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Friday, June 29, 2012

Eban Fortune Fast Furious and Grassley

Katherine Eban reported in the notorious left wing rag "Fortune" that everything Republicans have been saying about "Fast and Furious" up until yesterday when they found Eric Holder for contempt of Congress (for only handing over 7,600 pages of documents and insisting that ongoing investigations are protected by executive privilege) is nonsense.

Senator C. Grassley (or his office) replied.

The response from Grassley is a non denial denial. He (or his office) writes that the key issue is that the BATF "encouraged" gun sales. The previous line had been that the BATF "allowed" gun sales. The original claim is important, since it implies that the BATF could have prevented the gun sales. Grassley (and his office) no longer stick to their previous claim that this has been demonstrated.

I stress that I use the word "previous" refers to the previous sentence. In one sentence Grassley (or his office) asserts that the claim that the BATF could not stop the guns is inconsistent with the evidence. In the following sentence he (or they) argue in the alternative that it doesn't matter if the BATF could or couldn't stop the trafficking.

The central claim of the article, that there was nothing ATF could have done to stop the illegal sales, is simply incompatible with the evidence. If it is true that ATF could not interdict and seize weapons due to legal hurdles beyond its control,

I believe that's called arguing in the alternative. Something defence attorneys can do, but prosecutors better not. Don't you think that after months of investigation Grassley (and his staff) should know if the BATF can or can't stop gun sales ? Yet he (or they) claim no knowledge of relevant law and make no assertions one way or the other about legal advice from the US Attorney's office (which is notably part of the same Justice Department so they can harass Holder over that instead).

via Mother Jones

Not just the breaking news

Colbert too.

He notes that Supreme Court Opinions are not repeat not just one page long.

Look another point is that CNN asserted that the individual mandate is the core of the health care law. This is not breaking news nonsense. In fact it is practically nothing at all -- an instruction to pay a tax if one doesn't buy insurance which is not, in fact, to be enforced as, you know, normal laws actually requiring people to pay taxes are enforced.

In contrast the gigantic cuts to Medicare advantage, the huge subsidies, the immense expansion of Medicaid (less immense since Roberts et al Nelsoned it) the new regulations, the new taxes, the new power for the Medicare payments advisory board, are huge.

The extremism of the dissenting four who nullified the entire law because of a quibble about a completely ineffective figleaf hiding the breaking of Baucus's promise to AHIP was completely obscured by the claim that a clearly ineffective provision was central, because that's what Republicans say.

Complete ultra mega fail beyond anything I imagined possible yesterday.

Blogger ethics basic competence panel STAT

I was just checking on the only TV news show I watch -- The Daily Show -- and I found out that not only did Fox and CNN report that the ACA mandate was declared unconstitutional, but also Fox corrected its error relatively quickly by quoting

Has there ever been a clearer demonstrating of the superiority of the blogosphere to the legacy media ? Could there be a clearer demonstration ? What sort of highly dangerous chemicals would I have to consume to be able to imagine a clearer demonstration (not that I would anyway).

Gary He Wins the Internet

For a day, a week a month oh hell since Al Gore invented it.

Chris Cillizza displays utter contempt for the facts -- again

Cillizza claims to report on the House's vote to find Eric Holder in contempt. This time he doesn't even pretend to base his analysis on reality at all.

I will show the title and conclusion

On ‘Fast and Furious’ vote, Congress affirms all the bad things people already think of them.


What’s remarkable is that less than a year removed from such a politically scarring experience that both parties would be willing to engage in similar behavior again. And you wonder why the fastest growing political “party” in the country is independents.

HeThe article denounces "Congress" and "both parties." To me this logically implies a denunciation of Democrats in Congress. Yet Cillizza gives no hint about any idea of anything they could do differently. He one description of possible criticism of Democrats is

"And, yes, partisan Republicans will see today’s vote as the only choice House leaders had given the Administration’s decision to invoke executive privilege on the documents requested by the Committee on Oversight and Government Reform.

Note "the administration" not Democrats in Congress. Yet in the title and conclusion he denounces "Congress" and "both parties."

We have entered the Baroque phase of "he said she said" journalism. Cillizza doesn't actually quote a partisan Republican who made the claim he imagined. He is inventing, from pure fantasy, fictional figures to quote in order to avoid any risk of describing relevant facts in his own name.

His article reports on an event in Congress and presents old polling data on Congress in general. He reports nothing, nothing at all, about the issue under debate. He reports nothing about public reaction to the recent action of Congress (he can't of course as there is no reaction to report).

