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January 31, 2014

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Paul Krugman: Talking Troubled Turkey

Posted: 31 Jan 2014 12:24 AM PST

Do "we now have a world economy destined to seesaw between bubbles and depression"?:

Talking Troubled Turkey, by Paul Krugman, Commentary, NY Times: O.K., who ordered that? With everything else going on, the last thing we needed was a new economic crisis in a country already racked by political turmoil. True, the direct global spillovers from Turkey, with its Los Angeles-sized economy, won't be large. But we're hearing that dreaded word "contagion"...
It is, in many ways, a familiar story. But that's part of what makes it so disturbing: Why do we keep having these crises? And here's the thing: The intervals between crises seem to be getting shorter, and the fallout from each crisis seems to be worse than the last. What's going on?...
You may or may not have heard that there's a big debate among economists about whether we face "secular stagnation"..., a situation in which the amount people want to save exceeds the volume of investments worth making.
When that's true, you have one of two outcomes. If investors are being cautious and prudent, we are collectively, in effect, trying to spend less than our income,... the result is a persistent slump.
Alternatively, flailing investors — frustrated by low returns and desperate for yield — can delude themselves, pouring money into ill-conceived projects, be they subprime lending or capital flows to emerging markets. This can boost the economy for a while, but eventually investors face reality, the money dries up and pain follows.
If this is a good description of our situation, and I believe it is, we now have a world economy destined to seesaw between bubbles and depression. ...
The larger point is that Turkey isn't really the problem; neither are South Africa, Russia, Hungary, India, and whoever else is getting hit right now. The real problem is that the world's wealthy economies — the United States, the euro area... — have failed to deal with their own underlying weaknesses. Most obviously, faced with a private sector that wants to save too much and invest too little, we have pursued austerity policies that deepen the forces of depression. Worse yet, all indications are that, by allowing unemployment to fester, we're depressing our long-run as well as short-run growth prospects, which will depress private investment even more. ...
So Turkey seems to be in serious trouble — and China, a vastly bigger player, is looking a bit shaky, too. But what makes these troubles scary is the underlying weakness of Western economies, a weakness made much worse by really, really bad policies.

Links for 01-31-2014

Posted: 31 Jan 2014 12:03 AM PST

Mobility and Inequality

Posted: 30 Jan 2014 11:00 AM PST

Dean Baker:

Mobility and Inequality: More on Non-New Findings: Robert Samuelson is happy to tell us that contrary to what he hoped some of us believed, there was not much change in mobility for children entering the labor force between the first President Bush and second President Bush's administrations. Samuelson misrepresents the study to imply that it finds that there has been no change in mobility over the post-war period. ...
Samuelson ... notes the study's finding that there has been little change in mobility for workers entering the labor market in 2007 compared to 1990. The study then refers to earlier work finding no change in mobility prior to 1990. This study did not itself examine the period prior to 1990.
This is important since that is the period in which we might have expected growing inequality to have a notable impact on mobility. There was some divergence between quintiles of income distribution in the 1980s. In the years since 1980, there has not been much divergence between the bottom half of the top quintile and the rest of the income distribution. Most of the inequality was associated with the pulling away of the one percent from everyone else. This study made no effort to examine mobility into the one percent.
As far as mobility in the years prior to the 1990, contrary to the claim of this study, the research is far from conclusive. For example, an assessment published by the Cleveland Fed concluded:
"After staying relatively stable for several decades, intergenerational mobility appears to have declined sharply at some point between 1980 and 1990, a period in which both income inequality and the economic returns to education rose sharply. This finding is also consistent with theoretical models of intergenerational mobility that emphasize the role of human capital formation. There is fairly consistent evidence that intergenerational mobility has stayed roughly constant since 1990 but remains below the rates of mobility experienced from 1950 to 1980."
While it would be wrong to take this statement as conclusive, it is also wrong to take the assessment of the study cited by Samuelson as conclusive and it is a gross misrepresentation to imply that this study examined patterns in mobility over the whole post-war period. It did not even try to examine changes in mobility over the 1980s, the period when patterns in inequality would have most likely led to a decline in mobility. 

