Friday, May 31, 2013

Is Sumner Krugman's Real Enemy?

     I think so. There is now some pretty bullish predictions among economists This is a great thing. Let's hope they are right.

    "Times have changed since 2010. Barring a fresh crisis — and there are certainly a few that could arise — many economists expect growth to return to a fairly healthy level by next year as house prices and the stock market continue to rise and the jobless rate falls closer to its historic average of 5.8 percent."

     Read more:

    Indeed, if things do go this way we'll finally be able to feel like we're in a recovery. This is obviously great news if it turns out to be true. However, the question will be if we get to these levels next year or even in the next few years, what have we learned?

    One thing surely we've learned now is that in a dramatic rise in the monetary base by itself is not at all inflationary. Also during a recession there's little risk of 'discipline by bond vigilantes' provided the country in question has its own printing press as the U.S., Britain, Japan, and most noneuro countries do. 

   We've also learned of course that the EU's structure is a disaster and in the future they will need to either become more politically and fiscally integrated or less dissolve in the future. Certainly the idea of stimulative austerity has been defeated and Reinhart and Rogoff have egg on their faces for hyping up a coming debt bomb and 90% debt as some kind of hobgoblin. Now they're pretending that they never hyped this up.They certainly fooled Tom Coburn. 

     However, it seems to me, that Sumner is working very hard on being the one who nailed this recession. I'm not saying he's right, in fact I disagree with him. However, he has always been in a war that Krugman didn't know he was waging. 

     Those who argue for austerity will claim Sumner's monetary offset theory. Austerity is fine as long as the Fed properly offsets it. Judging by comments from the OECD, it seems that Sumner's getting some traction:

       "This is from OECD’s Economic Outlook report published earlier today:
In the euro area, the area-wide fiscal consolidation (measured as an improvement in the underlying primary budget balance) of just over 4% of GDP between 2009 and 2013 was similar to that in the United States over the same period. This casts doubts about the role of fiscal tightening in explaining the comparatively weak performance of the euro area.

     So what this means for economic theory will be interesting. Of course, let's hope we won't have to test  what we've learned from an crisis on the level of 2008 again any time soon. Meanwhile these numbers should help the Democrats next year.

     The 2014 midterm election is shaping up as something the United States has not seen in nearly a decade: a campaign run in a strengthening economy with deficits on the decline.
No one is popping champagne corks yet, and risks remain. But the altered terrain, if it holds, could benefit Democrats and challenge Republicans whose rise to power in the House in 2010 came via a tea party movement that blasted President Barack Obama and his party for ignoring a stagnant economy and piling up an endless run of trillion dollar deficits.

    Read more:

     So it's take the good-Democrats being helped-with the bad-Sumner declaring victory. Still Krugman should probably be more proactive in discussing Market Monetarism. It seems to me this is where the wrong lessons could be learned. 

In Today's Market Bad News is Good News

     All the market wants to know right now is that the Fed isn't going to start rolling back on QE Infinity-where it buys $85 billion per month in bonds. So good news is sort of not welcome.

     ""All eyes remain on the U.S., analyzing every piece of data to establish if, and when, stimulus measures will be withdrawn—with every piece of bad news being actively welcomed by the market," wrote Rebecca O'Keeffe, head of investment at Interactive Investor, in a note. "This inverted logic is unsustainable in the long term, but for the moment, as the withdrawal of liquidity is perceived as being more painful than an economic slowdown, investors are happy to live in this bubble for as long as they can."

    Today's economic indicators were mostly positive; and so the market is flat. 

    "On the economic front, consumer sentiment hit itshighest level in nearly six years in May, rising to 84.5 from 76.4 in April, according to the Thomson Reuters/University of Michigan's final reading on the overall index. Analysts expected the reading to remain unchanged from the preliminary figure of 83.7. 
And business activity in the Midwest rose in May, rebounding after a contraction in the month prior, according to the Institute for Supply Management-Chicago."
     "But consumer spending fell 0.2 percent in April for the first time in almost a year, according to the Commerce Department, disappointing economists who had expected a gain of 0.1 percent. And inflation pressures remained subdued, rising just 0.7 percent in the last 12 months, the smallest increase since October 2009."
     "The weak spending and the lack of inflation pressures could dampen market speculation the U.S. central bank might start scaling back monetary easing later this year."
     See how counterintuitive market logic is right now? You have to kind of think about the consumer indicators: sentiment is up to its highest level in 6 years; yet actual spending fell in April 
    Meanwhile a big, developing story is the drop in inflation. This is borderline deflation at this point. Surely this should take away the impetus for Fed hawks worrying. It's also one reason I really don't get Sumner's endless quibbling over fiscal multipliers.
    Surely with a .7% inflation rate there's more than enough room for $85 billion per month bond buying and ending the sequester. 

