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December 2011

"Ricardian Equivalence" Is a Claim That Tax Cuts Are Ineffective Stimulus, Not That Spending Increases Are

I learned this from Andy Abel and Olivier Blanchard before my eyes first opened: increases in government purchases are ineffective only if (a) "Ricardian Equivalence" holds and (b) what the government buys (and distributes to households) is exactly what households would buy for themselves. RE by itself doesn't do it.

Paul Krugman:

A Note On The Ricardian Equivalence Argument Against Stimulus (Slightly Wonkish): There have been a lot of shockingly bad performances among macroeconomists in this crisis; but if I had to pick the one that is most startling, it is the way freshwater economists have demonstrated that they don’t understand one of their own doctrines, that of Ricardian equivalence. Ricardian equivalence says… a temporary tax cut won’t stimulate spending, because people will figure that whatever they gain now will be offset by higher taxes later. It is a dubious doctrine even done right; many people are liquidity constrained, and very few people have the knowledge or inclination to estimate the impact of current government budgets on their lifetime tax liability. But… it does NOT imply that government spending on, say, infrastructure will be met by offsetting declines in private spending. In other words, Robert Lucas was betraying a complete misunderstanding of his own doctrine when he said this:

If the government builds a bridge, and then the Fed prints up some money to pay the bridge builders, that’s just a monetary policy. We don’t need the bridge to do that. We can print up the same amount of money and buy anything with it. So, the only part of the stimulus package that’s stimulating is the monetary part.

But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.

This remark was followed, by the way, by a smear against Christy Romer:

Christina Romer — here’s what I think happened. It’s her first day on the job and somebody says, you’ve got to come up with a solution to this — in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning.

So she scrambled and came up with these multipliers and now they’re kind of — I don’t know. So I don’t think anyone really believes. These models have never been discussed or debated in a way that that say — Ellen McGrattan was talking about the way economists use models this morning. These are kind of schlock economics.

Maybe there is some multiplier out there that we could measure well but that’s not what that paper does. I think it’s a very naked rationalization for policies that were already, you know, decided on for other reasons.

I’ve tried to explain why Lucas and those with similar views are all wrong several times, for example here. But it just occurred to me that there may be an even more intuitive way to see just how wrong this is: think about what happens when a family buys a house with a 30-year mortgage.

Suppose that the family takes out a $100,000 home loan (I know, it’s hard to find houses that cheap, but I just want a round number). If the house is newly built, that’s $100,000 of spending that takes place in the economy. But the family has also taken on debt, and will presumably spend less because it knows that it has to pay off that debt.

But the debt won’t be paid off all at once — and there’s no reason to expect the family to cut its spending right now by $100,000. Its annual mortgage payment will be something like $6,000, so maybe you would expect a fall in spending by $6000; that offsets only a small fraction of the debt-financed purchase.

Now notice that this family is very much like the representative household in a Ricardian equivalence economy, reacting to a deficit financed infrastructure project like Lucas’s bridge; in this case the household really does know that today’s spending will reduce its future disposable income. And even so, its reaction involves very little offset to the initial spending.

How could anyone who thought about this for even a minute — let alone someone with an economics training — get this wrong? And yet as far as I can tell almost everyone on the freshwater side of this divide did get it wrong, and has yet to acknowledge the error.

Why Oh Why Can't We Have a Better Press Corps? New York Times Edition

Julian Sanchez:

Twitter / @normative: This is seriously embarassing. How is this anything but a straight rewrite, with less detail?

Indeed. It isn't. Jim Rutenberg and Serge Kovaleski in 2011 are rewriting Julian Sanchez and David Weigel in 2008--of course, without attribution or linkage.

It does make you wonder what Rutenberg and Kovaleski think they are doing--how they hope to have a career in the post-newspaper world…

Yet Another Reason America Needs the Republican Party as We Know It to Fold Its Tent and Leave: Mitt Romney's Campaign Edition

David Weigel:

Meanwhile, the Romney Super PAC is Telling Whoppers About Immigration: The ad that went up on December 8 makes a direct claim about Gingrich and immigration…. The newest ROF ad makes the exact same claim, same citations: "Newt Gingrich supports amnesty for millions of illegals." It goes after Perry, too. The whole point of the ad is that Romney's rivals are "too liberal on immigration."

A problem: This is misleading as all hell…. Gingrich's position, which he seemed to be making up on the spot, was that “If you’ve been here for 25 years, and you got three kids and two grandkids, you’ve been paying taxes and obeying the law, you belong to a local church, I don’t think we are going to separate you from your family, uproot you forcefully and kick you out.”

But Gingrich didn't propose an "amnesty" for these nice people. "Amnesty" means something. The Simpson-Mazzoli amnesty of 1986, for example -- which Gingrich voted for -- allowed anyone who came to America before January 1, 1982 to gain lawful, permanent residence. All they had to do was prove that they'd gotten here before the deadline, and that they lived here full time. Gingrich's proposal -- admittedly sort of fanciful-sounding -- was to allow only one kind of immigrant to stay here legally, pending the decisions of local juries, modeled on the selective service system. According to Gingrich, they would judge whether or not the people deserved to stay. That's conditional, not pure amnesty.

There's a little deja vu here, because in 2007, Romney closed out the Iowa caucuses with a similar campaign. Iowans who'd fallen in love with Mike Huckabee were told of his dangerously pro-immigrant views. It didn't work. This seems to be working better. The story about Romney now is more "Gingrich reels from ad assault," less "this ad is untrue."

Ron Paul's Friends Speak!

David Frum sends us to Eric Dondero:

Statement from fmr. Ron Paul staffer on Newsletters, Anti-Semitism: Is Ron Paul a “racist.” In short, No. I worked for the man for 12 years, pretty consistently. I never heard a racist word expressed towards Blacks or Jews come out of his mouth….

One caveat: He is what I would describe as “out of touch,” with both Hispanic and Black culture. Ron is far from being the hippest guy around. He is completely clueless when it comes to Hispanic and Black culture, particularly Mexican-American culture. And he is most certainly intolerant of Spanish and those who speak strictly Spanish in his presence, (as are a number of Americans, nothing out of the ordinary here.)

Is Ron Paul an Anti-Semite? Absolutely No. As a Jew, (half on my mother’s side), I can categorically say that I never heard anything out of his mouth, in hundreds of speeches I listened too over the years, or in my personal presence that could be called, “Anti-Semite.” No slurs. No derogatory remarks.

He is however, most certainly Anti-Israel, and Anti-Israeli in general. He wishes the Israeli state did not exist at all. He expressed this to me numerous times in our private conversations. His view is that Israel is more trouble than it is worth, specifically to the America taxpayer. He sides with the Palestinians, and supports their calls for the abolishment of the Jewish state, and the return of Israel, all of it, to the Arabs….

Is Ron Paul a homo-phobe? Well, yes and no. He is not all bigoted towards homosexuals. He supports their rights to do whatever they please in their private lives. He is however, personally uncomfortable around homosexuals, no different from a lot of older folks of his era….

“Bobby,” a well-known and rather flamboyant and well-liked gay man in Freeport came to the BBQ. Let me stress Ron likes Bobby personally, and Bobby was a hardcore campaign supporter. But after his speech, at the Surfside pavilion Bobby came up to Ron with his hand extended, and according to my fellow staffer, Ron literally swatted his hand away. Again, let me stress. I would not categorize that as “homo-phobic,” but rather just unsettled by being around gays personally. Ron, like many folks his age, very much supports toleration, but chooses not to be around gays on a personal level. It’s a personal choice. And though, it may seem offensive to some, he has every right in my mind to feel and act that way….

If they are looking for something that went un-explained after many years, it’s the Nadia Hayes incident from the end of the presidential campaign in 1988. I personally am still a little ticked off by this, and surprised that nobody has ever followed up on it. In brief, Nadia was Ron’s longtime business/campaign manager in the 1980s. On the very last day of the presidential campaign, attorneys, accountants, and even Nassau Bay police dept. investigation officials stormed into our campaign office, sealed everything off, rushed us campaign staffers into the storeroom (literally), and for hours on end ruffled through the entire campaign records, file cabinets, and other papers.

Lew Rockwell and Burton Blumert were there too. We were greatly surprised by this. Nadia was eventually convicted of embezzlement and went to jail for 6 months, plus had to pay $140,000 in restitution to Ron.

There were rumors at the time, and long thereafter, that Lew and Burt had pinned it all on Nadia, and that they had their own reasons for the “coup.” For years afterwards, Rockwell, and Blumert had complete control of Ron’s enterprises through Jean McIver and (former JBS/Jesse Helms fundraiser) David “James” Mertz of northern Virginia.

It was easy to pin it all on Nadia. She lived extravagantly, and her husband who owned a boat repair business in Clear Lake, had recently had some serious financial problems.

Nadia never resurfaced, and was never heard from again.

I will attest, that when campaign consultant Tony Payton died of heart failure, in 2002 I believe, I specifically asked Ron if I could look Nadia up, and contact her to let her know that her longtime friend had died, and he reacted sternly to me, expressing that he did not want me to do that, and if I did, there would be serious consequences. I was shocked. And this was one of the reasons I eventually left his staff.

On one other matter, I’d like to express in the strongest terms possible, that the liberal media are focusing in on entirely the wrong aspects regarding controversies on Ron Paul.

It’s his foreign policy that’s the problem; not so much some stupid and whacky things on race and gays he may have said or written in the past.

Ron Paul is most assuredly an isolationist. He denies this charge vociferously. But I can tell you straight out, I had countless arguments/discussions with him over his personal views. For example, he strenuously does not believe the United States had any business getting involved in fighting Hitler in WWII. He expressed to me countless times, that “saving the Jews,” was absolutely none of our business. When pressed, he often times brings up conspiracy theories like FDR knew about the attacks of Pearl Harbor weeks before hand, or that WWII was just “blowback,” for Woodrow Wilson’s foreign policy errors, and such…

Ron Paul Offers Conor Friedersdorf a $224 Value for Just $99--and Friedersdorf Buys It

Ron Paul, ca. 1992, as released into the wild by Jamie Kirchik:

Transcription of Ron Paul’s Solicitation Letter: I have unmasked the plot for world government, world money, and world central banking… officials… wholly owned subsidiaries of the Trilateral Commission and the Council on Foreign Relations. The FEMA plan to suspend the Constitution.…

I’ve been told not to talk, but these stooges don’t scare me. Threats or no threats, I’ve laid bare the coming race war in big cities. The federal-homosexual cover-up on AIDS (my training as a physician helps me see through this one.) The Bohemian Grove — perverted, pagan playground of the powerful. Skull & Bones: the demonic fraternity that includes George Bush and leftist Senator John Kerry, Congress’s Mr. New Honey. The Israeli lobby, which plays Congress like a cheap harmonica. And the Soviet-style “smartcard” the Justice Department has in mind for you….

[H]istory shows that bad times offer the greatest profit opportunities. A liberal clergyman sneered: “Isn’t it immoral to benefit from catastrophe?” I told him, “No, not if you didn’t cause it.” In fact, the few who preserve and even increase their wealth in the coming chaos will be needed to rebuild America. That’s why I must send you Surviving the New Money, the Ron Paul Investment Letter, and the Ron Paul Political Report…. What’s a middle-class American to do? Gold? Silver? Platinum? Rare coins? Real estate? Gemstones? Farm land? Penny stocks? A small business? Collectibles? T-bill? Mutual funds? CDs? Corporate bonds? Municipal bonds? Gold stocks? Common stocks? The futures market? Overseas banking? Foreign investments? Privacy and tax strategies? Some investments will protect you. Others are like walking into the IRS and saying, “Take me; I’m yours.”…

I fear there will be welfare riots in the big cities. Massive unemployment. The destruction of wealth. The erosion of personal liberties. Vicious economic controls. The exaltation of envy. The suppression of privacy. Authoritarian clamp-downs. Bank and S&L closings on a massive scale. A world dollar crisis as the greenback (or “pinkback”) is rejected for almost any non-paper alternative….

