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December 23, 2011

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Latest Posts from Economist's View


Paul Krugman: The Post-Truth Campaign

Posted: 23 Dec 2011 12:47 AM PST

The truth is out there, but don't expect to find it in the Romney campaign:

The Post-Truth Campaign, by Paul Krugman, Commentary, NY Times: ...[C]onsider what Mr. Romney ... said on Tuesday: "President Obama believes that government should create equal outcomes. In an entitlement society, everyone receives the same or similar rewards, regardless of education, effort, and willingness to take risk. That which is earned by some is redistributed to the others."
And in an interview the same day, Mr. Romney declared that the president "is going to put free enterprise on trial." ...
Mr. Obama has never said anything suggesting that he holds such views... Over all, Mr. Obama's positions on economic policy resemble those that moderate Republicans used to espouse. Yet Mr. Romney portrays the president as the second coming of Fidel Castro and seems confident that he will pay no price for making stuff up.
Welcome to post-truth politics. ...Mr. Romney ... has based pretty much his whole campaign ... attacking Mr. Obama for doing things that the president hasn't done and believing things he doesn't believe.
For example, in October Mr. Romney pledged that as president, "I will reverse President Obama's massive defense cuts." That line presumably plays well with Republican audiences, but what is he talking about? The defense budget has continued to grow steadily since Mr. Obama took office.
Then there's Mr. Romney's frequent suggestion that the president has gone around the world "apologizing for America." This is a popular theme on the right — but the so-called Obama apology tour is a complete fabrication... Mr. Romney just invents stuff to make his case.
But won't there be some blowback? ... Oh, Mr. Romney will probably be called on some falsehoods. But, if past experience is any guide, most of the news media will feel as though their reporting must be "balanced,"... even if what the Democrat said was actually true or, at worst, a minor misstatement.
This isn't an abstract speculation. Politifact, the project that is supposed to enforce truth in politics, has declared Democratic claims that Republicans voted to end Medicare its "Lie of the Year." It did so even though Republicans did indeed vote to dismantle Medicare as we know it and replace it with a voucher scheme that would still be called "Medicare," but would look nothing like the current program....
So here's my forecast for next year: If Mr. Romney is in fact the Republican presidential nominee, he will make wildly false claims about Mr. Obama and, occasionally, get some flack for doing so. But news organizations will compensate by treating it as a comparable offense when, say, the president misstates the income share of the top 1 percent by a percentage point or two.
The end result will be no real penalty for running an utterly fraudulent campaign. As I said, welcome to post-truth politics.

Links for 2011-12-23

Posted: 23 Dec 2011 12:06 AM PST

Central Banks and Treasuries Need to be "Pumping Out Safe Assets"

Posted: 22 Dec 2011 11:59 AM PST

Brad DeLong is hoping that if he and others make this point often enough, policymakers will finally listen:

Why the U.S. Treasury, the Bundesrepublik Treasury, the Japanese Treasury, the Fed, the ECB, and the BoJ Need to Be Pumping Out Safe Assets at a Much Faster Pace..., by Brad DeLong: Full-employment equilibrium in the demand and supply of currently-produced goods and services requires that there be enough cash to grease all the transactions so that sellers are happy selling to would-be buyers. If not--if there is a liquidity squeeze--we see a downturn and the shortage of cash reflected in low asset prices of (and high interest rates on) pretty much all other financial assets as people scramble to dump other assets for cash and do so until they can no longer bear the cost of letting value go at fire-sale prices.
Full-employment equilibrium in the flow of funds through financial markets requires that businesses (and governments) issue enough liquid savings vehicles to absorb all the planned full-employment saving in financial assets. If not--if there is a savings vehicle shortage--we see a downturn and not low but high prices of financial assets and we see what should be the transactions balances of the economy diverted as cash is transformed into a savings vehicle.
Right now, however, it is not the case that we are in a liquidity squeeze: the debts of credit-worthy governments are not at a discount but at a premium. Right now, however, it is not the case that we have a shortage of liquid savings vehicles: equities and corporate and junk bonds--and the bonds of non-credit worthy governments--are selling not for high prices but for low ones.
There is, however, a third market equilibrium condition: a credit-channel equilibrium condition. The economy must possess enough AAA-rated assets suitable to serve as collateral to keep the moral hazard associated with lending your wealth to somebody who knows more about the deal than you do from causing a Minsky meltdown. If not we see a downturn and what we see now: relatively low asset prices for risky assets and assets perceived as safe selling at values far above any reasonable estimate of long-run fundamentals that does not take account of their value as collateral for greasing financial-intermediation transactions.
It is in that context that we need to look at what has happened to the global supply of suitable AAA assets as shown in Cardiff Garcia's unwanted mutant offspring of the most important chart in the world:

I Am Worried about My Grade

Posted: 22 Dec 2011 11:22 AM PST

I've had this conversation many times:

The GOP is Creating Uncertainty that Hurts the Economy

Posted: 22 Dec 2011 09:51 AM PST

Menzie Chinn summarizes recent work on the economic impact of uncertainty. The bottom line -- that it's uncertainty about fiscal policy such as the GOP has created that hurts the economy -- is worth noting:

With the Republicans in the House maximizing policy uncertainty, I think it useful to recount some of the recent research on how uncertainty is affecting output...
For me, the policy conclusion emanating from all three of these pieces is that if there is important policy uncertainty, it is that related to fiscal policy. Empirical (i.e., econometric) evidence that regulatory uncertainty is important is, to my knowledge, non-existent. Hence, we can conclude that repeated crises over the raising of debt ceilings, continuing resolutions, and the like should be avoided.

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