J. Bradford DeLong's Blog, page 2129

Republicans Lie All the Time, About Everything

Mark Thoma:

Economist's View: Fannie, Freddie, and the Pain Caucus: The members of the Pain Caucus see things differently when they will be the ones blamed for the pain (which tells us something about how all those calls for deficit reduction from the GOP are likely to turn out). House Republicans, who now have responsibility for the oversight of Fannie and Freddie, have decided that dismantling Fannie Mae and Freddie Mac isn't so urgent after all:

Suddenly, some members of the GOP realize they actually will be part of the government, by Richard Green: Alan Zibel writes in the Wall Street Journal:

Earlier this year, leading House Republicans proposed to privatize mortgage giants Fannie Mae and Freddie Mac or place them in receivership starting in two years.

Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual.

"We recognize that some things can be done overnight and other things can't be," said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. "You have to recognize what the impact would be on the fragile housing market as it stands right now."

I actually don't think the mortgage market will ever be truly a private sector enterprise. Suppose Fannie and Freddie were to go away: the most likely entities to step into the residential finance market would be banks. Would this be privatization? Not really. Banks receive explicit guarantees (FDIC) and, as we know from recent events, implicit guarantees as well (TARP was nothing if not the execution of an implicit Federal guarantee).

The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.

DeLong Smackdown Watch: How Much Longer Will the Washington Post Survive?

Over at the Washington Post, David Ignatius writes:

David Ignatius - Honing our plan for Afghanistan: Like any war, this one is ultimately about willpower, and America has an advantage in Petraeus, one of the strongest-willed people you could hope to meet...

And then immediately contradicts himself:

But this winner's psyche is not sufficient. History shows that three variables are crucial in countering an insurgency: a real process of reconciliation, no safe havens for the enemy and a competent host government. None are present in Afghanistan...

So which is it? Is it about American "willpower," or is it about whether there is a competent host government, an absence of safe havens, and a real reconciliation process? It has to be one or the other.

So it is too bad that Michael Froomkin is right when he writes:

Units of Measure: As coined by Atrios, a “Friedman” or “Friedman unit” is famously six months — the amount of time that the columnist keeps telling us it will take before we know whether Iraq turns the corner, finds the lights at the end of the tunnel….but when the time passes, we just get the same prediction again and again. Is it time to define a new unit of measure, “the DeLong” — as the five years he predicts the Washington Post has before it craters (unless it changes)?

Admittedly, what makes the Friedman a Friedman is that we’ve had so many of them since he first made that ill-fated prediction. And as far as I know, the first sighting of Brad’s prediction may be March 7, 2007, which is pretty recent. So it’s not quite the same thing.

But I bet the Post lasts longer than five years despite all its dreadful editorial flaws. It has a lock on the local classified ad market, and its web site is a category killer that will smother local competitors. That’s going to be monetizable some day and will help keep the print paper afloat.

[Original draft 4/18/2007.  In preparation for my blog redesign, I found draft blog posts that somehow never made it to publication. This is one of them.]

2010: As a prediction, I think it’s looking good. As a newspaper, though, the Post really is looking awful.

Why oh why can't we have a better press corps?

A Time to Spend

A Time to Spend by J. Bradford DeLong - Project Syndicate: The central insight of macroeconomics is a fact that was known to John Stuart Mill in the first third of the nineteenth century: there can be a large gap between supply and demand for pretty much all currently produced goods and services and types of labor if there is an equally large excess demand for financial assets. And this fundamental fact is a source of big trouble.

A normal gap between supply and demand for some subset of currently produced commodities is not a serious problem, because it is balanced by excess demand for other currently produced commodities. As industries suffering from insufficient demand shed workers, industries benefiting from surplus demand hire them. The economy rapidly rebalances itself and thus returns to full employment – and does so with a configuration of employment and production that is better adapted to current consumer preferences.

By contrast, a gap between supply and demand when the corresponding excess demand is for financial assets is a recipe for economic meltdown. There is, after all, no easy way that unemployed workers can start producing the assets – money and bonds that not only are rated investment-grade, but really are – that financial markets are not adequately supplying. The flow of workers out of employment exceeds the flow back into employment. And, as employment and incomes drop, spending on currently produced commodities drops further, and the economy spirals down into depression.

Thus, the first principle of macroeconomic policy is that because only the government can create the investment-grade financial assets that are in short supply in a depression, it is the government’s task to do so. The government must ensure that the money supply matches the full-employment level of money demand, and that the supply of safe savings vehicles in which investors can park their wealth also meets demand.

How well have the world’s governments performed this task over the past three years?

