Brad DeLong

Noted for June 20, 2013

2013-06-20T00:15:00-07:00

Maurice Obstfeld: On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability: "Banking systems have rapidly grown to a point where for many countries bank assets amount to multiples of GDP. As a consequence, government’s capacity to provide stability-enhancing fiscal guarantees against systemic crises can no longer be taken for granted. As regulation of dynamic financial markets will inevitably be imperfect, prudent governments need to adjust other facets of macroeconomic policy in order to mitigate financial instability. A precautionary approach to fiscal policy, leading to moderate levels of public debt relative to GDP over the medium term, is essential for the credibility of government promises to support the financial system, as well as the broader economy."

Mio Coxon: Japan Exports Surge Most Since 2010 in Boost for Abenomics: "Japan’s exports surged by the most since 2010 as the yen weakened and shipments to the U.S. jumped, boosting Prime Minister Shinzo Abe’s campaign to revive the world’s third-largest economy. Overseas shipments increased 10.1 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 6.4 percent gain. Shipments to China are recovering after tumbling last year during a flare-up in tensions over a maritime jurisdiction dispute, the report showed…. Today’s data may help to sustain confidence in Abe’s efforts to jump-start the economy with fiscal and monetary stimulus and a rollback of regulations restricting business."
Jo Walton on Georgette Heyer’s Cotillion: "I always read Regencies (or any historical novels) with SF notions of worldbuilding, and there’s plenty of that here. This is a comedy of manners with broadly drawn characters and beautiful scenery. There’s a proper ball and a masked ball, there are chaperones and new clothes — and there’s a man who is trying to make a beautiful poor girl his mistress. People are always considering what will or won’t 'do', what will pass in society. Matters of taste — from the colours of clothes to how public a seduction may be — are paramount…. There are four very different couples who end up happily together, and the entwining of the different romances and the part Kitty plays in helping all of them reach their conclusions is what provides the complications of the plot. They are the kind of characters it’s delightful to encounter, and they are deftly developed and entangled. But the thing that makes Cotillion such fun is… a great big spoiler…. It is a Cotillion, where everyone changes partners…. I think anyone will be surprised at the ending…. That’s such a cool thing to do! And all in such exquisite taste."

"Finally, a member of the Wu-Tang Clan has weighed in on the race for New Jersey's 5th Congressional District. Ghostface Killah, the most aggressive member of the renowned hip-hop group, took to Twitter Monday to endorse Roy Cho, who is vying for the Democratic nomination to challenge Rep. Scott Garrett" | Theodore Roosevelt: The Naval War of 1812 | Felix Salmon: Citibike: A victim of its own success | Peter Biskind: Lunch Conversations With Orson Welles | The Audience (2013 play) | Adam S. Posen: The Myth of the Omnipotent Central Banker: Monetary Policy and Its Limits | William E. Scheuerman: The Frankfurt School at War: The Marxists Who Explained the Nazis to Washington | J. Bradford DeLong: The Second Great Depression: Why the Economic Crisis Is Worse Than You Think | Nick Rowe: Worthwhile Canadian Initiative: New Keynesian countercyclical fiscal policy isn't what you probably think it is | David Frum (2012): The Fox News Wink: Is Obama "Gay"? or "Gay Gay"? |

Newly-Minted Berkeley Ph.D. Energy-Environment Economist Catherine Almirall and Macro-History Economist Joshua Kautsky Hausman Set Off for Ann Arbor

2013-06-19T14:44:06-07:00

We confidently expect very good things from them…

Of course, if they get tenure votes in 2020, that means that their outside tenure letters will be written in 2019, and based on discussions outside faculty members will have had in 2018, which will depend on papers read in 2017, which depend on papers published in 2016, which depend on papers submitted to journals in 2015.

Which means that they have two years to do the work to get themselves tenure in Ann Arbor…

In Which Paul Krugman Is 5583 Miles Away, Eating a Moveable Feast: Geographic, Architectural, and Intellectual…

2013-06-19T14:08:49-07:00

Paul Krugman: How Are These Times Different?:

Ah, Paris! You walk for miles and miles — it’s still, after all these years, a spectacularly beautiful city. Then you have as traditional a meal as possible at an old-fashioned bistro, washed down with lots of wine. And you feel like hell the next morning….

[W]hen it comes to macro issues I am pretty much a curmudgeon, someone who thinks that the similarities between our time and the 90s in Japan or the 30s everywhere are a lot more important than the differences…

Yes, definitely. That is the principal lesson right now!

But our Uncle Paul is curious and thoughtful, and also wants to think not just about us but about the long run: about economic possibilities for our great-great-grandchildren:

But obviously things do change over the decades. And this morning I find myself wondering, how are these times different?… [T]here is at least one important respect in which the 21st-century economy is different… the much larger role of rents on intangible assets. This isn’t an original insight, but I haven’t been finding systematic analyses…. Consider the changing identity of the most valuable company in America. For a long time, it was GM, then Exxon, then IBM… companies with huge visible production activities…. IBM was an information technology company, but it still had many of the attributes of an old-style manufacturing giant, with many factories and a large, well-paid work force. But now it’s Apple, which has hardly any employees and does hardly any manufacturing….

[P]rofits are no longer anything remotely resembling a “natural” aspect of the economy; they’re very much an artifact of antitrust policy or the lack thereof, intellectual property policy, etc. Another is that a lot of what we consider output is “produced” at low or zero marginal cost…. How does this change things for economic policy?

I’m thinking, I’m thinking.

First, more coffee.

In Which the Thoughtful and Intelligent Sam Wilkinson Smacks Down the Odious James Taranto of the Despicable Wall Street Journal, Saying: "Be a Man!"

2013-06-19T13:59:25-07:00

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

Sam Wilkinson: James Taranto, Louis C.K., and The Brand New "War On Men":

James Taranto is angry. Lt. General Susan Helms has had her promotion held up by Missouri’s recently re-elected Senator Claire McCaskill. Taranto doesn’t like this; he views it as a salvo in what he’s describing as a “War On Men.”…

[A] he-said/she-said dispute between Capt. Herrera and a female second lieutenant about a drunken October 2009 sexual advance…. [A]nother servicewoman, Staff Sgt. Jennifer Robinson, had come forward to accuse Capt. Herrera of sexual assault. In her case, the incident had occurred in his bedroom, where she voluntarily accompanied him. The court-martial acquitted him of that charge on the ground that she had consented…

Taranto, a conservative, is outraged by McCaskill’s hold on Helm’s promotion. As far as he’s concerned, Herrera was convicted on faulty evidence and Helms’s lesser sentence was perfectly sufficient. It is hard to understand why Herrera deserved any punishment at all if he’d been innocent of the crime he’d been accused of, but Taranto doesn’t bother with this, choosing to describe Herrera’s behavior as “sexual recklessness.” But the bigger issue is Taranto’s summation of the entire situation….

Lt. Gen. Susan Helms is a pioneering woman who finds her career stalled because of a war on men—a political campaign against sexual assault in the military that shows signs of becoming an effort to criminalize male sexuality….

TARANTO: Well, it all goes back to the beginning of contemporary feminism in the early ’60s. You know, women wanted to be equal to men, they wanted to be able to do all the sort of professional things including the military that men could do, and –

KISSEL: Was there anything wrong with that, though, James? I mean, that sounds –

TARANTO: Well, that’s too long to go into now, the question of what’s wrong with that, but in addition they wanted sexual freedom. Well what is female sexual freedom? It means, for this woman, that she had the freedom to get drunk, and to get in the backseat of the car with this guy. There was another woman who accused him, he was acquitted in this case, of sexual assault. This so-called assault happened in his bedroom, to which she voluntarily accompanied him, even the jury said that was consensual.

The problem isn’t men you see. It’s that women have freedom, and with that freedom, they aren’t making good decisions. They’re getting into cars with men. They’re going into bedrooms with men. In Taranto’s world, this apparently amounts to explicit consent, a convenience for somebody whose worldview equates feminism and rape. Lest anybody think that last part is a joke, reread his introduction to his column, one in which he explicitly describes Herrera’s behavior as being nothing more than the expression of male sexuality…. [W]hat some women (of questionable decision making ability) call rape is actually just a totally normal sexual expression; they just don’t understand the nuances. But these nuances are what Taranto wants people to understand. Which leads us to… Louis C.K., telling a joke about a make-out session that didn’t lead to sex, mostly owing to his own skittishness and his partner’s apparent interest in something that sounds like a rape scenario.

I remember one night I was with a girl, I was like 20 years old, I was already doing standup, and I did a show in Washington D.C. And after the show, one of the waitresses came back to my hotel. She was really cute. And we’re making out, in my hotel, and uh, she’s into it, she’s humping me, so I start putting my hand up her shirt and she stops me and I’m like, ‘Hmm, okay?’ So then we’re making out more and I put my hand on her ass and she stops me. So after awhile, she went home and nothing happened. And then the next night I saw her at the club, she went ‘Hey, so what happened last night?’ and I was like, ‘what?’ and she goes, ‘How come we didn’t have sex?’ and I was like, ‘Cause you didn’t want to.’ and she said, ‘Yes I did, I was really into it.’ and I was like, ‘Why did you keep stopping me?’ and she goes, ‘Cause I wanted you to just go for it.’ And I was like, ‘What does that mean?’

She says, ‘I’m kinda weird, I get turned on when a guy just gets frustrated and holds me down and f-cks me. Like, that’s a big turn-on for me.’ And I was like, ‘You should have told me. I would have happily done that for you.’ And she says, ‘No, it has to feel real and dangerous.’ And I’m like, ‘WHAT ARE YOU, OUT OF YOUR F-CKING MIND? You think I’m just gonna rape you on the off-chance you’re into that shit?”

The joke doesn’t need to be explained. C.K. didn’t do the thing that the waitress wanted because he didn’t know that the waitress wanted it; without explicit consent, nothing happened, and C.K.’s bewildered reaction to his partner’s apparent fantasy is entirely reasonable. It is the perfect illustration of how things would ideally work. But not to Taranto…. Taranto surely believes that C.K. had already received something akin to consent: the waitress was back in his room…. Taranto’s got words to describe that: he-said/she-said dispute, hanky-panky, her world against his… sexual recklessness… a totally normal expression of male sexuality. And any attempt to make even a dent in that expression – whether it’s 60 days in jail or a stalled professional promotion – creates a “War On Men” absolutely worse than the behavior itself. As but one example of the toll such a war could take, imagine a nation of C.K.’s, all of requiring consent before engaging in any sort of sexual behavior. It’s precisely that nightmare which boils Taranto’s blood.

Brian Stops by to Say: "Berkeley Political Economy Majors Need to Read Not Less But More Hegel!"

2013-06-19T13:35:46-07:00

Alas, My "Foreign Affairs" Review of Alan Blinder's Superb "After the Music Stopped" is a "Premium Article"...

2013-06-19T13:13:31-07:00

Sorry, guys and dolls…

I will let it out from behind the paywall when I am allowed to…

J. Bradford DeLong: The Second Great Depression: Why the Economic Crisis Is Worse Than You Think:

Alan Blinder is only the most recent in a series of prominent economists who have produced analytic accounts of the U.S. economic downturn. His crisp narrative lays out the policy options that were available at each stage of the crisis, and his analysis is infused with a deep understanding of macroeconomics. Overall, it is the best general volume on the subject that has been published to date.

Despite its many virtues, however, the book paints an overly optimistic portrait of the state of the U.S. economy. “More than four years after Lehman Brothers went under,” Blinder writes, “policy makers are still nursing a frail economy back to health.” But the U.S. economy is worse than “frail,” and there are few signs that it is being nursed “back to health.” Most economists claim at least one silver lining in the economic downturn: that it was not as bad as the Great Depression. Up until recently, I agreed; I even took to calling the episode “the Lesser Depression.” I now suspect that I was wrong. Compare the ongoing crisis to the Great Depression, and there is hardly anything “lesser” about it. The European economy today stands in a worse position compared to 2007 than it did in 1935 compared to 1929, when the Great Depression began. And it looks as if the U.S. economy, when all is said and done, will have faced certainly one lost decade, and perhaps even two.

The U.S. economy has enjoyed a recovery only in the sense that conditions have not gotten worse. Blinder notes that the unemployment rate jumped to ten percent at the height of the crisis and is now hovering around eight percent, nearly halfway back to economic health. But this assessment is misleading. In the middle of the last decade, the percentage of American adults who were employed was roughly 63 percent. That figure dropped to about 59 percent in 2009. It remains there today. From the perspective of employment, the U.S. economy is not recovering but flatlining…

Also very much worth reading in the July/August Foreign Affairs:

Adam S. Posen: The Myth of the Omnipotent Central Banker: Monetary Policy and Its Limits
William E. Scheuerman: The Frankfurt School at War: The Marxists Who Explained the Nazis to Washington

John Cochrane: "What Chicago Does 'Know' Is Scholarship… We Take a Little Time to Research What People Actually Have to Say Before Calling Them… Less than 'Half-Intelligent' [like] DeLong [Does]…"

2013-06-19T06:15:09-07:00

Reading Paul Krugman calls to mind that I never reacted to John Cochrane's July 2012 failure to mark his beliefs to market and, instead, doubling down on his claim that the biggest risk the U.S. economy faces is that of becoming "Argentina" "quickly".

I must say that if I had been opining stridently about issues of public policy without doing my homework five years ago, and if between then and now events had developed in directions strongly contrary to my expectations, I would not double down on what I had thought then--I would rather try hard to do my homework and to mark my beliefs to market.

And if I were going to criticize people for not citing my work, I would not claim that a sentence they wrote which comes immediately after a four-paragraph quote from me as an example, and I would have read their explanation of why they think expansionary fiscal policy right now does not raise the risks of "fiscal dominance" rather than remain in ignorance of it.

But to each his own.

Cochrane:

The Grumpy Economist: Krugman, Delong and Inflation: Yes, I've been worried for some time that our current debt could lead to inflation. And yes, that inflation has so far not happened…. Well, they made fun of Friedman when he said in 1968 that inflation was coming. They made fun of Greenspan when he said in 1996 that stocks seemed awfully high, and stocks went up for a few more years.

I gotta interrupt: Friedman in the late 1960s was right. He--correctly--saw inflation rising because he had theory and evidence on supply and demand in the labor market. But Greenspan in 1996 was wrong: since late 1996 the S&P 500 has produced a real return of 5.6%/year.

Does Cochrane know this?

Has he looked at the numbers?

Back in 1996 I agreed with Greenspan. I worried too that the market was overvalued. We thought this for a bunch of reasons. We were wrong.

Why does the fact that our worries were wrong then make Cochrane's worries right now?

Cochrane continues:

They made fun of Shiller when he said in 2005 that house prices looked awfully high, and they went up for a few more years. Greek interest rates were really low in 2007…

I gotta interrupt again: Who are the "they" who were making fun of Shiller when he said that house prices looked awfully high and that expected returns from housing were negative as it looked like the housing bubble would collapse over the medium term? Was one of them John Cochrane, denying that expected returns on a positive-beta asset like housing could ever be negative?

