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June 2011

The Debt Ceiling in Historical Perspective

Mark Tushnet asks a question:

Balkinization: [L]iberals now appear to be trying to put an off-the-wall idea on the table.... For liberals it appears to be the idea that legislation setting a debt ceiling is unnecessary because of Section 4 of the Fourteenth Amendment. Is that an off-the-wall argument? One test might be this: Can anyone locate any writing, preferably legal scholarship but even off-hand musings will do, making that argument prior to, say, November 5, 2010?...

First, Bruce Bartlett--the most aggressive advocate of the Constitutional Debt Ceiling Option--is not a liberal but a conservative: a long-time aide to Jack Kemp and a Senior Treasury Official in the Reagan Administration. Mark needs to consult his program.

Second, the issue has little history for good reasons. Before January 2011 the issue arose rarely. The Gephardt Rule was: vote on a budget, and you are also voting on the debt ceiling increase needed to put that budget into effect. That coupling of spending with debt issue authorizations was one of the pieces of the government Boehner and company broke last winter.

Then-Speaker Newt Gingrich provoked a debt ceiling crisis in 1995 by suspending the Gephardt Rule. Between November 15, 1995 and March 29, 1996, Secretary of the Treasury Rubin declared a debt-issuance suspension period and took various extraordinary steps to avoid breaching the legislated debt ceiling, as detailed in

During that period, various Treasury staff and others had informal, private discussions about Treasury options if Secretary Rubin ran out of room to keep amortizing the debt and paying the bills without breaking the debt ceiling.

The general tenor of the discussions that I heard was that:

  1. Raising outré scenarios and possibilities publicly before they became imminent was destructive of market confidence and profoundly unhelpful.

  2. Whatever the Treasury did, §4 of the 14th Amendment absolutely, totally, completely prohibited it from ever, ever defaulting on debt it had issued--whether financial markets saw that debt as a high-quality full-faith-and-credit obligation of the United States or not.

  3. The Treasury had a legal obligation to pay all of the bills for discretionary and mandatory spending that had been duly authorized by law, and the Treasury had a legal obligation not to issue debt above the limit. What should the Treasury do if these two legal obligations came into conflict? It was not clear. That's why the Gephardt Rule was a good thing.

  4. It was much, much better for the country if these two legal obligations never came into conflict: for the Treasury to fail to obey Congress's instructions to spend was bad; for the Treasury to issue debt above the debt ceiling was bad--and such debt would probably not be salable at normal Treasury-bond prices. Every nerve should be strained to keep from going there.

The 1995-1996 crisis was resolved in the winter of 1996 when Secretary Rubin informed Congress that he was going to deal with the situation by not mailing out the March Social Security checks. Gingrich then knuckled under.

The lesson I draw from history is that a bunch of us have been aware of this possible conflict-of-laws for quite a while. That Mark cannot find legal academics who have been worrying the issue seems to me to tell us more about what legal academics do than what a court would decide (or, more likely, not decide).

Claims That Fixing Social Security Is Hard: For the Virtual Green Room

Rebutted by Howard Gleckman:

[T]he [Social Security] system is not “broke,” as some insist, [but] it will have only enough money to provide future retirees with about three-quarters of their promised benefits... [and] those who most need social insurance—single women, low-wage workers, the disabled, and the very old—get much less than they need. On the other hand, those who need benefits least get the most.... [C]ommon-sense principles:

  1. Create a respectable minimum benefit for low-income workers, increase some widows’ benefits, and create an additional benefit for the very old (say, 85 or older).
  2. Raise the retirement age, including the minimum benefit age of 62. An extra year of work would solve about one-third of the program’s funding problems....
  3. Protect those who work physicially demanding jobs....
  4. Increase contributions and reduce benefits for high-earners....
  5. Preserve the defined benefit nature of Social Security. Adding an additional savings component is a good idea. But the public is not interested in taking on additional risk with their retirement.
  6. Be absolutely transparent about benefits and structural changes. Whatever Congress does, there should be no surprises.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Fake Right-Wing Republican Claims We Cannot Afford to Borrow to Build Infrastructure: For the Virtual Green Room

Rebutted by M.S. at The Economist:

I agree with the "it's insane" analysis offered by Matthew Yglesias of America's refusal to borrow money at historically cheap rates and spend it on infrastructure and other job-generating activities that will need to be undertaken eventually anyway.... [T]echnological change and globalisation have absolutely nothing to do with high unemployment in the construction sector. The people who build things in America will always be Americans, and there haven't been any revolutions in construction technology between 2007 and 2011.... The reason the construction sector is sitting on the couch playing with the Wii instead of out fixing America is that America isn't spending the money to do the fixing. America has a $2 trillion backlog of infrastructure maintenance, according to the Urban Land Institute. With the government able to borrow money at ridiculously low 10-year rates, it seems pretty convincing that we should be borrowing that money and spending it now, both to improve that infrastructure and to get the economy going. (Insert sub-argument: yes, but infrastructure programmes take a long time to get underway. Response: did you or didn't you say this was structural unemployment that will take many years to resolve?)...

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Larry Lindsey's Silly Claim That Tax Increases Should Be Off the Table: For the Virtual Green Room

Rebutted by Len Burman: Wall Street Journal’s Giant Non Sequitur on Taxes - Leonard Burman - The Impertinent Economist - Forbes:

Larry Lindsey argued in the Wall Street Journal that the debt situation is far worse than projected by the official scorekeepers.... He’s certainly got first-hand experience.... He was the Bush adviser who was fired for estimating the cost of the Iraq war at $100-200 billion.  Don Rumsfeld thought that was way too high.  His estimate was $50-60 billion. The actual direct cost of the war so far is almost $800 billion.... Lindsey implies that the deficit over the next decade could be $10 trillion higher than official estimates. This is another bad estimate.... But the really surprising thing is where he goes from this conclusion....

First, the premise is false.  Our tax burden is the lowest among rich countries.  We could raise taxes a lot if we wanted to.... The giant non sequitur, though, is Lindsey’s inference that this is a reason not to consider tax increases at all.  Yes, we have to cut entitlement spending.  But Lindsey’s logical leap—our very large deficit problem is actually much, much larger, which implies that tax increases aren’t part of the solution—is just bizarre....

As for Lindsey’s estimates.... His analysis makes three claims:  (1) Interest rates will likely be much higher than predicted, which could add $4.9 trillion to the debt over the next decade; (2) The economy is likely to be much weaker, which will add another $4 trillion to the debt; and (3) Official estimators vastly underestimated the number of people who will lose employer-based health insurance coverage....

CBO assumes that interest rates will increase as the economy recovers—to 5.5% over the next 6 years, very close to Larry’s historical average of 5.7%.... In other words, it’s already in the forecast. On the pace of recovery, CBO bases their projections on the consensus forecast of blue chip economic forecasters.... And if the economy grows slower than we expect, interest rates will stay depressed.  So we’ll gain less in tax revenues and spend more, but part of the additional deficits would be offset by lower interest on the debt. On employer dropping under the Affordable Care Act... some employers will drop coverage because they have a very low-income workforce that can get insurance more cheaply through the new exchanges, [but] other employers will start offering to avoid paying the penalties associated with the employer mandate or because of the subsidies offered to small employers....

Blowing smoke about forecast uncertainty and drawing absurd inferences is not helpful.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Dixi et Salvavi Animam Meam: Financial Deregulation Department

Mark Thoma tells me I am live at Project Syndicate: BERKELEY – Back in the late 1990’s, in America at least, two schools of thought pushed for more financial deregulation – that is, for repealing the legal separation of investment banking from commercial banking, relaxing banks’ capital requirements, and encouraging more aggressive creation and use of derivatives. If deregulation looks like such a bad idea now, why didn’t it then?

