True Blood recap by Meredith Woerner, complete with Zoolander clip

Give Marx a Chance to Save the World Economy by Geoge Magnus

(via Yglesias)

Alan Krueger picked to lead the Council of Economic Advisers by Jackie Calmes

The cooler reception came from some on the left, who said the moment called for a big-picture macroeconomist who would push for more ambitious initiatives to reduce unemployment. "The kind of action he’s an aggressive and creative thinker about is relatively small bore, supply-side changes rather than big-picture efforts to fill the gap," Matthew Yglesias, a senior fellow at the liberal Center for American Progress, wrote in a blog.

Mark Thoma, Jared Bernstein, DeLong and Krugman are happy with the choice.

Brief Hiatus by Tim Duy

The failure of Bernanke to push for more aggressive action is even more puzzling in the wake of this speech. According to the Fed chair, the situation is becoming urgent:

Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

I suppose I should be happy that someone in Washington considers unemployment to be a crisis, both near and long term. That said, Bernanke follows up with this:

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

So he passes the ball to fiscal policy. With good reason, to be sure. Congress and the Administration are failing miserably at macroeconomic policy.

(via Mark Thoma)

Five Trillion Dollars by Krugman

A couple of notes on the most recent Congressional Budget Office Projections:

1. They offer a portrait of an economic catastrophe. Here’s the CBO estimates of potential real GDP — the amount the economy could produce without causing inflationary pressure — and actual GDP, in trillions of 2005 dollars per year:

 

No, I don’t know where that recovery in 2015 is supposed to come from; my guess is that it’s basically the CBO unwilling to project a depressed economy more or less forever. But even with that bounceback assumed, the projection says that we’ll have a cumulative output gap of $5.1 trillion, with $2.8 trillion of that having already happened.

Surely it would have been worth making an extraordinary effort to avoid this outcome[....]

Dissecting the Mind of the Fed by David Leonhardt

But you would also find a sizable group of economists who thought the Fed could and should do far more than it was doing. This group, known as doves, tilts liberal, though it includes conservatives as well. If anything, it can probably claim a larger number of big-name economists -- J. Bradford DeLong, Paul Krugman (an Op-Ed columnist for The New York Times), Christina D. Romer, Scott Sumner and Mark Thoma, among others -- than the camp that believes the Fed has done too much.

...

David Levey, a former managing director at Moody’s and another critic of Fed inaction, points out that banks often have more to lose from inflation than from unemployment. Inflation reduces the future value of the money that their debtors — homeowners, car buyers, small businesses and the like — will repay them.

...

"The Fed regional banks represent, in essence, the banking community, which tends to be very conservative and hawkish," Mr. Levey says. "Creditors don’t like inflation -- it’s good for debtors." Indeed, the three recent dissents all came from regional bank presidents: Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis and Charles I. Plosser of Philadelphia.

The Crimes of Col. Qaddafi: In the euphoria of the current celebrations, we must not lose sight of the former leader's foul deeds. by Hitchens

Krugman on QE

Well, here we are: Ben Bernanke is now Master of the Universe Fed chairman, and he has just conducted an experiment — QE2 — in asset purchases. That experiment is now widely viewed as a disappointment; to the extent it worked, it did so mainly by changing expectations, and once markets realized that the Fed wasn’t actually going to sustain expansion, the expectational effects wore off.

So now we have Woodford (not a household name, but one of our leading, perhaps the leading, macro theorist working now) arguing in the FT that Bernanke needs to stop fiddling with balance sheets and start making explicit announcements about future policy. The key thing to understand, reading Woodford, is that this isn’t some shoot-from-the-hip piece, it’s the culmination of a debate that goes back more than a decade.

Meanwhile, Cullen Roche makes much the same argument, although he insists that you need MMT to make it, which would be news to Woodford (and me).

I’ve labeled this post wonkish, because it is. But this is really important. And as FT Alphaville says, all the fears about QE have been misplaced. The danger isn’t that it’s wildly inflationary; it is that it’s symbolic rather than real, at a time when we desperately need substance.

