Wednesday, July 31, 2013

Yellen Trouncing Summers By a Mile in Battle for Liberal and Economist Opinion

     Last week, Ma Yglesias suggested that this was a deliberate trial balloon by the White House to see if Summers is acceptable. Yglesias made a good point that while there was a lot of criticisms of Summers in the blogosphere, this was likely expected. The question came down to is it more or less than the White House expected?

    It's now crystal clear that it's much worse than the White House had hoped. There was an attempt yesterday to put the idea out there with a piece in the Wall Street Journal that Summers is a dove. Today the President himself defended Summers in a meeting with House Democrats. That's all you really need to know to be able to conclude that this is much worse than had been expected, to say nothing of hoped, by the White House. 

   However, it just keeps getting worse. There's little doubt that liberals have been convinced that Yellen is the right choice. The trouble is that the support for Yellen is both for her and against him. Meanwhile, no one is opposed to Yellen even if they support Summers. It really is getting bad: even I, myself, the ultimate Obama partisan and loyal foot soldier, have to admit I've been swayed. I now think that Yellen is the choice, period. Or anyway, Summers is unacceptable. He has too much baggage, and, really what do we know about what he knows about monetary policy?

   In the latest case, we have the NYTimes really endorsing Yellen as if this is a political campaign. 

   "The "race" between Larry Summers and Janet Yellen to succeed Ben Bernanke is becoming more and more like a political battle every day."

    Read more:

    True and it's a game she's simply cleaning his clock in. It's so total that some suggest that the WH actually really wants Yellen and is conditioning the markets and everyone else to expect her-and more, demand her. 

    Interesting. Ok, the NYTimes:

     "Despite a campaign from allies both inside and outside the White House, the recent drive to install Lawrence Summers as the next chairman of the Federal Reserve seems to be faltering — and with good reason: He is not the best person for the job, as a group of Democratic senators made clear in a letter to President Obama last week calling for the nomination of Janet Yellen, the vice chairwoman of the Fed’s board of governors."

    "A Yale educated economist and professor emeritus at the University of California, Berkeley, she was first nominated and confirmed to the Fed board in the 1990s; from 2004 to 2010, she served as the president of the Federal Reserve Bank of San Francisco. She has been vice chairwoman since 2010, a trying time in which the Fed’s largely successful efforts to steer the economy have been made all the more difficult by poor fiscal policy decisions, including the White House’s premature pivot from stimulus to deficit reduction, which happened while Mr. Summers was a top adviser to Mr. Obama."

      In a point of digression, let me just observe that I love the NYTimes. Just the way they phrase stuff is just tremendous. The Times identifies the 'insular' Summers supporters-a nefarious band of Rubinites:

     "What has changed in the past week is that the power dynamics around economic policy-making have become more public than normal. Mr. Rubin and his circle — including Mr. Summers; Timothy Geithner, Mr. Obama’s first Treasury secretary; and Gene Sperling, currently a top economic adviser to the president — have dominated economic decisions in both the Clinton and Obama administrations. Most of them were also prominent in Wall Street circles in the George W. Bush years. In the wake of the financial crisis and the Dodd-Frank reform law, the Fed chairmanship has only become more central to the fate of the banks and economy; as a result, they want someone who shares their background and can be counted on to further their views."

    Sorry. If you're looking for a defense of Summers at this point, I got nothing. Brad Delong did mount a defense of him the other day-and I love Mr. Delong who just recently very kindly linked a post of mine to his blog. 

   However, I must say that while Delong is a very smart guy, he couldn't really come up with a very compelling case for Summers either. His argument was 'Well we're in desperate times so we need a guy who's not afraid to call his own plays and do something really unorthodox.' If that's the best Summers can get it's not looking fortuitous

   Delong may have a slight preference for Summers; however, most other liberals and economists have a more than slight aversion to him and a very large preference for Yellen.  

   UPDATE: As I said, this anti Summers campaign has been really effective. Usually if Summers were the President's guy I'd be all for him. Normally I'd applaud Harry Reid here:

    “Larry Summers is a longtime friend of mine. I like him a lot. I think he’s a very competent man. But that decision is up to the president. Whoever the president selects, this caucus will be for that person — no matter who it is.”

    Yet, this time is different. I just don't see any reason to do Summers at this point. On the issues that matter-Fed policy and regulating the banks under the new Frank-Dodd regulations he's unknown on the first count and on the second he's highly suspect. 