The Q4 GDP Report

Posted: 30 Jan 2014 09:54 AM PST

Comments on today's GDP report for the 4th quarter of last year are generally upbeat:

Q4 GDP: Solid Report, Positives Looking Forward, by Bill McBride: The advance Q4 GDP report, with 3.2% annualized growth, was slightly above expectations. Personal consumption expenditures (PCE) increased at a 3.3% annualized rate - a solid pace. ...

Overall this was a solid report, and there are several positives going forward...

But:

...the Federal Government subtracted 0.98 percentage points from growth in Q4, and residential investment subtracted 0.32 percentage points. Imagine no Federal austerity - Q4 GDP would have been above 4%. Luckily it appears austerity at the Federal level will diminish in 2014, and of course I expect that residential investment will make a solid contribution this year. ...

The drag from state and local governments appears to have ended after an unprecedented period of state and local austerity (not seen since the Depression). State and local governments have added to GDP for three consecutive quarters now.

I expect state and local governments to continue to make small positive contributions to GDP going forward. ...

Josh Bivens at EPI says there are things in the report to be "glum about":

Scratching Just One Level Below Surface, Growth Numbers Look a lot Less Impressive: The last six months of 2013 saw the headline GDP growth rate reach 3.7 percent. That's a healthy number. Not gangbusters (we really have seen growth rates over 5 percent for a year or more in previous recoveries where there was slack in the economy comparable to what persists today), but undeniably healthy.
So what's to be glum about?
Strip out the contribution of inventory investments and exports, and add in (rather than subtract) the value of imports. This is a measure of real "final sales to domestic purchasers," or, what is sometimes called domestic demand. It's a measure of how much demand from households, businesses, and governments is growing—and since the economy's problem remains a huge shortfall of this demand relative to productive potential, it's a key barometer of health.
Domestic demand growth for the last six months of 2013 was only half as fast as headline GDP growth (1.8 percent). ...
Are there any reasons to be less glum about 2014? For sure.
The big one is that federal fiscal policy will no longer be actively throttling growth. It knocked nearly a full percentage point off the fourth quarter growth rate. To be clear, fiscal policy won't aid growth in 2014, instead it will provide a very slight drag rather than an anvil-heavy drag. This is what counts as progress in today's fiscal policymaking. But, we'll take what we can, I guess.

January 30, 2014

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Fed Watch: And The Taper Continues

Posted: 30 Jan 2014 12:24 AM PST

Tim Duy:

And The Taper Continues, by Tim Duy: The FOMC meeting came and went with the expected result - the tapering process continued on schedule, undeterred by the current emerging market turmoil. Of course, the Fed doesn't want to be seen as reacting to every gyration financial markets. But even more importantly, the Fed wants out of the asset purchase business on the belief that a.) tapering is not tightening and b.) even if it was tightening, they could compensate via forward guidance. The global stumble, however, is challenging that thinking. Regardless of financial markets or US data, the Fed was not likely to launch into a new policy direction on the eve of incoming Chair Janet Yellen's coronation. It's her show now.

The statement acknowledged the better tone of the data:

Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters.

while at the same time giving a nod to weak job growth in December:

Labor market indicators were mixed but on balance showed further improvement.

Inflation is low, but that is offset by stable expectations:

Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Upside and downside risks are equally weighted:

The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced.

Low inflation is an issue they are assessing, but it is not sufficiently worrisome to alter the pace of the taper:

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.

At these rates, inflation is only a deterrent against higher interest rates, not tapering.

Despite the plunge in the unemployment rate, the combination of the Evans rule and enhanced forward guidance remains unchanged:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.

I think we can be confident that much of the conversation centered around forward guidance, but there was not quite a pressing need to end or alter the Evans rule with unemployment still above 6.5%. Moreover, any change to the forward guidance needs to be owned by Janet Yellen, and she will not have that opportunity for another six weeks. Which will not be just her first meeting as chair, but also her first press conference as chair. Trial by fire.

