Relevant and even prescient commentary on news, politics and the economy.

$1 trillion to be spent on direct hiring…that’s the ticket!

With all this stalemate posturing in Washington, today Chris Hayes has come up with the best idea I have heard yet to move the players. And, in my opinion actually solve our economic depression.

One trillion dollars to be spent on direct hiring by the government along with debt forgiveness.  A solution right out of the New Deal program. Unfortunately for Chris, Obama does not have the language within his vocabulary to recognize such an approach and thus in Obama’s own words: “…put us on a fundamentally different path because the country was ready for it.”
In fact, not only does he not have the language within his vocabulary to recognize a solution from history, he thinks the 60′s and 70′s were full of excesses (while noting Kennedy moved the nation in a new direction…right into the excesses of the 60′s?)*

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Do you think anyone who remembers what it meant to be a leader in the Democratic Party was watching?  
*“I do think that, for example, the 1980 election was different. I think Ronald Reagan changed the trajectory of America in a way that, you know, Richard Nixon did not and in a way that Bill Clinton did not.”
“He put us on a fundamentally different path because the country was ready for it. I think they felt like, you know, with all the excesses of the 60s and the 70s, and government had grown and grown, but there wasn’t much sense of accountability in terms of how it was operating. I think people just tapped into — he tapped into what people were already feeling, which was, we want clarity, we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing.”  
Don’t get me going on the people wanting “clarity” (security state that even the congress can’t get info on) and “optimism” (the audacity!).

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Private Real GDP in Recoveries

Update: Paul Krugman at Conscience of a Liberal points to Spencer England’s post in his column 8/1…Dan

I thought it would be interesting to post this chart of real private GDP in recoveries.

It clearly shows that since the great moderation we have experienced three recoveries that compared to previous recoveries were very weak.  Whether this is the new norm is open to debate.

But interestingly, at this point in the recovery this measure of real private GDP is exactly the same as it was in the last cycle under Bush that Larry Kudlow called the “Goldilocks” recovery.

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The Scariest Graphic I Made All Week, or, Still More on Excess Reserves and "Money"

One of the nice things about the Kauffman Foundation’s Blogger Conference is the time to let the mind wander and look at data after having your brain scoured.

One of the worst things is realizing too late that you’ve got a Really Ugly Graphic, and most of the people who could help with it are gone.

Four hours ago at dinner, I was sitting between Brad DeLong and Tim Duy (who pointed out some good contemporary performers of Real Country Music), but I didn’t have this graphic with me. Now Tim is on a plane and Brad is teaching students, and my best option is to ask the AB commentariat if the following graphic scares them as much as it does me.

Even given my hobby-horse attitude toward Excess Reserve (i.e., the Sheer Unmitigated Contempt with which I treat the idea that reserves in general—let alone Excess Reserves—should “earn” interest), the dropping-off-a-cliff impression (and the overall downward trend, even keeping in mind that we do not Seasonally Adjust Excess Reserves, and therefore Seasonal Effects are clear) almost seems to explain why the 32nd month of the “recovery” feels as if it’s just possibly starting something.

To be fair—and a hearty “thank you” to Jeff Miller of A Dash of Insight for reminding me that most people believe the Fed concentrates on M2, not M1—the broader index shows an upward trend (again, discounting the recent decline as a Seasonal Effect):

Otoh, an overall ca. 5% increase in “Net M2,” as it were, over a year in which the dollar has increasingly appeared to be the only reasonable “Safe Haven” doesn’t seem all that large either.

I’ve yet to play with the data beyond this, so I leave it to the AB comentariat:

  1. Do you believe there is something here?
  2. If so, any guesses what it is? Or anything you want to know about it?
  3. If not, what else should we be looking at where Excess Reserves may/should/will (depending upon your degree of certainty) affect the value of the data and/or Real Economic Growth?