The facts don’t support the theory that prices are high because people always expect a “greater fool” to pay a still higher price…. The “irrational” camp points to puzzling surveys…. But surveys are easy to misinterpret: “Expect” and “risk” in casual conversation have very different meanings than “conditional mean and variance” in our models. And economics was meant to explain behavior, not self-perception. Rats in mazes do a good job of obeying the laws of economics, but they’re not so good at responding to surveys…. [M]arket swings are all about financial frictions, not mass risk aversion or psychology…. [V]ariation in price ratios corresponds to discount-rate variation, not to changes in expected cash flows or the ability to find a greater fool. The challenge is to understand that discount-rate variation. A focused debate, based on clear facts and explicit theories, is real progress.

If Cochrane now agrees with Shiller ca. 2005 on the housing bubble, and repudiates his claim from two years ago that "the facts don’t support the theory that prices are high because people always expect a 'greater fool'", then he should say so more clearly. And do note that, from my perspective at least, Cochrane is simply incoherent: what Cochrane calls "discount-rate variation" is not an alternative to expecting ex ante to find a greater fool and failing ex post, rather, what Cochrane calls "discount-rate variation" is a subclass of when people ex ante expect to find a greater fool and fail ex post.

Cochrane continues:

The Federal Government has about $15 trillion of formal Federal debt outstanding. It has uncountable trillions more unfunded promises and credit guarantees. Right now it takes in about $1.5 trillion and spends about $3 trillion a year. We must, by arithmetic, either pay off this debt, default on it, or inflate it away…. The only hope for paying it off is to return promptly to strong long-run growth, and to reform entitlements. Doubling Federal revenues by raising income tax rates on "the rich," or by cutting discretionary spending by more than $1.5 trillion per year, forever, seem unlikely. That's arithmetic too.

But Cochrane's arithmetic is fake.

As he was writing, the nominal debt was growing not by $1.5 trillion/year but by $1.0 trillion/year. The amount of excess debt being issued over what was sustainable at a constant debt-to-annual GDP ratio was $500 billion/year. Of that, $300 billion/year was a transitory cyclical component caused by the depressed economy. The numbers he was putting out were more than seven times the size of the real numbers--that's the real arithmetic. And forecasts then were for a debt-to-annual-GDP ratio stabilizing for the rest of the 2010s even without large additional policy change. That was the real arithmetic. Not a $1.5 trillion/year gap, but a $200 billion/year gap, or less.

But Cochrane, apparently, did not look at the numbers.

He did not know the real arithmetic of the debt and the deficit.

And so he wrote:

I'm not optimistic. Growth economics is unanimous: You get such growth only from higher productivity, and from letting new innovative competitors dethrone established interests. That's not where our economy is going. Keynesian stimulus doesn't give 10 or 20 years of sustained growth, even in Krugman's "model."… I happen to dislike inflation. Krugman and DeLong are all for it…

I am? I note no citations from Cochrane to anything I have ever said or written here.

Cochrane continues:

They must have been smoking better weed in the 1970s. But I notice that lots of people seem to agree with them. So, it seems to me that inflate it away, and print money to pay the bills, remains a decent possibility. That's arithmetic. I wonder which part of arithmetic Krugman would have me abandon.

What Chicago does "know" is scholarship. DeLong cites a transcription from discussion at a long ago conference…. At Chicago, we take a little time to research what people actually have to say before calling them… less than "half-intelligent" (DeLong). You know what I think of that. Why you continue to read these guys is a mystery to me…

Let's roll the videotape, from March 2009: John Cochrane:

[T]he danger now is inflation. And I would say it's a greater danger than most of the other people have said. Our danger now is a run on Treasury debt. It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government." The danger is not 1932; the danger is Argentina, a massive run from Treasury debt. And then monetary policy will not be able to do anything. You can fool around with interest rates all you want. When people don't want Treasury bills or money you're stuck….

The system is much more resilient than it was because of deregulation. Back in the Great Depression… if the Bailey Savings and Loan goes under, there is no way that JP Morgan, financed by an equity infusion from the sovereign wealth fund of Kuwait can come in and take over and start lending. You're just stuck. Well, we're not in that situation anymore….

Policy is chaotic. Who would invest in this climate? It's not about toxic assets; it's about who wants to go in on a deal with Darth Vadar [sic], who can change his mind at any moment? That's the uncertainty that's keeping things from getting going and that's what's slowing the rebuilding of financial markets. We're facing growth-destroying marginal tax rates, an excuse for the government takeover of large and completely unrelated sectors, class warfare, vindictive ex post taxations….

My great hope is that the bounce-back will be quick before the quack medicine can be said to have worked. (Chuckles.) Just as we sort of -- as people think that this insane idea of fiscal stimulus -- which I'll go on with later if I get a chance -- came from Roosevelt's experience with no reason why it should work, there is a danger of thinking all of the crazy stuff they're doing now will have caused the bounce-back…

I quote four paragraphs. I snark. And Cochrane counter-snarks, complaining that I did not "research what... [he] actually had to say"?

If what Cochrane is saying with his "what Chicago does 'know' is scholarship… research what people actually have to say before calling them… less than 'half-intelligent'" is that he repudiates his March 2009 presentation at the ill-done Council on Foreign Relations conference, I would welcome that and agree: It was very ill-done. He said an awful lot of things that were simply wrong and confused in a very short space.

But, if that is indeed what he is doing, he needs to be more explicit.

Cochrane:

I view inflation is a danger, not a forecast. The popping of "bubbles" is hard to predict. We're sitting on an earthquake fault. When or if it goes is anyone's guess. I also pointed out that inflation can come quickly, as it surprised the Keyensians [sic] of the 1970s, and as its quick disappearance surprised them again in the 1980s when the US returned to growth-oriented policies.

Again: it took 8 years and one huge oil shock for expected inflation to rise from 1966's 2% to 1974's 5%, and 14 years and two huge oil shocks for it to breach 10%--if that is what Cochrane means by "quickly", that come 2027 we ought to have done something to get our long-run fiscal house in order, I would certainly agree. And I would point out that perhaps we already have--if the ACA implementation proceeds as we hope, we will come 2027 find that we have no long-run budget problem. If "we have until the mid-2020s is what Cochrane means by "quickly", he needs to say so--and I would agree.

And again: the reduction in expected inflation from 9% in 1981 to 5% by 1985 was, given the size of the 1982 recession, about what the standard forecasting models of the time were predicting. Who are the "Keynesians" who were surprised by this? Cochrane doesn't say--interesting citation practices once again…

Cochrane concludes with:

You can't repeal arithmetic. That which is unsustainable cannot last.

I wish I could agree.

It would be very nice of what was unsustainable could not last.

It would be very nice if false prediction followed by doubling down and repeating false predictions led to some kind of intellectual bankruptcy, followed by some form of liquidation/takeover process--or at least a rebalancing. I know that I have been surprised by a number of things over the past five years (most notably how very resistant to any form of downward movement nominal wages have turned out to be), and I have tried to mark my beliefs to market: moving from 5% Austrian, 5% RBC, 30% Keynesian, 60% monetarist to 1% Austrian, 1% RBC, 70% Keynesian, 28% monetarist.

But I think John Stuart Mill had the decisive counter:

What was affirmed by Cicero of all things with which philosophy is conversant, may be asserted without scruple of the subject of political economy--that there is no opinion so absurd as not to have been maintained by some person of reputation. There even appears to be on this subject a peculiar tenacity of error--a perpetual principle of resuscitation in slain absurdity…

Liveblogging World War II: June 19, 1943

2013-06-19T06:08:35-07:00

World War II Today:

On the 19th June 1943 the Governor of what remained of Poland, Hans Frank, met with Hitler to discuss the situation in the country. He brought with him a briefing document which was to prove important at the post war War Crimes trials. There was ample evidence of the suffering that the Nazis had brought to the whole of the Polish population. Quite apart from the murderous actions directed against the Jewish population, non Jewish Poles had suffered from an extraordinarily repressive regime. Frank himself had openly acknowledged as much in a 1940 interview:

In Prague, big red posters were put up on which one could read that seven Czechs had been shot today. I said to myself, ‘If I had to put up a poster for every seven Poles shot, the forests of Poland would not be sufficient to manufacture the paper.

Hans Frank was concerned that he would no longer be able to maintain control in the country. Now there was a document, produced by the Nazis themselves, detailing the extent of the repression:

In the course of time, a series of measures or of consequences of the German rule have led to a substantial deterioration of the attitude of the entire Polish people in the German Government. These measures have affected either individual professions or the entire population and frequently also-often with crushing severity-the fate of individuals. Among these are in particular:

The entirely insufficient nourishment of the population, mainly of the working classes in the cities, whose majority is working for German interests. Until the war of 1939, its food supplies, though not varied, were sufficient and generally secure, due to the agrarian surplus of the former Polish state and in spite of the negligence on the part of their former political leadership.

The confiscation of a great part of the Polish estates and the expropriation without compensation and resettlement of Polish peasants from manoeuvre areas and from German settlements.

Encroachments and confiscations in the industries, in commerce and trade and in the field of private property.

Mass arrests and mass shootings by the German police who applied the system of collective responsibility.

The rigorous methods of recruiting workers.

The extensive paralyzation of cultural life.

The closing of high schools, junior colleges, and universities.

The limitation, indeed the complete elimination of Polish influence from all spheres of State administration.

Curtailment of the influence of the Catholic Church, limiting its extensive influence – an undoubtedly necessary move – and, in addition, until quite recently, the closing and confiscation of monasteries, schools and charitable institutions.

See 437-PS evidence to the Nuremburg trial of Hans Frank

Hitler was quite ready to dismiss Frank’s concerns. There were different Nazi authorities operating within Poland. Most notably the SS were engaged in the final liquidation of the Jewish ghettoes. These were stirring up the Polish resistance, even though they been able to offer limited assistance to the uprising in the Polish ghetto. At a meeting with Himmler, also on the 19th June, Hitler apparently agreed to an acceleration of the ghetto clearance policy – and was prepared to deal with any consequent increase in Polish resistance equally ruthlessly.

Hoisted from the Archives from a Year Ago: John Cochrane Claims the U.S. Is at Risk of Becoming "Argentina": Noah Smith: Noah Bravely Takes the Cochrane-Argentina Side of the Bet…

2013-06-19T05:30:00-07:00

UPDATE (June 2013): We now have two years to run. If Noah wants to back out of his position, I will buy it back from him at 99.9 cents on the dollar. At this point I think that core inflation above 5% with unemployment above 6% starting in a year really is a 1000-1 shot, even with fat tails.

A 5%/year inflation rate is not "Argentina", but we want to bend over backward to give the John Cochrane side a chance…

The bet, made in July 2012:

If, at any time between 7/28/2012 and 7/28/2015, core consumer prices, as recorded in the FRED database series CPILFESL, are up more than 5% in the preceding 12 months, and if over the same 1-year period monthly U3 unemployment (as recorded in FRED database series UNRATE) has not averaged below 6%, then Brad DeLong agrees to buy Noah Smith one dinner at Zachary's Pizza at 1853 Solano Ave. in Berkeley CA, and to pay Noah 49 times the cost--including tax but excluding tip--of Noah's meal at Zachary's in Federal Reserve notes, or in alternative means of payment accepted by Zachary's should Zachary's Pizza no longer be accepting Federal Reserve notes at the date of the dinner. This cost will be assessed as the total cost of the dinner to all, divided by the number of people present, regardless of how much pizza is consumed by or how much alcohol is drunk by specific individuals.

If however, the above condition is not satisfied, Noah agrees to buy Brad one dinner at Zachary's.

Miles Kimball will be the judge in charge of refereeing the bet. The decisions of the judge will be final and unappealable.

Furthermore, Noah's brave and gracious willingness to take the Cochrane-Argentina side of this bet at odds of only 50-1 will not be construed as a statement of his confidence in or of his support for any economist or position of economic analysis that judges expansionary fiscal policy at the zero lower nominal interest rate bound to be "insane" or that judges "1932" to currently be a less dire risk for the U.S. than "Argentina".

The start was my noting that Sebastian Mallaby these days is sounding like a normal reality-based economist--and is far, far from the guy who back in March 2009 thought that what the audience at his CFR conference really needed to hear was the (unrebutted: the panel was stacked) opinions of John Cochrane:

What Do the 1930s Teach About Reforming Today's Financial Markets?: [T]he danger now is inflation. And I would say it's a greater danger than most of the other people have said. Our danger now is a run on Treasury debt. It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government." The danger is not 1932; the danger is Argentina, a massive run from Treasury debt. And then monetary policy will not be able to do anything. You can fool around with interest rates all you want. When people don't want Treasury bills or money you're stuck….

The system is much more resilient than it was because of deregulation. Back in the Great Depression… if the Bailey Savings and Loan goes under, there is no way that JP Morgan, financed by an equity infusion from the sovereign wealth fund of Kuwait can come in and take over and start lending. You're just stuck. Well, we're not in that situation anymore….

Policy is chaotic. Who would invest in this climate? It's not about toxic assets; it's about who wants to go in on a deal with Darth Vadar [sic], who can change his mind at any moment? That's the uncertainty that's keeping things from getting going and that's what's slowing the rebuilding of financial markets. We're facing growth-destroying marginal tax rates, an excuse for the government takeover of large and completely unrelated sectors, class warfare, vindictive ex post taxations….

My great hope is that the bounce-back will be quick before the quack medicine can be said to have worked. (Chuckles.) Just as we sort of -- as people think that this insane idea of fiscal stimulus -- which I'll go on with later if I get a chance -- came from Roosevelt's experience with no reason why it should work, there is a danger of thinking all of the crazy stuff they're doing now will have caused the bounce-back…

Cochrane than protested (sounding to my ear much like an old-line Fundamentalist Marxists--one of those who claims that Marx never said real wages will fall but only that there was a tendency for the real wage to fall) that he had not said that (i) unless the expansionary fiscal and monetary policies of 2009 were reversed the U.S. was about to experience an Argentina-like upward explosion of inflation, but only that (ii) there was a risk that, unless the expansionary fiscal and monetary policies of 2009 were reversed, the U.S. was about to experience an Argentina-like upward explosion of inflation.

And Noah Smith said that was a fair point.

I in turn counter-protested to Noah:

There was no reason to think that the expansion of the Fed balance sheet from $700B to $1.7T in mid-2009 would create too-much money chasing too-few goods--for as long as the economy was at the zero nominal interest rate lower bound expanding the Fed's balance sheet simply swapped one very low-yield nominal government liability for another with little effect on anybody's net liquidity or risk exposure. The marginal expansion of the projected national debt from the Recovery Act was absolutely trivial, and since the prospect of future health-care spending deficits had not provoked "Argentina" by 2008 there was no risk the additional marginal borrowing of the Recovery Act would provoke "Argentina" in the context of a depressed economy. Financial markets were not pricing in any chance of an upward explosion of inflation. Cochrane could neither (a) point at elements in the configuration of asset (and other) prices demonstrating that people besides him thought "Argentina" was a substantial risk, or (b) explain the market failure that kept people from hedging against the risk in such a way that we could see their hedges in market prices.

Thus Cochrane's point that he was just pointing out a "risk of Argentina" did not seem to me to be a fair point at all. If it really was a significant risk, then people who feared that risk ought to be hedging themselves on financial markets. If it really was a significant risk, than people ought--at the appropriate odds--to be willing to bet that that risk would actually come to pass. So I asked Noah if he was so willing...

