Thursday, May 31, 2012

Wheels Fall Off the Destroy John Edwards Bandwagon

       Really this is not a case I've been paying much attention to. I notice that Limbaugh has been typically obsessed which shows how petty he is. Just so he can enjoy schadenfreude over the misery of  a former Democratic heavyweight. It's not like Edwards is even in politics anymore.

        Today Rush was at it again whining that the jury sure has been out a long time-what could they be doing for nine days when of course the case is such a slam dunk. In reality it wasn't. The jury returned form it's deliberations and declared Edwards not guilty on campaign finance abuse and it was deadlocked on the other five counts.

         "Edwards expressed gratitude to his family — “including my precious Quinn,” the daughter he had with the mistress at the center of the charges — and thanked the jurors for their hard work. “Thank goodness that we live in a country that has the kind of system that we have,” he said.

Read more:

        That's true this is another case of the system working. Really what had Edwards actually done? This is again private stuff. It's a shame he cheated on his wife but really that's a family problem and it was an unbecoming and wasteful specter to make a man's private infidelities the subject of public trials. The government certainly has bigger fish to fry and it seems while they could go for a retrial no one is very excited about this prospect:

        "Edwards faces the possibility of another trial. But quickly after the mistrial was declared came indications from the government that he may well be off the hook."

        “It’s very unlikely that there will be a retrial,” a federal official told POLITICO Thursday evening.

         I admit there's  a little schadenfreude fore me in this for Limbaugh and the other Right wing haters who try to turn everything into Weinergate.

         Whether or not Edwards can ever get back into politics we do not know. But one way or the other hopefully he has learnt what's important through this. I wish him peace.

          While there's nothing admirable in cheating on your wife it's also a fact that 65% of married men do it. This doesn't make Edwards right but it shows he's not necessarily a moral monster. We should also remember the good things he stands for and genuinely cares about like youth in poverty. Hey I'd probably vote for him again though of course I'm an outlier on some things...

Bill Clinton to Campaign in Wisconsin for Barrett

      This is a good sign as it contradicts the GOP triumphalism you've been hearing a lot of lately. With Walker opening up as much as a seven point lead over recall challenger Tom Barrett (52-45) many Repugs have already been declaring victory.

      Rush Limbaugh was gloating that the only thing that can hurt Walker is Republican complacency. He also taunted that while Obama has no accomplishments to run on Walker does so he's winning because the people of Wisconsin know this.

       It's all a little overdone but then the GOP has never been known for modesty or restraint. The phrase 'give em an inch they take a mile" was coined by someone who had dealt with too many Republicans. Who can forget how much they have overreached since November 2010?

       "Two Democratic sources say Bill Clinton is heading to Wisconsin to support Tom Barrett ahead of Tuesday's recall election."

       "That Clinton would agree to go at this date may mean the race against Scott Walker is showing signs of being tighter than public polls have indicated."

        "And it is a big commitment by a major Democrat, at a time when others have kept a bit of distance."


           Look I know that if Walker does pull it out we'll barely be able to breath the air Limbaugh and company will stink up the air so bad with their farts but the fact is that it's interesting how victory is measured.

           Since Walker declared war on the public unions they had five GOP state senators put up for recall with two of them going down to defeat and now Walker is up for recall. Bear in mind that even getting him up for recall required hundreds of thousands of signatures.

           If anything you expect a recall to be an uphill battle. On balance even if Walker does pull it out it hasn't been easy. Of course he hasn't won yet.

           Even if he wins he may be leaving office soon which is why he's the first Governor with his own criminal defense fund.
           When you add the success already joined in recall efforts in Wisconsin and Ohio where Kasich's anti union bill itself was recalled it's pretty selective to call Walker managing to outlast Barrett a mandate for conservatism.

            The GOP never wins elections. Every time they win we hear it's a mandate. The people have spoken. They are Ronald Reagan conservatives and will never vote Democrat ever, ever again. Until the next time they do. So Reagan in 1980 was  a mandate as was Newt in 1994. Then the Tea Party in 2010. Now if Walker wins it will be another mandate.

             Really it's amazing it's so close when outside groups have poured in money from outside the state favoring Walker by 20 to 1. Like Mitt Romney once said: "Corporations are people my friend."

U.S. Bonds Again Set New Record Low

      Yet we go to watch these borrowing costs right? Can't do any costly stimulus right now.

       "The 10-year Treasury yield fell below 1.55 percent after disappointing jobless claims data and a weaker first quarter GDP reading spurred a new spree of flight-to-safety buying. Disappointing Chicago PMI was also a factor."

       "Rates had already fallen into record territory Wednesday on worries that European policy makers will not act swiftly or definitively enough to stop the spread of contagion from its sovereign debt crisis."

      "The latest concerns focus on Spain's troubled economy, its budget deficits and its weakened banking sector."

       "The 10-year Treasury yield, in an inverse move, fell through its September low of 1.671 percent as buyers rushed in to bonds Wednesday. The euro was slightly higher Thursday, but its recent trend has been lower against the dollar, which has become a magnet for funds seeking safe haven assets."

         “It all focuses the attention on the fact that there isn’t a cohesive plan to deal with institutions in Spain and in Europe that are experiencing deteriorating assets at the same time they are trying to deleverage their balance sheets,” said Zane Brown, Lord Abbett fixed income strategist.

          There was some noise from the EU to help Spain in some way:

          "European Commission officials Wednesday offered Spain more time to reduce its budget deficit and direct aid form a euro zone rescue fund so it can recapitalize its troubled banks."

           More time. There you go. Are they going to give Greece more time or is "their time up?" If it is Spain may not have much hope regardless. There was another idea that sounds like it could be some help:
          "The European Union also suggested a plan to help the financial system. The EU executive office said the 17 countries in the euro zone need a “banking union” that can oversee the system centrally and provide bailout assistance, if needed."

           No doubt Germany doesn't like it.  So while bonds are low, there's no reason to think they're near a bottom just yet.

US Economy: Mostly Downward Revisions

      It seems that every year follows this same script. Every year beginning with 2010 since the US recovery begun anyway. The US economy shows strong signs of recovery but by later second quarter there is worry that the recovery is stuck in neutral.

      To be sure so much of the problem as been driven by Europe. Hey let's face it-the US is the one who deserves the most to blame as far as getting us here. However now that we're here we've done a better job. Why that is are a few factors.

      One is that we have actually managed to dodge the austerity bullet in the US. Yes we have had some austerity but not the comprehensive level we've seen in the EU and UK.

      Another large reason is that the monetary structure of the EU is so problematic where the euro countries have given up monetary sovereignty to a a central bank that is way to ginger about being aggressive happy to remain proud of 2% of inflation never mind if the whole thing goes up in smoke. It may well do so. Citigroup for example sees the chances of a Greek exit at 50-75%. Other analysts have moved from talk of "possibility" to "probability."

