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January 2012

Cameron Langford: Investors Say Supply Sider Arthur Laffer Backed a Ponzi Scheme

Cameron Langford:

Courthouse News Service: HOUSTON (CN) - Fifty-two investors claim fund managers associated with supply-side economist Arthur Laffer took $3.1 million to prop up a Ponzi scheme, then said nothing as their money was "wasted with no reasonable expectation of recovery." Lead plaintiffs Ronald and Lavonne Ellisor sued David Wallace, Costa Bajjali, and their entities Wallace Bajjali Development Partners LP, Wallace Bajjali Investment Fund II LP, the Laffer Frishberg Wallace Economic Opportunity Fund LP, and Arthur Laffer in Harris County Court…. A Laffer Associates employee told Courthouse News in a telephone interview today that Laffer has severed ties with the Laffer Frishberg Wallace Economic Opportunity Fund. "He was affiliated with them at one time, but he's not anymore," the employee said...

Twitterstorm delong: January 12, 2012

  • interfluidity Steve Randy Waldman "I love when economics is so squarely focused on the problem that a poor person might get away w/ something" @rortybomb… 1 hour ago Retweeted by delong

  • justinwolfers Justin Wolfers Dear, @nytimes, if you want to show you're old media, include URL's that aren't actually clickable links. Like this:… 1 hour ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine Dear Republicans, If you're looking to defend your future nominee Romney on the Bainkruptcy topic, we're here to help. 18 minutes ago Retweeted by delong

  • froomkin Dan Froomkin Look, of course Art Brisbane doesn't speak for the entire NYT. But his question has a context: today's NYT is no "truth vigilante" 1 hour ago Retweeted by delong

  • ddayen David Dayen Arthur Brisbane getting pounded for his Truth Vigilante column, but I'm going to follow his example and refuse to take sides. 2 hours ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine Reminder: The America We Love is probably a reference to the Gilded Age. #TheMoreYouKnow 5 hours ago Retweeted by delong

  • ThePlumLineGS Greg Sargent Note to NYT Public Editor: It's a choice between fact checking candidates and helping them mislead voters: 5 hours ago Retweeted by delong

  • delong J. Bradford DeLong Eric Platt Misreads the Fed Transcripts... 5 hours ago

  • neeratanden Neera Tanden Fantastic speech at CAP by WH CEA Chair Alan Krueger on causes and consequences of econ inequality; check it out: 5 hours ago Retweeted by delong

  • justinwolfers Justin Wolfers Don't miss @BCAppelbaum's tweets excerpting the Fed minutes from 2006. It's embarrassing how blind economics was to the looming crisis. 6 hours ago Retweeted by delong

  • ThePlumLineGS Greg Sargent Mitt Romney's "capitalism is perfect" defense is so extreme that even Sarah Palin has now condemned it: 6 hours ago Retweeted by delong

  • delong J. Bradford DeLong Internet debate outsource: when has David Brooks lifted a finger to promote a policy that would enhance equality of opportunity? 23 hours ago

  • DanRiehl DanRiehl Romney threatened 2 excommunicate a young single mother if she dnt giv her soon-to-be-born son up 4 adoption 11 Jan Retweeted by delong

  • moelane Moe Lane OK, Team Romney: whoever told Mitt Romney that it was smart to defend Bain by directly comparing it to the auto bailout? FIRE THAT PERSON. 11 Jan Retweeted by delong

  • delong J. Bradford DeLong Ezra Klein Joins the "Macro Policy Through Mortgage Refinance" Caucus

  • dangillmor Dan Gillmor Late 19th century capitalism, that is... RT @delong: Mitt Romney’s extreme defense of capitalism -… 9 minutes ago

  • chgreer Christopher Greer @ @cshirky @delong "Not reporting about obvious lies is a problem? Really? It's not like we're the NYT... Oh wait." 3 hours ago

  • yorksranter Alex Harrowell @ @Pat_Garofalo @delong: "Should newspapers say when politicians are lying? Experts differ" 5 hours ago

  • nomoremister Steve M. @ @delong He does go on a bit about vocational ed, and about giving less gov't help to seniors and more to (presumably) voke students. 22 hours ago

  • jp_mcginnis JP McGinnis this is a real problem, at least of attitude MT @delong: @ModeledBehavior Center left. You guys care abt things like equality of opportunity 23 hours ago

Why We Need the Republican Party as We Know It to WIther, Dry Up, and Blow Away...

Paul Krugman:

Romney and the Bailout: Like a lot of people, I was fairly startled by Mitt Romney’s new defense of his work at Bain: it was just like the auto bailout!

“In the general election, I’ll be pointing out that the president took the reins of General Motors and Chrysler, closed factories, closed dealerships, laid off thousands and thousands of workers. He did it to try to save the business,” Romney said on “CBS This Morning.” “We … had, on occasion, to do things that are tough to try to save a business.”

The first thought is, didn’t Romney write an op-ed titled Let Detroit Go Bankrupt? Yes, he did. But the title was misleading. What he actually called for was a “managed bankruptcy”, with government support — not too different from what actually happened.

So can Romney claim that he was for this successful policy all along? No, he can’t — because when the actual policy was proposed, he trashed it:

What is proposed is even worse than bankruptcy–it would make GM the living dead.

So what the story of Romney and the auto bailout actually shows is something we already knew from health care: he’s a smart guy who is also a moral coward. His original proposal for the auto industry, like his health reform, bore considerable resemblance to what Obama actually did. But when the deed took place, Romney — rather than having the courage to say that the president was actually doing something reasonable — joined the rest of his party in whining and denouncing the plan.

And now he wants to claim credit for the very policy he trashed when it hung in the balance.

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

Arthur Brisbane of the New York Times isn't a train wreck. He isn't a dirigible explosion. He is the fracking incarnation of the exploding Planet Krypton itself.

Jay Rosen watches the trans-galactic horror:

So whaddaya think: should we put truthtelling back up there at number one?: Somewhere along the way, telling truth from falsehood was surpassed by other priorities to which the press felt a stronger duty. Arthur Brisbane, public editor of the New York Times, was unaware of this history when he asked users of the Times whether reporters should call out false statements.

Brisbane’s post, Should The Times Be a Truth Vigilante? exploded onto the web today, startling user after user, and journalist after journalist, all of whom reacted with some version of: Why is this even a question? Alright, I’ll tell you why.

Brisbane wrote: “I’m looking for reader input on whether and when New York Times news reporters should challenge ‘facts’ that are asserted by newsmakers they write about.” For example:

On the campaign trail, Mitt Romney often says President Obama has made speeches “apologizing for America,” a phrase to which Paul Krugman objected in a December 23 column arguing that politics has advanced to the “post-truth” stage.

As an Op-Ed columnist, Mr. Krugman clearly has the freedom to call out what he thinks is a lie. My question for readers is: should news reporters do the same?

If so, then perhaps the next time Mr. Romney says the president has a habit of apologizing for his country, the reporter should insert a paragraph saying, more or less:

“The president has never used the word ‘apologize’ in a speech about U.S. policy or history. Any assertion that he has apologized for U.S. actions rests on a misleading interpretation of the president’s words.”

Brisbane said he gets a lot of mail from “readers who, fed up with the distortions and evasions that are common in public life, look to The Times to set the record straight. They worry less about reporters imposing their judgment on what is false and what is true.” Then he got to the meat of his question, which was posed to us, the users.

Is that the prevailing view? And if so, how can The Times do this in a way that is objective and fair? Is it possible to be objective and fair when the reporter is choosing to correct one fact over another? Are there other problems that The Times would face that I haven’t mentioned here?

The comments at Brisbane’s blog post are blistering. They reveal the deep divide between “traditionalists” in the press, of which is Brisbane is one, and current users. I will just quote one to give you the tone. Matt Talbot in California. “That this should even be an open question is a sign that our supposedly independent press is a cowed and timid shadow of its former self.”

There will be plenty more said about this column because a lot led up to it. For now I want make one observation about it, and let that stand as my own reaction.

Something happened in our press over the last 40 years or so that never got acknowledged and to this day would be denied by a majority of newsroom professionals. Somewhere along the way, truthtelling was surpassed by other priorities the mainstream press felt a stronger duty to. These include such things as “maintaining objectivity,” “not imposing a judgment,” “refusing to take sides” and sticking to what I have called the View from Nowhere.

No one knows exactly how it happened, for it’s not like a policy decision came down at some point. Rather, the drift of professional practice over time was to bracket, or suspend sharp questions of truth and falsehood in order to avoid charges of bias, or excessive editorializing. Journalists felt better, safer, on firmer professional ground–more like pros–when they stopped short of reporting substantially untrue statements as false. One way to describe it (and I believe this is the correct way) is that truthelling moved down the list of newsroom priorities. Other things now ranked ahead of it.

But wait a minute: how can telling the truth ever take a back seat in the serious business of reporting the news? That’s like saying medical doctors no longer put “saving lives” or “the health of the patient” ahead of securing payment from insurance companies. It puts the lie to the entire contraption. It devastates journalism as a public service and honorable profession.

And so officially, this event (“truth telling moved down the list of newsroom priorities”) never occurred, even though in reality it did. Because no one was ready for that devastation. Therefore no reckoning (how could this happen?) ever took place. Denial was successfully maintained, even as criticism built and journalists inside the fraternity announced what was happening. Professional practice even shifted to take account of the drift.

Arthur Brisbane, public editor of the New York Times, skipped onto this scene seemingly unaware of these events. And he basically blurted out what I just explained to you when he asked the users of the New York Times: so whaaddaya think… should we put truthtelling back up there at number one?

Yes, that is what he said. Look at his post again. He tell us that readers are “fed up with the distortions and evasions” and they “look to The Times to set the record straight.” This seems to be their number one priority! “They worry less about reporters imposing their judgment on what is false and what is true.” (Which is what always stopped us before.) And so Brisbane wants to know: should we run with that? It would mean changing our practices, but we could do it. Hey, what do you guys think?

And then came the reply, which was… devastating.

Hoisted from the Archives: The Prussian Way of War

Brad DeLong: The Prussian Way of War: Here is something thought provoking:

Consider, if you will, this practically forgotten scene from the pages of German military history:

They came up out of the dark forests, mounted and mobile, driving deep into the flank and rear of their enemy. The shock and surprise of their sudden assault carried all before them. So rapid was the advance that it overtook every attempt by their defenders to form a cohesive position. The attackers were not simply faster than their opponents. Moving in a compact, mobile column, they were also more agile, more flexible, and far more responsive to the commands of their officers.

This great mobile column chopped the bewildered enemy force in front of it into uncoordinated segments, each with little more on its mind than flight. It was a near-perfect marriage between the best available technology, a flexible system of command and control, and officers who understood the possibilities of both. It was war in a new, faster tempo.

And now, a quiz: from whence comes this scene?... the Tannenberg campaign of 1914?... the invasion of France in 1940?... Operation Barbarossa?...

Any of the three would certainly be a good guess, but each would be wrong.... Friedrich Wilhelm I, the "Great Elector" of Brandenburg... winter campaign of 1678-9.... The routed enemy was Swedish, and the mounted force launching the devastating mobile assault and pursuit was actually riding sleighs...


[T]here is indeed a German way of war and... it had its origins within the Kingdom of Prussia.... Prussian, and later German commanders, sought to maneuver their operational units... in a rapid and daring fashion. The Germans called it Bewegungskreig... the war of movement on the operational level.... Such a vigorous operational posture [required]... an army with an extremely high level of battlefield aggression, an officer corps that tended to launch attacks no matter what the odds, and a flexible system of command that left a great deal of initiative, sometimes too much, in the hands of lower ranking commanders.

Thus the Germans evolved a certain pattern of war making.... Other nations... evolved different patterns. Need to land a larg amphibious force on foreign shores? Call the Americans. Interested in deep strikes and consecutive operations on a vast scale of men and materiel? Study the Red Army in its prime. War as a means of colonial aggrandizement? Look to the British. Levels of firepower large enough to turn the enemy homeland into a parking lot? It's back to the Americans...

This is the beginning of Robert Citino (2005), The German Way of War: From the Thirty Years' War to the Third Reich (Lawrence, KS: University Press of Kansas: 0700614109).

Eric Platt Misreads the Fed Transcripts...

… and so unfairly slimes Randy Kroszner.

Eric Platt:

FLASHBACK: Fed Governor Jokes About The Economy On Its 'Death Bed'

But Randy did not say:

[N]ow we know that [the economy] is on his death bed. [Laughter]

What Randy did say is that:

Dave Stockton. We heard that not long ago [Dave] was on the psychiatrist’s couch dealing with a schizophrenia issue of whether the economy is going up or going down. But now we know that [Dave] is on his death bed. [Laughter]

The point was that Stockton's briefings as head of U.S. economic research and forecasting at the Fed had long had a schizophrenic character: half the data pointing to a stronger and half the data to a weaker economy, and that that contrast had gotten sharply accentuated in the time between the previous meeting and the current one.

So when Platt snarks:

Earlier we relayed a dismissive joke about the housing bubble. Here's another great one from 2006, before the economy teetered over the brink, courtesy of Randall Kroszner, governor of the Federal Reserve System…. The joke, to say the least, was ill timed. Just a year later, the economy entered the deepest recession seen in generations…

All he convinces me of is that he needs to take a deep breath, slow down, and attach his brain between his eyes and his mouth as he blogs about the transcripts.

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

Why We Listen to Paul Krugman: The Balance of Macroeconomic Risks in the Summer of 2006 Department

We listen to Paul Krugman because he looks at what is around him and says what he sees:

September 2006:

Dallas Fed President Richard Fisher: Mr. Chairman, the Eleventh District economy remains strong and continues to grow at a stronger pace than the rest of the country, with employment growth continuing at roughly twice the nation’s pace. Incidentally, home sales have not turned down in our District, so we haven’t been singing yet what we call the “coastal blues” as far as the homebuilding market is concerned. I think that’s enough said about Texas and the Eleventh District.... According to these business contacts, the outlook for economic growth is better than it sounds, whereas the dynamic of inflation is worse than it sounds. Just a few anecdotes here for, if not similitude, verisimilitude. By the way, all the interlocutors are fully aware of the shape of the yield curve—these individuals are sophisticated— and they are especially aware of what is happening in the housing market. As one CEO told me, the only subject that has been more analyzed than the housing situation is the birth of Brad Pitt’s baby. [Laughter] According to this view, if we have not discounted what has been happening in the housing market, we have been living on Mars, and I think that is an important point to take into account…

June 2006:

Paul Krugman: Over the last few weeks monetary officials have sounded increasingly worried about rising prices. On Wednesday, Richard Fisher, the president of the Federal Reserve Bank of Dallas, declared that inflation "is running at a rate that is just too corrosive to be accepted by a virtuous central banker."… [T]he real issue is whether there's a serious risk that inflation will become embedded in the economy…. [I]s that a realistic fear? Only if you think we can have a wage-price spiral without, you know, the wages part. The point is that wage increases can be a major driver of inflation only if workers consistently receive raises that substantially exceed productivity growth. And that just hasn't been happening….