With Senate Showing Signs of Functioning Well, Mitch McConnell Struggles to Regain Control

      No doubt there has been too many shows of the Senate functioning properly lately since the GOP Compromise Caucus (CC) came to an agreement to avert the nuclear option on filibuster reform.

     Of course, Senate Minority Leader has to do something-the system is breaking down! Since 2009 he has managed to be the master of misrule by enforcing iron party discipline getting all his minority members to use the filibuster on all matters great and small so that even the most routine Senate business has been slowed down to a crawl. 

     However, he was written out of the filibuster deal, opposed it, then tried to take credit for it. Now the Senate actually got the ATF an actual head for the first time since 2006. Even the biggest gun trade group in the country supported the pick and the NRA didn't oppose him. It was a tough one but it looks like the Dems got him through-as Alaska GOP Senator Lisa  Murkowski  changed her vote at the last minute to yes-thanks to a nice discussion with Susan Colllins. They're now waiting for Heidi Heitkamp to get to the Senate where she will presumably by the 60th vote.

    So now McConnell needs to reassert control. He is going to try to do this by opposing the Senate transportation bill. It's already something of a defeat for him when Republicans on committee allowed it to come to the floor. 

    "Tomorrow the Senate is set to vote on whether to end debate on the big transportation and housing bill that has been working its way through the Senate. The vote is a key test as to whether Mitch McConnell is truly losing control of his caucus as a bloc of Republican Senators indicates a willingness to break with the GOP leadership and join with Democrats in governing."

    "Democratic aides say that they’ve received reports from GOP Senators that McConnell’s operation is whipping for No votes today, and Roll Call notes that McConnell announced on the Senate floor this morning that he was “encouraging opposition to the bill.” This is key, since Dems are viewing this bill as an important test of whether their efforts to drive a schism into the GOP caucus by wooing compromise-minded Republicans is working. The question is whether enough Republicans can be induced to support the bill, given that infrastructure spending has historically gotten bipartisan support."
    "Six Republican Senators voted for the bill in committee, but conservatives — and McConnell — continue to oppose the bill because its spending levels are higher than those on the House version of the bill. Susan Collins continues to advocate strenuously on its behalf, challenging Tea Party claims about its spending levels, and insisting that Republicans should pass the bill to allow the two chambers to proceed into conference negotiations over the bill."
   “I think it’s unfortunate that he’s not allowing regular order to take place to finish the THUD bill and going to conference with the House,” Collins said. Republicans have increasingly been unwilling to proceed to conference on the budget, too — after all, that would require them to enter into negotiations designed to bring about a compromise."
    Meanwhile. Boehner has another embarrassment as the new transportation bill he put up-with draconian cuts to please the Tea Party has been pulled. Some moderate House GOP members were not happy with the level of cuts."
   "With support collapsing, a $44.1 billion transportation and housing bill was pulled abruptly from the House floor Wednesday, and top Republicans conceded it was a further sign that the party’s budget strategy is unraveling."
   "Putting the best face on the situation, Majority Leader Eric Cantor’s office said that the House will return to the bill after the August recess. But House Appropriations Committee Chairman Hal Rogers bluntly said the chances of resurrecting the measure are “bleak at best.”

    "With this action, the House has declined to proceed on the implementation of the very budget it adopted three months ago,” said the Kentucky Republican. “Thus I believe that the House has made its choice: sequestration — and its unrealistic and ill-conceived discretionary cuts — must be brought to an end.”
So-called ‘Tuesday Group” Republican moderates were among those most upset with the level of cuts debated. And while $350 million had been restored Tuesday night to soften the reductions from popular community development block grants, the combination of these defections plus a predictable bloc of conservatives who oppose most appropriations bills was fatal."

     Read more:

     Ah, yes: bleak at best. That's a fitting description of Speaker Boehner's entire tenure.

House Republicans: People You Can't Please any of the Time

     The President again went out on a limb yesterday offering the GOP a cut in corporate tax rates to 28% in exchange for some infrastructure spending. You'd think this offer were at least worth listening to. After all, the GOP has been bellyaching for years that U.S. corporate rates are 'the highest in the world'-though this claim ignores the distinction between stated, nominal rates and effective rates: if you go by effective rates the U.S. corporate tax rate is pretty average after you factor in all the loopholes corporations get.

