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Wednesday, November 30, 2011

A Little Sympathy For Tim Geithner?

      Maybe if Mick Jagger will sing it. For surely today there is more sympathy for the very devil himself than Treasury Secretary Tim Geithner. Today Brad Delong was looking for the most scarce thing imaginable:  a "sympathetic account of Geithnerism."

    http://delong.typepad.com/sdj/2011/11/wanted-a-sympathetic-account-of-geithnerism.html

     Geithner has had few visible advocates in his three years at the helm. What is notable is that he is the only major economic figure who remains in the Obama Administration. Romer is gone, Summers is gone, Jared Bernstein is gone. To be sure this only further antagnonizes his many detractors. Make no mistake, while he has suffered the slings and arrows of the Republican Right-starting with the belaboring of his tax records at the confirmation process (to my mind a trivial matter but in saying this I may be in a minority even among Obama supporters), he has also been the scion of the Left.

     Some of the top Geithner haters are Obama Democrats; there remain loyal Obama Democrats they are not Firedoglakers but even they hate Geithner. Indeed they especially do as they explain Obama's policy failures real or imagined by Geithner's untoward influence on the Administration. If it weren't for Geithner we would not have given a blank check to the banks with no oversight, etc. So even among Obama supporters it is not that easy to find those who like Geithner.

     Again it's partly who he is and what he represents. He like Bush Treasury Secretary, Hank Paulson, is a Goldman Sachs alumni and during the bailouts of 2008 he was basically Paulson's second in command as then Presdient of the Ny Fed.

    For all this, Delong is able to find some sympathetic accounts of Geithner.

    http://www.newyorker.com/reporting/2010/03/15/100315fa_fact_cassidy?currentPage=all

    http://www.theatlantic.com/magazine/archive/2010/04/inside-man/7992/

    "And yet—whisper it softly—there is good news about the financial system and the roundly loathed bank bailout, the seven-hundred-billion-dollar relief package that Congress approved in October, 2008. During the past ten months, U.S. banks have raised more than a hundred and forty billion dollars from investors and increased the reserves they hold to cover unforeseen losses. While many small banks are still in peril, their larger brethren, such as Bank of America, Wells Fargo, and Goldman Sachs, are more strongly capitalized than many of their international competitors, and they have repaid virtually all the money they received from taxpayers. Looking ahead, the Treasury Department estimates the ultimate cost of the financial-rescue package at just a hundred and seventeen billion dollars—and much of that related to propping up General Motors and Chrysler. Barring something unexpected, the bailout will end up costing taxpayers less than the savings-and-loan implosion of the early nineteen-nineties. The government could conceivably end up making money."

    Bear in mind that this was written in early 2010 when the recovery looked better. This year during the first half the sluggish numbers gave reason to worry of a double dip, though at this point, the second half numbers are giving much more reason for optimism again. The fact that we actually have received most of the TARP back is something that Geithner haters simply ignore. I've talked to Obama supporters who hate Geithner who have simply denied this reality. In a sense Geithner is convenient for Obama however in the the way Hillary was for Bill in the 90s or maybe in a way Cheney and Rove were for Bush in the 2000s: a lightning rod who serves as a repository to all the frustrations of his supporters so they don't have to blame him personally.

    Geithner truly has gotten it from all sides of the Left and Right so there were of course those who actually saw him as too tough for the banks: "In fact, some commentators agreed that the Treasury and the Fed were being too tough on banks. (Stock issues dilute existing stockholders and reduce earnings per share.) One of these skeptics was Richard Bove, an analyst at Rochdale Securities, who has been following the financial industry since 1965. He has since changed his mind. “Geithner recognized that the system needed overkill on security and soundness to rebuild the confidence that was lacking,” he said. According to Bove’s calculations, U.S. banks now have more capital as a percentage of assets than in any year since 1935. “He built in that safety and soundness throughout the industry. As time goes on, I’m getting more and more respect for him.

Read more http://www.newyorker.com/reporting/2010/03/15/100315fa_fact_cassidy#ixzz1fEpTctmF

   

What Did the Central Banks Do Today? A Second Opinion

     In my earlier post I was pretty jazzed about whatever it is that they did do. I noticed that the markets were all up and while I understand that this in a sense proves nothing-as equity markets know nothing about this sort of thing anyway- I had this seal of approval to monetary head cheerleader Scott Sumner:

    "It’s much too little, but not at all too late."

      "The participation of the central banks of Canada, England, Japan and Switzerland is more of an effort to show that all the central bankers are working together than any expectation that there will be lots of dollar borrowings under their facility."

          http://www.themoneyillusion.com/
         http://diaryofarepublicanhater.blogspot.com/2011/11/worlds-central-banks-unite.html

       So Sumner did say something about Treasuries-which do matter even if equities don't so much. Yet here is Krugman:

       "I’ll outsource this to Mark Thoma

       "I am, I have to say, somewhat mystified. Of course the Fed will make dollar liquidity available to other central banks as needed; that was never in question, because Bernanke doesn’t want to be the man who destroyed the world to save a few pennies. And reducing the interest rate on those loans seems to me to make virtually no difference; it was a trivial charge anyway."

      "So this looks to me like a non-event. Yet markets went wild. Are they taking this as a signal that substantive actions — like the ECB finally doing what has to be done — are just around the corner? Are they misunderstanding the policy? Was this cheap talk that nonetheless moved us to the good equilibrium? (If so, not enough: Italian bonds still at more than 7 percent)."

       "A very strange day."

        http://krugman.blogs.nytimes.com/

       Obviously Sumner sees things differently than Krugman and Mark Thoma. Still whatever exactly the Fed and the other central banks did which sounds good to me much like it did to the equity guys, the private ADP numbers were good, and that was enough to make the markets feel good for one day at least.

       I get Krugman's point about what we need to see out of Italian bonds. Yet what about that Treasury action Sumner mentioned? Still today's market move was a wow-it finished up almost 500 points even if equity guys don't know anything. Indeed what I do know is that if you were long going into today's open you made a lot of dough. Beyond that we'll have to "continue to monitor events."

    

The World's Central Banks Unite

     At least for one day and the world markets have soared.

     "The attempt by major central banks to ease strains on Europe's credit markets certainly cheered financial markets on Wednesday, but what does the coordinated action actually do?"

      Good question. "In essence, the US central bank, or Federal Reserve, [cnbc explains] agreed to provide cheaper dollar funding to the European Central Bank—which can then provide cheaper dollar loans to cash-strapped European banks. (For a fuller explanation of how the ECB borrows from the Fed, click here.)"

      http://www.cnbc.com/id/45492184

     The markets love it. The German market was up 4% today and the U.S. is currently up 400 points. Of course what do equity markets know? In addition though, "This morning there was a sudden jump in (Treasury) interest rates all across the yield curve (except the short end where they are pegged at near zero, and were unchanged.)"

     http://www.themoneyillusion.com/

    When the Treasury market is impressed you have something. Yes, of course, Scott Sumner the biggest proponent of monetary action around is impressed: "It’s much too little, but not at all too late."

     "The participation of the central banks of Canada, England, Japan and Switzerland is more of an effort to show that all the central bankers are working together than any expectation that there will be lots of dollar borrowings under their facility."

      "The goal is to ease the credit crunch in Europe. Lots of European banks make dollar denominated loans, in part because US interest rates are so low. The banks do not usually finance these loans in the way you might think—by lending out the deposits of their retail customers. Instead, the loans are financed by short-term borrowings from other financial institutions."