Trouble is coming, and you must be prepared. Surviving the New Money, the Ron Paul Investment Letter and the Ron Paul Political Report will be your survival kit, and if you act now, you can get this $224 value for just $99 — 55% off!… For just $99, get all this wealth-saving intelligence… A $224 value for just $99!…

Please, help me help you survive the New Money and other financial debacles. You must conic through not only unscathed, but richer.

Send your check today, or charge your order to American Express, Visa, or Mastercard (by mail or on my toll-free 800 number: 1-800-RON-PAUL). Let me welcome you as a subscriber.


Congressman Ron Paul

P.S. Your subscription may be tax-deductible. See the enclosed subscription form for details.

P.P.S. There’s no time to waste. The New Money may not come until next year. Or it may be imposed tomorrow. You should subscribe today.

Conor Friedersdorf says he is, nevertheless, inclined to vote for Ron Paul:

Grappling With Ron Paul's Racist Newsletters: Paul's wrongdoing is rooted in political opportunism, negligence, and failure to disassociate himself with racists, not racism itself….

I've got friends who never vote. It makes them feel dirty, because in their experience all politicians suck… especially corrupt, prone to constant lies, always with skeletons that betray the most rank hypocrisy…. [T]here are certain candidates I just can't bring myself to support. Like Rick Perry. And Newt Gingrich. And Barack Obama….

And Ron Paul?…  

How is it -- some of you might ask -- that I'd even consider a vote for a candidate who, at best, negligently lent his name to a racist publication, profited from the deal, and either never bothered to find out who wrote the offending material or lied about being ignorant of it?… I'd answer that none of the policies he advocates makes me morally uncomfortable…. How can you vote for someone who wages an undeclared drone war that kills scores of Pakistani children? Or someone who righteously insisted that indefinite detention is an illegitimate transgression against our civilizational values, and proceeded to support that very practice once he was elected? How can you vote for someone who has claimed to be deeply convicted about abortion on both sides of the issue, constantly misrepresents his record, and demagogues important matters of foreign policy at every opportunity?…

[I]f we're judging by the single metric of protecting racial or ethnic minority groups, because when it comes to America's most racist or racially fraught policies, Paul is arguably on the right side of all of them.… My tentative conclusion: among the candidates who could win, Paul is least complicit in needlessly killing innocents abroad; he is least likely to deprive innocent foreigners of their God given rights to life, liberty and the pursuit of happiness; he is most committed to civil liberties and drug legalization at home….

[B]ygone complicity in racist newsletters doesn't… tell us… which candidate would do the most to square American government with the highest ideals of our polity. Support for Paul is grounded for many in the judgment that he is that candidate…. I remain sympathetic to that argument.

And Ron Paul offers Conor a $224 value for just $99!

I don't know which would be the more powerful reason to vote against Ron Paul:

  1. That he took great care not to read or learn anything about what his friend and employee Lew Rockwell was sending to people who trusted Ron Paul in order to generate 10,000 $100 checks a year…

  2. That he knew damned well what Lew Rockwell was sending them, and laughed and thought that you should never give a sucker an even break…

  3. That he genuinely believes in his "plot for world government, world money, and world central banking… officials… wholly owned subsidiaries of the Trilateral Commission and the Council on Foreign Relations… FEMA's plan to suspend the Constitution… the coming race war… [t]he federal-homosexual cover-up on AIDS… Bohemian Grove — perverted, pagan playground… Skull & Bones: the demonic fraternity that includes George Bush and leftist Senator John Kerry… [and the] Israeli lobby which plays Congress like a cheap harmonica…"

Personally, I believe that the balance of probabilities is that Ron Paul genuinely does think that the homosexuals, the Jews, and the Blacks are coming to kill us all (or at least the rest of us), but that their stranglehold over the media is so great that he can no longer say so outright--even in private. That's the only interpretation that I can square with Paul's refusal to drop Rockwell and company over the side for betraying him. If he never read the newsletters and the solicitation letters, then they did betray him--and he owes the no loyalty. If he's a cynical con man, dropping Rockwell and company over the side is the obvious winning strategy: you should never give a sucker an even break. Stonewalling is something that only a believer in what is said in the newsletters and the solicitation letters would do.

Sarah Maslin Nir: Newt Gingrich and Rick Perry Fail to Qualify for Virginia Primary Ballot

In it for the publicity, they are:

Newt Gingrich and Rick Perry Fail to Qualify for Virginia Primary Ballot: Newt Gingrich will not appear on the Virginia presidential primary ballot, state Republican Party officials announced Saturday, after he failed to submit the required number of valid signatures to qualify…. On Friday evening, the Republican Party of Virginia made a similar announcement for Gov. Rick Perry of Texas.

Ten thousand signatures are needed to get on the ballot for the Virginia primary, which is March 6, known as Super Tuesday. The Perry campaign says it submitted 11,911 signatures, according to The Washington Post. But at 6:30 p.m. the Virginia Republican Party posted on its Twitter account that after verification, it was determined that Mr. Perry did not submit the requisite amount. Mr. Gingrich submitted 11,050 signatures, but after verification, the state party said it determined that he had not submitted enough signatures. The deadline for signatures was 5 p.m. Thursday. Mitt Romney and Ron Paul obtained the needed signatures to qualify.

Niall Ferguson in Syracuse...

Dionysius II: Plato :: Quaddafi : Tony Giddens :: Newt Gingrich : Niall Ferguson

It never works. Never, never, never, never, never…

Simon van Zuylen-Wood watches the dirigible explosion:

Gingrich Gets An "A" From Niall Ferguson: I get that self-avowed “neo-imperialist” historian Niall Ferguson relishes his gig as academia’s most celebrated colonial nostalgic/conservative reactionary. But this is too much:

I just read the transcripts of some lectures [Newt Gingrich] gave in the 1990s on “Renewing American Civilization.” They positively fizz with historical insights and brilliant brain waves. They make the case against big government as vividly as anything you’ll ever read….

I too read these transcripts as part of an assignment for The New Republic…. From my piece:

Franklin Roosevelt’s “we can do it” attitude ended the Depression. (No mention of the New Deal.) McDonald’s entrepreneur Ray Kroc used working-class perseverance to create the crispiest French fries. Arnold Schwarzenegger overcame poverty through “amazing power of concentration” and “created a major export industry” in the Terminator franchise.

As for his impressive “case against big government,” here, from one lecture, is Gingrich’s biggest complaint about the havoc the Great Society wrought on 1990s America.:

I would assert that no civilization can survive with 12-year-olds having babies, 15-year- olds killing each other, 17-year-olds dying of AIDS, and 18-year- olds getting diplomas they can't read….

In order save a civilization ruined by the “subsidized self-destruction” of the welfare state, Gingrich said in the lectures, the social safety net should be replaced by networks of personal charity that distinguish between the “deserving” and “undeserving poor.” In Ferguson, Newt seems to have found an ally who shares his nostalgia for Victorian notions of cultural hegemony and personal responsibility…

David Romer: Evidence for the Effectiveness of Fiscal Policy

David Romer (March 2011): What Have We Learned about Fiscal Policy from the Crisis?:

As Robert Solow stresses in his remarks in this session, we should not be trying to find “the” multiplier: the effects of fiscal policy are highly regime dependent.

One critical issue is the monetary regime. Consider estimating the effects of fiscal policy over the period from, say, 1985 to 2005. Central banks were actively trying to offset other forces affecting the economy, and they had the tools to do so. Thus if they were successful, one would expect the estimated effects of fiscal policy to be close to zero. But this would tell us nothing about the effects of fiscal policy in situations where monetary policymakers are unable or unwilling to offset other forces.

Fortunately, there has been a great deal of new research that sheds light on the effects of fiscal policy in settings where monetary policy does not respond aggressively. Some of it uses evidence from the crisis itself, but much does not; some focuses on a particular country, usually the United States, but some uses larger samples; and a considerable body of the work looks at evidence from different regions within a country, again usually the United States. One particularly appealing aspect of this last set of studies is that because monetary policy is conducted at the national level, it is inherently being held constant when one is looking at within-country variation.

Collectively, this research points very strongly (though, I should say, not unanimously) to the conclusion that when monetary policy does not respond, conventional fiscal stimulus is effective.3 And a careful examination of the evidence gives no support to the view that when monetary policy is constrained, fiscal contractions are expansionary (International Monetary Fund, 2010).  Even so, I find two types of evidence that predate the crisis even more compelling. The first comes from wars. The fact that the major increases in government purchases in the two world wars and the Korean War were associated with booms in economic activity, and that those booms occurred despite very large tax increases and extensive microeconomic interventions whose purpose was to restrict private demand, seems to me overwhelming evidence that fiscal stimulus matters.

The other type of evidence is more general evidence about the functioning of the macroeconomy. We know that monetary policy has powerful real effects, which means that aggregate demand matters. We know that current disposable income is important to consumption. And we know that cash flow and sales have strong effects on investment. It would take a strange combination of circumstances for those things to be true but for fiscal policy, which one would expect to work through those channels, not to be effective.

Given this wide range of evidence—not to mention the large body of pre-crisis work on the effects of fiscal policy that I have not even touched on—I think we should view the question of whether fiscal stimulus is effective as settled…

[3] For within-country evidence, see Chodorow-Reich, Feiveson, Liscow, and Woolston (2010); Suárez Serrato and Wingender (2010); Shoag (2010); Fishback and Kachanovskaya (2010); and Nakamura and Steinsson (2011). For cross-country evidence, see International Monetary Fund (2010); Council of Economic Advisers (2009); and Kraay (2010). For time-series evidence (as well as simulation-based evidence), see Hall (2009); Barro and Redlick (2010); Fisher and Peters (2009); Coenen et al. (2010); and Christiano, Eichenbaum, and Rebelo (2010). On this list, all but Kraay, Barro and Redlick, and Fisher and Peters implicitly or explicitly try to provide evidence about the case where monetary policy does not act to offset the effects of fiscal policy. With the exception of two of these three (Kraay and Barro and Redlick), the papers all suggest substantial effects of fiscal policy. As I describe below, this brief tour omits all work that predates the crisis.

Glasner on the Short-Run Relevance of Fiscal Policy for the Price Level

Uneasy Money:

No Monetary Policy Is Not Just Another Name for Fiscal Policy: The crux of Cochrane’s argument is that… inflation is typically the result of a perception by bondholders… that the government will not be able to raise enough revenues… [and resort to] implicit default through inflation…. [T]he expectation of future inflation because of an anticipated future fiscal crisis may suddenly — when an expectational tipping point is reached — trigger a “run” on the currency well before the crisis, a run manifesting itself in rapidly rising nominal interest rates and rising inflation even before the onset of a large fiscal deficit.

This is certainly an important, though hardly original, insight, and provides due cause for concern about our long-term fiscal outlook. The puzzle is why Cochrane thinks the possibility of a run on the dollar because of an anticipated future fiscal crisis is at all relevant to an understanding of why we are stuck in a lingering Little Depression. Cochrane is obviously very pleased with his fiscal theory of inflations, believing it to have great explanatory power.  But that explanatory power, as far as I can tell, doesn’t quite extend to explaining the origins of, or the cure for, the crisis in which we now find ourselves.

Cochrane’s recent comments on a panel discussion at the Hoover Institution give the flavor of his not very systematic ideas about the causes of the Little Depression, and the disconnect between those ideas and his fiscal theory of inflation.

Why are we stagnating? I don’t know. I don’t think anyone knows, really. That’s why we’re here at this fascinating conference.

Nothing on the conventional macro policy agenda reflects a clue why we’re stagnating. Score policy by whether its implicit diagnosis of the problem makes any sense.

The “jobs” bill. Even if there were a ghost of a chance of building new roads and schools in less than two years, do we have 9% unemployment because we stopped spending on roads & schools? No. Do we have 9% unemployment because we fired lots of state workers? No.