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Panel Discussion with: Krugman, Sachs, Phelps, Soros

Just wanted to let everyone know about a presentation that aired on Cspan’s Book TV.  It is a 2 hour panel discussion titles: Global Economy: Crisis Without End.  It was held 2/17/12.   Click hereto bring up the show.
What I found most interesting was the different perspectives between Krugman and Sachs. I’m not sure, but I don’t think either realized they were talking about the “crisis” from 2 different perspectives which leads to 2 different answers to what needs to be done. Thus, they come across as if the other is wrong, when in my opinion, they are both correct. Krugman says we need to do more now. Yes we do. Sach’s says we need to take the long view and start changing the direction we are going, namely calling for higher revenue raising by the government to be spent on the nation’s infrastructure, and he did not just mean physical infrastructure. I guess you would say he was calling for the government folks to get real about raising capital and then doing capital expenditures. Not exactly the thinking I would have expected from Sach’s considering his start in economic life: Shock Therapy.
Maybe I was just seeing the difference in Keynes vs Neoclassic Econ meets Bono?  So as much as Sach’s appears to be calling for the correct long term solution, I don’t trust him as the one to lead the charge.
It was a very good discussion and there is more there than what I have keyed on.

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Must-Read of the Day, non-NBER edition

Tim Duy body-slams St. Louis FRB President James Bullard:

Estimates of potential GDP are not simple extrapolations of actual GDP from the peak of the last business cycles. They are estimates of the maximum sustainable output given fully employed resources. The backbone of the CBO’s estimates is a Solow Growth model. So I don’t think that Noah Smith is quite accurate when he says:

So, basically, what we have here is Bullard saying that the neoclassical (Solow) growth model – and all models like it – are wrong. He’s saying that a change in asset prices can cause a permanent change in the equilibrium capital/labor ratio.

Bullard can’t be saying the Solow growth model is wrong because he doesn’t realize that such a model is the basis for the estimates he is criticizing. [first and last link in the original; Noah Smith link copied from elsewhere in the original post]

Go Read the Whole Thing. For those of you too lazy to do that without incentive, here’s the conclusion:

Bottom Line: Bullard really went down an intellectual dead end last week. He criticized the focus on potential output, but revealed that he doesn’t really understand the concept of potential output either empirically or theoretically. He then compounds that error by arguing against the current stance of monetary policy, but fails to provide an alternative policy path. And the presumed policy path, tighter policy, looks likely to only worsen the distortions he argues the Fed is creating. I just don’t see where Bullard thinks he is taking us.

It’s Worse Than You Think.

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How Keynesian Policy Led Economic Growth In the New Deal Era: Three Simple Graphs

by Mike Kimel

In this post, I will show that during the New Deal era, changes in the real economic growth rate can be explained almost entirely by the earlier changes in federal government’s non-defense spending. There are going to be a lot of words at first – but if you’re the impatient type, feel free to jump ahead to the graphs. There are three of them.

The story I’m going to tell is a very Keynesian story. In broad strokes, when the Great Depression began in 1929, aggregate demand dropped a lot. People stopped buying things leading companies to reduce production and stop hiring, which in turn reduced how much people could buy and so on and so forth in a vicious cycle. Keynes’ approach, and one that FDR bought into, was that somebody had to step in and start buying stuff, and if nobody else would do it, the government would.

So an increase in this federal government spending would lead to an increase in economic growth. Even a relatively small boost in government spending, in theory, could have a big consequences through the multiplier effect – the government hires some construction companies to build a road, those companies in turn purchase material from third parties and hire people, and in the end, if the government spent X, that could lead to an effect on the economy exceeding X.

This increased spending by the Federal government typically came in the form of roads and dams, the CCC and the WPA and the Tennessee Valley Authority, in the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables it falls under the category of nondefense federal spending.