Thursday, May 30, 2013

The General Casuistry of the Markets

     We've had some debates lately on what different economic and market numbers mean. While good economic numbers are, of course, good, what's not so good is that we get to hear Sumner gloat about some supposed refutation of what he calls the "Keynesian Multiplier." It seems that unless we have GDP growth at .5% and unemployment going back to 10% , Keynesianism has once and for all been debunked.

    So good news should be good. However, while it is, Sumner's perpetual spiking the ball is an unwanted side effect. Yet, it's not just me who finds good news bittersweet. The market seems not to welcome good news so much. Yesterday we had some pretty encouraging numbers come in about consumer spending and home buying and the market tanked. Then Asia had a major drubbing particularly Japan. 

   Now today we have some news that isn't so positive and the market rises. Why is this? Well good news suggests the Fed may start to do what it's hawks want and begin rolling back the bond purchases, currently at $85 billion per month. On the other hand bad news suggests the opposite. 

   "Asian stock markets rebounded on Friday with the Nikkei regaining 2 percent after its stunning 5 percent dive in the previous session. Sentiment improved after latest U.S. data eased concerns of an early end to the Federal Reserve's bond-buying program."
   "Australia's benchmark index rose from a previous seven-week low, the Shanghai Composite was flat and South Korea's Kospi hit a fresh one-month high."
   "We've had the most intense run-up in Japanese markets and now we are facing volatility. When we look back in a few months' time, it will seem like a healthy correction," said Adrian Mowat, managing director, chief Asian and emerging market equity strategist, J.P. Morgan."
   "Lower-than-expected U.S. GDP figures and rising claims for unemployment benefits reassured investors that the Federal Reserve would not start tapering stimulus anytime soon."
     By the way this is why I say that Krugman should spend some time calling out Sumner now and again-or at least a proxy. 
    "income inequality tends to be pro-cyclical.  Stocks fall much more sharply than wages during recessions, and rise much faster during recoveries.  That’s nothing new.  Of course there is also a long term trend toward greater income inequality in America, but that has little or nothing to do with monetary policy.  If there are parts of the sequester that hurt the poor, those cuts should be re-evaluated on a cost/benefit basis, not based on whether they are perceived to promote recovery."

    "The Fed should focus on promoting a healthy macro environment.  To some extent they do, although in unusual circumstances such as 2008-09 they screw up.  It’s up to fiscal policymakers to adopt sound fiscal policies using cost/benefit calculations, not “stimulus estimates.”  In other words, let the Fed steer the car, and have Congress focus on setting the A/C controls, choosing the radio station, and adjusting the seating position."

     Here is the payoff for Sumner, courtesy of fellow Market Monetarist, Lars Christensen:

     "This is from OECD’s Economic Outlook report published earlier today:
In the euro area, the area-wide fiscal consolidation (measured as an improvement in the underlying primary budget balance) of just over 4% of GDP between 2009 and 2013 was similar to that in the United States over the same period. This casts doubts about the role of fiscal tightening in explaining the comparatively weak performance of the euro area.
     "The OECD is of course completely right. The fiscal tightening in the US and the in euro zone have been more or less of the same magnitude over the last four years. So don’t blame ‘austerity’ for the euro zone’s lackluster performance."
     This will be the justification for austerity in the future: 'monetary offset.' Do all the austerity the Republicans want and just have the Fed do QE and it's not a problem. 

Sumner Continuing to Push Monetary Offset Story

     He has been a dog with a bone on it lately. He has been crowing that the economy continues to look pretty healthy despite the end of the payroll tax holiday and the sequester.