I challenge anyone to read the article and find an interpretation of the conclusion that "both parties" are at fault other tnan that Cillizza starts with that conclusion as a methodological a priori and ignores all evidence completely and with utter contempt not only for jounalistic standards but for the concept of reporting.

update: This, in contrast, is important and depressing.

Thursday, June 28, 2012

Drum on Roberts

Now Kevin Drum has something semi nice to say about John Roberts. I lose it again in comments.

I think that if Roberts were to accept Roberts's ruling as a precedent (and pigs fly) then he would have to declare a repeal of the Medicaid expansion by a future congress to be unconstitutional. The principal appears to be that what a previous congress has give the current (or in this case the just past) congress can't take away. Of course I'm sure that he wouldn't dream of this.

Consider an example. The welfare reform act of 1996 placed new requirements on states required for them to get funding. They did not have the option to stick to old welfare with 50% Federal funding. How is it possible that the ACA is unconstitutional but Welfare reform was Constitutional ? In each case States used to get money under some conditions and later had to change things in order to get that money. Why can Congress compulsively reform Welfare but not Medicaid ? I think it is obvious that Roberts will not find welfare reform to be unconstitutional (and would refuse to even hear such a case). I think the reason is that the ACA expands social insurance while welfare reform contracted it. The constitutional argument (with which Kagan and Breyer agreed) is so absurd that I have no doubt that it was made only to support a political decision -- I'd guess a perceived need to balance the finding that the mandate taxes on people without insurance are constitutional.

I think it is obvious that Congress could have repealed Medicaid and replaced it with expanded Medicaid. The allegedly unconstitutional bill does just exactly that. I don't see how you can find Roberts's argument compelling.

You provide no explanation of your judgement which I think is inexplicable (Roberts certainly didn't explain his). This time I ask politely for information how the argument that Congress can't repeal an act of an earlier Congress (or that it must explicitly write that the previous act is repealed when, in effect, it supersedes it in a new act under pain of invalidation of the newer law based on caluse it isn't anwhere or article I don't you have in mind of the US Constitution).

Well I made a good faith effort to be polite and I really want to know. Do you think that Congress can't repeal Medicaid on the grounds that that would be unconstitutionally hard on states ? Or do you think that it must explicitly saying it is repealing and replacing an old bill and the absence of the words along the line of "the old Medicare act is repealed and replaced with this new expanded medicare program" rendered an otherwise constitutional bill unconstitutional ? Or is there some compelling logic which I haven't even imagined ?

Taibbi Squids Over the Truth

Kevin Drum has relapsed into praising Matt Taibbi. This follows a debate which ended when Drum admitted that it was "hard" to defend Taibbi (his defence was entirely that Taibbi wrote about financial regulation in The Rolling Stone and that's a very good thing -- it had nothing to do with what Taibbi actually wrote).

I lose it (again) in comments

My mix of views of Taibbi is different from yours. I like the invective. The problem is that Taibbi doesn't just invent colorful metaphors (vampire Squid rings anyone ?). He also makes false statements on matters of fact.

" Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize - for evil."

But come November 5th, both were banished from Obama's inner circle - and replaced with a group of Wall Street bankers. Leading the search forthe president's new economic team was his close friend and Harvard Law classmate Michael Froman, , a high-ranking executive at Citigroup"

Given the rules of English grammer, the word "bankers" can't refer to Froman who is only one person. Taibbi's claim of fact is not consistent with the evidence he presents. His claim is grossly substantively false. Froman has not been a major influence on Obama economic policy. Goolsebee, in contrast, is CEA chairman. The assertion that he and not Froman has been banished is false.

Also Taibbi doesn't say whether Froman was working for the administration when he wrote his post(althought that is pretty clear from the fact that he is described as holding a staff position).

Taibbi asserted that Obama replaced his campaignes chief economic advisor and its policy director with a "group of Wall Street Bankers" He did not say, there or elsewhere that this shift was ever reversed. Taibbi's claim may be technically true except for the s in BankerS and the word "group," but it is wildly exaggerated and grossly deceptive.

Froman did play work for the transition team in 2008-9. Taibbi erects a mass of false claims on this one fact. His aim is fundamentally deceptive. This is not a question of rhetoric, it is a question of fact.

Of course the more famous gross falsehood written by Taibbi is another
Taibbi also wrote

"The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place."