The Fed did not, as some supposed they might, react to sliding overseas markets. This, combined with the tempered reaction to weak job growth and the absolute abandonment of the inflation target, speaks to the Fed's determination to end asset purchases. We will need to see the emerging market downturn lapping up more directly on US shores before the Fed reacts. The downturn in US equities is not yet enough. Not only does the Fed not react to every dip in the market, they probably would not be surprised by a correction in any event. The are inclined to believe that while not a bubble, stock prices were getting a little ahead of earnings.

Recent market action is very revealing, in my opinion. First and foremost is that fears that without the Fed "no one will buy US debt" have proved to be completely unfounded. Everyone knows that the Fed is eager to end asset purchases this year, and yet magically there are enough buyers to keep 10 year rates locked below 3%. Without much, much faster growth and a real threat of inflation, we are stuck in a low interest rate world. Get used to it. Indeed, even when the Fed starts raising interest rates, I expect most of the impact will be in the center of the yield curve. We need to jump to a higher equilibrium path to boost long rates sustainably higher.

Also evident is that regardless of the Fed's intentions, tapering is tightening, at least on a global scale. To be sure, emerging markets are under pressure from a number of directions. The yen's decline over the past year was eventually going to pressure emerging market currencies. Commodity prices are softer than expected. Remember just a few years ago when the global commodity super-cycle would propel prices ever higher? That story appears to have come to an end. The ongoing adjustment in the Chinese economy is not helping matters either. Arguably, the Fed is only the icing on the cake.

But it is a cake of their own making. Ambrose Evans-Pritchard reminds us that emerging markets spent years leaning into the Fed's low rate policies instead of leaning against. Now they are caught in the classic currency crisis trap - they try to raise rates to stem currency declines, but higher rates crush the local economy and, by extension, equity markets, which aggravates the currency decline. The process continues until the economy settles into a lower equilibrium. It isn't pretty. Never is.

Funny thing is that what the Fed sees as no tightening is evolving into a global tightening now as central banks rush to raise rates. Consequently, money surges into the global safe asset - US Treasuries. And, interestingly, I think that you can argue that this is much, much more disconcerting than last year's taper tantrum. This seems to me to be a pretty clear global disinflationary shock. And it isn't like inflation was on a runaway train to begin with.

Bottom Line: The Fed wants out of quantitative easing. Policymakers want to normalize policy by bringing it back to interest rates. That sets a high bar to delaying the tapering process. Moreover, the leadership transition at the Federal Reserve also left policy on autopilot from December until March, raising the bar even further. That seemed to sink in today. They lack of offsetting on the part of emerging markets to easy Fed policy is now exacerbating the impact of tapering, creating a more significant monetary tightening than expected by the Fed. It is not clear when this alters the path of Fed policy. But what seems more clear is that the US is about to be hit by another disinflationary shock. That deserves careful attention, because inflation, I think, is at this moment the most important variable to watch as far as Fed policy is concerned. The Fed is pushing forward with tapering on only the forecast of future inflation. That forecast appears under threat.

Links for 01-30-2014

Posted: 30 Jan 2014 12:03 AM PST

'No, Micro is not the "Good" Economics'

Posted: 29 Jan 2014 09:25 AM PST

Greg Ip at The Economist:

No, micro is not the "good" economics: If asked to compile a list of economists' mistakes over the last decade, I would not know where to start. Somewhere near the top would be failure to predict the global financial crisis. Even higher on the list would be failure to agree, five years later, on its cause. Is this fair? Not according to Noah Smith: these, he says, were not errors of economics but of macroeconomics. Microeconomics is the good economics, where economists by and large agree, conduct controlled experiments that confirm or modify established theory and lead to all sorts of welfare-enhancing outcomes.
To which I respond with two words: minimum wage..., ask any two economists – macro, micro, whatever – whether raising the minimum wage will reduce employment for the low skilled, and odds are you will get two answers. Sometimes more. (By contrast, ask them if raising interest rates will reduce output within a year or two, and almost all – that is, excepting real-business cycle purists – will say yes.)
Are there reasons a higher minimum wage will not have the textbook effect? Of course. ... But microeconomists are kidding themselves if they think this plethora of plausible explanations makes their branch of economics any more scientific or respectable than standard macroeconomics. ...