Hence we decided on:

Zachary's pizza because we like pizza.
A three year term because we are hungry and would like to eat our pizza.
A twelve-month core CPI change of 5% as our definition of "Argentina"--yes, I realize that that is really absurd and is defining "Argentina" way, way down, but work with us on this…
An unemployment rate of 6% as marking exit from the depressed-economy régime--the transition from the "involuntary unemployment" to the "inflation" region on the Malinvaud diagram--and entry into a régime in which we would expect inflation to respond in the medium-term to expansionary policies
50-1 as the appropriate odds to make the debt fair: a 2% chance of the deficits and monetary base expansions of the past four and the next three years triggering the transformation of the U.S. into "Argentina".

I must say that Noah appears to me to not be an expected utility maximizer, or to have a substantially different assessment of the odds than I do: I would have demanded 200-1 to take the Cochrane side of this bet…

Mark your calendars now for August 2015…

Noah Smith writes:

Noahpinion: Inflation predictions are hard, especially about inflation: John Cochrane responds here to a Brad DeLong jibe about inflation predictions. To make a long story short, back in 2009 Cochrane predicted inflation, it hasn't happened yet, and DeLong made fun of Cochrane for that fact. Cochrane essentially… [says:] The inflation prediction was (and is) a statement about risks, not a time-specific forecast….

Regarding Point 1, this is a very fair retort. Predictions are not necessarily forecasts. Saying "we are probably in a bubble that will burst sooner or later" is a different thing from saying "the bubble will burst at 10:36 A.M. next Thursday". I think people instinctively demand too many forecasts and not enough other kinds of predictions from macroeconomic models…

I disagree. I do not think that is a fair retort.

Two points:

First, and less important, a reader of Cochrane (and Smith) would believe that I had said something like "Cochrane confidently predicted in March 2009 that an explosion of inflation was imminent". I don't think I did. What I said was:

Back in the spring of 2009… Sebastian Mallaby['s]… idea of the kind of people whom he really needed to push up onto the stage were people like… John Cochrane, claiming that the "danger is not 1932; the danger is Argentina, a massive run from Treasury debt" and "this insane idea of fiscal stimulus".:

John Cochrane, March 30, 2009: The New Financial Deal: What Do the 1930s Teach About Reforming Today's Financial Markets?: [T]he danger now is inflation. And I would say it's a greater danger than most of the other people [who have mentioned it] have said. Our danger now is a run on Treasury debt. It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government." The danger is not 1932; the danger is Argentina, a massive run from Treasury debt. And then monetary policy will not be able to do anything. You can fool around with interest rates all you want. When people don't want Treasury bills or money you're stuck…

If someone says "you were wrong to fear risk X" it is not a retort to say "I never said X would happen, I only said it was a risk!" In general, I think, you do get further when you engage what your critics say rather than what they did not say…

Second, and more important, any economist's claim "I did not say it would happen, I only said that it was a substantial risk that might happen" does not thereby create an Invincible Fortress of Rightness from within which the economist can laugh all critics to scorn.

If you say that something is a substantial risk and it does not come to pass, then--if you are an economist--you are committed to either (a) pointing at elements in the configuration of asset (and other) prices that demonstrated that people besides you thought it was a substantial risk at the time and took significant steps to insure themselves against it, or (b) explaining what was the market failure that kept people from hedging against the risk in such a way that we can see their hedges in market prices.

The inflation that Cochrane feared would follow the Federal Reserve's expansion of the high-powered money stock from $800B in 2008 to $1.7T in early 2009 has not come to pass. It has not come to pass even though the Federal Reserve has since not returned the high-powered money stock to normal but instead boosted it further to $2.7T and current market expectations are that it is more likely than not to be $3.3T by the end of the year. Yet there is no sign at all that anybody trading in asset markets is fearful enough of future inflation to price any probability of an acceleration of inflation into asset values.

That is what the 10-year and 30-year break-even inflation rates from the Treasury nominal-TIPS spread tell us. If there is anybody ought there who believes in the risk of future inflation and is willing to put their money on it, the break-even inflation spread should be high. It isn't. It wasn't.

And the explanation of what the market failure here is, of why we should not take what asset prices are telling us seriously--why there were (and are) big risks of inflation even though market prices say there are not? Missing. Completely missing.

If you are an economist, you are supposed to put forward a coherent argument--expectations, risks, prices and quantities, market failures--that adds up to a consistent whole. If you are an economist, you are supposed to follow the rules--and there are rules, aren't there?

Thus, Noah, I really do not think it is "a fair retort" to say:

Risks of high inflation in 2009 were really really big!
TIPS in 2009 were really really undervalued!
Investors who were then holding TIPS had huge expected excess returns--and a return distribution with a large negative beta!
No, I have no explanation for why asset market prices then did not match fundamentals.

Of course, if you are not an economist but an ideologue, or are simply playing for a Team Republican which wants to pressure the Fed to keep nominal demand growth depressed, then the rules are different. Then you can simply blather in an evidence-free fashion without restraint, and nobody can complain…

Ann Marie Marciarille Forecasts the Medicaid Expansion Landscape: Missouri River Blogging

2013-06-19T05:12:42-07:00

From a year ago, on July 2, 2012, starting at 67:33 into the video, UMKC Health Law Professor provides a spot-on forecast of nearly everything that has happened across the country in Medicaid expansion decisions over the past year:

Noted for June 19, 2013

2013-06-19T00:08:05-07:00

Jesse Rothstein: Unemployment Insurance and Disability Insurance in the Great Recession: "Disability insurance applications and awards are countercyclical. One possible explanation is that unemployed individuals who exhaust their Unemployment Insurance benefits use DI as a form of extended benefits. I exploit the haphazard pattern of Unemployment Insurance (UI) extensions in the Great Recession to identify the effect of UI exhaustion on DI application, using both aggregate data at the state-month level and microdata on unemployed individuals in the Current Population Survey. I find no indication that expiration of UI benefits causes DI applications. Estimates are sufficiently precise to rule out effects of meaningful magnitude."

Loukas Karabarbounis and Brent Neiman: The Global Decline of the Labor Share: "The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing profits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics."
Charles Pierce: Politico's John Harris and Jim VandeHei, Starving and Dysentery-Ridden in the Jungle, Continue the War on Nate Silver Seven Months Past VE Day: "OK, so it's not really in Tiger Beat On The Potomac, but the interview granted to The New Republic by the Two Presiding Geniuses would 'win the morning' if it appeared in their own little fanzine. It's just that Drudge-whorish and link-baity…. 'IC: "What did you think of Nate Silver's coverage of the last election? Did you read it?"' 'JH: I will be drummed out of the profession, but I didn't. My plate is full here.' (Maureen Dowd taxes my intellect and I have to lay down for a spell, and then there's refreshing the Drudge site all day.) 'I know why people found him interesting and entertaining, and some people found him illuminating.' (Because he was right, and you people were idiots?) 'There are people in our gang' (Many of them journalists in the same sense that Jim Nabors was a Marine.) 'who think he is overblown and get worked up about Nate Silver. I don't give a damn.' (A well-wrought explanation of not doing your real job.)… 'I admire how he has built a franchise. I roll my eyes at how he gets up on his high horse quite a lot on different topics.' (Your high horse won't win you the morning, wonk. The morning is won in the gutter with Drudge.)"
Ryan Cooper: On Inflation Expectations and Central Bank Credibility: "I don’t think this about being irresponsible. I think the Fed has run into political and institutional barriers. They have no problem being irresponsible when it comes to unemployment because unemployed people have no power and the American power structure doesn’t care about them at all. Trying to boost inflation, on the other hand, means a direct threat to nominal creditors, i.e., rich people. To the extent that the expectations channel isn’t working, I doubt that this is about “credibility.” Instead people are rightly skeptical that the Fed could sustain even a mild burst of inflation in the face of what would be ferocious backlash from the creditor class."
Ed Luce: The Edward Luce Review of Hubbard and Kane: "Which brings me to the book’s two chief problems. The first is the history, which, while engagingly rendered, is too obviously retrofitted to the present. The authors’ choices tell a story in themselves. Rome, dynastic China, imperial Spain, the British and the Ottomans make sense. Each was the great power of its day. But the inclusion of Japan, the European Union and California is eccentric. The EU and California have no greater claim to having been great powers than Sacramento or Strasbourg have to being imperial cities. By including two relatively high tax and politically dysfunctional entities, Hubbard and Kane show their hand…. The second problem is the book’s diagnosis of what is ailing the US. Hubbard and Kane are right to see gridlock as a big problem. But their view of what is causing it is bizarre. …Forget the rise of China, the stagnation of US middle class incomes, or the drop down the ranks of international education tables. The biggest threat to US power comes from the mild (and ineffectual) attempts to curb how much money the rich can spend to influence elections. It is hard to know how to react to such reasoning, except to say that it is a pity."
Tim Kane replies to The Edward Luce Review of BALANCE: "Selecting the case studies was one of the biggest challenges we faced, and one we took seriously. To the charge of selecting cases that would help sell books, I plead guilty, but I don’t think that makes us eccentrics, nor should you buy the argument that these contemporary cases are irrelevant…. I find it hard to accept an argument against the inclusion of the Japan chapter because it may be the single most important contribution BALANCE makes: the idea of its Development Fuseki supermodel which is the standard growth strategy across Asia and arguably the rest of the world. Glenn and I also point out the limits of that supermodel, which is vital to understanding modern China (Luce’s main objected omission) and why America’s power is not threatened externally. America’s internal threat, however, can only be appreciated by examining failing modern welfare states in Europe and, importantly, California…. Gridlock is a symptom, not the core problem, which I hope we made plain enough in the text. There is a weakness in any democracy to tend away from responsiveness to the people and toward special interests, either rich external groups or incumbent internal groups. We finger both…. In fairness, Luce strikes many other points into our narrative that should give you, as they gave me, pause. More attention to Germany is deserved, and more as well to the attitudes of the voters and protesters in southern Europe. It may well be wishful thinking to imagine that the young realize the folly of welfare states erected by previous generations. I am guilty of hope, but also vigilance as the reason to hope. In other words, I remain confident that better days are ahead for America and Europe — though perhaps not immediately ahead."

Claire McCaskill on the Sexual Assault Problem in the Military: Missouri River Blogging

2013-06-18T18:15:35-07:00

CBS News:

McCaskill: "Military Doesn't Even Know How Many Rapes and Sodomies" Occur: WASHINGTON, D.C. -- Sen. Claire McCaskill (D-Mo.), argued the problem underlying military sexual assault crimes is not the role of the chain of command, as many have argued, but the broad definition of "sexual contact." She is among Democrats and activists upset with Defense Secretary Chuck Hagel's and Senate Armed Services chairman Sen. Carl Levin's support to soften the legislation aimed at addressing the problem…. Sen. McCaskill said at the Senate Armed Services Committee markup Wednesday:

Our main problem is the military doesn't even know how many rapes and sodomies they have…. What a better place to be a roving predator than the military that moves you all the time. Don't think this is over once this… becomes law because we have just begun…"

Mammal Nate Silver vs. the Journamalistic Dinosaurs

2013-06-18T11:05:25-07:00

Nate Silver: Politico Co-Founders Lack 'Curiosity For The World Outside Of The Bubble':

I thought it was a good interview. It's striking how preoccupied Harris and VandeHei are with the perception that Politico is too "insidery". My personal critique of their work cuts a little deeper than that, however. It's not that they are too "insidery" per se, but that the perceptions of Beltway insiders, which Politico echoes and embraces, are not always very insightful or accurate. In other words, the conventional wisdom is often wrong, especially in Washington.

Now, it would be one thing if Politico were to describe the conventional wisdom and then hold it up to a critical examination. That would be extremely useful and interesting. I thought Ben Smith, back when he wrote for them, had a real knack for that. And they have a few other journalists who I really enjoy reading. But in most of the "Behind the Curtain" pieces, by contrast, there's a lack of perspective -- in particular, a lack of perspective about the role that Politico plays in formulating the conventional wisdom which they then "report" upon.

Furthermore, Harris and VandeHei seem to lack very much curiosity for the world outside of the bubble. Harris claims it's not worth his time to read 538, and VandeHei characterizes my work as "trying to use numbers to prove stuff". Instead, what 538 is really about is providing a critical perspective, and scrutinizing claims on the basis of evidence (statistical or otherwise). In order to do that, you have to believe that there is some sort of truth outside the bubble -- what would be called the "objective" world in a scientific or philosophical context. Politico, by contrast, sometimes seems to operate within a "post-truth" worldview. Some people think that is the very essence of savvy, modern journalism, but my bet is that journalism is headed in another direction – toward being more critical and empirical.

Liveblogging World War II: June 18, 1943

2013-06-18T05:23:25-07:00

Petr Mikhin on the Eastern Front:

We had completely given up on the appearance of the German cooks, when suddenly above us we heard the clink of empty jerrycans. What a joy — they were coming! Then worry: how would everything turn out? We had planned to capture them at dawn, when everyone was still asleep, but here we were now in the afternoon and all the Germans were up and about, while our guys on the opposite bank likely weren’t waiting for us, expecting that we had postponed the operation until nightfall.

We looked up: two Germans were standing by the barbed wire. They were young blond men in black uniforms without helmets, with submachine guns hanging from their necks and jerrycans in their hands. These were no cooks – they were tankers! They seemed struck by the beauty of the verdant meadow across the river, illuminated by the setting sun. But time was passing!

The Germans were lost in admiration, while we were tense with anticipation, and I almost wanted to cry out: ‘What are you standing around for, get down to the river!’ Finally, the Germans ran past us at a trot. They waded into the river, leaned over, and lowered the empty jerrycans into the river, before lifting their heads and examing our bank of the river carefully. Bubbling and splashing, the jerrycans slowly began to fill.

I silently lifted and then sharply dropped my right hand — the signal to spring into action. In two bounds I was at the left—hand German and had already raised my knife to strike him, when the German abruptly stepped away from the bank, tossed aside the canisters, grabbed for his submachine—gun and started to turn to face me.

Our rapid approach across the sand had been silent; the German could hardly have heard it, but more likely some instinct or intuition had kicked into gear. Using my momentum, I piled onto his back and grabbed his weapon with my left hand, while my right hand began to stab repeatedly at his chest. Shifting his submachine—gun around to his front, the German parried my blows, while trying to turn his weapon on me at the same time. Finally I delivered the decisive strike and the German went limp.

At that moment the German on the right began to howl as if he’d been sliced, and indeed he had been. I handed my German over to my partner, who to this point had been doing nothing behind my back, and told him to finish the German off and to search his pockets, while I rushed over to Zakharenko to keep him from killing the intended prisoner! I rolled up my side cap and stuck it into the Nazi’s mouth, and he fell silent. It turned out that Zakharenko, having pounced on the prisoner, had wanted to shove a piece of cloth into his mouth, but couldn’t get it out of his pocket. So he had instead grabbed a handful of sand and stones and had tried to shove that into the German’s mouth.

The German had practically bitten off Zakharenko’s thumb in the process and had violently kicked Zakharenko with his boot. ]ust a piece of bone was left of Zakharenko’s thumb. Wild with the intense pain, the scout had planted his knife into the German’s side, which is when the German started to howl.

We heard cries of alarm from above us. Firing on the move, Germans were already running through the forest in our direction. Our man responsible for the boat couldn’t find the end of the cable in the water, panicked, and swam across the river to our side, although later he told us that he had gone to get the boat. We made so many mistakes due to our lack of professional training!

