J. Bradford DeLong's Blog, page 2160

Delong Smackdown Watch: ProGrowth Liberal

Over at Econonospeak, PGL writes:

EconoSpeak: One Quibble with Brad DeLong’s Platform for the Bipartisan Technocrats: Let me endorse almost all of Brad’s platform for the bipartisan technocrats which is what he says Robert Rubin should be saying. It is classic Rubinomics endorsing long-term fiscal restraint with short-term fiscal stimulus:

Recovery: when every fired local, state, and federal worker takes a private sector job down as well and when the U.S. government can borrow at today's absurdly-low terms, it is criminal stupidity not to pull government spending forward into the present and push taxes back into the future (all within the ten-year PAYGO rule, of course). Since the macroeconomic situation is worse now than it was ever projected to get when the first Recovery Act was passed and since the U.S. government can borrow on better terms now than it could at the time of the first Recovery Act, it is time for a second Recovery Act--fifty percent federal government purchases and aid to the states, fifty percent tax cuts--somewhat larger than the first was.

Accelerating government purchases is a no-brainer (except to those political fools who govern us by saying “no” to anything that comes from the Obama White House). Federal revenue sharing is another no-brainer.

My quibble is with Brad’s suggestion that half of the 2nd Recovery Act should be half from tax cuts. Why? Well in the standard Keynesian model, the impact effect from a dollar of tax cuts is dampened by the marginal propensity to consume as at least some of the tax cut is saved even by borrowing constrained households. For households that are not borrowing constrained, pushing taxes back has no effect on consumption demand today. In other words, the more of the supposed fiscal stimulus that comes from tax cuts – the less bang for the buck we get. Was not this one of the problems with the first Recovery Act?

Indeed. PGL is correct--the bang-for-buck is likely to be lower.

But this is supposed to be a platform for bipartisanship, after all, and bipartisanship requires giving the masters of the Republican Party a big share of the cookies all of the time.

Republicans Lying All the Time About Everything

Sudeep Reddy of the Wall Street Journal finds that he is a target:

Palin Responds to Real Time Economics and We Respond: Real Time Economics yesterday looked at Sarah Palin’s remarks about monetary policy to a trade association conference. On Monday night, she responded on Facebook:

Ever since 2008, people seem inordinately interested in my reading habits. Among various newspapers, magazines, and local Alaskan papers, I read the Wall Street Journal. So, imagine my dismay when I read an article by Sudeep Reddy in today’s Wall Street Journal criticizing the fact that I mentioned inflation in my comments about QE2 in a speech this morning before a trade-association. Here’s what I said: “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher.” Mr. Reddy takes aim at this. He writes: “Grocery prices haven’t risen all that significantly, in fact.” Really? That’s odd, because just last Thursday, November 4, I read an article in Mr. Reddy’s own Wall Street Journal titled “Food Sellers Grit Teeth, Raise Prices: Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”

The article noted that “an inflationary tide is beginning to ripple through America’s supermarkets and restaurants…Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months.” Now I realize I’m just a former governor and current housewife from Alaska, but even humble folks like me can read the newspaper. I’m surprised a prestigious reporter for the Wall Street Journal doesn’t.

Sudeep Reddy responds:

Our post on Monday examined the assertion that grocery prices “have risen significantly over the past year or so.” That view is not supported by the facts. A broad measure of food prices from the Labor Department shows prices rose at an average annual rate of less than 0.6% in the first nine months of the year. September’s increase in food prices — 1.4% for food and beverages at an annual rate — was low by historical standards.(In fact, the lowest average annual inflation rate on record was 1.4%, in 1992.) Commerce Department inflation data show a similarly slow year-over-year increase for food prices, 1.3%. While some items in the shopping cart have risen in price (ground chuck beef is up 4.8%) and others have decreased (bananas are down 5.3%), overall food price inflation has been historically low for the past year. This is not surprising. Weak demand, high unemployment and thrifty shoppers have led retailers to keep many prices from rising despite the rising cost of some commodities, including coffee and sugar.

