Technology and Economic Transformation

Old Economy: everyone is employed taking in each other's laundry

New technology: washing machines -- will we all be unemployed

Services to the rescue: in particular financial services

New Economy: Everyone takes in everyone else's money laundering.

I was talking to myself about Iowa because I saw a dumb film about a small town guy in the big city of Cedar Rapids (including the obligatory fancy wedding reception with a cake with a little sugar statue of the bride and of the other bride because ha ha Iowa has gay marriage unlike California).

I said to myself (I am patronizing and pedantic with myself when I'm not blogging) Iowa is a farm state. That doesn't mean most people are farmers but if you look at the Iowa current account most of the money flowing in is in exchange for corn and stuff (or is Federal subsidies). Then I wondered if that is true or if more flows in in exchange for financial services. What is the gross flow of interstate financial services in the USA ? Anyone doubt it is larger than GDP ?

By the way, the film was about FIRE -- in particular a convention of insurance agents. I think the it was made on a bet -- that sounds like the most boring thing in the world -- can we make a film about it with sex and violence ? Sure you can.

I'm not telling you the title, not because I fear you will buy tickets to the film (which I liked) but because it was just what was on channel 4 of UA9688 IAD to FCO.

Following Krugman

Another economist's front lawn
(Krugman was first to implement this blogging strategy )

Today's Washington Post False claim on a point of fact

Terri Rupar wrote

House Majority Whip Kevin McCarthy (R-Calif.), the party's vote counter, began his talk by showing a clip from the movie, "The Town", trying to forge a sense of unity among the independent-minded caucus.
One character asks his friend: "I need your help. I can't tell you what it is. You can never ask me about it later."

"Whose car are we gonna take," the character says.

Brian Beutler comments

A couple things. First, that's not the complete movie quote. Here's the complete quote:

Doug MacRay: I need your help. I can't tell you what it is, you can never ask me about it later, and we're gonna hurt some people.
James Coughlin: ...Whose car we takin'?

Second, having rallied their troops with the clip of a scene of two guys agreeing to a revenge attack, the man who rises to the moment for GOP leaders is...Rep. Allen West.

It's not clear if House Republicans fed an edited script to the Post, if the Post omitted the "hurt some people," line themselves, or if GOP leadership actually edited the clip itself when it was screened.

In any of the three cases the Post's reporting is inaccurate. The least bad would be case three in which, to report the facts correctly, the Post would have to have written "by showing an [edited clip] clip from the movie." To be OK the post should have explained that the clip was edited to remove the explicit reference to criminal violence. The

This article by Dan Balz (which I think is supposed to be news) perfectly illustrates how the Washington Post has gone terribly wrong.

Similar plans, similar goals, but no deal


"It’s clear why there is no deal" is the headline on www.washingtonpost.com.

The article is perfectly Ballanced. It treats Obama and Boehner identically, but the key point is that the content of proposed bills is not mentioned at all. It is an analysis of a policy debate with no mention of policy.

The key sentence " Only when it is shown that neither Boehner’s nor Reid’s plan can get out of Congress can real negotiations for a compromise begin" shows that Ballz has decided that policy has no place in a discussion of why there is no agreement.

Reid's plan is not a "compromise" it is a complete 100% concession to all of the Republican's demands. However, just because it is the current position of the leading congressional Democrat, "a true compromise" must be somewhere between it and the Republicans' current proposal.

Balz didn't write the headline, but it is a fine headline. It is clear to everyone why there is no deal -- collectively Republicans won't take yes for an answer. None is willing to compromise or even appear to compromise. Many are unwilling to vote to increase the debt ceiling. No matter how completely Democrats surrender, give in and cave, some Democratic Representatives will have to vote for a debt ceiling increase. Therefore Boehner will appear to have compromised. Therefore he won't be speaker long.

The Post's rule that one must never admit that one party deserves all of the blame is absolutely rigid. That reporting have some connection with reality is a lower priority.

It had to happen. Ezra Klein (now supervising 3 others) is beginning to note false claims of facts in Washington Post news stories.

