J. Bradford DeLong's Blog, page 1088

Over at the London Economist: May Zanny Minton Beddoes Do as Well Relative to John Micklethwait as Barack Obama Has Done Relative to George W. Bush

Stuart Kemp: Economist Appoints Zanny Minton Beddoes Its First Female Editor: "Zanny Minton Beddoes has been appointed editor of the Economist...

the first female to land the role in the publication’s 170-year history...

From my perspective, likely to be a very good hire. However, two things seem to me to require rapid repair and a quick turn away from the Micklethwait era:

First, the basics: if within 30 seconds, your webserver can tell me both that I do and that I do not have a currently-valid subscription, you have problems:

Second, under Micklethwait too often the Economist seemed to be crafting its articles and even more its editorials to please and comfort the prejudices of some member of the 0.1%.

Just one example:

http://www.economist.com/news/leaders/21565623-america-could-do-better-barack-obama-sadly-mitt-romney-does-not-fit-bill-which-one: Americans will trudge to the polls far less hopefully. So (in spirit at least) will this London-based newspaper.... That is in large part because of the woeful nature of Mr Obama’s campaign. A man who once personified hope and centrism set a new low by unleashing attacks on Mitt Romney even before the first Republican primary....

Mr Obama’s first term has been patchy. On the economy, the most powerful argument in his favour is simply that he stopped it all being a lot worse. America was in a downward economic spiral.... His responses... helped avert a Depression.... It will win Mr Obama some plaudits from history, and it does from us too. Two other things count, on balance, in his favour. One is foreign policy.... Obama has refocused George Bush’s “war on terror” more squarely on terrorists, killing Osama bin Laden, stepping up drone strikes (perhaps too liberally, see article) and retreating from Iraq and Afghanistan (in both cases too quickly for our taste).... With both the Israeli-Palestinian dispute and his “reset” with Russia, he overreached and underdelivered. Iran has continued its worrying crawl towards nuclear weapons. All these problems could have been anticipated....

The other qualified achievement is health reform.... But Mr Obama did very little to deal with the system’s other flaw--its huge and unaffordable costs. He surrendered too much control to left-wing Democrats in Congress. As with the gargantuan Dodd-Frank reform of Wall Street, Obamacare has generated a tangle of red tape—and left business to deal with it all.

It is here that our doubts about Mr Obama set in. No administration in many decades has had such a poor appreciation of commerce.... Bashing business seems second nature to many of the people around Mr Obama. If he has appointed some decent people to his cabinet--Hillary Clinton at the State Department, Arne Duncan at education and Tim Geithner at the Treasury--the White House itself has too often seemed insular and left-leaning.... Mr Obama spends regrettably little time buttering up people who disagree with him; of the 104 rounds of golf the president has played in office, only one was with a Republican congressman.... Mr Obama has shown no readiness to tackle the main domestic issue confronting the next president: America cannot continue to tax like a small government but spend like a big one. Mr Obama came into office promising to end “our chronic avoidance of tough decisions” on reforming its finances—and then retreated fast, as he did on climate change and on immigration. Disgracefully, he ignored the suggestions of the bipartisan Bowles-Simpson deficit commission that he himself set up....

A re-elected President Obama might learn from his mistakes, clean up the White House, listen to the odd businessman and secure a legacy happier than the one he would leave after a single term.... This election offers American voters an unedifying choice. Many of The Economist’s readers, especially those who run businesses in America, may well conclude that nothing could be worse than another four years of Mr Obama. We beg to differ. For all his businesslike intentions, Mr Romney has an economic plan that works only if you don’t believe most of what he says...

At the time, looking through the bill of particulars in this editorial, I could not but believe that Micklethwait and company wrote them largely with fingers crossed behind their backs:

"...unleashing attacks on Mitt Romney even before the first Republican primary..."

"On the economy... helped avert a Depression.... It will win Mr Obama some plaudits from history..." <-- one positive accomplishment.

"Obama has refocused George Bush’s 'war on terror' more squarely on terrorists, killing Osama bin Laden, stepping up drone strikes (perhaps too liberally, see article) and retreating from Iraq and Afghanistan (in both cases too quickly for our taste)..." <--so both too interventionist and not interventionist enough

"With both the Israeli-Palestinian dispute and his “reset” with Russia, he overreached and underdelivered..."

"Iran has continued its worrying crawl towards nuclear weapons. All these problems could have been anticipated..."

"Health reform.... Mr Obama did very little to deal with the system’s other flaw--its huge and unaffordable costs..."

"[Obama] surrendered too much control to left-wing Democrats in Congress..."

"[ObamaCare,] as with the gargantuan Dodd-Frank reform... generated a tangle of red tape—and left business to deal with it all..."

"No administration in many decades has had such a poor appreciation of commerce.... Bashing business seems second nature to many of the people around Mr Obama. If he has appointed some decent people to his cabinet--Hillary Clinton at the State Department, Arne Duncan at education and Tim Geithner at the Treasury--the White House itself has too often seemed insular and left-leaning..."

"Mr Obama spends regrettably little time buttering up people who disagree with him; of the 104 rounds of golf the president has played in office, only one was with a Republican congressman..."

"Mr Obama has shown no readiness to tackle the main domestic issue confronting the next president: America cannot continue to tax like a small government but spend like a big one. Mr Obama came into office promising to end 'our chronic avoidance of tough decisions' on reforming its finances—and then retreated fast..."

"Obama... retreated fast... on climate change..."

""Obama... retreated fast... on immigration..."

"Disgracefully, he ignored the suggestions of the bipartisan Bowles-Simpson deficit commission that he himself set up..."

Of all these, perhaps dealing with (13) can serve for all: Micklethwaite and company knew as well as I did--and that was very well indeed--that Obama in 2010-2012 was willing, nay anxious, to sign into law a big budget deal to the right of the Bowles-Simpson Commission Chairmen's Mark--not, note, the Bowles-Simpson Commission suggestions, because it made none. What Obama was unwilling to do was to start the negotiations with his position being B-S and then move far and fast to the right.

