Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 12/17/14

December 18, 2014

There were two posts yesterday.  The first was “Lowflation and the Fed:”

At the aforementioned economics dinner, we went around the table to ask who believed the Fed would actually raise rates in 2015. Officials at the Fed have been signaling that they will; but most of the people around the table didn’t believe them. This morning’s consumer price report explains why.

Basically, while growth and job creation have finally been pretty good lately, there is so far no sign whatever that the economy is overheating. Core inflation remains below the Fed’s target (the Fed focuses on a different measure that usually runs lower than the CPI, so this report is actually fairly far below target.)

Add to this troubles abroad — the direct spillover from Russia or even Europe is fairly small, but the rising dollar means that good news on manufacturing may not last — and there is a real risk that any rate hike will turn out to have been a mistake. And it’s a mistake that would be very costly, because it could all too easily set the stage for a Japan/Europe style long-term low-inflation trap (yes, at this point I think we can put the euro area in the same category).

Of course, this is all about what the Fed should do, not what it will. But I guess I believe that top officials at the Fed have a view of the world not too different from mine, and will come around to the same conclusions.

The second post yesterday was “Jeb’s Bubble:”

So not-George Bush is running. Why, exactly?

I’m not talking about his motivations; I’m asking why, exactly, he is considered presidential material.

Back in the day, there was an answer; glowing profiles like this one declared that he had been a fabulous governor, as demonstrated by his economic success:

In a state with a surging population, Bush has presided over a booming economy with the highest rate of job creation in the country and an unemployment rate of 3.0 percent (the national average is 4.6 percent).

Actually, this would have been silly even if Florida had a well-founded boom — governors don’t matter that much. But in any case, we now know something about the other “Bush boom” — as you can see from the attached chart, it was all about a monstrous housing bubble. Bush the other didn’t cause that bubble — but all his alleged success involved taking a ride on it.

So he wasn’t an exceptional governor, or actually an exceptional anything — except maybe exceptionally good at cashing in after leaving office. Why, exactly, is he running?

Because thus far he seems the (possibly) least insane among the riders in the 2016 Clown Car…

Krugman’s blog, 12/16/14

December 17, 2014

There were two posts yesterday.  The first was “The Ruble and the Textbooks:”

OK, this is a bit funny: This morning Tim Duy addresses the woes of the ruble, which is in free fall despite a big rate hike, and declares that it “appears really quite textbook”. Meanwhile Matthew Yglesias says that what Russia is doing is “the textbook approach to handling a currency crisis”, and speculates about why it isn’t working.

I’m with Duy here; not sure if it’s actually in any textbook, but as I explained yesterday, for aficionados of emerging-market currency crises this is all quite familiar. (Side note: I invented currency crises — not the thing itself, obviously, but the modern literature — in 1979. Really. And business has been good ever since.) When you have big balance-sheet problems involving foreign-currency debt, an interest-rate hike that tries to discourage capital flight damages the economy, and hence those same balance sheets, from another direction, and it’s common, even standard, for the effort to fail. Most notably, tight-money policies were really really unsuccessful during the Asian financial crisis of 1997-8, on which you can read my take here.

Consider the chart, which shows the policy interest rate in Indonesia: during the 1998 crisis this rate was hiked to 70 percent, yet this wasn’t sufficient to stop a plunge in the rupiah to a fifth of its former value. And Indonesia wasn’t invading any of its neighbors, although it did have a failing authoritarian regime.

So Russia isn’t that unusual a story, except for the nukes.

Yesterday’s second post was “The Limits of Purely Monetary Policies:”

Last night I had an austere repast — OK, steak and a lot of red wine — with some civilized financial-industry economists (they do exist), and heard what is apparently the joke du jour: “Money isn’t everything — good health is 2 percent.”

Well, the money supply isn’t everything, either.

