Asian countries led developing countries throughout the world to focus on building up reserves so that they would not have to deal with the IMF. This reversal coincided with the "high dollar" policy touted by then Treasury Secretary Robert Rubin. It helped to lay the basis for the imbalances associated with the stock and housing bubbles.
To a large extent, the decline in the value of the dollar would effectively reverse the distortions to the world economy resulting from the IMF-Rubin policy of the late 90s. It is also worth noting the recent decline in the dollar is largely just reversing its run-up as a result of the financial crisis in 2008. Money flowed into the U.S. as a safe haven, pushing the dollar well above its pre-crisis levels. It is now falling back toward the level it was at before the crisis.What would you call the reasonable reaction of China and others to the harsh conditions imposed by the IMF in the wake of the 1997 crisis? It would be the opposite of morale hazard. Once can be too indulgent and too harsh or strict.
But that seems unlikely, as long as the recovery plods along slowly. "It would be a mistake to attribute the distancing from Obama’s stimulus entirely to political caution or opportunism," said Robert S. Weisbrot, a historian at Colby College. "As much as those factors may be important, it is dismaying how little evidence there is to show for it. Maybe we need even more, but surely $800 billion should have counted for something"
During the pre-crisis period, spending grew slightly faster than GDP --that’s Medicare plus the Bush wars -- while revenue grew more slowly, presumably reflecting tax cuts.
What happened after the crisis? Spending continued to grow at roughly the same rate -- a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled -- which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.
What the usually good Sewell Chan fails to report is that the much of the stimulus was ineffective tax cuts and that much of the rest was canceled out or negated by the anti-stimulus of the 50 state governments and the stalling of GDP growth. Currently the economy is growing too slow to create enough jobs and aggregate demand which is why we'll see more action from the Fed.But I’m sure that the usual suspects will find ways to keep believing that it’s all about runaway spending.
