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

I find it Imp – ossible to disagree with Krugman

Recently, I was pleased to note a disagreement between Paul Krugman and Dean Baker.  Finally, I hoped, a chance to prove I am not a knee jerk acolyte of Krugman.  Sadly I found I agreed with Krugman and not Baker (ouch).  But I didn’t give up hope,

until yesterday.

Surely, I can disagree with Krugman when he disagrees with my BFF Brad DeLong ?  Even Krugman was shocked by this event “Brad DeLong has a long meditation on policy that, surprisingly, includes some things I strongly disagree with.”

But wait, there’s more.  The main think Krugman disagrees with is the analogy between the convidence fairy and the “expectations imp” which is clearly a reference to the “expected inflation imp” whose naming Delong ascribed to uh Robert Waldmann.  She is an imp because I am, more less illiterate, and inflation imp was as alliterative as I could get.

DeLong has also written that he considers an earlier Krugman post to be a smack down of us on that topic.


So what does Krugman say about the analogy

But here’s where I think Brad is getting something wrong now: when he says that

“It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves.”

He’s referring to calls for the Fed and other central banks to raise expectations of future inflation as a way to get some traction in a liquidity trap — which is certainly something I and others support. But there are two crucial differences between us and the expansionary austerity types.

First, our expectations argument is a hope; theirs is a plan. I want the Fed, the Bank of Japan, etc. to target higher inflation, in the hope that it might help, but it’s a hope, and meanwhile we need to fight demands for fiscal austerity and even push for stimulus. The expansionary austerity types, on the other hand, are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized.

Which brings us to the second point: those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact. The austerians, on the other hand, have pushed directly destructive policies — fiscal contraction in depressed economies — in order to achieve their hoped-for shift in expectations.


Oh nooooooo, I agree with Krugman entirely.  I take some comfort in the fact that Brad DeLong does too.


Brad DeLong reminds us of the Kauffman Foundation presentations coming up. Rebecca Wilder is probably not going this year…she just had a baby early January, both doing fine, but ‘Matty’ only reads baby books to date, not nerd journals. Ken Houghton may have more to say on the conference later.


11:45 AM: Economic and Weblogging and the Future and Sustainability of Financial Journalism: Panel: Cardiff Garcia, Joe Weisenthal, Allison Schrager):

DRAFT INTRO: As Michael Bloomberg will readily attest, people are willing to pay a lot for timely and accurate information about financial markets. But issues quickly become more technical and convoluted than even in the rest of weblogging about the economy. And the problem of monetization remains: if one is unable to bundle one’s weblogging with delivery of a proprietary asset price-reporting terminal persuading somebody to actually pay so that you can continue to provide them with high-quality financial information that they find of immense value turns out to be a hard problem. Here today we have three panelists: one provides pink pages and web content behind a nasty firewall, one provides information firewall-free, and one is both a consumer and producer of what modern financial weblogging creates. We welcome Cardiff Garcia, Joe Weisenthal, Allison Schrager.

The idea of monetization is an interesting one, and important, and is worth exploring.

Brad DeLong and Theories of the moocher class

Brad DeLong notices the vagaries of the theories of the mooschers class:

Now politicians like Paul Ryan who used to say things like:

Right now about 60 percent of the American people get more benefits in dollar value from the federal government than they pay back in taxes. So we’re going to a majority of takers versus makers…

are saying, instead:

No one is suggesting that what we call our earned entitlements–entitlements you pay for, like payroll taxes for Medicare and Social Security–are putting you in a ‘taker’ category. No one would suggest that whatsoever.”

How long will it be before the likes of Veronique de Rugy stop denouncing Social Security, Medicare, Unemployment Insurance, etc. as programs that have turned us into “a nation of takers”, and stop denouncing these programs beneficiaries as “moochers”?

It is in some ways very odd. It used to be that critics of the welfare state pointed to high net marginal tax rates and argued that they had high deadweight losses. Sometimes they had a point. Then, after bipartisan reforms, we got to a point where there were few high net marginal tax rates large enough to induce large deadweight losses.

And then, in the blink of an eye, the problem became not public-finance deadweight losses but, rather, the moocher class, the nation of takers, etc.

