You gotta be on Prozac to be an economist these days, I swearPosted: July 31, 2013
There are so many elegant things about my chosen field that I do, in fact, still get excited when I introduce huge numbers of undergraduates to Economics. I don’t do much of that anymore given that I am better paid and easier employed as a graduate finance teacher churning out hapless MBAs. But, part of me still knows that we have lots of answers to the big policy questions. The problem is that Republican Revisionism and Big Money from Big Finance has totally overwhelmed the main stories and theories that we all know well. The worst situation is that the cult of the Austrian School is being taken seriously by a select group of young, white male journalists and getting more virtual ink than it truly deserves. Then, there is the absolute fail of the urgency of fiscal policy when unemployment is this high and this pervasive. The one bright light–despite the howling of goldbugs and Birchers–has been the FED. There are still economists over there in that outfit. If you’re used to deconstructing markets like I am, you can see that the markets trust the FED’s policy. It’s not that the FED directly benefits them any more. Those days of buying up nasty assets are behind us. It’s that the Fed understands its priorities are stable financial markets and banking systems and tackling either inflation or unemployment depending on the priority.
Inflation is the thing that is most directly impacted by FED policy. It hasn’t been an issue since Paul Volcker got rid of it and the FED announced its Taylor Rule boundaries. It’s the legacy of Milton Friedman and the monetarists which is actually the school that I most fit as a financial economist of a certain age. That legacy and the legacy of fiscal policy as established by the models and hypotheses first provided by J.M. Keyenes and later proved and improved by a slew of brainy economists with computers and databases–like Paul Samuelson–has been under attack with no theoretical or empirical basis. It is all political and screed journalist based. The nonsense has been amplified by a President who seems completely unwilling to trust real economists and relies on lawyers with emphasis on economic policy. That’s like having a biologist that watches bears in the woods go over your blood work imho. I don’t care how much freaking experience you have writing policy law, it’s not the same as being grounded in the theory and totally aware of the empirical proofs and disproofs.
So, as the speculation about a possible new fed chair pops up, we get stuff like this. Obama is defending Larry Summers. The man is an economist but the man is also not what you would call a particularly skillful leader as witnessed by his tenure at Harvard. He also has said some things about women and science and math that are not very artful and certainly not very helpful to those of us that struggle to be credible despite our obvious genitalia.
Barack Obama has strongly defended Larry Summers against opposition from the left to the possible appointment of the president’s former economic adviser as the next chair of the Federal Reserve.
Mr Obama, speaking at a closed meeting of the Democratic caucus of the House of Representatives, reacted strongly at an otherwise friendly meeting when Ed Perlmutter, a congressman from Colorado, urged him not to appoint Mr Summers.
According to members of Congress present at the meeting on Capitol Hill, Mr Obama urged Democrats to give Mr Summers a “fair shake” and said he had been a loyal and important adviser when the president took office in the midst of a deep recession in 2008.
Mr Summers, a former Treasury Secretary and president of Harvard University, and Janet Yellen, the vice-chair of the Fed, are the leading contenders for the job.
Mr Obama also mentioned by name a third person, Don Kohn, as a possible candidate. He said he had yet to make up his mind on whom he would nominate for the job.
The president said there was little in the nature of policy differences between them, saying you “would have to slice the salami very thin” to find areas in which they diverged.
Don Kohn is a Fed insider and pretty well known as a monetary policy dove just as Obama appears to be a fiscal policy dove. Let me qualify that description. They both come from the let people suffer unnecessarily and let the markets work things out school of thought. In good economic times, that’s an okay stand. In the face of persistent unemployment that is basically looking at a huge number of people and saying let them eat cake. That last option is unnecessary because the bottom line is that we know better and can do better by these folks. It kills me to know what I know and watch the passivity of Obama and the retch-inducing ignorance of Republicans in the face of great suffering. If, in the long run we are all dead, in the short run we all suffer and face economic and personal devastation in the face of incremental steps and not whole-hearted policy wars on dire economic situations. Frankly, I think Obama has a problem with the Janet Yellen because she’s likely to tell him to off if she doesn’t like what he has to say. I really do. She’s a hard boiled economist with a no nonsense approach.
It’s not that we’re doing badly. It’s that we’re creeping along and not growing fast enough in the face of all this deep, long, persistent unemployment and no one’s hair is on fire that can do anything about it.
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.7 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent (revised).
The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and “Comparisons of Revisions to GDP” on page 18). The “second” estimate for the second quarter, based on more complete data, will be released on August 29, 2013.
The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential investment that were partly offset by a negative contribution from federalgovernment spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the second quarter primarily reflected upturns in nonresidential fixed investment and in exports, a smaller decrease in federal government spending, and an upturn in state and local government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.
We cannot creep our way back to prosperity.
The fact that the donor class and corporate profits are doing well is what’s driving this anemic policy response. The people most effected by the inactivity are either fighting it out with racial resentment or feeling the usual helplessness that goes with being a picked-on out class. That infighting is helping those at the top ignore the plight of the folks that find they are quickly losing ground. That is why any of these FED appointments is basically a win for the status quo. It is also why the though of Larry Summers as FED chair gives me the heebiejeebies.
Like I said, real economists reacted to this news today like this: Economists React: Better GDP, but Trend Still Sluggish. Here’s some examples.
While this is a better than expected report, it isn’t very strong. If you look at the past three quarters, the economy has not done very much. That is the economic environment facing the Fed as it meets today. –Joel Naroff, Naroff Economic Advisors
The fact that declining federal spending continues to be a drag on economic growth is another reminder that now is not the time for Washington to impose self-inflicted wounds on the economy. The Administration continues to urge Congress to replace the sequester with balanced deficit reduction, and promote the investments our economy needs to put more Americans back to work, such as by rebuilding our roads and bridges. –Alan Krueger, White House Council of Economic Advisers
–The U.S. economy grew modestly in the second quarter because of hefty fiscal restraint, but growth exceeded expectations and looks to turn convincingly higher in the second half of the year. Sequestration chopped federal nondefense spending 3.2% annualized in the quarter, and civic worker furloughs slowed consumer spending to 1.8%, despite motor vehicle sales hitting five-year highs. On the plus side, residential construction clocked in with a fourth consecutive double-digit gain, exports bounced back strongly, and state and local government expenditure rose for the first time in a year. Most importantly, businesses appeared less concerned about the knock-on effects of sequestration. –Sal Guatieri, BMO Capital Markets Economics
All during this economic bust up we’ve had government as a drag on the economy. This has been at every level of government. It is a massive fail on the part of our modern democracy.
Again, we cannot creep our way back to prosperity. This is especially true if all levels of government are holding back everything but the profits of a few large corporations and the taxes of the people who have gained so much over the last three decades. It just ain’t right and it just isn’t good economic policy.