It would be an exaggeration to say that there's no inflation threat at all. I can think of ways in which inflation could become a problem. But it's much easier to think of ways in which the Federal Reserve, wrongly focused on the phantom menace of a new wage-price spiral, could be slow to respond to bigger threats, like a rapidly deflating housing bubble…

Meeting of the Federal Open Market Committee September 20, 2006

A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., starting at 8:30 a.m. on Tuesday, September 20, 2006.

CHAIRMAN BERNANKE. Good morning, everybody.

ALL. Good morning....


MS. MINEHAN. One small thing. On the other side of the devil and the deep blue sea, there is such a sharp contraction of residential investment, which lasts basically for a year and a half—the forecast does attenuate the rate of decline into ’07, but the contraction lasts pretty much a year and a half from where we are. Could it be faster? Could builders see that it is in their best interest to stop building now so that prices do not go down on new homes faster than they have gone already and inventories do not build anymore. Could that contraction be shorter, and could we come out of it faster?

MR. STOCKTON. The answer to that is “yes,” and I think there is some risk. One feature of our forecast is the fact that we are not projecting large declines nationwide in house prices. We are expecting a deceleration but not any outright declines. One could imagine that more of the adjustment could take place more quickly by a big drop in house prices that in some sense clears out that inventory through higher sales and maybe less production adjustment. On that side, you would probably get a quicker housing cycle than the one that we are projecting. However, it also brings with it some downside risk in that households would realize how much their net worth had fallen, which could have consequences for consumption both directly through the wealth effect and perhaps through sentiment. That correction could be quicker and maybe deeper, but then the rebound could be faster. That is a risk we have certainly contemplated. We were a little nervous about being too adventuresome on the house-price forecasting. We are not very good at forecasting asset values, we never understood how prices got as far out of alignment as we think they are, and we are not sure exactly what the process of correction is going to look like. So we have taken a middle stance between two models: one model that basically forecasts house prices off pure momentum and another one that takes seriously the analytical apparatus, which we showed you a year and a half ago at our special briefing on housing, that looks at the error-correction process of house prices to rents. The latter model actually does forecast outright declines nationwide in house prices by 2008. We are between a momentum model, which expects house prices to slow less than we are forecasting, and this error-correction model, which shows bigger declines....


CHAIRMAN BERNANKE. Thank you. President Fisher.

MR. FISHER. Mr. Chairman, the Eleventh District economy remains strong and continues to grow at a stronger pace than the rest of the country, with employment growth continuing at roughly twice the nation’s pace. Incidentally, home sales have not turned down in our District, so we haven’t been singing yet what we call the “coastal blues” as far as the homebuilding market is concerned. I think that’s enough said about Texas and the Eleventh District....

According to these business contacts, the outlook for economic growth is better than it sounds, whereas the dynamic of inflation is worse than it sounds.

Just a few anecdotes here for, if not similitude, verisimilitude. By the way, all the interlocutors are fully aware of the shape of the yield curve—these individuals are sophisticated— and they are especially aware of what is happening in the housing market. As one CEO told me, the only subject that has been more analyzed than the housing situation is the birth of Brad Pitt’s baby. [Laughter] According to this view, if we have not discounted what has been happening in the housing market, we have been living on Mars, and I think that is an important point to take into account. If you remember, Dave, I have been more pessimistic than the staff in terms of the depth of the housing downturn....

All the retailers I talked to—from 7-Eleven to JCPenney to Costco to Home Depot—report that they feel that they have bottomed out and that things are picking up, with one exception. That exception is Wal-Mart, and I think some of that situation relates to the internal dynamics of the way Wal-Mart is positioning itself in the market....

I want to spend just a minute on the inflation picture. I’m not going to go through anecdotes from the CEOs, though it pains me greatly as the son of an Australian to note that Anheuser-Busch has told its retailers that it is going to raise the price of beer 3 percent starting in January 2007. But I do want to explain why our board voted 7 to 1 to raise the discount rate. As you know, we measure inflation at the Dallas Fed by the trimmed mean. Our numbers show trimmed mean inflation running at 3.1 percent in July and a twelve-month rate of 2.7 percent and, not unimportantly, with 57 percent of the component elements increased at a rate of 3 percent or more. Now, of course, we cannot update those numbers until the next PCE number comes out, so you might argue that they are very stale. But the recent CPI release was not comforting. Dave, you mentioned 0.2 percent. Taking that at face value, you can say that consumer inflation is unchanged from July. But if you really look at those numbers, the rate for July was 0.19 percent, and the rate for August was 0.24 percent. If you annualize those numbers, that is a difference between 2.36 percent and 2.9 percent....

MS. YELLEN. Thank you, Mr. Chairman. Since our last meeting, the data bearing on the near-term economic outlook suggest both slower economic growth and a bit less core price inflation going forward. In terms of economic activity, the recent news has been uniformly negative, resulting in a significant downward revision to growth in the Greenbook. Indeed, compared with the outlook of other forecasters, the Greenbook’s projection of real GDP growth for the second half of this year is quite pessimistic; it would now rank in the lower 5 percent tail of the distribution of individual Blue Chip forecasters. I think this pessimism is not completely unfounded, however, largely because of my worries about the housing sector. The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us. In the view of our contacts, the data lag reality, and it seems a good bet that things will get worse before they get better.

A major homebuilder who is on one of our boards tells us that home inventory has gone through the roof, so to speak. [Laughter] He literally said that. With the share of unsold homes topping 80 percent in some of the new subdivisions around Phoenix and Las Vegas, he has labeled these the new ghost towns of the West. In fact, he described the situation at a recent board meeting in Boise. He had toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied—with curtains, things in the driveway, and so forth—so as not to discourage potential buyers. The general assessment is that this overhang of speculative inventory implies that permits and starts will continue to fall. Inventory ratios will rise, and the market probably will not recover until 2008. So far, builders remain hesitant to cut prices, fearing that doing so will cause a surge in cancellation rates on sold but unfinished homes. However, builders now routinely offer huge incentives, and price cuts appear inevitable. We have been following the Case Schiller house-price index, which is based on house-price data in ten large urban markets, three of which are in California. Beginning in May of this year, futures contracts on this price index also began trading; they suggest that house prices will be falling at an annual rate of about 6 percent by the end of this year. Of course, trading in this new futures market is still somewhat thin, but it is a signal that we need to keep a very close eye on the incoming data and watch whether the housing slowdown is turning into a slump.

Turning to inflation, core measures of consumer price inflation remain well above my comfort zone, but the latest readings on consumer prices have been modestly better. Unlike the Greenbook, I think the outlook for inflation has actually improved a bit since our last meeting largely because of the recent drop in commodity and crude oil prices. The relief on energy prices is, of course, very welcome, but we do have to be careful not to overestimate the extent to which past energy price pass-through has been boosting core inflation. For example, airfares might seem like an obvious case in which outsized consumer price increases reflect energy price pass-through. However, our staff recently calculated the share of jet fuel costs to total airline operating expenses and estimated that the jump in those costs likely accounted for less than half the rise in airfares this year. Instead, airfares may reflect strong demand and constrained capacity as indicated by very high airline passenger load factors. Still it seems likely that energy pass-through has played at least some role in the run-up of core inflation this year, so any energy price pressure on core inflation is likely to dissipate over time....

Recently our staff examined persistence at a more disaggregated level and found that the same general pattern also holds for each of the major components of the core PCE price index, with price inflation for durables only slightly more persistent than price inflation for nondurables and services. In the current situation, this suite of regressive models indicates that core PCE inflation should fall to just below 2 percent by the middle of next year. I am not quite as optimistic as these simple models, but on balance my concerns about the inflation outlook have been slightly alleviated by recent developments....

MR. LACKER. Thank you, Mr. Chairman. The Fifth District’s economy has grown at a somewhat faster pace in recent weeks, reflecting a solid uptick in manufacturing.... The housing data certainly have been weaker than anticipated, and I now expect a somewhat steeper decline, as does the Greenbook. Forecasting this housing adjustment is particularly difficult because, as President Minehan pointed out, we have only one or two episodes for comparison in the post-Reg Q regime, and as David Wilcox pointed out, they don’t seem to closely resemble our current situation. I find this Greenbook’s more pessimistic outlook for housing itself plausible, but I’m still fairly skeptical of large indirect spillover effects on employment or consumption. For overall activity, I expect real GDP growth to be somewhat below trend, especially this quarter, but above the Greenbook through the end of next year.

My views on the inflation situation have not changed much since our last meeting. The lower reading on July’s core PCE was encouraging, and the easing of energy prices is clearly providing some relief on headline inflation. However, July’s lower numbers were not particularly broad based, and the August CPI report shows a significant rebound in core inflation, as President Fisher noted. While labor compensation numbers have been hard to interpret, they also appear to point in the direction of greater price pressures, which I take it to be the staff’s view.... Overall, regarding inflation, I’m quite apprehensive about waiting for core inflation to decline as slowly as it does in the Greenbook or about letting a new reduced-form model do our work for us....

MR. PLOSSER. Thank you, Chairman Bernanke. Overall, economic activity continues to expand in the Third District.... My main concern remains the outlook for inflation and the risk it poses for our credibility. In my view, the Fed’s most important contribution to a healthy economy is achieving and maintaining price stability.... I see a return to potential more or less in 2007, although my estimate of potential is probably slightly higher than the Greenbook’s estimate. Now, given the level of precision of our output measurements and forecast of potential GDP growth, I’m really not overly concerned about the forecast at this point. The adjustment in the housing sector to more-sustainable levels is forecast to occur without triggering a recession and without triggering much of an increase in unemployment. I believe we should not attempt to stand in the way of that happening. It’s a mistake to think that the forecasted moderation in growth will bring inflation back to a level consistent with price stability. Indeed, the Greenbook’s baseline forecast of core PCE inflation remains above 2 percent through the end of 2008. Even in the alternative Greenbook simulation of a slump in housing, in which aggregate demand weakens and real GDP growth slows to just 0.6 percent in 2006 and barely above 1 percent in the first half of 2007, core inflation hardly changes and remains above 2 percent in 2008. Thus, it seems to me that language from us in the press that indicates that moderating growth will help to restrain inflation is not really consistent with our forecast. I think it imputes a degree of precision to an estimated Phillips curve that we just don’t have.... [W]e do not know if the upward revision to labor compensation will pass through to core inflation, as built into the Greenbook baseline, or if measures of medium-term inflation expectations will continue to decrease. What we do know is that core inflation has been above 2 percent for two and a half years and is expected to be there, according to the forecast, for another two years. Put another way, there is little evidence in the forecast that policy actions to date will bring core inflation back below 2 percent before sometime in 2009. I think that should concern us.

I see two inflation scenarios as being plausible.... In the first scenario, core inflation is elevated primarily because of transitory factors.... In the other scenario, stimulative monetary policy during the past five years has been a major contributor to the rise in core inflation. In this case, we wouldn’t expect to see a deceleration of core inflation until monetary policy has firmed enough to take out the cumulative effects of that accommodation..... I think we must be concerned that our credibility and the consequences of allowing inflation to remain above our comfort zone for so long are at question.... If the first scenario is wrong and inflation evolves as in scenario 2, then our credibility is seriously at risk if we fail to take further steps to curtail price increases. We might be lucky. But we might risk finding ourselves in a situation in which inflation expectations become unhinged....

MR. HOENIG. Mr. Chairman, I’d characterize the Tenth District’s economy as quite healthy right now.... As to housing, we are in fact, as all have noted, squeezing out of that sector the speculative excesses that developed with the low interest rates of recent years—and doing so is unavoidable if we want to correct the sector. The adjustment process has obviously been painful for some, and it has not yet run its course. However, we perhaps see ourselves getting a little closer to the bottom than we might think right now.... Although the recent inflation data have not caused me to alter my inflation outlook, I am in one sense more confident in the forecast of moderation than I was a month ago or so. On balance, as we look at all this, I agree that we still have some upside risks to inflation that we have to remain aware of as we look to the policy discussion ahead. Thank you....


CHAIRMAN BERNANKE. I think we can reconvene. Vice Chairman Geithner.

VICE CHAIRMAN GEITHNER. Thank you. Let me just start with the broad contours of our outlook. Growth has obviously slowed. The second half is likely to be relatively weak, but the only place we see pronounced weakness is in housing.... Core inflation seems to be easing a bit, and it may have peaked in the second quarter, if you look just at the three-month annualized numbers. But inflation remains uncomfortably high, and our forecast assumes only a very gradual moderation over the next two years.... Weighing the balance among these competing risks, we believe, as we did in August, that inflation risks should remain the predominant concern of the Committee, not so much, to borrow the Chairman’s formulation, because the probability of a higher inflation outcome is substantially greater than that of a much weaker growth outcome but because the costs of an erosion in inflation performance would be more damaging....

On the inflation front, recent data have not altered our forecast or, really, our assessment of the risks to that forecast. Although there are signs of moderation in underlying inflation, the core PCE and a range of alternative measures continue to grow at levels that are uncomfortably high. We expect further moderation to occur only gradually over the forecast period.... Medium-term inflation expectations, while not rising at stated levels, may be higher than is consistent with an inflation objective in the range the Committee has talked about in the past. Containing these upside risks should be the dominant focus of policy until we see a more-pronounced moderation in current and expected underlying inflation....

The second and related question is about inflation in our forecast: With the stance of monetary policy that is now priced into the markets—this is a softer path than the one in August—how confident can we be that we are likely to achieve the forecast of sustained growth and gradually moderating core inflation? I think we can be less confident than the confidence you might read into current market expectations and the uncertainty that surrounds them. Of course, the behavior of long-term inflation expectations in financial markets suggests that this risk is not particularly high at present and that we can take some more time to get a better handle on the evolution of the economy before deciding what is next in terms of monetary policy actions. But I think that we may have more to do, and we should try to avoid fostering too much confidence in the markets that we’re done. We need to preserve the flexibility to do more if that proves necessary to keep inflation expectations anchored. Thank you.

CHAIRMAN BERNANKE. Thank you. Vice Chairman ... Governor Kohn. [Laughter]

MR. KOHN. Thank you, Mr. Chairman. Whatever you want to call me is fine. [Laughter] I’m just glad to be here. [Laughter] I don’t think I can follow that up. Given the initial conditions—the doubling and more of energy prices over the past two years, the overexuberant housing market coming to grips with a renormalization of interest rates, a very low personal saving rate, and an uncomfortable increase in inflation this spring—a period of modestly below-trend growth and gradually ebbing inflation, as in the Greenbook forecast, is about as good an outcome as we can expect, as Dave Stockton noted. In that regard, several developments over the intermeeting period have made me a bit more comfortable with the plausibility of such an outlook.

