Here’s a link to his latest piece in Rolling Stone. It’s a must read:
Here’s a link to his latest piece in Rolling Stone. It’s a must read:
There was one post on Saturday, and none yesterday. Saturday’s post was “The Donald and the Veg-O-Matic:”
I’ve written on a number of occasions about the Veg-O-Matic temptation — the urge to claim that your preferred policy solves all problems — it slices! It dices! It purees! It creates jobs! It raises productivity! It takes off weight without diet or exercise! There’s also the reverse version, in which a policy you dislike does everything bad — It’s inflationary! It’s contractionary! It causes acne!
When you see Veg-O-Matic claims, you should always be suspicious. Sometimes a policy does kill two or more birds with one stone — there’s a very good case that infrastructure investment under current conditions, with interest rates very low and economies still under capacity, would create jobs now, enhance long-run growth, and even improve fiscal prospects. But conclusions like that shouldn’t be accepted without a lot of hard thinking and self-criticism; you need to bend over backward to avoid falling into wishful thinking.
That consideration in itself should have flashed warning signs about, to take one important example, the embrace by Very Serious People of the doctrine of expansionary austerity — it was all too obvious that the austerians wanted a reason to cut government spending, and they should have been extremely wary of studies purporting to say that doing so would actually create jobs in a depressed economy. The fact that they instead seized on those studies was a very bad sign.
In modern America Veg-O-Matic economics has tended to be a right-wing thing, for a couple of reasons. One is that if your party’s central mission is to comfort the comfortable and afflict the afflicted, you need to claim that all kinds of wonderful side effects will take place from what might otherwise look like a combination of greed and cruelty. Another is that the parties are different; the monolithic GOP has, until just now, been able to get all its followers declaring that we’re at war with Eurasia, or Eastasia, with no awkward challenges from independent-minded wonks. The Democrats are a coalition in which the wonks have a fair bit of autonomy, and at least believe that they have a professional ethos to uphold.
That said, the Veg-O-Matic temptation exists for everyone. Yes, we see some of it in the populist uprising within the Democratic party, where anyone questioning the happy talk can be dismissed as a corrupt tool of the corporations. But the big example of Veg-O-Matic reasoning I see right now — in this case the anti-VOM version — is coming in what we might call the mainstream critique of Donald Trump.
I come here not to praise Trump — God no — and would be happy to see his political ambitions buried, with maximum ignominy. He would destroy American civil society; destroy our hopes of containing climate change; destroy U.S. influence by trying to bully everyone in sight. It’s very scary that there’s any chance that he might end up with his (long) finger on the button.
But too many anti-Trump critics seem to have settled on one critique that happens not to be right: the claim that a turn to protectionism would cause vast job losses. Sorry, that’s just not a claim justified by either theory or history.
Protectionism reduces world exports, but it also reduces world imports, so that the effect on overall demand is a wash; textbook economic models just don’t say what conventional wisdom is asserting here.
History doesn’t support this line of attack either. Protection in the 1930s was a result, not a cause, of the depression; the early postwar years, when tariffs were still high and exchange controls were pervasive, were marked by very full employment in many countries.
Why, then, focus on such a weak argument against a truly despicable candidate? I think I know the answer: it’s an argument that doesn’t involve taking on bad things in the Trump agenda that differ from the agenda of other Republicans only in degree — as Matt O’Brien says, on tax policy Trump is just Paul Ryan on steroids.
But bad arguments are bad arguments, even if used against a bad guy. And the choice of this argument is telling us something about what’s wrong with a lot of people beyond Trump.
In “The Shame Culture” Bobo moans that a new moral system is coming into place. In the comments “Larry” from Garrison, NY had this to say: “Funny how Brooks and Crouch focus only on the perceived transgressions of the left and not on the much larger and dangerous ones of the right. Any sane observer would say that the totally baseless ravings of the right regarding how Christianity is under attack, or the war on Christmas is infinitely worse than some teenager in his mom’s basement tweeting some inane message on his iPhone. The shame culture of the right is organized and funded by craven right wing billionaires who are trying to shape the political landscape while the shamers on the left are individuals who simply have too much time on their hands and will grow out of it when they graduate from college.” Here’s Bobo:
In 1987, Allan Bloom wrote a book called “The Closing of the American Mind.” The core argument was that American campuses were awash in moral relativism. Subjective personal values had replaced universal moral principles. Nothing was either right or wrong. Amid a wave of rampant nonjudgmentalism, life was flatter and emptier.