Now, in a time and place like the US in the early 1930s, it could take a while for such nondefense spending by the federal government to work its way through the economy. Commerce moved more slowly back in the day. It was more difficult to spend money at the time than it is now, particularly if you were employed on building a road or a dam out in the boondocks. You might be able to spend some of your earnings at a company store, but presumably the bulk of what you made wouldn’t get spent until you get somewhere close to civilization again.

So let’s make a simple assumption – let’s say that according to this Keynesian theory we’re looking at, growth in any given year a function of nondefense spending in that year and the year before. Let’s keep it very simple and say the effect of nondefense spending in the current year is exactly twice the effect of nondefense spending in the previous year. Thus, restated,

(1) change in economic growth, t =
f[(2/3)*change in nondefense spending t,
(1/3)*change in nondefense spending t-1]

For the change in economic growth, we can simply use Growth Rate of Real GDP at time t less Growth Rate of Real GDP at time t-1. The growth rate of real GDP is provided by the BEA in an easy to use spreadsheet here.

Now, it would seem to make sense that nondefense spending could simply be adjusted for inflation as well. But it isn’t that simple. Our little Keynesian story assumes a multiplier, but we’re not going to estimate that multiplier or this is going to get too complicated very quickly, particularly given the large swing from deflation to inflation that occurred in the period. What we can say is that from the point of view of companies that have gotten a federal contract, or the point of view of people hired to work on that contract who saved what they didn’t spend in their workboots, or storekeepers serving those people, they would have spent more of their discretionary income if they felt richer and would have spent less if they felt poorer.

And an extra 100 million in nondefense spending (i.e., contracts coming down the pike) will seem like more money if its a larger percentage of the most recently observed GDP than if its a smaller percentage of the most recently observed GDP. Put another way, context for nondefense spending in a period of rapid swings in deflation and inflation can be provided by comparing it to last year’s GDP.

So let’s rewrite equation (1) as follows:

(2) Growth in Real GDP t – Growth in Real GDP t-1
f[(2/3)*change in {nondefense spending t / GDP t-1},
(1/3)*change in {nondefense spending t-1 / GDP t-2}]

Put another way… this simple story assumes that changes in the Growth Rate in Real GDP (i.e., the degree to which the growth rate accelerated or decelerated) can be explained by the rate at which nondefense spending as a perceived share of the economy accelerated or decelerated. Thus, when the government increased nondefense spending (as a percent of how big the people viewed the economy) quickly, that translated a rapid increase in real GDP growth rates. Conversely, when the government slowed down or shrunk nondefense spending, real GDP growth rates slowed down or even went negative.

Note that GDP and nondefense spending figures are “midyear” figures. Note also that at the time, the fiscal year ran from July to June… so the amount of nondefense spending that showed up in any given calendar year would have been almost completely determined through the budget process a year earlier.

As an example… nondefense spending figures for 1935 were made up of nondefense spending through the first half of the year, which in turn were determined by the budget which had been drawn up in the first half of 1934. In other words, equation (2) explains changes in real GDP growth rates based on spending determined one and two years earlier. If there is any causality, it isn’t that growth rates in real GDP are moving the budget.

Since there stories are cheap, the question of relevance is this: how well does equation (2) fit the data? Well, I’ll start with a couple graphs. And then I’ll ramp things up a notch (below the fold).

Figure 1 below shows the right hand side of equation (2) on the left axis, and the left hand side of equation (2) on the right axis. (Sorry for reversing axes, but since the right hand side of the equation (2) leads it made sense to put it on the primary axis.)

Notice that the changes in nondefense spending growth and the changes in the rate of real GDP growth correlate very strongly, despite the fact that the former is essentially determined a year and two years in advance of the latter.

Here’s the same information with a scatterplot:

So far, it would seem that either the government’s changes to nondefense spending growth were a big determinant of real economic growth, or there’s one heck of a coincidence, particularly since I didn’t exactly “fit” the nondefense function.

But as I noted earlier in this post, after the first two graphs, I would step things up a notch. That means I’m going to show that the fit is even tighter than it looks based on the two graphs above. And I’m going to do so with a comment and a third graph.

