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September 2013

Olivier Coibion, Yuriy Gorodnichenko and Dmitri Koustas: Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence: Noted

Olivier Coibion, Yuriy Gorodnichenko and Dmitri Koustas: Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence:

The persistence of U.S. unemployment has risen with each of the last three recessions, raising the specter that future U.S. recessions might look more like the Eurosclerosis experience of the 1980s than traditional V-shaped recoveries of the past. In this paper, we revisit possible explanations for this rising persistence. First, we argue that financial shocks do not systematically lead to more persistent unemployment than monetary policy shocks, so these cannot explain the rising persistence of unemployment. Second, monetary and fiscal policies can account for only part of the evolving unemployment persistence. Therefore, we turn to a third class of explanations: propagation mechanisms. We focus on factors consistent with four other cyclical patterns which have evolved since the early 1980s: a rising cyclicality in long-term unemployment, lower regional convergence after downturns, rising cyclicality in disability claims, and missing disinflation. These factors include declining labor mobility, changing age structures, and the decline in trust among Americans. To determine how these factors affect unemployment persistence, this paper exploits regional variation in labor market outcomes across Western Europe and North America during 1970- 1990, in contrast to most previous work focusing either on cross-country variation or regional variation within countries. The results suggest that only cultural factors can account for the rising persistence of unemployment in the U.S., but the evolution in mobility and demographics over time should have more than offset the effects of culture.

Bill Gardner: Let Consumers Decide About Obamacare: Noted

BilL Gardner: Let Consumers Decide About Obamacare:

Obstructing consumers’ access to information about the ACA is deeply unprincipled. Florida, Missouri, Ohio, and Georgia should not substitute their paternalist and collectivist decisions for the free choices of consumers. Conservatives lost this battle in Congress, the Supreme Court, and the 2012 Presidential election. But they still have legitimate opportunities to defeat the ACA. There will be another election in 2016. And they could allow consumers to vote for or against the ACA right now, using their dollars in the marketplace.

Liveblogging World War II: September 20, 1943


World War II Today: U-Boat Wolfpack returns to Atlantic with a vengeance:

The growing effectiveness of the Allies in the battle against the U Boats had led to them being withdrawn from the Atlantic in May 1943. Yet Admiral Donitz was never ready to completely give up. The risk to his boats was great but they represented the only possible means of combatting the ever growing power of the Allied forces.

In September 1943 he tried again. Around twenty U boats were gathered in the mid Atlantic, as far from air cover as possible, strung out in a long line waiting to sight a convoy and then converge for a ‘wolfpack’ attack. For once Enigma had failed to intercept the German messages and it was not possible to route the convoys out of harms way.

Continue reading "Liveblogging World War II: September 20, 1943" »

Amitabh Chandra, Jonathan Holmes, and Jonathan Skinner: Is This Time Different?: The Slowdown in Healthcare Spending: Noted

Amitabh Chandra, Jonathan Holmes, and Jonathan Skinner: Healthcare Costs Will Continue to Grow at GDP +1.2 Percent for Foreseeable Future:

Has health care cost growth really moderated? We first question whether the remarkable decline in expenditures during 2007-2013 is different; a similar downturn occurred in the early 1990s before roaring back in the late 1990s, and even as of 2013, there is little evidence of health sector employment slowing. Second, we find little evidence that the Great Recession alone was the cause (income effects in health care are small) or that the 2010 Affordable Care Act could take credit (it still hasn’t phased in yet). Third, Medicare, Medicaid, and private insurance exhibited very different dynamics during this period, with private insurance prices escalating and utilization slowing as consumers faced higher deductibles, and Medicare, an entitlement program, untethered from the economic downturn. Fourth, the primary determinant of long-term growth is the continued development of new and expensive technology, and there is little evidence of slowdowns in the technology pipeline; proton beam accelerators are on target to double between 2010 and 2014, and stock prices in the health sector remain exceptionally strong. Finally, while we recognize the possibility of newly developed accountable care organizations (ACOs) and emboldened insurance companies to restrain the growth of health care spending, we predict that health care costs will grow at GDP plus 1.2 percent for the next few decades; lower than previous estimates but still on track to cause serious fiscal pain for the U.S. government and employees who bear the cost of higher premiums in the form of lower wages.

Liveblogging World War II: September 19, 1943


Vassily Grossman in the Ukraine:

Old men, when they hear Russian words, run to meet the troops and weep silently, unable to utter a word. Old peasant women say with a quiet surprise: ‘We thought we would sing and laugh when we saw our army, but there’s so much grief in our hearts, that tears are falling.’

When our troops enter a village, and the cannonade shakes the air, geese take off and, flapping their wings, fly heavily over the roofs. People emerge from the forest, from tall weeds, from marshes overgrown with tall bullrushes.

Continue reading "Liveblogging World War II: September 19, 1943" »

Matthew Yglesias: Scalise's Obamacare replacement is a beautiful unicorn: Noted

Matthew Yglesias: Scalise's Obamacare replacement is a beautiful unicorn:

Representative Steve Scalise…. "We… make sure that people with pre-existing conditions cannot be discriminated against… [without] put[ting] in place mandates that increase the costs of health care and push people out of the insurance that they like.” So here's one example of the kind of costly mandate that a free marketeer might want to avoid: a mandate that insurance companies not discriminate against customers with preexisting conditions…. My strong suspicion is that Rep Scalise is not in fact some kind of public policy prodigy who's thought his way out of a dilemma that's gone unsolved by the governments of all fifty U.S. states and every industrialized country on the planet…. That'd be nice.

