Category: Equitablog

Reuters: U.S. House Speaker Boehner bemoans notion ‘I don’t have to work’: “Boehner’s remarks were in response to a question…

…following a speech he delivered to the conservative-leaning American Enterprise Institute…. Boehner… lamented ‘this idea that has been born, maybe out of the economy over the last couple years, that you know, I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around. This is a very sick idea for our country.’…. Boehner talked about his large family of 11 brothers and sisters, saying that as a youngster… ‘If you wanted something you worked for it’… adding, ‘Trust me, I did it all’…. [Paul] Ryan… spoke of a ‘tailspin of culture in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value of work’. Ryan later said his remarks were ‘inarticulate’…

Paul Krugman: Could Fighting Global Warming Be Cheap and Free? “Where is the new optimism about climate change and growth coming from?…

…It has long been clear that a well-thought-out strategy of emissions control, in particular one that puts a price on carbon via either an emissions tax or a cap-and-trade scheme, would cost much less than the usual suspects want you to think. But the economics of climate protection look even better now than they did a few years ago. On one side, there has been dramatic progress in renewable energy technology…. On the other side, it turns out that putting a price on carbon would have large ‘co-benefits’–positive effects over and above the reduction in climate risks–and that these benefits would come fairly quickly. The most important of these co-benefits, according to the I.M.F. paper, would involve public health: burning coal causes many respiratory ailments, which drive up medical costs and reduce productivity…”

James Pethokoukis: Is it time to retire the most important chart in the world?: “The gap between actual GDP and potential GDP…

…represents trillions in missing economic growth caused by a failure of the US economy to return to its previous trend growth path. The cost of the Two Percent Economy is staggering, and it’s a big reason — along with quiescent inflation — that “market monetarists” have been in no hurry to see the Federal Reserve do less. In fact, many would prefer the central bank do more — or, actually, do different. But at this point, economist David Beckworth thinks it’s time to look forward and forget about returning to the pre-crisis trend level…. That is reality talking. The Fed is winding down QE and will begin nudging up rates next year (hopefully avoiding a repeat of the Fed’s 1936-37 mistake). From this point on, I suppose, better to focus on crisis avoidance through smarter, rule-based, market-based monetary policy. That, and faster potential GDP growth through supply-side reforms in areas such as taxation, regulation, and education.

Let’s look at the five-year and ten-year U.S. break-even inflation rates–the inflation rates at which an investment in U.S. Treasury bonds held to maturity produces exactly the same return as an investment in U.S. Treasury inflation-protected securities of the same maturity:

The most obvious feature of the graph is the liquidity squeeze of 2008–when people were dumping inflation-protected securities at ludicrous prices because they were thought to be less cash-like than Treasuries, and people wanted cash. It is not always the case that the inflation break-even tells us what Ms. Market’s inflation expectations are; it is not always the case that the price of TIPS relative to Treasuries is set by a thick group of rational arbitrageurs focused on trying to profit from others’ misperceptions of likely future inflation:

The second thing to note is the relatively sharp drop in Ms. Market’s inflation expectations since the mid-2000s: a delta of about -0.8%-points/year. Back in the mid-2000s we thought:

• that the labor market was close to full employment; today we think it is still substantially below full employment;

• that the cushion needed between the inflation target and zero to keep interest rates from hitting the zero lower bound and causing significant macroeconomic distress was low; now we think it is higher; and

• that the overall price level was about where people had expected it to be ten years before, and thus there were few contracts, expectations, and rules of thumb in the economy that needed a higher price level than we had then in order to function smoothly; today our price level is 4% lower than people a decade ago would have predicted today.

All three of these strongly militate for a higher expected inflation path going forward from today than the inflation path anticipated back in the mid-2000s. Yet our anticipated inflation path is not higher but rather 0.8%-points/year lower.

This makes absolutely no sense–unless you believe that inflation as it was back in the mid-2000s and as it was then anticipated to be was markedly too high.

The third thing to note is what has happened in the past eighteen months, since Ben Bernanke began talking about how it was time to “taper” the Federal Reserve’s Quantitative Easing asset-purchase programs:

If you thought that aggregate demand was on an acceptable medium- and long-term track back in the winter of 2013–with the 10-year breakeven at 2.5%/year and the 5-year breakeven at 2.2%/year–you certainly do not think that aggregate demand is on an acceptable medium- and long-term track now, with the 10-year breakeven below 2.1%/year and the 5-year breakeven kissing 1.6%/year.

