J. Bradford DeLong's Blog, page 1114
November 30, 2014
Over at the Cato Institute: Waving a Magic Wand for Economic Growth: Daily Focus
Waving a Magic Wand
J. Bradford DeLong :: U.C. Berkeley
Brink Lindsey asked me what I would do to the U.S. economy to increase economic growth if I could just "wave a magic wand".
The problem I have with such questions--with such "magic wands"--is that I am never sure just how powerful they are supposed to be.
Let me propose three, all of which are small scale in terms of policies but larger scale in that in order to become durable policies they do require, as John Adams said, changes "in the hearts and minds of our countrymen [and women]...":
A Federal Reserve committed to nominal GDP level targeting, with a trend growth rate in nominal GDP of 7%/year: In my view the question of the origin of "general gluts"--demand-side business cycles characterized by (i) insufficient demand for pretty much every currently-produced good and service, and (ii) positively- rather than negatively-correlated fluctuations relative to trend of prices and employment--was decisively and correctly answered by John Stuart Mill back in 1829. A general glut arises when if there is full employment workers, savers, and managers wish to hold more in the way of liquid cash and readily-collateralizable safe savings vehicles than the economy is supplying. READ MOAR
The private sector then cannot produce cash and savings vehicles believed to be safe by any means short of deploying huge amounts of labor and capital to the Witwatersrand to dig rocks, and cannot produce large quantities of cash and safe savings vehicles quickly in any event. Only those organizations whose solvency is not just certain, but of which it is common knowledge of the solvency is certain, can issue cash and safe savings vehicles. Others can only issue assets that are almost as good as cash until the tide goes out and you see how naked they are. And in a crisis of which institutions is it common knowledge that it is common knowledge that they are solvent?
When, if there is full employment, workers, savers, and managers wish to hold more in the way of liquid cash and readily-collateralizable safe savings vehicles than the economy is supplying everyone tries to build up their holdings by cutting their spending below their income. But since everyone's income is other people's spending that does not work. Employment, production, and incomes drop until workers, savers, and managers feel so poor that they no longer wish to build up their stocks of cash and safe savings vehicles. And the economy undergoes a "general glut".
A well-functioning free-market economy thus requires more than just property rights cut at the joints to minimize externalities, Pigovian taxes and bounties levied to compensate for remaining externalities, tort laws, contract laws, police, and judges. It also requires a "neutral" monetary policy--i.e., one that matches the economy's supply of liquid cash and readily-collateralizable safe savings vehicles to the demand if there is full employment from workers, savers, and managers. The hope is that a central bank that has the power to target and does target a simple nominal GDP level-feedback rule--if nominal GDP is below the target, do more in the way of standard open-market operations, lending at the discount window on collateral that is good in normal times at a penalty rate, quantitative easing, and social-credit operations--will finally accomplish a properly "neutral" monetary policy.
A look back at previous ideas for what a "neutral" monetary policy--Newton's fixed price of gold, Hayek's fixed nominal GDP level, Fisher's fixed price-level commodity basket, Friedman's stable M2 growth rate, the NAIRU targeting of the 1970s, Bernanke's inflation-targeting--leads immediately to the conclusion that anybody who claims to have uncovered the Philosopher's Stone of a proper "neutral" monetary policy is a madman. But it is worth trying. Full employment is a very powerful boost to economic growth. And so is the elimination of future risks that businesses face as they try to calculate the chances that the profits to amortize investments will not be there because they will find themselves trying to sell into a "general glut".
State and local governments committed to raising salaries of K-12 public-school teachers relative to median salaries by 50%, in exchange for severe reductions in teacher tenure: As Eddie Lazear tirelessly points out, our state and local governments still substantially set public-school teachers' salaries following a sociological pattern set generations ago, when the occupations open to women were (a) housekeepers, (b) laundresses, (c) waitresses, (d) telephone switchboard-operators, (e) secretaries, (f) nurses, and (g) teachers. Those days are long gone: women who would have become teachers and nurses in the 1950s are now becoming doctors, lawyers, managers, and bankers. School boards across the country have responded to the difficulties of hiring as the coming of feminist liberties has allowed their captive female labor pool to escape by offering tenure in order to attract the risk-averse to teaching without having to require their taxpayer principals to face reality. But this is, at most, a second-best solution.