The weakness in housing has deepened and is more definitively leading to growth of output below potential. In fact, in my view the behavior of the housing market constitutes the main downside risk to sustained moderate economic growth. We’re in the middle of a housing adjustment, which has been hard to forecast, especially because it involves the unwinding of an unknown amount of speculative demand. With inventories rising and reports of price cuts getting greater prominence, the market isn’t yet showing signs of clearing and stabilizing. In the Greenbook forecast, residential investment, though weak, is supported by continued growth of income and relatively low mortgage rates, while house prices basically level out in nominal terms. As the Greenbook notes, however, this forecast leaves some aspects of the existing disequilibrium intact, most notably the high level of prices relative to rents. Also, the cutback in construction doesn’t completely offset the apparent excess building of the boom period. As a consequence, I see the housing forecast in the Greenbook as very far from the worst-case scenario that President Minehan characterized it as. And, we are just beginning to see the effect of the downshift in house-price inflation on consumption starting to play out.

Outside of housing, however, recent developments should help to sustain continued economic expansion...

I still see significant upside risk to such a path for inflation. In part, this reflects my uncertainty as to the reasons for the rise in inflation this spring and summer. Feed- through of energy and other commodity prices must have contributed to some extent.... [W]e can’t dismiss the possibility that other forces were at work—for example, more general pressure of demand on potential output. A reduction of those types of pressures is still only a forecast.... I’m a bit more comfortable with something like the path for the economy and inflation in the Greenbook forecast, but uncertainties are quite high. They might even justify the “higher than usual” description. The downward path for inflation remains at risk, and as others have noted, the costs of exceeding that path could be disproportionate. Thank you.

CHAIRMAN BERNANKE. Thank you. Governor Bies.

MS. BIES. Thank you, Mr. Chairman.... People are focusing on the fact that delinquency rates in mortgages still look good. However, we’ve seen a very rapid increase in debt service ratios since 2004. I’m concerned, again, with the amount of adjustable-rate mortgages out there that will reprice in the months ahead. If, as we think, some of these loans, particularly subprime loans, were made mainly on the collateral value of the house and not on the affordability of the mortgage, we could see more distress in the borrowers’ markets coming forward. If that’s the case, it could have spillover effects on consumer spending more broadly....

MR. WARSH. Thank you, Mr. Chairman.... I am more concerned about the upside risks to inflation than downside risks to output and employment....

MR. KROSZNER. Thank you very much. Unfortunately, I think we find ourselves in an uncomfortable position like that of six weeks ago, with a continuing mix of inflationary pressures and decelerating economic growth at the same time. I think the fundamentals are in place for a continued moderation of growth but not a contraction, much as the Greenbook describes. Obviously, housing is a risk that everyone has talked about. But the key, as many people have also mentioned, is maintaining contained inflation expectations, and that comes down to thinking about whether some of the factors that we’ve been seeing have been more transitory or more persistent....

Housing is one of the worst areas for data. It’s very difficult for us to have any concept of what prices are doing because it’s not a market like any other. We do have the Case-Schiller index, and we do have some better indexes that people are now betting on, but they’re still very poor indicators of prices relative to the indicators we have in other markets. We also know that there can be queues and that extras can be thrown in, so there’s a lot of uncertainty with respect to where prices are going. That concerns me quite a bit because I think we just don’t have a good handle on it. Permits and starts have continued to come down from where they were at our last meeting and are now at levels of the beginning of 2003 or even starting to slip into 2002. If they flatten out there, the housing sector is still historically reasonably good. But there’s no indication that we’re necessarily at a turning point and that things are going to flatten out. There is the wealth effect, the direct effect on people’s consumption behavior of lower wealth going forward, and also the confidence effect. We don’t have a perfect analogy with the previous times in which we’ve seen these housing downturns— we have a different context in that the economy is broadly more robust—and so I think it’s less likely that we’re going to see a major housing problem. But I think it is a real risk, and we have to be sensitive to it....

As many people have said, we can’t become complacent. Inflation expectations have behaved reasonably well since we paused at the last meeting, which is heartening in that the markets believe that inflation is reasonably under control in the near to medium term and even in the longer term. It’s hard to find evidence of increases in inflation expectations, but as many people have said, that does not mean that we don’t have to worry. We have to worry a lot because the key is keeping those expectations well contained. I think we’re in a situation in which we can do that. Slowing growth is not going to give us more of a benefit. The flatness of the Phillips curve, which people have talked about, is what the data have been over the past ten to fifteen years in the United States and most other countries. So even if there is a bit more slowdown, we are not necessarily going to get the potential benefit in significantly lower inflation pressures—maybe a little but not very much. So we still have to worry about the upside on inflation, and that’s why maintaining our credibility is of utmost importance....

MR. MISHKIN. Many of you know I have an upbeat personality—some might actually say loud—but certainly upbeat. The way I look at the forecast and the situation with the economy is quite positive in the sense that what we’re seeing, really, is a return to normalcy and a more balanced economy. The excesses in the housing sector seem to be unwinding in an acceptable way, so I think it is quite reasonable in terms of the Greenbook forecast to think that the spillover here is not going to be a big problem because we’re actually moving resources from a sector that had too much going into it, into sectors that need to have more resources at the present time. So in that sense, I’m actually quite positive. The other thing that I am quite comfortable with in the Greenbook forecast—though, clearly, there’s uncertainty—is that we’re going to see a decelerating core inflation rate. Furthermore, when we look at inflation expectations, they seem to be very well contained and seem also to have responded well to the pause at the last meeting.

However, I should say that, although we’ve seen that inflation expectations are well anchored, there’s a question about whether they’re anchored at quite the right level. They seem to be anchored somewhere around 21⁄2 percent on the CPI, and that is probably with a differential between the CPI and the PCE of about 1⁄2 percentage point, or 50 basis points. It still seems to be somewhat on the high side in terms of what many people on the Committee have expressed is their comfort zone. So I think that is a concern....

CHAIRMAN BERNANKE. Thank you. Let me just summarize quickly what I heard around the table, and then I’d like to make some additional comments of my own on the economy. The sense is that, on the real side, there’s a two-tier economy. There’s the housing sector and maybe autos, and there’s everything else.... [A]s we look forward, I think there are two issues. The first is how severe the contraction in housing will be. To be honest, we don’t really know. We’re talking, again, about an asset price correction, and it’s difficult, in principle, to know how far that will adjust. The second issue is how much spillover there will be from any housing correction to the rest of the economy. I don’t have quite as much confidence as some people around the table that there will be no spillover effect. Any spillover effect would be a lagged effect, and it remains to be seen how much effect there might be. But I agree that the economy except for housing and autos is still pretty strong, and we do not yet see any significant spillover from housing....

[I]f we believe that we need to have output below potential to help arrest inflation pressures, it is a delicate operation, and we may have a very narrow channel to navigate as we go forward. We should pay very close attention to how the economy is evolving at this particular moment because I think the uncertainty and the potential nonlinearity at this juncture are greater than what we normally face....

MR. POOLE. Am I the only taker to be number one? [Laughter] Thank you, Mr. Chairman. I want to start with two observations. First, the distribution of the market’s outlook for the federal funds rate six months ahead... accords with my own view—a one-third chance that we will stay where we are, a one-third chance that it will be appropriate to ease, and a one-third chance that we will want to increase the rate. I come out with a very symmetrical view myself. I think of the views around the table—some people are probably there, some people are probably skewed on one side and some on the other side, but I come out very much in the middle.

My second observation continues a point that Tim Geithner made a few minutes ago. I had several conversations at Jackson Hole with Wall Street economists and journalists, and they said, quite frankly, that they really do not believe that our effective inflation target is 1 to 2 percent. They believe we have morphed into 11⁄2 to 21⁄2 percent, and no one thought that we were really going to do anything over time to bring it down to 1 to 2. I think that is very unfortunate because so many of us have talked about 1 to 2....

I do not want the explicit reference to housing to be in the statement is that I would take that position even if housing were continuing to struggle, because I think it is extremely important that we not allow inflation to ratchet up. If housing is a casualty of that policy, we had better accept that situation. I would not like to see a mixed market signal because I would not want the market to believe that continuing weakness in housing would deflect us from acting as necessary to keep inflation from rising further. I think the explicit reference to housing in the statement conditions the market to think about our policy going forward in the wrong way....

MS. YELLEN. Thank you, Mr. Chairman. It is still too early to know whether our current policy stance will succeed in lowering inflation to an acceptable level over time, but the data since our last meeting reassured me that our decision to step off the escalator was wise, and I think we should remain on the sidelines today. Recent inflation readings have contained no adverse surprises. Inflation expectations remain contained. I think the inflation outlook is slightly improved because of the reduction in energy and commodity prices, and growth during the second half of the year now appears quite likely to fall short of trend. I view the risks to the attainment of our objectives as more balanced than they were in August, and I certainly judge the downside risks to growth to have increased. Your discussion of nonlinearities, Mr. Chairman, was interesting, and it is important to be sensitive to that possibility. That said, I think that the upside risks to inflation still outweigh the downside risks to growth. With inflation projected to remain uncomfortably high over a sustained period and with the economy still likely operating beyond potential, I favor alternative B and think it’s important that we do at least hint at an upward bias for fed funds rate changes....

CHAIRMAN BERNANKE. Thank you all. Our pause at the last meeting was a benefit-cost calculation. The benefit of pausing was to give ourselves more time to assess the state of the economy and the effects of our previous interest rate actions. The potential cost of pausing was that we would lose some credibility, that inflation might move adversely, and we would get behind the curve in terms of that very important goal. The intermeeting developments have shown a somewhat weaker economy in real terms than we had expected and, I think I can safely say, no reduction in uncertainty. Although inflation remains above where we would like it to be, I think we can’t say that the inflation situation has deteriorated during the intermeeting period. Therefore, it’s reasonable for us to continue to pause.... I’d like to make a few other comments about some of the conversation around the table. I’m bemused by the de facto inflation targeters that we have become here [laughter] with the 1.5 percent goal. Let me just make a couple of comments on that. First, flexible inflation targeting does respond to things other than the target itself. In particular, we saw a surprising increase in inflation earlier this year, which took us above or further above our implicit target. The optimal response to that is to return to target, but only slowly and with the amount of time to take to get back to the target depending positively on the initial deviation. Second, the speed at which you return to the target ought to depend on the state of the real economy. The extent to which we’re concerned about potential recessionary effects should make us be a little more cautious and make us move a little more slowly. I would add that, although a number of us, including myself, have mentioned this 1 to 2 percent zone, it has also been noted around this table that it may not, in fact, be the right zone. If we do determine that we want to announce a target and it is 1.5 percent, we should lay out a plan for getting to that level over a period of time and not immediately. But we might choose as an alternative possibility, for example, 11⁄2 to 2 percent, in which case we would be somewhat closer to that target in a shorter time....

Let me turn to the statement. I would like to discuss certain elements of it. I’d like to propose that we use alternative B, and let me note a few points. First, I’m sure that everyone noted that in section 2, in the phrase “reflecting a cooling of the housing market,” we are eliminating the word “gradual” and doing so indicates a somewhat stronger degree of cooling. Second, in response to President Poole, I think this is not intended to be anything other than a pure description of the economy and our sense of what is happening in the economy. It actually does have a bit of a forward-looking aspect as well, Vice Chairman Geithner; and it is factual in that, if you look at the forecast, the slowdown in construction accounts for almost all the decline from potential. So I don’t think it’s in any way focusing our policy decision on the housing sector.

In section 3, the addition of “reduced impetus from energy prices” is useful, I think. We have been criticized for, among other things, being too sanguine about the disinflation and arguing implicitly that a modest amount of slowing in the economy would be sufficient to achieve disinflation. We do not actually believe that, and one of the reasons we forecasted a decline in inflation is that we expected to see a reduced impetus from energy prices going forward. We now have actually seen the fall in energy prices, and so we don’t even have to appeal, for example, to the futures market. We can simply state that we have seen this decline in energy prices, and I think that makes our story a little more complete and makes it look more understandable to the public about why we think that inflation should decline slowly over time.

I propose to keep the assessment of risk as it stands. It’s very clear that our bias is toward resisting inflation...

In Other News, Dahlia Lithwick Convinces Me That Clarence Thomas and His Clerks Are All Clinically Insane…

Can somebody please think of a clever way to convince him to resign? A $20 million a year job at the Scaife or the Koch or the Bradley Foundation, or the Hoover Institute, or something?

Dahlia Lithwick:

Clarence Thomas' dissent in Smith v. Cain: A “single witness” linked Juan Smith to the five murders for which he was convicted in New Orleans in 1995. The Supreme Court reversed Smith’s conviction yesterday, dwelling on that single witness in the 8-1 opinion it handed down… with seven justices joining Chief Justice Roberts’ short and sweet three-and-a-half page opinion….

At trial, the witness said he saw the attacker face to face and was sure Smith was the one. He said he had “[n]o doubt.”… Everything in this case hinged on that single witness. The police explained that “[a]s amazing as it may seem,” no fingerprints matching Smith were found…. This was a terrible mass murder, where men stormed into an apartment, demanded money and marijuana, told everyone inside to lie on the floor, then shot five people. Smith was sentenced to life without parole. The problems in the case emerged only during state habeas proceedings. That’s when Smith obtained for the first time notes from the detective stating that the eyewitness said on the night of the murder that he “could not ... supply a description of the perpetrators other then [sic] they were black males.” Again, five days after the crime, the ostensible eyewitness said he “could not ID anyone because [he] couldn’t see faces” and “would not know them if [he] saw them.” The detective wrote these statements down—and then wrote down “Could not ID.” It’s understandable that the eyewitness was, as he later said, “too scared to look at anybody” under the circumstances. But usually police know that a person who didn’t see a face is not an eyewitness at all….

New Orleans police… showed 14 separate photo arrays to another witness…. Months after the crime, they finally succeeded in getting him to identify Smith. How did this happen? Smith’s briefs describe how the New Orleans Times-Picayune ran a story naming Smith as a suspect, including a photo. After seeing that newspaper story, all of a sudden the single witness became the single eyewitness.

It was easy for the Supreme Court to decide that such powerful evidence undermining the testimony of the state’s only evidence was “material” and that there was a “reasonable probability” that it would have made a difference at trial and that the conviction needed to be reversed (the standard under Brady v. Maryland, which entitles the defense to have such exculpatory evidence). It was, said eight justices, serious misconduct to hide such evidence. All the jury heard about was the photo array, four months after the crime, when the eyewitness first identified Smith, and then they saw him at trial, testifying with absolute confidence….

Justice Thomas wrote a long, long (17-page) dissent…. Justice Thomas calls the witness “the eyewitness.”… Justice Thomas emphasizes how, even months after the crime, the eyewitness saw Smith’s photo and said, “This is it. I’ll never forget that face.”… Justice Thomas details why he concluded that the witness “evince[d] a discriminating, careful eye over a 4-month investigative period.” This was a model and “confident” eyewitness—moreover, one who was extensively cross-examined at trial….

This analysis indicates little familiarity with the vast body of research on eyewitness memory…

Quote of the Day: January 12, 2012

"Federal Reserve lender-of-last-resort actions, directly or indirectly, set floors under the prices of assets or ceilings on financing terms, thus socializing some of the risks involved in speculative finance. But such socialization of risks in financial markets encourages risk-taking in financing positions in capital assets, which, in turn increases the potential for instability when carried out for an extended period."

