Tyler Cowen pushes Real Business Cycle Theory (RBC theory) - from Wikipedia:

According to RBC theory, business cycles are therefore "real" in that they do not represent a failure of markets to clear but rather reflect the most efficient possible operation of the economy, given the structure of the economy. RBC theory differs in this way from other theories of the business cycle such as Keynesian economics and Monetarism that see recessions as the failure of some market to clear.

RBC theory is associated with freshwater economics (the Chicago school of economics in the neoclassical tradition).

The article links to a 1986 piece by Larry Summers titled: Some Skeptical Observations on Real Business Cycle Theory.

Tyler Cowen pounces on Keynesianism by Noah Smith

Jobs Report, First Impressions by Jared Bernstein

As he writes, "The trend is our friend."

Economists in Love: Betsey Stevenson and Justin Wolfers

U.S. Economy Added 243,000 Jobs

Republicans Sharply Question Bernanke for Fed’s Focus on Job Market

“I think this policy runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar,” said Representative Paul Ryan, the Wisconsin Republican who is chairman of the House Budget Committee.

“The prospect of all three,” Mr. Ryan said, “is adding to uncertainty and holding our economy back.”

Mr. Bernanke was calm and careful in his responses, but he did not back down. He told the committee that the economy, and the housing market in particular, would need help for years to come from the Fed and Congress.

Writers at the Ramparts in a Gay Revolution by Dwight Gardner

It’s hard to believe that this story — about the tangled lives of men like Gore Vidal, Tennessee Williams, Allen Ginsberg, James Baldwin, Truman Capote, Edward Albee, Edmund White, Armistead Maupin, Tony Kushner and Mr. Kramer — has not been combed and braided into a single narrative before. Lesbian literature is not dealt with here; Mr. Bram is probably correct to suggest that “it needs its own historian.”

This country’s gay revolution, Mr. Bram notes, “began as a literary revolution,” far more so than did the civil rights or women’s movements. America’s literary past is filled with brilliant, closeted gay and very possibly gay writers: Henry James, Walt Whitman, Willa Cather, Hart Crane. But the story Mr. Bram sets out to tell commences in the late 1940s.

“Before World War II,” he says, “homosexuality was a dirty secret that was almost never written about and rarely discussed.” The year everything changed, he persuasively argues, was 1948. That year the first of the Kinsey Reports appeared. So did two groundbreaking gay-themed works of fiction: “The City and the Pillar,” by Mr. Vidal, and “Other Voices, Other Rooms,” by Capote. The men would become bitter rivals.

How to Fight the Man by David Brooks

On thing to notice about gays and "fighting the man" that many brilliant gays were on the Left and fighting for civil rights and democracy like Bayard Rustin. The rightwing and fascism often contained manly, closeted gays who bashed homosexuality in public and were/are sadistic and mentally unstable. See J. Edgar Hoover or Roy Cohn. (By the way there's a weird, factually incorrect meme out there that the German Nazi Party was created by masculine gay men although it did include some.)

But to Brooks's broader points:

If I could offer advice to a young rebel, it would be to rummage the past for a body of thought that helps you understand and address the shortcomings you see. Give yourself a label. If your college hasn’t provided you with a good knowledge of countercultural viewpoints — ranging from Thoreau to Maritain — then your college has failed you and you should try to remedy that ignorance.  

Effective rebellion isn’t just expressing your personal feelings. It means replacing one set of authorities and institutions with a better set of authorities and institutions. Authorities and institutions don’t repress the passions of the heart, the way some young people now suppose. They give them focus and a means to turn passion into change.

Kenyan Socialism (need link) is embedded in the tradition of fighting for democracy and economy justice. This includes the recently successful civil rights and feminist movements.

What Brooks doesn't acknowledge in his columns is the tradition of the left in fighting for gains that today people take for granted.

Collateral Crises by Gary Gorton and Guillermo Ordo˜nez

(via Thoma)

The Logic of Recovery Winter by Yglesias

Recovery Winter Arrives With HUGE 243,000 Increase in Payroll Employment by Yglesias

Hooray! First Genuinely Good Employment Report of the Recovery! by DeLong

Bad news for my Rogues Gallery:

Greg Mankiw (who was skeptical of stimulus according to the Larry Summers memo)

Tyler Cowen

CBO budget and economic outlook

CBO expects economic activity to quicken after 2013 but to remain below the economy’s potential until 2018.