A nationwide network of good schools is both one of the very best ways to build productive capital--human capital--and a powerful step toward turning equality of opportunity in America from a sick and cynical joke to something not that far moved to reality.
How to actually wave this magic wand, however, is beyond me. My reading of the evidence is that charter schools have been disappointing in ways somewhat similar to those in which 401(k)s have been disappointing--too-high rewards to flash and marketing and too-little repetition for successful social learning about true quality to take place. Teachers will fight attempts to disrupt security of employment unless they have confidence that the grand bargain by which they trade security for higher salaries will be kept--which they do not have. Fiscal conservatives will fight teacher-salary increases unless they are confident that the Democratic Party-public sector union complex will then disarm itself of its weapons--which they are not. And the very smart Jesse Rothstein in the building next door thinks that eliminating teacher tenure is in no wise low-hanging fruit--that it substantially boosts the salary needed to acquire good teachers as it leads the risk-averse to exit the profession, and that nearly all who should not be teachers as identified as such before they gain tenure.
Suggestions?
Increasing the number of legal immigrants from roughly one million per year to 2.5 million per year--0.75% of the population per year: Everywhere else in the world, social conservatives are totally and completely terrified of our culture. Whether they admire American culture or despise it, all those who are attached to their own culture and do not want their young talking about going to Mt. St. Michel for le weekend or making hip-hop videos for Youtube are terrified of it. Yet we, somehow, fear that raising legal immigration above its current 0.3% of the population per year will in some way disrupt our culture? And we, somehow, fear that our politics is sufficiently broken that we cannot figure out a way to make increased immigration win-win for all current residents? Already for a 20 year old to crawl through a storm sewer from Tijuana to San Diego boosts the present value of future world GDP by $200 thousand. Give each one a green card too as he or she emerges and that number is boosted to about $400 thousand.
And let me note that I am not that big a fan of selling immigration licenses.
It strikes me that the kind of people who, illiterate, make it across the U.S. border from Chiapas on foot are likely to be at least as large as political and economic assets as the princelings of the Chinese Communist Party and the others who would buy their way in, eager and able as the latter are to pay.
1318 words
Monday Smackdown: Did Anthony Watts Ever Correct His Erroneous Claim That the EPA "Jump[ed] the Shark, Banning – ARGON"?
I take it not:
Anthony Watts: The EPA jumps the shark, banning – ARGON?: "This gives a whole new meaning to the phrase ‘noble’ cause corruption....
...Why on Earth would the EPA plan to ban something as inoffensive as Argon? IceAgeNow has a theory--they think Argon is part of a list supplied by a scientifically illiterate NGO, which the EPA plans to rubber stamp. If anyone with any real scientific training whatsoever had seen this silly list before it was published, or had taken the trouble to do 5 minutes of research on each entry in the list, to discover how ridiculous and ignorant the inclusion of Argon on a list of dangerous chemicals to be banned really is, then the EPA would not be facing their current very public embarrassment.... When I first saw this story, I though surely this must be some sort of spoof or misunderstanding that led to this. Sadly, no...
Ryan Cooper: No, the EPA is not banning argon: "It's true, argon is common!...
...It has important industrial uses as well--as an inert shielding gas, for certain lasers, and for neon and fluorescent lights. So if the EPA were banning it altogether, that would be bad news. Luckily, Stevens' claim is utterly false. Here's what's really happening. As EPA Assistant Administrator James Jones explains in this letter, the EPA is responding to petitions from California Attorney General Kamela Harris and others who asked for new labeling of pesticide ingredients. The EPA rejected the petition and instead... looked through the list of inert ingredients that are generally approved for use in pesticide formulations, picked only the ones that aren't used anymore, and propose to remove them from the list. If someone wants to use them again, they'll have to go through the normal approval process. That gives some protection from poisoning at a minimum of hassle. As the summary states:
EPA is proposing to remove certain chemical substances from the current listing of inert ingredients approved for use in pesticide products because the inert ingredients are no longer used in any registered pesticide product.' Not only is this about the use of argon only in pesticides, nobody even uses the gas for that anymore!
