Grasping Reality on TypePad, by Brad DeLong

It is true that unemployment is substantially higher, job loss has been greater than most observers predicted last winter, and unemployment is likely to rise.... But contrary to a significant amount of commentary, this does not provide a basis for concluding that the Recovery Act is falling short of its goals..... Given lags in spending and hiring, the peak impact of the stimulus on jobs was expected to be achieved at the end of 2010.... It is noteworthy, however, that the higher than forecasted job losses do not appear to be primarily the result of weaker-than-expected GDP. Rather... there is a significant residual in... Okun's law...: The unemployment rate over the recession has risen... 1 to 1.5 percentage points more than would normally be attributable to the contraction in GDP.... I emphasize these points because they suggest the importance of the structural dimensions... the case for measures to increase the flow of credit and get banks lending again... is reinforced...

...of Catholic Irish-Americans, Italian-Americans, Polish-Americans, and Slovak-Americans, that is--never of African-Americans or Puertoriquenos...

I’ll mostly weigh in on Brad DeLong’s side with regard to this Economist piece on the state of macroeconomics. The Economist reaches, I think, for a false symmetry.... [T]he common claim that economists ignored the financial side and the risks of crisis seems not quite fair.... In international macro, one of my two home fields, we’ve worried about and tried to analyze crises a lot.... Speaking for myself, I saw the housing bubble and expected the bust; but I hadn’t appreciated in advance either the vulnerability of the shadow banking system or the leverage of American consumers. Once the crisis was underway, however, I had a more or less ready-made intellectual framework to accommodate these revelations.... Domestic macro people may have been more astonished by what happened. But the prevailing trend now is to assert that there are more risks in the economy than were dreamed of in our philosophy; I don’t think that’s fair.

How did banks get their risk measures low? It certainly wasn’t by owning less risky assets. Instead, they simply bought A.I.G.’s credit-default swaps. The swaps meant that the risk of loss was transferred to A.I.G., and the collateral triggers made the bank portfolios look absolutely risk-free. Which meant minimal capital requirements, which the banks all wanted so they could increase their leverage and buy yet more “risk-free” assets. This practice became especially rampant in Europe. That lack of capital is one of the reasons the European banks have been in such trouble since the crisis began.

[A] dollars and cents approach to the costs of letting the world burn tends not to capture what’s going on. For example, even a very optimistic take on the consequences of climate change is going to say that things will look very bleak for Bangadesh. But Bangladesh is a poor country. Consequently, the economic costs of Bangladesh’s 161 million people all dying tomorrow would be relatively modest—their whole GDP is only about $225 billion. The cost to Americans of Bangladesh being wiped off the face of the earth would be tiny. But that doesn’t mean it’s okay for Americans to be blithely unconcerned about activity that threatens the lives of hundreds of millions of people in the developing world.

When considering the alleged plight of the very rich groaning under the socialist yoke of Charlie Rangel’s tax proposals, it’s worth keeping in mind that the super-rich’s share of the overall income pie is been skyrocketing... ne natural response to it would be to raise taxes on the very rich and use the tax revenue to finance public services. Under that scenario, everyone winds up better off than they were 25 years ago. Absent stepped-up taxation on the rich, changes in the structure of pre-tax income in the United States ensure that many—if not most—Americans see little actual gain from economic growth.... [M]any morally admirable policies such as liberal immigration laws and openness to trade... both boost... overall economic growth and also exacerbat[e]... domestic income inequality. They’re also... good for poor people in the third world.... Responding... with ramped-up taxation and... services makes these... policies more sustainable and serves the general interests of mankind.

"May the praise of God be in their mouths and a double edged sword in their hands to inflict vengeance on the nations, and punishment on the peoples, and to bind their kings with fetters, their nobles with shackles of iron, and to carry out the sentence written against them."