[There's quite a bit more in the original.]

'The Fading of the Deficit'

Posted: 29 Jan 2014 09:13 AM PST

Paul Krugman comments on the SOTU:

... I think the fading of the deficit both in reality and as an issue is important... Obama isn't afraid of the big bad deficit any more, and he knows that there won't be a Grand Bargain, so there's nothing he can or should do on the front that absorbed so much of his energy for three years. ...

Glad thsi issue is falling off the political radar, but given how many households were hurt by the premature turn to deficit reduction endorsed by Obama, I have a hard time granting much credit to Obama for letting this issue fade.

Let's Make a Deal

Posted: 29 Jan 2014 09:06 AM PST

Brad DeLong:

... Suppose, back before you were born, the Archangel Michael and offered you a deal: "There's a 1% chance you will be in the top 1%, with about $1.5 million a year. There's an 80% chance you will be in the bottom 80%, with less than $50,000 a year. How about we reduce your income if you happen to be in the top 1% by $75 thousand, and raise it if you happen to be in the bottom 80% by $900?"
The only argument against taking that deal is: "But I already chose the right parents! And I'm very likely to be in the top 1%!"
And I do not think that is a particularly good argument…

January 29, 2014

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Links for 01-29-2014

Posted: 29 Jan 2014 12:03 AM PST

'Money and Class'

Posted: 28 Jan 2014 09:56 AM PST

Paul Krugman:

Money and Class: My post on Americans starting to recognize class realities has brought some predictable reactions, which I'd place under two headings: (1) "But they have cell phones!" and (2) it's about how you behave, not how much money you have.

My answer to both of these would be to say that when we talk about being middle class, I'd argue that we have two crucial attributes of that status in mind: security and opportunity.

By security, I mean that you have enough resources and backup that the ordinary emergencies of life won't plunge you into the abyss. This means having decent health insurance, reasonably stable employment, and enough financial assets that having to replace your car or your boiler isn't a crisis.

By opportunity I mainly mean being able to get your children a good education and access to job prospects, not feeling that doors are shut because you just can't afford to do the right thing.

If you don't have these things, I would say that you don't lead a middle-class life, even if you have a car and a few electronic gadgets that weren't around during the era when most Americans really were middle class, and no matter how clean, sober, and prudent your behavior may be. ...

A lot of Americans — quite arguably a majority — just don't have the prerequisites for middle-class life as we've always understood it. ...

The sad thing is that our fetishization of the middle class, our pretense that we're almost all members of that class, is a major reason so many of us actually aren't. That's why the growing appreciation of class realities on the part of the public is a good thing; it raises the chances that we'll actually start creating the kind of society we only pretend to have.

I've written about this in the past, e.g. in 2010:

...people who, because of their incomes, cannot participate fully in society are poor. A child getting enough to eat, and with clothes to wear, who cannot afford the toys needed to be part of the group of kids in the neighborhood is socially isolated and socially disadvantaged (we don't want to play at your house because you don't have a TV, you can't come with us because you don't have a bike, you didn't get my text message about baseball practice being moved?, etc., etc., etc.). Giving people, children in particular, what they need to participate in the society around them is an important element of how successful they will be in the future. It helps to determine their ability to give back to society as fully participating adults. ...

