Friday, December 30, 2011

Modern Monetary Theory: Are We Overtaxed?

     Until I got into MMT I would have thought this was a Right wing question. I mean what seems obvious is that we-or at least some of us-are undertaxed. It seems that Bush's tax cuts were what put us into huge deficits that are now being used as an excuse to cut spending even further.

    Yet I think I'm beginning to understand the MMT line. We are overtaxed relative to government spending. Of course by "we" I mean the non-rich. So it is doubly ironic that we have had such regressive tax proposals out of the Republican candidates this year.

   I would agree that non-rich Americans-the 99%-are overtaxed based on what we get for our dollars. The non-rich need a tax cut. However this tax cut can come in the form of lower taxes and/or more government spending that benefits the non-rich.

   According to MMT theory in a fiat money system we need taxes to regulate demand, to avoid inflation. For this reason the taxes on the rich-the 1%-are too low. How high they should get is debatable. I don't know that we necessarily need the 70% top rate we had when Reagan came in. But the 35% current top rate is too low and the talk of cutting it further means that the rest of us will continue to be over taxed.

   One of the cruelest pieces of ideology is that conservative canard that "50% of Americans don't pay taxes at all." This is what Galbraith called "an innocent fraud." First of all everyone is liable for the sales taxes within their state. Beyond that there are parking fees, parking tickets, traffic tickets, and tickets on my Long Island for example, that charge $12 just to on the beach.

    Not surprisingly this is not the kind of  "double taxation" that bothers the conservatives, they're worried about a few extra dollars in taxes on capital gains.

    Then there's the 16.5% payroll tax-between the employee half and employer half. Just take a look at your latest pay stub and what you'll find is between the federal income tax, the state income tax, and Fica, 30% of your money is gone every week.

  The difference between our claim that "Americans are overtaxed" here and the Reaganites, is that while they desire only supply side tax cuts the focus should be demand-which means cutting taxes on the non-rich. Where would these demand side tax cuts come from? On the national level a start was made by cutting payroll taxes-typically the GOP killed Obama's idea to increase this temporary tax cut to 3.1%.

  Something like what Mosler discussed about cutting the entire payroll tax would be very good. For those who worry this would bankrupt Social Security, this is an illusion. The government can print it's own money so there is no reason it should ever stop sending out SS checks unless it consciously decides to, a position which would be political suicide.

   Still much of our high tax burden is at the state level as we saw above. On a state by state level cuts to many consumption taxes are in order. To make up the difference some tax hikes on the wealthy are in order, along with debt financing. I also think that such consumption tax cuts would "pay for themselves" as the supply siders put it as this would stimulate consumption and the overall economy.

   For more on this please see here

Thursday, December 29, 2011

Bill Maher's Sharp Tebows

       Clearly his tweet about Tebow over the weekend has been received as "controversial."

       "Comedian Bill Maher drew the ire of Tim Tebow fans and Christians over the weekend after a profane tweet reveling in the Broncos' blowout loss to the Buffalo Bills."  Here is the offending tweet:

       "Wow, Jesus just f***ed #TimTebow bad! And on Xmas Eve! Somewhere ... Satan is tebowing, saying to Hitler "Hey, Buffalo's killing them," Maher tweeted.

       Ok, this is still a free country though right? I mean it's not like anything can be done to Maher because of his impiety? Maher is not a bad bullshit detector. like the time he got fired for calling 9-11 passengers "cowards."

        I myself do wonder what is behind the levels of Tebow reverence we have been seeing. His numbers so far hardly justify it. Some have suggested that the reasons behind said reverence are not so admirable-that in some way Tebow may be "a white hope."

        Listen, I have no personal ill will to Tebow and maybe he will live up to the hype at some point, and if so more power to him. But why is he being so hyped up without having done much to earn it so far? The only notable thing about him so far as that he frequently runs for almost as much if not more than he passes.

        Yet, even this is a double edged sword. When the QB runs a lot that means his protection is often breaking down. For a clue about where the Tebow reverence comes from listen to his own tweet:

         After the disappointing 40-14 road loss, Tebow tweeted, "Tough game today but what's most important is being able to celebrate the birth of our Savior, Jesus Christ. Merry Christmas everyone GB2."

          Again is it possible that Tebow is seen as a kind of white hope-you know there is an ideology that tries to make up for the loss of white vanity in sports where blacks come to dominate by saying 'Sure those blacks are great athletes. But they lack the "values", the heart, the team play, the "intelligence" needed to be more than just a great athlete." Tebow is white, he's also very religious. Maybe Middle America sees him as a savior for the soul of America.

         I hope this is not the case. I certainly don't dislike Tebow and wish him only well having no reason not to. But I wonder if that's the case. I think racial prejudice is on the down swing in this country. I feel like Ron Paul's hyperbole about a coming race wall is just hyperbole. He sounds like an old fashioned man-like a Pat Buchanan-who can never wholly get comfortable with the modern changes in racial matters that we have seen over the last 50 years.

        However, I should not be so naive as to claim like Stephen Colbert did once after Obama won in 2008 that "racism is over! 1776-2008" It was hilarious...

        In sports there is still some residual racism. I feel like it's getting less but I don't feel it's nonexistent. It was not long ago that blowhard Rush Limbaugh was allowed to say on a nationally televised game that Dononvan McNabb was overhyped because the liberal media wanted to see a black QB do well. This was not only offensive but just ignorant. McNabb had the consistent numbers to justify putting him in any conversation about the league's elite QBs.

       One would presume, that Limbaugh is a Tebow fan.

Arthur Laffler Endorses Newt

     We can also say, exposes him, for obviously you have to have a pretty regressive tax plan to get Laffler's vote.

      Laffler really likes Newt's 15% flat tax-with a 12.5% corporate tax rate. And you have to love flat taxes-they are very simple; simple to understand, even more they are simply awful.

      “The purpose of economic policy is growth, jobs, and prosperity,” supply-side founder Art Laffer told me Wednesday. As such, Laffer has endorsed Newt Gingrich and the Gingrich 15 percent flat-tax plan, which includes the 12.5 percent corporate-tax reform. “It’s nothing against the other candidates,” Laffer said. “But Newt’s plan is right, and therefore endorsing him is the right thing to do.”

       Sure Laffler says that now, but would this plan be the rightest if Cain were still in the race? Of course not as Cain's was even more regressive. And indeed, Laffler previously endorsed Cain's 9-9-9 plan.

       Not suprisingly, Laffler thought 9-9-9 was "a wonderful plan"

      with the kind of tax increases he can "wholeheartedly support."

       "This is the type of tax increase I wholeheartedly support. I support collecting more in taxes from people with high incomes who choose to actually pay taxes at lower tax rates than use lawyers and accountants to avoid taxes at higher tax rates. Some tax revenues at low tax rates is a heckuva lot better than no tax revenues at high tax rates."

      It certainly was the type of increase he could support but not for the reason he gave-that lower rates will inspire the rich to stop evading taxes. Rather because it was a wholly "demand side" tax hike hitting the non-rich very hard while giving the rich a pass, which is what a sales tax by definition is, a tax on demand.

     After all Laffer's curve is all about the idea that we should tax the poor and not tax the rich. Of course he doesn't quite put it this way declaring  peevishly that,

     "It used to be that the sole purpose of the tax code was to raise the necessary funds to run government. But in today's world the tax mandate has many more facets. These include income redistribution, encouraging favored industries, and discouraging unfavorable behavior."

     In reality the idea that we should simply write a tax code that raises the necessary funds of government without a view towards income redistribution is a red herring. The issue of income tax distribution is always part of it. Any tax code you can ever hope to draw up will benefit some and disbenefit others. The tax cuts of Laffer's Reaganites were about redistribution from the non-rich to the rich that disbenefitted everyone except the top 1%.

    And he can he complain about taxes to discourage unfavorable behaviour as his own curve supposedly discourages the rich from evading taxes by making them low? Anyway Newt has arrived. If you need any more clues that his tax plan is awful here it is.

    In a way both Cain and Newt's plans are of regressive beauty, but the virtue of each resides elsewhere. Cain's would raise taxes most egregiously on the non-rich but for all that it could plausibly be revenue neutral or close to it.

    Even here not necessarily. For why I say this listen to Laffler's praise:

     "Mr. Cain's 9-9-9 plan was designed to be what economists call "static revenue neutral," which means that if people didn't change what they do under his plan, total tax revenues would be the same as they are under our current tax code. I believe his plan would indeed be static revenue neutral, and with the boost it would give to economic growth it would bring in even more revenue than expected."

     The trouble is that I don't agree it would have been static revenue neutral. If you suddenly hit the country as Cain wanted with effectively a 30% sales tax why would you assume that it wouldn't force many to cut back on their consumption? If it did then it would be less revenue neutral than it first appears.

      Newt's plan on the other hand shows absolutely no concern for his own party's obsession over deficits-perhaps Newt is a Dick Cheney conservative, as there is no sign in this plan that deficits matter at all; to be sure, what Dick Cheney meant was deficits don't matter only when there's a Republican President.