--Hyman Minsky, Stabilizing an Unstable Economy

Liveblogging World War II: January 12, 1942

World War II Day-By-Day: Day 865 January 12, 1942:

U-boat war on American coastal shipping (Operation Drumbeat) claims its first victim. At 1.49 AM off Nova Scotia, U-123 sinks British SS Cyclops (40 crew, 46 passengers and 1 gunner killed; 56 crew, 33 passengers and 6 gunners rescued by Canadian minesweeper HMCS Red Deer). 5 U-boats are already patrolling off US East coast and another 10 are on their way across the Atlantic.

Twitterstorm delong: January 11, 2012

  • DemocratMachine Viva DemocratMachine If Romney were President, he wouldn't have laid off some GM workers. He would have laid off all the GM workers.

  • crampell Catherine Rampell for 1st time since 1965, homicide falls off list of the nation’s top 15 causes of death, bumped by choking on vomit

  • delong J. Bradford DeLong @ @ModeledBehavior Yep. Center left. You guys like, care about things like equality of opportunity... 26 minutes ago

  • DanRiehl DanRiehl Romney threatened 2 excommunicate a young single mother if she dnt giv her soon-to-be-born son up 4 adoption 44 minutes ago Retweeted by delong

  • delong J. Bradford DeLong @ @ModeledBehavior Yes, you have, I'm grateful, but you are not center-right but center-left 56 minutes ago

  • ezraklein Ezra Klein Fiscal policy is under our control. Should have lots of upside risk and little downside. But the opposite is true 3 hours ago Retweeted by delong

  • moelane Moe Lane OK, Team Romney: whoever told Mitt Romney that it was smart to defend Bain by directly comparing it to the auto bailout? FIRE THAT PERSON. 3 hours ago Retweeted by delong

  • Ta-Nehisi Coates on Messengers: Louis Farrakhan and Ron Paul 3 hours ago

  • Not a Yahtzee - Scandinavia and the World 5 hours ago

  • natsecHeather Heather Hurlburt .@haroldpollack @marklgoldberg guess we picked wrong time to cut global health funding. totally drug-resistant TB 8 hours ago Retweeted by delong

  • mattyglesias mattyglesias Vultures and other carrion-eaters play an important role in a well-balanced ecosystem. #slatepitches 20 hours ago Retweeted by delong

  • delong J. Bradford DeLong Ron Paul Claims to Be "Heel-Nibbling". Rick Santorum Calls for States to Outlaw Heel-Nibbling

  • kdrum Kevin Drum I will, until he fesses up about the newsletters. RT @ktumulty: No one will ever accuse #ronpaul of being inauthentic. 21 hours ago Retweeted by delong

  • joshtpm Josh Marshall Funny thing is many Republicans have genuinely hard time coming to grips w/fact they lost the country's AAA credit rating. #sad 22 hours ago Retweeted by delong

  • delong J. Bradford DeLong @MikeElk Yglesias writes about 10 posts a day. In his last years at TNR Weisberg was paying Kaus $300/post. Figure Yglesias makes $750K/year 21 hours ago

  • CitizenCohn Jonathan Cohn Romney: Elect me or the country will get generous social insurance programs like they have in Europe & I brought to Massachusetts #GOP2012 21 hours ago Retweeted by delong

  • joshtpm Josh Marshall So awesome listening to Ron Paul talk about the disaster of fiat money. give me small leather bags of salt. thats currency i can believe in 21 hours ago Retweeted by delong

  • delong J. Bradford DeLong Jon Gruber at Escapist Comics, talking about his graphic novel "Heaalth Care Reform" 22 hours ago

  • davidmwessel David Wessel Recipe for QE3? SF Fed's Williams expects inflation under 1½ % this year and next, down from about 2½% in 2011. 22 hours ago Retweeted by delong

  • Santorum: Iran’s Scary Shi’ite Theology Warrants U.S. Attack | AlterNet…’s_scary_shi’ite_theology_warrants_u.s._attack/ 22 hours ago

  • neilbarofsky Neil Barofsky Just 15k net new permanent modifications for HAMP last month. #Fail

  • DemocratMachine Viva DemocratMachine Perry compares Bain to vultures. In response, Romney notes that vultures do a job that has to be done before being ushered away by aides 10 Jan Retweeted by delong

  • mattyglesias mattyglesias What do we want? Large scale GSE-facilitate mortgage refinancing! When do we want it? Now!

  • ModeledBehavior Modeled Behavior Like to think we @ MB have used our meager voices 2 say some of what @delong says center right should "Start by saying"

  • IcelandicEcon Olafur Margeirsson #relief you're joking, thought for a second you were serious RT @delong No, Austerity Is Not Contractionary 6 hours ago

  • sam_baker sam Hopefully CBO, but point stands MT @delong: Raising the Medicare Age Is a Bad Idea: Problem with the Media or CBO 7 hours ago

  • rootless_e rootless .@delong Even the "liberal" economists give a lot more credence to Hayek's crackpot feudalism than to Galbraith? Why ? 9 hours ago

  • rootless_e rootless .@delong Why is it that J.K. Galbraith's ideas have been completely written out of econ discussion ? 9 hours ago

  • jontalton jontalton RT @delong: The Crisis We Should Have Had 20 hours ago

Cerberus Descends into the Right Wing Underworld

A dirty job, but we thank him for doing it:

Sadly, No! » Down the Rabbit Hole: [J]oin us dear reader on this relaxing mango safari. Let’s start with something simple. Let’s see… Ah, yes, this:

Steven Hayward, Powerline*: Keyenes was Right-About the Jews?

So Steve, as a paid flak for AEI, has often had the unenviable task of pitting wingnut fantasies against Paul Krugman’s tyrannical skills of actual facts and history. By the first paragraph, it’s obvious his Washington Generals’ performance to Krugman’s Globetrotters has begun to wear at his soul.

So Paul Krugman phoned in his periodic “Keynes Was Right” column today, arguing that the Obama Porkulus failed only because, like “true” Communism, it wasn’t tried vigorously or faithfully enough…. I wonder if Krugman also credits Keynes’s views on Jews, which British blogger Damian Thompson of The Telegraph brings to our attention.


This is Stevie whimpering in the corner and calling time out. He doesn’t even have bullshit anymore to defend his economic worldview. And so he’s taken a page from the creationists and decided to just start throwing shit on the name to see if it sticks to the theory….

Well, let’s see that quote.

[Jews] have in them deep-rooted instincts that are antagonistic and therefore repulsive to the European, and their presence among us is a living example of the insurmountable difficulties that exist in merging race characteristics, in making cats love dogs…

I know, I’ll just follow the link and find the original source of this rapidly propogating smear campaign…. Come along readers, road trip! Damian Thompson, The Daily Outmoded Communication Technology… Chris Dillow… Clive Davis’s Spectator blog… Stumbling and Mumbling:

Nina Paulovicova quotes him…. Even Keynes’ admirers (such as Skidelsky and Moggridge) agree that Keynes was anti-semitic – though in his favour it doesn’t seem to have stopped him supporting Jewish refugees or even Zionism.

My word, that sure is anti-semitic. Supporting Jewish refugees and Zionism….

And of course, his view of Jews is irrelevant in assessing the relevance of Keynesian economics today; we should avoid the “poisoning the well“ fallacy. But even so, doesn’t this attitude show that some people should be more careful who they choose as intellectual heroes?

It might just be the fact that I’m stranded at sea and half mad on rotted mangos, but I like this guy…. [H]e seems half-aware of the shit he’s doing and how off-topic it is.… It’s been 20 pages on these cold, cold Steppes and there is no approximation of argument to be seen. Biographers are pigs for not sharing her random obsession. My feet are mushrooms….

When he was seventeen years old, J.M. Keynes wrote a provocative essay, “The Differences between East and West: Will They Ever Disappear?” Through the examples of the Chinese and the Jews, the young Keynes tried to discover whether the European and Oriental branches of human race would continue to live side by side or whether eventually one would succeed in absorbing the other. Jews were, in his teen view, the accursed race…

they have in them deep-rooted instincts that are antagonistic and therefore repulsive to the European, and their presence among us is a living example of the insurmountable difficulties that exist in merging race characteristics, in making cats love dogs

Is that…? The quote at last? Is there any context to it or…? Of course not, why would there be? It’s only a scholarly research paper purporting to be about the racial attitudes of a historical figure, why bother deconstructing that shit when you can just reassert over and over again…

Wait. Stop.




We’re trying to discredit Keynesian economics, Keynes, and liberals in general, with something Keynes wrote as a fucking kid? Yeah, that’s going to have a clear picture of shit. I didn’t at all carry social baggage at 17, including worldviews I was embarrassed about a scant few years later. Why, no one did…. SEVENTEEN? Really, wingnuts? Really?!?…

I just wanted to write funny articles for the internet, why is this happening to me? No Beppo, it’s fine. We’re here. The mangos are over. I can read the original quotes in context and see for myself whether this off-topic smear campaign about whether or not a well-meaning liberal showed his privilege and the toxicity of his culture has any validity….

Hello, dear sirs and madams of the internet community, Sadly, No! I regret to inform you that Cerberus has been placed under heavy sedation following a recent…episode. It is unclear when she’ll be fit to post again upon the site.

Ezra Klein Joins the "Macro Policy Through Mortgage Refinance" Caucus

Yes, a big thing the Obama Administration could do to boost the economy.

If I were running the Obama Administration right now?

I would immediately recess-appoint Joe Gagnon to be Director of FHFA. I would tell him to expand the portfolios of Fannie Mae and Freddie Mac by offering everybody in the country a refi of their current consolidated home equity and mortgage principal balance at the conforming mortgage rate--with an appropriate shared-appreciation kicker if the resulting loan amount is not "conforming", paying due attention not just to credit-market efficiency but to microeconomic externalities.

Ezra Klein:

Mass refinancing: The ‘biggest thing’ Obama can do without Congress: From 2001 to 2003, Glenn Hubbard served as President George W. Bush’s chief economist…. [R]ight now, the candidate who could most benefit from his advice is President Obama. Hubbard is an advocate for using Fannie Mae and Freddie Mac to set off a nationwide wave of mortgage refinancing. In a paper co-authored with Columbia economist Christopher Mayer, Hubbard estimates that more than 75 percent of the homeowners with 30-year mortgages backed by Fannie or Freddie are paying interest rates higher than 5 percent. But for the past two years, interest rates have been closer to 4 percent. That means tens of millions of Americans are paying more than they need to every single month…. Those homeowners represent one of the president’s few remaining opportunities to help a substantial number of Americans…. In recent months, the White House has come to an overdue realization: Republicans in Congress will not… work with them on anything big…. This has led to the “we can’t wait” campaign, in which the president maximizes his executive authority to make changes….

A… promising avenue for an impatient administration is to recess-appoint a new director of the Federal Housing Finance Authority — the body that oversees Fannie Mae and Freddie Mac. The FHFA is led by Edward DeMarco, a career civil servant who became acting director when James Lockhart, Bush’s pick, stepped down early in Obama’s term. DeMarco is respected by both sides of the aisle, but he has opposed many of the Obama administration’s efforts to use Fannie and Freddie to help the ailing housing system. The Obama administration waited until late 2010 to nominate its own candidate to lead Fannie and Freddie…. Since then, the Obama administration has worked to move DeMarco in its direction, and achieved some notable successes. But in a white paper released last week, the Federal Reserve echoed the consensus of many housing experts in finding that much could still be done if the authority could be convinced to interpret its mandate more broadly. “Actions that cause greater losses to be sustained by [Fannie and Freddie] in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” the Fed wrote….

Joe Gagnon, a senior fellow at the Peterson Institute for International Economics, [writes:] “this is the single biggest thing the president can do without a vote in Congress. It’s a no-brainer. It’s been a no-brainer for years.”

So isn’t it time to stop waiting?

Failing a recess-appointment of Joe Gagnon to head FHFA, what would I do?

Well, I would fast-track nominate Glenn Hubbard to be Director of FHFA.

I would then send Glenn around to the Republican senators telling them: "Look. Confirm me immediately. I'm a Republican--and a partisan one--and the current political-year benefits from this are shared between Obama and my candidate for President, Romney, and the benefits from this in terms of recovered housing construction and lower nationwide unemployment won't show up until next year, when we can all credit them to President Romney."

Matthew Yglesias: The Crisis We Should Have Had

Seems to me this is 100% correct.


The Crisis We Should Have Had: I have a pet theory that one of the main reasons the policy response to the current economic crisis has been so bad is that we had the wrong crisis. Some people sat around looking at the US economy from 2002-2006 and thought all was well. But many people looked at it and could see clearly that all was not well. That we were on an unsustainable path and that we were primed for a crash. The main feature of the unsustainable path was huge inflows of foreign capital into AAA-rated American financial instruments, including US gvoernment debt, mortgage-backed securities, etc. These unsustainable flows were distorting employment patterns and sustaining unsustainable living standards. Americans were maintaining broad-based consumption growth only through excessive household indebtedness and underpayment of taxes relative to the quantity of services being received. Someday soon, the capital flows would come to an end and we'd have a version of a classic developing economy sudden stop of "hot money," except it would be happening to a rich industrialized nation. The value of the dollar would crash, restraining inflation would require high interest rates, and the US economy would feature a period of painful restructuring.

There was no particular reason to believe that this crisis would lead to a prolonged period of mass unemployment since the dollar crash would facilitate exports (including tourism) and import-competing industries, but it would very possibly create a stubbord residual of long-term unemployed people. What's more, it would be a prolonged crisis in American living standards. The good news, from the standpoint of the policy wonk, is that it would be a very intellectually interesting prolonged crisis in American living standards. It would require all kinds of fascinating big ideas to explain how this could have happened and how to chart the way forward. And precisely because lots of smart people foresaw the occurrence of that crisis, and because that crisis really seemed very likely, and since a crisis certainly did happen a diverse array of smart people have just sort of trundled along acting as if the crisis we're facing is that crisis….

Tyler Cowen's The Great Stagnation… Michael Spence's The Next Convergence… Joe Stiglitz' recent Vanity Fair article… Michael Mandel's piece on the myth of American productivity is about the crisis we should have had…. [A]n awful lot of the Obama agenda has been about efforts to address the crisis we should have had. That's why long-term fiscal austerity is important and why there was no "holy crap the economy's falling apart, let's forget about comprehensive reform of the health, energy, and education sectors" moment back in 2009.

But this is not the crisis we're having…. I'm inclined to think that we will, at some future point, face the crisis we should have had and it will need to be addressed in complicated ways. But the crisis we're having is, for all its horror and scale, a pretty banal monetary crunch…. Fixing that wouldn't fix "all our problems" any more than ending the Great Depression solved all the problems of the America of its time (Jim Crow, anyone?) but it would solve the problem and it doesn't require us to fix the other stuff first.

Understanding Chicago Macro: Misdirecton from Scott Sumner...

who headfakes, and attacks Simon Wren-Louis before ultimately agreeing with him.