(Dan here…the Veronique de Rugy quote is over at Brad DeLong’s site)


Brad DeLong offers a long post on economists on the Romney team.


Notes on HHMT: Kevin Hassett, Glenn Hubbard, Gregory Mankiw, and John Taylor, “The Romney Program for Economic Recovery, Growth, and Jobs”

HHMT: We are presently in the most anemic economic recovery in the memory of most Americans, with significant joblessness and long-term unemployment, as well as lost income and savings.
WRONG: We are in the worst downturn, but we are not in the “most anemic” recovery–the recovery of 2001-2004 was more anemic. HHMT should know: three of them held high federal office in the George W. Bush administration that managed that recovery,and back then all four attempted (uncovincingly, IMHO) to rebut claims from people (like me) that the early 2000s recovery was anemic and that more stimulative policies were then needed.Why don’t HHMT make the true claim that we are in the worst downturn? Why do they make the wrong claim that we are in the most anemic recovery? Because they do not want to talk about how back when they were in office they played their role in failing to use their leverage to argue for more expansionary fiscal and monetary policies to speed the then-recovery.Why weren’t HHMT arguing, back in 2001-4, either inside or outside the government, for more expansionary fiscal and monetary policies to speed the then-recovery? I don’t know.Those of us who were so arguing would have found their help most welcome.

The list is long for a post….worth reading.

David Glaser tackles Art Laffer in Arthur Laffer, Anti-Enlightenmen Economist from the Wall Street Journal.

A web of privilege supports this so-called meritocracy

Brad DeLong points to an article by Gary Younge in The Guardian:

A web of privilege supports this so-called meritocracy: Shortly after Mitt Romney’s failed 2008 campaign for the Republican nomination his son Tagg set up a private equity fund with the campaign’s top fundraiser. One of the first donors was his mum, Anne. Next came several of his dad’s financial backers. Tagg had no experience in the world of finance, but after two years in the middle of a deep recession the company had netted $244m from just 64 investors. 

Tagg insists that neither his name nor the fact that his father had made it clear he would run for the presidency again had anything to do with his success. “The reason people invested in us is that they liked our strategies,” he told the New York Times. 

Class privilege, and the power it confers, is often conveniently misunderstood by its beneficiaries as the product of their own genius rather than generations of advantage, stoutly defended and faithfully bequeathed. Evidence of such advantages is not freely available. It is not in the powerful’s interest for the rest of us to know how their influence is attained or exercised. But every now and then a dam bursts and the facts come flooding forth…

AEI Economists and the Ugly Memory Hole

by Mike Kimel

From an article in the NY Times:

Politicians sometimes say that lower tax rates lead to higher economic growth, which in turn leads to higher overall tax revenue. This may have been true in the early 1960s, when the top tax rate was 91 percent, but the top tax rate today is 35 percent. For decades, lower tax rates have led to lower government revenues, says Alan Viard, an economist at the American Enterprise Institute, a conservative policy group. “The Reagan tax cuts, on the whole, reduced revenue,” he explains. “The Bush tax cuts clearly reduced revenue. There is no dispute among economists about that.”

I guess we can credit Viard with actually looking at data on taxes and revenues, and having at least enough honesty not to obfuscate results.

Sadly, there is a dispute among the folks who call themselves economists about that, and it seems particularly easy to find that category of economists among the type of folks who are willing to associate themselves with the American Enterprise Institute.

Here’s Kevin “Dow 36,000” Hassett of the AEI, not incidentally co-author of Viard with a paper currently highlighted on the AEI’s website:

Republicans have asserted for years that just about all tax cuts pay for themselves. They’ve almost always been wrong about that. But with regard to corporate taxes, it’s true.

As Hassett notes in his piece, the top US corporate rate in 2010 was 35 percent. Note the Viard quote shown earlier.

Then there’s AEI visiting scholar R. Glenn Hubbard, previously the first Chair of the Council of Economic Advisers under GW Bush, and as we all remember, a huge advocate of tax cuts all around. I found this old Brad DeLong post from Hubbard’s White House days. DeLong quoted, in its entirety, this letter by Hubbard that was printed in the Washington Post.

