Grasping Reality on TypePad, by Brad DeLong

Matthew Yglesias is puzzled:

Matthew Yglesias: Bernanke Used to Know What to Do: Even though Ben Bernanke is a conservative Republican Bush appointee, and even though the Fed mishandled a lot of things before the Bear Stears meltdown and Lehman Brothers bankruptcy, a lot of people I know were reasonably glad he was Fed chair as the country headed into major economic crisis. Why? Well largely because his pre-government academic work really seemed to indicate that he appreciated the need for drastic anti-crisis measures.... [Y]et here in the contemporary United States when Bernanke has the chance to put these ideas in practice, he’s not doing it. But we’ve been having below-target inflation for a while now. And we’ve got 10 percent unemployment. And our forecasts tell us that elevate unemployment will continue for a loooong time. The appropriate solution, as Bernanke laid out here, is for the central bank to continue monetary expansion until the price level “catches up” with where we’d be on a reasonable growth trend. That means a limited period of time in which inflation exceeds the standard target by a limited amount. But instead of doing this, the Fed remains obsessed with trying to eliminate all risk of inflation rising above the long-run target for even a moment. But why?

I am puzzled too.

Looking down this New York Times buyout list from Gawker, I am reminded of the cartoon where Dibert explains his company's buyout program thus:

we have to pay the good people to leave.

If any news organization wants to gain credibility with me at least, hiring a chunk of these and turning 'em loose to write what they think is going on would be a way to do it...

Fortunately, Paul Krugman does:

Unhelpful Hansen: [T]oday’s op-ed article suggests that he really hasn’t made any effort to understand the economics of emissions control. And that’s not a small matter, because he’s now engaged in a misguided crusade against cap and trade, which is — let’s face it — the only form of action against greenhouse gas emissions we have any chance of taking before catastrophe becomes inevitable.... [A]n emissions tax of the form Hansen wants and a system of tradable emission permits, aka cap and trade, are essentially equivalent.... A tax puts a price on emissions, leading to less pollution. Cap and trade puts a quantitative limit on emissions, but from the point of view of any individual, emitting requires that you buy more permits... so the incentives... for individual action to reduce emissions are the same under the two systems. This is true even if some emitters are “grandfathered” with free allocations of permits, as will surely be the case. They still have an incentive to cut their emissions, so that they can sell their excess permits to others.

The only difference is the nature of uncertainty over the aggregate outcome. If you use a tax, you know what the price of emissions will be, but you don’t know the quantity... if you use a cap, you know the quantity but not the price.... [T]he question about uncertainty is secondary; the fact is that cap and trade works. Hansen admits that the sulfur dioxide cap has reduced pollution, but argues that it didn’t do enough; well, it did as much as it was designed to do. If Hansen thinks it should have done more, he should be campaigning for a lower cap, not trashing the whole program...

esterday, Dec. 7, 1941 - a date which will live in infamy - the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan.

The United States was at peace with that nation and, at the solicitation of Japan, was still in conversation with the government and its emperor looking toward the maintenance of peace in the Pacific.

Indeed, one hour after Japanese air squadrons had commenced bombing in Oahu, the Japanese ambassador to the United States and his colleagues delivered to the Secretary of State a formal reply to a recent American message. While this reply stated that it seemed useless to continue the existing diplomatic negotiations, it contained no threat or hint of war or armed attack.

It will be recorded that the distance of Hawaii from Japan makes it obvious that the attack was deliberately planned many days or even weeks ago. During the intervening time, the Japanese government has deliberately sought to deceive the United States by false statements and expressions of hope for continued peace.

The attack yesterday on the Hawaiian islands has caused severe damage to American naval and military forces. Very many American lives have been lost. In addition, American ships have been reported torpedoed on the high seas between San Francisco and Honolulu.

Yesterday, the Japanese government also launched an attack against Malaya.

Last night, Japanese forces attacked Hong Kong.

Last night, Japanese forces attacked Guam.

Last night, Japanese forces attacked the Philippine Islands.

Last night, the Japanese attacked Wake Island.

This morning, the Japanese attacked Midway Island.

Japan has, therefore, undertaken a surprise offensive extending throughout the Pacific area. The facts of yesterday speak for themselves. The people of the United States have already formed their opinions and well understand the implications to the very life and safety of our nation.

As commander in chief of the Army and Navy, I have directed that all measures be taken for our defense.

Always will we remember the character of the onslaught against us.

No matter how long it may take us to overcome this premeditated invasion, the American people in their righteous might will win through to absolute victory.

I believe I interpret the will of the Congress and of the people when I assert that we will not only defend ourselves to the uttermost, but will make very certain that this form of treachery shall never endanger us again.

Hostilities exist. There is no blinking at the fact that that our people, our territory and our interests are in grave danger.

With confidence in our armed forces - with the unbounding determination of our people - we will gain the inevitable triumph - so help us God.

I ask that the Congress declare that since the unprovoked and dastardly attack by Japan on Sunday, Dec. 7, a state of war has existed between the United States and the Japanese empire.

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  In Washington, the term "fiscal conservative" often gets applied very loosely to people who complain about debt and deficits a lot but never, ever put any real deficit reduction proposals on the table--Evan Bayh, I'm thinking of you. Such people always say we need yet another commission to study the issue, the time isn't right, we need to wait until after the next election or better weather or whatever. So I'm pleased to call attention to a real fiscal conservative--economist Jeff Frankel of Harvard, who has put together a 10-point plan of serious, honest-to-God deficit reduction proposals. Half involve higher revenues and half reduced spending; they include entitlements as well as discretionary programs. I won't steal Jeff's thunder by listing them; follow the link below. I don't necessarily endorse every item on the list, but it's a good place to start. Any member of Congress who wishes to be considered a fiscal conservative should be willing to endorse a plan as detailed as this one
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  The health reform bills passed by the House of Representatives (H.R. 3962) and introduced by Senate Majority Leader Reid (as an amendment to H.R. 3590) contain a wide range of measures to restructure the U.S. health system and slow the growth of health care costs, particularly Medicare costs. The bills begin to move in most of the areas that health policy experts consider promising avenues for reducing the growth of health care spending and where specific steps can be identified. “Pretty much every proposed innovation found in the health policy literature these days is encapsulated in these measures,” John Iglehart, founding editor of Health Affairs, recently wrote in the New England Journal of Medicine. Similarly, Jonathan Gruber of MIT, one of the nation’s most respected health economists, recently said of the Senate bill, “It’s really hard to figure out how to bend the cost curve, but I can’t think of a thing to try that they didn’t try. They really make the best effort anyone has e
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  Leading the list of high-multiplier items is direct spending by the federal government, infrastructure aid to states and localities, other types of aid to states and localities, and transfer payments (think unemployment insurance and food stamps) to individuals. At the bottom of the list are corporate tax cuts, the new homeowner's tax credit and individual tax cuts. Of course, of that list, the only policy we've rushed to expand is the homeowner's tax credit, which turns out to be among the two worst approaches if you're worried about stimulus. The good news is that Kent Conrad says there's support for expanding aid to states and localities in the Senate, but I'll believe that when I see it.
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  Although long obscured by the Great Depression, the nationwide “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-war construction catch-up, low interest rates and a “Greenspan put,” helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the “Too Big To Fail” doctrine, and federal policies to increase mortgages to higher risk homeowners. This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression.
• Stefano DellaVigna