     Newt's plan is decidedly not neutral but actually raises the deficit by close to $1 trillion in 2014 alone. The beauty of Cain's is it takes the tax burden off the wealthy by placing it square on the shoulders of the non-rich. The beauty of Newt's plan is it takes the burden of the rich and doesn't seem to place it on the non-rich but rather simply allows it to explode the deficit.

     However under a President Gingrich the hit on the non-rich would come when he got to put through a proposal to the Republican Congress to make up for the huge deficits his own tax plan caused by "paying for it" by cutting government spending for the amount.  Tough choice for Mr. Laffler.



Reading FDR

      I'm currently reading a very good biography on FDR by Ted Morgan. I've been on an FDR jaunt lately, having already read a few anti-FDR books-for me you must always listen to detractors too.

      As we are currently going through the worst economic downturn since the Great Depression, many liberals who are disappointed in Obama wonder why we can't have an FDR today.

       I do think this can be a little misleading. To an extent great Presidents in US history were also made by their time-from a liberal stand point I would argue that the two greatest Presidents were FDR and Lincoln. Both men had many superior qualities but the age made them as well before they remade their age. FDR resided in a more progressive age, though he was progressive by instinct and temperament. He deserves personal credit but we must also remember context. At the present we are still living in what in what has been called the Jiimmy Carter era of "policy in the age of limits."

     Or as Gary Wills puts it-thinking of the election of Nixon in 1968-one should never expect the President to be much better than the people. If you aren't happy with Obama you have to look at the age. I myself think in this context he is a good President. I also think there is some reason to hope that the Jimmy Carter era is running out of steam.

      Morgan's book is long, I'm on page 356 and don't seem to be half way through yet though it is so good I can't put it down.

      At present I'm at the point where he finally one the Democratic party nomination in 1932. This was no easy feat, as back then the Democrats had nomination process that Mencken referred to as a "quadrennial firing squad."

     To nail down your nomination for Democratic Presidential nominee back then you had to secure two thirds of delegation votes; note not just two thirds of the votes between you and your nearest competitors but of all the candidates even those without a prayer of winning.

    This lead to a process that was extremely monotonous and time consuming and also often led to the best candidate who had the best chance of winning and clearly was the majority favorite of the party voters to get knocked off.

    This unfortunate convention was largely about pleasing the South and giving it a kind of veto over any candidate it didn't approve of. This certainly didn't help the party during it's long excursion in the wilderness as the minority party-in the post civil war, pre Depression era, the party elected only 2 out of 14 Presidents.

     In the book you get a good understanding of FDR's background and formative years. While he may seem a cad, it should be kept in mind that Eleanor had after bearing six children for him decided that enough was enough and abstained from further sexual relations.

     While it's understandable she felt six was enough she unfortunately was old fashioned and prudish enough to refuse to even consider birth control. As FDR's own children felt, as she was denying him physical and emotional intimacy it's hard to begrudge him getting it elsewhere. In a sense he did marry his mother, as his mother Sara, had eschewed sexual relations with his dad after his birth. For Sara, FDR's birth was like the Virgin Mary's giving birth. She saw FDR as her life's creation and wanted no further kids.

    FDR of course was from the patrician class; his background is as close as you get in America to a genuine aristocracy. Yet while he was from a highly privileged class-here we will define aristocracy as someone whose family background doesn't require anyone in the family to have to work for a living-he had to nevertheless in his own way rise above this and rebel.

   His family history was of patricians who didn't associate with the common stock and saw political engagement as sullying. FDR had to overcome this negative history and recreate a more positive, virile family history, going through his spin cycle, the Roosevelt family history became "virile."(Whereas in reality, the original history was rather unvirile, narrow, provincal and publicly disinterested. While his own father, James Roosevelt, spent his life in idleness where hs main activity was spa treatment to fix imaginary illnesses, FDR finally found the specimen of the virile Roosevelt in his cousin Teddy.

   Describing him as aristocratic is not hyperbole-Eleanor was literally his cousin, the niece of Teddy; to be sure she was his fifth cousin removed, but it does recall the old incestuous aristocratic families of Europe.

   In this time where we face the worst economic crisis since his time, FDR is more worth remembering than ever. Even now the conservatives are tyring to revise history-as I've suggested recently, the monetarists, including the market monetarists, are part of this revision.

   I find their work interesting but am also not blind to the fact that their goal is to convince us that fiscal policy has no part to play in an economic crisis. This is false and needs to be clear. Reading FDR is a good place to start.


The GOP Primary: A Traffic Accident

      Yet you can't avert your eyes. I mean what's next? In Iowa we suddenly have a new candidate who "is not Mitt Romney", Rick Santorium whose numbers are suddenly in double digits. Ron Paul has been leading here for the last few weeks.

      Meanwhile, the Gingrich surge we saw just two weeks ago, seems like another lifetime. Since then he has dropped 19 points in Iowa and has a new public humiliation-at least on the level of when his campaign quit on him last summer or when he and Santorium were the only ones to agree to the Trump debate-he failed to get on the Virginia ballot. Yeah this guy is a serious candidate all right.

     Now we have the story of Michelle Bachman's major campaign leader and Iowa state senator, Ken Sorenson jilting her for Ron Paul, who some now call "a dangerous man."

     Honestly, this canard about Paul being a dangerous man is embarrassing. Or more to the point, if I wanted to discredit someone I wouldn't call them "dangerous" as it might strike someone that right now precisely what we need is someone "dangerous."

     There is also another what I will "canard" that Paul's foreign policy is his achilles heel. Not necessarily. Anyone who doesn't know that Paul's anti-interventionist foreign policy line doesn't play anywhere doesn't get out much.

     If Fireodoglake were the whole electorate he'd win in a landslide. Mind you these are liberals but they don't believe anything Paul has ever said except that he's opposed to the U.S. getting involved in endless "foreign dalliances."

    When he prophecies a coming "race war" or that he wants to eliminate the Education Department, and that Social Security is unconstitutional, he's just fooling.

   What is clear if that there is a sizable number of liberals and independents who find his foreign policy line attractive. If it's an Achilles heel it's the question of how many of the Republican voters will be put off as the GOP is supposed to be the party of "hawks."

   Still Paul's numbers in Iowa, and Ken Sorenson's defection might suggest that it will not put off all Republicans and may even win over some. After all Pat Buchanan has long argued for the party to return to its older "isolationist" roots.

   Then too, Sorenson's abandoning Bachman might just be the reality that her campaign has no traction and as other former Bachman supporters look for a new home, they may well follow Sorenson's example. This could be a significant shot in the arm for Paul.

    Ultimately Paul is very unlikely. The irony is that while most of his platform is ultra conservative his foreign policy likely will make him a nonstarter-the entire GOP establishment will do everything to block him. Ironically with him being so conservative on most issues, he might fare better if he could only make it to a general election.

    With the GOP so focused on him in Iowa, it's actually giving Romney another pass. In reality Paul is still a niche candidate who you have to really doubt can win the nomination. Yet with all Romney's rivals attacking Paul in Iowa he again is unscathed.

    Romney has been called the weakest front runner in memory. He is, and clearly the conservative voters are not excited about him and would choose someone else, almost anybody else. However every time that "someone else" comes they have a few good weeks then they burn out. Gingrich is the latest example of this.

   Overall it's a traffic accident, but a very entertaining one. All we need next is some circus music.


Wednesday, December 28, 2011

Obama's Approval Numbers Rise: Is It the Economy?

     So asks a CNBC post. Maybe the somewhat improving economy has helped.

      I also think what is helping him is similar to what helped Bill Clitnion during the impeachment fiasco during the 90s-he is simply a lot more likable than his enemies.

     Maybe his numbers going up are simply Americans having seeing the alternative of what they could have with the GOP candidates-more vicious budget cuts, no stimulus for the economy other than supply side tax cuts and the absurd idea that we currently suffer from over regulation and uncertainty.

    I mean the Republicans aren't exactly giving us much to choose from this year. Rick Perry who was as is par for the course in this primary and early leader but then a dud, someone who suggested a deeply regressive tax cuts. is a religious fundamentalist, and shows a woeful lack of knowledge about the government he wants to put an ax to.
   We had Herman Cain, who gave us the most absurdly regressive tax proposal in the modern era, that would cut the taxes dramatically by the wealthy and pay it back by equally draconian tax hikes on non wealthy Americans-guess he feels that's what we deserve-after all it was he who claimed that if you aren't rich it's your fault.

    In addition Mr. Cain doesn't believe in civil liberties particularly for Muslims who is particularly fixated against, and played the typical GOP game of accusing liberals of playing the race card while playing it himself quite shamelessly. The of course there was his extremely sordid personal life-he has paid cash settlements to many women to stop them from bringing sexual harassment allegations against him, though it was a consensual affair of his that was his final death knell that while it torpedoed his candidacy, might make a great reality show.

    Then we had Newt who at one point was such a flake his own campaign quit and was paid 1.6 million in lobbying fees from Freddie Mac despite the Republican ideology that the financial crisis was all Fannie and Freddie's fault.

