J. Bradford DeLong's Blog, page 2191
September 27, 2010
Crowding Out
Menzie Chinn:
Econbrowser: Portfolio Crowding Out, Illustrated: I have been updating graphs for my money and banking course... to illustrate the tremendous impact of government borrowing on interest rates via portfolio crowding out.... Oops. Well, the tremendous impact isn't showing up now. It might in the future. Although, it's useful to recall that the ten year interest rate is, under the expectations hypothesis of the term structure, the average of the expected short term interest rates over the next ten years.... One can localize the low interest rates by inspecting the interest rates of different maturities. For the next five years, we can look at the 5 year constant maturity rates.... On 9/22, the 5 year TIPS yield was 0.01%.
links for 2010-09-27
John Cole: Marked for Death
I'm at a loss to describe how truly radical, wrong, and evil this is.... We've lost our way as a nation, and Obama really is trying to be worse than Bush in some areas. I guess when they said they were going to bring back accountability and transparency, they meant in other areas...
Peretz-Harvard Finale - James Fallows - Politics - The Atlantic
Republicans On Obama Debt Commission Push For Corporate And Capital Gains Tax Cuts | TPMDC
Ober, Josiah
Julia Jeffries and Gautam Kumar: Protestors Fight Against Marty Peretz
The Philosopher's Stone: HARVARD AND PERETZ
Impact of Hurricane Igor in Canada - by Cameron Scott - Helium
Clive Crook Has Driven Henry Farrell Insane
Wow. This is impressive. The hypothesis that there is something about writing for the Atlantic these days that is likely to rot your brain gains further support.
Henry Farrell:
Hair-tearing: I don’t know whether Clive Crook is deliberately trying to show us how thin the partitions are between supposedly sensible centrism and grand guignol style theater, but he’s certainly doing a damn fine job of it.
These and other compromises disappointed the left. But the message to the electoral centre was consistent: Mr Obama would have let the left have its way if he could. What he should have done – and what he ought to do from now on – is simple. Instead of blessing leftist solutions, then retreating feebly to more centrist positions under pressure, he should have identified the centrist policies the country could accept and advocated those policies. … The left will tear its hair over another surrender and the centre will note where the president’s sympathies actually lay. … Substantively, whether taxes on high-income households rise now or two years from now does not matter very much. … Symbolically, though, Mr Obama’s position speaks volumes. … Nothing short of the Scandinavian model (plus stronger unions, minus the commitment to liberal trade) will ever satisfy the Democratic left. Its role, its whole purpose, is to be betrayed. So betray it, Mr President, and start leading from the centre.
This really is a rather wonderful piece of writing in its own, quite particular way. Mr. Crook doesn’t have a theory of politics (he never bothers to provide any evidence for all those confident assertions about how centrists are vigilantly monitoring the Obama administration for the slightest hint of hippy-hugging), so much as a kind of torrid internal psychodrama that (for reasons best known to him) he has chosen to inflict upon us repeatedly in printed form and that (for reasons best known to them) the editorial team of the Financial Times has decided to pay him for. And that psychodrama is on full display here. The dithering Obama, trying to resist the siren-calls of the left and only half-succeeding. The ever-disappointed centrist voter, sadly shaking its collective head yet again as the president hesitates over whether to embrace his true love or to succumb to the allures of forbidden passion. And that frenzied maenad, the left, fated always to be betrayed, because it is only in being betrayed that she can achieve her true destiny. It’s like an opera. A very bad opera. Or perhaps one of those Greek plays in which everyone ends up killing each other after having had sex with their parents and siblings. What it doesn’t resemble – at all – is a piece of serious political thinking and writing. I’d have thought that this would be a significant problem for a political column myself – but then I’m not an editor for the Financial Times.
Martin Wolf Understands Economics...
...as John Cochrane does not.
John Cochrane complains about being accurately quoted by Paul Krugman:
John Cochrane of the University of Chicago, who wrote that Krugman was sliming a growing enemies list: "Don't argue with them, swift-boat them. Find some embarrassing quote from an old interview. Well, good luck, Paul. Let's just not pretend this has anything to do with economics..."