     This was the President's point in making the offer: the idea is to exchange the lower rate for getting rid of many of the loopholes-a good place to start would be the tax credit the oil companies get despite making record profits-the credit made sense in the 90s as oil prices were very low during the 80s and 90s. 

    Now don't get me wrong. I need to see the math-all the loopholes that will actually enable us to lower corporate rates to 28% and yet take in more revenue. The idea is that the President will use the higher revenue for much needed infrastructure spending. 

    Still, the GOP didn't even give the idea the slightest thought. Mitch McConnell mocked it as a new-fangled idea of the Far Left:

    "Despite the olive branch, Obama's proposal immediately drew fire from the top Republicans in Congress. Senate Republican Leader Mitch McConnell said, "It's just a further-left version of a widely panned plan he already proposed two years ago - this time, with extra goodies for tax-and-spend liberals."

    Orrin Hatch responded to the President's olive branch as if were a poison pill:

     “It looks to me like they’re deliberately undermining any chance for tax reform,” Senator Orrin Hatch of Utah, the ranking Republican on the Finance Committee, said of the administration’s proposal."

     You know, as blatant as the GOP is in it's disinterest in even pretending to operate in good faith not even pretending to have any desire to get anything done, Hatch's comment is still amazing. Obama has just offered them something they've been whining about for years. All he is asking in return is some infrastructure spending. Yes, many Republicans don't like infrastructure spending but that's what a negotiation is: something you like for something you don't. You could argue that the GOP comes out ahead here anyway. After all the spending is temporary anyway while the corporate tax cut is permanent. 

    As Greg Sargent notes, you still have these absurd VSP in the media claiming that both sides are too partisan and unwilling to compromise and that Obama is failing to exercise proper Green Lantern Leadership.

    As bad faith as Senator Hatch's comments were-after all, if a 20% cut in the corporate rate is not even a starting point for compromise, what compromise is he offering?-House Speaker's Boehner's conduct throughout the President's offer yesterday takes the cake for lack of good faith and disinterest in governing. Obama had tried to speak with him before the speech and got no answer from his office. 

   "Bickering broke out as the White House said it had tried to tell aides to John Boehner, the Republican speaker of the House of Representatives, about the plan on Monday but, according to Obama spokesman Jay Carney, "never heard back" from them."

    Even worse, Boehner's spokesman-good old Michal Steel-criticized the speech before Obama even gave it. I mean what can more demonstrate no good faith, no effort at rapprochement, no interest in coming to an agreement than rebuffing the President's offer of a discussion before the speech, and yet insisting that it has nothing to offer before even hearing it?

   "Boehner's spokesman, Michael Steel, criticized the proposal even before Obama's speech, saying: "Republicans want to help families and small businesses, too. This proposal allows President Obama to support President Obama's position on taxes and President Obama's position on spending, while leaving small businesses and American families behind."

   How is cutting the corporate rate the President's position on taxes-there are few things that excite the GOP more than the idea of cutting the corporate tax rate, other than maybe eliminating the capital gains rate, the flat tax. or privatizing Social Security?

   On the other hand Lindsey Graham-of the Senate GOP Compromise Committee (CC)-had something good to say:

   “I support infrastructure spending as part of any deal, reducing the corporate tax rate is good but the big piece left out is entitlement reform,” Graham said. “I think what the president is talking about is helpful. … Having the conversation about restructuring the tax code, infrastructure, is moving in the right direction, but the big challenge for us is what do you do about long-term entitlements.”

   Well, Senator Graham, the way to get entitlement reform in there is to start with replacing the sequester-if we are even going to think about ER-and I'm not really a big fan-then we won't also tolerate these lower levels of discretionary spending in the long term. How about entitlement reform for the end of the weak level of discretionary spending? Surely the elements of a deal are here. As Graham actually says that he demands that infrastructure be part of any deal it would seem we should be well on our way. 



Neither Anthony Weiner nor Larry Summers 'Have Their Best Day'

      Anthony Weiner's aide gives us a classic understatement by declaring that today  was 'not my best today.' Uh, yes, when the headlines go from her boss' falling poll numbers in the face of new revelations of him tweeting pictures well after his 2011 resignation to his fumbling attempts to contain her 'slut-bag' comment -he does plan to stick with her- yes, ma'am it was not your best day.

