Posted tagged ‘Federal Reserve’

Eternal Vigilance…

August 28, 2011

… is the condition upon which God hath given liberty to man, you know.

And while “liberty” is rapidly rising to the level of “patriotic” as a word as hollow as Annie Dillard’s frog, all of John Philpot Curran’s fury still holds iwhen we’re talking the defense of our own minds in the face of the relentless, repetitive, numbing, booming bullshit machine of the right.

Case in point?  The usually estimable David Leonhardt, economics correspondent and soon-to-be Washington bureau chief for The New York Times.  In today’s Week in Review section, he’s written a mostly fine piece on the vexing question of why Bush appointee Fed Chairman Ben Bernanke has led the central bank to its current state of inaction in the face of all the economic hardship the United States now endures.

Most of the piece is on the money — so go read it. In brief(ish…remember who’s blogging–ed.) Leonhardt notes, correctly, that within the academic community both liberal and conservative economists are having a robust debate about exactly what the Fed can and should be doing.  But, he documents, the Fed has essentially collapsed the public debate to whether we should worry about essentially flat inflation at every waking moment, or merely most of them.

Leonhardt accurately diagnoses the incentives that make this intellectual vapidity the soft option for Fed chief and his colleagues:

Mr. Bernanke knows that if he errs on the side of passivity — worrying more about inflation risks than unemployment — he risks only a modest flogging from colleagues and politicians.

He even takes the next step and correctly identifies the reason why the penalty to be feared for taking action is assymetrically worse than that for the rolling disaster we now endure while the engineer dozes at the switch:

If he leans the other way, he risks being accused of, well, treason.

Yup:  he calls out Rick Perry by name and the GOP by clear implication for creating a political context in which the price of acting to aid the economy is a traitor’s badge.

So, Leonhardt knows this bully-boy intellectual thuggery is happening, and he knows its bad, and he talks about options to be taken even now — and all this is a good thing for whatever chance we have of wresting the economic debate back from the strategically ignorant who are transferring wealth, public and private, from the middle class to the richest among us.

But despite this quite explicit truth-to-power approach, you can find in this piece evidence of just how destructively successful the right has been in conditioning the basic structure of political debate over the last decade and more.  Leonhardt talks about the organization of the Fed as one of the real impediments to the adoption of policies that might trade general economic advantage for pain for the banks.  He talks, reasonably enough, of Obama’s choice of inflation moderates, rather than doves for the appointments he controls.  But then he says this:

The Obama administration has also been slow to fill some Fed openings. At least one of the 12 seats has been vacant since Mr. Obama took office, and two are now.

And whose fault is that?  Leonhardt’s account clearly blames Obama and his administration.  This is false.  The Obama team was slow — that part is true; but the responsibility for current vacancies lies squarely with a GOP Senate minority determined to block any move that might lead to an effective economic policy.

Leonhardt himself certainly knows this.

How can I be so sure?

Because his own newspaper has fully covered the key events that expose Republican knavery on these appointments.  First, Obama made appointments to all the vacancies more than fifteen months ago.  The nominees were all economics thinkers of the kind that Leonhardt seems to feel is missing from current Fed discussions.  What’s more, Leonhardt undoubtedly knows the story of my MIT colleague, Peter Diamond, an expert on unemployment and social insurance of eminence sufficient to have earned him the most recent Nobel Prize in economics, whom Obama nominated for a Fed governorship three times.

Diamond, recall, was blocked by career sucker-off-the-federal-teat Richard Shelby, point man for the destroy-the-country-to-save-it cabal now operating under the name of the Republican Party.

On his withdrawal from the nominating process, Diamond, again in the Times, pointed out what a disaster the Shelby doctrine for appointments would be for the future of intelligent policy making, of governance.