Bloom’s thesis was accurate at the time, but it’s not accurate anymore. College campuses are today awash in moral judgment.
Many people carefully guard their words, afraid they might transgress one of the norms that have come into existence. Those accused of incorrect thought face ruinous consequences. When a moral crusade spreads across campus, many students feel compelled to post in support of it on Facebook within minutes. If they do not post, they will be noticed and condemned.
Some sort of moral system is coming into place. Some new criteria now exist, which people use to define correct and incorrect action. The big question is: What is the nature of this new moral system?
Last year, Andy Crouch published an essay in Christianity Today that takes us toward an answer.
Crouch starts with the distinction the anthropologist Ruth Benedict popularized, between a guilt culture and a shame culture. In a guilt culture you know you are good or bad by what your conscience feels. In a shame culture you know you are good or bad by what your community says about you, by whether it honors or excludes you. In a guilt culture people sometimes feel they do bad things; in a shame culture social exclusion makes people feel they are bad.
Crouch argues that the omnipresence of social media has created a new sort of shame culture. The world of Facebook, Instagram and the rest is a world of constant display and observation. The desire to be embraced and praised by the community is intense. People dread being exiled and condemned. Moral life is not built on the continuum of right and wrong; it’s built on the continuum of inclusion and exclusion.
This creates a set of common behavior patterns. First, members of a group lavish one another with praise so that they themselves might be accepted and praised in turn.
Second, there are nonetheless enforcers within the group who build their personal power and reputation by policing the group and condemning those who break the group code. Social media can be vicious to those who don’t fit in. Twitter can erupt in instant ridicule for anyone who stumbles.
Third, people are extremely anxious that their group might be condemned or denigrated. They demand instant respect and recognition for their group. They feel some moral wrong has been perpetrated when their group has been disrespected, and react with the most violent intensity.
Crouch describes how video gamers viciously went after journalists, mostly women, who had criticized the misogyny of their games. Campus controversies get so hot so fast because even a minor slight to a group is perceived as a basic identity threat.
The ultimate sin today, Crouch argues, is to criticize a group, especially on moral grounds. Talk of good and bad has to defer to talk about respect and recognition. Crouch writes, “Talk of right and wrong is troubling when it is accompanied by seeming indifference to the experience of shame that accompanies judgments of ‘immorality.’”
He notes that this shame culture is different from the traditional shame cultures, the ones in Asia, for example. In traditional shame cultures the opposite of shame was honor or “face” — being known as a dignified and upstanding citizen. In the new shame culture, the opposite of shame is celebrity — to be attention-grabbing and aggressively unique on some media platform.
On the positive side, this new shame culture might rebind the social and communal fabric. It might reverse, a bit, the individualistic, atomizing thrust of the past 50 years.
On the other hand, everybody is perpetually insecure in a moral system based on inclusion and exclusion. There are no permanent standards, just the shifting judgment of the crowd. It is a culture of oversensitivity, overreaction and frequent moral panics, during which everybody feels compelled to go along.
If we’re going to avoid a constant state of anxiety, people’s identities have to be based on standards of justice and virtue that are deeper and more permanent than the shifting fancy of the crowd. In an era of omnipresent social media, it’s probably doubly important to discover and name your own personal True North, vision of an ultimate good, which is worth defending even at the cost of unpopularity and exclusion.
The guilt culture could be harsh, but at least you could hate the sin and still love the sinner. The modern shame culture allegedly values inclusion and tolerance, but it can be strangely unmerciful to those who disagree and to those who don’t fit in.
Strange as it may seem life is possible without constantly twitter-twatting…
There were two posts on Monday and one yesterday. Monday’s first post was “Structural Humbug Revisited:”
Bryan Caplan reports that he has just won a bet with Tyler Cowen over whether unemployment would ever drop below 5 percent. It might be worth remembering the context.