I ran a little deeper into the water, located the cable and hauled the boat back to our bank. We tossed the wounded German on his back into the boat, I jumped on top of him and the guys on the other bank started to pull us through the water.

Mary Beard Reviews Claire Holleran's "Shopping in Ancient Rome: Tuesday Hoisted from the Non-Internet from 2000 Years Ago

2013-06-18T05:06:00-07:00

Mary Beard:

Mary Beard reviews ‘Shopping in Ancient Rome’ by Claire Holleran: The most memorable account of an ancient shopping expedition is found in some comic verses by the third-century BC poet Herodas, who lived in Alexandria, by far the smartest city in the Western world at the time. In his poem a woman called Metro and a couple of her friends visit a shoe shop owned by one Kerdon (‘Mr Profiteer’). As soon as they arrive, slaves bring a bench for the ladies to sit on, while Kerdon tries to interest them in his wares with a pushy sales pitch that mixes extravagant claims for the styles, workmanship and glorious colours of the shoes, with what sounds like a well practised hard-luck story lamenting his life of unremitting toil and all the mouths he has to feed. Eventually every variety of shoe in the shop is brought out – Sikyonians, slippers, boots, Argive sandals, scarlets, flats – before the ladies start haggling about prices and thinking about the footwear they are going to need for an upcoming festival.

It is often said that shopping in the modern meaning of the word... is a relatively recent invention. The English verb ‘to shop’... is not attested until the mid-18th century; and the noun ‘shopper’ not until a hundred years after that. But this poem about a ladies’ outing to the shoe emporium seems to show that a very similar kind of activity, with some of the same pleasures, took place in the ancient Mediterranean.... Herodas’ poem... is not quite as simple as it may appear. It does not take a reader long to spot that the same female character, Metro, features in the poem that comes immediately before the one about the shopping trip in Herodas’ collection; in it she admires a friend’s scarlet dildo and is told that it was made and sold by a man called Kerdon. Most critics have assumed, given the matching names, that the story of the shoe shop should be read as a sequel.... If this interpretation with its knowing parody and decidedly erotic tinge is correct, the poem offers an even clearer glimpse of an ancient culture of retail therapy that looks not so very different from our own.

But the truth is that it is a very rare glimpse indeed; or perhaps the commercial culture of third-century BC Alexandria was quite untypical of antiquity more generally (whether in its actual retail practices or in the way it chose to write about them). Claire Holleran, in her careful study Shopping in Ancient Rome, has not found anything so plausibly modern in tone and style, apart perhaps from a few epigrams of the poet Martial, which imagine what Holleran calls ‘aspirational’ window-shoppers wandering round the Saepta in Rome, ogling the expensive antiques and designer luxuries they couldn’t afford.... [H]er book is really about buying and selling in ancient Rome, rather than shopping, for which there is, in any case, no equivalent Latin word. And most of it is concerned with making sense of the puzzling archaeological traces....

Walk down the main streets in Pompeii or Herculaneum and (as modern tourist guides always insist) you can feel comfortably at home in what seems recognisably close to a modern cityscape: bars and cafés (tabernae, popinae or cauponae) with their counters facing the pavement to catch passing trade, and shops (also called tabernae) with wide openings to display products and entice customers inside....

But... the bars are a well-known conundrum. It always used to be thought that the big jars set into their counters held wine and cheap hot food, soups and stews – ladled out to a poor and hungry clientèle by an accommodating landlord or landlady. But the jars are not glazed, and could not be removed for cleaning. It doesn’t take long to see that they would be completely inappropriate for liquids, hot or cold.... The puzzles are even bigger for the other sort of tabernae: the shops. Just occasionally the finds make it clear enough what went on in them. There’s an obvious medical establishment in Pompeii, and a metalworker in Herculaneum (who probably made his money in part from repair work, to judge from the damaged lampstand awaiting attention on the day of the eruption), and the presence of butchers’ knives in other places most likely indicates the sale of meat. Occasionally too a shop sign, or an advertisement outside, will give away the nature of a business (one set of splendid paintings shows the various stages of the felt business, from the preparation of the wool to the final sale).

In most cases we have very little clue.... And we have still less clue about the personnel on either side of the counter. Did the shopowner or manager live on the premises, cramped together with his wife and kids on the mezzanine floor that many of the small units have? Or was that where he kept surplus stock? And who actually came into the shop to buy?... Part of the problem is that – apart from some fairly routine denunciation of the disreputable types who hang out in bars – Roman writers were not much interested in day-to-day retail or consumption. Rich Renaissance documentation lies behind Evelyn Welch’s brilliant "Shopping in the Renaissance" (2005), but in ancient Rome for the most part we learn about shops only when something goes wrong or in some unusual circumstance....

The most striking impression we have of this improvised world of Roman trading comes not from literature but from a painted frieze decorating a large house at Pompeii. This appears to show (exactly how realistically we cannot be certain) the portico of the local forum. A teacher with his pupils is using the colonnade as a classroom; a seemingly posh lady is giving some coins to a beggar with a dog; some men appear to be reading a notice pinned up on the columns. But more than anything else we see rough and ready trade going on: some hawkers are wandering round trying to flog fabric to women; a couple of hopefuls have laid out pots and utensils on the pavement to attract passing custom; and a dozy ironmonger has to be woken up because he has nodded off without noticing that a sale is in the offing. It’s vivid evidence, but it seems a very long way from the knowing visit to the shoe shop in Herodas’ poem – until, that is, you see that in the middle of this busy street scene a shoemaker has set up a rather elegant stall. The painting is very worn and it is hard to be absolutely certain, but it seems that four ladies, one with a young child, are sitting on benches and the shopkeeper is bringing out the stock from his display stands for them to try on and to chat about. It is presum-ably the Roman equivalent of ‘Sikyonians, slippers, boots, Argive sandals, scarlets, flats’...

Noted for June 18, 2013

2013-06-18T00:02:26-07:00

Ken Rogoff: Dornbusch's Overshooting Model After Twenty-Five Years, The Mundell-Fleming Lecture: "Now underlying Dornbusch's disarmingly simple result lies some truly radical thinking. At the time Rudi was working on his paper, the concept of sticky prices was under severe attack. In his elegant formalization of the Phelps islands model, Lucas (1973) suggested that one could understand the real effects of monetary policy without any appeal to Keynesian nominal rigidities, and by 1975, Lucas had many influential followers in Sargent, Barro and others. The Chicago-Minnesota School maintained that sticky prices were nonsense and continued to advance this view for at least another fifteen years. It was the dominant view in academic macroeconomics. Certainly, there was a long period in which the assumption of sticky prices was a recipe for instant rejection at many leading journals. Despite the religious conviction among macroeconomic theorists that prices cannot be sticky, the Dornbusch model remained compelling to most practical international macroeconomists. This divergence of views led to a long rift between macroeconomics and much of mainstream international finance. Of course, today, the pendulum has swung back entirely, and there is a broad consensus across schools of thought that some form of price rigidity is absolutely necessary to explain real-world data, in either closed or open economies. The new view can be found in many places, but certainly in the closed economy work of authors such as Rotemberg and Woodford (1997), Woodford (2002), and of course in New Open Economy Macroeconomics. The Phelps-Lucas islands paradigm for monetary policy is, for now, a footnote (albeit a very clever one) in the history of monetary theory."

Simon Wren-Lewis: mainly macro: Multipliers in a monetary union and at the ZLB: "I had earlier promised to talk about… Farhi and Werning… an excellent and very rich paper…. We all should know, from Woodford for example, that in a closed economy at the zero lower bound (ZLB) the (temporary) government spending multiplier is greater than one. It is tempting to apply the same logic to a member of a monetary union, because if they are small relative to the union as a whole they too face a fixed nominal interest rate. What Farhi and Werning show is that this is incorrect…. [Since] nominal exchange rates are fixed… the price level has to return to its original level to keep competitiveness unchanged. So if inflation rises today, it must fall (relative to the base case) later. With fixed nominal rates, we now have lower real rates followed by a matching period of higher real rates…. So this is another example of why you cannot assess the potency of fiscal policy without taking into account the monetary policy regime."
No More Mister Nice Blog: Once Again, Bush Policies Blamed on Obama: "The link (tweeted by Drudge and also at the Drudge Report) goes to this Gateway Pundit post: 'Just in case you want more Obama in your life... AT&T is loading iPhones with emergency alerts from Barack Obama... That you can't switch off.... Engadget reported: "AT&T has begun rolling out Wireless Emergency Alerts updates for iPhone 4S and 5, so you won't be the last folks to know if the entire northern hemisphere is about to be covered in ice à la Day After Tomorrow." You'll receive a notification from the carrier when your update is ready, but only if you're using iOS 6.1 or higher. Once installed, AMBER and Emergency alerts are automatically sent to your phone unless you switch them off via Settings. However, should you be tired of Obama, just know that there’s no way to switch off Presidential alerts. So now Barack can track your calls and send you messages, too….' A quick search of the Net reveals that right-wingers (Pam Geller, Alex Jones) have been flipping out about this for quite a while, although even Fox Business acknowledges that 'presidential alerts', which would be sent to all enabled recipients in the U.S., are intended to be for the direst of natural disasters and other emergencies. But isn't this just Obama megalomania? No, as the FCC explains: 'Why can't consumers block WEAs [Wireless Emergency Alerts] issued by the President? In passing the WARN Act, Congress allowed participating carriers to offer subscribers the capability to block all WEAs except those issued by the President.' The WARN Act is the Warning, Alert and Response Network Act, which was passed as part of a larger port security bill ... in 2006. That's 2006 as in 'when Republicans controlled the White House and both houses of Congress'. So, yeah, this is more Obama fascism that was actually a Bush-era idea."
Paul Krugman: Europe in Depression: "I’m in Paris for an economics conference, opening tonight with what is billed as a debate (although it’s more of a dialogue) over European economics with Mario Monti. So it’s worth looking at the ever-valuable Eurostat (pdf) for an update on Europe’s truly remarkable performance…. Actually, it’s not just the performance — with employment, after a slight uptick, back to declining 5 full years after the recession began — that’s remarkable; so is the fact that, as far as I can tell, European leaders don’t see this performance as a sign that there is anything fundamentally wrong with their policies, the structure of the euro system, or both."
Matt Steinglass: Inequality: The 1 percent needs better defenders: "APPARENTLY someone, perhaps John Kenneth Galbraith, once said that the way to debate Milton Friedman was to wait for him to say "'Let us assume…' and then immediately interrupt and say 'No, let's not assume that.' (Via Clay Shirky, via Dan Davies.) I thought of this quip on Saturday while reading a draft paper by Gregory Mankiw entitled 'Defending the 1 Percent'. Mr Mankiw begins with a thought experiment: 'Imagine a society with perfect economic equality… Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product.…' Should the government shift to a progressive tax system to reduce the inequality? Obviously Mr Mankiw discovers that the answer is 'no', because that's the answer he has built his analogy to produce. But you don't even need to say 'No, let's not assume that' to see what's wrong with this analogy, because Mr Mankiw has done a strange job of selecting his John Galt figures…. Steve Jobs, J.K. Rowling and Steven Spielberg are about to create their staggeringly popular products, which will increase inequality because everyone wants to buy them. But now let's imagine that just before these geniuses are able to bring their creations into the world, they die. No iPod, no Harry Potter, no Jaws. What happens then? Here's what happens then. Instead of Apple dominating the market… Sony and Samsung do…. Instead of Harry Potter, some other children's fantasy book becomes the dominant franchise…. And instead of "Jaws", some other movie becomes the first immense blockbuster of the 1970s, and a different brilliant director's career is launched… just as much inequality as there is now…. Of the three Mr Mankiw proposes, only Steve Jobs plausibly had an irreducible, unique effect…. Mr Spielberg and Ms Rowling are acclaimed artists, but their startling wealth and prominence are entirely due to the increasing power of network effects in mass culture…. So why does Mr Mankiw pick three figures from the entertainment and computer industries, where everyone knows the 'superstar' phenomenon is strongest? Because if he used examples from other industries, it would be even more difficult to convince the reader that the immense rewards being reaped by those at the top had anything to do with their unique contributions…. I think the worst weakness in the paper comes in Mr Mankiw's brief treatment of the Rawlsian justification for redistribution. Rawls's argument is that if people were asked what kind of society they'd want to be part of, without knowing whether they'd be rich or poor (ie behind the 'veil of ignorance'), they would choose one where the rich paid taxes to fund social insurance for the poor. Mr Mankiw objects that this approach would also probably lead people to choose a society with mandatory organ donation, since they wouldn't know whether or not they'd need an organ. He thinks this a serious flaw in Rawls's argument: 'If imagining a hypothetical social insurance contract signed in an original position does not supersede the right of a person to his own organs, why should it supersede the right of a person to the fruits of his own labor?' Why indeed? And how come when I break your window it's just vandalism, whereas when I break your nose it's assault? Because your rights over your own body are more fundamental than other kinds of property rights, that's why. If Mr Mankiw is looking to dismiss the Rawlsian social-insurance argument, he's going to need a better argument than this." <-- Mankiw is also going to have to cite Robert Nozick in his paper as well…
Gavyn Davies: What the bond market is telling the Fed: "The nominal yield on 10-year treasuries has risen by 56 basis points since early May. This entire move, and more, has been due to a rise in the real bond yield, while the break-even rate of inflation has fallen fairly sharply. The rise in the real bond yield is a sign of normalisation in the economy, which had to happen sooner or later. Taken in isolation, that might be viewed as welcome. But the decline in inflation expectations is more troubling, especially since it has been accompanied by a sharp decline in the actual inflation rate itself. The Fed’s preferred measure of underlying inflation, based on the core PCE index, fell to 1.0 per cent in April, a rate which would normally result in serious concern about deflation risk at the FOMC. Yet, with the notable exception of James Bullard, no policy-maker has expressed much concern about this recently. It will be important to see whether the risk of low inflation is highlighted by the chairman this week."

John Mandle: Auschwitz | Julian Sanchez (2011): Nozick, Libertarianism, and Thought Experiments | James Kwak: The Politics of Intellectual Fashion | Brad DeLong says that Robert Allen is a tracking genius: The British Industrial Revolution in Global Perspective | Jared Bernstein: The Current U.S. Economy | Emmanuel Farhi and Iván Werning: Fiscal Multipliers, Liquidity Traps, and Currency Unions | Ta-Nehisi Coates: Revisiting the Moynihan Report |

Liveblogging World War ii: June 17, 1943

2013-06-17T05:57:33-07:00

FDR's secretary of war stifles Truman's inquiry into suspicious defense plant:

On this day in 1943, President Franklin D. Roosevelt's secretary of war, Harry Stimson, phones then-Missouri Senator Harry S. Truman and politely asks him not to make inquiries about a defense plant in Pasco, Washington.

World War II was in full swing in 1943 and Truman was chairing a Senate committee on possible war profiteering committed by American defense plants. In the process of investigating war-production expenditures, Truman stumbled upon a suspicious plant in the state of Washington and asked the plant managers to testify in front of the committee. Unbeknownst to Truman, this particular plant was secretly connected with a program to develop an atomic bomb—"the Manhattan Project." When Stimson, one of a handful of people who knew about the highly classified Manhattan Project, heard about Truman's line of questioning, he immediately acted to prevent the Missouri senator from blowing the biggest military secret in world history.

