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November 2011

Hoisted from the Archives: When Reactionary Goldbugs Attack!

Matthew Yglesias asks why oh why can't we have a better press corps--why are the gentlebeings of the press so eager to be played by Republican spinmasters?

Matthew Yglesias: Strange Swing (December 3, 2008): Joe The Plumber has a list of recommended books and the only non-plumbing volume is written by Ludwig von Mises? How is it, exactly, that we were supposed to believe this guy was a swing voter?

Tyler Cowen speculates that perhaps the Ron Paul Conspiracy has gotten to Joe Wuerzelbacher:

Marginal Revolution: Joe the Plumber and his favorite books: Joe reads economics:

The Theory of Money and Credit (Ludwig von Mises): "It brought monetary theory into the mainstream of economic analysis. It is important reading for these troubled times."

My theory is that someone in Ron Paul's camp told him to say that...

And Tyler goes on to (weakly) defend von Mises:

Scrolling through it a bit, it is more readable than my recollection and it remains one of the better 20th century books on monetary theory...

It is hard to read Tyler here.

What does "more readable than my recollection" mean? Is that a statement about the book, or about his recollection? Similary, what does "one of the better 20th century books on monetary theory" mean? Is that a statement about von Mises's Money and Credit, or about 20th century monetary theory?

My view is that Money and Credit is very readable--compulsively readable, in fact: I have just spent two and a half hours telling myself "it's OK; I will just read one more page...". But it is only readable in a rhetorical-excess-train-wreck mode, for it is also totally bats--- insane.

I recommend starting at page 416:

  • Read through the defenses of the gold standard as the only monetary system consistent with representative government.
  • Read the attacks on Keynes.
  • Read the attacks on the New Deal.
  • Read the attacks on the United Nations
  • Read the blaming of all excess unemployment on labor unions--or on governments.
  • Read the attacks on private-sector fractional-reserve banking
  • Read the attacks on all other believers in the gold standard not named "von Mises", not dedicated to the root-and-branch elimination of all forms of private fractional-reserve banking, and infected by the errors of the nineteenth-century British Banking School.
  • Then you can stop.

A sample:

Ludwig von Mises, Money and Credit: p. 416 ff: [T]he gold standard appears as an indispensible element of the body of constitutional guarantees that make the system of representative government function.... What the foes of the gold standard are asking for is... to intensify very considerably the already-prevailing upward trend of prices and wages.... Such a policy of radical inflationism is, of course, extremely popular.... How pale is the art of sorcerers, witches, and conjurors when compared with that of the government's treasury department! The government, professors tell us, 'can raise all the money it needs by printing it'[1]. Taxes for revenue, announced a chairman of the Federal Reserve Bank of New York, are 'obsolete'[2]. How wonderful!... Eventually... the cleverly-concocted plans of inflation collapse. Whatever compliant government economists may have said, inflationism is not a monetary policy that can be considered as an alternative to a sound-money policy....

[T]he gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion--policemen, customs guards, penal courts, prisons, in some countries even executioners--had to put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done.... The most remarkable thing about this allegedly new monetary policy, however, is its complete failure.... [I]t substituted fiat money in the domestic markets.... It contributed considerably to the disintegration of the international division of labor.... but the position of gold as the world's [monetary] standard is impregnable....

The expansionist doctrine does not realize that interest... is an originary category of human valuation, actual in any kind of human action and independent of any social institutions. The expansionists do not grasp the fact that there never were and there never can be human beings who attach to an apple available in a year or in a hundred years the same value they attach to an apple available now.... These absurd doctrines greatly impressed ignorant politicians and demagogues.... The inevitable eventual failure of any attempt at credit expansion... impossible to substitute fiat money and a bank's circulation credit for non-existing capital goods. Credit expansion initially can produce a boom... bound to end in a slump, in a depression... the recurrence of periods of economic crises... [caused by] the reiterated attempts of governments and banks supervised by them to expand credit....

This spurious grocer philosophy was once and for all exploded by Adam Smith and Jean-Baptist Say. In our day it has been revived by Lord Keynes.... Keynes was at a loss to advance a tenable argument against Say's law. Nor have his disciples or the hosts of economists, pseudo and otherwise, in the offices of the various governments, the United Nations, and divers other national or international bureaux done any better....

Wage rates are a market phenomenon.... If the government or labour unions fix wage rates at a higher point than the potential rate of the unhampered labour market and if they enforce their minimum-price decree by compulsion and coercion, a part of those who want to find jobs remain unemployed. Such institutional unemployment is the inevitable result of the methods applied by present-day self-styled progressive governments. It is the real outcome of measures falsely labeled as pro-labour.... [T]he reputation and prestige of the men now ruling the countries... and of their professional and journalistic allies are so inseparably tied up with the 'progressive' doctrine that they must cling to it. If they do not want to forsake their political ambitions, they must stubbornly deny that their own policy tends to make mass unemployment a permanent phenomenon....


Sound money still means today what it meant in the nineteenth century: the gold standard.... The main thing is that the government should no longer be in a position to increase the quantity of money in circulation and the amount of [private bank-provided] cheque-book money not fully--i.e. 100 per cent--covered by deposits paid in by the public. No backdoor must be left open where inflation can slip in.... It merely helps the rulers whose policies brought about the catastrophe to exculpate themselves....

[M]ost supporters of sound money do not want to go beyond the elimination of inflation for fiscal purposes.... [T]hey do not want to prevent... [private-sector] credit expansion for the sake of lending to business.... Their idea of sound money is... with all the errors of the British Banking School.... They still cling to the schemes whose application brought about the collapse of the European banking systems... discredited the market economy by generating the almost regular recurrence of periods of economic depression. There is no need to add anything to the treatment of these problems as provided in Part Three of this volume and also in my book Human Action.... [T]he characteristic duplicity of the [central] bank policy.... [Private-sector] credit expansion... obscure[s] the fact that there prevails a nature-given scarcity of the material things on which the satisfaction of human wants depends...

And we haven't even gotten to the Mussolini-love yet...

Two notes:

[1] This citation to Abba Lerner's Economics of Control omits the second half of Lerner's sentence, which reads: "if the raising of the money is the only consideration." Since the raising of the money is never the only consideration in designing a tax system, the meaning of Lerner's sentence is not the meaning that von Mises wants his readers to ascribe to it.

[2] Again, this citation to Beardsley Ruml's "Taxes for Revenue Are Obsolete" is a gross and illegitimate distortion. Ruml writes that while state and local governments must ultimately raise all the money to finance their spending through taxation, the federal government has extra freedom of action because of "the elimination, for domestic purposes, of the convertibility of the currency into gold." How should the government use this freedom of action? The first of the policy considerations it should have in mind, Beardsley Ruml says, is: "Do we want a dollar with reasonably stable purchasing power over the years?... [T]he most important single purpose ot be served by the imposition of federal taxes is the maintenance of a dollar which has stable purchasing power.... [W]ithout the use of federal taxation all other means of [price] stabilization... monetary policy... price controls... subsidies, are unavailing..." That is the opposite of what von Mises wants his readers to think Ruml's meaning is.