You see, when the Great Recession struck — a demand-side shock if ever there was one — it took no time at all for a strange consensus to develop in elite opinion, to the effect that a large part of the rise in unemployment was “structural,” and could not be reversed simply by a recovery in demand. Workers just didn’t have the right skills, you see. Many of us argued at length that this was foolish. If skills were the problem, where were the occupations with rapidly rising wages? I pointed out that people said the same thing during the Great Depression, only to see it disproved when we finally got a big fiscal stimulus called World War II.
But the doctrine somehow just got stronger and stronger in elite circles, because it sounded serious and judicious, unlike the seemingly flighty proposition that all we needed was more spending. In fact, the notion that our unemployment problem was mainly structural began to be presented as a simple fact rather than as a hypothesis most professional economists rejected.
And here we are.
Monday’s second post was “Hard Money Men:”
So what will happen in NH tomorrow? I have no idea. We must dispel with this notion that anyone has the slightest idea what they are doing. However, there seems to be a real possibility for one thing that seemed unlikely before the RubiOS bug manifested itself: that John Kasich will come in second on the Republican side.
If he does, there will be an outpouring of praise from self-proclaimed centrists, who will declare Kasich the sensible, responsible Republican of their dreams. So let me attempt what will surely be a futile preemptive strike, and note that on economic policy — which sort of matters — Kasich is terrible, arguably worse than the rest of the GOP field.
It’s not just his balanced-budget fetishism, which would be disastrous in an economic crisis. He’s also a hard-money man.
Ted Cruz has gotten some scrutiny, although not enough, for hisgoldbuggism. But Kasich, when asked why wages have stagnated,gave as his number one reason “because the Federal Reserve kept interest rates so low” — because this diverted investment into stocks, or something. No, it doesn’t make any sense — but it tells you that he is viscerally opposed to monetary as well as fiscal stimulus in the face of high unemployment.
So no, Kasich isn’t sensible. He’s just off the wall in ways that differ in some ways from the GOP mainstream. If he’d been president in 2009-10, we’d have had a full replay of the Great Depression.
Yesterday’s post was “Bonds on the Run:”
While we obsess over domestic politics — not that there’s anything wrong with that, since a lot depends on whether the next leader of the world’s most powerful nation is a racist xenophobe, a sinister theocrat, an empty suit, or all of the above — something scary is going on in financial markets, where bond prices in particular are indicating near-panic.
I know, Paul Samuelson famously quipped that the stock market had predicted nine of the last five recessions; the wisdom of crowds is often overrated. Still, bond markets are a bit less flighty than stocks, and also more closely tied to the economic outlook. (A weak economy has mixed effects on stocks — low profits but also low interest rates — while it has an unambiguous effect on bonds.) What plunging rates tell us is that markets are expecting very weak economies and possibly deflation for years to come, if not full-blown crisis.
Among other things, such a world would be a very bad place into which to elect a member of a party that has spent the past 7 years inveighing against both fiscal and monetary stimulus, and has learned nothing from the utter failure of its predictions to come true.
There was one post yesterday, “Serious Delusions:”
Greg Sargent mocks pundits declaring that the attacks in Paris will finally convince Republican primary voters that they need to get serious, and deflate the Trump/Carson bubble. This time it will really happen!
As Sargent says, these pundits have been wrong again and again — and with holidays coming up and then the start of actual voting, there isn’t much time for bubble-deflation left. But there’s more.
For one thing, who exactly are the serious candidates on national security? Jeb!, who thinks that a relative handful of terrorists can destroy the West, one rock concert at a time? Rubio, who mumbled something about a clash of civilizations?
For another, pretty much the same people claiming that it’s time to get serious are attacking Democrats for … not using the right catchphrases, out of petty concerns like trying not to insult a whole religion. Say it loud and proud: radicalIslamradicalIslamradicalIslam. See? Terrorism defeated.
Finally, remember how we got serious after 9/11?
Given what we’ve seen in the past, this might even favor Trump, who can yell “You’re fired!” at the terrorists, or Carson, who might be able to defeat them with the help of Klingon Jesus.