On June 17, Truman received a phone call from Stimson, who told him that the Pasco plant was "part of a very important secret development." Fortunately, Stimson did not need to explain further: Truman, a veteran and a patriot, understood immediately that he was treading on dangerous ground. Before Stimson could continue, Truman assured the secretary "you won t have to say another word to me. Whenever you say that [something is highly secret] to me that's all I want to hear. If [the plant] is for a specific purpose and you think it's all right, that's all I need to know." Stimson replied that the purpose was not only secret, but "unique."

America's secret development of the atomic bomb began in 1939, with then-President Franklin Roosevelt's support. Even after Truman became Roosevelt's fourth-term vice president in 1944, the project remained such a tightly controlled secret that Roosevelt did not even inform Truman that it existed. Only after Roosevelt died from a stroke, in early April 1945, did Stimson inform Truman of the nature of the Manhattan Project. The night Truman was sworn in as Roosevelt's successor he noted in his diary that Stimson told him the U.S. was "perfecting an explosive great enough to destroy the whole world."

On April 24, 1945, Stimson and the Army general in charge of the project, Leslie Groves, gave President Truman a full briefing on the development status of the atomic bomb. Before the year was out, the new president would be faced with a decision: whether or not to use the most powerful weapon then known to man.

Monday DeLong-Being-Stupid Self-Smackdown Watch: Expansionary Fiscalists vs. Expansionary Monetarists and the Federal Reserve's Shift from a Time- to a State-Based Policy Rule: Will It End Our "Lost Decade"?

2013-06-17T03:20:00-07:00

The Federal Reserve's announcement last December that it was switching from a time- to a state-based policy rule has not REPEAT NOT raised expectations of inflation over the next five, ten, or thirty years. Perhaps this is because Federal Reserve communicators have spent a lot of time telling people that the shift does not mean that the Federal Reserve will tolerate higher inflation. Perhaps it is for other reasons.

This is a powerful empirical piece of evidence that it is much harder to summon the Inflation Expectations Imp than economists like Greg Mankiw had thought. It is a point for the expansionary fiscalists in their debate with the expansionary monetarists.

And it is a smackdown of me for my fit of enthusiastic expansionary monetarism last December, when I wrote: Brad DeLong: The Federal Reserve's Shift from a Time- to a State-Based Policy Rule: Will It End Our "Lost Decade"?.

Here's what I wrote last December:

Back in the middle of 2011, in the circles in which I traveled--policy-oriented macroeconomists who actually knew something about the world and about financial history--there was a rough consensus that we all ought to make one last charge for more aggressive policies to boost growth and reduce unemployment. We did not think there was much chance that we would actually influence policy: it was more to lay down a marker for the future, to make a demonstration that there were policies that could plausibly have gotten us out the fix of jobless recovery and slow growth--a kind of intellectual Charge of the Light Brigade, a "c'est magnifique, mais ce n'est pas la guerre".

We had, after all, worried in 2005 that the housing bubble might collapse and create a sticky macroeconomic situation. And we had been ignored. We had, after all, worried in 2007 that the major banks risk management structures were inadequate to the situation. And we had been ignored. We had, after all worried in 2008 that the Treasury and the Federal Reserve's focus On not enabling moral hazard meant that they were running enormous risks that they did not understand. And we had been ignored. In late 2008 and 2009 we were listened to. But by the end of 2009 when we were worrying about (a) the risk of a jobless recovery, (b) state-level fiscal contraction, and (c) the potentially poisonous interaction of the financial crisis with the structure of the eurozone in the context of southern Europe's policy imbalances--well, we were back to being ignored.

Thus in the summer of 2011 we expected to be ignored again.

We expected to hear about the limited efficacy of quantitative easing and the substantial risks associated with the expansion of the Federal Reserve balance sheet; about the importance of confidence and the necessity of the near-term down payment on long-run deficit reduction; and about how it all costs the US must not become Greece and was in some danger of doing so. And we expected policymakers worldwide to hunker down and stay the course.

And so some of us went out to make the case for more expansionary fiscal policy in the context of an extremely low interest-rate environment that essentially eliminated any medium-term or long-term drag from national debt along the expectations-consistent central case path. And others of us went out to make the case for massive quantitative easing and changing the strategy space of the Federal Reserve in order to summon the Inflation-Expectations Imp and boost the trajectory of nominal demand. I am thinking of, among many, many others: Woodford, Sumner, Eggertsson, C. Romer, Hatzius and Stehn, Krugman, et cetera. Hatzius and Stehn (2012) marks perhaps the outer limits of what in our wildest dreams we would have sought in terms of expansionary Federal Reserve policy: committing to returning nominal GDP to its pre-2008 path and takng the Federal Reserve's balance sheet up to $5 trillion along the way. We were not--at least, I was not--confident that it would work: as with the Digital Conveyor in "Galaxy Quest", successfully summoning the Inflation-Expectations Imp is hmmm hmmm more art than science. But the risk seemed very low, and the potential benefits very high.

And now--by Grabthar's Hammer indeed!--we have lived to tell the tale.

We have 2/3 of Hatzius and Stehn (2012), or a reasonable facsimile thereof. Under its current Evans Plan, the Federal Reserve is going to do $85 billion of quantitative easing a month, and the Federal Reserve will not even think about raising short-term safe nominal interest rates until unemployment falls below 6.5% or forecast core inflation rises above 2.5%/year. This is, admittedly, at least three years later than the Federal Reserve should have adopted such policies. And this is, admittedly, only 2/3 of what I at least would have liked to see. But it is much much more than I would have dared to seriously hope for back a year and a half ago.

Will it work?

Let us try to imagine a world in which it does not work--in which, three years from now, unemployment is still above 6.5% and forecast core inflation still below 2.5%/year. In that possible future world, the Federal Reserve will be holding $3 trillion more of long Treasury and MBS securities than it is holding today. The private sector (plus foreign governments) will be holding $2 trillion less of long-term Treasury and MBS securities than they are holding today. The private sector will be holding $3 trillion more of cash and $2 trillion more of zero-yielding short-term Treasuries than it is today. At the moment the private sector (plus foreign governments) are holding about $2.5 trillion in cash, $8 trillion of short-term Treasury and $5 trillion of long-term Treasury and MBS debt. Three years from now they will be holding about $5.5 trillion in cash, $10 trillion of short-term Treasury, and $3 trillion of long-term Treasury and MBS debt. The ratio of relatively safe debt--debt you could if you needed to say you were holding to maturity and thus were not exposed to risk on--that yields something to the amount of safe zero-yielding assets the private sector will be holding will thus go from 1-2 to 1-5. Financial institutions that want to report nominal earnings, let alone avoid real losses on portfolios that will then include $15.5 trillion of U.S. obligations that pay essentially zero, will be desperately reaching for yield and risk--and whatever risky assets they buy to get some yield into their portfolios will trigger somebody to then spend more on currently-produced goods and services.

That possible future world is not a future world in which unemployment is still above 6.5% and forecast core inflation is still below 2.5%/year.

Thus the possible future world three years from now in which the economy is still stuck more-or-less where it is now--and in which people then are really glad that they hunkered down, took no risks, and socked nearly all of their portfolios in zero-yielding safe Treasuries and cash--has, as of 12:30 PM yesterday--vanished from the spread of possible future worlds that can be rationally anticipated as of today. If investors and markets are rational, holding cash and short-term Treasuries is no longer a way of insuring yourself against the nominal-stagnation lower tail. As of 12:30 PM yesterday, holding cash and zero-yielding short-term Treasuries is a risky bet that markets and investors will--irrationally--fail to recognize that the nominal-stagnation lower tail three years out is no longer there, or a risky bet that the Federal Reserve will reverse course and abandon its Evans Rule policies in the near future.

Will investors and markets be willing to bet on those risks? Or will they try to hedge by dumping short-term zero-yielding Treasuries and cash for equities backed by and for positions in currently-produced goods and services?

If they do the second, the Inflation Expectations Imp will shortly be summoned and our lost decade will be ended after only seven years.

If they do the first, then believers in the potency of monetary policy even at the zero lower bound will have a great deal of explaining to do, and sane policymakers will turn to carefully studying DeLong and Summers (2012), "Fiscal Policy in a Depressed Economy".

1379 words

Noted for June 17, 2103

2013-06-17T00:22:25-07:00

Paul Krugman: Taylor's Rule on Fiscal Policy: "I just happened to run across John Taylor’s latest… Taylor now says that we should not cite falling spending by state and local governments as a reason for the weak recovery. Why? Because, he says, such spending is endogenous: state and local governments cut spending in line with revenue. Basically, they’re cash constrained; so what can you expect? But wait: Taylor has prominently argued (pdf) that the Obama stimulus… part that involved aid to state and local governments, was ineffective, because the state and local governments just used the money to pay down debt — that is, giving them more cash wouldn’t have mattered. I’m sure that Taylor will come up with some reason these statements aren’t diametrically opposed. But from here it looks like the Taylor rule on fiscal policy is that Obama is always wrong, and that state and local governments are either cash-constrained or not cash-constrained, depending on which assertion is needed to back up that position."

Clay Shirky: guest-bleg: How do you describe bad economics reporting?: "Acemoglu, Robinson and Verdier model a technologically interdependent world where countries can chose either cutthroat or cuddly capitalism (the US and Sweden being the usual avatars)…. They… discover that… 'the more harmonious and egalitarian Scandinavian societies are made possible because they are able to benefit from and free-ride on the knowledge externalities created by the cutthroat American equilibrium.' Not just the US but indeed the whole world would be worse off if we had public health care, because we have to treat poor people badly if Larry Page is to get rich, so that the Swedes can copy us. Because innovation. Now there’s nothing too surprising in this sentiment—the headline 'Neo-Liberalism Woven into Fabric of Universe, say Economists' could have run unaltered in every year since 1977. What is surprising—or at least what Tamar made me see with new eyes—is that the entire exercise is a machine for smuggling easy knowledge into public discourse…. Start with some assumptions, then test them, where the result is never anything other than foregone. Then claim that because the expected conclusion turned out as expected, belief in the assumptions is strengthened. (This is a generalized case of Daniel Davies’ rule for debating Milton Friedman.) In 'Can’t We All Be More Like Nordics', as in all great intellectual smuggling, the miracle occurs in Step 2…. If we assume that innovation requires income inequality, then we can conclude that innovation requires income inequality. QED…. For self-evident reasons, it is difficult for a political columnist to adjudicate these warring claims. Why? Here is Acemoglu, Robinson and Verdier’s first assumption: That sure is a lot of math symbol things right there! This so frightens the ordinarily incisive Edsall that he forgets that if the assumptions are wrong, all the math in the world won’t produce a useful conclusion."

Neil Irwin: Is a little bit of inflation just what the doctor ordered to keep unemployment down? |

Joe Gagnon: Saving Abenomics

2013-06-16T06:10:25-07:00

Joe Gagnon is right: there is no (good) alternative to Abenomics:

Saving Abenomics: No Time for Cold Feet on QE: Prime Minister Shinzo Abe captured the attention of economists, pundits, and global markets with his bold plans to boost growth and inflation in Japan. Stock prices soared, real bond yields plummeted, and the yen dropped sharply. These trends boded well for Abe’s success. More recently, markets seem disappointed with the details (or lack thereof) on Abe’s structural reforms and the unwillingness of the Bank of Japan (BOJ) to implement its quantitative easing (QE) plans flexibly. In this post I focus on what the BOJ should do to achieve its inflation goal and how that will help reduce the long-run burden of Japan’s large national debt.

According to the International Monetary Fund (IMF), net government debt in Japan is already a worrisome 145 percent of GDP and still growing (compared to 90 percent and stable in the United States). It is well known that countries often grow or inflate their way out of large debt burdens. The United States did some of both after World War II. The dollar value of debt grew slower than the dollar value of the US economy for decades, causing debt to shrink by more than half when measured as a percent of GDP. Japan needs to apply a similar economic magic.

I leave it to others to discuss the structural reforms Japan needs to raise its long-run growth rate. I focus on raising inflation to the new target of 2 percent. Many observers argue that higher inflation can have only a small effect on the fiscal position of a country with sophisticated and open financial markets like Japan. Any attempt to raise inflation, they say, will raise the interest rate Japan must pay on new debt issues by an equal amount. The only cost savings will be on the stock of debt that was issued before the rise of inflation, and that is a relatively modest, one-off gain.

But the behavior of bond markets belies this argument. Figure 1 shows that between Abe’s election in mid-December (marked by the vertical line) and the middle of last month, the real yield on inflation-indexed bonds fell about 1 percentage point. The nominal yield rose less than 0.2 percentage point, implying that expectations of long-run inflation in the bond markets rose more than 1 percentage point. Thus, bond markets expected that Japan would indeed be able to inflate away a significant portion of its debt. Each percentage point decline in the real interest rate on Japan’s debt is equivalent to a cut in the fiscal deficit of 1.5 percent of GDP.

In recent days, some of these moves have been reversed, suggesting that markets are beginning to doubt the BOJ’s resolve. Currently, long-term inflation expectations are around 1 percent, well below the 2 percent target. However, despite the recent market reversals, inflation expectations remain significantly higher than before Abe’s election, as are equity prices, while the yen is lower. This suggests that QE is having an important effect in the intended direction. What more needs to be done?

The BOJ needs to state clearly that it is willing to adjust the size, speed, and composition of QE as needed to achieve its target. Although the BOJ’s plan to buy long-term bonds worth around 25 percent of GDP over the next two years is certainly bold, we simply do not know how bold is bold enough. Here are three steps the BOJ could take to increase the effectiveness of its policy: (1) accelerate already planned bond purchases in a flexible manner with an eye toward damping volatility in nominal bond yields; (2) dramatically raise the share of QE devoted toward purchases of equity, which may have larger economic benefits than purchases of bonds; and (3) increase the total volume of QE until inflation expectations in bond markets reach the 2 percent goal.

As the saying goes: in for a penny, in for a pound. The BOJ has staked its credibility on achieving 2 percent inflation within two years. Now is not the time to get cold feet.

I think that, technocratically, what Japan needs is a yen target: 120 should do as an interim…

Liveblogging World War II: June 16, 1943

2013-06-16T05:24:00-07:00

Noted for June 16, 2013

2013-06-16T00:23:15-07:00

Aaron Carroll: The sky didn’t fall before, and it won’t fall now: "One of the things I’m fascinated by is the way history repeats itself when it comes to health care reform. Everyone acts as if what we’re doing is crazy new, as if it’s never been done before. This kind of thinking was the subject of one of my favorite Huffington Post columns (which I encourage you to go enjoy). I think we’re seeing the same thing again with respect to Medicaid and the ACA. Many of the claims about the expansion’s imminent failure involve arguments that aren’t new. In fact, they were the same as those being employed against traditional Medicaid decades ago. So I had awesome college student TIE-assistant Jaskaran Bains look up media coverage of Medicaid when it was passed. See if any of it sounds familiar."