In East Asia (minus Japan), governments appear to have been doing rather well. Shortage of demand for currently produced goods and services and mass unemployment no longer loom as the region’s biggest macroeconomic problems. Flooding their economies with liquidity, maintaining export-friendly exchange rates, and spending to employ workers directly and boost the supply of safe savings vehicles have made the Great Recession in East Asia less dire than it has been elsewhere.

In North America, governments appear to have muddled through. They have not provided enough bank guarantees, forced enough mortgage renegotiations, increased spending enough, or financed enough employment to rebalance financial markets, return asset prices to normal configurations, and facilitate a rapid return to full employment. But unemployment has not climbed far above 10%, either.

The most serious problems right now are in Europe. Uncertainty about how, exactly, the liabilities of highly leveraged banks and over-leveraged peripheral governments are to be guaranteed is shrinking the supply of safe savings vehicles at a time when macroeconomic rebalancing calls for it to be rising. And the rapid reductions in budget deficits that European governments are now pledged to undertake can only increase the likelihood of a full double-dip recession.

The broad pattern is clear: the more that governments have worried about enabling future moral hazard by excessive bailouts and sought to stem the rise in public debt, the worse their countries’ economies have performed. The more that they have focused on policies to put people back to work in the short run, the better their economies have done.

This pattern would not have surprised nineteenth-century economists like Mill or Walter Bagehot, who understood the financial-sector origins of industrial depression. But it does seem to surprise not only a great many observers today, but also a large number of policymakers.

Yet Another Reason Nobody Has Any Business Voting for the Republican Party

Stan Collender on how Republican "concern" for the deficit over the past two years was just another pack of lies:

GOP on the Deficit: Do as I Say, Don't Watch What I Do | Capital Gains and Games: There is now no doubt that all of the GOP talk during the campaign about reducing the deficit was nothing more than a ploy to get elected and that Republicans have no plans to do anything but make the federal government's red ink larger than it already is and would otherwise be. The proof?  Take a look at this outstanding report by Bob Greenstein and Jim Horney of The Center on Budget and Policy Priorities -- two of the most respected federal budget analysts anywhere -- published just before Christmas about how House Republicans are about to put in place new budget procedures that make it likely the deficit will be increased rather than decreased.

The first is a change in the pay-as-you-go rules that will no longer require proposed tax cuts to include offsets so that there's no increase in the deficit.  Under the new GOP rules, that would only apply to proposed increased in mandatory spending.  In addition, proposed mandatory spending increases could only be offset with reductions in other mandatory spending.  The previous PAYGO rule that allowed the offset to be either spending cuts or revenue increases would be eliminated.

The second change is that the reconciliation procedures in the congressional budget process would be changed so that they could be used to increase the deficit if the increase was the result of a tax cut (The House democratic leadership several years ago revised the reconciliation rules so that it could be used only to reduce the deficit).

Finally, as the CBPP report says, the new rules would allow a number of potentially huge deficit increasing policies to be adopted without offsets:

Extending or making permanent the 2001 and 2003 Bush tax cuts (including the tax cuts for the highest-income taxpayers) and relief from the Alternative Minimum Tax;
Extending or making permanent the hollowing out of the estate tax included in the just-enacted tax-cut compromise legislation; and
Legislation to provide a major, costly new tax cut — a deduction equal to 20 percent of gross income for “small businesses,” which Republican lawmakers typically have defined very expansively so the term covers a vast swath of firms and wealthy individuals that do not resemble what most Americans think of as a “small business.”

In the wake of the GOP's insistence in the lame duck session on the tax deal option that would increase the deficit the most, it has become obvious that all of the deficit reduction talk Republicans used during the 2010 election had nothing to do with what the party was really about or what it plans to do over the next two years. 

Based on the record in the 10 weeks or so since the election, it seems clear that the GOP rhetoric about reducing the deficit will remain but that, instead of proposing things that will reduce it, Republican-proposed legislation will increase the deficit and federal borrowing substantially...

Three "Protestant Winds"

The Relief of Leyden, 1574:

Siege of Leiden - Wikipedia: [T]he dyke of Greenway halted the water, but this was seized and cut. But as the water spread over the countryside, it also grew shallower.... Soon, the water was so shallow that most of the Dutch ships ran aground. Meanwhile, in the city, the inhabitants clamoured for surrender when they saw that their countrymen had run aground. But Mayor van der Werff inspired his citizens to hold on by offering his arm as food. Thousands of inhabitants died of starvation. They held on because they knew that the Spanish would kill them all to set an example, as had happened in Naarden and Haarlem. Only on October 1[, 1574] did the wind, which previously blown from the east pushing the water out of the countryside, shift to the west which blew the sea water into the countryside. Then the rebel fleet was afloat again and they advanced.... [O]n the night of October 2/3, the Spanish retreated from their fort and lifted the siege....[T]he relieving rebels arrived at the city, feeding the citizens with herring and white bread. The people also feasted on 'Hutspot' (carrot and onion stew) in the evening. According to legend, a little orphan boy named Cornelis Joppenszoon found a cooking pot full with 'Hutspot' that the Spaniards had had to leave behind when they left their camp, the Lammenschans, in a hurry to escape from the rising waters...

