Archive for November 2012


The brain dead GOP meets Obama’s 39.6%, and raises him 1.4%

If ever there was a political party that deserved to lose an election, it was the brain dead GOP of 2012.  The party that thinks the fact that 47% of the public pays no income taxes means that 47% of the public pays no income taxes EVER.  (Do these people not have 19 year olds in college, or 75 year old parents on Social Security?)

Now the brain dead GOP has shown its skill at high stakes poker by countering Obama’s offer of a 39.6% high rate, with a counter-offer of 41.0%.  Let’s put aside the fact that the brain dead GOP doesn’t even seem to know that Obama’s actually proposing a 43.4% top rate, which means the brain dead GOP counter is 44.8%, or 53% in Sweden err California.

The brain dead GOP CLAIMS to favor a flat tax.  A simple tax system with no loopholes and lower rates.  So why aren’t they proposing a $50,000 cap on deductions?  I think you know the answer.  The GOP isn’t just brain dead, it’s also corrupt.

The brain dead and corrupt GOP also claims to be the party of family values.  So have you seen any proposals to eliminate the marriage penalty?  Neither have I.

We are likely to end up with a much inferior tax system next year, and the Democrats and the brain dead GOP deserve equal blame on this one.

Oh and I forgot; how about Bush’s brilliant idea to make the 2001 tax cut temporary, knowing he could always go back and make it permanent next time?  How’s that workin out for ya?  And how about the brain dead GOP decision not to negotiate seriously in 2011, figuring they could get a better result after the election that Karl Rove and Dick Morris assured them they would win?  How’s that decision looking right now?

PS.  I got this link from Matt Yglesias, but I think he may have misinterpreted the NYT article.  The 41% rate comes mostly from the phase in of the 35% tax on all income.  This seems to involve a 5% phase in, plus another 1% to cover the phase in of the removal of the standard deduction (another stupid idea.)

PPS.  Did I remember to mention that the GOP is brain dead?

PPPS.  Here’s what a non-brain dead tax system would look like:

1.  No income or corporate income or death taxes.

2.  A 20% VAT with a lump sum rebate to each family, assuring that no VAT is paid on poverty level consumption.

3.  A steeply progressive payroll tax that has negative rates (EITC) for low wage workers over 18.  All income earned by workers in the financial industry is assumed to be wage income unless they can prove to the IRS that it did not result from their skill at allocating capital.  In other words average people like me with regular jobs would pay no tax on interest and dividends and capital gains on non-managed assets.

If you put a bunch of liberal and conservative tax experts in a room they could produce a tax system roughly as progressive as Obama is proposing and far more efficient within 10 minutes.  Other countries have done this. It won’t happen because America is a brain dead and corrupt country.

End of rant . . . Happy Thanksgiving!

Karl Rove and Jorge Luis Borges

Have you ever experienced the strange feeling you get when two people from totally different aspects of your life are introduced to each other in your presence?  I got that feeling when I walked into the Asian Bond Markets Summit and heard my beloved Sigur Ros playing as background music (and not even their pop-oriented music, the more avant garde stuff.)  I heard people telling the DJ to turn it down, whereas I wanted it to be much louder.

I also got that feeling when reading this strange article on the connection between Jorge Luis Borges and Karl Rove by Alec Nevala-Lee.  It’s hard to imagine two more dissimilar people.

Yet it isn’t hard to see why Rove is drawn to his work. The great theme in Borges, among all those labyrinths and mirrors, is how the world can be shaped, and even physically transformed, by the intellectual structures we impose on it. In his story “The Secret Miracle,” a man waiting to be executed pictures all the possible forms that his death might take, as if by imagining the worst, he can prevent it from happening””an attitude that many Democrats assumed before the recent election. “The Lottery in Babylon” describes a government so powerful that its actions can no longer be distinguished from the operations of the universe, which seems like a conservative’s nightmare of Obamacare, but which might also appeal to a man who once dreamed of a permanent Republican majority. (On his website, Rove refers to this story as involving “a lottery in Baghdad,” a Freudian slip of epic proportions.)

These ideas find their fullest expression in “Tlön, Uqbar, Orbis Tertius.” In the fictional world invented by Borges’s army of scholars, the only science is psychology, and an idea, or even a physical object, can become real if enough people believe it exists. Rove has put this principle into action more aggressively than any other political figure in recent memory. It lurks behind the push polls in the South Carolina primary calculated to plant the rumor that John McCain had fathered a black child, and in the White House Iraq Group, chaired by Rove, designed to sell the public on the supposed threat of Saddam Hussein””a more targeted version of Orbis Tertius, with its secret group of intellectuals “directed by an obscure man of genius.”