Or, from 2008:

To me, being poor isn't just about stuff, it's about being able to participate fully in society. The things on the list that almost all households now have, refrigerators, stoves, TVs, and telephones, are things you have to have to function in this society... How do you make a doctor's appointment without a phone? Drop by in you spare time? A refrigerator and a stove are items a household has to have given how we bring food to the table in this society. I just don't see these things as doing anything more than providing the minimum necessary to function. Even something like a TV is necessary if you want to, say, keep up with the political debates (there's a presumption in our political discourse that you can watch campaigns on television and they are largely devoted to delivery over that medium - without a TV you cannot participate fully) or even talk to people around the water-cooler at work about the latest popular TV show. Yes, the poor might have been well-off in, say, 1821 given the societal standards of the time, or some other historical period one might choose to compare, but this isn't 1821 - things have changed and so have the minimum standards necessary to be part of the society. I'm sorry if there are people who don't want to share... Giving people the things they need to be a full part of the society they live in is the decent and right thing to do. As our society elevates itself and the requirements for full participation increase, when things like computers are as necessary as a stove, our standards of decency - what we are willing to accept as a minimum standard of living - must also rise. Just meeting physical needs - food and clothing - is not enough to be a full part of the society we live in today. We can and should do better than that.

Sharing the Gains from Economic Growth

Posted: 28 Jan 2014 08:02 AM PST

I have a new column on inequality:

Sharing the Gains from Economic Growth, by Mark Thoma: President Obama will make reducing inequality a major part of his State of the Union Address according to several reports. But to avoid being accused of waging class warfare, he will talk about creating "ladders of opportunity" instead of focusing directly on the inequality problem.
This shift in emphasis is a mistake because it misses a key part of the inequality problem. ...

The mechanism that distributes goods and services is broken.

Links for 01-29-2014

January 28, 2014

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Posted: 28 Jan 2014 12:03 AM PST

'Obama’s Plan to End Discrimination Against the Long-term Unemployed'

Posted: 27 Jan 2014 02:31 PM PST

Do you think this will work? I have my doubts:

Obama's Plan to End Discrimination Against the Long-term Unemployed, by Jonathan Chait: In his State of the Union address tomorrow night, President Obama will announce that some of the largest firms in the United States have signed a pledge not to discriminate in hiring against the long-term unemployed, reports The Wall Street Journal. ...
Employers are simply using long-term unemployment as a heuristic, to weed out what they see as the weakest candidates. But this shortcut traps the unemployed in a cycle they cannot escape: The longer they're unemployed, the progressively harder it becomes to acquire a job. ...
What Obama is trying to do in the State of the Union speech is to create a new kind of social norm in hiring. He's arguing that employers should not let themselves use this kind of shortcut, and that more careful consideration can actually open up a wider pool of available talent. The administration has boiled down its recommendations to a series of best practices to avoid this form of discrimination.  ...
This isn't going to revolutionize the job market. And it's not as good as getting Congress to pass, say, a new infrastructure bill. But discrimination against the long-term unemployed is a kind of cultural problem in and of itself. And precisely, because it is a cultural problem, it's the sort of thing a high-profile speech combined with concerted jawboning with corporate leaders has a hope of actually changing.

Dreaming of a Better Gini

Posted: 27 Jan 2014 08:54 AM PST

At MoneyWatch:

How do we know if income inequality is getting worse? - Mark Thoma

I guess the editors didn't like my Dream of Gini title.

'Money and Class'