First, the attack:

TheMoneyIllusion » Nobel Prizes for alchemy?: I’m not sure if Wren-Lewis knows this, but Nobel Prizes are frequently awarded to people who don’t accept the Keynesian model…. Lots of people believe the fiscal multiplier is roughly zero, including Lucas, Friedman and me. That doesn’t mean one is ignorant of basic economics…. Cochrane is dividing debt-financed government spending into two components, a tax-financed spending increase and a deficit-financed tax cut….Then he argues the debt-financed tax cut will do nothing, because of Ricardian equivalence. I don’t entirely agree, but it’s certainly a respectable argument. Then he suggests that the balanced budget multiplier is zero.  Obviously the Keynesian model says it’s not, but why assume that model is correct?… [I]t’s not a question of Chicago economists not having studied Keynesian economics. He simply doesn’t agree…

At which point Sumner tiptoes away, without answering the question of why Cochrane doesn't agree.

Two comments:

First, let me call an intellectual foul on Sumner's association of Milton Friedman with the claim that the fiscal multiplier is likely to be very low right now. Friedman believed that the constant-money stock fiscal multiplier was quite small, "certain to be temporary and likely to be minor" unless the interest-elasticity of the demand for money is well-approximated not by -1 or -2 but by -∞.

Well guess what the interest elasticity of the demand for money is right now?

If I had Milton Friedman here beside me right now, he would say that the government needs to expand the money stock and needs to expand the money stock not by buying things that have an elasticity of substitution with money of ∞ but by buying things that don't: bonds that carry substantial default or duration risk or stuff that isn't tradable on financial markets at all--and to what extent that is "unconventional monetary policy" and to what extend that is "fiscal policy" is all one to me: it's effective.

Second, let's answer the question of why Cochrane doesn't agree that the fiscal multiplier right now is likely to be substantial. Cochrane appears to say that he does not agree because he believes that we live in an economy with velocity of money V fixed by a technological cash-in-advance constraint in which MV=PY. But there are things in his paper that definitively reject that model (as well as things that definitively endorse it). And that model is wrong.

The only other model Cochrane presents is one in which S = I + D, savings equals investment plus the government deficit. And in that model the balanced-budget multiplier is definitely non-zero: boosting government debt by running a deficit is a very good thing to do.

Then, after this initial headfake, Sumner starts backpedaling as fast as he can to ultimately wind up in exactly the same position as Simon Wren-Louis:

[T]he point is not that Wren-Lewis and Krugman are necessarily wrong about fiscal stimulus, but rather that the argument they present is incredibly weak…. [Cochrane] needs to explain why fiscal stimulus won’t boost velocity, or why any boost would be offset by a lower money supply.  Cochrane doesn’t do that.

Ta-Nehisi Coates on Messengers: Louis Farrakhan and Ron Paul


The Messenger - Politics: I've thought a lot about Farrakhan, recently, watching Ron Paul's backers twist themselves in knots to defend what they have now euphemistically label as "baggage."… [L]et us remember that we are faced with a candidate who published racism under his name, defended that publication when it was convenient, and blamed it on ghost-writers when it wasn't, whose take on the Civil War is at home with Lost-Causers, and whose take on the Civil Rights Act is at home with segregationists. Ostensibly this is all coincidence, or if it isn't, it should be excused because Ron Paul is a lone voice speaking on the important issues that plague our nation.

I have heard this reasoning before. 

As surely as Ron Paul speaks to a real issue--the state's broad use of violence and surveillance--which the America's political leadership has failed to address, Farrakhan spoke to something real, something unsullied, which black America's political leadership failed to address, Both Paul and Farrakhan, in their glamour, inspired the young, the disaffected, the disillusioned….

But as sure as the followers of Farrakhan deserved more than UFOs, anti-Semitism and conspiracy theories, those of us who oppose the drug-war, who oppose the Patriot Act deserve better than Ron Paul….

[T]he dispatches must be honestly grappled with: It must be argued that a man who could not manage a newsletter, should be promoted to managing a nuclear arsenal. Failing that, it must be asserted that a man who once claimed that black people were knowingly injecting white people with HIV, who fund-raised by predicting a race-war, who handsomely profited from it all, should lead the free world. If that line falls too, we are forced to confess that Ron Paul regularly summoned up the specters of racism for his own politically gain, and thus stands convicted of moral cowardice.

Let us stipulate that all politicians compromise. But the mayhem and death which attended the talents of Thomas Watson and George Wallace, renders their design into a school of sorcery all its own. In that light, it is fair to ask that if Ron Paul was willing to sacrifice black people to garner the support of the bigoted mob, who, and what, else might he sacrifice? 

I have some thoughts on the matter:

"We quadrupled the TSA, you know, and hired more people who look more suspicious to me than most Americans who are getting checked," Paul says. "Most of them are, well, you know, they just don't look very American to me. If I'd have been looking, they look suspicious ... I mean, a lot of them can't even speak English, hardly. Not that I'm accusing them of anything, but it's sort of ironic."

Presumably, this too, is just another unfortunate slip. Surely it says nothing about Paul's actual views.

I do not mean to be unsympathetic here. It is regrettable to find ourselves in this untenable space….

The fervency for Ron Paul is rooted in the longing for a reedemer, for one who will rise up and cut through the dishonest pablum of horse-races and sloganeering and speak directly to Americans. It is a species of saviorism which hopes to deliver a prophet upon the people, who will be better than the people themselves. 

Understanding the Literature of Economics: Plumbing the Depths of Ignorance Blogging

Simon Wren-Louis does a very bad thing by reminding me of this:

John Cochrane: Keynes left Britain 30 years of miserable growth…. Keynes disdained investment…. Keynes did not think at all about the incentives effects of taxes. He favored planning, and wrote before Hayek reminded us how modern economies cannot function without price signals. Fiscal stimulus advocates are hanging on to a last little timber from a sunken boat of ideas, ideas that everyone including they abandoned, and from hard experience…

Let's give the microphone to John Maynard Keynes, 1936, who as far as I can see had absolutely nothing to learn from Friedrich von Hayek about the benefits of the price mechanism:

In some other respects the foregoing theory is moderately conservative…. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment…. But beyond this no obvious case is made out for a system of State Socialism….

[If we] succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again…. [T]here is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed…. [T]here is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition…. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down….

[T]he traditional advantages of individualism will still hold good. Let us stop for a moment to remind ourselves what these advantages are. They are partly advantages of efficiency — the advantages of decentralisation and of the play of self-interest. The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed…. [A]bove all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty… greatly widens the field for the exercise of personal choice… best safeguard of the variety of life… the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.

Whilst… [the policies I recommend] would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend… [them] as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

For if effective demand is deficient… the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough…

The sheer depths of the ignorance--the failure to have done and to do their most basic homework--that we have faced from the Right over the past four years has been literally indescribable.

It is in this context, I think, that you have to read our annoyance--indeed, our HSRILL!1!-ness at the concern-trolling of Tyler Cowen and company like:

Tyler Cowen: Krugman calls himself a Humean but has he studied and internalized the lessons from Hume’s Dialogues Concerning Natural Religion? Is it easy to imagine the current Krugman writing rich multi-voiced dialogues which extend both his points and those of his intellectual opponents? Can you imagine the current Krugman writing something sufficiently multi-faceted that you might come away thinking — because of the piece itself — that the opposing point of view was the better one? Krugman has shown a remarkable and impressive capacity to reinvent himself, more than once. He could reinvent himself again — in a truly Humean direction — and become the most important American public intellectual — and perhaps intellectual — of his time.

There are, it seems to us (or, rather, to me), two intellectual sides here. One consists of a lot of people trying to grapple with a confused, uncertain, and near-desperate situation (and advocating policies like housing finance reorganization, nominal GDP targeting, expansionary fiscal policy, etc.). The other consists of a bunch of rather lazy ideologues who haven't done and won't do their homework talking bullshit and trash.

And now comes what claims to be a third side: the Tyler Cowens of the world who say that we are in some sense blameworthy for not making silk purses out of cow's ears--for not turning bullshit and trash-talk into "rich multi-voiced dialogues… sufficiently multi-faceted that you might come away thinking — because of the piece itself — that the opposing point of view was the better…"

Our response: Help us wash out the bullshit and clean up the trash, first.

Start by saying things like: Yes, right now it looks like financial markets are telling us that the United States--and Germany, and Japan, and Britain, and other credit-worthy sovereigns--have enormous amounts of unused debt and risk-bearing capacity. Right now there is a strong case for experiments to try to use that capacity to rebalance aggregate demand and supply--through more aggressive unconventional monetary policy, through banking and financial market policy, through fiscal policy. Such policies will run into problems of implementation, of sustainability, of public choice, and of appropriate unwinding strategies that will limit how far we can extend expansionary policies. But right now the position of the Right and the Center--the position that we need immediate contractionary action now before the bond market vigilantes come to kill us all--is simply wrong as a matter of evidence and as a matter of theory.

Say things like that.

Say them loudly.

And when our current task is done, then we can write subtle dialogues.

But crying "FIRE! FIRE!" in Noah's Flood is not attractive. And demanding that we somehow make crying "FIRE! FIRE!" in Noah's Flood is little but a second-order meta-cry of "FIRE! FIRE!", and is not attractive.

UPDATE: Note that it is not just us. I think of, among others, poor Jon Gruber--whose objections yesterday to demands for Single Payer Health Care or FEHBP-for-all were all ones of political practicality--standing there in Escapist Comics on Claremont giving the Heritage-Romney intellectual argument for the Affordable Care Act as optimal policy because all of its real advocates have shown exactly how lily-colored their livers are. And I think of people like Rob Stavins, who had hoped to be part of a centrist bipartisan environmental-policy coalition, and who find now that the Republicans who they had thought were technocratic carbon-tax advocates are as cowardly and as absent as…

Yet Another Reason America's Future Hinges on the Disappearance of the Republican Party as We Have Come to Know It

David Atkins:

Why do conservatives hate Americans?: Given the Right's recent lurch toward Ayn Rand-style Objectivism, it seems that an intelligent journalist would put the following facts together:

  1. 80% of Americans own only 7% of America's wealth.

  2. The new mainstream in conservatism maintains that the poor are only poor because of laziness and lack of initiative.

It's not exactly a leap in logic to point out that mainstream conservatism now maintains that 80% of Americans are simply ungrateful, lazy bastards who need tough love to do better.

In that context, trying to get rid of Social Security and Medicare makes sense for them. But shouldn't someone start asking, then, why conservatives have such contempt for the vast majority of Americans, and their work ethic? It's not a hard question to ask. The politics of it may be controversial, but the logic isn't.

No, Austerity Is Not Contractionary

Anthony Faiola:

In Greece, fears that austerity is killing the economy: ATHENS — Deeply indebted and nearly bankrupt, this Mediterranean nation was forced to adopt tough austerity measures to slash its deficit and secure an international bailout. But as the Greek economy slides into free fall, critics are scanning the devastated landscape here and asking a probing question: Does austerity really work?

Unemployment has surged to 18.8 percent from 13.3 percent only a year ago. Overburdened public hospitals are facing acute shortages of everything from syringes to bandages because of budget cuts, with hiring freezes forcing the mothballing of operating rooms even as more unemployed are relying on the public health system. Rates of homelessness, suicide, crime and HIV cases from intravenous drug use are jumping.

Greece has been forced to cut spending and raise taxes in the middle of a severe downturn, slashing pensions as well as state salaries, jobs and services. As public confidence has evaporated, consumer spending — the biggest driver of the economy — has plunged, generating cascading losses at private firms. The result is a dizzying economic plummet and social crisis that is bringing the cradle of Western civilization to its knees…. On Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy turned up the heat on Greece, suggesting that its bailout deal is in danger of unraveling if Athens does not press ahead quicker with pledged budget reforms and seal a deal with bondholders to voluntarily restructure its massive debt. But they also acknowledged that new steps are needed to combat slowing growth in the euro zone….

Leon Hannen, 64, a fluent English speaker and a maker of sacred icons for the Greek Orthodox faithful. When Greece’s economy went from bad to worse in 2011, squeezing wallets here, religious shops rapidly stopped purchasing his wares. He said he went from a monthly income of roughly $2,600 as recently as 2009, to just about $260 a month by last summer. “Before I knew it, rent was six months overdue and I was asked to leave,” he said. “I had nowhere to go. I slept under the stars, on park benches, at first. I chose the ones by street lamps to be careful. Frankly, I feel as if I’ve had an easy life up until now. But none of us do anymore”…

Liveblogging World War II: January 12, 1942

Japanese capture the Indonesian oil fields of Tarakan:

Battle of Tarakan (1942) - Wikipedia: Japanese forces of the Right Wing Unit from the Sakaguchi Detachment landed on the east coast of Tarakan at midnight on January 11, 1942, followed by the 2nd Kure Special Naval Landing Force. After mounting a brief, but fierce resistance, the Koninklijk Nederlands Indisch Leger (Royal Netherlands East Indies Army, or KNIL) garrison was outnumbered and surrendered in the morning of January 12. All prisoners of war were executed by the Japanese in retaliation for the destruction of the oil installations; an action that was repeated later in Balikpapan.

During the night of January 11, before Japan completed the blockade of Tarakan, the Dutch submarine K-X,[2] the patrol boat P-1 and the civilian motor launch Aida slipped away. The Dutch minelayer Prins van Oranje tried to escape as well but was sunk by the Japanese destroyer Yamakaze (Lt. Cdr Shuichi Hamanaka) and the patrol boat P-38.

Quote of the Day: January 11, 2012

"One thing I should like to say on this day which may be memorable for others as well as for us Germans: In the course of my life I have very often been a prophet, and have usually been ridiculed for it.

"During the time of my struggle for power it was in the first instance the Jewish race which only received my prophecies with laughter when I said that I would one day take over the leadership of the State, and with it that of the whole nation, and that I would then among many other things settle the Jewish problem. Their laughter was uproarious, but I think that for some time now they have been laughing on the other side of their face.

"Today I will once more be a prophet: If the international Jewish financiers in and outside Europe should succeed in plunging the nations once more into a world war, then the result will not be the Bolshevization of the earth, and thus the victory of Jewry, but the annihilation of the Jewish race in Europe!"

--Adolf Hitler, Speech of January 30, 1939

Raising the Medicare Eligibility Age Is a Really Bad Idea Blogging: Is This a Problem with the Media or with the Congressional Budget Office?

Raising the Medicare Eligibility Age really flunks the cost-benefit test.

And Aaron Carroll is HSRILL!!

ARGH! – Medicare eligibility age : ARGH!

Raising the Medicare eligibility age would save the federal government money while shifting more costs to seniors, the Congressional Budget Office said Tuesday.

CBO also said the effects of raising the Medicare eligibility age would be “less onerous” if President Obama’s healthcare reform law remains in place.

Proposals to raise the Medicare age have surfaced in nearly every round of budget-cutting talks in Congress since Republicans took over the House majority, and Obama put the idea on the table during negotiations last fall.

If only there was a blog that posted on why it costs two times more to raise the Medicare age from 65 to 67 than we’d see in savings. If only there was a blog that explained such a move would be bad for health, regressive, and require the ACA to be fully in effect. If only there was a blog that explained that even the liberal case for this move is weak. If only there was a blog that explained that this is especially bad for certain, large unions. If only there was a blog that explained that the federal savings in such a move are actually very small

If only there was a blog that had a FAQ on this topic. If only a blog had done a podcast on this topic.