Noted to Aid Your Lunchtime Procrastination for September 19, 2013

  1. "The crisis has provided evidence that fiscal policy is an appropriate countercyclical policy tool when monetary policy is constrained by the zero lower bound, the financial sector is weak, or the output gap is particularly large": IMF: Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies
  2. "The FOMC is now on the record that they are unhappy with 10y yields at these levels given the current backdrop, at least for now and that a 7% UER rate no longer means no more QE. These dovish shifts were surprising because the data appears to have come in inline with the Fed’s own projections, and Bernanke said so. The Fed seems most worried about the rise in mortgage rates and potentially the fiscal issues ahead, and it appears they want to take out some insurance against that": Macro Man: Guiders 1 - Bond Vigilantes 0 - Guidance minus 1.
  3. "New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) project that aggregate health care spending in the United States will grow at an average annual rate of 5.8 percent for 2012–22, or 1.0 percentage point faster than the expected growth in the gross domestic product (GDP). The health care share of GDP by 2022 is projected to rise to 19.9 percent from its 2011 level of 17.9 percent": * Chris Fleming: US Health Spending Growth Projected To Average 5.8 Percent Annually Through 2022*
  4. "In 1973, a [median] American household… earned $48,557 in inflation-adjusted dollars. In 2012, the typical household earned $51,017…. In 1973, a typical American man who worked full-time and year-round took home $51,670. In 2012, the median full-time, year-round male worker earned $49,398": John Cassidy: Four Lost Decades: Why American Politics Is All Messed Up
  5. "Those who love sausage and the scriptures shouldn’t watch either of them being made": Jim McDonald: Victory to the People
  6. "When I started blogging… I worried that my ability to write longer essays or books would suffer. The brain muscles associated with longer compositions, structured essays, or book-length arguments… might atrophy…. But I was wrong": Andrew Sullivan: How Blogging Makes You A Better Writer

Continue reading "Noted to Aid Your Lunchtime Procrastination for September 19, 2013" »

Whiskey-Tango-Foxtrot-Bang-Query-Bang-Query Thursday Weblogging: Simon Wren-Lewis and Chris Dillow on Robert Lucas's and John Cochrane's Mistakes and Ideology in Macroeconomics

Simon Wren-Lewis in 2012:

Mistakes and Ideology in Macroeconomics: Imagine a Nobel Prize winner in physics, who in public debate makes elementary errors that would embarrass a good undergraduate. Now imagine other academic colleagues, from one of the best faculties in the world, making the same errors. It could not happen. However that is exactly what has happened in macro over the last few years. Where is my evidence for such an outlandish claim? Well here is Nobel prize winner Robert Lucas:

But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder -- the guys who work on the bridge -- then it's just a wash.  It has no first-starter effect.  There's no reason to expect any stimulation.  And, in some sense, there's nothing to apply a multiplier to.  (Laughs.)  You apply a multiplier to the bridge builders, then you've got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. 

Continue reading "Whiskey-Tango-Foxtrot-Bang-Query-Bang-Query Thursday Weblogging: Simon Wren-Lewis and Chris Dillow on Robert Lucas's and John Cochrane's Mistakes and Ideology in Macroeconomics" »

Jonathan Chait: Today in Conservative Obamacare Self-Delusion: Noted

Jonathan Chait: Today in Conservative Obamacare Self-Delusion:

Republicans have whipped themselves into a frenzy over [ObamaCare] through a process of self-deception…. The most important news about the law--the lower-than-expected premiums and sharply falling health-care inflation--doesn’t exist at all, and the fate of the law can instead be tracked through a procession of exaggerated or completely imaginary events all showing its rapid collapse…. A perfect example comes via a National Review report from the House Republican meeting today. Influential Republican Jim Jordan waxes enthusiastic about the agreed-to plan to threaten to default on the national debt in order to force President Obama to destroy his own health-care plan:

"All the momentum is in our direction. Warren Buffett said yesterday, ‘Scrap the bill.’ The AFL-CIO said last week, ‘Repeal the bill if you’re not going to fix it.’ Everyone knows this thing isn’t ready. Everyone knows,” said Representative Jim Jordan of Ohio, a former Republican Study Committee chairman, referring to the health-care law.

Wait. Warren Buffett said scrap the bill?… It turns out a right-wing site called Money Morning quoted Buffett saying the following:

Buffett insists that without changes to Obamacare average citizens will suffer. "'What we have now is untenable over time,' said Buffett, an early supporter of President Obama. 'That kind of a cost compared to the rest of the world is really like a tapeworm eating, you know, at our economic body

The quote was picked up by Jeffrey H. Anderson of the Weekly Standard… and ricocheted around the conservative-news world, implanting itself in Jordan’s mind…. The Buffett quote came from… 2010… “what we have right now” refers to the pre-Obamacare status quo…. Buffett today told the Omaha World-Herald he has no idea where these stories came from and strongly supports Obamacare: Stories saying that Warren Buffett wants to “scrap Obamacare” are false, the Omaha investor said Tuesday.

“This is outrageous,” Buffett said in a World-Herald interview Tuesday. “It's 100 percent wrong ... totally false…. I've never suggested nor thought Obamacare should be scrapped,” said Buffett, who has supported Obama's political campaigns. “I support it. It relates to providing medical care for all Americans. That's something I've thought should be done for a long, long time.”

Anderson hilariously issued an “update” to his completely false item, in which he notes: “It appears that Buffett made his anti-Obamacare comments in 2010, thereby showing that he, like most of the American people, has opposed Obamacare since even before it was passed.” This is also completely untrue…. But the Jim Jordans of the world are probably never going to read untrustworthy lame-stream media organs like the Omaha World-Herald. Trusted sources like Jeffrey H. Anderson have told them once again what they know to be true: Obamacare is collapsing, and even its staunchest supporters know it.