The Defeat of the Spanish Armada, 1588:

Flavit Jehovah et Dissipati Sunt: Jehovah blew with His winds, and they were scattered is a famous phrase on the aftermath of the defeat of the Spanish Armada in 1588, when the Spanish fleet was broken up by a storm...

The "Glorious Revolution" Overthrow of King James II Stuart by William III Orange, 1688:

Glorious Revolution: [O]n 8 October... the expedition was... openly approved by the States of Holland; the same day James issued a proclamation to the English nation that it should prepare for a Dutch invasion to ward off conquest. On 30 September/10 October (Julian/Gregorian calendars) William issued the Declaration of The Hague.... William declared:

It is both certain and evident to all men, that the public peace and happiness of any state or kingdom cannot be preserved, where the Laws, Liberties, and Customs, established by the lawful authority in it, are openly transgressed and annulled; more especially where the alteration of Religion is endeavoured, and that a religion, which is contrary to law, is endeavoured to be introduced; upon which those who are most immediately concerned in it are indispensably bound to endeavour to preserve and maintain the established Laws, Liberties and customs, and, above all, the Religion and Worship of God, that is established among them; and to take such an effectual care, that the inhabitants of the said state or kingdom may neither be deprived of their Religion, nor of their Civil Rights.

William went on to condemn James's advisers for overturning the religion, laws, and liberties of England, Scotland, and Ireland by the use of the suspending and dispensing power; the establishment of the "manifestly illegal" commission for ecclesiastical causes; and its use to suspend the Bishop of London and to remove the Fellows of Magdalen College, Oxford.... James's attempt to pack Parliament was in danger of removing "the last and great remedy for all those evils". "Therefore", William continued, "we have thought fit to go over to England, and to carry over with us a force sufficient, by the blessing of God, to defend us from the violence of those evil Counsellors...this our Expedition is intended for no other design, but to have, a free and lawful Parliament assembled as soon as is possible."...

For three weeks the invasion fleet was prevented by adverse south-westerly gales from departing from the naval port of Hellevoetsluis, and Catholics all over the Netherlands and the British kingdoms held prayer sessions that this "popish wind" might endure. However, on 14/24 October it became the famous "Protestant Wind" by turning to the east...

Michael Froomkin Worries About His French...

I suspect Michael Froomkin's French sounds to les parisiens like the French from a movie made in the 1930s--emigrant language speakers do tend to freeze vocabulary, grammar, and slang, and transmit the frozen version to those who learn from them:

Attrapé: Yahoo Groupes (sic) is unhappy with me:

Votre navigateur n’accepte pas les cookies. Pour afficher cette page, vous devez modifier les préférences de votre navigateur pour qu’il accepte les cookies. (Code 0)

And it’s true too.

Somehow “Votre navigateur n’accepte pas les cookies” seems like amazing Franglais. This is why I wonder if I still speak French sometimes: The language has borrowed so much English that it has left me behind.

When I go to France, I sometimes wonder if people think I sound like someone speaking Edwardian English. If I could only convince myself the effect was Shakespearean...

My view is that all old languages sound Shakespearean. As xkcd says:

The same people who spend their weekends at the Blogger Reenactment Festivals will whine about the anachronisms in historical movies, but no one else will care.

Which, of course, reminds me of the great http://xkcd.com/239/:

Why Oh Why Can't We Have a Better Press Corps?

Everybody working for the New York Times owes all the rest of us a big apology for wasting our time with things like this:

No Shirtless Photos of Obama This Trip,

DeLong Smackdown Watch: Public Finance Edition

Paul Rosenberg:

Open Left:: Disease in drag as diagnosis: The conservative attack on sound public finance.: In an excerpt from his Sept 27 "Government Deficits and Debts Lecture", Brad DeLong lays out his "Five Rules for Public Finance," and a conservative critique that he gives too much credit to.  Why is that?  Because the conservative critique is less an objective observation of how governments in the welfare state era  had acted up to that point than a prospective justification for the conservative looting that was to come.... And now here's the conservative critique:

I want to close this lecture by making a right wing argument that these five rules are inconsistent and we have to drop one of them. This right-wing argument is one that back when I was your age I pooh-poohed as nonsensical and simply silly. But it is 30 years later. I at least feel a little bit wiser. It's not that I believe this right-wing argument completely. But it has much more force with me than it did 30 years ago.... If you try to enunciate the principal that cyclical deficits in downturns are good and permanent structural deficits are bad--that is just too complicated for the political system to process. If you tolerate and approve of cyclical deficits to fight downturns, Jim Buchanan argued, then you're setting the political stage for permanent structural deficits because politicians will be eager to grab the argument that the deficits that they want to run are actually good for the economy. Allow cyclical deficits, and you make permanent large structural deficits likely. They will slow growth by crowding out investment. They might eventually lead to an erosion of confidence in the government's ability to pay back its promises--and so lead you down the road to Mad Max...

