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The Logic of the Negative Real Rates of the 1970’s

In the 1970’s, real interest rates went negative, as they are today. Is there any logic as to why they went negative way back when? Yes, there is…

In the course of a recovery from recession to boom, monetary policy will raise the real rate. The following graph plots the real rate (effective Fed rate minus CPI core inflation) with TFUR (total factor utilization rate, which is a composite measure for utilization of labor and capital. As the TFUR increases in a recovery, the real rate established by monetary policy will increase too.

derivative of real path 1

You can see that the negative real rates are a logical extension of the up-sloping pattern. When the utilization of labor and capital was very low relative to the natural limit of the business cycle, real rates went negative.

The sensitivity of the real rate to changes in the TFUR is given by the slope of the trend line, 0.48 in the graph. This means that a change of 1% in the TFUR would be matched by a 0.48% change in the real rate.

So the negative real rates of the 1970’s are nothing unusual. But is there a model to explain the 0.48 slope of the trend line. Yes, there is…

My Effective Demand policy rule describes the path of the real rate as the TFUR changes given the parameters of the 1970’s. (dashed up-sloping blue line in following graph.)

derivative of real path

The slope of the real rate path is given by its derivative (upper light blue line which uses the right axis). The slope of the real rate path ranges from 0.35 to 0.50 over the 1970’s normal range of the TFUR (70% to 85%). The slope of 0.48 in the first graph is expressed within the range expected by the ED policy rule.

The model here shows that real rates logically went negative as utilization of labor and capital decreased in relation to the natural limit of the business cycle. (Dashed blue line went negative at 77% TFUR in the 1970’s). Note: Currently though this same model does not prescribe negative real rates.

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Nia-Malika Henderson has the same trouble Ernst does with understanding clear, sequential sentences

For those who don’t know, Nia-Malika Henderson is a political reporter for the Washington Post’s politics blog The Fix.  I am neither of fan generally of that blog (with the exception of one of its regulars, Sean Sullivan, and one or two of the several others) nor a fan specifically of Henderson—who, best as I can tell, never met a comment related to women, or to a woman, that she didn’t reflexively view as sexist if some woman or women said the comment is sexist or if the comment could be twisted as sexist.

And this morning Joni Ernst said a comment by Tom Harkin about her was sexist; ergo, Henderson thinks the comment by Harkin is sexist.

Or, more specifically, Henderson thinks that Harkin said Ernst is as attractive as Taylor Swift, so even though Harkin said nothing of kind—seriously; he said nothing of the kind—Henderson thinks Harkin said Ernst is as attractive as Taylor Swift.  Specifically, here in full is what Henderson wrote, in a post titled “Tom Harkin compares Joni Ernst to Taylor Swift, because sexism. Then he apologizes.”, which I momentarily thought, naïvely, was sarcastic:

Here’s a Fix rule for politicians. Never, ever, ever comment on someone else’s personal appearance. Nothing good can ever come of it.

Retiring Iowa Sen. Tom Harkin just broke this rule into a million pieces. Here’s what he said about state Senator Joni Ernst, the Republican nominee running to replace him, courtesy of Buzzfeed:

“In this Senate race, I’ve been watching some of these ads. And there’s sort of this sense that. Well, I hear so much about Joni Ernst. She is really attractive, and she sounds nice. Well, I got to thinking about that. I don’t care if she’s as good looking as Taylor Swift or as nice as Mr. Rogers, but if she votes like Michele Bachmann, she’s wrong for the state of Iowa.”

If you watch the video, what Harkin said isn’t just him riffing and going off script. Nope, he has clearly given some forethought to what he said and doesn’t think it’s sexist or problematic. He likes the line. He thinks it’s cute and clever and the audience seems at least slightly amused.

Ernst, a National Guard lieutenant colonel who served in Iraq, was not. In an interview with Fox News she said she was “very offended that Sen. Harkin would say that.” “I think it’s unfortunate that he and many of their party believe that you can’t be a real woman if you’re conservative and you’re female,” Ernst said, adding that there is a double standard in terms of coverage. “I believe if my name had been John Ernst attached to my resume, Sen. Harkin would not have said those things.”

