Month: June 2011

Trying to tell us something?

by digby

Here’s an excerpt from a very interesting piece about economic history:

The Mistake of 1937 was a preemptive policy tightening in a fragile economic environment. Specifically, it was a decision to abandon the policy of “reflation” introduced in 1933. After prices tumbled during the 1929-33 depression, the administration of Franklin Delano Roosevelt (FDR) and the Federal Reserve made a commitment to increase the price level to pre-depression levels. (For more on this key initiative of the 1933-37 recovery period, see my article in the American Economic Review, “Great Expectations and the End of the Depression.”) The reflation policy was backed by an aggressive increase in government spending, the maintenance of large deficits, the abandonment of the gold standard, and monetary easing. If we accept the account of modern macroeconomic models, this reflationary policy mix can be very expansionary once the short-term interest rate is constrained at zero (as it was at the time). Why? Because at zero interest rates, if people start expecting that prices will rise instead of continuing to fall, the real rate of interest—a critical determinant of aggregate spending—turns from positive to negative. Thus, it becomes economical to spend money rather than save it. A further benefit of reflation is that it can repair balance sheets of overleveraged households and firms, a point explained in more detail in my recent paper with Paul Krugman, “Debt, Deleveraging, and the Liquidity Trap.”

The Mistake of 1937 was to relinquish the benefits of reflation and to set all policy levers in reverse. The Fed and key administration officials hinted at interest rate hikes and endorsed austerity in fiscal policy; the key concern now was containing inflation rather than sustaining recovery.

The effects of this policy reversal on prices and production are evident in the charts below. The top chart tracks the consumer price index (CPI) and the wholesale price index (WPI) over the period 1927-41, while the bottom chart plots the movements in industrial production over the same period. In both charts, the first vertical line marks the point at which FDR became president and announced a policy of reflation, while the second vertical line marks the Mistake of 1937. What we see in the top chart is that at the time in 1937 when the administration started warning that inflation was too high, the price level had not yet reached the pre-depression levels that had previously been the administration’s goal. Following this policy reversal, both prices and industrial production tumbled. The line indicating the “reversal of 1938” marks the point when the administration recommitted to inflating the price level to pre-depression levels. Significantly, this renewed commitment was followed by robust growth, as the bottom chart makes clear.

Most of you are probably aware of all this. But what’s truly interesting about it is the fact that it’s posted on the website of the NY Fed.

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Starving the beast, California style

by digby

Scott Walker may have led the way, but never let it be said that California Tea Partiers aren’t going to play the game. I’ll be interested to see how this one works out:

At a recent talk to a roomful of “tea party” supporters, Orange County Republican Party chairman Scott Baugh excitedly described how the next big GOP movement could be taking root in their own backyard.

In Costa Mesa, home to South Coast Plaza and the Orange County Performing Arts Center, the City Council has proposed cutting its workforce in half and outsourcing many of those jobs to private contractors.

The radical cutbacks are being led by new councilman and longtime GOP activist Jim Righeimer, who says the layoffs are necessary to deal with rising government pension costs for employees.

But Baugh and other Republicans see Costa Mesa as the beginning of something bigger. They hope other cities around California that are dealing with rising pension costs will take the same action.

On blogs and in speeches, local Republicans are framing it as a historic struggle against what they call “Obama’s union bosses.” On its website, OCGOP.org, the party urges other cities in Orange County to “stop the taxpayer rip-off.” Officials are urging other Republican council members to take similar stands.

The rhetoric is similar to that used by the GOP in Indiana and Wisconsin, where Republican governors have been battling to roll back the collective bargaining powers of state employee unions. The GOP is hoping to use public pensions as an issue against President Obama and the Democrats in the 2012 election. And the push in Orange County takes the battle to the municipal government level.

“Costa Mesa is ground zero for cities,” Baugh said.

It remains to be seen how far the GOP can spread the Costa Mesa labor fight. Cities around California are struggling with budget problems fueled at least in part by rising pension costs. But no others have proposed the dramatic cuts embraced by Costa Mesa.

I wonder how many teachers, firefighters and cops live in Costa Mesa?