      The last time we saw action like this was in September 2008 during the Lehman Crisis. This action was successful in bringing down the Libor spreads. Today's action suggests this newest central bank coordination may be similarly successful. Add this to the the good jobs report this morning-208,000 new private sector job in November-and you can understand how the Dow is up by 400.

Private Sector Well Ahead of Expectations in November

      Today's ADP payroll report showed that the private sector blew the lid off expectations in November creating 206,000 jobs. This number would normally be consistent with a cut in the unemployment rate, however Friday's nonfarm payroll report is expected to be somewhat less than this as it also consists of the public sector.

      http://www.cnbc.com/id/45489425

      There were some other positive developments that we will look at in my next posts-better housing numbers again with that major-earthshaking move by the central banks today. I have been of the opinion in the last few months that the real problem is Europe, that the U.S. is recovering, may even be expanding but until Europe figures something out there is always the danger that they could drag the world down with them. Today's monetary actions are reason to hope on this front too.

     As far as the job gains, the service sector was a big driver: 

    "ADP and Macroeconomic Advisors reported that service providers added 178,000 positions. The goods-producing sector saw a 28,000-job rise, while manufacturing employment increased by 7,000 and construction added 16,000."

    "This month's jobs figures show positive growth in all major sectors of the economy and are in line with the recent drop in the national unemployment rate and weekly jobless claims," Carlos Rodriguez, President and CEO of ADP, said in a statement. " Despite fiscal uncertainties here and abroad, owners of small- and medium-sized businesses found ways to grow and hire in November. As in previous months, service providers led the way in job creation."

     "The report also said the estimated gain in employment from September to October was revised up to 130,000 from the initially reported 110,000."

     While the public sector is believed to still be shedding jobs, it is believed to be doing so at a slower rate at least at the state level. At present it is believed that most job losses or now at the federal rather than state level.

     The expected nonfarm payroll numbers are expected to be 122,000. Let's hope for an unexpected beat here as well.

OK Let's Talk Taxes

     Lately there has been some discussion about tax policy, in particular the optimum tax rate for the top marginal rate. While I agree with Dean Baker that we liberals need to recognize the importance of Fed policy as well as the working of the Treasury in economic outcomes-we need the opposite of Hank Paulson's "strong dollar policy" what we need is a "weak dollar policy"-I am always in the mood for a good tax policy discussion.

    What kicked off the latest discussion was a paper by the economists  Emmanuel Saez, Thomas Piketty, and some other colleagues about the optimal tax rate.

    http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.4.165

    Interestingly it has been a project of Mike Kimel over at The Angry Bear for awhile to calculate the optimum rate. He therefore got a kick out of it when these two major economists picked up his thread.

   http://www.angrybearblog.com/

    What Kimel and Saez-Piketty conclude is that this rate would be in the 60s or 70s. Krugman liked the paper then wrote a column "Things to Tax." He argues that, "The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?"

    "And I don’t just mean a return to Clinton-era tax rates. Why should 1990s taxes be considered the outer limit of revenue collection? Think about it: The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?"

     In principle I agree with this though it seems to me the old adage, 'You gotta walk before you can run' is relevant here. I mean we live in an environment when simply returning to the Clinton rates seems out of reach politically. Indeed all the tax reform proposals we hear about go in the opposite(wrong) direction. Everyone who actually is in a policymaking position seems to focus on the idea that what we need is a "broader tax base" that lowers corporate taxes and on the wealthy and somehow-at least Democrats claim-will raise revenue by closing "loopholes" many of these loopholes benefit the middle class-mortgage interest deduction-and the earned income tax credit-the working poor. Tax broadness means lower the taxes on the rich, raise them for everyone else. While I agree with Krugman that we could profitably see rates about 39.6% for the rich, let's get them there first before discussing whether to raise them further.

   The other thing all the proposals we hear about have in common is this desire to see the tax burden more redistributed to consumption so as "not to punish savers." Of course most savers are rich. Herman Cain's 9-9-9 plan is only the most extreme version of this. However as we have seen what today maybe on the outer limits of respectability in future years may come to be the new "Center" which is what the fabulous centrists like David Brooks never consider. To chase the Center is wholly reactive as the Center is not a cause but an effect of policy. In 1994 Newt Gingrich's individual mandate-everyone forgets it was his originally-was too far out on the radical Right. However it is today's position of the Left. See how that changes, today Gingrich of 2011 is running against the Gingrich of 1994-that is to say Romney-Obama.

   For my part let me jump in and give you my tax wish list. If I were President-or  as this is actually impossible as I was born in England-say mayor of New York City or governor of New York-or in any position to actually implement what I think would be the optimum tax policies would be to policy in the opposite direction.

    Take the state of New York-or any state. What I would be is the anti-Herman Cain. Far be it from raising consumption taxes what we should do is cut them. Why? Two reasons: the principle of tax progressivity and it would also be highly stimulative in a time when we need demand. Now of course this would represent a drop in NY state revenue. How do we make it up? Well one thing is that if this significant cut in the NY sales tax greatly increased consumption then there would be an increase in tax revenues to-in other words they would at least to some extent "pay for themselves."

    Still how much I don't know of the top of my head-when will Mike Kimel or a Saez-Piketty look at this?-and there will be some level of short fall you would guess. Plus anyway, my goal is to increase total tax revenue not decrease it or simply even have it be neutral. So what we could do is get rid of Andrew Cuomo's mistaken property tax cap. There are other wasy to raise revenue, some sort of NY finance tax perhaps-as most financial transactions happen here it would work particularly well here.

    Again the goal is progressivity but also to raise revenue at the same time. So we don't want levies like more tolls or traffic fees. Indeed perhaps if I were NY governor I would take the very aggressive step of looking to lower traffic fees and tickets across all levels-state, city, county. This would be quite a holy war to be sure. And giving up all this revenue would require new ways to raise it. Another controversial idea I might suggest-if this all weren't enough-would be to issue NY Bonds. Would the public snatch them up? Yes, if we marketed them as the way to bring down all traffic fees and tickets. Oh, I should also mention that I might declare something like, "We now repudiate any commitment to a balanced budget amendment" ie, NY would be one of the few states in the nation to actually publicly advocating deficit financing. This too would be new ground-it is hard enough to convince people the the Federal government can run deficits as it can print money. A state has no capacity to do this yet it seems to me, that deficit financing is an idea that should be tried.

    Those who say that you can't spend money that you don't have need to explain why if this is such an elementary law of physics why most states have mandates that demand they balance their budget? Nobody has to pass a constitutional amendment that when you jump off a building you fall. The idea of deficit financing has been tried in isolated counties and towns, normally someone ends up resigning in disapproving  horror.

     For more on the very important question of debt fiancing at the state and city level see

  http://diaryofarepublicanhater.blogspot.com/2011/09/state-and-city-balanced-budget.html

    While I know that if the governor of NY were tomorrow to declare say that there will be amnesty for all tickets issued prior to 2010 this would imply a huge loss in revenue what about the stimulative effects of all this extra money available for consumption? Notice that I am using what is usually the conservative argument for tax cuts-that "they pay for themselves" but am applying it to cutting taxes on the nonrich. The reason for this is that the propensity to consume is much higher among the nonrich,  While the investment boom that cutting taxes for the rich never materialized-not for nothing did George Herbert Walker Bush once call this "voodoo economics"-it would if you cut the taxes of the nonrich-in this context parking and traffic tickets and fees are the same thing as taxes. So what I'm thinking is this: If tomorrow all the meters in NYC were gone what would be the actual loss in revenue? But while we assume it would be considerable wouldn't this at least be partly made up as it put money in consumers' pockets they can now put to better use than stuffing it in a meter?