There is right now a very sharp disconnect between how the Federal Reserve views the last eighteen months–as policy staying the course and remaining on track–and how Ms. Market view the last eighteen months–as the Federal Reserve initiating or accommodating a relatively sharp contraction in demand that is likely to lave the price level ten years hence an additional 4%-points lower than was anticipated. The Federal Reserve’s policy is data-dependent, but the data do not appear to include financial market forecasts and judgments.

Must- and Shall-Reads:

• Ezra Klein: Salon columnist Thomas Frank does not like political science, and he particularly dislikes my column arguing that political science is improving political journalism. In riposte, he’s written an article demonstrating the need for political journalists to ground their ideas in political science…

1. **Matthew Yglesias: Obama’s biggest economic policy mistake: “Barack Obama has not accomplished nearly as much as his most fervent supporters–or, indeed, the president himself–had hoped…. This has led… to a litany of back-biting complaints… corruption or incompetence… tactical failings or ideological betrayals. The truth is… he has accomplished an enormous amount…. But as the country waits to hear the latest announcement from the Fed about how rapidly it will end its Quantitative Easing programs, we are witnessing the biggest mistake of Obama’s presidency: the systematic neglect of the Federal Reserve… a failure that… has likely doomed millions of people to needlessly long spells of unemployment, permanently reduced the structural capacity of the American economy, and through poor macroeconomic performance reduced his political ability to drive change in environmental policy, bank regulation, and other areas…. Obama’s neglect of Federal Reserve appointments is, in some ways, mysterious. Nobody denies that the Fed is an extremely important institution…. When it comes to other important independent institutions such as the federal judiciary, it’s broadly acknowledged that the presidential appointment powers are among his most important powers…. [But[ bolstering the left flank on the FOMC so that Yellen’s consensus-building efforts would land in a more stimulative spot isn’t on the agenda…. The current vacancies are not a new phenomenon. When Obama first took office in 2009, he allowed Fed vacancies to linger for years, only putting forth candidates in 2011. When he did put two names into play, one was a Republican and the other–Jeremy Stein–is a Democrat who holds to an eccentric view that tight money is sometimes appropriate even when unemployment is high…. How much good could have been done if Obama had listened to Romer, Scott Sumner, Joseph Gagnon, or others and placed a higher priority on appointing unemployment-fighters to the Fed? Nobody can say for sure. But the experience of the United Kingdom is illustrative…. FDR’s long-term impact on American policy comes from the structural reforms of the New Deal. But as Romer showed… ‘nearly all the observed recovery of the US economy prior to 1942 was due to monetary expansion’. That recovery–driven by Roosevelt’s pursuit of aggressive monetary policy in the form of ditching the gold standard–is what gave him the political clout to pursue those structural reforms. Had Obama been as attuned to monetary matters as FDR, he could have secured a better result for the country and a firmer legacy for himself.”

2. Cheryl K. Chumley: The Problem with Being John Boehner: “Speaker John Boehner [explains] why… the Republican majority in the House looks good on paper but doesn’t always pan out with votes. ‘On any given day, 16 of my members decide they’re going to go this way, and all of the sudden, I have nothing. You might notice I have a few knuckleheads in my conference…. Dealing with Democrats is one thing. Dealing with the knuckleheads is another.’… In April, Mr. Boehner mocked some of his Republican colleagues for failing to support immigration reform, describing their attitudes as: ‘Ohhh, don’t make me do this. Ohhhh. This is too hard…'”

3. Scott Gotlieb: Ebola:

4. Wall Street Journal Federal Reserve Statement Tracker

5. Simon Wren-Lewis: Keynes and the Macmillan committee “When I was younger, I drew the wrong inference about the Great Depression. If only the General Theory had been written 10 years earlier, I reasoned, much of the agony of the Great Depression could have been avoided. Instead I should have focused on the gold standard… because of what it tells you about the influences on macroeconomic policy. Montagu Norman said to the committee ‘I have never been able to see myself why for the last few years it should have been impossible for industry, starting from within, to have readjusted its own position’. This was a few years after the General Strike of 1926! This was not someone lacking a coherent theory, but someone blind to the evidence and human nature, and enthralled to the ideology of the gold standard. No doubt being a central banker rather than a worker, or even an industrialist, helped this blindness. The lesson I should have drawn from the Great Depression is that a powerful ideology, in the hands of people remote from those adversely affected by it, can overcome common sense and evidence.”