Then maybe I wouldn’t have to read this story again and again and again and again. Then I could shout “ARGH” less often.

I think the major problem is with how CBO presents its estimates. It writes:

Director's Blog: Raising the Ages of Eligibility for Medicare and Social Security: If the eligibility age was raised above 65, fewer people would be eligible for Medicare, and outlays for the program would decline relative to those projected under current law. CBO expects that most people affected by the change would obtain health insurance from other sources, primarily employers or other government programs, although some would have no health insurance. Federal spending on those other programs would increase, partially offsetting the Medicare savings. Many of the people who would otherwise have enrolled in Medicare would face higher premiums for health insurance, higher out-of-pocket costs for health care, or both.

CBO estimates that raising the MEA [to 67] would reduce Medicare outlays, net of premiums and other offsetting receipts, by $148 billion from 2012 through 2021…

What is should have written, IMHO:

CBO estimates that raising the MEA [to 67] would reduce net Medicare outlays by $148 billion from 2012 through 2021. It would also reduce tax revenue collections over that time frame by $80 billion as corporations upped their tax-shielded spending on employee health benefits. 65 and 66-year olds and the businesses that employ them would spend an extra $220 billion purchasing Medicare-level health insurance. And 1/4 of 65 and 66-year olds would find themselves uninsured.

Raising the MEA: a really bad idea.

Twitterstorm delong: January 10, 2012

  • joshtpm Josh Marshall Funny thing is many Republicans have genuinely hard time coming to grips w/fact they lost the country's AAA credit rating. #sad 41 minutes ago Retweeted by delong

  • delong J. Bradford DeLong @MikeElk Yglesias writes about 10 posts a day. In his last years at TNR Weisberg wa paying Kaus $300/post. Figure Yglesias makes $750K/year 6 minutes ago

  • CitizenCohn Jonathan Cohn Romney: Elect me or the country will get generous social insurance programs like they have in Europe & I brought to Massachusetts #GOP2012 22 minutes ago Retweeted by delong

  • pandagon Jesse Taylor Ron Paul talks about heel-nibbling, which I'm pretty sure Rick Santorum would let states outlaw. 19 minutes ago Retweeted by delong

  • joshtpm Josh Marshall So awesome listening to Ron Paul talk about the disaster of fiat money. give me small leather bags of salt. thats currency i can believe in 14 minutes ago Retweeted by delong

  • markos Markos Moulitsas Splice in Paul's "bring them home" stuff w/ Perry's "vulture capitalism" thing, and quite a bit of the Dem agenda is being promoted tonight 12 minutes ago Retweeted by delong

  • delong J. Bradford DeLong Jon Gruber at Escapist Comics, talking about his graphic novel "Heaalth Care Reform" 1 hour ago

  • altmandaniel Daniel Altman CNN says #NH voters who valued "strong moral character" most went for Mr. Bigotry 2012 himself, #RonPaul. #sadcommentary #WTFGOP 1 hour ago Retweeted by delong

  • davidmwessel David Wessel Recipe for QE3? SF Fed's Williams expects inflation under 1½ % this year and next, down from about 2½% in 2011. 1 hour ago Retweeted by delong

  • TheMoneyIllusion » The Special Theory of Employment, Interest and Money 1 hour ago

  • radleybalko radleybalko I've criticized him in the past, but many of these new, last-minute Barbour pardons are admirable. I fear there will be a backlash, though. 2 hours ago Retweeted by delong

  • neilbarofsky Neil Barofsky Just 15k net new permanent modifications for HAMP last month. #Fail 8 hours ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine Perry compares Bain to vultures. In response, Romney notes that vultures do a job that has to be done before being ushered away by aides 8 hours ago Retweeted by delong

  • mattyglesias mattyglesias What do we want? Large scale GSE-facilitate mortgage refinancing! When do we want it? Now!… 9 hours ago Retweeted by delong

  • Fed's Williams says central bank must use all tools to deal with #jobs "calamity" 10 hours ago Retweeted by delong

  • EconOfContempt EconOfContempt Here's my take on Bill Daley's tenure as White House COS: I have no clue, b/c I didn't work in the WH. And neither did 99% of ppl commenting 11 hours ago Retweeted by delong

  • DLeonhardt David Leonhardt And my old column on the inability of most people to fire their insurers: 11 hours ago Retweeted by delong

  • politicoroger Roger Simon Newt in NH tonight describes himself as "middle-class citizen." With $500,000 line of credit at Tiffany like all middle-class citizens. 22 hours ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine Perhaps we were too vague. All AZ required was a notorized declaration of candidacy. 23 Republicans did that. Huntsman didn't get a notary 22 hours ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine Jon Huntsman is due to be the next GOP flavor. Why? he just missed qualifying for the ballot in AZ. Couldn't get a notarized signature. Rly 22 hours ago Retweeted by delong

  • mattyglesias mattyglesias "seventy-two per cent of core large-cap mutual funds had underperformed their market indexes"… 9 Jan Retweeted by delong

  • delong J. Bradford DeLong @ @Noahpinion It is interesting how strong belief that ranting, trash-talking emperors like Lucas, Fama, and Cochrane have clothes is...

  • chgreer Christopher Greer @ @pandagon @delong What does heel-nibbling even mean? Is this some sort of Texas thing? #totallynotsarcastic 6 minutes ago

  • altmandaniel Daniel Altman RT @viewofadam - Ironically, according to projections, Rick Perry is the 1%. HT @delong 1 hour ago

  • DavidOser David Oser via @delong & comments - a) my head hurts b) tempted to call for the #logicalpositivists 1 hour ago

  • Noahpinion Noah Smith @ @delong You and Henry Blodget just made me watch an elephant pee. CURSE YOU 9 Jan

Liveblogging World War II: January 10, 1942

Charles de Gaulle addresses Pamela Digby Churchill, the future Pamela Harriman:

Dear Madame:

I permit myself to send you an old book of pictures of Marlborough for your son Winston. It is about the only thing I brought with me from France.

When the young Winston Churchill later looks at these Caran d'Ache sketches he will possibly think about a French general who was, in history's greatest war, the sincere admirer of his grandfather and the loyal ally of his country.

Kindly accept, dear Madame, my very respectful regards.

Charles de Gaulle

New Kansas City Fed President Esther George Walks the Line...

Michael Derby reports:

New Kansas City Fed Chief Gives First Policy Speech: [T]he central banker, who took over the bank from outspoken former President Thomas Hoenig late last fall, declined to offer a view as to where monetary policy should head in the future. “I view monetary policy as attempting to walk a fine line,” George said. She noted the current profile of Fed policy is “designed to encourage risk-taking and to stimulate much-needed growth across our economy.” But she added, “experience has shown that pushing risk taking too far can cause the mispricing of risk, the misallocation of capital and the ultimate weakening of financial firms’ balance sheets.”

What Is Wrong with Economists?

Hoisted from Comments: Bob Athey:

Brad DeLong: Hoisted from the Archives: Yet More Corruption at the University of Chicago...: One thing that continually puzzles me about this New Classical Vs (New?) Keynesian / "Freshwater" Vs "Saltwater" or whatever you call it conflict is that I thought economics was supposed to be a social science with substantial analytic content. I mean, over the course of my career in military operations research & systems analysis I crossed paths with more than one economist (my father included) who didn't have nearly as strong a background math & science as I do, but they invariably were quite capable of handling the tough problems. They understood the science of using simplistic mathematical models to reason about complex systems as well as I did, sometimes better. So why do these so-called "conservative" economists have so much trouble understanding that there can be conditions under which the models that interest them most break down?

I remember Olivier Blanchard saying, after he read the introduction to Lucas and Sargent's Rational Expectations and Econometric Practice, that it seemed clear to him that they had little experience in trying to estimate coefficients at all--and, indeed, when they did acquire some experience, they then dropped estimation for calibration because, qs Sargent reports Lucas saying, estimation was rejecting too many good models.

I think it is the triumph of ideological blinders. If you don't take the world seriously when it speaks to you, you wind up in some very odd places indeed...

Stan Collender Thinks Robert Samuelson Is a Reason the Washington Post Should Shut Its Doors Immediately


Robert Samuelson's Incredibly Misguided View Of The Federal Budget: The Washington Post published a column by Robert Samuelson on December 30 that has been troubling me ever since it appeared in print…. My complaint is about this incredibly incorrect paragraph:

But given an aging baby-boom population and increasingly high health costs, spending on the elderly is already crowding out other important government programs and threatening steep tax increases on working Americans. I plead guilty to making this point repeatedly. Annual spending on Social Security already exceeds defense spending; Medicare is approaching the level of “non-defense discretionary spending,” a catchall of everything from highway spending to foreign aid to education.

There are several big problems with virtually everything here.

First, there is no evidence that spending on the elderly is crowding out other "important" programs. The federal budget is not a zero-sum game.… There is also no indication that these other "important" programs are a higher priority to a majority of Americans than Social Security and Medicare…. Second, saying that annual spending on Social Security "already exceeds" defense spending implies that the Pentagon should always spend more and it's somehow wrong or inappropriate when that doesn't occur…. Third, the same can be said about Samuelson's statement about Medicare: The fact that it may be "approaching the level of non-defense discretionary spending" is a completely meaningless warning. Would Samuelson be happier if non-defense discretionary spending was increased so that it was greater than Medicare? Finally, what in the world does Samuelson mean when he says that spending on the elderly is "threatening steep tax increases on working Americans"? Isn't Pentagon spending and interest on the national debt just as responsible for the deficit as other programs? And if there's a demand for these programs by working Americans (and you can see in any poll that there is), shouldn't they be asked to pay for at least part of them?

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

Quote of the Day: January 10, 2012

"Indeed, the construction of a global telegraph network was widely expected, by Briggs and Maverick among others, to result in world peace: 'It is impossible that old prejudices and hostilities should longer exist, while such an instrument has been created for the exchange of thought between all the nations of the earth.'"

--Tom Standage, The Victorian Internet

Hoisted from the Archives: Defending Cheese-Eating Surrender Monkeys Blogging

May 2002: Ernest May Archives: Ernest May's Strange Victory is an excellent book, a wonderful book. However, I'm not sure that it gets the story of the Fall of France right. I finished it thinking that since Ernest May is a historian of intelligence, he blames the collapse predominantly on intelligence failures--but that another historian who focused on something else could equally well and with equal evidence blame the collapse on other key factors.

Even after the misjudgment that was the French initial deployment--the extra army on the left to hook up with the Dutch, the drive for the advanced position at the Dyle River, the weak Ninth Army holding the Meuse through the Ardennes--that left the French vulnerable to disaster should the Germans break through at the Meuse, the French should have been able to recover. The Ninth Army was weak, but the Meuse was a strong position. And once it was clear that there was a major attack through the Ardennes, the French Army was not that slow to respond.

From Strange Victory and from William Shirer's The Collapse of the Third Republic, we can track the French reaction to the Nazi attack across the Meuse starting on May 10, 1940. The first thing to note is that the Nazi lead elements took up to 70% casualties and kept coming--indicative of extraordinary ideological commitment. In a world in which any "normal" unit breaks at 25% casualties or so, it's hard to beat people who keep coming at you: you can only hope that the enemy doesn't have that many of them. Had the Nazi soldiers been "normal," the initial attack by the seven panzer divisions would probably have failed, and the French would have had time to redeploy.

Strange Victory reports that the French reacted quickly (albeit not quickly enough) to reports that the Germans were making a major offensive through the Ardennes:

p. 410: At 3 P.M. on May 12 Huntziger signaled La Ferte that he wanted strong reinforcements to repel a prsopective German attack.... Three of the strongest elements in the general reserve proceed[ed] immediately to join Huntziger's Second Army: the Third Armored, Third Motorized, and Fourteenth Infantry divisions.... The infantry division was a crack unit commanded by... General Jean de Lattre de Tassigny.... Gamelin and Georges on the morning of May 13 were keeping their eyes out not only for the great battle in Belgium but for... German forces debouching from the Ardennes and attempting to cut behind the Maginot Line..."

Thus three divisions from the general reserve were fed into the southern end of the Ardennees on the 13th of May. The French high command clearly knew it was a trouble spot.

By May 15, the French First Armored division had been switched from the Belgian plain to the Ninth Army Ardennes sector, infantry formations had ben ordered to assemble behind the Ninth Army to form a new Sixth Army, and the Second Armored division as well had been ordered to assemble in the Sixth Army sector. The French high command had identified the Ardennes as the major weakness and was deploying its strategic reserve to reinforce it.

And a few days later Charles de Gaulle was placed in command of the Fourth Armored division, and told to attack the southern flank of the Nazis as their tanks broke through.

So what happened to all these forces--four heavy armored divisions with perhaps 800 tanks between them, plus a large chunk of the sixteen infantry divisions that were in the French strategic reserve on May 10?


... The First Armored division ran out of gas. While it was waiting for the fuel trucks to come up to refuel it, it was attacked by Rommel's panzer division and destroyed as a fighting unit. (Curiosity: the Fuel Czar for First Army--from which the armored division had come--was medieval historian Marc Bloch.)

... The Second Armored division... according to Shirer: "Orders for the [second armored] division to move... did not come until noon of May 13.... The trains with the tanks and artillery were not able to start until the afternon of the 14th.... The wheeled vehicles with the supplies ran into the panzers racing west from Sedan and, having no combat elements, withdrew south of the Aisne.... The tanks and tracked artillery were finally unloaded from their flatcars... between Saint-Quentin and Hirson.... The division was hopelessly dispersed over a large triangle between Hirson, La Fere on the Oise, and Rethel on the Aisne..." with its combat elements without their supplies, its supply elements unprotected by tanks or infantry, and no divisional control over the scattered elements at all.

... The Third Armored division did not advance into the Ardenne at all. Instead, it retreated to the south as General Huntziger ordered it to protect his Maginot Line position: he thought its principal task should be to guard the Maginot line against a flanking attack should the Nazis turn south after crossing the Meuse.

... The infantry formations of the Sixth Army were overrun by Reinhardt's Sixth panzer division on May 15 and 16 while they were trying to assemble.

By May 16, as Shirer puts it:

(p. 689): The three heavy [armored divisions] the French had, all of which in May 10 had been stationed... within 50 miles of the Meuse at Sedan and Mezieres, which they could have reached by road overnight, had thus been squandered.... Not one had been properly deployed.... By now, May 16, they no longer counted. There remained only the newly formed 4th [armored division], commanded by de Gaulle, which was below strength and without divisional training..."

The message I get from this is that the French high command of Gamelin and Georges saw the situation developing and threw 800 tanks in four armored divisions plus between six and ten infantry divisions from their strategic reserve in front of the Nazi breakthrough in plenty of time: the Nazis, after all, had only 1000 tanks in their breakthrough seven panzer division. Yet (de Gaulle's account of what happened to his division in his memoirs aside) it did no good. The French tank divisions and infantry divisions were completely ineffective in their running fight against the seven exploiting Nazi panzer divisions.