Matthew Kahn writes:

The Return of a Minor League Blogger: I twice had the chance to sit down and chat with Brad Delong. He was blogging so I didn't want to bug him but we had a chance to talk and I enjoyed it...

But I wasn't blogging! I was frantically trying to get ready to run the finance panel of the "Green Buildings" symposium...

But sometimes it tells me things that man was really not meant to know.

Henry Farrell:

Crooked Timber: I’m a bit hesitant to link to this (as I’m not an elderly right wing economist, I’m worried I might be accused of “belittling the other”), but it’s super-duper awesome! Charles Rowley, familiar to long time CT readers for his ruminations on the corruption of the profession of political science... and his bizarre attack on Avner Greif... now has his own blog. It’s everything that one might possibly hope for. My favorite so far is the bit telling us that:

the massive fist of free market ideas once again will smash through the false consciousness of Keynesian dreams, and voters will rush to elect leaders such as Margaret Thatcher and Ronald Reagan

‘cos it’s a level of rhetorical styling that I haven’t seen since I used to pick up the newsletter of the Maoist International Movement (the title is a bit of a misnomer; the cadres all seem to hang out in Ann Arbor, Michigan) when I was a graduate student in statistics boot camp. But the Obama=Sykes, Larry Summers=Fagin post runs a very close second...

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  After a lecture in 1908 satirizing the Immaculate Conception, Wicksell was briefly imprisoned for two months...
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  <a href="http://www.youtube.com/watch?v=HOF6ZeUvgXs&feature=player_embedded">http://www.youtube.com/watch?v=HOF6ZeUvgXs&feature=player_embedded</a>
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Knut Wicksell, 1898:

Those people who prefer a continually upward moving to a stationary price level forciblyremind one of those who purposely keep their watches a little fast so as to be more certain of catching their trains. But to achieve their purpose they must not be conscious or remain conscious of the fact that their watches are fast; otherwise they become accustomed to take the extra few minutes into account and so after all, in spite of their artfulness, arrive too late....

It follows that... the ideal position, affording common advantage to the overwhelming majority... would undoubtedly be one in which... the general average level of money prices... would be perfectly invariable and stable.

And why should not such regulation lie within the scope of practical politics?... Absolute prices... are a matter in the final analysis of pure convention, depending on the choice of a standard of prices which it lies within our power to make.... [I]t is the part of man to be master, not slave, of nature, and not least in a sphere of such extraordinary significance as that of monetary influences...

Will Wilkinson writes::

Anything at All?: Brad DeLong writes:

At this point, anything that boosts the government’s deficit over the next two years passes the benefit-cost test–anything at all.

30,000 more troops to Afghanistan? Anything?

He says it with special emphasis, as though he’s not goofing. But is it even possible to take a claim like that seriously?

All right. Anything that is not positively harmful on its own terms.

The point is that with so many unemployed the resource cost of the government doing things is very close to zero--it is using hands that would otherwise be idle and would not be happy being idle...

Did I ever remember to post this here? From The Week Online:

The White House is hosting a jobs summit this week. I, however, cannot but think that it is the wrong jobs summit—that it will be the wrong people talking about the wrong things.

Let me back up. Ever since the 1930s and John Hicks--if not before--economists trying to analyze the determinants of spending have focused on two of the economy’s markets: the market for liquidity and the market for savings.

Irving Fisher first analyzed the market for liquidity—the money market—which matches the supply of readily spendable purchasing power in the economy (cash, checking account balances, credit lines) with the demand of households and businesses to hold some of their wealth in the form of readily spendable purchasing power. Supply and demand in this market is influenced by interest rates and the flow of spending.

Knut Wicksell first analyzed the market for savings—usually called “the bond market”—which matches households wishing to boost the value of their savings with businesses seeking capital to expand their productive capacity. Interest rates are crucial here, as well.

At first glance, it seems there are three variables at play: spending, income, and interest rates. But when we recognize that everyone’s spending is someone else’s income, we see that there are really only two variables—that the economy will settle at that level of interest rates, spending, and income where supply equals demand in the market for liquidity and in the market for savings.

We now have a framework for managing the economy. For the government to boost jobs, it must to do something to change the balance of supply and demand in either the market for liquidity or the market for savings. In general, the central bank—the Federal Reserve—acts to tweak supply and demand in the market for liquidity. The president and Congress act to tweak supply and demand in the market for savings. But they must make sure that whatever spending, income, and job-stimulating effect they create by intervening in one market is not undone by changes in the other market.

Right now, if you ask the decisive members of congress—by which I mean the Blue Dog Democrats in the House, or the most conservative Democrats and most liberal Republicans in the Senate —why the president and the Congress are not doing more to reduce unemployment and boost spending and income, the answer you’ll get is ... well, you probably wouldn't get an intelligible answer.

But if you did get an explanation for the lack of congressional action it would go something like this: Attempts to move supply and demand in the market for savings in order to boost spending would (a) increase the national debt burden on future taxpayers and (b) lead to a large decline in bond prices and a boost in interest rates. Why? Because businesses would try to increase their liquidity to support higher spending, driving up interest rates, which, in turn, would cause businesses to cut back on investment, thus neutralizing most or all of the stimulative policies.

