Will be Fooled Again, but not by Time Pawlenty

Looks like Pawlenty has as much faith in Krugman as I do and considered this post "Will be Fooled Again" a guarantee

So my guess is that any day now someone else will get the nod. Actually, Mitch Daniels would have gotten the Ryan treatment if he had run — and down the road pundits would have been shocked, shocked to find that Bush’s budget director, who did as much as anyone to explode America’s debt, is not actually sensible or moderate. Now unrequited centrist love will have to find a new object for its affections — but whoever it is, we can confidently predict that he will disappoint those expectations.

I even think it is possible that villager pundits read that post and decided not to be fooled this time (just to spite Krugman).

In any case, Pawlenty is now neck and neck with Gingrich for the least successful campaign launch ever.


WonkBook (been there done that -- many times)

The Associate Press (in a news article) !

Certified villager Dana Millbank !!!

The correct Who reference is this one

Come to think of it, how can Krugman be such a Who fan and such a Paul Ryan non fan without ever linking to that "Behind Blue Eyes" (or did he and I missed it)

Huffington Post, New York Times, St Paul Pioneer Press Tag Team on Pawlenty

Huffington Post -- Michelle Goldberg:

Tim Pawlenty and Michele Bachmann sought pardons for a major campaign donor now accused of fleecing faith-based charities in a Ponzi scheme. The 2012 presidential hopefuls should answer for helping make Frank Vennes Jr. respectable,


New York Times - MICHAEL D. SHEAR:

In The St. Paul Pioneer Press, the Pawlenty announcement article ran on the obituary page.





The truth is always the first casualty.

Somehow I think that maybe the Pawlenty administration didn't leak to the Pioneer Press

Update: AP piling on too ! Yes it turns out that truth was the first casualty. Pawlenty's tell the truth campaign starts out with lies (not the AP's word but, you know they are the AP). Totally unballanced.



By the way, two preemptively disgraced candidates from Minnesota ? What's in the water up there. This is the state that tried to give us Presidents Humphrey, McCarthy (Eugene not Joseph -- remember "Stay clean for Gene" ? The children's crusade ? you had to be there (Also "Not to be confused with US senator Joseph Raymond McCarthy" isn't the worlds worst epitaph, but it isn't the best either)) ,Mondale, and Stassen (now that hurts -- my spell checker doesn't recognize Stassen -- he ran for president roughly a thousand times).

Who are you and what have you done with Glenn Kessler.


[ed note I decided not to post this back in the day so it has been sitting as an unpublished draft for a while. Kessler's giving Romney two Pinocchios for, among other things, a claim which Kessler has awarded four Pinocchios in the past, provokes me into posting it]


Recently Glenn Kessler fact checked an obviously true statement by Katherine Sebelius, asked experts who confirmed that it is true, described it as outrageous and awarded her three pinocchios.

There are a number of unanswered questions about the Ryan Medicare plan. It has not been fleshed out with legislative language, and that has allowed opponents to assume the worst about it. Certainly, serious questions have been raised about what the proposed changes would mean for people facing suddenly high health costs. But the budget debate in Washington is fierce enough that senior officials should avoid the temptation to make outrageous charges.

Sorian’s statement is clearly a pullback, and that earns the secretary some credit. But this is in some ways akin to the false claim that Obama wanted to create “death panels” in the health care law.

Sebelius could have chosen to highlight the trade-offs people might face, or questioned the vagueness of Ryan’s proposals to deal with people who can’t afford to pay their bills. Instead, she decided to present a highly inflammable comment as a statement of fact — that there was “no question” people would run out money “very quickly” and then they would “die sooner.” She should be ashamed.

Three Pinocchios

OK lets see. Kessler denounces Sebelius for not taking into account a magic asterisk which isn't in the plan she discussed. Evidently she must assume that something will be done, which will cost nothing and provide health care. This is insane. Kessler demands that the debate on a proposal start when it is fleshed out. This is a terrible proposal. One point of debate is to guide the fleshing out of proposals.

He presents no evidence which contradicts Sebelius's claim. He argues by analogy "akin" and says her statement is bad for the debate. This is not fact checking.

Outrageously, he denounces Sebelius for a non quote in which he patches together snippets of two words each. This is unacceptable. The facts asserted by a fact checker must be above suspicion. I think Kessler should adopt a rule of no paraphrases. He should, I'd say he must, stick to quotes (possibly with ellipses indicated with three dots). It is unacceptable that a fact checker puts words in someone else's mouth.

Enough about Kessler what about me ? Why am I so late to this ? Well I knew the post would upset me and everyone was writing about it so I tried to resist. The double standard of treating Boehner's clearly false claims as arguable and treating Sebelius's clearly true claim as outrageous so its as if it were false, because facts don't matter to the Post's fact checker is just too much.

I see this as a tragic fall. For a while, I don't remember if it is weeks or months, Kessler allowed the facts to influence his fact checking. But facts have a clear liberal bias. They can't have that at the Post, so he has decided to comment on tone and call it fact and to note then dismiss false claims of fact.

I no longer hope that the Washington Post will become a newspaper again. It is a Ballancepaper where the facts are not allowed to interfere with reporting.

Here I think he has made

Chutzpa Alert

On Meet the Press Newt Gingrich said

I follow the model that Rick Perry and others have used to create more jobs in Texas. You know, Texas two out of the last four years created more jobs than the other 49 states combined.

Gingrich has figured out a nice mathematical trick. Note that in two out of the last four years employment declined. This means that to outdo "the other 49 states combined" a state had to have a lower decline. This is easy. In 2008 and 2009 almost every state (if not every single state the only possible exception is California) had better employment growth than the other 49 states combined.

Gingrich is so dishonest that he doesn't even bother to learn the facts. But he isn't stupid. He understands the basic concepts such as positive and negative numbers *and* he understands that he can use them to trick most of the people most of the time.

He also knew not to add that Texas had fewer unemployed people than the other 49 states combined. This is just as true and just as informative as his claim. But it's too obvious that combining the other 49 states is a way to make Texas look good.

I admire his audacity.

I don't disagree with Paul Krugman on many issues but I tend to disagree on the question of Obama's spine.



I am an Obot and I know it. Also Krugman is demanding because he knows that some of his readers work in the White House. Still he slid over a well know fact in this column.

Six months ago President Obama faced a hostage situation. Republicans threatened to block an extension of middle-class tax cuts unless Mr. Obama gave in and extended tax cuts for the rich too. And the president essentially folded, giving the G.O.P. everything it wanted.

That wasn't the most recent hostage taking. There was another hostage situation in which Republicans threatened not to extend the continuing resolution. The next day reaction to the deal was that Obama didn't just fold, he folded over backwards. The reason is the headline cut in nominal spending (compared to the standard $0.00 in continuing resolutions) was even larger than the Republican leadership originally proposed.

Then someone read the fine print and discovered that the vast majority of the cuts were fake. That to get the headline number and the headlines, the Republicans accepted cuts to budget for the completed Census (the Obama administration brought in the numbers on time and under budget) and elimination of authorized spending which had already been indirectly blocked by another bill.

