Grasping Reality on TypePad, by Brad DeLong

David Frum: All Good Things...: "Compared to the mental ice age that descended upon the GOP after the defeat in 2008, every day in 2013 we seem to see a new green shoot emerging from once-frozen soil. I look forward to an even richer intellectual flowering in the months ahead. I feel pride that I and the contributors to the various Frum blogs have helped to seed this budding spring. I hope to join the next wave of discussion…. Here are five essential tasks to commence before conservative reform truly rolls forward. 1) There remain too many taboos and shibboleths even among the conservative reformers…. 2) Conservative reformers are understandably allergic to arguments about income inequality. The conservative project at its best has worked to raise the floor beneath the American middle class, not to lower the ceiling upon the middle class. But one of the lessons I think conservatives should take from the 2012 Romney defeat is that the increasing concentration of wealth in America has dangerous political and intellectual consequences…. 3) Conservative reformers must not absent themselves from the environmental debate…. 4) Conservative reformers should make their peace with universal health coverage. It's the law, and it won't be repealed. Other countries have managed to control costs while covering everyone, and the US can too. A message of "protect Medicare, scrap Obamacare" reinforces the image of conservatism as nothing more than the class interest of the elderly. 5) I appreciate that conservative reformers must pay lip-service to shibboleths about Barack Obama being the worst president of all time, who won't rest until he has snuffed out the remains of constitutional liberty, etc. etc. Dissent too much from party orthodoxy, and you find yourself outside the party altogether. Still … conservative reformers should admit, if only to themselves, the harm that has been done by the politics of total war over the past five years."

Jérémie Cohen-Setton: Blogs review: The economics of a regime shift: "For several years already (see our previous reviews on price level and nominal GDP targeting), monetary economists and historians have called for a regime change in monetary policy…. After two decades of deflation, this change has come to Japan. As with the UK experiment with fiscal contractions, the early effects of the Japanese experiment have been followed with great interest…. I complement the discussion of Abenomics with historical evidence from the Great Depression…. Paul Krugman writes that in a sense, the really remarkable thing about “Abenomics” is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism…. Christina Romer and David Romer show that what are widely viewed as the two largest errors in Federal Reserve history – inaction in the wake of banking panics early in the Depression, and inaction in the face of high and rising inflation in the 1970s – were both borne of excessive pessimism about the power of monetary policy…. Christina Romer argues that through a combination of actions, the most important of which were monetary, Franklin Roosevelt managed to turn our ocean liner of an economy on a dime…. In their 1990 EEH paper Peter Temin and Barry Wigmore analyze the beginning of the recovery in the US within the framework used by Sargent (1983) to study the end of hyperinflations. Sargent argued that the key to costless stabilization was the establishment of a new policy regime…. Peter Temin and Barry Wigmore’s argument is that FDR established a new macroeconomic policy regime shortly after his inauguration in March 1933…. The problem with the traditional focus on the National Industrial Recovery Act (NIRA) as a source of the recovery is it came too late to explain the turn around. Gauti Eggertsson writes that it is hard to overstate how radical the regime change was. “This is the end of Western civilization,” declared Director of the Budget Lewis Douglas…. These policies violated three almost universally accepted policy dogmas of the time: (a) the gold standard, (b) the principle of balanced budget, and (c) the commitment to small government. Interestingly, the end of the gold standard and the monetary and fiscal expansion were largely unexpected…. Nicholas Crafts writes that the years from 1933 through 1936 also saw a very strong recovery with growth of over 4% in every year in the UK. The policy framework adopted by the Chancellor of the Exchequer, Neville Chamberlain (in office from November 1931 to May 1937) from mid-1932 has a strong resemblance to the so-called ‘foolproof way’ of escaping from the liquidity trap (Svensson, 2003) and to ‘Abenomics’ in today’s Japan. A key aspect was that the Treasury under Chamberlain, rather than the Bank of England under Montagu Norman, ran monetary policy after the exit from the gold standard…. Because of its problems with fiscal sustainability, the Treasury was in a good position to persuade markets that it wanted sustained moderate inflation as part of a strategy to reduce the real interest rate below the growth rate of real GDP and to benefit from this differential in reducing the public-debt-to-GDP ratio…. Christina Romer argues that the regime shift we are seeing in Japan is just the kind of bold action that might actually succeed in changing both inflation and growth expectations a substantial amount. She also writes that the initial indicators are consistent with Japan’s actions being perceived as a genuine regime shift…. Martin Wolf writes that Japan’s effort to get its economy moving entered difficult terrain last week…. Kate Mackenzie writes in FT Alphaville that the big thing happening in the Abenomicsphere recently is of course rising JGB yields. This might be the precursor to something terrible, i.e. yields rising unsustainably high, but higher yields are also a necessary effect of moving away from deflation."