Latvia's model: drop wages to increase export income. Greece: drop wages to increase export income. France, Germany, Spain, Portugal, etc., etc. It's impossible that the whole of the Eurozone will drop wages to increase export income. It's especially bad for countries like Latvia or Hungary, where the lion's-share of trade occurs withing the boundaries of Europe. And what happens when export income does not provide the impetus for aggregate demand growth? Well, there's not much left. Can't devalue the currency (via printing money), and tax revenues will fall faster than a ten-pound weight: rising deficits; rising debt; rising debt service (via surging credit spreads). Sovereign default seems like a near-certainty somewhere in the Eurozone!
2) William Baumol (1999): Retrospectives: Say's Law:
Becker and Baumol (1952) argued, citing some evidence, that Say and other writers recognized that the zero value of the sum of excess demands, or supply creates its own demand ("Say's identity"), may not hold in the short run. Say's passage in his Letters to Malthus, quoted above, even suggests an explanation-a desire to hoard or, as we would now put it, a temporary excess demand for money. But they thought the market would fairly quickly and automatically restore equilibrium ("Say's equality"). I can easily provide passages suggesting that the classical economists at least sometimes held a view closer to that than to the identity, but this is clearly not the place to pursue the issue. My themes here are that the supposed identity between supply and demand is hardly all there was to the "Law," that the relationship between supply and demand that did exist did not preclude depression or unemploy- ment in the minds of its advocates, and that the term "Say's Law" itself may be a misnomer.
Paul Volcker said it’s too soon for U.S. policy makers to withdraw the stimulus measures and interest-rate cuts used to fight the worst slump since the Great Depression. “This is not the time to take aggressive tightening action, either fiscally or monetary-wise,” said Volcker in an interview in Berlin March 6, pointing to “high” unemployment. “So I think we have to, as best as we can, maintain the expectation that it will be taken care of in a timely way.” The Federal Reserve and the Treasury are trying to withdraw the emergency measures introduced during the financial crisis without causing a relapse in the economy. Fed Chairman Ben S. Bernanke said Feb. 24 the U.S. is in a “nascent” recovery that still requires keeping interest rates near zero “for an extended period” to spur demand once stimulus wanes. At the same time, the Treasury’s resources are under strain from the loss of 8.4 million jobs since December 2007, stimulus spending, wars in Afghanistan and Iraq and health care programs. The Obama administration predicts the budget deficit will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. Volcker, whose recommendations inspired the restrictions on bank trading that President Barack Obama sent to Congress last week, said U.S. lawmakers must now prove they can pass the “comprehensive” legislation needed to prevent another financial crisis. “That is the test,” said Volcker. “Congress has not been very good at passing any comprehensive legislation in various areas.” Banking rules “shouldn’t be a matter of partisan dispute. But everything seems to be infected by partisan disputes in the U.S. now.”
I've heard a number of stories of homeowners staying in their homes and not paying their mortgage, and the banks not foreclosing - and, at the same time, there is intense competition for any home that comes on the market. This is a real mystery right now. With 14 percent of mortgages delinquent or in foreclosure according to the MBA - why aren't the lenders foreclosing? Is this because of modifications? Are lenders waiting for the HAFA short sale program? And why do Fannie, Freddie and the FHA have a record number of REOs waiting to sell if the market is so "intense"?
5) PICTURE OF THE DAY: Yes, I get my most reliable news from The Onion: why do you ask?
6) DELONG SMACKDOWN OF THE DAY: Jonathan Bernstein: Obama's Biggest Failure:
Brad DeLong suggests filling the empty Fed vacancies with recess appointments; Matt Yglesias dissents. I mostly agree with Yglesias here. The problem of unfilled executive branch positions is to some extent the Senate's fault, but to a much larger extent Barack Obama's fault. It's hard to blame the Senate for failing to confirm people who haven't been nominated. As far as confirmation problems are concerned, what Obama needs to do is: (1) Convince the Senate he cares. The best way to do that is to nominate people for all the vacancies (and this goes for judicial vacancies, as well). (2) Establish a believable threat of recess appointments. That's going to require some actual recess appointments, either in cases where a successful filibuster stopped confirmation, or where the Senate is just going slowly, or both. It seems to me that the first of these is far more important than the second.... [I]f Obama suddenly raises the visibility of the entire issue of executive nominations, which would require actually appointing a lot of people, then recess appointments would be seen in the context of Senate stalling and/or Republican obstruction. In my view, this has been Obama's biggest failure as a president to date. Presidents often get bashed unfairly for episodes in which they lose. But presidents are bound to lose on some issues, even if they play the cards they're dealt perfectly. Here, however, is an example of a president who isn't even bothering to play the game.
7) SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Spencer Ackerman: This Is How You Know The Cheneyites Lost:
Ben Smith obtains a letter from a collection of lawyers objecting strenuously to Keep America Safe’s disgraceful slander that DOJ lawyers who represented Guantanamo detainees are sympathetic to Usama bin Laden. (Or, the ‘al-Qaeda Seven’, as the Cheneyites’ add said.) “Shameful,” the signatories call it, writing, “The American tradition of zealous representation of unpopular clients is at least as old as John Adams’ representation of the British soldiers charged in the Boston massacre.” Signatories include veterans of the Bush legal apparatus like Pentagon ex-detentions chief Matt Waxman and — this is an actual surprise to me — David Rivkin, a Reagan veteran and usually a go-to conservative lawyer for most everything war-on-terror and lawless. Keep America Safe overreached with this one. They went after unobjectionable legal behavior — and, more importantly, an action that any lawyer would sympathize with performing.... [L[ook at how Bill Kristol tries to dig Keep America Safe out of its miscalculation.... Kristol would need the press to have not actually seen the Keep America Safe video for anyone to take seriously the idea that an ad that calls these lawyers “The al-Qaeda Seven” isn’t an attack on them. (Good on Ben for the contextualized reminder.) And if he’s reduced to saying that the group isn’t calling for the lawyers’ heads, that’s a sure sign that the group is running away from its mistake, rather than pressing the attack. People like Tony West, who defended John Walker Lindh, leads the Justice Department’s civil branch and has nothing to do with detentions policy. KAS didn’t do the slightest bit of due diligence on this ad, and that helps explain why they were unprepared for the backlash.
9) STUPIDEST THING I HAVE SEEN TODAY: Martin Peretz and Andrew Roberts, as observed by Matthew Yglesias. Supporters of Southern African apartheid, you see, really don't like Jews much either: Israel Deserves Better Defenders Than Andrew Roberts:
I like to check in on Marty Peretz’s blog now and again, and what do I find but “The FT’s Devastating Critique Of Itself”: "Yes, I’ve been harping on the FT’s coverage of Israel. Perhaps, you haven’t agreed with my complaints. Well, read what the paper has to say about the subject this morning. The column is by the historian Andrew Roberts, and it’s a must read." Andrew Roberts?... [I]n addition to being an apologist for Boer War-era concentration camps and the Amritsar Massacre is really not the kind of friend Israel needs as it seeks to rebut allegations of similarity to apartheid-era South Africa: 'In 2001, Roberts spoke to a dinner of the Springbok Club, a group that regards itself as a shadow white government of South Africa and calls for “the reestablishment of civilized European rulethroughout the African continent.” Founded by a former member ofthe neo-fascist National Front, the club flies the flag of apartheid South Africa at every meeting. The dinner was acelebration of the thirty-sixth anniversary of the day the white supremacist government of Rhodesia announced a Unilateral Declaration of Independence from Great Britain, which was pressingit to enfranchise black people. Surrounded by nostalgists for thisracist rule, Roberts, according to the club’s website, “finished his speech by proposing a toast to the Springbok Club, which hesaid he considered the heir to previous imperial achievements.” The British High Commission in South Africa has accused the club ofspreading “hate literature.” Yet Roberts’s fondness for the Springbok Club is not an anomaly; it is perfectly logical toanybody who has read his writing, which consists of elaborate andhistorically discredited defenses for the actions of a white supremacist empire–the British–and a plea to the United States to continue its work.' I half-suspect the FT’s editors of playing some kind of elaborate prank here. Surely Israel deserves better than this.
10) HOISTED FROM THE ARCHIVES: DeLong (September 2006): I'm Not Going Back Over There!! [to Slate, that is]:
Some correspondents are asking me to go back to http://slate.com. They don't know what they're asking. You don't know what it's like over there. I can't go back. I can't. Please don't make me. PGL and Kevin Drum find Mickey Kaus complaining about all those rich people artificially inflating our poverty figures by taking the year off from work: Angry Bear: "...affluent people who, by reason of their affluence, are able to take off a year with no income and therefore show up as 'poor' in the income stats..." Yep. Rich people who don't work, so they don't have any earned income; don't have pensions and Social Security; don't own property, so they don't have any rental income; don't own stocks, so they don't have any dividend income; they don't have any oil wells or literary properties, so they don't have any royalty income; and don't own bonds or have bank accounts, so they don't have any interest income. Rich people without any earned income, pension income, Social Security income, rental income, royalty income, dividend income, or interest income. But they are "affluent." There are sure a lot of them. Why, I run into thousands every day. At Safeway. PGL and Kevin can deal with Mickey Kaus as they want. I'm not going back over there.