In CBO’s forecast, the unemployment rate remains above 8 percent both this year and next, a consequence of continued weakness in demand for goods and services. As economic growth picks up after 2013, the unemployment rate will gradually decline to around 7 percent by the end of 2015, before dropping to near 5½ percent by the end of 2017.

Fed fail.

Nial Ferguson pulls a Johnny Cochrane, "Krugman and the dreaded Keynesians were right." By Henry Blodget.

Should The U.S. Take A Harder Stance On China's Currency? (Part II) by Joe Gagnon

Federal Reserve Chairman Ben Bernanke recently said that Chinese currency manipulation "is blocking what might be a more normal recovery process." In fact, the problem goes beyond China to include many other emerging economies and even a few advanced economies. All together, governments in these economies are spending about $1.5 trillion per year on currency manipulation.

Currency manipulation occurs when governments purchase foreign currency in order to hold up its value relative to their own currency. Manipulation makes a country's exports cheaper and imports more expensive, artificially raising the trade balance. The evidence suggests that currency manipulators jointly have increased their trade balances by about $1 trillion relative to where they would have been in the absence of manipulation. Europe and the United States have suffered the corresponding decline in trade balances.

(via Thoma)

American Republicans (and Fed board members like Lacker), the Chinese Communist Party, and German conservatives are the Axis of fools, all denying the American economy full employment and adequate demand to close the output gap. Germany however is mostly damaging Europe, though. The Chinese are screwing their consumers.

DeLong gives an early sketch of the Brookings paper he's working on with Larry Summers, titled "Fiscal Policy in a Depressed Economy".

Persistent high transitory cyclical unemployment is transforming itself into permanent structural unemployment as the labor market recovery continues to delay its appearance.

Government polices by the American, Chinese and German governments are actively delaying its appearance. Its not choosing to be fashionably late itself.

The Role of Austerity by David Leonhardt

Over the last two years, the private sector grew at an average annual rate of 3.2 percent, while the government shrank at an annual rate of 1.4 percent.

The combined result has been economic growth of 2.3 percent.

The Austerity Debacle by Krugman

Fannie and Freddie don’t deserve blame for bubble by Mark Zandi

There is plenty of blame to go around for the U.S. housing bubble, but not much of it belongs to Fannie Mae and Freddie Mac. The two giant housing-finance institutions made many mistakes over the decades, some of them real whoppers, but causing house prices to soar and then crater during the past decade weren’t among them.

The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control. These included lenders who originated home loans, investment bankers who packaged them into securities, rating agencies that misjudged these securities, and global investors who bought them without much, if any, study.

Reflections on the Current Disorder by Doug Henwood

Lest you think that this analysis, tying debt growth to increased inequality, is just the fevered product of a radical mind, let me assure you that it recently got support from a very orthodox corner. A bit over a year ago, the International Monetary Fund—normally thought of as a bastion of economic orthodoxy—published a working paper with the provocative (by IMF standards) title “Inequality, Leverage and Crises.”

In any case, in the paper, IMF economists Michael Kumhof and Romain Rancière wondered aloud whether the increase in inequality we’ve seen over the last few decades contributed anything to the causes of our economic crisis. They attempt to model, in rigorous mathematical fashion, the perception that poor and middle-income households borrowed aggressively to maintain or expand their standard of living while wages and employment were growing only weakly, at the same time that rich households had more money than they knew what to do with, so they sought profitable opportunities to lend all that spare cash to those below them on the income ladder.

Kumhof and Rancière draw parallels between the recent period and the 1920s. In both periods, the share of income claimed by the top 5% rose dramatically, and by similar magnitudes. And during the 1920s and the recent period, roughly the last 25 years, the ratio of household debt to underlying incomes doubled.

piece on Camila Vallejo

Richmond Fed President Jeff Lacker speech: 

A key part of any forecast is inflation. In 2011, we were reminded that inflation can rise despite elevated unemployment. In 2010, the inflation rate was 1.4 percent.³ In the first 11 months of 2011, inflation has averaged 2.5 percent at an annual rate. Obviously the run-up in energy and food prices earlier this year played a big role in this increase. But the pickup in inflation last year was broad based. Core inflation ― which strips out food and energy prices ― was 0.9 percent in 2010, but averaged 1.7 percent in 2011 through November. This higher inflation rate in 2011, despite unemployment averaging 9 percent, undercuts the hoary notion that "slack" in the labor market can be counted on to keep inflation contained. This lesson is of course not new; we learned this all too well during the 1970s.