Here’s the comment: 1933 figures do not provide information about how the New Deal programs worked. After all, the figures are midyear – so the real GDP growth would be growth from midyear 1932 to midyear 1933. But FDR didn’t become President until March of 1933.

So… here’s Figure 2 redrawn, to include only data from 1934 to 1938.

While I’m a firm believer in the importance of monetary policy, for a number of reasons I don’t believe it made much of a difference in the New Deal era. As Figure 3 shows, changes in nondefense spending – hiring people to build roads, dams, and the like, explain subsequent changes in real GDP growth rates exceptionally well from 1934 to 1938. This simple model explains more than 90% of the change in real GDP growth rates over that period.

Of course, after 1938, the relationship breaks down… but by then the economy was on the mend (despite the big downturn in 1938). More importantly (I believe – haven’t checked this yet!), defense spending began to become increasingly important. People who might have been employed building roads in 1935 might have found employment refurbishing ships going to the Great Britain in 1939.

As always, if you want my spreadsheet, drop me a line. I’m at my first name (mike) period my last name (kimel – note only one “m”) at

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Sumner, Skidelsky, Keynes and Liquidity Traps

by Mike Kimel

I was searching for some information and I stumbled on a post Scott Sumner wrote last year about Robert Skidelsky’s biography of John Maynard Keynes. I haven’t read Skidelsky’s book, nor do I know Skidelsky, and its been awful long time since I read Keynes, but this seems an odd complaint:

I’m afraid that his analysis is both misleading and inaccurate. The US gradually depreciated the dollar between April 1933 and February 1934. During that period unemployment was nearly 25% and T-bill yields were close to zero. Keynes argued that monetary stimulus would not be effective under those circumstances, and Skidelsky seems to accept his interpretation (which was published in the NYT during December 1933.)

[Note that Keynes certainly did believe in the "pushing on a string" theory--I frequently get commenters insisting that Keynes didn't believe in liquidity traps.]

Unfortunately, Keynes and Skidelsky are wrong. The US Wholesale Price Index rose by more than 20% between March 1933 and March 1934. In the Keynesian model that’s not supposed to happen. The broader “Cost of Living” rose about 10%. Industrial production rose more than 45%.

Sumner goes on to impugn Skidelsky:

The “disappointing” results that Skidelsky mentions come from cherry-picking a few misleading data points.

All that seems very odd to me. If I were making an argument that conventional monetary policy doesn’t work in a liquidity trap, but that the traditional Keynesian prescription does, I’d start that argument with something very much like the sentences Sumner wrote right after stating “Unfortunately, Keynes and Skidelsky are wrong.”*

Using the graphing tool from FRED, the Federal Reserve Economic Database maintained by the St. Louis Fed, we can show the one year percentage change in both PPI (producer price index) and CPI (consumer price index) from January 1932 to December 1935.

Here’s what we see: after some massive deflation during the Great Depression, prices start to rise more or less when FDR took office. The annual percentage change in PPI peaked around 23% and change in February 1934, and the CPI peaked a few months later at about 5.6%.

Elsewhere, Sumner attributes that to:

We all know what happened next (well not exactly, but I’ll explain that in another post), so let’s jump ahead to 1933. FDR takes office in March, promising to boost wholesale prices back up to pre-Depression levels. He uses several tools, but the most effective was loosely based on Irving Fisher’s “compensated dollar plan.” Fisher’s plan was to raise the price of gold one percent each time the price level fell one percent. An obscure agricultural economist named George Warren was a big fan of Fisher’s idea, and sold it to FDR with all sorts of fancy charts.

And it worked.