John Cochrane's problem is not one embarrassing quote. It is that he keeps saying, over and over again, things that are wrong on a basic level, that reduce the level of the debate, and spread ignorance.
For example, Mike Sandifer:
Speaking of ignorance, I saw John Cochrane on Bloomberg a couple of weeks ago... at the 3:23 mark, he said that fiscal stimulus was ineffective because a dollar of spending is a dollar that had to come from someone else. Correct me if I’m wrong, but isn’t this an obvious fallacy? The stimulus is being financed with deficit spending, with government debt being bought by at least some of that money that may otherwise be on the sidelines. The link to the video: http://www.youtube.com/watch?v=HO4E1bs4CbE
Now comes Martin Wolf to--patiently--argue with John Cochrane and his ilk:
We can only cut debt by borrowing: “You can’t cut debt by borrowing.” How often have you read or heard this comment from “austerians” (a nice variant on “Austrians”), who complain about the huge fiscal deficits that have followed the financial crisis?
The obvious response is: so what? Shifting debt from people who cannot support it to those who can - the population at large, both now and in future - seems to make a great deal of sense if the alternative is an economic collapse that leads to a loss of output and investment now and so of income in the long term. Indeed, under the latter alternative, even the fiscal deficits may end up little, if any, smaller if one tries to slash them, as the UK could be about to discover.
Before leaping to that conclusion, however, let us approach the issue of de-leveraging - or debt reduction - analytically....
Since the financial balances of the household, corporate, government and foreign sectors must sum to zero, a rise in the surplus of the household sector must be offset by an offsetting move in other sectors. During a post-crisis recession, the surplus of the corporate sector always rises... because managements slash investment.... [N]on-financial corporate sectors were running substantial financial surpluses in the high-income countries before the crisis and are running still bigger surpluses now.... [S]urplus countries do not want to make the adjustments needed to allow the US, UK and other former deficit countries run huge current account surpluses at full employment levels of income.... When one has eliminated everything else, it turns out that the only sector both able and likely to offset a large move of the household sector towards financial surplus in a post-crisis slump is the government. Indeed, that is exactly what has happened.
My conclusion, then, is... the only way that the private sector can de-leverage, when large economies are in a post-crisis recession, is for the government to leverage. The economy, as a whole, cannot de-leverage in any other way, other than via accelerated mass bankruptcy, which would certainly deepen the recession.... The recommended alternative of slashing the fiscal deficit while the private sector tries to slash its debt suffers from a fallacy of composition: it is impossible for all sectors of the economy to spend less than income at the same time...
Test Your Knowledge Questions for September 27 Econ 1 Lecture
How do you calculate what the long-run debt-to-GDP ratio will be?
Why is it important that a government run or be expected to run a permanent primary surplus?
Even if the national debt is sustainable, why is it good to run a balanced budget—or even a surplus—over the business cycle?
Why don’t governments run balanced budgets over the cycle?
What is James Buchanan’s critique of cyclical deficit spending?
What is the Laffer curve?
Should you ever trust the Wall Street Journal?
Why Does Howard Kurtz Have a Job?
Why oh why can't we have a better press corps?
What we learn about Howard Kurtz from his profile of Paul Krugman: Kurtz does not understand patriotism.
[T:]here's a hint in Kurtz's article of an attitude one sees all the time – namely, that there's something inauthentic about people who complain about current policies and the state of the economy when they are personally doing well. This brings to mind a review I once read of a bad movie in which Mel Gibson played a...
Ali Slivinski and Nathan Sussman: Taxation Mechanisms and Growth in Medieval Paris
Philippe IV "Le Bel" Capet...
Maurice Druon, Les Rois Maudits...
Paris/London peaks at 6 in 1400...
Maintenance of Paris's fiscal autonomy until the Wars of Religion...
On the Honor Due to King Morgant of Madoc
From Lloyd Alexander's The Black Cauldron:
"Morgant?" asked Taran.... "How can there be honor for such a man?"...
"Until the search for power parched his throat, he was a fearless and noble lord.... These things are part of him and cannot be put aside or forgotten.
"And so shall I honor Morgant," Gwydion said, "for what he used to be..."
J. Bradford DeLong's Blog
- J. Bradford DeLong's profile
- 90 followers