Rest assured, welding industry, your argon is safe...
Over at Equitable Growth: Things I Should Have Written About When They Were Published: Lawrence Summers on ‘House of Debt’: Daily Focus
House of Debt, despite some tough competition...
...looks likely to be the most important economics book of 2014; it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession.... It persuasively demonstrates that the conventional meta-narrative of the crisis and its aftermath, which emphasises the breakdown of financial intermediation, is inadequate. It then goes on to provide a supplementary and in some ways alternative explanation focusing on the deterioration of household balance sheets, an analysis that has profound implications for policy directed both at preventing crises and responding to them when prevention fails.... READ MOAR
It is a summary of a highly serious programme of economic research--one that is in many ways a model for what economists should do.... They argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. Resurrecting arguments that go back at least to Irving Fisher and that were emphasised by Richard Koo in considering Japan’s stagnation, Mian and Sufi highlight how harsh leverage and debt can be....
Their analysis, presented with far more depth and subtlety than I have been able to reflect here, is a major contribution that furthers our understanding of the crisis. It certainly affects what I will examine in trying to predict and forestall future crises. And it should influence policies aimed at crisis prevention by demonstrating the insufficiency of keeping financial institutions healthy and by making a case for macroprudential measures directed at preventing runaway growth in household debt.
When one has a persuasive and novel idea, there is an inevitable temptation to push it a bit too far and to weight it excessively relative to less novel truths. Mian and Sufi succumb to this temptation in the last third of their book, where they discuss the policy responses to the crisis...
Economists--well, sane economists who have done their homework--divide into three groups on the causes of the deep and long Lesser Depression:
Those who believe it was the attempted regulatory arbitrage by the major universal money-center banks and their consequent collapse when the housing bubble collapsed that destroyed financial-center risk tolerance and the credit channel. (I tend to be in this camp, most of the time at least).
Those who believe that even if the financial-market collapse of 2008-9 had been properly handled (i.e., no uncontrolled Lehman bankruptcy, etc.), we would still be on the same track unless we had dealt with the enormous overhang of bad housing-purchase and home-equity loans created by the collapse of the housing bubble. (Mian and Sufi are in this camp. I am sometimes in this camp.)
Those who believe that even if housing finance and high finance had been better handled, we would still be on the same track because it was the collapse of housing wealth and its knock-on effects on consumption spending that are at the root. (Dean Baker tends to be in this camp.)
I must confess that as time passes and as single-family housing construction continues to fail to recover, I find myself shifting from (1) to (2), or perhaps from (1) to (1) and (2)...
November 29, 2014
Over at Equitable Growth: A Question for Simon Wren-Lewis: How Can You Not Think That It Is All Ideology on the Other Side?: Daily Focus
Over at Equitable Growth: Simon Wren-Lewis bends over so far backwards to be fair that, I think, he loses sight of the ball:
Simon Wren-Lewis:
Understanding Anti-Keynesians: "I have always thought it important to try and understand...
...where the other side is coming from.... Let me single out three Keynesian propositions.
Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer.
There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters.
At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice. READ MOAR
If propositions (1) and (2) strike you as self evidently correct... I would... note that there are large numbers of academic macroeconomists... who dispute one or both.... Tyler Cowen... talks about a ‘so-called’ liquidity trap.... Many macroeconomists... did think as recently as ten years ago that there was a broad academic consensus behind both (1) and (2). I was one of them....
However, my reason for including (1) and (2) is that if you accept these two points, point (3) follows.... The two sides are not symmetrical.... Keynesians are happy for central banks to undertake various forms of unconventional monetary policy, the aversion on the other side to using fiscal policy seems more absolute.... An easy answer is that it is all political or ideological.... That in my view would be a sad conclusion to draw, but it may be naive to pretend otherwise. As Mark Thoma often says, the problem is with macroeconomists rather than macroeconomics.