The essay is quite good; I recommend you read the whole piece.  But as is often the case with progressives, he overreaches:

And then there’s Fox News, for which Rove has long served as a sort of spiritual godfather. Borges notes that mankind was seduced by the fictional universe of Tlön because its rules were more elegant than reality itself, which is precisely what Fox News provides. Its vision of the world is compellingly clear: it’s easier to believe that the president is a Muslim socialist who secretly wants to take our guns away than to understand the perplexing truth, which even many observers on the left have trouble accepting, that he’s a political moderate who draws much of his policy from the conservative playbook of the past. And unlike the shadowy cabal of Orbis Tertius, this systematic reordering and simplification of reality has taken place in plain sight.

I’m sure that most liberals who never watch Fox News actually believe this stuff.  Yep, Brit Hume warns the viewers each night that the President is a muslim socialist.   And if Obama’s a “moderate,” then so was George Bush.  (All Presidents must compromise, that’s not the same as being a moderate.)   I guess we all live in our own “fictional universes.”

And was Rove actually behind those push polls?  I have no idea, but here’s the very liberal Vanity Fair:

Nothing has ever been turned up, however, tying the Bush team to an underground-smear “master plan.” Identifying who ordered push-polling in a campaign “is like nailing Jell-O to the wall,” as Howard Kurtz put it.

Speaking of fiction, the author is on much stronger ground here:

Rove’s love of Borges has gone mostly unremarked, perhaps because it seems so incongruous. In general, members of the conservative establishment aren’t known for their taste in literature. Mitt Romney once acknowledged, in what is probably his second-most embarrassing online video, that his favorite novel is L. Ron Hubbard’s Battlefield Earth, and the identity of Paul Ryan’s novelist of choice is a matter of record. As a result, it’s surprising, and superficially encouraging, to find a prominent figure on the right who openly admires a writer numbered among Joyce and Kafka as one of the essential authors of the modern age.

I shouldn’t criticize a novel I’ve never read, so let me just pass along an anecdote about HP Lovecraft.  I recall he once wrote that under no circumstances should a story ever be entitled “The White Ape” unless it contains no apes at all, white or otherwise.  So if the Hubbard novel contains a battle for Earth, then I’m pretty sure that I wouldn’t care for it.  If it’s about the dissolution of a marriage . . . then maybe.

But enough snobbery–is there a more serious point here? Here’s Milan Kundera:

Suspending moral judgment is not the immorality of the novel; it is its morality. The morality that stands against the ineradicable human habit of judging instantly, ceaselessly, and everyone; of judging before, and in the absence of, understanding. From the viewpoint of the novel’s wisdom, that fervid readiness to judge is the most detestable stupidity, the most pernicious evil. Not that the novelist utterly denies that moral judgment is legitimate, but that he refuses it a place in the novel. If you like, you can accuse Panurge of cowardice; accuse Emma Bovary, accuse Rastignac””that’s your business; the novelist has nothing to do with it. Creating the imaginary terrain where moral judgment is suspended was a move of enormous significance: only there could novelistic characters develop””that is, individuals conceived not as a function of some preexistent truth, as examples of good or evil, or as representations of objective laws in conflict, but as autonomous beings grounded in their own morality, in their own laws. Western society habitually presents itself as the society of the rights of man, but before a man could have rights, he had to constitute himself as an individual, to consider himself such and to be considered such; that could not happen without the long experience of the European arts and particularly of the art of the novel, which teaches the reader to be curious about others and to try to comprehend truths that differ from his own. In this sense E. M. Cioran is right to call European society “the society of the novel” and to speak of Europeans as “the children of the novel.

It would be interesting to know whether liberals are more likely to read complex literature, and whether conservatives are more likely to read books that emphasize good vs. evil.  Jonathan Haidt has argued that liberals hold more utilitarian values, whereas conservatives also focus on values like authority, purity, sanctity, honor, patriotism, religion, etc.  Of course there are conservatives who are very well read, but many of them are better thought of as right wing liberals (favoring capitalism for utilitarian reasons) not as true conservatives.  (Here’s a test–do they favor legalizing marijuana, more immigration, and gay marriage.  If so, then they obviously aren’t conservatives, they are libertarians or classical liberals or neoliberals or some other L-word.)  I’d be interested if anyone knows of any systematic studies of the reading habits of liberal and conservative politicians.