Actually, the structural deficit/structural deficit is not inherently too difficult for the political system to process. This was not an objective assessment of historical reality, but a strategic assessment of political vulnerability, and one that Ronald Reagan proceeded to begin exploiting to the hilt in order to destroy the welfare state, and thus return the majority of the citizenry to a state of permanent want, which conservatives have always thought to be the morally proper order of things.... [I]t was never the political system in and of itself that couldn't tell the difference between structural and cyclical deficits.  That was never the real story of what was going on.  It was just the conservative cover story--nothing more. Misleading the public on fiscal policy--among many other things--was always a key aspect of conservative strategy.  The problem wasn't the system, but conservative's ability to game the system. And the solution wasn't to give up on sound fiscal thinking, but to strengthen the truth-orientation (aka "reality-based orientation") of the political system.

This is, in short, just another chapter in the age-old dispute between liberals and conservatives.  Conservatives--living on Kegan's Level 3--say that we're doomed because of the nature of the cosmos and ourselves. Liberals--living on Kegan's Level 4--say, "Wait a minute. There's an app for that."  And if not, Radicals--living on Kegan's Level 5--will come along and invent one.

Yet Another Reason Why Nobody with Any Integrity Has Any Business Voting for the Republican Party

Paul Krugman:

Yes, They're Frauds: From CBPP, House Republican Rule Changes Pave the Way For Major Deficit-Increasing Tax Cuts, Despite Anti-Deficit Rhetoric:

House Republican leaders yesterday unveiled major changes to House procedural rules that are clearly designed to pave the way for more deficit-increasing tax cuts in the next two years. These rules stand in sharp contrast to the strong anti-deficit rhetoric that many Republicans used on the campaign trail this fall. While changes in congressional rules rarely get much public attention, these new rules — which are expected to be adopted by party-line vote when the 112th Congress convenes on January 5 — could have a substantial impact and risk making the nation’s fiscal problems significantly worse.

I hear that a lot of journalistic insiders were annoyed when I began calling out self-styled deficit hawks like Paul Ryan as flim-flammers. But they are; nobody, and I mean nobody, in a position of influence within the GOP cares about deficits when tax cuts for the affluent are on the line. Deficit hawkery is just a stick with which to beat down social programs.

Department of "Huh?!" (Call Things by Their Right Names Edition(

Clive Crook writes:

Pity US centrists: no ideas, few fans and no label: In the end the lame-duck session of the 111th US Congress belied its mocking designation and got a lot done. It passed the grand tax compromise. It ratified the new strategic arms reduction treaty with Russia. It repealed “don’t ask, don’t tell”, so gays in the armed forces will no longer have to lie about their sexual orientation.

Notable achievements, all. Grounds, even, for optimism about what the next Congress might do? Probably not.

The thing to note about all of these important votes is that – curiously – and despite the contention they aroused on Capitol Hill, they were all quite popular with the American public, as well as being good decisions on their merits. They should never have been controversial in the first place.

It is a tribute to the obduracy of the Washington political class that they ever were, and indeed that all three initiatives might easily have failed...

The piece of the "grand tax compromise" that the Republicans demanded--the extension of the 2001 shift of the tax burden off of the income tranche above $250K a year and onto future generations--is neither popular with the American people nor a good decision: we need to raise taxes and the only valid argument for not raising a particular tax now is if those on whom it will fall have a high marginal propensity to consume.

That aside, Crook is right in the first three paragraphs I quote: the rest of it was all popular, all good decisions, and all should have been uncontroversial.

But it is in the last sentence I quote that Crook completely loses touch with reality and goes spiraling off into the gamma quadrant.

That all three initiatives might easily have failed and that they were "controversial" is not due to the "obduracy" of something that is "the Washington political class."

That all three initiatives might easily have failed and that they were "controversial" is due to the decision by the united Republican senatorial caucus that their highest priority was to block everything--especially if it was sensible and popular--so that Obama's presidency would be a failure.

It would be nice if journalists called things by their right names.

Why oh why can't we have a better press corps?