I can think of two alternative explanations.... The first comes from thinking... [that] money is very important, and... to therefore feel that monetary policy has to be the right way to stabilise.... The second is... the New Classical revolution.... For some, the association of fiscal policy with old-fashioned Keynesian ideas set down deep roots... some notable academics were surprised that New Keynesian models actually provided strong support for the use of countercyclical fiscal policy in a liquidity trap.
I should really stop there, but having started with Tyler Cowen’s post, I really should say something about his comments on the UK.... Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel.
Consider things like:
Douglas Holtz-Eakin:
Structural Reforms to Reduce Debt and Restore Growth:
"The second flaw in recent policy approaches...
...has been its misguided reliance on temporary, targeted piecemeal policymaking. Even if one believed that countercyclical fiscal policy (‘stimulus’) could be executed precisely and had multiplier effects, it is time to learn by experience that this strategy is not working. Checks to households (the Economic Stimulus Act of 2008), the gargantuan stimulus bill in 2009 (American Recovery and Reinvestment Act), ‘cash for clunkers’ (the Car Allowance Rebate System), tax credits for homebuyers (the Federal Housing Tax Credit and the HIRE Act, consisting of a $13 billion payroll hiring credit, expensing of certain investments, and $4.6 billion for schools and energy), the Small Business Jobs Act of 2010, and the state-local bailout Public Law 111-226 ($10 billion for education, $16 billion for Medicaid) have all failed to generate growth. The policy regime of macroeconomic fiscal (and monetary) fine-tuning backfired in the 1960s and 1970s, leaving behind high inflation and chronically elevated unemployment, and it is working no better in the 21st century...
And how can you not think it is all ideology on the other side of the hill.
Anti-Civilization and Civilization in the Missouri Valley
Kris Kobach: Obama's Lawlessness Could Lead To 'Ethnic Cleansing' In America: "The long term strategy of, first of all, replacing American voters with illegal aliens, recently legalized, who then become U.S. citizens. There is still a decided bias in favor of bigger government not smaller government. So maybe this strategy of replacing American voters with newly legalized aliens, if you look at it through an ethnic lens... you've got a locked in vote for socialism...
Q: What happens, if you know your history, when one culture or one race or one religion overwhelms another culture or race? When one race or culture overwhelms another culture, they run them out or they kill them.'
Kobach: What protects us in America from any kind of ethnic cleansing is the rule of law, of course. And the rule of law used to be unassailable, used to be taken for granted in America. And now, of course, we have a President who disregards the law when it suits his interests. And, so, you know, while I normally would answer that by saying, 'Steve, of course we have the rule of law, that could never happen in America,' I wonder what could happen. I still don't think it’s going to happen in America, but I have to admit, that things are, things are strange and they're happening...
The Kansas City Star: President Obama’s bold immigration plan will boost America’s future: "As Republicans continue their tiresome attack on immigration reform...
...President Barack Obama commendably is getting ready to put in place a more humane and more forward-looking policy for this country.... Obama’s proposed actions are so sensible it’s a shame Congress hasn’t acted on them already. They are championed by a number of business groups and even some voices on the right. Now that Obama appears ready to take action, we’re hearing the same protests from House Speaker John Boehner and many other Republicans. They appear more interested in appeasing the most strident base of their voters than in looking toward the future of a more diverse and productive America. Already there’s irresponsible talk of trying to shut down the government if Obama pursues his immigration policies...
November 28, 2014
Liveblogging the American Revolution: November 29, 1776: Battle of Fort Cumberland
:
Jonathan Eddy returned to Massachusetts in August. While the Second Continental Congress and George Washington would not authorize, fund, or otherwise support military activities in Nova Scotia, Eddy was able to convince the Massachusetts Provincial Congress to provide some material support (primarily muskets, ammunition, powder, and other military supplies) for an attempt on Fort Cumberland.... Eddy left Boston in September and sailed to Machias, where he recruited about 20 men. On October 13, this party sailed from Machias for Passamaquoddy Bay....
