Grasping Reality on TypePad, by Brad DeLong

Alan Greenspan got a lot of credit for the way he handled the tech bubble... letting the bubble pop on its own and then cleaning up the mess. This strategy has since received quite a bit of criticism, given that the clean-up operation (very low interest rates for an extended period of time) contributed to inflation of a housing bubble, the popping of which caused an enormous amount of damage. An effort to attack the housing bubble earlier might have reduced the severity of the current recession. (Others have argued that debt and equity bubbles require different treatments.)  On the other hand, the Fed wasn't exactly standing pat during the growth of the housing bubble. From June of 2004 until June of 2006, the Fed steadily raised interest rates. Housing prices began falling around May of 2006...

[E]very now and then events occur which remind me just how f---ing weird this country was between... roughly, 9/11/01 and 10/05. The obvious thing, of course, was Iraq, though it wasn't just that. (Some) liberal bloggers were crazy and clueless and naive and, most of all, "unserious," for recognizing the rather obvious point that aside from the dreaded balsa wood drones of mass destruction, there was literally no evidence that Hussein had a WMD program even by the rather low bar they'd set for what WMD were. More than that, it was quite obvious that lots of lies were being told to create the impression that Saddam could KILL US ALL AT ANY MOMENT, which was completely absurd, and that's without even getting into the whole Hussein-Osama BFF.... The media, by and large, believed or ignored those lies. Thousands of US troops have died along with hundreds of thousands of Iraqis. And just about everyone still has their jobs. Except maybe Ashleigh Banfield. Heckuva job everyone!

Krauthammer is part of the swelling "Yes, but" crowd, and for my money these guys are infinitely worse than the flat-out nutters themselves.  I mean, at least nutters have the excuse of being nutters, right?  They can be dismissed or mocked or yelled at or whatever.  But everyone outside the nutter base understands that they're crazy. Then there's the "Yes, but" contingent.  Sober.  Serious.  Looking at all sides of the issue.  Stroking their chins.  Coming to conclusions. And what are those conclusions?  Well, golly, the nutters might be nuts, but they have a point!  Allowing Medicare to reimburse doctors for advance care counseling might be the first tiny step toward turning them into junior Dr. Mengeles after all...

If you look specifically at, say, Barack Obama’s success in wooing moderate Republicans from New England he’s doing a great job. His stimulus bill secured the support of literally 100 percent of the GOP congressional New England caucus.... I think it’s quite plausible to speculate that had Robert Simmons and Chris Shays spent their time swearing up and down Connecticut that they were eager to vote for universal health care and a tough cap and trade bill and were just chomping at the bit to find a President they could work with that those two gentlemen would still be serving in the United States House of Representatives. Instead, they aligned themselves with George W. Bush, Dick Cheney, and John Boehner and lost their seats to be replaced by members of congress who do support that kind of legislation. But that’s not Barack Obama’s fault—Democrats didn’t force Republicans with moderately liberal constituents to closely associate themselves with discredited conservative policies.

While I was traveling, there was a brouhaha in the econoblogosphere about recent writing by Richard Posner. Prof. Posner has gone on the warpath against Christina Romer, the head of the Council of Economic Advisers, claiming that her estimates of the effect of the stimulus were wildly implausible. But it turns out that Posner made a couple of mistakes: (1) He compared quarterly stimulus spending with annual GDP, causing him to understate by a factor of four the size of the stimulus as a share of GDP; (2) He stated Romer’s claims about one-quarter growth at an annual rate, overstating what she was claiming by another factor of four. Overall, then, he was off by a factor of sixteen. As Menzie Chinn has shown, Romer’s claims for the stimulus were actually quite modest. I suspect that Posner’s factor-of-sixteen error sets some kind of record.

The basic issue is this: Tom Ridge... has now confirmed what many of us suspected all along: that declarations of a higher threat level were called for political purposes.... Yet Ambinder (and others) say that they were justified in ignoring the strong circumstantial evidence that this was happening, and that those who saw the truth in real time could not and should not have been taken seriously. Ambinder initially said that he wasn’t going to listen to people motivated by “gut hatred” of Bush; he’s now apologized, but said that the skeptics still had no right to be that suspicious.... But there was... plenty of hard data. Brad emphasizes the writing of Ron Suskind, who... was discounted not because his reporting was weak, but because it was considered unreasonable to suggest that what was actually happening was indeed happening.... [I]t’s really sad that those who missed the obvious... still consider themselves superior to those who got it right.