Even with the tax cave, Obama got something in exchange for giving Republicans tax cuts for the rich -- extra tax cuts for the non-rich. Since Krugman's concern about the fiscal 2011 deficit (and mine) is that it is too small, this was a good outcome, because it is stimulating the economy. Spending increases work better and tax cuts for the non rich work much better than tax cuts for the rich, but the final deal was better than the Republican proposal.

Skipping to the last paragraph, Krugman quotes only one side in a controversy "According to Harry Reid, the Senate majority leader, Mr. Obama has told Democrats not to draw any “line in the sand” in debt negotiations. " This is true. It is also true that according the Sherrod Brown, Obama declared in the same private meeting that he was holding firm.

One might wonder if reports on the meeting tell us more about Reid and Brown than about Obama. Treating Reid as Obama's press secretary is eccentric. It is standard practice to make it always all about the President. Brown's claim received little publicity (I read it somewhere on the web -- oh I see at a rival newspaper). But, technically, Obama is Obama and Reid is Reid.

By the way, I am also a Reidbot, but they are different people.


Update: Correction. Above I suggested that the apparent Obama cave on the continuing resolution was mostly smoke and mirrors, because "the vast majority of the cuts were fake." I was wrong wrong wrong. Turns out that about 108% of the cuts were fake, that is more than all of them. More than 100% is not "the vast majority." I apologize for my error. I do wonder why Krugman neglected to mention that Obama totally Pwned the Republicans.

I don't usually read articles like this one by Jason Horowitz, in eht Washington Post

It is a discussion of Cherri and Mitch Daniels. I am interested in little asides which I consider to be direct assaults on all standards of decent journalism. To save space I will just discuss the first violation of the most fundamental rules of news reporting.

"The governor’s political enemies — those who are eager to box out a promising contender with a reputation for fiscal seriousness, establishment backing and intellectual heft"

The assertions about the alleged reputation for fiscal seriousness etc are absolutely not supported by any evidence presented in the article. I think this should not be allowed by Washington Post editors. It is bad enough to quote anonymous sources, but here there is no hint of a source.

Horowitz does not explain what convinces him that Daniels has that reputation. He may consider it obvious that a Bush administration OMB director must have a reputation for "fiscal seriousnes" (for the same reason that Dick Cheney is reputed to be a a pacifist).

My objection is not due to the fact that I consider it absolutely proven beyond all doubt that Daniels has no fiscal seriousness whatsoever. The same objection would be valid if Horowitz had written "a reputation for fiscal non-seriousness."

They are really two objections. First a claim of fact (that Daniels has such a reputation) is made with no supporting evidence whatsoever.

Second, even if the claim is true, it is a claim about opinions. I think Horowitz is definitely not allowed to write "I think that Daniels is fiscally serious." He sure can't write that without presenting some evidence of fiscal seriousness, but he also can't write that after presenting evidence, because he is supposed to be a reporter.

But reporting on someone's reputation is worse. If reporters reported their personal opinions, there would be a debate of sorts. If they report what is the conventional wisdom, there is no debate. This is worse. This would be terrible if the alleged reputation corresponded to what most people with some information on the subject say. It would be terrible even if those people were all sincere and and none are political operatives claiming to personally believe what they want the public to believe. It would still be opinion not evidence.

But, in fact, it is possible for such anti-jouranlism to be manipulated. It is possible for most reporters to think that the conventional view is wrong and yet for all of them to report the conventional view and not their personal opinion that it is wrong.

I guess the reader can tell how rarely I read such articles from the fact that I express total shock and dismay for the way things obviously are. But I was shocked. Honestly.

I tried to comment here but blogger wouldn't let me

My comment.

You get a very respectful link from Krugman, and, thus my congratulations. However, I am even more of a non-monetarist than he is, and I totally disagree with your reading of recent data.

You wrote

a key lesson of recent years is that monetary policy overwhelms fiscal policy. Thus, from 2008-2009 when monetary policy was effectively tight the easing of fiscal policy didn't quite pack much of a punch. Similarly, in late 2010, early 2011 when there was not much fiscal stimulus, but some monetary policy easing under QE2 there was some improvement in the pace of recovery.

Notice how vague the claims are. He didn't type any numbers -- say GDP growth rates or employment growth rates.

I think your perception of macroeconmic events is not related to reality. After the ARRA there was the most rapid accelration of GDP growth over 2 quarters since 1980 and also the most rapid acceleration of GDP growth over 3 quarters. Rapidly declining employment turned into rapidly increasing employment (even ignoring the census).

After the fact estimates of the effects of the ARRA by experts (one of whom chaired the CEA and is biased) are similar to forecasts. Also monetary policy was (by now conventional standards) as loose as it can be, since the now conventional measure is the federal funds rate not growth of monetary aggregates.

Sure the general public considers the ARRA a failure, but that is because they don't compare it to a VAR forecast. The view that it worked as well as expected but was half the right size is absolutely consistent with the data. The public doesn't have the same view of QE2, because they haven't noticed it (frankly it is very hard to notice it).

Your claim about what happened after QE2 is similarly absolutely incomprehensible to me. I note the general view that a shift in monetary policy affects national income and product accounts after "long and variable lags" -- Milton Friedman. The general view is about 6 months after the shift. So standard views on when monetary policy should have an effect place the effect either in 2011 Q1 (very disappointing) or 2011 Q2 (in course). Note that 7 year real interest rates are almost exactly the same as they were when Bernanke first mentioned QE2 and higher than they were after the final announcement of what and how much would be bought.

Also you skipped 2008-9. There was a megahuge expansion of monetary base utterly unprecedented in US monetary history. M1 and M2 massively increased. GDP fell sharply. If one more were necessary, this was the utter final refutation of the quantity theory of money (which I consider to have been utterly finally refuted in the early 80s).

I don't see how anyone can have lived through the past 2 years and think that monetary policy trumps fiscal policy. I would have thought that the utterly overwhelming evidence that points the other way would have convinced everyone (maybe even Friedman himself). I really don't understand how anyone can still be a monetarist.

I didn't mean to be rude, but well whatever, I'll just let it hang out. To me monetarists are like Ptolemaic astronomers (note I have a lot of respect for Ptolemy http://bit.ly/lKt8bK). It fit the data for a while, but now we know that other models fit better.

Freedom Is Slavery

Michael Gerson has a weird column explaining why he isn't a libertarian. He wrote

"The freedom to enslave oneself with drugs is the freedom of the fish to live on land or the freedom of birds to inhabit the ocean — which is to say, it is not freedom at all."

This is odd and not just because there are penguins (not to mention albatrosses who, like penguins touch land only to nest). It is odd because the bit about the birds and fish is not needed. "enslave oneself ... is not freedom" is a tautology. No need for inaccurate ethology. Also the analogy is terrible. I mean birds are free to dive into the see and stay down. They just choose not to. It isn't like using heroin at all.

But what about "the freedom to enslave oneself," literally. I am an economist so I am able to turn off common sense and explain how this outcome is not efficient because of the inalienability of human capital -- that is because we lack the freedom to enslave ourselves. One might argue that the 13th amendment is a restriction on individual liberty. If I want to sell myself into slavery (say starting in a month because I want to party for a month -- well given how much I'm worth maybe party for a weekend) I can't. Hence the title.