Paul Krugman:
Money and Class: My post on Americans starting to recognize class realities has brought some predictable reactions, which I’d place under two headings: (1) “But they have cell phones!” and (2) it’s about how you behave, not how much money you have.
My answer to both of these would be to say that when we talk about being middle class, I’d argue that we have two crucial attributes of that status in mind: security and opportunity.
By security, I mean that you have enough resources and backup that the ordinary emergencies of life won’t plunge you into the abyss. This means having decent health insurance, reasonably stable employment, and enough financial assets that having to replace your car or your boiler isn’t a crisis.
By opportunity I mainly mean being able to get your children a good education and access to job prospects, not feeling that doors are shut because you just can’t afford to do the right thing.
If you don’t have these things, I would say that you don’t lead a middle-class life, even if you have a car and a few electronic gadgets that weren’t around during the era when most Americans really were middle class, and no matter how clean, sober, and prudent your behavior may be. ...
A lot of Americans — quite arguably a majority — just don’t have the prerequisites for middle-class life as we’ve always understood it. ...
The sad thing is that our fetishization of the middle class, our pretense that we’re almost all members of that class, is a major reason so many of us actually aren’t. That’s why the growing appreciation of class realities on the part of the public is a good thing; it raises the chances that we’ll actually start creating the kind of society we only pretend to have.
I've written about this in the past, e.g. in 2010:
...people who, because of their incomes, cannot participate fully in society are poor. A child getting enough to eat, and with clothes to wear, who cannot afford the toys needed to be part of the group of kids in the neighborhood is socially isolated and socially disadvantaged (we don't want to play at your house because you don't have a TV, you can't come with us because you don't have a bike, you didn't get my text message about baseball practice being moved?, etc., etc., etc.). Giving people, children in particular, what they need to participate in the society around them is an important element of how successful they will be in the future. It helps to determine their ability to give back to society as fully participating adults. ...
Or, from 2008:
To me, being poor isn't just about stuff, it's about being able to participate fully in society. The things on the list that almost all households now have, refrigerators, stoves, TVs, and telephones, are things you have to have to function in this society... How do you make a doctor's appointment without a phone? Drop by in you spare time? A refrigerator and a stove are items a household has to have given how we bring food to the table in this society. I just don't see these things as doing anything more than providing the minimum necessary to function. Even something like a TV is necessary if you want to, say, keep up with the political debates (there's a presumption in our political discourse that you can watch campaigns on television and they are largely devoted to delivery over that medium - without a TV you cannot participate fully) or even talk to people around the water-cooler at work about the latest popular TV show. Yes, the poor might have been well-off in, say, 1821 given the societal standards of the time, or some other historical period one might choose to compare, but this isn't 1821 - things have changed and so have the minimum standards necessary to be part of the society. I'm sorry if there are people who don't want to share... Giving people the things they need to be a full part of the society they live in is the decent and right thing to do. As our society elevates itself and the requirements for full participation increase, when things like computers are as necessary as a stove, our standards of decency - what we are willing to accept as a minimum standard of living - must also rise. Just meeting physical needs - food and clothing - is not enough to be a full part of the society we live in today. We can and should do better than that.

Sharing the Gains from Economic Growth

I have a new column on inequality:
Sharing the Gains from Economic Growth, by Mark Thoma: President Obama will make reducing inequality a major part of his State of the Union Address according to several reports. But to avoid being accused of waging class warfare, he will talk about creating “ladders of opportunity” instead of focusing directly on the inequality problem.
This shift in emphasis is a mistake because it misses a key part of the inequality problem. ...
The mechanism that distributes goods and services is broken.

Links for 01-28-2014

January 27, 2014

'Obama’s Plan to End Discrimination Against the Long-term Unemployed'

Do you think this will work? I have my doubts:
Obama’s Plan to End Discrimination Against the Long-term Unemployed, by Jonathan Chait: In his State of the Union address tomorrow night, President Obama will announce that some of the largest firms in the United States have signed a pledge not to discriminate in hiring against the long-term unemployed, reports The Wall Street Journal. ...
Employers are simply using long-term unemployment as a heuristic, to weed out what they see as the weakest candidates. But this shortcut traps the unemployed in a cycle they cannot escape: The longer they’re unemployed, the progressively harder it becomes to acquire a job. ...
What Obama is trying to do in the State of the Union speech is to create a new kind of social norm in hiring. He’s arguing that employers should not let themselves use this kind of shortcut, and that more careful consideration can actually open up a wider pool of available talent. The administration has boiled down its recommendations to a series of best practices to avoid this form of discrimination.  ...
This isn’t going to revolutionize the job market. And it’s not as good as getting Congress to pass, say, a new infrastructure bill. But discrimination against the long-term unemployed is a kind of cultural problem in and of itself. And precisely, because it is a cultural problem, it’s the sort of thing a high-profile speech combined with concerted jawboning with corporate leaders has a hope of actually changing.

Dreaming of a Better Gini

At MoneyWatch:
How do we know if income inequality is getting worse? - Mark Thoma
I guess the editors didn't like my Dream of Gini title.