      Much as I want to believe otherwise, the campaign is simply imploding. While words like 'slutbag' are never appropriate it is ironic that the woman who made public the latest Tweeter pictures last week was acting aggrieved by Weiner 'lying to the public'-she certainly wasn't being harassed by Weiner and sent back her own pics in a deep state of undress.

       Don't get me wrong, I'm not judging her-but she sounds rather judgmental herself-of Weiner. I seem to be one of the few who still understands that no actual sex has ever occurred in Weiner's escapades. Still, the fact is that he has less 'gravitas' than other Dems who have survived such embarrassment-President Clinton, former NY Governor Elliot Spitzer-who still looks like a good bet to win the race for Comptroller.

      I admit there is something to the point that Weiner suffers from having a shorter resume of accomplishments to fall back on than either Spitzer or Clinton-though in my mind, the fact that he drove Republicans in Congress crazy already makes him highly qualified. Yes, he only had one bill passed in 11 years-but then Paul Ryan has only had 2 bills passed in 15 and he was the GOP Vice Presidential nominee, and Michelle Bachman had nothing passed. Indeed, what you learn is that many of the people who the media treat as important in Congress never actually pass anything in their own name-you can add Obama to that list.

      Oh well. Let's face it, Weiner is in trouble now-no doubt, I'm understating this because I wish it wasn't so. It's hard to see him coming back though I hate to say it. At the end of the day though I would have loved for him to do it-until the new 2012 pics came out he had a shot-what matters to me is that the Dems get back in the Mayor's Office after 20 years in the wilderness. At this point Weiner's campaign is becoming such a clown show that maybe he's the one Democrat who could blow this.

     Speaking of gravitas, however, Larry Summers keeps taking more heat. Again, Krugman called this right weeks ago.

      "So what we have here are two highly qualified candidates, head and shoulders above anyone else I’ve heard mentioned and inconceivably better than the men who might have been in contention if that guy who ran with Paul Ryan had won. But if the final choice isn’t Janet Yellen, I think the president is going to have to offer a very good explanation of why not, or face a lot of grief from people who want to think the best of his administration."

      This is under the assumption that Summers is as qualified as Yellen. I came in thinking this is right, though when you think about it in what area is he ahead of her? She wins on Fed experience and certainly the ability to build a consensus within the instutition. Where does he win exactly? Some point to his work in the late 90s-the Asian Crisis, Russia, etc-but it's debatalbe how much he was involved in that and at best his role dthe late 90s is a double-edged sword as it reminds many that he's a Rubin protegee. Indeed, some wonder if he is actually a hawk-Scott Sumner argues he may have been less dovish than Berannke.

     A piece showed up in the Wall Street Journal to demonstrate that he's a dove, though this still leaves some ambiguity:

     "Jon Hilsenrath at WSJ has a new report that clearly comes from Team Summers.
A close reading of Mr. Summers's columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed's huge bond-buying programs, known as "quantitative easing," but that he also has said he sees few harmful side effects stemming from them.

       Read more:

       It doesn't really clear everything up. Still even if he is a dove-and I'm not entirely sure this puts it to bed, it certainly doesn't give us any reason to think he'd be more dovish than Yellen. We can point to her many advantages over him-there is not really one area where he unambiguously leads her on-again, his experience is a double edged sword where some will actually see it as a point against him rather than for. Nobody can deny that Yellen has more Fed experience, was right in 2006 that a crisis was coming-while he had no time for such talk back then-and that everything we know about the two of them makes us think she'd be better at collaboration and consensus building. 

      Meanwhile, the one thing that he clearly has is the President's goodwill. Obama was out speaking up for him today-though insisting this is no endorsement and that he's 'nowhere near making his decision.'

      "President Barack Obama delivered a full-throated defense of former Treasury Secretary Larry Summers at a meeting with House Democrats, although he cautioned that he has not decided who he will choose to lead the Federal Reserve."

      "Obama was asked whether he has made a decision about who he will name to be the next head of the Fed. He launched into a defense of Summers, saying the ex-senior White House aide worked to keep the nation’s economy afloat when it was on the brink, according to attendees at the closed-door meeting."

      "The topic was raised by Rep. Ed Perlmutter (D-Colo.), who urged the president not to choose Summers, according to a source in the roomAfter delivering his defense, Obama sought to ease the tension in the room."

      “The good news is I would defend all of you,” Obama told Democrats, according to an attendee. The Democrats in the meeting laughed.