Similarly, if you were to ask the Federal Reserve why it isn’t doing more to reduce unemployment and boost spending and income, the answer you would get is this: Spending is in no way constrained by a shortage of liquidity. We have already done all we can do, indeed we have “flooded the zone” with liquidity. As a result, the Fed is disinclined to pursue additional tweaks of supply and demand in the market for liquidity because it fears such efforts would fuel destructive inflation in the future without boosting employment and spending in the present.

Both of these arguments are comprehensible; each might well be true. But they cannot both be true at the same time. Either the economy is so awash in liquidity that the Federal Reserve cannot do much to boost spending—in which case additional spending by the government won’t generate any substantial rise in interest rates. Or additional government spending will crowd out investment as businesses scramble for liquidity and interest rates rise—in which case the economy is not awash in liquidity, and quantitative easing by the Federal Reserve could do a lot right now to boost spending and employment.

It appears that what we have here is a failure to communicate.

In truth, that is nothing new on this front. It was clear, for example, by Feb. 17 of this year, the day Obama signed the stimulus package, that the economy was in much worse shape than earlier projections had supposed. The administration’s policies were targeted at an economy in which the current—December 2009—unemployment rate was projected at 7.8 percent, with a decline to 6.9 percent projected by December 2010.

But we do not live in that world. We live in a world in which the unemployment rate this month is likely, in the final data, to come in at 10.4 percent, and in which the unemployment rate in December 2010 may well exceed 9.6 percent. All of this was known, or suspected, on Feb. 17. But the High Politicians and High Spinmasters of the Obama administration chose not to communicate that grim news. The problem is not that the administration’s policies have not performed as expected; they have, more or less. The trouble is they were devised to treat a bad crisis. And we were living through an even worse one.

Thus we need a jobs summit right now. We need the White House's National Economic Council and key congressional “centrists” on one side and the Federal Reserve Open Market Committee on the other to meet. Those two groups seem to have very inconsistent views of the economic situation. They seem to be working at cross-purposes. Something has to give. If they could reach agreement on whose view of the economy is likely correct, then a rescue plan—entailing either more government spending or greater liquidity—would become obvious.

Until that “jobs summit” is convened, others are moot.

Stephen Bainbridge writes, apropos of (as best I can see) nothing at all:

ProfessorBainbridge.com: I don't read Kos or Brad DeLong or, for that matter, Brookings Institute position papers very often...

Let me say that in my view this is a serious mistake: reading people with whom one does not already agree is, after all, the only way one can can become smarter. Otherwise one becomes stupider every day.

As it happens, I do read Professor Bainbridge, and occasionally it provokes thoughts that I value--of which I think this is the best:

A Short Dialogue on Santa Clara County v. Southern Pacific Railroad Company

John of Salisbury: I see that Brad DeLong is getting smacked down from the left and from the right.

Thrasymakhos: Something that would make the world a better place if it happened more often, but about what, exactly?

John of Salisbury: Well, DeLong wrote down an off-the-cuff list of ten "constitutional moments" when American judges had changed the law. Fourth on his list is:

• The post-Civil War empowering of corporations with exorbitant privileges of citizenship and limited liability at the expense of government regulators and creditors.

Justinian: And?

Edward Coke: Nathan Newman accused him of Amnesia on the Death of Reconstruction--when the Grant administration was trying to suppress the anti-Negro terrorist insurgency in the U.S. South in the 1870s, the Supreme Court betrayed it and broke the legal tools it was using. Because the Supreme Court threw its weight onto the scales, Newman argues, the terrorists won.

Thrasymakhos: And what does DeLong say?

John of Salisbury: He wimps out. Something about the Supreme Court being a bit player--the main actors being executive and legislative.

Thrasymakhos: But the Supreme Court was active?

John of Salisbury: Very.

Thrasymakhos: Seems like Nathan has a fair point.

Justinian: And what else?

John of Salisbury: This is interesting. I can't claim to fully understand it. From the right, Stephen Bainbridge cheered on by Glenn Reynolds, takes aim at DeLong's example number 4:

I assume that DeLong's talking about the post-Civil war cases [like Santa Clara County v. Southern Pacific Railroad Company].... Congress substituted the word "person" for the word "citizen" [in the text of the Fourteenth Amendment] precisely so that the provisions so affected would protect not just natural persons but also legal persons, such as corporations, from oppressive legislation.... (Admittedly... the legislative history is not uncontroverted.)...

The... cases establishing the corporation as a legal person with constitutional rights were (a) required by the legislative history of the 14th amendment and (b) made good policy sense. Hence, my conclusion that's you're "wrong" was intended to suggest that # 4 doesn't belong on your list. It was also intended to suggest that your rehetorical claim that the post-Civil War cases provided corporations with "exorbitant" privileges was, frankly, over the top. I should have thought that was apparent...

Justinian: I don't understand. Is Bainbridge defending the ruling of the Supreme Court in Santa Clara County v. Southern Pacific Railroad Company because the Court had a choice as to how to rule and chose the just result--the one that made "good policy sense"--or because the Court had no choice as to how to rule, being contrained by the plain meaning of the text?

Thrasymakhos: Neither.

Justinian: Neither?

Thrasymakhos: Neither. Notice that Bainbridge claims not that the Court was constrained by the meaning of the text, but by the legislative history of the amendment. He can't claim that the text requires his interpretation: it doesn't. And notice that Bainbridge cannot claim that justice alone--the fact that this interpretation would make "good policy sense"--is sufficient to justify his interpretation. That would mean that good judges are "activists" because they can make choices, and Bainbridge is certain that good judges aren't activists.

Edward Coke: No, that's not it at all. What good judges do is that they understand the law at a deeper level than other people. They see more clearly than others what the law always meant--but what their predecessors were too blurry-eyed to see.

Thrasymakhos: But the Fourteenth Amendment was then only sixteen years old.

Edward Coke: But the real Constitution--the Constitution that is true justice--had always included a Fourteenth Amendment. The drafters in 1787 had simply failed to see that it did. The life of the law, after all, is reason. The law that is written down is simply crystalized reason itself, to the extent that we can understand and follow it. So it had to be the case that true justice required and the properly-interpreted Fourteenth Amendment required that corporations be persons with the right to the equal protection of the laws. Anything else would be unreasonable.

John of Salisbury: Are you Edward Coke or G.F.W. Hegel?

Justinian: But this "required"? How can claims made about legislative history that are "not uncontroverted" "require" anything?

Edward Coke: Got me.

Justinian: How does this Fourteenth Amendment read?