Bob Reich: Much Ado About MOOCs: "Champions of MOOCs and online learning frequently exhibit a lamentable techno-utopianism…. I believe that MOOCs, over the coming years, will do better than a large lecture class with little or no opportunity for discussion and for which student assessments are machine-graded exams or problem sets. It’s worth noting that such lecture courses constitute the norm for millions of students across all levels of higher education…. Taming the cost disease is an important task for a variety of reasons: making higher education more affordable, more accessible, and reversing the generation-long rise of higher education costs far beyond the inflation rate…. Online education holds the promise of delivering better learning outcomes at lower cost for students whose alternative is not nothing but a traditional college class. The San Jose State philosophers are right to question the introduction of JusticeX into their department. But it remains an open question, one worth pursuing, whether MOOCs and other forms of online learning will realize their greater goal."
Daniel Davies: Guest Post: The IMF in Greece Mistakes We Knew We Were Making: "I am not sure that I would have chosen the job of 'Professional Apologist For Extremely Problematic People And Organisations' on the graduate milk-round, but I also suspect that if it was a choice between that and losing my benefits, I’d have the sense to realize that I’m more temperamentally suited to that than many other things. And it does strike me that in the specific case of Greece, the IMF deserves a fairer shake than it got…. Mind you, I need two subheadings and a conclusion to make my case, which is usually a sign that it’s wrong, and I still basically end up criticizing the IMF staff… (1) This Isn’t Your Parents’ 180% Debt Ratio…. Greece’s intra-EU official sector debt looks much more like borrowings from the Bank Of Mum And Dad than Argentina or Indonesia’s external debts ever did…. The program needs to be assessed on the basis of the cash flows, not the debt stocks, precisely because this is not a case where double-entry bookkeeping is appropriate; the true debt burden of Greece isn’t necessarily equal to the sum of past borrowings…. (2.) Rome Wasn’t Built In A Day, Minister. I admit it, I was the only viewer of “Yes Minister” who used to cheer for Sir Humphrey, but really – RWBIADM…. And in so far as is possible, you don’t set hares running by talking about massive apocalyptic scenarios more than you absolutely have to…. (3) Conclusion. In the end, I think people just hate the IMF debt sustainability analysis because it was so far off, and it was a political compromise. Fair enough, if a private sector bank or quoted company printed anything into the markets that was so clearly in bad faith I would be jumping up and down and calling the regulators. But really…. If I was a Greek diabetic in a hospital running out of insulin, I think I’d like to be sure that if I was having my health sacrificed for something, it would be a bit more significant than the sacred purity of IMF debt sustainability analyses. Sure, it’s wrong to sign off on a dishonest document, but there are always get-outs when the consequences are disastrous…. I’m not Dr Pangloss here. This wasn’t the best of all possible programs in the best of all possible worlds. But it was a decent stab at a compromis… I do not agree that this time was entirely wasted, just because some of it was spent chasing up a blind alley of Eurobonds."
Paul Krugman: The Hellenization of Economic Policy: "Simon Wren-Lewis has been on a roll lately; his latest talks about how the mishandling of Greece inflicted vast damage on the European economy as a whole… troika officials refused to admit the obvious and allow an early Greek default; instead they made absurd claims for the effectiveness of austerity, and in so doing spread austerian economics far and wide. So in a way we’ve had the worst of all possible worlds: the alleged prospect of becoming another Greece has been used by austerians to frighten politicians and the public into policies that deepen the slump, and the mishandling of Greece — by many of the same people spreading this fear — has made the prospect of becoming another Greece even more frightening. The IMF, at least, seems to have learned something from the experience.But as Wren-Lewis says, there is no hint of rethinking or remorse at the ECB, which is at this point the player that really matters."
Mark Thoma: Economist's View: Why Do Disability Filings Rise in Bad Times?: "Jesse Rothstein finds that the rise in disability filings in recessions is not due to people 'exaggerating real disabilities or through outright fraud'… Basically, people with disabilities face a choice, apply (and likely get) disability, or continue working in another occupation where the disability is less of (or not) an obstacle. In bad times, alternatives that will allow the disabled to continue working in another occupation dry up, and the first choice -- going on disability -- is more likely. As the article notes, once this (expensive) choice is made it is generally not reversed when the economy improves."
Simon Wren-Lewis: Why Bernanke was right to speak out on fiscal policy: "A ‘monetarist’ position which is indifferent to what fiscal policy is doing in current circumstances is untenable. As a result, central bankers have to speak out on the dangers of austerity. There are two lines that monetarists might take. The first is that unconventional monetary policy, Quantitative Easing (QE), is a perfect substitute for conventional monetary policy. The second is that an appropriate monetary policy regime can, through expectations, undo the restriction imposed by the zero lower bound (ZLB)…. The first argument is wrong mainly because of uncertainty. Macroeconomists know little enough, but we do know something about how conventional monetary and fiscal policy works, and we have a lot of data that can help us…. The second argument would be right if we could fix inflation expectations in exactly the same way as we could, absent the ZLB, fix nominal interest rates. Would a nominal GDP target do that? Of course not…. But let us just suppose it did. Does that mean we can ignore fiscal policy? Absolutely not. What we are getting in this case is a recovery achieved by raising expected inflation above (in the UK, US and Eurozone) 2%. That is costly, because it means actual inflation must be allowed to go above 2%. The more we deflate demand through fiscal austerity, the higher inflation has to go (or the longer it has to be above 2%). So monetarists who believe in the expectations channel cannot be indifferent to fiscal policy, unless they also believe it has no effect, or that inflation above 2% is costless…. The idea that to speak this truth is wrong because it might frighten the horses is silly. I have used the following analogy before. No one wants to hear a pilot tell passengers that they are no longer in control of the plane. However a better analogy in this case would be the pilot not telling the co-pilot, which would be highly dangerous. The horses that matter here are those in charge of fiscal policy, and they need frightening."

Bernhard Warner: Ancient Roman Concrete Is About to Revolutionize Modern Architecture | Brad DeLong (2010): After Copenhagen: What Can Be Done to Meet the Economic and Environmental Challenges? | Josh Bivens (2010): Budgeting For Recovery—The Need to Increase the Federal Deficit to Revive a Weak Economy | Martin Wolf: Globalisation | Robin Harding: IMF denounces US fiscal policy | Andrew Fieldhouse: How much can tax policy curb income inequality growth? Maybe a lot/a> Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates | Austin Frakt: MedPAC on Medicare Premium Support |

Rick Santorum: Why Mitt Romney Didn’t Win

2013-06-15T20:01:11-07:00

Rick Santorum gives a good speech:

Rick Santorum: Why Mitt Romney didn’t win: One after another, [the speakers the Romney Campaign highlighted at the convention] talked about the business they had built. But not a single—not a single —factory worker went out there. Not a single janitor, waitress or person who worked in that company! We didn’t care about them. You know what? They built that company too! And we should have had them on that stage….

When all you do is talk to people who are owners, talk to folks who are Type A’s who want to succeed economically, we’re talking to a very small group of people. No wonder they don’t think we care about them. No wonder they don’t think we understand them. Folks, if we’re going to win, you just need to think about who you talk to in your life….

Republicans must talk to the folks who are worried about the next paycheck. Our leaders don’t accurately reflect who we are. They reflect the interest groups around here who are lobbying for an advantage. Everyone who is up here is wanting an edge for their company or their industry. We’ve got to get away from that….

I won’t go back and revisit why that was the case [that we didn't highlight the ACA] or who the better candidate was to do that, but suffice it to say the opportunity [to criticize the ACA] is going to present itself in the next year. Why are they not sounding the alarm? Why are we not getting ahead of this train?

I think he's wrong about ACA implementation--he's trapped inside the Republican bubble. My bet is that ACA implementation will go fine along the Atlantic and Pacific coasts, along the Great Lakes, and a couple of other places--New Mexico, Colorado, Arizona. My bet is that ACA implementation will go badly elsewhere--and the Democrats will say: "What would you expect? Your Republican state government worked very hard to keep you from getting the benefits of the program that the people along the coasts got!" And my bet is that the voters will buy the Democrats' case.

Liveblogging World War II: June 15, 1943

2013-06-15T05:51:08-07:00

The "Blobel Commando" begins its cover-up of atrocities:

On this day in 1943, Paul Blobel, an SS colonel, is given the assignment of coordinating the destruction of the evidence of the grossest of Nazi atrocities, the systematic extermination of European Jews.

As the summer of 1943 approached, Allied forces had begun making cracks in Axis strongholds, in the Pacific and in the Mediterranean specifically. Heinrich Himmler, leader of the SS, the elite corps of Nazi bodyguards that grew into a paramilitary terror force, began to consider the possibility of German defeat and worried that the mass murder of Jews and Soviet prisoners of war would be discovered. A plan was devised to dig up the buried dead and burn the corpses at each camp and extermination site. The man chosen to oversee this yearlong project was Paul Blobel.

Blobel certainly had some of that blood on his hands himself, as he was in charge of SS killing squads in German-occupied areas of Russia. He now drew together another kind of squad, "Special Commando Group 1,005," dedicated to this destruction of human evidence. Blobel began with "death pits" near Lvov, in Poland, and forced hundreds of Jewish slave laborers from the nearby concentration camp to dig up the corpses and burn them–but not before extracting the gold from the teeth of the victims.

Noted for June 15, 2013

2013-06-15T00:45:00-07:00

~~Bob~~ Rob Reich: Much Ado About MOOCs: "Sandel is legendary lecturer, and Justice is rightly one of the most celebrated courses at Harvard…. And yet the San Jose State philosophers are right about the poor quality of JusticeX. It is almost certainly inferior to what the SJSU faculty could offer its students. How can this be?… I signed up for JusticeX with interest and went through most of the course content…. JusticeX is dispiritingly uninventive, seemingly disinterested in experimenting with any of the novel forms of faculty-student and student-student interaction that many online platforms, including edX, make possible…. In creating JusticeX, Sandel chose to do nothing more than upload the PBS video recordings…. No attempt was made to create supplementary materials designed specifically for online learning…. No attempt was made to curate a robust and interactive student discussion forum; instead online discussions consist of hundreds one or two sentence posts by students with scarcely any replies by Sandel, his teaching assistants, or other students. No attempt was made to foster student learning through digital projects, essay assignments, or the kind of written assessment or section discussions that Harvard students experience…. Sandel appeared once, live, to answer questions from JusticeX students. Otherwise, he might not have had any involvement at all. When the San Jose State philosophers… observe that 'purchasing a series of lectures does not provide anything over and above assigning a book to read', they are also correct. What this demonstrates, however, is not the inferiority of MOOCs but a lack of imagination in the case of JusticeX…. The cliché that 'more research is needed' is actually true about MOOCs."

Charles Stross: Crib Sheet: Glasshouse: "And so I ended up with a novel narrated in the first person present tense by the ultimate unreliable narrator (if your first person narrator is murdered two thirds of the way through the story then it's a fair clue that nothing in the story should be taken at face value, right?). Who in turn thinks they're being injected into a prison designed to rehabilitate war criminals, on a mission to expose the administrators' complicity in atrocities ... except that the narrator has a remarkably dodgy background, and indeed fits all the criteria for being incarcerated there himself. And nothing is what it seems, in this panopticon, and indeed our hero/ine may be the worst villain in the plot—or alternatively an innocent in search of redemption: as are they all, hopeful monsters on a one-way journey into a future where their sins can be forgotten."
Mark Thoma sends us to Brian Keeley and OECD Insights:Economist's View: 'The Impact of Immigrants': "Flick through the pages or online comments of some of the racier newspapers, and you’ll see immigrants being accused of stealing jobs or, if not that, of being workshy and 'scrounging benefits'… they do seem to reflect a degree of public ambivalence, and even hostility, towards immigrants in a number of OECD countries…. New research from the OECD indicates that… across OECD countries, the amount that immigrants pay to the state in the form of taxes is more or less balanced by what they get back in benefits…. The extent to which this finding holds true across OECD countries is striking…. Low-skilled immigrants are less likely to have a negative impact than equivalent locals."
Paul Krugman: Fiscalists, Monetarists, Credibility, and Turf: "Cardiff Garcia has a nice survey of the two main groups of stimulati…. I’d just add two points. First, my own evolution: in 1998, looking at Japan, I concluded that monetary policy could be effective, but only if — in what I guess is now a widely used phrase — the central bank could credibly commit to being irresponsible…. When crisis struck more widely, it became clear to me just how hard this would be to achieve…. So I became a pragmatic fiscalist, for reasons best laid out by Mike Woodford: the great thing about fiscal stimulus is that it doesn’t depend on expectations, and it works even if nobody believes it will work. Unfortunately, this pragmatic case for fiscal policy runs into a different real-world problem: the obduracy of policymakers…. Second, I’m surprised that Garcia doesn’t mention Richard Koo, who would seem to be the prime candidate on the fiscalist side for someone who is adamant that we not try monetary policy on the side. I’ve written about my puzzlement over Koo’s position…. The greatest intellectual sin here is to care more about protecting your turf — my answer is the only answer! — than about the real economy that desperately needs every form of help we can deliver."

Ronald Bailey: About 60 Percent of Conservatives Favor a Carbon Tax | Democratic Party of Japan | Shinzō Abe | Griqua people | Mark Thoma: Economist's View: Paul Krugman: Sympathy for the Luddites | Laura Tyson: Getting More Bang for the Buck in Higher Education | John Sides: What If a Party Re-branded Itself, and Americans Never Noticed? |

Tweetweek: June 14, 2013

2013-06-14T20:35:00-07:00

Get (much) smarter about labor's history and future by reading this terrific piece by @yeselson: http://t.co/j3ifzfPSxP
— Rebecca Traister (@rtraister) June 14, 2013

#IMF denounces #US fiscal policy http://t.co/Lanri5qXGO #FT "Go slow but hurry up"; well put @Lagarde #economics @cdaude @HrReisen @delong
— Jean-Philippe Stijns (@jpstijns) June 14, 2013

@Pawelmorski The endnotes for the later chapters also really interesting, fwiw. Long discussion of Gorton.
— Matthew C. Klein (@Matthew_C_Klein) June 14, 2013

R&R/Alesina were debunked in last 2 yrs, but those doing their homework knew bigger deficits were key, not problem: http://t.co/WpgybsnCca
— Andrew Fieldhouse (@A_Fieldhouse) June 14, 2013

.@JeffYoung @CitizenCohn GOP sez: "ObamaCare pplr with moochers, unpplr with makers". John Galt fears adverse selection NOT!! #talklikeyoda
— J. Bradford DeLong (@delong) June 14, 2013

Perspective: Josh Marshall has a strange and interesting post on Edward Snowden and leaks generally. It's hard... http://t.co/hgavQYY4vq
— Ryan L. Cooper (@ryanlcooper) June 14, 2013

.@AAMCommons Are you really saying that whether Janet Yellen was nominated by the president and confirmed by the senate needs to be proved?
— J. Bradford DeLong (@delong) June 14, 2013

.@asymmetricinfo I get where you're coming from: "I added a discussion of LQ to my 6th ed" does sound rather lame…
— J. Bradford DeLong (@delong) June 13, 2013

.@moiracathleen If you tell me Janet Yellen is a private banker or does banks' bidding, you are either wrong or a conspiracy theorist
— J. Bradford DeLong (@delong) June 13, 2013

.@moiracathleen The FOMC has enormous impact on the economy. Enormous...
— J. Bradford DeLong (@delong) June 13, 2013

.@moiracathleen You make me bang my head against the wall. Why say wrong things? 7/7 votes on the Board & 7/12 votes on the FOMC are PAS.
— J. Bradford DeLong (@delong) June 13, 2013