       Read more:      

       More good news, is the meeting wasn't only about Summers. He promises that he's not going to cave on Democratic principles-in lieu of his latest offer to the GOP to cut corporate rates to 28% in exchange for  infrastructure. What a shock the GOP said 'Nuh uh!' followed with 'My way or the highway.'

       I'm all for offering a deal-where the GOP can show it's intransigence like Dan Quayle wore scorn-'like a badge of honor.' Still, their  intransigence is also really stupid. They got permanently lower corporate rates in exchange for some temporary infrastructure and they won't even think about it? As usual, they hold out for everything-again, they''ll probably get nothing. 

       As to the Fed Chairman nomination, you know me. You'll never find a more unapologetic and resolute Obama partisan than the writer of this blog. Still I think Krugman framed it right: he and his Administration have to explain it if they choose Summers. He is a better choice in not one area, and a worse choice in many. Again, the comments about women's abilities may not be the main point. Yet, they offer another very good reason to go with Yellen.  Here is the latest blowback.

Is There a Difference Between Bill Clinton and Anthony Weiner?

     It's a good question that Seth Masket asks. I've been asking the same question myself. Not that I didn't love Clinton but it's rather interesting to hear that Clinton is disappointed in Weiner! At least Masket admits that on raw elements, what Clinton did was worse. Weiner has not actually had sex with anyone!

     I think it’s fair to draw comparisons between the two scandals, although, if anything, Clinton’s was probably worse, as it involved a) actual physical contact with another person and b) lying under oath to keep it a secret. And sure, we remember and revere Clinton as a highly skilled politician today, but to wag your finger on national televivion and state defiantly that you “did not have sexual relations with that woman” and then completely reverse that statement half a year later does not actually attest to great political acumen. So why will Weiner suffer more politically for his scandal than Clinton suffered for his?

     I admit I've been a little disappointed to see Weiner's apparent unraveling. I would really have loved to see him get in. I've been a booster of his since 2011 in my first post.

     So what is different? I mean what Mark Sanford did was certainly much worse than Weiner and the supposedly family values conscious conservative SC voters took him back. David Vitter has never stepped down. Do only Democrats turn on scandal ridden politicians?

     Of course, not always as Clinton certainly attests. Then there is Elliot Spitzer who still looks good to win Comptroller. The most compelling argument I've heard is simply Weiner has very few legislative accomplishments as opposed to both Clinton and Spitzer. It is true that in 10 years in the House Weiner passed only one bill; although if this proves that he's light on accomplishments this was also true of Paul Ryan-who's passed only 2 bills since first elected in the late 90s. Another politician with a lot of attention but little legislative heft is Michelle Bachman. 

    So there can be other was of making an impact clearly. The one thing I always like about Weiner is that Republicans hated him; part of what burns me about burying Weiner is that this is Andrew Breitbart's legacy. Why please him from beyond the grave?

    Ok, back to Masket. His reasoning is largely the same as mine up here-basically Clinton was President at the time, had been re-elected twice, was presideing over a very strong econmy and had a strong number of achievements:

    "Basically, because Clinton was already president at the time."

    "Yes, the nation had heard rumors about Clinton back in the primaries in 1991, but those were largely being pushed by people with either political or financial axes to grind, and, probably more importantly, there was no paper trail, virtual or otherwise (except for a non-salacious and possibly doctored tape). Clinton more or less admitted publicly to having strayed on occasion, and he and Hillary said that they’d moved past that and that their marriage was strong. So he got a pass. Democratic activists functionally struck a bargain with Clinton, with them willing to help him get elected on the condition that he’d keep his pants zipped. And this arrangement worked, at least for a while."
     "His infidelity really didn’t again surface as an issue until 1998, when he had already been president for a term and a half. By that point, Democratic activists and other liberals had a lot invested in Clinton. They’d backed him repeatedly, and he in turn had produced a pretty solid record of accomplishment. The economy was booming, the deficit was turning into a surplus, he’d signed trade agreements and handgun restrictions into law, signed the Family and Medical Leave Act, fought valiantly for health care reform, etc. It was possible at that point to see Clinton’s indiscretions as something that the country just needed to tolerate in exchange for having a competent and productive chief executive. To toss Clinton over the side would have meant disregarding the progress he’d made, and it would have also meant giving into journalists (who were delighting in the sexual details while piously calling on Clinton to resign) and Republicans (who seemed to be elevating presidential fellatio to the level of treason). So even though Clinton had broken his bargain, liberals stuck with him."
     "Why are liberals tossing Weiner aside? Why not? Unlike Clinton in 1998, Weiner is far from indispensable. There are other competent people running for mayor. He has no political power today, and no particularly impressive record from his days as a member of Congress to draw upon. His main activity then was to antagonize Republicans—certainly a valid goal for some, but hardly the sort of thing you go to the wall to defend. As Coates writes: “It is wholly sensible that those of us who believe the liberal project is about more than embarrassing Republicans would not want Anthony Weiner as a pitchman.”
     "With Clinton, it could be argued that his dalliances were the price we had to pay for progress. With Weiner, his dalliances are the price we pay for … what exactly?"
      The price for embarrassing Republicans? I got admit I give a high price to that. Anyway I'm in one of the stages of grief-mostly regret. I still wish that NY Democrats would reconsider. On the other hand, NYC Dems need to elect the best candidate to win the Mayor's Office back this year after being in the wilderness for 20 years. It seems this year the Dems have a golden opportunity to take it back-it's really their's for the taking. So much as it pains me, maybe Weiner could be the one way to make the general election close.