Ambrose Evans-Pritchard pushes back against my in-passing criticism of a column I mainly agree with, in which I argued that it’s hard to see why anyone believes that money supply increases will do the trick after the past six years. I understand where Evans-Pritchard is coming from, because I’ve been there. Indeed, it’s where I started. But I had my road-to-Damascus moment — or more accurately road-to-Tokyo moment — back in 1998. And maybe describing my own conversion to monetary pessimism may help clarify what’s happening now.

So, back in 1998 I was looking at Japan’s troubles, and — like Evans-Pritchard and many others now — believed that the Bank of Japan could surely end deflation if it really tried. IS-LM said not, but I was sure that if you really worked it through carefully you could show that, say, doubling the monetary base will always raise prices, even if you’re at the zero lower bound. So I set out to show the point with a minimalist New Keynesian model; link to the little paper I wrote here. (By the way, I screwed up the aside on fiscal policy. In that model, the multiplier is one.)

To my own surprise, what the model actually said was that when you’re at the zero lower bound, the size of the current money supply does not matter at all. You might think that it’s a fundamental insight that doubling the money supply will eventually double the price level, but what the models actually say is that doubling the current money supply and all future money supplies will double prices. If the short-term interest rate is currently zero, changing the current money supply without changing future supplies — and hence raising expected inflation — matters not at all.

And as a result, monetary traction is far from obvious. Central banks can change the monetary base now, but can they commit not to undo the expansion in the future, when inflation rises? Not obviously — and certainly “credibly promising to be irresponsible”, to not undo expansion in the face of future inflation, is a much harder thing to achieve than simply acting when the economy is depressed.

But, asks Evans-Pritchard, what if the central bank simply gives households money? Well, that is, as he notes, really fiscal policy — it’s a massive transfer program rather than a conventional monetary operation. (And Ricardian equivalence, for what it’s worth, says that it would have no effect even if you could do it — households would know that future taxes will have to rise to pay for today’s gift, and save all of it.) You may say that you don’t care what it’s called. But the distinction isn’t just one of academic classification: Central banks aren’t in the business of just giving money away; what they do is always some kind of asset swap, in which they buy assets or make loans which then become assets. I’m pretty sure that neither the Fed nor the Bank of England has the legal right to just give money away as opposed to lending it out; if I’m wrong about this, put me down for $10 million, OK?

Still, isn’t this just theory? Well, no. Huge increases in the monetary base in previous liquidity trap episodes had no visible effect. And now we have the post-2008 experience, and it’s certainly not an example of central banks easily dealing with economic downdrafts.

Just to be clear, I have supported QE in both Britain and the US, on the grounds that (a) central bank purchases of longer-term and riskier assets may help and can’t hurt, and (b) given political paralysis in the US and the dominance of bad macroeconomic thinking in the UK, it’s all we’ve got. But the view I used to hold before 1998 — that central banks can always cause inflation if they really want to — just doesn’t hold up, theoretically or empirically.

Krugman’s blog, 12/15/14

December 16, 2014

There was one post yesterday, “Putin on the Fritz:”

It’s impressive just how quickly and convincingly the wheels have been coming off the Russian economy. Obviously the plunge in oil prices is the big driver, but the ruble has actually fallen more than Brent — oil is down 40 percent since the start of the year, but the ruble is down by half.

What’s going on? Well, it turns out that Putin managed to get himself into a confrontation with the West over Ukraine just as the bottom dropped out of his country’s main export, so that a financing shock was added to the terms of trade shock. But it’s also true that drastic effects of terms of trade shocks are a fairly common phenomenon in developing countries where the private sector has substantial foreign-currency debt: the initial effect of a drop in export prices is a fall in the currency, this creates balance sheet problems for private debtors whose debts suddenly grow in domestic value, this further weakens the economy and undermines confidence, and so on.

The central bank may (or may not, as seems to be true in Russia right now) be able to limit the currency plunge by raising interest rates (now above 13 percent on Russian 10-years), but only at the cost of deepening the recession. Eichengreen et al (pdf), in a good discussion of all this in the Latin American context, give the example of Chile, which was hit very hard by falling copper prices at the end of the 1990s despite a much more favorable institutional setup than Russia right now — and, of course, without having de facto invaded a neighboring country.