Paul Krugman: Paranoia of the Plutocrats

Welcoming the hatred:
Paranoia of the Plutocrats, by Paul Krugman, Commentary, NY Times: ...billionaire investor Tom Perkins... in a letter to the editor of The Wall Street Journal,... lamented public criticism of the “one percent” — and compared such criticism to Nazi attacks on the Jews, suggesting that we are on the road to another Kristallnacht.
You may say that this is just one crazy guy and wonder why The Journal would publish such a thing. But Mr. Perkins isn’t that much of an outlier...
Now, just to be clear, the very rich, and those on Wall Street in particular, are in fact doing worse under Mr. Obama than they would have if Mitt Romney had won in 2012. ...
But every group finds itself ... on the losing side of policy disputes somewhere along the way; that’s democracy. The question is what happens next. Normal people take it in stride..., they don’t cry persecution, compare their critics to Nazis and insist that the world revolves around their hurt feelings. But the rich are different from you and me. ... They’re accustomed to being treated with deference, not just by the people they hire but by politicians who want their campaign contributions. And so they are shocked to discover that money can’t buy everything, can’t insulate them from all adversity.
I also suspect that today’s Masters of the Universe are insecure about the nature of their success. We’re not talking captains of industry here, men who make stuff. We are, instead, talking about wheeler-dealers, men who push money around and get rich by skimming some off the top as it sloshes by. They may boast that they are job creators..., but are they really adding value? Many of us doubt it — and so, I suspect, do some of the wealthy themselves, a form of self-doubt that causes them to lash out even more furiously at their critics.
Anyway, we’ve been here before. It’s impossible to read screeds like those of Mr. Perkins ... without thinking of F.D.R.’s famous 1936 Madison Square Garden speech, in which he spoke of the hatred he faced from the forces of “organized money,” and declared, “I welcome their hatred.”
President Obama has not, unfortunately, done nearly as much as F.D.R. to earn the hatred of the undeserving rich. But he has done more than many progressives give him credit for — and like F.D.R., both he and progressives in general should welcome that hatred, because it’s a sign that they’re doing something right.

'A Tea Party Knight Is Out'

David Warsh wonders if the WSJ is "changing things somewhat in the orientation of its editorial board":
A Tea Party Knight Is Out, by David Warsh: News, goes an old saw, is what happens near an editor. That’s what commenced last September when Wall Street Journal editors got hung up in lane closings at the George Washington Bridge.
Whoever they were, the editors passed along their displeasure and, perhaps, suspicions to the paper’s transportation reporter, Ted Mann. After a month of working the phones, Mann broached the possibility that the tie-up was deliberate, with a story on October 2: Port Chief Fumed Over Bridge Jam/Patrick Foyle Fired Off an Email Message after Learning of Lane Closure..., it was clearly the WSJ that first put Gov. Christie in play. ...
Aggressive WSJ reporting on a frontrunner for the next Republican Party presidential nomination is evidence that Rupert Murdoch hasn’t monkeyed with the longstanding culture of the news pages. ...
I mention it here because ... Murdoch may have an interest in changing things somewhat in the orientation of its editorial board. I refer to the departure of Stephen Moore to the Heritage Foundation.
Moore was the board’s chief economic commentator, a founder of the Club for Growth, enthusiast of Tea Party ideals, possessor of a master’s degree from George Mason University and a disciple of Arthur Laffer and Julian Simon. ...
The WSJ editorial page is a position of enormous influence... Depending on how Moore is replaced, the opportunity exists for Murdoch’s paper to play a constructive role... – perhaps even to modulate the spirit of intransigence that dates back to 1972, when editor Robert Bartley and Jude Wanniski initiated a new era of political economic discourse in US politics.
It was Bartley’s unrelenting attacks on Bill Clinton in the 1990s that established the predicate that presidents who are Democrats not only have bad politics, but are not legitimate. Much of the present-day animosity toward Obama got its start with Bartley’s over-the-top opposition to Clinton. ...
I plan to pay much closer attention to the editorial page of the WSJ in the months to come. Something is going on there.

