Krugman’s blog, 3/30/15

There were two posts yesterday.  The first was “Ben Bernanke Blog Blogging:”

Ben Bernanke’s Brookings blog begins! And the subject of the first post is a defense of the Fed against the charge that it has been keeping interest rates “artificially low” and hurting savers.

It’s a very clear, well-argued post; regular readers know that I’ve been making essentially the same arguments for years. I’d just add two points.

First, the image of the little old lady living hand to mouth off the interest on her bank account is basically a fiction. Most retired Americans depend on Social Security for the majority of their income, and have very little in interest earnings; the decline in rates has primarily hurt a small minority of very well-off seniors. Here’s a chart (from data here) showing the change in asset income of seniors from all sources (I couldn’t break out interest) from 2006 to 2010, as interest rates fell through the floor, averaged by quintile:

It’s not as smooth as I expected, but it’s clear that the decline was much bigger among the better-off; to the extent that Fed policy was reducing returns, it was reducing inequality among seniors.

Second, much of the critique of low rates simply assumes that saving is a meritorious activity that should be encouraged. But the very fact that the economy remained depressed despite zero rates was telling us that we were awash in desired savings with no place to go — that’s what a liquidity trap is all about. And in that context more saving actually hurts the economy; it even hurts investment via the paradox of thrift.

What I find most interesting about Bernanke’s first blog post — which is, as I said, clear and completely correct — is that he chose that topic. What that’s telling us, I think, is what the people he talked to as Fed chair complained about most: not the failure to hit the inflation target, not the persistence of high unemployment, but disappointing returns for rentiers. John Galt, it turns out, wants price supports.

Yesterday’s second post was “The Road to Five Forks:”

Today in my Civil War obsession: some readers may recall that I’m a big U.S. Grant admirer; the scene at Appomattox, where the dashing cavalier Lee surrendered to the stumpy, grimy Grant, marks the coming of the modern era. I also find the campaign that led to that moment fascinating. And that campaign began in earnest 150 years ago today.

What happened was that Grant sent a force around Lee’s right, to threaten his lines of communication. What strikes me on reading accounts of how this played out are two things. First, Grant really was wasting no time — he moved as soon as the weather permitted, and actually a bit early. If you read the linked piece, you see that Union cavalry had to make heroic efforts simply to move across the flooded landscape, building corduroy roads as it went.

Second, we’re still talking about very hard fighting — as far as I can tell, precisely because Grant was aggressive about moving even in dubious weather. That temporarily left the Union cavalry in front facing a counterattack from a much larger force of Confederate infantry. The battle of Dinwiddie Court House was a nail-biting fighting retreat on the Union side, with heavy casualties all around.

The next day, of course, the Union infantry came up, and things got decisive.



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