Monday Reads

Posted: September 12, 2011 | Author: | Filed under: morning reads, We are so F'd | Tags: , , | 11 Comments

Good Morning!

Well, it’s yet another Monday.  I’ve been busy checking out the jobs listings for next academic year and one Hawaii posting is looking pretty interesting right now. Anyway, I’ve got a little more writing on stuff to do before I go full force on that in a few weeks.  I spent all weekend with my nose in numbers and didn’t even turn on the TV once.   Let’s start with an academic post at VOXEU on “What caused the recession of 1937- 1938?” for a good start.  It’s on monetary policy and gold.  It shows how worrying about inflation when a recovery hasn’t really taken hold yet can create further problems.  It also is an area that was investigated by economist Christine Romer who showed how tight fiscal policy (i.e. less government spending) and a tightening of monetary policy led to a recession within the Depression.  Sounds familiar!

The recession of 1937-38 is sometimes called “the recession within the Depression.” It came at a time when the recovery from the Great Depression was far from complete and the unemployment rate was still very high. In fact, it was a disastrous setback to the recovery. Real GDP fell 11% and industrial production fell 32%, making it the third-worst US recession in the 20th century (after 1929-32 and 1920-21).

The recession is often attributed to a tightening of fiscal and monetary policy. Christina Romer (2009) and others have argued that it is relevant to today’s situation because it illustrates the dangers of a premature withdrawal of stimulus when the economy is still weak.

But the recession remains somewhat of a mystery because the two most frequently mentioned causes – the reduction in the fiscal deficit and the Federal Reserve’s decision to double reserve requirements – do not appear to have been powerful enough to generate a recession of the magnitude seen. For example, Romer (1992) herself has argued that “it would be very difficult” to attribute much of the decline in output to changes in fiscal policy.1 And most studies of the Fed’s doubling of reserve requirements – most recently, Calomiris et al (2011) – have concluded that it had little impact on banks because they held abundant excess reserves, which they did not seek to rebuild after the new requirements took effect.

If fiscal retrenchment and higher reserve requirements cannot fully explain the recession, then what can? There is no doubt that there was a severe monetary shock. As Figure 1 shows, the money supply (M2) grew at a consistent rate of about 12% a year from 1934 to 1936, but then suddenly stopped growing in early 1937 and even fell later in the year. The monetary shock, however, was not the Federal Reserve’s decision to increase reserve requirements, but the often overlooked Treasury Department decision to sterilise all gold inflows starting in December 1936.

Historian Julian Zelizer is wondering about Obama becoming a one-term President.   Minx sent me this link and I found it interesting.  Zelizer seems to think that the midterm election created a timid Obama.  It seems like every where I turn I read an article on Obama plus one term president these days.

With waning approval ratings and a stagnant economy, the possibility that Mr. Obama will not be re-elected has entered the political bloodstream. Suddenly, the opposition party envisions a scenario in which its presidential candidate could defeat Mr. Obama in a referendum on his job performance. Mr. Obama needs to think hard about his own statement and consider what it takes to be a successful one-term president, in the light of history.

One-term presidents usually leave office with their parties divided, the economy in crisis, wars unresolved, approval ratings in the tank and a sullen public rejecting them. Becoming a one-term president means joining a gallery of dashed hopes and crushed ambitions. Among those who were elected for just one term were men who, like Mr. Obama, came to the White House with enormous promise.

Interestingly enough, it may just be the Republicans that defend Social Security in an effort to stop the momentum of Governor Goodhair.  First up, a bit of  ass-kicking on the subject from Mittens.  Romney knows where to play the Social Security card; FLORIDA!

Mitt Romney didn’t wait long to begin his attack on Rick Perry over Social Security—his campaign is doing door-to-door distribution of a flier attacking Perry on the issue.

The flier, which a campagn spokesman said is being left at the doors of Florida GOP primary voters, portrays the GOP primary as a two-candidate race—“Two candidates. Only one will protect what’s important to you,” is the headline.

Of those two, it says, Perry is “reckless and wrong on Social Security.” The bold-face tagline: “Rick Perry: How can we trust anyone who wants to kill Social Security?”

Romney, it says, favors “entitlement reform,” but “wants to save Social Security.”

Perry has not directly advocated abolishing Social Security, although he has called it a “Ponzi scheme” and questioned whether it’s constitutional. In last week’s candidates debate at the Reagan Library debate, the two clashed on the issue, and Romney accused Perry of being “committed to abolishing Social Security. But during the debate, Perry promised emphatically that he wouldn’t do anything to affect the benefits of current retirees or those nearing retirement.