She is exactly right. The relative attractiveness of “John Ernst” would not likely be a focus for Harkin.

Give Ernst credit. She came up with this zinger of a retort to Harkin.

“He compared me to Taylor Swift, so I’m gonna shake it off.” ‐ @joniernst responds to Harkin

comments at kick off of 24‐hour campaign swing

8:51 AM ‐ 3 Nov 2014

Nick Corasaniti




Update #1: Harkin has, so far, declined to apologize.

Update #2: Harkin has now apologized.

EXCLUSIVE ‐ Just talked w/ @SenatorHarkin ‐ says he

“was wrong” to make Taylor Swift remarks re:

@joniernst ‐ “Didn’t mean to hurt anyone”

2:33 PM ‐ 3 Nov 2014

No, indeed, the relative attractiveness of “John Ernst” would not likely be a focus for Harkin.  Nor, of course, was the relative attractiveness of Joni Ernst a focus for Harkin. Harkin’s comment was that he kept hearing that Ernst’s attractiveness is a focus of some voters, as is her reputed niceness—and that neither is an appropriate focus, in Harkin’s opinion, because neither will impact how her votes in the Senate would affect her constituents’ lives.  Only her ideologically-based votes—which will be most of her votes—will affect her constituents’ lives.

If she does become a senator.

Not really a tough concept to understand.  And I don’t actually know whether Ernst herself did not understand the comment or instead just pretended not to understand it.  Harkin’s comment involved a more-than-one-step analysis—two steps, by my count—and Ernst doesn’t present herself as the most intelligent of folks, so maybe she didn’t understand the comment rather than taking a clear-but-compound statement and twisting it for attempted political gain.  But there’s no question at all that Henderson did not understand it.

Here’s a rule for political journalists. Never, ever, ever mindlessly adopt some politician’s or political operative’s take on an opponent’s statement.  Nothing good can ever come of it.

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Not quite EVERY national indicator, Ms. Grimes

“He thinks that another six years on top of the 30 he’s already had constitutes change, well we don’t buy that,” Grimes said. “He thinks that we can’t live without his seniority, well has he seen that we’re at the bottom of every national indicator that’s out there? Henderson, are ya’ll better off after having Mitch McConnell for the last 30 years?”

“No!” roared the crowd of more than 150.

Kentucky Democrat Tears Up on Campaign Trail, Jay Newton-Small,, reporting yesterday from Henderson, Ky

Actually, there’s one important national indicator that Kentucky is no longer at the bottom of: the percentage of residents who have no healthcare insurance. That’s because of Kynect and the Medicaid expansion, under the ACA.  Y’know, under Obamacare. Paid for 100% by the federal government.


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Is Joni Ernst ACTUALLY That Stupid? Or Does She Just Think Most Women Are?

What Joni Ernst said Tom Harkin said about her:

Iowan GOP Senate candidate Joni Ernst responded on Monday that she was “very offended” by Sen. Tom Harkin’s comments comparing her looks to Taylor Swift.

“I was very offended that Sen. Harkin would say that, I think it’s unfortunate that he and many in their party believe that you can’t be a real woman if you’re conservative and female,” Ernst said to “Fox & Friends.”

She added, ”I believe if my name had been Jon Ernst attached to my résumé, Sen. Harkin would not have said those things.”

Ernst said Harkin’s remarks reveal that the alleged Republican “war on women” is “phony” and that Democrats should drop the term.

“First, I am a woman and second, I have been to war, I am a combat veteran,” Ernst said. “This is not a war on women and any time Democrats are using the word war they need to do it to honor our service men and women.”

–       Joni Ernst: ‘Very offended’ by Tom Harkin, Kendall Breitman, Politico, this morning

What Tom Harkin actually said about her:

Ernst’s comments come after a video was released on Sunday night where Harkin is shown saying that even if Ernst is “as good looking as Taylor Swift” she is not fit to represent the state of Iowa.