   

 

Reading Murray Rothbard

     I just finished reading Hayek. I found his book "Fatal Conceit: The Errors of Socialism" a lot better than I had assumed I would. Which is funny I thought that it would just be a crude piece of "red baiting" propaganda but it really was very interesting. While on the other hand the book I had read before that was a book of his correspondence with Keynes. In that book I found Hayek very unimpressive, and felt that Keynes, but even more Sraffa demolished him while all he did was quibble over the details of Keynes' use of words like "savings" and "investment."

    Ironically, then, I found Hayek's work when he gave up being an economist and become more of a sort of political philosopher better. This is the opposite of what you usually find. Often when someone moves out of the field they were legitimately trained in you find the results less impressive. Friedman seemed worse when he inserted himself too much in the immediate political debates.

     As Dean Baker has suggested, it's very important that we liberals have a healthy appreciation of monetary policy and its efficacy in policy outcomes. In many ways what was worse even than Reagan's tax cuts was Volcker's change in the Fed mandate where inflation at any price was more important than full employment, even if this required an 11% unemployment rate-not only higher than it had been since the Depression but higher than it ever got in the current crisis either. This is why I have come to regularly read many of the monetary blogs like Scott Sumner and Nick Rowe. Sumner himself yesterday was writing about Hayek. He claimed that he was an early precursor to NGDP targeting. I questioned this a bit, not that I knew it to be wrong but that I didn't know it to be right. His rather cursory answer to this was that I'd have to read George Selgin to know when this happened. It sure wasn't during the early 30s where Hayek was a deflationist.

      For more on this please see   http://www.themoneyillusion.com/?p=12111#comments

      Now I am actually reading Murray Rothbard's "Case Against the Fed" which was originally published in 1993. He talks about how the renowned maverick congressman from Texas, Henry B. Gonzalez, had suggested some of what Rothbard calls mild reforms:

     It called for full independent audits of the Fed's operations, videotaping the meetings of the Fed's policy making committee, releasing detailed minutes of the meeting within a week rather than allowing the Fed to give a vague summary 6 weeks later and finally to have the12 regional Fed presidents chosen by the President rather than by the commercial banks of the respective reasons. He notes the interesting fact that then incoming President Bill Clinton and his administration shot these down. He questions why Clinton might have fought against the expansion of his own power.

    This is a good question. He quotes Barney Frank who supported the bill at the time who pointed out that if the goal is to open up government then why not the Fed which "violates it more than any other branch of government?" (pg. 6) Interestingly some of these reforms have come into being. The audit the fed proposal went through thanks to the support of Ron Paul, et al. The Fed under Bernanke has now started to give a more timely accounting than the old 6 weeks. In fact many of these have been accepted, the main one that hasn't notably is to have the 12 regional Fed presidents chosen by the President. Frank is still fighting the fight and recently again suggested a move in this direction. Maybe out of office he will have more impact than he is been able to have lately in office. Let's hope so.

     http://diaryofarepublicanhater.blogspot.com/2011/11/is-loss-of-barney-frank-bellwether.html

     The answer of course is the vaunted ideology of  "Fed Independence." Rothbard rightly sees this as specious. This doctrine comes down to the idea that only the Fed and its independence can save us from the Gorgon of inflation. Rothbard expands on this doctrine. The public and politicians are "eternally subject to the temptation to inflate; but it is important for the Fed to have a cozy relationship with private bankers" as the private bankers are "the world's fiercest inflation hawks." (pg. 9)

    However, Rothbard declares that, "every aspect of this mythology is the very reverse of the truth." Indeed the only thing Rothbard agrees with is "that the overwhelming dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money."

   Of course as the expansion of the supply of money is the dominant cause of the virus of inflation then it turns out that Fed is not the solution but the cause of the entire problem, like the proverbial thief who diverts attention by crying, "stop thief!"

   "What we need is not a totally independent, all-powerful Fed: What we need is no Fed at all."(pg 12)

    It is here where Rothbard and I part company. While I am opposed to the ideology of "Fed independence" I am not in support of eliminating the Fed all together. For me in a way his too radical proposal is not radical enough. I support reforms along the line of Frank and Gonzalez where the Fed should be made politically accountable but eliminating it would actually be a step in the wrong direction.

   The fact is the monetary system has been much more stable post 1913 with the passage of the Federal Reserve Act. In the Golden Age of the gold standard-1873-1913) we were in recession 20 out of 40 years. With the rise of the Fed we have seen bank runs as a thing of the past and overall much more steady growth and stability. Friedman is simply wrong in trying to claim that the Depression would not have happened if there had been no Fed-note that this is not the same thing as saying that the Fed's failure to act was certainly a contributing factor to the length and depth of the Depression. You can agree with Friedman's critique of the Fed without agreeing that if there had been none at all there would have been no Depression. The argument that "well no crisis before had let us to a full depression" is arguing without proving that correlation and causation are one in the same.

     Rothbard, of course, is an inflation phobe. For him to increase the money supply is an act of counterfeit. It is a redistributionist "tax" where early receivers gain at the expense of later receivers. If tomorrow someone were to successfully pass of a fake $100 bill as the real thing they would essentially become $100 richer. This would be at the expense of someone down the chain, Who exactly? Suppose the counterfeiter had $500 of these fake bills and bought a new lap top at Best Buy. If he effectively passes it off then he essentially has a free computer as sure as if he stole it off the shelf and some how escaped the store without detection.

     In this case though who actually suffers? Best Buy will take this $500 and pay expenses-like more computers, or rent. Does Best Buy get ripped off? If is able to send the bills to someone else, no. If the $500 are used to pay rent, then the fake bills are in the hands of the landlord. But if when he puts his money in the bank, the bank detects it's fraudulent then he ends up being ripped off. Or, maybe it gets by the banks rigorous controls-which means the quality of the bills are pretty good counterfeits. Maybe some unlucky person later gets them out of an ATM and gets caught later with them. In this example the 5 fake bills are like a hot potato. The last one holding the bag loses.

    Rothbard argues this is how it always works with money printing as well-after he's done inveighing against it he aims his sights on fractional reserve banking. So if the Fed increases the money supply the increase is wholly counterfeit and someone will eventually get stuck holding the bag.

    What is clear is that under this scenario those who spend the money now gain at those who save it to spend later as Rothbard says. He says that it a redistribution from those who spend now to those who spend later. If tomorrow everyone got a check for $1000 those who spent it the quickest gain relative to those who save it the longest. If Thrifty Tom saved $900 while Spendthrfit Sam spent $900 then Sam gains $8 at the expense of Tom.