Edward Coke: Like this:

Section. 1. All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens.... No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section. 2. Representatives shall be apportioned... counting the whole number of persons in each State....

Justinian: So if you have more corporations in your state, you get more representatives in the legislature?

John of Salisbury: No, no, no! "Persons" in Section 2 refers only to human beings...

Edward Coke: And "persons" at the start of Section 1 refers only to human beings...

John of Salisbury: Only "persons" at the end of Section 1 refers to legal persons, i.e. corporations, as well as human beings...

Justinian: If anybody had tried to place such a strained interpretation on one of my laws...

John of Salisbury: Yes. Justices Hugo Black and William O. Douglas had things to say about Bainbridge's "required":

Wheeling Steel Corporation v. Glander , 337 U.S. 562 (1949): Mr. Justice DOUGLAS, with whom Mr. Justice BLACK concurs, dissenting.

It has been implicit in all of our decisions since 1886 that a corporation is a 'person' within the meaning of the Equal Protection Clause of the Fourteenth Amendment. Santa Clara Co. v. South. Pacific R. Co.... [I]t wrote no opinion on the point.... There was no history, logic, or reason given to support that view.... The Fourteenth Amendment became a part of the Constitution in 1868. In 1871... Mr. Justice Woods (then Circuit Judge) held that 'person' as there used did not include a corporation.... [I]n 1873. Mr. Justice Miller... adverted to events 'almost too recent to be called history' to show that the purpose of the Amendment was to protect human rights--primarily the rights of a race which had just won its freedom....

[W]hat was clear to these earlier judges was apparently plain to the people who voted to make the Fourteenth Amendment a part of our Constitution.... There was no suggestion in [the amendment's] submission that it was designed to put negroes and corporations into one class and so dilute the police power of the States over corporate affairs....

[H]ow strained a construction it is of the Fourteenth Amendment so to hold.... It requires distortion to read 'person' as meaning one thing, then another within the same clause and from clause to clause....

History has gone the other way..... But now that the question is squarely presented I can only conclude that the Santa Clara case was wrong and should be overruled...

Edward Coke: And things get worse. If you look in Justice John Marshall Harlan's opinion in Santa Clara Co. v. South. Pacific R. Co. you see no holding that a corporation is a "person." The Court does not reach the question:

Santa Clara County v. Southern Pacific Railroad Company: The special grounds of defense by each of the defendants were: (1) That its road... a... franchise... derived from the United States, cannot, without their consent, be subjected to state taxation. (2) That the provisions of the constitution and laws of California... are in violation of the fourteenth amendment... denying to it the equal protection of the laws....

Mr. Justice FIELD overruled the first of the special defenses... but sustained the second.... The propositions embodied in the conclusions reached in the circuit court... belong to a class which this court should not decide unless their determination is essential.... [If not,] there will be no occasion to consider the grave questions of constitutional law....

[T]he court below might have given judgment... upon the ground that the assessment... included property... the state board was without jurisdiction to assess.... As the judgment can be sustained upon this ground, it is not necessary to consider any other questions...

Justinian: So Harlan writes explicitly that the Supreme Court is not deciding this question, and people like Bainbridge assert that the Supreme Court did decide the question?

Edward Coke: Yep.

Justinian: Wow.

[Pause]

Justinian: But Bainbridge talks about the legislative history. He says the legislative history requires his reading of the Fourteenth Amendment.

John of Salisbury: Now we get to the interesting case of Roscoe Conkling. Roscoe Conkling claimed that the drafters of the Fourteenth Amendment had used the word "persons" in the equal protection clause so that subsequent courts could use it to protect corporations from legislatures--and that the drafters had kept this secret throughout the ratification process, and that he was only now in 1882 revealing the true meaning of what the states had ratified.

Justinian: Under what theory of ratification is a Court "required" to adopt a secret meaning of a law--a meaning unknown to those who adopted it?

Edward Coke: Got me.

Justinian: If Roscoe Conkling had written an extra clause on the original of the Amendment text in invisible ink, and the Amendment had then been ratified, would Bainbridge say that the invisible ink text was a valid part of the Constitution?

Edward Coke: Got me.

Justinian: Is Bainbridge serious when he writes that this claim by Conkling "requires" that judges adopt Conkling's reading of the Fourteenth Amendment?

Edward Coke: Apparently.

Thrasymakhos: It gets worse: Conkling appears to have misquoted his own diary, and to have done so deliberately: Howard Jay Graham (1938) "The 'Conspiracy Theory' of the Fourteenth Amendment," Yale Law Journal.

Justinian: Your modern jurisprudents appear to be a scurvy lot.

Edward Coke: I cannot disagree.

John of Salisbury: It's your fault.

Edward Coke: My fault?!

John of Salisbury: Yes. You started this practice of pretending that what judges wanted to do was in fact what precedent demanded that they must do. You with your "Great Charter" business--the rights of Englishmen against arbitrary arrest dating back to 1215. If anybody had shown up before Queen Elizabeth I demanding that someone she held in the Tower be released because of the "Great Charter"--well you, you as her Speaker blocked a proposed reaffirmation of it, didn't you? But you wanted to curb the power of a Scottish-born king, and pretending that Magna Carta had always been good law since 1215, and that it had always applied not just to barons with knights in the field but to all crown subjects was just the tool you needed. Modern lawyers have a nasty habit of making false claims about the past--that such and such a reading is "required" because of the past--in the hope that their claims will be true about the future. And it's your fault.

Justinian: I'm still stuck at this "required by the legislative history" business...

Thrasymakhos: It doesn't make "sense." It's not supposed to make sense. It's simply a way of avoiding admitting that the post-Civil War Supreme Court made choices about how American corporate law was to develop, and those choices could have gone different ways...

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Good to see:

ROBERT KUTTNER: You know, most of the things that have been proposed today cost money, and there is this concern about the federal deficit. I hope that your administration will recognize, as I know you will, that it's possible, first of all, to reduce the deficit over time and sometimes in the short run realize that you need to increase the deficit. And I hope the concern about the deficit in the long run doesn't crowd out the need for additional spending in the short run. And I also think that some of these programs that increase jobs and increase GDP are probably the fastest way to get the economy back on a track that will reduce the deficit over time. It's certainly a better way to reduce the deficit than putting ourselves into a -- into a debtor's prison and assume we can deflate our way to recovery.

