Category: Equitablog

…Ramesh Ponnuru reminds us why worrying about “currency wars” is misguided when economies are depressed. It completely misses the point…. It is not the depreciation that matters, but the boost to domestic demand from easing monetary policy. Unfortunately, not every central bank is interested in stabilizing domestic demand as noted next. Monetary Policy Differences Explain a Lot. Martin Wolf looks across the global economy and finds a common factor behind the variation in economic growth: the stance of monetary policy…. The Nominal GDP Targeting Glass is Half Full…

Matthew Klein:
Did Japan actually lose any decades?:
“After adjusting for population, real household spending…

…grew more from 1990-2013 in Japan than in every country in our sample except for Sweden, the UK, and US. Moreover, the UK and US only managed to pull off their superior consumption growth with the help of huge unsustainable debt bubbles and ‘wealth effects’, while Japanese consumers had to contend with sinking asset markets and stagnant nominal wages. So much for the idea that deflation kills the impulse to shop! If we start the clock not in 1990, however, but in 2000, Japan looks even better…. Now, one could argue that some of this is as much a reflection on the severity (and mishandling) of the aftermath of the excesses in other countries as much as it is a testament to the strength of Japan. But even if we use the cherry-picked time frame of 1990-2007, real consumption per person still grew more in Japan than in Germany and Switzerland, and almost as much as in France and Austria…

Paul Krugman:
Shinzo and the Invisibles:
“Brad DeLong is puzzled by… Ken Rogoff[‘s]…

…warning that Japan could face an attack from invisible bond vigilantes if it doesn’t quickly tackle long-run fiscal issues. I’m puzzled too… The truth is that I said such things about the US back in 2003. But I was wrong…. Rudi Dornbusch’s ‘overshooting’ model…. Invisible bond vigilantes. Suppose… they suddenly demand that Japanese 10-year bonds offer a rate of return 200 basis points higher than US 10-year bonds. You might be tempted to say that Japanese interest rates will spike–but the Bank of Japan controls short-term rates, and long-term rates are mainly an average of expected short-term rates, so how is this supposed to happen?… Instead, the yen would depreciate now so that investors can expect it to appreciate later. And this yen depreciation would be expansionary…. The invisible vigilantes would be doing Japan a favor if they suddenly materialized and attacked!

I’ve had many discussions with smart people about this, and have never gotten an explanation of why it’s wrong; we usually end up with something like a warning that Japanese deflation might suddenly turn into uncontrolled inflation, which seems unlikely and certainly isn’t the way the warnings are usually phrased–we’re supposed to worry about turning into Greece 2010, not Weimar 1923. You might think that what we’re talking about is the lessons of history–but as far as I can tell, there are no historical examples of countries with debts in their own currency facing a Greek-style crisis…

…by what happens to the economy, and what happens to the economy is not all within the Treasury’s control. But it’s equally important to remember, that what happens to the economy is largely determined by what happens to the budget. This could hardly not be so, as government spends about 40% of GDP. Ever since I started writing and speaking about these matters in 2010, I have been predicting that the Chancellor would not meet his budget targets. The reason I gave was that the pursuit of those targets in itself slows down the economic growth on which their achievement depends. Why? Because it slows down the rate of spending in the economy, and growth depends on spending. The cuts have hit the spending, and the spending has hit growth.

So it’s not surprising that the Chancellor finds himself with a projected deficit of £91.3bn this year, when in 2010 he promised to ‘balance the budget’ by the end of this parliament. According to the OBR, the discrepancy between the projection and outcome results from ‘unexpectedly weak performance of tax receipts’. Perhaps it was only unexpected to the experts at the Treasury. In fact, it was the logical consequence of growth being so much below what was expected between 2010 and 2013, and of what has been happening to the labour market since…

…someone mentioned having a problem with one particular far-future (well, set 400 years hence) SF novel that disrupted their reading of it so badly that they ended up giving up on the book…. I think it’s worth taking a look at it, because it’s one of my own pet shibboleths…. These are not bad authors and they don’t write terrible books: that’s part of what makes the problem so jarring for me.

And the nature of the problem? It’s that the stories they’re telling are set in a far future… in an interstellar human polity…. And yet the civilization they portray can best be described as ‘Essex suburbia goes interstellar’… or… ‘Whitebread Middle American Suburbia to the Stars’… gender politics, religious framework, ideologies, fashions(!) and attitudes… has become a universal norm. And nothing else gets much of a look in….