I have no idea what this implies for either Russian politics or geopolitics. But talk of a new cold war, comparisons between Putin’s Russia and the USSR, look a bit silly now, don’t they?

Krugman’s blog, 12/13/14

December 14, 2014

There were two posts yesterday.  The first was “Is Our Economic Commentators Learning?”:

We are now in our seventh year at the zero lower bound. Over that period we’ve seen massive deficits rise and fall, aggressive monetary expansion and ill-advised monetary tightening, extreme fiscal austerity, and more. At this point we should therefore have a pretty good idea of how things work in this environment. And as I’ve often pointed out, everything has been more or less exactly what you would have expected from IS-LM (with the central bank controlling the monetary base, but not the endogenous money supply).

It’s remarkable, then, how much commentary in the media involves assertions that are completely at odds with everything we’ve seen since the financial crisis. I made fun of belief in invisible bond vigilantes and the confidence fairy in mid-2010, and sure enough, there have been no sightings of either in all the years since. Yet you’d never know that from the media commentary.

Simon Wren-Lewis offers a depressing example: he finds Robert Peston of the BBC continuing to talk about interest rates by invoking the invisible bond vigilantes – when as Wren-Lewis notes, France now pays much lower interest rates on its debt than the UK, and as he doesn’t note, so does Japan, with its very large debt and aging population. Worse still, however, Peston describes his fantasies – OK, I guess you could call them “speculations”, but anyway there is no evidence that they are driven by anything outside his own imagination – as the message being conveyed by “Mr. Market.” Through telepathy?

But belief in the invisible bond vigilantes and the confidence fairy isn’t the only faith that seems oddly impervious to evidence. Ambrose Evans-Pritchard, in an otherwise coherent description of Europe’s deflation risk, approvingly quotes Tim Congdon blithely declaring that monetary reflation in a liquidity trap is no problem:

The interest rate is totally irrelevant. What matters is the quantity of money. Large scale money creation is a very powerful weapon and can always create inflation.

Sure. Just look, in the accompanying chart, at the rate of M1 growth in the US versus the Fed’s preferred measure of inflation. Feel the power! Seriously, how can an alleged expert be talking straight monetarism at this point in history?

You have to wonder, where does conventional wisdom about how the economy works come from? Not from economic models, which actually don’t lead to the popular stories about bond vigilantes and confidence fairies, or say that the money supply is decisive when you’re at the zero lower bound. Not from experience, which has been utterly at odds with “mediamacro” for years. Apparently it comes from the gut – or maybe from some other anatomical feature in the same general vicinity. And then these gut feelings are reported as facts.

Yesterday’s second post was “Petrothoughts:”

Just leaving a conference in Dubai, and thinking about oil prices. (A lot of the conference was actually about geopolitics, and I don’t want to think about the quite grim stuff from that end.) So, some not especially organized notes.

One involves the failure of OPEC to restrict production to support prices. I guess I wonder why anyone thought that was likely. My understanding has always been that when people say OPEC, the subtitle reads “Saudi Arabia”, which is the only player that has ever done much to restrict output to sustain prices. And Saudi Arabia only accounts for about 13 percent of world production, which gives it limited power even given inelastic demand (especially because unconventional oil supply is probably quite price-elastic, further reducing Saudi market power.)

Also, consider the precedents: the last time there was anything like the recent oil glut, namely back in the 1980s, even drastic cuts in Saudi production, shown in the accompanying figure, weren’t enough; eventually the Saudis gave up, and prices crashed, so why should they go through that again?

My other thought is that Venezuela-with-nukes (Russia) keeps looking more vulnerable to crisis. Long-term interest rates at almost 13 percent, a plunging currency, and a lot of private-sector institutions with large foreign-currency debts. You might imagine that large foreign exchange reserves would allow the government to bail out those in trouble, but the markets evidently don’t think so. This is starting to look very serious.

And now the joy of trying to sleep on a very long flight.