BARACK OBAMA: Well, I think this is an important point. You know, we've been talking a lot about specific initiatives. There is a macroeconomic element to this whole thing. And so let me just amplify what was just said.

We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.

You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.

No, I mean, we had -- we've got a 9-point-something trillion- dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated.

So that's not what's contributing to the deficit. We've got a long- term structural deficit that is primarily being driven by health care costs, and our long-term entitlement programs. All right? So that's the baseline.

Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do.

We understand that in this administration. That's not always the dialogue that's going on out there in public and we're going to have to do a better job of educating the public on that.

The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.

Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive. So we've got about as difficult a economic play as is possible, which is to press the accelerator in terms of job growth, but then know when to apply the brakes in the out-years and do that credibly. And you know, we are trying to strike that balance, but we're going to need help from all of you who oftentimes are more credible than politicians in delivering that message.

Because we want to leverage whatever public dollars are spent, and we are under no illusion that somehow the federal government can spend its way out of this recession. But it is absolutely true that any of the ideas that have been -- been mentioned here are still going to require some public dollars, and those are actually good investments to make right now.

It's so nice to have an intelligent, thoughtful, and industrious president...

Just saying...

This, from Ben Bernanke yesterday, was unprofessional:

Silla Brush: Federal Reserve Chairman Ben Bernanke on Thursday threw cold water on efforts to push a major new fiscal stimulus package. At his confirmation hearing for a second term as chairman, Bernanke emphasized that the government has spent less than half of the money in the $787-billion package passed earlier this year and that analysts are still determining its impact. "Only about 30 percent of the funds have been disbursed," Bernanke said. "It's a little bit early to make a strong judgment, a little bit early to decide whether or not to do additional fiscal actions..."

I call bullshit.

30% of the funds have been spent, but 100% of the increase in the pace at which the government is spending money has already occurred.

The ARRA has already had its full impact on the growth rate of GDP.

It has had or is about to have had its full impact on the level of GDP. After the end of this year, the effects of the ARRA on the economy die away and it delivers not an addition to but a subtraction from the GDP growth rate.

You can say many things about the ARRA.

You cannot say that it is too soon to assess its impact because only 30% of the funds have been disbursed.

Bernanke could say that additional fiscal stimulus is unwarranted because of the long-term deficit situation and the limited debt capacity of the U.S. government. (I think that is a hard argument to make, but he could make it.) But he doesn't. He says that it is too soon to judge because we don't yet know the effect of the ARRA.

That is, at best, incoherent.

Joe Gagnon, by striking contrast, has a coherent and informed view of the macroeconomic situation.

Joe, via Tim Duy, via Mark Thoma:

Joe Gagnon: The Case for $6 Trillion More Monetary Stimulus: A lively debate is under way between those who want more fiscal stimulus to create jobs and those who worry that our national debt is already too high. Both sides are ignoring the obvious alternative... easier monetary policy in all the main developed economies....

[T]he United States, the euro area, Japan, and the United Kingdom are suffering from historically high rates of unemployment... forecasters see weak economic growth and lackluster job creation over the next two to three years.... Clearly, we need more macroeconomic stimulus to reduce the suffering and allay the long-term damage caused by persistent unemployment as well as to ward off the risk of harmful deflation. But record peacetime fiscal deficits and rapidly rising public debt point to monetary policy, rather than fiscal policy, as the way to go.

Short-term interest rates already have been reduced to near zero. But the Federal Reserve and its counterparts have other tools to use for monetary stimulus... large-scale purchases of long-term bonds. There is considerable scope for additional purchases... combined purchases of an additional $6 trillion in long-term bonds designed to push 10-year bond yields down another 75 basis points. At a time of concern about fiscal deficits, it is important to note that reducing yields on government debt actually reduces the federal deficit. Reducing yields on private debt will also speed the repair of private sector balance sheets and encourage businesses to invest and expand employment. A more rapid recovery further reduces fiscal deficits by raising revenues.

It is time to stop arguing about tradeoffs. Monetary policy can create jobs and reduce the deficit at the same time.

I would prefer a different word than "monetary policy" to describe Joe Gagnon's proposed policy: it affects the economy not by changing the monetary base but rather by changing the riskiness and duration of the asset pool held by the private sector, and thus seems to me to be more banking than monetary policy. But it is a coherent plan based on a coherent, and in my view likely to be accurate, view of the world.

I can't say that about the policies Bernanke set forth yesterday.

UPDATE: Matthew Yglesias:

Matthew Yglesias: Bernanke’s Plan for Unemployment: Do Nothing: I’ve been holding out some kind of vague hope that Ben Bernanke’s confirmation hearings might provide a way out of our political impasse on the jobs front. After all, Bernanke’s job is to try to achieve as close to full employment as is possible consistent with the goal of price stability. The Federal Reserve, not the elected officials in Congress and the White House, is the public institution with the largest influence over employment levels. And right now employment levels are very low indeed. So at his hearings either Bernanke might publicly discuss his determination to do more to lower the unemployment rate, or else he might confess his lack of confidence in the ability of monetary policy to do more to lower the unemployment rate and call for more fiscal measures.

But he didn’t do either. Instead, as David Dayen recounts, he just said we should cut Social Security benefits to reduce the long-term deficit even though this clearly had nothing one way or another to do with the current labor market situation:

No second stimulus, no jobs bill, no public investment to deal with the worst hiring crisis since the Depression, no relief for a jobless recovery, but yes to cutting people’s meager Social Security benefit and their health care in their old age. And this is what he’s saying when he WANTS his job back. What will it be if he gets it?

And there’s the rub. It’s good that we don’t have congress driving monetary policy from the backseat. That’s why the Fed Chairman serves a fixed term. But this is still a democracy, which is why the terms have ends. And we need a Fed Chairman who’s not willing to accept a years-long period of high unemployment.

Why oh why can't we have a better press corps?

In America today to actually know something about the world, public policy, or government disqualifies you from covering the White House for a major media organization. Thus what they produce is worse than uniformative: it is positively destructive.

Matthew Yglesias is on the beat:

Matthew Yglesias: Information Matters: Something worth mentioning about the White House pool... the conventional American media... to achieve its veneer of objectivity... [requires a] ridiculous level of policy ignorance. Which is how you get things like this embarrassing exchange between The Washington Post’s readers and [Frank Ahrens,] a badly overmatched Washington Post financial reporter, who doesn’t seem to know anything about tax policy, or how to admit you’re wrong, or how to just confess ignorance...