Continue reading "Dixi et Salvavi Animam Meam: Financial Deregulation Department" »

Yet Another Reason Jon Huntsman Is Likely to Be a Bad President

Joe Romm:

Jon Huntsman: Elect Me Leader of the Free World Because I Succumbed To Peer Pressure on Climate Change: For some reason, the media and the pundits have been treating Jon Huntsman as if he is the “serious GOP candidate” for president. I suppose if one is grading on a curve, then he may be the most serious.  Hmmm.  Did you know Moe is the most serious of the Stooges?  I digress.

Huntsman’s idea of demonstrating his serious leadership qualifications is to blame his previous support for climate action on peer pressure. As The Hill reported yesterday in its piece, “Huntsman on past cap-and-trade support: Everyone was doing it”: Huntsman backed cap-and-trade last decade as a way to curb greenhouse gas emissions, but distanced himself from it in an interview Wednesday, casting it as a policy solution from another era. “Every governor was talking about dealing with emissions back many, many years ago only to find that with the economic implosion, we can’t afford anything that is going to put any kind of hamper on economic growth. So cap-and-trade is not something that is viable today,” Huntsman told Fox News. “Everybody talked about it. At least a lot of people did, consulting with CEOs, consulting with all the experts. Everyone took it seriously,” he said...

Simon Johnson on the Extraordinary Unlikelihood of an Expansionary Fiscal Contraction in the United States

Simon Johnson:

Could The US Have An “Expansionary Fiscal Contraction?: There are four conditions under which fiscal contractions can be expansionary.  But none of these conditions are likely to apply in the United States today. 

First, if there is high perceived sovereign default risk, fiscal contraction can potentially lower long-term interest rates.  But the US is currently one the lowest perceived risk countries in the world – hence the widespread use of the US dollar as a reserve asset.  To the extent there is pressure on long-term interest rates in the US today due to fiscal concerns, these are mostly about the longer-term issues involving healthcare spending; if this spending were to be credibly constrained (e.g., in plausible projections for 2030 or 2050), long rates should fall.   In contrast, cutting discretionary spending, which is a relatively small part of the federal budget, would have little impact on the market assessment of our longer-term fiscal stability. 

Continue reading "Simon Johnson on the Extraordinary Unlikelihood of an Expansionary Fiscal Contraction in the United States" »

Fake Right-Wing Claims That Fannie and Freddie Caused Our Crisis: For the Virtual Green Room

Rebutted by Nick Timiraos:

U.S. banks hold a much higher rate of defaulted mortgages on their books than do mortgage giants Fannie Mae and Freddie Mac, according to a report issued Wednesday by the Office of the Comptroller of the Currency, which regulates national banks. The report said 19.7% of mortgages in banks' portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by Fannie and Freddie were nonperforming, as were 11.4% of all mortgages.... While many subprime and other risky mortgages were packaged into securities and sold to investors, banks chose to keep certain loans or were stuck with them after securitization markets froze in 2007. Loans on bank balance sheets "in and of themselves are reflective of lesser-quality loans" than those backed by Fannie, Freddie or federal agencies, said Bruce Krueger, a senior OCC mortgage examiner...

Judge Graham: "I Am Going to Pretend That the Supreme Court Did Something Different than It Did"

Not a judicial temperament, that is for sure:

Judge Graham: In Lopez the Supreme Court recognized that the direction of its existing Commerce Clause jurisprudence threatened the principle of a federal government of defined and limited powers, and it began the process of developing a new jurisprudence more compatible with the Constitution. That process was interrupted by Raich, where a majority of the Court was unwilling to expressly overrule a landmark Commerce Clause case in Wickard, which had been the law of the land for over sixty years. Notwithstanding Raich, I believe the Court remains committed to the path laid down by Chief Justice Rehnquist and Justices O’Connor, Scalia, Kennedy, and Thomas to establish a framework of meaningful limitations on congressional power under the Commerce Clause...

Kennedy and Scalia were in the majority on Raich. Just saying.

If Judge Graham were more judicial, he would say that Rehnquist, Thomas, and O'Connor perhaps sought to shift the Supremes on a path to cut back congressional power--and perhaps not, for Rehnquist, Thomas, and O'Connor were in the majority on Eldred. And he would say that Rehnquist and O'Connor are no longer on the Court.

Crime-Fighting Vultures Are, Apparently, Not in Our Future...

Stephen Evans:

German police vulture scheme fails to take off: Police in Lower Saxony, Germany, who decided to teach a vulture to sniff out corpses of missing people, have hit difficulties two months into training. Reasoning that it could fly over miles of wasteland, then descend where it found a missing person, they had wanted to fit it with a transmitter. But it transpires that Sherlock, as the bird is known, is not very interested. On top of that, it is shy, confuses human with animal remains and actually prefers to walk, Spiegel magazine says.

Sherlock has been in training in the Walsrode bird park on Lueneburg Heath near Hanover, along with two vulture side-kicks also named after famous fictional detectives, Columbo and Miss Marple. It had seemed such a great idea. What if the police had sniffer dogs that could fly? Dogs do not have wings, they realised, but birds do. But according to Spiegel: "Sherlock's success has been limited.

While he can locate a stinking burial shroud, which the police gave the bird park to use for training purposes and which is clearly marked with a yellow plastic cup, Sherlock doesn't approach the shroud by air. He prefers to travel by foot.

Furthermore, the bird is yet to perform outside the familiar confines of the zoo. "The bird is naturally anxious, and he would hide in the woods or bolt," according to his trainer. The vulture also finds it hard to distinguish between dead people and dead animals, which is a problem in the vast heathland of that part of Germany...

Stokes on Antigone in the Ozarks

Reflections on Winter's Bone, which I thought was a better movie than The King's Speech:

Stokes: Winter’s Bone, Film Noir, and Feminism | Overthinking It: Oh man, more people should have seen this movie.  But I can understand why it didn’t exactly storm the box office.  The story follows the trials and tribulations of Ree Dolly, a seventeen year old girl who has to care for her borderline-catatonic mother and her two young siblings (a twelve year old brother, Sonny, and a six year old sister, Ashlee), after their career-criminal father, Jessup, skips bail.... Ree embarks on a journey through the meth-addled, poverty stricken landscape of the Missouri Ozarks....

Continue reading "Stokes on Antigone in the Ozarks" »

Fake Right-Wing Claims That the Constitution Does Not Allow Congress to Regulate "Inactivity": For the Virtual Green Room

Rebutted by Judge Sutton:

Level of generality is destiny in interpretive disputes, and it remains unclear at what level plaintiffs mean to pitch their action/inaction line of constitutional authority or indeed whether a workable level exists. Does this test apply to individuals who have purchased medical insurance before? Those individuals have not been inactive in any sense of the word when it comes to the medical-insurance market, yet plaintiffs say that Congress may not regulate them. What of individuals who voluntarily have insurance on the day the mandate goes into effect?... How would the action/inaction line have applied to Roscoe Filburn? Might he have responded to the Agricultural Adjustment Act of 1938 by claiming that the prohibition on planting more than 11.1 acres of wheat on his farm compelled him to action—to buy wheat in the interstate market so that he could feed all of his animals? And is it any more offensive to individual autonomy to prevent a farmer from being self-sufficient when it comes to supplying feed to his animals than an individual when it comes to paying for health care? It seems doubtful that the Wickard Court would have thought so.... How would the action/inaction line apply if someone like Angel Raich sold her house, marijuana plants and all? The Controlled Substances Act would obligate the new owner to act (by removing the plants), see 21 U.S.C. § 844, but it seems doubtful that he could sidestep this obligation on the ground that the law forced him to act rather than leaving him alone to enjoy the fruits of inaction....

