Brother David Ignatius Explains it all to You

I don't want to take anything from Ron Fournier, but I think this column by David Ignatius is the perfect expression of village idiocy.

It has it all
1) Ballance.  Ignatius neglects to mention that Obama proposed the sequester when the only alternative was default.  He doesn't mention that there was a debt ceiling crisis in 2011.  He more or less accuses Democrats (all of us) of treason to balance his criticism of insane Republicans.
2) The cult of the Presidency.  Obama should take control "firmly" by making a "Presidential Statement".  Here (my 2nd link to that post) Krugman mocks the idiocy better than I can here.
3) Obama is too mean.  It would work if his statement were addressed to all Americans not just those who voted for him and he is playing the blame game.  Obama is too nice.  He must speak firmly with the Republicans as Ignatius speaks firmly to drunk drivers and take the wheel firmly in his hands.  If I am very charitable and interpret this is a proposal rather than a metaphor run off the road, then I conclude that Ignatius just proposed a coup.  In any case he's doing it wrong.
4) Pompous and very bad writing. OK I write for shit, but I'm not pretentious.  Ignatius uses an simily -- Republicans are like drunk drivers.  He makes a mess of it.  He says Obama should firmly take the wheel (a coup?).  He also says that the thing to do when in a car driven by a drunk is to speak firmly.  Has Ignatius attempted to grab the wheel from a drunk driver ?  I sure haven't.  I don't think that works very well.  In any case, when he gets off his high horse of a metaphor which has run off the rails, Ignatius is back to proposing speech a "presidential statement" which will solve everything somehow.  So what do you do if the drunk just keeps driving and ignores your firm command to hand over the keys ?  I don't know and I don't think Ignatius does.  He's lead into a trap by his metaphor  If someone is in the drivers seat with their foot on the gas and just won't listen, there really isn't much a passenger can do.  Obama isn't just a passenger.  Ignatius chose the metaphor.  It doesn't serve his purposes.  But the dozens of words are too valuable to erase.
5) no consideration at all of the possibility that it might be a bad idea to cut the deficit immediately when unemployment is 7.9% and we are in a liquidity trap.  Ignatius goes off topic to discuss policy.  He thinks that he has explained what is to be done when he suggests cutting Medicare and social security and "modestly" increasing tax revenues.  He didn't have to insert this in a column on how the Republicans in congress are acting insanely and on what can be done about this.

Great Minds Think Alike

The thoughts of Paul Krugman and Brad DeLong turn to Darth Vader.

I liked the film, but, at the time, I thought great minds grew up.

Still not calm about Monetary Policy

David Glasner has a post here commenting on an earlier post of mine.  I can't decide what to quote so please just read it if you want to make any sense of what follows.

One question I forgot to ask in comments:  what does WADR stand for ?


I wrote two comments which I am basically storing here for future reference.  Also the first was typed on an iPad with autocorrect (BLEG how does one turn that off) which corrects my English to Italian and makes worse gobbledygook than I do by myself.  I have corrected the spelling here using the new improved super technology called "a keyboard"

I haven’t really read this post (just skimmed it). I note your question on breakevens and stock prices. I haven’t 2 through to which are, at legasti, sincere.
1) I don’t think that stock prices tell us much about anything. In particolar they have a low correlation with future GDP and employment growth IIRC. I through this question was settled in 1987.
2) I don’t think that monetary policy has much effect on expected inflation (except through past inflation). I note that event studies (in the huge Woodford paper) show Tiny effects 3 out of 4 (or 4 out of 5) have the expected sign.
3) I think breakevens are vero well explained by lagged inflation, lagged core inflation and lagged changes in the price of petrolem. I don’t see any effects of shifts of monetary policy in this graph

http://www.angrybearblog.com/2013/02/inflation-expectations-and-lagged.html

4) I also think that in the early 80s that monetary policy shifts affected expected inflation via high interest ratea caused high unemployment which caused low inflation which caused low expected inflation.

5) I am not convinced that any model developer other than * adaptive* expectations augmented Phillips curve is as empirically successful.

Are you sure that we don’t disagree all that much ?

I promise this comment is sincere and not exaggerated.