      While some may think that a Greek departure could be "orderly" Goldman Sachs doesn't see the odds of an orderly departure that good

       "If Greece unilaterally quit the euro zone and reintroduced the drachma, euro zone GDP [cnbc explains] could be reduced by up to 2 percentage points, even if "substantial" counter-measures were taken by policymakers (May 28)."

       There seems to be a consensus that the euro could end up in a rough parity with the dollar-the number you get a lot is $1.10.  In a bad market-treacherous for any retail investor, maybe it's a good time to short the euro or go long the dollar.

        Now the bad US data:

        "Private employers created 133,000 jobs in May, payrolls processor ADP said. That was below economists' expectations for 148,000 jobs."

        "The report comes ahead of Friday's closely watched employment report for May, which is expected to show that nonfarm payrolls increased 150,000, up from a paltry 115,000 in April. Job creation accelerated between December and February as the economy got a boost from an unusually warm winter."

          Unemployment claims trickled up:

           "Initial claims for state unemployment [cnbc explains] benefits rose 10,000 to a seasonally adjusted 383,000, a Labor Department report showed. Claims have now risen in seven of the last eight weeks."

           "Separately, gross domestic product [cnbc explains] increased at a 1.9 percent annual rate in the first quarter, down from the 2.2 percent the Commerce Department had estimated last month. The economy grew at a 3.0 percent rate in the fourth quarter."
           "The report also showed that after-tax corporate profits dropped for the first time in three years last quarter."

            So now corporate profits are finally taking a hit. There were a few bright spots with regard to certain types of business investment and consumption numbers revised upwards.

            "On the positive side, business spending on equipment and software was revised up to show a much firmer 3.9 percent growth rate instead of the previously reported 1.7 percent."

            "Consumer spending grew at a 2.7 percent pace instead of the previously reported 2.9 percent. It was still an acceleration from the fourth-quarter's 2.1 percent pace."

             "Growth in the second quarter is currently estimated at a pace of about 2.5 percent."

             So in any case, if things go true to form then we should expect to see the economy come back later in the year. Usually we get a good start, we stall in late Spring and Summer, and then it comes back in the Fall. True things look bad right now with the apparently very real possibility that Greece could be leaving the euro and that major contagion will result.

             But things didn't look any better last year. And in some ways the fall out in Europe of course only makes our debt and banks look even better.



Fed Reserve Board Reflects Obama's Influence

       The story in a Wall Street Journal piece today is quite different from the criticism you often hear of Obama's record of Fed appointees. While Sumner and company make him sound very passive, this piece actually uses the A word-Obama's is an activist monetary policy!

     "With the swearing in of a seventh Federal Reserve board member, the panel is operating at full strength for the first time since 2006, amplifying the activist stamp of President Barack Obama.
Mr. Obama appointed six of the seven, including naming Fed Chairman Ben Bernanke to his second term. His picks for the central bank's board—and the demands of steering the economy from the brink of financial collapse—have pushed the Fed to adopt easy money policies to spur growth and to write new rules aimed at making the financial system safer. Fed governors also have prodded federal agencies and Congress to do more to help heal the housing market, sparking criticism that they have strayed beyond their mandate."

     "Mr. Bernanke on Wednesday swore in the board's seventh member, former Harvard economics professor Jeremy Stein. Mr. Obama nominated Mr. Stein, a Democrat, and Jerome Powell, a Republican former private-equity executive who was sworn in last week, to the Fed's board in late 2011. The Senate confirmed the bipartisan pair this month."

      So while some may think he's been unaggressive, the fact is this is the first time since 2006 the entire seven member board has been filled. Of course the other question is the quality of his appointments-what kind of imprint has his appointments put on monetary policy?

     Certainly my taste like many Keynesians and Monetarists these days wants an aggressive Fed as both schools see the problem chiefly as a demand shortfall.  It seems there is a case to make that the Obama Fed has been considerably more aggressive certainly at least as measured by appetite for unconventional Fed policy:

     "In early 2009, board members included skeptics of the Fed's large-scale efforts to support an economy reeling from the financial crisis. Just days after the Fed announced plans for a second round of bond-buying, Mr. Warsh warned in a Wall Street Journal editorial that the central bank's steps to stimulate the economy posed risks to the recovery."

     "With the arrival of Vice Chair Janet Yellen in October 2010 and Mr. Warsh's resignation in April 2011, the board tilted in favor of those more at ease with unconventional steps, such as large-scale bond buys, to reduce unemployment and stabilize the economy."

    "It's a subtle shift in a direction that is somewhat more comfortable with continuing an activist policy," said Stephen Oliner, a former senior adviser at the Fed and now a resident scholar at the American Enterprise Institute, a conservative think tank.

     Of course things like hawkishness or dovishness or boldness vs timidity are relative. It's true that it never quite seems like the Fed acts like Krugman's proverbial men with their hair on fire. But they may still be an improvement over the pre-Obama Fed.

     What we seem to have alas, is a Fed that won't allow deflation but not too much inflation either. During the Depression of course the Fed did allow deflation so it's an improvement. And the Fed looks great compared with say the ECB.




Wednesday, May 30, 2012

GOP Softening Anti-Tax Rhetoric?!

        Hope no one tells Uncle Grover. The GOP refused to bite on any "Grand Bargain" last Summer and Mitt Romney who dreams of being Panderer in Chief had at a GOP debate during the primary piously declared he would not take any deal with tax hikes even if it was weighted 10 to 1 in favor of spending cuts:

       "During the primary, Romney opposed using new revenue from closing so-called tax loopholes to pay down the debt and said he’d oppose a deficit deal even if the ratio of spending cuts to tax increases were 10:1."

       "Some Romney allies see things differently."

       “I’d take that deal,” Sen. Bob Corker (R-Tenn.) deadpanned last week.

        Read more:

         Really Bob? Where were you last Summer? Back then House Speaker Boehner during the day was Dr. No and at night he was working with the President.

           Of course ultimatley Cantor and company killed off any bargain Grand or less Grand.

          "Interviews with more than a dozen Senate Republicans show a growing openness to higher tax revenues to reach a so-called grand bargain on overhauling Medicare, other entitlements, discretionary spending and the Tax Code. On top of that, a small group of House GOP freshmen are balking at conservative activist Grover Norquist’s anti-tax pledge, while six Republican senators recently declined to sign a GOP letter calling for the immediate extension of the Bush-era tax cuts.
All of this points to shifting politics in the tax debate, as Democrats pummel the GOP for opposing tax hikes on millionaires and billionaires. Increasingly, Hill Republicans are signaling flexibility on taxes ahead of another major budget fight."

      “Nobody wants to raise taxes, but the question is can you lower tax rates, lower loopholes and deductions and apply that to debt reduction? I think the answer is yes,” said Sen. Lindsey Graham (R-S.C.). “If our position is every time you eliminated deductions and exemptions, all of it has to go to bring down rates, how do you pay off the debt?”

       Read more:

     Well gee wilikers. I mean yeah! That's what we've been asking you guys for a year and a half Senator.