Romney isn’t paying attention to the nuances, however. In the nation’s biggest swing state, which happens to have the second-largest population of 65-plus residents, he clearly hopes to put Perry’s views into question.

Bachmann is not about to be left out of the situation.  She’s got plans in the work to attack Goodhair on Social Security too.

“Bernie Madoff deals with Ponzi schemes, not the grandparents of America,” says a Bachmann adviser.  “Clearly she feels differently about the value of Social Security than Gov. Perry does.  She believes Social Security needs to be saved, that it’s an important safety net for Americans who have paid into it all their lives.”

Bachmann is in Florida for private meetings and to prepare for Monday night’s GOP debate in Tampa.  It’s no secret the Bachmann camp was unhappy with the moderators of last Wednesday’s Republican debate at the Reagan Library, a debate which began as a Perry-Romney showdown and gave less time to other candidates.  This time, in Tampa, it seems safe to predict that moderators will ask at least some other candidates whether they agree with Perry’s characterization of Social Security.

“Certainly not,” the adviser says.  “She strongly disagrees with his position on that, and it’s clearly not something that’s going to sit well with the people of Florida and Iowa and South Carolina and many of the early states, where there is a large population of seniors who rely heavily on Social Security.  For [Perry] to scare them is wrong.”

This should get interesting.  Oh, a friend and I were having a conversation on Michelle and Marcus last night.  I really though they should be part of a Tennessee Williams like play with John Goodman cast as Marcus.  I think Goodman could stretch his chops enough to do a Blanche Dubois like character, don’t you?

Steve Pearlstein at WAPO has come up with the newest Republican slogan and I like it.  “Repeal the 20th century”.  Actually, it’s more like repeal everything prior to the civil war but what’s a few decades between friends?

It’s not just the 21st century they want to turn the clock back on — health-care reform, global warming and the financial regulations passed in the wake of the recent financial crises and accounting scandals.

These folks are actually talking about repealing the Clean Air Act, the Clean Water Act and the Environmental Protection Agency, created in 1970s.

They’re talking about abolishing Medicare and Medicaid, which passed in the 1960s, and Social Security, created in the 1930s.

They reject as thoroughly discredited all of Keynesian economics, including the efficacy of fiscal stimulus, preferring the budget-balancing economic policies that turned the 1929 stock market crash into the Great Depression.

They also reject the efficacy of monetary stimulus to fight recession, and give the strong impression they wouldn’t mind abolishing the Federal Reserve and putting the country back on the gold standard.

They refuse to embrace Darwin’s theory of evolution, which has been widely accepted since the Scopes Trial of the 1920s.

One of them is even talking about repealing the 16th and 17th amendments to the Constitution, allowing for a federal income tax and the direct election of senators — landmarks of the Progressive Era.

What’s next — repeal of quantum physics?

Cannonfire has an excellent analysis up of a NYT piece on Obama and covert activities. Cannon talks about Obama’s entire background as being spookier than a gothic novel, with Halloween coming up, you could read all the links to his past posts and get in the mood or read his summary at that link.

In 1981, Obama was allegedly an ill-to-do student at Occidental University in L.A. Yet he chose to make a covert trip to Pakistan — his first trip out of the country — at a time when the place was under martial law; the State Department was advising Americans not to travel to that part of the world. Pakistan was, of course, a key part of the covert resupply effort for the anti-Soviet effort in Afghanistan.

There, a local “diplomat” at the U.S. embassy (obviously CIA) set up a meeting with one of the most powerful players in Pakistan — Ahmadmian Soomro. We are given no explanation as to why a poor student would meet with the nation’s most powerful banker and deputy speaker of the Assembly.

At Oxy, Obama took classes in politics, and one of his likely professors (whom I have never named) has a “former” CIA background. (With the CIA, you always have to put the “former” in quotes.) This man was also close to Zbigniew Brzezinski — who later became a key adviser to and influence on Barack Obama.

At the time, young Obama had an Indonesian passport. It’s known that the Agency likes to recruit young men with multiple passports, which can aid in plausible deniability. (For example: Obama’s passport would not have a Pakistan stamp.)

Obama never seemed to have any trouble paying for his expensive university career. After college, he went to work for a firm which was later exposed as offering cover for CIA personnel oversees.

His mother, Ann Dunham, had a remarkably spooky background, working for AID and the Ford Foundation, both well-known for offering cover for the CIA. Although an alleged leftist, she married a man who was the key liaison between Mobil oil and the CIA-installed Suharto regime, which came to power on the backs of some 500,000 corpses. I think it is fair to posit that no real leftist would even have lunch with a guy like that. (Ann made her own mystery trip to Pakistan in 1981 — and was even learning Urdu!)