Micklethwaite and company did their readers no good service here.

(12) and (11) are worse--Obama did not "quickly retreat" on global warming and immigration. He was, rather, as Micklethwait and company knew well, blocked by the fact that Republicans almost always held 40 votes in the Senate. And, as Micklethwait and company knew well, the Senate Republicans wanted, as a matter of deliberate political strategy, to make Obama's presidency a failure.

Once again Micklethwait and company did their readers no good service here here.

They thus heavily eroded the Economist's reputation as a trustworthy information intermediary.

Zanny Minton Beddoes needs, first and most of all, to work hard to get that reputation back.

Noted for Your Morning Procrastination for January 22, 2015

Over at Equitable Growth--The Equitablog

David Keohane: Resources for Undersanding Eurozone QE
The German Establishment's Reversal-of-Field on Monetary Policy and the ECB
Robert Waldmann: Debates
Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE
Paul Krugman: A Tale of Two Pegs
Martin Wolf: Chronic Economic and Political Ills Defy Easy Cure
Nick Bunker:

Plus:

Things to Read on the Morning of January 22, 2015

Must- and Shall-Reads:

Davos DeVille (@DavosDeville) | Twitter: Socialite, charity patron and non-executive director, Dynamic Emerging Strategic Opportunities (Guam) LLP. If found, please return to @ftalpha
Barry Eichengreen: Europeans Need to Reconsider the Lessons of the Great Depression
Nick Bunker:
John Schmitt (2013): The Minimum Wage: Catching up to Productivity
Jon Faust: "The argument is made that there should be a press conference after every [FOMC] meeting, and the case for this at present is as compelling as it has ever been..."
Cristobal Kay: Why East Asia Overtook Latin America: Agrarian Reform, Industrialisation and Development
Robert Waldmann: Debates
Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE
Paul Krugman: A Tale of Two Pegs
Lawrence Delevingne: Manager 'truly sorry' for blowing up hedge fund
David Keohane: ECB QE guesswork, cut out and keep edition

And Over Here:

Liveblogging World War II: January 22, 1945: Auschwitz
A Baker's Dozen for the Week of January 21, 2015

Robert Waldmann: Debates: "I typed something.... 'Name a Friedman Solow debate which, with the benefit of hindsight, we agree was won by Friedman. I do not think this is easy to do.'... My challenge was to name a Friedman-Solow debate and convince me (Robert Waldmann) that Friedman was right. Rowe interpreted 'we' to refer to... mainstream... macroeconomics.... For that set of people I use the pronoun 'they'.... Take it as agreed that new Keynesian macroeconomics is basically Friedmanite macroeconomics... are very different from old Keynesian macroeconomics and [from] real business cycle theory.... This victory came in one of two ways... the victory over the straw man of the expectations-unaugmented Phillips curve.... The conventional recollection of that alleged debate is almost entirely fictional.... Samuelson and Solow 1960. Yes the profession (also over here with huge persistent unemployment) believes in the natural rate hypothesis. The profession is crazy. The permanent income hypothesis is... rejected... now the permanent income model and it is assserted that although it isn't true it may be useful (the logic is almost that since it isn't exactly true it must be useful).... There is the idea that AD should be managed with monetary policy.... Recent experience doesn't show that good monetary policy solves AD problems..."

Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE: "I see two reasons why the case for [Eurozone] QE is overwhelming. First, QE is merely a correction for... the last two years... [when] the ECB withdrew about €1 trillion out of the euro-zone economy.... Second, the euro-zone economy is not getting off the ground.... Since Milton Friedman we have all become monetarists. In order to raise inflation it will be necessary to increase the growth rate of the money stock. This requires that the ECB increase the money base. And to achieve the latter there is only one practical instrument, ie, an open-market purchase of government bonds.... But... QE... is necessary but not sufficient. The fact that it is not sufficient, however, should not lead to the conclusion that it can be dispensed with.... There is much misunderstanding and fear regarding QE, especially in Germany. There is the fear that... German taxpayers risk having to foot the bill.... [But] if... say the Italian government were to default... [it] would stop paying interest but at the same time (applying the 'juste retour') it would not get any interest refund... no fiscal transfers.... [Any] write down ]of] the Italian bonds... [would be] purely an accounting operation.... A central bank... does not need equity.... This confusion between accounting losses and real losses... has led to long hesitation to act... leads to bad ideas and wrong proposals..."

Paul Krugman: A Tale of Two Pegs: "By the numbers Switzerland’s monetary situation pre-collapse and Hong Kong’s now look remarkably similar.... So is the Hong Kong dollar at risk of a franc-like event? No, it isn’t. There’s not a hint of pressure to drop the currency board. Why is Hong Kong different The answer...is that the institutional setup and history... plays very differently with hard-money ideologues... even though the facts... weren’t very different.... Swiss currency intervention looked to the usual suspects like activist monetary policy, runaway expansion of the central bank’s balance sheet, ‘printing money’ to debase the currency even if the goal was to keep it from getting stronger. Meanwhile, Hong Kong has a currency board, which is the next best thing to the gold standard, so maintaining the peg... became a demonstration of stern Victorian monetary virtue.... It was the nagging from hard-money types that led to the debacle. Meanwhile, Hong Kong has managed to wrap the very same policy in libertarian clothes, and there’s no problem."

Lawrence Delevingne: Manager 'truly sorry' for blowing up hedge fund: "A hedge fund manager told clients he is 'truly sorry'.... Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm's capital--down from the roughly $100 million it ran as of late March.... 'My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse,' he added. Li is a former trader at Raj Rajaratnam's Galleon Group, which collapsed amid insider trading charges.... Li's lieutenant at Canarsie is Ken deRegt, who joined in 2013 after retiring as the global head of fixed income sales and trading at Morgan Stanley.... Li and the deRegts did not immediately respond to emails seeking comment. No one picked up a phone call at Canarsie's offices and no valid voicemail was available.... Li said in the letter that he made a series of 'aggressive transactions' over the last three weeks to make up for poor returns in December..."