Aaron Carroll and Austin Frakt: The Republican Study Committee has a “replace” plan: Noted

Aaron Carroll and Austin Frakt: The Republican Study Committee has a “replace” plan:

For years now, we have heard that those opposed to Obamacare had a plan to “repeal and replace” it. They’ve certainly been working on the “repeal” part…. We’ve not heard a word about “replace”…. Today, a group of House conservatives presented their version of a replacement plan, endorsed by the Republican Study Committee… [that] throws poor Americans under the bus. The centerpiece of the plan is a universal, standard tax deduction of health insurance premiums, up to $7,500 for an individual and $20,000 for a family…. There are two problems…. The first is that it will obviously cost a lot of money. How much is not clear, but it won’t be insignificant. How will that be paid for? The second is that a tax deduction is much more valuable to someone who makes a lot of money than someone who makes little. But people with large incomes aren’t the ones who need help affording coverage…. The rest of the proposal is a grab bag of old ideas that cannot work well as sketched out, won’t do very much, or are wasteful giveaways….

Continue reading "Aaron Carroll and Austin Frakt: The Republican Study Committee has a “replace” plan: Noted" »

Mistermix: I Would Curse in Fluent Kangaroo: Noted

Mistermix: I Would Curse in Fluent Kangaroo:

Benen and Drum both link to this Robert Costa fellow… a Dr. Dolittle who can figure out what the Tea Party animals are going to allow John Boehner to do. His latest take….

The House passes a “defund CR,” throws it to the Senate, and waits to see what Senator Ted Cruz and his allies can do. Maybe they can get it through, maybe they can’t. Boehner and Cantor will be supportive, and conservative activists will rally.

But if Cruz and company can’t round up the votes… the House leadership will likely ask Republicans to turn their focus to the debt limit, avert a shutdown, and pass a revised CR--a stopgap spending bill that doesn’t defund Obamacare.

Love that “if” in the second paragraph–-have two letters ever done heavier lifting?… We know that there are between 49-87 Republicans who will join in with Democrats and vote on something sane. The question is whether this vote will happen before or after a government shutdown. The Noam Scheiber piece that DougJ mentioned yesterday says that this vote will occur after a shutdown and he’s probably right.

Noted to Aid Your Lunchtime Procrastination for September 18, 2013

  1. Joshua Gans writes: "When I look at economics papers and reports, the graphical presentations have hardly changed. This is despite a sizeable change in the tools available to us to provide clearer graphs. To illustrate what I mean take a look at this animated gif presentation. It is very compelling": Clearer bar charts
  2. "I… proclaimed that [the] Lehman [bankruptcy] heralded the 'end of the decade of moral hazard'. And the next day, the government announced an $85bn bailout for the insurer AIG. Mr Paulson wanted to end moral hazard. But the near-total seizure of the world financial system that followed Lehman had the opposite effect. It showed the market--and the government--that no institution of that size could possibly be allowed to fail" John Authers: Fed’s QE has broken post-crisis pattern
  3. "We have learned something, or re-learned something, but there is no sign yet of a change in policy where it matters most": Ryan Avent: The great crash: The meaning of Lehman (takes 1-4)
  4. "Thomas Jefferson… observed that the US Constitution had at least checked 'the Dog of war', by transferring 'the power of letting him loose from the Executive to the Legislative body, from those who are to spend to those who are to pay'": Anne-Marie Slaughter: Muzzling the Dogs of War
  5. "Fossil fuel industries have a strong incentive to kill (or at least stop the rise of) renewable energy now, so that it doesn’t become a powerful political force": Eric Biber: Why coal cares about FERC
  6. "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. Best wishes for your next ninety years": Ben Bernanke: On Milton Friedman's ninetieth birthday

Continue reading "Noted to Aid Your Lunchtime Procrastination for September 18, 2013" »

What Are the Risks of Quantitative Easing, Really?


In the financial market there is a demand for risk-bearing capacity by firms and others who want to borrow but who cannot guarantee that they will be able to repay. The higher is the price of risk--the greater the risk premium interest rate spread over short-term Treasuries they must pay--the less they will borrow.

In the financial market there is also a supply of risk-bearing capacity by savers and financial intermediaries who want to lend, and are willing to accept and bear some risk in return from getting more than the short-term Treasury rate. The higher is the price of risk----the greater the risk premium interest rate spread over short-term Treasuries they must pay--the more they will be willing to lend.

Continue reading "What Are the Risks of Quantitative Easing, Really?" »

Jack Lew Appears to Understand Washington and the Debt Ceiling Much Better than Tim Geithner Did...

Tim was all, like, "not raising the debt ceiling is inconceivable!" and all "I don't know what will happen if the Congress doesn't raise the debt ceiling! It's inconceivable!"

That was really not constructive and not helpful in 2011.

Jack Lew has a much better take:

White House Shifts Debt-Ceiling Tone, Warning of Fiasco: In 2011, then-Treasury Secretary Timothy Geithner repeatedly brushed off questions about whether Congress would raise the debt ceiling. He wasn’t worried, he would tell audiences. Congress would raise it sooner or later. This time, the White House and its allies are openly telling people they are worried.

On Tuesday morning, Treasury Secretary Jacob Lew told an audience in Washington that Congress’s lack of urgency on fiscal problems was making him “nervous” and “anxious.”… Back then, Treasury was (publicly) denying at every opportunity that Congress wouldn’t raise the debt ceiling. Now, not so much. Their strategy has shifted: instead of saying the government won’t pay its bills, they are saying if the government doesn’t pay its bills it will be the Republicans’ fault…. The White House has thrown out the 2011 playbook and are trying something new.