Pardon me while I get my shoe phone …

Okay, well, that’s a start to the morning for me.  So, what’s on your reading and blogging list today?

 

Monday Reads

Posted: August 15, 2011 | Author: | Filed under: Domestic Policy, income inequality, morning reads, The Great Recession | Tags: , , , | 24 Comments

Good Morning!

I’ve  been wondering quite a bit recently about what is becoming of the American Middle Class.  Some times it seems that the kind of situation that I grew up in is a far grasp from what any potential grandchildren of mine will have.   Both of my daughters are highly educated and I still feel this way. While I study so much on the rise of a strong, vibrant middle class in many South East Asian countries, I cannot help but wonder what’s gone so wrong that we seem to be losing ours? This month has been a very violent one here in Louisiana.  We’ve had a 7 year old boy with cerebral palsy killed–dismembered actually–by a mother’s boyfriend and a number of gang shootings recently.  These kinds of crimes always increase with economic hopelessness and summer heat.  It gets to me a lot these days.

Here’s a good question from September’s The Atlantic:  “Can the Middle Class be Saved?”

It’s hard to miss just how unevenly the Great Recession has affected different classes of people in different places. From 2009 to 2010, wages were essentially flat nationwide—but they grew by 11.9 percent in Manhattan and 8.7 percent in Silicon Valley. In the Washington, D.C., and San Jose (Silicon Valley) metro areas—both primary habitats for America’s meritocratic winners—job postings in February of this year were almost as numerous as job candidates. In Miami and Detroit, by contrast, for every job posting, six people were unemployed. In March, the national unemployment rate was 12 percent for people with only a high-school diploma, 4.5 percent for college grads, and 2 percent for those with a professional degree.

Housing crashed hardest in the exurbs and in more-affordable, once fast-growing areas like Phoenix, Las Vegas, and much of Florida—all meccas for aspiring middle-class families with limited savings and education. The professional class, clustered most densely in the closer suburbs of expensive but resilient cities like San Francisco, Seattle, Boston, and Chicago, has lost little in comparison. And indeed, because the stock market has rebounded while housing values have not, the middle class as a whole has seen more of its wealth erased than the rich, who hold more-diverse portfolios. A 2010 Pew study showed that the typical middle-class family had lost 23 percent of its wealth since the recession began, versus just 12 percent in the upper class.

The ease with which the rich and well educated have shrugged off the recession shouldn’t be surprising; strong winds have been at their backs for many years. The recession, meanwhile, has restrained wage growth and enabled faster restructuring and offshoring, leaving many corporations with lower production costs and higher profits—and their executives with higher pay.

The entire issue covers the disappearing US middle class and it’s worth checking out.  Yes, it was happening prior to the 2007-2008 meltdown, but the acceleration of the decline of the standards of living for most Americans is hard to miss.  We shouldn’t forget how that happened.  Steven Pearlstein at the WP places blame squarely with the corporate lobby.

When it started out all you really wanted was to push back against a few meddlesome regulators or shave a point or two off your tax rate, but you were concerned it would look like special-interest rent-seeking. So when the Washington lobbyists came up with the clever idea of launching a campaign against over-regulation and over-taxation, you threw in some money, backed some candidates and financed a few lawsuits.

The more successful it was, however, the more you put in — hundreds of millions of the shareholders’ dollars, laundered through once-respected organizations such as the Chamber of Commerce and the National Association of Manufacturers, phoney front organizations with innocent-sounding names such as Americans for a Sound Economy, and a burgeoning network of Republican PACs and financing vehicles. And thanks to your clever lawyers and a Supreme Court majority that is intent on removing all checks to corporate power, it’s perfectly legal.

Somewhere along the way, however, this effort took on a life of its own. What started as a reasonable attempt at political rebalancing turned into a jihad against all regulation, all taxes and all government, waged by right-wing zealots who want to privatize the public schools that educate your workers, cut back on the basic research on which your products are based, shut down the regulatory agencies that protect you from unscrupulous competitors and privatize the public infrastructure that transports your supplies and your finished goods. For them, this isn’t just a tactic to brush back government. It’s a holy war to destroy it — and one that is now out of your control.

Dr. Christine Romer suggests that all we have to do is look to our history for good lessons.  Yes, she’s the Obama economic advisor that kept having to explain continually why all those labor market numbers were looking so bad for two years while not having much input into the change that would’ve made things different right now.

