Krugman’s blog, 1/29/16

There were four posts yesterday.  The first was “The Anti-Fed Two-Step:”

Back when Ted Cruz first floated his claim that the Fed caused the Great Recession — and some neo-monetarists spoke up in support — I noted that this was a repeat of the old Milton Friedman two-step.

First, you declare that the Fed could have prevented a disaster — the Great Depression in Friedman’s case, the Great Recession this time around. This is an arguable position, although Friedman’s claims about the 30s look a lot less convincing now that we have tried again to deal with a liquidity trap. But then this morphs into the claim that the Fed caused the disaster. See, government is the problem, not the solution! And the motivation for this bait-and-switch is, indeed, political.

Now come Beckworth and Ponnuru to make the argument at greater length, and it’s quite direct: because the Fed “caused” the crisis, things like financial deregulation and runaway bankers had nothing to do with it.

Mike Konczal says most of what’s needed here. In particular, if the Fed’s sins in 2008 — not actually raising rates, but not cutting them as fast as we now know they should have, and talking too much about inflation — were enough to cause 10 percent unemployment, we need radical change in our system, because policy will never be perfect.

I’d just add that if there were anything to this story, we should have seen a sharp increase in long-term real interest rates, as investors saw the Fed getting behind the disinflationary curve. Here’s the real 10-year rate in the months leading up to Lehman:

Do you see the kind of spike that could cause a catastrophe?

But to come back to the main point: It’s a very dubious claim that the Fed could have prevented the crisis with more aggressive policy in 2008; it’s three-card monte to transmute that into the claim that the Fed caused the crisis.

The second post yesterday was “A Renewable Feast:”

So you say you want a revolution? Politically, I’m afraid you’ll be disappointed — unless the revolution you have in mind involves putting Donald Trump’s finger on the button. But an environmental/energy revolution? That’s looking remarkably within reach.

Joe Romm has the story. The backdrop is the remarkable progress of recent years in renewable-energy technologies, which have put solar and wind power in striking distance of matching the costs of electricity generation using fossil fuels. There are two remaining hurdles: the costs aren’t quite there, and renewables have a hard time matching fluctuations in demand.

Enter three policy changes. First, the last budget deal retained tax incentives for renewables, which will have a huge impact — maybe even a DT yuge impact — on their deployment over the next decade. Second, the Supreme Court rejected a challenge by power companies to EPA rules leading to “demand response” pricing — basically, paying people not to consume electricity during peak periods, which helps renewables a lot. Finally, if Democrats hold the White House we’ll have the Obama administration’s plan to limit carbon going into effect, creating a big incentive to switch to renewables.

Nothing in this should lead to complacency. We’re still facing a huge climate challenge, and President Trump (or for that matter any of the seven dwarfs from last night) could and would destroy the whole thing. But we’re now achingly close to making rapid progress on emissions, much more rapid than I think anyone imagined possible just a few years ago.

His third post yesterday was “Republican Face-Off In Iowa (Silly):”

Can’t help myself:

The last post yesterday was “My Classified Life:”

Gah. Another Clinton email story, this time involving emails covering material that wasn’t classified when sent but is now deemed top-secret — with the Clinton campaign demanding that they be released, presumably to show how innocuous they really were. Max Fisher at Vox suggests that it’s basically a story about the craziness and excesses of the classification system, and my own experience — although deeply out of date — suggests that he’s probably right.

You see, I was in the US government, as a senior staffer at the Council of Economic Advisers, in 1982-1983. No, I wasn’t a Reaganite — it was a sub-political, technocratic position, which I filled because Martin Feldstein, the council’s chairman, wanted the smartest young technocrats he knew. I was the senior international economist; the senior domestic economist was a guy named Larry Summers. What ever happened to him?

Anyway, given the area I covered, I received a lot of classified reports from the CIA, the State Department, etc.. They had all sorts of warnings in capital letters on their covers: SECRET NOFORN NOCONTRACT PROPIN ORCON, I think, was the standard litany. And there was a security person who came through our offices at night, scooped up any classified documents we left out, put them in a safe, and issued citations. Between the number of classified documents I received and my continuing true identity as an absent-minded professor, I got a lot of citations — second only to Marty.

But the reason I kept forgetting to lock the things up was that none of them — literally not one, during a whole year — contained anything actually sensitive. There was nothing in any of them you couldn’t have read in newspapers, or figured out for yourself given public information.

I was privy to a few bits of sensitive information, I guess — for example, I knew that Brazil was out of money a few days before it was public — but none of it was in classified documents. (And the larger secret I learned from my year — that the quality of discussion in cabinet-level meetings is lower than you can imagine — isn’t the kind of thing people put in classified documents.)

So my guess is that the only scandal here is how much anodyne stuff gets “Top secret” slapped on it.


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