You can make an argument for writing SF in this mode in that it allows the lazy reader to ignore the enculturation issue and dive straight into the adventure yarn for which the SFnal trappings are just a brightly-coloured wrapper. But I still find it really weird to read a far-future SF story that doesn’t deliver a massive sense of cultural estrangement, because in the context of our own history, we are aliens.

Imagine yourself abducted by a mad Doctor in a time machine shaped like a blue Police Box (itself an anachronism in today’s smartphone-networked world) and dumped on the streets of your home city a century ago, in 1914…. How familiar are you going to find things? The answer is actually ‘not very’…. You speak a dialect of the local language, it’s true. But you have some words or terms that nobody recognizes (‘atom bomb’), some words that have changed meaning radically thanks to the spread of technical neologisms (‘virtual’, ‘computer’) or social change (‘queer’, ‘n—–‘), and there are other words and slang that you probably don’t recognize….

The architecture and layout of cities will be vaguely familiar…. Some things will be mildly disorienting…. Some items will be disgusting (horse shit everywhere, and the flies they attract). It may be hard to tell the difference between a shop front and somebody’s living room, if you get away from the market stalls. And it may be hard to tell the difference between a contemporary crack house and the typical living conditions of the early 20th century poor…. Foodstuffs you expect to find are unavailable and exotic (bananas, kiwi fruit, curry), and stuff nobody in their right mind would eat is routinely sold (tripe, kidneys, beef hearts) and eaten…. Don’t ask about medicine….

You don’t want to know what passes through conservatives’ minds in 1914…. It’s worth noting, incidentally, that much of the social change that led up to the current cultural matrix was driven by technological change. Better medicine and family planning… which bananas… cheaper than potatoes, people aren’t worn out unto death by fifty, civil rights for people who aren’t rich white males… you probably aren’t dying of tuberculosis. So why do repeatedly we see the depiction of far future societies with cheap interstellar travel in which this hasn’t bought about massive social change as a side-effect (other than the trivial example of everyone having a continental sized back yard to mow)? Seriously, I feel that if I’m writing far-future SF, I’ve got a duty to at least try and portray a plausible society.

Must- and Shall-Reads:

• Brook Masters:
  Busy times at the top as the CEO carousel gains pace

1. Kevin Drum:
   The Obama Recovery Has Been Miles Better Than the Bush Recovery:
   “Bush benefited not just from a historic housing bubble but from big increases in government spending and government employment. But even at that his recovery was anemic. Obama had no such help. He had to fight not just a historic housing bust, but big drops in both government spending and government employment. Despite that, his recovery outperformed Bush’s by a wide margin…. And as Krugman points out, it’s unclear just how much economic policy from either administration really affected their respective recoveries anyway: ‘I would argue that in some ways the depth of the preceding slump set the stage for a faster recovery. But the point is that the usual suspects have been using the alleged uniquely poor performance under Obama to claim uniquely bad policies, or bad attitude, or something. And if that’s the game they want to play, they have just scored an impressive own goal.’ Roger that. If you want to credit Bush for his tax cuts and malign Obama for his stimulus program and his regulatory posture, then you have to accept the results as well. And by virtually any measure, including the fact that the current recovery hasn’t ended in an epic global crash, Obama has done considerably better than Bush.”
2. Kenneth Rogoff:
   Can Japan Reboot?: “How can aging advanced economies revive growth after a financial crisis?… The first round of… ‘Abenomics’… failed to generate sustained inflation…. The question is… Abenomics 2.0…. My own view is… Abenomics 1.0 basically had it right: ‘whatever it take’” monetary policy to restore inflation, supportive fiscal policy, and structural reforms…. The central bank… has been delivering… the other two ‘arrows’… have fallen far short. There has been no significant progress on supply-side reforms…. The timing of the April 2014 consumption-tax hike (from 5% to 8%) was also unfortunate…”
3. BLS:
   Employment Situation Summary: “Total nonfarm payroll employment increased by 321,000 in November and the unemployment rate was unchanged at 5.8 percent, the U.S. Bureau of Labor Statistics reported today…. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 2.8 million in November. These individuals accounted for 30.7 percent of the unemployed…. The civilian labor force participation rate held at 62.8 percent in November and has been essentially unchanged since April. The employment-population ratio, at 59.2 percent, was unchanged in November…”
4. Justin Fox:
   On Annalee Saxenian: What Still Makes Silicon Valley So Special:
   “She hasn’t just heard about it. She was the first to really tell the story, in one of the most important and influential business books of the past quarter century. In Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Saxenian set out to describe what differentiated California’s Silicon Valley from the tech industry outside Boston…”