The problem is that people other than drug addicts wouldn't sell themselves into slavery (in developed countries including ones with gaping holes in the social safety net such as the USA and Italy). Also the word "slavery" is an analogy.

I prefer another analogy which, I think, is useful to justify both the 13th amendment and restrictions on the sale of addictive drugs (notice no hint that I defend prosecution of the users who are victims). Back in the good old days, people who distinguished liberty and license (as Gerson does) meant something different by liberty. We would call it independence. It was something like we Puritans (or Irish or Greeks or Genevans or whatever) must be free, which means we must have our colony where we can force everyone to do what we say. The unit which was to be free was not the individual but the nation or the faith or some such.

Also families. Freedom meant that the head of the family was free to do what he wanted with himself, his wife and his children. The unit was the family. That freedom seems to us to be arbitrary power over others. We still sure don't accept the idea that freedom means 2 year olds are presumed to be the best judges of their own interests.

Now we just assume that we are one person and Robert today is the same entity as Robert tomorrow. We have forgotten that you can't step in the same river twice. We are the same knife with 2 new handles and one new blade. The idea that I, Robert_now have absolute rights to do whatever I want to him Robert_in2012 is natural, but it is not necessarily valid.

This is the problem with allowing people to sell themselves into slavery or free trade in meth. This allows us to exercise arbitrary power over the future inhabitants of our skins.

Thus arbitrary authority can be justified in (at least) two ways. First "of oourse that's what freedom means -- it's obvious -- just as it was obvious that men were free to beat their wives -- uh come on it's totally different. They were wrong and we are right about whom should be under my arbitrary control, just look at my birth certificate (long form) the vital records show that I am the same person. I have the same name. You are probably about to claim that the Republicans plan to eliminate Medicare and replace it with something else with the same name -- what the hell does the sweet smell of a rose have to do with anything ?" in otherwords refutation by huffing and puffing.

Second that it is reasonable to assume that we are the best judges of our own interests using "our own" in the conventional sense so that means the best interests of our future selves too. Roughly the claim is that our present selves and our future selves have the same interests so we agree, that is we have time consistent preferences. This is an assertion in psychology. It is not just huffing and puffing. It is, however, just like saying the earth is flat as the hypothesis is easily tested and long since refuted.

In particular, no one who has ever been addicted to anything has any doubt at all that we and our future selves are, sometimes, bitter enemies trapped in the same skin(I think the literature on time inconsistent preferences was founded by people who were trying to quit smoking, who couldn't think of anything else and who found a way to be free while in chains even as Epictetus did).

Postjudice: N antonym of prejudice. Prejudice occurs when one is willing to decide a question before looking at the evidence. Postjudice occurs when one is not willing to decide a question after looking at the evidence no matter how strong the evidence is.

Washington postjudice ambiguously refers to postjudice in Washington and to the Washington Post. It will only be possible to disambiguate these two meanings when the Post allows the evidence to outweight Ballance.

Two examples. Glenn Kessler displays prejudice
Glenn Kessler displays postjudice.

Google Challenge

one of the characteristic rhetorical moves of reality based conservatives. They are few, so the sample is small, but the trick seems to be a mixture of moving to abstraction and setting up straw men. So the line is Simpson is ignorant, but the liberal strawman who says demographics has nothing to do with social security is wrong too. Or Ryan's plan cause earlier deaths and would not balance the budget, but the liberal strawman who insists that Medicare not be reformed at all is wrong too.

I will not try to find three other examples of the trick 1) the fact that this conservative (person, proposal, claim, theory, hypothesis) is demonstrably absurd doesn't answer all remotely related questions and 2) there must be some liberal who thinks something stupid about a remotely related question so I will debate him (or her) without necessarily finding even a nut in a comment thread to quote.

Time Stamp 3:15 AM Rome time.



OK back time stamp 48 minutes that I will never be able to regain later. I feel like a fool. I shouldn't even have thought of possible abusers of the rhetorical trick other than David Brooks. Also googling I find lots of conservatives dump on him too. Comes with the territory I guess.

This was harder than I thought it would be. Part of the problem is that I am limited to reality based conservatives and there aren't many left. Also google can't handle something as abstract as "a conservative says something stupid, a reality based conservative tries to distract by talking about the broader question and criticizing a liberal straw man"

After some efforts I tried googling "straw man" "david brooks"


my brooks is often criticized for setting up straw men. This criticism is very valid in this case
http://www.nytimes.com/2009/09/25/opinion/25brooks.html
where the column opens with a full paragraph of setting up straw men (plus Rumsfeld).

OK I think I've found the Treasure trove. Crooks and Liars David Brooks hashmark.

First click is pure paydirt. Brooks responds to criticism of Breitbarts slander of Shirley Sherrod by refuting the liberal straw man who says all conservatives are racist. Note no quote of even a nut in a comment thread (such as myself). Note move to total abstraction leaving Breitbart and the case under discussion as fast as possible.

http://crooksandliars.com/taxonomy/term/554,138,538

OK here the conservative(s) are the majority on the Citizen's United decision. Brooks decides the issue is total fundraising and notes that Obama raised a lot of money. He's moved from citizens united to political fund raising in general and is arguing that Democrats raise money too. I count it

http://videocafe.crooksandliars.com/heather/david-brooks-tries-gloss-over-effects-citi

This is it. The reason I searched only for Brooks and the example I had in my mind when claiming that Salam's post fits a broader pattern. Brooks on Ryan. The issue is whether there should be a discussion of Medicare and not whether Ryan's proposal is a good proposal. Evidently liberal straw man thinks there shouldn't be any discussion of any possible reform (that's why liberal straw man hated the ACA -- damn liberal straw man reminds me of Jane Hamsher).


http://crooksandliars.com/taxonomy/term/4325,538

OK here's another (I admit my second example is weak).

http://videocafe.crooksandliars.com/heather/david-brooks-defends-liz-cheney-liberals-c

That shouldn't have taken so long. Basically I count all but one C&L post on Brooks which I read. The one which didn't fit the pattern is about how a Republican Senator kept his hand on Brooks's inner thigh for a whole dinner party -- no straw men there and admirable specificity (he didn't say if it was his left or right inner thigh and no I'm not saying that only a man feeling Brooks up can make him notice the specific and mere facticity).

Conservatives Should Hate Wall Street

Conservatives deeply resent the fact that they are more numerous than liberals in the general population but a small minority of several different elites. They mix denunciation of affirmative action with (successful) demands for affirmative action for conservatives. They suggest that this pattern is due to discrimination or possibly a conspiracy.

They refuse to consider the obvious explanation and the solution to their problem. The solution is to regulate finance so tightly that it isn't highly profitable. Their problem is that, when people decide what career to seek, the first decision is whether to go for the big bucks.