      "Of course, there is no deal yet, and Republicans could well reject any proposal calling for higher taxes once it materializes. But with the national debt poised to top $16 trillion, Bush tax rates set to expire and $1.2 trillion in automatic spending cuts poised to take effect in 2013, many on the Hill believe that a major deal can’t be reached without GOP give on taxes."

      Read more:

      Again as I've suggested in the past, this year the Dems have the GOP over the barrel as we have a hostage we can shoot this time and the Republicans may not be able to-the Bush tax cuts.



Rush Limbaugh Tries to Deny GOP is Disenfranchising Voters

       Again,, here I am again doing David Brock's job. I know who listens to Rush so we don't have to but again he's at it. Maybe after reading the absurd ramblings of Major Freedom over at Money Illusion even Rush's absurd ramblings are a vacation.

      Rush was attacking Eric Holder for pointing out that the right to vote is under attack across the country this year. He's going and on that there is NO lack of access to voter's ballot box.

     He then kept demanding to know, "Who, who is trying to take away the votes of black people?!"  Of course as usual Rush never lets anyone in there who can answer him. He's got the most rigorous screening process known to man if the Secret Service had such a rigorous process Kennedy would still be alive.

    So the truth will never be allowed to peak out in the middle of a Rush Limbaugh broadcast. But the answer is mostly every state GOP across the country is trying to stop people from voting.

    Rush also tried to claim that the Democrats are hypocrites for criticizing using religion for political purposes as no one does this more than the Black Democratic churches.

    Oh really? Rush do you forget that crazy pastor that told people to whip their children if they acted gay? He told his congregation to vote.

    One more Rush foray into the way things aren't: he had a caller come on and say she thinks the Democrats are afraid of losing the Black vote after Obama went for gay marriage.

     Nice try dittoheads. The fact is that gay marriage hasn't made Blacks give up on Obama-to the contrary Obama is making them give up their homophobia about gay marriage.

Rush Limbaugh and Mitt Romney Miss the Point About Birther Trump

       Even though Media Matters for America listens to him so we don't have to, I wondered on to Rush today:

     From the planet "The Way Things Aren't" Limbaugh has been complaining that the media has been unfair about going after Romney about Trump going birther again.

      He's been making the point that Trump claims to have been "sandbagged" in his recent interview when he delved into his birther talk again.  He wondered why Trump even did a show like this as he must be smart enough to know this would happen. Hey Rush it's because Trump is a publicity whore.

       Limbaugh has seized on this. He's also pointing out that Trump has said that regarding his relationship with Romney he "advises" him on things like how China is cleaning our clock while Obama watches, etc.

      And he's repeated Romney's response that Trump is just a supporter-he can't control what he thinks on everything:

     "I don't agree with all the people who support me. And my guess is they don't all agree with everything I believe in," Romney said. "But I need to get 50.1 percent or more. And I'm appreciative to have the help of a lot of good people."

        This misses the point even when you add this:

         "While Romney briefly addressed the issue Monday, senior aide Eric Fehrnstrom declined to condemn Trump's remarks in a recent interview."

         "I can't speak for Donald Trump ... but I can tell you that Mitt Romney accepts that President Obama was born in the United States," Fehrnstrom said. "He doesn't view the place of his birth as an issue in this campaign."

         Again missing the point. If a KKK guy talked about how N-ers are the scum of the earth would you hang out publicly with him? What good does it do to say that Romney knows Obama was born in the US and hang out with a birther like Trump the two of them smiling for the birdy?

         Would he get his picture taken with a KKKer or Neo Nazi. I'd like to think not though come to think of it Romney is also buddies with Kris  Kobach-the GOP Secretary of State from Kansas who inspired the draconian immigration laws in places like Arizona. If you get into Kobach's background he at least knows some neo-nazis.

What's in a Macro Model? Sumner vs. Noahpinion

      Sumner had a post yesterday about models 'Dude, Where's Your Model?" He basically ridicules the importance some macro guys put on models as some sort of pointless personal idiosyncrasy and also implies that somehow it's a generational thing-it's somehow a bit childish to insist on models:

     "Whenever I get taunted about not having a “model,” I assume the commenter is probably younger than me, highly intelligent, but not particularly wise. I often disagree with Paul Krugman, but he’s right that simple, off-the-shelf models are all we need to evaluate aggregate demand problems. Supply-side issues are another story—they are much more complicated."

      My first reaction is why blame obsessiveness over models just on the young? Appeals to the older and wiser never endear one to me and I suspect that others feel this way too. I'm just saying that always strikes me as a big smug:

      'When you get to my age and maturity level you'll understand, young fella!'

       It hardly seems accurate either as many of the old guys are the most insistent on models-Lucas, Cochrane, and of course Stephen Williamson.

       However, if you examine Sumner's paragraph quoted above in its entirety you see he kind of gave himself an escape hatch when he says that supply side issues are different, "they're a lot more complicated."

    Talk about having your cake and eating it too. It's actually the supply side arguments that rely too much on models without any empirical verification. So when looking at say the Bush tax cuts, someone like Williamson will say of course they were stimulative as the models say they should be.

    Now add to this the fact that I-as I mentioned to Noahpinion in a follow up piece he did on Sumner- just an interested layperson who is never entirely sure what the whole fight over modeling and microfoundations is really all about  and you can see that Sumner's anti-model position can seem pretty seductive. After all why not just talk English?

     "To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to NGDPLT. There might be a superior target (indeed I suspect a nominal wage target would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design."

       "Models are toys to show our students. When we face serious real world dilemmas it’s time to put away the toys and get real . . . er, I’m mean get nominal."

         Now here's Noah's response.

         "Sumner essentially restates my big critique of modern macro: How do we know which model to use at any given time? There are a ton of macro models but no commonly accepted scientific standard for validating/rejecting them. So what we (the profession, the Econ Hive Mind, whatever) end up doing is choosing a model based on how plausible we think its assumptions are. We go with our intuition, gut feeling, or politics instead of data. Models are "stories", and we choose the story that sort of sounds the best."

        "But what should we do instead? Here is where Scott and I part ways. Scott basically says: Why constrain your story with math when you can just tell the story? And I say: Sure, but you're still just telling stories."

       "There are advantages to telling your stories in English instead of in Math. One is that you can be more flexible - you can add stuff to your story, or be ecumenical in your view of the world, without being worried about pesky internal contradictions. The other advantage is that you can explain your ideas to a wider class of people, who either don't understand Math or can't be bothered to read through it."

       "Of course, there are disadvantages as well. One is that you can't give quantitative predictions: If we deviate from NGDP Level Targeting by X%, how much will our incomes go down? And so forth. This problem can be solved by using simple "ad-hoc" or aggregate-only models, which are fairly easy for most people to grasp and can be modified without much effort. Then there's the second disadvantage of English storytelling, which is internal consistency. Formal models rely on their assumptions, but once you choose your assumptions, your conclusion is forced by the Math. With English storytelling, you can state conclusions that don't follow from your own assumptions, and often no one will be the wiser."

