Krugman’s blog, 7/4/13

There were two posts yesterday.  The first was “The Farbissen Factor:”

My late father burst out laughing when I told him that the Lotte Lenya character in the Austin Powers movies is named Frau Farbissina; I’m sufficiently cut off from my cultural heritage that I had to ask him why. It turns out that it comes from farbissen, which — as is typical in Yiddish — has connotations that go beyond its usual translation as “bitter”. A farbissineh (think clenched teeth) is someone who not only isn’t enjoying herself, but is determined to make sure that nobody else has any enjoyment either.

All this came to mind as I contemplated the increasingly loud campaign demanding that the Fed stop its bond purchases and indeed start raising interest rates. It’s a chorus coming from Martin Feldstein, the Bank for International Settlements, Raghuram Rajan, John Taylor, and more. I believe that this chorus has already had significant malign effects; it effectively bullied the Fed into talking about “tapering” despite a total absence of economic justification, and this — by leading markets to believe that the Fed was turning more hawkish in general — has led to higher long-term interest rates.

The question is, what lies behind this campaign? It’s remarkably hard to explain in terms of any coherent logic; as David Glasner says, the members of this group seem to believe, somehow, that the Fed is powerless to boost the real economy yet retains vast power over real interest rates.

More than that, the general principle behind the economic analysis seems to be that economic agents are selectively stupid — that is, that different classes of investors are stupid in different ways, that just happen to justify tighter monetary policy in the face of mass unemployment. On one side, we have Feldstein and others assuring us that higher interest rates won’t deter real investment, because they’ll still be low; it’s news to me that demand curves turn vertical at low prices, but whatever. On the other side, they insist that low rates will induce financial investors to make irrational choices and blow bubbles. Now, bubbles happen; but is there any real evidence that low interest rates are the key? The worst of both the dotcom and the housing bubble took place when rates were much higher than they are now.

The key observation here, I think, is that by and large the people now demanding higher interest rates have been against easy money all along — it’s just their alleged justifications that keep changing. Back when they were warning against inflation, presumably because loose money would overheat the economy; now they’re declaring that loose money does nothing to the real economy, but is causing bubbles. In other words, it feels like an attitude looking for justifications, not an analysis.

And the attitude is farbissen — a gut dislike of the idea that money is cheap.

The second post of the day was “A Textbook Case of Excessive Leverage:”

Worth Publishers alerted us to this story, partly to reassure us that Krugman/Wells royalties will continue on schedule. And I have absolutely no comment to make:

Cengage Learning Inc. filed for bankruptcy protection more than five years after a buyout led by Apax Partners LLP left the textbook publisher with about $5.8 billion in debt.

In a list of its biggest unsecured creditors the company named Wilmington Trust, NA as agent for about $292 million in senior unsecured notes, Bank of Oklahoma as agent for about $132 million in senior subordinated, discounted notes and Wells Fargo Bank, NA as agent for $63.6 million in so-called payment-in-kind notes. The company also said it owed the Thomson Corporation $1.46 million for a tax indemnification.

Greg Mankiw, a Harvard University professor who advised Republican presidential candidate Mitt Romney is owed $1.6 million in royalties, according to the bankruptcy filing.



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