Krugman’s blog, 12/12/14

December 13, 2014

There was one post yesterday, “Friday Night Music: Peter Gabriel, 1993:”

Yes, it’s morning, but I’m traveling all day. I’ve been listening to Secret World lately, so here’s a performance from 20 years ago:


Krugman’s blog, 12/10/14

December 11, 2014

There were two posts yesterday.  The first was “American Evil:”

As the Bush administration fades away in the rearview mirror, my sense is that many people — even liberals — are forgetting what it was really like. It becomes, in memory, just another administration whose policies you disapprove of, like the reign of Bush the elder.

But it wasn’t. It was an administration that deliberately misled us into war, exploiting an atrocity to pursue an agenda that had nothing to do with that atrocity — and causing vast amounts of death and destruction in the process, not to mention undermining American strength.

And it was an administration under which America became a torturer, with the enthusiastic approval of top officials.

This wasn’t normal. And if it’s going be normal from now on, all the more reason to remember the Bush years with horror.

Amen.  Yesterday’s second post was “Jean-Claude Yellen:”

The Fed definitely seems to be gearing up for monetary tightening, even though inflation remains below target. And I’m with Ryan Avent: this will, if it happens, be a big mistake — just as Jean-Claude Trichet’s decision to raise rates in Europe in 2011 was a big mistake, just as the Swedish Riksbank’s early rate hike was a mistake, just as Japan’s rate hike in 2000 was a mistake.

And you would think that the Fed would understand that. In fact, I suspect it does, and is somehow letting itself be bullied into doing the wrong thing anyway. More on that in a minute.

First, on the policy substance: The point is not that we know that we’re still far from full employment. I think we are, but the truth is that I don’t know, you don’t know, and Stan Fischer doesn’t know. So the question is one of weighing the risks. And the fact is that the damage the Fed would do if it hikes rates too soon vastly outweighs the damage it would do if it waits too long.

Suppose the Fed waits too long. Well, inflation ticks up — probably not much, since the short-run Phillips curve looks very flat. And the Fed has the tools to rein the economy in. It would be annoying, unpleasant, and no doubt there would be Congressional hearings berating the Fed for debasing the dollar etc.. But not a really big problem.

Suppose, on the other hand, that the Fed raises rates, and it turns out that it should have waited. This could all too easily prove disastrous. The economy could slide into a low-inflation trap in which zero interest rates aren’t low enough to achieve escape — which has happened in Japan and is pretty clearly happening in the euro area. Also, there is now very strong reason to suspect that a protracted slump will inflict large losses on the economy’s future productive capacity.

And if someone tells you that these risks aren’t that big, consider this: we used to be told that 2 percent inflation was enough to make the risks of hitting the zero lower bound minimal — less than 5 percent in any given year. In fact, however, of the roughly 20 years since inflation dropped to circa 2 percent, 6 years — 30 percent! — have been spent in a liquidity trap. This says that we should be very afraid of missing our chance to escape from the trap out of an urge to normalize monetary policy too soon.

The thing is, I know that Janet Yellen, Stan Fischer, and the Fed staff know this — they’re very familiar with recent history and all the relevant economic analysis. So why do they seem to be rhetorically preparing the ground for early rate hikes?

My guess — and it’s only that — is that they have, maybe without knowing it, been bludgeoned into submission by the constant attacks on easy money. Every day the financial press, many of the blogs, cable financial news, etc, are full of people warning that the Fed’s low-rate policy is distorting markets, building up inflationary pressure, endangering financials stability. Hard-money arguments, no matter how ludicrous, get respectful attention; condemnations of the Fed are constant. If I were a Fed official, I suspect that I would often find myself wishing that the bludgeoning would just stop, at least for a while — and perhaps begin looking for an opportunity to prove that I’m not an inflationary money-printer, that I can take away punchbowls too.

So my guess is that the Fed, given an improving US job market, is strongly tempted to buy some peace by hiking rates a little, just to quiet the critics for a few months.