Here I am again.  I have now read the post.  I have two observations

1) Get the null on your side is my motto (I admit it).  You follow this.  You suggest that your hypothesis is the hull hypothesis then abuse Neyman and Person by implying that we can draw interesting conclusions from failure to reject the null.  Basically the sentence which includes the word "null" is the assertion that we should assume you are right and I am wrong until I offer solid proof.  To be briefer, since we are working in social science, you are asking that I assume you are right.  This is not an ideal approach to debate.
I ask you to review your sentence which contains the word "null" and reconsider if you really believe it.  The choice of the null should be harmless (it is an a priori choice without a prior).  How about we make the usual null hypothesis that an effect is zero.  Can you reject the null that monetary policy since 2009 has had no effect ? At what confidence level is the null rejected ?  Did you use a t-test ? an f-test ?  "null" is a technical term and I ask again if you would be willing to retract the sentence including the word "null".


2) using expected inflation to identify monetary policy is only a valid statistical procedure if one is willing to assume that nothing else affects expected inflation.  If you think that say OPEC ever had any influence on expected inflation, then you can't use your identifying assumption.  In particular TIPS breakevens can be fairly well fit (not predicted because not out of sample) using lagged data other than data on what the FOMC did.

again I refer to

http://www.angrybearblog.com/2013/02/inflation-expectations-and-lagged.html

(legend here red is the 5 year TIPS breakeven or expected inflation, Blue is the change over the *past* year of the price of a barrel of oil times 0.1 plus 1.6, green is the geometric mean of the change over the *past year* of the personal consumption deflator and the personal consumption minus food and energy deflator.

I find the brief and boring period 203-2007 most interesting.   Expected inflation is almost perfectly fit by lagged inflation (geomentric mean of core and total).

I don't see how anyone could look at this graph and then claim we can identify monetary policy by the TIPS breakeven.  That is only valid if nothing but monetary policy affects inflation expectations.

Similarly in 1933 monetary policy wasn't the only thing that changed.  I understand that there was considerable policy reform in the so called "first hundred days.  " The idea that we can identify the effect of monetary policy by looking at the USA in 1933 is based on the assumption that Roosevelt did nothing else.  This is not reasonable.

But I think we can detect the effect of recent monetary policy on TIPS breakevens if we agree that it (including QE) is working principally through forward guidance.  There should be quick effects on asset prices when surprising shifts are announced.  QE 4 (December 2012) was definitely a surprise.  The TIPS spread barely moved (within the range of normal fluctuations).  I think the question is settled.  I do not think it is optimal to ignore daily data when you have it and treat same quarter as the same instant.  Some prices are sticky and some aren't.  Bond prices aren't.

Robert Waldmann will not calm down.

Comment on this post by David Glasner

I do not find any reference to the zero lower bound in this post.  Your analysis of monetary expansion does not distinguish between the cases when the ZLB holds and when it doesn't.  You assume that the effect of an expansion of the money supply on domestic demand can be analyzed ignoring that detail. I think it is clear that the association between the money supply and domestic demand has been different in the USA since oh September 2008 than it was before.  This doesn't seem to me to be a detail which can be entirely overlooked in any discussion of current policy.


Also, I note that prior to his Stelzer "jejune dismissal of monetary policy," Stelzer jenunely dismissed fiscal policy.  You don't mention this at all.  Your omission is striking, since the evidence that Stelzer is wrong to dismiss fiscal policy is overwhelming (not overwhelming enough to overwhelm John Taylor but then mere evidence couldn't do that).  In contrast, the dismissal of monetary policy when an economy is in a liquidity trap is consistent with the available evidence.

I hereby challenge you to show data on US "growth"  meaning (I agree with your guess) mostly employment growth since 2007 to someone unfamiliar with the debate and ask that person to find the dates of shifts in monetary policy.  I am willing to bet actual money (not much I don't have much) that the person will not pick out QEIII or operation twist.    I also guess that this person will not detect forward guidance looking at day to day changes in asset prices. €

I claim that the null that nothing special happened the day QEIV was announced or any of the 4 plausible dates of announcement of QE2 (starting with a FOMC meeting, then Bernanke's Jackson Hole speech then 2 more) can't be rejected by the data. This is based on analysis by two SF FED economists who look at the sum of changes over three of the days (not including the Jackson Hole day when the sign was wrong) and get a change (of the sign they want) whose square is less than 6 times the variance of daily changes (of the 10 year rate IIRC).  IIRC 4.5 times.  Cherry picking and not rejecting the null one wants to reject is a sign that one's favored (alternative) hypothesis is not strongly supported by the data.