Douglas Holtz-Eakin: Newt Gingrich Is Not Just a Clown, He Is a Dangerous Clown

Douglas Holtz-Eakin on the leading candidate for the 2012 Republican Presidential nomination:

Gingrich Calls the CBO a "Reactionary Socialist Institution": Newt Gingrich had some tough words for the Congressional Budget Office, CNN reports:

Said Gingrich: "The CBO is a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that it has not internally generated."

Former CBO director Douglas Holtz-Eakin, a Republican, called the allegation "ludicrous."

Said Holtz-Eakin: "I think if you parse that phrase carefully, he got one out of three right. I do agree it is an institution. If you're playing baseball, that's a decent batting average."

Twitterstorm delong: November 21, 2011

  • dandrezner Daniel Drezner Has anyone broken the news to Sebastian Mallaby? RT @delong Mark Gongloff: "Hedge Funds Kiss Their Alpha Goodbye" 1 hour ago

  • alanbeattie Alan Beattie @ @delong But I'm descended from Vikings. My economics based on v long supply chains & rapid degradation of trading partners' capital stock. 2 hours ago

  • @hblodget: RT @delong: Pat Garofalo: "The Richest 0.1 Percent Of Americans Make Half Of All Capital Gains" 3 hours ago

  • RT @delong: Ezra Klein: "The do-nothing plan: now worth $7.1 trillion" 3 hours ago

  • dodsonadvocate Meredith Dodson MT @delong: Greg Sargent (@ThePlumLineGS): Debunking the conservative argument about the rich and taxes, in 3 charts 4 hours ago

  • JustinWolfers Justin Wolfers Gridlocked. RT @delong: Mark Thoma: "Where’s the Super Committee for Job Creation?" 5 hours ago

  • davidmwessel David Wessel RT @delong: Duncan Black: "There's a wee problem if we're living in daily fear of banking system destroying the world" 5 hours ago

  • RT @delong: David Frum: "When did the Republicans loe all touch with reality?" 11 hours ago

  • Wolfgang Munchau: "Austerity alone can’t save the euro" 19 hours ago

  • likeasecret Ben B @ @delong why does Frum keep insisting that Obama is increasing government? The only area he's increasing it in is in the area Frum likes

  • Atrios Atrios sorry i pepper sprayed you. i will work to ensure it does not happen again 17 minutes ago Retweeted by delong

  • pkedrosky Paul Kedrosky I want to see a website game called "ETF or Pharmaceutical?" where have to guess about names like Pelax. 14 minutes ago Retweeted by delong

  • delong J. Bradford DeLong " Mississippi Republicans... hypothetical match up between Abraham Lincoln and Jefferson Davis... 45-36" 1 hour ago

  • DavidCornDC David Corn Obama not triangulating. Notes Ds were willing to make entitlement concessions with him and Rs won't budge. 2 hours ago Retweeted by delong

  • delong J. Bradford DeLong @ @grossdm Why aren't you surprised that your political colleagues can't look at more than one market at a time? 2 hours ago

  • daveweigel daveweigel British intelligence has learned that @GroverNorrquist has sought enriched uranium, from Africa. #harryreidfacts 2 hours ago Retweeted by delong

  • delong J. Bradford DeLong Izabella Kaminska and Cardiff Garcia: "Jefferies: lies, damn lies and the anonymous hedge fund who tells them" 3 hours ago

  • delong J. Bradford DeLong Jonathan Wilmot: "The ‘Last Days’ of the Euro" #counterparties 4 hours ago

  • Adam Posen: "Central Bankers - Stop Dithering: Do Something" 5 hours ago

  • James Wimberly: "My rant on solar energy... Megan McArdle.... I´m rather miffed by the poor quality of the takedown" 5 hours ago

  • Duncan Black: The German Plan: Destroy the economies of all of the people who buy your crap. 2) ??? 3) Profit!! 6 hours ago

  • delong J. Bradford DeLong Things to Read by Keynes 7 hours ago

  • Edward Luce: "America is entering a new age of energy plenty" 20 hours ago

  • Atrios Atrios UC president might need to start pepper spraying chancellors #nonotreally Retweeted by delong

"As you know, UCB is part of a vast system--each campus of which has a police force that is bad in its own special way..."

$1.2 Billion Gone from MF Global #counterparties


Statement from the Office of the Trustee for the Liquidation of MF Global Inc.: James W. Giddens, Trustee for the liquidation of MF Global Inc., today reported that his current plan to distribute 60% of what should have been segregated in US depositories for all former customers with US futures positions will total nearly all of the assets currently under his control. The Trustee to date has brought approximately $3.7 billion under his control, all of which comes from the former US depositories of the broker-dealer. Having already distributed $1.5 billion in collateral, and currently distributing $520 million in cash, leaves approximately $1.6 billion on hand. The previously announced next step, restoring 60% of what is in segregated customer accounts for US futures positions, would require approximately $1.3 to $1.6 billion to implement; that is, virtually all of the assets currently under the Trustee's control. This next step is subject to Bankruptcy Court approval, and will be done in close cooperation with the CFTC, SIPC, and the CME. The Trustee expects this transfer to occur in early December, once the current transfer is complete and books and records are reconciled to allow it to happen.

Efforts to collect other funds from US depositories continue around the clock, and it is expected that the US funds available to the Trustee will increase in the coming weeks. At present, however, the Trustee does not have access to other funds beyond the $1.6 billion on hand, and he is very close to exhausting the funds under his control. Further complicating matters, assets located in foreign depositories for customers that traded in foreign futures are now under the control of foreign bankruptcy trustees, and while the Trustee will pursue them vigorously, it has been his experience that recovery of these foreign assets may take more time. The Trustee's counsel has also stated in open court that the Trustee has only relatively nominal proprietary - that is non-customer - assets in his immediate control.

The amount of assets the Trustee controls is a separate issue from the apparent shortfall in what former MF Global Management should have segregated. At present, the Trustee believes that even if he recovers everything that is at US depositories, the apparent shortfall in what MF Global management should have segregated at US depositories may be as much as $1.2 billion or more. The Trustee wants to stress that these are preliminary numbers that may well change, and the Trustee will update in due course. The Trustee's investigative team, consisting of counsel experienced in broker-dealer liquidations and expert consultants and forensic accountants from both Deloitte and Ernst & Young, continues around the clock in close coordination with the Department of Justice, the CFTC, the SEC, SIPC, the CME, and others.

The information in this statement does not apply to any other MF Global entity, including separate insolvency proceedings involving the parent company, MF Global Holdings Ltd.

SOURCE Office of the Trustee for the Liquidation of MF Global Inc.

