Things to Read on the Morning of October 10, 2014

Must- and Shall-Reads:

• Paul Krugman: In Defense of Obama
• Mario Draghi: Germany Should Start Spending More

1. Gavyn Davies: Germany Is Stalling: “Extremely weak German industrial production figures… for August have come an awkward time for the German government…. The official German line heading into these meetings is that the recovery is proceeding well, both in Germany and in the euro area as a whole, implying that the recent marked weakening in both GDP and inflation data is just a temporary aberration. There is no sign that the Merkel administration is ready to change its longstanding formula for economic success in the euro area: member states should stick to the fiscal targets in the Stability and Growth Pact, and should accelerate structural reforms, so that the expansionary monetary stance provided by the ECB can bear fruit…. This could change, however, if the German economy itself continues to weaken significantly. But how likely is this to happen?… The Fulcrum ‘nowcast’ models… activity growth rate has slowed from about 2.6 per cent in late 2013 to 0.9 per cent now…. It has not fallen yet into negative territory on an underlying basis, but it is certainly not acting as a powerful locomotive for the European economy. Far from it…. The Q2 official GDP growth rate of -0.6 per cent was already worse than had been expected…. The central estimate of the latest ‘nowcast’ for Q3 is that the GDP growth rate will rebound to 1.4 per cent annualised… about a 28 per cent probability [of a second negative number].”

2. Martin Wolf: An Extraordinary State of ‘Managed Depression’: “In the US, UK and the eurozone, output has fallen far below what virtually everybody expected eight years ago. The same is true of Japan, though the trend in question ended two and a half decades ago. Yet, contrary to what we might also have expected, we do not observe accelerating deflation…. When we look at the high-income economies in this way, we must recognise that they are in a truly extraordinary state. The best way to describe it is as a managed depression: aggressive monetary policies have been sufficient to halt accelerating deflation, but they have been insufficient to produce a strong expansion. This is particularly true of the eurozone…. Recent suggestions by the ECB’s president, Mario Draghi, that the eurozone needs a radical shift in policy regime, is the self-evident truth. Yet the powers that be in the eurozone–notably, the German government–plan to do nothing about it…. We can, at last, see some reasons for optimism about the US and UK… though confidence… cannot be strong. More radical alternatives, such as higher inflation targets and debt restructuring, may yet be needed. In the eurozone and Japan, however, the picture looks more uncertain…”

3. Super-Typhoon Vongfang:

4. Heather Boushey, Nancy Birdsall, Jose Antonio Ocampo, Alonso Segura, Laura Tyson, and Justin Wolfers: Challenges of Job-Rich and Inclusive Growth: Sharing the fruits of growth: “Rising income inequality across economies is a significant concern, not least because countries with higher inequality tend to have growth that is lower and also less durable. This panel discusses how to promote growth that is more equally shared…”

5. Dean Baker: Great Mystery at the Washington Post, Why are People Without Jobs Unhappy About the Economy?: “Steven Mufson uses a wonkblog piece to speculate on why it is that even though we have been in a recovery for more than five years people are still not happy about the economy. He tells us that President Obama has the same problem as President Bush (I), who got trashed on the economy even though revised data show it had been growing rapidly at the start of 1992. While Mufson seeks out expert analysis to try to resolve this paradox, he might try looking at the data for a moment. No one sees the economy. They don’t what the rate of growth is unless they read about it in the newspaper. What they do know is whether they have a job, whether their job is secure, and their pay is rising. If you ask about these questions the only mystery is why Mufson is wasting our time. In 1992 the employment to population ratio was still 1.5 percentage points below its pre-recession level. That would translate into roughly 3.2 million fewer people having jobs in today’s labor market. The current employment to population ratio is down by close to 4.0 percentage points from pre-recession levels, translating into more than 9.0 million fewer people with jobs. (Some of this is due to retirement of baby boomers.) Wages for most workers have been stagnant or declining in the last five years as was the case in 1992. So the real question here is why any serious people would have any question about why the public is sour on the economy. People care about their living standards and security.”

Should Be Aware of:

• Marcus Tullius Cicero Marci filius Marci nepos Cornelia tribu: In Catilinam Prima
• Ryan Cooper: What we can learn from Abraham Lincoln’s greatest mistake
• Gavyn Davies: It’s Draghi versus Weidmann on ECB QE