     Recently he was praising Reinhart-Rogoff-and razzing Krugman of course-that R-R get it. We should do austerity along with monetary stimulus.

     Yet it certainly isn't true that the austerity has been fully offset. In any case, why not do the same exact bond-buying spree except with the Fed. Sumner's answer is that this would be outside the Fed's mandate-this would compromise their inflation fetish target.

     In other words if the fiscal authorities did fiscal stimulus this would lead the Fed to offset. So what if we had simply not done the sequester? Sumner's answer is supposed to be what-then we would have less bond-buying from the Fed? Yet, with 1.1% inflation it's not clear why the Fed would have to "offset" the simple absence of the sequester.

    Most liberals I know have long since stopped reading Sumner-Nanute, Greg, even Unlearning Econ. I continue to read him no matter how sophistical it gets. Why? Someone has to. Here he gives us the relationship between fiscal and monetary policy:

     "Here’s John Carney of CNBC:

Which is to say, the Fed would like to ease up on monetary accommodation but fears that Congress seems unlikely to implement fiscal policy that won’t restrain growth. To put it differently, if Congress were to “get its act together” and provide fiscal relief to the economy, the Fed likely would respond by tightening.
That means that the dominant narrative may have things backward. Instead of Fed policy enabling congressional bungling, it’s Congress that is enabling Fed policy. A Congress that was less divided along partisan lines and dedicated to stimulating the economy might trigger a tightening reaction by the Fed.

      Yet for Carney-and the Fed-the sequester is not a feature but a bug; for Sumner it's a feature:

      And here Neil Irwin responds to me and several others making similar arguments:

There is good reason to think that monetary easing is doing quite a bit of the work offsetting tighter fiscal policy. The Fed’s policies, including buying $85 billion in bonds each month with newly created money, are directly aimed at housing; $40 billion of those purchases are of mortgage-backed securities, meaning the money is being funneled directly toward the sector. And sure enough, a solidifying housing market is an important part of the economy’s holding up. And a second important consequence of Fed easing is to boost the prices of other financial assets, including the stock market.
This isn’t rocket science: The Fed in September introduced a policy meant to boost housing and stock prices, and now, nine months later, housing prices and stock prices have risen quite a bit. Enough, indeed, to (so far) offset the impact of higher taxes that went into effect Jan. 1 and federal spending cuts that took effect March 1.
So far so good. The bad news, though, is that these channels through which monetary policy affects the economy tend to offer the most direct benefits to those who already have high incomes and high levels of wealth.

     "I have several problems with this.  First of all, income inequality tends to be pro-cyclical.  Stocks fall much more sharply than wages during recessions, and rise much faster during recoveries.  That’s nothing new.  Of course there is also a long term trend toward greater income inequality in America, but that has little or nothing to do with monetary policy.  If there are parts of the sequester that hurt the poor, those cuts should be re-evaluated on a cost/benefit basis, not based on whether they are perceived to promote recovery."

    "The Fed should focus on promoting a healthy macro environment.  To some extent they do, although in unusual circumstances such as 2008-09 they screw up.  It’s up to fiscal policymakers to adopt sound fiscal policies using cost/benefit calculations, not “stimulus estimates.”  In other words, let the Fed steer the car, and have Congress focus on setting the A/C controls, choosing the radio station, and adjusting the seating position."

     At this point you're no longer arguing the point of demand stabilization, but distribution. The fact is that Sumner's monetary offset theory is basically a theory of how he thinks the Fed will react to this or that act by the fiscal authorities. The Sumner Rule only has force if the Fed acts the way he believes it will act. If Marriner Eccles were running the Fed there'd be no Sumner Rule. 

      Even the Bernanke Fed, however, claims not to believe in the Sumner Rule. It seems to think the fiscal authorities do more than just set the radio station

All You Need to Know About Michelle Bachmann's Retirement

     It's perfectly crystallized by two headlines today. We read that the GOP establishment is relieved she's gone. 