I’m picking on Leonhardt here not because he’s complicit in all that knavery.  You can tell from his writing over several years that he did not fall off the turnip truck yesterday; he knows who’s doing what, and for what reasons, and he’s spent a considerable amount of time exposing lots of Republican nonsense on everything from — well, stupid inflation tricks at the Fed now to GOP misdirection on the healthcare debate.  He is, genuinely, one of the good guys, and I’m extremely happy that he will be leading the Grey Lady’s Washington coverage heading into the next election cycle.

But that’s my point:  the notion that both sides do it, seems to be almost surgically implanted in the current journalistic frame for political reporting — and that makes it hard to think and write clearly about contentious issue even for those who clearly understand that both sides don’t, at least not in remotely symmetrical ways.  And the constant dinning of Obama’s culpability for more or less everything, including the damn four hours of rain delay in yesterday’s games at Fenway, makes it way to easy to grab the first factoid — Fed vacancies! — as evidence of mutual malfeasance.

But that means that Leonhardt’s readers don’t get the correct story.  Just to belabor the obvious one last time: Leonhardt’s story boils down to the notion that the Fed is failing now for two reasons:  fear of the pressure brought by Republican hacks shouting “treason!” and(at least partially) the Obama failure to appropriately populate the Fed board. But if you don’t know that the same Republican brown shirts shouting down reasoned deliberation are the ones making it impossible for Obama to execute his nominating power, then you can’t figure out who’s responsible for our current policy paralysis.

Eternal vigilance, baby.

Images:  Jean Clouet, Portrait of a Banker, 1522

Rembrandt, Jeremiah lamenting the destruction of Jerusalem, 1630

None Dare Call It Treason…

June 6, 2011

But, at least as I read it, that’s what the Republican party — and by that I mean, actual office holders and acknowledged leaders, not yahoos conspiring on some mountaintop — are edging ever closer to these days.

Evidence for such a serious charge?  Just the latest comes from an event Mistermix annotated earlier this morning:  the murder of Peter Diamond’s nomination to serve as a governor of the Federal Reserve.

A little backstory:  Peter Diamond is a member of the Economics Department at MIT (and hence, one of my colleagues).*  He is the author, co-author or editor of twelve books, and his CV lists 143 published papers.  He is perhaps best known recently for his work on social insurance and Social Security in particular, but his interests have ranged very widely indeed, to include among much else foundational research on what happens when buyers and sellers in a market have to look for each other, the problem of “search markets.”  Think, e.g., the problem that  employers and job seekers face to find specific matches in order for the job hunter to sell his or her labor to an employer-buyer.

That’s work that was just honored with the 2010 Nobel Prize for Economics.** [For more details, see the paper to be found at the “advanced information” tab here.]

Now every Nobel comes with a story, and I heard a couple of them at various celebrations I attended to honor Diamond.  One nice touch came at the economics department party for the prize, where department grad students and colleagues wore replica Peter Diamond Red Sox jerseys, in recognition of perhaps his most treasured honor, throwing the first pitch at a regular season game at Fenway a year or so ago.  Nobels are nice and all, but in the Athens of America, the Sox rule.

Then there was the one Diamond himself told at another reception this spring, which suggested the potential for trouble when an anonymous Swedish-accented female voice sounds at one’s home number at 0-dark-hundred, asking for the man of the house, then en route from an overseas trip — and refuses to say what it’s about to his just-awakened partner.  Hmmm.  But that’s the rule:  the laureate gets told first, no ifs/ands/buts.

But the most telling anecdote came from the current head of the MIT economics department, Ricardo Caballero, who told of contacting his immediate predecessor as head, James Poterba, who promptly handed over the brief he had prepared years earlier listing what to do when the call came from Stockholm with Peter Diamond’s name attached.  Which is to say — Diamond has long been recognized as a giant in the field.  The MIT department along with much of the profession had for a while seen the ultimate award of a Nobel as a matter less of “if” than “when.”