With such an extremely low level of performance in a running battle, it seems likely that the French in 1940 would have been decisively defeated no matter how good their intelligence and operational leadership had been.

They failed in grand strategy--yes. They failed in strategy--yes. They failed in intelligence--yes. They failed in operational control--yes.

But still the French managed to get plenty of troops to the Meuse line and plenty of troops to reinforce their positions at the point of the Nazi Ardennes breakthrough in very good time--and still lost decisively and quickly.

This is the context in which we should think about the famous exchange between Winston Churchill and Gamelin:

Battle of France - Wikipedia: Churchill flew to Paris on 16 May. He immediately recognised the gravity of the situation when he observed that the French government was already burning its archives and was preparing for an evacuation of the capital. In a sombre meeting with the French commanders, Churchill asked General Gamelin, "Où est la masse de manoeuvre?" ["Where is the strategic reserve?"] that had saved Paris in the First World War. "Aucune" ["There is none"] Gamelin replied. After the war, Gamelin claimed his response was "There is no longer any."

Gamelin was correct: he had had a strategic reserve of four armored divisions and sixteen infantry divisions on May 10. He had used the reserve properly in a strategic sense: he had fed them into the battle at the decisive point: in front of the Nazi Ardennes breakthrough. And that was the only strategic reserve he had.

Churchill was thus being highly unfair to Gamelin when he wrote, afterwards:

What were we to think of the great French army and its highest chiefs? It had never occurred to me that any commanders having to defend five hundred miles of engaged front would have left themselves unprovided with a mass of man oeuvre

The most important thing to note: the French were not unique. This happened to everybody: to the Poles, to the Dutch, to the Belgians, to the French, to the British, to the Yugoslavs, to the Greeks, to the Russians, and to the Americans at Kasserine Pass. In every case, the initial encounter with the Nazi army is a catastrophe.

It was only those who had enormous strategic depth who had the time to figure out what was going on and how to fight it.

Why America Cannot Stay Great Unless the Republican Party as We Know It Quickly Vanishes, Part CXXII: Health Care Mandates

Actually, I think Mitt Romney does like the idea of telling large numbers of people: "you're fired!" You don't become a turnaround/reorganization artist unless you do so. But be that as it may...

Aaron Carroll:

Lots of people can’t fire their insurance companies | The Incidental Economist: Gov. Romney is not saying that he enjoys telling people that they no longer have a job. He’s saying that, when it comes to health insurance, if a company is doing a bad job, he would enjoy telling them to take a hike. Who wouldn’t?

First of all, let’s unpack the idea that if individuals have their own insurance, the “insurance company will have an incentive to keep [them] healthy”. That’s totally backwards. The idea that people might fire their insurance companies is exactly why they don’t have an incentive to keep you healthy. Insurance companies preferentially cover healthy people, and they want those who are ill to leave, or, better yet, not enroll in the first place. Captive populations, like those in the VA, or maybe plans with long-term contracts through big employers might have the right incentive, but the types of plans Gov. Romney seems to have in mind don’t do the very thing he is saying they do. Insurance companies have a vested interest in keeping you healthy when you can’t or won’t leave.

But that’s the least of his problems. The real issue, unfortunately, is that very, very few people have the luxury that Gov. Romney is endorsing. Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?

Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.

Let’s also not forget that most people don’t find out that they’re not getting “good service” until they’re sick. Healthy people don’t make much use of their insurance, so they don’t know how bad it is. They only find out after they’re ill, and then it’s too late. It’s only fun to fire the insurance company if you’re sure you can go to another company to get what you need. Almost no one can.

Of course, you could be so assured if guaranteed issue was the law. It would be even better if there were community ratings... under the ACA. But if that gets repealed, as Governor Romney suggests, then very few Americans, excepting those that live in states like Massachusetts, will get to enjoy the firing he proclaims to enjoy.

TNR: A Long List of the Most Terrible Things Rick Santorum Has Ever Said

TNR: A Long List of the Most Terrible Things Rick Santorum Has Ever Said:

On the Catholic Church’s abuse scandals: “Priests, like all of us, are affected by culture. When the culture is sick, every element in it becomes infected. While it is no excuse for this scandal, it is no surprise that Boston, a seat of academic, political, and cultural liberalism in America, lies at the center of the storm.”

On same sex marriage and bestiality: “In every society, the definition of marriage has not ever to my knowledge included homosexuality. That's not to pick on homosexuality. It's not, you know, man on child, man on dog, or whatever the case may be. It is one thing. And when you destroy that you have a dramatic impact on the quality...”

On the Massachusetts Supreme Court’s decision to approve same sex marriage: “This is an issue just like 9/11. We didn't decide we wanted to fight the war on terrorism because we wanted to. It was brought to us. And if not now, when? When the supreme courts in all the other states have succumbed to the Massachusetts version of the law?”

On the link between same sex marriage and national security: “I would argue that the future of America hangs in the balance, because the future of the family hangs in the balance. Isn't that the ultimate homeland security, standing up and defending marriage?”

On the war in Iraq: “As the hobbits are going up Mount Doom, the eye of Mordor is being drawn somewhere else. It's being drawn to Iraq. You know what? I want to keep it on Iraq. I don't want the eye to come back to the United States.”

On contraception: “Many of the Christian faith have said, well, that’s okay, contraception is okay. It’s not okay. It’s a license to do things in a sexual realm that is counter to how things are supposed to be.”

On the Affordable Care Act: “I would tell you that my first priority as a president of the United States is to repeal Barack Obama's healthcare plan. I think it's the most dangerous piece of legislation, well, in many generations. It is the reason that I'm running for office. Because I believe Obamacare is a game changer. I believe Obamacare will rob America, the best way I can put it is, rob America of its soul.”

On President Obama’s pro-choice stance: “I find it almost remarkable for a black man to say ‘now we are going to decide who are people and who are not people.’”

On global warming: “I believe the earth gets warmer, and I also believe the earth gets cooler, and I think history points out that it does that and that the idea that man through the production of CO2, which is a trace gas in the atmosphere and the man-made part of that trace gas is itself a trace gas, is somehow responsible for climate change is, I think, just patently absurd when you consider all of the other factors, El Niño, La Niña, sunspots, you know, moisture in the air.”

Twitterstorm delong: January 9, 2012

  • mattyglesias mattyglesias "seventy-two per cent of core large-cap mutual funds had underperformed their market indexes"… 1 hour ago Retweeted by delong

  • delong J. Bradford DeLong The Bowles-Simpson Reputational Bet... 1 hour ago

  • delong J. Bradford DeLong @ @Noahpinion It is interesting how strong belief that ranting, trash-talking emperors like Lucas, Fama, and Cochrane must have clothes is... 1 hour ago

  • delong J. Bradford DeLong John Quiggin: Conservatives and Reactionaries 7 hours ago

  • VanessaValenti Vanessa Valenti Horrid: Quadriplegic undocumented immigrant dies in Mexico after being deported from hospital via @kthalps 10 hours ago Retweeted by delong

  • delong J. Bradford DeLong Western U.S. Precipitation Since July... 8 hours ago

  • delong J. Bradford DeLong Noahpinion: Paul Krugman and the polemical style of blogging… 12 hours ago

  • Atrios Atrios almost succumbed to a 'someone on the internet is wrong' moment. step away from the keyboard...

  • Noahpinion Noah Smith @delong: Note that Kantoos' error about Cochrane was the same as my error about Lucas... 7 hours ago

  • rcmedb JJ Alexander @delong As world sees: US Republican race have shown such a basic lack of knowledge they make George Bush look like Einstein. Der Speigle 15 hours ago

  • aaronecarroll Aaron E. Carroll @ @matthewstoller @delong Give it a week. There will be a snow storm and news will cover it as evidence global warming is a fraud. 8 Jan

  • HEALTH_NOTES Alec Vachon, Ph.D. RT @delong: Medicare and Segregation 7 Jan

The Bowles-Simpson Reputational Bet...

Paul Krugman:

Very Serious Scare Tactics: As part of a longer-term project, I’ve been looking into the why and how of the dominance of austerity rhetoric over most of the past two years. One aspect is the rapturous glee with which policymakers seized on the theory of expansionary austerity, without waiting to see how well it would stand up under scrutiny (and the answer was, not well at all).

Another aspect, however, is the willingness of Very Serious People to invoke apocalyptic visions based on nothing but their gut feelings — gut feelings that people with actual money on the line didn’t share. Here’s Erskine Bowles, on March 8, 2011, warning about an imminent debt crisis:

This problem is going to happen, like the former chairman of the Fed said or Moody’s said, this is a problem we’re going to have to face up to. It may be two years, you know, maybe a little less, maybe a little more, but if our bankers over there in Asia begin to believe that we’re not going to be solid on our debt, that we’re not going to be able to meet our obligations, just stop and think for a minute what happens if they just stop buying our debt.

What happens to interest rates and what happens to the U.S. economy? The markets will absolutely devastate us if we don’t step up to this problem. The problem is real, the solutions are painful and we have to act.

Alan Simpson then weighed in and declared that it would be less than two years — presumably based on his deep knowledge of markets and debt history, which he somehow acquired without anyone noticing.

Now, maybe Bowles and Simpson will be proved right, although I very much doubt it. But what I do know is that come March 2013, with interest rates still very low and no hint of a debt crisis, they will still be considered Very Serious. False warnings of doom only matter if they come from the wrong people, advocating the wrong things.

A Note on Determinants of Aggregate Demand…

Paul Krugman wrote:

A Note On The Ricardian Equivalence Argument Against Stimulus: I’ve tried to explain why Lucas and those with similar views are all wrong several times…. 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…. 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.

Let me make two points:

First, in their defense, I would note that if the government buys the same goods as the private sector would have bought anyway and hands them out, then the family would cut its spending right now by $100,000, because then it is both the case that (a) you are poorer because of the future tax liability, and (b) your marginal utility of consumption right now is low because the government is giving you all of this stuff. But since what the government buys (roads, bridges, weather stations, human capital for twelve year olds, etc.) tends to be quite different from what the private sector buys, this defense is extremely shaky and limited.

Second, I remember--long ago--Bob Barro telling a bunch of us that "RE is just a Modigliani-Miller result for the government's balance sheet". And he was right. However, there is nobody who says: "corporate capital structure is irrelevant". Instead, people say: "corporate capital structure is relevant because it can help the corporation (a) create assets that those with preferred habitats are willing to pay healthy premiums to hold, and (b) minimize the appropriate combination of future monitoring, agency, and reorganization costs." Nobody takes MM to be the end of analysis: it is the start.

Yet a lot of people--for reasons I have never understood--take RE to be the end of the analysis...

John Quiggin: Conservatives and Reactionaries


Conservatives and reactionaries: Corey Robin’s new book The Reactionary Mind…. As I read Robin, his central claim is that the current situation in which people who call themselves “conservative” are in fact radical reactionaries is not an aberration, but the norm, and that this has been the case ever since the first self-conscioulsy conservative thinker, Edmund Burke.

I’d put this more broadly – conservatism (and, it’s opposites, progressivism radicalism) are, in essence ideas about process, but the most people active in politics are more concerned about pursuing particular goals than about the way they get there.

To illustrate the point consider the standard claim about conservatism put forward by Michael Oakeshott in 1956  (also cited by Robin):

To be conservative, then, is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss.

Now consider how someone who actually held these views in the Britain of 1956 ought to have regarded trade unions. Of all British institutions, they were surely amongst the most familiar and factual, embodying the preference for actual present benefits over utopian projects. Yet that was not, as far as I can tell Oakeshott’s position at all…. Robin’s thesis is that claims like Oakeshott’s about conservatism (and also, those of Hayek about classical liberalism) are nothing more than a mask for attempts to resist, and where possible, roll back the claims of the working class…. I think this is broadly correct. Although there are people with the conservative disposition… there is no inherent correlation between conservatism as a disposition and support for the political views commonly associated with conservatism. 

There is an accidental association reflecting the fact that, taking the last two or three centuries as a whole, the ruling class has mostly been losing ground…. The crucial test comes in periods such as the Bourbon restoration, or the neoliberal resurgence of the last thirty years or so, when the direction of change is reversed. Genuine conservatives in these circumstances seek to preserve those advances that have been embedded in the way society works (such as the New Deal in the US). Conservative politics on the other hand, is dominated by reactionaries seeking to restore (an idealised version) of the status quo ante, and gains the support of those with a radical disposition (Newt Gingrich is an ideal example). It’s certainly possible to find examples of the first kind (the “Wets” who resisted Thatcher for example) but they are clearly in the minority…

The Soft Bigotry of Low Expectations in Judging Macroeconomic Arguments

Kantoos writes:

The political economics of being Paul Krugman – Kantoos Economics: [T]hree years ago, in early 2009, when I read John Cochrane’s piece on fiscal stimulus . It is a little convoluted, unfortunately, but an interesting read nonetheless. I would have loved to read a proper response by Paul or Brad DeLong, but only found unjustified rants that had little to do with John’s arguments – if you actually read the whole piece.

[Update: for reasons explained in my reply to Brad, I take that back, as their rants were justified given that John's piece was more than just a little convoluted. What I considered to be the core arguments were hidden under quite a few layers of wrong economic claims. Apologies to Brad and Paul.]

Nevertheless, Kantoos still concludes:

Paul defends himself saying that he only points out stupidity when justified, and that he engages in sensible discussions with other brilliant economists like Kenneth Rogoff. However, the border between the two is clearly blurry…. What is clear to me, though, is that Paul needs to adjust his definition of what counts as stupid and what doesn’t. John Cochrane’s piece on fiscal stimulus, for instance, was not stupid at all.

Even though what Kantoos "consider[s]… to be the core arguments" (he never says why these are the core arguments) are "hidden under quite a few layers of wrong economic claims"?

There's claiming to be a judicious referee while putting your thumb on the side of the scale your favor. There's claiming to be a judicious referee while putting your whole self on the side of the scale you favor. And there is this.

Kantoos owes Paul a much more complete apology, and a complete retraction.

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

David Remnick on Jodi Kantor:

Jodi Kantor’s “The Obamas,” Review : The New Yorker: You sense the strain when, in the opening pages of “The Obamas,” Kantor sets out the terms of her project: “In public, they smiled and waved, but how were the Obamas really reacting to the White House, and how was it affecting the rest of us?” Later, she works even harder to gin up the melodrama: “Could Barack Obama’s attempts to make his wife happy—to compensate for his decision to pursue politics, to run for president—hurt his work as president? What if his attempts to reconcile the irreconcilable—Michelle and politics, but also many other issues—were impossible; what if the attempts themselves came with their own costs?” The questions are at once labored and absurd. The state of a marriage is a poor guide to the course of a Presidency…

Western U.S. Precipitation Since July...

Inches of Rain:

Anomimage pl 792×612 pixels 1

Percent of Average:

Anomimage pl 792×612 pixels

I know, I know that California has two normal climate modes:

  • One in which there is a substantial amount of rain in December, in which people then write "ZOMG!! BUILD AN ARK!!" stories, and in which January is then relatively dry and things are about normal.