Michael O'Hare: "University of California Protests and, um, Leadership"

Michael O'Hare:

University of California protests and, um, leadership « The Reality-Based Community: When the Alameda County Sheriff’s cops suited up in their riot armor and, AFAIK with our campus officers , beat a bunch of our students and faculty with batons, my chancellor was in Shanghai…. I don’t know who was nominally in charge and forgot to be in charge.  When the chancellor got back, he sent a remarkably tone-deaf and misinformed letter to everyone, regretting the injuries to police as though there were any…. The violence at Berkeley was mainly a major fail at high administrative levels. What’s genuinely astounding, however, is this, at Davis more than a week later….

The LA Times reports “the [Davis] chancellor initially didn’t criticize police but later said seeing the images ‘left me with a very bad feeling.’” Uh, huh. What is the matter with these people? What have they trained their subordinates to be?…

I hope our own chancellor gets out among his students and faculty, on his feet.  A couple of spam emails don’t cut it, and neither does his bizarre public demand that legislators from Sacramento come to Berkeley to debate education funding….

The president of the system has finally taken notice.  For some reason the chancellors have his “full trust and confidence” . But he’s “appalled”, and…calling a meeting with “full and unfettered discussion” – woah!  His board, the regents, are really out front; they cancelled their meeting last week fearing protest...

The Market Wants More Stimulus: Why Oh Why Can't We Have a Better Press Corps?: Yes, Rita Nazareth of Bloomberg News, We Are Looking at You Funny Because We Know You Can Do Better Department

Outsourced to Paul Krugman:

Fairy Tales: One repeated gripe I’ve had about news coverage in the Lesser Depression is the way deficit-hawk myths about markets are often reported as facts. Again and again, slight upticks in interest rates have been attributed — in news stories, not opinion pieces — to debt fears, despite the complete absence of any actual evidence to that effect.

Bloomberg today has an interesting twist: U.S. Futures Decline on Concern Supercommittee Won’t Agree on Budget Cuts. In reality, US rates are down, suggesting no increase in debt concerns whatsoever.

But if you read the Bloomberg piece carefully, what it actually says is that market players fear that the absence of a debt deal means no stimulus. So the actual fear is not that spending won’t be cut enough, it is that it will be cut too much — which actually makes sense, and is consistent with the action in stock and bond markets.

But how many readers will get that? The way it’s presented reinforces the false notion that the deficit is the problem.

In other news, markets have greeted Spain’s new government with a surge in borrowing costs; Spain and Italy are once again at near parity.

Quote of the Day: November 21, 2011

"This fall in [stock market] value[s] immediately afflicted only a few Americans. But so closely had the others watched the market and regarded it as an index of their fates that they suddenly stopped much of their economic activity."

--Eric Rauchway, The Great Depression and the New Deal

The Eurocrisis: Will Somebody Please Push the Big Red Button?

This morning a lot of people are not happy campers:

US Generic Govt 10 Year Yield  USGG10YR IND Index Performance  Bloomberg 3

S P 500 Index  SPX IND Index Performance  Bloomberg

Deutsche Borse AG German Stock Index DAX  DAX IND Index Performance  Bloomberg 1

German Government Bonds 10 Yr Dbr  GDBR10 IND Index Performance  Bloomberg


I confess that last August I thought that Ms. Market had overreacted.

I thought that the political costs to being the people on whose watch the Euro had crashed were so great that the administrators of Europe would take steps to make sure that it did not happen on their watch. I thought that Germany would guarantee a facility which would then borrow at 2.5% and buy peripheral eurobonds yielding 5%. I thought the facility would then make a ton of money as the ECB reflated the continent, and changed its inflation target from 1% for the eurozone as a whole to 2% for Germany (which means 3% or more for the eurozone as a whole).

Silly me.

And I confess that last August I was focused on risks to the U.S. recovery from domestic sources.

It seemed to me very clear that the Fed and the Treasury would announce that they would take steps and would in fact take steps to neutralize and offset any effects of the eurocrisis on aggregate demand in the U.S. That seemed a much smaller danger than that right-wing political pressure interested in choking off recovery would push the Fed into a much-too-austere monetary posture.

Silly me.

I do not (yet) know how much eurorisk is on the balance sheets of U.S.-relevant banks and shadow banks. I do not know what the tail of the distribution looks like. I do not know if we wind up in the tail how much of their eurorisk banks and shadow banks will be able to dump onto new entrants to the market who see a long-term bullish bet on Europe as an attractive one. I do not know if we wind up in the tail how much of American business will not be financed over the next year as banks feel constrained by their eurorisk.

I do not know what facilities the Fed and the Treasury have planned and have started setting up to deal with getting eurorisk off of Ms. Market's diminished risk-bearing capacity if we wind up in the tail. And I really ought to know this by now. In fact, everybody should know this by now: the argument that the Treasury and the Fed should not reveal their contingency plans because it would spook the markets is at least two-months past its sell-by date.

Haj Amin el-Husseini and Adolf Hitler Liveblog World War II: November 21, 1941

The Mufti’s Diary Entry on His Meeting with Hitler, Nov. 21, 1941:

The words of the Fuehrer on the 6th of Zul Qaada 1360 of the Hejira. Berlin, Friday, from 4:30 P.M. till a few minutes after 6:

The objectives of my fight are clear. Primarily, I am fighting the Jews without respite, and this fight includes the fight against the so-called Jewish National Home in Palestine because the Jews want to establish there a central government for their own pernicious purposes, and to undertake a devastating and ruinous expansion at the expense of the governments of the world and of other peoples.

It is clear that the Jews have accomplished nothing in Palestine and their claims are lies. All the accomplishments in Palestine are due to the Arabs and not to the Jews. I am resolved to find a solution for the Jewish problem, progressing step by step without cessation. With regard to this I am making the necessary and right appeal, first to all the European countries and then to countries outside of Europe.

It is true that our common enemies are Great Britain and the Soviets whose principles are opposed to ours. But behind them stands hidden Jewry which drives them both. Jewry has but one aim in both these countries. We are now in the midst of a life and death struggle against both these nations. This fight will not only determine the outcome of the struggle between National Socialism and Jewry, but the whole conduct of this successful war will be of great and positive help to the Arabs who are engaged in the same struggle.

This is not only an abstract assurance. [This is a reply to the insistent request of the Mufti for an Axis declaration to the Arabs.] A mere promise would be of no value whatsoever. But assurance which rests upon a conquering force is the only one which has real value. In the Iraqi campaign, for instance, the sympathy of the whole German people was for Iraq. It was our aim to help Iraq, but circumstances prevented us from furnishing actual help. The German people saw in them [the Iraqis] comrades in suffering because the German people too have suffered as they have. All the help we gave Iraq was not sufficient to save Iraq from the British forces. For this reason it is necessary to underscore one thing: in this struggle which will decide the fate of the Arabs I can now speak as a man dedicated to an ideal and as a military leader and a soldier. Everyone united in this great struggle who helps to bring about its successful outcome serves the common cause and thus serves the Arab cause. Any other view means weakening the military situation and thus offers no help to the Arab cause. Therefore it is necessary for us to decide the steps which can help us against world Jewry, against Communist Russia and England, and which among them can be most useful. Only if we win the war will the hour of deliverance also be the hour of fulfillment of Arab aspirations.