     "Michele Bachmann was as much a tea party hero as she was a constant pain in the neck for Republican operatives concerned with the party’s national image. That stark contrast was well on display Tuesday as the GOP reacted to the Minnesota Republican congresswoman’s decision not to seek reelection in 2014: sorrow and disappointment from the right-wing faithful, relief and gratitude from operatives who want what’s best for the party."
     "And as deeply as liberals detested Bachmann and everything she stood for, she was a dream come true for Democrats who profit politically from highlighting GOP radicalism."
“Bachmann fit the political tea party moment perfectly,” veteran Republican strategist John Feehery told TPM. “But that moment passed.”
     Therein lies the problem. The Tea Part is very sorry to see her go, but the party is kind of relieved. If anything, Democrats seem more sorry to see her go as she was a great lightening rod.    
    "Not every Democrat is cheering Rep. Michele Bachmann’s upcoming exit from Congress — specifically the party’s bean counters.
     "The conservative firebrand’s decision not to run for re-election takes a lucrative fundraising tool off the table for Democrats."
     “After Joe Walsh and Allen West were defeated, she was by far the most lucrative voice for Democrats in the GOP caucus,” said one top Democratic operative who has worked at a committee. “Direct mail writers are going to have to cultivate new villains.”
     That says it all. Republicans are glad to see her go, Democrats not so much. For me the big worry is not so much that I'll miss her loopy statements and all the votes against ObamaCare she led but she was very vulnerable for 2014. The candidate that replaces her may be considerably less so. 
      You can make the case that too much is made out of Bachmann. With all her buzz she has a very slim legislative record in 7 years as a Minnesota Rep. On the other hand, she is a leading Tea Party light. It's not clear where the TP goes for it's next one.
      Who will be the next Michele Bachmann? The Minnesota Republican’s announcement on Wednesday that she’ll be stepping down when her term wraps up in 2014 leaves a void at the top of the Tea Party Caucus she founded in 2010 — and a handful of conservatives could vie to take up her mantle.
     From the time Bachmann founded the caucus, the movement has had its ebbs and flows, at its high point having significant influence over the electoral landscape and at its low point becoming dormant to the point — some might argue — of irrelevance.
      What will probably happen is the Tea Party will try to make hay out of the IRS pseudoscandal, even though the real scandal is why so many wealthy, political Tea Party groups are tax exempt at all. 
    In many ways Bachmann is in the Sarah Palin mold-all sound and fury signifying nothing. Palin was less a politician than a cultural phenomenon, a conservative celebrity. This is also true of Bachmann. She obviously won't have trouble finding work. Her actual legislative resume is meager:
    "Establishment Republicans have spent years tiptoeing around the tea party, concerned that its hot rhetoric and deep pockets could wreak havoc in their ranks and further disrupt the national party leadership’s carefully laid plans."
    "But Rep. Michele Bachmann’s sudden fall exposes the reality of tea party players: Their power in Congress is mostly a mirage."

     "In six years in Congress, Bachmann was plainly unable to translate her cable-friendly bombast into traditional Washington power. And she couldn’t shake up the Republican establishment enough to convert her considerable resources into her own reservoir of muscle."

     "The Minnesota Republican never got a committee gavel. She managed one major legislative accomplishment — a bridge connecting Minnesota to Wisconsin. House GOP leadership didn’t place her on the Ways and Means Committee when they had the chance. The Tea Party Caucus — of which she was the public face — isn’t at all a force."
      "Here’s the image that Bachmann cut in the Capitol, according to several top level GOP aides and lawmakers interviewed by POLITICO on Wednesday: she was a sparse presence at GOP strategy meetings and didn’t particularly care about passing legislation. That bridge she helped build? She broke ground on it on Tuesday, one day before she announced her retirement, holding a shovel as she stood next to Democratic Sen. Amy Klobuchar."

     She's a Tea Party phenom. Palin was such a rock star she gave up a job as a real politician-Governor of Alaska-for a spot on conservative reality tv-Fox News, et. al. 

     "This i actually becoming very common: Jim Demint gave up a real job for a Heritage Foundation position. So what will this mean for the Tea Party in the long term? There are clearly some who can take Bachmann's place  We can probably look forward to countless Tea Party conspiracy theories.  about the IRS for years. Yet it seems what the Tea Party does best is put on a spectacle for the faithful. There is little in the way of legislation it can point to. Meanwhile some argue that Bachmann was "encouraged" by the GOP establishment to bow out; this encouragement took the form of saying If you run you're on you're own. You get no funding or any resources from us. Good luck, Congresswoman. "

      This means that the GOP is going to try to keep the Tea Party out of the way in the future. So their roll in legislation-never much-will if anything become even less. 