The signal importance of Diamond in our current predicament is that he is two creatures at once:  A mathematician by early training, he does a lot of what many academic economists do: prove theorems within models in an attempt to capture essential features of experience within the rigor of mathematical analysis.  At the same time, he is a committed observer and parser of the real world, with a direct focus on critical current policy issues.  In his own words [see entry 4: “My Research Strategy]:

I found I liked doing policy.  And I found that looking at policy questions fueled identification of good theory questions to model and analyze.  As a public finance economist, I was naturally interested in policy (rather than becoming a public finance economist because I was so interested in policy), although that has reversed.  And as a theorist more interested in constructing models to analyze questions than to getting new results in existing models, my taste ran to simplifications that seemed to preserve the important properties and so provide plausibly robust policy insights, an approach that fit with finding questions from involvement in policy discussions.

Hence work on Social Security, on pension systems around the world and so on.

So, just to recap the game so far:  we have in Peter Diamond someone recognized by everyone qualified to do so as one of the pre-eminent economists writing today. His work addresses major issues at the level of both theory and policy/application.  His questions include several that are pressing right now, notably employment and the understanding of essential social insurance programs.

And yet, because of the actions of one or a small minority of United Senators, supported by a unified Republican Senate caucus, the citizens of the United States of America will not secure the benefits of Peter Diamond’s knowledge and intellectual skills at a time when almost one in ten job-seekers are out of work, and our pension and health care systems face the prospect (threat) of enormous and individual-life-changing transformation.

So, why do Senator Richard Shelby of Alabama and the entire slate of the GOP Senators so hate the rest of us ?

Well, that would be (according to Shelby) because Diamond is unqualified to be a Fed governor.  This despite the overwhelming testimony of his profession.

But wait!  There’s an “argument” (sic) Shelby attaches to his presumptively stupid argument that a Nobel laureate economist can’t handle a Fed post.  Shelby’s rationalization?…

…Diamond, it seems, lacks specific expertise in monetary policy, the proper responsibility of the Fed.  Mistermix’s post details the duplicity of this claim:  at the time of Diamond’s nomination, three of the five sitting governors were not monetary specialists.  We’re back to the old trick of inventing criteria as needed to cover blatant political manouvering.

And anyway, Shelby’s just wrong (surprise! Dog bites man!), as Diamond himself made embarrassingly clear in a New York Times op-ed published today:

Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?

The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy….

…understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural — caused by mismatches between the skills that companies need and the skills that workers have — aggressive Fed action to reduce it could be misguided.

In my Nobel acceptance speech in December, I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, and thus not a reason to stop an accommodative monetary policy — a policy of keeping short-term interest rates exceptionally low and buying Treasury securities to keep long-term rates down. Analysis of the labor market is in fact central to monetary policy.

Seems like this guy might be useful, just about now, doesn’t it?

Diamond’s most important point was not that Shelby’s malign influence is evidence of a poisoned political process, (though it is) nor even that the point of monetary policy is to influence things like the labor market (which it is, and is what makes direct knowledge of such spheres kind of important).  Rather, Shelby and the Republican Party are actually playing a much more dangerous game, one much more hostile to the interests of the United States and its citizens than any mere power squabble.   Here’s how Diamond wraps up his piece:

To the public, the Washington debate is often about more versus less — in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.

Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better.

And this is where Shelby’s — and the Republican Party’s — become guilty of what some may think is too strong a charge.

We face real, enormous problems.  Yet the Republican party has decided that its return to power by any means is more important than the interests of the United States. Why else block an obviously overqualified person to help set monetary policy, except for the fear that his policy ideas might work?  How else to describe — other than the pursuit of party advantage over Country First — the increasingly vocal murmurings that the GOP should push the US into default in order to so damage the American (and world!) economy that even as weak a candidate as any in the current GOP pool could defeat President Obama in 2012?

And so on — readers of this blog can continue the litany as needed.

Rush Limbaugh laid this out back in 2009 of course:  it was better then and it’s still the preferred option, from his point of view and from that of the Republican Party as a whole, that President Obama fail and the US suffer.  Heaven forfend that this administration to succeed and for GOP governance to be thus revealed as the disaster it is.