I'm so old that I remember when people tried very hard to get into Medical school to get the big bucks. This was terrible for patients, but seems appealingly naive. For decades it has been clear that one goes to Wall Street for the big bucks. I can remember an article in Business Week in the 80s which presented a few young MBAs as practically saints because they were going off work in management of manufacturing corporations instead of heading to Wall Street.

Everyone knows that this helps explain the shortage of conservatives in academics, and journalism. To aim for such a career is to accept a lower income than possible. That attracts people who consider going for the big bucks to be selling out.

At some level, if a lot of people go into business you just have to expect those who don't to be less pro-business than average. But it depends on the business. Wall Street gives huge rewards to people who can convince others that they are very smart -- it skims the cream. Many people who consider plain old business to be socially useful think that Wall Street is parasitic (I raise my hand).

Conservative's main problem is a shortage of smart conservatives working outside of Wall Street. Wall Street is their deadly enemy.

Now one hope for conservative intellectuals is that Finance is moving towards rewarding people who beat the market and not people who convince super rich people that they are smart -- hedge fund managers not managers of investment banks. This means that the reward comes from actual measured (mark to market with a short time horizon peso problematic) performance and not sucking up to rich people (including especially older investment bankers). Notably, Hedge fund managers donated to Democrats, at least until Democrats decided it was necessary to regulate them.

There is a similar dynamic among lawyers. The main way to go for the big bucks is be an associate for a high powered corporate law firm. Basically to work for clients with deep pockets. Top lawyers who don't want to do that tend to be left of center. Many of them end up in politics. Some become flamboyant trial lawyers who move to politics, at least until their mistresses get pregnant.

Of course there is a deeper problem. Conservative ideology is nonsense and it is hard for smart people to fail to notice.

I don't have a very high opinion of IQ tests, but I would be interested in IQ as a function of declared ideology. I assume this would reflect the effects of formal education on declared ideology and measured IQ. The causal path is conservatism leads to low spending on schools which leads to low measured IQ. I may be falling into the ecological fallacy better knows as the David Brooks fallacy, as I am thinking of average ideology and IQ by state (the differences in both are dramatic).

But I would be much more interested if the same comparison was made among elites. What do you think is the average IQ of Republican and Democratic Senators ? How about representatives.

You can probably do Presidents in your head. Hmm lets see Obama genius, Bush II idiot, Clinton genius, Bush I average, Reagan idiot, Carter somewhat above average, Ford idiot, Nixon smart, Johnson smart, Kennedy very smart. I'm sure this is not Wall Street and corporate law selection. I think it is the cult of Reagan which causes one of the Republican party's principles to be "ignorance is strength."

I blame myself. The headline tempted me and I read a Washington Post Editorial

I accept that they are right of center, but couldn't they at least be interesting (OK I blame myself again expecting something interesting from a committee).

They note that US manufacturing can now compete with Chinese manufacturing. They mention exchange rates in passing, before getting to the expression of ideoloty

"the U.S. commitment to free trade and flexible capital and labor markets — while politically and economically difficult to sustain — pays off over the long term. "

"flexible" means "less regulated". "flexible" US capital markets were fun in the short run and almost destroyed the economy in the long run.

Then they suggest that labor market "rigidities" cause low productivity in Europe.

"Europe, too, as the Boston Consulting Group report notes, because of that continent’s failure to reform its labor markets and raise worker productivity. Germany’s Siemens recently announced a $170 million investment that will enable it to build gas turbines more cheaply in Charlotte than in Shanghai.

" Here there is no mention of the level of labor productivity which is very high in Europe.

Throughout the Post editorial board ignores prices when it discusses costs. It is cheaper to produce in Charlotte than in Germany partly because a Euro costs $1.43 not say 80 cents.

Notably rapid employment growth in the USA is proof that "flexibility" is good as is a jobless recovery. For roughly the same rate of GDP growth the USA is A OK whether it has more rapid labor productivity growth or less rapid labor productivity growth -- that is if it has increasing productivity or rapid employment growth. Mathematically the conclusion must follow from all data provided there isn't another Wirtschaftwun der (sp ? who cares -- it's bad enough that I'm praising their regulations and unions, like hell I will learn how to spell their words).

Exchange rates are boring. The fact that a weak currency increases competitiveness is counterintuitive, and regulation and trade unions are bad by defnition. The conventional wisdom of the ruling elite. At least tea partiers come up with new expressions of ideology. I feel that I have read the editorial dozens of times before.

What is Inflation

Paul Krugman notes that wage growth has slowed and asks why are very serious people worried about inflation. I comment.

Your effort to discuss inflation is doomed, because people don't agree on the meaning of the word "inflation." There's been some progress since 1923 when Reichsbank Presiident Rudolf Havenstein wrote the mortal book entitled (in translation) "There Has Been No Inflation In Germany," but not by much.

Most people in the USA use "inflation" to refer to increased prices and assume that inflation does not cause increased nominal wages. They will not be surprised by the graph. That's what they imagine when they say inflation is a problem. Most US adults would not object of told "inflation reduces the amount of goods workers can buy with their salaries." They hate inflation (considering 10% inflation by far the biggest problem for the USA in the 70s) exactly because they assume that price increases don't cause wage increases even in the long run.

Evidently the idea is that lower inflation (and they ask economists how to achieve it) means higher real wages and the same employment. Then in a sick twist the older New Keynesians (Fischer, Taylor, Gordon) argue that central banks are tempted to cause surprise inflation, since lower real wages are clearly desirable.

Most people who fear the inflation monster under their beds don't fear a wage price spiral, they don't hope for a wage price spiral. They think higher inflation means lower real wages forever which are not compensated by any benefit such as higher employment ever.

The debate is schizoid because economists and not totally ignorant policy makers accept the public view that inflation is hugely costly (assuming complete nominal wage rigidity) and also assume that high inflation is persistent and hard to eliminate because they know how nominal wages really respond to inflation.

At the moment this is all irrelevant (as you note) since core inflation is low, wage inflation is low and a higher relative price of petroleum really does reduce US aggregate real income. But the current insanity is made more likely by the general inflation insanity. Basically policy makers know that high gasoline prices make people vote against incumbents and they demand that Bernanke save them from the effects of increased Chinese demand for petroleum.

Paul, Ryan Avent

I've typed some very harsh things about Ryan Avent recently (in e-mails) so I think I should say that I think this essay is brilliant.

He is criticizing Paul Ryan who is a very easy target, but he writes very well.

Dancing in the End Zone

Mathew Yglesias April 22 2011

Speed Is Key To House Republicans’ Blowback Containment Strategy: Progressives Should Learn
[skip]

Speed matters. As Napoleon said, “When you set out to take Vienna, take Vienna.”

Robert Waldmann April 22 (typo corrected)

As Napoleon probably also said "If you set out to take Moscow, by all means, take Moscow."

Matthew Yglesias May 5 2011

GOP Leadership Sawing Off Medicare Privatization Branch Behind Vulnerable Caucus Members

[skip]

what’s the point in asking vulnerable members of congress to vote for taking away seniors’ health care benefits?