Despite last year's run-up, I believe the inflation outlook is reasonably good right now. Recent price trends have been quite favorable, and indeed, headline inflation has been quite low in recent months. The most likely outcome this year, in my view, is for overall inflation to average close to 2 percent. A rate noticeably below 2 percent is possible, particularly if global growth should soften enough to further ease pressures on commodity prices. But I still view the risks to inflation as tilted to the upside. A comparison of 2011 with the experience of 2004 through 2007, for example, suggests that an upswing in inflation at this stage of the business cycle is typically long-lasting.

Awful. Remember Godfather pizzaman Herbert Cain was a Fed vice president and Missouri has 2 Fed banks.

John Quiggin for NGDP level targeting

(via Yglesias)

How Larry Summers' memo hobbled Obama's stimulus plan by Dean Baker

DeLong writes the ur-blog post on the ur-text of Obama economic policy.

According to Suskind's book Summers was pushing for a second stimulus.

I agree with Delong when he writes:

1. not raising its estimates of the desired size of the Recovery Act as the economy and the forecast deteriorated between December 8, 2008 and inauguration day.
2. not setting up an alternative, Reconciliation-process track to create the option to do a second Recovery Act fiscal boost in late 2009 with a simple Senate majority should forecast revisions in fact be negative.

and

the premature rhetorical switch away from macroeconomic recovery to long term fiscal balance in January 2010, based not on a plan but simply on the hope that there would not be a jobless recovery.

Cochrane: Just don't call it "stimulus"! by Noah Smith

Cochrane blogs: "But many advocates, like Krugman and Delong, want more government spending even for times and for countries (Greece) with high interest rates."

I think they have a more nuanced answer. Austerity won't solve Greece's problems for many, many years.


David Brooks' Ignorance is Showing Again by Dean Baker

In his column today David Brooks provided a brief discussion that purports to show that the growing inequality is attributable to a mix of globalization and technology and the moral failings of the working class. A little reflection would lead people to reject both parts of this explanation.

John Cocharen welcome to my Rogues Gallery! Brooks is a longstanding member of good standing.

Yglesias tweets: "Alternate 2009: Obama nationalizes insolvent banks and appoints turnaround specialist Mitt Romney to reorganize them."

Most shocking thing in the Lizza article is the following (for me at least):

On February 5, 2009, just as Obama was negotiating the final details of the stimulus package, Summers and Timothy Geithner, the Treasury Secretary, drafted a memo to the President outlining a plan to save the collapsing banks. TARP, they believed, wouldn’t be enough. Seventy per cent of Americans’ assets were in four banks, three of which were in serious trouble. If the situation worsened, Obama might need to nationalize one or more institutions that were “at the doorstep of failure.” Indeed, “there is a significant chance that Citigroup, Bank of America, and possibly others could ultimately end up in this category.” Nationalization would expose the government to enormous financial risk and political peril. Obama would be forced to take “actions to get the government a dominant ownership position,” and the banks would then “be subject to substantial restructuring and government control including the replacement of long-standing top management and long-standing directors.” It was unclear whether such a takeover was legal. Moreover, there was a “real risk” that seizing control of banks could, in fact, destroy them.

Obama would need congressional support if he pursued nationalization. Geithner and Summers recommended that, if necessary, the F.D.I.C., which provides deposit insurance to millions of Americans, be used to take over the troubled banks. The F.D.I.C. was partly funded by small community banks, which garnered more sympathy than Wall Street firms.

They warned Obama, “We may, by being proactive, be blamed for causing the problems we are seeking to preempt. Further, there is the risk that by attempting a program of this kind, we will pull the ‘band-aid’ off a wound that we lack the capacity to sterilize and thus exacerbate problems.”

The plan was dropped in mid-March after a scandal erupted over lucrative bonuses paid to executives at A.I.G. At a pivotal meeting, according to the notes of someone who participated, Emanuel warned the President of “sticker shock” in Congress, and, he said, “There’s just no appetite for more money.” Obama, whose approval rating was still above sixty per cent, was more confident than his aides in his abilities to change public opinion and persuade Congress he needed the resources. “Well, what if we really explain this very well?” he asked. But the judgment of the political advisers prevailed. In hindsight, the case for nationalization was weak, but even if Obama had wanted to pursue it he couldn’t have. For the second time in as many months, a more aggressive course of action on the economy was thwarted by fears of congressional disapproval.

Zombie banks? Have they been a problem for the recovery? It's always Emanuel and Congress.