Update: A reminder of how knowledgable Bush and Rubio are about foreign policy — remember Chang, the mystic warrior?
We’ve got nothing today, nada, zip, zilch. Nocera and Collins are off, and Prof. Krugman didn’t post to his blog. Have a safe and happy 4th — go grill something!
Both Ms. Collins and Mr. Nocera are off today, so there’s nothing to report about the 2016 Clown Car, and no water to carry for Big Energy. Go play outside.
Poor, delicate Bobo is all upset by “The Campus Crusaders.” He whines that well-intentioned moral fervor on campuses today often slides into a dangerous type of zealotry. In the comments “HeyNorris” from Paris had this to say: “Our Mr. Brooks never fails to delight when he tut-tuts over-reaching liberals – in this case college students – while willfully ignoring similar behaviors exhibited by his dear over-reaching conservative friends.” (And if anyone should know about dangerous zealotry it’s certainly a Republican, right Bobo?) Mr. Nocera has a question: “Is Motown Getting Its Groove Back?” He says there’s something happening in Detroit, with entrepreneurship and budding manufacturing taking hold. Here’s Bobo, straight from the fainting couch:
Every generation has an opportunity to change the world. Right now, college campuses around the country are home to a moral movement that seeks to reverse centuries of historic wrongs.
This movement is led by students forced to live with the legacy of sexism, with the threat, and sometimes the experience, of sexual assault. It is led by students whose lives have been marred by racism and bigotry. It is led by people who want to secure equal rights for gays, lesbians and other historically marginalized groups.
These students are driven by noble impulses to do justice and identify oppression. They want to not only crack down on exploitation and discrimination, but also eradicate the cultural environment that tolerates these things. They want to police social norms so that hurtful comments are no longer tolerated and so that real bigotry is given no tacit support. Of course, at some level, they are right. Callous statements in the mainstream can lead to hostile behavior on the edge. That’s why we don’t tolerate Holocaust denial.
But when you witness how this movement is actually being felt on campus, you can’t help noticing that it sometimes slides into a form of zealotry. If you read the website of the group FIRE, which defends free speech on campus, if you read Kirsten Powers’s book, “The Silencing,” if you read Judith Shulevitz’s essay “In College and Hiding From Scary Ideas” that was published in The Times in Sunday Review on March 22, you come across tales of professors whose lives are ruined because they made innocent remarks; you see speech codes that inhibit free expression; you see reputations unfairly scarred by charges of racism and sexism.
The problem is that the campus activists have moral fervor, but don’t always have settled philosophies to restrain the fervor of their emotions. Settled philosophies are meant to (but obviously don’t always) instill a limiting sense of humility, a deference to the complexity and multifaceted nature of reality. But many of today’s activists are forced to rely on a relatively simple social theory.
According to this theory, the dividing lines between good and evil are starkly clear. The essential conflict is between the traumatized purity of the victim and the verbal violence of the oppressor.
According to this theory, the ultimate source of authority is not some hard-to-understand truth. It is everybody’s personal feelings. A crime occurs when someone feels a hurt triggered, or when someone feels disagreed with or “unsafe.” In the Shulevitz piece, a Brown student retreats from a campus debate to a safe room because she “was feeling bombarded by a lot of viewpoints that really go against” her dearly and closely held beliefs.
Today’s campus activists are not only going after actual acts of discrimination — which is admirable. They are also going after incorrect thought — impiety and blasphemy. They are going after people for simply failing to show sufficient deference to and respect for the etiquette they hold dear. They sometimes conflate ideas with actions and regard controversial ideas as forms of violence.
Some of their targets have been deliberately impious. Laura Kipnis is a feminist film professor at Northwestern University who wrote a provocative piece on sexual mores on campus that was published in February. She was hit with two Title IX charges on the grounds, without evidence, that her words might have a “chilling effect” on those who might need to report sexual assaults.
Other targets of this crusade had no idea what they were getting into. A student at George Washington wrote an essay on the pre-Nazi history of the swastika. A professor at Brandeis mentioned a historic slur against Hispanics in order to criticize it. The scholar Wendy Kaminer mentioned the N-word at a Smith College alumni event in a clearly nonracist discussion of euphemism and free speech.