.@alon_levy You know suspiciously much. Who do you *really* work for? @joshtpm @brianbeutler
— J. Bradford DeLong (@delong) June 13, 2013

@froomkin @delong I call that the "monkey with a dictaphone" - AKA @davidgregory - AKA "Thanks for coming in and giving us your views."
— Peter Kaufman (@inklake) June 13, 2013

The conservative view of Obamacare is driven in part by a delusional appraisal of public opinion http://t.co/QHpZutnS40
— Jonathan Chait (@jonathanchait) June 13, 2013

This is just wrong. Pizza Hut Canada introduces a poutine Pizza. http://t.co/kX3Oi3PeQD
— Karen Grepin (@KarenGrepin) June 13, 2013

@pegobry @nothingsmonstrd @delong Gravel v US. Wasn't arrested but they tried to subpoena his aides. SC ruled for Gravel.
— Chad Chavez (@ChadAChavez) June 13, 2013

.@pegobry I§6: and for any Speech or Debate in either House, they shall not be questioned in any other Place.
— J. Bradford DeLong (@delong) June 13, 2013

@delong's stimulus rule from @EconomicPolicy's 2009 panel on recovery was spend more til Fed funds & Treasuries rise http://t.co/p2IIX5yFNQ
— Andrew Fieldhouse (@A_Fieldhouse) June 12, 2013

They are especially concerned about women getting to “use” rape as some kind of “get an abortion free!” card.
— Lisa McIntire (@LisaMcIntire) June 12, 2013

If only Barack Obama, Tim Geithner, and Ben Bernanke had listened to us in 9/09, how much better the world would be! http://t.co/CNhIHLnxmr
— J. Bradford DeLong (@delong) June 12, 2013

Anyone need a column for tomorrow? [COPY-PASTES A DAVID SIMON BLOG POST INTO BLANK DOCUMENT, ADDS "EXACTLY"], gimme my check
— Jim Newell (@jim_newell) June 12, 2013

@felixsalmon I was drinking a d'Armailhac out of a plastic cup Friday night. Tasted great. Not especially big…
— J. Bradford DeLong (@delong) June 12, 2013

AND NOW, TO ADD INSULT TO INJURY, THE NSA'S WEBSITE IS DOWN!!!! http://t.co/sxugR0lo0Z #itsbeenalongday
— J. Bradford DeLong (@delong) June 12, 2013

No way to say this that doesn't sound dickish, but it is crazymaking to watch people become instant experts on the thing you do full time.
— Julian Sanchez (@normative) June 12, 2013

@joshtpm Not at all. Underlying what one thinks of Snowden is that Govt you're defending has lied abt program repeatedly under oath.
— emptywheel (@emptywheel) June 11, 2013

Anthony Scaramucci is single-handedly resuscitating the moribund hedge fund folly section of my blog.
— Epicurean Dealmaker (@EpicureanDeal) June 11, 2013

"to conclude that paths towards better entrepreneurship policies are clear" is easy but wrong http://t.co/E6YsZYQPQ5 via @delong
— Rajesh (@rajesh_v) June 9, 2013

Iain M. Banks died this morning. Worlds of infinite possibility seem far more finite and much more unlikely today. #thecultureremembers
— Scott Eric Kaufman (@scottekaufman) June 9, 2013

In Dulles UAL lounge listening to 4 US intel officials saying loudly leaker & reporter on #NSA stuff should be disappeared recorded a bit
— Steve Clemons (@SCClemons) June 8, 2013

“.@billmon1: @jbouie @armandodkos Trust me, you're not seeing me angry. This is just exasperation.” <--So now Billmon = Mongo...
— J. Bradford DeLong (@delong) June 8, 2013

Friday Night Non-Music

2013-06-14T17:10:00-07:00

Liveblogging World War II: June 14, 1943

2013-06-14T06:15:18-07:00

FDR's Calendar:

Do Tom Friedman and David Brooks All by Themselves Make the New York Times Op-Ed Page a Value-Subtracting Proposition--One That We Would Be Better Off Without?

2013-06-14T05:58:00-07:00

Dan Drezner makes the case with respect to Tom Friedman:

Man, the State and trust: Thomas Friedman captures the sentiments of a lot of the foreign policy community with today's column. This passage in particular pretty much sums it up:

Yes, I worry about potential government abuse of privacy from a program designed to prevent another 9/11 — abuse that, so far, does not appear to have happened. But I worry even more about another 9/11…. If there is one more 9/11 — or worse, an attack involving nuclear material — it could lead to the end of the open society as we know it. If there were another 9/11, I fear that 99 percent of Americans would tell their members of Congress: “Do whatever you need to do to, privacy be damned, just make sure this does not happen again.”… That is why I’ll reluctantly, very reluctantly, trade off the government using data mining to look for suspicious patterns in phone numbers called and e-mail addresses — and then have to go to a judge to get a warrant to actually look at the content under guidelines set by Congress — to prevent a day where, out of fear, we give government a license to look at anyone, any e-mail, any phone call, anywhere, anytime….

Friedman's… at least he's straightforward…. That said, here's what I worry about:

Friedman allows that these surveillance programs are vulnerable to abuse but says that, "so far, [it] does not appear to have happened."… The last time I trusted intelligence bureaucracies and political leaders that the system was working was the run-up to the Iraq war. Never again.

The traditional ways to constrain government bureaucracies in a democracy -- transparency, legislative oversight and political control -- are weakened when we move to national security questions. The traditional way to compensate for this is to develop a strong organizational culture and powerful professional norms…. Fort Meade… is an organizational culture where the boss feels it within his prerogative to flat-out lie to Congress. So no, I really don't trust the NSA's organizational culture.

Based on what happened in the wake of the Boston bombings, I'd wager that Friedman's logic about public attitudes doesn't necessarily hold up….

I don't think I'm naïve about the threats against the United States… [but] a major personal legacy of 21st century American foreign policy f@$k-ups is that I can't give these agencies or their political masters the benefit of the doubt…. As Ron Fournier put it (link via Matt K. Lewis):

The response is predictable: Don't be naive! Discussing secret national security programs will tip off the terrorists and make the United States vulnerable! I don't buy it…. It's possible to start an open and honest conversation about drone warfare, domestic surveillance, and big data in general terms that don't expose cherished "sources and methods."… It's done all the time… when transparency suits a White House's political agenda…. Virtually every unauthorized leak, including the most recent ones about the prying eyes and ears at the National Security Agency, is followed by the release of classified information (an authorized leak) that supports the administration's case against leaks…. These institutions keep failing Americans. Why should we trust them?

I reluctantly agree. And if this gets me kicked out of the Respectable Foreign Policy Pundit Club, so be it.

And Scott Lemieux on BoBo:

The Authoritarian BoBo: Amy Davidson’s comprehensive demolition of Brooks’s strange assertions about American society and constitutionalism. I especially liked this part:

That comes across in another item on [BoBo's] list of Snowden’s offenses: “He betrayed the cause of open government. Every time there is a leak like this, the powers that be close the circle of trust a little tighter. They limit debate a little more.” Or maybe they will realize that they can’t lie with impunity; maybe the next time James Clapper, the Director of National Intelligence, is asked a direct question in a Senate hearing, he will wonder, before offering a blatant falsehood in response, if he might get caught….

The failure of the Senate hearings, despite Wyden’s best efforts, brings us back to the issue of what, exactly, Snowden was supposed to do. Brooks says he “self-indulgently short-circuited the democratic structures of accountability,” and wonders if what he knew was really “so grave” as to be worth contributing to “the corrosive spread of cynicism.” Snowden, he said, “is making everything worse.” His choices only make sense, according to Brooks, “if you live a life unshaped by the mediating institutions of civil society.”

Brooks’s argument that Snowden should have continued to trust checks and balances that were transparently failing to work reminds me of one of the most specious arguments in the United States Reports: Felix Frankfurter’s argument that the only appropriate remedy for citizens disenfranchised by malapportionment is for the disenfranchised to seek redress from the legislatures in which they aren’t represented (Brooks must regret not having been around to attack the rootless cosmopolitanism of Baker v. Carr.)… Secrets are sacrosanct in Washington until officials find political expediency in either declassifying them or leaking them selectively. It doesn’t really matter which modern presidential administration you decide to scrutinize for this behavior, as all of them are guilty.

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

But consensus is that Friedman makes the case against himself more effectively than anybody else with his description of his June 20 Thomas L. Friedman's The Next New World Conference. Few people will (a) say that they have been writing about the wrong things for decades, and then (b) attempt to run a conference on those very things about which he knows little. And the phrase "an electronic, digital, mobile plumbing system that is the real lasting story of the moment" is marvelous:

When scholars write the history of our moment 20 years from now, what will they say was the most crucial development? Will it be the housing bust and the collapse of the banking industry? The stalemate over budget cuts in Washington? The continued effort of Islamic terrorists to plot attacks from remote parts of Pakistan and Yemen?

Thomas L. Friedman argues that while we were focused on post-9/11 and the subprime crisis/recession, something very big happened: we have built a whole new infrastructure for the world — an electronic, digital, mobile plumbing system that is the real lasting story of the moment.

In this one-day conference, Mr. Friedman and his speakers and panelists will spend the morning session describing and analyzing “What World Are You Living In?” In the afternoon session, Mr. Friedman and David Carr will interview a number of leading tech C.E.O.s who are doing business in this new world.

Throughout the day, the 400 invited guests — themselves drawn from the C-suite, from banking and Venture Capitalists, from government and think tanks — will come to understand the particular dynamics (social, technological, political, psychological) of a world that we are all being forced to respond to but which few of us fully grasp.

Noted for June 14, 2013

2013-06-14T00:04:38-07:00

David Glasner: Markets in Confusion: "It wasn’t so long ago that we were being told by opponents of stimulus programs that the stimulus programs, whether fiscal or monetary, were counterproductive, because 'the markets need certainty'. Well, maybe the certainty that is needed is the certainty that the stimulus won’t be withdrawn before it has done its job."

Michael Woodford: Fiscalists vs market monetarists, a bloggy taxonomy: "The most obvious source of a boost to current aggregate demand that would not depend solely on expectational channels is fiscal stimulus — whether through an increase in government purchases, tax incentives for current expenditure such as an investment tax credit, or subsidies for lending like the [UK Funding for Lending Scheme]. At the same time, commitment to a nominal GDP target path by the central bank would increase the bang for the buck from fiscal stimulus, by assuring people that premature interest-rate increases in response to rising economic activity and prices would not crowd out other types of spending than those directly affected by fiscal policy. And the existence of the central bank’s declared nominal GDP target path should also limit the degree of alarm that might arise about risks of unbridled inflation when special fiscal stimulus measures are introduced."
Jacob Hacker: How to reinvigorate the centre-left? Predistribution: "Start, of course, with getting the macroeconomy right…. Getting the macroeconomy right also means effectively harnessing financial markets… to foster long-term investments in entrepreneurship and innovation, not quick profits based on volume, leverage, or insider knowledge…. Second… is quality public services, most notably, those that invest in the skills and opportunities of the young and ensure good health over the lifetime…. Finally, predistribution requires discovering a new set of countervailing powers in the market…. Ultimately, however, countervailing power will have to come through new organisations outside the workplace as well. Investor collectives could better police executive pay, while non-profit activists could shift their gaze from targeted interventions to help specific disadvantaged groups to new political movements to represent the segments of the future middle class that are most voiceless today…. The left does not need more slogans. It needs to take a cold, hard look at the concessions made to the rhetorical and political triumphs of the right…. But there is a vital place for active governance in the 21st century economy, and not just in softening the sharp edges of capitalism. Now more than ever, governments need to step in with boldness and optimism to make markets work for the middle class."
Buce: The Strouse Morgan: "Note to self: quit reading all those hot-off-the-press must reads. A few of them are good and original: a lot of them just recycle stuff you've been reading on the blogs… 35-page longreads tucked inside 180 pages of hard cover. Stick to stuff a few years, maybe a few centuries, old. Case in point: Jean Strouse's biography of JP Morgan…. For understanding how 19th Century finance worked, it's one of the best things I've run across so far. Some critics complain that it is too thick with detail and that might be true. But the details are still the natural venue of the devil and I don't know anybody (including Chernow) who walks you through so many individual deals in a way that makes you understand what the players were trying to accomplish and how they did it…. That may be the core point of the Morgan story: difficult, irascible, self-absorbed, unreflective though he have been, still Morgan was a man who wanted things to work. He saw every project as an occasion, not just to make money (though he made plenty) but to put together a project with a result: a railroad, a power company, a sovereign government, whatever…. She makes it clear (how could she not?) that concentrated power may confer unimaginable wealth on the lucky holder of the winning ticket. But she just as well shows how colossally wasteful the 19th-Century investment casino might be."
The Ballad of Narayama (1983 film) - Wikipedia: "The film is set in a small rural village in Japan in the 19th century. According to tradition, once a person reaches the age of 70 he or she must travel to a remote mountain to die of starvation, a practice known as ubasute. The story concerns Orin, who is 69 and of sound health, but notes that a neighbor had to drag his father to the mountain, so she resolves to avoid clinging to life beyond her term. She spends a year arranging all the affairs of her family and village: she severely punishes a family who are hoarding food, and helps her younger son lose his virginity. The film has some harsh scenes that show how brutal the conditions could be for the villagers. Interspersed between episodes in the film are brief vignettes of nature – birds, snakes, and other animals hunting, watching, singing, copulating or giving birth."
Owen Zidar sends us to Jason Long and Joseph Ferrie: Intergenerational Occupational Mobility in Great Britain and the United States since 1850: "The US tolerates more inequality than Europe and believes its economic mobility is greater than Europe’s, though they had roughly equal rates of intergenerational occupational mobility in the late twentieth century. We extend this comparison into the nineteenth century using 10,000 nationally-representative British and US fathers and sons. The US was more mobile than Britain through 1900, so in the experience of those who created the US welfare state in the 1930s, the US had indeed been 'exceptional'. The US mobility lead over Britain was erased by the 1950s, as US mobility fell from its nineteenth century levels."

Wonkette: Republicans Say: Gov. Jan Brewer Growing Socialism in Arizona Now, Just Like Judas Did to Jesus | Cardiff Garcia: Fiscalists vs market monetarists, a bloggy taxonomy | Delta Green - Wikipedia, the free encyclopedia | Château d'Armailhac | Ta-Nehisi Coates: To Stop Being the Party of Stupid You Must Stop Being Stupid |

NIno Scalia and Justified True Belief: A Puzzle

2013-06-13T19:58:28-07:00

Elon James White watches Nino Scalia confess that he is unable to believe in molecular biology:

Justice Scalia: Not Down with Science: Justice Scalia’s concurrence in the case on patenting genetic material, Association for Molecular Pathology v. Myriad Genetics, Inc., definitely stood out. Apparently, Scalia doesn’t believe in the science behind the case.

I join the judgment of the Court, and all of its opinion except Part I–A and some portions of the rest of the opinion going into fine details of molecular biology. I am unable to affirm those details on my own knowledge or even my own belief….