Welcome Home, Lincoln Chafee

     You've made the right decision. The future of this party is very bright. Chafe's dad, Senator John Chafe, was the classic New England Republican. However, that's now a dead breed. Governor Chafe had become an Independent and has now concluded that his priorities are more in line with the Democratic party.

      Chafee’s positions on multiple issues are far more in sync with today’s Democratic Party, which was the primary motivator of his decision, according to his spokesman, Christian Vareika.
“This was not a rash decision,” Vareika told me this afternoon. “The governor reached this conclusion after assessing his own principles and priorities and values, and deciding they blend very well with the national Democratic Party.”
Chafee’s priorities, Vareika continued, “are the same ones the Democratic Party puts a real focus on today: affordable public education, investing in infrastructure, equal rights, marriage equality.”
     There are some political benefits for Chafe to be sure: he's been flagging in recent polls and it certainly improves the field by becoming a Democrat for his re-election campaign next year-he'll be able to avoid Democratic competition provided he's not primaried. 
    Still his positions clearly are more in sync with the Dems and has strongly supported the President in both 2008 and 2012.  Obama welcomed him warmly into the party. 
    “I’m delighted to hear that Governor Chafee is joining the Democratic Party,” Obama said in a statement distributed by the Democratic National Committee. “For nearly 30 years, Linc Chafee has served his beloved Rhode Island as an independent thinker and leader who’s unafraid to reach across party lines to get things done. I enjoyed working with Linc when he was a Republican in the United States Senate, and I look forward to continuing that collaboration on the issues that matter not just to the Democratic Party, but to every American.”
      In joining the Dems the Governor is joining a great party with a great tradition and history as the President said. It seems clear that it's also the party of the future as the GOP is only getting more dysfunctional by the day. 
      I have admitted being an unapologetic partisan on a number of occasions. I like to quote Thaddeus Stevens who said: Principles indeed! Betray your principles and stand by your party! This is because the Democrats have the right policies over the long term. 
     I have recently had the pleasure to become acquainted with Eric Zuesse, a very interesting guy. He's what's called an "investigative historian" and he very generously recently emailed me a manucsript he's wrting about microeconomics and the need to reform this discipline root and branch. This work is not in its final form yet so I won't link to it. However I can link to another paper he finished on the creation of the libertarian movement. There's always the debate between ideas and naked interests regarding an intellectual movement. This paper of his makes a strong case for the naked interest theory for libertarianism. 
     UPDATE: He has requested I not link to this piece yet for copyright issues. I respect that. Apologies. 
     In getting to know more about him, it turns out that he's very prolific and has written a number of very thought provoking and fascinating books. I have just purchased one of them on Kindle called Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010.
     He goes through the rather amazing numbers. The Dems have been the better bet for a long time. You can look at the market, or you can look at GDP, employment, or inflation, the Dems are the right bet. Chafe now joins this venerable tradition while the party is clearly poised to realize much greatness in teh future, with a better life for most Americans. Mr. Zuesse is a very prolific writer. He has some very interesting work on the Iraq war and even on the founding of Christianity. That work is entitled Christ's Ventriloquists: The Event That Created Christianity. 
   Here is a link to a list of books he has on Amazon. 
    He also has a book on why the Holocaust happened-ambitious project but a must read! Here is also some work he's done on Huffington Post. 

Wednesday, May 29, 2013

Marco Rubio on the IRS Scandal: At Least it's Not About Politics!

    Cynical souls-like me-have suggested that this IRS "scandal" is just the latest GOP ginned up political witch hunt.

     Indeed, some GOPers have tried to make this all about finding some ephermeral link-no matter how thin-with Obama.

     "Congressional Republicans, for example, are still trying to find some kind of link to the White House. As The Hill reports, House oversight committee chairman Darrell “Issa said last week he’s not ready to clear officials like Neal Wolin, the deputy Treasury secretary, after pressing both Wolin and [Treasury inspector general Russell] George about the possibility that Treasury officials knew details about Tea Party groups being targeted in June 2012.”