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Off The Table

by digby

John Harwood just told Andrea Mitchell that Republican leaders spent a lot of time reassuring “Wall Street” that last night’s vote on the debt ceiling wasn’t a real vote and that they have no intention of not raising the debt ceiling. But they are still going to be able to extract concessions from the Democrats, so that’s good.

Meanwhile, back in the real world Greg Sargent has some numbers to back up common sense:

Jeff Liszt, of the respected Dem firm Anzalone Liszt, has just completed a poll for two liberal-leaning groups — which I wrote about below — finding that the Paul Ryan plan is deeply unpopular with voters, and particularly with seniors and independents, when Ryancare is described to them. The poll also found that Obama and Dems have increased their advantage over Republicans on Medicare, on health care in general, and on who can be trusted to defend the middle class.

I followed up with Liszt to ask whether his polling indicated that Dems could lose those advantages if they agree to a deficit reduction deal that cuts Medicare benefits and shifts costs to seniors. His answer was unequivocal.

“Agreeing to benefits cuts takes the foot off the gas in terms of going on the offensive against Republicans,” said Liszt, who did the poll for the Herndon Alliance and Know Your Care. “You have to draw a bright line somewhere and Medicare benefits are the best place to do that.”

Anyone with an ounce of political instinct already knows this. So you have to take it one step further and wonder if the Democrats don’t also see this as an opportunity to do things their constituents don’t want them to do. (“They’re holding hostages — I had no choice.”)

I suspect that they are foolishly intrigued by the idea that old Mitch has promised that Medicare will be “off the table” in November 12 if they “hold hands and jump together.” And I can’t help but be reminded of similar situations:

[I]n “Hubris: The Inside Story of Spin, Scandal and the Selling of the Iraq War” (co-written by Isikoff), a top White House aide at the time said the president’s advisers specifically wanted to use the pressure of the upcoming election to force skeptical Democrats to back the president—or face being portrayed by Bush as soft on national security. The campaign calendar was driving the timing of the vote on Iraq, said the former aide, who asked not to be identified talking about internal strategy sessions. “The election was the anvil and the president was the hammer,” the aide said.

…Much of the evidence for the White House political strategy was readily available at the time. It was Rove himself who laid out the administration’s plans to emphasize national-security issues against the Democrats in the fall elections that year. “We can go to the country on this issue,” Rove proclaimed at a Republican gathering that January, because the American people “trust the Republican Party to do a better job of strengthening America’s military might and thereby protecting America.”
[…]
The most charitable explanation of Rove’s comments may be that he was trying to suggest it was Republican leaders in the Senate, more than the White House, who wanted an Iraq War vote before the elections—in hopes of bolstering the GOP’s chances of recapturing the Senate. And it is certainly true that by early October, some Democratic leaders, notably then House Minority Leader Dick Gephardt, supported a quick vote in order to take Iraq off the table as an issue in the fall campaign.

Not incidentally, keep in mind that the vote was also pushed by Carville and Greenberg, based on their focus groups that said if they got Iraq off the table then everyone would instantly “pivot” to prescription drugs. It didn’t work out so well.

And I suspect this whole thing is going to be even more complicated in the age of Citizens United. After all, they don’t even have to leave fingerprints on this stuff anymore. But hey, maybe they think it will be worth it.

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A Hot Village Sex Fantasy

by digby

No, it’s not about that story. It’s about this one:

‘Paul’ and ‘Barack’ talk Medicare

By Ruth Marcus

When it comes to Medicare, the one thing everyone agrees on is that it’s time for an “adult conversation.” So let’s listen in on two imaginary participants — “Paul” and “Barack.”

I’m sorry, the “conversation” is just too titillating for me to put on this family blog. It’s all about two sexy men bein’ all bipartisan ‘n shit, gettin’ down and dirty and bendin’ that cost curve. For Villagers of a certain mind, this is the ultimate fantasy. They don’t care what unnatural acts have to be performed (or how many innocents are harmed in the process) they just want to see a Republican and a Democrat kickin’ it hard in some hot two-party compromise.