     Then we have the spectre where again the GOP shows that it does not mind tax hikes as long as they are not targeted at the wealthy as the House Republicans were set to allow the payroll tax holiday to expire before they realized just how badly they are damaging themselves.



Market Monetarism: Frontline of Revisionism?

     This whole question of market monetarism, NGDP targeting, etc. I have puzzled out. While the idea on it's face seems like it could do some good, some of the positions the market monetarists take in the "real economy" are not reassuring,

     I have recently read quite a bit of Lars Chistensen's Market Monetarist blog. In many ways he provides more of a systematic presentation of MM views than you find even at Sumner-evidently, while Sumner is perhaps the best well known, Christensen evidently coined the MM term.

    Yet it seems to me that many of the Right wing attempts at revisionism are applied too by the MMs. You have Sumner claiming,

    "Krugman has zero credibility on this issue, as he has an agenda and his past assertions about F&F have been shown to be factually inaccurate. I have always favored abolishing F&F, “privatization” does no good when our Congress is this corrupt. Maybe it would work in Denmark, not here."

    "The reason people like Krugman don’t understand what caused the crisis, is that they don’t know what the crisis is. The crisis is bailouts and recession, whereas Krugman thinks it’s the housing bubble. The housing bubble didn’t matter at all. What matters is taxpayer bailouts of the GSEs and FDIC."

      This attempt to revise history by the conservatives is being practiced by the market monetarists too. In some ways, as a Keynesian, market monetarism, or monetarism, period sounds much more palatable than say the Austrian school which tends to embrace deflationism. Yet it depends, unlike a recent piece by Lars, they don't deny the reality of bubbles and their importance.

      Monetarism is more like Keynesianism it might seem as it at least believes in monetary stimulus if not fiscal-in fact monetary stimulus is supposed to obviate the need to ever had fiscal stimulus-but it's interesting here too that Christensen insists that "monetary stimulus" is really badly named that what monetary policy is supposed to do is make the economy work like laissez faire demands it should. Whether or not this is a certain conceptual dissonance of monetarism to try to claim that aggressive monetary policy makes an economy more rather than less laissez faire, the fact is that it's been a very effective political weapon wielded against Keynesianism.



Signs of Life in Italy's Bond Market?

      Certainly don't want to get too out in front over this but today's Italian short term bond auction saw yields havled from what they fetched just a month ago.

      "Analysts warned market nerves could easily reignite and pointed to a tougher test on Thursday when Italy will sell up to 8.5 billion euros ($11.1 bln) of longer-term bonds, including three- and ten-year paper."

     "But the lowest six-month auction yield and strongest bid-to-cover ratio since September added to a sense that some of the tension around the countries now at the center of Europe's debt problems had eased for a moment."

     Perhaps the recent injections the ECB has put into European banks has helped for now.

     "Since then the ECB has flooded euro zone banks with almost 500 billion euros of longer-term liquidity and the Rome government has overcome internal opposition to a radical pension reform as part of Italy's third budget package since the summer."

      "Spain's six-month debt costs also more than halved to 2.4 percent at an auction on the eve of the ECB's bumper tender for three-year money on Dec. 21."

Sumner, Krugman and Credibility

      In his most recent post, Sumner claimed in the comments section that Krugman has "zero credibility" on the issue of Fannie and Freddie and their impact on the fianancial crisis.

      The reason for such a dismissal is because here Krugman has had an agenda. Ok, and Sumner thinks he has no agenda?

       No one has more of an agenda than him and is fellow market monetarists, which by the way is not a point against them. I mena why would you listen to someone who has no agenda? Such a fellow is not very interesting.

      But Sumner it seems to be is not always os cirumspect about what his agenda is. He wants to write not only for the Right but to the liberals as well, but is his agenda in the interest of the liberals?

      To the extent that he is any kind of monetarist the answer may be no, as monetarism is basically about trying to ensure that the government never intervenes on fiscal matters at least where this might help the nonrich.

      This last qualification-'at least not for the nonrich" is why someone like Sumner has good things to say about supply side policies. As I've made clear in previous posts, I'm not a "pure fiscalist" if that means that I deny monetary policy has any impact. But the extremes to what people like Sumner, Christensen, etc. think monetary policy can achieve seems to me almost science fiction.

      If a meteor hits the earth wiping out Europe and Asia, no amount of monetary policy-even level NGDP targeting is going to be at all helpful.

     To really figure out where Sumner is coming from I find it helpful to listen to the eager lover of all things austerity, Morgan Warstler. Listen to him explain the financial crisis:

     "the argument is that IF there was no assumption of bailout, FDIC, and GSE there wouldn’t have been sub-prime lending to deal with."

     "There is nothing wrong with requiring 20% down and forcing banks to sit on their loans rather than selling them off."

      "There is nothing wrong with 55% home ownership instead of 64%… in the same vein, we WANT lax land use regs that push housing costs down, we want more renters, we want people to not view home ownership as a short or mid term investment."

      Yeah, the GSEs and FDIC-FDIC caused there to be subprime lending??!-caused the crisis.

       Here he explains Sumner's agenda for him. I had pointed this out to him:

        “If NGDP is the road map to making the public unions eat it and putting us all on the South Carolina Model then you should be making this case to Paul Ryan, Eric Cantor, and Boehner not “liberal softies” like us.” However, Morgan explains it for us:

       "Scott KNOWS this argument, he WANTS to first win your side over… he thinks it is good strategy."

       So the point is to somehow convince us liberals that "public unions have to eat it", the minimum wage should be eliminated, etc. Still Morgan reveals that NGDP is but one road to success:

        "in fact we could do without level targeted NGDP with something like a Balanced Budget Amendment."

        So NGDP is just another path toward achieving a balanced budget amendment? Well, Morgan, it should be obvious to you why Scott prefers NGDP to directly demanding BBA-as you said above it's his goal to win us over first. No liberal is going to be won over by BBA but NGDP could do the trick. In any case I like Morgan as he is the first to tell you what GOP strategy really is. Scott on the other hand will work to seem non-partisan or at least a little above such squabbles.

       I have no problem that Sumner has an agenda, but if he is trying to win us over we better be clear that this agenda is not Morgan's.

       For an idea of Morgan's agenda check out his website-it is heavy on Christianity, though for him Christianity seems to mean an austere, indifferent government for the plight of the nonrich.



Tuesday, December 27, 2011

The Agenda of Scott Sumner's NGDP

     Morgan Warstler took it upon himself to answer this for Scott the other day. Sumner has not commented on Morgan-a resident Right wing knuckle dragger over at The Money Illusion. But if Morgan means to help Scott, he should maybe just be quiet. Here is his attempt at helping Sumner explain his position.

    "Remember this, liberal softies, Scott’s real agenda is JUST AS BRUTAL on public employees as I am."

    "Under a level target (4% is much preferable to 4.5%), every time the government deficits spends, that creates calorie-less NGDP growth, and the FED swoops in a raises rates on the real private sector business economy."

    "Under Scott, every single year is Bill Clinton buckling to Alana Greenspan in 1993."

     I sent a comment to Morgan wondering how much he is really helping Scott. He answered me thus:

    "I want you to understand that level targeted NGDP is antithetical to progressive factions but it is not antithetical to progressive ideals."

    "Meaning, level target NGDP forces the govt. to become as productive as the private sector. That means public employee unions eat it."

     "BUT, when public employees eat it, we do get end user citizens (read poor people) MORE FREE STUFF… because some of the money not spent on public employees goes where it is supposed to go."

      Say this for Morgan-he is not shy about giving it to you.

      "Sax, I advocate a Guaranteed Income system that auctions the unemployed in $1 per hour auctions… I talk about it quite a bit here, Scott supports that…"

       I'd love to see the chapter and verse where Scott supports bringing back slave auctions. As I point out to Morgan though:

       "What’s ironic is you’re telling me and the other liberals that this is inimical to our ideals-maybe not smart, but I guess you feel you’re a straight shooter. I know you qualify between “progressive ideals” and “progressive factions.”

        "Yet clearly you have failed to convince your own GOPers about what you’re telling me. If NGDP is the road map to making the public unions eat it and putting us all on the South Carolina Model then you should be making this case to Paul Ryan, Eric Cantor, and Boehner not “liberal softies” like us."

      I wonder if Sumner wants to make Morgan his public liaison? The one thing Sumner has said that might seem to controvert Morgan is he claims to be against austerity-though what this means is unclear. He does say he's for monetary stimulus-though Lars Christensen says that "monetary stimulus" is really the wrong name for what market monetarists want. They want to take away disequilbrium which according to them is caused by monetary policy-but he qualifies this by saying 'monetary stimulus the only stimulus that works."

    So Morgan's characterizations while seemingly "extreme" may well be on the nose. I would take it as being forewarned. I don't say NGDP is not an intriguing idea but clearly the Market Monetarists are doing everything to let us Keynesians know "let the buyer beware."




Monetarism vs. Fiscalism Redux

      After writing my last piece, I read a little more from Lars and in his post "Monetary Policy Can't Solve All Problems" he elaborates a little on this.