My comment


I don't want to be snarky, but does this means you are reconsidering your Apr 22nd, 2011 at 9:59 a.m. post "Speed Is Key To House Republicans’ Blowback Containment Strategy: Progressives Should Learn" on the same topic. Your two week old answer to your current question "So what’s the point in asking vulnerable members of congress to vote for taking away seniors’ health care benefits?" was "Speed matters. As Napoleon said, “When you set out to take Vienna, take Vienna.”

My comment was "Napoleon probably also said, "If you set out to take Moscow, by all means take Moscow." (typo corrected)
http://twitter.com/#!/robertwaldmann/status/61533357376413696

I don't like to tell you "I told you so," but I told you so.

A firm resolute disciplined uncompromising party doesn't stagnate or dither and sometimes it marches lock step over a cliff.

Oddly, liberals sometimes remind me of neoconservatives. Their line always was that to avoid underestimating the Soviet threat, one had to remember that the US is a democracy, which makes is weak flabby and undisciplined. Notionally, their view was that freedom works, but, in practice, they only recognized costs. Similarly, many liberals lament that the Democrats are not like the Republicans and wonder why the power of party discipline, shameless lying, reality denial and ideological rigidity couldn't be used to advance sound policy proposals.

We must never stop questioning ourselves, but from time to time, massive overwhelming consistent evidence forces us to answer yes our approach works better than notable alternatives.

Liberals have done rather well over the past three centuries. Sooner or later, we will learn that there really is difference between analysis and paralysis.

Screw Your Courage to the Starting Point

A non denial denail for the ages.

Asked whether that meant Republicans were sticking with Ryan’s version of Medicare reform once talks began at the Blair House with Vice President Joseph Biden on Thursday, Dayspring replied: "The starting point is the Ryan budget, period."

Is Mr Dayspring is as sloppy with punctuation as I am.

A period is a stopping point not a starting point.

And oh to be a fly on the wall asking a follow up question " I think we should start to this line of questioning ? He asked if you were sticking with the Ryan plan not if you were starting with it ?"

Incorrect punctuation can be fun :

Who are You and What Have You Done With Lori Montgomery

You can't rely on anything anymore. There are Toyota recalls and unBallanced articles in the Washington Post. Just recently Lori Montgomery wrote a long article about how the deficit was mostly created by the choices of Republicans when they had the White House and both houses of Congress. This is true, she just reported official numbers and noted which ones are larger than the others, but it is not Ballanced to report the numbers, since numbers have a known liberal bias.

Now she just wrote, and I quote

But he [Cantor] said Republicans recognize they may need to look elsewhere to achieve consensus after President Obama “excoriated us” for a proposal to privatize Medicare.

Notice Montgomery wrote "a proposal to privatize Medicare" in her own voice. She didn't write as any Ballanced journalist would "what he alleged was a proposal to privatize Medicare." This is shocking. What's more she wrote her claim in the same sentence where she quoted Cantor. This might appear to a very stupid Republican operative as an attempt to suggest that Cantor said that the Ryan plan to privatize Medicare is a plan to privatize Medicare. More importantly, a non-stupid Republican operative is probably calling the Post to complain dishonestly claiming that MOntgomery put the word "privatize" in Cantor's mouth. This is how they work the refs.

It seems the refs have lost their patience.

Fred Hiatt wrote a column about how the Republicans deny reality. Various bloggers asked if Hiatt has personal reasons to leave the village or if the consensus has become that "opinions on shape of planet differ and one side is totally full of it."
I scoffed at the thought that the second explanation was possible.

Now I wonder. I almost think that an order has come down saying, more or less, to hell with Kaplan U, we used to be journalists and we can be journalists again.

On the other hand, stating that a plan to privatize Medicare is a plan to privatize Medicare might be a slip. I have saved a screen shot in case it is corrected to remove the factual (equavalent to "factual error" to Ballanced journalists).



Now her willingness to state facts as she sees them doesn't make Montgomery understand economics. She also wrote, in a news article, "a national debt that has risen to alarming levels." In her own voice she makes an evaluation. She didn't note the fact that the national debt has alarmed many people. She assert in her own voice that it is allarming. I consider the deficit to be alarmingly low given unemployment and interest rates. I'd rather the debt were much lower, but I'd rather nothing be done about it for years.

I think that Montgomery here thinks that the inside the beltway consensus is the objective truth. She shows professionalism which, as defined by her colleague Ignatius consists of treating as certainly true any point where Republican officials and most Democratic officials agree.

Still the fact that a contested fact was given equal standing with an uncontested but questionable claim is huge progress.

Stolen from a Talking Points Memo Comment Thread



bearclaw

4 HOURS AGO
From a poll of American adults in 2007:

"Two-thirds in the poll said creationism, the idea that God created humans in their present form within the past 10,000 years, is definitely or probably true. More than half, 53%, said evolution, the idea that humans evolved from less advanced life forms over millions of years, is definitely or probably true. All told, 25% say that both creationism and evolution are definitely or probably true."

http://www.usatoday.com/news/washington/2007-06-07-evolution-debate_N.htm

In other words, not only did two-thirds say they believe humans were created by God in the last 10,000 years, 25% accept as "definitely or probably true" two irreconcilably conflicting propositions.

Wow. I will try to reconcile the propositions. I like a challenge.

First I will assume that the 25 percenters don't think they would witness a miracle in the past few millions of years, that, like me, they would expect to see the world working along according to the laws of nature if they were transmitted back in time.

Then I guess that they assume that there was major evolutionary change of humans in the past 10,000 years. I don't think there was -- I think the last major change was Homo Erectus to Homo sapiens neanderthensis and that we and Neanderthals belong to the same species (hence what I call them). I am taking one side in an open debate. In any case, paleontologists agree that our ancestors were current form type humans 10,000 and 20,000 years ago. But you can't expect people to know that (you will note I don't try to guess when modern humans replaced neanderthals like I know it was less than 100,000 years ago and more than 20,000 but I'm real bad with dates).

So they think that modern humans replaced neanderthals in the past 10,000 years. Not consistent with the fossil record but not shocking.

They also think that everything which happens is the work of God. This view is perfectly consistent with the fossil record (and all data). It can just mean "I call the laws of nature 'God'." It is not a rare view.

The creation in their present form in the past 10,000 years is creating them out of neanderthal gametes by mutating some genes.

I think the 25 percenters' view can be perfectly consistent with everything modern biologists believe if one replaces 10,000 with a somewhat larger number.

The question is poorly phrased. A clear question would as if God " created humans in their present form, out of clay, within the past 10,000 years." That's what the bible says. Or, to give God a fair chance ask if God "" created humans in their present form, out of either inanimate materials or no materials, within the past 10,000 years."

Now I'm pretty sure that no matter how the question is phrased, there would be lots of evolutionary creationists. Basically my honest view is that the 25 percenters don't want to disrespect scientists or God or The Bible.

But the question clearly is poorly phrased so that it can be interpreted so that the 25 percenters have consistent opinions.

A Hypothesis

I am generally impressed by the St Pete Times Politifact.com fact checking site. Like many fans, I was surprised when they classified the DCCC ad on the Ryan budget resolution as pants on fire false.