       See I think this is a real danger and Noah does a good job of showing the risks in "just speaking English"-again, the models are a foreign language to me; I get more that macro guys argue over them then why they are important a lot of the time. I find the arguments interesting-like when Noah had that John Farmer guy guest post with his model-I've decided that I think Farmer wrong incidentally, you should have disequilibrium as well as multi equilibria or at least there's no good reason why we shouldn't have disequilibrium; Farmer makes it clear he doesn't like disequilibrium but never makes the case why we should feel the same way-but in the end what's it all really about?

      A few weeks ago Sumner and I had a bit of an argument when he didn't like me arguing that a progressive consumption tax is a contradiction in terms.
    He got very impatient and asked why as I'm not a "public finance expert" I blog about "public finance issues." I found this a fairly condescending and uncharitable thing to say and suspected that I had frustrated him by questioning him-who am I the macro layperson to question the guy with all the macro degrees. For the background to all this please see
     Sumner and I did bury the hatchet-again the point is not that he's a terrible guy

      Since then though I've noticed that he has said things like "I suspect that most of my commentators are self-taught. So am I."

        Now this latest where he mocks models as toys all makes him sound anti-elitist. But while I think he was condescending the time we argued about "public fiance"-he's not condescending in that way typically, that was something of an unusual episode for him-there are other ways of being elitist and even a different kind of condescension.

       It's also elitist and condescending when you take advantage of the asymmetrical knowledge you do benefit from to make seductive but wrong or misleading arguments that nobody is the wiser to refute. I think Sumner much more typically does this than the first type of condescension-'I'm the expert don't question me', he doesn't do so much of that.

        What he does more of I think is what Noah describes where:

         "With English storytelling, you can state conclusions that don't follow from your own assumptions, and often no one will be the wiser."

          I think he does this quite often. How often I can't even say-as Noah points out this is where models help. As I lack this I don't always know for sure but I'm often suspicious. I have said more than once I think that Sumner is truly the Milton Friedman of our age-in good ways and bad. Remember  Friedman's money supply growth rule sounded just as plausible and intuitive as Sumner's NGDPT sounds to us now before they tried it as it was a disaster. And so now I begin to understand more the importance of models-that Noah if you follow him you see he consistently insists on this.

          Without models all we have are interesting stories. If economics is even a dismal science rather than merely "another story we tell ourselves about ourselves" as Richard Rorty would put it-Sumner is an admirer of Rorty-then it must be more than mere storytelling.

          I think part of why Noah is so sensitive to this point is his background in physics. Clearly he left for macro out of passion but he also brings to it a physicist's passion for rigor. To start with then for lay people like me we can say that a model is what makes economics about more than mere storytelling.


Tuesday, May 29, 2012

Cameron Defending Austerity

      Krugman lists three defenses for British austerity:

       "1. Austerity works! Look at our low, low rates!"

       "2. Austerity? What austerity?"

        "3. Anyway, America does it too."


          "So, on the first point: as Portes says, those low rates reflect pessimism about British economic prospects, not optimism about its creditworthiness."

           Actually I think the first point to make about this is that the low British rates belie that there is any need for austerity. The reality is that all countries that have their own printing press have historically low rates-the US, Britain, Japan, Canada, Switzerland, etc.

          As for defense #2 I have seen that a lot. Sumner is always pointing out the high deficits in Britain as proof there's been no austerity. That's fallacious of course as austerity brings down tax revenues which raises the deficit higher. Sumner has recently at least acknowledged the "sophisticated" Keynesian argument-like his argument that low interest rates indicate tight rather than loose money.

         Krugman points out that:

         "On the second, a couple of things to bear in mind. First, spending as a share of GDP tends to rise in an economic slump even without a change in policy, both because GDP is smaller and because safety-net programs kick in. As a result, UK spending as a percentage of GDP shot up between 2007 and 2009."

         "What about since then? I’m suspicious of the IMF numbers on potential output, which seem too pessimistic to me. But for what it’s worth, they say that the output gap — the degree to which Britain has been operating below potential — hasn’t changed much since 2009."

          As for the talk about the US-we are doing some austerity but not as much. Basically we've had austerity lite in the US-thanks to Obama we haven't had more. And for this reason we haven't dipped back into recession.


Austerity in Spain: Another Satisfied Customer

       Say this for Spain things are not only going bad but they are setting records for how bad they are getting. Like see Spain's retail sector:

       "Spain's economy showed fresh strain as retail sales fell at a record pace in April, showing the government's austerity program is strangling consumption and suggesting deepening recession."

        "Data Tuesday from the National Statistics Institute, or INE, showed seasonally adjusted retail sales fell 9.8% on the year in April, compared with a 3.8% drop in March. The decline was the sharpest since INE started collecting the data in January 2004. Household spending is dropping as unemployment approaches 25% of the work force."

         However no doubt the EU and Germany aren't worried about this-never mind 25% unemployment what matters is fiscal discipline:

        "Spain is in recession, seen by most economists as two consecutive quarters of contraction. The Bank of Spain said in its monthly economic report Tuesday that data point to a second-quarter fall in gross domestic product. The government is caught between the floundering economy and European Union requirements to cut the deficit to 3% of GDP by 2013. State spending had been the one cushion since a property bust in 2008 and drove a brief, temporary recovery up to the fourth quarter."

         "Spanish second-quarter GDP will fall at a "markedly sharper rate" of between 0.7% and 0.9% after declining by 0.3% in the first quarter from the fourth, said Raj Badiani, an analyst at IHS Global Insight."

        "Concerns over Spain's economy and the government's ability to repay debt pushed the yield on the 10-year government bond to as high as 6.49% Tuesday. There is speculation the country may follow Portugal, Ireland and Greece to a bailout by international lenders, though it could potentially be covered by existing rescue funds and the International Monetary Fund, said analysts at Société Générale."

        "There are "worrying signs that European countries are, one by one, crumbling," they wrote in e-mailed comments."

        So the poor numbers pushed up yields-this is the point of those who oppose austerity. All this does is push down growth which decreases revenue and ironically further hurts confidence. Investor confidence cares most about the future health of the economy which looks terrible in Spain.

        European countries are one by one crumbling and no one has an answer more than more and more "medicine."

        When can a medicine be said to fail?


Fed Chief Plossner: No Need for US to Get in a Dither over Europe

       It has been argued that the thing that threatens Obama's re-election more than anything is what of course he has least control over-what happens in Europe. According to Philadelphia President Charles Plosser there is no need for us to worry. Evidently bifurcation is real:

       "There's absolutely no reason for people in the United States to get all in a dither," Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview with The Wall Street Journal. "

       Indeed short term insecurity actually may even be in our interest: 

       "Mr. Plosser said that in the short run, uncertainty in Europe might even work in the U.S. economy's favor, via lower U.S. interest rates and energy prices."

        "Worries over Greece could lead to more global investment funds being parked in the U.S., boosting liquidity, Mr. Plosser said in an interview in Eltville, in the wine-growing region near Frankfurt, where he was attending a conference sponsored by the German Bundesbank."