  • A second in which there is little rain in December, in which people then write "ZOMG!! WE'RE ALL GOING TO DIE, CLUBBING EACH OTHER WITH THE GOLD BARS IN OUR BASEMENT AS WE TRY TO GRAB HOLD OF THE LAST DROPS OF WATER!! stories, and in which January is then relatively wet and things are about normal…

But, guys, it's January 9 already. We had our very dry December. Where is our wet January? (Looks at to sea…)

Barry Ritholtz Gets Medieval on Bank Earnings Forecasts


Bank Earnings Forecast: +57% | The Big Picture: Today’s howler comes from the fundamental banking analyst community. Recall that this is the group who once existed to help investors decide where to place their monies. When that did not work out, their bosses morphed their business model towards generating IPO and syndicate business. When that failed, they moved towards driving short term institutional trading.

Today, I have no idea what their business model is.

Despite having missed 2011′s declining earnings per share for the biggest U.S. banks, they are forecasting an even bigger profit surge for 2012, according to Bloomberg:

The six largest lenders, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS), may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. A year ago, analysts predicted profit at the banks would climb 32 percent in 2011. Instead, earnings per share probably fell 18 percent as the economic recovery analysts counted on never took hold.

Improved trading results, more investment-banking deals, expense-cutting measures and lower credit costs will lead to the increase in earnings that didn’t materialize last year, analysts say. That may provide a boost to stock prices after financials were the worst-performing industry in the U.S. in 2011.

Exactly how does one forecast improved trading results? “I really feel these guys are not only going to have a better trading environment in 2012, but they are going to get better insight, cleaner executions and be a whole lot luckier than they were in 2011” said no one at all…

Laura D'Andrea Tyson: Wyden-Ryan's Unrealistic Assumptions


Laura D'Andrea Tyson: Wyden-Ryan's Unrealistic Assumptions: In a surprising year-end act of bipartisanship, Representative Paul D. Ryan, Republican of Wisconsin, and Senator Ron Wyden, Democrat of Oregon, offered a proposal to reduce the growth of Medicare spending, envisioning a fundamental transformation of Medicare to a “managed competition” or “premium support” system….

[M]arkets for insurance and health services are not like most markets, and there is scant evidence to support the Ryan-Wyden assertion, as Uwe E. Reinhardt noted in Economix last week. The cost savings from managed competition are hypothetical and uncertain – in fact, there are reasons to fear that such a system could actually increase costs. Despite competition and choice in the private insurance system, Medicare spending has grown more slowly than private insurance premiums for comparable coverage for more than 30 years….

What explains Medicare’s sustained cost advantage over private insurance? Medicare has much lower administrative costs than private insurance (administrative costs account for about 14 percent of health care spending, or a whopping $360 billion a year). And Medicare has considerable negotiating leverage….

Advocates of premium support point to the Federal Employees Health Insurance plan as an example of how competition would work in Medicare. But this plan has been no more successful than private-employer-provided insurance at controlling the growth of insurance premiums….

[T]he Ryan-Wyden system [is likely to] devolve from a premium-support system in which the growth of the subsidy depended on actual health-care costs to a voucher system in which it was delinked from such costs. The Affordable Care Act of 2010 sets the same target for the future growth of Medicare spending. But unlike the Ryan-Wyden proposal, the act does not undercut Medicare’s ability to control costs by weakening the negotiating influence derived from its national enrollment…. [R]eforms are essential to controlling costs and improving care. And only Medicare has the clout and responsibility to accomplish them….

In 1998, a National Bipartisan Commission on the Future of Medicare… developed a premium-support proposal…. I could not recommend the commission’s proposal because it rested on unrealistic assumptions about the magnitude of the cost savings that would result from competition…. I have similar reservations about the Ryan-Wyden plan...

Quote of the Day: January 9, 2012

"The father of my client Sextus Roscius possessed property worth six million sestertii. But a certain young man claims that he has bought it, and he has to admit that the sum he paid for it was only two thousand sestertii. The young man is Lucius Cornelius Chrysogonus, whose position in our country today is exceptionally powerful. And the alleged seller was the valiant and glorious Lucius Sulla – whose name, of course, I mention with all due respect. What Chrysogonus seems to be asking you, judges, is this. Quite illegally, he says, he has seized an extensive and magnificent estate which is not his at all but belongs to someone else: and since this is so, and since the life of my client, Sextus Roscius, may be regarded as an obstacle standing in the way of his enjoyment of that estate, it is up to you to take steps to eliminate the worries and anxieties that this situation causes him. For while Sextus Roscius remains at large, Chrysogonus feels serious doubts whether he can contrive that this ample and wealthy patrimony, belonging to a wholly blameless individual, shall remain in his own clutches. But if Roscius can only be convicted and thus forced to depart from the scene, Chrysogonus looks forward to the prospect of being able to retain the proceeds of his crime, to squander and dissipate as extravagantly as he pleases. This, then, is the anxious longing which nags and torments him day and night. What he is doing, therefore, is to entreat you to set his mind at rest by pronouncing yourselves his accomplices in these ill-gotten gains.

"Now, I am perfectly sure, gentlemen, that Lucius Sulla knew nothing at all about any of this. He is kept fully occupied on our national affairs, repairing the past and at the same time anticipating the probable demands of the future. The arrangements by which peace has to be established, the powers needed to wage war, these are the matters to which he devotes himself, and over which he exercises sole control. All eyes are turned towards him. It is he who directs everything. Matters of the utmost importance engross his continual attention, so that he scarcely even has time to breathe. In these circumstances, it is surely not very surprising if, from time to time, there is something or other that escapes his notice. After all, think of the host of people who spend their time watching until he is fully engaged elsewhere, so that at the very first moment when he looks away they can concoct some plan of precisely the kind we are concerned with here. And there is another point as well. We know that he is Sulla the Fortunate.1 But nobody can be so thoroughly well endowed by good fortune that his large household does not include a single slave, or former slave, who may be dishonest…"

--M. Tullius Cicero, Pro Roscio

Twitterstorm delong: January 8, 2012

  • Atrios Atrios almost succumbed to a 'someone on the internet is wrong' moment. step away from the keyboard... 20 minutes ago Retweeted by delong

  • matthewstoller Matt Stoller When it's 60 degrees in January in New York, I can't hell but hear ominous horror movie music in the background. 7 Jan Retweeted by delong

  • delong J. Bradford DeLong Ryan Avent: The Logic of Fed Policy: "PROFIT!!" Edition 7 hours ago

  • AngryBlahLady Imani ABL “I had not abandoned my trust in the Bush administration. I accepted [Bush's] judgment that American security really would be enhanced by the invasion of this sovereign country.” -@ggreenwald #p2 #TFY 7 hours ago Retweeted by delong

  • joshgreenman Josh Greenman Romney: I haven't seen these ads, but the one I saw and remember perfectly was awesome. 10 hours ago Retweeted by delong

  • jbplainblog Jonathan Bernstein RT @badler: Romney claims federal anti-poverty programs have "massive overhead." this is demonstrably false 10 hours ago Retweeted by delong

  • jbplainblog Jonathan Bernstein RT @adamserwer: Paul on King in his newsletter: “replaced the evil of forced segregation with the evil of forced integration.” 23 hours ago Retweeted by delong

  • DavidCornDC David Corn But guess what? Paul's newletters said a lot of nasty stuff about MLK. Did he ask anyone to cut that out? #NHdebate #fitn 23 hours ago Retweeted by delong

  • daveweigel daveweigel I worried that I was wasting some time on this silly Roemer thing, and then my Twitter feed filled up with RuPaul items. So, no. 7 Jan Retweeted by delong

  • delong J. Bradford DeLong @ @EmanuelDerman @justinwolfers You never read Kevin Hassett's column on how we should bomb CERN, did you? 7 Jan

  • AKaczynski1 Andrew Kaczynski A section of Rick #Santorum's 2002 Senate website is entitled "Internet Rumors about Bonsai Kittens," not a joke. 7 Jan Retweeted by delong

  • cstross Charles Stross XDR-TB was bad enough. Now we've got a totally drug-resistant form of TB ... 7 Jan Retweeted by delong

  • delong J. Bradford DeLong @TheStalwart The important thing is: do people who perform Orwellian surgical amnesia on their own past record deserve platforms? (2/2) 6 Jan

  • delong J. Bradford DeLong @TheStalwart Tom Friedman's retconning of "what we needed to see was American boys and girls going house to house, from Basra to Baghdad, and basically saying... Well, Suck. On. This" to "After 9/11, the idea of helping to change the context of Arab politics and address the root seemed to me to be a legitimate strategic choice" was absolutely monstrous, and will be monstrous. People who perform Orwellian surgical amnesia like that on themselves don't deserve platforms (5/5) 6 Jan

  • delong J. Bradford DeLong @ @afrakt Shouldn't that be "Republican economists"? None of them would sign the same brief for a Mass. Sup. Court suit against RomneyCare... 6 Jan

  • mattyglesias mattyglesias LOL. David Brooks thinks Rick Santorum has a "political philosophy." 6 Jan Retweeted by delong

  • rortybomb Mike Konczal @ @BetseyStevenson Wow. Looking at that year-over-year it's even worse. Workers with a high-school degree lost jobs, no-HS minimal gains. 6 Jan Retweeted by delong

  • delong J. Bradford DeLong Ed Glasner Despairs About the Thought of Our Central Bankers 6 Jan

  • ezraklein Ezra Klein My guess: About half of politicians who say they oppose gay marriage privately support it. Maybe more than half. 5 Jan Retweeted by delong

  • ayeletw Ayelet Waldman In my genetic termination support group there were pro-life women. Because it's only an abortion when someone else has it. 5 Jan Retweeted by delong

  • matthewstoller Matt Stoller The CFPB has been trying to tell students what they owe and working to simplify mortgage forms. Just like Stalin. 5 Jan Retweeted by delong

  • mattyglesias mattyglesias The quantity of good ideas undercut by fatalism a couple levels down from the top in the Obama administration is amazing. 5 Jan Retweeted by delong

  • HEALTH_NOTES Alec Vachon, Ph.D. RT @delong: Medicare and Segregation 7 Jan

  • theglipper Greg Lipper Ugh. #Ugh RT @delong First cases of totally drug resistant TB in India, one dead - Mumbai - DNA… 7 Jan

  • Hohfeld hohFeld @ #UweReinhardt RT @delong Uwe E. Reinhardt: What Price Pluralism in Health Insurance? #uppers #ows #ObamaCare 7 Jan

  • DavidOser David Oser Hat tip @delong #StructuralUnemployment zombies back again (sigh) Triumph of anecdote over data 7 Jan

  • ledbetreuters James Ledbetter @ @delong Given the rarity and disincentives for pundits to say "I was wrong," I'd call Friedman's revisionism egregious but not unique. 6 Jan

  • akammer Anthony Kammer MT @delong "do people who perform Orwellian surgical amnesia on their own past record deserve platforms?" 6 Jan

  • DougHenwood Doug Henwood @delong @mattyglesias ...This season courier hiring was unusually strong, so it surprised the adjustment. It will probably reverse in Jan. 6 Jan

  • mattyglesias mattyglesias @ @delong I stop after LOLing and only revisited the tab by accident. 6 Jan

  • JerAHolden Jeremy Holden GOP's economic sabotage has been "a catastrophe for the nation" (via @delong) 6 Jan

The Mitt Romney Campaign. Lying. All the Time. About Everything

Mitt Romney Campaign Disavows Pro Gay Rights Flyer From 2002

Sam Stein:

Mitt Romney Campaign Disavows Pro-Gay Rights Flyer From 2002: Mitt Romney's presidential campaign on Sunday disavowed a flyer that claimed he supported "equal rights" for gay citizens and has long been reported to have been distributed by the Massachusetts Republican during his 2002 campaign for governor.

Eric Fehrnstrom, Romney's chief spokesman, told The Huffington Post that the flyers were not official literature from Romney's 2002 run, despite the fact that they include the tag line "Paid for by the Romney for Governor Committee," on the bottom.

"I don't know where those pink flyers came from. I was the communications director on the 2002 campaign. I don't know who distributed them ... I never saw them and I was the communications director," Fehrnstrom said in the spin room after Sunday morning's GOP presidential debate here.

Fehrnstrom said he had no idea who had distributed the flyers. "I never saw them and I never approved them. I'm not quite sure where they came from."


Weblogging Is Not a Dinner Party...

Paul Krugman:

The Nonsense Problem: Brad DeLong does a lot of work meeting a challenge from Kantoos, who insists that neither Brad or I have done justice to John Cochrane’s arguments. And what Brad finds is… nothing that makes a bit of sense.

Well, there are pieces of it that make sense. Of those pieces of Cochrane I quote, (A) is coherent but turned out to be factually wrong, (B) is simply wrong on a basic Econ-1 theory level, (C] is simply wrong on a basic Econ-1 theory level, (D) is not an argument but a rant, (E) is largely right, (F) denies that the correct (E) is true and is incoherent, (G) is correct, (H) is misleading, (I) denies that the correct (G) is correct--until its last three sentences, which appear to say that (G) is correct but that fiscal expansion is less effective than quantitative easing, but does not say why. (J) is coherent but factually wrong, and (K) is not an argument but an evidence-free ideological rant, as is (L). But the correct pieces are almost invariably head feints that are then declared to be wrong, and I cannot find a consistent underlying picture of how the economy works.

So I endorse Paul's:

This indicates, I think, a key problem in these debates. People like Kantoos or Tyler Cowen start from the presumption that when people with the right credentials, like Cochrane, or Jean-Claude Trichet, or Robert Lucas make strong statements, that they must have a defensible model behind their assertions. And so if someone like me or Brad says that there is no such defensible model, we must be engaged in a “rant”, treating these people unfairly. But sometimes people with impressive credentials do talk complete nonsense…. So what purports to be a demand for fair-minded argument ends up, in practice, being a demand that we pretend to find a coherent position where none exists, that we basically invent a high-minded debate out of thin air. I understand that many people find the notion of a world in which Nobel Laureates and ECB presidents declare that 2+2=5 very unappealing, and that they wish we lived in a different and better world. But we don’t — and it’s not my job to create the illusion that we do.

And then Paul says that he will continue to break crockery when he thinks that it is appropriate to do so:

Update: I realized that I also wanted to say something in response to the concern trolling, the “if you were more moderate you’d have more influence” stuff. Again, this amounts to wishing that we lived in a different world. First, there is no such thing in modern America as a pundit respected by both sides. Second, there are people writing about economic issues who are a lot less confrontational than I am; how often do you hear about them? This is not a game, and it is also not a dinner party; you have to be clear and forceful to get heard at all.

Monetary Policy in Recessions: Duncan Black Is Really Shrill Department


Eschaton: If this really is the Fed's view, then they're saying that monetary policy is generally going to be utterly useless in fighting recessions as they won't be willing to do anything. Time to rewrite all the textbooks. As in, instead of the usual "fiscal policy is less likely to be useful during recessions due to lags in recognition, implementation, and impact" claptrap, we should have "monetary policy is unlikely to be useful during recessions due to the fact that modern central bankers are sociopaths whose only concerns are inflation and the economic wellbeing of the creditor class."