PS.  Are there any economists who love literature who don’t like Borges?  I’ve never asked Tyler Cowen if he likes Borges—why would I bother when the answer is obvious?

PPS.  Please don’t buy Sigur Ros on my recommendation.  I have terrible taste in music—for all I know they’ll sound like The Moody Blues in 20 years.

PPPS.  Don’t take this as a defense of Rove—I was astounded by his embarrassing performance on election night.

PPPPS.  Hah!  When I google “Milan Kundera” I get Miles Kimball’s blog—not an English professor!

The big lie?

It’s hard to go a day without reading some liberal pundit or reporter or politician claiming that President Obama merely wants to raise the top income tax rate back up to 39.6%, where it was during the highly prosperous 1990s.  This is false.  Under current law the rate is scheduled to rise to 43.4%, and the top capital gains rate (long term) will rise from 15% to 23.8%.

Why is this misinformation repeated over and over again?  Do the people saying this know they are lying?  If it was a conservative doing this I’m quite sure Paul Krugman would accuse him of intentionally lying.  I really don’t know what to make of it.  It’s depressing that they would almost universally think it’s OK to lie, but it’s also depressing if it’s because newspapers like the New York Times don’t even understand what’s going on.

Our incompetent representatives in Washington were not satisfied with creating two parallel tax systems, and then forcing taxpayers to compute their taxes both ways, and pay the larger amount.  So now they’ve added a third income tax system, a 3.8% tax rate on income over $125,000/year (oh yes, they lie about that too, calling it a $250,000/year threshold) on top of the 39.6% top rate.  In Sweden there is no marriage penalty, as everyone is treated with dignity, like an individual.  And the government merely sends you the bill.  A tax system of elegant simplicity.  Meanwhile the US sinks ever deeper into banana republic-style complexity.

Inequality without poverty

I recently traveled to Singapore, where I gave the keynote address at the Asian Bond Markets Summit.  (I’m told they’ll have a video up in a few weeks.)  I also had the good fortune to meet two of my most intelligent readers, who both wish to remain anonymous.  They provided me with lots of the information that I’ll use in this post—although that doesn’t mean they would agree with everything, indeed they don’t entirely agree with each other (I don’t know if they’ve ever met.)

One of them drove me around to see how average people live in Singapore.  Most live in mid-rise apartment blocks that were originally built by the government, and then partially privatized.  However the level of property rights is less than what an American would expect, as they are actually just 99 year leases, and there are some restrictions on sales and purchases.

I was sent some information suggesting that a 90 square meter unit (about 1000 square feet) would sell for about $400,000 Singapore dollars (or $320,000 US$.) The interest rates in Singapore are lower than in the US, so mortgages are relatively affordable at a given price point.  However prices tend to be on the high side relative to income, as is often the case in prosperous Asian cities, as well as in places like San Francisco.  This is especially true in the fully privatized and privately built luxury housing, which the more affluent residents tend to prefer.

Singapore is the East Asian city most similar to an American city, although it’s obviously denser than most US cities.  Per capita GDP is also similar to the US.  But it turns out that Singapore is actually very different from the US, and in some surprising ways.  Consider the following characteristics:

Free trade and investment.  Medical care provided via HSAs, with very little government spending.  No unemployment compensation.  Social security private accounts.  A 20% top income tax rate, zero percent on capital gains.  Income is slightly more unequal than in the US, which means far more unequal than the typical rich country.  Far more millionaires per capita than any other country in the world—a true “ownership society.”  Lots of immigration.  Rated second most free market economy in the world by the conservative Heritage Foundation.  (Number one if you consider Hong Kong to be part of China.)

Sounds like the sort of place a free market economist would like, doesn’t it?  But it isn’t.  My guide told me that when western academics come to Singapore, the leftists tend to love the place and the libertarians often go home in disgust.  It turns out that Singapore is a lot like that vase/face optical illusion–people see it one way or another, but rarely both at once.  I’m going to try to see both sides.