Taxing the rich is the new hot idea. But do we have 9% unemployment-of anything but tax lawyers and lobbyists–because the capital gains rate is too low? Besides, in this room we know that total marginal rates matter, not just average Federal income taxes of Warren Buffet. Greg Mankiw figured his marginal tax rate at 93% including Federal, state, local, and estate taxes. And even he forgot about sales, excise, and corporate taxes. Is 93% too low, and the cause of unemployment?

The Fed is debating QE3. Or is it 5? And promising zero interest rates all the way to the third year of the Malia Obama administration. All to lower long rates 10 basis points through some segmented-market magic. But do we really have 9% unemployment because 3% mortgages with 3% inflation are strangling the economy from lack of credit? Or because the market is screaming for 3 year bonds, but Treasury issued at 10 years instead? Or because $1.5 trillion of excess reserves aren’t enough to mediate transactons?

I posed this question to a somewhat dovish Federal Reserve bank president recently. He answered succinctly, “Aggregate demand is inadequate. We fill it. ” Really? That’s at least coherent. I read the same model as an undergraduate. But as a diagnosis, it seems an awfully simplistic uni-causal, uni-dimensional view of prosperity. Medieval doctors had three humors, not just one.

Of course in some sense we are still suffering the impact of the 2008 financial crisis. Reinhart and Rogoff are endlessly quoted that recessions following financial crises are longer. But why? That observation could just mean that policy responses to financial crises are particularly wrongheaded.

In sum, the patient is having a heart attack. The doctors debating whether to give him a double espresso vs. a nip of brandy. And most likely, the espresso is decaf and the brandy watered.

So what if this really is not a “macro” problem? What if this is Lee Ohanian’s 1937-not about money, short term interest rates, taxes, inadequately stimulating (!) deficits, but a disease of tax rates, social programs that pay people not to work, and a “war on business.” Perhaps this is the beginning of eurosclerosis. (See Bob Lucas’s brilliant Millman lecture for a chilling exposition of this view).

If so, the problem is heart disease. If so, macro tools cannot help. If so, the answer is “Get out of the way.”

Cochrane seems content to take the most naïve Keynesian model as the only possible macro explanation of the current slump, and, after cavalierly dismissing it, concludes that there is no macroeconomic explanation for the slump, leaving “get out of the way” as the default solution. That’s because he seems convinced that all that you need to know about money is that expected future fiscal deficits can cause inflation now, because the expectation triggers a “run” on the currency. This is an important point to recognize, but it does not exhaust all that we know or should know about monetary theory and monetary policy. It is like trying to account for the price level under the gold standard by only taking into account the real demand for gold (i.e., the private demand for gold for industrial and ornamental purposes) and ignoring the monetary demand for gold (i.e., the demand by banks and central banks to hold gold as reserves or for coinage). If you looked only at the private demand for gold, you couldn’t possibly account for the Great Depression.

PS I also have to register my amazement that Cochrane could bring himself to describe Lucas’s Millman lecture as brilliant. It would be more accurate to describe the lecture as an embarrassment.

Liveblogging World War II: December 23, 1941

Wake Island: Dec. 7-23, 1941:

Under cover of night, Kajioka's force had approached close to the island, and before daybreak on the 23rd commenced landing the 1000-strong Maizuru 2nd Special Naval Landing Force. On Wilkes island, 70 Marines, armed with little more than vintage 1903 Springfield bolt-action rifles and hand grenades, set one transport on fire, and trapped the landing Japanese on the beach. Four hours later, that landing had been defeated, but on Wake island, two hundred Marines faced hundreds of Imperial Marines.

The atoll commander, Commander Winfield Scott Cunningham, radioed his superiors in Hawaii: "ENEMY ON ISLAND ISSUE IN DOUBT". (Not quite two years later, the last three words would return to chill Nimitz and his command, when they were radioed from the beaches of Tarawa.)

The Pacific command's response left Cunningham and Marine commander, Major James Devereux, with few options. The nearest American carrier, Fletcher's Saratoga, was still a day away. Tangier, the relief ship, was even further off. A half hour later, Wake surrendered. At nearly the same time, Pye, reasoning that "Wake is a liability" ordered the relief forces to turn back.


Quote of the Day: December 23, 2011

"Most human beings now obtain a large share of the provision for their daily lives from others to whom they are not related by blood or marriage. Even in poor rural societies people depend significantly on nonrelatives for food, clothing, medicine, protection, and shelter. In cities, most of these nonrelatives crucial to our survival are complete strangers. Nature knows no other examples of such complex mutual dependence among strangers. A division of labor occurs, it is true, in some other species, such as the social insects, but chiefly among close relatives—the workers in a beehive or an ant colony are sisters. There are some cases of apparent cooperation between colonies of ants founded by unrelated queens, though the explanation of this phenomenon remains controversial….

"No solution to this puzzle can be found in evolutionary biology alone. Ten thousand years is too short a time for the genetic makeup of Homo sapiens sapiens to have adapted comprehensively to its new social surroundings. If it were somehow possible to assemble together all your direct same-sex ancestors—your father and your father’s father and so on if you’re male, your mother and your mother’s mother and so on if you’re female; one for each generation right back to the dawn of agriculture—you and all of these individuals could fit comfortably in a medium-sized lecture hall. Only half of you would have known the wheel, and only 1 per cent of you the motor car….

"Yet evolutionary biology has something important to tell us all the same. For the division of labor among human beings has had to piggyback on a physiology and a psychology that evolved to meet a far different set of ecological problems. These were problems faced by hunter-gatherers, mainly on the African woodland savannah, over the six or seven million years that separate us from our last common ancestor with chimpanzees and bonobos. Some time in the last two hundred thousand years or so—less than one-thirtieth of that total span—a series of changes, minuscule to geneticists, vast in the space of cultural potential, occurred to make human beings capable of abstract, symbolic thought and communication.

"Just when they occurred involves difficult issues of dating, but since all human beings share these capacities the genetic changes that made them happen probably occurred at least 140,000 years ago. But the first evidence of the new cultural capabilities to which they gave rise is found in the cave paintings, grave goods, and other symbolic artifacts left by hunter-gatherer communities of anatomically modern man (Cro-Magnon man, as he is sometimes known), which are no older than sixty or seventy thousand years—and most are much younger. These capabilities seem to have made a move toward agriculture and settlement possible once the environmental conditions became favorable, after the end of the last ice age.

"Indeed, the fact that agriculture was independently invented at least seven times, at close intervals, in different parts of the world suggests it was more than possible; it may even have been in some way inevitable. These capabilities also enabled human beings to construct the social rules and habits that would constrain their own violent and unreliable instincts enough to make society possible on a larger, more formal scale. And they laid the foundation for the accumulation of knowledge that would provide humanity as a whole with a reservoir of shared skills vastly greater than the skills available to any single person. But these cultural capabilities did not evolve because of their value in making the modern division of labor possible. Quite the contrary: modern society is an opportunistic experiment…"

--Paul Seabright, The Company of Strangers

Twitterstorm delong: December 22, 2011

  • Progris David A Wolfe “@delong: A Christmas Message From America's Rich 39 minutes ago

  • jaytingle Jay Schiavone @delong catches @AdairPolitiFact in Pants-on-fire, Pinochio-nose whopper of a lie: Make a mistake, brazen it out. 1 hour ago

  • m_jns Martin Jones 2011 in Review: Four Hard Truths | Olivier Blanchard via @delong 1 hour ago

  • CardiffGarcia Cardiff Garcia .@delong on safe assets and trust in banking intermediation. Really interesting: 7 hours ago

  • jeffhauser Jeff Hauser RT @delong: Ron Paul Is "Part of a Coalition Who Saw Bigotry as a Potent Political Force. This Is Meant as a Defense. In Fact It...... 8 hours ago

  • VoxRationalis David Clayton What time is it when 1st-time jobless claims hit a 3.5-year low? Time for House Republicans to put the brakes on the economy again. @delong 9 hours ago

  • TonyBallu Tony Burkson RT @delong Paul Krugman: Cutting Government Spending Right Now Increases Long-Term Fiscal Risk

  • delong J. Bradford DeLong @ @CardiffGarcia Thank you. But did I say anything that was not in (or implicit in) your piece? I don't think so... 1 minute ago

  • brianbeutler Brian Beutler Reid: "I am grateful that the voices of reason have prevailed and Speaker Boehner has agreed to pass the Senate’s bipartisan compromise." 1 hour ago Retweeted by delong

  • Louis CK: Live at the Beacon Theater 1 hour ago

  • Bill Adair of Politifact Stands by His Claim That the Wall Street Journal's Naftali BenDavid Is This Year's Biggest ... 1 hour ago

  • drgrist David Roberts You don't understand, people: they sat in their cubicles and googled this for hours. THEY ARE THE EXPERTS. 1 hour ago Retweeted by delong

  • Why Oh Why Can't We Have a Better Press Corps? Simon Winchester/Times of London Edition 1 hour ago

  • Atrios Atrios with only several hours of "journalstic research" you earn right to be final word on all topics. also, too, a new internet tradition 1 hour ago Retweeted by delong

  • drgrist David Roberts Interesting fact: @Politifact invented research. 1 hour ago Retweeted by delong

  • drgrist David Roberts If I replaced Politifact with a group of ppl who understood what a fact is & eschewed false balance, would it still BE Politifact? 1 hour ago Retweeted by delong

  • DemocratMachine VivaMachine! No he didn't. | RT @DickMorrisTweet: The media went out of their way to discredit @THEHermanCain. Politically he survived 2 hours ago Retweeted by delong

  • The new international economic disorder via @zite 4 hours ago

  • Regulatory Uncertainty, Macro Policy Uncertainty, and Demand via @zite 4 hours ago

  • Ron Paul is Blowing It via @zite 5 hours ago

  • JustinWolfers Justin Wolfers A reminder: I said that the pretty GDP data would revise downward toward the weak GDI data. They did. Today's news is GDI revised down again 8 hours ago Retweeted by delong

  • tanehisi Ta-Nehisi Coates "I was only playing racist to appeal to the racist vote," isn't a defense. It's an indictment. 8 hours ago Retweeted by delong

  • Paul Krugman: The Meaning of the Mercury Regulation 9 hours ago

  • jstrevino Joshua Treviño Just espionage, baby. Free orange jumpsuits for life. RT @nlitvin: Jonathan Pollard was never convicted of treason. 18 hours ago Retweeted by delong

  • altmandaniel Daniel Altman So NYT stock falls 80% while Janet Robinson is CEO, and her severance is $15m ( Staff editorial time? HT @crampell 22 hours ago Retweeted by delong

  • busynessgirl Maria H. Andersen RT @delong: Social media in the 16th Century: How Luther went viral | The Economist #297sm 21 Dec Retweeted by delong

  • BenjySarlin Benjy Sarlin It says nothing about a guy that the 6-8 people they'd turn to as ghostwriters are white supremacists. Who else is on 23 hours ago Retweeted by delong

  • drgrist David Roberts Congrats to @TheProspect for developing one of the very, very few daily newsletters short & punchy enough to keep me reading. 23 hours ago Retweeted by delong

  • drgrist David Roberts "The thing I’ve always found...comforting about Mitt Romney is that his flip-flops betray pure contempt for the Republican base." - J. Chait 23 hours ago Retweeted by delong

  • BenjySarlin Benjy Sarlin Who among us hasn't published a racist pro-militia newsletter in our name for decades without ever reading it? 23 hours ago Retweeted by delong

  • tanehisi Ta-Nehisi Coates I don't hate the blacks, I just believing in pandering to those do. I'm not a racist. I'm a cynic. Get it right. 21 Dec

Bill Adair of Politifact Stands by His Claim That the Wall Street Journal's Naftali BenDavid Is This Year's Biggest Liar

Naftali BenDavid, April 4, 2011:

GOP Budget Aim: Cut $4 Trillion From Spending: Republicans will present this week a 2012 budget proposal that would cut more than $4 trillion from federal spending projected over the next decade and transform the Medicare health program for the elderly…. The plan would essentially end Medicare, which now pays most of the health-care bills for 48 million elderly and disabled Americans, as a program that directly pays those bills…. Mr. Ryan's proposal would apply to those currently under the age of 55, and for those Americans would convert Medicare into a "premium support" system…

Bill Adair, today:

PolitiFact | Fact-checking in the Echo Chamber Nation: We gave our Lie of the Year to the Democrats' claim that the Republicans "voted to end Medicare." That set off a firestorm in the liberal blogosphere, with many saying that claim was not actually wrong. We've received about 1,500 e-mails about our choice and only a few agreed with us…. We've read the critiques and see nothing that changes our findings. We stand by our story and our conclusion that the claim was the most significant falsehood of 2011. We made no judgments on the merits of the Ryan plan; we just said that the characterization by the Democrats was false….