    I'm still early in the book right now he is onto fractional reserve banking. No doubt he is a Free Banking enthusiast too. One of the curious things about Sumner's NGDP idea is that he derived it largely from George Selgin a Free Banking enthusiast. While I agree with what Nick Rowe told me that the etymology is not that important-you don't have to be a Free Banking enthusiast to go for NGDP I find the etymology interesting in any case. Further, we can point out that Selgin is from the Cato Institute, which only adds to the interest.

    http://diaryofarepublicanhater.blogspot.com/2011/11/on-scott-sumners-intellectual.html

    I will have more to say about Rothbard and inflation in future posts. For now it seems to me that to the extent that he is an inflation phobe he is part of the problem. What is clear is that to the extent that inflation punishes spenders at the expense of savers it also redistributes from rich to poor, as the poor spend all their money on consumption.  Americans of modest means-and most Americans are of modest means-by definition spend most or all their money on consumption. This means that most Americans stand to gain by inflation according to Rotbhard's own premises. It was no accident that the greatest American populist, William Jennings Bryan, was as convinced an inflationphile as Rothbard and company are such inflationphobes.

  

  

Tuesday, November 29, 2011

Market Rally Fizzles While Waiting on EU Meeting

     "Stocks turned mixed Tuesday, dragged by the tech sector but were still modestly higher following a positive consumer confidence report and amid optimism that a meeting of European finance ministers would help resolve the region's ongoing debt crisis."

     http://www.cnbc.com/id/45476048

     What else is new? The market had been down 6 straight days before this renewed optimisms that the EU's desparate meeting will accomplish something. If it does that will serioulsy be breaking precedent!

      About the only hope is that the shear desperation will make them do something meaningful-something meaningful means the ECB does something meaningful. What seems too optimistic based on their performance till now is that they should actually no longer trail events.

    "The euro zone's 17 finance ministers converged on EU headquarters Tuesday in a desperate bid to save their currency — and to protect Europe, the United States, Asia and the rest of the global economy from a debt-induced financial tsunami."

    http://www.cnbc.com/id/45472580

    To forestall a financial tsunami would seem to require a sense of urgency-nothing has worked till now.

    "The ministers were discussing ideas that only weeks ago would have been taboo: countries ceding fiscal sovereignty to a central authority, an elite group of euro nations that would guarantee one another's loans but require strong fiscal discipline from members. "

    Yeah well someone shut off Germany's mic first. "Changes to existing rules are being touted as one way the eurozone can get out of its debt [cnbc explains] crisis, which has already forced Greece, Ireland and Portugal into international bailouts and is threatening to engulf bigger economies such as Italy, the eurozone's third-largest. "

    Despite my mic joke, Angela Merkel has said, "German Chancellor Angela Merkel reiterated her support for changes to Europe's current treaties in order to create a fiscal union with binding commitments by all euro countries."

    So take that Scott Sumner who was telling me that Germany would be better off than greater fiscal union.

    http://www.themoneyillusion.com/?p=12066

    In particular we argued about whether or not Germany needed the EU. I said yes, look at the its current account surplus, he claimed that the CA surplus means nothing and that this shows I'm a "mercantilist."

    "we’ve known for 200 years that common sense intuition is worthless in international trade; Ricardo discredited that mercantilist view long ago. Indeed it would be only a slight exaggeration to say that the discrediting of mercantilism was the bedrock on which all of modern economics rests. "

    Well however if it's not in Germany's interests how come they are actually talking about it now?

     "Countries outside the eurozone heaped on the pressure, knowing that if the euro fails, bank lending would freeze worldwide, stock markets would likely crash and Europe's economies would crater. The pain would spread to U.S. and Asia as their exports to Europe collapse."

    "President Barack Obama said Europe's failure to resolve its debt crisis would complicate his own efforts to create American jobs. And even Poland, a non-eurozone nation historically wary of German dominance, appealed for help."

    This appeal by Poland bears repeating in full: "I will probably be the first Polish foreign minister in history to say so, but here it is," Radek Sikorski said in Berlin. "I fear German power less than I am beginning to fear German inactivity."

    "The biggest threat to the security and prosperity of Poland would be the collapse of the eurozone," Sikorski added. "And I demand of Germany that, for your own sake and for ours, you help it survive and prosper."

The Super Comittee: Failure is Success?

     We are living in an Orwellian world so there's no surprise that the failure of the Super Committee to strike a bargain, grand or otherwise, may as Krugman says, be the best that we could have hoped for. As he puts it, "Failure is good."

    http://www.nytimes.com/2011/11/18/opinion/krugman-failure-is-good.html?_r=1&partner=rssnyt&emc=rss

   As there was no debt crisis and the budget deficit should not be our priority right now there was no reason for any "Super Committee" which is also a fine Orwellian name. As Dean Baker puts it, our strategy to bring down the deficit should be to ignore it and create growth.

   At this point absent any action $1.2 trillion worth of spending cuts equally divided between military and domestic programs.

      http://www.politico.com/news/stories/1111/69263_Page2.html

      While the domestic spending cuts are pretty evenly divided between mandatory and discretionary spending in military spending all but $1 billion of the total $464 billion in cuts are discretionary spending. This is after all the heart of the matter as these discretionary cuts in new defense spending are supposed to be enough incentive for the Republicans to stay at the negotiating table.

     Judging by the failure of the committee it doesn't appear it was, though the Republicans did talk about passing something that would prevent them from happening. This points to the whole problem as Krugman points out: the Republicans won't live by any agreement anyway:

     "...history tells us that the Republican Party would renege on its side of any deal as soon as it got the chance. Remember, the U.S. fiscal outlook was pretty good in 2000, but, as soon as Republicans gained control of the White House, they squandered the surplus on tax cuts and unfunded wars. So any deal reached now would, in practice, be nothing more than a deal to slash Social Security and Medicare, with no lasting improvement in the deficit."

    Interestingly one cut in Medicare which actually add to the deficit though this is what liberals have been arguing in any proposed cut to Obama's health care law, which of course has fallen on deaf ears:

     "One small anomaly in the deficit-reduction effort is CBO’s anticipation that certain cuts to Medicare will result in less money coming into the program from Part B premiums. That represents a cost, rather than a savings, of $31 billion through 2021.

     However, Jim Clyburn suggests that there is no need to worry about the cuts, that they can be undone. Technically they can be undone.

     "Rep. Jim Clyburn (D-S.C.), a member of the failed Congressional Super Committee, said Tuesday that he would be open to negotiating the sequestration process and scaling back some of the massive mandatory budget cuts — even if this puts him squarely at odds with the White House."

     “I don’t think that we’re locked in to sequester being in its current format,” he said. “We ought to all sit down and find out a way to make sure that we don’t raise taxes on middle income people.…And if it calls for redoing the sequester, that is something we might have a look at.”



Bill Gross: the Courage of His Convictions

     Say this for the bond king: he truly believed that the U.S. had a terrible debt problem. The bad news is that we don't. I mean that's not bad news for us, but it's bad news for Gross. Having the courage of your convictions can be costly when your wrong. So he was very wrong about an approaching bear market in Treasuries because of  "mountains of debt."

      http://diaryofarepublicanhater.blogspot.com/2011/10/jim-rogers-doubles-down-on-stagflation.html

       http://www.cnbc.com/id/45474748

      "Gross a few months ago owned up to his firm's mistake in 2011 of directing investors away from Treasurys. Despite the heavy $15 trillion debt load and $1.3 trillion budget deficit, investors have continued to snap up U.S. notes and bonds as a safe haven against the turmoil from Greece, Italy and other peripheral eurozone nations."