        "He said it was "not an unreasonable argument" that lower U.S. borrowing costs and falling gasoline prices in response to the European crisis could, in the near term, outweigh the drag on the U.S. economy from lower stock-market values."

        So according to Plosser we will see bifurcation-the US economy can continue to recover and grow even with Europe hanging off a cliff:

        "Despite the uncertainty emanating from Europe, Mr. Plosser expects U.S. gross domestic product to expand by 2.5% to 3% this year and next, and the unemployment rate to drift gradually lower. Against that backdrop, central-bank interest rates would need to rise, he said."

     "As long as that's continuing, then I don't see the case for [an] ever-increasing degree of accommodation," he said.

      He is as is clear a hawk, however he doesn't see inflation as a short term problem:

       "Mr. Plosser is considered one of the Fed's most strident inflation fighters. Still, even with annual consumer-price growth above the central bank's 2% target, he doesn't see inflation as a short-term risk, noting that lower energy prices should bring the rate down. The risk he sees is longer term."

     "We have $1.5 trillion in excess reserves. Inflation is going to occur when those excess reserves start flowing" into the economy, he said.

      We certainly have seen gas prices come down-though over the last 10 years oil prices have only lowered when the market is selling off.  We have already seen that US banks are benefiting from the fears over Europe. While I don't share his hawkishness let's hope he's right about bifurcation.



Rubinomics Redux: A Grand Bargain?

       Robert Rubin,, former Clinton Treasury Secretary-Mr. Rubinomics himself-thinks that the building blocks for a grand bargain are here right now in a unique opportunity:

       "Congress's failure to reach a fiscal "grand bargain" last summer manifested the deep economic-policy divide separating Democrats and Republicans. Fortunately, the so-called fiscal cliff will soon create an extraordinary second opportunity for a breakthrough compromise."

      He does make the good point that this time doing nothing doesn't maintain the status quo:

      "there is no choice available to Congress that does not involve significant changes to taxes and spending that members of each party will oppose. Unlike any situation I remember, Congress cannot simply maintain the status quo by failing to act."

     "Doing nothing means tax increases and massive cuts in defense and nondefense spending. Kicking the can down the road requires compromising with the other party on taxes and spending. And biting the bullet on the hard choices will necessitate compromises and action as well. The compromises required for constructive action are substantially harder than the compromises necessary to punt, but taking the easy way out requires actions that come with their own set of political costs. And, the longer you avoid tough choices, the deeper the hole gets, the greater the resulting crisis is and the harsher the necessary measures necessary to reestablish confidence and recover."

     I do agree there's a lot more on the line this time. I think the biggest difference is that many things the GOP really doesn't want to see will happen if there is no action. Rubin goes through the list at what each party stands to lose if there is no agreement:

    "The 2001 and 2003 tax cuts for middle-class and upper-income taxpayers, and the payroll tax holiday, will expire at the end of 2012. The dramatic mandatory reduction in spending ("sequestration") required by last year's debt-ceiling deal will take place in January 2013. And the debt ceiling will need to be raised again in late 2012 or early 2013."

     "Each of these events is unacceptable for one or both political parties. Sequestration includes deep cuts to nondefense spending that Democrats oppose, and similarly deep cuts to military spending that make Republicans (and many Democrats) recoil. Republicans oppose the expiration of tax cuts on upper-income Americans, Democrats oppose the expiration of the payroll tax holiday, and members of both parties oppose the expiration of middle-class tax cuts."

     I can't help but wonder if this time that failure to get a deal would make more things happen that the Republicans really hate than Democrats. I mean sure, I would rather the tax cuts for the middle class don't expire but I also can't hep but reflect that the rates in this event would be what they were during the Clinton 90s-the age of Rubin's Rubinomics and I don't remember great suffering. To the contrary the 90s were the largest peacetime expansion in US history:

    Rubin lists the terrible things that will happen to the economy if we don't do something:

    "Washington's continued failure to get our fiscal house in order poses five basic risks. One, government borrowing risks crowding out private investment. Two, our unsustainable fiscal outlook undermines business confidence by creating uncertainty about future policy, economic conditions and our ability to govern, which in turn dampens investment and hiring."

     "Three, deficits constrain our capacity to make the public investment critical to competitiveness, growth and widespread income gains. Four, deficits hamper our financial ability to cope with economic weakness or geopolitical events. And five, our fiscal position creates a strong potential for some form of severe macroeconomic distress at an unpredictable time: high inflation, high interest rates and low confidence in the future that produce an extended period of slow or negative growth, or a harsh financial crisis."

      Looking at this entire list it strikes me that Joe Stiglitz is right that Democrats learned all the wrong lessons from what he calls the "Roaring Nineties." Stilgitz like Rubin was a Clintonite but Stiglitz is rare in that he understands this. A large part of the myth of stimulative austerity comes from the wrong lessons being learned from the Roaring Nineties.

      Of all his risks only risk 3 do I have any sympathy with at all and even here it's less that "deficits matter" contrary to what Dick Cheney said but more because of politics. On the other hand worries about high inflation, interest rates much less a loss of Krugman's Confidence Fairy are pure chimeras.

    But yes I do agree with Rubin about the need for more public investment in infrastructure and education. And I do like what his priorities are regarding any bargain-grand or otherwise:

    "I believe the three principal criteria should be economic impact, fiscal effect and progressivity. We should increase the top rate, reform the alternative minimum tax to create greater fairness without penalizing the middle class, and increase capital gains and dividend taxes to levels that best satisfy those criteria. There are also opportunities presented by revising tax credits and deductions, but the impacts are complicated and the potential may be limited."

     Certainly agree with the focus on economic and fiscal effect and progressivty. Because he does take fiscal effect in consideration he agrees that the deficit reduction shouldn't start till after the recovery is finished. Still he doesn't consider how much of the deficit will disappear once the recovery is finished. Of the current $1 trillion dollar deficit $400,000 billion is due to the Bush tax cuts and military spending in Iraq and Afghanistan.

    The principle of Starve the Beast is that the American people must never see the government do anything positive. In this sense deep budget cuts are self-sustaining as the more cuts the less effective government is and the more calls to cut it further seem justified. 

    Look in  a perfect world I'd rather keep the middle class tax cuts and just raise the top rates a long with raising the top rates for capital gains and dividends as Rubin rightly calls for. Rubin may well be right that the GOP is so loath to see all the Bush tax cuts end along with the military cuts that they will finally be forced to negotiate. However if they still aren't having all the cuts expire is acceptable.

     PS I appreciate as well that Rubin says that closing "loopholes" has effects that are "complicated" and potential that is "limited." It's important to bear in mind that while cutting "loopholes" may sound very salutary in the abstract what such "reform" actually has in mind is cutting mortgage deduction-the major refundable tax credit most middle class Americans benefit from-and the Earned Income Tax Credit that is the main refundable credit most of the working poor benefit from. Rubin's pessimism and skepticism about them is a welcome sign that the groundswell for them-which was at an insitutional high among policymakers during last Summer's debt ceiling fiasco and largely informs Simpson-Bowles


Saturday, May 26, 2012

Britain Has Seen the AntiChrist and He is Krugman

       And to think he looks like such a nice guy! Still so claimed the British paper the Telegraph "Britain Can't Afford to Fall for the Charms of the False Economics Messiah Paul Krugman' by Jeremy Warner.