“In this Senate race, I’ve been watching some of these ads,” Harkin said last week. “And there’s sort of this sense that, ‘Well, I hear so much about Joni Ernst. She is really attractive, and she sounds nice.’

“… Well, I got to thinking about that,” he said. “I don’t care if she’s as good looking as Taylor Swift or as nice as Mr. Rogers, but if she votes like [Minnesota Rep.] Michele Bachmann, she’s wrong for the state of Iowa.”

–       Joni Ernst: ‘Very offended’ by Tom Harkin, Kendall Breitman, Politico, this morning

Ernst shouldn’t flatter herself. Harkin didn’t say she is as good looking as Taylor Swift.

Nor should she demean the intelligence of other women by telling them that that’s what Harkin said.  And Harkin or Bruce Braley—or maybe, say, Hillary Clinton, if she’s up for it—should point that out, and ask whether she really thinks that’s what Harkin said, or instead she just thinks other women will think so.

Ernst, of course, may well be so inept at understanding basic English-language statements that she can’t distinguish between, on the one hand, a statement that other people keep saying that a female Senate candidate is so attractive and so nice, and, on the other hand, a statement that it doesn’t matter how attractive or nice she is, and that all that matters—or all that should matter—are her policy positions.

She also may actually think a statement that “I don’t care if she’s as good looking as Taylor Swift or as nice as Mr. Rogers, but if she votes like [Minnesota Rep.] Michele Bachmann, she’s wrong for the state of Iowa,” is a statement that she IS as good looking as Taylor Swift.

If so, that’s something that voters might want to consider.

Me?  I take her at her word: Which is that she’s so dumb that she thinks that’s what Harkin said. But Harkin and Braley should play it the other way, and ask voters how very, very tired they are of politicians’ faux indignation.

Voters are extremely tired of politicians’ faux indignation; Harkin and Braley can bet on it. I wish this had happened earlier, because, really, playing these kinds of manipulative games isn’t all that “Iowa nice”.

Sorry, Ms. Ernst, but the war-on-women thing cuts both ways. You’re no longer in the military, but with that statement this morning on Fox News, you made clear you’re still a soldier.  Just in a different war.

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Consumers’ (accurate) bifurcated take on the economy – and why that isn’t good for Democrats

(Dan here.  The last graph is an eye opener)

by New Deal democrat  (originally published at the Bonddad blog)

Consumers’ (accurate) bifurcated take on the economy – and why that isn’t good for Democrats

Naked Capitalism picked up a piece from Wolf Richter the other day entitled  The shrinking piece of a barely growing economy: why the Glorious Economy of ours feels so crummy.  It’s ultimate conclusion is,

Since PCE is used to adjust GDP for inflation, “real” economic growth has been systematically overstated by understating inflation. If GDP had been deflated over the years with CPI, instead of PCE, that measly 2.3% growth of per-capita GDP since 2007, as crummy as it may appear, would likely benegative. And that explains why so many people – struggling with soaring rents, medical expenses, college costs, etc. – find that their slice of the economic pie has been shrinking since the financial crisis.

Is the economy actually “shrinking?”  Do consumers really think it’s “crummy?”  Although the facts do not support either of these assertions, as we will see the benefits have skewed towards those whose incomes normally are associated with GOP voters.

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The Silence of the Lambs

Update appended.


Last week, dozens of Republican volunteers packed Mr. Gardner’s campaign offices in the college towns of Boulder and Fort Collins to get a handshake or selfie with the amped-up candidate. Spotting a boy in a Denver Broncos football jersey, Mr. Gardner whipped out his cellphone and showed him a photo of John Elway, the Broncos’ general manager and Hall of Fame quarterback, who has donated to Mr. Gardner’s campaign.

The boy’s father, Dave Holdbrook, a truck driver who has been on disability for several years after a job-related injury, said he had already mailed in his ballot for Mr. Gardner.