David Keohane: ECB QE guesswork, cut out and keep edition: Deutsche Bank:

Should Be Aware of:

Cheryl Addy: We Can Now Read What's Written On Rolls Of Papyrus Buried By Vesuvius
Daily Bafflements: "Forbes Magazine’s tips on How to Become a Thought Leader include keeping a journal, liberally using LinkedIn, and practicing your speeches on your cat before you try them on people..."
Alexandra Brodsky: "The criminal law-inspired alternatives... are counterproductive.... They ignore that campus assaults are addressed not to vindicate the rights of the state but as part of a civil rights regime to promote gender equity in education..."
Paul Ford: "One of the things nerds love to do is look at other people’s stacks and say, ‘what a house of cards!’ In fact I fully expect people to link to this article and write things like, ‘sounds okay, but they should have used Jizzawatt with the Hamstring extensions and Graunt.ns for all their smexing’..."

 

Simon Wren-Lewis: Encouraging Dialogue: "Economists want (or need) to know why their approach is missing key issues or linkages which compromise their analysis, just as the doctor needs to know why they might be recommending the wrong treatment. You would not insist that your doctor needed to have studied economics before they can be a good doctor.... Let me take a real world economic problem: the response to the financial crisis.... Your economic analysis tells you that networks of many small entities can be as subject to crises as networks involving a few large banks. You are also able to devise a system of Chinese walls.... [But eventually] you realise that right from the start you made the wrong choice. You decided to focus on what you knew, which was how to design systems that worked well as long as those systems remained unchanged, but which were not robust to intervention by self-interested parties. In short, they were too open to rent-seeking. You realise that actually the best thing to have done was to break up the banks so that their political power was forever diminished. And you recall a conversation with your social science colleague when this all started, who might have been trying to tell you this if only you had understood the words he was using."

Links:

Simon Wren-Lewis: Encouraging Dialogue http://mainlymacro.blogspot.com/2015/01/encouraging-dialogue-between-economists.html
David Keohane: ECB QE guesswork, cut out and keep edition http://ftalphaville.ft.com/2015/01/22/2097442/ecb-qe-guesswork-cut-out-and-keep-edition
Davos DeVille (@DavosDeville) | Twitter: Socialite, charity patron and non-executive director, Dynamic Emerging Strategic Opportunities (Guam) LLP. If found, please return to @ftalpha https://twitter.com/DavosDeville
Cristobal Kay: Why East Asia Overtook Latin America: Agrarian Reform, Industrialisation and Development http://www.jstor.org/stable/3993564?seq=1#page_scan_tab_contents
Paul Ford: "One of the things nerds love to do is look at other people’s stacks and say, ‘what a house of cards!’ In fact I fully expect people to link to this article and write things like, ‘sounds okay, but they should have used Jizzawatt with the Hamstring extensions and Graunt.ns for all their smexing’..." https://medium.com/message/how-paper-magazines-web-engineers-scaled-kim-kardashians-back-end-sfw-6367f8d37688
Alexandra Brodsky: "The criminal law-inspired alternatives... are counterproductive.... They ignore that campus assaults are addressed not to vindicate the rights of the state but as part of a civil rights regime to promote gender equity in education..." http://prospect.org/article/fair-process-not-criminal-process-right-way-address-campus-sexual-assault
Barry Eichengreen: Europeans Need to Reconsider the Lessons of the Great Depression http://historynewsnetwork.org/article/158160
Lawrence Delevingne: Manager 'truly sorry' for blowing up hedge fund
Daily Bafflements: "Forbes Magazine’s tips on How to Become a Thought Leader include keeping a journal, liberally using LinkedIn, and practicing your speeches on your cat before you try them on people..." http://www.thebaffler.com/blog/daily-bafflements-204/#
Paul Krugman: A Tale of Two Pegs http://krugman.blogs.nytimes.com/2015/01/21/a-tale-of-two-pegs/?smid=tw-NytimesKrugman&seid=auto

Nick Bunker:

Robert Waldmann: Debates http://rjwaldmann.blogspot.com/2015/01/debates.html

Jon Faust: "The argument is made that there should be a press conference after every meeting, and the case for this at present is as compelling as it has ever been..." http://www.bloomberg.com/news/2015-01-21/fed-officials-reassess-u-s-growth-outlook-amid-global-weakness.html
Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE http://www.economist.com/blogs/freeexchange/2015/01/quantitative-easing-and-euro-zone?fsrc=rss
Martin Wolf: Chronic Economic and Political Ills Defy Easy Cure http://www.ft.com/intl/cms/s/0/913b3b7a-847c-11e4-bae9-00144feabdc0.html?ftcamp=published_links/rss/comment_columnists_martin-wolf/feed//product&siteedition=intl#axzz3PGlJ8DJj
John Schmitt (2013): The Minimum Wage: Catching up to Productivity http://www.democracyjournal.org/29/minimum-wage-catching-up-to-productivity.php
Cheryl Addy: We Can Now Read What's Written On Rolls Of Papyrus Buried By Vesuvius http://io9.com/we-can-now-read-whats-written-on-rolls-of-papyrus-burie-1680727229?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+io9/full+(io9)

Liveblogging World War II: January 22, 1945: Auschwitz

Primo Levi: Survivial in Auschwitz:

If it is courageous to face a grave danger with a light heart, Charles and I were courageous that morning. We extended our explorations to the SS camp, immediately outside the electric wire-fence. The camp guards must have left in a great hurry.