And here is the chat:

Balloon Juice: Taxes are killing us.:

The US at 26.1% pays less tax than any other industrialized country except Japan at 25.8%. Sweden is at 50.2%, the UK at 35.8%, and Spain at 35.5%, for example. BTW each of these three countries had higher growth (average per capita growth 1995 – 2005) than we did. 2.5%, 2.4% and 3.1% resp. compared to our 2.1%. Also Japan’s was 1% growth.

Frank Ahrens: But did you know our corporate tax rate is among the highest in the world? That makes a real difference if you’re a business and you’re thinking about locating in the U.S. or, say, India.

[....]

""But did you know our corporate tax rate is among the highest in the world?": Dead wrong. Our nominal tax rate of 35% is among the highest, but because of loopholes our real tax rate of 18% is among the lowest real corporate tax rates.

Frank Ahrens: Back atcha...

The BLS says: "nonfarm payroll employment was essentially unchanged (-11,000)..."

• Josh: The SwiftHack Scandal: What You Need to Know @ EnviroKnow

I remember my first noticing current Wall Street Journal editorial page editor Paul Gigot back when I joined the Clinton Treasury. "But... he's lying!" I said. "Yes," said the Assistant Secretary for Public Affairs. "Deal with it."

Sixteen years later, and Paul Gigot is still lying:

Problems with CBO Stimulus Report: [Jared] Bernstein claims vindication on the basis of a new Congressional Budget Office report that finds that 600,000 to 1.6 million more people are employed and GDP is 1.2% to 3.2% higher than if Congress had done nothing. After rehearsing some of our greatest hits—"It's hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year's job market"—Mr. Bernstein says that we're "more interested in scoring political points" than acknowledging the stimulus reality. We stand by our economic judgment....

A word about that CBO report: It sets up a nonfalsifiable standard for judging the Administration's policies by using large macroeconomic forecasting models, including a Keynesian "multiplier" that says each dollar government injects into the economy yields more than a dollar in output.... No one ever doubted that the stimulus spree would create or "save" some jobs.... But that $1 has to come from someone or some business in the private economy that might have put it to more productive, job-creating uses.... These new jobs that aren't created don't get picked up in Bernstein-CBO econometric models, but their loss leaves the economy less prosperous overall. What can be measured with greater, if not perfect, accuracy is how many new jobs are being created across the economy, and how many people want to work but can't find a job...

To the extent that there is an argument here--and I am not sure that there is--it is Eugene Fama's fallacy:

Fama's Fallacy, Take I: Eugene Fama Rederives the "Treasury View": The problem is simple: bailouts and stimulus plans are funded by issuing more government debt.... The added debt absorbs savings that would otherwise go to private investment.... [S]timulus plans do not add to current resources in use. They just move resources from one use to another.... I come back to these fundamental points several times below...

Greg Mankiw tried to defend Fama:

Fama's arguments make sense in the context of the classical model... presented in Chapter 3 of my intermediate macro textbook.... [W]ether one leaves the classical model behind to embrace the Keynesian model is a judgment call...

But, as Greg writes in chapter 3 of his intermediate macro textbook, the classical model

assume[s] that the labor force is fully employed...

Does anybody think that this is a good assumption to make right now?

Why oh why can't we have a better press corps?

And would there be any social loss if the WSJ were shut down tomorrow morning, and all its subscribers shifted over to the FT?

Welcome. We are very grateful for your making time to meet with us here in this Atlanta hotel room. We understand that the elevators aren't bult to move 1,000 job market candidates from one random floor to another every thirty minutes. We understand that you have just run up five flights. But start talking anyway. Tell us about your job market paper?

What else is going to be in your dissertation?

When is it going to be finished--and don't say "August"?

What is your longer term research strategy?

What would you like to teach?

What would you be willing to teach under duress?

What questions do you have for us about life in Arkham at Miskatonic University?

Would you be interested on a joint appointment at the soft-money Azathoth College of Unearthly Research?

• Yves Smith: A Legitimate Source: "Most Senators 'Have Fingers in the Wind' on Bernanke"
• Duncan Black: Little Tommy Friedman's War
• Clusterflock Venn Diagram
• CrashPlan
• Fafblog: Victory Science

Reuters:

Jobs Loss at 169,000 in Nov., Worse Than Expected: ADP: U.S. private employers shed fewer jobs in November from October, marking the eighth straight monthly decline in private-sector job losses, a report Wednesday showed. Private companies shed 169,000 jobs last month, fewer than the 195,000 jobs lost in October, suggesting some stabilization in the labor market as the economy emerges from recession, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers...

Goldman Sachs forecasting:

Goldman Sachs 2011 forecast: The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011. That said we see risks that could upset these markets.  On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening.  In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds.  On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments...

He reviews Cornel West and David Ritz (2009), Brother West: Living and Loving Out Loud:

Decline of the West: Ten years ago, in the final pages of a collection of his selected writings, Cornel West gave readers a look at the work he had in progress, or at least in mind, for the years ahead. One would be “a major treatment of African-American literature and modern Greek literature.” Another was “a meditation on Chekhov and Coltrane that delves into the distinctive conceptions of the tragic in American civilization and of the comic in Russian civilization.” He would be writing an intellectual autobiography “modeled on black musical forms.” Nor had he given up on plans to complete a study of David Hume. There would also be a book on Josiah Royce. West described his projects as “bold,” “challenging” and “exciting.” These are adjectives, it must be said, better left in someone else’s hands. But the books did sound interesting, and I looked forward to them – especially the one on Royce...

• John Wilford: Culture of Old Europe Is Uncloaked in an Exhibit at N.Y.U.
• Free Exchange: The incredible, unbelievable Charles Plosser
• December Belongs to Cthulhu on Tor.com
• Photoshop Phriday
• [蘋果動新聞】伍茲深夜撞車 老婆破窗救夫 疑點重重 - 【蘋果動新聞】伍茲深夜撞車 老婆破窗救夫 疑點重重
• Charles Goodheart: Insight: Deflating the bubble
• Bruce Bartlett: Republican Deficit Hypocrisy
• Jane Gravelle et al.: Economic Stimulus: Issues and Policies
• Bo Cutter: Keep Tim Geithner
• Paul Vigna: S&P Still Looking At First-Ever Losing Decade
• James Fallows: Asian politics, American politics, press fail
• Steve Benen: Charles Johnson Gives Up on the American Right

Chad Orzel wrote:

The Bohr-Einstein Debates, With Puppets: I promised to do a re-enactment of the Bohr-Einstein debates using puppets.... It took a little while, because I couldn't find any Niels Bohr puppets (maybe in Denmark?). I found an acceptable alternative, though, and put together a video of the Bohr-Einstein debates, using puppets...