Oh — and one more thing.  As Diamond writes in the passage quoted above, blocking his nomination has the effect of making it more and more difficult to bring  “skilled analytical thinking” to bear on great public problems.

This despite the fact that deriding the possibility of competence as a tool of governance is both a disaster in the short term (near 10 percent unemployment, remember) and utterly corrosive of US power and influence looking to longer horizons.  If we barricade the government against even the possibility of having to act on the best disinterested advice we can get…what do you think will happen over time?  Nothing good…

I suppose there are some out there (a quotidian gossip, perhaps) who might find the use of words like “treason” to be, well, uncivil in this context.

But how else do you describe actions that harm Americans now and are likely to weaken the US relative to competitors and potential adversaries over the years and decades?  And when those deeds are in the service not only of trying to defeat a sitting President, but to deny that President the levers of government within the term for which he was duly elected?  I don’t know words strong enough to excoriate such Benedict Arnolds.

This is your modern Republican Party.  It is, IMHO, beyond salvation.  We do need an opposition, but this one does not retain any claim to the traditional epithet, “loyal.”  Time to start over.

Factio Grandaeva Delenda Est.

*I’ve met Diamond at a couple of large events.  I don’t know him though and have never had a real conversation with him — and I’ve never discussed with him or any other MIT economist what the hell was going on with his Fed nomination.  What follows is thus all mine; don’t blame him.

**Strictly speaking, the Sveriges Rijksbank Prize in Economic Sciences in Honor of Alfred Nobel…but most everyone still calls it simply a Nobel Prize. #vampirepedantcrucifixfootnote

Images:  Max Liebermann, Women in a Canning Factory, 1879.

Agostino Carracci, Arrigo el peludo, Pedro el loco y el enano Amon (Hairy Arrigo, Crazy Peter, and the dwarf Amon), before 1602.

On Gary Johson, via E. D. Kain — The Eternal Return of the Magic Pony Salesman, Libertarians Hate Reality edition

August 4, 2010

Note:  this is an expansion of a comment left over at Balloon Juice.

Over at Balloon Juice, new front pager E.D. Kain has a post up dissing Newt (fine by me) but praising the latest libertarian flavor of the month, former New Mexico governor Gary Johnson, whom he touts as thinking conservative/GOPster’s best choice for President in 2012:

“’I’m more of a Gary Johnson guy myself. I like Mitch Daniels, too, but I haven’t been paying close enough attention to his foreign policy to say for sure. I’d vote for Johnson over any other candidate out there.

I beg to differ.

To begin with, I agree entirely with that Web keeper of critical thinking traditions, Aimai, who wrote in the comment thread that:

… on the question of sane/insane conservatives at this point in our political history I’d actually rather deal with an honest religious and racial bigot than a soi disant libertarian. I’m anti the drug war too but to excuse every other form of lunacy espoused by this Gary Johnson guy on the strength of that is typical of modern day libertarians. Ending the drug war while also ending social security, medicare, abortion and everything else and removing regulation in order to free up large corporations is a recipe for disaster. I don’t care from what principles you think you operate. If you think that principles matter more than reality you deserve to be left alone on a desert island with only a large corporation that produces cans of food, and no way to get a can opener and no bargaining power.

You tell ’em, Sister.

Still, there is always a chance that Johnson himself has some core of argument and knowledge that enables him to take broad principles and craft policies that would actually achieve the principal-driven goal in the real world…so to see, I honored E.D.’s encomium to the point of looking at former Gov. Johnson’s Our America site (a test -the-water production anticipating a national run).

I looked at a couple of his issue statements: for a clean environment but against carbon tax/cap and trade and so on.  This is nothing surprising — it’s just typical magic pony stuff.  He wants the tooth fairy to pay for college education, Philip Morris (sorry, Altria) to cure cancer (joking, in case it isn’t obvious)…and he wants the environment to be wonderful without doing anything about actual environmental problems.