Continue reading "Fake Right-Wing Claims That the Constitution Does Not Allow Congress to Regulate "Inactivity": For the Virtual Green Room" »

How Much Will State Budgets Raise Unemployment Over Fiscal 2012?

Michael Leachman:

Off the Charts Blog | Center on Budget and Policy Priorities: So Far, So Bad for States’ 2012 Budgets: About two-thirds of states have enacted budgets for the 2012 fiscal year (which begins on Friday in most states).... The long and deep recession has caused tax collections in most states — despite modest recent improvements — to lag far behind the growing cost of maintaining existing services.  Plus, the federal government isn’t renewing the emergency aid it gave states to help respond to the recession; a large piece of that aid will expire on June 30. And many of the states that will make deep cuts in 2012 have failed to raise new revenue to replace some of the revenue lost to the recession.  Some states even added to the cutbacks needed by reducing corporate or other taxes.... [T]he cuts are both deep and damaging.  To cite just a few of the many examples:

  • Arizona is eliminating Medicaid coverage for 130,000 childless adults and phasing it out for the 150,000 childless adults still enrolled.
  • Georgia is shortening the statewide pre-K school year from 180 to 160 days, increasing pre-K class sizes from 20 to 22 students per teacher, and reducing pre-K teacher salaries by 10 percent.
  • North Carolina is taking nearly half a billion dollars from K-12 education in each of the next two years and cutting a state-funded pre-K program for at-risk 4-year-olds by 20 percent.  It’s also cutting higher education by nearly half a billion dollars in each of the next two years.
  • Wisconsin is scaling back its Earned Income Tax Credit for 152,000 families with two or more children, costing families with three or more children an average of $518 next year and families with two children an average of $154.

Cutting state services not only hurts vulnerable residents but also slows the economy’s recovery by reducing overall economic activity.... Moreover, many of the services that states are cutting are important to states’ long-term economic strength... [and will] slow the state’s economic growth over the long term.

My back-of-the-envelope is that we have 1% of downward pressure from fiscal drag over June 30, 2011 to June 30, 2012 coming from state budgets alone...

Toward a Non-Insane Intellectual Property System

Cory Doctorow:

University of Michigan to stop worrying about lawsuits, start releasing orphan works: Bobbyg sez, "The University of Michigan Library will be sharing digital copies of their orphan works, that is, copyrighted works which have no identifiable owner, with the University community. Paul Courant, the University Librarian, says that the project is integral to the mission of the library, and that the sharing of the orphan works is a 'fair use' of the material, stating that 'sharing these orphan works does no economic harm to any person or organization, while not doing so harms scholarship and learning...'"

The Orphan Works Project is being led by the Copyright Office of the University of Michigan Library to identify orphan works. Orphan works are books that are subject to copyright but whose copyright holders cannot be identified or contacted. Our immediate focus is on digital books held by HathiTrust, a partnership of major research institutions and libraries working to ensure that the cultural record is preserved and accessible long into the future.

This effort is funded by the HathiTrust and is part of U-M Library's ongoing efforts to understand the true copyright status of works in its collection. As part of this effort, the Library will develop policies, processes, and procedures that can be used by other HathiTrust partners to replicate a task that will ultimately require the hand-checking of millions of volumes.

Bravo/a. I have no idea what will come of this, but pulling the default position of libraries, archives, and other institutions from one of debilitating fear or lawsuits to one of bravely sharing is something long past needed.

More WSJ Supply-Side Nonsense: For the Virtual Green Room

Rebutted by Jonathan Chait:

Here's the Journal insisting that Bush tax cuts in 2003 -- the really regressive ones, the ones that didn't waste any precious dollars on the middle class -- produced big revenue gains:

After the Bush investment tax cuts of 2003, tax revenues were $786 billion higher in 2007 ($2.568 trillion) than they were in 2003 ($1.782 trillion), the biggest four-year increase in U.S. history. So as flawed as it is, the current tax code with a top personal income tax rate of 35% is clearly capable of generating big revenue gains.

And here's the Journal insisting that the problem with the budget right now is that we're growing too slowly:

Mr. Obama has a point that tax receipts are near historic lows, but the cause isn't tax rates that are too low.... Today's revenue problem is the result of the mediocre economic recovery...

Right. We're growing really slowly even though the Bush tax cuts have been in place since 2001, and the beloved super-regressive second round of Bush tax cuts since 2003. That would suggest that the Bush tax cuts are not the cure for slow economic growth. Indeed, that conclusion is so obvious the Journal concocts a convoluted rationale to get around it. The structure of the editorial is that it begins with the second point -- revenues are really low because of growth -- and then works to the first point -- the Bush tax cuts produced big revenue gains! -- before arriving at the conclusion: "A tax increase won't help growth—or revenues." That way the Journal can treat the 2003 tax cuts as some distant historical aspiration rather than current tax policy.... The more plausible interpretation is that tax rates at current levels have a trivial impact on economic growth. Otherwise we're stuck with the Journal's claim that we're experiencing slow growth due to sub-optimal tax policy, and the solution to this is to keep current tax rates in effect.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Claims That Obama Knows How to Work with a Republican-Controlled House of Representatives: For the Virtual Green Room

Rebutted by Matthew Yglesias: Long-Term Implications Of The Debt Ceiling Blunder:

Obama, by agreeing to hold negotiations on this subject, has fundamentally changed the dynamic. Once the president has conceded that the debt ceiling is a good opportunity for bargaining, the bargaining never stops. Recall that an increase in the debt ceiling could be blocked by as few as 40 senators, so we can expect the hostage situation to recur every time there’s a need to increase the ceiling. The time of knowing insider clucking about the political theater is over, and the era of repeated high-stakes clashes has begun. And basically the only way for it to end is with someone, at some point, going too far and turning the game of chicken into a car wreck.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Fake Claims that Jon Huntsman Has "Jonmentum": For the Virtual Green Room

Rebutted by Eric Boehlert:

Huh? Journalists Reportedly Outnumber Voters At Huntsman’s GOP Campaign Events: This is a rather remarkable observation, from Joshua Green’s Atlantic dispatch, on the first official day of Jon Huntsman’s presidential campaign;

A few weeks ago, I was up in New Hampshire for Jon Huntsman's maiden swing through the state as a possible -- it's now official -- presidential candidate. The rest of the national press corps seemed to be there, too. At many of the events, we reporters outnumbered actual voters, sometimes vastly...

I really do think we’ve entered uncharted waters here. And no, I don’t think it’s a coincidence Republicans are benefiting from the new (non-existent?) guidelines that the press have adopted for the 2012 race, where candidates like Huntsman don’t have to accomplish a thing before being rewarded with a growing media spotlight. 

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Fake Republican Claims that Tax Rate Cuts Invariably Raise Revenues: For the Virtual Green Room

Rebutted by Diane Lim Rogers:

Here’s a really nice video interview of Bruce Bartlett.... [C]ertain tax cuts can do a decent job stimulating demand for goods and services in a recessionary economy, and certain tax cuts (usually other kinds) can do a decent job encouraging the supply of productive resources (labor supply and saving) in a full(er)-employment economy. But neither type of tax cut is likely to generate so much demand or so much supply that they pay for themselves (a la Laffer), even over the longer run. And once you get long enough into the longer run, chances are any credit you are giving to the tax cut itself is misplaced..."

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

How Not to Significantly Boost the Recovery: For the Virtual Green Room


There are also things that Congress could do right now that will help create good jobs.  Right now, Congress can send me a bill that would make it easier for entrepreneurs to patent a new product or idea.... Congress could send me a bill that puts construction workers back on the job rebuilding roads and bridges –- not by having government fund and pick every project, but by providing loans to private companies and states and local governments on the basis of merit.... Congress can advance a set of trade agreements that would allow American businesses to sell more of their goods and services.... And right now, we could give middle-class families the security of knowing that the tax cut I signed in December will be there for one more year. So there are a number of steps that my administration is taking, but there are also a number of steps that Congress could be taking right now on items that historically have had bipartisan support and that would help put more Americans back to work...