In this frame, Spooky-Action-at-a-Distance conveys "news" about a measurement on Particle A to Particle B, while Albert Einstein in the form of a white Bichon Frisee looks on disapprovingly:

I believe that this is in some way part of the publicity campaign for his How to Teach Physics to Your Dog...

Robert writes:

More Bad Climate Science from the Wall Street Journal Editorial Page...: One doesn't have to go all the way back to snowball earth to know that the Lindzen is full of it. Ice ages come and go with, evidently, very subtle forcing due to the Earth's wobble. I don't see how anyone can doubt that there is strong positive feedback around the current temperature.

Now snowball earth is fascinating for the reason that Hoffman and Schrag just started when you stopped the tape. According to H and S, the Earth was a snowball just before the Cambrian explosion -- All sorts of fossiles suddenly appear. Now one hint of an explanation is in the "grinding glaciers" and then "extreme erosion" parts of their story. Since I heard of the snowball earth hypothesis I wonder if the cambrian explosion is so explosive partly because late pre-cambrian fossils were destroyed by glaciers and erosion and such -- crushing, grinding, dissolving eroding all sound like destroying the then relatively recent fossil record.

Also maybe the explosion had something to do with the near extinction of life. Geographic isolation of small groups of organisms causes an increase in diversity. It is suspected (by Sewell shifting balance Wright et al) that such isolation is required for major evolutionary change which almost has to pass through not very fit halfway to the new life form stages and so might require random drift down a fitness gradient.

If life was restricted to isolated patches around volcanos one could imagine that the life in each hot spot would end up very different. Then when the ice melts you have great diversity (for a while).

Finally constrained areas can promote gigantism. When organisms can spread it helps to reproduce quickly. When they are stuck with each other, fighting over meager food, it helps to be a bit bigger than the other guy. It is sometimes suspected that there was a whole lot of variety in the pre-cambrian but the animals were just not big enough to leave fossils.

So the part they were about to get to when you cut their mikes is great too.

Why oh why can't we have a better press corps?

It seems to me that Richard Lindzen is not a good scientist.

He writes:

Richard S. Lindzen: The Climate Science Isn't Settled: The potential (and only the potential) for alarm enters with the issue of climate sensitivity—which refers to the change that a doubling of CO2 will produce in GATA. It is generally accepted that a doubling of CO2 will only produce a change of about two degrees Fahrenheit.... Yet current climate models predict much higher sensitivities.... because... [of] positive feedback.... There is some evidence of a positive feedback effect for water vapor in cloud-free regions, but a major part of any water-vapor feedback would have to acknowledge that cloud-free areas are always changing, and this remains an unknown. At this point, few scientists would argue that the science is settled. In particular, the question remains as to whether water vapor and clouds have positive or negative feedbacks...

So far so good. But then Lindzen jumps the shark:

The notion that the earth's climate is dominated by positive feedbacks is intuitively implausible, and the history of the earth's climate offers some guidance on this matter. About 2.5 billion years ago, the sun was 20%-30% less bright than now (compare this with the 2% perturbation that a doubling of CO2 would produce), and yet the evidence is that the oceans were unfrozen at the time, and that temperatures might not have been very different from today's...

I had always thought--and the climate guys here at Berkeley assure me that it is the case--that the very long-run climate evidence suggests not that negative feedback damps forcings but rather that there is a substantial range over which positive feedbacks amplifying forcings may be terrifyingly large--perhaps they might even have been large enough to produce a Snowball Earth. So I was very surprised--and I am told I should be surprised--to see Lindzen claiming what he does.

Hoffman and Schrag:

Just before the appearance of recognizable animal life, in a time period known as the Neoproterozoic, an ice age prevailed with such intensity that even the tropics froze over.... freezing to the bottom... ice grows a kilometer thick in the -50 degree Celsius cold. All but a tiny fraction of the planet's primitive organisms die. Aside from grinding glaciers and groaning sea ice, the only stir comes from a smattering of volcanoes forcing their hot heads above the frigid surface. Although it seems the planet might never wake from its cryogenic slumber, the volcanoes slowly manufacture an escape from the chill: carbon dioxide.... The heat-trapping capacity of carbon dioxide--a greenhouse gas--warms the planet and begins to melt the ice. The thaw takes only a few hundred years, but a new problem arises in the meantime: a brutal greenhouse effect. Any creatures that survived the icehouse must now endure a hothouse.

As improbable as it may sound, we see clear evidence that this striking climate reversal--the most extreme imaginable on this planet--happened as many as four times between 750 million and 580 million years ago.... The search for the surprisingly strong evidence for these climatic events has taken us around the world. Although we are now examining Neoproterozoic rocks in Australia, China, the western U.S. and the Arctic islands of Svalbard, we began our investigations in 1992 along the rocky cliffs of Namibia's Skeleton Coast....

Mikhail Budyko of the Leningrad Geophysical Observatory found a way to explain tropical glaciers using equations that describe the way solar radiation interacts with the earth's surface and atmosphere to control climate. Some geographic surfaces reflect more of the sun's incoming energy than others, a quantifiable characteristic known as albedo. White snow reflects the most solar energy and has a high albedo, darker-colored seawater has a low albedo, and land surfaces have intermediate values that depend on the types and distribution of vegetation. The more radiation the planet reflects, the cooler the temperature. With their high albedo, snow and ice cool the atmosphere and thus stabilize their own existence. Budyko knew that this phenomenon, called the ice-albedo feedback, helps modern polar ice sheets to grow. But his climate simulations also revealed that this feedback can run out of control. When ice formed at latitudes lower than around 30 degrees north or south of the equator, the planet's albedo began to rise at a faster rate because direct sunlight was striking a larger surface area of ice per degree of latitude. The feedback became so strong in his simulation that surface temperatures plummeted and the entire planet froze over.

Budyko's simulation ignited interest in the fledgling science of climate modeling, but even he did not believe the earth could have actually experienced a runaway freeze. Almost everyone assumed that such a catastrophe would have extinguished all life, and yet signs of microscopic algae in rocks up to one billion years old closely resemble modern forms and imply a continuity of life....