      Right now the narrative Gross is telling seems closer to reality. He is warning that in the near future a 5 percent return on investment is nothing to sneeze at any more-bonds or stocks. His $1.35 trillion fund is up only 2 percent this year. He put his money where his mouth was but was wrong. The gains were from other invesments.

      Now he says, "Investors should recognize that Euroland's problems are global and secular in nature, reflecting worldwide delevering and growth dynamics that began in 2008," he wrote. "It will be years before Euroland, the United States, Japan and developed nations in total can constructively escape from their straightjacket of high debt and low growth."

     "he advocates finding the "cleanest dirty shirts" in which to invest. Among them are the U.S., Canada, United Kingdom and Australia. He also advocates finding higher-quality corporate bonds in 2012 as economic growth slows."

     He's right too that the U.S., Canada, the UK and Australia are better-of course due to the fact that they are not in the Euro. That's pretty much the division right now that counts. It's not about deficits or even debt but rather whether you have the power of the printing press or have abdicated that vital power to the inflation phobic EU.

Is the Loss of Barney Frank a Bellwether?

       It may be in a few ways. For one it may spell bad news for us Democrats as it could be read as his lack of optimism that the Democrats can retake the House next year.  It may also be a bellwether of how far the quality of our politics have fallen.

      "Former GOP Rep. Mike Oxley, who was chairman of the Financial Services Committee when Frank was the top Democrat in the early 2000s, said Frank won the respect of Republican colleagues because of his reverence for the institution and his legislative skill."
     “He always had a deep respect for the system and how it worked, and I think that’s one of the takeaways that some people, particularly some people on the right, don’t really appreciate,” Oxley said. “If Barney said something, you could take it to the bank

Read more: http://www.politico.com/news/stories/1111/69258_Page2.html#ixzz1f6uzp4un

    It's this respect for the system and how it works that seems in such short supply today, as is shown by Oxley, a former Republican Rep. conceding that this quality of Frank is wanting in many on the Right today.

    Frank largely sees Congress as wholly dysfunctional today. This combined with the fact that his district is scheduled to be redrawn going into next year which will force him to campaign in areas of the state he has no history representing and raising lots of new cash, has led the 71 year old stalwart to conclude that he can better serve the liberal cause outside of politics:

    "Frank also leaves the House with a stark conclusion about the political system: The people won’t let Congress do its work."

     "To my disappointment, the leverage you have within the government has substantially diminished,” Frank said. “The anger in the country, the currents of opinion are such that the kind of inside work I have felt best at is not going to be as productive in the foreseeable future and not until we make some changes.”

Read more: http://www.politico.com/news/stories/1111/69258.html#ixzz1f6wOU0m5

     This claim that the people wont let Congress do its work will certainly raise eyebrows and is very provocative when you think about it. But what's clear is that Frank gave his entire adult life to his liberal beliefs and principles and his respect for the system of Congress and he feels that the effectiveness he once had is gone. Viewing the political process as it unfolded this year but especially this year during the four month debate on what should be the routine procedure of raising the debt limit can you say he's wrong?

     This dysfunctional nature of Congress has led me to some very negative assessments of it as well and which explains why it is always so unpopular as a body-though never more so than now.

     http://diaryofarepublicanhater.blogspot.com/2011/09/why-congress-is-always-so-unpopular.html

     I think it's fair to say is that the overiding reason for this is it's constantly increasing gridlock.

      What is also kind of provocative and what I would like to hear more about from Frank is his idea that some changes need to be made for Congress to be a productive body again. What kind of changes might he have in mind? I hope he does write as he suggests and that he writes a lot more about this. I do know that he's right on target with the changes he has suggested to the Fed-not "ending it" like a demagogue like Ron Paul talks about but reforming it, taking away it's vaunted "independence" that is to say, making it accountable to the democratic process.


Monday, November 28, 2011

You Go Emma Sullivan

     How can you not like someone who has effectively told Kansas Governor Sam Brownback (R) to step off? You have to feel good that as dysfunctional an educational climate as in (what's the matter with) Kansas you still have a young 18 year old who has not had her spirit totally crushed.

    The high school senior made a twitter comment that disparaged Brownback:

     "Last week, Sullivan was in the audience for a speech given by Brownback when she posted a tweet that would frustrate the governor’s office and land her in hot water"

     "Among more pedestrian tweets about Justin Bieber, the Twilight movie series and pictures of her friends, she tweeted, “Just made mean comments at gov brownback and told him he sucked, in person #heblowsalot.”

     Brownback’s office spotted her Twitter post as part of routine media monitoring and contacted the Youth in Government program that Sullivan was taking part in. As a result, Sullivan was scolded by her principal and asked to submit an apology letter, something she has refused to do. In fact, she said she has no regrets about the post. “I would do it again,” she told The Associated Press.
 
    It turns out that young Ms. Sullivan has a lot more fans than the governor, judging by tweeter-which is democracy in action....   
 
    "The 18-year-old’s Twitter following has exploded overnight — as of Monday afternoon she had more than 9,000 followers (@emmakate988), nearly triple the number of Brownback (@govsambrownback)."
 
     The heat got pretty bad and many liberal blogs demanded that Brownback be the one to apologize, which he has now finally done:
 
      On Monday, Brownback issued an apology, saying in a statement that his staff “over-reacted” to Sullivan’s tweet. On the same day, Shawnee Mission School District announced that the student does not need to write an apology to Brownback and that she would not be reprimanded, saying in a statement that the district is protecting “a student’s right to freedom of speech.”

     It's certainly pretty interesting that Brownback staff does "regular media monitoring" on twitter. Does everyone who says a negative word about him in the state of Kansas have to offer an apology. It's good that he ended up being the one to apologize. 
 
    Next apologize for teaching creationism next to evolution as just two equally legitimate "theories."  
   
 
     

Say it Aint So: Barney Frank Retires

      This one caught me and many Democrats across the country by surprise, a most unhappy surprise. Massachusetts Rep. Barney Frank has retired after 32 years in the House.

      http://www.politico.com/news/stories/1111/69201.html

      "Frank’s decision comes as a shock to the Massachusetts political world and to Washington – few thought Frank was a likely retiree."

      After all, in just February of this year he had said he would seek re-election. "While I would have preferred to put off a discussion about the next election until a later date, I have been asked on a number of occasions about my plans. In addition, I have become convinced that making my decision to run for reelection known is important for maximizing the impact I can have on the range of issues to which I am committed. These issues require a time commitment longer than the next two years,” Frank said at the time.
 
     The question is what changed for the man who had been literally an institution in the state of Massachusetts and who had just recently had his name lent to land mark financial reform legislation?
 
     Part of the issue is that he was due to be subject to redistricting. In 2010 while he defeated a tea party opponent he received the for only the 3rd time in his career less than 55 percent of the vote. Partly he feels that the poisoned tone has well, poisoned everything too much.
 
     "The kind of inside work I have felt best at is not going to be as productive in the foreseeable future,” Frank told reporters at a news conference in Newton, Mass. “To my disappointment, the leverage you have within the government has substantially diminished.”
 
     "“The activists in both primaries — the people on the left and people on the right — live in parallel universes. “The left has MSNBC and the blogs. The right is on Fox and talk radio. People know different facts.”
 
       This is a sad loss for liberals. He will certainly be missed. But what's next for the Congressman? He is pretty clear what he won't be doing, "
 
       "I will neither be a lobbyist nor a historian,” said Frank, in a barb directed at Republican presidential candidate Newt Gingrich’s claim that he served as a “historian” to mortgage giant Freddie Mac.
 