      "What does the future hold as Europe slides, ever more hopelessly, towards the abyss? As David Cameron has pointed out, there have been 18 EU summits since he became Prime Minister little more than two years ago, and none of them has produced anything remotely resembling a solution."

      "The stand-off got a whole lot worse this week. France and Germany are now in open conflict over the way forward, if indeed there is one. For the UK, already bleeding badly from the after-effects of the financial crisis, the situation could scarcely look more threatening."

       "The fiscal consolidation chosen by the Coalition was always likely to have a negative impact on output, at least in the short term. To make it work, the Government needed the following wind of decent growth elsewhere in the world economy. Instead, it’s facing a hurricane. We look set to be broken by the storm."

        Well he's certainly right about that, the UK looks broken.
       "But fear not – salvation is at hand. Next week, there comes to these shores a Messiah, a prophet of great wisdom and understanding whose teachings promise to vanquish despair and “end this depression”. He is Prof Paul Krugman, a superstar polemicist who has been described by The Economist as “the most celebrated economist of his generation”. Actually, “celebrated” is not exactly the right word, for Krugman divides opinion like no other. To his followers, he’s a saint; to his detractors, he’s a false prophet with satanic intent."

      "Krugman may appear loud and radical, but he follows a fairly standard Keynesian text. By his own admission, the social cost of the present downturn doesn’t come anywhere close to the Great Depression of the interwar years, or not yet. None the less, there are parallels, and we already meet Keynes’s classic definition of a depression as a “chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse”.

     Actually Warner is not entirely right when he claims that  Krugman agrees "By his own admission, the social cost of the present downturn doesn't come anywhere close to the Great Depression." He agrees that th is is what he calls the Lesser Depression which is not as bad as what was of course the Greater Depression but he doesn't actually say it comes nowhere close and when he says its not as bad he has the US more in mind than Britain, In fact he's show some graphs which show that the Lesser Depression is hitting Britain a lot harder and it's a lot Greater if you will in the UK than for America and the reason for this is largely the austerity policies of Osbourne-Cameron.

     "In such circumstances, monetary policy can help, but only up to a point. In a depression, even those with the balance sheet strength to spend and invest won’t do so, whatever the encouragement offered through ultra-low interest rates. It follows that governments should step into the breach and do the job instead, as a kind of spender of last resort. They can worry about the accumulated debt later, once output has picked up again."

      "But haven’t we already tried borrowing to stimulate? And what did it deliver other than fiscal ruin, which in the eurozone periphery is so serious that markets have stopped lending altogether? Krugman has an answer for these questions, too. It’s not the policy that was wrong, merely that the stimulus wasn’t big and sustained enough. As for the eurozone, again, it wasn’t the policy, but the euro. Countries with their own currencies and central banks won’t run into this kind of problem. In extremis, they can always print the money."

      "Easy peasy, then. What’s not to like? Well, I’m sorry, but I just don’t buy it. It may or may not be possible for a vast, largely internalised economy such as the US, with its reserve currency status, to run double-digit deficits into the indefinite future without adverse consequences, but for the UK it is a much more questionable policy."

       Easy peasy?!! Who's his editor, Sarah Palin? How can Krugman withstand this kind of incisive critique? What's the basis for Mr. Warner's theory that the US might be able to run a double digit deficit but it is "much more questionable" for the UK?

      He tries to refute Krugman's point about countries with their own currency with what exactly? What matters then according to Warner is not the ability to print its own money but whether or not this currency is the reserve currency or is "vast" and "largely internalized." 

     So how do we adjudicate this disagreement between Krugman and Warner? Well for one thing there is no credible economic theory to back up Warner's claim that it makes a difference here about vastness or being a reserve currency.  But the proof is ultimately in the pudding-the market clearly believes Krugman and doesn't believe Mr. Warner as British yields are at historical lows just as US yields are.

     "As it is, government spending in the UK is already approaching 50 per cent of GDP. Just how high does Prof Krugman propose it should go? It’s all very well to say “jobs first” and worry about the deficit later, but once government spending becomes entrenched, it’s very difficult to get rid of it. Even Reagan and Thatcher struggled to make significant inroads."

     Clearly for Warner it's not "all very well" to worry about jobs as he's clearly very unconcerned. But this talk about "even Reagan...." how very droll to use a great British word-I am a British product being born in London and moving here when I was 3.

     To the contrary Reagan blew the lid of the deficit to unprecedented absolute levels. Judging by what he did rather than said Reagan didn't care a lick about the deficit as long as it wasn't financed by nonmilitary domestic spending.

    After all this Warner concedes that government spending is stimulative:

     "In any case, the picture Krugman presents of wrong-headed British austerity is a caricature of the reality, though one admittedly encouraged by the Coalition’s rhetoric. Yesterday’s revised GDP figures, showing that the country is even deeper in recession than we thought, would appear to support the mocking tone in which Krugman condemns the idea of “expansionary austerity”. But where is this austerity? In fact, one of the few positive contributors to output in the last quarter was government spending, which grew by 1.6 per cent. Krugman seems to have forgotten the automatic stabilisers, which because of our welfare state are considerably bigger than in the US. In America, much current UK spending would count as a discretionary fiscal stimulus of the sort End This Depression Now! advocates."

     The fact that Britain's larger automatic stabilizers and government spending mitigated the fall in UK GDP the reason not to do more of it is what exactly? Warner now finishes off by appealing to Raghuram Rajan's structural canard:

     "As Raghuram Rajan, a former IMF chief economist, has argued, today’s troubles are not simply the result of inadequate demand, but of major changes in the world economy brought about by globalisation. The old monopoly of knowledge and expertise once enjoyed by advanced economies has been swept away. For decades, we compensated for the jobs and income lost to technology and cheaper foreign competition with unaffordable government spending and easy credit. Much of the growth enjoyed in these pre-crisis years was simply unsustainable."

     You know the usual "it's all structural" argument  so there's nothing that can be done except "structural reforms' which of course means more tax cuts for the rich and tax hikes and spending cuts for everyone else-you know, austerity.

Friday, May 25, 2012

Germany Too Sanguine About a Greek Exit

      Mind you this is likely more trying to put on a brave public face to make the Greeks think that they need the euro much more than the euro needs them-in other words another negotiating ploy. They're trying to psyche out Greece.

      However, based on what we've seen from the market already the market isn't buying this and if  Germany and the EU are really as unconcerned about Germany leaving as they claim they are likely greatly underpricing the risk. Contagion is very real in as Spain and Italy bonds have already been under attack and Greeks are already pulling out their deposits. If a country like Italy-which has the third largest economy in the euro goes down the euro will have a very heard time.