The Nov. 4 Wall Street Journal article noted, in its first sentence, “the tamest year of food pricing in nearly two decades.” It does indeed report that supermarkets and restaurants are facing cost pressures that could push their retail prices higher — but it hasn’t happened yet on a large scale. Critics of the Fed’s quantitative easing policy are focused primarily on concerns about potential future inflation.

Friends really do not let friends vote for, work for, or contribute to the Republican Party.

Morality Plays...

Interfluidity appears to accuse me of being immoral because I am amoral, or something like that...

To the contrary, I say that our duties to be intelligent, reality-based, wise stewards of our resources, and brave are moral duties. Stupidity, addiction of fantasy, needless poverty, and cowardice are not moral virtues.

Interfluidity:

Tragedy of the technocrats: [H]uman affairs are a morality play, and economics, if it is to be useful at all, must be an account of human affairs.... It should be no surprise that human collectives choose policies destructive of GDP or employment growth when they deem those policies to be wrong or unjust. Individual human beings act against their material interests all the time.... There is a reason why people are asking What Would Milton Friedman Do? in the same way a Christian might ask what Jesus would do. The technocratic interlude for which Brad DeLong yearns was built upon scripture that Milton Friedman both penned and evangelized. We are in a period of Reformation now, with all the turmoil that suggests, and the outcome is not predetermined. Simply assuming the parishioners will remain faithful, or lamenting that they ought to remain faithful, is no way to win the argument....

It is easy, in the context of prevailing norms, to argue that [in bad times] governments should be prudent in the same way as households.... The most obvious moral counterplays, appeals to altruism in the face of misery, are vulnerable to vilification of the “undeserving poor” — people whose lack of diligence left them without “skills”, deadbeats who partied on debt they cannot now repay...

The principle to which Interfluidity refers is that when times are bad--when your present and expected future resources fall--you should cut back on your commitments. The fact is that these are bad times for private economic actors: their current incomes have fallen, and the high interest rates charged them means that their future resources are worth a lot less than they used to be when translated into claims on today.

But things are completely different for the government.

The terms on which the U.S. government today can borrow are extraordinarily, unbelievably good. The government's current resources have declined with the decline in tax revenue, but the taxes the government will receive in the future are--according to a bunch of calculations John Cochrane made when he came to Berkeley to give a seminar--worth roughly four times as much when translated into claims on goods, services, and labor today as they were worth three years ago. The resource constraints binding private economic actors have become much tighter. But the resource constraints binding the government have--because of the extraordinary falls in interest rates--become much looser. And high unemployment and slack capacity mean that the terms on which the government can get goods, services, and labor are significantly more advantageous than they were three years ago.

Every single particle of logic is crying out that now is the time for the government to pull its spending forward from the future into the present and push its taxes from the present back into the future.

The argument that "governments should be prudent in the same way as households" is not a moral argument: it is a stupid argument. It blindly closes its eyes to the reality that times feel very different for credit-worthy governments than for potentially insolvent private economic actors, and that what is prudence for the second is sheer idiocy for the first.

To claim that there is a moral case against the policy recommendations of technocracy today is to claim that there is a moral case for stupidity, a moral case for fantastic disconnection from reality, a moral case for needless poverty, and a moral case for cowardice.

And I really do not think Interfluidity wants to make that argument.

Republicans Are Really Weird, Chapter CCVII

Ben Armbruster:

In 2008, Bush Said He ‘Probably Won’t Vote For’ McCain: With stories about President Bush’s new memoir dominating the headlines this week, Financial Times Westminster correspondent Alex Barker reports on his “favourite Bush anecdote,” which he writes, “for various reasons we couldn’t publish at the time. Some of the witnesses still dine out on it“:

The venue was the Oval Office. A group of British dignitaries, including Gordon Brown, were paying a visit. It was at the height of the 2008 presidential election campaign, not long after Bush publicly endorsed John McCain as his successor.

Naturally the election came up in conversation. Trying to be even-handed and polite, the Brits said something diplomatic about McCain’s campaign, expecting Bush to express some warm words of support for the Republican candidate.

Not a chance. “I probably won’t even vote for the guy,” Bush told the group, according to two people present.“I had to endorse him. But I’d have endorsed Obama if they’d asked me.”