       When he says: "The professor has now introduced the AD-AS model (and the dynamic AD-AS model). Since AD is just (1)’ the professor has not started to talk about fiscal policy (what multiplier??). In his head the AD curve can be shifted by shocks to M or V, but that has nothing to do with fiscal policy. In “his” AD-AS model fiscal policy does really not exist, as it is basically a micro phenomenon – fiscal policy might have an impact on relative prices, but it has no impact on the PY aggregate and fiscal policy might impact the supply side of the economy, but not the AD-curve? No, of course not."

       This sounds sort of like monetary policy can solve all problems.  But in his monetary can't solve all problems he does clarify that:

       "You say that when you have a hammer everything looks like a nail. Reading the Market Monetarist blogs including my own one could easing come to the conclusion that we are the “hammer boys” that scream at any problem out there “NGDP targeting will fix it!” However, nothing can be further from the truth."

       According to Lars, monetary policy is not even a stimulus in the Keynesian sense.

       "Unlike Keynesians Market Monetarists do think that monetary policy should be used to “solve” some problems with “market failure”. Rather we believe that monetary policy should avoid creating problems on it own. That is why we want central banks to follow a clearly defined policy rule and as we think recessions as well as bad inflation/deflation (primarily) are results of misguided monetary policies rather than of market failures we don’t think of monetary policy as a hammer."

     So monetary policy is meant to take out any disequilbrium caused by monetary policy. I appreciate that he admits that monetary policy doesn't cause all problems, but still think he may ascribe too much power to it. To claim at he does in the title of another piece, "Scott is Right: Recessions are always and Everywhere a Monetary Phenomenon" certainly seems to me to be taking it too far. What this all seems to mean to me is that the Market Monetarists are libertarians who subscribe to Laissez-Faire.

    It seems to others-whether pro-interventionist Keynesians or anti-interventionist conservatives-that monetarists advocate government intervention themselves. However it seems that their premise is that monetary policy is meant to take out disequilibriums caused by monetary policy's own sins. In principle they would prefer Laissez-Faire-according to Sumner the 20s were a golden age that  only the Fed's mishandling of monetary policy caused it to end in Depression. Sumner has gone as far as claiming that if Benjamin Strong hadn't died there would have been no Depression-a premise just a little too facile.

  Essentially the original sin was the rise of the modern Fed-prior to that presumably monetary policy worked "automatically" which is the way the market is supposed to work according to libertarian theory. If recessions were always a monetary phenomenon that would mean that with the right monetary policy-NGDP-we'd never have a recession.

  Sounds like the Garden of Eden before the fall.


Kim Kardashian: Man, There's a Lot of Haters Out There

     I find the treatment of the Kardashians, Kim Kardashian particularly, pretty interesting. There is so much hate and bitterness towards her. As so many seem to want to insult her and denigrate her as much as possible, I see it as a sociological phenomenon.

     As the feminist Nancy Friday once said, women don't wish other women well. Recently there was a piece in the Enquirer where Oprah Winfrey was censoring Kardashian for visiting Haiti in support of the victims of the earthquake.

    Oprah was sure that it was just to repair her image that has been hurt by her very short marriage to Kris Humphries.

    I'm not in her head and don't know her motivations. I mean I don't necessarily think even if Oprah's right that makes her a horrible person. I guess what I don't get is why her marriage to Humphries gets people's knickers in such a twist to begin with.

    Her marriage was a bust, maybe she was wrong, but why would that make you angry at her? If she made a mistake it hurts her, yet many in the public seem to feel she has affronted them and now must pay penance.

     There are a number of different aspects of this hating on Kim thing. In part it is no doubt about a frustrated public who sees that the American Dream has become a nightmare where so many now live under reduced expectations.

     Maybe as it seems that there is little hope at a better life-as there once was, the American Dream only clearly was over with the recession of 2001-perhaps all that's left is the schadenfreude of seeing others fall. This can be understandable though I don't think it necessarily improves those who take their pleasure in this way.

     Having our moral fiber further degraded won't take back our society either. In the case of the Kardashians though I think it's pretty misdirected. If Eric Cantor slips on a banana peel I'll be laughing right along with the best of them. But I take no pleasure in seeing Kim Kardashian publicly humiliated.

    Here I even have the opportunity to quote Nietzsche, who said roughly, that we are all innocent, but women are doubly so, who can have oil and kindness enough for them? Ironic-he has a reputation of being a woman hater, yet I am able to go to him for this...

    I'm gonna give her a pass and I would urge you to consider doing the same. To give you and idea of the kind of bile out about her consider just a few representative comments:

   "For the lips of adulterous women drip honey and her speech is smoother than oil; but in the end she is bitter as gall, sharp as a double-edge sword. Proverbs 5:3-4"

   This quote is from "Justin" a self righteous male. I wonder if he's ever been unfaithful? On average 65 percent of married men cheat. Yet he's worried about adulterous women.

    Another self righteous guy is Juan:
     "What a fame/money whore.he has no talent. Her and her whole family, I mean getting famous off a stupid sex tape? That’s why she’s way too cocky. She’s a slightly over weight porn star. Now Humphries is going to go on his merry way and be successful continuing his basketball career, and the Kardashian bitch is going to be left in the dust like the pathetic thing she is. No typo."

      So yeah we want her to suffer, we want to torture her while he's on the side of angels.

      Still most of the nasty comments are from women, like Nicole:

     "She is a money hungry pig who will sell her very own personal time and honeymoon on a fake ass wedding that is tearing apart this little boy she married and he doesn’t know she is evil. Her first and only priority is money and making sure she is in the spotlight, regardless who is in the way or feelings that she may hurt along the way."

      Still don't get it. I do like her show and will continue to watch as long as it's on the air. I hope that she has reservoirs of strength to deal with people who have nothing better to do. Obviously these are people who despite what they say watch the show themselves.



Monday, December 26, 2011

US Economy Not Beyond Hope

     Which is more than we can say for Europe which is beyond hope unless Angela Merkel and Mario Draghii each get a lobotomy. As it is Germany is determined to bite the nose of Greece to spite it's own face.

     In the US we have seen unemployment claims coming down along with the unemployment rate with signs that even the housing market may have bottomed. With the congressional Republicans to to finally letting a few hostage goes without even more ransom money there would seem to be some reason for optimism.

     The negative to this is that while we saw unemployment claims reach to the lowest level since 2008-to the territory needed to see the unemployment rate come down, the question remains how much of this is rather people falling out of the labor market rather than finding a place back in it.

      Still it is not hopeless. Which is more than you can say for Europe-there the reason for hope is much slighter. Germany certainly has a great plan-everyone should run a budget surplus and a trade surplus. Problem solved.

       Not that it's in itself adequate comfort but whatever you think of the US right now, we're in better shape than Britain and whatever you say about Britain right now, it's in better shape than Europe. It has been said that the one eyed man is king. (The irony is that despite the GOP's tactics, the US is where austerity hasn't happened on the level of Europe or even the dimwitted Cameron led British.)

       But even if we get to be king does that make up for having only one eye?

Hope You had a Good Christmas-I have Redirect Issues

     I should add if your Jewish hope you had a good  Hanukkah-though Hanukkah is still going on I've learnt-this year it falls on our calender from the 20th to the 28th-it is different every year on our calendar but is on the same dates on the Hebrew calender.

     I had a great weekend for sports-the Giants beat the big talking Jets, 29-14-yes Rex guess you were wrong-and the Knicks beat the Celtics for the first game of the new NBA season 106-104. There are few sweeter things as a Giants fan than beating the Jets-only thing sweeter is beating the Cowboys which we did a few weeks ago but need to do one more time this Sunday; beating them for the NFC East title will be even sweeter!-and as a Knicks fan there is almost nothing sweeter than beating the Celtics-I guess the only thing would be an NBA title for the first time since 1973.

     I got to spend time with my brother and his wife-she is now very pregnant and will be giving birth to a daughter-my first niece-in late January. Have no kids of my own-though who knows what the future might bring?-so this is kind of exciting for me as well.

     Unfortunately I got an issue with a virus. Makes me wonder if Andrew Breitbart has something to do with it-LOL. When I try to go to a lot of websites I get redirected. Not all websites does this happen with but with many. Some if I put directly in my browser work, some even there redirect me. Also when I try to quote from the Market Monetarist, Internet Explorer right away shuts down a restarts.

    I've scanned my computer many times with my two anti virus programs, Avast and Malwarebytes, but the problem is persisting. I also did system restore which I now see can even make things worse as it can bring back viruses that were knocked off.

    I also have heard the idea that uninstalling Internet Explorerer and reinstalling it can work. Hopefully I'll stumble on to the cure as this is cramping my style Anyone got any ideas?

Sunday, December 25, 2011

Rex Ryan Fails to Put Money Where Mouth is.

     All week nothing could dissuade him from going on and on. This game is a big deal he said, and the Jets are going to win it.

      When people suggested he should talk less and let the game speak for itself he said, "That's your opinion. My opinion is what counts to me."

       Now it is once again clear his opinion doesn't mean much as the Giants whipped the Jets yesterday 29-14. What is it about the Jets? It seems to be a characteristic of the franchise that they always have to talk a huge game. They don't agree with Teddy Roosevelt, they don't speak softly and too often carry a tiny stick.