...Lori Montgomery reports that “counting money not spent on wars that the nation is already planning to end is widely viewed as a budget gimmick, and House GOP leaders have been reluctant to include it as savings.”

There’s some truth to this argument, as I’ll explain in a minute. But the GOP is trying to have it both ways. Boehner uses the Congressional Budget Office’s deficit estimates. He doesn’t subtract trillions because he doesn’t believe the agency’s war-spending estimates are faulty. Nor do I remember him calling the savings from Paul Ryan’s budget — which Boehner voted for — fake.But the Congressional Budget Office counts trillions in war spending in its budget baseline, and Ryan’s budget cut a trillion dollars from the Iraq and Afghanistan wars.

Montgomery's claim is false. Republicans are not reluctant to count such savings when it is convenient for them. Their current refusal to count them shows that they have no respect for the truth and are psychopathic liars.

Also Montgomery has no respect for the truth and is willing to report lies without mentioning that they are lies.

I'd say the struggle is joined. I expect Klein to end up fired like Froomkin, but he was just promoted.

I might add that Montgomery made an editorial comment in a news story. She did not source her claim that "counting money not spent on wars that the nation is already planning to end is widely viewed as a budget gimmick." I think she has chosen to state her own opinion as news. Notably she did no such thing when Republicans counted such savings.

I don't know about her. She could be a smart unscrupulous partisan Republican. It is more likely that she is ignorant and determined to achieve Ballance. Either way her conduct is outrageous.

I have been typing this in comments various places. I think that Obama does not really want a grand compromise and just wants to convince the very serious villager people that he tried to give them what they want and Republicans wouldn't let him.

I think this hypothesis gets some support from the agreed fact that Obama's proposed tax increases changed from 800 B to 1.2 T from Thursday to Friday. The administration's explanation is based on the gang of six and getting to 50 in the Senate and stuff. I like the think the issue was that there was a risk of Boehner saying yes.

It is true that Boehner was making crazy proposals such as "Boehner, for instance, wanted further cuts to Medicaid, a trigger that would repeal the individual mandate and the Independent Payment Advisory Board if the entitlement cuts didn’t come through"

There is no possible justification for the proposed elimination of the new powers of the IPAB. The declared aim is to cut entitlement spending. The new more powerful IPAB would do that. The deal is that if the Democrats don't agree to new cuts, then the old cuts will be repealed.

The Republicans who campaigned as defenders of Medicare and now present themselves as defunders of Medicare can't manage to avoid contradicting themselves. But I would have thought that they would manage to avoid contradicting themselves in one proposal.

It is totally clear that the house Republican caucus views the question of us vs them -- they couldn't make it clearer that they don't give a damn about the deficit or health care or anything and are against anything Obama supports.

Ballance's last stand

Dan Balz writes what I'm sure he considers a very hard hitting column about what's wrong with the debt ceiling negotiations. He concludes the problem is the House Republican Caucus

But it’s clear that House Republicans are the principal obstacle to any grand bargain that includes substantial new revenue. Their rigid opposition runs contrary to public opinion,

But the impressive thing is that even when assigning blame, Balz feels the need to assert a false equivalence. Actually I'm not sure he felt anything. I think it is likely that he does this without thinking or imagining that there is an alternative. He wrote

Republican opposition to tax increases is an article of faith for the party, but many GOP lawmakers, particularly the freshman who came in with the support of the tea party movement, are more rigidly opposed than ever. Similarly, many Democrats, who have won elections attacking Republicans over Social Security and Medicare, remain strongly opposed to cuts in those programs.

He could also have written

Republican opposition to tax increases is an article of faith for the party, but many GOP lawmakers, particularly the freshman who came in with the support of the tea party movement, are more rigidly opposed than ever. Similarly, many Republicans, who have won elections attacking Democrats over Medicare, remain strongly determined to cut that program and eliminate it if possible.

The last campaign wasn't so long ago. Balz knows perfectly well that Republicans claimed that the PPACA cut Medicare benefits (when they didn't suggest that it established death panels). He also knows that the public disagrees with the Republicans on taxes and he must know that the public strongly agrees with the Democrats on Medicare and Social Security. What is the justification for the word "similarly." Why did Balz type that word ? It is not needed. It is not true. Did he even consider the possibility of not claiming that two things which are fundamentally different are similar ?