The situation is as follows: we are conducting the great struggle to open the way to the North of the Caucasus. The difficulties involved are more than transportation because of the demolished railways and roads and because of winter weather. And if I venture in these circumstances to issue a declaration with regard to Syria, then the pro-de Gaulle elements in France will be strengthened and this might cause a revolt in France. These men (the French) will be convinced then that joining Britain is more advantageous and the detachment of Syria is a pattern to be followed in the remainder of the French Empire. This will strengthen de Gaulle’s stand in the colonies. If the declaration is issued now, difficulties will arise in Western Europe which will cause the diversion of some [German] forces for defensive purposes, thus preventing us from sending all our forces to the East.

Now I am going to tell you something I would like you to keep secret.

First, I will keep up my fight until the complete destruction of the Judeo-Bolshevik rule has been accomplished.

Second, during the struggle (and we don’t know when victory will come, but probably not in the far future) we will reach the Southern Caucasus.

Third, then I would like to issue a declaration; for then the hour of the liberation of the Arabs will have arrived. Germany has no ambitions in this area but cares only to annihilate the power which produces the Jews.

Fourth, I am happy that you have escaped and that you are now with the Axis powers. The hour will strike when you will be the lord of the supreme word and not only the conveyer of our declarations. You will be the man to direct the Arab force and at that moment I cannot imagine what would happen to the Western peoples.

Fifth, I think that with this Arab advance begins the dismemberment of the British world. The road from Rostov to Iran and Iraq is shorter than the distance from Berlin to Rostov. We hope next year to smash this barrier. It is better then and not now that a declaration should be issued as (now_ we cannot help in anything.

I understand the Arab desire for this [declaration], but His Excellency the Mufti must understand that only five years after I became President of the German government and Fuehrer of the German people, was I able to get such a declaration [the Austrian Union], and this because military forces prevented me from issuing such a declaration. But when the German Panzer tanks and the German air squadrons reach the Southern Caucasus, then will be the time to issue the declaration.

He said (in reply to a request that a secret declaration or a treaty be made) that a declaration known to a number of persons cannot remain secret but will become public. I (Hitler) have made very few declarations in my life, unlike the British who have made many declarations. If I issue a declaration, I will uphold it. Once I promised the Finnish Marshal that I would help his country if the enemy attacks again. This word of mine made a stronger impression that any written declaration.

Recapitulating, I want to state the following to you: When we shall have arrived in the Southern Caucasus, then the time of the liberation of the Arabs will have arrived. And you can rely on my word.

We were troubled about you. I know your life history. I followed with interest your long and dangerous journey. I was very concerned about you. I am happy that you are with us now and that you are now in a position to add your strength to the common cause.

Department of "Huh?!": University of Chicago Tax Facts Edition

One way to know that you are in the spin zone is if you are given a definite answer to a vaguely-phrased politically-important question that has different answers depending on precisely how it is phrased.

The University of Chicago Business School enters the spin zone:

The top 1% of Americans earn roughly 20% of income. The top 1% are roughly the people who pay the top income tax bracket. According to CBPP, the expected current law deficit over the next ten years averages 2% of GDP. The expected current policy deficit over the next ten years averages 10% of GDP.

The University of Chicago asks:

The cumulative budget shortfalls in the US over the next 10 years can be reduced by half (or more) purely by increasing the federal marginal tax rate on ordinary income for those in the top tax bracket.

This is, I think, a bad question. "Current law" or "current policy deficits? Where does the "half" come from? Where does the "ordinary income" come from? It smells as though the issue the question is supposed to address is whether most of the work in balancing federal spending commitments with taxes can be performed by burdening the top 1% with additional taxes. But that is not an issue that this question--as vaguely asked as it is-- can address. The devil is in the details:

  • Let the question be: "Can the cumulative current policy budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing the federal tax rate on ordinary income for those in the top bracket?" The answer is: almost surely not. You have to raise an extra 5% of GDP, and once you take out capital gains, tax avoidance, and genuine supply-side effects there is not enough blood in that particular stone. Starting from current policy, most of the work in balancing federal spending commitments with taxes could not be performed by burdening the top 1% with additional taxes on ordinary income.

  • Let the question be: "Can the cumulative current policy budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing federal taxes for those in the top bracket?" The answer is: almost surely yes. But it would be a silly policy to load that much of the burden on that small slice of population and income, but there is plenty of income and even more wealth to tax. Starting from current policy, most of the work in balancing federal spending commitments with taxes could be performed by burdening the top 1% with additional taxes, but it would be very silly to do so.

  • Let the question be: "Can the cumulative current law budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing the federal tax rate on ordinary income for those in the top bracket?" The answer is: certainly yes. The current-law deficits over the next ten years are trivial--the worry comes from the fear and expectation that the Congress is going to take steps that actively bust PAYGO, not that gridlock plus autopilot are steering us to disaster. Starting from current law, most of the work in balancing federal spending commitments with taxes could certainly be performed by burdening the top 1% with additional taxes.

  • Let the question be: "Can the cumulative current law budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing federal taxes for those in the top bracket?" The answer is: certainly yes. The current-law deficits over the next ten years are trivial--the worry comes from the fear and expectation that the Congress is going to take steps that actively bust PAYGO, not that gridlock plus autopilot are steering us to disaster. Starting from current law, most of the work in balancing federal spending commitments with taxes could certainly be performed by burdening the top 1% with additional taxes on their ordinary income.

It is, I think, important to distinguish between these four questions that normal readers might think Chicago Business School is asking. They are different questions--and they do have different answers.

The winning economists here, I think, are those who don't answer, or who say that the answer is "uncertain": Katherine Baicker, Judy Chevalier, David Cutler, Angus Deaton, Darrell Duffie, Ray Fair, Claudia Goldin, Austin Goolsbee, Caroline Hoxby, Eric Maskin, and Ceci Rouse.

DeLong Smackdown Watch Smackdown Watch: Maynard Handley on Low-Information Bloggers, Readers, Voters, and Journalists

Hoisted from Comments: Maynard Handley:

Maynard Handley said in reply to John Emerson...: John is 100% and Susan is being ridiculous.

Sure, there is a minuscule fraction of American society that knows the code language that is being used here and understands it --- a fraction of society that lives and breathes politics and journalism. There is also a VASTLY LARGER fraction of America that tries to be informed, but which has as its primary concerns the newest developments in medicine, or chemistry, or computer languages, or ...

To simply sneer that these people are also Low Information Voters, that they would never read the NY Times, is stupid and destructive, and comes across as the same sort of self-obsessed pleading that we keep seeing from our financial masters. Solidarity uber alles is not attractive in cops, it's not attractive in soldiers, and it's not attractive in (supposed) journalists.