       We have :Broadway Joe" Namath guaranteeing Super Bowl III for the Jets only Super Bowl. Since Rex has come to New York, it's as if it's necessary for him to guarantee every game as if this is the only way his team can get up for important games.

       Like Monk would say, "it's a blessing-and a curse", assuming it's a blessing at all. As a Giants fan of course it was very gratifying. Still Brandon Jacobs had the best line of the week in answer to Rex's claim that after the Jets win they would no longer be the second team in NY-Jacobs answered it will take a lot more than that.

      There's truth in that-the trouble is the Jets have a record of futility. They have not made another Super Bowl since Super Bowl III. Meanwhile the Giants have made 4 super bowls winning 3 of them since 1986. Yet Rex believes that beating the Giants in one single regular season game would equalize them?

       The trouble with the Jets is they have a second team complex. I spoke to a Jets fan a few weeks ago and he kept bringing up the Giants game-can't wait to talk to him again...-and he started talking about 1988, that was a year that the Jets beat the Giants 27-21 in the final game of the season effectively knocking them out of the playoffs.

       That's the whole problem with his mindset I pointed out to him. His high points are not super bowl victories like for me with the Giants, but a season the Jets were able to ruin the Giants season one single year, while themselves missing the playoffs. The Jets by that game had already been eliminated from contention-and this was a great season for him?

       He also had the impression that the Jets have the Giants number. Nope. They did get the better of the Giants in that one game, but the very next year the G-Men were 12-4, the Jets were 4-12, and the next year after that-1990-the Giants won their second super bowl.

      It's true the Jets did win again in 1993, though this game did not turn out to be very important as the Jets missed the playoffs and the Giants did make it. However, with yesterday's win that's now 5 straight for the Big Blue, the Jets haven't won since 1993.


Saturday, December 24, 2011

Monetarism vs. Fiscalism

    This debate which is always out there has smoldered more to the surface lately with the Market Monetarists' visceral reaction to Stiglitz's Vanity Fair piece. It seems that there are three basic positions: you can say that fiscal policy is irrelevant and using it to fight a recession only distorts things as it is usurping the job of monetary policy.

   The opposite extreme "fiscalist" view that monetary policy has little relevancy in fighting a recession-this is what many of the MM school thought Stiglitz said anyway. Then there is the view that neither are irrelevant and that both have some level of impact. This view can be seen in people like Krugman and Eggertsson.

    It might seem that the "intermediate" school would have something to say to the monetarist school, but the monetarists see it as a kind of "crowding out"; if you try to fight a recession by both a fiscal stimulus and effective monetary policy the one cancels out the other.

    Lars Christensen over at the Market Monetarist gave the monetarist view of fiscal stimulus-for Lars it's essentially illusionary. Lars gives this view in an allegory of an economics professor who teaches that macroeconomics is the same thing as microeconomics but with NGDP added to it:

    "The professor has now introduced the AD-AS model (and the dynamic AD-AS model). Since AD is just (1)’ the professor has not started to talk about fiscal policy (what multiplier??). In his head the AD curve can be shifted by shocks to M or V, but that has nothing to do with fiscal policy. In “his” AD-AS model fiscal policy does really not exist, as it is basically a micro phenomenon – fiscal policy might have an impact on relative prices, but it has no impact on the PY aggregate and fiscal policy might impact the supply side of the economy, but not the AD-curve? No, of course not."

    What's interesting is this seemed to me to be saying that monetary policy can fix all problems. Yet underneath this post he had written another one entitled, "No, Monetary Policy Can't Fix All Problems."

     Well I'm relieved to hear him say that. At least there are limits on dissonance. Though beneath this post he has another entitled "Scott is right: Recessions are always and everywhere a monetary phenomenon – just look at QRPI."

    If recessions are always and everywhere a monetary phenomenon that would seem to suggest that monetary policy can fix all problems.

    If Lars doesn't believe it can, I'm not sure Sumner would agree with that-any limit placed on monetary policy's abilities he doesn't take kindly too. Let's just be clear-it certainly can't. If a meteor hit the earth tomorrow and wiped out Europe and Asia-leaving the U.S. with both continents of the Americas, Africa, etc. in tact, we would have some economic problems-and others-that no manner of effective monetary policy-or even anything conventionally known as fiscal policy could fix. Actually the concern there would be that human civilization as we know it would be over and that we would soon all be back in the Iron Age.

   My point is that at some point the real economy has to make its appearance. It would be nice if everything could be solved by adjusting NGDP to the right level-but life is not that simple. This is not to say that monetary policy is powerless, but that like anything else human it is far from all-powerful. If monetary policy could fix all problems at least on the economic level it would be at least economically speaking, immortality.


Friday, December 23, 2011

Ron Paul Further Muddying the GOP Field

     As if they need this. Fact is this one is totally getting away from them, and it just keeps getting worse. The more the Republican establishment tries to stop the bleeding the worse it gets.

     Now as if things were not muddied enough and as if this primary season hasn't contained enough comic relief, we now have the tremendous specter of Ron Paul taking over the lead in Iowa.

     I presume it is canonical that the Republican establishment-the RNC, Karl Rove, and thinking Republican who actually has a clue about politics-wants Romney. He is, has been, and will always be their choice. He may still win-I still think he's probably better than an even chance to win. There are some signs that Newt's wave has already crested.

   Have no doubt, the party establishment did not want Cain, did not want Perry, and don't want Gingrich. But no doubt even worse for them now is the sudden surge of Ron Paul.

    Paul is an interesting phenomenon. His supporters tend to be very loyal, and many of his supporters are independents or Democrats though he has many in the party as well. The liberals that like him tend to forgive him everything in exchange for him criticizing U.S. military unilateralism. Because he has been very vocal about opposing Iraq and Afghanistan, etc. many other things he has been vocal are ignored. Like just how deeply he wants to cut federal spending and that to his mind Social Security and Medicare are simply "unconstitutional."

   Or his breast beating about a "coming race war." He certainly seems very preoccupied with race and if anything I think on this coming race war he greatly exaggerates it actually. American actually has had a great deal of racial healing in recent years-the election of the first African-American President was certainly one very important watershed. I tend to read Paul's overwrought prognostications as reflecting his own preoccupation with racial matters-I think he and those represents are far more preoccupied with race than today's average American.

   To be sure the followers that follow him here are conservatives and libertarians, not the liberals. They aren't drawn to his racial rhetoric or his promise to blow up the New Deal. They simply ignore it. It's as if they only believe what he says about Iraq-which is over now anyway. Then too some may like his rhetoric about "ending the Fed"-an idea that is on the wrong track in fact. What we need is not-mostly empty-talk of ending the Fed but of seriously reforming it, basically on the lines of a Barney Frank; we don't so much need to end it as its "independence" must be ended, ie, it must be made politically accountable.

   But liberals don't digest his comments on race and opposition to government spending. He means he is opposed to the U.S. military engaging in foreign intervention. He doesn't mean things like this:

   "S. African gold shares have rebounded nicely since Mandela was elected, which may be proof that he's playing ball with the Trilaterals."

    "It is an encouraging sign that the end of government as we know it may be near."

    "It's the domination of the country by Washington that is driving the militia & other heroic movements around the country."

    "Washington fears such movements, but even Republicans have no idea just how far behind they are in calling for fundamental reform."

   "Psychologically, people no longer feel themselves bound by its dictates. Bill Clinton has discredited the whole federal enterprise."!/RP_Newsletter

   That last one is a particularly interesting observation. He is still a long shot to win the primary-he is doing well in Iowa but isn't even on the map in other places. His win mostly will hurt the vanity of the Iowa caucus.

   But his rise means even more muddied waters for the GOP. And while he likely wont win the primary there may well be some GOP operatives who fear this remote possibility so much that they are focusing all their energy on this and losing sight of the real objective-the selection of Romney as the only viable candidate.


The Limits of Monetarism

     The more I read the monetarists-especially Scott Sumner-it begins clear to me that monetarism is something which does make some valuable insights but still you must be careful with as it's agenda never changes.

     This is why Sumner keeps writing snarky posts about Keynesianism. The hope of monetarism is always the same-that we will be weaned from the illusions of "fiscalism." For deep problems in an economy to always being due to nominal shocks is what Sumner wants us to drink.

    Therefore if we get monetary policy right there should be no problem-ever? To underscore how one sided this view is, Sumner once claimed that if Benjamin Strong had lived there would have been no Great Depression.

    And this is really the difference between monetarism and Keynesianism. Monetarism is committed to laissez faire. To an extent it weakens it's own position by saying that the Federal Reserve caused the Great Depression or caused the current Great Recession. After all that's already an admission that the government should have done more. For them we can be wholly Laissez Faire if only the Fed intervenes in the proper way. Are we to believe that no depressions or recessions are at all rooted in the real economy?

   It would be nice if life were this neat: just get the monetary policy right and everything else will fall into place. Unfortunately this is not the life we know. I remain of the opinion monetary policy is not irrelevant but I can't believe it's the whole ball of wax.