The One True Catholic and Apostolic Church

Archbishop Roger M. Mahony  discusses "objective eternal unchanging moral truth."

When an attorney for an alleged victim suggested "the right thing to do" would have been to summon police immediately, Mahony replied, "Well, today it would. But back then that isn't the way those matters were approached."

Good thing we have such men of the cloth protecting us from the scourge of situational ethics.

I stress I do not not use the phrase "objective eternal unchanging moral truth." ironically.  I believe that there is such truth.   Not even the Catholic church can convince me otherwise.

The Princess Bribe

Berlusconi: "Voglio tutelare il mio onore"

Inigo Montoya "I do not think that word means what you think it means".

Government Spending deflated by the GDP deflator

Federal

(a) Federal Government: Current Expenditures (FGEXPND), Quarterly, Seasonally Adjusted Annual Rate, 1947-01-01 to 2012-07-01

Units:

                                                                                     Billions of Dollars                                                                                             Change, Billions of Dollars                                                                 Change from Year Ago, Billions of Dollars                                                                 Percent Change                                                                 Percent Change from Year Ago                                                                 Compounded Annual Rate of Change                                                                 Continuously Compounded Rate of Change                                                                 Continuously Compounded Annual Rate of Change                                                                                             Index (Scale value to 100 for chosen period)                                          

Remove Data Series

(b) Gross Domestic Product: Chain-type Price Index (GDPCTPI), Quarterly, Seasonally Adjusted, 1947-01-01 to 2012-07-01

Units:

                                                                                     Index 2005=100                                                                                             Change, Index 2005=100                                                                 Change from Year Ago, Index 2005=100                                                                 Percent Change                                                                 Percent Change from Year Ago                                                                 Compounded Annual Rate of Change                                                                 Continuously Compounded Rate of Change                                                                 Continuously Compounded Annual Rate of Change                                                                                             Index (Scale value to 100 for chosen period)                                          

the graph shows a/b


Federal State and Local

Frequency:                                       Quarterly                                     Semiannual                                     Annual                             

(a) Government total expenditures (W068RCQ027SBEA), Quarterly, Seasonally Adjusted Annual Rate, 1960-01-01 to 2012-07-01

Units: 

                                                                                     Billions of Dollars                                                                                             Change, Billions of Dollars                                                                 Change from Year Ago, Billions of Dollars                                                                 Percent Change                                                                 Percent Change from Year Ago                                                                 Compounded Annual Rate of Change                                                                 Continuously Compounded Rate of Change                                                                 Continuously Compounded Annual Rate of Change                                                                                             Index (Scale value to 100 for chosen period)                                          

Remove Data Series

(b) Gross Domestic Product: Chain-type Price Index (GDPCTPI), Quarterly, Seasonally Adjusted, 1947-01-01 to 2012-07-01

Units: 

                                                                                     Index 2005=100                                                                                             Change, Index 2005=100                                                                 Change from Year Ago, Index 2005=100                                                                 Percent Change                                                                 Percent Change from Year Ago                                                                 Compounded Annual Rate of Change                                                                 Continuously Compounded Rate of Change                                                                 Continuously Compounded Annual Rate of Change                                                                                             Index (Scale value to 100 for chosen period)                                          

Finally the log of the ratio of Federal + State + local to the chained GDP deflator

Fabricant Fabricates

Tory Vice Chairman Michael Fabricant attempted to change the record mid debate by deleting a tweet.  Jonathan Portes nailed him.

Portes writes and will have written

Indeed Fabricant's current (who knows for how long) twitter stream does not contain  the second tweet captured by Portes

I don't think that politicians should be allowed to change the public record.  In particular Fabricant's combination of deleting something he wrote and then attributing it to Portes seems to me to be libelous (under UK law -- not that I know anything about UK, or for that matter any other, law).

Just read it

Richard Thaler is brilliant.  He noticed that    John Stewart understands economics.

Yep he's got his shit together (to add some profanity)

Inauguration

True fact: When Obama said "the solemn responsibility and awesome joy of [pause]" I thought "ripping the Republicans a new one -- one new one each".  Not his style, but I think a roughly accurate interpretation.

I think that was a fighting speech by the new Obama.

Making Klein a Big Deal

You're doing OK when your critics write

Klein and company stopped being liberals. They even stopped being human. The singularity—a technological superintelligence—was upon us. 