Jim Newell in Gawker… ignored the fact that our fact-checks are based on hours of journalistic research and portrayed them as the work of rogue bloggers with a gimmicky meter…

"Hours" of "journalistic research"?

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

Why Oh Why Can't We Have a Better Press Corps? Simon Winchester/Times of London Edition

Outsourced to Alex Massie:

Alex Massie: [H]ere is a piece of Simon Winchester's column (£) today:

The State’s founder, Kim Il Sung, claimed that all he wanted for North Korea was to be socialist, and to be left alone. In that regard, the national philosophy of self-reliance known in North Korea as “Juche” is little different from India’s Gandhian version known as “swadeshi”. Just let us get on with it, they said, and without interference, please.

India’s attempt to go it alone failed. So, it seems, has Burma’s. Perhaps inevitably, North Korea’s attempt appears to be tottering. But seeing how South Korea has turned out — its Koreanness utterly submerged in neon, hip-hop and every imaginable American influence, a romantic can allow himself a small measure of melancholy: North Korea, for all its faults, is undeniably still Korea, a place uniquely representative of an ancient and rather remarkable Asian culture. And that, in a world otherwise rendered so bland, is perhaps no bad thing.

I'm not sure I've read a more revolting pair of paragraphs this year. Just gawp at the casual glibness of waving aside the horrors of a gulag-famine state in this fashion, all so the world-weary "romantic" can be cheered-up by the refreshing local colour that makes North Korea so charmingly unique.   And, as a commenter at Samizdata notes, it's not as though Winchester's hideous admiration for North Korea qua Korean culture is in any way accurate either. There's precious little "authentically" Korean about the Kims' dreadful totalitarian prison. Most of it is borrowed from the USSR and China, albeit then lacquered in the vulgar Pyongyang style.

Mick Hartley makes the other point: Better a starving slave state, it seems, than this ghastly modern Americanised culture. Quite.

Newspapers, of course, are free to publish whatever they like but one does wonder if anyone at the Times paused to think, "Hang on, we don't have to publish a piece that doesn't just defend the Kims from their detractors but actually makes some kind of fucking "case" for them."

Plucky little North Korea going it all on her lonesome? Please. Get a grip.

Why the U.S. Treasury, the Bundesrepublik Treasury, the Japanese Treasury, the Fed, the ECB, and the BoJ Need to Be Pumping Out Safe Assets at a Much Faster Pace...

Full-employment equilibrium in the demand and supply of currently-produced goods and services requires that there be enough cash to grease all the transactions so that sellers are happy selling to would-be buyers. If not--if there is a liquidity squeeze--we see a downturn and the shortage of cash reflected in low asset prices of (and high interest rates on) pretty much all other financial assets as people scramble to dump other assets for cash and do so until they can no longer bear the cost of letting value go at fire-sale prices.

Full-employment equilibrium in the flow of funds through financial markets requires that businesses (and governments) issue enough liquid savings vehicles to absorb all the planned full-employment saving in financial assets. If not--if there is a savings vehicle shortage--we see a downturn and not low but high prices of financial assets and we see what should be the transactions balances of the economy diverted as cash is transformed into a savings vehicle.

Right now, however, it is not the case that we are in a liquidity squeeze: the debts of credit-worthy governments are not at a discount but at a premium. Right now, however, it is not the case that we have a shortage of liquid savings vehicles: equities and corporate and junk bonds--and the bonds of non-credit worthy governments--are selling not for high prices but for low ones.

There is, however, a third market equilibrium condition: a credit-channel equilibrium condition. The economy must possess enough AAA-rated assets suitable to serve as collateral to keep the moral hazard associated with lending your wealth to somebody who knows more about the deal than you do from causing a Minsky meltdown. If not we see a downturn and what we see now: relatively low asset prices for risky assets and assets perceived as safe selling at values far above any reasonable estimate of long-run fundamentals that does not take account of their value as collateral for greasing financial-intermediation transactions.

It is in that context that we need to look at what has happened to the global supply of suitable AAA assets as shown in Cardiff Garcia's unwanted mutant offspring of the most important chart in the world:

Why Oh Why Can't We Have a Better Press Corps?: Politifact Edition

Outsourced to Dan Froomkin:

Watchdog Blog Blog Archive » What Politifact Should Do Now: Yesterday, I sent an email to Politifact editor Bill Adair, expressing my horror over his group’s decision to designate “Republicans voted to kill Medicare” as the “lie of the year.” (See, for an exegesis of that misbegotten choice, Steve Benen, Paul Krugman, Jamison Foser, Charles Pierce, Jason Linkins, et. al.)

“Take it back quickly and explain the (probably self-inflicted) pressures you were under, and perhaps you can rehabilitate yourselves. Perhaps,” I wrote in my email. “This really makes me sick at heart. You have taken a wonderful idea — and a lot of good work — and perverted it beyond belief.”

I haven’t heard back.

So today, I’m sending him a draft of what I imagine his explanation should look like (purely based on my conjectures about what happened). It goes like this:

To our readers,

We owe everyone an enormous apology for choosing what is, ultimately, a true statement as our “lie of the year”. As hard as it may be to believe, our intentions were good. What happened was that we made a series of poor decisions, largely based on how we wanted to be perceived, and lost track of our core mission.

In the hopes that this can be a learning experience for everyone — as well as an opportunity for us to rededicate ourselves to the business of actually checking facts and calling out lies — I’d like to explain what happened. Because I’m afraid we’re not alone in making this sort of mistake.

At Politifact, we take what we do seriously. We think it’s important. We think that calling out lies is an essential journalistic function, necessary to limit their spread  and to create a political downside to their use. We don’t see enough of it out there, and we want to inject more into the political discourse. This is not a partisan position.

So it’s really frustrating when we get written off as liberal.

We see our jobs as being the referees, not taking sides. But as anyone who is paying attention knows, there are an awful lot of really big Republican whoppers out there. So whenever a significant Democratic statement comes along that we can find fault with, we do. And so do our brethren in the fact-checking business.

That’s why we jumped on the Medi-scare charge. While essentially true, it probably went a bit too far. Of course Republicans voted to fundamentally change Medicare, but we felt on solid ground pointing out that the Democrats neglected to mention that the GOP would replace it with something with the same general goal, and that their ads showed old people, when the effects would only be felt by future old people.

OK, maybe it was a stretch. But we took it, and so did and the Washington Post, equally eager to be able to cast a pox on both houses, not just one.

Then, at year’s end, when it came time to choose our finalists, we felt they obviously couldn’t all be from the Republican side of the aisle, so we scrounged up four from Democrats, including that one, to put into the mix.

Then, when it came time to choose the winner, we convinced ourselves that it would be a statement of our independence to pick it over the one the readers chose: The repeated GOP insistence that the economic stimulus created “zero jobs.” (We should have listened to you.)

What we lost sight of, in this process of deciding what would reflect best on us, was that the Democratic claim wasn’t really a lie in the first place. Succumbing to our self-inflicted pressure to win credibility from both sides, we forgot that our mission is not to be perceived as credible, but to actually stand for the truth.

It wasn’t until the blistering critiques from journalists we respect started flooding in that we looked back at what we’d done, and we felt horror as well.

None of this is an excuse. It’s just an explanation. It is our deepest hope that at least something good can come from this if it can be a learning experiences — and not just for us. This unfortunately is a drama that recreates itself frequently in America’s newsrooms. Bad journalistic decisions are routinely being made in response to the feeling that newsrooms need to rise above the partisan fracas and be seen as unbiased.

This has been a problem for decades — as long as conservatives have used the fact that  the media is full of liberals to challenge reporting they don’t agree with. But lately, with a sharp rhetorical turn by the Republican Party and the rise of media outlets that will champion a partisan position no matter how little it is based in reality, things have gotten much, much worse. One cannot, as a reasonable journalist whatever one’s political inclinations, escape the fact that many of the core elements of the modern GOP political platform are based on lies.

Yes, lies.

Lies like the one you readers told us we should have picked as the “lie of the year”. Lies like that regulations are what’s holding back economic growth, that global warming is a myth, that raising taxes on the one percent would reduce job creation.

Normally, as journalists, we avoid the word lie like the plague.  In fact, you may have noticed that even us fact-checkers prefer euphemisms, like “pants on fire” or “four Pinocchios” or “whoppers”.

Lying requires the intent to deceive, and we hesitate to speak authoritatively to motive.

But we don’t need a Lee Atwater-esque deathbed confession to know that Republican leaders are engaged in a campaign of intentional mendacity. They know the truth. They also know how to sway the voters. And in this case, they have chosen some very effective lies.

And we should distinguish between lies and ignorance. In fact, in retrospect, two of our other finalists weren’t really lies, rather they were shocking examples of stupidity and ignorance. It’s entirely plausible that Republican presidential candidate Michele Bachmann really did believe that the vaccine to prevent HPV can cause mental retardation and that Sen. Jon Kyl really did think that abortion services are “well over 90 percent of what Planned Parenthood does.”

The reason we exist is to provide an alternative to the kind of political reporting that takes what a candidate says and judges its effectiveness, rather than its veracity — that weighs in exclusively on who’s winning or losing, who’s playing the game better.

But ultimately, we ended up playing into the hands of those who play the game by lying.

We’re very sorry, and from this point forward, we’ll simply call it as we see it, and let the chips fall where they may. Ultimately, that’s the only way we’ll win any respect from anyone.

Bill, feel free to edit this as you see fit. But for all our sakes, please don’t dig yourself in any deeper.


Ron Paul Is "Part of a Coalition Who Saw Bigotry as a Potent Political Force. This Is Meant as a Defense. In Fact It's an… Indictment"

Ta-Nehisi Coates:

Old News Cont.: Yesteday Ron Paul claimed on CNN that he'd never read the newsletters that went out in his name. Here is Ron Paul in a 1995 video discussing the very newsletters he claims to never have read. 

If you can find away to explain away a hateful newsletter written in someone's own name, it's likely you can find some way to explain this video away too. There's always a path to make yourself right, if that's your intent. Indeed, at this point it probably behooves me to stop arguing.

But I would ask you suffer me one final point: Dave Wiegel convincingly argues that Paul isn't a bigot, simply part of coalition who saw bigotry as a potent political force. This is meant as a defense. In fact it's an unwittingly damning indictment, that puts Ron Paul in ugly tradition of non-racist demagogues:

In 1952, [George Wallace] became the Circuit Judge of the Third Judicial Circuit in Alabama. Here he became known as "the fighting little judge," a nod to his past boxing association. He gained a reputation for fairness regardless of the race of the plaintiff, and J. L. Chestnut, a black lawyer, recalled, "Judge George Wallace was the most liberal judge that I had ever practiced law in front of. He was the first judge in Alabama to call me 'Mister' in a courtroom."

On the other hand, "Wallace was the first Southern judge to issue an injunction against removal of segregation signs in railroad terminals." Wallace blocked federal efforts to review Barbour County voting lists, for which he was cited for criminal contempt of court in 1959. Wallace also granted probation to some blacks, which may have cost him the 1958 gubernatorial election.

He was defeated by John Patterson in Alabama's Democratic gubernatorial primary election in 1958, which at the time was the decisive election, the general election still almost always being a mere formality. This was a political crossroads for Wallace. Patterson ran with the support of the Ku Klux Klan, an organization Wallace had spoken against, while Wallace was endorsed by the NAACP.

