Grasping Reality on TypePad, by Brad DeLong

• DeLong Smackdown Watch: How Do Projected Long-Run Deficits Matter?
• Yet More Right-Wing Grifters Gotta Grift: Ben Carson Edition
• Liveblogging World War II: January 18, 1945: The Death Marches from the Camps Begin

1. Lawrence Summers: : Focus on Middle Class Growth: "Growth that is a necessary condition for rising incomes is threatened by the specter of secular stagnation and deflation. In... 2014... 10-year Treasury rates have fallen by more than 1 percentage point in the United States and are only half as high in Germany and Japan as they were a year ago. In... Germany, France and Japan, short-term interest rates are now negative... suggest[ing] a chronic excess of saving over investment and the likely persistence of conditions that make monetary policy ineffective.... The world has largely exhausted the scope for central bank improvisation as a growth strategy.... It is time for concerted and substantial measures to raise both public and private investment.... The United States has enjoyed growth of about 11 percent over the past five years. Of this, standard economic calculations suggest that about 8 percent can be regarded as cyclical.... That leaves just 3 percent over five years as attributable to growth in the economy’s capacity. Even after our recovery, the share of American men age 25 to 54 who are out of work exceeds that in Japan, France, Germany and Britain.... Third, if it is to benefit the middle class, prosperity must be inclusive, and in the current environment this is far from assured.... These three concerns... are real but... not grounds for fatalism.... Canada and Australia in this century... show that sustained growth in middle-class living standards is attainable. But it requires elites to recognize its importance and commit themselves to its achievement. That must be the focus of this year’s Davos"

2. Matt O'Brien: President Obama Finally Has His Piketty Moment: "Obama... will call for $320 billion of new taxes [over ten years] on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work... fighting a two-front war against a Piketty-style oligarchy where today's hedge funders become tomorrow's trust funders... trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001.... And...trying to help the middle help itself by subsidizing work, child care, and education.... End the step-up [at death of] basis for capital gains.... Raise the top capital gains tax rate from 23.8 to 28 percent.... Tax the big banks for being big.... Subsidize middle-class work... a second-earner tax credit of $500... calling for the Earned Income Tax Credit to be doubled for childless workers, to try to get more young men in particular into the workforce... college tax credits to be streamlined, extended, and expanded... automatically enrolling [workers] in an IRA.... These are ideas, to be honest, that some Republicans support.... The question, then, isn't how to help the middle class. It's how to pay for it. Obama wants to make the top 1 percent and Wall Street do so. Republicans don't. That, like every other one, will be what the 2016 election is about."

3. Willem Buiter: Did the SNB Score an Own Goal? Francly, Yes: "1. The removal of the 1.20 floor on the CHF-euro exchange rate was a mistake. 2. Superior policy alternatives existed. 3. The old regime was indefinitely sustainable. 4. Removing the lower bound on nominal interest rates would have been the best choice. This can be done one of three ways. 5. The economic damage can be limited by restoring the exchange rate floor at a level not below the old one, and/or by eliminating the lower bound on nominal interest rates. 6. The rest of the world can learn from the SNB’s experience with a -0.75% deposit rate."

4. Noah Smith: DeLong Smackdown Patrol: How worse off are we really?: "Bad Brad! In 2000, you believed that American economic policy and the American economy, though far from perfect, had been largely a success (right?). It's understandable to think the 15 years since then have been a big disappointment - they have! - but why should that cause you to revise your evaluation of the period from 1980 to 2000? Do you think that we are now paying for excesses we enjoyed in that period, and that our prosperity increases during that period were thus illusory? I don't think you think that. So don't succumb to excessive pessimism!"