From Campobello, Eddy sailed up the Saint John River to Maugerville, where 27 men were recruited, and then up to the Maliseet settlement at Aukpaque (just upriver from present-day Fredericton). There he learned the bad news that Pierre Tomah, the main Maliseet chief, was not interested in taking up the hatchet. Eddy was able to convince Ambroise St. Aubin, one of Tomah's competitors, and 15 men to join the expedition in exchange for an agreement with the Maugerville community to support the families of those men. In another disappointment, none of the local Acadians joined, contrary to assertions St. Aubin had made to Eddy during a previous visit to the area.
With a force now numbering about 72, Eddy sailed up the Bay of Fundy to Shepody Outpost.... Goreham was finally alerted to Eddy's actions on November 4, when a boat sent with supplies for the Shepody patrol was informed of Eddy's activities by locals. Goreham heightened the guard on the fort, but did not immediately attempt to notify Halifax or Windsor, since he was uncertain what routes away from the fort might have been blocked by Eddy....
On November 6, Eddy's patrols began ranging closer to the fort, alerting Goreham to the approaching force. Goreham took no additional steps to protect the Polly, and any attempts to get word of his predicament out were again delayed by his decision to await the return of scouts he had dispatched earlier. (The fate of the scouts is uncertain; they did not return before the fort was invested.) That evening, thirty of Eddy's men surprised the sleepy guards aboard the Polly, taking thirteen prisoners. They also seized another ship, owned by a Patriot sympathizer, that happened to be anchored nearby. On the morning of November 7 Goreham decided that it was time to get a message to Windsor. He sent a party of men down to the dock that morning. These men, numbering about 30, were taken prisoner by Eddy's men as rapidly as they arrived due to their unawareness that Eddy had control of the ship. The Polly was then sailed to Fort Lawrence, to the east of Fort Cumberland, where the supplies were landed. Sentries in the fort spotted the move, and Goreham, realizing Eddy had taken the ship, fired an ineffectual cannonade....
Goreham took stock of his situation. Nearly one quarter of his garrison (more than 60 men) had been captured by Eddy, along with critical fuel and other supplies that had not been unloaded from the Polly before her seizure. His defenses consisted of a hastily constructed palisade that encompassed most of the fort, and six cannons, for which his men had only completed three mounts. The fort's military complement was 176 men, including officers and artillerymen. Over the next few days, local militia arrived to raise the garrison's size to about 200, although this included individuals not effective for combat due to illness. On both November 7 and 8 he again attempted to get messengers out of Eddy's cordon, without success.
On November 8 Eddy was joined by about 200 men from Cobequid and Pictou, and he finally felt ready to act on November 10. Eddy sent a letter demanding that Goreham surrender his garrison. Goreham refused, suggesting in retort that Eddy surrender. The next day... Michael Francklin, patrolling in the Bay of Fundy for privateers, recovered a ferry that had been taken, and learned from its passengers that Eddy was active.... Commodore Sir George Collier had previously dispatched the HMS Vulture into the Bay of Fundy on rumors of privateering activity there, so he ordered the HMS Hope to locate the Vulture so that she could assist....
Lacking artillery, the rebels attempted to storm the fort on the night of November 12, attempting a feint to draw Goreham's strength away from the weak points of the defenses. The experienced Goreham saw through the feint and repulsed the attack. One of Eddy's Maliseet warriors sneaked into the fort and very nearly opened a gate but was stopped at the last moment. Following the failed attack, Eddy effectively lost control of the expedition, as a council of leaders formed against him. Night attacks ordered by the council on November 22 and 23 succeeded in capturing and burning several buildings, but Goreham grimly held his ground, and the invaders were again repulsed.
On November 27, the Vulture arrived. Rather than retreat in the face of arriving relief, the rebels increased their guard; Goreham, with some intelligence about the size of the force opposing him, planned a sortie. Early on the morning of November 29, Major Thomas Batt led 150 men from the Vulture's Royal Marine contingent and the Royal Fencible Americans, and scattered Eddy's men, killing and wounding several, at the cost of two dead and three wounded....