One reason the Depression dragged on so long was that the rapid recovery of the mid-1930s was interrupted by a second severe recession in late 1937. Though many factors had a role in the “recession within a recession,” monetary and fiscal policy retrenchment were central. In monetary policy, the Fed doubled bank reserve requirements and the Treasury stopped monetizing the gold inflow. In fiscal policy, the federal budget swung sharply, from a stimulative deficit of 3.8 percent of G.D.P. in 1936 to a small surplus in 1937.

The lesson here is to beware of withdrawing policy support too soon. A switch to contractionary policy before the economy is fully recovered can cause the economy to decline again. Such a downturn may be particularly large when an economy is still traumatized from an earlier crisis.

The recent downgrade of American government debt by Standard & Poor’s makes this point especially crucial. It would be a mistake to respond by reducing the deficit more sharply in the near term. That would almost surely condemn us to a repeat of the 1937 downturn. And higher unemployment would make it all that much harder to get the deficit under control.

Salon‘s Glen Greenwald has Yves Smith guest posting. She reminds us that income inequality is bad for rich people too.

A new survey found that 64% of the public doesn’t have enough funds on hand to cope with a $1000 emergency. Wages are falling for 90% of the population. And disabuse yourself of the idea that the rich might decide to bestow their largesse on the rest of us. Various studies have found that upper class individuals are less empathetic and altruistic than lower status individuals.

This outcome is not accidental. Taxes on top earners are the lowest in three generations. Yet their complaints about the prospect of an increase to a level that is still awfully low by recent historical standards is remarkable.

Given that this rise in wealth has been accompanied by an increase in the power of those at the top, is there any hope for achieving a more just society? Bizarrely, the self interest of the upper crust argues in favor of it. Profoundly unequal societies are bad for everyone, including the rich.

First, numerous studies have ascertained that more money does not make people happier beyond a threshold level that is not all that high. Once people have enough to pay for a reasonable level of expenses and build up a safety buffer, more money does not produce more happiness.

But even more important is that high levels of income inequality exert a toll on all, particularly on health. Would you trade a shorter lifespan for a much higher level of wealth? Most people would say no, yet that is precisely the effect that the redesigning of economic arrangements to serve the needs at the very top is producing. Highly unequal societies are unhealthy for their members, even members of the highest strata. Not only do these societies score worse on all sorts of indicators of social well-being, but they exert a toll even on the rich. Not only do the plutocrats have less fun, but a number of studies have found that income inequality lowers the life expectancy even of the rich.

All the economists that I follow have been abuzz about that NYT’s article on Sunday on how politics and not economics is driving Obama’s policy.  Here’s some thoughts from Mark Thoma.

When you are arguing that deficit reduction — less spending — creates jobs because it’s politically expedient to make this point and you care more about votes than fixing the economy, the truth can be uncomfortable. Is it so hard to explain that yes, in the long-run deficit reduction can be helpful. When the economy is near full employment and the demand for investment funding is high, the government’s use of funds to finance its deficit can slow investment activity. Near full employment, government spending can crowd out private investment so we need a long-run plan for deficit reduction.

But presently, with so much idle capacity and with so much liquidity looking unsuccessfully for a place to earn profits, no such fear exists. Government spending won’t crowd out private sector investment, it will provide a needed net addition to output and provide jobs for struggling households. Borrowing costs are extraordinarily cheap and there are plenty of infrastructure needs for the government to invest in, so it’s not as though we wouldn’t get something of value for our money over and above the needed help it provides to working class households. It’s a short-run and a long-run win.

Deficit reduction in the short-run makes things worse, not better, and hence harms rather than helps reelection chances. I understand that the administration is doing its best to prevent immediate cuts, and that the recent deficit agreement doesn’t put large cuts into place until 2013. But there are still small cuts endorsed by the administration — we are still going in the wrong direction — and if employment remains sluggish come election time, and if the administration has no public record of trying to do anything about it, what argument will they have?  We could have provided more jobs, but we didn’t bother to try because we didn’t think we could explain ourselves to the public? We knew better, but the polls were unfavorable so we didn’t bother to pursue it?

I’ve spent the entire day flummoxed by the obvious cynicism that underlies the idea that it’s easier to sell out all principles than actually elucidate an answer to the problem that we know we have and that we know every one cares about which is lack of jobs and lack of economic growth to due lack of aggregate demand. We should all go to the White House and start pitching macroeconomics textbooks over the fences.

Anyway, that’ll get things started today.  What’s on your reading and blogging list?