Twitterstorm delong: November 20, 2011

  • PaulHRosenberg Paul Rosenberg @delong is wrong, Douthat (amazingly!) is right: Reason: Technocrats ARE ideologues. DeLong's ideal ones don't exist. 10 hours ago

  • RT @delong: Jim Romanesko: "How I ended up leaving Poynter" 10 hours ago

  • interfluidity Steve Randy Waldman Now @delong seconds @ModeledBehavior — currency war with the Europeans, the collateral "damage" might save the world! 18 hours ago

  • maliniw90th Malini Nair Kayyalam William Nordhaus on the history of Energy Policy in the US : via @delong 23 hours ago

  • thinkprogress ThinkProgress "I am appalled by images of University of California students being doused with pepper spray" - UC President Mark Yudof 4 hours ago Retweeted by delong

  • tomtomorrow Tom Tomorrow There's a technical term for societies in which citizens do not feel entitled to question actions of police: it is called a "police state." 4 hours ago Retweeted by delong

  • Atrios Atrios UC president might need to start pepper spraying chancellors #nonotreally 4 hours ago Retweeted by delong

  • mark_yudof Mark G. Yudof I intend to do everything in my power as President to protect the rights of our students, faculty & staff to engage in non-violent protest. 4 hours ago Retweeted by delong

  • mark_yudof Mark G. Yudof I am appalled by images of University of California students being doused with pepper spray and jabbed with police batons on our campuses. 4 hours ago Retweeted by delong

  • GlennF Glenn Fleishman @ @xeni Reporting < blogging < tweeting < forwarded text messages apparently. 4 hours ago Retweeted by delong

  • tnielsenhayden tnielsenhayden We are all potentially Peter Watts, and have been for some time now. #OWS 5 hours ago Retweeted by delong

  • MarkThoma Mark Thoma Summers: We Have to Do Better on Inequality 5 hours ago Retweeted by delong

  • xeni Xeni Jardin One of the brave #UCDavis student journalists who covered the pepper-spraying and "Walk of Shame" is now facing punitive action by UCD. 5 hours ago Retweeted by delong

  • delong J. Bradford DeLong Hyun Song Shin: The Global Banking Glut and Loan Risk Premium 6 hours ago

  • mattyglesias mattyglesias If Congress stays gridlocked, deficit will go way down. Risk is that Congress will affirmatively extend misguided current policies. 7 hours ago Retweeted by delong

  • Atrios Atrios probably public shaming is the best to be hoped for: linda katehi is the worst person in the world and all who know her should show disgust 12 hours ago Retweeted by delong

  • mattyglesias mattyglesias I think people weren't clamoring for Italian debt reduction in 2006 b/c Italy's debt was declining: 12 hours ago Retweeted by delong

  • delong J. Bradford DeLong Three winners of Republican debate: Huntsman, Romney, Obama 19 Nov »

  • MSignorile Mike Signorile Rick Perry: I've been at war for 10 years (with Mexico). Yes, he said that. #tff11 19 Nov Retweeted by delong

But… But… But…: Dealing with von Mises Department

Daniel Kuehn:

Facts & other stubborn things: Brad DeLong issues a challenge to Austrians: [M]y interpretation of Mises is somewhat different from [Brad's]. Mises, following Menger, clearly doesn't have a cost of production theory of value. It's really much simpler than that. It's not that gold mining is more genuine because you have to work at it. It's simply that gold represents a fixed measure of value. And for Mises, not only is that acceptable - it's preferable. Otherwise, adjustments of the money supply create the illusion of artificial wealth, which for Mises would distort market signals…

But… but… but… If the cost of mining gold falls and we mine more gold and have more gold coins, the money stock has increased and we have the illusion of artificial (non-gold) wealth, which for von Mises ought indeed to distort market signals. Improved gold mining technology ought, for von Mises, to be as bad a thing as running a printing press.

But it very clearly isn't. I have found nothing anywhere in the Austrian corpus about the baneful effects of improvements in gold mining technology, and how they invariably lead to an Austrian boom-bust cycle--how a gold discovery distorts market signals and creates the illusion of artificial wealth just as any other monetary expansion does.

The point is that gold is not a fixed measure of value. Value is stuff that keeps you fed, warm, dry, and entertained. You can't eat gold. It doesn't keep you warm. (You could hammer it into a tent, I suppose--and it does serve as a source of amusement.) The price of gold in terms of commodities that yield utility varies--just as the price of fiat money in terms of commodities that yield utility varies.

Department of "Huh?!": John Taylor and Milton Friedman's Monetary Policy Edition

Milton Friedman, 1998: the Bank of Japan should buy bonds for cash and keep doing so until the Japanese economy recovers:

Reviving Japan: The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it. That would make much-needed financial and economic reforms far easier to achieve…. The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately…

That is an example of Milton Friedman advocating a "target rule".

Now comes John Taylor to claim that Milton Friedman did not advocate "target rules":

Economics One: More on Nominal GDP Targeting: [A]s Amity Shlaes argues in her recent Bloomberg piece, NGDP targeting is not the kind of policy that Milton Friedman would advocate. In Capitalism and Freedom, he argued that this type of targeting procedure is stated in terms of “objectives that the monetary authorities do not have the clear and direct power to achieve by their own actions.” That is why he preferred instrument rules like keeping constant the growth rate of the money supply. It is also why I have preferred instrument rules, either for the money supply, or for the short term interest rate…

First, John Taylor should not cite Amity Shlaes as an authority on Milton Friedman's thought (or on anything else, come to think about it). That is simply wrong. Shlaes is one of those most willing to sacrifice contact with reality in order to advance what she thinks are the current goals of Team Republican. Remember her 2005:

Bush has learnt to ride the storm: [I]s President George W. Bush's foreign policy affecting the federal government's response to New Orleans? Did America react differently to Katrina because it was thinking about Iraq?… [T]he fact that the country and President Bush personally were already mobilised for disaster has saved lives…. September 11 changed Mr Bush and the country…. The level of preparedness for a giant storm may not have been obvious outside the country. But the US was prepared for Katrina. All the old and new federal offices worked together and confronted the storm early…

Second, Milton Friedman--if he were here--would almost surely say that John Taylor's claim that the Federal Reserve "do[es] not have clear and direct power to [boost nominal GDP] by their own actions" is simply wrong. The Fed, he would say, does have the power to do so. What the Fed does not have the power to do , Milton Friedman would say, is to keep the unemployment rate at an average of 4% or real GDP growing at an average of 5%/year.

What Friedman objected to was target rules focused on real outcomes. Friedman, at least by the 1990s, definitely approved of favor of target rules focused on nominal outcomes.