Rebutted by Jonathan Chait:

[T]he thrust of the passage is to assail Congress for failing to act. This is... a major component of Obama's political message.... The economic recovery is going to be too long and difficult to run a "see how great things are" campaign. The only real alternative is to shift the blame for the status quo onto Republicans who have blocked his economic recovery agenda....

The truth is that none of Obama's proposals would have more than a marginal boost for growth. (That makes them better than the Republican proposals, which would worsen the economy.) But he needs a theme...

The truth is that boosting the recovery significantly requires much larger monetary, fiscal, and banking side interventions than Obama has proposed and is proposing.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

I Think James Fallows Is Saying We Would All Be Better Off If Mark Halperin Never Darkened Our TVs Again...

James Fallows:

Of course Mark Halperin should not be fired for saying on MSNBC that President Obama had been “kind of a dick” when sounding angry at Republicans during his press conference yesterday. I say that notwithstanding the certainty that if some other “mainstream” journalist had said the same about George W. Bush on MSNBC or CNN, the outrage would never have been allowed to ebb on Fox and the Limbaugh show...


The real problem is the dickishness of our mainstream political analysis, especially from the “savviest” practitioners. Back during my days as media critic, I argued in Breaking the News and a related Atlantic cover story that the laziest and ultimately most destructive form of political coverage came when journalists seemed to imagine that they were theater critics or figure-skating judges. The what of public affairs didn’t interest them. All they cared about was the how.

In this case, the “what” of Obama’s press conference — the unbelievable recklessness of mainly House Republicans in inviting the largest self-inflicted economic wound in American history — deserves every bit of frustration Obama showed, and lots more. In the long run we’ll have some sense of whether Obama’s typical surreal unflappability, whatever its origins (I have my theories, but for another time), was the wisest long-term response to today’s Republican party — and whether this unusual flash of emotion worked in directing public attention to a looming and entirely unnecessary blow to America’s wellbeing.

But the real news of the press conference, of course, was the economic, financial, political, and Constitutional showdown Obama was discussing. Not to understand that, and to act as if this was a free-skate program where a contestant should be judged on poise, costume, and sticking the landings, is just dickish.

Commute-Time Musings on Fiscal Policy in a Depressed and Overleveraged Economy...

Nearly every economist of note and reputation that I know believes that an increase in U.S. government purchases right now would be highly likely to significantly boost employment and spending while having little or no effect on interest rates.

Nearly every economist of note and reputation that I know also believes that an increase in Greek or Portuguese government purchases right now would almost surely have little or no if not a negative effect on employment and spending and would significantly raise interest rates.

What model of the economy are we working in? What macroeconomic framework is consistent with both of these claims?

When I give talks, I say that right now if the economy were at full employment there would be an excess demand in financial markets not so much for liquid assets or long-duration assets but for safe assets. I say that as a result people have cut back on their spending on currently-produced goods and services to try to accumulate safe assets that are not there. I say that this interruption in the normal circular flow of purchasing power has caused a fall in incomes. And I say that this fall in incomes has caused a further fall in spending, production, employment. I say that the economy will not recover until the excess at full-employment levels of production and spending of desired holdings of safe assets above supply is eliminated--either because the private sector has rebuilt its balance sheets and so improved the quality of private debt of because a credit-worthy public sector has issued more debt,

I say, further, that expansionary fiscal policy by the US government today not only puts people to work directly but also increases the supply of safe assets held by businesses and households and so increases their willingness to spend out of current incomes on currently produced goods and services.

By contrast, I say, were the Greek or the Portuguese government to sell more bonds today it would degrade the quality of the safe bonds already out there in the market and not add to but subtract from the private sector's holdings of safe assets. Thus it would not believe but rather increase the excess demand for safe assets at full employment that is at the root of the problem.

Clearly underlying our thought--or at least my thought--is a somewhat more sophisticated model of government debt and the economy then old-fashioned Hicksian in IS-LM.

But what is this framework? And why haven't I seen it written out anywhere?

Liveblogging World War II: June 30, 1941

The Organization of Ukrainian Nationalists:

Declaration of Ukrainian Independence, 1941:

  1. By the will of the Ukrainian people, the Organization of Ukrainian Nationalists under the direction of Stepan Bandera proclaims the formation of the Ukrainian State for which whole generations of the finest sons of Ukraine have laid down their lives. The Organization of Ukrainian Nationalists, which under the direction and founder and leader Yevhen Konovalets, has undertaken in the past ten years a bloody battle with the Moscovite-Bolshevik enslavers in an energetic battle for freedom, calls all the Ukrainian people not to lay down theeir weapons until all Ukrainian lands are united to form a Sovereign Ukrainian Government. The Sovereign Ukrainian Government will guarantee the Ukrainian people order, independent development of all its energies, and of all its needs.

  2. In the western lands of Ukraine a Ukrainian Government has been formed. It will be subordinate to the Ukrainian National Government that will be formed in the capital of Ukraine--Kiev.

  3. The newly formed Ukrainian state will work closely with NationalSocialist Greater Germany, under the leadership of its leader Adolf Hitler, which is forming a new order in Europe and the world and is helping the Ukrainian People to free itself from Moscovite occupation. The Ukrainian People's Revolutionary Army which has been formed on the Ukrainian lands, will continue to fight with the Allied German Army against Moscovite occupation for a sovereign and united State and a new order in the whole world.

Long live the Ukrainian Sovereign United Ukraine!

Long live the Organization of Ukrainian Nationalists!

Long live the leader of the Organization of Ukrainian Nationalists and the Ukrainian people – STEPAN BANDERA!


And Policymakers Are Proposing to Withdraw Stimulus?

Menzie Chinn:

Econbrowser: And Policymakers Are Proposing to Withdraw Stimulus?: The output gap remains large, and will still be -3.6% in 2012Q4, according to the mean WSJ June survey.... So, I think I understand where PIMCO’s Bill Gross is coming from (The Hill):

Bill Gross, the head of PIMCO, the world’s largest bond investor, on Tuesday lambasted politicians who claim deficit reduction will lead to job growth and called for new stimulus spending. Gross is often cited by House Budget Committee Chairman Paul Ryan (R-Wis.) as having said the U.S. had only a few years to rein in the deficit to avoid a debt crisis. Gross sparked a lot of attention by dumping his holdings of U.S. Treasuries this spring. “Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem,” Gross wrote in PIMCO’s July Investment Outlook....

And from Fed Chair Ben Bernanke’s press conference yesterday (h/t Ezra Klein):

I have advocated that the negotiations about the budget focus on the longer term, say 10 years, which is the budget window, or even longer if you're taking into blth entitlement reform, for example. By taking a long run aspect we can help the economy by reducing interest rates that may rise suddenly, we may help increase confidence in the households and businesses so ink it's desirable that we take strong action to lower our budget deficits over the longer term. In doing that I think it would be best not to, in light of the weakness of the recovery, it would be best not to have sudden and sharp fiscal consolidation in the near term. That doesn't do so much for the long-run budget situation, it's a negative for growth.... I hope that the congressional negotiators will take a longer-term view....

The United States faces a serious long-term deficit problem and an immediate short-term problem of slow growth and high unemployment. Current economic and budget conditions in the United States do not look at all like the conditions in countries that have experienced successful deficit reduction through short, sharp fiscal contractions. Non-partisan experts like Fed Chairman Bernanke and the Congressional Budget Office warn against cutting deficits too fast. And as the non-partisan Congressional Research Service concludes from its analysis of the international evidence, cutting budget deficits too rapidly under current U.S. economic conditions is most likely to hurt the economy and ultimately be unsuccessful. If we go down this path, I’m afraid the lesson will be “Spend Less, Grow Less, Slow the Economy.”