Should Be Aware of:

• Tom Ricks:
  In and Out of Time in Iraq
• Pioneer Valley Pizza
• Brad DeLong (2009):
  An Answer to a Question from Michael Berube… (Brad DeLong’s Grasping Reality…)
• Neal Stephenson:
  Cryptonomicon: 88 Metis

1. Adam Serwer:
   How Sotomayor undermined Obama’s NSA | MSNBC:
   “When Obama first tapped Sotomayor in 2009, she was savaged as an intellectual lightweight, an affirmative action baby who would never be able to write the sort of far-sighted dissents or concurrences that might persuade judges appointed by the opposite party or potentially become law. That is, the exact sort of concurrence she penned in Jones.  When the woman who would become the first Latina Supreme Court justice wasn’t being attacked as an anti-white racist by the likes of National Journal columnist Stuart Taylor Jr. or former House Speaker Newt Gingrich, leading liberal legal minds were wringing their hands about her supposed lack of sophistication or intelligence. In a 2009 article for The New Republic, Jeffrey Rosen quoted anonymous sources questioning Sotomayor’s intelligence and wondered whether she met the ‘demanding standard’ for a Supreme Court Justice. Sotomayor, Harvard Law Professor Laurence Tribe wrote to Obama, is ‘not nearly as smart as she seems to think she is,’ and her ‘reputation for being something of a bully could well make her liberal impulses backfire’ and alienate potential swing votes from the conservative wing of the court. Rosen didn’t respond to a request for comment from msnbc. Tribe however, acknowledged underestimating Sotomayor…”
2. Simon Wren-Lewis:
   Government Debt, Financial Markets and Dead Parrots:
   “If you are thinking about buying government debt… you need to worry about… whether the government will choose to default… [and] about forced default, where the government is unable to ‘roll over’ (refinance) its existing debt, because the market will no longer lend to it. The two are… not identical. The second risk… [is] a self-fulfilling crisis: default occurs because the market believes default will happen, even if the government actually has no intention to default…. This is where your own central bank is very useful. It eliminates this second type of risk…. This is what the ECB refused to do until its OMT programme in September 2012. Until that point, markets were worried that governments in Ireland, Portugal and Spain would… be forced to default. With OMT the ECB changed its mind, which brought the crisis to an end. The Eurozone parrot was not completely wiped out because the ECB still made its support conditional… but it is not the bird it once was. The parrot probably never flew in countries like the UK, US or Japan because these countries had their own central banks. Of course many people claim to have seen it, but it seemed to disappear as quickly as it came…”

The only graph that is not stunningly embarrassing for the argument is the one that ascribes all employment losses after his inauguration to Obama-policies and all job losses before the trough of the 2001 recession to Clinton-policies:

The question is: is this the same thing that is going on in Chicago economics, or not? As you know, Bob, when Chicago Lucas models began failing their empirical statistical tests massively, the response was to abandon statistical testing because it was “rejecting too many good models”. When Chicago finance model began failing their empirical statistical tests massively, the response was to redefine what investor psychology was: Investors no longer had a stable utility function relating their consumption spending to their well-being exhibiting declining marginal utility. Instead, investors had whatever and however rapidly changing a function relating their well-being to their consumption spending that was needed in order to keep the efficient markets hypothesis from being falsified.

The question is: Are these different things, or are these the same things? And how are they related to the earlier tobacco money-infused campaign of tobacco denialism? And how are they related to the present oil money-infused campaign of global warming denialism? And how are they related to the Cato Institute’s failure to register that its anti-fiscal stimulus campaign of 2009–along with its anti-ObamaCare campaign, and its anti-debt crisis campaign–now looks like something really not to be proud of?

Answers, anyone?

The very sharp Ken Rogoff muses about Japan:

May I say that I believe that it is inappropriate for the Federal Reserve to raise interest rates before it sees at least two quarters in which inflation averages 2%/year and wage growth averages 3%/year or more?

Seriously: now is the time for the Federal Reserve to establish its credibility on the point that, if the economy enters a liquidity trap, the Fed is going to keep stimulating until the economy is out of the liquidity trap and interest rates can normalize. If the Fed does not do this now, future Fed Chairs will curse its name.