It turns out that about 80% of the population lives in those public housing projects that I mentioned.  From a purely visual perspective, they look much nicer than the ones you see in China.  The walls seem freshly painted with pastel colors, whereas in China the walls are stained with pollution, and the paint is often peeling. (Singapore has very little pollution by Asian standards.)  But I think most middle class Americans would be disappointed by the home of a typical middle class Singaporean.  It seems that Singapore is a place where the poor and rich do really well, but the middle class only so-so.  I’m told that (from the outside) the home of someone making $30,000 per year looks almost the same as that of someone making $130,000/year.  At best the richer family has a slightly bigger unit, and a nicer location.  Both of my sources indicated that it wasn’t quite accurate to say Singapore has no poverty, but when I asked if they could show me some slums, both said that there aren’t any.  I gather the situation is sort of like the Nordic countries or Switzerland; there are some poor people here and there, but no significant slums of the sort you see in America.

So why do leftists like Singapore so much?  Consider that Keynes once said that poverty is ugly.  Singapore is certainly not ugly (although it’s also not beautiful.) It has universal health care.  It has very strong environmental laws such as congestion pricing and ultra high taxes on cars.  As a result the middle class relies on the extensive system of mass transit.  That doesn’t mean everything goes smoothly.  The population has recently grown quite a bit (via immigration), putting some pressure on the housing stock and also increasing traffic.  Even so, traffic is far lighter than other Asian cities.  Things seem to work in Singapore.

Moderate leftists tend to be utilitarians.  And Singapore seems like a place run by utilitarians.  If you believe in diminishing marginal utility, then you’d be impressed by a place where almost everyone lives in the same type of place.  In America we have beautiful upper middle class towns like my own Newton, Massachusetts, and lots of ugly low income towns.  Singapore’s not like that, despite having slightly more income inequality.  My theory is that leftists don’t really mind a place where income is unequal, they don’t like places where income looks unequal.  In my town liberal millionaires typically drive Camrys.

My utilitarian theory of Singapore governance doesn’t explain why it’s such a great place for the rich.  Why a 20% top rate?  Perhaps because Singapore’s small size makes it highly susceptible to Laffer curve effects.  The country has seen massive immigration in recent years, often of very high skilled people.  How much would that decrease if the top rate were say 50%, as the US will have next year?  Even from a strictly utilitarian perspective, bringing in lots of high earners is a great deal for Singapore’s poor and lower middle class.  The rich pay lots more in taxes than they use in public services.

One argument against my hypothesis is that housing for Singapore’s rich is very expensive, and that’s partly because of the government’s extremely restrictive land use policies.  The sort of mansion that would cost $800,000 in Texas would cost $15,000,000 in Singapore.  Residential-zoned land costs $800 a square foot.   But one also needs to remember that Singapore is a very small place, and the rich have very big appetites.  Consider some advantages of Singapore for the ultra-rich:

1.  Who needs a McMansion when you have a small but ultra-chic condo in Singapore?  If you want a mansion, buy it as a second home in Australia or Florida or Vancouver or Phuket.

2.  Starting next year Texans will only be able to keep 56% of their income, and 76% of cap gains.  Singaporeans will keep 80% 0f income and 100% of cap gains.  You can buy a lot more jewelry when you travel.  Or second homes.  [Update:  I meant ultra-wealthy Texans.  Texas has no state income tax, but the federal top rate rises to almost 44% next year.]

3.  The average airport in Singapore is as good as the best airport in the world (that’s sort of a joke, but true.)  And the rich fly a lot.  After my plane landed in Singapore I was in my hotel within 40 minutes.  When I returned to Boston I was still in the immigration line after 40 minutes.

4.  There’s not much traffic because only the wealthier Singaporeans can afford cars.  The service on airlines serving Singapore is excellent, as is the service in hotels.  In America . . . not so much.  There’s a new casino, and lots of great restaurants.  The only downside is high-end culture—you still need to go to NYC or London of Paris, but the Asian nouveau riche is less interested in avant garde theatre than the western “old rich.”

Overall a great place to be rich or poor, and an OK place to be middle class.  It’s still way too paternalistic for my taste, and the government does waste a lot of Singaporean savings on questionable projects like water desalination, but there are many worse places in the world from a utilitarian perspective.

A few other random notes:

1.  They raised the fine for littering from $300 to $500 when I was here.  But my source told me that the famous draconian legal penalties are something of a myth.  It seems the government will crack down on something like people using cell phones in cars (with a 3 month jail sentence), but then let up after a few months.  They’ve made their point, and the people become so well behaved that the laws hardly need to be enforced.  There are very few police on the streets, but nonetheless very low crime rates.

2.  The upper middle class is called the “sandwich class”.  Not rich enough to enjoy the good life and living in the same sort of places as the lower middle class.