On the tables we found plates half-full of a by-now frozen soup which we devoured with an intense pleasure, mugs full of beer, transformed into a yellowish ice, a chess board with an unfinished game. In the dormitories, piles of valuable things.

We loaded ourselves with a bottle of vodka, various medicines, newspapers and magazines and four first-rate eiderdowns, one of which is today in my house in Turin. Cheerful and irresponsible, we carried the fruits of our expedition back to the dormitory, leaving them in Arthur’s care.

Only that evening did we learn what happened perhaps only half an hour later. Some SS men, perhaps dispersed, but still armed, penetrated into the abandoned camp. They found that eighteen Frenchmen had settled in the dining-hall of the SS-Waffe.

They killed them all methodically, with a shot in the nape of the neck, lining up their twisted bodies in the snow on the road; then they left. The eighteen corpses remained exposed until the arrival of the Russians; nobody had the strength to bury them.

But by now there were beds in all the huts occupied by corpses as rigid as wood, whom nobody troubled to remove. The ground was too frozen to dig graves; many bodies were piled up in a trench, but already early on the heap showed out of the hole and was shamefully visible from our window.

Only a wooden wall separated us from the ward of the dysentery patients, where many were dying and many dead. The floor was covered by a layer of frozen excrement. None of the patients had strength enough to climb out of their blankets to search for food, and those who had done it at the beginning had not returned to help their comrades.

In one bed, clasping each other to resist the cold better, there were two Italians. I often heard them talking, but as I spoke only French, for a long time they were not aware of my presence. That day they heard my name by chance, pronounced with an Italian accent by Charles, and from then on they never ceased groaning and imploring.

Naturally I would have liked to have helped them, given the means and the strength, if for no other reason than to stop their crying. In the evening when all the work was finished, conquering my tiredness and disgust, I dragged myself gropingly along the dark, filthy corridor to their ward with a bowl of water and the remainder of our day’s soup.

The result was that from then on, through the thin wall, the whole diarrhoea ward shouted my name day and night with the accents of all the languages of Europe, accompanied by incomprehensible prayers, without my being able to do anything about it. I felt like crying, I could have cursed them.

A Baker's Dozen for the Week of January 21, 2015

A Baker's Dozen for the Week of January 21, 2015:

http://tinyletter.com/braddelong/letters/...

Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE http://equitablegrowth.org/2015/01/21/morning-must-read-paul-de-grauwe-quantitative-easing-euro-zone-sad-consequences-fear-qe/: QE without régime change--and these days QE is and will be without régime change--is both (a) worth doing and (b) not a big deal; yet the entire German establishment seems to be seeking a ditch to die in over it...
Over at Equitable Growth: North Atlantic Bond Markets and the Near-Term Macroeconomic Outlook http://delong.typepad.com/sdj/2015/01/over-at-equitable-growth-north-atlantic-bond-markets-and-the-near-term-macroeconomic-outlook.html: full recovery in the North Atlantic looks as far off as ever--and so looks on both sides of the North Atlantic...
Ezra Klein: Why Republicans Can't Replace ObamaCare http://delong.typepad.com/sdj/2015/01/nighttime-must-read-ezra-klein-why-republicans-cant-replace-obamacare.html: very few Republican politicians care or are willing to sacrifice anything to even put forward a health-care financing plan that adds...
DeLong Smackdown Watch: How Do Projected Long-Run Deficits Matter? http://delong.typepad.com/sdj/2015/01/delong-smackdown-watch-how-do-projected-long-run-deficits-matter.html: why making "putting our fiscal house in order" one of your top three priorities is to fall victim to a con game...
Yet More Right-Wing Grifters Gotta Grift: Ben Carson Edition http://delong.typepad.com/sdj/2015/01/yet-more-right-wing-grifters-gotta-grift-ben-carson-edition.html: and Wonkette tells us that National Review IS ON IT!...
Delusional Brownback Doubles Down: Live from the Roasterie http://delong.typepad.com/sdj/2015/01/delusional-brownback-doubles-down-live-from-the-roasterie.html: at this stage Brownback has to be in on the Kansas tax con, but was he in on it at the beginning--and who was in on the Kansas tax con in the beginning, anyway?...
Sokrates and Friends in Davos, or, the SNB and the Berne Whale: The Honest Broker for the Week of January 18, 2014 http://delong.typepad.com/sdj/2015/01/sokrates-and-friends-in-davos-or-the-snb-and-the-berne-whale-the-honest-broker-for-the-week-of-january-18-2014.html: what is going on with Switzerland, anyway?...
Scene-Setting for the Policy Discussion: The American Economy Stumbles http://delong.typepad.com/sdj/2015/01/over-at-equitable-growth-scene-setting-for-the-policy-discussion-the-american-economy-stumbles.html: how bad has the past generation actually been for the American economy?...
Tim Worstall: Facebook Explains Why Marc Andreessen And Larry Summers Disagree http://delong.typepad.com/sdj/2015/01/afternoon-must-read-tim-worstall-facebook-explains-why-marc-andreessen-and-larry-summers-disagree.html: how Summers is likely right that GDP growth will slow, and Andreessen likely right that improvements in well-being will speed up...
Aristokles: Plato's Seventh Letter: Live from the Fortress of Ortygia in Syracuse http://delong.typepad.com/sdj/2015/01/platos-seventh-letter-live-from-the-fortress-of-ortygia-in-syracuse.html: Plato or pseudo-Plato on the difficulties of running a think-tank...
Thomas Piketty: On the Elasticity of Capital-Labor Substitution http://delong.typepad.com/sdj/2015/01/over-at-equitable-growth-thomas-piketty-on-the-elasticity-of-capital-labor-substitution.html: as I have said before, the argument Thomas Piketty ought to be making is a rent-seeking society argument...
Plutarch: Liveblogging 301 BC, Fall: The Battle of Ipsus http://delong.typepad.com/sdj/2015/01/liveblogging-301-bc-fall-the-battle-of-ipsus.html the death of Antigonos One-Eye, and the birth of the empires of the diadochi...