Gingrich Wants to Rein in Judicial Independence

     While the conservatives chafe at anything which might check "Fed independence"-read it Fed independence to serve the interests of banks rather than the American people-Newt Gingrich has a new idea that he calls "bringing the courts back under the Constitution."

     "These include calling judges before Congress to explain their decisions, impeaching judges or eliminating courts that consistently get the Constitution wrong, and limiting the applicability of Supreme Court decisions that distort the Constitution." (pg. A19, today's Wall Street Journal)

     These ideas have been criticized as violations of the Constitution's separation of powers. Of course the Wall Street Journal  editorial page is here to tell us that these criticisms are "overblown." What else is new. This is the function of the WSJ editorial page-to defend indefensible Republican positions. They are essentially  an organ of the GOP, it's Ministry of Information.

    Curt Levey who wrote the article-he is an attorney and director of the Committee for Justice-does a good job of using examples that sound more palatable. So he points out that Abraham Lincoln chose to ignore the Dred Scott decision.

   In his inaugural address Lincoln said, "in certain circumstances, the holdings of Supreme Court decisions should be limited to the litigants in a case, and not be held to apply as a general controlling standard."

   I have to hand it to Levey-that is brilliant on his part because it may well disarm some skeptical readers. After all, it is all well and good to speak of "courts that consistently get the Constitution wrong" but isn't that after all a subjective argument? There isn't the universal agreement on such a charge that we can't but suspect that what Levey and Gingrich are really after are court decisions they don't like-ie, liberal decisions that they will characterize as "judicial activism."

    But of course the Lincoln example is a great bait and switch as-while it's not the sort of recent case they have for decisions that get the Constitution-readers of a more liberal persuasion may come away less sure that it's such a bad idea.

    And there's the rub. If their goal is to have certain decisions-or eliminate certain lower courts-that make judgements unpalatable to conservative Republicans they may be hurting their cause even. Today this is hardly the Warren Court. The conservatives have a 5-4 lock that holds good on many important decisions-and may be their ace in the whole in overturning the individual mandate,

    In fact it's liberals who in recent times have had the most decisions to hate. There was the recent verdict that declared corporations are people and have the same legal rights-the free speech of an individual and the deep pockets of corporate lobbyists are one the same level.

   There was the recent defeat of the women's class action suit from Walmart where the Court neutered their suit by claiming it somehow couldn't be joint but each litigant by herself had to fill a brief locally, obviously largely shielding Walmart from any damages.

   There was the 2000 decision where the Court elevated George W. Bush to the presidency. This is the problem. I doubt any of these cases is what Newt and Levey have in mind when they speak of courts getting the Constitution wrong.

   One has to wonder if this would just lead to arbitrary decisions based on the peculiar ideology of a particular Congress or Executive. I guess what you can say for them is that if they're agenda is to tip the scales further in the direction of Right wing Republicans, they are not necessarily doing it at an opportune time. At this point the GOP has only the House, with a Democrat Senate and White House.

   You could argue that the Supreme Court is their one bulwark. Of course these new powers that Newt has in mind are not just directed against the SJC but other lower Federal courts. To be sure, at present 60 percent of all Federal judges are Republican appointees.

   The trouble is this: Levey argues that this wouldn't decrease judicial independence. I don't see how that can be so. Who exactly would get to decide a court decision was wrong and therefore should be ignored? Much less who would decide to eliminate a court? It may be that certain lower courts have displeased the conservatives and that's their target.

   Overall, Newt's first suggestion may be legitimate-calling judges before Congress. Everyone from the Fed Chairman to the highest ranked officers in the military speak before Congress and why not Supreme Court judges?

   However I don't see how Congress can abrogate the right to unilaterally deciding a court got a decision wrong or routinely gets it wrong and so certain judges are to be impeached and certain courts closed. That would seem to make the legislative branch too powerful relative to the judicial branch and indeed would abrogate its independence.


Thursday, December 22, 2011

Sophie Clarke's Home Town of Wilsoboro Celebrates Her Win

     I had a conversation with a very nice guy by the name of Bryan Elder. Turns out he went to school with Sophie, actually graduated from the same class of 2007.

     For the roster of their class please see

     What struck me is the glowing terms he spoke of her in. He is now an Occupy Wall Street supporter, but his memories of her are particularly of the time they were both on the drama club. He was bullied in school but in the drama club she helped him.

     He remembers that she would teach third world kids to read and was the valedictorian of her class. While he wasn''t close friends with her it's clear that she made a real impact on him. As she did on many of us in just one short season.

    As he puts it, "the whole town of Wilsboro has her back."

House GOP Falls off Limb They Went Out On

      Talk about overreaching. There sure is egg all over the collective faces of the Tea Party dominated House now.

      Turns out "my way or the high way" doesn't always work. The fact is that Obama had already given up quite a bit-he had to give up on the idea of increasing the amount of the payroll tax cut to 3.1% and he did give the Senate Republicans they're pound of flesh.

      But if you have to know where to hold em, you have to know when to say yes and finally the Tea Party has seen that the politics of "No" takes you only so far.

      After the huge Senate majority that oped for the 2 month extension, the House inexplicably tried to demand even more hostages. They next wanted to chop unemployment benefits back from a maximum of 99 weeks to only 56 weeks and continue the federal government pay freeze another year.

     In the end even many Republicans said enough is enough. Even the Wall Street Journal editorial page said enough is enough. They claimed that Obama was being set up as a tax cutter while supposedly raising taxes a bunch of times-that last part is a misnomer, he has actually cut many taxes, and what we are learning is the GOP only likes cutting taxes on the wealthy or as they put it "on the supply side", but they did admit that the House GOP was making itself look real bad.

    To claim that you are concerned about the famous "business uncertainty" while in fact making things a good deal more uncertain as most economic forecasters believe that failing to extend the cut risks up to half a percent of GDP next year was too much chutzpah even for the WSJ editorial page-saying a lot as they wrote the book on chutzpah, I mean when was the last time they failed to defend the latest Republican bad policy idea?

    What is important is the House Republicans now realize that there are limits to how much liberty you can take with the American people. This game of Operation Tank the Economy had seemed to be good politics. Turns out not as good as they thought.


Wednesday, December 21, 2011

Sophie Clarke Speaks to Me!

     Exciting, heady stuff to be sure. I sent her a twitter message and she answered it back. The content of the tweets. She had said in answer to another tweeter, "ask and you'll receive." So I said, ok. How about you answer a tweet from a big fan, Sophie.

      It was with considerable excitement that I saw she had tweeted me back. Her answer: a very concise no. Hey it may seem inauspicious. But as I pointed out to her in my reply, "No is still an answer."

     Well fine, Sophie. After all these very nice posts I have written about you

     And it's like that? I had even just this evening told a heckler on your facebook page who says that Coach deserved to win to shut up. For some reason I find myself now listening to The Car's "You Might Think."

     But hey, it's all good. And her reply to another tweet was even more unencouraging, "stephen go away!stop tweeting me so much. Is this some pathetic attempt 2 steal my fierce followers? I pity you." to big Survivor fan Stephen Fishbach.

    I'm still a big fan Sophie. You can't discourage that. Though I must say others who I was excited to talk to like Nick Rowe, George Selgin, or Scott Fullwiller are a lot more encouraging. Turns out economists are a lot more open than a beautful medical student who just one Survivor.

   Delong liked it when I mentioned Snooki in the same breath as Nick Rowe. Turns out Nick Rowe is a lot more approachable than Snooki. Who would have thunk it.

John Taylor: New GOP Adventures in Economic Sophistry

     Today in his editorial at the Wall Street Journal (pg. A19) Taylor outdid himself even on an editorial page renowned for economic sophistical arguments for whatever the latest Republican bad policy idea needs some intellectual hack to back up.

    So it is that Mr. Taylor is now arguing with a straight face that not only may the payroll tax holiday be doing little good, it is in fact doing great harm-by increasing the famous "business uncertainty." Now the GOP obstructionists in the House claim that extending it only 2 months increases uncertainty-it would seem that their holding it up is what is creating the uncertainty for economic forecasters but why should logic be allowed to interject?-but Taylor takes it further and claims that even for a year this is unacceptable uncertainty.

   So the payroll tax cut is actually slowing the recovery-after all the recovery did slow during the first half of the year and the tax cut was for this year, ergo, the tax cut caused the slowdown in the recovery. It had to have, as correlation always proves causation.

   Turns out economic analysis is easier than you thought? What caused the Asian Crisis in 1997? Bill Clinton caused it, as this was when the Monica Lewinsky scandal started, if he hadn't had an affair with her, there would have been no crisis. Must have been as correlation always proves causation. Why did the stock market collapse that on Black Monday, 1987? Because the Mets failed to repeat. After all correlation always proves causation .No need to prove it, no need to consider any other factors. And it goes without saying who caused the Japanese earthquakes: Obama. He was president and they happened; anyone who knows anything about Obama Derangement Syndrome (ODS) knows that's more than enough. Indeed the correlation equals causation thesis is believed by no one more than those who hate Obama whether on the Right or the Left.