“I’m really concerned about what’s going to happen with Obamacare,” he said. “Spending’s just out of control, and Udall’s lined up with Obama 100 percent of the way.”

Republicans Setting the Early Pace in Colorado With 104,000 More Ballots, Jack Healy, New York Times, yesterday

Okay, so Dave Holdbrook thinks social-safety-net federal spending—basic income support and comprehensive healthcare insurance, which federal disability insurance includes—should be limited to him.  Or else he thinks the State of Colorado, together with a gift to him from Anthem Blue Cross, are providing these.  And eventually he will reach the age of 65, and if Medicare hasn’t already been privatized or unabashedly ended with the help of Sen. Gardner, Mr. Holdbrook will angrily tell Democratic members of Congress to keep their government hands off his Medicare.

Too bad basic knowledge and logic won’t be requirements to vote under the voter-ID law that Colorado surely will have by the next election if the Republicans regain control of the statehouse and governorship next week.

Elsewhere within the last two days I read a quote from an Iowa voter who already has voted for Joni Ernst to replace retiring Sen. Tom Harkin because “of what Obama and Harry Reid are doing to the deficit.” (Something like that; I don’t have the exact quote handy.)  Presumably, that voter is not a farmer and so doesn’t receive federal farm subsidies.  And in the last week, Ernst began running ads featuring pigs, and saying in the ads that she’s for cutting pork.  (Although not cutting the actual farm product, or the farm subsidies that support the product, I assume.)

I read about the ad but haven’t seen it, but I assume it says something about “what Obama and Harry Reid are doing to the deficit.”

The budget deficit, of course, has dropped dramatically since 2010.  And basic government agencies such as the National Weather Service, the National Institutes of Health, and the Veterans Administration are being drastically curtailed, as are other critical functions of the federal government such as basic infrastructure upkeep and federal financial assistance to states for, among other things, funding for their state universities and colleges.

On Friday, on the New York Times blog Taking Note, David Firestone wrote that ‘it’s clearly too much to expect that Democratic candidates would tell voters that a smaller deficit is the last thing the economy needs right now. Not even Senator Elizabeth Warren campaigns that way. But,” he asked, “given the universal mythology that a lower deficit is always a good thing, would it kill Democrats to point out that the deficit actually has fallen by more than 50 percent since President Obama took office?”

His question was rhetorical, of course.  It wouldn’t kill them; they’re just told by their consultants and operatives that it would.  Firestone noted that in an interview late last week with the Washington Post’s Greg Sargent, Guy Cecil, the director of the Democratic Senatorial Campaign Committee, said that his organization didn’t want its candidates to “nationalize” the election in this way.  “It is our job to make Senate races about the two people on the ballot,” he said. “Our advice to candidates is that when somebody disagrees with the president, they should say so, and that when somebody agrees with the president, they should say so.”

Yup.  Wouldn’t wanna distract from the “personhood” issue by setting the record straight on trivia such as that the federal deficit actually has fallen by more than 50 percent since President Obama took office.  And by mentioning such dramatic budgetary facts as those cited in the op-ed about the National Weather Service and those discussed recently by NIH director Dr. Francis Collins.  Or by noting the drastic cuts in infrastructure upkeep and in financial assistance to state and local governments.  And you certainly wouldn’t wanna point out the direct effects of these cuts.

Bridge collapses, potholed highways, the sudden inability of the National Weather Service to warn of a hurricane’s path, a massive snowstorm, or tornadoes pale in comparison to a “personhood” constitutional amendment that would have less chance of actual passage by Congress and ratification by the necessary number of states than a polar bear will have of survival in Alaska in a few years. So do advances in medicine, warnings of tornadoes and major storm paths, and bringing down what are now spiraling state university and college costs and student loan interest rates.