5. Biagio Bossone: The ‘Safety Trap’ and Eurozone Secular Stagnation: "I have recently worked out a... DSGE model where the upsurge of pessimistic expectations causes high liquidity preference to become the source of a persistent drop in demand.... Would breaching the ZLB through negative interest rates (NIR) really help the economy exit the trap? Theoretically, it would; in practice, it is much less certain... push agents to search for alternative safe assets earning higher returns... [which] would then supplant... those liquid assets whose liquidity premiums the monetary authorities had sought to neutralize through NIR.... For similar reasons, quantitative easing... is ineffective.... Yet under liquidity preference dominance (Landau’s safety trap) and a binding ZLB, agents absorb any amounts of reserve money created and hold on to them without changing their consumption and investment plans.... Assume the central bank commits to being ‘irresponsible’... [if] QE policy actually becomes ‘helicopter money’... [it] impact[s] spending decisions through the fiscal lever.... Short of this twist... the central bank is left without effective channels..."

Should Be Aware of:

• Paul Rosenberg: Now they’re sliming Elizabeth Warren: Fox News tactics and the surprising water carriers for the 1 percent
• HiLine Coffee Company

1. 
   dew: Warren, public opinion, and inequality: " Paul Rosenberg has a good response to Amitai Etzioni’s rather lame attempt at a hatchet-job on Elizabeth Warren at The Atlantic: 'Taking Norton and Ariely’s results seriously, we can say that the American people want a much fairer society than they live in, but that the means for articulating this desire—the stories, concepts, policy proposals, etc.—are in scandalously short supply, a de facto example of hypocognition thwarting what people want. Elizabeth Warren is particularly popular precisely because she provides some of the missing means that people are so hungry for—an antidote to the hypocognition that thwarts their desire for a fairer, more just vision of America, which respects both their hard work and their compassionate values. There may be relatively little polling to support this view (though there’s considerably more than you’d expect) but that’s partly just another example of how elites dominate the landscape of acceptable thought to protect their interests, as underscored by recent research by Martin Gilens and Benjamin Page. Warren represents a clear alternative to this narrow-minded view. Her popularity derives in large part from her ability to shape narratives that reflect the hidden majority’s shared values and articulate them in policy terms, reversing a decades-long trend by which elites of both parties have turned their backs on the welfare of ordinary Americans.' While Rosenberg offers a much more accurate portrait of American public opinion than does Etzioni, there are reasons to think this offers an overly optimistic account. He’s right, of course, that Americans want a more egalitarian distribution of wealth and income than they’ve got. But it’s almost certainly the case that partisan identity is likely to significantly diminish the ‘hidden majority’ support for redistribution when it turns into an actual plan promoted by and associated with Democratic politicians (as the continued unpopularity of something called ‘Obamacare’ demonstrates). Raising the minimum wage manages to remain broadly popular despite the partisan divide, so it’s important not to be too fatalistic about this. (I suspect one reason for this is the simplicity of the policy; it’s harder to spin or dissemble the basic fairness of it away.) But the lack of specific policy proposals cuts both ways–lots of inequality-reducing proposals could be quite popular in the abstract, but once they become ‘Democratic’ proposals support is likely to conform to a more familiar partisan pattern."

Comments:

• Paul G. Brown: The Politics of Tribe? From the good wiki ... the Kansas tribe is ~80% “non-hispanic white”, with below-national-median income and education, and well above-national-average religosity (~10% of Kansans answer the question ‘no religion’ where the national average is now ~20%). I don’t think Gov. Brownback is self-consciously malevolent; I don’t think he’s particularly deceptive (self or otherwise). I think idler has the truth of it above. Gov. Brownback believes that the marginal freedom of individual citizens is increased with each marginal shrinking of the state, and that individual freedoms trumps everything else. For him--and people who think like him, such as Grover Norquist, Barry Goldwater etc--actual socio-economic outcomes are irrelevant. The disutility teachers, firefighters, police and other public servants in Kansas experience as their wages and pensions are cut (and the disutility experienced by the people they served before they were made redundant) is outweighed by the increased freedoms that tax-paying folks will experience. Brownback would rather be patriarch of a dung-hill village than citizen of a vibrant polis. And so do just enough Kansans.

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