3.  When my source was describing Singapore I must have interjected “that reminds me of China” a dozen times.  Actually the two places are quite different.  But I think there are many deep similarities as well.  He told me migrants from China often adjust better than migrants from Hong Kong, as they are more used to the controlled Singapore system, whereas Hong Kong is more laissez-faire.  It seems to me that Singapore is a sort of model for the Chinese government. Will China get stuck in the middle income trap?  I doubt it.  If it does, the key difference will probably be the much higher level of corruption in China than Singapore.  Singapore is one possible future for China, but not the only one.  With all of Singapore’s flaws (and there are many) most of China’s alternative futures are far worse.

4.  Most Singaporeans are not particularly bothered by the soft authoritarianism of the Singapore government.  That may be because in the past the government was more overtly oppressive (another thing that reminds me of China.)

5.  Chinese Singaporeans (3/4 of the total) look down on Malay Singaporeans.  But isn’t that always true when there are large income differentials?  The high immigration policy has been unpopular, perhaps because of increased crowding and soaring property prices.  The Chinese have a very low birth rate, and the immigration policy may be aimed at “re-stocking” that ethnic group.  There are also some Indians and a few Westerners.  The official language is English.

PS.  Keynes didn’t actually say poverty was “ugly,” rather he said the following:

The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous–and it doesn’t deliver the goods. In short, we dislike it, and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed. . . .

There is one more explanation, I think, of the re-orientation of our minds. The nineteenth century carried to extravagant lengths the criterion of what one can call for short “the financial results,” as a test of the advisability of any course of action sponsored by private or by collective action. The whole conduct of life was made into a sort of parody of an accountant’s nightmare. Instead of using their vastly increased material and technical resources to build a wonder city, the men of the nineteenth century built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, “paid,” whereas the wonder city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have “mortgaged the future”–though how the construction to-day of great and glorious works can impoverish the future, no man can see until his mind is beset by false analogies from an irrelevant accountancy.

PPS.  GDP per capita is about the same in nominal terms, but Singapore is about 20% higher in PPP terms.  Indeed it’s the richest “real country” of more than a million people, in three of four surveys.  However one of my sources says that the cost of living is not lower than in America, as the expensive real estate and cars offset the cheaper services.  And a much smaller share of Singapore’s GDP shows up in the form of disposable income than in the US, for various reasons.

PPPS.  Bryan Caplan and Garett Jones have some interesting observations.

The NYT misquotes Ben Bernanke

Yesterday I did a post pointing to a NYT report on a seemingly inexplicable comment by Ben Bernanke:

Mr. Bernanke was also asked why the Fed does not lower or eliminate the interest rate “” already at 0.25 percent “” that it pays banks for excess reserves kept at the central bank to encourage more lending.

He said that Fed officials had not ruled out that idea but that so far it appeared the benefits would be very small and that there were concerns that eliminating the interest takes away a tool used to control broader interest rates.

Bonnie sent me the actual link, and it turns out that Bernanke said nothing of the sort.  But what he did say is equally mysterious.  At one point (just after 40:00) he argues that cutting the IOR rate from 0.25% to zero would depress short term rates by only 8 or 9 basis points.  And the implication was that this meant it would provide very little boost to spending.  But let’s take that argument one step further.  Suppose short-term rates did not fall at all, and T-bill yields stayed at 8 basis points.  Would the stimulus be even less?  If you were a banker, how would a reduction of IOR from 0.25% to zero impact your demand for excess reserves, if the closest alternative investments paid 0.08%?  Wouldn’t your demand for ERs fall?

The problem with Keynesians is that they view monetary policy through the lens of short-term interest rates, whereas it is actually all about the supply and demand for the medium of account (the base.)  That’s why Keynesians screwed up in late 2008, when they failed to loudly scream for easier money (when us MMs were doing so.)  This is not to say that lowering the IOR would work miracles.  As always it depends on how it affected the future path of policy.  But if it failed, it would certainly not fail for the reason given by Bernanke.

Commenter extraordinaire Saturos sent me the following:

Bernanke says that CPI inflation has averaged 2% over the past 4 years, is that right?

Let’s assume that Saturos did not misquote Bernanke as the NYT did.  (I’m way too busy to listen to the entire interview.)  In that case Bernanke is wrong.  His favorite consumer price inflation index is the PCE, and this link shows consumer prices rising at a 1.37% rate over the past 4 years.  Oddly the Fed delivered inflation rates above 2% when unemployment was low around 2006-08, and has run sub-2% inflation rates during the recent period of very high unemployment. Of course their dual mandate calls for exactly the opposite.  How can we get the Fed to end this procyclical monetary policy regime?