Note "exclusively." Every single member of the economic team is a millionaire who was made rich by the gamed system whose reform was being debated -- that is finance. Romer may be a millionaire, but if she is, she was born rich or made rich by the gamed system of textbook publishing (the books written by her husband) which was not the gamed system whose reform was under discussion. Geithner may be rich for all I know, but I am quite sure he didn't make money on Wall Street. I'm not expert, but I am certain that Federal Reserve Bank staff are not allowed to play the market (any market) at all. This is certainly true of Treasury employees. I'm not as sure about restrictions on IMF staff (I'd guess they are tight but I don't know -- well I don't know about Federal Reserve Bank staff either really).

Just to check the context of "economic team" I looked at the paragraph above (I should admit that I have not read an entire article by Taibbi). I found another false assertion on a simple matter of fact

"Even the members of Obama’s economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president’s economic czar, Larry Summers,"

I note that Larry Summers has not spent most of his life in public office. in 2009 he had spent less than 1 year with the Obama administration, 8 years with the Clinton administration and less than 3 years at the World Bank (he was appointed by Bush Sr). He was not 55 not 24 at the time. OK to be serious he had spent less than half of his adult life in public service. He had spent less than half of his working life in public service -- the latest arguable start date for his working life is September 1983 26 years before Taibbi characterised less than 12 years as placing him in the group of people who had "spent most of their lives in public office."

I admit I had to go allll the way to the Wikipedia entry on Larry Summers to prove that Taibbi's claim of fact is false. I think journalists should be held to higher standards. Taibbi, while writing for Rolling Stone, seems to assume that people are either in public office or making money on Wall street or both.

That is two plainly false statements in two paragraphs.

Of course Taibbi's offence against the facts is made much worse by the fact that he is writing in The Rolling Stone. Readers of, say, The Financial Times would detect the falsehoods and react appropriately. Taibbi is the only sourse of information, or in these cases disinformation for many of his readers.

You can only defend Taibbi if you consider factual accuracy optional.

Do you ? I ask for information and expect a reply.

Rome is not Washington

Michael Gerson

Washington periodically defers, as do Rome and Qom, to the judgments of the impressively robed — the ex cathedra portion of the political season.

I live in Rome and can assure Gerson that most Romans don't care what impressively robed people say in another country (the Vatican). I once saw an Italian politician say "sono ateo" (I am atheist) on TV. A few years later, he was prime minister. That couldn't happen in the USA (and not just because there is no office called "prime minister").

I will let residents of Qom speak for Qom.

I must say that the US approach to constitutional courts is preferable to the Italian approach in which only high officials have access to the constitutional court (Consulta) and that court gives orders to Parliament, so Parliament is bound by Parliament's interpretation of the constitutional court's judgment (just as it is in theory bound by the constitution). In practice both were ignored when they went counter to the business interests of Silvio Berlusconi.

So while I am not thrilled with the current US Supreme Court, I must admit that to have a constitution in practice as well as on on paper or parchment, one must have a supreme court and must give it the final word.

Thursday, June 21, 2012

Allen West agrees with Karl Marx on Higher Education

The often confused Allen West thinks that Pell grants are Marxist. He should check the Critique of the Gotha Progam. So should I but I can't find a link which isn't as dead as the Gotha Program.

Marx too disapproved of public subsidies for higher education calling them the only way to make workers pay for the education of the children of the bourgeoisie in The Critique of the Gotha Program.

I'm trying to check the quote but (which is fine for checking The General Theory of Employment Interest and Money) keeps giving me a page not found error on the Critique of the Gotha Program.

Damn covering up the extensive range of issues on which West and Marx agree.

update: thanks anonymous in comments. It is at Wikisource. Oddly I tried Wikipedia which sent me to the dead page of

"Universal compulsory school attendance. Free instruction." The former exists even in Germany, the second in Switzerland and in the United States in the case of elementary schools. If in some states of the latter country higher education institutions are also "free", that only means in fact defraying the cost of education of the upper classes from the general tax receipts. Incidentally, the same holds good for "free administration of justice" demanded under A, 5. The administration of criminal justice is to be had free everywhere; that of civil justice is concerned almost exclusively with conflicts over property and hence affects almost exclusively the possessing classes. Are they to carry on their litigation at the expense of the national coffers?

This paragraph on the schools should at least have demanded technical schools (theoretical and practical) in combination with the elementary school.