Notice one asymmetry. Republicans have "faith" Democrats' support for Medicare and Social Security must be based on political calculation. The possibility that people actually sincerely think that cutting those programs is a bad idea is not conceivable even though the vast majority of people in the USA sincerely think that cutting those programs is a bad idea.



Also

Negotiators have just days to show progress, with the onus on the speaker to show that he can cajole his colleagues into accepting a plan that can pass the Senate.

At only two syllables "onus" un-punches above its weight. Is Balz saying that Boehner has that responsibility -- that if he doesn't have the cojones to cajole he is in the wrong -- or is he going horse race and saying that if his caucus causes default he will suffer politically ? Does Balz even distinguish his preferences from those of the voters in his own mind.

He is enthusiastic about proposed cuts to Medicare, Social Security and Medicare. On those issues he doesn't mention public opinion, which doesn't count since the public don't agree with the very serious people.


I honestly suspect that we are watching Obama play 11-dimensional chess, which involved the sacrifice of "principle" (a knight of course) and "telling the truth about what he thinks of spending cuts when in a liquidity trap" (have to call it a pawn although the truth about economics isn't even a pawn in his game). He has managed to get the Republicans to do the one thing which villagers won't forgive -- turn down a chance to cut Medicare and Social Security. The Republicans have betrayed the entitleds' anti entitlement crusade. This will not be forgotten.

On the other hand, the public will have to forgive Obama's spinelessness as the alternative is worse.

In the country of the blind, the one eyed 11-dimensional chess player is re-elected.

I was right and Stiglitz and Krugman were wrong. Mike Konczal was wrong too. He sent me back to this post

Astute readers will notice that the action of government officials using public funding sources to provide makeshift backstops for losses of the banking sector to clear the balance sheets of toxic assets to “unlock the frozen credit market”, without having to go to Congress for funding, was also a central feature of Geithner’s PPIP plan, with FDIC stepping up to the plate once the GSEs went bust.

In fact FDIC didn't step up to the plate. For all I know, Geithner might have secretly dreamed of using the PPIP to make the FDIC bear risk and, ex ante, transfer tens of billions to shore up private banks. But the PPIP didn't force the FDIC to do anything. The FDIC kept a veto and used it.

To be fair, one might say that the FDIC stepped up to the plate but didn't swing at any sucker pitches and walked.

Also Konczal was and is very right that the GSE bailout cost a ton, because the GSE's were used to covertly bail out private entities. For some reason they bought a lot of toxic waste at prices no one else was willing to pay at the time when Paulson was desperate to bail out banks and dealing with a recalcitrant congress. A good move I guess (I think he saved the world economy) but not evidence that the government sponsoring was the source of problems -- rather it was key to a painful but necessary solution.

The Usual

Mike Konczal quotes Matt Yglesias and I lose it as always.

I think very very highly of both of them.

First, you note that we won't be in a liquidity trap forever (the qualifier "in a moving economy" is key and "moving" does not mean "with growing GDP" but "with a non trivially positive federal funds rate").

I will discuss Yglesias as quoted here (I haven't clicked that link) and other things of his I read a while ago. I note that he does not deal with the issue of a liquidity trap *at all*. In particular he assumes that a higher inflation target implies higher inflation. This is not necessarily true. I can certainly imagine a world in which the Fed can't convince people that it will drive unemployment below the NAIRU when we reach it (probably after current FOMC members' terms are over) and in which it is both true and believed by investors that the FED can't do anything except manipulate short term safe interest rates. In that world, a higher declared inflation target would have no effect. An analogy might make things clear and, anyway, is fun. My inflation target is 5%. This target has not saved the economy. No one cares hat I want inflation to be, because I can't get the inflation I want. Do people really believe that the FOMC can ? If you answer yes, explain why ?

Money sitting around depends critically on what one means by money. It does not refer to retained earnings of firms which are not invested in fixed capital. That wealth is lying around, but it isn't in the form of money. They hold bonds, so what matters is the real interest rate not the inflation rate. Notably, medium term real interest rates haven't moved since Bernanke mentioned QE2 at Jackson Hole and increased for months starting when actual purchases of 7 year notes began.

