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February 4, 2013

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 02 Jan 2013 12:24 AM PST
One more from Tim Duy:
Thoughts on the Fiscal Deal, by Tim Duy: Mark collected some reactions to the fiscal deal. Brad DeLong doesn't understand the Obama Administration:
The big reason to make a deal before January 1, 2013 was that detonating the "austerity bomb" would impose 3.5% of fiscal contraction on the U.S. economy in 2013, and send the U.S. into renewed recession. It was worth making a good-enough deal--sensible long-run revenue increases and tax cuts to close the long-run fiscal gap plus enough short-term fiscal stimulus to make the net fiscal impetus +1.0% of GDP--in order to avoid renewed recession.
But by my back-of-the-envelope count, the deal the Obama administration has agreed to still leaves a net fiscal impetus of -1.75% of GDP to hit the U.S. economy in 2013. That is only 40% of the way back from the "austerity bomb" to where we want to be.
I completely agree with DeLong's policy recommendation; there is no reason to abandon near-term stimulus in the context of long-run fiscal consolidation. Indeed, I believe that any austerity at this point is foolhardy, and only serves to prolong the exit from the zero-bound.
But DeLong's recommendation was never on the table to begin with. From day one this has been a debate about the extent of the austerity, not a debate about austerity itself. Does anyone have the sense that President Obama does not fundamentally believe in the pursuit of deficit reduction sooner than later? I keep coming back to this observation from Bruce Bartlett:
In a little-noticed comment on Spanish-language television on December 14, Obama himself confirmed this typology of today's political spectrum. Said Obama, "The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican."
I think this is correct and explains a great deal about why Obama refuses to use his leverage to pursue liberal policies and keeps inviting Republicans back to the negotiating table again and again on the budget. He wants a deal, he wants to cut spending and balance the budget if possible. This may or may not be a wise course for a Democratic president to follow, but that is who Obama is.
I frequently see commentators saying that Obama is terrible at the bargaining table, but I can't help thinking that he is getting pretty much what he wanted. Despite all the hate heaped upon him by the right, Obama just isn't a progressive, and we shouldn't expect him to seek a deal as if he was one. After all, what progressive ensures a tax hike on the lower and middle classes (the expiration of the payroll tax cut with no offsetting cut elsewhere)? Obama seems to believe the best deal is the one no one likes.
After concluding that the deal isn't so bad, Krugman takes the forward looking view:
So why the bad taste in progressives' mouths? It has less to do with where Obama ended up than with how he got there. He kept drawing lines in the sand, then erasing them and retreating to a new position. And his evident desire to have a deal before hitting the essentially innocuous fiscal cliff bodes very badly for the confrontation looming in a few weeks over the debt ceiling.
My guess is that Obama already knows that the outcome of that debate will be one in which he looks like he retreated over time. But I also believe that the place he retreats to will be where he wanted to go in the first place; indeed, I suspect he never believed he would get 100% of the Bush tax cuts reversed in the fiscal cliff negotiations. Note too that, to DeLong's complaint, the next debate will again be an issue of how much austerity. And expect that Obama will allow the negotiations to drag out to the eleventh hour, thereby forcing both Republicans and Democrats to choke down a meal - some combination of tax hikes and entitlement cuts - they both find distasteful.
Posted: 02 Jan 2013 12:15 AM PST
Tim Duy:
The Japan Story Continues to Evolve, by Tim Duy: Evolving economic policy in Japan is an excellent distraction from the fiscal cliff story. From my perspective, the most interesting idea Abe floated was forcing the Bank of Japan to buy government debt to support additional fiscal stimulus. Noah Smith countered that Abe is unlikely to experiment with monetary policy and will simply fall back on a mercantilist policy. While I think it is too early to ignore the fiscal policy aspect, it is increasingly clear that Abe thinks the future of Japan is in its past. From Ambrose Evans-Pritchard:
Premier Shenzo Abe is to spend up to one trillion yen (£7.1bn) buying plant in the electronics, equipment, and carbon fibre industries to force the pace of investment, according to Nikkei news.
This on the back of:
The disclosure came just a day after Mr Abe vowed to revive Japan's nuclear industry with a fresh generation of reactors, insisting that they would be "completely different" from the Fukishima Daiichi technology.
I imagine that should advanced civilizations ever travel to the Earth, they would be amazed that we allow fission reactors on the surface of the planet. I am amazed after by this after the lessons of Chernobal and Fukishima.
I have trouble with this characterization:
The industrial shake–up shows the ferment of fresh thinking in the third–largest economy after years of paralysis.