Yet Another New York Times Fail: Ross Douthat Department

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

Ross Douthat:

Conspiracies, Coups and Currencies: [F]or the inhabitants of Italy and Greece, who have just watched democratically elected governments toppled by pressure from financiers, European Union bureaucrats and foreign heads of state, it evokes the cold reality of 21st-century politics. Democracy may be nice in theory, but in a time of crisis it’s the technocrats who really get to call the shots. National sovereignty is a pretty concept, but the survival of the European common currency comes first…

(1) The democratically-elected representatives of the Greek and the Italian people voted to change the prime minister. They can do that. That is part of their democratic process. They voted to change the prime minister because they wanted their countries to borrow money--and the people who they wanted to borrow money from were very unwilling to lend it to governments headed by Papandreou and Berlusconi but willing to lend it to governments headed by Papademos and Monti.

Does Ross Douthat really believe that there ought to be a law saying that lenders must lend to a country's government whenever that country wants to borrow on terms that the country's government sets? He simply has not thought any of this through.

(2) Those who are calling the shots in Europe right now are in no wise "technocrats": technocrats would raise the target inflation rate in the eurozone and buy up huge amounts of Greek and Italian (and other) debt conditional on the enactment of special euro-wide long-run Fiscal Stabilization Repayment Fund taxes. These aren't technocrats: they are ideologues--and rather blinders-wearing ideologues at that.

For-Profit Universities and Standardized Testing: Demonic Instrumentalities of Satan or Just Totally Sucky?

Matthew Yglesias writes:

Important Programming Announcement: "I’ve been offered, and have accepted, an exciting new job opportunity with Slate where I’ll be blogging and column-writing (columnizing?) about economics, business, and economic policy as the latest incarnation of Moneybox…. The blog will continue as is through Friday, Nov. 18, which will be my last day with ThinkProgress, and then on Monday the 21st, I’ll be working at Slate…

One of the true and important points that Matt periodically makes is that America gets extremely low value for the money it spends--in student fees and government subsidies--on private for-profit testing operations and universities like Stanley Kaplan. Starting on Monday the 21st, that will be the source of a portion of his salary. It will be interesting to see whether we see a rise or a fall in the frequency of Yglesias weblog posts headlined: "For-Profit Universities and Standardized Testing: Demonic Instrumentality of Satan or Just Totally Sucky?"

I've bet a not completely insignificant sum of money on the "over"...

Quote of the Day: November 20, 2011

"In less than a century after the barbarian nations settled in their new conquests, almost all the effects of the knowledge and civility, which the Romans had spread through Europe, disappeared. Not only the arts of elegance, which minister to luxury, and re supported by it, but many of the useful arts, without which life can scarcely be contemplated as comfortable, were neglected or lost."

--Bryan Ward-Perkins, The Fall of Rome: And the End of Civilization

Liveblogging World War II: November 20, 1941

World War II Day-By-Day: Day 812 November 20, 1941:

Operation Crusader. 15th Panzer Division finally responds to the concentration of British tanks in the desert but arrives to find only 4th Armored Brigade at Gabr Saleh. The heavier German tanks decimate the thinly-armored American M3 ‘Stuart’ tanks. The Stuarts often explode when hit, due to volatile aviation fuel used to power the Continental R-670 7-cylinder radial engine. 15th Panzer Division then withdraws back towards Tobruk, followed by the remaining tanks of 4th and 22nd Armored Brigades. Overnight, British cruisers HMS Ajax & HMS Neptune and Australian cruiser HMAS Hobart shell German positions at Bardia.

Twitterstorm delong: November 19, 2011

  • Duncan Black: "The Worst Person In The World: UC Davis Chancellor Katehi" 2 minutes ago

  • delong J. Bradford DeLong Three winners of Republican debate: Huntsman, Romney, Obama 5 hours ago

  • MSignorile Mike Signorile Rick Perry: I've been at war for 10 years (with Mexico). Yes, he said that. #tff11 6 hours ago Retweeted by delong

  • digby56 digby It's painful to see Cain badly try to defend states' rights. On so many levels. 8 hours ago Retweeted by delong

  • Lee Fang: "The Second Alarm" 9 hours ago

  • brianstelter Brian Stelter 2 photos of the public bearing witness, w/ their phones, to the pepper-spraying of Occupiers: & 10 hours ago Retweeted by delong

  • dsquareddigest Dan Davies Remember that for central bankers, "credibility" = "anti inflation ideologue". The concept of "being credible" has no part in the definition 11 hours ago Retweeted by delong

  • afrakt Austin Frakt It's hard to take seriously a claim of preference for markets made by those unwilling to entertain changes in income redistribution. 15 hours ago Retweeted by delong

  • Anusha Shrivastava: "Fed’s Williams: Fiscal Policy Actions ‘Badly Needed’" 15 hours ago

  • ezraklein Ezra Klein Paul Ryan’s inequality plan increases inequality: 15 hours ago Retweeted by delong

  • William D. Nordhaus: "Energy: Friend or Enemy?" 15 hours ago

  • Henry Farrell: "The ECB and the Davies Folk Theorem" 18 Nov

  • emptywheel emptywheel Congress and the Administration Agree: the Government Can Indefinitely Detain US Citizens 18 Nov Retweeted by delong

  • klhoughton klhoughton Biggest winner after UC-Davis: Robert "locking arms is not nonviolent protest" Birgeneau, who was Calmesed by @delong 8 hours ago

  • fafner100 Kanishka Jayasuriya @ @delong Except that if the ECB fails to act decisively as lender of last resort there is no long term credibility to worry about. #FB

Matthew Yglesias: Competitiveness In A Currency Union and Fiscal Transfers in a Federal Nation


Competitiveness In A Currency Union: Is it reasonable to expect German taxpayers to make a potentially unlimited commitment to fiscal transfers to Spain and Italy?…

Kentucky (population 4.3 million) and the San Francisco / Oakland / Fremont Metropolitan Statistical Area (population 4.3 million) do share a currency. They do this despite the fact that Kentucky has a longstanding lack of competitiveness relative to San Francisco. Eighty-seven percent of San Franciscans have high school degrees compared to just 80 percent in Kentucky. Forty-three percent of San Franciscans have bachelor’s degrees to just 20 percent of Kentuckians. Not surprisingly, San Francisco’s workers are much more productive, earning a median household income of $74,000 to Kentucky’s $40,000.

The way this is made to work is by long-term, sustained, open-ended financial transfers to Kentucky. Overall taxation in the United States is not very redistributive because state and local governments use regressive tax bases. But that means that federal taxes and transfers — i.e., the ones that matter for the SF/Kentucky relationship — are highly redistributive. Hard work, prudent investment, and human capital development in San Francisco are taxed….

[I]t’s not just poor people in Kentucky who are winning out in this arrangement. Kentucky is full of doctors and hospital administrators who think of themselves as hard working, highly educated professionals working in the private sector. But they’re living in a dreamland where their customers can afford their services thanks to taxes paid in San Francisco. Absent Medicare and Medicaid, health care professionals in Kentucky would see their incomes plummet with secondary consequences for the people who those professionals buy goods and services from.

Nor does San Francisco demand any kind of conditionality for this assistance.

Kentucky is not, to my knowledge, doing anything on the structural side to ameliorate its fundamental lack of competitiveness.