Links for 01-27-2014

January 26, 2014

'Why There’s No Outcry'


Robert Reich tries to explain why "we don’t have a revolution in America":
Why There’s No Outcry, by Robert Reich: People ask me all the time why we don’t have a revolution in America, or at least a major wave of reform similar to that of the Progressive Era or the New Deal or the Great Society.
Middle incomes are sinking, the ranks of the poor are swelling, almost all the economic gains are going to the top, and big money is corrupting our democracy. So why isn’t there more of a ruckus?
The answer is complex, but three reasons stand out.
First, the working class is paralyzed with fear it will lose the jobs and wages it already has. In earlier decades, the working class fomented reform. ... No longer... No one has any job security. ... Besides, their major means of organizing themselves — labor unions — have been decimated. ...
Second, students don’t dare rock the boat. In prior decades students were a major force for social change. ... But today’s students don’t want to make a ruckus. They’re laden with debt. ... To make matters worse, the job market for new graduates remains lousy. Which is why record numbers are still living at home.
Reformers and revolutionaries don’t look forward to living with mom and dad or worrying about credit ratings and job recommendations.
Third and finally, the American public has become so cynical about government that many no longer think reform is possible. ...
Change is coming anyway. ... At some point, working people, students, and the broad public will have had enough. They will reclaim our economy and our democracy. This has been the central lesson of American history.
Reform is less risky than revolution, but the longer we wait the more likely it will be the latter.
Apparently, Obama as "a little bit of FDR" might not be enough.

'Steve Rattner’s Manufacturing Muddle'

Jared Bernstein:
Steve Rattner’s Manufacturing Muddle: ...Steve Rattner makes some good points about the state of US manufacturing ... but the argument is confusing and unconvincing due to a pretty egregious omission.
The good points are generally about the weak wage trends ... though here’s where the major omission comes in... If our manufacturing wages are so low relative to both their past levels and some of our advanced economy competitors (he mentions Germany), why are we not more globally competitive in the sector? ...
The key omission in Steve’s analysis is ... exchange rates. Dean Baker was all over this...
Rattner never once mentions the value of the dollar. This happens to be huge. [Data show]…that manufacturing employment first began to fall in the late 1990s, even as the economy was booming, after the dollar soared due to the botched bailout from the East Asian financial crisis. The run-up in the dollar had the equivalent effect of placing a 30 percent tariff on our exports and giving a 30 percent subsidy for imports. Under these circumstances, it is hardly surprising that manufacturing employment fell and the trade deficit soared.
...[I]t would be foolish to pin one’s hope for a full employment recovery on any one sector. ... The important question is: what distortionary factors are holding the sector back from achieving its potential? More technically, why does the US have both low growth in unit labor costs in manufacturing (compensation relative to productivity growth) relative to our competitors and persistent, large deficits in manufactured goods? ...
In this regard, it’s simply not credible to pontificate on manufacturing’s decline without acknowledging the role of the dollar, exchange rate manipulation, and our persistent trade deficits in manufactured goods. ...

'Obama and the One Percent'

Paul Krugman:
Obama and the One Percent: Another week, another outburst by a one-percenter comparing progressive taxation to Nazi atrocities. I particularly liked the end:
Kristallnacht was unthinkable in 1930; is its descendent “progressive” radicalism unthinkable now?
Because it’s just obvious that San Francisco progressives are the political heirs of fascism, right?
You do wonder why the WSJ published this screed. ...
Anyway, thinking about this sort of thing makes me realize that there’s a danger, especially for progressives, of confusing the proposition that Obama’s billionaire haters are stark raving mad — which is true — with the proposition that Obama has done nothing that hurts the plutocrats’ interests, which is false. Actually, Obama has been tougher on the one percent than most progressives give him credit for.
Start with taxes..., taxes on wealthy Americans have basically been rolled back to pre-Reagan levels ...
Meanwhile, financial reform looks as if it will have significantly more teeth than expected.
So the one percent does have reason to be upset. No, Obama isn’t Hitler; but he is turning out to be a little bit of FDR, after all.

Links for 01-26-2014