One interesting thing has entered my consciousness in the past month: You know that "CableWiFi" wireless network you sometimes see? It's being built out rapidly. My machines can connect to it. It's reasonably fast. It's the cable companies getting into the distributed WiFi business. They must see it as a cheap thing they can do with their existing network that adds value to their customers while costing them little...

And the one thing that everybody should be reading this week is Barry Eichengreen's superb Hall of Mirrors... https://www.amazon.com/Hall-Mirrors-Depression-Uses-Misuses-/dp/0199392005

Morning Must-Read: Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE

Over at Equitable Growth: From my perspective, QE has always seemed to me to be likely to be:

Very effective if it changes expectations of the future price level--that shakes rates rates of return significantly, and gives real people powerful incentives to spend their cash now.
But setting up QE in such a way that it changes expectations of the future price level is difficult: the problem is that QE transactions are easily undone in the future, and there is every reason to think that an inflation-targeting central bank will undo them in the future.
And if QE does not change expectations of the future price level its effects on real rates of return are minimal. READ MOAR

Think of it: for the ECB to buy €1 trillion of ten-year EU government bonds which have a term premium of 0.1%-point per year of duration means that the ECB takes duration risk off of private-sector balance sheets that the private market currently charges €10 billion/year to bear. It frees-up that risk-bearing capacity to be deployed elsewhere. In a €20 trillion/year Eurozone economy that is 0.05%. You can blather about financial accelerators and credit multipliers all you want, but it is a very uphill task to convince me that that is a big deal.

So why do it?

It is a small plus.
It might become part of a process that moves expectations and turns into a big plus.
There is nothing else politically practical on the agenda that might be done that QE takes attention away from.

The very sharp Paul de Grauwe:

Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE: "I see two reasons why the case for [Eurozone] QE is overwhelming...

...First, QE is merely a correction for... the last two years... [when] the ECB withdrew about €1 trillion out of the euro-zone economy.... Second, the euro-zone economy is not getting off the ground.... Since Milton Friedman we have all become monetarists. In order to raise inflation it will be necessary to increase the growth rate of the money stock. This requires that the ECB increase the money base. And to achieve the latter there is only one practical instrument, ie, an open-market purchase of government bonds.... But... QE... is necessary but not sufficient. The fact that it is not sufficient, however, should not lead to the conclusion that it can be dispensed with....

There is much misunderstanding and fear regarding QE, especially in Germany. There is the fear that... German taxpayers risk having to foot the bill.... [But] if... say the Italian government were to default... [it] would stop paying interest but at the same time (applying the 'juste retour') it would not get any interest refund... no fiscal transfers.... [Any] write down ]of] the Italian bonds... [would be] purely an accounting operation.... A central bank... does not need equity.... This confusion between accounting losses and real losses... has led to long hesitation to act... leads to bad ideas and wrong proposals...

Noted for Your Nighttime Procrastination for January 20, 2015

Over at Equitable Growth--The Equitablog

Secular Stagnation Once Again: A Few Cocktail-Hour Thoughts on Shane Ferro vs. Diane Coyle: Daily Focus
EShane Ferro: Robots Won't Save Us From Secular Stagnation
Danny Yagan: Capital Taxes and the Real Economy: The 2003 Dividend Tax Cut
North Atlantic Bond Markets and the Near-Term Macroeconomic Outlook: Daily Focus
Nick Bunker: Capital taxation: What is it good for?

Plus:

Things to Read on the Evening of January 20, 2015

Must- and Shall-Reads:

Bill Gale: "President Obama’s new proposal to tax capital gains at death is a welcome change that would close a huge loophole.... [But] for some assets, it would be a record-keeping nightmare.... There is an easy fix.... We should allow taxpayers to have a ‘standard basis’... 20% percent of current asset value..."
Noah Smith: "5 Questions About the 'Victory' of the Right: 5. Did the Left Win the Economics Debate Over 1900s-1930s, and since then Left and Right Have Been Haggling Over Details?"
Kansas Center for Economic Growth Weblog
Nick Bunker: Capital taxation: What is it good for?
Simon Wren-Lewis: When Central Bank Losses Matter
Austin Frakt: NICE’s application of cost-effectiveness threshold(s)
Shane Ferro: Robots Won't Save Us From Secular Stagnation
Mike Konczal sends us to: Danny Yagan: Capital Taxes and the Real Economy: The 2003 Dividend Tax Cut
Paul Krugman: The European Scene

And Over Here:

Over at Equitable Growth: Secular Stagnation Once Again: A Few Cocktail-Hour Thoughts on Shane Ferro vs. Diane Coyle
Over at Equitable Growth: North Atlantic Bond Markets and the Near-Term Macroeconomic Outlook
Liveblogging the American Revolution: January 21, 1777: Washington in Winter Quarters at Morristown
Hoisted from the Archives: Feeling Good: My 2005 Social Security Reform Statement
Liveblogging the American Revolution: January 20, 1777: Battle of Millstone

Shane Ferro: Robots Won't Save Us From Secular Stagnation: "It's time to welcome our robot overlords, says University of Manchester economist Diane Coyle in the Financial Times.... Coyle gives the historical example of the washing machine.... Sure, if the robots come and take everyone's jobs, but then people find ways to work the same amount doing different things, productivity will increase drastically. The economy will probably boom. But this assumes that nothing blows up the global economy before we get to that point.... If low interest rates continue to create asset bubbles that then pop dramatically--which seems to be the real fear of some people who are talking about secular stagnation--the economy could be in rough shape for a long time before the robot (or demographic) saviors come. It is possible to be afraid of robots and of asset bubbles at the same time."