6. Ezra Klein: Area Pundit Tom Frank Angry at Political Science for Proving Him Wrong: “Watching congressional Democrats who were more conservative than Republicans become Republicans is not a story that tracks very well with [Tom] Frank’s story of a populist electorate being turned off by Clinton’s triangulations. Indeed, Clinton was much more liberal than many of the congressional Democrats who lost their seats in 1994. But Frank wants to see the Democratic Party move leftward, and so this isn’t an analysis of the period that he finds very helpful…. I rely on political science research… because politics, in my experience, is thick with the ‘allow me to drop a single, disturbing data point’ approach to analysis. Skilled writers can make anything sound convincing in 24 column inches…. Political science has its problems, but… is more than capable of weeding out this kind of nonsense. It forces a much higher evidentiary standard…. The biggest problem any of us face trying to learn about American politics is the natural tendency to believe arguments we like and dismiss the ones we don’t. Poli-sci research is, for me, a helpful check…. I need to ground my political commentary in something beyond my own opinions. Political science research isn’t perfect or infallible, but it’s a start. So yes, Frank is right: politics is full of experts who don’t deserve the trust they’re given and retain prominence even after their theories are shredded. The problem is he’s one of them.”

Should Be Aware of:

• John Emerson: Anti-Populism One More Time
• Rachel S. Cordasco: On The Southern Reach Trilogy by Jeff VanderMeer

1. LizardBreath: Sexism Without Sexists:
   Talking about children’s books yesterday, DaveLMA said “Wizard of Earthsea, wonderful as it is, may be less good for a young woman than a young man.”… They’re beautiful books about magic as a way of naming and knowing the world, but… there’s an aphorism from the world of the books: Weak as women’s magic, and wicked as women’s magic…. I had a similar set of thoughts when Mary Stewart died last spring. I loved her trilogy of books about Merlin…. Merlin’s power is (initially) contingent on his avoiding sex with women, and women’s magic is weak, and repeatedly equated with poison…. Both of these sets of books I loved uncomplicatedly as a teenager…. Looking back, though, I find them upsetting, particularly considering the authors. It’s not just that they’re both women…. Tthey both came up with these worlds where weakness and evil were baked into the nature of femininity. I don’t know what to do with this in either case, except that I haven’t recommended either trilogy to my kids, and thinking about them makes me angry…. There’s a lot of stuff that’s much more aggressively sexist that I read and reread with enjoyment and without taking it personally, but these two sets of books got under my skin.”

2. Ayaan Hirsi Ali: Hirsi Ali addresses over 300: as reported by Nicole Ng And Wesley Yiin: “Growing up, Hirsi Ali said religious teachers taught her the duties of being a Muslim, such as worshipping Allah, telling the truth, looking after those in need and being obedient and modest. She said in her community, those who neglected their religious duties were never ostracized or attacked, but rather were ‘left alone’ or ‘nudged gently’ at most. When she was 15, Hirsi Ali said she encountered a different kind of religious teacher–whom she referred to as a ‘Preacher Teacher’–who encouraged youths to enforce the religious duty of Islam and wage jihad against those who did not obey…. This ‘indoctrination’ is at the source of radical Islam and leads to intolerance and violence. Therefore, she said, in order to fight the symptoms of radical Islam, the ‘core creed’ of Islam–the Qur’an and hadith–must be reformed. Hirsi Ali called on Muslims to listen to their consciences and stand up to Allah, rather than bending to his will…. ‘The clash is there, but what we follow up with is restraint. And restraint is what we’ve been showing for the last 30 years’…. Hirsi Ali directly addressed the MSA during her speech, asking why the organization took the time and resources to ‘silence the reformers and dissidents of Islam’, including herself, rather than fighting against the violence, intolerance and indoctrination Hirsi Ali associates with Islam. ‘MSA students of Yale, you live at a time when Muslims are at a crossroads’, she said. ‘The Muslim world is on fire and those fanning the fire are using more creed. With every atrocity [they underscore] your commitment to Allah…. Will you submit passively or actively, or will you finally stand up to Allah?’…. Individual Muslim students interviewed expressed a variety of reactions to Hirsi Ali’s talk, but declined to attribute their names out of fear of retribution…”