Ouch he accuses (Ezra of course) Klein of technological superintellgence.  That's gonna leave a mark.

via Meteor Blades at the Daily Kos

T'eo-logy

QOTD
"I suppose it’s not surprising that a wholly imaginary dead woman has attracted far more compassion than a real one at an institution called Notre Dame."

Karl Marx is Dead

BP stands first for Brian Plumer then for British Petroleum -- I'm pretty sure DuPont is the firm and not Pierre "Pete".  TS is Theda Scocpal.  When I knew her (OK when I took freshman physics from her husband Bill) she was one of the few Marxists at Harvard (I think the only one in the Sociology department).

BP: So around 2007, Republicans were becoming more skeptical of climate policy. Yet the main climate strategy in D.C. was to craft a complex cap-and-trade bill amenable to businesses like BP and DuPont in the hopes that those companies would bring in Republican votes.

TS: I think a lot of environmental groups were under the impression that the Republican Party is a creature of business, and that if you can make business allies, you can get Republicans to do something. But I don’t think the Republican Party right now is mainly influenced by business. In the House in particular, ideological groups and grassroots pressure are much more influential.

Sent there by Kevin Drum who writes about why cap and trade died in 2010.  He wrote "Unlike healthcare reform, where you could essentially buy off the opposition, there are big costs to cap-and-trade for certain states and senators simply aren't going to ignore that." I nodded my head and thought yep hard to get votes from West Virginia.  Then well I can imagine a vote for cap and trade from John D Rockefeller whose lack of sympathy for big business and fossil fuels is well known.  

Don't let anyone ever tell you that history doesn't have a sense of humor.

Successful Communication with Minoriteis

Via Steve Benen 

the folks who'll appear on the panel about "successful communication with minorities and women," and the criticism here seems far more reasonable.

[The session will have] a female moderator (Rachel Campos-Duffy), a female consultant (Ana Navarro), a female congressman (Rep. Jaime Herrera Buetler), and three congressmen who are neither female nor minorities: Rep. Adam Kinzinger, Rep. Scott Rigell, and Rep. Frank Wolf.

 I will pass over the gender confusion of "female congressman" and note that  the congresperson in question is Rep. Jaime Herrera Beutlerhttp://herrerabeutler.house.gov/ who is not named Jaime Herrera Buetler.  Inability to spell Spanish surnames does not contribute to  "successful communication with minorities ..." .  Oooooops

via Hunter http://www.dailykos.com/story/2013/01/17/1179881/-GOP-retreat-roundup-Lessons-in-what-not-to-say

In the unlikely event that they get hammered again in 2014, they can say "the 'Buetler' did it".

Short Takes On J Barro

1) Reasonable and reasonably honest conservative list update.  Josh Barro is very reasonable and quite honest. But is he still a conservative ?  He sure doesn't always sound like one.

2) re 1) see an example of the ness monster

"But the conservative worldview is robust because of its imperviousness to evidence." which clearly means
But the conservative worldview is robust because it's impervious to evidence."

3) what's with the Bloomberg Headline person ? The article explains how Conservative's are insane and might destroy the economy to make their prediction that it will be destroyed if Obama is re-elected true
"Conservatives are sure that the Obama presidency will lead to an economic calamity, and they will prove it, if necessary." but the headline suggests that Obama might ruin the economy "

Will Obama Ruin the Economy to Ruin the Republicans?"

Did the person who wrote the headline actually read the article ?

Ask and Ye Shall Receive

This is an authentic screen shot of my authentic twitter feed.  Oh the omnipresent and not yet omnipotent internet works in un-mysterious ways.

Oh happy day when I first added @JC_Christian to my twitter feed. Clickable Patriotboy. Clickable Billmon link to "Crooks and Liars"

Are Platinum Coins Constitutional ?

I think it might be an open question whether section (k) of

31 USC § 5112 - Denominations, specifications, and design of coins is constitutional.

It reads 

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

The US Constitution article 1 section 8 begins

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow money on the credit of the United States;
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

It isn't clear to me that Congress can delegate the decision about the value of Platinum coins, either bullion or proof, to the Secretary of the Treasury.

See post below for why I think the fate of the world economy doesn't not depend on this. 