All of these people were targeted for purging merely for bringing unacceptable words into the public square. As Powers describes it in “The Silencing,” Kaminer was accused of racial violence and hate speech. The university president was pilloried for tolerating an environment that had been made “hostile” and “unsafe.”
We’re now in a position in which the students and the professors and peers they target are talking past each other. The students feeling others don’t understand the trauma they’ve survived; the professors feeling as though they are victims in a modern Salem witch trial. Everybody walks on egg shells.
There will always be moral fervor on campus. Right now that moral fervor is structured by those who seek the innocent purity of the vulnerable victim. Another and more mature moral fervor would be structured by the classic ideal of the worldly philosopher, by the desire to confront not hide from what you fear, but to engage the complexity of the world, and to know that sometimes the way to wisdom involves hurt feelings, tolerating difference and facing hard truths.
Now here’s Mr. Nocera, writing from Detroit:
Tom Kartsotis, the wealthy co-founder of Fossil, has no connection to the Motor City. He lives in Dallas, where he now oversees a handful of ventures he’s invested in. In early 2011, he decided to build a small watch factory that would sell high-quality watches that were priced, as he puts it, “at the entry point of luxury.”
He also wanted to make these watches in America. “So many big companies have sourcing infrastructures whose knee-jerk reaction is to head to China,” he said. He couldn’t compete with China at the low end of the market — nobody can. But he felt that the kind of watches he had in mind — priced between $450 and $600 at the low end, with a distinctive but classic design — could be made competitively in the United States. So he decided to put his new factory here in Detroit, a city once renowned for its manufacturing prowess that, in recent times, has needed all the help it can get.
That original idea turned into a company called Shinola. It has eight retail outlets and employs around 375 people, most of them in Detroit. Although those stylized watches are its biggest sellers — the company expects to sell between 150,000 and 180,000 this year — it also designs and makes bicycles, leather goods and other well-crafted, high-end products. Not only are those products built in Detroit, but Shinola also tries to buy the parts it needs from other American companies. Its leather, for instance, comes from the Horween Leather Company, a Chicago tannery more than a century old. Its bicycle frames are shipped from a company run by a fourth-generation Schwinn.
Although it was a philanthropic impulse that moved Kartsotis to set up shop in Detroit, it has turned out to be a very good business decision. The space Shinola needed to build its factory was cheap. There was also plenty of talent — engineers, for sure, but also former auto assembly-line workers, people eager to work who Shinola could train to be watchmakers. When I visited the watch factory recently, I saw rows of employees bent over their desks, focusing intently as they placed tiny, intricate parts inside the unassembled watches.
Indeed, to spend any time in Detroit these days is to be amazed at the extent to which it is humming with entrepreneurial activity. Dan Gilbert, the founder and chairman of Quicken Loans — which he relocated to Detroit — has bought more than 70 buildings and is converting some of them into office space for small businesses. There are other buildings with common work spaces and tools like 3-D printers than can be shared. The city’s government and, especially, its foundations are focused on helping peoplewho want to start a new business. I spoke with a woman named Julie James, who, with her four sisters, manufactures a brand of juices they call Drought. It employs 32 people. Another company, The Floyd Leg, makes handsome, colorful legs for furniture; its work force is seven people. New companies like these are starting every day.
Kartsotis told me that “creating a few hundred jobs isn’t going to move the needle.” He’s right about that, of course. But, collectively, all these small companies do seem to be helping to bring Detroit back. Young people are moving in to the downtown and midtown areas. The unemployment rate is dropping. Once-abandoned buildings are being reoccupied. There are retail stores and restaurants that didn’t exist even a few years ago. Something very good is happening here, and it’s largely the result of private-sector activity. Kartsotis isn’t the only entrepreneur whose desire to come to the aid of a once-great city has turned out to be a smart business move.
If it seems clear that companies like Shinola are the way forward for Detroit, it is not so clear whether they are also the way forward for American manufacturing more generally. “I’m proud of what this company stands for,” Jacques Panis, Shinola’s president, told me. When I asked him just what that is, he replied: “High-quality manufacturing jobs for America.”