Mike Konczal sends us to: Danny Yagan: Capital Taxes and the Real Economy: The 2003 Dividend Tax Cut: "Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cutó one of the largest reforms ever to a U.S. capital tax rateó using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound e§ect size of .03 standard deviations. This null result is robust across speciÖcations, samples, and investment measures. I similarly Önd no impact on employee compensation. The lack of detectable real e§ects contrasts with an immediate impact on Önancial payouts to shareholders. Economically, the Öndings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms a§ect the cost of capital. Either way, it may be di¢ cult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term e§ects."

Paul Krugman: The European Scene: "The ECB’s plan... the German media are already howling, with Bild warning that Draghi’s expected actions will reduce the pressure for reform in ‘crisis-hit countries such as... France.’... Look at ‘crisis-hit’ France; investors are so worried about France that they won’t hold its bonds unless offered, um, 0.64 percent, the lowest rate in history. But never mind... the French must be in crisis, because they still believe in social insurance, and besides, they’re French. Notice also that crisis-hit Spain is now paying a lower interest rate than Britain.... This should... put an end to all the talk about how low British rates are the reward for austerity, and so on.... Very low rates reflect market expectations that (a) the European economy will remain very weak and (b) that the ECB will continue to fall far short of its inflation target.... The market is saying both that there are very few good investment opportunities out there--few enough that paying the German government to protect the real value of your wealth is a good move--and that inflation over the next five years will be around 0.4 percent, not the target of 2 percent.... The markets don’t believe that the US is immune to these ills. Market expectations of inflation... have fallen off a cliff.... [Yet] Fed officials seem weirdly complacent..."

Should Be Aware of:

Emily Badger: "Uber and Lyft have become so popular so quickly in large part because they've filled a big gap in the urban transportation market. The smartphone-enabled ride services have offered more predictability than cabs, faster travel than transit, and fewer hassles--no parking, for one--than personal cars..."
Peter Brown (2013): Recovering Submerged Worlds

 

Tim Murphy: Mike Huckabee’s PAC Paid His Family Almost $400,000: "Huck PAC... 'is committed to electing conservatives across the nation at all levels of government'.... Since its inception, Huck PAC has never spent more than 12 percent of its funds on candidates or other PACs. It gave only 5 percent of its revenues—that is $47,000 of $1,063,142—to candidates during the 2012 cycle.... Last July, Politico reported on Huckabee's penchant for charging state Republican parties for expensive, chartered flights—$15,944 for one trip to Iowa—when traveling for meetings and fundraisers. In 2009, an Alabama congressional candidate was forced to take out a loan after Huckabee's $33,990 speaking fee ended up costing more than the candidate had raised at the fundraiser..."

Jamelle Bouie: Robert E. Lee Day: "This is the Gen. Robert E. Lee who led Confederate armies in war against the United States, who defended a nation built on the ‘great truth’ that the ‘negro is not equal to the white man,’ and whose armies kidnapped and sold free black Americans whenever they had the opportunity.... He sold children and oversaw brutal punishments, including sewing brine into the wounds of returned fugitives.... ‘If the image of Lee changes in history, the man himself did not, even in the face of the greatest provocations,’ writes Paul Greenberg for the Arkansas-Democrat Gazette in its annual editorial on the life of Lee, ‘His victories were great, but his honor greater.’"

Lauren Davis: He Went In For A Tune-Up And Came Out With A Full Cerebral Upgrade: "As the mask clicked over his face and the new neural pathways lit up, Zourn immediately wondered if he had paid too much for the upgrade. 'That's normal,' the tech told him as she gave his mask a quick polish. 'The upgrade makes you a savvier shopper, but only after we've debited your account.'"

Mark Joseph Stern: American Sniper Lawsuit: Chris Kyle Told Lies About Jesse Ventura: "The Ventura story wasn’t true, and Ventura meant to prove it. So he took Kyle to trial, suing him--and, after he died, his estate.... On July 29, 2014, a federal jury returned from six days of deliberations to award Ventura $1.845 million in damages.... Kyle’s widow... is currently appealing the decision; her odds of winning appear quite low. All of this presents a very big problem for HarperCollins.... Ventura brought another lawsuit for unjust enrichment, this time against HarperCollins. The lawsuit explains that while Kyle is the one who defamed Ventura, HarperCollins played up those defamatory statements in order to boost its sales—and with reckless disregard to the truth of Kyle’s claims. This suit is the second of Ventura’s one-two punch, and from here, it looks like a knockout. During the first trial, Ventura’s attorneys uncovered records of HarperCollins’ negligence in fact-checking Kyle’s book, as well as evidence that HarperCollins specifically touted the Ventura story to drum up publicity..."

Charles Pierce: Ron Fournier's Idiocy Reappears As He Attempts To Counsel President Obama On Progress And Partisan Gains: "Tell me I didn't call this 150 words ago. The areas of 'potential agreement' that Clinton found involved repealing the Glass-Steagall Act and deregulating the commodities futures market. I don't think we should burn down the world economy so that Ron Fournier can feel comfortable about how well the system works..."

Links:

