Archive for July 2013


David vs. Goliath

I’m going to milk this underdog role for as long as I can.

In one corner is a lowly Bentley professor who was last on TV 50 years ago, as an audience member on a kids show in Wisconsin.

In the other corner is a guy who’s frequently on TV, and (I’m told) even has a TV studio in his house.

The experience was rather disorienting, as there are very bright lights and I wasn’t sure exactly where to look.  And then there are these voices in your ear-piece, but you can’t see the other people.  And nerves.

In other words if I wasn’t reduced to a blubbering drooling idiot, then I say I win.

By that criterion I think I eked out a slight victory (on content.)

Style?  Well there’s always next time.

I wish I’d had more time to address Schiff’s argument that inflation was much higher than the CPI showed.  That would mean RGDP growth would be far below 2%, probably below zero.  But that conflicts with about a zillion other data points:

1.  More than 2 million new jobs a year in recent years, and (contra Schiff) the average work week is stable.

2.  Rising industrial production and rising output in all sorts of other sectors like housing and oil and autos and retail and services.

Is all the output and employment data also being faked, just like the CPI?  To me that seems about as likely as the theory that no plane actually hit the twin towers and it was all a CIA plot.

PS.  Thanks for inviting me on Larry.  I promise to be better prepared next time.

There ain’t no cure for the Summers-time blues

The blogger Ironman has a post arguing that the Larry Summers rumors are depressing US stock prices.

PS.  Yes, the previous post was humblebrag.

Commenters, butterflies, etc.

A few weeks ago the mainstream progressive view was that Yellen and Summers were two peas in a pod in regards to monetary policy (although many progressives saw differences in other areas.)

Here’s Paul Krugman on July 19:

First of all, what do we need in a Fed chair? Above all, a committed dove “” someone who will not succumb to the pressure to tighten policy too soon, and almost equally important, someone who will be seen by investors as resistant to this temptation. We’ve just seen how much damage even a hint of Fed hawkishness can do; it’s really critical to not follow the far worse step of making an appointment that gives the wrong signal.

As it happens, both Janet and Larry have good credentials on those grounds, at least in terms of what they’ve said in recent years.

And here’s Matt Yglesias on July 23:

Rumors are flying in DC that apparent front-runner as Federal Reserve Chairman Janet Yellen has been left in the dust by Lawrence Summers. My view continues to be that passing over Yellen for Summers makes no real sense, but it’s worth emphasizing that as far as we know there’s no real daylight between Yellen and Summers and monetary policy.

I’ve been highly critical of Summers over the past 4 years, but based on very weak evidence.  Recently commenters like TravisV and Mark Sadowski started sending me a flood of information on Summers, which in my view made him look too hawkish, too worried about Fed-created bubbles, too attached to fiscal policy, and too pessimistic about the potency of monetary policy at the zero bound.

Without naming Summers, Krugman seems increasingly concerned about the White House’s views on monetary policy:

So, here we are with inflation at a long-term low, many economists arguing that we need higher inflation expectations, and unemployment the overwhelming problem we face. Yet Obama appears if anything to give more emphasis to inflation-fighting than to unemployment reduction, and throws in stuff about bubbles; basically, he has a definite tight-money lean. I don’t know who it’s coming from.

I think we know which candidate has been talking about the danger that QE could lead to bubbles.

Yglesias has done an even more forceful turnaround, with posts like:

The Incredible Shrinking Case For Summers

And this one:

Unlike Summers’ monetary policy analysis, I think this is correct. But the conjunction of the views is remarkable. He’s saying that in a low interest rate environment we dare not leave investment decisions up to the private sector, which is going to just blow the money on boondoggles and white elephants””the state needs to step in and plan the economy. Socialism, in other words. But does Summers really think that? It sure doesn’t sound like something he thinks.

If the choice were up to me and this was what I had to go on, I’d consider this viewpoint to be nearly disqualifying.

Although Krugman cited Carola Binder, at least one of the Yglesias posts was motivated by one of my recent posts.  The White House does not pay attention to what I say, but they do pay attention to Krugman and Yglesias.  And that means that the views of my commenters do get heard in the White House.  Keep it up!

BTW, this isn’t a criticism of these two bloggers, indeed it speaks well of them that they update their views with new information.  I was originally quite negative on Yellen, but it was based on one misleading statement.  I’ve changed my views on her.