"Elementary education by the state" is altogether objectionable. Defining by a general law the expenditures on the elementary schools, the qualifications of the teaching staff, the branches of instruction, etc., and, as is done in the United States, supervising the fulfillment of these legal specifications by state inspectors, is a very different thing from appointing the state as the educator of the people! Government and church should rather be equally excluded from any influence on the school. Particularly, indeed, in the Prusso-German Empire (and one should not take refuge in the rotten subterfuge that one is speaking of a "state of the future"; we have seen how matters stand in this respect) the state has need, on the contrary, of a very stern education by the people.

Notice, the state and the church should equally be kept out of schools. Tort reform means plaintiffs must pay court costs. The USA is the Greatest. And no breaks for University Students. He wrote the Communist Manifesto, but sometimes it seems the he wrote the Tea Party Manifesto too.

Wednesday, June 20, 2012

Mark Suderman is Cynical about Cynicism

This is a comment on a post by Kevin Drum

Suderman strategically chose to make a very weak case (motivated reasoning or hypocrisy). He supports the Ryan plan so he argues that only partisanship, cynicism etc could cause someone to oppose it. If he cared about plausibility, he could easily prove that at least one Democrat is cynical and intellectually dishonest. That would be Obama who argued in 2008 at hypnotic length that the individual mandate was bad policy then endorsed it pretty much before being inaugurated. I don't think many people doubt that Obama lied about his beliefs about reform without the mandate-- he was praised for playing 11 dimensional chess by people who put the public interest above Carter/McGovern/Goldwater frankness.

Suderman will not mention this clear and not just analogous but actually identical example (except a flip not a flop) because then he would have to argue that the mandate is obviously necessary. He won't do that. I think because he too is cynical, hypocritical and intellectually dishonest. He would rather help the right than be right.

Now as to Obama's cynicism, I am all for it. I will not vote for a totally honest person in a primary. I didn't enjoy 1972. But at least I know and admit that I am a frank honest supporter of cynical hypocrisy.

Opinions on Shape of Pinocchio's Nose Differ

Yes the noses are different lengths, but both noses have a point.

Glenn Kessler (whose work I really like - honest) manages a classic of the genre. He discusses the debate over whether Romeney has proposed tax cuts for rich people, which Romney denies. This is a return to the original topic which drove Krugman shrill -- Republican candidates claims about their proposed tax cuts for the rich.

The daring headline is "A fierce tax debate, without much light"

OK I skipped to the inconclusion

Both campaigns are playing games here. Obama has embraced a worst-case scenario for Romney’s tax overhaul, on the grounds that Romney has not specified the details. Romney, for his part, makes tax promises without explaining how his numbers could possibly add up.

The voters are left in the dark.

We normally do not do joint Pinocchio assessments. On balance, we would say Romney gets more Pinocchios — at least two — in this debate because his lack of specificity obscures the choices he would face as president. Obama, in his speech, makes clear he was trying to fill in the specifics, but his focus on 70 percent of the tax cuts going to people making above $200,000 is misleading and worthy of at least one Pinocchio.
Two Pinocchios

The most disturbing part is that the conclusion (in a figure I won't bother to snip and paste) assigns two joint Pinocchios. The at least one Pinocchio for Obama is for the accurate statement about those tax changes which Romney has actually proposed (as opposed to the secret plan which he promises will take back the tax cuts from the rich but won't describe).

I think Kessler is basically wrong about Romney -- the problem is not just that he won't describe his proposal -- the problem is that he has made an arithmetically impossible promise to take back all of the cuts on high income by closing loopholes. Tax expenditures for the rich are not large enough to take back that much money. The problem isn't that Romney resuses to say how he would do it, the problem is that it can't be done. That makes his confident claim that he will do it a lie.

The problem is that this is on an inside page (I had to search for it) and Kessler is a bit ballanced himself. Romney can get away with lying and maybe even his extremely unpopular plan (he's not describing the loophole closings as they are even less popular than rate cuts for the rich) because journalists won't call him on it.

Tuesday, June 19, 2012

New Basis Points for Mockery

I am very much amused that an interest decline of 14 basis points (summed over three days) is discussed at length by Michael Bauer at the SF Fed. This is not close to statistically significant at standard confidence levels.

But Here is a new record a big deal Jon Hilsenrath at the Wall Street Journal makes a big deal out of 13 basis points

Interest rates are now falling more for people with good credit than those with poor credit. Rates on a 30-year mortgage for households with high credit scores of 750 using Fair Isaac, or FICO, ratings, have fallen from 4.44% to 3.53% in the past year, according to the website For households with low credit scores of 650, they have moved from 4.82% to 4.04%.