Batt's men chased Eddy's, but bad weather and the lack of adequate footwear eventually caused him to call off the pursuit. Eddy's forces scattered, with many retreating overland to Maugerville. Some of the Massachusetts men took more than two months to reach Machias. Homes and farms of rebel supporters were burned in reprisal but British authorities took a lenient approach toward captured rebels, including Richard John Uniacke, who went on to become Attorney General of Nova Scotia. Goreham issued an offer of pardon for those who would surrender their arms, which more than 100 locals accepted. This prompted Major Batt to file charges against Goreham for neglect of duty; Goreham was exonerated. The victory at Fort Cumberland strengthened the British presence in Nova Scotia, in part by driving Patriot sympathizers like Allan and Eddy out of the province, but also by cowing those that remained, often by requiring people to make pledges to the Crown...
Liveblogging the Great Depression: November 28, 1933
Thirty-Eight Columbia University Economics Professors Demonstrating Their Utter Cluelessness About the Macroeconomic Situation:
Via Irwin Collier and Paul Krugman
November 27, 2014
Liveblogging World War.I: November 27, 1914: Paul von Hindenburg's Army Order
In the course of severe fighting lasting several days my troops have brought to a standstill the offensive of a numerically superior Russian army.
[Note: The Army Order reproduces a telegram from the Kaiser, in which the latter, after congratulating the commander on his new success and that of his troops, thanks him for protecting the eastern frontier. The Kaiser adds that he cannot better express his thanks than by promoting the General to the rank of Field Marshal.]
I am proud at having reached the highest military rank at the head of such troops. Your fighting spirit and perseverance have in a marvellous manner inflicted the greatest losses on the enemy.
Over 60,000 prisoners, 150 guns and about 200 machine guns have fallen into our hands, but the enemy is not yet annihilated.
Therefore, forward with God, for King and Fatherland, till the last Russian lies beaten at our feet. Hurrah!"
Noted for Your Lunchtime Procrastination for November 27, 2014
Over at Equitable Growth--The Equitablog
Mark Thoma: Good News for the Unemployed
Martin Wolf: Radical Cures for Unusual Economic Ills
Paul Krugman: Keynes Is Slowly Winning
Anne Laurie: Monday While-We’re-Waiting
Nick Bunker:
Thanksgiving weekend reading
Plus:
Things to Read on the Morning of November 27, 2014
Must- and Shall-Reads:
Chuck Marr and Robert Greenstein: Tax Extenders Package Is Fundamentally Flawed
2014 PKConference
Mark Thoma: Some good job news for a hard-hit group
Martin Wolf: Radical cures for unusual economic ills
Anne Laurie: Monday While-We’re-Waiting Open Thread » Balloon Juice
Paul Krugman: Keynes Is Slowly Winning
Marcel Fratzscher: Germany’s Four Neins
Ello: On Jeet Heer on Neocons and Neolibs
Ello: On David Roberts on the Noise Machine
Ello: On Sleeping Beauty and "Halvers"
And Over Here:
For the (Super-Long) Weekend: the Ultimate Thanksgiving Movie Is: Addams Family Values (Brad DeLong's Grasping Reality...)
Wednesday Cognitive Science Blogging: What Are the Odds Princeton's David Lewis Understands Probability Properly? (Brad DeLong's Grasping Reality...)
Liveblogging World War II: November 26, 1944: Eleanor Roosevelt (Brad DeLong's Grasping Reality...)
Mark Thoma:
Some good job news for a hard-hit group :
"The 'hollowing out' of America's middle-class jobs in recent years is a trend that started before the Great Recession.... But where do those who have lost their jobs go?.... Many people believe most of those who lose middle-class jobs end up worse off than before, but recent research by economic policy analyst Ellie Terry and economist John Robertson of the Federal Reserve Bank of Atlanta finds... 'of those in middle-skill occupations who remain in a full-time job, about 83 percent are still working in a middle-skill job one year later.... What types of jobs are the other 17 percent getting? Mostly high-skill jobs; and that transition rate has been rising. The percent going from a middle-skill job to a high-skill job is close to 13 percent: up about 1 percent relative to before the recession. The percent transitioning into low-skill positions is lower: about 3.4 percent, up about 0.3 percentage point compared to before the recession.'... We still have plenty to fret about over employment across all skill levels, especially middle-skill jobs. But it could be even worse..."