As noted by Jonathan Chait, this can't be explained by actual falsehoods in the ad, since there is arguably one (is Medicare eliminated if it is replaced with a very different program called "Medicare").



My theory is that it is a matter of subliminal suggestion. The ad closes with an elderly man who says "... fire ..." and then is shown dancing with no pants on.

The sequence suggests "pants on fire" doesn't it ? I have contacted Politifact asking them if this is the cause of the rating. However, I promised not to tell if they reply that it is, so you'll just have to guess.

Screen Capture Coulda Woulda Shoulda

The usual suspects are trying to argue that their crimes made the killing of Bin Laden possible. As usual they are careful to elide the difference between information obtained from high value detainees and information obtained from high value detainees via torture.

As has always been the case so far, the apologies for torture are contradicted by the actual facts. Before going on I write that torture would still be morally unacceptable even if it worked. But it sure seems that it is not a useful way to obtain information.

This time, the apologia is collapsing in real time. I wish I had saved screen captures of this very important article by Adam Goldman and Matt Apuzzo. I will try to reproduce from my memory how Goldman and Apuzzo updated the story. My sense is that they reported a misleading claim by Marty Martin (a retired CIA officer who for years led the hunt for bin Laden). Later they were contacted by two different sources who provided proof that the the conclusion suggested by Martin's claim is totally false.

IIRC, a passage in the story updated as follows.

First

The revelation that intelligence gleaned from the CIA's so-called black sites helped kill bin Laden was seen as vindication for many intelligence officials who have been repeatedly investigated and criticized for their involvement in a program that involved the harshest interrogation methods in U.S. history.

[Related: Major attacks by al-Qaida]

"We got beat up for it, but those efforts led to this great day," said Marty Martin, a retired CIA officer who for years led the hunt for bin Laden.

Marty Martin is clearly one of the people who claims to see this as vindication. Note that the tiny quote doesn't prove anything. "those efforts" could refer to torture or it could refer other efforts. This is a universal feature of recent defenses of torture. It is just unusual that the trick was denounced so quickly this time.

A bit later IIRC the passage became

The revelation that intelligence gleaned from the CIA's so-called black sites helped kill bin Laden was seen as vindication for many intelligence officials who have been repeatedly investigated and criticized for their involvement in a program that involved the harshest interrogation methods in U.S. history.

[Related: Major attacks by al-Qaida]

"We got beat up for it, but those efforts led to this great day," said Marty Martin, a retired CIA officer who for years led the hunt for bin Laden.

Mohammed did not discuss al-Kuwaiti while being subjected to the simulated drowning technique known as waterboarding, former officials said. He acknowledged knowing him many months later under standard interrogation, they said, leaving it once again up for debate as to whether the harsh technique was a valuable tool or an unnecessarily violent tactic.

I can't doubt that Goldman or Apuzzo got a call (or e-mail) telling them that they had fallen for the usual trick. They add an odd non-conclusion "leaving it once again up for debate..." This is an unusual statement in their own voices and, It seems to me, an apology for falling for the trick.

Then there was a still more important update. At this point I don't remember what the first draft showed. The new text comes before the passage I have been quoting. Some of the claims below were in the second update of the article

Shortly after the Sept. 11, 2001, terrorist attacks, detainees in the CIA's secret prison network told interrogators about an important courier with the nom de guerre Abu Ahmed al-Kuwaiti who was close to bin Laden. After the CIA captured al-Qaida's No. 3 leader, Khalid Sheikh Mohammed, he confirmed knowing al-Kuwaiti but denied he had anything to do with al-Qaida.

Then in 2004, top al-Qaida operative Hassan Ghul was captured in Iraq. Ghul told the CIA that al-Kuwaiti was a courier, someone crucial to the terrorist organization. In particular, Ghul said, the courier was close to Faraj al-Libi, who replaced Mohammed as al-Qaida's operational commander. It was a key break in the hunt for in bin Laden's personal courier.

"Hassan Ghul was the linchpin," a U.S. official said.
Finally, in May 2005, al-Libi was captured. Under CIA interrogation, al-Libi admitted that when he was promoted to succeed Mohammed, he received the word through a courier. But he made up a name for the courier and denied knowing al-Kuwaiti, a denial that was so adamant and unbelievable that the CIA took it as confirmation that he and Mohammed were protecting the courier. It only reinforced the idea that al-Kuwaiti was very important to al-Qaida.

Oh my that does change things quite a bit from the first version. They now write that both Khalid Sheikh Mohammed and Faraj al-Libi lied about al Kuwaiti. The interrogation of al-Libi was useful not because his will was broken by torture, but because his interrogators figured out he was lying.

The evidence can be summarized by the simple statement "people you torture lie to you." It thus supports one of the claims of opponents of torture (not the key moral claim but a hotly debated claim).

As usual there are only two explanations for the apologie for torture -- either the apologists are totally ignorant or they are shamelessly attempting to deceive and, this time, caught within hours.

What did Say say ?

Jean Baptiste Say once wrote that there can't be a general glut -- that people sell things in order to buy other things so there can't be an outcome where everyone wants to sell more and no one wants to buy more.

As Brad DeLong notes from time to time, Say got over this error by 1826 noting that there are cases in which everyone wants more cash. There can't be excess supply of everything, but it can be that there is excess supply of everything except for pieces of paper bearing the pictures of some King of England (or whatever the hell they had on Franc notes in 1826, but the example was the bursting of the canal bubble in the UK).

Then Brad embraces a modified Says law which says there can only be a recession and more than frictional unemployment if there is excess demand for something sort of like money which might be cash, or M1 (cash in circulation plus demand deposits plus balances of checking accounts) or high quality bonds or in any case something which can't be produced freely by the private sector. The problem is that his case that economic theory has not advanced since 1826 is that it was much better in 1828 than in 1824 and much better in the UK and France in 1826 than in some US states in 2011.

It is well known that there can be undesirable fluctuations in the volume of trade in economies without any financial assets at all so no money, no bonds, no stock. I don't claim these models have anything to do with the recent recession. I am talking about math not social science. I just claim that there is no metaphysical necessity for there to be money (or anything like it) to have a recession

Before the jump, I will just list the many models with recessions without money.

1) The Diamond search model. In applications it is always assumed that the search function has constant returns to scale. In the original paper it had increasing returns to scale and there could be no trade even though there were gains from trade. There was no money in the model.

2. The Dreze expectational equilibrium model. The standard Walrasian assumption is that people can buy or sell as much as they want at current prices. There can be no rational expectations equilibrium in which this expectation is irrational. This is, I think, a very fair translation of Say's hypothesis into modern language. It is also obviously a tautology. One can imagine a model in which the non-Walrasian auctioneer calls out prices and rations (limits on how much good j agent i can sell or limits on how much good k agent l can buy). Then agents maximize within their feasible sets (which aren't budget sets). Non-Walrasion Nash Equilibria of this game occurs when the amount of each good offered for sale is equal to the amount demanded for purchase and all achieve maximum feasible utility. Walrasian equilibria are Dreze equilibria, but there are many others which are often Pareto worse than any Walrasian equilibrium.