The article is generally very good. It is hard (or for all know impossible) to get numbers on mortgage applications which are turned down, and the tiny change in the difference in rates is a number, so it is solid data. And people don't notice that tiny numbers are tiny.

I must now find someone who draws strong conclusions based on a change of 12 or fewer basis points.

commenting on Salmon commenting on Bishop commenting on Krugman

Felix Salmon is not favorably impressed by Matthew Bishop's review of Krugman's new book. Read his review review. Then maybe return here for my comment (which is also there).

Please, I'd rather read about Krugman than about art valuation. Excellent post about a review which is "is not merely stylistically irritating; it is flawed in substance" as quoted anyway (I haven't read it). By substance Bishop appears to refer to irritating powerful people. His efforts (as critiqued by Berstein to criticize Krugman were all of the type "both sides must have a point -- I mean these are highly respected very serious people. Well you already wrote it better than I can.

I have three thoughts. First and not totally pointless, even within a discussion of political effectiveness, that is influencing policy makers, Bishop's argument makes no sense. He claims that if Krugman is rude to the powerful he will have no influence just as Grover Norquist and Rush Limbaugh have no influence. Krugman's view is clearly "I don't care if they hate me so long as they fear me." He has considerable ability to make trouble for any Democratic politician. His choir is large and, by writing for us, he keeps it that way. This is the source of his ability to influence politicians who are flattered by many and fear few. This paragraph is cynical, but that it because Bishop cynically suggests Krugman be less frank so that he can be more influential. I think this shows that Bishop understands politics as little as he understands economics.

second, and very much in passing (update oops not at all in passing sorry) I flinched when I read "most liquid and efficient." I have long had the sense that you assume that higher trading volume implies closer to efficient markets. I think the time series evidence tends to support the opposite view. I sure don't suggest paying attention to the price of gold, but people who reject the efficient markets hypothesis should not argue that the market for US treasuries is efficient. I think they are grossly over priced compared to corporate bonds. Since market efficiency is a statement about relative prices, I assert there is no way for one market to be more efficient than all the others. I am using efficient as in the semi strong form efficient markets hypothesis. Since that is the meaning related to the social desirability of policy makers following market signals, I think it is the only reasonable way to use the term in the context of the policy debate.

Finally very quickly and repeating. Bishop is speaking power to truth "Maybe his case ... would be taken more seriously by those in power if" means "I can't argue with you evidence or your logic, but we have the power so kneel." I note that Krugman is vastly more powerful than Bishop.

Monday, June 11, 2012

Brittany Romney

Ooops I did it again,
played games with your words,

(don't remember I mainly watching her dance)

I'm not that innocent.

Saturday, June 09, 2012

A Non Blast from the Past

update: welcome Thomists. Prof Thoma has done it again, linking to a post which I thought was by me for me and put here in obscurity. I do maybe have something to say about QE2 effects, but it is here.

In my personal totally non-expert view QE 2 and Twist did not amount to much, because they included the same key error -- purchases of Treasury Securities not Agency issued mortgage backed securities. My sense is that they had small effects on interest rates, because treasuries are quite safe, so private demand for treasuries is highly interest elastic. In contrast, I think QE 1 which consisted of purchases of MBS was highly effective. MBS were feared so demand is not highly elastic. Their price responded to Fed purchases*.

So why did the Fed shift from MBS to Treasuries ? I think one reason must have been small c conservatism. The Fed normally buys treasuries, so the FOMC wanted to return to a portfolio of treasuries. To learn more I read Bernanke's August 27 Jackson Hole speech which included the first public hint of QE2.

Bernanke used the word "reinvest" because the choice to invest in treasuries was explained before the mention of QE2 (as the acronym is currently used) when Bernanke was discussing reinvesting proceeds from maturing MBS. This is a separate issue involving an estimated $ 400 Billion in 2011 decided prior to the decision to issue another $600 Billion in Fed liabilities to buy 7 year Treasury Notes**.

We decided to reinvest in Treasury securities rather than agency securities because the Federal Reserve already owns a very large share of available agency securities, suggesting that reinvestment in Treasury securities might be more effective in reducing longer-term interest rates and improving financial conditions with less chance of adverse effects on market functioning. Also, as I already noted, reinvestment in Treasury securities is more consistent with the Committee's longer-term objective of a portfolio made up principally of Treasury securities. We do not rule out changing the reinvestment strategy if circumstances warrant, however.