Ramesh Ponnuru's Claim that the Reduction in Union Strength Is Benign: For the Virtual Green Room

Rebutted by Henry Farrell:

Ramesh Ponnuru argues that the relevant social science suggests that US policy makers should not try to reverse the decline of unions.... Ponnuru’s claim is that:

The shift toward a more competitive economy has not hurt workers in general: Total employee compensation as a share of the economy held fairly steady during the second half of the last century even as unions were shrinking. (It’s true that wages as a share of the economy fell, but that was a result of the increased cost of benefits.) The shift has, however, increased inequality among workers, with more rewards going to those with higher skills....

‘[W]orkers in general’ seems a rather unusual proxy for ‘immiseration of the middle class’ given the high degree of variation in employee compensation (those in the highest income segments, where inequality has increased most dramatically since the late 1980s, cannot plausibly be described as ‘middle class’).... Western and Rosenfeld’s figures suggest that the decline of unions has been just as important a factor as education in explaining the rise of inequality among men.... The decline of American labor and the associated increase in wage inequality signaled the deterioration of the labor market as a political institution. Workers became less connected to each other in their organizational lives, and less connected in their economic fortunes. The de-politicization of the American labor market appears self-reinforcing: as the political power of organized labor dissipates, economic interests in the labor market are dispersed and policymakers have fewer incentives to strengthen unions or otherwise equalize economic rewards.

In short, there is good prima facie support for the claim that deunionization has hurt the middle class by contributing to a particularly top-heavy form of increased income inequality, from an author whom Ponnuru cites and presumably takes seriously...

Hardware vs. Wetware

Hoisted from comments: dr2chase:

Rapture of the Nerds Department: One place where we're not making a whole lot of progress is in power consumption; that's most of the reason that cpu clock rates have quit increasing at the glorious pace of previous decades. We're able to put ever-more transistors on a chip, but we can't run them ever-faster, so if we want our software to run faster, we must rework it so that it computes in parallel. It is generally believed that programming things to run in parallel is harder than programming them to run serially. And yes, people are earning a lot of money trying to make that be less true, and I am one of those people.

I think that this gets us to at least two "potential" singularities -- in one, we can construct a computer with the potential computing power of a human brain, but we won't have a clue how to program it like a brain. In the other, we can construct a computer with the potential computing power of a human brain, but the energy bill suggests that it would be cheaper to hire a human (at .15/kWH, 10000 H/yr, a kilowatt 24/7 costs $1500. A 42U rack, computing, draws 10kW ( ). So each rack costs $15,000 per year, running, not counting the cost of cooling -- how long till we can get a brain's worth of computing power, in fewer than 10 racks?

The other problem is simply the grubby world of business and what's-in-it-for-me. Who does it profit, to program a computer like a human brain? If that much computing power can more profitably be put to some other use (especially when it is expensive), that's what will happen to it. Events of the last decade have made me worry a lot more about what ideologues and greedy bastards would do with such technology.

David Wessel Joins the Hippies Who Have Been Calling for More Aggressive Economic Stimulus for... 2 3/4 Years Now

David Wessel:

How to Get the U.S. Recovery Back on Track: The U.S. economy resembles a patient who survived a heart attack, and tells his doctor: "I took your advice, swallowed the pills and I still don't feel well." We were warned the post-recession recovery, now marking its second anniversary, would be painfully slow. It's worse than predicted. And it's hardly reassuring for Federal Reserve Chairman Ben Bernanke to concede: "We don't have a precise read on why this slower pace of growth is persisting." Although unemployment is at 9.1% and forecast to remain above 8% through next year, the Fed says it won't do more to help the economy. The adrenaline of fiscal stimulus is wearing off. And Washington is fixated on deficits and debt ceilings. Is there really nothing to be done to help the economy heal?

One set of physicians, the Keynesians, are sure their medicine worked, but the dosage was insufficient. They prescribe more stimulus.... Another set, influential among Republicans, is just as sure the medicine didn't work. They prescribe the opposite: Starve the fever—cut spending significantly and soon. A third set, influenced by professors Kenneth Rogoff and Carmen Reinhart's history of financial crises, says deleveraging is like detox: Painful, takes time and can't be rushed.

To be clear... the U.S. government needs to enact now a credible, long-term plan to reduce future budget deficits. Period. But that doesn't mean deficit reduction alone will unleash a surge of growth and hiring.

Remember: The worse the economy, the bigger the deficit.... References to "political reality" and reminders that "it could have been worse" aren't policy. If the president and Congress want to slip some growth-inducing remedies into the pending deficit deal, what should they examine with an unjaundiced eye?

Housing.... all. It's time for a rethink, in light of the persistently sour housing market. Perhaps state-owned enterprises Fannie Mae and Freddie Mae should be deployed more aggressively to refinance credit-worthy underwater borrowers....

Hiring. The cycle is clear: Consumers won't spend more because so many are out of work or worried about losing their jobs. But employers won't hire more at home because they're uncertain demand will be there.... Nudge employers to hire with a tax credit for every worker they add or extra dollar they spend on payrolls.... Watchful waiting is costly and cruel.

Confidence. The only sustainable way to get the economy moving is for business to invest and hire more.... Moving from rhetoric on exports to passing free-trade pacts would be a plus. So would a bipartisan deal on deficits. And so would appointing and confirming regulators for a growing list of vacancies. Suing Boeing over where it puts its plants doesn't help. But just because something will make executives feel better doesn't mean it's a good idea....

Infrastructure.... [T]he federal government can borrow at below 3%, construction workers are idle, and many U.S. roads, subways and airports seem Third World compared with China's new ones. How about a quick round of infrastructure maintenance....

When times are tough, resignation isn't usually the American way. Why should it be now?

Duncan Black wishes for some recognition that some of us have been on this case--although howling at the dead, uncaring stars, for all the good we have done--for 31 months now:

Eschaton: Shorter David Wessel: "The hippies are like so totally wrong about everything, but here's my plan in the WSJ to implement the hippie agenda." That's a bit of an unfair characterization, but I wish pundits could just say "here's what should be done" without pretending to float above everyone else who is wrong.

Lori Montgomery Finally Says That the World Is Round...

After many, many years of "opinions of shape of earth differ" "reporting", Lori Montgomery finally, finally tells her readers that:

  • Republicans only care about the deficit when Democrats are in office, and even then
  • They don't care about the deficit when caring about it might lead to a tax increase.

Since at least 1992, all the real deficit hawks have all been in the Democratic Party. But you would never have learned that by reading the Washington Post...

Rapture of the Nerds Department

Charlie Stross does not fear (or anticipate) the Singularity:

Three arguments against the singularity: I periodically get email from folks who, having read "Accelerando", assume I am some kind of fire-breathing extropian zealot who believes in the imminence of the singularity, the uploading of the libertarians, and the rapture of the nerds. I find this mildly distressing, and so I think it's time to set the record straight and say what I really think....

Continue reading "Rapture of the Nerds Department" »

This Is Very Bad: Barack Obama Fail Department

Can't anybody in the White House play this game?

Barack Obama:

Transcripts: There are a lot of folks out there who are still struggling with the effects of the recession. Many people are still looking for work or looking for a job that pays more. Families are wondering how they deal with a broken refrigerator or a busted transmission or how they're going to finance their kids' college education, and they're also worrying about the possibility of layoffs. The struggles of middle-class families were a big problem before the recession hit in 2007. They weren't created overnight, and the truth is our economic challenges are not going to be solved overnight.