3. Imperfect competition with strategic complements. This can give multiple Pareto ranked equilibria.

4. incomplete markets (OK here there are financial assets but all asset markets clear). There can be a continuum of equilibria some of which are Pareto worse than others.

5. A Romer 86 model with endogenous labor supply can have a continuum of equilibria all but one of which are Pareto inefficient (sorry had to or my co-author would be angry).

All of these add something new which was not known to Say or Mill in 1830.

After the jump I try to explain the first two

Hypothetical possible evidence that QE2 didn't work

1) disappointing growth roughly half a year after it is introduced: Check.
2) particularly disappointing investment growth: Check.
3) Especially particularly disappointing housing investment growth: Check.
4) The price of the asset purchased fell when the purchases began: Check.
5) The price of the asset purchased fell from the time before the policy is mentioned and after it is implemented: Check.
6) medium long real interest rates rose when the purchases started: Check.
7) medium long term real interest rates rose from the the time before the policy is mentioned and after it is implemented: They are almost identical.
8) Expected inflation fell over the same period: it increased.

But how can monetary policy affect expected inflation except via real interest rates ?

The pattern seems to me to fit the story that some investors believed that QE2 would work (very likely as many economists did). Then those who put their money where their mouths were discovered they were wrong. Those who just talk kept talking. Investors bought on the rumor and sold on the event. This can happen for many reasons. One of them is that the event has no effect on fundamental values and that this becomes clear when it happens.

On the other hand, stock prices rose. In standard models this is the effect of reduces long term real interest rates (not observed) and increased growth which is the effect of reduced reale interest rates (neither observed).

Consumption grew robustly. In standard models this is the effect of rapid GDP growth which is the effect of ...


Ways in which money supply siders are like supply siders.

They make vague arguments. They say there are many ways that the Fed can affect the economy other than interest rates. They don't say how. They appeal to math but don't write models down.
http://www.economist.com/node/21256370

They assume that all economic agents agree with them and respond quickly to changes in policy.

In data analysis the beginning of the policy they advocated is timed at a trough. There is no justification for the timing. For the QE2ers the trough is a low growth rate not a low level. The acceleration of GDP growth from 2010 Q2 to 2010 Q3 is ascribed to a policy shift which is dated at the very earliest in late 2010 Q3.

"Growth accelerated, from a 1.7% annualised pace in the second quarter to 2.6% in the third quarter and 3.1% in the fourth quarter. "


Avent describes relatively fast growth in 2010 Q3 as evidence that QE2 worked. Is anyone willing to look me in the eye (via Skype) and assert that he would have hesitated for a second to claim that 2010 q3 growth was the standard to which post QE2 growth should be compared if 2010 Q3 growth had been slow ? How is this different from supply siders dating the Kemp Roth Tax cut to 1982 ?

Supply siders made a prediction about a variable and claim it was confirmed by observation of another variable. They claimed that tax cuts would cause an anomalous increase in tax revenues. They then argued that rapid growth (timed from the trough of a depression) confirmed their prediction.

Money supply siders claim that increases in stock market indices and in consumption confirm their predictions about long term real interest rates and investment. Both use any datum to hand.

Oh note that Martin Feldstein is a member of both camps. He doesn't seem to notice any difference.
http://www.project-syndicate.org/commentary/feldstein33/English

The policy recommendations are very detailed. Total failure is ascribed to the fact that actual policy as implemented was not identical to policy as recommended.

"Unfortunately, the Fed didn't set a policy target. Instead it opted for the $600 billion figure, thereby inviting critics to judge the Fed on whether $600 billion was, in fact, the right action to take."

and
http://vimeo.com/22972938

Invective

So enough about QE2 let's talk about me.

I think there are some regular readers of this blog (someone somewhere even once typed that he was a fan). A normal way in which bloggers vaunt and vainly boast and lord it over their readers is to declare rules for polite commenting along with threats to delete comments and maybe even ban commenters. I'd love to, but my reaction to comments is "oh wow I got a comment ! I got a real live comment :-) Oh it's advertising spam again :-(" Also I post stuff here because it is too rude for whatever comment thread I was in.

Anyway, regular reader(s) will note that I tend to seem angry, to denounce people, to assert that some claim I read somewhere is astonishinly stupid. Such is blogging.

And such am I. I have been this way for as long as I can remember. Certainly, the fierceness of my approach to debate (and my tendency to try to keep the floor to the extend that it might seem that my aim is to be a monobator) was very widely noted in my elementary school class.

I really try to be polite. In real life I often manage. One approach is to use this blog to let off steam, to excrete the bile here, to mix metaphors.

Consider academic seminars. There is this seminar game in which people in the audience try to prove they are smart by criticizing the seminar presenter. It is not appealing. It may or may not be scientifically useful. I like to play this modified seminar game in which I try to prove I am smart without criticizing at all, but just by proposing extensions or applications or heuristic explanations. I like the challenge.

Then, sad to say, there are boring academic meetings. In Italy attendence is expected. I try to skip just as many as I can. When in such a meeting, my sole wish and ambition is for it to end as soon as possible. Therefore, I hardly ever speak. I guess partly my first such meetings came the week I defended my dissertation and all of my colleagues were much older than I was. But now I am older than average even in an Italian department meeting (shudder) and I remain silent. I guess the fact that the meetings are in my second language slows me down some.

But I have discovered that this is the secret to win the love of one's colleagues. For some reason, professors love to talk and hate to listen. A prof. who sits and listens (or pretends to listen) and never talks becomes a very highly appreciated colleague.

So at work I am well known for having no detectable opinions on hotly debated matters, for not criticizing the research of others and for keeping my mouth shut.

Then I come here and spit venom.

Even when blogging and commenting, I try to be polite, to note when I agree with someone as vigorously as I disagree. But I can't do it. My natural inclination is to be arrogant, combative, rude, rebarbative (I think -- I'm not sure what the word means) and extremely extremely verbose (the reader if any patient enough to reach that word knows this already).

Stolen From Brad's comment thread.

Finally I get a response. Brad DeLong tells me what would convince him that QE2 was a flop

If market expectations of future inflation had not risen but had declined since QEII was mooted last August, I would conclude that QEII has been ineffective. They have not.

Well that was brief and to the point. He also had a graph showing the difference between the 10 year treasury yield and the 10 year Treasury Inflation Protected Security (TIPS) yield. This can be roughly interpreted as expected inflation and it has increased as anticipated following QE2.

I reply

Robert Waldmann said...
Hmm on my hard disk I conceded that one. But I think the bottom line reports real interest rates. They have not changed.

If expected inflation had fallen a little and 10 year nominal interest rates had fallen a lot, would you conclude that QE2 had failed ? Or are you playing heads I win, tails lets flip the other coin ? Do you think that nominal interest rates don't matter at all, that is that only expected inflation matters not real interest rates ? Would I have been delighted that my debt was inflating in 1982 when inflation was around 10% and the 10 year Treasury rate was 15% ?

I don't see any possible benefit from a simultaneous increase in nominal interest rates and expected inflation. How does that affect anything real ?