But the objective case for a rate hike just isn’t there. The risks of premature tightening are huge, and should not be taken until we have a truly solid recovery that includes strong wage gains and inflation clearly on track to rise above target. We don’t have any of that, and if the Fed acts nonetheless, it has the makings of tragedy.

Krugman’s blog, 12/9/14

December 10, 2014

There were two posts yesterday.  The first was “Profiles in Coreage:”

Tim Duy, in the course of a discussion of the outlook for Fed policy, reminds us of the spring of 2011, when headline inflation had risen a lot mainly due to oil prices. He portrays Ben Bernanke as being all alone in insisting that the inflation bump was a blip, and would soon fade away. Actually, that’s not quite right; as far as I recall, most saltwater economists agreed. I was writing about it often. And the Fed, after all, routinely focuses on core inflation rather than headline numbers. Still, Bernanke was definitely under pressure.

What Duy doesn’t say is that the inflation fight of 2011 was about more than inflation; it was another aspect of the fight over how the economy works – and another big victory for the Keynesian view. The concept of core inflation arises out of the notion that most prices are “sticky”, revised only on occasion, and that when they are revised they are set taking into account expected inflation over some length of time looking forward.

As I tried to explain early on, this means that we need to distinguish between an underlying, sluggish inflation rate that is hard either to increase or reduce, and fluctuations around that rate reflecting more volatile prices. Standard measures of core inflation are imperfect ways of getting at this distinction, but they are vastly better than the headline numbers – and have been hugely vindicated by the experience of recent years. So I’m glad to see all the people who issued dire warnings about inflation in 2011 acknowledging that they had the wrong model. Hahahahaha.

And yes, this means that you should discount the effects of falling oil prices in the same way you discount the effects of rising oil prices. I would nonetheless urge the Fed to hold off on rate hikes, but for different reasons – the asymmetry in risks between raising rates early and raising them late. And I worry that the Fed may be losing the thread here (hi Stan!). But that’s another topic.

Yesterday’s second post was “On Not Being Stupid:”

John Cochrane has a remarkably reasonable post walking back some of his earlier diatribes, and I was particularly pleased to see him acknowledge that Mike Woodford’s work on monetary policy is first-rate research by a first-rate researcher. May I suggest, then, that he also read Woodford on fiscal policy (pdf)?

Woodford’s paper is from 2010, but the basic framework he uses was familiar to everyone on my side of the debate — me, Christy Romer, Brad DeLong, Alan Blinder — long before; you can see me using essentially the same kind of approach to talk through some stimulus issues here. Some of us like to step back and forth between intertemporal models like Woodford’s and ad hoc models like IS-LM, but we’ve always made the effort to see whether a policy makes sense both ways.

So it came as something of a revelation back in 2009 when Cochrane declared that the case for fiscal policy was a fairy tale nobody believed, Lucas accused Christy Romer of producing a shlock model to justify big government, etc.. It revealed that these people had stopped listening years, indeed decades ago. And it has been remarkable in the years since to see how determined the anti-Keynesians are to keep believing that Keynesians are stupid.

Well, at least Cochrane now concedes that Woodford isn’t stupid. Progress!

Krugman’s blog, 12/8/14

December 9, 2014

There was one post yesterday, “Is Russia 2014 Venezuela 1983?”:

I am trying to get up to speed on the impact of the oil price plunge, and one of the important stories is unfolding in Putin’s Russia. Obviously Russia’s problems stem from other things besides the oil price, namely Ukraine and the fallout thereof. Still, it’s pretty striking just how fast the financial situation seems to be unraveling. The bond vigilantes aren’t invisible in Moscow — 10-year interest rates, which were below 8 percent early this year, hit 12.67 percent today.

The question one might ask is, why is Russia so vulnerable? It has, after all, run large current surpluses over time; overall, it’s a creditor, not a debtor nation. But there are a lot of external debts all the same, reflecting private sector borrowing — and foreign currency reserves are dropping fast in part thanks to private capital flight.