Ezra Klein and Evan Soltas: The Republican Party’s problem, in two sentences: Noted

Ezra Klein and Evan Soltas: The Republican Party’s problem, in two sentences:

Here's the Republican Party's problem, in two sentences: It would be a disaster for the party to shut down the government over Obamacare. But it's good for every individual Republican politician to support shutting down the government over Obamacare…. Politics is rife with collective-action problems…. The best way to understand the plight of the modern GOP is that the party leadership is no longer powerful enough to solve its collective-action problems.

Liveblogging World War II: September 18, 1943


Julian Engeniusz Kulski: Dying, we live: The personal chronicle of a young freedom fighter in Warsaw (1939-1945):

‘Dawid’ and I were now tired, hungry, and exasperated. We left the streetcar in the middle of Krasiski Square. As we walked around the square, the first signs of life were a couple of sanitation workers who were putting up a barricade around a manhole, in order to descend into the sewer.

A German patrol walked past us with guns slung down toward the pavement. A few civilians began to enter the square on their way to work, and now and then a military truck lumbered by.

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No Libertarians in the Seventeenth-Century Highlands: Wednesday Archive Entry From Brad DeLong's Webjournal

No Libertarians in the Seventeenth-Century Highlands: Archive Entry From Brad DeLong's Webjournal: March 06, 2004: John and Belle Waring have been driven insane by reading a debate in Reason where Richard A. Epstein takes the role of the voice of practical reason and experience:

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Yes, I Am Now Strongly on Team Janet as Far as the Federal Reserve Is Concerned. Why Do You Ask?


And we are live at the Financial Times:

Why Janet Yellen is now best choice to lead the Federal Reserve: There is, in my view, now only one candidate to be chair of the US Federal Reserve. Janet Yellen, the current vice-chair, stands head, shoulders and torso above the rest of those on the shortlist. The withdrawal of the candidacy of Lawrence Summers, the former Treasury secretary and my first choice, has removed her only real competition.

Continue reading "Yes, I Am Now Strongly on Team Janet as Far as the Federal Reserve Is Concerned. Why Do You Ask?" »

John Quiggin: Cities, Connections, and Cronyism: Noted

John Quiggin: Cities, Connections, and Cronyism:

Recent developments in the global system of cities present a curious paradox. With the cost of communications declining almost to zero and substantial, though less dramatic reductions in transport costs, there is now little technical requirement for most kinds of production to be undertaken in any particular location, or for elements of production chains to be located close to each other. This fact has had dramatic consequences for the organisation of manufacturing industry. Simple production chains involving the import of raw materials, usually from developing countries, for processing in a specialised centre, have been replaced by far more complex structures.

Yet, in important respects, the dominance of a small number of ‘global cities’ has never been greater. In this paper, it is argued that the dominance of global cities reflects a desire for clustering on the part of finance sector professionals and corporate executives. It seems likely that such clustering provides private benefits by enhancing the value of personal contacts, but reduces the efficiency and profitability of the corporate sector.

Peter Temin: Tribute to David S. Landes: Noted

Peter Temin: Tribute to David S. Landes:

David Landes was… the author of masterful narratives written throughout the latter half of the twentieth century… the growth of technology, given a primary place in economic history by the importance of the Industrial Revolution and in economics by the pioneering work of Robert Solow… the role of entrepreneurs… the role of culture in economic affairs….

The lead book in the first area is The Unbound Prometheus… describes how the world economy was freed from the Malthusian constraint of static resources…. Landes supplied the evidence behind these broad generalizations in a riveting narrative of discoveries. He added a detailed case study to this general narrative in Revolution in Time, the history of innovation in the clock and watch industries….

Continue reading "Peter Temin: Tribute to David S. Landes: Noted" »

Ambrose Evans-Pritchard: My grovelling apology to Herr Schäuble: Noted

Ambrose Evans-Pritchard: My grovelling apology to Herr Schäuble:

So there we have it. The [European] problem is solved. How can I not have seen it? How can any of us on this blog thread have missed it?

I apologise for mentioning that unemployment is 27.8pc in Greece, 26.3pc in Spain, 17.3pc in Cyprus, and 16.5pc in Portugal, or for pointing that it would be far worse had it not been for a mass exodus of EMU refugees. Nor was is proper to mention that Greek youth unemployment in 62.9pc. These are trivial details.

I apologise for pointing out that the EU-IMF Troika originally said the Greek economy would contract by 2.6pc in 2010 and then recover briskly, when in fact it contracted by roughly 23pc from peak-to-trough, and will shrink another 5pc this year according to the think-tank IOBE. This slippage is well within the normal margin of error.

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What Are the Costs to Extending QE Anyway?: A Challenge to Cardiff Garcia


Toward the end of an otherwise very good think piece (i.e., a think piece that quotes my weblog favorably), the intelligent and thoughtful Cardiff Garcia mysteriously writes:

But the downsides to continued QE aren’t trivial either.

Which makes me ask: what are the downsides to continued QE?

The Federal Reserve buys long-term Treasury debt. The private sector has no less amount of safe U.S. government liabilities to serve as collateral--in fact, the cash or that short-term Treasuries now in private hands are better collateral for cash than the long-term Treasuries. The Federal Reserve now bears some short-term risk, but not if it holds the securities to maturity--which it will. The Federal Reserve has thus promised that it will not let the money stock fall below its long-term Treasury holdings until they mature, which adds to certainty and removes deflation risk. The private sector's limited risk-bearing capacity thus has a reduced quantity of duration risk to bear, and that risk-bearing capacity can be turned to bearing the risks of investment and enterprise.

Everybody wins!

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Martin Wolf: Living in Lehman’s Shadow: Noted

Martin Wolf: We still live in Lehman’s shadow:

fifth anniversary of Lehman’s failure is an opportunity to assess where we have come from and where we are going. How important, for example, was Lehman’s failure? It was less significant than many believe… a financial crisis was on its way, anyway… [and] the financial crisis was a manifestation of overstretched balance sheets…. This is not to argue that the decision to let Lehman fail in September 2008 was unimportant. The shock began a devastating run…. The idea that this was a private [banking] system was revealed to be an illusion. Taxpayers woke up to discover that bankers were exceptionally highly paid and out-of-control civil servants.

