"Bush is a Leader the Economy Can Trust"

Article here by N. Gregory Mankiw.

He says he supported Bush over Gore b/c Bush would have invested Social Security money in the stock market, earning a higher return...

Mankiw at EEA

I popped in to Mankiw's talk at the Eastern Economic Association Conference, but only briefly. No personal disrespect to Manks here, but I have a fairly strict policy I like to keep which is this: i don't go to talks given by Economists unless I'm the Economist giving it. I wasn't always like this. I just learned, little-by-little, that Econ talks almost always leave something to be desired, and are usually a complete waste of time.

In any case, "Joe the Plumber", whom Meghan McCain called a "dumbass" was the inspiration for Mankiw's talk. To his credit, the talk was about the rising trend in inequality, but took the Goldin/Katz line that it's all about education and skill-biased technological change. I'd agree with him that, looking at recent US data, it looks pretty convincingly like we've had SBTC. But then, three other basic types of evidence completely contradict SBTC. One is the international evidence -- inequality trends in mainland europe, japan, and korea look nothing like the trends in Anglo-Saxon countries. Secondly, the long-run time series in America also shows that there are periods, which correspond closely to changes in institutions, when inequality ebbs and flows -- which suggests the more obvious conclusion that it's the institutional changes which are important. Thirdly, when we talk about the rise in inequality, we're mostly talking about just the top 1% of the population. And among the top 1%, we're mostly talking about the top .1%. So this has nothing to do with increasing returns to education generally, or any of that nonsense... Perhaps he critiqued the SBTC later in his talk, but I didn't stick around.

Other interesting things are that he's practically a hunchback, he was quite nervous for his talk, and afterwards, at the cocktail reception, after His Big talk, he was really puttin' em' down.

Congress didn't ask my question, but they did ask...

from the NYT: "After Mr. Paul suggested that money used in the 1972 Watergate break-in came from the Federal Reserve, and that the Fed had loaned $5.5 billion to the regime of Saddam Hussein of Iraq, Mr. Bernanke replied, “The specific allegations you have made are absolutely bizarre. I have no knowledge of anything remotely like what you’ve described.” "

what a nutcase...

Update: This is what he was talking about. Nevertheless, someone's got the story wrong. "Allowing $5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank--the result of faulty bank examination practices by the Fed;" Is quite different than the Fed loaning directly $5.5 billion, although it's still clearly a scandal. The book also mentions "Stonewalling Congressional investigations and misleading the Washington Post about the $6,300 found on the Watergate burglars."

OK, but asking Bernanke about the $6,300 found on the Watergate burglars accomplishes what?

A Question for Ben Bernanke

"We are not in a Great Depression by any means, but our economy has operated below potential for nearly three years. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, monetary policy seems paralyzed, with a paralysis that is largely self-induced. ... Perhaps it’s time for some Rooseveltian resolve."

If these words sound familiar, Chairman Bernanke, that is because you wrote them. You wrote them about Japan in 1999, when Japan's CPI was flat, and Japan's unemployment was at a mere 4.7%. You wrote that this called for "an aggressive depreciation of the yen", for a “helicopter drop of newly printed money" and for an "inflation target of 3-4%".

The Fed estimates that unemployment in the 4th quarter of 2010 will be 9.5 to 9.7%, and that Core inflation will be a mere 1.4-1.7% in 2010. Unemployment claims were up last week by 31,000, and we had core deflation in January. And yet, last week you took actions which strengthened the dollar, and which, according to any economics textbook, tell us will tend to increase unemployment and reduce inflation -- precisely the opposite of what you counciled Japan. My question is this: Why wouldn't we want to trade more inflation for less unemployment, as you yourself urged the Japanese at a point in time when they had much less severe unemployment and no deflation like we have now? Mr. Chairman, where is your Rooseveltian resolve?

Our Inflation Target is what?

OK, so the Fed has an unofficial inflation target of 2%, right?

Except, the Fed's projection of inflation for this year is 1.4-1.7%. And the Fed is also taking steps to slow the economy. But if I'm a rational agent, I'm not sure why I wouldn't expect prices to rise at the lower end or below of the Fed's range.

So, the Fed essentially has an inflation target of 1.4%, whether it knows this or not. Complete madness.

Hoisted from the Comments: Commenter Ted

Ted said...

Bernanke deeply confuses me. Back in 1999 Ben Bernanke wrote a paper entitled "Japanese Monetary Policy: A Case of Self-Induced Paralysis?" where essentially he chided the Bank of Japan for incompetence. It's particularly interesting to see what Ben Bernanke recommended the BOJ do.