Shinola’s products are well-designed and made. They are selling briskly. But they are not cheap, and they’ll never be mass produced. I’ve written before about how even big manufacturers like Caterpillar and General Electric employ far fewer workers than they used to thanks to automation. Shinola offers a different twist on that idea. It’s not automation that is restricting the number of workers but rather the niche appeal of its products. I’m not sure its example is particularly replicable.
As for Shinola, Kartsotis is readying its next product: Shinola-style headphones that can compete with high-end models like those from Beats. He told me that he has just completed a round of financing and hopes to take the company public one day.
Which will be good for him — and Detroit.
Mr. Bruni and The Moustache of Wisdom are both off today, so hie thee off to do something fun.
There was one post yesterday, “The Sum Of All My Fears:”
Ezra Klein asks, What Is Paul Krugman Afraid Of? Um, interviews that are fine, as far as they go, but use an old photo? Actually, no problem. Did I say anything interesting? I have no idea.
The Klein interview is fun. There were three posts on 12/26/14. The first was “1980 And All That:”
Robert Waldmann is shocked, shocked, to find conservative economists not doing their homework:
Even now, I am shocked that economists didn’t bother to look up the data on FRED before making nonsensical claims of fact.
I’m shocked that he’s shocked.
Waldmann’s issue is the relationship between government spending and growth in recent years, which everyone on the right knows has been negative, but is actually positive. Why, he asks, didn’t they look up the data — which takes only a few seconds on FRED — before making their claims?
But this is typical; it applies to issues across the board. The same people know that growth has been much faster since financial deregulation and the Reagan tax cuts, except that it hasn’t; they know that Reagan was the only president to oversee the creation of millions of jobs, because there never was a Clinton boom; they know that there has been unprecedented growth in government spending under Obama, when the reality is the opposite. At this point you shouldn’t be surprised.
Still, why this failure to do even the simplest homework? In general, people on the right seem to do economic history (and probably history in general) using the principle of 1066 And All That: “history is what you remember”, often what you sort of think you remember. They hear everyone around them saying stuff, repeat it, and that becomes what everyone knows; the idea of checking the facts themselves never seems to arise, indeed is almost anathema. I’ve had conversations in which people belligerently assert “I’m not impressed by your charts — you’ll never convince me that government spending has fallen under Obama.” Don’t bother me with facts!
But why this attitude? Mainly, I suppose, it’s the epistemic closure that comes from serving the interests of big money. There’s a world of think tanks that don’t want too much thinking, partisan media that don’t do fact-checking, and for that matter professional journals that erect high barriers against anything even vaguely Keynesian while uncritically publishing new classical stuff.
There’s also a more specific, wonkish issue. New classical macroeconomics decisively failed the reality test in the early 1980s, but rather than accepting this result, that camp rejected empirical testing. Instead, “empirical” work consisted of “calibrating” models to fit (some of) the data, using ever more abstruse techniques. One result, I suspect, was that conservative economists got out of the habit of looking at raw data; they could tell you about the moments of the distribution, but if you asked them what happened to unemployment and inflation between 1979 and 1989 they probably had no idea.
I will say, by the way, that writing for the Times — and especially doing so in the face of so much right-wing animosity — has been a useful discipline. In general, the Times maintains standards for fact-checking — and for explicit corrections when you get it wrong — that nobody else seems to. And I am especially careful, because so many people are gunning for me. So every assertion of fact in my columns does come with a source, usually visible in the links embedded in the online version. Oh, and for the haters: saying something that doesn’t match your opinion is not an error of fact.
But all this only proves my depravity. After all, the facts have a well-known liberal bias.
The second post on 12/26/14 was “Structural Confusion:”
Economists use a lot of jargon, and rightly so. When an economist refers to comparative advantage, or total factor productivity, or the neutrality of money, etc., she or he is using that phrase to refer to a concept developed over decades of discussion and debate; trying to spell that out in plain English every time you invoke the concept would be a huge waste of time, and would introduce much potential for confusion too.