Continue reading "Martin Wolf: Living in Lehman’s Shadow: Noted" »

Solitudinem Faciunt et "Reformationem" Appellant...

They Have Made A Desert And Called It Reform NYTimes com

I suppose I should wish that I could say that Paul Krugman is too mean to Wolfgang Schauble today…

But I can't:

Paul Krugman: They Have Made A Desert, And Called It Reform:

It was, I suppose, predictable that Europe’s austerians would claim vindication at the first hint of an upturn. Still, Wolfgang Schäuble’s piece in the FT, in which he claims complete vindication because Europe has had one, count it, one quarter of growth is pretty awesome…. It takes quite a lot of chutzpah--do they have that word in Germany?--to claim that this is a record of successful preparation for structural transformation…. I’d take particular professional exception to Schäuble’s claim that Europe is following the recipe of Sweden in the early 1990s and Asia in the late 1990s. Those recipes involved large currency devaluations, not the slow,grinding “internal devaluation” supposedly happening in Europe’s periphery. And as I’ve stressed a number of times, the Asian economies bounced back fast, with nothing like the seemingly endless depression in much of Europe:

What we have to realize here, however, is that at this point it’s not just a matter of ideology: egos and careers are at stake. The evidence suggests that Europe’s austerians did a terrible thing, ruining the lives of millions. They will never admit it; they will seize on anything that gives them an out.

Noted to Aid Your Lunchtime Procrastination for September 17, 2013

  1. "Gensler shows that 'you can go through the revolving door and serve with independence and integrity', said Jeff Connaughton, a former Democratic Senate staff member who was involved in the Dodd-Frank debate and last year wrote a book chronicling the rise of Wall Street’s lobbying machine": Silla Brush & Robert Schmidt: How the Bank Lobby Loosened U.S. Reins on Derivatives
  2. "If all digital data were stored on punch cards, how big would Google's data warehouse be?": xkcd: Google's Datacenters on Punch Cards
  3. "I’d add that one of the prevailing economic policy sins of our time has been allowing hypothetical risks, like the fiscal crisis that never came, to trump concerns over economic damage happening in the here and now. I’d hate to see the Fed fall into that trap. So my message is, don’t do it. Don’t taper, don’t tighten, until you can see the whites of inflation’s eyes. Give jobs a chance": Paul Krugman: Give Jobs a Chance
  4. "There were really three crises… the crisis in… late 2008… [the] crisis that would have happened even if Lehman’s failure didn’t cause any troubles… [the] crisis of confidence over whether or not our financial markets are actually benefiting the economy as a whole" Mike Konczal: What we get wrong when we talk about ‘the financial crisis’
  5. How can David Brooks be so consistently wrong?: Andrew Bacevich: Breach of Trust: How Americans Failed Their Soldiers and Their Country
  6. "The idea that policy uncertainty is the main reason why advanced economies and Europe in particular are not recovering fast will not go away. Marco Buti and Pier Carlo Padoan in Vox bring back this argument in their attempt to figure out why the recovery in Europe is so weak": Antonio Fatas: The only uncertainty is why some cannot see facts

Continue reading "Noted to Aid Your Lunchtime Procrastination for September 17, 2013" »

Let Me Sharply, Sharply Dissent from William Cline and Joe Gagnon on Paulson, Bernanke, and Geithner's Actions vis-a-vis Lehman in 2008


William Cline and Joseph Gagnon: Lehman Died, Bagehot Lives:

Five years after the Federal Reserve and the Treasury allowed the investment bank Lehman Brothers to fail, their actions (or inaction) remain a focus of debate. Some argue that it was an inconsistent policy to have let Lehman fail while making emergency loans to save other large financial institutions in the same time frame. In this Policy Brief we present evidence that the Fed and Treasury had a sound reason to have bailed out other institutions while letting Lehman fail. Simply put, Lehman was insolvent—probably deeply so—whereas the other institutions arguably were solvent. In addition, the other institutions had abundant collateral to pledge, whereas what little collateral Lehman had to pledge was of questionable quality and scattered across many affiliated entities.

Continue reading "Let Me Sharply, Sharply Dissent from William Cline and Joe Gagnon on Paulson, Bernanke, and Geithner's Actions vis-a-vis Lehman in 2008" »

Liveblogging World War II: September 17, 1943


Nikolai Litvin in the Ukraine:

The Germans came on, not firing, with submachine guns in their hands and grenades strapped to their bootlegs. Our battery commander Nishchakov himself sat behind the gun’s sights and directed its fire. He waited until the Germans had advanced fifty meters from the ditch. He opened fire and with the first shot killed a German officer.

The German submachine gunners, turning at the sound of the shell explosion, seemed bewildered: there was smoke, but no crater nor officer. The shell had struck the officer in the chest and blown him to pieces, but left no crater on the ground.

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Fascist, Authoritarian, Imperial...: Tuesday Hoisted from the Non-Internet from 80 Years Ago Weblogging

Ludwig von Mises:

The Argument of Fascism: Only when the Marxist Social Democrats had gained the upper hand... did the last concessions [to liberalism] disappear.... The parties of the Third International consider any means as permissible.... [T]hey do not hesitate to exterminate [any opponent] and his whole family, infants included, whenever and wherever it is physically possible.... All at once the scales fell from the eyes of the non-Communist enemies of liberalism.... Revolutionary ideas had been able to take root and flourish only because of the tolerance they had been accorded by their opponents, whose will power had been enfeebled by a regard for liberal principles that, as events subsequently proved, was overscrupulous....