And now the bond market weighs in

Mark Sadowski sent me the following:

Bond investors believe the Federal Reserve led by Summers would create more anxiety about rising interest rates and a central bank less committed to its current loose monetary policy at a time when concerns over rising interest rates are elevated. Bond yields rise when prices fall. Summers is not seen as a true disciple of Fed Chairman Ben Bernanke.

In contrast, Yellen is believed to be more friendly to bond prices and a boon for bond bulls. Yellen has been perceived as an ultra dovish in Fed policy-making circles and has been known as a close ally to Chairman  Bernanke in advocating ultra loose monetary policy to juice the economic recovery. Bond traders expect she would keep rates low for longer.

.  .  .

Already, worries that Summers may be the front runner and get the job had contributed to the selloff in Treasury bonds on Wednesday, traders said. Thursday, the fear continued to weight down bond prices, trader said. The benchmark 10-year note was recently 9/32 lower in price, yielding 2.624%. Bond prices fall when their yields rise.

I’d prefer to use the stock market as an indicator, as interest rates are not reliable.  But interesting nonetheless.

For years pro-Obama commenters have been telling me that we are stuck with a tight money policy because Obama can’t get his picks past the big bad GOP in the Senate.  (Which was not really true, as he didn’t even nominate anyone in 2009 when he had a filibuster-proof majority.)  Now we find out that Obama prefers Summers over Yellen, even if he had a free hand.  And Summers appears to be more hawkish than Bernanke.

PS.  A question for Fed experts:  Can I assume that the GOP cannot filibuster Yellen, as she would already be acting Fed chair from the day Bernanke resigns?

PPS.   Yellen forecasts better than Plosser.  Why am I not surprised?

The great inflation of the 1960s

No, I don’t mean price inflation.  Rather this will be a sort of stream of consciousness on the explosive change of the 1960s.  I’m using “inflation” in the cosmological sense—when things suddenly change really fast, and then slow again.  To take one trivial example; is there any doubt that the speed and complexity of change in the pop music sector accelerated sharply after 1963, and then slowed again in the 1970s and 1980s?  (Maybe there is, and I’m just a deluded boomer.)

Patrick Sullivan sent me the following amazing video from 1965.  (I still can’t get the hang of “embed.”)

Since I’m a right-winger, and thus racist by definition, it took me about 4 or 5 minutes to realize how absurd this video really is.  Yes, that’s exactly how I remember Michigan when I visited all-white areas in 1965, but Detroit was already more than 1/3 black by that time.  The fact that blacks were totally ignored in the video surely tells us something about what went wrong.  And the speed of the change was breathtaking.  The Detroit race riots (among the worst in American history) occurred just two years later.  By the early 1970s Detroit was rapidly becoming a bad joke.  And I mean “bad joke” literally, people would make jokes about Detroit with strong racist implications.  And yet it’s hard to say how important the riots were.  The demographic changes occurred both before and after, and the 1992 race riot in LA doesn’t seem to have impacted that city’s development.

The great America boom of 1961-69 also saw an explosion in violent crime, as rising prosperity and sharply falling poverty rates had exactly the opposite effect from what liberals predicted.  That played no small part in the rise of conservatism in the late 1970s.  The Economist reports (in an excellent story) that crime rates are now plunging all over the world, despite the lousy economy in recent years.

No matter how old I get, I still think of “before and after” in terms of the late 1960s.  Attitudes toward race, women’s rights, sex, formality in clothing, politics, film, music, etc., all changed very fast.

In the 1970s I was greatly influenced by a book on China by Simon Leys, called Chinese Shadows.  I learned that things can be very different from how they seem, or how they are perceived by most experts.  Leys was ostracized in academia, where most China experts had a positive view of Mao.  Of course that doesn’t tell us which conventional wisdom will be wrong today, and in which way.  Is the superficial prosperity of Shanghai just a glittering facade, about to collapse like Detroit in the late 1960s?  Or is the conventional wisdom (in the blogosphere) that China is a bubble wrong?  Might China successfully become a developed country?

Time will tell, but the Detroit video is a reminder that change can come very fast, and in very surprising directions.