       Least he hasn't lost his acerbic wit.
 
        "Frank said he did not plan to become a lobbyist, but would remain active in the public policy realm. “My intention would be to do some combination of writing teaching and lecturing.” Frank said about his future. “I think I have the longest uncompleted Ph.D. thesis in Harvard history haunting me.”
 
        He definitely should write about some ideas he has suggested recently with regard to reforming the Federal Reserve-that would effectively take a way the voting rights in the FOMC of bank appointees and overall make the entire voting bloc of board governors subject to confirmation before the Senate.
 
        He had a "white paper" about this for which he was knocked around by the usual suspects on the Wall Street Journal editorial page and the Cato Institute which by definition shows he is on the right track. I hope we will be hearing more about this in the future. He-and not all this empty rhetoric from a Murray Rothbard or Ron Paul about "Ending the Fed" is pointing the way to the solution.
 
       We don't need-nor should we-to end the Fed. What we do need is to end it's vaunted "independence."
 
       In summation a word from President Obama puts into proper perspective the man we have lost in our politics of diminishing returns:
 
      "President Barack Obama said Frank’s exit marked the end of an era for the House. “This country has never had a congressman like Barney Frank, and the House of Representatives will not be the same without him,” Obama said in a statement. “For over 30 years, Barney has been a fierce advocate for the people of Massachusetts and Americans everywhere who needed a voice. He has worked tirelessly on behalf of families and businesses and helped make housing more affordable. He has stood up for the rights of LGBT Americans and fought to end discrimination against them. And it is only thanks to his leadership that we were able to pass the most sweeping financial reform in history designed to protect consumers and prevent the kind of excessive risk-taking that led to the financial crisis from ever happening again.”
 
      Finally he is leaving the House. But we can hope this is far from the last we will hear about out of Representative Barney Frank, one of those who truly was worthy of his office.
 

 


 

Structural Unemployment: What Came First, Chicken or Egg?

      Say this for Georgian businessman Bill Loomis he is broadcasting the plays. It's like an N.F.L team deliberately placed NFL cam while practicing their best play. Mr. Loomis has declared that he will not hire a single new worker till Obama is gone.

      http://thinkprogress.org/politics/2011/11/27/376148/georgia-not-hiring-until-obama-gone/

      Bill Looman, who owns U.S. Cranes, LLC in Waco, Georgia, explained that while “I’ve got people that I want to hire now,” he didn’t think he would be able to foot the expense “unless some things change in D.C.”

      Not only this but he has placed this promise on signs on all his trucks. This is what's so hard about the structural unemployment canard. It's never care whether it came first or the Republican Operation Tank the Economy.

    For more on the structural unemployment canard please see

    http://diaryofarepublicanhater.blogspot.com/2011/11/structural-unemployment-canard.html

    For more on Operation Tank the Economy (OTE) see

    http://diaryofarepublicanhater.blogspot.com/2011/09/rick-perry-threatens-bernanke-again.html

    Certainly Loomis can't be accused of being a nut despite his refusal to take advantage of credits Obama wants to give business. Just check out his facebook page where, "The notion that President Obama’s economic policies preclude small businesses from hiring new workers isn’t the only ludicrous claim Looman pushes. A cursory glance at Looman’s public Facebook page shows he is prone to anti-Obama conspiracy theories. Earlier this month, he posted a false report that Larry Sinclair – the man who claimed he did drugs and had sex with President Obama – had died and implied foul play, writing “MAKES YOU WONDER HUH?” Looman’s page is also riddled with pro-confederate and anti-Muslim postings."

    "More importantly, Looman’s assertion that he would be able to hire more workers but for Obama’s economic policies defies reason. In the last few months alone, Obama has proposed giving major tax credits to businesses that hire new workers, including a $4,000 credit for hiring the long-term unemployed. Just this week, Obama signed a law to give additional tax credits to businesses that hire veterans."

   

Some More Tenative Good News in the U.S.

     This is in the housing market where, "New U.S. single-family home sales rose in October and the supply of homes on the market fell to its lowest level since April of last year, showing some healing in the battered housing sector."

     http://www.cnbc.com/id/45462471

     "The Commerce Department on Monday said that sales edged up 1.3 percent to a seasonally adjusted 307,000-unit annual rate, which was the fastest pace in five months yet still below analysts' expectations."

       'The supply of new homes in the market would last 6.3 months at the current pace of sales."

       There has already been some tentative good news in the housing market in addition to some good news in the economy generally-rising GDP forecasts, unemployment claims dipping under 400,000 in consecutive weeks, some good consumer numbers. Also Black Friday saw record sales. However, notice that this report was still short of economists' expectations. Also:

        "Still, the median sales price fell 0.5 percent, casting a pall on the market's outlook as potential buyers can be spooked by falling prices."

     

Euro Zone back in Mild Recession

     While in the early hours the futures jumped higher on reports that "Germany and France were exploring radical actions of securing deeper and more rapid fiscal integration among euro zone countries" there was further bad news that the Euro zone is now back in recession. This is the fault of the debt crisis pure and simple.

     http://www.cnbc.com/id/45460062
    
    While it would certainly be great news if the reports of "radical actions" are true at this point anyone who has observed this crisis for any length of time at all knows that only seeing is believing, not talking.

     However today the markets believe and the Dow is currently up 320 points. But the equity markets are not the place to judge-the reality check is the bond markets. Again, seeing is believing.

      With the OECD's report that the Euro zone is in a mild recession came a warning that the U.S. might follow suit next year.

       "The threat of even more devastating downturns looms if the euro zone does not get to grips with its debt crisis and U.S. lawmakers fail to agree a spending-reduction plan, the Organization for Economic Cooperation and Development warned."

        http://www.cnbc.com/id/45459979

        This canard about the U.S. needing a "spending-reduction plan" is specious, certainly. The U.S. budget deficit is not a concern as is shown by the fact that our bonds are the most desired in the world. In any case even if we needed a budget reduction plan why is it necessarily about a "spending-reduction plan?"
      

       If anything based upon the numbers we have been seeing from the U.S. during the second half of this year, the economy is already expanding. If it does fail this continue this will be due to Euro contagion.

       On most of the rest of the narrative the OECD report is accurate. For example:

       "What we see now is contagion rising and hitting probably Germany as well," OECD chief economist Pier Carlo Padoan told Reuters in an interview.

        "So the first thing, the absolute priority, is to stop that and in the immediate the only actor that can do that is the ECB," he added, urging the central bank to commit to a creating a cap on government bond yields as a way of calming the crisis.

        This is absolutely right that it is the ECB's role to do something not as Europe has recently hopped China or the Federal Reserve; as for the IMF it is like the EFSF, a cap gun for big Euro countries like Italy. For more on the EFSF's inadequacy please see here

        http://diaryofarepublicanhater.blogspot.com/2011/11/efsf-eus-cap-gun.html

        As Dean Baker shows time and again the best way to reduce the budget deficit is to get the economy out of the recession. Yet deep spending cuts will actually lower growth. And the OECD itself admits this:

        "The resulting fiscal tightening, which would come automatically, would in our view likely generate a recession in the United States," Padoan said:

        Today is a good day for equities, but until we get some good days for bonds optimism is rash to say the least.