Well "might" makes right, but the argument in the first quoted sentence makes no sense. The effect of further purchases should depend on the stock of MBS held by private investors not on the stock held by the Fed. It depends on the variance of the value of the stock of MBS held by private investors (own variance) and the covariance of that value with other assets (including human wealth) held by those investors. The idea that risk associated with mortgages, mortgage delinquencies and house prices held by private investors on August 27 2010 was minor, because the Fed had already assumed so much of that risk is nonsense. Also the Fed's holdings of Treasuries on August 27 2010 was comparable to its holdings of MBS (very roughly $800 Billion vs $ Trillion IIRC).

It is clear that the decision to buy treasuries was made, because that is what the Fed normally does. I think the decision has had gigantic costs.

Later Bernanke suggests that there will be at least some QE2 (or QE2.2 if reinvesting were QE2.1)

Policy Options for Further Easing

Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserve retains a number of tools and strategies for providing additional stimulus. I will focus here on three that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, [skip]
I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.

Not a promise, but a very broad hint by Fed Chairman standards. Here, Bernanke is careful not to use the expectations channel. I tend to defend Bernanke, but even I am shocked by the casualness with which he dismisses the possibility that higher expected inflation might be a good thing.

Another concern associated with additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed's ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations. (Of course, if inflation expectations were too low, or even negative, an increase in inflation expectations could become a benefit.) To mitigate this concern, the Federal Reserve has expended considerable effort in developing a suite of tools to ensure that the exit from highly accommodative policies can be smoothly accomplished when appropriate,

"Of course" an increase in inflation expectations might be a benefit and of course the Fed expended considerable effort making sure that no such increase occurred.

Unlike many, I don't think this is the key issue. I have extremely no expertise so who cares what I think, but I think that the people who parse every word that comes out of Bernanke's mouth are traders trying to guess what other traders will think tomorrow. I am extremely unconvinced that managers of firms deciding on fixed capital investment pay as much attention, and I am quite sure that very few consumers deciding how much to spend pay any attention at all.

I think the key choice was buying treasuries not MBS not promising to exit when the economy recovers and make it clear that we can. However, no rationale for either choice was presented.

*I might add down here where no one is reading, that risk matters more because of covariances than own variances. By bearing mortage default risk, the Fed made private entities more willing (more nearly willing ?) to loan to home buyers. In contrast, the risk in 7 year Treasury Notes (QE 2) or 30 year Treasury Bonds (Twist) is the risk of high shorter term nominal interest rates in the future, perhaps due to high inflation. This makes such notes and bonds a hedge against another recession. By bearing that risk, the Fed removed that hedge. In any case, the risk in 7 year and 30 year treasuries is clearly perceived to be small as is shown by the small effects on yields of huge changes in the outstanding stock.

**QE2 could refer to both policies and therefore amount to an estimate $ Trillion over all. The first estimated $400 billion (QE2.1 ?) was announced in FOMC notes issued August 10 2010. The program normally called QE2 (as demonstrated by the fact that people normally say QE2 involved only $600 Billion and not around $ Trillion) was not mentioned in the August 10 minutes. The exact amount and the exact security to purchase were decided later with the final announcement IIRC November 3 2010.

Tuesday, June 05, 2012

Scott Sumner Drives me Nuts Again

Just when I thought it was safe to read Kevin Drum again

he quotes Scott Sumner and disagrees in part. I go totally ape feces in comments.

Sumner (as quoted)

It’s incredibly frustrating. The political and policy world falls into two camps:

1) Those who believe no stimulus is necessary, everything is supply-side.
2) Those who believe stimulus is necessary but only fiscal stimulus can or should supply it.
....I feel like to both the centre left and the right, Milton Friedman is too heretical now — too right-wing for the left obviously and too left-wing for the right. Consequently, everything about monetarism has been stripped out of the public consciousness and we are left with vulgar Keynesianism and vulgar Austrianism.

We truly live in a Dark Age of economics.

Drum counters

where does statement #2 come from? The liberal economists I read do indeed believe that we need fiscal stimulus, but unless I'm misreading them badly, they'd all welcome looser monetary policy as well in one form or another. That might be NGDP targeting (Sumner's policy preference), it might be further rounds of QE, it might be a higher tolerance for inflation, or it might be something else. Whatever their particular policy preferences, though, I can't think of a single liberal economist who hasn't criticized Ben Bernanke for not combating the recession more actively

I comment.