The fundamental idea of these [Fascist] movements... consists in the proposal to make use of the same unscrupulous methods in the struggle against the Third International as the latter employs against its opponents. The Third International seeks to exterminate its adversaries.... The Fascists, at least in principle, profess the same intentions... [but] have... a certain regard for liberal notions and ideas and traditional ethical precepts.... Only under the fresh impression of the murders and atrocities perpetrated by the supporters of the Soviets were Germans and Italians able to block out the remembrance of the traditional restraints of justice and morality and find the impulse to bloody counteraction. The deeds of the Fascists and of other parties corresponding to them were emotional reflex actions evoked by indignation at the deeds of the Bolsheviks and Communists....

[O]ne must not fail to recognize that the conversion of the Rightist parties to the tactics of Fascism shows that the battle against liberalism has resulted in successes that, only a short time ago, would have been considered completely unthinkable.... Against the weapons of the Bolsheviks, weapons must be used in reprisal, and it would be a mistake to display weakness before murderers. No liberal has ever called this into question.... [But i]n a battle between force and an idea, the latter always prevails. Fascism can triumph today because universal indignation at the infamies committed by the socialists and communists has obtained for it the sympathies of wide circles. But when the fresh impression of the crimes of the Bolsheviks has paled, the socialist program will once again exercise its power of attraction on the masses. For Fascism does nothing to combat it except to suppress socialist ideas and to persecute the people who spread them. If it wanted really to combat socialism, it would have to oppose it with ideas. There is, however, only one idea that can be effectively opposed to socialism, viz., that of liberalism....

It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error...

Note that when von Mises says "liberalim" what he has in mind is close to the anotnym of "democracy."

Duncan Black: David Ignatius Smackdown

Duncan Black: Eschaton: The Wisdom Of The Center:

Yes we're responsible for hundreds of thousands of deaths, but we've been proved f------ right!!!!

The public focus on Obama’s decision-making has obscured something perhaps more important, which is the breakdown of bipartisan foreign policy. Instead of converging in the center around U.S. leadership, the country seems to be converging at the wings, in a shared left-right rejection of the traditional interventionist role. The public overwhelmingly rejects more “wars of choice” in the Middle East to help nations and people who are seen as feckless and ungrateful. You can think this new American caution is potentially dangerous (as I do), but there’s no arguing that it’s deeply felt and (given the immense cost and almost nonexistent benefits of war in Iraq and Afghanistan) understandable. The question is what a president should do about it.

We must support more wars with immense costs and nonexistent benefits!!! The bipartisan consensus demands it!!!

Kevin Drum: Tyler Cowen Smackdown Watch: Noted

Kevin Drum: Attacking Stupid Ideas: A Dirty Job, But Someone's Got to Do It:

Tyler Cowen… consider this:

The relative rise of the Left peaks in 2009, with the passage of Obamacare and the stimulus. From that point on, the left wing, for better or worse, is a fundamentally conservative force in the intellectual arena. It becomes reactive and loses some of its previous creativity…. Attacking stupid ideas put forward by Republicans, whether or not you think that is desirable or necessary, has become their lazy man’s way forward and it is sapping their faculties.

Here's my question: Supposing, arguendo, that stupid ideas from Republicans have been the most destructive economic force of the past four years, then isn't attacking those ideas actually a pretty productive use of time for a left-wing economist?… It's hard for elegant new theories to get much of a foothold until the stupid stuff is finally and definitively put in the ash can of history…. Even after five years, right-wing economists are still pushing pet theories of austerity that make no sense, along with a variety of nonsensical RBC blather and monetary medievalism. Maybe the best course… is to ignore this stuff…. But you can hardly blame them for thinking that this might be a dangerous course, one that could end up in disaster for lack of pushback. I don't know if that's the right way to think about it, but it's not obviously ridiculous.

The Economy Today from the Perspective of the Great Depression, and the Great Depression from the Perspective of the Economy of Today

Monday, September 16, 5:00pm CDT
Allen Auditorium
University of Missouri
Columbia, Missouri

20130916 DeLong Great Depression Talk for UMC.pdf

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Noted to Aid Your Lunchtime Procrastination for September 16, 2013

  1. Five years after the collapse of Lehman Brothers and the end of the Neoliberal Era: Wall Street Journal: Crisis Plus Five
  2. Alan Jacobs: Christianity and the Future of the Book
  3. "In the last decade of [Johnny Cash's] life he still had something to say… with director Mark Romanek, a truly extraordinary music video. Music videos are so much about youth and flash. In that sense this is the ultimate un-video, dwelling on frailty, grief and the end of vanity. Most celebrities try to look younger. Here, the juxtaposition of the clips from the past are used to actually heighten the evidence of Cash’s physical decline. The emotional impact is to me overwhelming.": Keith Humphreys: Johnny Cash Hurt
  4. Whenever economists say that they understand how to and have the political mojo to prevent depressions, do not believe them: Jeff Weintraub: Economic hubris in retrospect: Robert Lucas explains (in 2003) that the problem of avoiding depressions "has been solved"
  5. "Here are the FT Alphaville posts from September 15, 2008. Have a click through. Busy times! If you want to explore other days at the height of the crisis, note the format of the URL in bold here: Just change the date in the address bar on your browser as required": *Paul Murphy: Retro Alphaville, looking back five years…

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Liveblogging World War II: September 16, 1943

Allied invasion of Italy: Wikipedia:

On 9 September, Montgomery's formations had been strung out along the coastal roads in the 'toe' of Italy. The build-up across the Straits of Messina had proved slow and he was therefore short of transport. On 9 September, he decided to halt his formations in order to reorganise before pushing on but Alexander replied on 10 September that "It is of the utmost importance that you maintain pressure upon the Germans so that they cannot remove forces from your front and concentrate them against Avalanche". This message was further reinforced on 12 September by a personal visit from Alexander's Chief of Staff.