What’s more, the structure of San Francisco to Kentucky transfers is perverse. If Kentucky implements new bad anti-growth policies, it will get more transfers from San Francisco. If it improves its policies and finds a way to grow, the transfers will diminish.

And yet, while there of course are people who argue for making the tax code more regressive, for cutting Medicare, and for cutting Medicaid there’s nobody who runs for office by objecting to SF/Kentucky transfers as such. What we have is a classic left-versus-right dispute about progressive taxation and income redistribution. That’s because Americans, whether in San Francisco or in Kentucky, generally conceive of ourselves as all living in one country. We act either on behalf of narrow personally selfish claims or else broad idealistic concerns about what’s right and proper for the country as a whole. But if that spirit broke down, the whole national economy would have a very different feel.

The Downward Spiral of Europe Continues: What Is to Be Done? Department

Paul Krugman:

Incredible Europeans: Right now, the ECB has too much credibility on the inflation front; the spread between German nominal and real interest rates, which is an implicit forecast of the inflation rate, is pointing to disastrously low medium-term inflation:

I.e., inflation of 1.24%/year in the eurozone.


On the other hand, there has been a severe loss of credibility in the promises of European governments other than Germany to repay their debts. There are strong self-fulfilling aspects to this crisis of confidence — which is why Europe desperately needs the ECB to act as lender of last resort, and short-circuit the vicious circles.

The spread between German and Spanish 10-year bonds is now 4.41%/year--which if you expect a 40% depreciation from Spain in the event of a Euro breakup, gives you a 110% risk-neutral measure of a Euro breakup. (Yes, I know: risk-neutral measures aren't probabilities: they are probabilities of different states of the world multiplied by marginal utilities of wealth in those states normalized to add up to 100%. They are still useful things to calculate.)

Paul concludes:

[T]he ECB will defend its credibility. And it will end up as the highly credible defender of the value of a currency that no longer exists.

At this stage, it really does seem to me that the best thing the United States could do for Europe--and also for itself--would be for Tim Geithner to announce that a weak dollar is in America's interest.

The hope is that would change the European Oligarchs from focusing on how credibility requires monetary and financial austerity to focusing on how competitiveness requires monetary and financial expansion. I would give it a 50%-50% chance of working.

Obama and Romney Could Solve Our Long-Run Government Financing Problems with a Single Press Conference Today

They meet. They announce that each of them pledges to veto any bill that increases the projected national debt over the ten years after its enactment. They announce that they will each work as hard as they can to make sure that whatever candidates their parties nominate for president in the future will make the same pledge--and that they will campaign and vote against any candidate who doesn't.

Then they each lay out the PAYGO-conforming legislation that they wish Congress would pass in order to make the "Congress does nothing" plan less painful.

Problem solved.

Ezra Klein:

The do-nothing plan: now worth $7.1 trillion: James Horney of the Center on Budget and Policy Priorities… says the do-nothing plan would now lead to $7.1 trillion in deficit reduction — more than even the Fiscal Commission envisioned. Here’s how it breaks down:

  • $3.3 trillion from letting temporary income and estate tax cuts enacted in 2001, 2003, 2009, and 2010 expire on schedule at the end of 2012 (presuming Congress also lets relief from the Alternative Minimum Tax expire, as noted below);

  • $0.8 trillion from allowing other temporary tax cuts (the “extenders” that Congress has regularly extended on a “temporary” basis) expire on schedule;

  • $0.3 trillion from letting cuts in Medicare physician reimbursements scheduled under current law (required under the Medicare Sustainable Growth Rate formula enacted in 1997, but which have been postponed since 2003) take effect;

  • $0.7 trillion from letting the temporary increase in the exemption amount under the Alternative Minimum Tax expire, thereby returning the exemption to the level in effect in 2001;

  • $1.2 trillion from letting the sequestration of spending required if the Joint Committee does not produce $1.2 trillion in deficit reduction take effect; and

  • $0.9 trillion in lower interest payments on the debt as a result of the deficit reduction achieved from not extending these current policies….

[A]ll we need to do to solve our deficit problem — or, more accurately, avoid creating one — is to enforce PAYGO rules in Congress.

Quote of the Day: November 19, 1941

"The dirty little secret of what used to be known as Wall Street securities firms—Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns—was that every one of them funded their business in this way to varying degrees, and every one of them was always just twenty-four hours away from a funding crisis. The key to day-to-day survival was the skill with which Wall Street executives managed their firms' ongoing reputation in the marketplace."

--William Cohan, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

Edward Luce Says the Czar Needs New Cossacks: What Is Barack Obama Thinking Department?

Ed Luce:

Mr President, it’s time to panic: A few weeks ago, James Carville… had a choice word of advice for Barack Obama: “panic”. The president was heading to disaster in 2012 with the same crew of advisers that had led him up this blind alley. “Mr President, your hinge of fate must turn,” Mr Carville said. “This may be news to you but things are not going well.” Thus, Mr Obama should “fire a lot of people” and set a new course…. In his reluctance to change his kitchen cabinet, Mr Obama is an exception – indeed, his campaign inner circle is actually strengthening its grip on the White House. The group, which most prominently includes Valerie Jarrett, the longstanding Chicago friend and mentor to the Obamas; David Plouffe, the 2008 campaign manager; and David Axelrod, who is now shepherding Mr Obama’s re-election campaign from Chicago, last week clipped the wings of Bill Daley, the president’s hapless chief of staff….

Ever hopeful that the president will reclaim what they see as his true liberal mantle, disillusioned supporters put a different gloss on last week’s reshuffle – as the welcome conclusion to a year of fruitless attempts at bipartisanship. A former executive at JPMorgan, Mr Daley was appointed in the wake of the Democratic party’s “shellacking” in last year’s congressional elections – the heaviest midterm defeat in 70 years. His job was to build bridges with the newly victorious Republicans and to mollify an alienated business community. Neither has gone well. The president’s deepest humiliation came in the wake of the debt ceiling debacle in September…. As for Mr Daley’s charm offensive with business leaders, he did not even succeed with his friend Jamie Dimon, the chief executive of JPMorgan on whose board he had served….

Mr Obama’s campaign team has rejected every transplant he has tried – even ones from Chicago, such as Mr Daley and Rahm Emanuel, his predecessor…. The plain fact is that Mr Obama prefers to campaign than govern. With the entrenched inner circle that he has, no one should be surprised by this. Whether or not Mr Obama can eke out a victory next year, it would be optimistic to expect things to change radically in a second term.

From my perspective, it is fine--not optimal, but fine--that Barack Obama is not a liberal. Somebody pursuing effective technocratic centrist policies that work would be an enormous asset to the world right now.

The fear of all of us is that Obama is not just not a liberal, but that he is not a technocrat--and not a particularly good manager either. If you judge policies not by whether they work but by whether centrist worshippers of bipartisanship approve of them, don't be surprised to find yourself up to your neck...