I am not sure this is fresh thinking at all. It sounds as if Japan is trying to go backwards in time to the 1980's. Especially when combined with an obvious intent to devalue the Yen for mercantilist reasons:
He has set an implicit exchange range target of 90 yen to the dollar, instructing the Bank of Japan to drive down the yen with mass purchases of foreign bonds along lines pioneered by the Swiss.
Finance minister Taro Aso brushed aside warnings that naked intervention would anger trade partners and damage Japan's strategic alliance with the US. "Foreign countries have no right to lecture us," he said, accusing the West of failing to abide by a G20 pledge in 2009 to forgo competitive devaluations.
As I have said in the past, I think that a yen/dollar target of 90 will yield only minor economic benefits at the price undermining Japan's international relationships. The US and Europe will reply that their quantitative easing programs are primarily aimed at boosting domestic demand, whereas if Japan appears to be pursuing an obvious beggar-thy-neighbor strategy. Of course, Abe isn't too worried about offending the international community. From Reuters:
Japanese Prime Minister Shinzo Abe wants to replace a landmark 1995 apology for suffering caused in Asia during World War Two with an unspecified "forward-looking statement", a newspaper reported on Monday...
..Any hint that Japan is back-tracking from the 1995 apology, issued by then Prime Minister Tomic Murayama, is likely to outrage neighbours, particularly China and North and South Korea, which endured years of brutal Japanese rule.
This is shaping up as a year in which Japan moves to center-stage in the international arena.
Bottom Line: Explicit cooperation between fiscal and monetary authorities to dramatically support domestic demand in Japan would be a step forward, but everything else that seems to be coming from Abe is a step backwards.
Posted: 02 Jan 2013 12:06 AM PST
Posted: 01 Jan 2013 05:22 PM PST
Language Log, in a discussion of "usage fetishes," takes on the question of "data are" versus "data is":
... Copy editors are meant to be gnomes working invisibly below decks to ensure that the engine of prose runs smoothly. They shouldn't obtrude themselves conspicuously into the middle of a clause, so that the reader has to break off his attention to the writer's argument and do a little mental stutter-step before he can remark to himself, "Oh, I see—it's that data-must-be-plural business." Copy-editors desirous of such notice should try another trade...
I'm not going to hash over all the arguments about the singularity of data, which has been hashed over at some length, to put it mildly. ... My own view is that there are contexts where it's okay to treat data as a plural, but none in which you can't treat it as a singular—and that contrary to what many "reasonable" usage writers counsel, this isn't simply a matter of "style and personal preference." ...
Posted: 01 Jan 2013 10:22 AM PST
Some reactions to the fiscal deal (which has yet to pass the House, or not, as I write this).
Brad DeLong:
I Do Not Understand the Obama Administration...: The big reason to make a deal before January 1, 2013 was that detonating the "austerity bomb" would impose 3.5% of fiscal contraction on the U.S. economy in 2013, and send the U.S. into renewed recession. It was worth making a good-enough deal--sensible long-run revenue increases and tax cuts to close the long-run fiscal gap plus enough short-term fiscal stimulus to make the net fiscal impetus +1.0% of GDP--in order to avoid renewed recession.
But by my back-of-the-envelope count, the deal the Obama administration has agreed to still leaves a net fiscal impetus of -1.75% of GDP to hit the U.S. economy in 2013. That is only 40% of the way back from the "austerity bomb" to where we want to be.
That isn't enough to make it worthwhile to make a deal before the new congress. After Boehner's reelection as Speaker and after the expiration of the Bush tax cuts eliminates the U.S.'s structural deficit, the politics become very different...
Paul Krugman:
Perspective on the Deal: To make sense of what just happened, we need to ask what ... are the two sides really fighting about? Surely the answer is, the future of the welfare state. ... The right wants to roll the clock back to 1930, if not to the 19th century.
There are two ways progressives can lose this fight. One is direct defeat on the question of social insurance, with Congress actually voting to privatize and eventually phase out key programs — or with Democratic politicians themselves giving away their political birthright in the name of a mess of pottage Grand Bargain. The other is for conservatives to successfully starve the beast — to drive revenue so low through tax cuts that the social insurance programs can't be sustained.
The good news for progressives is that danger #1 has been averted, at least so far... The bad news is that the deal falls short on making up for the revenue lost due to the Bush tax cuts. ... Getting all of those ended would have yielded something like $800 billion; he actually got around $600 billion. How big a difference does that make? ... That's not crucial, to say the least.
And on the principle of the thing, you could say that Democrats held their ground on the essentials — no cuts in benefits — while Republicans have just voted for a tax increase for the first time in decades.