  Speaking of correlation I mean we obviously should listen to Mr. Taylor as no one is a greater expert on how to create middle class prosperity than him. Take his famous Taylor Rule, thanks to which we enjoyed the Great Moderation.

  You remember the Great Moderation-the period that saw the great moderation of upward mobility and America's standard of living. Ok, he's less an expert on how to create middle class prospertiy than how to erode it but close enough.

Sumner and Caplan: Let the People Eat Wage Cuts

     Caplan argues that if the Keynesians knew what they really were about they would be demanding wage cuts. While Scott Sumner has long worried that the extravagant current minimum wage of $7.25 might endanger the recovery, some of Caplan's fellow Market Monetarists aren't so sure-Nick Rowe, Bill Woolsey.

     Woolsely gives this idea some rigorous analysis. He sees much virtue in this idea of a wage cut for America. Or at least Caplan's proposal has a sound macroeconomic foundation.

      "In my view, Caplan's macroeconomic understanding is sound. He is assuming that wages are sticky and prices are flexible. If nominal expenditure on output falls a given amount and then stays constant, prices of output fall immediately. But wages don't fall. This raises real wages, and the profit maximizing level of output falls. Given that lower level of output, the price level falls enough to sell this reduced level of output, but less than in proportion to the drop in nominal expenditure. With constant money wages and a lower price level, real wages have risen. The firms employ less labor in a way that is perfectly consistent with the lower production. It is basic micro-profit maximization."
      However there are some drawbacks:

      "The reduction in wages reduce costs and increases the surpluses in product markets. Firms would like to sell more, but because they cannot reduce prices, their actual sales and production remain at the lower depressed level."

      Not to worry:

      "Assuming the supply of labor has the usual positive slope, then once real wages are low enough, the quantity of labor supplied falls enough to match the lower quantity demanded. If the supply of labor is perfectly inelastic or worse, has a positive slope, then real wages would drop to zero. Of course, that is the region where Malthusian effects--starvation--will reduce population enough so that the quantity of labor supplied matches the demand. In other words, real wages turn perfectly elastic at subsistence in the long run."

    "However, there is another process at work that will tend to clear up the surplus of labor. As real wages fall, it becomes more profitable to utilize more labor intensive production methods. Even assuming output doesn't rise, it will become profitable to use more labor to produce it at lower real wages."

    "If the supply of labor is assumed to be perfectly inelastic, (workers need jobs,) then real wages fall to a level where the quantity of labor demanded matches quantity supplied. Less capital intensive production methods will be used. Labor productivity falls enough so that full employment of labor results from producing the demand-constrained level of output. (Hopefully, the market clears at wages higher than starvation levels.)"

     So at worst subsistence might bring supply back in with demand. Still, Woolsey is no pure libertarian! A true libertarian would never say anything so bleeding heart as "Hopefuly the market clears at wages higher than starvation levels."  A true libertarian wouldn't bat an eyelash as Caplan himself doesn't in asking Keynesians to admit that they should "never want wages to rise."

   Caplan doesn't blanch in speaking for his admiration of Singapore ability to deny Krugman and prove that it is possible to cut wages. Sure but they have an advantage-no elections.

   In American we do. And no GOPer, no matter how remorselessly cool to the needs of the average American, no matter how glacial in their libertarianism can forget that-today in the Wall Street Journalwe have John Taylor writing an editorial that goes as far as claiming that a big part of the supposed "uncertainty" that is interfering with the recovery is due to the uncertainty of having the temporary payroll tax cut. So the House GOP is doing God's Work! Letting the tax cut expire will increase growth!

   I'd love to see the campaign where a Republican-with someone like Caplan or Sumner as his adviser-declares that U.S. workers get way too much and need to have wage discipline imposed on them. He will do this by the first act after he is inaugurated-he will craft the bill to cut the minimum wage to-whatever level Scott Sumner would think it not extravagant, and will give the poor "some skin in the game."

   Cutting the minimum wage could help cut wages, though it would be no panacea-more discipline would be needed. Maybe giving federal workers and mandatory wage cut that keeps up with the cost of inflation every year-so maybe 2.5%; that's far higher than Bernanke and company would ever dream of letting the inflation rate get.

    There's a reason why Caplan won't see this. Singapore is a dictatorship and there's no election to worry about.


Strong Japanese Yen is America's Strength

     For years, liberals like James Gailbraith, Paul Krugman, and Dean Baker have told us that on the question of free trade, it is not trade a such that is the problem but that much of the problem is an overvalued dollar. Baker blamed in large part the U.S. Treasury for having what Hank Paulson used to call "the strong dollar policy" and which Larry Kudlow always hypes as "King Dollar."

    What we need is a weak dollar policy paradoxical as it sounds. Right now it appears we are getting sizable relief on the currency front. According to a front page article in today's Wall Street Journal Japanese automakers-the piece focuses particularly on Honda but the trend is true for its competitors as well-all have plans to increase capacity in U.S. plants.

    They plan to expend exports from the U.S. and hire more U.S. workers. The factors causing this is a combination of a strengthening Yen against the dollar-in 2007 the dollar traded at 120 yen in 2007 and was only 77.89 on Tuesday-as well as the recovery of the U.S. auto market after a historic downturn, exacerbated recently by the economic fallout from the Japanese earthquake-even now Japan is far from back to business as usual.

   According to John Mendel. executive vice president of sales for American Honda, "Every type of plant in North America is under some kind of expansion." pg. A2 This strategic shift if directly linked to the Yen. U.S. Honda is doubling capacity of a Civic plant in Greensboro, Indiana from 100,000 vehicles a year to 200,000 which will add 1,000 jobs.

   Add this to the fact that we are not Europe-or even as stupid as Britain, though we will be if we have another tea party election next year- and there is some reason for optimism.

Orwell's Republicans: More Uncertainty Makes You More Certain

     The latest piece of ideology from Republican La La Land-a world where presidential candidates Gingrich and Romney run against their own individual mandate and while eviscerating Fannie and Freddie, GOP darling Gingrich is the Freddie Mac extraordinaire who raised $1.6 million in lobbying fees-the GOP House has again obstructed the extension of Obama's payroll tax holiday despite the fact that most economists think this could markedly bring down GDP estimates for next year.

     Here is the delightful irony: while they claim they can't do a 2 month extension as this will somehow "introduce uncertainty" into the economy they are the ones making things uncertain.  The whole point of the 2 month extension was to reduce uncertainty as no one would have to worry about the clock running out in December and having the payroll tax cut suddenly expire.

    For economic forecasters this obviously has made things much more uncertain. Now they don't know whether it will be extended or not and are forced to make two tentative estimates-one if it is finally extended, one if it isn't.

   The idea that passing this bill would have led to uncertainty is yet another Republican Orwellian moment: the uncertainty of not knowing whether payroll taxes will rise in January makes us more certain. It's a wonder how anyone can vote Republican at all. The must be able to handle a very large heaping of dissonance, or Orwell's doublethink: two plus two must be five because we know it's really four.

    This may however explain why the Republican voters still can't settle on a candidate, with after Newt's surge, now Firedoglake's Ron Paul is on top in Iowa further muddying the water-more uncertainty...

    Meanwhile Norquist tells the GOP not to worry, letting the holiday expire is not a tax hike-after all it was passed as a temporary bill. True, though it was temporary to help with the recovery, as things are far from fully recovered yet there remains a need for it.

    Of course, Grover doesn't care if letting it expire hurts the economy. The pledge is to never raise taxes not to do whatever is necessary to help the economy.

   Yet in a sense Norquist is right-why should allowing a temporary payroll cut to expire be considered a tax hike? Technically he is correct though why did he think differently when the question was allowing the Bush tax cuts on the wealthy to expire which were also temporary and were supposed to expire this year?

   More Republican doublethink.

Tuesday, December 20, 2011

A Trip to CVS Leads to More Reflection on Taxation and Related Matters

     So just now I went to the store and purchased a couple of those great Arizona cans-just $.99 for a nice big can 23 fl. oz. But when the cashier was ringing me in he made a comment that got me to thinking about taxes, economics, stimulus, fiscal issues, etc.

     When he rang up my cans he was surprised to see that the price of each came to not $.99 but $1.08 each. I told him that this is nothing new. It's been that way for awhile. CVS and also 7-Eleven-ie, big franchises-always make you pay NY's sales tax of about 8.15 percent or so. Yet the small independent stores-around here you have some Spanish stores and also an independently owned gas station and they don't charge you the tax.

     "That's crazy!" he declared. And he's right. And I've fumed about that before as well. But I suddenly reflected on how disingenuous this makes so many of the various "supply side" fiscal arguments you hear.

      Currently I'm reading this book called "FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression" by Jim Powell-not surprisingly he's a senior fellow at the Cato Institute-or he was at the writing of the book, it was published in 2003-and editor of Laissez-Faire Books.