Shane Ferro: Robots Won't Save Us From Secular Stagnation http://www.businessinsider.com/robots-wont-save-us-from-secular-stagnation-2015-1
Bill Gale: "President Obama’s new proposal to tax capital gains at death is a welcome change that would close a huge loophole.... [But] for some assets, it would be a record-keeping nightmare.... There is an easy fix.... We should allow taxpayers to have a ‘standard basis’... 20% percent of current asset value..." http://www.brookings.edu/blogs/up-front/posts/2015/01/21-fix-obama-sotu-capital-gains-proposal-gale#.VL6mLkhBh1c.twitter
Timur Kuran: The Long Divergence: How Islamic Law Held Back the Middle East http://www.amazon.com/gp/product/0691147566/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0691147566&linkCode=as2&tag=brde-20&linkId=7UT6Y7L2IHQLVMPJ
Nick Bunker: Capital taxation: What is it good for? http://equitablegrowth.org/news/capital-taxation-good
Danny Yagan: Capital Taxes and the Real Economy: The 2003 Dividend Tax Cut http://eml.berkeley.edu/~yagan/DividendTax.pdf
Paul Krugman: The European Scene http://krugman.blogs.nytimes.com/2015/01/19/the-european-scene
Noah Smith: "5 Questions About the 'Victory' of the Right: 5. Did the Left Win the Economics Debate Over 1900s-1930s, and since then Left and Right Have Been Haggling Over Details?" http://noahpinionblog.blogspot.com/2015/01/5-questions-for-nick-rowe-about-victory.html
Kansas Center for Economic Growth Weblog http://realprosperityks.com/kceg-blog
Simon Wren-Lewis: When Central Bank Losses Matter http://mainlymacro.blogspot.com/2015/01/when-central-bank-losses-matter.html
Austin Frakt: NICE’s application of cost-effectiveness threshold(s) http://blog.academyhealth.org/nices-application-of-cost-effectiveness-thresholds
Charles Pierce: Ron Fournier's Idiocy Reappears As He Attempts To Counsel President Obama On Progress And Partisan Gains http://www.esquire.com/blogs/politics/Ron_Fourniers_World
Emily Badger: "Uber and Lyft have become so popular so quickly in large part because they've filled a big gap in the urban transportation market. The smartphone-enabled ride services have offered more predictability than cabs, faster travel than transit, and fewer hassles--no parking, for one--than personal cars..." http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/19/how-uber-and-lyft-have-exploited-long-waits-slow-travel-and-poor-service-to-crack-open-transportation
Tim Murphy: Mike Huckabee’s PAC Paid His Family Almost $400,000 http://www.motherjones.com/politics/2015/01/mike-huckabee-pac-paid-his-family-almost-400000
Jamelle Bouie: Robert E. Lee Day http://www.slate.com/articles/news_and_politics/politics/2015/01/robert_e_lee_day_some_southern_states_still_celebrate_the_confederate_general.html
Lauren Davis: [He Went In For A Tune-Up And Came Out With A Full Cerebral Upgrade http://io9.com/he-went-in-for-a-tune-up-and-came-out-with-a-full-cereb-1680477995?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+io9/full+(io9)
Peter Brown (2013): Recovering Submerged Worlds http://www.nybooks.com/articles/archives/2013/jul/11/recovering-submerged-worlds
Mark Joseph Stern: American Sniper Lawsuit: Chris Kyle Told Lies About Jesse Ventura http://www.slate.com/articles/news_and_politics/jurisprudence/2015/01/american_sniper_lawsuit_chris_kyle_told_lies_about_jesse_ventura.html

Over at Equitable Growth: Secular Stagnation Once Again: A Few Cocktail-Hour Thoughts on Shane Ferro vs. Diane Coyle

Over at Equitable Growth: Apropos of Shane Ferro vs. Diane Coyle...

First, "secular stagnation" was a bad phrase for Larry Summers to have chosen to label what he wants to talk about. It is true that it was the phrase used by Alvin Hansen when he worried about a very similar thing at the end of the 1930s. And it is true that the root cause of what worried Hansen was his fear that technological progress had reached its culmination point--hence that future high return investments would be scarce. But what Hansen and Summers both worry about is not the absence of rapid technological progress per se. READ MOAR

What they both worry about is the possibility of a world in which, when investors have realistic expectations, total desired investment spending is greater than total economy-wide planned saving at full employment, even were the safe nominal interest rate to fall to zero. If so, then full employment can only be attained if it is accompanied by unrealistically optimistic expectations by investors--bubbles, which then pop, doing unbelievable amounts of damage.

Such "badly behaved investment demand and savings supply functions", as Marty Feldstein called them when he taught me this stuff the first time I saw it back in the winter of 1980, can have four causes:

Technological stagnation, which lowers the social and private rate of return on investment and pushes desired investment spending down too far.
Limits on societal investment absorption coupled with rapid declines in the prices of investment goods, which together put too much downward pressure on the feasible profitable share of investment spending.
Technological inappropriability, in which the market cannot figure out how to properly reward those who invest in new technologies even when they have enormous social returns, which also lowers the private rate of return on investment and pushes desired investment spending down too far.
High income inequality, which boosts the desired savings share of production as the only things the superrich can thank of to do with their wealth is to bless their heirs or play status games with each other, which pushes planned savings up too much.
Inflation too low, which means that even a zero safe nominal rate of interest is too high a real rate of interest to balance desired investment and planned savings at full employment.
Broken finance, which fails to properly mobilize the risk-bearing capacity of society and so drives too large a wedge between the risky returns on real investments and the safe interest rate on the debt of trustworthy sovereigns.

Of these six, robots would prevent (1), could cause (2), and are not terribly relevant to (3)-(6).

I think the big problem is (6), aided by (5). Larry Summers seems to think the big problem is some mix of (2)-(4)--and that, for reasons I don't fully understand but are connected with bubbles and money illusion, resolving (5) by a higher inflation target is likely to make things worse...

Shane Ferro:

Shane Ferro: Robots Won't Save Us From Secular Stagnation: "It's time to welcome our robot overlords, says University of Manchester economist Diane Coyle in the Financial Times....

Coyle gives the historical example of the washing machine.... Sure, if the robots come and take everyone's jobs, but then people find ways to work the same amount doing different things, productivity will increase drastically. The economy will probably boom. But this assumes that nothing blows up the global economy before we get to that point.... If low interest rates continue to create asset bubbles that then pop dramatically--which seems to be the real fear of some people who are talking about secular stagnation--the economy could be in rough shape for a long time before the robot (or demographic) saviors come.

It is possible to be afraid of robots and of asset bubbles at the same time.

Linky Linky...