Kenneth Caldeira of Lawrence Livermore National Laboratory and James F. Kasting of Pennsylvania State University estimated in 1992 that overcoming the runaway freeze would require roughly 350 times the present-day concentration of carbon dioxide. Assuming volcanoes of the Neoproterozoic belched out gases at the same rate as they do today, the planet would have remained locked in ice for up to tens of millions of years before enough carbon dioxide could accumulate to begin melting the sea ice. A snowball earth would be not only the most severe conceivable ice age, it would be the most prolonged....

Thick sequences of carbonate rocks are the expected consequence of the extreme greenhouse conditions unique to the transient aftermath of a snowball earth. If the earth froze over, an ultrahigh carbon dioxide atmosphere would be needed to raise temperatures to the melting point at the equator. Once melting begins, low-albedo seawater replaces high-albedo ice and the runaway freeze is reversed. The greenhouse atmosphere helps to drive surface temperatures upward to almost 50 degrees C, according to calculations made last summer by climate modeler Raymond T. Pierrehumbert of the University of Chicago.... Torrential rain would scrub some of the carbon dioxide out of the air in the form of carbonic acid, which would rapidly erode the rock debris left bare as the glaciers subsided. Chemical erosion products would quickly build up in the ocean water, leading to the precipitation of carbonate sediment that would rapidly accumulate on the seafloor and later become rock. Structures preserved in the Namibian cap carbonates indicate that they accumulated extremely rapidly, perhaps in only a few thousand years. For example, crystals of the mineral aragonite, clusters of which are as tall as a person, could precipitate only from seawater highly saturated in calcium carbonate....

Overall, the snowball earth hypothesis explains many extraordinary observations in the geologic record of the Neoproterozoic world: the carbon isotopic variations associated with the glacial deposits, the paradox of cap carbonates, the evidence for long-lived glaciers at sea level in the tropics, and the associated iron deposits. The strength of the hypothesis is that it simultaneously explains all these salient features, none of which had satisfactory independent explanations. What is more, we believe this hypothesis sheds light on the early evolution of animal life...

From: http://cbo.gov/ftpdocs/106xx/doc10682/11-30-ARRA.pdf

The fact that the ARRA was not big enough to put the unemployment rate on a downward trajectory is unfortunate. But now CBO joins in with its assessment that it is indeed working.

Menzie Chinn writes:

Econbrowser: CBO's Assessment of ARRA's Impact on Q3 Output and Employment: From CBO's just released Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009 :

...Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO's judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.

In other words, the continued deterioration of the economy through the first few months after the passage of ARRA was not due to the stimulus package; rather underlying conditions had deteriorated, and the economy would have been in a worse state in the absence of the package.... For GDP, the... CEA report's model based approach indicates 3.1 and 3.6 ppts increment (SAAR) in Q2 and Q3, implying 1.66% higher GDP. The midpoint of the CBO range is 2.2 ppts. What about employment? CEA estimated 1.16 million cumulative jobs, by Q3. CBO estimates a range of 0.6-1.6, with midpoint at 1.1 million....

The report also includes a tactfully worded assessment of fully intertemporally-optimizing general equilibrium models, and their usefulness for real world analyses of monetary and fiscal policies in the short run.

Although some analysts favor the rigor of that approach to modeling behavior, other analysts view the assumptions underlying households' and businesses' decisionmaking in those models to be unrealistic and leading to unrealistic predictions. In particular, this type of model generally assumes that people are fully rational and forward-looking, basing their current decisions on a full lifetime plan. The forward-looking assumption implies that people expect to eventually pay for any increased government spending or reduced revenues in the form of future tax increases and that they incorporate those expected payments -- even if far in the future -- into their current spending plans. Thus, they are assumed to reduce their consumption when government spending rises, because their lifetime income has fallen by the amount of the eventual taxes. For the same reason, cash transfer payments and tax refunds have little or no effect on current consumption in such models. People in the models generally also have full access to credit markets, so they can borrow to maintain their consumption when faced with a temporary loss of income. This class of models does not typically incorporate involuntary unemployment: People can work as many hours as they choose at the wage rate determined by the market. Finally, in these models, monetary policy usually follows a fixed rule by which increased output or inflation implies higher real interest rates. [Emphases added]

This is a very clear exposition of CBO's analysis. Those who understood this post will find it very useful. Those unpersuaded by models should look elsewhere for succor.

Things that I have not yet properly categorized:

• 20091202 green buildings.pdf
• 20091202 to market to market.pdf
• 20091123 delong pa.pdf
• 20091121 political losers ii.pdf
• 20091121 political losers.pdf
• 20091123 delong porto alegre.pdf
• 20091123 delong porto alegre.2.pdf

• Megan Garber on the Idiocies that Are Jon Meacham and Newsweek: Cheney of Fools : CJR
• Peter Hussey et al.: Controlling U.S. Health Care Spending — Separating Promising from Unpromising Approaches
• Rob Stavins: Approaching Copenhagen with a Portfolio of Domestic Commitments
• Alex Tabarrok: Marginal Revolution
• Tony Pugh: Expiring COBRA insurance subsidy imperils laid-off Americans
• Matthew Yglesias on the Idiocy of Thomas Friedman
  Thhis sort of thing is positively dangerous. It’s one thing to make up fairy tales to amuse the children, but the danger the United States keeps stumbling into is a tendency among our elite to start believing the fairy tales. So before the invasion of Iraq we had people like Thomas Friedman and Jeffrey Goldberg assuring us that not only was invading a great idea but that invading would have a beneficial impact on Muslims’ assessment of the United States. Now we have Friedman stumbling around, baffled, as to why Muslims don’t see our policy as primarily driven by an effort to help them out. This kind of self-deception leads to very, very bad judgment.
• Lawrence Mishel et al.: American Jobs Plan: A Five-Point Plan to Stem the U.S. Jobs Crisis
• Felix Salmon: Citi hires Buiter
  Willem Buiter is joining Citigroup as its chief economist. It’s an important role — so important, in fact, that Buiter should be able to demand that he be allowed to continue to write his rather fabulous blog, either in its current location at the FT or else somewhere on citigroup.com. A widely-read and widely-respected blog is a useful tool for any economist to have, and Citi should be encouraging Buiter to keep his.