But there are more steps that we can take right now that would help businesses create jobs here in America. Today, our administration is trying to take those steps....

[T]here are also a number of steps that Congress could be taking right now on items that historically have had bipartisan support, and that would help put more Americans back to work. Many of these ideas have been tied up in Congress for some time. But, as I said, all of them enjoy bipartisan support, and all of them could help grow the economy. So I urge Congress to act on these ideas now.

Of course, one of the most important and urgent things we can do for the economy is something that both parties are working on right now, and that's reducing our nation's deficit...

No. No. No. No. No. No. NO. NO!!!!!!!!!

Absolutely the last thing, the last thing, the country needs is to cut federal spending or raise taxes in fiscal 2011, 2012, and it is now looking like fiscal 2013 as well.

Absolutely the last thing the country needs.

Continue reading "This Is Very Bad: Barack Obama Fail Department" »

Shame on Jeff Bezos!

No, Jeff, I won't lobby Jerry Brown for you. I will be happy to redirect all my book links on my website to Powells or B&N instead.

Jeff Bezos writes:

Hello, For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state. We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action. As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to,, MYHABIT.COM or Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule. You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program. To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect their ability to purchase from,, MYHABIT.COM or We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. We are also working on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Hoisted from the Archives: February 22, 2009: The Stimulus Victory: Let's Keep in Contact with Reality Here...

Hoisted from the Archives: I call a reality check here:

  1. Paul Krugman is not a liberal economist Paul Krugman is a centrist economist. Paul Krugman drafted chapters for Reagan-era Economic Reports of the President. Throughout the 1990s, Krugman regularly directed his fire equally at both sides: blasting Democrats for believing that they could design clever policies taking account of network externalities that could do better for America than free trade; blasting Republicans for believing that tax cuts raised revenue. If there were still a bipartisan center, Paul Krugman would be its king.

  2. The stimulus program is too small. Claims that it is too small are not just attempts to set up the table so that Rahm Emmanuel can sink the eight ball in the corner pocket. Claims that are too small are descriptions of reality.

This is an important distinction to make. BHO and RE have done a wonderful job in getting this through. But unless we have a sudden run of very good luck, we are going to want to do more in six months when the reconciliation bill moves through--in fact, we want to do more right now if we can.

Continue reading "Hoisted from the Archives: February 22, 2009: The Stimulus Victory: Let's Keep in Contact with Reality Here..." »

Hoisted from Comments: Economics as "Science"

John Emerson:

The BIS Fails to do Its Job...: As I understand, economics is a science that starts off with a pidgin toy model of human psychology (rational actors) because this methodological simplification makes it possible to develop models with great predictive power. (Milton Friedman, Preface to "Positive Economics".) And once this is done, from the heights of Science they look down scornfully on ordinary folk and on the lesser social scientists who lack the powerful analytical models.

Except that sometimes their sciences have no predictive power and fail utterly, in which case they start talking about "confidence" and kick the can down to psychology and say "Hey, stupid: here's one for you!"

And then they say: what can we do to increase confidence? And as often as not, they say:

All the way back to the Scythians it has been known that gold is an imperishable store of value which you can safely bury in the ground (along with your sacrificed slaves) and be rich for all eternity. You can put it under your bed and it will be completely safe no matter what, except from burglars and strong-arm men of course, and your virility will improve too. And you can take it out and hold it in your hand and you'll just feel so good! And if you have enough of it, and enough automatic weapons and stores of food, you can survive the collapse of civilization

At least Keynes didn't succumb to the fetishism. (With the continuous tradition all the way back to Beowulf and Skunxa, gold-buggery is one of the few areas where the Marxo-Freudian theory of fetishism might be entirely reasonable.) But he was still kicking the can.

Fake Claims That Health Exchanges Are a Dangerous Socialistic Innovation: For the Virtual Green Room

Rebutted by Igor Volsky : Pawlenty Was For Exchanges Before He Was Against Them:

Tim Pawlenty has long criticized the individual mandate provision in the Affordable Care Act, a policy that’s designed to encourage healthier people to purchase coverage and one that he previously considered. Now, in an interview with Politico, Pawlenty is sharpening his attack against reform and speaking out against the exchanges....

Pawlenty actually advanced exchanges in Minnesota in 2007, arguing that the non-profit Minnesota Insurance Exchange could “connect employers and workers with more affordable health coverage options.” “If just two of your employees go out and buy insurance through the exchange, the benefits to the employer on a pre-tax basis — because of their payments to Social Security and otherwise into the 125 plan — more than cover the cost of setting up the plan,” Pawlenty explained at the time. The proposal was part of the governor’s “Healthy Connections” health care plan and he described the Exchange as a structure that “will create another option for employers who would like to provide health insurance as a benefit for their employees.” “All individual health insurance policies in Minnesota will be required to be purchased through the Exchange. Individuals will also be able to pay for coverage with pre-tax dollars. The products will continue to be regulated by the state,” a press release for the proposal read.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Breaching the Debt Ceiling...

What happens on August 3, 2011?

(1) Tim Geithner stops paying congressional salaries, impounding them in order to keep from breaching the debt ceiling...

(2) Tim Geithner stops sending out Social Security checks, impounding them in order to keep from breaching the debt ceiling...

(3) Tim Geithner begins to disinvest the Social Security Trust Fund. As FICA taxes come in, the Managing Trustee of the Social Security Trust Fund (Tim Geithner) asks the Secretary of the Treasury (Tim Geithner) to sell him some government bonds in exchange for the cash, and the Secretary of the Treasury (Tim Geithner) says: "No. I can't." The Secretary of the Treasury (Tim Geithner) takes the cash and uses it to cover the U.S. government's other obligations. The Secretary of the Treasury (Tim Geithner) tells the Managing Trustee (Tim Geithner) that because congress has not raised the debt ceiling he cannot sell the Social Security system any bonds. The Secretary of the Treasury (Tim Geithner) then puts a sign on the front of the Treasury lawn with a continuously-updated number on it: "Because congress has not raised the debt ceiling the Social Security Trust Fund has lost $x billion dollars."

(4) Tim Geithner announces that by law he is required to spend money on appropriations and entitlements--that he is not allowed to impound--and that there is not enough coming in in tax payments to both do all the spending he is legally required to do and to pay back the debt of the United States as it matures. In the absence of the 14th Amendment, he says, he would be required by law to default on the maturing debt. But, he says, the 14th Amendment forbids him to default. In order to take care that the laws be faithfully executed, therefore, even without explicit congressional authority to do so, he must borrow on the full faith and credit of the United States in order to completely (a) meet his spending obligations, and (b) honor the debt of the United States of America. He begins selling more bonds...

(4a) The Federal Reserve buys up the excess bonds above the debt-subject-to-limit ceiling...

(4b) The Treasury auctions the excess bonds above the debt-subject-to-limit ceiling and sees who buys them...

(5) The Treasury fails to pay its maturing T-bills. The U.S. government's credit rating falls to D...

Any guesses as to what will happen?

The black-letter law:

§3101. Public Debt Limit:

(a) In this section, the current redemption value of an obligation issued on a discount basis and redeemable before maturity at the option of its holder is deemed to be the face amount of the obligation.

(b) The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $12,394,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process described in Rule XLIX [1] of the Rules of the House of Representatives or otherwise.

(c) For purposes of this section, the face amount, for any month, of any obligation issued on a discount basis that is not redeemable before maturity at the option of the holder of the obligation is an amount equal to the sum of—

(1) the original issue price of the obligation, plus

(2) the portion of the discount on the obligation attributable to periods before the beginning of such month (as determined under the principles of section 1272(a) of the Internal Revenue Code of 1986 without regard to any exceptions contained in paragraph (2) of such section).