The cost of holding money as opposed to other assets is the nominal interest rate. Yglesias proposes a higher federal funds rate (same real rate given higher inflation). This is a very odd form of expansionary monetary policy (I mean backwards). Wouldn't it be better to stay at the 0 bound, achieve inflation somehow, and have a lower real interest rate ? I mean Yglesias's plan for expansionary monetary policy is called contractionary monetary policy by everyone else. To stop money from lying around one needs a positive nominal interest rate. I don't think higher interest rates are what the economy needs.

The argument about mortgages is valid. It is not simple.
Many mortgages are ARMs (and especially many underwater mortgages) but many are fixed rate mortgages. I think the key question is why don't people with fixed rate mortgages refinance ? My guess is that a lot of it is unsophisticated sluggishness. But if people aren't sophisticated, they won't understand that they should base their consumption decisions on the spread between interest rates on TIPS and nominal Treasury securities will they ? I sure don't.

The people who's spending will be increased by inflation are people who are forward looking but can't refinance, because their mortgage is underwater or loaning to them was silly to begin with or their incomes have tanked. So you need people who are much much more sophisticated than average (so they look at real interest rates) *and* made huge mistakes. There are lots of such people, but not lots compared to US population.

With actual inflation slowly slowly mortgages will resurface (cease to be underwater). House prices rise with the general price level other things equal. That will help. Significantly in 2020 or so.

I think that Yglesias noted that monetary policy is very important, affects the distribution of wealth, was set for over a decade by a very hard core Randian and is ignored by progressives (basically by progressives who remember the 70s). So he studied it. But it is, as you note, tricky right now. It is hard to leave boring knowledge just sitting around waiting for the end of the liquidity trap. But it is also reality based.

Ballance all time winner

The column is pure fantasy. Both sides share the blame, because Jeff Greenfield chose to write fiction. I am not exaggerating. His article is set in the future.

I don't think it is possible to satirize Greenfield. I can't imagine a more devastating illustration of the utter intellectual depravity of radical centrism.

Ballance In a Cramped Spot

Surely, I thought, Dana Milbank can't fit ballance into a column denouncing Karl Rove

"Stephen Colbert, Karl Rove and the mockery of campaign finance"

I am so naive

"The corporate cash tends to come from a small number of private businesses owned by extreme liberals or conservatives looking to elect like-minded candidates."

OK Dana name the extreme liberals. I think the standard for being an extreme liberal is to donate to Democrats. Maybe also to be denounced by Glenn Beck. I'm pretty sure he is thinking of George Soros who was an enthusiastic supporter of the most rapid possible transition towards capitalism in his native ex-Austro-Hungarian empire. Opposing Bush is enough to be a dangerous lefty if one is needed to achieve Ballance.

Also, I wonder where Milbank got his data -- the column mainly stresses that the donations are secret. He asserts that the cash "tends" to come from closely held businesses owned by individuals and not from publicly traded corporations. How does he know that ?

It is hard to criticize liberals in a column about how the Roberts court and Rove have decided that the rich should have more ability to influence elections. So Milbank criticizes some un named and, I assert, fiction extreme leftist billionaires.

The sad thing is that I'm sure Milbank considers this a hard hitting column in which he pulls not punches (for which he will have to pay with several sneer at both your houses columns). I'f fairly sure that the dig at imaginary "extreme liberals" was made half consciously. He knows that conservatives argue that George Soros is a powerful extremist (when they are not asserting that ACORN can steal elections). He knows that the accurate claim that billionaire political extremists are all right wing will be contested (progressive billionaires fight AIDS not the GOP). So he inserted a plainly false claim to avoid debate.

We can't have debate in the Post can we.

Wow ?

The Washington Post has an on-line "poll" which asks

"Do you agree with Democrats who say that Republicans are sabotaging economic recovery for political gain?"

The results as of now are

Yes. 64%
No. 36%

This is in no way a scientific poll, but that is a pretty shocking result (I clicked yes myself).