So why the bad taste in progressives' mouths? It has less to do with where Obama ended up than with how he got there. He kept drawing lines in the sand, then erasing them and retreating to a new position. And his evident desire to have a deal before hitting the essentially innocuous fiscal cliff bodes very badly for the confrontation looming in a few weeks over the debt ceiling.
If Obama stands his ground in that confrontation, this deal won't look bad in retrospect. If he doesn't, yesterday will be seen as the day he began throwing away his presidency and the hopes of everyone who supported him.
Jeff Sachs says reject the deal -- he wants taxes to go up for everyone:
Reject the Deal: The White House and Senate have agreed to make the Bush tax cuts permanent for 99 percent of households, starving the federal government of funds. Even Mitt Romney could never have accomplished for the Republicans what Obama has just done for them. The Democrats in the Senate would have soundly rejected the plan if the Republicans had put it forward. ...
Obama has insisted that his top aim is to protect Bush's tax cuts for 98 percent of Americans. In the process he has lost sight of the even more basic need to protect the long-term finances of the federal government. ... The public has not been told that yesterday's agreement threatens the financing of crucial programs for education, job training, infrastructure, environment, energy, science and technology, health care, nutrition, and the poor for years to come. ...
Allowing the Bush tax cuts to expire today would have raised tax collections by around 2.5 percent of GDP, to around 21 percent of GDP by the end of the decade, thereby allowing the government to pay its bills assuming that the useless wars are ended and the bloated Pentagon budget is brought under control. ...
Many people will say, "Yes, but why tax the middle class to collect more revenues? Why not tax the rich even more to get to 21 percent of GDP?" There are two answers. First, the pre-Bush tax schedule was in fact adequate. It was the schedule of the Clinton years that supported balanced budgets and a reasonably healthy macro-economy.
Second, yesterday's deal if approved by the House will make it impossible to get to 21 percent of GDP under any alternative scenario, and perhaps even to 19 percent. The Republicans will now block any attempt to raise revenues as a share of GDP and the White House will have no leverage. ...
The White House should have put forward its own tax plan with adequate overall revenues. It could have told Congress to adopt the alternative plan or simply accept the expiration of the Bush tax cuts. That was the time for negotiating leverage. Instead, the White House gave up the revenues permanently and without a fight.
With a revenue baseline of around 18 percent of GDP, there will be years of harsh spending cuts ahead. What will they be? Medicaid? Food Stamps? Roads? Water? Renewable energy? Education? Pre-School? Environment? It will probably be "All of the above." ...
There is still time to resist this lousy deal. The House Democrats should try to vote it down today. ... The Federal Government is being dangerously weakened in its capacity to help America address the economic, environmental, and social challenges of the 21st century.
Finally, Greg Mankiw is upset that we didn't gut social insurance programs to protect the wealthy from tax increases to where they were before the Bush administration (where Mankiw played a big role):
President rejects his bipartisan commission: The fiscal deal struck last night makes one thing clear: President Obama must have really hated the recommendations of the bipartisan Bowles-Simpson commission that he appointed. The commission said that we needed to reform entitlement programs to rein in spending and that increased tax revenue should come in the form of base broadening and lower marginal tax rates. The deal appears to offer no entitlement reforms, no tax reform, and higher marginal tax rates. After all the public discussion over the past couple years of what a good fiscal reform would like like, it is hard to imagine a deal that would be less responsive to the ideas of bipartisan policy wonks.
Mankiw must know that there was not actual report from this commission (because the votes weren't there - the commission never formally agreed on how to proceed). The chairs put out a document, but it wasn't an official report. So when Mankiw references "the commission" and what it said, what the heck is he talking about and why is he trying to mislead on this point? [And if he is including himself among the "bipartisan policy wonks," that's the best laugh I've had so far today, very few of the games he's been playing on his site lately are bipartisan].
Let me add one more thing. If people like Mankiw wanted cuts to social insurance so badly, why didn't they speak up and make this absolutely clear before the election? When Republicans accused Democrats of, for example, wanting to cut Medicare, why didn't Mankiw say yes, that's exactly what President Romney should do! I'm one of his advisors, I've made that clear, and here's his plan for cuts to Medicare, Social Security, Medicaid, and the like. Why pretend you are the defenders instead of the cutters? The answer is, of course, is that it's not what the public wants. The bipartisan budget wonks in Washington may have their own plan to cut social insurance, but guess what? We live in a Democracy, and the Romney/Mankiw view was rejected (so now Republicans try to get it through the back door by gumming up the legislative works and holding the economy hostage). It's not what people want. Acting like it is what they want through a misleading suggestion that it's in some bipartsan commission report that doesn't actually exist is contrary to the message the election delivered.
Now if we can only get Obama to understand what his base was trying to tell him.
Posted: 01 Jan 2013 12:06 AM PST

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