How to Hide Debt a cook book for book cookers

Now the old world can address the fiscal imbalance of the new.  It seems that some of the best minds in the USA are trying to figure out how the US Treasury can disburse money without issuing debt.   Finally a topic I know something about.  There are many ways.

1) Paul Krugman proposes Moral Obligation Coupons.  OK so that's just one of the best minds, but he has a very good mind.

2) Everyone proposes minting a $ trillion Platinum coin including Josh Non Ricardian Equivalence Barro.  I'd just add that the coin should be made now and Obama should carry it in his pocket when negotiating uh refusing to negotiate so he can pull it out and threaten to tell Geithner to declare it worth $ trillion.

3) It's Greek to me.  Look over here we are very expert in borrowing without issuing debt.  How do you think Greece managed to get so deep in debt ?     The trick (described by my colleague Gustavo Piga) is to make a very bad speculative bet.  Greece (following a country which will remain nameless) made REPO deals with banks involving currency exchange -- the bank gave Greece a great deal on the spot market and Greece gave the banks a great deal on the forward market.  In effect the deal consisted of an actual arms length market priced speculative position and a loan.  But since they were officially linked, it was not 100% certain that Greece would be paying the banks when the futures contract matured.  So by only for governments allowed accounting practices, Greece had not issued debt.

I think it would be best to explain exactly what is being done and how failure to raise the debt limit could cause the US to act like Greece this March.

4) Preferred shares.  OK this is close to 1.  Preferred shares are not debt. The whole key to TARP was that preferred shares are not debt.  Government agencies can issue preferred shares and the Fed can buy them.

5) Gagnon style.  heyyyy what about just good ol Fannie and Freddie ?  IIRC They are only 85% owned by the Federal Government exactly so that their debt does not appear as Federal debt.  86% and the balance sheets would have to be unified.  They owe the Treasury a lot of money.  They can issue debt instruments which the Fed can buy for an absurdly high price.  They can repay their debt to the Treasury.  Now they would have to have something to sell (say absurdly over priced MBS so it would be Gagnon style QE too).  Of course dealing with DeMarco might make dealing with Republicans in Congress seem easy.

6) If potential US Treasury default isn't a financial crisis, I don't know what is.  The Fed can lend to any entity during a financial crisis.  I think they could make 0 interest loans to federal contractors to be repaid when the Treasury pays them in exchange for their not billing the government.

7) Ask the big banks for a bailout.  What goes around comes around.  We saved them when they were in trouble.  They can give money to the US Treasury.  These are moral obligation coupons again.  They can demand limits on, say, compensation of Congress persons as part of the deal ala TARP.

To Platinum Coin a Phrase

I just signed a petition asking Barack Obama to have the Treasury mint a $1,000,000,000,000 platinum coin.

But whose face should be on the coin ?

Duncan Black suggests Ronald Reagan (just for giggles)
Josh Barro (thanks for the RT) suggests Mwai Kibaki 

I was thinking of maybe
Ron Paul (he likes coins) or
Rudolf Havenstein (he liked large denominations)

But I think we really have to honor a senator who appreciates money  our heritage and tell a pun and order the mint to mint a  DeMint coin.

Fiscal Cliff notes

Left blogosphere commentary on the Fiscal cliff deal seems to me to have come in two phases. First outraged horror over $450,000/year.  Then a reading of the full bill which was much better than the one number summary, some embarassment and much insistence that what really matters is that Obama drew a line in the sand at $250,000/yr then let the Republicans cross it.  So the lesson, it is said, is that Obama compromises and this will lead to terrible trouble in two months.




I think that left of center commentators are falling into the obsession with perceptions of possible perceptions rabbit hole.  I think that the bill sacrificed nothing which Obama could possibly have obtained.

Also this has happened before. Remember long ago before the debt ceiling crisis there was the continuing resolution crisis (with  brief government shut down).  Many liberals were extremely upset that the final bargain included spending cuts larget than those originally proposed by Boehner.  Then the CBO scored the continuing resolution and those cuts turned out to be smoke and mirrors.  Note the absence of weasel words such as "partly, partially, or in part."  IIRC the CBO decided that with the total more than 100% Obamanable concessions continuing resolution,spending was scheduled to be higher than it would have been with a standard simple clean continuing resolution.

When one is dealing with insane ignoramuses, one must use their ignorance.   The headline number appeared to show a total Obama cave, because it wasassumed that some Republican congressmen won't read past it.  The fine print was, again, very fine indeed.