NFL Week 12: Arguing With Jet Fans

    So I was at my favorite place during the football season, Applebees here in Baldwin, NY and got into an argument with a couple of Jet fans. I've seen these guys a few weeks now and again one of them made some reference to the Giant-Jet game scheduled at the end of the season. He was trying to tell me that this is gonna be trouble because "the Jets always beat the Giants."

   When I pointed out the empirical fact-there are records-that this is hardly the case he started going on and on about 1988-this was the year the Jets played spoiler in the last game of the year, beating the Giants 27-21 and preventing them from making the playoffs(had they won the Giants would have won the NFC East).

   I just had to laugh. What is it with Jet fans? They have so little to be proud of that all they get to brag about is a year they played spoiler to the Giants? First of all I pointed out to him that he's wrong, that while the Jets did play spoiler that one time it has not as he seems to think been the defining characteristic of the Giants-Jet series. To hear him tell it the Jets own the Giants but this is false. Again, this is not my opinion, just check the all-time series between them.

   He has come to think that game was representative of the series but it isn't. Yet he seems to think the Jets have played spoiler many times for the Jints. Nope. They beat them in 88 it's true and there was another game in 1993 where the Jets bet the Giants 10-6, but this wasn't really a spoiler game, the Giants made the playoff anyway and it was much earlier in the season. It is true that going into the game the Giants were 5-1 compared with a 2-4 Jet record; looking back it did not seriously impair the Giants season but it did temporarily jump start the Jets as the win started a five game winning streak. However they lost their momentum and lost the last 3 games of the year to miss the playoffs.

    This is what Jet fans have to brag about? How they beat the Giants in 1988 to prevent them making the playoffs while missing the playoffs themselves? Or beating the Giants in 1993 in a year the Giants finished 11-5 and in the playoffs with the Jets finishing off at 8-8 and out of the playoffs? If these are the glory years no wonder the best name for the history of the Jets is the gory years.

    Incidentally the all time record of the Giants-Jets is 7-4 Giants with the G-Men winning the last 4. In fact the Jet's haven't beaten us since 1993. In looking at the list I remember the last time they played where the Giants came back from 21-7 down to win 35-24 on the way to their Super Bowl win over the 18-0 Pats. While I probably shouldn't do this I will print out this and show it to my Jet friends next Sunday during the Jet game! LOL

Friday, November 25, 2011

The EU Crisis: Only Technocrats Need Apply

     Just read another great gloss by Krugman pointing out that the trouble in the EU with the obsession with austerity and structural reforms is not that technocrats have run amok, but to the contrary there is a shortage of capable technocrats right now.

    At least among those driving the policy debate in the EU right now. So it is that recently new ECB President Mario Draghi, could actually declare that “anchoring inflation expectations” is “the major contribution we can make in support of sustainable growth, employment creation and financial stability.”

    http://www.nytimes.com/2011/11/21/opinion/boring-cruel-euro-romantics.html?partner=rssnyt&emc=rss

    Krugman's gloss on this is that Draghi is not a cold, bloodless technocrat who ignores our common human content but rather a "boring, cruel Euro romantic." It's a great reversal. As Krugman says, "I like technocrats — technocrats are friends of mine. And we need technical expertise to deal with our economic woes. "

    If only we did have technocrats driving the bus! The trouble is that we don't-the opposite. This belief in austerity is a romantic fable about the way the world should be. We have our own version here in the U.S. driven by the Republicans and driven by David Cameron and his Conservatives but it's all the same. As Krugman points out, just because the ideology of Austerity isn't very exciting-which is the boring part of boring, cruel romantics" doesn't make it any less romantic.

    To be sure in the U.S. and Britain we suffer from various psychosomatic pains-maybe it's our sympathy pains with the EU. While Britain faces no debt crisis it imposed harsh austerity measures anyway just for kicks-the cruel part. In the U.S. we have the safest debt in the world yet we had a super committee to fix an imaginary debt problem. In this sense we are than Britain who achieved much more success in imposing austerity than we did here thanks to divided government. Britain risks making itself sick by it's imaginary cures.

The EFSF: The EU's Cap Gun

     It could only plausibly work if the contagion didn't spread. However it is spreading like wildfire. What seemed plausible a month ago isn't now with the worsening market conditions that now even saw German bonds rise. While they remain historically low they are more expensive than British debt and much more than U.S. which yet again shows that there is no debt crisis here in the U.S. or in Britain despite David Cameron's austerity package.

    http://www.cnbc.com/id/45433559

     "A plan to boost the firepower of the euro zone’s €440 billion ($585.5 billion) rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior euro zone government officials."

     "European leaders hailed a scheme to offer insurance on losses for investors buying troubled euro zone bonds as a means of leveraging the €250 billion spare capacity of the rescue fund four or five fold, to more than €1,000 billion."

     "But the dramatic spike in borrowing costs for Italy since the summit is likely to force the European Financial Stability Facility [cnbc explains] to sweeten the deal offered to investors, which will limit the number of bonds the insurance would cover."

       The only thing that will save the EU now are fiscal integration. Germany continues to fight this idea worrying about it's worthy credit. In the end it may lose it anyway. Germany continues to pretend that when the blizzard hits it will bypass their house because they adequately saved for the winter.

Hope Your Thanksgiving Went Well

    Mine was good for the most part. I had some good food and got a good laugh...  The thing is that my brother is gonna be a father, which is in itself crazy to me. My little brother is gonna be a dad! Before his big brother I should add. I'm gonna be an uncle.  Anyways, for whatever reason my parents, especially my mother, insisted they don't want to know the sex of the baby due in January.

    My sister in law got the "gender test" done months ago. I of course wanted to know the gender as soon as possible. I was very happy to learn it's a girl as we had no girls in our family just my brother and me. However for 2 months I was careful not to give away that it's a girl to my mother even when she asked me questions or made comments that if I wasn't careful I could have revealed the sex. Keep in mind that I'm currently living with my parents-the wonderful economy, hopefully not too much longer... So there are plenty of chances to spill the beans.

    Last night though my sister in law right away let's the cat out of the bag revealing it. My brother was like "you have no tact" but honestly from my point of view, I kind of got a kick out of it.

     Sorry my friends Laura Superhero and MotorCityLiberal-please check out his excellent blog about all things political in the Michigan area at http://motorcityliberal.blogspot.com/ -but the Lions were not quite up to it though they did at least come back a little at the end. I think that at 24-0 they were a little demoralized but by putting up a little fight even in a losing cause they have something to take with them going forward. The won't catch the Packers but are a solid chance at a wild card.

     The real heartbreaking moment though for me was seeing the Miami Dolphins fail to upset the Dallas Cowboys after coming so close losing 20-19. Miami however has its offense to blame. Prior to Dallas's game winning drive the offense was able to gain just 3 yards before punting after the defense had shut down the Cowboys on the previous possession. You just can't do that. You give the defense nothing, not even a single first down to wind down the clock and put them right back out there on the field. You can't keep putting the ball in Tony Romo's hands and think he won't beat you giving him enough chances.  Let's face it though, as a Giant fan I know the Giants have to win on their own this Monday at New Orleans. Hoping the Maima Dolphins do their job for them isn't going to get it done.