     "How this proceeds depends on how Republicans want to approach it. They can treat these inquiries as genuine attempts to find what happened, or they can go the route of their conservative base and insist on linking this scandal to the president. To his credit, Issa is staying away from the former, in an attempt to avoid scandal overreach. But to the party’s detriment, you can’t quite say the same of his some of his colleagues in Congress."
    Good to see that Marco Rubio isn't falling into this trap. He has an excellent solution to the IRS scandal: abolish Obamacare:
    "Calling the Internal Revenue Service's role in the implementation of the new federal health care law "chilling," Sen. Marco Rubio (R-FL) argued in a video posted online Wednesday that the only appropriate response to the controversy involving the agency's targeting of conservative groups is to repeal Obamacare."
     "Answering a question from a constituent as part of a weekly series conducted by his office, the junior Florida senator and potential 2016 aspirant said he intends to renew his focus on the repeal of the Affordable Care Act in the wake of the IRS scandal."

    "So the only answer to this is to repeal Obamacare," Rubio said in response to an email from a man in Orlando, Fla. "It’s just one more reason why this law is going to be a disaster for our country. And in the months to come, I’m really going to focus on the issue of repealing Obamacare because in addition to the IRS’s role there is all sorts of other problems with regards to Obamacare that we need to answer." 

      So if he's going to really focus on Obamacare, this means he;s not really going to focus at all on getting at the truth of this scandal: that so many totally political, well heeled Tea Party groups have tax exempt status in the first place-none of them lost it either during the waiting period the IRS subjected many of them to. 

     A real resolution would considerably reduce the number of tax exempt groups in general-why should political groups as virtually all these Tea Party groups are get a subsidy from us?

    Meanwhile, of course the ACA has nothing in the world to do with TeaPartyGate. However, the GOP is desperate about it now as it's already looking successful in places like California. 

Michelle Bachman Will Not Seek a 4th Term as a Minnesota Congressional Rep.

     Just recently she claimed that the people in her district were 'urging me to impeach Obama.'

     Alas, they are apparently not really urging her to do much of anything, know, but leave office. Many liberals seem to find this bittersweet-she was such a gaffe machine. Still, if anything, what concerns me is that this may make it easier rather than tougher for the GOP to hold onto her seat.

      "With Bachmann’s departure, the tea party’s voice in Congress will dim. She is the movement’s third big-name figure in recent months to leave Congress — Jim DeMint of South Carolina resigned from the Senate in January to take over the Heritage Foundation. And in November, Florida Rep. Allen West, another conservative bomb thrower, lost reelection."

      Read more:   91978.html#ixzz2UhMkhALs

      However, here's the bad news

     "Ironically, the retirement may improve Republicans’ chances of holding Minnesota’s conservative 6th Congressional District, which broke for Mitt Romney by nearly 15 percentage points in 2012. Democrats had Bachmann at the top of their target list after she barely survived reelection last year. The Democrat who came close to defeating her, Jim Graves, was gearing up for a rematch."

      So she's gone and that's good as she was nuts-another Tea Party nut goes home.However, we;ll need some other comic relief and it might even be a heavier lift for the Dems to take her seat now. 

     "Bachmann’s decision comes as she faces a growing swirl of investigations into her campaign finances, with the The Federal Election Commission and the Office of Congressional Ethics opening investigations into whether her campaign concealed payments to an Iowa state senator who did work for her 2012 presidential bid. Last week, the FBI reportedly joined the inquiry.

    She claims that her decision has nothing to do with either her tougher re-election chances or the investigations. Her campaign scandals underscore the point that's been made in recent days: many of these Tea Party groups should be scrutinized by the IRS. 

   "The more information that comes out about the scandal at the Internal Revenue Service, the harder it is to say employees there erred completely in putting more scrutiny on particular groups seeking tax-exempt status. According to the New York Timesfor example, several of the tea party groups targeted by the IRS were engaged in overt political activity. One group — the Wetumpka Tea Party in Alabama — sponsored get-out-the-vote training “dedicated to ‘the defeat of President Barack Obama.’” Another, an organization meant to engage veterans in government, had given donations to a Republican candidate for the House of Representatives."