Initially it worked better than any other macroeconomic policy in American history. But at first the policy’s success was mostly accidental, just a matter of talking the dollar down, not enacting Fisher’s specific plan. Nevertheless, prices immediately began rising sharply. Industrial production rose 57% between March and July, regaining over half the ground lost in the previous 3 1/2 years. Then in late July FDR decided to cartelize the economy and sharply raised wages (the NIRA) and industrial output immediately began falling. By late October FDR was desperate for another dose of inflation, and asked Warren to come up with a plan. They decided to have the US government buy gold at a price that would be continually increased in order to reflate the price level.

Sumner even helpfully tells us:

It was a very confusing plan, as they never bought enough gold to equate the government buying price with the free market price in London.

I agree that what Sumner describes is confusing. And yes, the times were desperate, and FDR was flailing around throwing all sorts of things against a wall to see what would work, but when I look at the graph above, and take into account the extremely rapid economic growth that took place during the New Deal era, I see a much simpler story.

  1. Aggregate demand was very slack when FDR took office.

  2. FDR showed up in Washington with a plan to start spending a lot of money and thus boost aggregate demand.
  3. The immediate effect was to convince factories they’d be running down their inventories. That boosted producer prices. It had a much smaller effect on consumer prices because everyone knew the gubmint was going to buy a heck of a lot more producer goods than consumer goods. (The government did buy some consumer goods for the various programs, plus there was a spillover effect, but as the graph clearly shows, the action was on the producer side.)
  4. After a bit of time, the public realized FDR wasn’t planning just a one-off, but rather a sustained program of purchases of industrial items. That led them to start using some of their idle capacity, which meant not just selling the fixed amount that was in inventory. The rate of price increases thus dropped.
  5. GDP increased at the fastest rate in the United States peacetime history since data has been kept. There was a big hiccup, of course, in 1937 when the government cut back on spending for a while.

By contrast, here’s Sumner explaining his theory:

There is a great deal of evidence that I won’t get into here that suggests the suspension of the gold standard in March 1933, and gradual devaluation between April and February 1934, almost certainly explain most of the increase in goods prices, stock prices, and industrial production during that period. But why? Not because it boosted our trade balance, which actually worsened as the rapid recovery pulled in imports.

Both Gauti and I believe that only the rational expectations hypothesis can explain these events. He focuses on how the regime change led to higher inflation expectations, and thus reduced real interest rates. I prefer to think in terms of specific policy signals sent as rising gold prices changed the future expected gold price, and hence the future expected money supply. I don’t see any non-Ratex explanation that can account for the extraordinary rise in prices and output during March-July 1933. Nominal interest rates didn’t change much, and open market purchases in 1932 (under the constraint of the gold standard) had accomplished little or nothing.

So…. his story requires the devaluation of the currency to worsen the trade balance, and rational expectations to cause a one time explosion in industrial prices and a rather smaller recovery in consumer prices. Rational expectations, however, that came an abrupt halt, at roughly the same amount of time one would predict companies might decide that demand will be sustained enough to start producing more rather than just selling off inventory sitting in warehouses. And his story doesn’t explain why growth was so much faster during the New Deal era than any other period of peacetime since the US began keeping data, nor why there was the big hiccup in 1937.

Sumner is essentially trying to tell a story about an unusual set of events, but his story seems to assume that most extraordinary events of the era (and what sets that era apart) kind of just happened to occur for no particular reason so he misses the big picture and ends up focusing on details. With all due respect to Sumner, I prefer to think the US economy is not Forrest Gump.

*I can imagine a “monetary” prescription that I think would help tremendously in a liquidity trap, but it doesn’t look at all like what was done in the 1930s, or what was done since 2007, or from what I can tell, what Sumner suggests. That can be a post for another time.

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Bad Expansions Are In the Eye of The Beholder

Via Barry Rithholtz, I see that Martin Feldstein has not yet finished with his Atonement.

I think I’ve posted a variation of this before, but apparently I’ll have to keep screaming, at least throught Simchat Torah (and, I suspect, beyond).

Anyone have Feldstein appearances or editorials from early 2004 talking about how badly the economy was expanding? I just can’t seem to remember them…

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Texas Again: Which Rick Does More Harm?