PS.  Conservatives are at their best when they are on the fringes, attacking liberal orthodoxy.  Leys was a very nuanced and subtle writer.  Unfortunately conservatives get sloppy and overconfident when they gain the upper hand.  In 40 years we’ve gone from Simon Leys to Fox News.

PPS.  This piece in the NYRoB makes a very persuasive claim that 1979 was the key turning point.  Perhaps that was the year that the explosive change of the 1960s led to a backlash.

Not merely did the experts not have the faintest clue about the series of turning points that were in store. In most cases, they would have struggled to identify who would be the leading actors in those turns. How could they? Only five years before 1979, Deng Xiaoping was in disgrace and living in a tractor repair shop, on the run from the rampaging Red Guards. The Ayatollah Khomeini was in exile in Iraq, soon to be shunted on to the Paris suburb of Neauphle-le-Château. In Britain, Margaret Thatcher was a rookie education minister, familiar to the public only as Thatcher the Milk Snatcher for having deprived younger pupils of free school milk. She had been promoted to the Cabinet mostly because she was a woman; the prime minister, Edward Heath, despised her as a garrulous nuisance. Karol Józef Wojtyła was archbishop of Cracow. The chances of his becoming the first non-Italian pope since Adrian VI in 1522 seemed slim. . . .

What had taken hold at a deeper level was the idea that we were living through “late capitalism.” It is remarkable how many economic classics of the 1930s and 1940s had predicted a short shelf life for capitalism as we knew it. Although no longer a Trotskyist by then, James Burnham in The Managerial Revolution opined that “the capitalist organization of society has entered its final years.” John Maynard Keynes predicted “the euthanasia of the rentier” and the disappearance of shareholder capital. Joseph Schumpeter predicted that, faced with the increasing hostility of the legislative and administrative environment, entrepreneurs and capitalists would eventually cease to function.

With the ground so thoroughly prepared, it is not surprising that the claim that the Soviet system would soon bury ours should find such a receptive audience. Nor was the admiration for the achievements of a state-led economy confined to the Communist world. The admiration extended to the shah’s Iran as well as to Honecker’s East Germany.

There was, besides, an unconsciously patronizing assumption that, while Westerners might be inclined to “possessive individualism,” most people in the second and third worlds were more collectively minded. The Chinese were thought to be especially well adapted to real socialism, and there was much fascination with the progress of Mao’s great experiments, as shown by the success of William Hinton’s book Fanshen and David Hare’s play drawn from it. The go-getting behavior of the overseas Chinese seemed to have escaped notice.

In retrospect, what is so startling is the breakneck speed with which the mainland Chinese took to the market once Deng let them off the leash. As Caryl writes, only two years after Mao’s death Deng became supreme leader and was telling his confidant Yu Guangyuan that “we must work in the spirit of Meiji Japan and Peter the Great.” In no time at all, 98 percent of peasant holdings had in effect gone over to private operation. Throughout the 1980s China’s economy grew by nearly 10 percent a year. Today the percentage of economic assets in private hands in China is higher than in some European countries. With all China’s internal repression (on which it now spends more than it does on external defense), this was a genuine leap forward such as the world has seldom seen.

By contrast, the belief that the free market might still have something to offer stagnant economies was rather slower to take off in some Western countries. In Britain, the conventional belief remained that the nationalized industries were simply too entrenched to be disturbed. The constitutional expert Sir Ivor Jennings had pronounced that the labor unions were now an inviolable part of the British Constitution. Nor was it thought practicable any longer to run a modern economy without some sort of state supervision of prices and incomes. Reform of all these things might be desirable, but it was “politically impossible.”

Almost nothing that Margaret Thatcher advocated to the contrary was novel; many of her arguments had been anticipated by Conservative spokesmen opposing the 1945 Labour government. “During her first prime ministerial campaign,” Caryl writes, “she was known to cite the Australians, the New Zealanders, and the Scandinavians who had already started comparable reforms in their own countries.” What was fresh was her zest, her optimism, and her sense of possibility. She was fortunate at coming in just at the moment when almost everyone felt that the nation had run out of road.

Read the whole thing.

PPPS.  Speaking of 1979, this video is a great example of Robin Hanson’s recent claim that in the modern world it’s the singer and not the song.  And when did that change in music occur?  In 1965 . . . how does it feeeeelll . . .