    I am right now in the middle of an excellent book by the liberal economist Dean Baker which he has given us a free pdf version. This is a must read for any liberal who wants to properly understand the economic issues we must be front and center on. While I will get into it in more depth later for now the two things which he does very well is point out that monetary policy may be ignored by many liberals but it is vitally important. What Paul Volcker did in the early 80s had a worst impact for employment than Reagan's regressive tax cuts. This is a point I have seen only one other liberal make-James Galbraith. As long as the Fed places price stability on a higher level than full employment-its other half of the mandate-underemployment will be the result by design.

   How many people understand that many people at the Federal Reserve consider low unemployment problematic? But what NAIRU-the non-inflation rate of full employment-amounts to is that we can't have unemployment beyond the point that the inflation rate rises at all. And honestly the current 2 percent target(which is assumed though Bernanke has considered making it official) is too low. As even many at the Fed know, an inflation rate of 3-4 percent would hardly be dangerous. In addition a 2 percent annual rate is actually lower than the average inflation rate even during the Great Moderation that they are so unduly proud of. Remeber the (assumed) target is 0-2 percent inflation. Even if they made it 2-4 that would be a major improvement

   The other issue that Baker talks about and on this while Galbraith has mentioned it, Baker here more fully expounds on it than Galbraith did at least in the main work of his I have read, his 1997 book "Born Unequal."  This issue is of relative value of the dollar. As Baker-Galbraith touched on it in 1997-shows the real issue is not about opposing Free Trade but rather the parameters of trade. The real problem with our participation in the global system is that the dollar has been consistently overvalued. This is the due to the actions of the U.S. Treasury.

    In these terms the real failing of Clinton was not that he signed Nafta-and for the record he did impose some labor and environmental standards and protections-but that his Treasury Department consistently promoted an overvalued dollar. With Paulson too we always heard the declaration "We support a strong dollar." A strong dollar however, Baker shows is responsible for our trade deficit and consequent rise in U.S. unemployment.

    http://www.deanbaker.net/images/stories/documents/End-of-Loser-Liberalism.pdf

    These are the two issues that liberals most need to fight on even if it's unclear exactly how you can effectuate change there. If the Fed returned to the Full Employment policies it had especially (pace Galbraith) prior to 1970 but really reneged on with Volcker and the Taylor Rule and the Treasury would no longer allow the overvaluation of the dollar this would do more to bring down the unemployment rate than any of the fiscal issues that most liberals are much better aware of. As Baker points out, while eliminating the Bush tax cuts on the wealthy is desirable it is a drop in the bucket compared with the bang for your buck we would see by reforming the Fed and Treasury.  This is also the method in Krugman's madness in the recent China bill which many criticized as either protectionist or simply jawboning China. Whether or not you like how that bill approaches it, Krugman is focused on the correct issue

    I will get into this more soon but for now let me just be clear that what is needed is not to "abolish the Fed" as Ron Paul and Murray Rothbard want-why do liberals fail to realize that this is a libertarian argument that the market can do it all, regulate itself, promote it's own stability-but rather to reform it. Barney Frank recently had some proposals that are on the right track. What we want is not to abolish the Fed but rather its vaunted "independence."

     The fact is we have had much better economic and financial stability subsequent to the Federal Reserve Act of 1913. The claim that the Fed is only about the banks obscures the fact that we have had a much more stable economic system since the Federal Reserve came into existence. If the Fed is reformed this will do more to bring down unemployment than any fiscal issue that liberals are much more focused on.

Thursday, November 24, 2011

Happy Thanksgiving to all My Readers!

    I really appreciate and love you all! Honestly you're what it's all about to me. I hope you all eat a lot of turkey or if your a vegan have some real good turkey substitute-I'm not but I have eaten some real good ones.

    I have in the last few days met some new playmates over at the Angry Bear. Mike Kimel of course

    If you haven't please check him out over here-there are some other very good writers there like Rebecca Wilder http://www.angrybearblog.com/

    I also have met JzB who gave me the impetus to my last post

    http://diaryofarepublicanhater.blogspot.com/2011/11/danger-of-misleading-economic-arguments.html

    He writes a very nice blog which I encourage you to check out if you haven't

   http://jazzbumpa.blogspot.com/2011/11/what-is-contribution-of-finance-sector.html

   He indicates he doesn't have a very high opinion of Scott Sumner. He may be write I have seen warning signals myself. I have tried to give him the benefit of the doubt till now because his idea of NGDP sounds at least plausible. If JzB can see a hole in that I certainly would like to hear it. It just seems like the NGDP targeting could be a welcome change over the fixation the Fed has had with inflation since Volcker.

   To be sure I am aware that some of the sources of Sumner's idea are wild-eyed libertarian types who envisage this taken us down the road to a time of "gentle deflation and hard money" which is exactly what I am opposed to. Some of these guys are even Free Banking enthusiasts. Still it sounds to me that in the short term it should enable the Fed to focus more on full employment and less on inflation.

    For a little on the background of Sumner and the NGDP idea please see this

    http://diaryofarepublicanhater.blogspot.com/2011/11/on-scott-sumners-intellectual.html

    What was partiuclarly exciting to me is that Nick Rowe of Worthy Candian Blog answered my post

    http://diaryofarepublicanhater.blogspot.com/2011/11/nick-rowe-answers-my-post.html

     This was very exciting to me as what I knew about Nick Rowe is Krugman has mentioned him in print! So I-in my own mind-was only once removed from Krugman mentioning me.

     This post about Rowe answering me turned out to be my most read post ever here at Diary of a Republican Hater-I broke my previous record for visitors to a post, in fact it was double my previous record! The reason for this was that Delong himself has placed me on his twitterstorm. Of course this gave me a new post. What impressed Delong was that I managed to counter poise the words "Nick Rowe" and "Snooky" in the same sentence. For me Nick Rowe leaving a comment was sort of like Snooky saying hello to me-Snooky saying hello to me would be like a lunar eclipse only more unusual.

     http://diaryofarepublicanhater.blogspot.com/2011/11/now-i-make-brad-delongs-twitterfeed.html

     Of course, I was hoping that Delong might put this on twitterstorm as well but, no such luck! Oh well. I do now and again send links to stuff I wrote to Delong on Twitter, don't know if he ever reads it.

      Oh well, it's all about milestones. My next one will hopefully be even better than that. The main thing my friends is that we keep the faith. While I am interested in politics as you may notice I have a particular passion for economics because so much of what you see in politics only makes sense when you understand the economics.

     I am a fan though of Money Illusion too. I don't agree wtih Sumner on fiscal mattters I still think he is on to something with NGDP.

     Right now I am reading Dean Baker's new book-he has a PDF version right here online. By making it free(the hard covered version has a cost of course) he is putting his money where is mouth is and we should thank him. For me what's particularly important is his emphasis on how important monetary policy is without most of us knowing anything about it. You can argue-as Baker does-that what Volcker did in the early 80s hurt the economy much more than anything that Reagan did with his making the tax system much more regressive.

     http://www.deanbaker.net/images/stories/documents/End-of-Loser-Liberalism.pdf

     I'm looking forward to Packer vs. the Lions. I know my friend Laura Superhero-AKA DemLaura-is pulling for her Lions today. I'm not sure if the surprise 7-3 Lions can beat the juggernaut 10-0 steamrolling Green Bay Packers and Aaron Rogers but Detroit has been very impressive and a fun team to watch with their improbable come backs-last week the again came back from a huge deficit of 24-7 to win 49-35.

    And of course I hope Miami upsets Dallas though I am not hopeful. Cheers!