Timur Kuran: The Long Divergence: How Islamic Law Held Back the Middle East http://www.amazon.com/gp/product/0691147566/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0691147566&linkCode=as2&tag=brde-20&linkId=7UT6Y7L2IHQLVMPJ
Paul Krugman: http://krugman.blogs.nytimes.com/2015/01/19/the-european-scene
Noah Smith: "5 Questions About the 'Victory' of the Right: 5. Did the Left Win the Economics Debate Over 1900s-1930s, and since then Left and Right Have Been Haggling Over Details?" http://noahpinionblog.blogspot.com/2015/01/5-questions-for-nick-rowe-about-victory.html
Emily Badger: "Uber and Lyft have become so popular so quickly in large part because they've filled a big gap in the urban transportation market. The smartphone-enabled ride services have offered more predictability than cabs, faster travel than transit, and fewer hassles--no parking, for one--than personal cars..." http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/19/how-uber-and-lyft-have-exploited-long-waits-slow-travel-and-poor-service-to-crack-open-transportation
Jamelle Bouie: Robert E. Lee Day http://www.slate.com/articles/news_and_politics/politics/2015/01/robert_e_lee_day_some_southern_states_still_celebrate_the_confederate_general.html
Lauren Davis: [He Went In For A Tune-Up And Came Out With A Full Cerebral Upgrade http://io9.com/he-went-in-for-a-tune-up-and-came-out-with-a-full-cereb-1680477995?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+io9/full+(io9)

Over at Equitable Growth: North Atlantic Bond Markets and the Near-Term Macroeconomic Outlook

Over at Equitable Growth: In my view, the best way to understand what has happened to the U.S. bond market over the past six months is this:

The bond market has continued to believe the four things it started believing in mid-2013, at the time of the taper tantrum:

The FOMC believes in an expectational Phillips Curve with a natural rate of unemployment below but near to where it is today, hence inflation is going to start rising slowly after next year when the unemployment rate crashes through the NAIRU heading down.
The FOMC believes that the expectational Phillips Curve is relatively flat, and so the pace at which inflation is going to start rising will be very slow.
The FOMC will explain away any failures of inflation to rise over the next four years or so as due to specific factors, and not revisit its view of the appropriate interest rate path until late in this decade.
Thus the FOMC will raise interest rates, and the average 3-Month Treasury Bill rate over the next five years will not be the 0.4%/year or so expected before the taper tantrum but rather something like 1.4%/year.

And over the past six months the bond market has come to believe READ MOAR

The FOMC's policies are and will be too tight for it to hit its 2%/year inflation rate target over the next five years.
Rather, the FOMC's policies will produce an average inflation rate of 1.3%/year over the next five years--a cumulative undershoot in nominal demand by an additional 3.5%-points.
But because the FOMC will not realize its policies are too tight--will explain away the quarter-by-quarter undershoots as due to special factors until late in this decade--investments in 5-Year Treasury notes will produce positive real returns, an expectation not held since 2010.

And, as near as I can see, the FOMC factions believe:

Interest rates need to be raised now so that commercial banks can return to their normal business models and not be forced to attempt profitability via the reach for yield by making risky loans that they cannot properly evaluate.
The market's macro expectations are less well-informed than those of the Fed staff, and should be ignored as reflecting fads and fashions, panic and exuberance.
All or nearly all of the excess 2%-point decline in prime-age male labor-force participation over and above long-term trends is not or is no longer "cyclical", in that these missing male workers cannot be pulled back into the labor force unless the economy becomes one of such high pressure as to produce unacceptable inflation.
All or nearly all of the excess 1.5%-point decline in prime-age female labor-force participation over and above the declining structural trend that (perhaps) began in 2000 is not or is no longer "cyclical", in that these missing female workers cannot be pulled back into the labor force unless the economy becomes one of such high pressure as to produce unacceptable inflation.
It is not worth running any inflation risks to find out whether our views are correct or not.

From my perspective, all I can think is that the FOMC hs fallen victim to a form of groupthink in which it really does not understand the situation and the risks. The members of the FOMC who seek primarily to normalize interest rates out of a concern for the commercial banking sector do not understand:

Expectations of normal inflation rates and full employment need to proceed interest rate increases.
If they do not premature interest-rate increases will have to be rapidly reversed.
And the time spent near the ZLB will be even longer.

The members of the FOMC who seek optimal control do not understand:

How uncertain we are right now about the current state of the economy.
How uncertain we are right now about the current structure of the economy.
How even if the bond market's shift over the past six months in its expectations is not a good rational forecast, it is nevertheless a major leftward shift in the IS curve that needs to be neutralized by someone.
How dire the situation in Europe is.
How much of the linkages across the Atlantic are due not to (small) trans-oceanic trade flows and their influence on aggregate demand, but rather to psychological animal-spirits contagion.

Paul Krugman is on the case:

Paul Krugman: The European Scene: "The ECB’s plan... the German media are already howling...

...with Bild warning that Draghi’s expected actions will reduce the pressure for reform in ‘crisis-hit countries such as... France.’... Look at ‘crisis-hit’ France; investors are so worried about France that they won’t hold its bonds unless offered, um, 0.64 percent, the lowest rate in history. But never mind... the French must be in crisis, because they still believe in social insurance, and besides, they’re French. Notice also that crisis-hit Spain is now paying a lower interest rate than Britain.... This should... put an end to all the talk about how low British rates are the reward for austerity, and so on....

Very low rates reflect market expectations that (a) the European economy will remain very weak and (b) that the ECB will continue to fall far short of its inflation target.... The market is saying both that there are very few good investment opportunities out there--few enough that paying the German government to protect the real value of your wealth is a good move--and that inflation over the next five years will be around 0.4 percent, not the target of 2 percent....

The markets don’t believe that the US is immune to these ills. Market expectations of inflation... have fallen off a cliff.... [Yet] Fed officials seem weirdly complacent...

956 words

Liveblogging the American Revolution: January 21, 1777: Washington in Winter Quarters at Morristown