What this reminds me of was one of the corners of the 1980s Latin American debt crisis, which preoccupied me during my year in Washington back in 1982-3. Venezuela then, like Russia now, was a petro-economy which had consistently run external surpluses. But it was nonetheless a vulnerable debtor, because all those external surpluses and more had in effect been recycled into overseas assets of the corrupt elite.

Of course, Venezuela didn’t have nukes.

Krugman’s blog, 12/7/14

December 8, 2014

There were two posts yesterday.  The first was “Shinzo and the Invisibles:”

Brad DeLong is puzzled by some of what Ken Rogoff has to say about Japan, specifically his warning that Japan could face an attack from invisible bond vigilantes if it doesn’t quickly tackle long-run fiscal issues. I’m puzzled too, although it’s not just Rogoff — quite a few sensible people say similar things, and the truth is that I said such things about the US back in 2003.

But I was wrong, for reasons I laid out at length in my Mundell-Fleming lecture at the IMF last year. And in an important way I was just reiterating points that should have been clear from Rogoff’s own Mundell-Fleming lecture (pdf), back in 2001. And I’m a bit surprised that Ken doesn’t see it that way.

Back in 2001 Ken surveyed the impact of Rudi Dornbusch’s “overshooting” model of exchange rates, which had an enormous impact on international macroeconomics, and arguably saved it from much of the nonsense that afflicted domestic macro. At the core of Rudi’s analysis was his resolution of what might seem like a paradox. Here’s the question: Suppose that for some reason a central bank increases the money supply, and that everyone believes that the increase is permanent. What happens to the exchange rate?

As Rudi pointed out, just about everyone agrees that in the long run the currency must depreciate, roughly in proportion to the money expansion. But in the short run, in a world of sticky prices — and anyone who looks at real exchange rates knows that we do, indeed, live in a world of sticky prices — the money expansion reduces interest rates. Now the seeming paradox: offered a lower interest rate than they can get in other countries, investors won’t want to hold a country’s bonds unless they expect its currency to rise; yet given the money increase, we should expect the currency to fall.

Rudi’s answer was that the currency must overshoot: it must drop below its long run value, so that it can be expected to rise thereafter, like this:

Which brings us to the invisible bond vigilantes. Suppose that they are really out there, and that they suddenly demand that Japanese 10-year bonds offer a rate of return 200 basis points higher than US 10-year bonds. You might be tempted to say that Japanese interest rates will spike — but the Bank of Japan controls short-term rates, and long-term rates are mainly an average of expected short-term rates, so how is this supposed to happen?

No, the resolution of the puzzle is that rates wouldn’t rise. Instead, the yen would depreciate now so that investors can expect it to appreciate later. And this yen depreciation would be expansionary, not contractionary, in its effects on the Japanese economy. Given Japan’s current situation, the invisible vigilantes would be doing Japan a favor if they suddenly materialized and attacked!

I’ve had many discussions with smart people about this, and have never gotten an explanation of why it’s wrong; we usually end up with something like a warning that Japanese deflation might suddenly turn into uncontrolled inflation, which seems unlikely and certainly isn’t the way the warnings are usually phrased — we’re supposed to worry about turning into Greece 2010, not Weimar 1923.

You might think that what we’re talking about is the lessons of history — but as far as I can tell, there are no historical examples of countries with debts in their own currency facing a Greek-style crisis. As I say in the linked paper, the closest I can find is the French franc crisis of the 1920s, and the fall of the franc was inflationary and expansionary, not contractionary.

And it seems very strange to be lecturing Japan about the dangers of a crisis you can neither explain clearly in terms of an economic model nor justify by appeal to any relevant historical precedent.

Yesterday’s second post was “The Thrill of Live Performance (Personal):”

For those wondering — yes, I went to see Lucius live last night. A year ago I saw them at the Bowery Ballroom, capacity around 500; this time at Terminal 5, capacity 3000 and sold out. And it was wonderful.