§3102. Bonds:

With the approval of the President, the Secretary of the Treasury may borrow on the credit of the United States Government amounts necessary for expenditures authorized by law and may issue bonds of the Government for the amounts borrowed and may buy, redeem, and make refunds under section 3111 of this title. The Secretary may issue bonds authorized by this section to the public and to Government accounts at any annual interest rate and prescribe conditions under section 3121 of this title...

The Treasury Secretary's argument would be that the debt in excess of limit issued is required in order for him to faithfully execute the appropriations bills, and that the 14th Amendment makes the debt in excess of limit full faith and credit obligations of the U.S. government in spite of the limit in §3101(b). The excess bonds are not authorized by §3101 and §3102. But they are authorized by the 14th Amendment.

Paul Krugman: British Inflation: A Teachable Moment


British Inflation: A Teachable Moment: Adam Posen gave a talk yesterday (pdf) about British monetary policy that drives home a point I’ve been meaning to make; namely, that what’s happening in Britain on the monetary front right now is very much a teachable moment for monetary policy more generally. The Bank of England faces the same kind conflict between what it should be doing and what it’s under pressure to do that faces the Fed, but in starker form. And if the BoE holds its ground, we should soon have a clear demonstration that one side is right and the other is wrong.

The story so far: Britain is currently experiencing relatively high headline inflation, more than 4 percent over the previous year. And so there are demands that the BoE tighten. Yet the bulk of the rise in inflation clearly represents temporary or one-time factors: a rise in value-added taxes as temporary breaks introduced during the recession expired, commodity prices, and the once-off effects of the fall in the value of the pound against the euro. Nonetheless, the inflation hawks demand a rate rise, arguing that despite the still very depressed state of the economy, inflation must be nipped in the bud or it will turn into stagflation, 70s-style.

What Posen points out is that the case for preemptive monetary tightening to head off stagflation is entirely based on the 70s experience; there have been no other similar episodes in history. before or since. And the situation in Britain today bears little resemblance to the situation preceding any modern takeoff in inflation. Here’s unit labor costs in the quarters preceding several modern British inflation episodes, and this time around....

All the same issues apply in the United States, although in less extreme form.... What we can hope for is that the BoE stays the course; and when inflation in the UK drops sharply, as it almost surely will, that will be an object lesson in the folly of always making policy as if it were 1979.

Scott Sumner: The BIS Should Have Written a Very Different Report

Scott Sumner at the Economist:

Economics: Don't base monetary policy decisions on estimates of "slack": THE Bank for International Settlements argues that due to high levels of structural unemployment there is less slack in the global economy than is commonly believed. They see higher inflation as a threat, and recommend that central banks tighten monetary policy. There are all sorts of problems with the BIS recommendation. First, central banks should target market inflation forecasts, and various market indicators suggest that US inflation will remain below 2% for the next 5 years. More importantly, it’s a mistake for central banks to base policy on estimates of “slack”.... Economists aren’t even close to being able to identify the level of structural unemployment in real time.... If we learned anything from the experience of the 1970s, it is that we should not base monetary policy on estimates of the level of structural and cyclical unemployment. Instead, policymakers should focus on a nominal target.... In my view nominal GDP targeting would be better than a pure inflation target, as it would better accommodate supply shocks, and more closely correspond to the “dual mandate” of monetary policymakers in countries such as the US. By that criterion, monetary policy in the US, Europe, and Japan has been far too contractionary since late 2008.

David Frum: Obama is His Own Worst Enemy

Two comments:

  1. Substantively, I think Frum nails what is going on.
  2. As a result, for the first time I think it is more likely than not that Obama will lose the 2012 election. Never mind that as a reality-based leader he will be vastly superior to whatever wingnut or hypocrite the Republicans serve up--if the elite press adopts Frum's critique, then we have sixteen months to listen to the media speak with one voice about how Obama is not tough and decisive enough to be a good president.

David Frum

Obama is His Own Worst Enemy | FrumForum: [Obama is] not an alien, he’s not a radical. He’s just not the person the country needs. He’s not tough enough, he’s not imaginative enough, and he’s not determined enough.

In the throes of the worst economic crisis since the 1930s, the president ran out of ideas sometime back in 2009.

In the face of opposition, Obama goes passive. The mean Republicans refused votes on his Federal Reserve nominees and Obama … did nothing. Would Ronald Reagan have done nothing? FDR? Lyndon Johnson?

With unemployment at 10% and interest rates at 1%, the president got persuaded that it was debt and interest that trumped growth and jobs as Public Issue #1.

Yet even as he yields to his opponents on the fundamental question, Obama is surprisingly rigid in his political tactics. Back in 2008, Obama made two big promises: a tax cut for everybody earning less than $250,000 and an Afghan surge. I think it’s safe to say that Obama believed in neither of them... adopted [them] for defensive reasons, to shield himself from conservative critique. In the very different circumstances of 2009, both promises rapidly showed themselves to be counter-productive.... He proceeded with both, leading to the two biggest problems of his presidency: a stimulus that added hugely to the national debt while under-delivering on jobs and an expanded Afghanistan war that must end in a reversion to the same disappointing status quo that prevailed before the Afghan surge. Obama probably anticipated both results. And yet he staggered forward anyway. As ready as Obama is to surrender to uncongenial political pressures, he is strangely inattentive to negative real-world results.

The Obama Administration Is Doing All It Can to Boost Employment: For the Virtual Green Room

Questioned by David Dayen: Small Business Lending Fund: No Money Spent in Nine Months:

I don’t think we’re making enough out of incompetence as a primary reason we’re mired in a zero-growth decade....

Nearly nine months after its formation, a $30 billion government fund to foster small-business lending has yet to pay out a single dime, even as the nation struggles with traumatic levels of unemployment. Now, Rep. Sam Graves (R-Mo.) wants an explanation. And as chairman of the Small Business Committee, he hopes his sole witness at a hearing Wednesday — Treasury Secretary Timothy Geithner — can shed some light on the holdup. “This isn’t a witch hunt in any sense of the word,” Graves said. “We’re just trying to figure out why the fund isn’t performing as advertised.”

Yes, I would like to know the same thing. This was one of the few successful bills passed that had anything to do with jobs last year. In theory, it was supposed to use $30 billion to lever up to $300 billion in small business lending through community banks. When it was signed last September, the theory was it could help create 500,000 jobs. There has not been a lack of effort: 844 businesses have applied for $11.6 billion from the Small Business Lending Fund, according to Politico....

UPDATE: Sen. Jeff Merkley was one of the leaders who got the small business lending bill passed last year. I asked his office about this story today. “Senator Merkley has been extremely frustrated with the slow pace of Treasury in setting up the Small Business Lending Fund – and urged Treasury last month to pick up the pace,” they said. You can read Merkley’s letter to Treasury here. Simply put, Merkley’s office believes this fund should be the highest priority at Treasury, especially with unemployment so high, and he doesn’t see that kind of commitment yet.

Rebuttals to talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

Not a Unified Field Theory of Arnold Schwarzenegger


In his excellent post on the Arnold Schwarzenegger scandal, Mark Lee seriously considered the impact of the actor’s personal problems on those who consider themselves fans. Mark’s post was thoughtful, mature, and insightful. John Perich’s groudbreaking work on a unified theory of Arnold Schwarzenegger was creative, logical and well written. This post will be none of those things...

The BIS Fails to do Its Job...

Paul Krugman watches the wreck:

I picked up a copy of Lionel Robbins’s 1934 book The Great Depression in a used book shop in Norwich....

“The first essential of any recovery from the position in which the world now finds itself is a return of business confidence,” declares Robbins. “But how is confidence to be restored?” He comes out against expansionary monetary policy, even to reverse the deflation of 1929-33 – he doesn’t really have any logical explanation, but having decided that the problem is “confidence”, he declares that monetary expansion would create “uncertainty” and therefore hurt confidence. He condemns exchange rate flexibility, again because it creates uncertainty and undermines confidence.