Martin Wolf:
Radical cures for unusual economic ills:
"Crises are cardiac arrests of the financial system.... The time to worry about a patient’s lifestyle is not during a heart attack. The need is to keep them alive.... In my book, The Shifts and the Shocks, I suggest that a number of shifts in the world economy created chronically weak demand in the absence of credit booms... excess savings in emerging economies... shifts in income distribution, ageing and a secular decline in the propensity to invest in high-income countries... globalisation, technological innovation, and the growing role of the financial sector. It is not enough to clean up.... Policy makers also have to eliminate the dependence of demand on unsustainable credit. Without that, even a radical clean-up will not deliver buoyant demand.... The crisis left a grim legacy. The eurozone has done a worse job of dealing with this than, say, the US. But the origins of the crisis are to be found in longer-term structural weaknesses. Policy has to address these failings, too, if exit from the crisis is not to be the beginning of a journey into the next one. The answers are likely to be unorthodox. But so, too, is today’s economic condition. Rare ailments need unusual treatments. So look for them."
Anne Laurie: Monday While-We’re-Waiting Open Thread » Balloon Juice:
"Matt Yglesias... [on] the new Wingnut Wurlitzer meme: 'Conservative pundits who didn’t like the bipartisan comprehensive immigration reform bill that passed the US Senate in 2013 also didn’t like Obama’s deportation relief through executive action. They object to both the content... and to the process... as roughly akin to overthrowing the democratic constitutional order through military force in order to establish a brutal Latin American dictator.... There are many things one could say about this comparison, starting with the fact that unlike a proper caudillo such as Augusto Pinochet, Obama hasn’t had thousands of people detained and tortured without trial. Or, indeed, that it was actually Obama’s predecessor who was having people detained and tortured without trial. But perhaps the strangest thing about it is that when American conservatives analogize Obama to a Hispanophone military dictator, we are meant to understand this a criticism when the historical reality is that American conservatives have generally been quite enthusiastic about caudillos.... Indeed, thanks to the miracle of modern-day traffic recirculation methods, old National Review content singing Pinochet’s praises falls directly adjacent to complaints about Obama’s caudillismo...'"
Paul Krugman: Keynes Is Slowly Winning: "Back in 2010... I read the OECD Economic Outlook which called not just for fiscal austerity but for interest rate hikes--350 basis points on the Fed funds rate by the end of 2011!--because, well, because. Now the OECD is calling for fiscal and monetary stimulus.... It’s not the same people.... A new chief economist, Catherine L. Mann, whose excellent research has always been pragmatic.... But by selecting Ms. Mann the OECD was making a statement, and my sense is that the ground is shifting.... It has taken a while. In early 2013, with the infamous growth cliff at 90 percent debt and the case for expansionary austerity collapsing, many of us thought we had the austerians on the run. But we underestimated the extent to which officials and, to some extent, the news media had a professional stake in the positions they had staked out.... This still goes on. Simon Wren-Lewis complains, and rightly, about ‘mediamacro’--and his government has learned nothing. The Bundesbank is still what it always was. But the hawks seem in retreat at the Fed; Mario Draghi... sounds an awful lot like Janet Yellen; the whole way we’re discussing Japan is very much on Keynesian turf.... Businessweek was declaring that expansionary austerian Alberto Alesina was the new Keynes; now... Keynes is the new Keynes... Paul Singer complaining about the ‘Krugmanization’ of the debate.... Partly, I think, it’s just a matter of time.... The refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous. All of this may be coming too little and too late to avoid policy disaster.... But it’s something to cheer, faintly..."
Marcel Fratzscher: Germany’s Four Neins: "Germany’s stance toward Europe has become one of rejection and disengagement.... Germany has all of the leverage it needs to implement the stability-oriented reforms that it wants for Europe... can compel France to pursue deeper reforms in exchange for more time to consolidate its deficit. Germany cannot, however, indulge its obsession with supply-side reforms without also pursuing growth-enhancing policies....