After the election, aide Seymore Trammell recalled Wallace saying, "Seymore, you know why I lost that governor's race?... I was outniggered by John Patterson. And I'll tell you here and now, I will never be outniggered again."

In the wake of his defeat, Wallace "made a Faustian bargain," said Emory University professor Dan Carter. "In order to survive and get ahead politically in the 1960s, he sold his soul to the devil on race."

He adopted hard-line segregationism, and used this stand to court the white vote in the next gubernatorial election. When a supporter asked why he started using racist messages, Wallace replied, "You know, I tried to talk about good roads and good schools and all these things that have been part of my career, and nobody listened. And then I began talking about niggers, and they stomped the floor."

That last quote is chilling--but not quite as chilling as this:

"When I became governor, there were 14 of us running for governor that time and all 14 of us were outspoken for segregation in the public schools," Patterson said. "And if you had been perceived not to have been strong for that, you would not have won....I regret that, but there was not anything I could do about it but to live with it."

That John Patterson--the man who defeated Wallace by "outniggering him." Patterson was speaking in 2008, shortly after having cast a vote for the first black president in the country's history.

It is comforting to think of racism as species of misanthropy, or akin to child molestation, thus exonerating all those who bear no real hatred in their heart. It's much more troubling to think of it as its always been--a means of political organization and power distribution. Such a definition makes the "I'm a good person" defense irrelevant. 

I could easily believe that Ron Paul holds no more particular disdain for blacks than George Wallace or John Patterson. These were not evil men. They were good people, who consented to evil in the pursuit of power. 

When Andrew says the Ron Paul newsletters are old news, he has no idea how right he is.

We'll cap at 500. Have fun.

Paul Krugman: The Meaning of the Mercury Regulation


The Meaning of Mercury: Let me repeat part of that: it will save tens of thousands of lives every year and prevent birth defects, learning disabilities, and respiratory diseases. This is actually a much bigger issue, when it comes to saving American lives, than terrorism. As Roberts explains, we’ve known about these costs of mercury pollution for decades, yet it took until now to get something done. The reason is, of course, obvious: special interests, hiding behind claims of immense economic damage if anything was done, were able to block action.

It’s worth noting that these claims of economic harm from pollution regulation have always been proved wrong when the regulation finally came. Ozone regulation was supposed to cripple the economy; so was acid rain regulation; neither did….

The point that strikes me most, however, is that this shows that it matters who holds the White House. You can complain about Obama’s lack of a strong progressive agenda, which I sometimes do, or wonder what good it is to hold the White House when the other side blocks every attempt to do good through legislation. But mercury regulation would not have happened if John McCain were president.

Elections have consequences, and this is one delayed consequence of 2008 that will make a big difference.

Yes, the Mid-2011 U.S. Economy Was Barely Growing at All...


News Release: Gross Domestic Product: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.0 percent (see "Revisions" on page 3)…

The fourth quarter looks better. The first quarter depends on whether the Federal Reserve builds a firewall between the U.S. and Europe right now

Quote of the Day: December 22, 2011

"[Edmund] Burke ever held, and held rightly, that it can seldom be right... to sacrifice a present benefit for a doubtful advantage in the future.... It is not wise to look too far ahead; our powers of prediction are slight, our command over results infinitesimal. It is therefore the happiness of our own contemporaries that is our main concern; we should be very chary of sacrificing large numbers of people for the sake of a contingent end, however advantageous that may appear... We can never know enough to make the chance worth taking..."

--John Maynard Keynes

Matthew Yglesias: Perverse Reputational Incentives In Central Banking


Perverse Reputational Incentives In Central Banking: I was reading recently in Hjalmar Schacht's biography Confessions of the Old Wizard (thanks to Brad DeLong for getting me a copy) and part of what's so incredible about it are that Schacht's two great achievements—the Weimar-era whipping of hyperinflation and the Nazi-era whipping of deflation—were both so easy. The both involved, in essence, simply deciding that the central bank actually wanted to solve the problem….

To halt the inflation, the Reichsbank would have to stop printing money. But once the inflation had gotten too high for Reichsbank President Rudolf Havenstein to stop printing money and stop the inflation would be an implicit admission that the whole thing had been his fault in the first place and he should have done it earlier…. So things continued for several years until a new government brought Schacht on as a sort of currency czar. Schacht stopped the private issuance of money, launched a new land-backed currency and simply… refused to print too much of it. The problem was solved both very quickly and very easily….

The institutional and psychological problem here turns out to be really severe. If the Federal Reserve Open Market Committee were to take strong action at its next meeting and put the United States on a path to rapid catch-up growth, all that would do is serve to vindicate the position of the Fed's critics that it's been screwing up for years now. Rather than looking like geniuses for solving the problem, they would look like idiots for having let it fester so long. By contrast, if you were to appoint an entirely new team then their reputational incentives would point in the direction of fixing the problem as soon as possible.

"Show Me the Collateral" Blogging: One of the Three Major Market Failures Underlying Our Current Difficulties...

…is the extraordinary demand on the part of investors for "safe" assets--and the concomitant failure of financial markets to mobilize the risk-bearing capacity of the global economy to bear risk/provide safety.

David Wessel on demand and supply for "safe" assets:

World's Supply of 'Safe' Assets Runs Short: The world economy faces a shortage of super-safe financial assets, bonds for which there is almost no risk of default and for which the market is so big that investors can buy and sell them readily. When anything is in short supply, its price rises. The bond market is no exception. It has been pushing up the price of U.S. Treasurys, still seen as safer than nearly all alternatives. That has pushed down the yield, the rate at which the U.S. government borrows, to extraordinarily low levels. Persistent shortages prompt lasting change. The hard-to-answer question: What changes will a persistent shortage of these risk-free assets provoke?

This phenomenon, more pronounced lately, predates the financial crisis. For years, high-saving economies like China and others bought dollars to keep their own currencies from rising in foreign-exchange markets. This yielded ever-larger piles of dollars to invest. In the mid-2000s, this money flowed into U.S. Treasurys and other AAA-rated dollar securities, depressing long-term yields even when the Federal Reserve was trying to boost them. Then-Federal Reserve Chairman Alan Greenspan called this "a conundrum;" his successor, Ben Bernanke, "the global savings glut."...

"In the financial system," says Mohamed El-Erian, co-chief investment officer of bond-market heavy Pimco, "you cannot replace something with nothing." For now, this benefits governments in the U.S. and (to the consternation of France) the U.K., which can borrow cheaply because they are drawing so much frightened money. Bill Gross, the other half of the Pimco team, describes the U.S. Treasury as "the cleanest shirt in the dirty-laundry pile."

Longer term? That's hard to know.

Perhaps someday there may be proliferation of very safe, even if not risk-free, assets alongside the U.S. Treasury. Australian or Canadian bonds? Commodities? Multinational corporate debt?… For now, global angst is driving people to buy U.S. Treasurys, but that may not last once the crisis abates, as it surely will. "We have time," Mr. El-Erian says. "We don't have infinite time." Producing the world's risk-free security has allowed the U.S. to exchange paper for goods and services….

Today, for the first time in generations, it is time to contemplate a world without a risk-free asset. The consequences of that are truly hard to fathom.


This is the point that Cardiff Garcia illustrates with the

unwanted mutant offspring of the most important chart in the world…

…on page 143 of the Credit Suisse 2012 Global Outlook, which we’ve stuck in the usual place. It shows how the world’s outstanding stock of safe haven assets denominated in either dollars or euros has evolved, adjusted to account for the Fed’s purchases of US Treasuries and other assets in recent years as part of quantitative easing.

You can see just how impressive the decline has been since 2007, and we’d also note that if Credit Suisse had been feeling uncharitable, they would have been justified in excluding French sovereigns.

The chart helps explain much of what’s happening….

  • Begin with the ongoing collateral crunch, and how the decline of safe assets is directly tied to the dramatic fall in the availability of high-quality collateral in European lending markets…. [I]f you’ve read your Manmohan Singh (or your Izzy Kaminska or your Tracy Alloway), you’ll know that this availability is the first of two parts of the collateral shortfall effect. The other part is the shortening of “re-pledging chains”, otherwise known as a reduction in the velocity of collateral…. Singh again…. "A security that is owned by an economic agent and can be pledged as re-usable collateral leads to chains…. [T]he first round impact on the real economy would be from the reduction in the “primary source” collateral pools in the asset management complex (hedge funds, pension and insurers etc), due to averseness from counterparty risk etc. The second round impact is from shorter “chains”—from constraining the collateral moves, and higher cost of capital resulting from decrease in global financial lubrication. When you hear… Draghi himself say that he’s cognizant of the “scarcity of eligible collateral” – this is why."

  • As was perhaps inevitable, the decline in safe assets has come at a time when investor demand for these assets has only climbed for them and as the deep freeze in European unsecured lending has meant a big shift towards collateralised lending. Hence the widening discrepancy in repo prices for different types of collateral….

  • There are future policy considerations here as well. Back to Singh…. "Recent regulatory efforts will require significant collateral on many fronts—Basel’s liquidity ratios, EU Solvency II and CRD IV, and moving OTC derivatives to CCPs. Unless there is a rebound in the pledgeable collateral market, the likely asymmetry in the demand and supply in this market may entail some difficult choices for the markets and the regulators…."

  • A somewhat obvious and related point here, but the loss of “safe” status for so much debt contributes to the deleveraging burden of European banks and their American subsidiaries; by definition it means higher risk weightings for these assets….

  • Another obvious and related point, which is that the ECB is now accepting everything but your dirty socks as collateral. Not much choice in the matter, we suppose, if it wants to ease the liquidity strains caused by the broken interbank market. What else can it lend against?

  • Historically, a Triffin Dilemma — and that’s kinda what this is — leads to funky innovations in the shadow banking system and all the complications that such innovations bring….

  • You can see in the chart that before the crisis, US Treasuries were an important but minority amount of the world’s stock of safe haven assets. Treasuries are now the vast majority of such assets. But this is because of the extraordinary decline in the other kinds of assets and because of quantitative easing by the Fed, not because the outstanding stock of Treasuries has increased by so much. Issuance in recent years hasn’t been nearly big enough to make up for the decline in other kinds of safe assets or, certainly, to correct the imbalance between investor demand for safe assets and outstanding supply…. [T]his further confirms how absurd it is that the US government has spent so much time this year bickering over deficits rather than economic growth, and that the US economy confronts a fiscal drag beginning next year…

In a way, it is a product of trust--or, rather, of the absence of same. Markets in which people do not trust each other are subject to adverse selection problems: they collapse, or function badly. It is the purpose of institutions, especially financial institutions, to substitute for the trust that does not exist. And when the financial underpinnings needed to substitute for trust are not present, the macroeconomy can go badly awry as well.

Consider something as simple as market exchange. My wife's and my earning power right now is not quite enough to exclude us from the 99%, but it is enough to exclude us from the 98%. We are not going to flee our domicile and change our names. Yet somehow we can't just go to the store, pick things out, and tell the cashier: "We'll owe it to ya. We're good for it." (Indeed, the only person in this Fallen Sublunary Sphere willing right now to lend us unsecured money for a more-than-30-day term is Tom Goldstein, and he is probably getting antsy about his $40 right now…) We have to show up with cash money to grease our transactions so that the cash can serve as a substitute for the trust that is not there. Thus an economy in which money is short--an economy in a liquidity squeeze--falls into a monetarist recession.

However, it is not just cash money that an economy needs to possess in sufficient quantities to substitute for the absence of trust in spenders. Spenders give you money in order to substitute for trust. But consider businesses seeking to borrow and invest. They can't give you money to make you trust them--the whole point is they want you to let them have your money now and for them to pay you back later after their ships have come in. What they need to give you, instead of the cash that you are giving them, is savings vehicles--bonds--of sufficient expected value. Economies can have a shortage of savings vehicles as well as of cash, and can suffer Wicksellian as well as monetarist recessions.