I now guess that there might be a point that the nominal interest rates we care about are those paid by corporations or mortgagers and that it is possible that purchases of treasuries reduced the price of treasuries relative to other assets.

Here is another one. Let's take an IS-LM model with nominal interest rates on real GDP (just to be as barbaric as possible). QE is a shift down of something like an LM curve. The explanation for increasing nominal interest rates is that the IS curve shifted up because of increased expected inflation and increased expected GDP growth. The model would give a reduced real interest rate, but let's forget that. What about now ? The explanation from uh someone who I won't name (not Brad) is that sure growth was bad in Q1 but it would have been worse without QE2. That is, the IS curve shifted down. So the evidence is a raw correlation (with total flexibility about the timing ascribed to QE2). Then the actual correlations of QE2 with interest rates and real GDP are both explained appealing to omitted variable bias. I say no. One shouldn't run simple regressions and then dismiss correlation coefficients. But even if I bent over backwards to be generous to (that person) I would have to bend over forwards too, since he (or she) assumes that the IS curve simultaneously shifted up and shifted down.

In the comments thread SvN raises the spirits of Neyman and Pierson from the vasty deep

SvN said...
I'm troubled by the notion of "proving something ineffective."[*] May Bayes forgive me, I think in terms of rejecting a null hypothesis of no effect. Is Waldman asking us to believe that QEII has had a significant negative effect on the economy? or that its effects have been significantly below what was expected based on our models? or simply that there is no significant evidence of positive effects? Power and size and very different animals, as are Type I and II errors. Which are we worrying about here?

Good questions SvN. I phrased my post carefully as a question. I didn't ask anyone to believe anything. I asked people (very especially including Brad also by Gmail) to tell me what would convince them.



As you note, proof that an effect isn't positive can consist only of statistically significant evidence that it is negative. This is the spirit of Brad's answer too. He said that if expected inflation had decreased he would be convinced that QE2 had failed. He didn't say that if it had remained the same he would be convinced (for one thing it doesn't stay exactly the same for long since it is the difference between two asset prices and one of the assets is traded a lot).

I am convinced that QE2 failed. As you argue, I must look for data which seem to show it had the opposite of the desired effect and not just data which show no significant effect. I am convinced by two time series -- the 7 year constant maturity Trasury nominal interest rate (I look at the daily series from FRED) and the ugh quarterly (Ugh) series of investment. The QE2 works hypothesis has three implications

1) 7 year nominal interest rates should be reduced (the policy is massive purchases of 7 year treasury notes so the most obvious and direct effect should be an increase in the price of those notes)

2) expected inflation should increase (I think this should happen indirectly via the forecast effect of interest rates on GDP and the effect of GDP on inflation via the Phillips curve which is stubbornly still in the data long after economists decided that believing in it was like believing that the Sun orbits the Earth). The two effects should both cause market real interest rates to fall, that is the price of TIPS (Treasury Inflation Protected Securities) to rise.

3) lower medium term real interest rates should cause increased investment and, especially, increased investment in housing. So the hypothesis leads one to predict that the growth of investment (and especially in housing) should be above the trend rate of growth.

So what is the score.
1) 7 year nominal interest rates have increased since QE2 was first mentioned by Bernanke (August 26) and since the final QE2 program was announced (mid November) and during the period of actual QE2 purchases. The price of the asset of which the Fed is buying $600,000,000,000 worth went down. I think this is strong evidence that the Fed can't drive that price up (wrong sign not just insignificant).

2) a Tie. I look at the 7 year constant maturity TIPS rate (7 years because the purchase was of regular un indexed 7 year notes). It's close to what it was on August 26th. Since mid November it has increased. My effort to psychoanalise the time series leads me to speculate that some investors thought that QE2 would work (obviously many economists did) but when the actual purchases started people stopped being willing to put their money where their mouth was as it became clear enough that QE2 was a flop that no one would bet on its success (while many people are perfectly willing to declare it a triumph since words are cheap).

3) extreme disappointment. It is a bit early yet. Still QE enthusiasts were declaring victory long ago. The latest numbers are early for an effect of a shift in monetary policy on GDP and components -- the very conventional view is that the effect reaches its peak in about 2 quarters so really the current quarter 2011q2 not the one (2011q1) whose numbers have just been added up). But investment was dramatically below what was forecast in August 2010 and November 2010.

So on the three reasonable statistics the score is 2 to 0. Two dramatic changes with the wrong sign and one very close to no change.

I don't claim that the null that QE2 worked at all is rejected at the 5% level. The data are very few or very noisy. That's why I ask people and not a computer. The answer may be the following "I am only convinced when a null is rejected at the x% level -- therefore I have never been convinced by any claim in empirical macroeconomics. The data are few, disturbances are heteroskedastic and serially correlated, the parametic classes of models such that we can calculate distrubutions under the maintained hypothesis that the data generating process (DGP) is a member of that class clearly don't include the DGP. So no data which have been or can be actually collected will ever convince me of any claim in macroeconomics."

Fine. That's damn close to my personal view. But that wasn't Brad's answer. He said, in effect, yes of two asset prices one moved the wrong way and one moved hardly at all. But the only thing that matters is the difference between those two asset prices, which moved the right way. My follow up question is why do we care about the difference ? Don't we care only about the asset price which didn't move ? I can promise you, the logic of the pro QE2 argument applies to real interest rates and not to the difference between real and nominal interest rates. Also I claim that there is almost exactly nothing there. Certainly no statistically significant evidence against the claim that QE2 worked at all.

I have another post on the topic. In that post, I note the shreds of evidence that QE2 had the opposite of the intended effect (as you note the only way the evidence can prove that it didn't have the intended effect). I explain that I don't find that evidence convincing at all. So, in answer to your question, I certainly don't ask anyone to conclude that QE2 failed.

Introspecting, I can go further. In my heart I am sure that QE2 had effects of the anticipated sign -- lower nominal interest rates that would happen otherwise, higher expected inflation, and higher investment especially in housing. I certainly don't claim that this inner certainty is in any way based on evidence. I am also convinced that the effects were much smaller than hoped (and anticipated really). So I definitely don't think that a true coefficient is negative or exactly 0. I think it is significantly less than was believed. But I can't give you a number for what I think was believed, or a point estimate of the coefficient. I haven't even explained what coefficient I have in mind (hmmm I guess the interest rate elasticity of demand for 7 year notes). I sure can't tell you at what level I believe the one tailed hypothesis "QE2 works at least as much as anticipated" is rejected. I'm pretty sure the level is above 5% (that is the null which I dislike, criticize, and insult is not rejected at standard signficance levels). Macro data are crap, and it's early yet.




Please don't read this stupid footnote

* I never wrote the words which SvN put in quotation marks. SvN typed "'proving something ineffective'" I did *not* type "proving something ineffective." SvN misquoted and libeled me. SvN's whole point is that someone who understands classical statistics wouldn't have written "proving something ineffective" as I didn't. I firmly assert that, when one discusses something written by someone else, there are only two possible uses of quotation marks. One is to quote that person word for word with ellipses in the place of any deleted passage (as SvN did not do). The other is to lie or show reckless disregard for the truth (as SvN did).