That Rick Perry is a clueless candidate and skilled campaigner is something for Barack Obama’s minions to suffer.* That Perry’s curiosity goes no further than “Where’s My Next Corndog?” cannot be held against him; he only became what they made him, just as his predecessor did, though with a poorer transcript and lack of his father’s Rolodex. A real Horatio Alger story.

So we need to pay attention to who tells him things. And that appears to be people such as Richard Fisher, who recently went to W’s “home town” and bragged about the local economy. He starts by making any sane human being worry:

I, along with the 11 other Federal Reserve Bank presidents, operate the business of the Federal Reserve as efficiently as any bank in the private sector.

I’m certain that is true. Then he spreads the Usual Lie:

[W]e make money for the U.S. taxpayer: We returned over $125 billion to the U.S. Treasury in 2009 and 2010. You are looking at one of the few public servants that make money from its operations, rather than just spending taxpayer money.

English translation: We took money from the Treasury, and our Accounting looks nice because we don’t count the overpaying for “assets” or the free money on “excess reserves” as part of our losses. We can even make a fool out of Allan Sloan.

Oh, and by the way, we don’t “just spend taxpayer money,” like those evil people who run police departments, fire departments, and schools; or make roads, or ensure food and water safety; or do fundamental scientific research, to name a few, do.

Then he tries to tell his constituents that Texas is great, and that he will put “a heavy focus on the data,” which is supposed to explain (“connect the dots”) on why he “dissented from the consensus at the last meeting of the Federal Open Market Committee (FOMC).”

So the data should, at least, show an “I got mine, Jack” aspect, no? Let’s see below the fold if it does.

First he presents a graphic showing non-Agricultural Employment Growth baselined at 1990. Now, I might consider this a bit of cheating: in 1990, Texas was in the midst of its self-created S&L crisis. If it didn’t recover from them compared to the rest of the United States, I would assume (contra Brad DeLong [link updated]) that people realised there was no water table and therefore no opportunity for long-term growth (as opposed to the already-well-developed Greater NYC area and the San Francisco Fed areas** to which he contrasts Dallas).

Suffice it to say, you don’t get quite so dominant a picture if you start in mid-1992.

But let’s ignore that it’s easier to build if there’s Nothing There, and easier to expand if there are natural resources even if the rest of the area is a Vast Wasteland or Lubbock (but I repeat myself***). And let’s just look at what good all those jobs have done, with a heavy focus on, well, FRB Dallas data (from the start of their data):

Hmmm, not exactly consistent manufacturing productivity, even before the (recent) recession. Indeed, I might suspect that Texas since around early 2006 has been dependent on moving Services jobs there, not growth in the local economy. But I’m not a Fed Governor:

Now, let’s look at job creation in Texas since June 2009, the date that the National Bureau of Economic Research (or NBER, the body that “officially” dates when a recession starts and ends) declared the recent economic recession to have ended….[I]t is reasonable to assume Texas has accounted for a significant amount of the nation’s employment growth both over the past 20 years and since the recession officially ended.

Let us give him credit for admitting that the 49.9% number is major b*llsh*t. And half-credit for admitting that, if you drop the states that are still heavily negative, the number is below 30%. So things must be looking up in Texas, right?

Hmmm, a nice recovery—rather similar to the 1991-1992 gain—followed by some drop-off, water-treading, and another peak early this year that suggests seasonality, even though the data is Seasonally Adjusted.**** Difficult to argue an upward trend (see most recent footnote), but maybe stable.

Then again, I’m still not a Fed Governor. But let’s give him some credit for admitting this self-inconsistent point:

The most jobs have been created in the educational and health services sector, which accounts for 13.5 percent of Texas’ employment.

The education sector? Really? Can you say “stimulus monies“? People in Dallas sure can. Who is “just spending taxpayer money” now?