Yet jargon has its own dangers, most notably the dangers that it will be used in aid of pomposity, and/or that jargon misapplied will add to confusion rather than clarity.
So I read George Magnus’s piece on China’s “structural deflation”, and while it’s innocent of pomposity, I worry that it suffers from the second sin. What, after all, does Magnus mean here by “structural”? In this context, I do not think that word means what he thinks it means.
Normally, what we mean by “structural” — usually as opposed to “cyclical” — is “something that can’t be cured with higher demand”. Structural unemployment is unemployment due to a mismatch between skills and what employers need, or bad institutions, or something, which makes an economy inflation-prone even at fairly high unemployment rates.
Now, there used to be a Latin American school of thought which saw inflation as structural, but I don’t think it ever made much sense. And I really don’t think structural deflation is at all a useful turn of phrase.
Suppose China had entered its recent slowdown with 20 percent inflation, and with everyone in China expecting inflation to remain at 20 percent. Would China have had any problem avoiding deflation? Surely not: simply by cutting nominal interest rates, the central bank would have been able to cut real rates all the way to minus 20 percent if it wanted, surely enough to overheat any economy.
So what is Magnus talking about here? I think he’s actually arguing that China requires a substantially negative real interest rate to achieve full employment. This doesn’t mandate deflation; it does, however, mean that low inflation is unsustainable, because demand will fall short, and the economy will tend toward deflation. This is pretty much what we mean by secular stagnation; calling it structural deflation just muddies the issue.
And that’s too bad, because I agree with a lot of what Magnus says. Still, somebody has to act as the jargon police, and if not me, who?
The last post on 12/26/14 was “Quantitative Levitation:”
Mark Thoma — still the one place you should go every day if you want to keep in touch with the ongoing economics discussion — links to Martin Feldstein’s latest on macroeconomic policy, and editorializes with one word: “Wow”.
I’m wowed too.
Feldstein is a permahawk; he has been warning that the Fed’s policies are dangerously inflationary since early 2009. In his latest, however, inflation has vanished from the argument — yet he still insists that quantitative easing is bad, bad, bad. And to replace it he suggests an elaborate system of cyclically varying taxes, with tax breaks for investment when the economy is depressed that will be withdrawn when it recovers.
It’s a remarkable scheme for a conservative, of all people, to propose; it involves the government trying to muck around with private incentives on a regular basis, with lots of intrusive behavior — we’ll reward some kinds of spending, but not others — and obvious opportunities for gaming the system that would promote a lot of employment among tax lawyers. Also, one of Feldstein’s long-standing arguments about what’s wrong with quantitative easing is that we can’t trust the Fed to withdraw it when it’s no longer needed. Um, and we can count on Congress to withdraw tax breaks for corporations promptly when the macroeconomic justification has ended? The mind reels.
The really remarkable thing, however, is that the animus against QE remains even though the alleged reason for that animus has evaporated. True, Feldstein makes some vague claims about distorted incentives and reaching for yield; it always amazes me how ready conservatives are to assert that investors and markets are irrational when it serves their agenda. But basically at this point the case against QE is levitating in thin air; it was built on a foundation of inflation fears, but is still hovering there now that those fears have been sent down the memory hole.
It’s a very peculiar thing.
There was one post on 12/24/14, “Recession, Recovery, and Gold:”
Twas the afternoon before Christmas, and I needed a break from the holiday spirit. Bah humbug.
Anyway, a quick note. Dave Weigel notes that when President Obama get reelected, the usual suspects told us to run for the hills, buying gold along the way. Zimbabwe!
Or, actually, not. In fact gold prices are down a lot. But it’s also important to understand why they were high in the first place. Gold is not, in fact, a hedge against inflation. It’s something people buy when real returns on alternative assets are low. The figure shows the price of gold versus the interest rate on inflation-protected bonds (inverted, so that a falling real rate of interest is a rise on the chart). Gold went up as real interest rates turned negative, thanks to a depressed economy — an economy, by the way, that was deflation- rather than inflation-prone.
And as recovery has gathered strength, real rates have gone up and gold has gone down. So the Obama recovery has both dashed right-wing hopes for catastrophe and dealt a body blow to their favorite