Last, there are a whole set of transactions in which what the counterparty wants is not your cash or your bond to substitute for nonexistent trust, but rather some safe and liquid collateral: a particular, peculiar bond that they are confident will maintain its (nominal, at least) value at maturity and that they are confident everybody else will be confident will maintain its (nominal, at least) value at maturity so that it will be useful as a means of raising cash in a hurry now. That's what AAA assets are good for. And when an economy is short of AAA assets, it can fall into a recession--but not a monetarist or a Wicksellian recession, rather an Minskyite recession--because in the absence of long-enough collateral chains the web of banking intermediation would have to run on trust that isn't there. Cash substitutes for trust to enable spenders to spend. Bonds substitute for trust to enable businesses with investment projects to raise financing for them from savers. Safe assets are needed (i) to make people averse to risk sleep soundly, and (iii) to substitute for trust in the complex intermediate transactions that sit between savers and borrowers and allow bankers to make their nut.

(Cf.: Jeremy Stein (2011), ["Monetary Policy as Financial-Stability Regulation"](Monetary Policy as Financial-Stability Regulation Jeremy C. Stein); Jeremy Stein (2010), "Securitization, Shadow Banking, and Financial Fragility"; Tracy Alloway (2011), "The AAA Bubble".)


FT Alphaville » The AAA bubble: This, we think, could well be the most important chart in the world right now:

FT Alphaville  The AAA bubble

Twitterstorm delong: December 21, 2011

  • altmandaniel Daniel Altman Well worth reading: a response to Jamie Dimon and the other self-righteous members of the 0.001% - HT @delong 4 hours ago

  • EricMartin24 Eric Martin Capitalism! RT @delong: European Central Bank Lends Record $639 Billion To Banks Over 3 Years via @zite 4 hours ago

  • dooleysarahe Sarah Dooley Check out that chart: RT @delong Ron Paul Is Now the Republican Frontrunner via @Shakestweetz @EricBoehlert @zite 5 hours ago

  • Mobute Mobutu Sese Seko @delong @pareene Dunno if it much registers with you, but here are 50+ scans of the Ron Paul newsletters + quotes 11 hours ago

  • Moby_Hick Moby Hick Binge drinking still OK? "@delong: An estimated 75% of U.S. esophageal cancers attributable to chronic, excessive drinking @haroldpollack" 22 hours ago

  • danee_economics danee RT @delong: Taking Radical Uncertainty Seriously in Economics - Institute for New Economic Thinking 20 Dec

  • infinite_me Scott Gosnell @ @delong If only self-pity could be tranched into new securities. 20 Dec

  • ekfletch Erin K Fletcher This GOP frontrunner article is worth a look just for the graph. Finicky, those Iowa voters. ht @delong 20 Dec

  • alanbeattie Alan Beattie @ @delong @zite WRT Politifact's logic, presumably Congress could relabel the defense budget "Medicare" and record a huge rise? 20 Dec

  • DemocratMachine VivaMachine! If we recall Republican voters correctly, being accused of racism and walking off of a CNN interview will propell Ron Paul ahead of Romney 12 minutes ago Retweeted by delong

  • pandagon Jesse Taylor Ron Paul was too busy delivering the future of the white race to keep track of his newsletter. It happens. 10 minutes ago Retweeted by delong

  • tanehisi Ta-Nehisi Coates Paul now claims he "never read" any of the letters that went out in his name. 17 minutes ago Retweeted by delong

  • tanehisi Ta-Nehisi Coates What sort of functional adult, let alone a president, sends out newsletter in his name and never reads them? 16 minutes ago Retweeted by delong

  • tedlieu Ted Lieu My analysis of Propublica redistricting piece: there was public testimony. New maps favor Dems. Ergo public testimony must be tainted. What? 41 minutes ago Retweeted by delong

  • DemocratMachine VivaMachine! The Mitt Romney Survival Report wasn't a newsletter, just a plan by Romney to change all of his positions to win elections #p2 22 minutes ago Retweeted by delong

  • delong J. Bradford DeLong Social media in the 16th Century: How Luther went viral | The Economist 25 minutes ago

  • drgrist David Roberts It's discrimination, I tell you. Discrimination against racists. #leaveronpaulalooooone 27 minutes ago Retweeted by delong

  • drgrist David Roberts Ron Paul is sick of people using his racism as some kind of attack on him. 29 minutes ago Retweeted by delong

  • daveweigel daveweigel I want to hear from angry former subscribers to the Ron Paul Survival Report who thought he was writing them 29 minutes ago Retweeted by delong

  • jayrosen_nyu Jay Rosen It's hard to describe how... frustrated! I am by @Politifact and the way they made it impossible for me to defend them. 1 hour ago Retweeted by delong

  • afrakt Austin Frakt A market failure hidden in plain sight. MT @davidmwessel: The world shortage of safe financial assets. 3 hours ago Retweeted by delong

  • Mobute Mobutu Sese Seko nods in rocker RT @redfivetwo: Do you remember perpetual race war and being allowed to lynch certain types of people? Ron Paul remembers. 3 hours ago Retweeted by delong

  • drgrist David Roberts Worth noting: clean-air rules are "controversial" only inside the Beltway. Americans overwhelmingly support them. 3 hours ago Retweeted by delong

  • drgrist David Roberts Looks like the "kids' health" special interest has outmaneuvered the "profits for utility execs" special interest, at least for now. 4 hours ago Retweeted by delong

  • drgrist David Roberts Remember when industry said that reducing acid-rain gases would crush the economy & cause blackouts? How'd that turn out? 3 hours ago Retweeted by delong

  • drgrist David Roberts Remember when industry said that removing lead from gasoline would crush the economy & drive gas prices up forever? How'd that go? 3 hours ago Retweeted by delong

  • drgrist David Roberts Remember when industry said that restricting ozone-depleting gases would crush the economy & drive jobs overseas? How'd that go? 3 hours ago Retweeted by delong

  • EricBoehlert Eric Boehlert its funny becus its true.......Romney Tortures Jennifer Rubin; #mittens 3 hours ago Retweeted by delong

  • delong J. Bradford DeLong European Central Bank Lends Record $639 Billion To Banks Over 3 Years via @zite 5 hours ago

  • AdamSerwer AdamSerwer How does the term "niggabitch" have "no racial motive?" 20 Dec Retweeted by delong

  • daveweigel daveweigel Story implies reporters have dug up more about Paul's newsletters. No. Kirchick just pointed back, said "AHEM." 20 Dec Retweeted by delong

  • TERKELRAGE Amanda Rage In a way, this was a prelude to the “War on Christmas.” Sorry, Fox News, Antiochus IV isn’t available to substitute host “The Five.” 20 Dec Retweeted by delong

  • medialens Media Lens @ @ggreenwald Hitchens (1976): 'Saddam Hussain... [is] perhaps the first visionary Arab statesman since Nasser' 20 Dec Retweeted by delong

  • felixsalmon felix salmon THIS is UK politics RT @jamescrabtree: Amazing: Ed Miliband, snapped with his head in his hands, via Google St view — 20 Dec Retweeted by delong

  • brianbeutler Brian Beutler Nearly forgot about this RT @daveweigel Psst, PolitiFact "Democrats" didn't 1st claim Ryan plan ended Medicare. WSJ did 20 Dec Retweeted by delong

  • daveweigel daveweigel @ @ThePlumLineGS It's just weird, in a whole piece about fact-checking, that they fail to mention the original story that Dems were citing. 20 Dec Retweeted by delong

  • pandagon Jesse Taylor Conservatives have finally admitted that racism exists and that white people are capable of it...but only in the form of Ron Paul. 20 Dec Retweeted by delong

  • delong J. Bradford DeLong Things I Did Not Know: Peter Schiff forced to work directly for government, which is legally entitled to arrest him ... 20 Dec

  • jbarro Josh Barro Dems should dial back their rage against "middle class tax hikes, " since we're eventually going to need some to pay for programs they like. 20 Dec Retweeted by delong

  • ThePlumLineGS Greg Sargent If I bought @PolitiFact & converted it into a direct mail enterprise, & you said I ended @PolitiFact, you would be Liar of the Year 20 Dec

Paul Krugman: Cutting Government Spending Right Now Increases Long-Term Fiscal Risk


Olivier Blanchard Isn't Very Serious: And when you bear in mind that the Very Serious People have been wrong about everything, that’s a very good thing…. Blanchard’s blog post on what went wrong in 2011 is, in fact, totally sensible and on point… contains something of a bombshell….

Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability…

If I have this right, Olivier is suggesting that harsh austerity programs may be literally self-defeating, hurting the economy so much that they worsen fiscal prospects.

This in turn means that the analogy to medieval doctors who bled their patients, then bled them even more when the bleeding made them sicker, is exactly right: austerity reduces growth prospects, leading to calls for even more austerity.


Well, yes…

Consider a model with two periods: a present and a future

In the present, we shrink government purchases by ΔG to establish the credibility of our fiscal consolidation program. With a multiplier m amplifying the retarding effect of lower spending on output now and a marginal tax rate τ, we find that we are saving only:

(1 - τm)ΔG

in reduced debt issue.

Now let's look at the future. Some fraction of our extra cyclical unemployment now turns into permanent structural unemployment as discouraged workers permanently drop out of the labor force and those who don't drop out see their skills atrophy to some extent. Call the amount of this hysteresis η: the share of today's temporary reduction mΔG in output that is permanent. Then our tax collections in the future are lower each year by:


and the present value today of future tax receipts is lower by:


where r is the long-run real interest rate on government debt and g is the long-run growth rate of the economy.

The fiscal situation is improved by consolidation today if and only if:

(1 - τm)ΔG > τηmΔG/(r-g)

if and only if the reduction in debt today is larger than the present value of the reduction in taxes in the future. Thus we need:

(r-g)(1/τm - 1) > η

With a zero-lower-bound multiplier of 1.5 and a marginal tax rate of 1/3:

(r-g) > η

g for the U.S. today is somewhere between 2.5 and 3%/year. Over the past two years, as the employment-to-population ratio has held steady, the labor force participation rate has fallen by a full percentage point. That suggests that each year in which cyclical unemployment is stuck 5% above normal sees one-tenth of that cyclical unemployment turn into structural unemployment, an η of 0.1.

That means that as long as the long-term real interest rate at which the U.S. borrows is less than 12.5%/year, cutting government spending this year worsens the long-run fiscal situation.

Why, then, isn't more government spending always good? Because in normal times, when we are not at the zero lower bound, the multiplier m is not 1.5 but rather something like 0.1 or even 0.0.

20111129 Summers DeLong Fiscal Policy in a Depressed Economy copy key

20111129 Summers DeLong Fiscal Policy in a Depressed Economy copy

20111129 Summers DeLong Fiscal Policy in a Depressed Economy copy 1

Obama Economic Policy: Ezra Klein Buries His Lead in His Very Last Paragraph Edition

Ezra Klein concludes:

Paul Krugman vs. the White House: Stimulus edition: I do think it’s odd that the administration didn’t leave itself more rhetorical room for the stimulus to be too small. There was a “to be sure” paragraph in the president’s speech celebrating the passage of the stimulus, in which Obama said, “I don’t want to pretend that today marks the end of our economic problems, nor does it constitute all of what we’re going to have to do to turn our economy around.” But the overall tone was celebration, optimism and turning a corner. There could have been a lot more “we’re not sure this is enough, but we hope it is, and if it isn’t, we’ll be back for more.”…

The stimulus was too small, but it probably couldn’t have been much bigger…. In other words, Krugman was right. But if he had been president, I’m not sure that unemployment would be vastly lower today. Or, if it was vastly lower, I think it would be due to decisions related to the housing market and the Federal Reserve rather than the stimulus.

Ummm… Ezra, look at those last two sentences you wrote. And explain to me why putting people in charge of housing and monetary policy who took the macro situation more seriously wasn't the administration's top priority.