Tuesday, July 30, 2013

We Can Argue What Getting Forecasts Right Means but Janet Yellen Does Get Them Right

     After all, we've had this debate before. Sumner argues that forecasts don't prove much as the EMH is a fact and therefore the correct forecasts were probably luck. Then there was the debates back in June about Steve Keen on two questions:

    1). Just how accurately did he predict the financial crisis

    2). Assuming he was accurate what does it prove anyway?

    On the question of Ben Bernanke's successor, however, the question of forecasts is being resurrected. Right now, a lot of people are remarking that Janet Yellen sure has gotten a lot of forecasts right. She was already predicting trouble in 2005-contrasted with her arch rival for Fed Chairman, Larry Summers who was quite uninterested in such claims back in 2006 and 2007.

   Last week, Matt Yglesias suggested that the White House had deliberately put out a trial balloon by suggesting that Summers was very close to being a shoo-in-which took Fed watchers by a good deal of surprise. No one had thought that Summers was very likely before this. The point was to see the reaction to gauge whether Summers is doable enough-the assumption here is that he is the WH's first choice.

   Well reaction continues to come in and it's pretty brutal. If the WH wanted to gauge reaction it seems rough. True, as Ygelisas pointed out, it depends on just how rough it expected it to get. And the anti Summers sentiment is disproportionately on the Internet.

   Today the Wall Street Journal chronicles Yellen's impressive accuracy over the years.

    "With the exception of certain commentators who get paid ostensibly to act like inveterate morons, nobody has doubted Janet Yellen’s record of analytical prescience in the past decade."

    "The examples presented by Bill McBride, and which date back more than eight years, along with the 2007 FOMC transcripts are enough to understand why. Not that Yellen can predict the twists and turns of the economy with perfect clarity — nobody can — but rather she has consistently shown a deep early understanding of the underlying pressures building in the economy and the scale of their potential consequences."
     "This particular plank of support for a Yellen candidacy was reinforced by the Wall Street Journal’s analysis on Monday of FOMC forecasts since 2009. It turns out that she has also been successful, more than any other FOMC member, at predicting the short-term trajectories of the major economic indicators."
     So it seems that this trial balloon hasn't quite gone the way the WH had hoped. Now, they're using the 'I' word to describe the Administration-insular. 
     "Over at FT Alphaville, Cardiff Garcia says the right things about the Yellen affair:
Politics really isn’t our thing, but more believable for now is simply that the White House didn’t do its homework, failed to anticipate the backlash, and is now clumsily trying to figure out how to handle it.
The politics is unavoidable, of course. But we would just emphasise again that strictly on the merits, you hardly need to make an anti-Summers case to prefer Yellen.
     "One does have the sense that economic policy discussion in the WH has grown dangerously insular; just about anyone outside, if asked, could have told them what a mess they’d make by floating the idea of choosing Summers over Yellen. But they seemed blissfully unaware of what was coming."

       Everyone is getting lics in with the WH appearing to prefer Summers because he has able to charm Obama personally:

      Bear in mind too, that Krugman is a good friend of Summers who thinks he's very qualified for the job-unlike others who are much less sure, like Sumner. I tended to agree with Yglesias that there's not so much difference between Summers and Yellen as many think. However, I admit that I've had some second thoughts. Krugman got it right originally. Even if we assume that they are both pretty evenly qualified, Yellen is the better choice for optics-feminism, also the fact that the Fed is a collaborative body and that's not exactly considered Summers skill set. 