    Her decision has shocked many in her party. 

     "The congresswoman’s decision comes as a shock to Republican officials, many of whom thought she was taking serious steps to running for reelection. Early this month, Bachmann began airing TV ads highlighting her role in sponsoring legislation to repeal President Barack Obama’s health care law – an especially early point in the election season for a House member to begin running commercials.
And many of the Republicans saw Bachmann, a familiar face on the cable TV news circuit, making fewer headlines recently as she focused on holding local events in her district."

     "Bachmann’s outsized success with the conservative grassroots was not matched with equal prowess inside the Beltway. In the Capitol, the Minnesota Republican never proved herself a savvy legislative operator, or even a real factor in the rough and tumble of Congressional brawling. She drew her strength from her ability to grab headlines opposing President Barack Obama’s legislative agenda."

     "Her attendance at closed House Republican Conference strategy sessions has been sporadic over the years – at times, she was known to stand outside the gatherings on her cell phone, giving interviews. At one point during the 2012 presidential campaign, when the party was plotting delicate fiscal strategy, Bachmann was spotted outside on her cell phone, speaking on a radio show opposing her leadership."

     Sounds sort of like the Sarah Palin Syndrome: she's a symbol for the Tea Party but not much of a legislator. She did have a recent victory

     "On Tuesday, Bachmann saw one of her longtime legislative pursuits come to fruition, when she helped break ground on the new St. Croix River Crossing – a bridge that connects Wisconsin to Minnesota. She and Sen. Amy Klobuchar (D-Minn.) championed legislation to spur the project, which critics described it as pork-barrel, stimulus spending.

       Sounds like a worthy accomplishment but not exactly a Tea Party victory. She was the leading sponsor on one recent House bill that passed: the latest repeal of ObamaCare. Now there's an accomplishment. 


Krugman Doesn't Worry Over Krugman Bashers

     No doubt, he's right, that it's not about personalities:

      "Fairly often I receive comments or other communications asking me to respond to X or Y, who has said Z about me and/or my arguments. For the most part, I am not going to oblige. Why?"

     "The main answer is, sheer capacity constraints. In case you haven’t noticed, Krugman-bashing is a huge industry — so huge that I would feel guilty about diverting so many productive resources from other activities, if it weren’t for my strong suspicion that most of these resources would in fact be destructive in whatever else they might be doing; so I’m actually providing a public service by keeping these guys busy."
     "So I just take it in stride, and you should too."
     Yet, I think there's a difference between a matter of personal feuds and where a material point of principle is at stake. In the case of Rogoff-Reinhart he's probably right that there latest "letter" to him isn't really worth worrying about. The only material point of substance is R-R continue to pretend that they never gave material aid and comfort to the austerity cause. 
     "Your desire to blame our later 2010 paper for the stances of some politicians fails to recognize a basic reality:  We were out there endorsing very different policies.  Anyone with experience in these matters knows that politicians may float a citation to an academic paper if it suits their purposes.  But there are limits to how much policy traction they can get with this device when the paper's authors are out offering very different policy conclusions.  You can refer to the appendix to this letter for our views on policy through the financial crisis as they were stated publicly in real time.  We were not silent.."
   This gives us an opportunity to quote Moynihan-'you're not entitled to your own facts.'
   Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: “Do we need to act this year? Is it better to act quickly?”
   “Absolutely,” Rogoff said. “Not acting moves the risk closer,” he explained, because every year of not acting adds another year of debt accumulation. “You have very few levers at this point,” he warned us.