Mobutu Sese Seko on Ron Paul


Et tu, Mr. Destructo?: Game Over: Scans of Over 50 Ron Paul Newsletters: For a certain segment of the Ron Paul fanbase, no evidence of his disseminating hateful, paranoid material will ever be enough. Citing James Kirchick's piece in The New Republic wasn't sufficient, because Kirchick could have just been "making everything up." Then, when I and others posted copies of "The Ron Paul Political Report Special Issue on Race Terrorism," that too wasn't convincing.

Proof that he said/endorsed racist things? Hardly. Doing it repeatedly in one document isn't enough to prove that he did it. Now, if there were many documents...

Well, now there are many documents. Over fifty. Right here….

Paul supporters face three losing propositions:

  • He lacks the competency to control content published under his own name for over a decade, and is thus unfit to lead a country.
  • He doesn't believe these things but considers them a useful political tool to motivate racist whites, which makes him fit to be a GOP candidate, but too obvious about it to win.
  • He's actually a racist, which makes him unfit to be a human being.

Further, you can't dismiss this in the name of higher political or socioeconomic aspirations. Since Paul has no chance of winning — seriously, no chance at all — his only value is as a voice, a conduit for principles. And if your only hope is to change the discourse by amplifying ideas, you can do that via many voices and avenues…. It's fine to have convictions about things he believes in. But when you voluntarily whitewash his record or choose to ignore it and champion him anyway, you are complicit in supporting the idea that racism and homophobia are morally inconsequential to the process of running for President of the United States…

And It Is Time for Another Message from Republican Presidential Candidate Ron Paul...

Vicemag has another message for us from Republican Iowa Presidential nomination front-runner Ron Paul:

VICE: I’ve been told not to talk, but these stooges don’t scare me. Threats or no threats, I’ve laid bare the coming race war in our big cities. The federal-homosexual cover-up on AIDS (my training as a physician helps me see through this one.) The Bohemian-Grove—perverted, pagan playground of the powerful. Skull & Bones: the demonic fraternity that includes George Bush and leftist Senator John Kerry, Congress’s Mr. New Money. The Israeli lobby, which plays Congress like a cheap harmonica. And the Soviet-style “smartcard” the Justice Department has in mind for you…

It's not just that Ron Paul is a race-baiter. It's not just that at all...

Olivier Blanchard on Why 2011 Turned Out So Much Worse than Expected

To the extent that people think that I am smart--to the extent that I have been smart at analyzing what has been going on over the past five years--it is because a have a functional OBEM, a functional Olivier Blanchard Emulation Module, operating in my neocortex:


2011 In Review: Four Hard Truths: What a difference a year makes…

We started 2011 in recovery mode.... The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation. It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill…. I draw four main lessons from what has happened.

  • First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications. Multiple equilibria are not new…. What has become clearer this year is that liquidity problems, and associated runs, can also affect governments. Like banks, government liabilities are much more liquid than their assets—largely future tax receipts….

  • Second, incomplete or partial policy measures can make things worse….

  • Third, financial investors are schizophrenic about fiscal consolidation and growth. They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds…. I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt.  There is a proverb that actually applies here too: “slow and steady wins the race.”

  • Fourth, perception molds reality…. [N]ot much happened to change the economic situation in the Euro zone in the second half of the year. But once markets and commentators started to mention the possible breakup of Euro, the perception remained and it also will not easily go away.  Many financial investors are busy constructing strategies in case it happens….

Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago. It will take credible but realistic fiscal consolidation plans. It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved. I am hopeful it will happen. The alternative is just too unattractive.


Watching People Read...

Tedra Osell says:

Reading Coates Reading Eliot: If you’re not following Ta-Nehisi Coates as he reads Eliot’s Middlemarch, you’re really missing out. It’s one of my favorite novels, so I’m having great fun reading someone who is really smart read something I’m familiar with for the first time. I love reading Coates, and in this case especially so. He’s no callow undergrad and he writes better than anyone I can think of, which means reading him is not merely the familiar pleasure of observing students’ first encounter with a familiar novel. His frame of reference is totally intellectual but not “academic” in the conventional sense: rigorous but really fresh. His go-to for beautiful language is hip hop, which I like just fine but am not particularly familiar with, so I’m getting new insights into Eliot along with a little mini-education in rap music, plus occasional comparisons to his research into the Civil War (which has anyone posted here about that yet? Because damn). Just so much fun.

Liveblogging World War II: December 21, 1941

Wake Island: By December 21, eleven days after the Wake Island Marines had repelled the first assault on the atoll, Fletcher and Saratoga were still 600 miles from Wake. The Japanese were much closer, and in much greater force. A day earlier, Admiral Kajioka had sortied from Kwajalein with a second assault force, this time reinforced with four heavy cruisers. In the north, the carriers Soryu and Hiryu were detached from the Pearl Harbor strike force, their planes pouncing on Wake on December 21. Wake's last two Marine Wildcats scrambled into the air, and though badly outnumbered managed to down a Zero before being forced down themselves. But Wake was now bereft of air defense, and the promised relief mission nowhere in sight: in fact, at the time of the raid, Fletcher's force was refueling and, due to heavy seas, sailing away from Wake.

On receiving word of the carrier-based raid, Pye's resolve began to weaken. Fearing that Saratoga and Lexington were sailing into a trap, and not knowing the disposition of Japan's carriers, he ordered both task forces not to approach closer than 200 miles to Wake. Tangier, instead of landing reinforcements and supplies on Wake, was ordered to evacuate the atoll…

Quote of the Day: December 21, 2011

"It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin.

"There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all this without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes.

"The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

"We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

"Of course, these adjustments are probably never "perfect" in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or "normal" level…"

--Friedrich von Hayek, "The Use of Knowledge in Society"

Creation of Eä "Only in Silence the Word" Blogging: Jo Walton on Ursula K. LeGuin's "The Farthest Shore"

It is the Feast of Sunreturn:

Jo Walton on Ursula K. LeGuin's The Farthest Shore:

Only in Silence the Word: Ursula Le Guin’s The Farthest Shore:

[T]here were two things in it I couldn’t bear. One was the bit which seemed to last forever and which is in sober count four pages, where the madman Sopli, the dyer of Lorbanery, is in the boat with Arren and Ged, and Arren is mad too and doesn’t trust anyone. The other is the moment when the dragon Orm Embar loses his speech. I don’t know why I found this so peculiarly horrible, but I did — worse than all the joy going out of everyone’s craft and names losing their power. I hated that, but I found the dragon without speech and reduced to a beast far worse….

Le Guin says this is about death, but it seems to me it’s about the way the fear of death sucks all the joy out of life. This is, to put it mildly, an odd subject for a children’s book…. The message, that life is a word spoken in the darkness and to accept that and laugh is the only way to go on, turned out to be terribly useful to me a few years later when I had to deal with death close up. The Farthest Shore gave me far more consolation than religion when it came to it. So while I didn’t understand it at nine, it saved me from feeling suicidal at eleven….

So, I still don’t like the bit in the boat with Sopli, and I still hate hate hate Orm Embar losing his speech. I noticed again how beautifully it’s written. These books are gorgeous…

Yet Another Reason the Washington Post Should Shut Itself Down Today...

Outsourced to Jonathan Chait:

Romney Tortures Jennifer Rubin: Romney is making life hard for his Republican Jewish fans.

I’ve written before about the agonizing plight facing Jennifer Rubin, the Washington Post blogger. On the one hand, Rubin’s deepest roots lie in ultra-hawkish pro-Israel neoconservatism. On the other hand, Rubin has appointed herself unofficial spokesperson for Mitt Romney’s presidential campaign, using her blog to record a daily procession of Romney’s wise choices and brilliant triumphs, along with the pathetic failures of all who challenge him.

Normally, these two loyalties would sit easily side by side. But fate has cruelly pitted her loyalties against each other. Last week, Romney’s main rival, Newt Gingrich, scoffed at the Palestinians’ claims to statehood. Rubin sided with Romney, savaging Gingrich as “irresponsible” for uttering an opinion far milder than the sort of thing Rubin writes routinely.

Then again today, it got worse. Romney said he is undecided on pardoning Israeli spy Jonathan Pollard or moving the U.S. embassy to Jerusalem. Rubin’s take?

On Pollard, there is a great deal of classified material that would need to be examined and a complex set of considerations on U.S.-Israel relations before a president rendered a decision. Some prominent figures on both sides of the aisle have urged President Obama to take action. But for Romney, making a snap decision, or saying as Gingrich did, that he’s largely made up his mind, would be rash. As with any pardon, it’s unwise and vaguely inappropriate for a presidential candidate to make promises.

As for Jerusalem, it really is time to stop promising something that the U.S. can’t and shouldn’t deliver unilaterally. If we want to maintain our role as a future broker in the (however presently dormant) “peace process,” we’re not going to make a move that will be read as a fait accompli on the final status of Jerusalem. For a presidential candidate, this is about judgment, restraint and having the good sense to imagine one might actually win and want options.

Friends of Israel should be pleased with the majority of the GOP presidential candidates’ views on Israel. 

Wait. Seriously? Rubin is against candidates posturing in favor of moving the U.S. embassy to Jerusalem? Here she is last year praising the Jerusalem Embassy Act, and lauding Marco Rubio for pledging to move the embassy to Jerusalem. Oh, and you can read her here, here and here writing approvingly of the movement to pardon Pollard. You can only imagine how she would have responded if, in 2008, Obama had given the same remarks Romney made yesterday. How much more will the GOP contenders torture Rubin?

Look for LTRO at 2:15 AM PST

Adam Button:

Look for LTRO at 5:15 am ET | ForexLive: Several inquiries about this one. That’s nine hours from now, 7:15 p.m. in Tokyo, 10:15 am GMT. It may be out a few minutes early or late. Jamie’s "guess the LTRO" contest is a hit so far. Reuters has surveyed 23 monkeys economists and the range is € 50-€450B with the median at €250B. I suspect the market is priced for at least €300B. Mark me down at the high end of the range or higher. A strong, carry-trade-driven bid makes perfect sense to me.

David Romer: The Need for Fiscal Policy

David Romer (March 2011): What Have We Learned about Fiscal Policy from the Crisis?:

Lesson 1: We need fiscal tools for short-run stabilization. The first lesson is straightforward: we need fiscal tools for short-run stabilization. Before the crisis, there was broad agreement among macroeconomists and policymakers that short-run stabilization was almost exclusively the province of monetary policy. Monetary policy is more flexible; it is more easily insulated from political pressures; and it can more easily be put in the hands of independent experts. We thought that the zero lower bound would bind infrequently and not sharply; and that in the unlikely event that it did bind sharply, monetary policymakers had other tools they would use in place of reductions in the policy interest rate.

We now know that this view was wrong. We suffered shocks larger than what almost anyone thought was within the realm of reasonable possibility. The constraint imposed by the zero lower bound turned out to be huge (for example, Rudebusch, 2009). And central banks did not use tools other than the policy rate on a scale even remotely close to large enough to make up for the loss of stimulus caused by the zero lower bound.

Perhaps this lack of aggressiveness in using those tools reflects an understanding of the costs of using them that has eluded conventional analyses. But central bankers have yet to provide evidence of such costs. A more likely possibility, in my view, is that the culture of central banking makes it much easier to take unusual steps when the financial system is at risk than when the threat is “merely” one of years of exceptionally high unemployment. But regardless of the reason, monetary policy was not used aggressively enough to prevent very large demand shortfalls.

So, countries needed other tools. And the alternative to monetary tools is fiscal ones. For that reason, almost every major country adopted substantial discretionary fiscal stimulus in the crisis (U.S. Council of Economic Advisers, 2009). Given that we could face another major demand shortfall in the future, it follows that we need instruments of discretionary fiscal stimulus as part of the macroeconomic toolkit...

It's Maynard Keynes's World...

Paul Krugman:


  1. There has been no crowding out; interest rates outside the euro area have remained low despite massive government borrowing, which is what you’d expect in a liquidity trap.

  2. Inflation has been quiescent despite huge increases in the monetary base, again what you’d expect in a liquidity trap.