Washington Post
Low Taxes and Growth for All
January 4, 2003; Page A15

A Dec. 16 news story in your paper stating that a Republican economist does not care about the deficit and wants to raise the tax burden on the poor was too good for Michael Kinsley to check [“Republicans Go Positive on the Deficit,” op-ed, Dec. 23]. Had he checked the complete text of my Dec. 10 speech, it would have been clear that I believe the fiscal position does matter and that a pro-growth policy with lower taxes for everybody makes sense.

The president is committed to fiscal discipline, and he rightly believes it is important to balance the budget. The deficit we now face is caused by national emergency, war and recession. We must keep in mind that growth leads to surpluses, not vice versa. Promoting economic growth and job creation is the aim of the administration–and this will lead back to a balanced budget. At the same time, the peer-reviewed economics literature shows that long-term interest rates do not go up in lockstop with the budget deficit. This is apparent from recent history.

The Dec. 16 article and Kinsley suggest that by acknowledging the challenges inherent in fundamental tax reform, the administration favors increasing taxes for some individuals. But the record makes clear this is not the case: The president and this administration know that lowering taxes for everybody leads to growth. This continues to be the sound policy of the administration.

— R. Glenn Hubband, Chairman, Council of Economic Advisers

Notice… he talks about “fiscal discipline” but he is very clear, “growth leads to surpluses.” Fiscal discipline is important, but it isn’t what leads to surpluses. The only way that is true is if the faster growth generated by tax cuts leads to increased tax collections.

Note that this was 2003… and Hubbard and his boss had already given us tax cuts in 2001 and 2002.

Anyway, I can go on, but it seems to me Viard’s comment is merely part of a concerted effort to scrub a large history of very, very bad economic forecasts down the memory hole. Sorry, but unless and until Viard calls out some his big name colleagues by name, it is going to be just as hard to take him seriously as it is to pretend that folks like Hubbard and Hassett don’t have a long history of promoting very damaging policies, and doubling down when those policies blew up.

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?

If there was a Public Option in PPACA, what grounds would the Supreme Court use to overturn it?

The above is a more-than-semi-serious question.

I’ll be blogging/tweeting the Kauffman Foundation’s Bloggers’s Forum tomorrow from 9:30-3:30 EDT (8:30-2:30 here in Kansas City; 6:30-12:30 in DeLong/Thomaville; in Hawaii, they’re still watching Dave Garroway).

You can tell it has reached maturity because tomorrow’s presenters include J. Bradford DeLong, Scott Sumner, Tyler Cowen, and Karl Smith—and that’s just the first panel (“Recovery and Long-Term Growth”).

Mark Thoma, Arnold Kling, and the Former Dynamic Duo [Ezra Klein and Matt Yglesias] are all scheduled to follow.

As Brad noted, the event will be live-streamed at Growthology and (one assumes, as usual), the videos will be archived and available.

Neither your not-very-humble correspondent nor fellow AB (and now Roubini contributor) Rebecca Wilder will be presenting.

[links completed late; apologies to Ezra, Matt, and Rebecca for the delay.]

Health Care Thoughts: Recommending Brad Delong

by Tom aka Rusty Rustbelt

Health Care Thoughts: Recommending Brad Delong
When he is not snarking up a storm on his blog or educating Berkeley’s young skulls full of mush Brad does some solid academic work.

In concert with Prof. Ann Marciarille (Mrs. Delong if I remember correctly) Delong has posted an interesting piece to SSRN, entitled Bending the Health Cost Curve: The Promise and the Peril of the IPAB.  the article explores the promise and perils of the Independent Payment Advisory Board (IPAB), a major feature of PPACA.

This is a balanced piece with a lot of good background information.

Having been involved in the policy and details of Medicare and Medicaid reimbursement since the late 70s I am more skeptical of technocrats and bureaucrats, but I do see potential, and do see the need. (I also intend to write something about the technical aspects of Medicare reimbursement, but several editors are whipping me now so pleasure work will have to wait).
If you have any interest in health care policy and operations, read the Delong piece, well worth the time.

The Flaw in the Reasoning…

Brad DeLong (pulled from an otherwise-spot-on post):

Two years ago, after all, the recession was over.

The Recovery:

I started these from the first month after NBER’s recession end date. Note that there is one true, consistent growth line—sadly, that’s the mean (average) duration of Unemployment.

If this is victory, Pyrrhus of Epirus had nothing to complain about.