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George Akerlof, Andrew Rose, and Janet Yellen (1988): Job Switching and Job Satisfaction in the U.S. Labor Market; Noted

George Akerlof, Andrew Rose, and Janet Yellen (1988): Job Switching and Job Satisfaction in the U.S. Labor Market

Quits are procyclic because vacancy chains are longer when unemployment is low. The expected length of a vacancy chain… varies inversely with the unemployment rate. Vacancy chains are short when unemployment is high because the number of jobseekers who are unemployed or out of the labor force is large relative to the number of employed jobseekers. In this case, the probability of recruiting an unemployed individual to any given vacancy, thus ending the chain, is high. In a high-pressure, low-unemployment economy, there are fewer unemployed or out-of-the-labor-force jobseekers relative to employed jobseekers; thus vacancy chains are longer. The logic of the vacancy chain explains why total quits (and especially E-to-E quits) are procyclic. Quits increase as opportunities expand; the opportunities for job switching are significantly greater when unemployment is low than when it is high….

In addition to generating positive predictions consistent with observed patterns of labor turnover, models with involuntary unemployment have interesting normative implications. We show that a reduction in unemployment raises welfare by more than the output gain captured in Okun's Law, since improved matching between workers and jobs creates an additional welfare benefit.

End of Brunch in Kansas City: Monday DeLong Smackdown Watch Weblogging


"Well, as Odysseos says to Kalypso, I must be going…"

"But you don't need Hermes to force us to release you…"

"And I haven't been weeping bitter tears for years, staring across the wine-dark sea at my homeland either…"

"I will not pretend that you will be sorry, and I will not say: 'Good luck go with you, but if you could only know how much suffering is in store for you before you get back to your own place, you would stay where you are…'"

"Nevertheless, I must be going."

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Jonathan Chait: The Debates of the Great Recession Are Over, Hooray: Noted

Jonathan Chait: The Debates of the Great Recession Are Over, Hooray:

Do conservatives still think cutting short-term deficits will increase rather than retard growth? Academic support for that position has almost entirely collapsed. I don’t even see many conservative intellectuals defending it in columns. And yet the Republican Party marches on, opposing any effort to lift short-term austerity policies that economists almost all believe are holding back the recovery. It’s as if the head of the austerity monster has been sliced off, but the body lurches forward regardless.

Meanwhile, however Republicans resolve their long-term vision debate, they have coalesced around a short-term vision. It is to repeal Obamacare without a replacement, maintain short-term austerity, weaken labor laws, loosen financial regulation, and defend every tax deduction enjoyed by the affluent. I don’t see how this policy mix could be remotely defended in light of actual circumstances. Almost nobody on the right seems to want to defend it. But nobody seems interested in placing even the slightest pressure on the Congressional party to alter its stance, either.

If Larry Summers Were Who His Critics Say He Is, He Would Not Have Written This...

Larry Summers:

Dear Mr. President,

I am writing to withdraw my name for consideration to be Chairman of the Federal Reserve.

It has been a privilege to work with you since the beginning of your Administration, as you led the nation through a severe recession into a sustained economic recovery built on policies to promote employment and strengthen the middle class.

This is a complex moment in our national life. I have reluctantly concluded that any possible confirmation process for me Would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation's ongoing economic recovery.

I look forward to continuing to support your efforts to strengthen our national economy by creating a broad-based prosperity and to reform our financial system so that no President ever again faces What you and your economic team faced upon taking office in 2009.

The Fed's Low-Inflation Problem and the Fed Chair

Justin Lahart: Heard on the Street: Targeting the Fed's Inflation Problem:

Federal Reserve policy makers will debate this week whether it is time to start scaling back bond purchases. One argument against: Inflation is far too low. Since January 2012, the Fed has set as its target a long-term inflation rate of 2%. And since then, inflation has fallen increasingly short of that. As of July, the Commerce Department's price index for personal-consumption expenditures, excluding food and energy--the Fed's preferred measure--was running just 1.2% above its year-earlier level. To get to 2% by the end of 2013, the index would have had to increase at a 3% annual rate in the final five months of the year. It hasn't held that sort of pace since the early 1990s….

Fed officials and most private economists thought inflation would be stronger this year. That it hasn't presents something of a mystery, given the overall economy has performed broadly in line with forecasts. It may simply be they underestimated how much slack remains in the economy…. Another reason inflation has been so low may be that people have simply come to expect it to stay that way…. Because the Fed cares so much about its inflation-fighting credentials, the 2% level may serve as more cap than target. So the Fed is like a cautious golfer driving a ball toward a green in front of a sand trap--it tends to come up short.

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Ezra Klein: Five reasons Obama should name Janet Yellen to chair the Federal Reserve: Noted and Enthusiastically Endorsed

Ezra Klein: Five reasons Obama should name Janet Yellen to chair the Federal Reserve:

As for the idea that it would be bad "optics" to shatter a glass ceiling and appoint the insanely qualified, widely respected, Vice Chair of the Federal Reserve--that's the kind of Washington nuttiness this White House typically prides itself in being above. To deny Yellen the post out of spite or fear would be, or at least should be, beneath them.

The case against Summers has been overblown. He's both much more concerned with the poor and middle class, and much less interested in deregulation, then his critics gave him credit for. The White House favored him, in part, because they though he'd be a more effective dove, and a stronger regulator, than Yellen.

But amidst the heated back-and-forth over Summers, the strength of the case for Yellen has been obscured. At times, she's been made out to be an anybody-but-Summers candidate. She's not. Here are five reasons why.

  1. She'd be the most qualified Federal Reserve chair in memory….
  2. She got the big calls right….
  3. We still need someone who cares--and cares a lot--about unemployment….
  4. She's a consensus pick -- at least outside the White House. This Fed process has been a debacle. The Obama White House has let Summers and Yellen twist in the wind for months now. For various reasons, the race has rattled Wall Street, alienated key parts of the monetary policy community, and infuriated many congressional Democrats--along with other key White House allies, like labor. Yellen, however, is a consensus pick….
  5. It's time to shatter the glass ceiling.

Let Me Just Say That Janet Yellen Is Now Clearly By Far the Best Technocratic Choice for Fed Chair of Those on the Short List

I.e., I would prefer someone who would make a regime change a la Takahashi, Chamberlain, FDR, Abe--cough, Christina Romer, cough--but that is not in the cards:

Noted to Aid Your Lunchtime Procrastination for September 15, 2013

  1. The intellectual victory of the Keynesian technocrats who understood the economy over the austerians who did not is complete--but intellectual victory has had no effect on policy: Jonathan Chait: The Debates of the Great Recession Are Over, Hooray
  2. The answer to the question is: "Yes": Lars Svennson: Is Sweden's Riksbank neglecting the price-stability objective, preventing full employment, and increasing household debt?
  3. Project Syndicate collects its contributors' columns about the (so-far) medium-term impact of the collapse of Lehman Brothers: Project Syndicate: The Lehman Legacy
  4. The Wall Street line: the point of the post-IPO share-price bump is to create a world in which a lot of outside investors have good feelings about the stock, and so are willing to help make a thick market in it: The Epicurean Dealmaker: Go Ask Alice: On the Forthcoming Twitter IPO
  5. "Like so many young Americans, Derek Wetherell is stuck. At 23 years old, he has a job, but not a career, and little prospect for advancement. He has tens of thousands of dollars in student debt, but no college degree. He says he is more likely to move back in with his parents than to buy a home, and he doesn't know what he will do if his car—a 2001 Chrysler Sebring with well over 100,000 miles—breaks down": Ben Casselman and Marcus Walker: A Generation 'Lost' in the Job Hunt

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John Gapper Wins the Internet Today! The Trifecta of "Emirates", "Champaign", and "MacBookAir" Overwhelms All Competition...

John Gapper (johngapper) on Twitter:

John Gapper ‏@johngapper: Off to Dubai for a few days. Last time I was there was pre-2008. I wonder what it's like now.

John Gapper ‏@johngapper: The Emirates air stewardess just spilled a glass of champagne into my MacBook Air and killed it. Not really helping.

John Gapper ‏@johngapper: I'm afraid I lost my temper.

John Gapper ‏@johngapper: Ah well, it was an accident. Intrigued to see if they get me another one by the time weand in Dubai.

John Gapper ‏@johngapper: PS I wasn't drinking the champagne, she was just walking past with it

Susan Nagy ‏@Susan_Nagy 19m: .@johngapper @TheStalwart Nothing excites me more than the problems of the dull, rich and famous... #bubblywoes

Dina Medland ‏@dinamedland: @Susan_Nagy @johngapper @TheStalwart it's all so very #snoringboring Expand

John Gapper ‏@johngapper: @dinamedland @Susan_Nagy @TheStalwart touche

Dina Medland ‏@dinamedland: @johngapper I'll stop now - hope your MacBook Air gets replaced :-) @Susan_Nagy @TheStalwart

J. Bradford DeLong ‏@delong: 100 years from now .@johngapper will be the person used whenever “First World Problem” needs a definition :-) cc: @Susan_Nagy @TheStalwart

John Gapper ‏@johngapper: @delong @Susan_Nagy @TheStalwart Nice to be remembered for anything. Can't be fussy.

Paul Krugman: Slackers at the Fed: Noted

Paul Krugman: Slackers at the Fed:

To taper or not to taper… is… two questions: (1) Are we getting close enough to “full employment”[?]… (2) To the extent that the economy still needs a boost, are purchases of long-term Treasuries the way?… The answer to question 2 is probably no… replac[e] the current policy with something better, like purchases of MBS and/or stronger forward guidance, not… taper… which serves as… forward anti-guidance….

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A Note on the Possible Summers Fed Chair Nomination: Backing Up Ed Luce Weblogging

I have a dog in the Summers-Yellen Federal Reserve Chair contest: a slight preference for Larry. But it is only a very small and friendly dog: Janet would be superb.

The key point, I think, is that either Larry or Janet would be much better than other short-list candidates who either (a) do not really believe in the dual mandate in their heart-of-hearts (or) have not really marked their beliefs about the structure of the economy to market over the past six years and so do not understand how depressed and vulnerable the economy is. Getting either Summers or Yellen into the chair strikes me as a very good thing.

And this is why I am anxious: it seems to me that Democratic left beliefs that a Ferguson on a Kohn or a third Bernanke term are much better than Summers because Summers is a monetary hawk or a tool of Wall Street are simply wrong, and may lead to a counterproductive outcome either in a non-optimal choice of chair or in the Obama administration tacking to the non-technocratic right in order to get Republican votes for confirmation.

Ed Luce: Summers needs to junk his Wall Street friends:

The president has great respect for his former senior economic adviser – and still consults him regularly. Mr Obama also appears to get a kick out of asking Congress to do things that it does not want to do. For these reasons--and his considerable credentials--Mr Summers remains my favourite to be Fed nominee. But Summers’ sceptics are right about his narrowing chances of getting confirmed by the Senate… and also right that the left of the Democratic party is Mr Summers’ biggest problem. Put simply he would need to convince Elizabeth Warren, the Democratic senator from Massachusetts, and chief Wall Street critic, that he sees the world more like she does nowadays….

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