  3. Fiscal austerity has deepened the economic downturn everywhere it has been put in place.

Were these predictions different from what non-Keynesians were saying? And how. Go back to Niall Ferguson, or Brian Riedl, etc., and you’ll find confident assertions that all that government borrowing would send interest rates soaring. Go back to the likes of Allan Meltzer or the Austrians, and you’ll find confident predictions that all that money printing would cause an explosion of inflation. And just about everyone on the right bought into some version of the doctrine of expansionary austerity.

But, but, the Obama stimulus didn’t bring unemployment way down! Indeed — and those of us who took our Keynes seriously warned of just that.

So what the anti-Keynesians are left with are the sovereign debt troubles in the euro area. But as many of us have tried to explain, these are really balance of payments crises exacerbated by the refusal of the ECB to act as lender of last resort.

And bear this in mind: no country has driven itself into a debt crisis with stimulus — nor has any country with significant debt regained investor confidence through austerity.

Look, I know that many people can’t bring themselves to even consider the possibility that Keynes was right — or, for that matter, that I personally might have gotten anything right. But reality has been really clear here.

The truly puzzling questions are: Why is the world right now so "Keynesian"? And what might make it stop being so Keynesian?

A "Keynesian" world is a world in which three things are true:

  1. Spending is held down not because of a shortage of liquidity but because people's portfolios don't have enough or the right kind of savings vehicles to make them happy.

  2. Investors are eager to hold the nominal liabilities of governments that can print money at will and so turn those liabilities into cash with certainty--never mind any long-term political-economic inconsistency between spending plans and tax rates.

  3. Private-sector leverage is sufficiently high that adjustments to reduced spending via lowering the path of the price level are perverse--that they create enough bankruptcies and moral-hazard credit-channel problems that they such adjustments push the pace of production not up but down.

That these things are true right now seems to me to be indisputable. I think I understand why (1) and (3) are true. But I don't think I have a good understanding of why (2) is true. The Princes of Canary Wharf and Midtown I talk to say that at this conjuncture they think that if they take on risk and then have a bad year that they are then out of the game--lose their existing clients whose money they manage and cannot attract new ones. Thus, they say, their only option is to hunker down and try to hold as low risk a portfolio as possible so that they will still be in the game when the return to normalcy comes about.

I then say: I understand that in that case you would like to be holding cash. But why the #$$&*@^! would you be eager to hold 30-Year U.S. Treasuries at a nominal yield of 2.79%/year? 30-Year TIPS at a real yield of 0.68%/year? Houses in Elmwood are selling at a price-annual rental ratio of 12, for Jeebus' sake! The earnings yield on the S&P Composite is 6%/year. Those are extraordinary return gaps in expected returns. Why not sell some of your long-duration U.S. Treasury and Agency assets and try to take advantage of them?

And the answer to that is: we will, but we won't start selling our long-duration Treasury and Agency assets until the market turns and Treasury bonds start to fall in price.

US Generic Govt 10 Year Yield  USGG10YR IND Index Performance  Bloomberg

And I say: What if you are not first? At the moment, you are earning 2%/year on your 10-Year Treasuries relative to zero on your cash, but if the 10-Year interest rate normalized to its 2007 level tonight you would have lost 23% of your principal... by dawn

Ron Paul Is Now the Republican Front Runner

This is very bad. Very bad indeed. "I tremble for my country" bad...

Ta-Nehisi Coates:

Ron Paul's Shaggy Defense: Ron Paul's racism newsletters are, again, becoming an issue. The standard defense has generally been Paul didn't write the newsletters. I… question the faculties of an adult who would allow a newsletter filled--by Paul's own admission--with bigotry to be published under one's name….

I think it's extremely important that the discerning consumer understand that the problem is [also]… that when initially asked about them Paul actually defended the letters. As Matt Welch reported back in 2008, In 1992, Paul published a newsletter in which he claimed:

Given the inefficiencies of what DC laughingly calls the criminal justice system, I think we can safely assume that 95 percent of the black males in that city are semi-criminal or entirely criminal.

Paul defended this statement citing criminal justice stats and saying, "These aren't my figures," Dr. Paul said Tuesday. "That is the assumption you can gather from" the report.

In that same column, Paul noted that:

If you have ever been robbed by a black teenaged male, you know how unbelievably fleet of foot they can be.

Challenged on this assertion Paul said in his defense:

"If you try to catch someone that has stolen a purse from you, there is no chance to catch them," Dr. Paul said.

That same year Paul asserted that,

Opinion polls consistently show that only about 5 percent of blacks have sensible political opinions.

Paul defended the comment through his spokesman:

Sullivan said Paul does not consider people who disagree with him to be sensible. And most blacks, Sullivan said, do not share Paul's views. The issue is political philosophy, not race,

Sullivan said. "Polls show that only about 5 percent of people with dark-colored skin support the free market, a laissez faire economy, an end to welfare and to affirmative action," Sullivan said. [...] 

"You have to understand what he is writing. Democrats in Texas are trying to stir things up by using half-quotes to impugn his character," Sullivan said. "His writings are intellectual. He assumes people will do their own research, get their own statistics, think for themselves and make informed judgments."

You can make what you will of that defense…. Paul not only did not disown the opinions at the time, he actively claimed them as his own and then disparaged anyone who questioned his words:

"If someone challenges your character and takes the interpretation of the NAACP as proof of a man's character, what kind of a world do you live in?" Dr. Paul asked. 

In 2001, Paul found himself in a new millennium, and a new country, and in due course, came upon a different tune. Confronted with the newsletters in 2001 (before The New Republic story) and particularly his brutal attack on Barbara Jordan as "Barbara Morondon," the "archetypical half-educated victimologist" whose "race and sex protect her from criticism" Paul explained:

When I ask him why, he pauses for a moment, then says, "I could never say this in the campaign, but those words weren't really written by me. It wasn't my language at all. Other people help me with my newsletter as I travel around. I think the one on Barbara Jordan was the saddest thing, because Barbara and I served together and actually she was a delightful lady." Paul says that item ended up there because "we wanted to do something on affirmative action, and it ended up in the newsletter and became personalized. I never personalize anything." 

His reasons for keeping this a secret are harder to understand: "They were never my words, but I had some moral responsibility for them ... I actually really wanted to try to explain that it doesn't come from me directly, but they [campaign aides] said that's too confusing. 'It appeared in your letter and your name was on that letter and therefore you have to live with it.'"

Note Paul's language: It "ended up" in the newsletter. "Other people" wrote the words. "Campaign aids" said that honesty was too confusing. No actual named person did anything. 

Racism, like all forms of bigotry, is what it claims to oppose--victimology. The bigot is never to blame. Always is he besieged--by gays and their radical agenda, by women and their miniskirts, by fleet-footed blacks. It is an ideology of "not my fault." It is not Ron Paul's fault that people with an NAACP view of the world would twist his words. It is not Ron Paul's fault that his newsletter trafficked in racism. It is not Ron Paul's fault that he allowed people to author that racism in his name. It is anonymous political aids and writers, who now cowardly refuse to own their words. There's always someone else to blame--as long as it isn't Ron Paul, if only because it never was Ron Paul.

This is not a particular tragedy for black people. The kind of racism which Paul trafficked is neither innovative nor original. Even his denials recall the obfuscations of Jefferson Davis and Alexander Stephens. But some pity should be reserved for the young and disgruntled, for those who dimly perceive that something is wrong in this country, for those who are earnestly appalled by the madness of our criminal justice policy, for those who have watched a steady erosion of our civil liberties, and have seen their concerns met with an appalling silence on the national stage. That their champion should be, virtually by default, a man of mixed motives and selective courage, is sad. 

MORE: Scans of Ron Paul's newsletters can be seen here. Also, I want to urge people to read Matt Welch's piece.

DeLong Smackdown Watch: Matthew Yglesias on Structural Change and Macroeconomic Vulnerability in the 1920s and Today Edition

Matthew Yglesias writes:

DeLong Smackdown Watch: Structural Change and Macroeconomic Vulnerability in the 1920s and Today Edition: I have several problems with this logic, but for starters you need to add something about a very low pre-crisis rate of inflation. (3) refers to a low real natural rate of interest to produce full employment. Had we been targeting five percent inflation rather than two percent inflation before the crisis, then nominal rates would have had three more percentage points to fall before hitting zero. To the extent that you really believe the zero bound on nominal rates constrains monetary policy, the first order conclusion ought to be that an economy needs to run a fairly high rate of (non-accelerating) inflation in order to leave room.


That is why some of us have called for a 4 or a 5%/year inflation target rather than a 2%/year one...

Would the Washington Post Please Shut Down Today?

Outsourced to Dean Baker:

Inequality and Growth: Charles Lane Tells It Like It Isn't: Charles Lane tells Washington Post readers that:

Western Europe’s recent history suggests that flat income distribution accompanies flat economic growth. Which European country recorded the biggest decrease in inequality between 1985 and 2008? That would be Greece.

An argument based on a sample of one may fit the standards of the Washington Post, but it is not the sort of thing that normal people would find compelling. If we look the IMF's data on per capita GDP growth since 1980 one would be hard-pressed to find a clear relationship between inequality and growth. The United States, an outlier for being unequal, does do relatively well…. However, the much more egalitarian Swedes and Dutch fared even better….

The fact that there is no clear link between inequality and growth suggests that inequality is the result of the institutional and political structure, not the dynamics of the economy. For example, in the United States we allow banks to enjoy the benefit of too big to fail insurance from the government, which means that they can take big risks with money borrowed from creditors. When the bets pay off, the executives get huge paychecks. When they don't, the taxpayers get the bill. This policy promotes rent-seeking, not growth. Also, unlike Europe and Asia, we have rules of corporate governance that allow top executives to rip off their corporations by paying themselves huge salaries, even when they fail. This policy also does not contribute to growth.

We also have a policy of making it difficult for foreign professionals to compete with highly paid professionals in the United States…. And we have a policy that gives patent monopolies to drug companies….

These and other policies that redistribute income upward do not promote growth. Unfortunately, these policies will almost never be discussed in the pages of the Washington Post which restricts itself to the sort of simplistic growth versus inequality nonsense presented by Lane.


Greg Sargent on Why America Cannot Remain Great Unless the Republican Party as We Know It Vanishes from the Stage

Greg Sargent:

The Morning Plum - The Plum Line - The Washington Post: Tea Party conservatives dislike taxes, but they dislike Obama even more: Yesterday, House Speaker John Boehner announced that House Republicans won’t support the Senate’s deal to temporarily extend the payroll tax cut for over 150 million workers. The compromise prompted an uprising among the House GOP’s Tea Party wing…. Is denying Obama a victory — one that would help the economy, which could make Obama’s reelection prospects a shade brighter — a higher priority for them than even cutting taxes?

Conservatives have a variety of explanations for opposing the compromise. One is that it’s only two months. But as Ezra Klein and Steve Benen point out, they won’t agree to a clean year-long extension, which is why the shorter-term one had to be negotiated in the first place. Another claim is that the Senate deal isn’t really a compromise, as GOP Rep. Tom Cole put it. But Republicans got their number one priority — the Keystone XL pipeline — included in the deal, while Democrats dropped their number one demand, i.e., that the extension be paid for by a millionaire surtax. Senate Republicans overwhelmingly supported the deal. If this deal isn’t a compromise, then the word has lost all meaning for conservatives, which may be the real story here.

A third reason is that a two-month extension is bad politics for Republicans. On a conference call, House Majority Whip Kevin McCarthy reportedly argued against the compromise partly because it would allow Obama to again browbeat Republicans into extending the tax cut during his State of the Union address in January. Such balanced priorities!

This latest impasse reveals just how extreme, intransigent, self-indulgent and hostile to basic norms of governing the Tea Party wing has become. It’s as if compromise itself must be opposed, for its own sake, regardless of what any particular compromise contains. This is another case in which the public is seeing with total clarity the disastrous results of giving the Tea Party a seat at the governing table…