And credit Fisher for being fair enough to note the elephant in the Texas room:

I should point out that in 2010, 9.5 percent of hourly workers in Texas earned at or below the federal minimum wage, a share that exceeds the national average of 6 percent. California’s share was 2 percent and New York’s was 6.5 percent.

And for not thinking that the Fed’s dual mandate needs to prioritize nonexistent “inflation threats.”

It might be noted by the press here today that although I am constantly preoccupied with price stability―in the aviary of central bankers, I am known as a “hawk” on inflation―I did not voice concern for the prospect of inflationary pressures in the foreseeable future….My concern is not with immediate inflationary pressures.

Well, that’s good. And since the other half of the dual mandate is full employment, you’ll be expecting something positive from businesses, then, eh?

Importantly, from a business operator’s perspective, nothing was clarified, except that there will be undefined change in taxes, spending and subsidies and other fiscal incentives or disincentives. The message was simply that some combination of revenue enhancement and spending growth cutbacks will take place. The particulars are left to one’s imagination and the outcome of deliberations among 12 members of the Legislature.

Ma nishta ha-laili ha-zeh? But Fisher digs deeper:

On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base.

Huh? I thought government was mean and evil and just spends taxpayer money. Shows what I know; I listened to a Fed Governor, one who tells me that businesses “have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency.” Really should see some nice Production numbers in the past six months, then, no?

No. So when Richard Fisher later says:

[The business owner] might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

There are two answers. The first is the obvious: the Fed only controls short-term rates for risk-free investment. They don’t control lending rates, and they don’t control long-term rates, which are what I’m interested in if I’m “going to hire new workers or build a new plant.” Now, QE2 made it marginally easier for me to borrow in the long-term, but that’s gone now. So unless I’m stupid enough to pretend I’m a bank—if I borrow short-term and create long-term liabilities, I better be damned sure someone will refinance me until the project is finished—the Fed guaranteeing that the short-term Government borrowing rate is going to stay low for a while doesn’t mean much to me.

The second is more interesting: if I believe in competitive advantage, I want my new products on the shelf before my competitor has hers there. I cannot sell what you cannot see. So I want my plant started now—while I can still get the best available workers before my competitor does, while I can still pick a prime location (less of an issue in a Vast Wasteland, but not insignificant if you’re Dallas- or Houston-area), and while I can negotiate a deal with someone who needs me in their space more than I need to be there.

But that is only true if Richard Fisher has been telling the truth about how well I’m running my Texas-based business. And that, not to put too fine a point on it, appears to be—to coin a Texas phrase—bullshit.

I know the reality of Rick Pery: it’s a hermetic, incurious one in which women are property, you read what they tell you, and you get to take credit for a win, even if it’s your handlers doing all the work, including telling you what to do later. It’s not a world of which I approve, but my lack of approval doesn’t mean I believe it doesn’t exist.

I don’t know what reality Richard Fisher inhabits; it is certainly not one in which there is “a heavy focus on the data.” At least not data that is related to the Fed’s dual mandate, or how nonfinancial businesses make long-term decisions, or how to attain a competitive advantage.

Rick Perry speaks to his true believers. Richard Fisher expects you to believe him. Currently, only one of them is trying to do national harm to the economy, and it’s not the (soon-to-be) 45th President of the United States.

*And the rest of the United States when Bachmann-Perry Overdrive starts on 20 January 2013, but that’s tangential.

**Fairness requires me to note that much of the state of California is a desert, though not so bad a one as most of West Texas. Accordingly, growth in those areas would, pari passu be similar to that of Texas, save that there is no not enough***** oil in Central California. But never let it be said that we would expect an FRB official to understand geography.

***And let us always remember that Lubbock gave us the greatest white rock musician of all time.

****Good thing I left out the pre-2006 data, so we don’t have to note that the peaks post-Great Recession are close to the ca. 2006 troughs.

*****Correction by dilbert dogbert in comments noted.

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