Firestone continues:

Maybe I’ve missed it, but I haven’t heard any of the Democratic Senate candidates talking about that, or putting it into their ads. None of them mention that the budget is in far better shape largely because taxes went up on the rich, and because health care costs are falling. It’s unusual even to hear that unemployment is down to 5.9 percent, or that 5.5 million jobs have been added since 2009, which is four times more than under all eight years of George W. Bush. (If there are candidates who are exceptions to this, let me know and I’ll mention them here.) Mr. Obama, at least, talks about this all the time. “Deficits have come down,” he said today in Providence. “Health care inflation has come down. There’s almost no economic measure by which we haven’t made substantial progress over this period of time. We’re better off than we were.”

Obama talks about this all the time?  Who knew?  I sure didn’t.  And obviously either did anyone else.  Other than, I guess, David Firestone.

The time to talk about the reduction in the debt was, of course, during the series of budget-brinksmanship games in mid-2011, late 2012, early 2013 and late 2013.  Sequestration beginning in the spring of 2013 has brought down the deficit to its current low level.  But at what cost? Obama didn’t talk about this at any of those junctures.  At least not in the only way that would matter: a national primetime televised address, stating—OMG, no!—the specifics.  But he reportedly feels uncomfortable doing that.  And, first things first. His comfort level is what matters.  But there was nothing—other than the director of the DSCC, of course, and the rest of the it’s-always-1995 national Democratic campaign-industrial-complex—to stop the Senate candidates from campaigning on these facts.

I’m tempted to say that the lessons from this campaign are that Democrats, not Republicans, are the ones who need to nationalize elections, and that they need to recognize that what matters most to many men and a majority of women—and clearly to young female and male voters—are broad economic-populist issues.  That’s because it’s no longer the 1980s or ‘90s.

And those certainly are important lessons.  But there’s an even more important lesson for the Republicans.  To win Senate and House races, all they have to do is nominate someone who has made a comment supporting “personhood.”  Like a racehorse wearing blinders, the Republican’s Democratic opponent will be sure to see only that red herring—and only women voters who have that singular focus and don’t much care about storm warnings, highway potholes, or fiscal economics—all the way through to election day.


UPDATE: Hear, hear, Leo Besarra!   Amen.

There are indeed so many other issues.

11/3 at 2:46 p.m.

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Hammering the Dems During Mid-Terms

Bill Maher did a take on Obama accomplishments or what some or many might say only occurred because he was in office.

– 63 straight months of economic expansion.

– A Depression averted (even with budget cuts).

– A Deficit reduced by 2/3rds.

– A Healthcare Law that is working and reducing costs.

– Two Women on the Supreme Court.

– Bin Laden dead.

– Stock Market at bobbing around at record heights.

– Gas prices are down.

– Unemployment going from 10.2% to 5.9% (in spite of austerity). “If you are a Fox News viewer trying to do the math, this is less.”

Granted, President Obama could have done more with Wall Street, TBTF, job creation, austerity, food stamps, unemployment benefits, breaking the back of the Republican party after his second election; but, just being around for these accomplishments begs for some type of recognition by Dems running for office. They should be talking up these accomplishments and not letting Repubs control the message to the constituents. As Maher said, It isn’t exactly like Obama gave us herpes; instead, he gave the nation healthcare through Congress.

It will be interesting to see if Obama caves if the Repubs take control of the Senate, which is still up in the air according to Sam Wang at Princeton Consortium.

invisible handSnapshot probability distribution of all possible outcomes calculated from current state polls. The blue bars represent combinations of outcomes leading to Democratic control. The red bars represent Republican control. The green bar indicates outcomes in which Democrats and Independents control 50 votes, and independent Greg Orman of Kansas provides one of the votes. In this case, Orman’s choice of caucus will determine control of the chamber. This a snapshot of the polled demographic based on conditions today.” More data and predictions at Sam’s blog.

Peters will win in Michigan. Many other states are up for grabs including McConnell’s home state of Kentucky. It would be nice to see McConnell end his career in 2014.

Notes and References:

“Maher Hammers Dems For Running From Obama In Midterms” Crooks and Liars

“Today’s Senate seat-count histogram *snapshot*” Sam Wang, Princeton Election Consortium

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