Answer:  NGDPLT

Off Topic, Matt Yglesias has an excellent post discussing how the current fixation on “inflation” causes nothing but confusion.  Here’s an excerpt (but read the whole thing for context):

There’s tons of public confusion out there about inflation all the time, but rather than worrying about why the public is so confused about it I think we should worry first and foremost about why economists are working with such a confusing concept.

.  .  .

Monetary policy is about nominal problems. Bad weather is a paradigmatic real problem. “High prices” is an ordinary language word that’s ambiguous between a nominal issue and a real issue. But “inflation” is supposed to be an economist’s term of art. Yet instead of using it like a term of art””something with a precise meaning that distinguishes between real and nominal issues””it’s used as a synonym for “higher prices.”

.  .  .

The thing that people dislike is when nominal consumer prices rise faster than nominal incomes. It’s not difficult to understand why people dislike that, and it’s exactly the kind of thing that bad weather does cause. But if central bankers want the public to understand what they’re doing, they have to take more care in their own dialogue to distinguish between nominal issues and real scarcity.

That’s why central bankers should stop talking about inflation, and start talking about NGDP.  I also loved this Yglesias post:

I just noticed that Stephen Williamson took issue with my praise of Minneapolis Federal Reserve President Narayana Kocherlakota’s change of positioning on monetary policy issues.

He didn’t really explain himself in the post per se, but in ensuing comments in the discussion thread Williamson makes clear that he doesn’t buy the idea that Kocherlakota was persuaded to change his mind by evidence. Rather, he states that the only good theory he has for the flip-flop is that “ambition collides with economic science.” In general my impression is that people who run around talking a lot about “economic science” are generally engaged in an unscientific level of self-puffering and BS.

.  .  .

Here’s what I think about ambition. I think that if I were an ambitious monetary economist who believed in good faith that the current course being pursued by the FOMC will be ineffective in boosting employment and is likely to produce a troubling level of inflation, I’d be shouting that from the rooftops.

There’s a great blog post from M.C.K. over at Free Exchange:

The consensus was that the Federal Reserve had been suborned by nefarious elements. Instead of solely focusing on its mandate to restrain the pace of inflation, the allegedly corrupted Fed was concerning itself with trivia like ending the recession. The discussion felt a bit out of place. No matter how one evaluates the Fed’s overall performance, the inflation record since 2009 has actually been quite consistent with its stated target. If the Fed had indeed been captured by nefarious elements that had no regard for the price stability mandate, one would have expected faster inflation to have been the result, yet the pace of inflation has actually been slower since the recession began than in the years before.

Mr Warsh and Mr Poole (who was filling in for Allan Meltzer) made a sharp distinction between the “legitimate” efforts to fight the crisis and the subsequent easing actions that were, allegedly, unjustified by the economic fundamentals. According to them, the interventions of 2007-2009 were required to ensure that “the markets could clear”, as Mr Warsh put it, while the second round of easing was done to satisfy “political masters” by monetising the debt. In fact, Mr Warsh said that the Fed was being actively unhelpful by “crowding in” Congress’s supposedly poor policy choices. He reckoned the Fed would have had more room for maneouvre if the legislature had made a good faith effort to reform entitlements and close the budget deficit. Mr Warsh seems to prefer the approach taken by the European Central Bank (ECB), in which the unelected and unaccountable monetary authority more or less dictates to democratic governments. Supposedly, these conditions are required to prevent “moral hazard”. Yet Mr Warsh had no trouble when the Fed was providing unlimited liquidity to troubled financial firms at concessional rates in exchange for dubious collateral during the teeth of the crisis.

A cynic would say that the difference is that in 2008 the crisis threatened the wellbeing of big bankers, whereas the current crisis is unemployment.  I actually think these inflation hawks are well meaning, just too focused on fighting the last war (from the 1970s.)

And finally, Mark Thoma has an excellent post on wage rigidity:

It is not surprising at all that wage movements would be uninformative about labor market conditions when wages adjust sluggishly to economic conditions, but the prevalence of claims about the condition of the labor market based upon measures of compensation is a signal that people have missed this point. There can be both considerable slack in the economy (so let’s do something about it), and relatively stable wages.