What do I love about live shows like this? If you want to hear the music with perfect clarity, listen to a record; and while there is a special thrill to knowing that performers are doing this live without a net, I’ve been to many classical concerts where that’s also true and the feel is very different (not better, just different). The acoustics aren’t great — I talked to the band a bit, and they themselves compared it to an airplane hangar; the crowd is swilling beer (me too!) and noisy; I doubt I’d have been able to decipher many of the lyrics if I didn’t know them already.

No, what makes this so great is the sense of community and the bond between band and fans. Listen to how the crowd reacted to the very first chord, which everyone (me included) immediately recognized:

The band (who are soft-spoken and even a bit shy in person) were soaking it up and getting more energized by the minute. By the end — a gorgeous triple-encore performed from the middle of the audience — it was a wonderful affirmation of life.

And then I finished up my beer and it was time to catch the train.

Krugman’s blog, 12/6/14

December 7, 2014

There were two posts yesterday.  The first was “Comparing Postmodern Recoveries:”

Very early on — in fact, long before the 2007 recession was either declared officially, or admitted as reality by those still touting a Bush Boom — some of us warned that recovery would be slow, and initially jobless. Why? Because this was a postmodern business cycle, brought on not by monetary tightening but by private-sector overreach, and hence harder to turn around than, say, the 1979-82 slump. Nonetheless, as Menzie Chinn notes, a constant talking point on the right has been that slow growth showed the damage done by Obama policies. And not just at Heritage or whatever; people like Ed Lazear or John Taylor demonstrated the reality of the hack gap by asserting that the private sector wasn’t creating jobs because Obama was looking at them funny; also Obamacare.

How could you test this? Well, when I began talking about postmodern recessions, I argued that the 2007 slump was the third such example — that 1990-91 and 2001 were also postmodern recessions, followed by jobless recoveries. I’ll leave 1990-91 aside for now, because I’m lazy, and just note that we now have enough information to make a clear comparison between the recovery that began in 2001 and the one that began in 2009. Since the claim has been that Obama is scaring and punishing the private sector, let’s look at private employment. It looks like this:

Or if you look at the change in employment following the business cycle trough, it looks like this:

By any standard I can think of, the Obama-era job recovery has been stronger than the Bush-era job recovery. Now, I don’t think that reflects excellent policies; and I would argue that in some ways the depth of the preceding slump set the stage for a faster recovery. But the point is that the usual suspects have been using the alleged uniquely poor performance under Obama to claim uniquely bad policies, or bad attitude, or something. And if that’s the game they want to play, they have just scored an impressive own goal.

Yesterday’s second post was “Flimflam Does London:”

George Osborne’s Autumn Statement laying out the Cameron government’s alleged fiscal plans has provoked a fair bit of incredulity among British commentators; never mind the macroeconomics, it envisages sharp cuts in public spending that would presumably be devastating in their impact on public services, but with no specifics. “What the hell is he playing at?” asks Chris Dillow.

The answer is obvious if you’ve been paying attention on this side of the Atlantic: he’s playing at being Paul Ryan. It’s exactly the same playbook; claim, often and loudly, that you’re deeply concerned about the deficit, while offering budget proposals whose concrete elements involve savaging aid to the poor while cutting taxes on the rich, doing little to reduce the deficit (or, in Ryan’s case, actually increasing the deficit.) Yet you continue to claim that you’re bringing deficits down, because you pencil in huge spending cuts without any explanation of what they will involve or how they can take place.

And what’s the goal? It’s basically a war on the welfare state, but the implausible spending cuts are there to snooker the Very Serious People (or what Simon Wren-Lewis, who has the same analysis, calls mediamacro.) And it works! Even now, Ryan gets treated with kid gloves by reporters who won’t let go of the story line about the Serious, Honest Conservative. Osborne produces a ludicrous budget, and even commentators who acknowledge that it’s ludicrous give him credit for showing

a keen understanding of the constraints facing the country

Think about that: someone says that 2+2=5, and gets credit, because it shows that he recognizes how hard it is to live within the constraint of 2+2 just equalling 4. Give this man a Fiscy!

So, to UK commentators puzzled by the combination of hardheartedness, intellectual dishonesty, and self-righteousness on display: Welcome to my world.


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