I am not very prominent and I do think the Fed should try something (anything it can think of) to stimulate the economy. However, I think Sumner's characterization is basically fair to me. My guess is that only fiscal stimulus will, in fact work right now.

I typed "guess" but I think my view is basically proven by recent evidence (so I think the evidence proves that Sumner is totally wrong and that more or less everything he writes is grossly erroneous).

I don't reject Friedman's macroeconomics because he was coincidentally pro laissez faire in general. I reject his views because the data have rejected his views. His claim was that the Great Depression occured because the Fed did not counter an endogenous decline in the money supply due to the financial crisis. This time, the Fed made sure that the money supply increased during the financial crisis. There was still a great recession. The debate should be closed. Friedman bet everything on a prediction and that prediction has been falsified. To be a Friedman acolyte now is to trust faith over data. I stress I am not using "acolyte" metaphorically.

On fiscal stimulus -- There is a clear positive growth surprise starting in the first quarter of 2009. GDP growth was markedly higher than that forecast using DSGE models (currently top of the line New Keynesian models). It was markedly higher than the average forecast of professional forecasters in the Blue Chip data set. It was markedly higher than crude forecasts based on extrapolating trends or semi crude forecasts based on atheoretic time series models. There is a very broad consensus that the ARRA stimulated GDP among everyone who is paid based on making correct predictions (as opposed to paid based on making talking points for Republicans or being tenured like me so being paid no matter what).

In contrast estimates of the effects of QE II and operation twist are tiny and dubious. Bauer at the San Francisco Fed has an event study which, according to my back of the envelope calculations, does not reject the null that the 3 days during which QE II was announced were ordinary normal days for bond markets. The three days include the day of theJackson Hole speech and including two official announcements). The estimated effects on various interest rates were on the order of 0.14% . This was the second largest open market operation in Fed history.

The case that monetary policy *could* be effective under current conditions is a coulda woulda shoulda argument that gigantic failed efforts would have worked fine if the Fed had followed some specific advice to the letter.

I think that Sumner is totally wrong twice. First liberal economists argue for more monetary stimulus either because they are convinced it would be effective or because we think it certainly won't hurt and might help some. Second those liberal economists who believe it would be effective are placing hope above experience.

Sunday, June 03, 2012

The Founding Fathers and Twitter

The founding fathers never imagined twitter (I am not suggesting that if they had, they might have been more careful with that whole first amendment thing if they had).


Is it treason to purposefully block any help for the economy so voters blame the president and turn to the other party? Just asking.


"Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort"

US Constitution.

Just answering.

Does anyone actually read the constitution ? For those hep dudes who are with it I suggest a google of "US Constitution" then click the second hit not wikipedia. Yes the text of the US Constitution comes after the Wikipedia article.

We had a Republic, couldn't keep it and have an e-public.

On the other hand, I wish I'd written

Under which of the enumerated powers of the Congress may it impose criminal sanctions on physicians for the otherwise lawful practice of medicine based on the intentions of their patients?

Anyone who claims that the individual mandate is unconstitutional but a Congressional ban on sex-selective abortion is constitutional must be either a fool or a con artist.

I wish knaves just wrapped themselves in the flag and left the Constitution alone.

Saturday, June 02, 2012

My Usual Monetary Rant

Just when I thought I had found a safe corner of the blogosphere, I find Ryan Avent quoted at Political Animal. Matthew Zeitlin quotes and discusses. I excerpt and am very rude in comments.

What’s interesting about Avent’s wonk-and-brimstone and Lahart is that both pieces start from a similar point: the Fed has been willing to step in with an unconventional policy measures when the economic picture has gotten particularly bad. But whereas Avent sees excess caution leading to calamity (“the Fed bears the greatest responsibility for America’s pathetic recovery”), Lahart voices the Fed’s possible concerns with more agressive policy, especially raising expectations of future inflation:

First, take targeting higher inflation. If investors believed the Fed would succeed, 10-year Treasury yields would likely surge, undermining a recovery. Capping yields in such a scenario might require an unfeasibly large expansion of the Fed’s balance sheet and scare off foreign creditors like China

To understand the debate Lahart is rehearsing, you have to understand one proposed unconventional policy measure.


The idea is ... it [the Fed] can resort to announcing — and affecting — future inflation. And since you don’t want to bet against the central bank, this gambit may very well work.

My very rude comment.