And after surveying the wreckage all around him, he declares that the cause of the depression was excessive government intervention, and the remedy, the thing needed to restore that all-essential confidence was … drum roll .. a return to the gold standard....

The new BIS report is very much in the same vein as Robbins 1934, with much less excuse. Robbins suffered from the lack of a framework to make sense of events; the BIS, like so many economists, faced with exactly the economic syndrome Keynes analyzed, and for that matter even Milton Friedman would have seen as demanding strong action, has chosen to ignore that framework and play monetary Calvinball instead.

I was originally going to end this post by saying something about stupidity, but that’s not right: the people at the BIS aren’t stupid. What’s going on here is something different and worse: we’re seeing the desire for conventional respectability outweighing the lessons of history; we’re seeing vague prejudice (prejudice that just so happens to serve the interests of rentiers) trumping analysis...

Atlantic Monthly Fail

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

The Atlantic Monthly has no quality control filter. It is not that they try to publish accurate stuff and occasionally fail. It is that they don't try.

P. Z. Myers:

Newage sewage flushed into the Atlantic: The Atlantic published a rather contemptible apologetic for alternative quackery titled "The Triumph of New-Age Medicine, which basically declared victory for the altie wackaloons. The way it did this was devious, and reminded me so much of creationist tactics. First, it declares that "mainstream medicine itself is failing"; it doesn't really have any evidence of this, it just declares that modern medicine is built around the infectious disease model, and that it hasn't solved all health problems. Familiar stuff, hey? If a science can't explain every jot & tittle of every detail of every phenomenon, if there are still open questions and problems, why, it must be wrong!

Secondly, it portrays the altie quacks as nice, caring, sweet people who really, really care about their patients, and their 'treatments' as, at worst, totally harmless. Referring to one peddler of holistic care, the author says "Concerns of outright malpractice or naked hucksterism seem grossly misplaced when applied to a clinic like Berman's." Why? Because Berman is "gentle" and "upbeat" and has a pleasant demeanor....

And then, thirdly, is the sly substitution. We're finding that the best way to manage chronic illnesses like heart disease is with life-style changes that improve nutrition, physical condition, and overall well-being, and reduce the underlying causes. So what does this article do? It credits all that good common sense to the quacks who promote reiki and acupuncture and exotic herbs. You know what my traditional, mainstream, hidebound doctor of real world medicine first prescribed for me at those early signs of heart disease? Changes in diet and more exercise. She didn't seem to think I needed homeopathic placebos in order to do something that would make a difference.

It was an infuriatingly dishonest article...

Eleanor Roosevelt Liveblogs World War II: June 28, 1941

Eleanor Roosevelt filets her congressman, Hamilton Fish:

My Day by Eleanor Roosevelt, June 28, 1941: EASTPORT, Maine, Friday—I have just received a slightly delayed communication from my congressman, the Hon. Hamilton Fish. His letter, addressed to the people of the 26th Congressional District in New York State, interests me very much. He suggests in the first paragraph that:

an undeclared war is an invention and creation of totalitarian nations, and a negation of democratic processes and our constitutional form of government...

Nowhere in the letter does he seem to suggest that, this being the case, and we being a peace-loving people, we may find ourselves the victims of an undeclared war, whether we like it or not, even if we ourselves adhere scrupulously to the "democratic processes."

He encloses in this courteous note, a postal card which reads:

The United States should:

Enter the war...

Stay out of the war...

All I am asked to do is to check one of these statements, sign my name or not, as I like, and return my ballot within three days of receipt.

I understand from a newspaper item which I read, that my congressman has received an overwhelming number stating that the United States should stay out of war. That seems to me fairly natural.

If I thought I had a choice in the matter, I should answer wholeheartedly that I did not wish to enter any war anywhere in the world. But it seems to me that my congressman has over-simplified the question which confronts us at the moment.

We would like to stay out of war. The people of Norway, Holland and all the other countries in Europe, even France and Russia, and Germany itself, would probably have liked to stay out of war. But that wasn't ever put before them as a choice. The war was suddenly upon them. In some cases, their government in the form of a dictator decreed it so. In others, because they woke up one morning and found soldiers of an enemy government marching down their streets.

I can think of a number of questions, Mr. Congressman, which you could have asked your constituents that would have been more enlightening to them and to you. Just as a suggestion, why not ask: "Shall the U.S. allow any enemy nation to obtain possessions which may menace, under modern conditions of warfare, the safety of the U.S.?" Or: "Shall we accept restrictions on our trade or the abrogation of our right to travel in neutral waters throughout the world?"

We have always been a proud and independent people, Mr. Congressman. As a woman, I pray for peace not only now, but in the future. But I think we must look a little beyond next week if we expect to ensure an independent U.S.A. to our children. There is such a thing, too, as the moral values of a situation, and I do not think we are a nation that has given up considerations for right and wrong as we see it.

Defining Asteroids Down

I am sorry, but something a mere 70 feet across is not an "asteroid":

Near-Earth asteroid passes over Atlantic Ocean : An asteroid with an estimated girth as large as a garbage truck soared within 7,500 miles of the Earth on Monday as it passed harmlessly over the Atlantic Ocean, according to NASA's Jet Propulsion Laboratory. The space rock, measuring 5 to 20 meters in diameter, followed the same near-Earth path that scientists had earlier predicted, looping around the planet in a boomerang-shaped trajectory, JPL spokesman D.C. Agle said. Its nearest approach to Earth, about 7,500 miles, was 30 times farther away than the International Space Station, which orbits the planet at a distance of 250 miles. On a more celestial scale, the asteroid's closest distance to Earth was just 3 percent of the 250,000 miles separating the Earth from the moon.

An object about the same size as Monday's near-Earth asteroid, designated by scientists as 2011 MD, zips past the planet at about the same distance ever six years, according to JPL.

Even if an asteroid the size of 2011 MD ever entered the Earth's atmosphere, it would likely burn up and cause no damage to the planet, JPL said.

Has Douglas Holtz-Eakin Completely Lost His Mind?

Don't read National Review. Really. Do not:

Douglas Holtz-Eakin: “Monopoly … duopoly … reckless consolidation.” This is just a sampling of the inflamed rhetoric that pervades the public discussion and official comment to federal agencies regarding the proposed merger of AT&T and T-Mobile. But rhetoric goes only so far. Thankfully, consumers will benefit most when this merger is judged by the merits: competition, access, and the quality of the most vibrant wireless market in the world.... The DOJ’s “Horizontal Merger Guidelines” lay out a formula (the Hirschman-Herfindahl Index) for determining the state of competition and whether a monopoly exists. In this index, a value of 10,000 denotes a complete monopoly, while a value of zero indicates infinite competition. In the case of 1970s-era Ma Bell, the HH index was almost 8,000 (one of many reasons it was eventually split up by regulators). This merger, if successful, wouldn’t result in an index value even half as high as Ma Bell’s, especially when taking into account the varied Internet and local options for communications...

Ummm... A three-firm oligopoly--which is a highly-concentrated market by anybody's standards--gets you a Herfindahl index of 3267. Anything more concentrated than a four-firm oligopoly is usually called "highly concentrated." To be unconcentrated I would like to see at least eight firms out there--and to be highly competitive the benchmark is usually 100 firms.

A Herfindahl index of 4000 is extraordinarily high.

Who is the audience for this piece? I mean, you can argue that the Herfindahl index is irrelevant because competition is moving very fast as technology changes and we actually want dynamic creative-destruction oligopolies here. But you cannot argue that 4000 is not an extraordinarily high Herfindahl index, can you?

Who is the audience for this piece?