The key to ending the European crisis is a stimulus plan that addresses deficiencies on both the supply and demand sides. That is why Germany’s refusal to help find a way to finance the proposed European investment agenda... is a mistake. Equally problematic is Germany’s focus on maintaining a fiscal surplus.... Germany’s fourth policy mistake is its apparent withdrawal of support for the ECB.... If Germany refuses to take a more reasoned approach, it risks undermining the ECB’s credibility.... The question is whether Germany’s leaders will recognize this before Europe’s economy falls into an even deeper slump."
Should Be Aware of:
Josh Marshall: Making Sense of Darren Wilson's Story
Ta-Nehisi Coates: Barack Obama, Ferguson, and the Evidence of Things Unsaid
Richmond Ramsey:
Fox Geezer Syndrome
Chris Blattman:
Should we believe the institutions and growth literature?: "The empirical institutions and growth literature... I find it more compelling and rich than the statistical literature, but they’re nice complements.... A few quick thoughts and pointers: The institutions literature has focused too much on constraints and not on capacity.... You might argue a third dimension of institutions is the political machinery that gets developed to answer the question ‘Who decides?’.... ‘How to manage peaceful political transitions as the relative power of different interest groups change?’ is a really, really, fundamental question a society has to answer....The slightly less-read stuf.... Tim Besley and Torsten Persson’s work on state capacity.... Some of the small-sample comparative case study work in Latin America, such as Jeffrey Paige or James Mahoney. most economists only read Engerman and Sokoloff. There’s a huge comparative politics.... One of the nicer, more concise summaries is in John Ishiyama’s short textbook.... There’s a growing empirical micro literature that uses subnational or individual data to show how important are things like social norms, rules, decision-making processes, and all the other things we think of as ‘institutions’ at the micro level....One of the takeaways that is hard to reconcile with the macro literature is that these local institutions appear to be quite malleable in the short term. How do we understand persistence at the macro level then?"
Kevin Drum:
Obama's Immigration Order: Lots of Sound and Fury, But Not Much Precedent | Mother Jones:
"Eric Posner warns that President Obama's recent executive action on immigration... 'may modify political norms.'... And since most of the regulatory apparatus of the government is fundamentally liberal in nature, a political norm that allows presidents to suspend enforcement of rules they don't like benefits conservatives a lot more than it does liberals.... Political norms matter, as Republicans know very well, since they've smashed so many of them in recent years. Still, there are a couple of reasons that there's probably less here than meets the eye, and Posner acknowledges them himself. First... the specific actions he took are justified by statutory language and congressional budgeting priorities that are unique to immigration law... [as] Posner himself agrees.... But there's a second reason that Obama isn't seriously breaking any political norms: they were already broken years ago. Posner himself tells the story.... Agency regulations and executive orders are already major battlegrounds of public policy that are aggressively managed by the White House, regardless of which party is in power. Has Obama expanded this battleground? Perhaps. But... immigration law is fairly unique in its grant of power... we don't really have to worry about President Rand Paul rewriting the tax code from the Oval Office.... The kinds of things he can do are about the same now as they were a week ago."
Noah Smith:
Fake Aspergers, Guys?: "This is something I'm hearing more and more often these days: right-wingers, at least the smart ones, are just people with Aspergers, whose condition prevents them from being socially sensitive enough to feel the vibes of political correctness.... It occurs to me that it's not that hard to fake Aspergers... just talk about nerdy stuff, get a blank stare on your face every once in a while, intentionally ignore social cues, etc.... It'll be fun--if you meet a girl who you know is too pretty to sleep with you, instead of bowing and scraping ineffectually before her majesty and beauty, you can say un-PC stuff that sends her into spasms of ineffectual rage! Wheeeee!!... One thing... annoys me.... Real Asperger's guys are usually not right-wing types who brashly declare their disdain for social cues by talking about rape around girls. Most of them are kind, good-hearted people who occasionally say offensive or hurtful things simply by accident, and are very very slow to realize it--but when they eventually do realize (or are informed by friends), they are generally remorseful and distressed. They are people with a real, if minor, disorder, who almost all wish they didn't have the limitations they have.... I wouldn't like to see those real Asperger's people given a bad name by swaggering right-wing jerks..."
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