Given the demonstrated (again) effectiveness of fiscal stimulus and the almost compete absense of any evidence that the Fed's efforts since the crisis have had much effect, I have no idea how Avent can possibly think that the Fed bears greater responsibility than Congress. I can see an argument for more aggressive monetary policy on the grounds that it certainly won't hurt, but I think Avent's blind faith that it is as effective now as in normal times is based on a refusal to deal with the evidence.

I also think that Lahart's argument has no merit at all. Yes higher expected inflation would cause higher *nominal* 10 year rates, but what should matter in theory and what appears to matter in the data are real interest rates. I do not believe that Lahart can write down an economic model in which higher expected inflation causes lower GDP when the economy is in a liquidity trap (which doesn't mean that no one can -- I am also sure that Kevin Murphy* can write down a model which corresponds to that or any other prediction).

Here I add that scaring off the Chinese implies causing the dollar to depreciate relative to the renmibi. This would be an additional advantage of higher US inflation expectations for the world economy (including the Chinese who are not at the zero lower bound and can stimulate domestic demand). Anyone who thinks that Chinese purchases of dollar denominated securities are dictated by considerations of return and risk (not counting the risk of another workers' revolution in China) has been observing a different world than the one I live in.

Finally, there is a huge difference between the Fed announcing and affecting future interest rates. It would have to affect them in the future, when it would normally want lower inflation. The announcement, if believed, would have desirable effects. The affecting would have undesired effects (otherwise the announcement doesn't amount to a shift of policy). People would have to believe that the Fed will do something which it won't want to do when the time comes. There is no, zero, nada reason for anyone to believe this. The shining example used by those who think monetary authorities can and should do more is Sweden (wow progressives like Sweden what a shock). The Swedish central bank promised to keep interest rates low even if unemployment fell. It broke that promise. This caused the credibility of such announcements to fall from very low to minuscule.

No serious economist is willing to assert that such announcements are effective. Being economists they talk about what would happen if the announcements were credited. Well being economists and not being on good terms with the English language they say "credible" but they mean credited and are miss-using the word.

* update: footnote deleted as too many people would read it.

Friday, June 01, 2012

Exclusive Social Networks

Not sociology. Intertubular capitalism. The motivation for this post was Stephen Colbert's report that Facebook shares tanked after the IPO because people discovered that their moms (eyeroll) had bought shares. So the plan was to have a hepcat cool fac3book for kids only which would quiz users on youth culture every 5 minutes and kick users who answered wrong off. I tried this idea on my daugheter and a friend who said something to the effect that it was totally laimo daddyo.

But I will not give up on my scheme to make money by being snotty. I note that the original idea of the Winkelvoss twins was which only allowed people with an email address post their faces on the book. The original idea of facebook was to profit from exclusivity. Currently facebook has 900,000,000 members.

OK so every 5 minutes is like such a pain. But I have some other thoughts.

1) captcha is a pain and a half. So bad it is the topic of McSweeney's internet tendency (but not recently enough for me to find a decent link). How about instead of copying misshapen letters people are required to answer a trivia question to prove that they aren't bots. Yes "Watson" or rather "what computer wins at Jeopardy ?" but Watson is a computer not a program -- dedicated hardware with a powerful processor. Also trivia captcha screens out trolls (by which I mean people not like me). Wouldn't Paul Krugman want a captcha which required commenters to accurately answer a question such as "Which of the following countries did not satisfy the Growth and Stability Pact conditions: Spain, Germany, Ireland, Greece ?" Under which President did public sector employment increase at the highest rate: Clinton, Reagan, Obama ?" Some trolls would have the determination and self discipline to respond accurately, but most of the real nuisances would refuse on principle.

2) Kids these days probably would deny under torture that they read all the Harry Potter novels. But they did. They know about the Gryffendor password problems and how Ravensclaw house avoided them by requiring the answer to a riddle instead. A network where to log in, one has to answer a trivia question -- three tries then a 15 minute delay before one can try again, sure would keep me away.

3) The correct spelling chat room. This is based on "Dave Barry in Cyberspace" in which MsPotato sets up an AOL chat room "can actually spell". Look I wouldn't participate, but I bet that some people could relate to a chat programmed so 3 misspelled words lead to a one day suspension or something. I'd personally benefit from such a chat as some of them would go there and stop nagging me about my spelling. If grammar checking ever worked, this would be even better. Especially in languages other than English. A tiny fraction of Italians can handle Italian grammar to the satisfaction of prescriptive grammarians. They are very proud of this skill and might want to exclude the rest of humanity. Frankly, my view would be "Ciao e non lasciare la porta sbatter il suo culo sulla via d'uscita."