     The general premise of the book is that anything you do to help the average guy that is not in the wishes of various wealthy interests is of course counter productive. Minimum wage laws of course merely add to unemployment, as do unions, regulations, and taxes either on big business-thought they always claim it's small business they are worried about-or on wealthy individuals will only lead to more unemployment as investment will decrease and meanwhile tax revenue will go down not up.

    Anything you try to do to regulate the corporate interests or make the wealthy pay their fair share-in fairness many like Buffet and Gates say they want to pay their fair share-is going to depress investment and raise rather than lower unemployment.

    Certainly Powell himself employs all the classics of libertarian full card monty-where you keep chucking and jiving until the reader just gives up and doesn't know what to think.

     He claims that the SEC was a failure as the average S&P return in the 50s was no higher than the 20s-ergo it's pursuit of fraud didn't work! Such impressive lessons of economic Casusistry is an art, very well plaid full card monty.

     Yet this mundane anecdote I mentioned at the top is just the point. We're told that you can't stop the banks from hitting customers with new fees, and any time you try to take the cost off the little guy and onto those who can afford them even a little we here that incentive to invest will freeze up. Yet if little mom and pop stores can pick up the Ny sales tax why can't CVS and 7-Eleven. As we have the example of the little independents paying for it, we know that big chains can.

    For this reason all such supply side arguments must be examined very carefully. You can never practice too much caution.

Scott Sumner: Still Pounding Joseph Stiglitz

     Evidently Stiglitz hit a nerve with that Vanity Fair piece. Cause Sumner is still at it. What is it that Stiglitz has really done? According to Sumner he has put forward an "incoherent" theory. Nick Rowe as well seems to think he is guilty of "bad macroeconomics." Rowe charges him with committing the "lump of labor fallacy."

     On the other hand Sandwichman-if you haven't read him yet you should, and I will have more to say about him to in a later post, probably today-accuses those that accuse Stiglitz of this as using a fallacy themselves, that lump of labor fallacy is a fallacy in itself, largely because according to Sandwichman it's a straw man argument: it would be untrue to claim that there is a finite, exact amount of "work that needs doing" within an economy, but no one has made such a claim, including implicitly.

    It seems that Stiglitz may have offended the conventional wisdom of mainstream economists-in this broad sense this would even include New Keynesians like Krugman or Delong, though Stiglitz has more sympathy with them. They still accept the current standard economic models.

   For Sumner at least it's not hard to understand why he has issues with Stiglitz. Just listen to how his Vanity Fair piece begins:

  "Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago."

   Now obviously there is nothing you can say that would more fighting words for Scott Sumner, market monetarist and NGDP targeting advocate, extraordinaire than "forget monetary policy." As these are fighting words, Sumner's "bloody shirt" he has been on something of a crusade since the piece has hit. I've already written about his initial reaction.


   However, Sumner keeps throwing grenades. In another missive yesterday called "Don't Think We Don't See What's Going on Here" he writes a piece that was mostly devoted to criticizing the Fed for ignoring the dual mandate. He criticizes its exclusive focus on inflation and points out that there is nothing magical about 2% inflation. He quotes approvingly James Cole who says this:

   "The United States economy flourished from 1982 to 2007—industrial production, for example, doubled, while per capita rose by more than one-third—while inflation (as measured by the CPI) almost invariably ranged between 2 percent and 6 percent. That is not an ideology speaking, that is not a theoretical construct.  It is irrefutably the historical record.  If that is the historical record, why the current hysterical insistence that inflation of more than 2 percent is dangerous or even catastrophic?"

    As he also points out we are currently averaging considerably lower than 2% inflation during this recession. As he points out if unemployment is far lower than their target of full employment, while inflation is considerably lower than their-and Sumner argues this target may be too low anyway-2% target standing pat and only fighting deflation while but not actively seeking inflation-or as Sumner would put it "higher NGDP"-then they are blatantly not trying to fulfill their dual mandate.

   He then quotes notorious inflation hawk, Richard Fisher:

    "My colleague Sarah Bloom Raskin—one of the newest Fed governors, and a woman possessed with a disarming ability to speak in non-quadratic-equation English—recently used the example of the common kitchen sink to illustrate a point. I am going to purloin her metaphor for my description of our present predicament. You give a dinner party. The guests leave and you are washing the dishes. When you are done, you notice the remnants of the party are clogging the sink: bits of food, coffee grinds, a hair or two and the like. You have two choices. You can reach down and scoop up the gunk, a distinctly unpleasant task. Or you can turn the water on full blast, washing the gunk down the drain, providing immediate relief from both the eyesore and the distasteful job of handling the mess. You look over your shoulder to make sure your kids aren’t looking, and, voilĂ , you turn the faucet on full blast, washing your immediate troubles away."

    "From my standpoint, resorting to further monetary accommodation to clean out the sink, clogged by the flotsam and jetsam of a jolly, drunken fiscal and financial party that has gone on far too long, is the wrong path to follow. It may provide immediate relief but risks destroying the plumbing of the entire house."

   Sumner does point to the silver lining that Fisher is leaving in January. Up till now I am in nothing but full agreement with Sumner, but the he takes an interesting detour. Fischer's homespun analogy is ludicrous of course because when you think about it, taking that short cut on your dishes now and then is unlikely to destroy the plumbing of the "entire house" anyway.

   But Sumner goes on a detour here and again goes after Stiglitz.

   "Fisher’s speech produces two reactions.  First, how could he be so clueless about monetary policy.  But when you stand back and start to think about what it all means, a second question begins to emerge.  Why are such fools allowed on the FOMC?  How is it that the world’s greatest economic policy institution, the central bank that tends to set the tune for world aggregate demand, is managed by people who are so obviously incompetent?  Let’s see where we can connect the dots:

1.  Stiglitz develops a theory that unemployment is caused by rapid technological change, which makes workers redundant.  This in some mysterious way reduces aggregate demand.

2.  Stiglitz meets with Obama, to offer a Nobel Prize winner’s expert advice on our predicament.

3.  Christy Romer and Larry Summers are horrified to find Obama spouting theories that the unemployment problem isn’t lack of demand, rather it’s ATM machines stealing  jobs.  Christy Romer can’t convince Obama that the Fed still has ammunition.

4.  Obama never pays any serious attention to the Fed.  When the Dems had a filibuster-proof majority in the Senate, he fails to even nominate people for several positions for a period of 18 months.  Even today he is ignoring the problem, several seats remain empty.

     The following quotation is from Fisher, but it might just as well have been Stiglitz:
     My reluctance to support greater monetary accommodation has been based on efficacy: With businesses’ cash flow—driven by record high profits and bonus depreciation—at an all-time high, both absolutely and as a percentage of GDP; with every survey, including those of small businesses, indicating that access to capital is widely available and attractively priced;[6] with balance sheets having been amply reconfigured; and with bankers and nondepository financial institutions sitting on copious amounts of excess liquidity, I have argued that further accommodation was unlikely to motivate the private sector to put people back to work. It might even prove counterproductive should it give rise to fears the Fed is so hidebound by academic theory as to be blind to the practical consequences of harboring an ever-expanding balance sheet. This inevitably raises concerns we are creating distortions in the fixed income markets that inhibit proper market functioning, or concerns that—despite our protestations to the contrary—we are given to monetizing the government’s debt, an impulse that ultimately destroys a central bank’s credibility

     I have argued that other, nonmonetary factors are inhibiting the robust job creation we all seek.

     Monetary policy is one of those areas where the fringe right and the fringe left meet and shake hands.  And right now they are influential enough to prevent the Fed from doing what it knows needs to be done.  Not powerful enough to prevent all action—the Fed will prevent deflation, I have no doubt about that.  But powerful enough to prevent the Fed from fulfilling their dual mandate.  History will see all this very clearly, and judge the Fed harshly.  How ironic after Bernanke promised Milton Friedman that the Fed would never repeat the errors of the Great Depression.  How ironic after Bernanke eloquently spoke out against the passivity of the Bank of Japan (an institution that also cut rates to zero and did massive QE.)"

    Wow! I mean Sumner is really reaching here. Stiglitz bares no plausible resemblance to Fisher. Superficially it might seem that Fisher's quote, "I have argued that other, nonmonetary factors are inhibiting the robust job creation we all seek." but this is a real reach, an overreach.

    Stiglitz is not an inflation phobe. There is no shred of evidence that Stiglitz somehow nefariously influenced Obama to ignore the Fed. Indeed there is little evidence that Stiglitz has had any influence at all on the Obama Administration which is a pity.

    You can certainly argue that Obama should have considered appointing someone else to Bernanke's job rather than giving him another term. This surely has nothing to do with Stiglitz no matter how tangential a causation. To the contrary one major reason is that Bernnake is a close friend of Geithner's back during the time he was Ny Fed President and had opportunity to work with Bernanke closely.

   I agree with most all of Sumner's narrative until he tries to falsely equate an equivalence between Fisher and Stiglitz. Stiglitz has a record of opposing tight money by the Fed.

   I understand Stiglitz's seemingly dismissive comments about Fed policy are provocative. But trying to somehow use the straw man tactic of attacking Fisher then when you hit him, falsifying reports and calling the body Stiglitz is unworthy and makes me wonder about Sumner's good faith.