I’ve been pointing out for a long time — well before the crisis hit full steam — that recoveries ain’t what they used to be. Basically, the standard definition of a recovery is that it’s when GDP starts to rise; but “jobless recoveries”, in which unemployment keeps worsening long after GDP has turned around, have become the new normal. Bill Clinton was able to run on the economy, stupid, well into an alleged economic recovery; the 2001 recession formally ended in Nov. of that year, but it didn’t feel like a recovery until the second half of 2003. I really don’t understand why anyone is surprised that it’s happening again. PS: I’m also surprised that Ben Bernanke’s Jackson Hole remarks, which basically stated the current conventional wisdom — the output decline is over, but jobs are a big problem — made headlines.

One of the founding principles of free market theory, for example, is the idea that markets work best when there is a free flow of information. Yet, some of those bankers who have been promoting free market rhetoric in recent years have also been preventing the widespread dissemination of detailed data on, say, credit derivatives prices.... [T]hey have been operating on the assumption that their own industry would never suffer too violent a wave of creative destruction. And securitisation has produced a particularly curious – or absurd – paradox. A few years ago, it was widely assumed that the process of slicing and dicing credit would create a more “complete”, free-market financial system. But by 2005, credit products had become so complex and bespoke, that most never traded at all. Thus they had to be valued according to models, since they could not even be priced in a market – in a supposed free-market system..

The Obama administration is increasingly signalling that the US will not continue to be the world’s consumer and importer of last resort. The clearest statements came last month from Larry Summers , White House economics director, in a speech at the Peterson Institute for International Economics and in an interview with the Financial Times. The US, he said, must become an export-oriented rather than a consumption-based economy and must rely on real engineering rather than financial wizardry. Tim Geithner, the US Treasury secretary, and other top officials have spoken similarly of rebalancing US growth. The logic of this new US position is not just economic. It is also strategic. Mr Summers has previously remarked on the tension between superpower status and net foreign indebtedness. US influence can be compromised if it is dependent on foreign investors to bail out its financial sector (as in the early part of this crisis) or to finance its fiscal profligacy (as China and other surplu

Some analysts and pundits will try to use the new projections to support their arguments that the February stimulus package is (or is not) working, that Congress must (or must not) proceed with health care reform, and that any number of other policies should (or should not) be pursued. In fact, however, it will be extremely hard to draw any reasonable conclusions about such questions. Instead, the new estimates are likely to provide more evidence that we are in a highly uncertain economic and budgetary environment, in which the estimates can fluctuate significantly for a variety of reasons that have little to do with the desirability of undertaking new policy actions such as health care reform...

Maybe it’s time to bring the notion of respectability back. If we won’t have public justice to sort out truth from fiction, no special prosecutors until after the statute of limitations has run, maybe instead we need a quiet form of the private personal justice we can manage based on the facts on the public record. Shun Ridge. Shun Yoo. Shun Rove. Shun Gonzales. Shun all the torturers and torture enablers, and shun the perverters of law and justice. Don’t ever put anything their way. Don’t give them a visiting gig. Don’t invite them on TV. Don’t buy their books. And make it contagious. Make them professional lepers. Make the people who give them treats sorry they did it. But it won’t happen. Not because there’s always the risk that social shunning gets out hand, brings out the worst in some people who then punish the innocent, for all that these are real and demonstrated dangers not to be taken lightly. No, it won’t happen because the people who put those unprincipled traitors to law

FDA Acting Commissioner Lester Crawford said terrorist "cues from chatter" led him to believe Al Qaeda may try to attack Americans by contaminating imported prescription drugs. Crawford refused to provide any details to substantiate his claims. Asked about Crawford's comments, a spokesman for the Department of Homeland Security was forced to concede, "We have no specific information now about any Al Qaeda threats to our food or drug supply." The Administration had brazenly used Americans' justifiable fears of a future terrorist attack to parry a routine criticism of its policies.

CATO CONFERENCE Wednesday, July 12, 2000 8:00 a.m. - 6:00 p.m. For millennia, history has taught that civilization and human progress depend on the rule of law, a lesson evident today in those nations around the world where law barely exists. Yet even in America, which was founded out of respect for the rule of law, we have seen a growing disrespect for law and legal institutions, often coming from those very institutions, a disrespect that has grown alarmingly over the past eight years. The endless scandals that have surrounded the Clinton administration, and the administration's repeated efforts to frustrate investigations of them, come immediately to mind, of course. But those are only the tip of the iceberg. In its political agenda, its legal briefs, and its executive actions, this administration has ignored both constitutional limits on government power and constitutional guarantees of individual liberty...

It’s just interesting to me that entities as vastly different as these – the AEI and Yglesias/DeLong – could agree on something so radical, whereas our congress can barely come to a bi-partisan vote on…well on hardly anything of substance.