     However, I do see the point of the anti-Summers people. After all, the defense that Summers' advocates give don't exactly make me reassured:

     "Obviously there’s no guarantee that this would continue, but at the very least this serves to further disprove one very peculiar notion given by Ezra Klein’s sources last week for preferring Larry Summers to Yellen — specifically the notion that “the market” trusts Summers more, because (we guess?) he’ll be a tough manly man on inflation while she’s a homeless-hugging San Francisco hippie female person who will let the US economy revert back to the hellspun apocalyptic landscape of the 1970s, ushering in another era of frozen wastelands and broken homes and shattered dreams."

     Krugman's main criteria for Fed Chairman is a committed dove. There is some reason to question Summers on this as the above suggests. We don't need a manly man on inflation. Much as I don't try to say this too often, Sumner could be right: maybe he would have been less dovish than Bernanke. I didn't think this at first, but he is the protegee of Bob Rubin who even now thinks money is too easy. 

    It's true that the WH came into this playing the whole board-the blogosphere is only one part, you also have the Wall Street guys who have the WH's ear and wealthy Democratic donors. Still, it's got to be disconcerting for the WH to see what's happening outside the blogosphere in the Democratic Senate. 

    Summers does have one impressive supporter:





With NLRB Confirmations it's Clear: Senate GOP is Actually Honoring Nuclear Option Treaty

     As we saw last night, there was a big test coming for just how meaningful the Senate filibuster agreement between Harry Reid and the small group of GOP Senators who brokered the deal at the last minute, avoiding the nuclear option.

    On tap was Obama's new nomination for head of the FBI, the picks to finally adequately staff the NLRB again-the GOP had deliberately left it understaffed after a federal court-inexplicably claimed that Obama's recess picks were unconstitutional-and finally a head for the ATF.

   So is the deal going to mean anything or it back to-dysfunctional-business as usual? So 24 hours later we have an answer and clearly the agreement is being honored. Yes, you can credit the GOP Senators who are honoring it for doing so. According to Jonathan Bernstein 21 Republicans have voted for cloture on a nomination at least once since the deal.

  A number of these votes have been quite close though. As Bernstein notes, it's curious why these 21 GOP Senators are letting themselves take all the heat allowing the other 24 off the hook. Indeed, there's no actual need for cloture so someone in the GOP is still forcing cloture votes. On the FBI nomination, there was no cloture vote-it went through 93-1.

  Then we had the NLRB nominees sail through:

   "The Senate has voted to fill all five seats on the National Labor Relations Board. And it’s getting ready to consider President Barack Obama’s picks for top diplomatic and law enforcement posts as senators whittle down a pile of stalled nominations."
   "Senators used a near party-line vote Tuesday to confirm Democrat Kent Hirozawa to the NLRB, which helps resolve labor disputes. It then approved four more NLRB nominees, two Democrats and two Republicans."
   "Tuesday’s votes covered the last of the seven nominees that were part of a bipartisan deal earlier this month in which some Republicans agreed to end stalling tactics."
   "Starting Wednesday, the Senate will consider B. Todd Jones to lead the Bureau of Alcohol, Tobacco, Firearms and Explosives and Samantha Power to be U.N. ambassador."
     As TPM notes, these were all covered in the original this. However, Jones was no in the agreement. So he offers a good first test to see if this really is going to lead to a sea change or we're back to (no) business as usual due to obstruction. What is very interesting is that the big gun lobby groups-thanks to their machinations the ATF hasn't confirmed an ATF head since 2006-leaving it with only Acting directors-have dropped their opposition to Jones today. 
    "The National Shooting Sports Foundation has written a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) backing the confirmation of B. Todd Jones to be director of the Bureau of Alcohol, Tobacco, Firearms and Explosives."
    "In the letter, Lawrence Keane, the NSSF’s general counsel, writes that the organization has been at odds with Jones during his two-year tenure as acting ATF director but supports the effort to place him in the position permanently."
   “While we have at times strongly disagreed with the policy and regulatory positions and interpretations ATF has taken during Mr. Jones’ tenure as acting director, we have never found Mr. Jones himself to be disagreeable,” Keane writes in the letter, which is dated Wednesday.
    "Jones has served as the ATF's acting director since 2011. Obama nominated him to be the permanent director in January as part of his response to the shooting massacre at Sandy Hook Elementary School in Newtown, Conn."
      Yes, Chuck Grassley vows to hold up his nomination:
      "Sen. Chuck Grassley (R-Iowa) has vowed to delay Jones’s confirmation vote until an investigation into whistleblower complaints from his tenure as the U.S. attorney for Minnesota. The Senate has not confirmed an ATF director since the position became confirmable in 2006."