Barker said that British officials looked “dumbfounded” and that Brown’s “poker face gave way to a flash of astonishment.”

I Always Thought That Glenn Beck Was Really Working for the Russians...

Yep. He is denouncing "Puppet Master" George Soros for funding revolutions against Soviet domination in Eastern Europe in the 1980s...

Send lawyers, guns, and money!

(Of course, we here at Berkeley are now funded by a Soros-sponsored institute. That means, I guess, that Beck disapproves of us because we are against the Communist Russians too...)

Westward the Course of Empire Takes Its Way...

Gee. I go off to Ohio State and Barry Eichengreen becomes depressed:

Is America Catching the “British Disease?”: Imperial overreach, political polarization, and a costly financial crisis.... [I]t is important to understand the nature of the British disease.  It was not simply that America and Germany grew faster than Britain after 1870.... The problem was Britain’s failure in the late nineteenth century to take its economy to the next level. Britain was slow to move from the old industries of the first Industrial Revolution into modern sectors like electrical engineering which impeded the adoption of mass-production... failed to adopt precision machinery that depended on electricity, which prevented it from producing machined components.... The same story can be told about other new industries like synthetic chemicals, dyestuffs, and telephony, in all of which Britain failed to establish a foothold. The rise of new economic powers with lower costs made employment loss in old industries like textiles, iron and steel, and shipbuilding inevitable. But Britain’s signal failure was in not replacing these old nineteenth-century industries with new twentieth-century successors.

Is America doomed to the same fate? Answering this question requires understanding the reasons behind Britain’s lack of technological progressiveness... Britain failed to put in place an effective competition policy. In response to the collapse of demand in 1929, it erected high tariff walls. Sheltered from foreign competition, industry grew fat and lazy. After WWII, repeated shifts between Labour and Conservative governments led to stop-go policies that heightened uncertainty and created chronic financial problems. Herein lies the most convincing explanation for British decline. The country failed to develop a coherent policy response to the financial crisis of the 1930’s. Its political parties... remained at each other’s throats... politics grew fractious... policies erratic... finances increasingly unstable.

In short, Britain’s was a political, not an economic, failure. And that history, unfortunately, is all too pertinent to America’s fate.

What, Felix, Is Wrong, Exactly, with Proposing to Give Every American Family a Sparkly Unicorn for Diwali?

Felix Salmon writes:

Brad DeLong’s fiscal manifesto : Brad DeLong is fed up with vague hand-waving from technocrats... So he comes up with his own seven-point “platform for the bipartisan technocrats of the center”, which “everybody centrist and deficit-hawkish in the reality-based community should be willing to commit to today”....

DeLong... has performed two important services... translated technocratese into stark policy proposals, and he’s demonstrated that the technocrats in question might as well be talking about giving every US family a free unicorn for all that their wishes will ever come true.

Let’s hope (against hope) that when the technocrats continue the debate, they’ll have been paying attention to both messages.

I'm not sure I understand this last point: how are we supposed to "pay attention to this second message"? I mean, are we talking "Hige sceal þe heardra! Heorte þe cenre! Mod sceal þe mare, þe ure mægen° lytlað!" or what?

And, yes, you are right about the regressive nature of the carbon tax...

Liveblogging World War II: November 9, 1940

Neville Chamberlain dies of intestinal cancer.

What Have the Romans Ever Done for Us?

Charles Sorrel of Wired:

1,800-Year-Old Roman Multitool | Gadget Lab | Wired.com: Well, it turns out that back somewhere between A.D 201 to 300, a clever Roman, probably named MacGyvericus, invented the multitool. And not just some weird, old-fashioned multitool, either. MacGyvericus’ tool is startlingly similar to the modern Swiss Army Knife, now part of the collection of the Fitzwilliam Museum in Cambridge, England... a knife, spike, pick, fork and a spatula... a useful spoon on the end, making it likely that this iron and silver artifact, found in somewhere in the Mediterranean countries, was meant for eating with.

What it is is 100 percent awesome, and just makes me love the Romans even more...

The Depth of the Recession...