3. Daniel Drezner: The System is Working: “True, the first year of the Great Recession was more severe than the first year of the Great Depression. But, despite this initial shock, the system responded in a surprisingly nimble fashion. Compared to previous global downturns triggered by a financial crisis, the global economy bounced back robustly. Trade and output levels exceeded pre-crisis levels in most countries a few years ago, and global poverty continues to decline rapidly. One key to this rebound was that, in contrast to the 1930s, the global economy maintained existing conditions: trade barriers remained low, as did restrictions on foreign direct investment, and cross-border exchange continued to spread with the Internet…. By any reasonable metric, multilateral institutions and great-power governments did what was necessary to preserve the global economy’s openness. So why the widespread misperception that the system failed? Here, we run into a dirty little secret of world politics: many commentators on international politics do not know much about economics or economic policy…. This ignorance matters when political commentators try to write about the global economy. They will naturally rely on the most accessible facts as their guide…. Does the system’s remarkable resiliency since 2008 mean that it can withstand the next crisis? In theory, yes…. Ironically, the only thing that might stop the system from continuing to work is the low confidence of its greatest proponents.”

Comments:

• Optimism of the will is fine when attached either to optimism or pessimism of the intellect. But optimism of the will combined with denial of the intellect is not a terribly effective rhetorical pose. You do realize that your arguments would be stronger if you had, like, actual quotes from Jonathan Chait saying things you think are wrong? And, like, actual explanations of why you think what Chait writes is wrong? Joining Tom Frank and Sally Quinn in their war on Ezra Klein and Nate Silver really looks like a career-limiting move to me…

Ezra Klein: Area Pundit Tom Frank Angry at Political Science for Proving Him Wrong: “Watching congressional Democrats who were more conservative than Republicans become Republicans…

…is not a story that tracks very well with [Tom] Frank’s story of a populist electorate being turned off by Clinton’s triangulations. Indeed, Clinton was much more liberal than many of the congressional Democrats who lost their seats in 1994. But Frank wants to see the Democratic Party move leftward, and so this isn’t an analysis of the period that he finds very helpful…. I rely on political science research… because politics, in my experience, is thick with the ‘allow me to drop a single, disturbing data point’ approach to analysis. Skilled writers can make anything sound convincing in 24 column inches….

Political science has its problems, but… is more than capable of weeding out this kind of nonsense. It forces a much higher evidentiary standard…. The biggest problem any of us face trying to learn about American politics is the natural tendency to believe arguments we like and dismiss the ones we don’t. Poli-sci research is, for me, a helpful check…. I need to ground my political commentary in something beyond my own opinions. Political science research isn’t perfect or infallible, but it’s a start. So yes, Frank is right: politics is full of experts who don’t deserve the trust they’re given and retain prominence even after their theories are shredded. The problem is he’s one of them.

Simon Wren-Lewis: Keynes and the Macmillan committee “When I was younger, I drew the wrong inference about the Great Depression…

…If only the General Theory had been written 10 years earlier, I reasoned, much of the agony of the Great Depression could have been avoided. Instead I should have focused on the gold standard… because of what it tells you about the influences on macroeconomic policy. Montagu Norman said to the committee ‘I have never been able to see myself why for the last few years it should have been impossible for industry, starting from within, to have readjusted its own position’. This was a few years after the General Strike of 1926! This was not someone lacking a coherent theory, but someone blind to the evidence and human nature, and enthralled to the ideology of the gold standard. No doubt being a central banker rather than a worker, or even an industrialist, helped this blindness. The lesson I should have drawn from the Great Depression is that a powerful ideology, in the hands of people remote from those adversely affected by it, can overcome common sense and evidence.

Wall Street Journal Federal Reserve Statement Tracker:

Comparing July 30 and September 17, 2014:

Do note that end of the current statement:

Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

I very much hope that when the 2009 transcripts are released both President Fisher and President Plosser will take advantage of the opportunity to give major speeches explaining why they advocated the policy actions they did in 2009, to what degree they see in retrospect that there advocacy was based on expectations of the then-future that turned out to be erroneous, and how marking their beliefs to market in response to the events of 2009 and thereafter has changed their views on what monetary policy should be in circumstances like today.

Scott Gotlieb: Ebola: