Senate Votes for Federal Reserve Chair: 83 Volcker, 84 Volcker Reppointment, 91 Greenspan, 100 Greenspan Reppointment, 91 Greenspan Third, 89 Greenspan Fourth, 100 Greenspan Fifth, 99 Bernanke, 77 Bernanke Reppointment, 59 Yellen
Morning Must-Read: Duncan Black: All Buses Are Good Things

Things to Read on the Morning of December 21, 2013


  1. Duncan Black: Eschaton: Buses Are Good Things: "I do think the 'tech buses' in San Francisco should be paying an appropriate impact fee if they're going to be using public bus stops, but the alternative to the buses is, you know, many many more road clogging cars. Basically the Bay Area just needs more housing, especially where there are decent transportation options.... I don't worry about poor people being driven out of the city [of Philadelphia] anytime soon, but I do worry that the neighborhoods with better public transit (high frequency bus routes, trolleys, subway) might, eventually, become unaffordable."

  2. Martin Wolf: We still need to learn the real lessons of the crisis: "Everybody could see the glare of the fiscal deficits left by the crisis. It was easy to agree that this was where the government needed to look for its priorities.... But the real story is of the impact of the financial crisis on output and productivity. The correct focus is on how to recover the lost output and productivity. Fiscal irresponsibility was not the cause of these disasters; eliminating it cannot be the cure..."

  3. Michael Darda: How is Abenomics Doing?: "Leading indicators in Japan have been on the upswing.... Abeonomics is working. One reason that the previous round of QE in Japan didn’t lift growth much is that it was expected to be temporary and proved to be temporary as occasioned by a 20% collapse in the monetary base in 2006. This time, however, at least part of the increase in the base is expected to be permanent, hence the new 2% inflation target. In short, the BoJ has to do enough to satiate a broad money demand function that has been growing 2-3% per annum.... Reflation should help to ease Japan’s debt and fiscal burden... restoring at least moderate NGDP growth should help Japan’s budgetary fortunes. This is one reason that the rise in Japan’s inflation breakeven spreads has been inversely related to credit default swap spreads on Japan’s debt. Broad money growth in Japan has begun to recover convincingly, which should also be bullish for the equity market.... We believe Japan equities have 20-40% upside..."

  4. Paul Krugman: Microfoundations and the Parting of the Waters: "Phelps... [made] two observations... nominal shocks had large real effects... [and] with everyone acting rationally, money should have been neutral even in the short run. Traditional Keynesian analyses... [only provided] ex-post rationalizations.... So the Phelps crowd came up with a lovely story.... Individuals and firms couldn’t tell... whether a rise in the price... represented a shock specific to them... or a general change in demand... confusion could explain why short-run aggregate supply seemed upward-sloping.... This meant that the apparent tradeoff between unemployment and inflation would be unstable.... The stagflation of the 70s seemed to confirm this prediction, and brought the microfoundations project immense prestige.... Freshwater economists gleefully proclaimed Keynes dead, the subject of nothing but 'giggles and whispers'.

    "But... Phelps-Lucas/type microfoundations quickly collapsed both intellectually and empirically. Intellectually... rational individuals simply should not have been confused in [that] way.... Empirically... slumps last too long.... Microfoundations in macroeconomics... failed utterly at the one thing it was sold, above all, as being able to do.... Time, you might think, to reconsider.... But many... had so committed themselves to the idea that Keynes was dead and rationality roolz that they simply dug in deeper....

    "Now we have people debating whether models with microfoundations lead to better predictions... [even though] the microfoundations are wrong.... But what you want to realize is that this isn’t going to convince the microfoundations crowd. After all, more than thirty years ago they decided that the joy of microfoundations trumped the utter failure of microfounded models to work... and... have now trained successive cohorts of students in this view. There are, it’s true, some hints of a guilty conscience... the odd tendency of freshwater types to immediately accuse anyone with saltwater ideas of being dishonest. (I’m not a nice guy, but if look at what I said about, say, Cochrane, it was that he was ignorant, not corrupt.)...

    "The notion that there had been a convergence of views by 2007, which was then ruptured by the crisis, was a saltwater delusion. People like Olivier Blanchard convinced themselves that the other side was listening; it wasn’t. The hysterical reaction to the notion that fiscal policy is effective at the zero lower bound demonstrated that the freshwater types had never bothered to learn..."


  1. Neera Tanden: "I don't think tax increases are about economic growth. Increasing taxes for the wealthy is not an economic growth strategy. That's a way to address deficit reduction. That's a way of saying we're all in this together. Like, if you're going to do deficit reduction, who should bear the burden of that? Should people who have done pretty well over the past few years bear some burden?... I also think we need additional ideas. Infrastructure has been an idea. But how you get economic growth is a complicated picture.... One of the things I think we were particularly successful at [this year] was resetting the terms of the fiscal debate. We did a big paper this spring called 'Time for a Fiscal Reset'. We kind of took a step back and saw that deficit projections were coming down, and unemployment projections were not coming down at the same velocity.

    "I want to be 100 percent crystal clear in this: the country has long term deficit challenges, so we believe that we should address those, and put good ideas around both taxes and entitlements on the table. But now I think the priority for the country should be economic growth."

  2. George Washington: Letters: "The unfortunate condition of the people whose labors I in part employed has been the only unavoidable subject of regret. To make the adults among them as easy and comfortable as their actual state of ignorance and improvidence would admit; and to lay a foundation to prepare the rising generation for a destiny different from that in which they were born, afforded some satisfaction to my mind, and could not, I hoped, be displeasing to the justice of the Creator" and "[I had hoped] to liberate a certain species of property which I possess very repugnantly to my own feelings, but which imperious necessity compels, and until I can substitute some other expedient by which expenses not in my power to avoid (however well disposed I may be to do it) can be defrayed."


Should Be Aware of:

  1. Jeff Weintraub: The civil war within Turkish political Islam: "The... power struggle between Erdogan and the Gulen movement... formerly close allies, is... important... but not... easy to follow.... Claire Berlinski describes... Michael Kotlow... as 'a good, succinct, English-language summary'... a very informative opening guide for perplexed and non-expert observers (including yours truly).... On Thursday... Erdogan announced a sweeping purge of the police force, charging that it has been infiltrated by a 'criminal gang'.... Even people with no love for Erdogan have been increasingly alarmed by the way the Gulenists were building up their own version of a Deep State.... As Koplow concludes: 'each side is playing a very dangerous game of chicken, and anyone who claims to know precisely how this will end is much wiser than I. But stay tuned, because this is a battle of epic proportions whose chaos has the potential to overwhelm everything else taking place in Turkey'..."


Ta-Nehisi Coates: Mandela and the Question of Violence | Prairie Weather: * Repubs may be caving on Affordable Care | *Marty Lederman: The Legal Theory that Could Make Hobby Lobby's Case Disappear | David Weigel: Republican state gives free houses to moochers, cuts homelessness by 74 percent | Prairie Weather: * The discrediting of NSA | *Izabella Kaminska: Getting qualitative with monetary policy | Tony Pugh: ‘Junk insurance’ comes back to haunt its policyholders | Ann Sanner: Ohio court upholds board's Medicaid expansion vote | Buce: Underbelly: Lawless on the Geography of Chapter 13 | Credit Slips | Menzie Chinn: Econbrowser: Phillips Curve Nonlinearities in the Data | Richard Baldwin: Regulation, supervision and the role of central banks |