      Yet how about this: the NRA is not going to oppose him:

      "The National Rifle Association confirmed Tuesday that it would remain neutral in the confirmation of Todd Jones to head the Bureau of Alcohol, Tobacco, Firearms and Explosives, giving Jones a big boost in winning Senate approval, according to the San Francisco Chronicle."

     "It is unclear why the NRA, a long time foe of the ATF, is not opposing Jones, although the powerful gun lobby's director of public affairs confirmed that the organization would neither support nor fight the nomination."

     My guess is that the Senate GOP has asked it to stand down-during the fiscal cliff deal Norquist accepted the tax hike on the top marginal rate. Yes, we must be cautious. Still these are hopeful signs that we are entering an ear of perhaps less brinkmanship at least on some routine matters.     


Monday, July 29, 2013

More Thoughts on Supply Side Theory vs. Keynesian Theory

     I wrote about it last week as I do find Wanniski's theory of the Laffer Curve-it was Laffer's Curve though Wanniski named it-quite intuitive. Of course, that a model is intuitive doesn't necessarily mean it's right.

   One thing that interested me is the difference between SS and Keynesianism. There are some interesting areas of overlap. Both are fiscal theories of stimulating the economy. Wanniski argued that Keynesianism can work to stimulate the economy if it argues for tax cuts as it did in the 60s. However, according to him Keynesians wrongly ascribe this to bond illusion-successfully fulling people that taxes won't have to go up later. The real reason it works according to Wanniski is that Point E on the Laffer Curve requires tax rates to come down; an interesting point about the LC is that Wanniski admits that there are times that E requires that taxes actually go up.

  It seems to me that this is where we are today: the electorate-who Wanniski believed always makes the correct choice based on what their two choices are at least-seems to be indicating that taxes are too low-on the rich-and that we need the government to provide more goods and services. Again, LC can accomodate this analysis-certainly based on Wanniski's analysis in The Way the World Works. In his lifetime, Wanniski showed himself capable of some adaption-he largely predicted what positions Clinton would take in winning in 1992.

   Laffer, today, seems considerably less adaptable. He refuses to consider the possibility that maybe E now shows that taxes are too low-certainly were in the 2012 election before the fiscal cliff deal-and can come up further as Democrats are urging.

    What was interesting is the way that Bush marketed his tax cuts in the 2000 election. In 1999, he was already arguing for them based on the big worry that if they didn't pay out the surplus in tax cuts, they would fund more government spending-I admit that I would have liked at least some of it go there.

     Larry LIndsey himself was already bearish on the economy in 1999, interestingly. However, the tax cut was being packaged in classic SS fashion-as insurance just in case there ever is a problem; then Greenspan actually reversed himself and testified to Congress that the surplus had to be spent or the government might start buying up the economy-buying bonds and lots of equity in firms, next, Greenspan and company warned, Uncle Sam would be running the Board of Directors.

     So we went from the need for surpluses during a Democratic Administration to needing to get rid of it immediately before it burns a hole in our pockets and the government takes over half the Fortune 500. Then of course, the economy fell into recession and Bush fell back on Keynesian logic: it was needed to bring us recovery.

     So the tax cuts were argued for on both Keynesian and SS grounds-and a few others as well .It's like Friedman says-any reason, any excuse.

     Yet in principle, while both Keynesianism and SS are theories of stimulating the economy, there are two major differences:

     1.) Keynesianism is counter-cyclical stimulus, while SS is largely pro-cyclical. SS theory basically doesn't believe that we can do anything about the business cycle-it's basically Classical on this point-the price of labor supply is too high, the market needs to correct for this and bring it down.

     2). Both theories seek to increase spending in the economy; however the goal of SS is, naturally the supply-side, which means it seeks to increase investment spending, whereas Keynesianism is demand-side and seeks to increase consumption.

     What SS theorists never demonstrate is that the economy in normal times has any trouble coming up with capital spending.