     Now according to analysis by a head at Societe Generale, the contagion could indeed touch France and yes "even" Germany itself:

     "Euro zone stocks could plummet up to 50 percent if Greece makes a disorderly exit from the euro zone, a research note from Societe Generale said on Friday."

      "In the note, Societe Generale Head of Equity Strategy Claudia Panseri said the DJ Euro Stoxx 50 [.STOXX50E  2161.87    5.35  (+0.25%)   ], an index of leading euro zone shares, could halve if a disorderly Greek exit caused two years of declining profits in the euro zone, plus rising bond yields [cnbc explains] and equity risk premium."

      "Panseri said a Greek exit would put France and Germany at risk of contagion as well as peripheral European nations [cnbc explains] ."

      “While central bank [cnbc explains] stabilizing measures are likely to be taken in the event of contagion, with the high correlation among euro zone indices, we believe there would be an increased risk of spillover after a Greek exit from the euro zone,” she said.

     "According to Panseri, euro zone corporate profits could fall by 20-to-30 percent on a Greece exit, due to lower consumption and fiscal tightening in the remaining member countries. Bond yields could widen 100-to-200 basis points."

     It seems to me that Germany is playing the same game the GOP plays here in the US during the debt ceiling debate-it's a high stakes game of euro chicken. Now will they blink if Greece calls their bluff. If they do they understand the stakes. If they don't then they don't understand the stakes. They don't get just how large contagion really is. So in a way we're at the mercy of what the Germans really know.

   Either they understand all this very well and are merely trying to bluff Greece. Or they don't understand this and really believe their own rhetoric that Greece leaving is really no big deal. If their understanding is the latter we're in for some mighty rough storms. The only question then is how much we here in the US, Canada, Japan and China can "bifurcate" from all this.

Thursday, May 24, 2012

Mitt Romney's Imaginary Job Creation

      His claim of creating 100,000 jobs has never been subjected to verification. Really there's never been much way to know whether it's true or false as the Romney campaign has not done much to provide any proof. On the other hand the thousands of jobs lost to downsizing during Romney's tenure are much easier to verify.

     Indeed even RightWingNews said "Mitt’s 100,000 jobs is a figure much like Obama’s “saved and created;” it’s a meaningless number plucked out of thin air." Of course this was during the primary season to be sure when they thought he wasn't conservative enough, rather than now that he's candidate now you can bet they aren't worried about proof now.

     Back in 1994 when he first ran for Senate against Ted Kennedy, Romney had given the number as 10,000 and that was two-thirds through his tenure at Bain. Now his Urban Legend of Job Creation has increased by ten fold:

     "It’s not a small matter for Mitt Romney to be offering up an imaginary number as a central reason to vote for him, particularly since the number of people who were put out of work by Bain Capital will end up being much more concrete. If Mitt Romney’s actual number of “jobs created” is closer to the 10,000 he mentioned in the 1994 campaign, then it’s entirely possible Mitt Romney killed more jobs than he created at Bain Capital since the private research I’ve seen, which is more likely to be low than high, suggests roughly 17,000 people were fired, laid off, or were in firms that went out of business while Mitt Romney was in charge."

     "In other words, is it entirely possible Mitt Romney was a net job killer, not a net job creator during his time at Bain? Absolutely."

      So has any new evidence come forward since that we can have a better idea? Yes, in January the
Washington Post was able to say this:

      "Last week, when we looked at this 100,000 figure, we evaluated it along with Romney’s claims about President Obama’s job creation figures, which overall earned One Pinocchio. Earlier, we had ruled that it was all but impossible to prove or disprove Romney’s claims on job creation. But in light of Romney’s comments during the debate and some additional research, we have come to a new assessment."      

        "By all accounts, Romney was a highly successful venture capitalist. While running Bain Capital, he helped pick some real winners, earning his investors substantial returns. High finance is a difficult subject to convey in a sound bite, so Romney evidently has chosen to focus on job creation."

       "This is a mistake, because it overstates the purposes of Bain’s investments and has now led Romney into a factually challenging cul-de-sac."

       "Romney never could have raised money from investors if the prospectus seeking $1-million investments from the super wealthy had said it would focus on creating jobs. Instead, it said: “The objective of the fund is to achieve an annual rate of return on invested capital in excess of the returns generated by conventional investments in the public equity market and the private equity market.”

       "Indeed, the prospectus never mentions “jobs,” “job,” or “employees.”

       "Second, it has become increasingly hard to understand how Romney’s personal involvement played a role in creating these jobs, especially years later. He clearly is adding up all the jobs now at the companies that are thriving, arguing these numbers far outweigh the job losses at companies that failed. But as the Wall Street Journal reported Monday, the failure rate one can attribute to Bain Capital changes significantly if one counts five years from an investment or eight years from an investment."

       "Bain, in fact, rejected the Journal’s analysis, saying it  “uses a fundamentally flawed methodology that unfairly assigns responsibility to us for many events that occurred in companies when we did not own or control them, and disregards dozens of successful venture capital investments.”

       "In other words, Bain appears to be rejecting a central premise of Romney’s calculation — that years after the investment ended, one can attribute either good news or bad news about the company to Bain’s involvement."

       "Bain may have provided management expertise or money when others would not, but a company such as Staples — one of the biggest contributors to Romney’s job figures — was largely the brainchild of entrepreneur Tom Stemberg. Stemberg presumably should get most of the credit for inventing a killer new business category. (Left unsaid, of course, is all the jobs that might have been lost at small stationery stores unable to compete with the low prices of Staples, Office Depot and so forth.)"

      "Moreover, should Romney even get any credit for jobs at Domino’s, as his campaign claims? The deal in which Bain Capital bought Domino’s closed on Dec. 21, 1998, according to a Domino’s news release that referred to “Milt Romney.” Less than two months later Romney had left Bain to run the Salt Lake Olympics, meaning he had barely any role in running the company once it became part of the Bain investment portfolio."

      "When Romney made a run for the governorship, the Boston Globe reported in 2002 that he had not been involved in the details of many deals toward the end of his Bain experience: “These days, Romney can say he hasn't inked a deal in many years. Even during the end of his tenure at Bain, from 1994 to 1999, he played the role of CEO and rainmaker rather than delving into the details of buyouts.”

       "Interestingly, when Romney ran for the Senate in 1994, his campaign only claimed he had created 10,000 jobs. In one ad, a narrator said: “Mitt Romney has spent his life building more than 20 businesses and helping to create more than 10,000 jobs. So when it comes to creating jobs, he's not just talk. He's done it.”

        "Now, apparently, those 10,000 jobs have increased tenfold, apparently in part because of Bain investments in which Romney had at best a tangential role."

        "In the 2008 presidential campaign, as far as we can tell, Romney never highlighted any number for jobs created, having learned a lesson from how ruthlessly he was attacked by Sen. Edward Kennedy in that Senate race for jobs lost through Bain investments."

        "We asked the Romney campaign for a response, but did not get one

Cory Booker's Nauseating Pandering

       At first this was my view of Booker's comments-which I admit I didn't watch directly this week on Meet the Press:
       "Mr. Booker's comment has been portrayed as a disagreement with the president over Mr. Obama's ad strategy."