Here’s a sample from Part I-A that he doesn’t “believe” in:

Genes form the basis for hereditary traits in living organisms. See generally Association for Molecular Pathology v. United States Patent and Trademark Office, 702 F. Supp. 2d 181, 192–211 (SDNY 2010). The human genome consists of approximately 22,000 genes packed into 23 pairs of chromosomes. Each gene is encoded as DNA, which takes the shape of the familiar “double helix” that Doctors James Watson and Francis Crick first described in 1953. Each “cross-bar” in the DNA helix consists of two chemically joined nucleotides.…

The text goes on just like that: simply summarizing molecular biology. That’s right, Justice Scalia can’t confirm these details with his knowledge (valid) or his belief (um, what?).

Can't he hire a clerk to teach him molecular biology?

In Which I Feel Sorry for Ramesh Ponnuru…

2013-06-13T15:06:36-07:00

Kevin Drum:

Republicans Really, Really Don't Care About Improving Healthcare: Ramesh Ponnuru argues today that Republicans are foolish for hanging their hats on the likelihood that Obamacare will die a fiery death in 2014…. [He says] Republicans need to get busy now coming up with a replacement healthcare plan….

Congressional Republicans have not reached agreement on what should replace Obamacare, let alone a strategy for enacting that replacement. The best option for replacing Obamacare would be a plan that made it possible for almost everyone in the country to purchase catastrophic insurance (and possible for most people to buy insurance that goes beyond catastrophic coverage) by removing the obstacles that government policy puts in the way of that goal. A plan to do that would involve six key steps…

I'll spare you the six steps…. I think Paul Waldman's response pretty much says what needs to be said:

The biggest problem with this kind of appeal is that he will never, ever get anything beyond a tiny number of Republicans to invest any effort in coming up with a health-care plan. That would involve understanding a complex topic, weighing competing values and considerations against one another, and eventually getting behind something that will be something of a compromise. And let me say it again: They. Just. Don't. Care.

I don't blame Ponnuru and others…. I think they're kind of crazy to think their proposed plan would (a) work, (b) be politically attractive, or (c) be popular, but maybe that's just my liberal bias talking. What's not my liberal bias talking, however, is the plain fact that conservatives don't care about expanding access to healthcare…. They periodically put on a show whenever Democrats propose something that looks like it might have legs, but it's purely defensive. When the threat goes away, so does the show. This has happened like clockwork for decades.

Health Care Reform: Governor Jan Brewer of Arizona Persuades Enough Republican Legislators to Do the Right Thing on Medicaid Expansion

2013-06-13T07:44:08-07:00

Mary K. Reinhart, Yvonne Wingett Sanchez, Alia Beard Rau and Mary Jo Pitzl:

Arizona House approves Medicaid expansion, $8.8 billion budget: Five months after Gov. Jan Brewer vowed to expand Medicaid, a bipartisan Arizona House coalition voted early today to approve her high-stakes proposal, along with a budget that gives significant new funding to education and child welfare. The mostly 33-27 votes followed nine hours of debate and vitriolic speeches by conservative Republicans, who lashed out at fellow GOP members and Brewer for teaming with Democrats to steamroll them to approve a key piece of the federal health-care overhaul and the governor's top legislative priority….

House Speaker Andy Tobin, R-Paulden, and the rest of House leadership joined conservatives to oppose the 2014 budget, offer more than 50 amendments and hours of speeches in an effort to kill Medicaid expansion and wear down what has become a rock solid 33-member bipartisan group. The voting, which wrapped up about 3:40 a.m. in a special session called by Brewer late Tuesday, sends the bills to the Senate, which plans to vote on them this morning. A bipartisan Senate coalition pushed through identical bills Wednesday evening, in less than half the time…. Conservative GOP members, stripped of control in a special session abruptly called without their consent or even their knowledge, offered hours of blistering floor speeches. That could make it a challenge to come back together and sweep up the final bills of the regular session. “I feel like I’ve been punched in the gut,” said Rep. Debbie Lesko, R-Peoria. “And I feel like I’ve been betrayed.”…

During hours of debate Wednesday on 10 identical budget bills, frustrated conservatives railed against their GOP governor and colleagues, saying they were ashamed to be Arizona legislators and branding the power play by Brewer, 14 Republicans and the Democrats the darkest day in state politics. “I have never once ever been ashamed of what we’ve done in this body. I’ve disagreed, but I’ve never been ashamed,” said Rep. Eddie Farnsworth, R-Gilbert. “But I can tell you this process, from the governor on down, is an embarrassment… This is not policy making, this is dictating.” But stoic coalition members stuck together through hours of speeches Wednesday, rarely responding to Republicans’ demands for answers.

Shortly before 2 a.m., Rep. Debbie McCune Davis, D-Phoenix, offered the first full-throated defense of the proposal. She dedicated her vote to the late Msgr. Edward Ryle, a lobbyist for the Catholic Diocese who worked to establish the state’s Medicaid program. “We have proven over the last 20 years that the system works,” McCune Davis said. “There are incentives to reduce costs and to keep people healthy. The experience has been good for providers and patients, and that’s well documented… I wonder if people really understand the system that we have in place in Arizona.”…

Late Wednesday, frustrated with months of delay, Brewer again pressured lawmakers to act. “Majority,” the governor said in a statement. “That word has meaning in our republic. I trust that over the next 24 hours or so, a majority of the House and Senate will put an end to the games.”…

Brewer rankled many in her party by calling aspecial session Tuesday evening, bypassing leaders in her own party who called the move disrespectful, reckless and “less than what was expected of her and more than should be tolerated.” The governor’s move came after House Speaker Andy Tobin, R-Paulden, had adjourned the lower chamber until Thursday, stalling the efforts of the bipartisan House coalition to pass Brewer’s 2014 budget and Medicaid expansion…. Brewer went around him. “I think it’s pretty bad for a Republican governor to call a special around majority leadership,” Tobin said earlier Wednesday. “We all recognize we have to govern, and clearly it’s late. But this is a huge decision on Medicaid and I believe that I was making sure that the process was going to move forward — both sides wanted their Medicaid fight.”…

Carter said the bipartisan group that came together over Medicaid and education funding only became stronger as pressure mounted on Republicans to cave. “We have a cohesive, incredible group that is focused on the priorities of Arizona, which No. 1, is presenting a balanced budget that is constitutionally required,” Carter said. “This year that includes a decision about what we do with our Medicaid population.”

Dear Mr Carney... Memos to the New Bank of England Governor

2013-06-13T05:17:23-07:00

Dear Mr Carney…:

Wage settlements are subdued, and more than 2.5 million people are out of work in the UK: thus the top priority for the Bank of England has to be to boost aggregate demand.

With possibilities for expanded government spending blocked by the ideological fundamentalism of the parliamentary majority, the interest rates the Bank of England controls at rock-bottom, and quantitative easing of unknown effectiveness, only one obvious lever remains: the exchange rate.

It is time for the governor to announce that a (somewhat) weaker pound is in Britain’s (short-run) interest--and to make it so.

The Properly-Formulated Bagehot Rule Has Four Parts

2013-06-13T05:13:37-07:00

The properly-formulated Bagehot Rule is that in a financial crisis, the lender-of-last-resort:

Lends freely,
At a penalty rate,
On collateral that is good in normal times, and
Institutions that are still underwater get "resolved" immediately and completely.

That was not done in Greece in 2010.

Barry Eichengreen:

Lessons of a Greek Tragedy: The critical policy mistakes were those committed at the outset… in the first half of 2010…. The country’s sovereign debt should have been restructured without delay. Had Greece quickly written down its debt burden by two-thirds, it would have been able to shed its crushing debt overhang. It could have used a portion of the interest savings to recapitalize the banks. It could have cut taxes, rather than raising them. It could have jump-started investment and gotten its economy moving again…. In its official post-mortem on the crisis, the International Monetary Fund now agrees…. But this was not its view at the time. Under the leadership of Dominique Strauss-Kahn, the Fund was in thrall to the French and German governments….

The European Commission, for its part, has rejected the IMF’s mea culpa. Preoccupied by the state of the French and German banks, it continues to argue that delaying debt restructuring was the right thing to do. It has no regrets…. Given this opposition, the Greek government would have had to move unilaterally. Hindsight suggests that the authorities should have done just that…. But, instead of working together with its social partners, the government, heeding the troika’s advice, dismantled the country’s collective-bargaining system, leaving workers unrepresented. Greece thus lacked a mechanism to negotiate a social compact to cut wages, pensions, and other obligations in an equitable way…. The troika demanded a pound of flesh, in the form of front-loaded austerity, as the price of assistance. Those front-loaded tax increases and government-spending cuts plunged the economy deeper into recession, making a farce of claims that the public debt was sustainable – and forcing the inevitable debt restructuring after two more agonizing years…. The damage will not be easily undone.

Liveblogging World War II: June 13, 1943

2013-06-13T04:48:20-07:00

Underrated Economics Weblogger: Evan Soltas: Thursday Link Promiscuity Weblogging

2013-06-13T02:29:00-07:00

http://esoltas.blogspot.com/

And:

The U.S. Economy Still Isn't Churning: "My Bloomberg View colleague Matthew Klein just weighed in… saying that the rise in the number of people quitting is a good thing. He's right: Quits show the employee's confidence that he or she can find a better job. There's a counterpoint, though. The rate of labor market 'churn' -- the number of people moving from job to job per quarter -- dropped by 2.3 million during the recession and hasn't recovered…. Low churn means that people may be choosing to hold down jobs that aren't quite right for them…. 8.7 million Americans found a job or left one in April -- down 2 million from pre-recession levels… weak demand for labor… clogs up the cycle of job openings, hires, fires and quits. You have to be brave to leave a job amid high unemployment and little hiring -- but with few quitters, positions don't open up and so the low churn persists…. The Fed is watching the unemployment rate, but its statements indicate it also considers 'additional measures of labor market conditions'. Churn should be one of those. The ultimate task of labor markets is to allocate workers to positions -- and churn measures that directly. That it hasn't improved since the recession means that labor markets are much less healthy than falling unemployment might suggest:

Noted for June 13, 2013

2013-06-13T00:59:00-07:00

Dani Rodrik: Europe’s Way Out | Erik Loomis: Lead and Schizophrenia | Bruce Bartlett: 'Financialization' as a Cause of Economic Malaise | Mark Thoma sends us to David Ricardo 'On Machinery' | J.P. Koning: Moneyness: Adam Smith's very own Lehman Crisis | Teresa Nielsen Hayden (2004): New times call for new t-shirts | Austin Frakt: The longest ever study of consumer-directed health plans | The Battle of Maldon | Josh Barro: Was Edward Snowden A Good Leaker? |

Whack-a-Molonomics Blogging: Hey! Paul! "Hige sceal þe heardra, heorte þe cenre, mod sceal þe mare, þe ure mægen lytlað" (Apropos of Paul Krugman: Hamster-Wheel Economics: "Sad reading from British economic analysts these days — sad, that is, for anyone who likes to believe that evidence actually matters for policy. First, the normally even-tempered Simon Wren-Lewis is angry, with cause: he sees the Dutch central bank calling for more austerity despite the depressed state of the Dutch economy, no prospect of recovery any time soon, no hint of debt trouble — and no explanation except boilerplate…. It was one thing to buy into the austerity thing three years ago… but to roll out the same old line given everything that has happened since is pretty disgraceful…. Martin Wolf is out today with a column explaining that there is no current risk of inflation. He’s right, of course, and presumably what he hears from policymakers and others tells him that such a column is necessary. But my God: we had this debate in full four years ago. The usual suspects issued dire inflation warnings; the Keynesian/liquidity trap types like me insisted that this was all wrong given current circumstances. The events unfolded…. And yet the people warning about inflation four years ago, and three years ago, and two years ago, are still at it, still making the same arguments. And they still have influence! I guess there’s nothing for it but to keep on pounding. But it’s discouraging.").

The Desolation of Smaug:
Scott Lemieux: Fortress Unionism: "Rich Yeselson has a really superb piece on the ongoing implications of Taft-Hartley and what labor can and can’t do in response. The whole thing should be read, but I’ll tease the bottom line: 'Ancient history? Maybe—but it’s also crucial history whose direct consequences labor and the country live with today. Taft-Hartley didn’t destroy labor. But it stopped labor dead in its tracks at a point when unions were large, growing, and confident of their economic and political power…. The law codified a series of legal land mines—some of which didn’t detonate for decades—that forced unions to weigh the political and economic costs of doing anything too aggressive in their efforts to grow…. Taft-Hartley isn’t going anywhere. Its land mines still detonate. And it still defines the legal and political context in which labor must operate as it tries to map out a strategy for the future. An aggressive organizing strategy, of the sort labor attempted when John Sweeney took the helm of the AFL-CIO, just doesn’t work because the smart union strategists can’t compensate for a mostly (though not entirely) uninterested working class. But labor can, without undertaking lengthy and expensive campaigns to organize new sectors, work to buttress the areas in which it is already strong, extend its alliances with other progressive groups, and even train the worker leaders of tomorrow. I call this “Fortress Unionism,” and I believe it’s labor’s best play until the day arrives, if it ever does, when the workers themselves militantly signal that they want unions.'"
Jamie Dimon: "There was no hiding, there was no lying, there was no bulls----ing, period. But we were wrong about stuff. Nothing was done that was deliberate in any way, shape or form."
Ta-Nehisi Coates: Notes From the First Year: Some Thoughts on Teaching at MIT: "The old adage is true -- writing is rewriting. But it takes a kind of courage to confront your own awfulness (and you will be awful) and realize that, if you sleep on it, you can come back and bang at the thing some more, and it will be less awful. And then you sleep again, and bang even more, and you have something middling. Then you sleep some more, and bang, and you get something that is actually coherent. Hopefully when you are done you have a piece that reasonably approximates the music in your head. And some day, having done that for years, perhaps you will get something that is even better than the music in your head. Becoming a better writer means becoming a re-writer. But that first phase is so awful that most people don't want any part. I think because MIT is a pretty bruising place, my kids came prepared for most of this…. I didn't have to work hard to motivate people. What I found was that if I showed up, and I was excited, they fed off of that, and they got excited. I came to feel that teaching was performance. My job was to communicate my own energy and belief in the importance of the work. I had it pretty easy. I wrote my syllabus, and thus chose work that I loved. If the syllabus wasn't working, I could make a change as we went…. I love writing. I go to bed thinking about it, and wake up thinking about it. Some communicating energy was never a problem…. I don't know how well I'd do at a school where the kids cared less."
The White House: What is The Great Gatsby Curve?
Jared Bernstein: Boy, Is There Ever No Wage Inflation in This Economy: "The figure shows a compensation series that doesn’t get a lot of press but is quite useful and comprehensive: what employers pay for employee compensation, including wages and benefits. The lines plot out the yearly changes in nominal hourly benefits, wages, and their sum: total compensation. Benefits tend to grow more quickly (think health costs) but they’re 30% of comp, so wages are a larger driver of the total…. One question this raises is how the heck are we getting anything like the decent consumer spending numbers in recent GDP reports? My answers are: –these are hourly wages, so as we add jobs, we add aggregate hours worked, and that helps drive income and consumer spending; –lately savings rates have come down so that’s another source of some spending; –non-labor income such as capital gains and dividends are up, along with corporate profitability, and that stuff decidedly doesn’t show up in paychecks; –increased housing wealth is probably contributing as well. Jeez, that all sounds depressingly familiar—weak wage growth in the midst of growing inequality with consumer spending supported by housing wealth and drawing on savings. What could go wrong?"