(i) He approvingly cites Krugman's 1999 article and calls on the BOJ to commit itself to 3-4% inflation "to be maintained for a number of years."

(ii) He argues that the most important policy that could be done would be rapid depreciation of the yen through large and substantial open-market sales of the yen.

(iii) Using large "money financed transfers", essentially what he calls a "helicopter drop of money on households." For example, he advocates that the government create a large tax cut and the BOJ then buy government securities equal to the tax cut.

(iv) And, if all else fails as a last resort get those open-market operations going and pump in some quantitative easing. He advocates substantial purchases of government and corporate bonds, asset-backed securities, and commercial paper. He even argued for indirect bank bailouts by removing non-performing loans off private banks balance sheets. He argues that Japan wouldn't need to do large quantitative easing if they enact the other three strategies, but he's fairly clear he would advocate more quantitative easing if they failed or were not as successful as desired.

The final section is the greatest irony of all:

"But Roosevelt's specific policy actions were, I think, less important than his willingness to be aggressive and to experiment - in short, to do whatever was necessary to get the country moving again."

"Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn't absolutely going to work. Perhaps it's time for some Rooseveltian resolve in Japan."

The article is incredibly sad because if you didn't see the author you'd think this guy would make a decent Fed chairman.

But that author is our Fed chairman, is he seriously trying any of the four above? Is he showing Rooseveltian resolve and experimenting like crazy to get the economy going? Did he just become Fed chairman and say, "guess I can forget all that bullshit I pretended to believe in" ? I'm baffled, we are in our "Lost 2-Years" and he's not doing the very policies he advocated just a decade ago.

As I said, Bernanke deeply confuses me.

Amen...

My thoughts are that Bernanke is a beta male, and there are more aggressive alpha-malish inflation hawks on the Fed, and they've been wearing the pants in that relationship for the past 14 months. That's why those two appointments the Administration isn't making to the Fed actually do matter. A lot.

Ohmigahd...

Just took a look at the EEA Conference Schedule for next weekend in Philly:

5:45 p.m.–6:45 p.m. Presidential Address by N. Gregory Mankiw ...........................Ballroom X
“Spreading the Wealth Around: Reflections Inspired by Joe the Plumber”

Joe the Plumber!

I don't know if I'll be able to stomach the whole thing, but I'll try to live-blog that!

About those Fed Appointees...

So, my take on Bernanke is that 1) He's not terribly sharp, 2) there's nothing in his academic writings which would suggest he wouldn't be opposed to aggressively expansionary monetary policy at this point, and 3) he's got all kinds of inflation-hawks whispering in his ear at the FOMC.

And yet, Obama has two Fed appointments to make. Why not, y'know, use those for appointments who are not inflation-crazies? I suspect Bernanke is quite likely to be influenced by cooler heads, so this could actually help the situation quite a bit.

But, what is Obama's Economic Team doing about those appointees? Nothing. There is one thing the administration could do with the potential to help the economy, and improve the election climate for next fall, and they aren't doing it.

Fire Larry Summers now.

More Stimulus?

Not sure I see the point of this . If Congress does more, then the Fed will likely do less. Sure, I think Congress and the Fed should definitely both be doing more, especially in the wake of a worsening unemployment situation and outright deflation, but what we really need is another trillion in QE. Even with deflation in the core rate and worsening unemployment, the Fed raised the discount rate. If a big package comes out of the Congress, it will raise the Federal Funds rate.

The problem is Ben "inflation-fighter-extraordinaire" Bernanke is ensconced at the Fed. He's going to ensure the Dems get f*ck!d next fall.

As I recall, Brad DeLong supported Ben Bernanke...

A Deviation from "Paul Krugman is always right"

So, I'm a huge fan of Paul Krugman. I actually work in the same field as that in which he was awarded a Nobel, and his academic work is solid, and I'm generally whole-heartedly in agreement with most of his more recent economic policy analysis. Most attacks on Krugman turn out to be completely off-base -- such as the hack job by Ryan Avent of Free Exchange from a few weeks back. The real problem with Paul Krugman is that there is only one of him -- the world needs for there to be 10-20 Paul Krugmans -- smart, liberal economists who understand the big issues and are out there fighting for it.