Twitterstorm delong: November 18, 2011

  • SteveMcBarks SteveMcBarks @ Big Shovel is at it again RT @delong: "Deutsche: If Merkel Doesn't Budge, 'Our Investment Advice Is To Dig A Hole In The Ground And Hide'" 7 hours ago

  • GMRobertson GMRobertson @ @delong Economist is doing a very poor job of late of putting this into any historical context - purely technical 8 hours ago

  • bjkeefe bjkeefe @ @delong In fairness, 98% of them like nothing finer than saying "I can't even balance my checkbook! LOL!" #innumeracy 20 hours ago

  • rootless_e rootless .@delong You ask a good question: why wasn't PPIP expanded? But maybe answer is that Paul Krugman launched a really confused attack on it 22 hours ago

  • traderscrucible TradersCrucible @ @delong Anyone who supports free banking after MF Global simply isn't paying attention to the real world.

  • emptywheel emptywheel Congress and the Administration Agree: the Government Can Indefinitely Detain US Citizens 3 hours ago Retweeted by delong

  • jkbloodtreasure jamie k Great Patriotic War Nerds: amazing photosets from occupation of Minsk here and here #comeandsee 2 hours ago Retweeted by delong

  • @DemocratMachine: #Libya was partitioned. It will be split between the Taliban, Al-Qaeda and the Democrat Machine #CainForeignPolicyFacts" 2 hours ago

  • ThePlumLineGS Greg Sargent Smart points from @jbplainblog about what it means that Dems hung tough and defeated BBA today: 3 hours ago Retweeted by delong

  • grossdm Daniel Gross fiscal clown show getting even more fiscal clown showier 3 hours ago Retweeted by delong

  • brookejarvis Brooke Jarvis "When you say, 'get a job,' you're really saying, 'I have no idea what America is like right now.'" 8 hours ago Retweeted by delong

  • jayrosen_nyu Jay Rosen The e-mail rumor mill circulating politically salient untruths is largely a conservative phenomenon. Why is this? 8 hours ago Retweeted by delong

  • EricBoehlert Eric Boehlert hay-o!! RT @TPM Talking Barney Frank: "I thought the Gingrich Group was his wives" 11 hours ago Retweeted by delong

  • pdacosta Pedro da Costa Nikkei falls below 8,400 on euro zone bond woes 19 hours ago Retweeted by delong

  • pdacosta Pedro da Costa French/German 10-year yield spread hits 200 bps 19 hours ago Retweeted by delong

  • RT Dutch_Book: Joe Nocera talking Paterno on Charlie Rose. Glad to see every NYT employee is an expert on every goddamn thing all the time. 21 hours ago

  • paulsolman Paul Solman As for the China of the 1980s: Japan's Nikkei at 8385 as I twit. High? 39,000 in 1990. So it's lost almost 80% of its value - over 21 YEARS! 21 hours ago Retweeted by delong

  • tgoodnight tgoodnight RT @LOLGOP CORRECTION: RomneyCare and ObamaCare aren't exactly the same. RomneyCare covers abortions. 23 hours ago Retweeted by delong

  • sparksjls Jason L. Sparks Fortunately ObamaCare also requires all 7' doctors to register with the IRS, so there should be no trouble tracking the guy down. 21 hours ago Retweeted by delong

  • mikeconrad1 Mike Conrad @ @brianbeutler @thinkprogress "A cartwheeling midget lawyer told me Obama was definitely born in Kenya." 22 hours ago Retweeted by delong

  • GSElevator GS Elevator Gossip #1: Protesters are dressing in suits as a disguise. #2: Ironic. They can only afford those shitty Donald Trump brand suits at Macy's. 17 Nov Retweeted by delong

Econ 24-1: The European Financial Crisis: Readings for November 18, 2011

  • Edward Carr: Staring into the abyss | The Economist; plus the additional pages in his special report: A very short history of the crisis, Destructive creation, In theory, Beyond the fringe, The Nico and Angela show, Look at it this way, Making do.

DeLong Smackdown Watch: Susan Rasky Defends Jackie Calmes's Aesopian Discourse

Susan Rasky:

Brad - I'm not sure it's the Low Information Voter who will be confused by the reporting in the NYT, especially inside the budget debate reporting. The LIV is getting his or her budget information from TV, maybe talk radio, or more likely not at all, which is why he/she is LIV in the first place.

It is the elite reader you are really worrying about here (and that's fine), but the problem has little to do with the current state of the news industry. Friedman is a columnist and not bound by the rules that govern reporters. It would be nice if he did his homework, but I don't think elites look to him for first line reporting on Administration domestic policy.

Jackie is playing the game she has to convey her main point - lots of smart people are furious at the Treas. Sec. She's trying to advance a story important to High Info Voters (yikes, HIV) They'll get it, and Tim G's a big boy.

Jim McClure could have used a better edit. He works for a wire service, and he's running a mile a minute to beat his competition, and fortunately for the HIV, he will probably do a write thru where he has a chance to put in more context.

If you are truly worried about the Low Information Voter, or the fate of democracy when so many of us are LIV's, that's a whole different conversation. rasky

Estimating Multipliers: Sub-National Cross-Sectional Studies Are a Perfectly Good Way to Produce a Lower Bound to the Constant Financial Conditions Multiplier

I think sub-national cross-sectional studies are a perfectly good way of producing a lower bound to the constant financial conditions multiplier. It is a lower bound because it does not capture demand spillover effects--and at the sub-national level those are bound to be large. It is a constant financial conditions multiplier because all regions of a country share the same financial conditions--thus it estimates what the multiplier would be if the central bank's reaction function was to keep financial conditions constant as the government spending and debt issuance too hold.

You may not want a lower bound to the constant financial conditions multiplier. But I think it is a perfectly fine thing to want to know. And sub-national cross-sectional studies produce perfectly fine estimates of it.

Daniel Kuehn:

Facts & other stubborn things: Krugman is wrong to say that sub-national cross-sectional studies are good for estimating multipliers…. (1) Demand spillover means that any impact on demand in one unit is going to raise demand in other units. It's not just interstate commerce either, particularly since Krugman is looking at county-level data here…. (2) One of the most important impacts of fiscal stimulus is what it does in the loanable funds market. This market is national (international, actually), so it's going to be a wash in county-level comparisons….

Nakamura and Steinsson ask… "what is the impact of fiscal policy for geographic sub-units within a monetary union" (presumably with Europe in mind). If that's what you're interested in, then county-level comparisons are a great idea…. [T]his is a very appropriate use of county-level comparisons. That does not mean that Krugman is right to praise the method in general. It's certainly no good for measuring the effects of ARRA - as some have tried to do….

This [other] county-level analysis by Sufi and Mian… can verify the importance of balance sheets as one link in the chain…. Unless Krugman claims "tight money is definitely not the problem here", he doesn't seem to have said anything out of line with respect to the Sufi and Mian study. Krugman is quite sympathetic to the idea that tight money causes recessions, I think.

What readers need to be careful of, though, is assuming that geographical sub-unit analysis is a panacea for multiplier estimation - it's not.