   "Senator Kent Conrad, the chairman of the Senate Budget Comittee, said our current deficits were severe because we had very low revenues due to a slow economy combined with very high spending. He then offered his own stern warning to the assembled senators. Turning around in his chair in the middle of the room, he explained to his colleagues that when our high debt burden causes our economy to slow by 1 point of GDP, as Reinhart and Rogoff estimate, that doesn’t slow our economy by 1 percent by 25 to 33 percent when we are growing at only 3 to 4 GDP points a year."
   "Reinhart echoed Conrad’s point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, “If it is not risky to hit the 90 percent threshold, we would expect a higher incidence.”
   "Senator and former governor Mike Johanns, a Republican from Nebraska, asked, “Is there a point at which the debt market rebels?”
  "I don’t want to be fire and brimstone,” Rogoff said. “No one knows when this will happen. ” Yet, he added, “It takes more than two years to turn the ship around … Once you’ve waited too long, it’s hard to take radical steps.”
     So any claim that they didn't actively encourage the Austerians is simply revisionist history-much like their initial history of public debt was. 
    Krugman has said plenty about R-R and doesn't want a personal feud. However, I think in the case of Sumner he should respond-at least sometimes. It's not about taking silly Sumner missives personally. It's just that he sometimes puts out some things that are pretty misinformed, and it's an opportunity for Krugman to set the record straight. 
   In that vein, I notice that Sumner is becoming a chief apologist for R-R. He praises R-R's whiny letter to Krugman claiming that they showed why fiscal stimulus is a bad idea:
   "Commenter J directed me to a passage by R&R from their now famous letter to Paul Krugman:
We don’t see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical.  Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany’s balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB.
     " If Germany stimulates their economy then German inflation will tend to rise, and at least to some extent this will raise overall eurozone inflation.  Now consider the fact that the ECB is supposed to be targeting eurozone inflation.  German fiscal stimulus would then force a tighter ECB policy, which would reduce inflation in the non-German part of the eurozone.  Because no fiscal stimulus would be occurring outside Germany (by assumption, and because they are broke) the lower non-German inflation induced by tighter ECB monetary policy would mean lower non-German NGDP and RGDP.  As an analogy, think of how the US tech boom of 1998-2001 reduced Argentina’s NGDP and devastated the Argentine economy.
This is a really good example of how people thinking in terms of “trade balances” are often led astray.  It seems like a booming German economy would help the rest of the eurozone.  And it could, but only if generated by a more expansionary monetary policy, or by supply-side reforms."

    Krugman did answer R-R on this one. Of course, Sumner had an answer for that too-Sumner is not any ordinary Krugman basher but a Krugman stalker:

    "Paul Krugman has a new post criticizing Reinhart and Rogoff’s view that fiscal stimulus in Germany might be counterproductive.  Here is R&R:
We don’t see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical.  Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany’s balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB.
     "Krugman has two and a half objections:
First, the half level: what, exactly, does it mean to call for expansionary monetary policy by the ECB? Like other major central banks, the ECB has near-zero policy rates, so we’re talking about some kind of unconventional monetary policy. Are we supposed to envision the ECB doing huge purchases of unconventional assets (over and above what it’s already doing in the form of lending to banks against sovereign debt and the promise of outright monetary transactions if necessary)? Alternatively, are we supposed to see a European version of Abenomics, with the ECB credibly committing to a higher inflation target? Both are strategies worth trying, but of uncertain effect — and both would surely be viewed as anathema by the Germans.
     "Yes, monetary stimulus would be anathema to the Germans, but they have one vote out of 17 (although their power is admittedly greater than that ratio suggests.)  But fiscal stimulus is also anathema to the Germans, and they have one vote out of one for German fiscal stimulus.  Just a few years ago I was told by lots of worldly-wise commenters that the Japanese would never opt for monetary stimulus, because of the power of the elderly lobby in Japan.  OK commenters, where are you now?  I haven’t heard from you recently."

      Sumner has been doing an awful lot of crowing lately-for what I don't get. It seems any economic news that doesn't have the economy falling off the cliff proves the fiscal multiplier is zero. As to Abenomics notice that their not doing the Sumnerian, R-R prescription-deep fiscal cuts along with monetary easing; rather they are doing fiscal stimulus along with monetary easing. 

      Sumner continues to play these hair splitting games. I hope Krugman continues to engage this monetary offset issue-though he'll probably leave Sumner's name out on purpose. Meanwhile, Sumner's fellow Market Monetarist has called him pretty well on his casuistry regarding the multiplier.

      Meanwhile, the market isn't too happy today about all this talk that the Fed can begin to reduce the bond buying-the market is down 3 digits today. Then we will see job and GDP numbers at the end of the week to chew on.