However, I think he should have added a caveat to his latest post in which he argues that because the stimulus essentially ends at the end of this year, it's getting pulled away too fast. Thing is, I think the more important problem is that the Fed is not doing more, and certainly by some point in 2011 is likely to raise interest rates. We really are likely to be in a situation in which, even if Congress does more, the Fed might do less. Although I agree, in principal, that Congress should be doing more, I think the Fed is the more important guilty party at this point. We need a competitive devaluation of the dollar, and the way to do that is for the Fed to print money and buy out debt, with the added benefit that this would reducing our future debt payments. Incidentally, this would also put pressure on the Chinese to revalue -- more pressure than having our politicians jaw them but do nothing.

Clueless is Right

I've always thought Krugman has been a bit too hard on Obama. He's right though, this is clueless...

The Super Bowl...

Not sure how much time I'll have the next few weeks for blogging, but...

The announcers are all abuzz about the key play being the surprise on-sides kick to open the 2nd half. It turned out to be a great call and a huge play, but for me, the definitive series of the game was the end of the 1st half. The Colts' defense made a huge goal-line stand. And what does the offense do? With two minutes left and three timeouts, they run three consecutive running plays (to try to run out the clock) and then punt out of the end zone to Reggie Bush at mid-field, giving Drew Brees one minute and two timouts to move the ball 20 yards into field goal range against a gassed defense.

How strange was this? Peyton Manning is superb in the last few minutes of the half, as defenses usually play the deep ball, blitz only three rushers, and give up the 5 yard dink for free. Up until that point, the Colts offense had owned the Saints' D', the only punt coming on a dropped ball which probably would have put the Colts back in scoring position. Add to that, when the Colts' are passing, their normal scoring drives don't even last two minutes. The clock was totally not even a factor. And isn't giving the ball to the Saints with timeouts and 1 minute left at mid-field basically the worst-case scenario? Three running plays virtually guaranteed that outcome, as the Colts average just 3 yards a carry rushing, and got exactly that on those three plays. There is safe and then there is stupid. This was the latter.

And, if the Colts had gone down and gotten a field goal (perhaps the most likely scenario), then that six point swing would have made a huge difference later in the game, as the Colts would have been leading by 20-13 when the Saints scored their late touchdown, in which case they'd have gone for 1 instead of 2, tying the game at 20. In that case, even if Peyton still had thrown his pick-6, they Colts would only have trailed by 7 going into the final drive, which would have made it a bit more meaningful...

Other than that, I probably would not have attempted that 51 yard field goal in the 2nd half... Or heaved one downfield on 3rd and 11... Makes more sense to me to take the free 5-7 yard dump on 3rd down and hope you break a tackle, and then go for it on 4th...

US Exports -- 3rd best!

Surprisingly (to me at least), the US is now 3rd in worldwide merchandise exports, as according to the CIA Factbook.

I guess it'd be important to look at the total number for goods and services before we conclude that these numbers are scary, but goods aren't likely to reverse the ordering much -- the US exports way more in merchandise than in services.

This is something the US should do something about. I.e., by getting China to peg its currency at a higher rate, or by having the US Treasury sell debt just to buy foreign government debt, thus weakening the dollar and providing a boost to US exports. Long term, of course, it would be nice to get our fiscal house in order as well, but not until we've got a sustained recovery.

1 European Union $ 1,952,000,000,000 2007 est.
2 China $ 1,194,000,000,000 2009 est.
3 Germany $ 1,187,000,000,000 2009 est.
4 United States $ 994,700,000,000 2009 est.
5 Japan $ 516,300,000,000 2009 est.
6 France $ 456,800,000,000 2009 est.
7 Netherlands $ 397,600,000,000 2009 est.
8 Italy $ 369,000,000,000 2009 est.
9 Korea, South $ 355,100,000,000 2009 est.
10 United Kingdom $ 351,300,000,000 2009 est.
11 Hong Kong $ 326,900,000,000 2009 est.
12 Canada $ 298,500,000,000 2009 est.
13 Belgium $ 296,100,000,000 2009 est.
14 Russia $ 295,600,000,000 2009 est.
15 Singapore $ 245,000,000,000 2009 est.
16 Mexico $ 223,600,000,000 2009 est.
17 Spain $ 215,700,000,000 2009 est.
18 Taiwan $ 198,400,000,000 2009 est.
19 Switzerland $ 190,100,000,000 2009 est.
20 Saudi Arabia $ 180,500,000,000 2009 est.

And notice, we're behind China even counting Hong Kong separately...

Oni ha soto, fuku ha uchi!

Happy Setsubun!