A New York Times editorial:

A Lifeline for Underwater Homeowners

The basic notion is to ease refinancing rules for borrowers who are current in their payments but can’t qualify for new lower-rate loans because their home values have declined. The looser loan standards would not increase the risk of default. By lowering the borrowers’ monthly payments, refinancing would make default less likely. It would also free up potentially tens of billions of dollars for consumer spending, helping to ensure that today’s low interest rates stimulate the economy as intended. It could even help underwater borrowers restore equity in their homes if borrowers used some of their savings to pay down their loan principal.

The Truth about Bank of America by Henry Blodget

Mass Mortgage Refinancing Is A Good Idea by Yglesias

Housing and Arithmetic: Why Do They Never Appear Together by Dean Baker

book review on Arthur Rimbaud by Carlin Romano

The Iraq Effect: If Saddam Hussein were still in power, this year's Arab uprisings could never have happened. by Hitchens

What Should We Have Known About Fiscal Stimulus? by Krugman

I’ve noticed a number of people arguing that the original Obama stimulus was underpowered because at the time nobody realized how deep a hole the economy was in. And it’s true that revised GDP numbers have shown that the 2007-2009 recession was even deeper than we thought. But the basic line of thought here is wrong: there was plenty of information in January 2009 indicating that the economy needed a lot more help than it was about to get.

First, even in January 2009 the CBO was forecasting an “output gap” — a shortfall of the economy’s actual production over what it could and should be producing — of more than $2 trillion over 2009-2010. That told you right there that an $800 billion stimulus, much of it consisting of tax cuts of dubious effectiveness, was likely to fall short.

There were also good reasons to believe that the slump would be prolonged, that the economy would need help over a protracted period.

After all, the two previous recessions had been followed by long periods of jobless recovery, and there was every reason to expect a repeat. Moreover, we had international evidence showing that the aftermath of financial crises is a long period of high unemployment.

The point is that even in January 2009 it should have been obvious that the economy probably needed a really major push. Maybe that wasn’t possible politically; but it’s clear that there was a complacency in the White House that remains very hard to understand.

Brad DeLong on what Obama could have done:

1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
3. Have a real HAMP to refinance mortgages.
4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
5. Announce that a weaker dollar is in America's interest.
6. Nominate a Fed Chair who takes the Fed's dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
7. Appoint Fed governors who take the Fed's dual mandate seriously and support policies to stabilize the growth of nominal GDP.
8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
9. Use Reconciliation to pass an infrastructure bank.
10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.

David Leonhardt's time machine

David Leonhardt: This time machine would start its magic by taking us back almost a decade, to the days when everyone from senior Washington officials to ordinary Americans believed that house prices could never drop. We'd then have a chance to persuade Alan Greenspan and Ben Bernanke, the last two Federal Reserve chairmen, to stop saying that nationwide housing bubbles could not happen and to start cracking down on the wishful-thinking mortgages that were making that bubble possible.

We would also stop by the Treasury Department and Congress and ask them to give some more attention to the fact that incomes were stagnating and many Americans were using their credit cards to pay for higher living standards. Finally, we'd pay a visit Wall Street. We'd go to Lehman Brothers and explain to the bigwigs there why they might not want to be borrowing $33 for every $1 in assets they held. If they didn't listen to us, we'd go see a gentleman named Timothy Geithner, then overseeing the regulators at the New York Fed.

In every case, we would issue an urgent message: The United States economy is in the midst of creating the worst economic excesses since the 1920s. If allowed to continue, those excesses will do enormous damage -- damage that you won't be able to stop once it starts.

This damage, of course, is what we are living through right now. And as much as we all may wish they were an easy fix, there isn't. Financial crises cause spending to be depressed and unemployment to be high -- for years.

Are there steps we can take to mitigate the damage? Absolutely. An aggressive policy response in 2008 and 2009 helped prevent another depression. And a more timid response in 2011 has aggravated the problems.

But the economy was never going to recover quickly from the bubbles. That's why sales -- not just of houses, but of appliances, vehicles and even services like entertainment, are all still far below their pre-crisis levels. They will be for a long to come.

It's too late to prevent the last great financial bubble. It's not too late to ask whether we are taking substantial steps to keep the next bubble from being nearly so bad. Remember: there's always a next bubble.

Michael Shur of Parks and Recreation recently acquired film right to "Infinite Jest."

Team Debbie

Meredith Woerner recaps True Blood