       However, I've come to see that Margaret Carlson is right:  "What he was actually doing, however, was shoring up his base: Bain Capital and all those similarly situated firms that have supported him in the past and will, presumably, do so in the future if he ardently defends them."

       Because she's right about the strange word choice of the Mayor's: 

       "Nauseating" is a word that demands to be heard. Mr. Booker could have said "wrong," "unfair," "ill-advised." But he didn't.

        According the Ms. Carlson, Mayor Booker has aspirations for more than just Newark Mayor and he needs the private equity spigot to be running freely:

       "Nary a cent for Mr. Booker's mayoral campaigns (or for revitalizing his city) has come from Newark or New Jersey. Most of it has come from the mountain of private equity and investment banking just across the Hudson, from which hedge-fund managers and other banking types write big checks to Mr. Romney and howl over "class warfare."

        We know just how sensitive Wall Street is by Obama being forever pilloried because he once uttered the phrase "fat cat."

        "Aside from describing what Mr. Obama's advertisement is doing to his stomach, Mr. Booker said, "We're getting to a ridiculous point in America. It's either going to be a small campaign about this crap or it's going to be a big campaign, in my opinion, about the issues that the American public cares about."

       I'm all for talking about the issues Americans really cares about but he's misconstruing who's making it a small campaign about "this crap."

      It's actually Mitt Romney. After all, he's the one trying to make this election a referendum on his time at Bain Capital:

      "Romney says his experience as a businessman is the chief reason he should be elected president. (He lists running the 2002 Winter Olympics as second and mentions his single term as governor of Massachusetts hardly at all.)"
      So why doesn't Booker attack Romney if it shouldn't all be about Bain? As for this idea that Romney somehow has this "deep understanding of the economy" because of Bain Capital let's listen to Krugman:
      "businessmen — even great businessmen — do not, in general, have any special insights into what it takes to achieve economic recovery.”

     Read more:


Heid Heitkamp: With Democrats Like These Who Needs Republicans?

      One can see why she's a Democrat:

       "Democratic Senate candidate in North Dakota is distancing herself from President Barack Obama, saying that he has “failed the one test America had for him.”

      "Heidi Heitkamp, a former North Dakota attorney general seeking to replace the retiring Sen. Kent Conrad (D-N.D.), told the AP that Obama has “failed in the one test America had for him, which was to unite the country.”

      Read more:

      "I think he needed to be more hands-on… I don’t think he’s done enough to think broadly and come up with solutions that would engage both sides in a reasonable dialogue,” she added.

       Right, there's nothing easier than to engage the Tea Party Right in "reasonable dialogue." Maybe she could write us a couple paragraphs of what passes for reasonable dialogue in Republican La La Land Circa 2012. I didn't even know they can spell the words much less engage in it.

      So should the DNC and the DSCC even bother supporting this seemingly self-hating Democrat? Let's listen to a little more of her:

      "Campaigning in the solid red state which went for John McCain over Obama in 2008, Heitkamp also distanced herself from the president on energy policy, especially his wavering over the issue of the Keystone XL pipeline."

      "So we’re going to wait until we have a better economy and have more costs?” she said, according to the wire service. “You look at it now, and it makes perfect sense.”

      "Heitkamp is facing off in the Senate race off against Rep. Rick Berg (R-N.D.), who was elected to Congress in 2010 with tea party backing."

      "The criticism comes amidst other signs of discontent among Democrats regarding the president, for example the case of rising Democratic star and New Jersey mayor Cory Booker criticizing the Obama campaign for its treatment of private equity."

       In reality the Cory Booker comment is a different order issue than Heitkamp. She comes from a very red state so it's not surprising that she has to run more against the President than against the Republicans. You see the other side of the coin in Massachusetts where there Scott Brown actually emphasizes his friendly relationship with the President. As much anything it's the difference between North Dakota and Massachusetts.
       The Cory Booker comment is of a different order and we'll look into that more in another post. For starters though the comments about Obama's treatment of private equity distorts things a little. All Obama has pointed out is there's nothing so privileging about Romney's past position at Bain Capital that gives him some unique vantage point to be "the economy's steward" as he tries to run. Whether or not private equity is mostly a good thing or not from a societal vantage point is another question. All Obama has actually pointed out is that there's nothing in Romney's time at Bain that suggests he has some sort of "deep understanding" of the economy. As Jared Bernstein Vice President Biden's former economic adviser has suggested, that's a fairly meaningless phrase in and of itself.

Wednesday, May 23, 2012

The Viscous Views of Former Bundesbanker Thilo Sarrazin

      As should be clear to any even somewhat regular reader I'm no fan of the Bundesbank and the whole "let them eat austerity" German approach to the euro crisis. It's very destructive and shortsighted.

      Sarrazin the German central bank's director till 2010 has written a new book that has not exactly proven popular to most German politicians:

       "Europe Doesn't Need the Euro" is the title of the new book by Thilo Sarrazin, a veteran German finance official turned political provocateur and best-selling author, that went on sale Tuesday."

      "His tome had German politicians apoplectic even before its publication. Finance Minister Wolfgang Schäuble called it "hair-raising nonsense," while leading opposition politician Peer Steinbrück dismissed Mr. Sarrazin's arguments as "bull—" in a televised debate Monday night."

      His reasoning is that Germany loses much more than it gains being in the euro:

       "German trade with countries outside the euro zone is growing faster than trade with other euro members, he points out. Constructing a currency union without a political union was folly, he argues."

      "Now, Germany is under pressure to accept rescue measures that could increase German debt and inflation, he said."

      "If other euro members can't learn German-style discipline, Mr. Sarrazin argues, then they should leave the euro—or Germany should consider doing so."

      If you've followed this far you may well be wondering what makes these views especially "viscous?"

      It's true that they're pretty standard-I think they're wrong, that he greatly underestimates the benefits of the euro to Germany. However listen to what else was in this book:

      "Mr. Sarrazin's most contentious claim in the new book is German politicians, in bailing out other euro members, are failing to defend the national interest because of guilt over the Holocaust and World War II. That led some politicians to accuse him of pandering to German nationalism."

      By going here it lets us know just where Mr. Sarrazin is really coming from. And where he is coming from can be seen most clealry from his last book:

     "Mr. Sarrazin's previous book was also roundly denounced by German elites, but it became a hit, selling 1.5 million copies. "Germany Is Abolishing Itself," published in 2010, warned that Germans' low birthrates and Muslim immigrants' higher fertility were damaging the quantity and quality of the country's future workforce."

    "Germany's political and academic elites accused Mr. Sarrazin of spreading xenophobia and dubious eugenic theories. Mr. Sarrazin resigned from the Bundesbank's board under heavy political pressure."

     The idea that someone so high up in such a powerful institution as the Bundesbank served till just 2010 is rather appalling-he left because of the blowback from that book. And this is the Germain tail that is wagging the dog right now in Europe?