Sure, they may spend a good portion of their day chasing down photo-shopped sexting pics of congressmen’s male members, but this is what really turns turns a Villager on.

Normally, I would say “read the whole thing”, but I’m not going to. I think too highly of you to degrade you with such filth. But if you are one of those people who just can’t help but take a peek at beltway porn, keep in mind that even in the most lurid fantasies of the Vacuous Villager of the Year, there’s no satisfaction in the end.

*For a serious treatment of this disturbing voyage into the inner recesses of a beltway maven’s mind, read Dean Baker. As with most most sexual fantasies, once you start thinking about the details, you lose the mood.

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Free Speech For Dummy

by digby

Why am I not surprised that the alleged libertarian Rand Paul is just a tad uhm … incoherent?

PAUL: I’m not for profiling people on the color of their skin, or on their religion, but I would take into account where they’ve been traveling and perhaps, you might have to indirectly take into account whether or not they’ve been going to radical political speeches by religious leaders. It wouldn’t be that they are Islamic. But if someone is attending speeches from someone who is promoting the violent overthrow of our government, that’s really an offense that we should be going after — they should be deported or put in prison.

Think Progress goes on to note all the praise Paul has been receiving from libertarians and liberals alike for his courageous support for constitution principles. And they also note how many of those constitutional principles he has ignored. What explains this?

How shall I put this delicately? The man isn’t playing with a full deck. He’s not the sharpest tool in the shed. He’s a few tacos short of a fiesta platter. His jogging trail doesn’t go all the way round the lake…He’s an idiot. The fact that we have to count on him to be the guardian of the constitution in the US Senate says everything you need to know about the state of civil liberties in this country.

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Oldies but goodies

by digby

Again, you wonder who the Republicans think they’re going to persuade to vote for them. They had something good going with the Seniors when they became the protectors of the pensions and health care against the weird foreign socialist who was trying to pull the plug on granny. With their quixotic crusades in place like Arizona against people who look like they might be Hispanic, it was their only possible growing demographic. And they decided to abandon that plan and go for the wrecking ball.

Big mistake:

“Obama’s overall approval rating among independents and Democrats is virtually unchanged since late April, but among Republicans it is up 12 points, to 27 percent,” Holland says. “That 27 percent sounds pretty anemic, but it’s Obama’s highest approval rating among Republicans in over two years.”

The same pattern holds among age groups. “Bin Laden’s death has not made much difference in Obama’s approval rating among people under the age of 65, but among senior citizens, positive views of his track record are up nine points, to 51 percent,” Holland adds.

This cohort knows very well how much they depend on social welfare programs to survive. They think their children and grandkids are going to need them as well so they want them to survive intact. And they’ve also been around long enough to know which Party it is that has been trying to kill the programs off since the day they were passed. (Hint: not the Party that passed them.)

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And the sun didn’t come up after all

by digby

Good God:

Nearly two years since the recession officially ended, home sale prices in major U.S. cities dropped to their lowest level since the bubble burst in 2006, according to fresh data released on Tuesday. The report confirms that the housing market’s “double dip” is at hand, and many economists say prices will continue to decline through the rest of this year.

Home values dropped from February to March in 18 of the 20 cities tracked by the Standard & Poor’s/Case-Shiller index, which is widely considered the leading gauge of the housing market’s health. Washington D.C. was the only city in the index that showed year-over-year improvement since March 2010.

The nationwide home price index fell by 4.2 percent in the first quarter of 2011 and March marks the eighth straight month of decline. Twelve cities fell to their lowest levels since the 2006 crash, with Minneapolis experiencing the steepest year-over-year decline: Area prices were 10 percent lower than March last year.

One person concludes that the people who want to buy houses can’t and the ones who can won’t because they don’t want to be stuck with a losing investment. This is a big problem. But the good news is that the government didn’t take any real action on the housing crisis so at least there isn’t any moral hazard lurking out there to sap the good characters of the silly masses.

If it weren’t for the fact that the Republicans are so batshit insane that they think this terrible economic environment means it’s a good time to fulfill their dream of finally being able to throw old people in the streets, this would be a real problem for the president as well. Morning in America doesn’t seem to be arriving on schedule.

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