As I say, there is nothing exceptional here, except as an illustration of the emptiness of GOP claims of policy expertise, as here, when even this “best of breed” fella has nothing to say beyond happy slogans.

But Johnson’s, and I would argue the GOP’s, pathology goes much deeper.

Without having the time required to fisk every claim at this one Johnson site, I decided to do just a bit of sampling.  To that end, I listened I read and listened to Johnson’s discussion of the Federal Reserve.

Mostly Johnson tried to avoid any controversy, and certainly any hint of the crazy that the thought of the Fed evokes from some of the libertarian/black helicopter crowed.

Thus,  mostly, he delivered an anodyne and I-love-apple-pie call for more transparency.

But, of course, you can’t keep a true believer down, and the anti-Fed scorn snuck out at the end of Johnson’s video presentation.

There he noted, scornfully, that between 1913 (the Fed’s founding) and now, the value of a 1913 dollar has dropped to 5 cents. I.e.—the portrait of Washington you have in your pocket would buy you what a nickel in 1913 did. (per Dr. Drang’s comment below — this is the result of a terrifying annualized inflation rate:  roughly 3%/year.)

Johnson’s trenchant analysis at that revelation: “Yikes.” (Quoted in full.)

Is this nonsense? Of course it is.


Because it omits the critical measure of per capita income changes from then to now.

In the haste of an afternoon at the office, I haven’t yet dug up the full time series, but just looking at it from 1950 to 2004, US per capita income has risen, in constant 2004 dollars, from $17,077 for men and $6,333 for women to $30,513 and $17,629, respectively, over that 54 year period.

The point: Americans have grown substantially wealthier despite nominal decreases in the value of a dollar, which I think pretty much everyone who pays attention to real data from the real world actually knows.

The deeper point: Libertarian fixations on the Fed, on the numerology of money, on all kinds of policy bear no relation to reality.

Most sentient folks even vaguely literate in economics understands that mild inflation is vastly preferable to deflation. Inflation hawkery in the absence of actual inflation, is one of the real threats to job creation and long term economic growth; deflation is a real danger. See,e.g.,  KThug for much more, along with many other sources (DeLong offers a good clearing house for this stuff as well) —but again, everyone here pretty much knows this stuff I think.

In that context, nominal dollars will fall in value relative to their historical predecessors.  (You want to see this in spades?  Check out this web calculator that allows you to figure out the value of the pound sterling back to 1264.  FWIW, a pound then would be worth about £520 by the retail price index measure, and £11,800 using average earnings as the exchange rate.  See also this page for a range of resources on this question.)

But Gary Johnson either does not, or chooses not to mess about in this real world of buying and selling and growing wealthy over time.

Why not?

I don’t know what’s in the man’s head, but from observation of his ilk, it’s because this part of experience confounds his narrative.  Actually engaging in government action to achieve policy goals is always bad; therefore the existence of the Fed is suspect; hence, meaningless measures like the relative values of dollars printed a century apart must somehow be mademeaningful.

Yikes, I say.

If this is what passes for deep thinking and sane Republicanism, we are in even more trouble than I thought — and I was pretty much with Pete Seeger on this one already.

And that, to me, states the real problem.  If this is the best there is — Johnson as a candidate, Kain as an analyst…then we are way more than waist deep in the Big Muddy.

And, just to lay one more downer on your Wednesday afternoon, I’ve been reading a lot lately about the end-of-empire period in Europe — those crucial years running up to World War I when various nations spit the bit in all kinds of fascinating ways.  (I recommend my current reading, Philip Blom’s The Vertigo Years for a good start).

I’m seeing and smelling that now all around us.  We’ve got a dysfunctional government, an overextended military fighting endless wars on the fringes of empire, a systematic anti-science movement daily gaining traction (here, see Naomi Oreskes and Erik Conway’s Merchants of Doubt for truly depressing reading), attacks on the contents of education (Texas, are you listening), failure to address critical problems (like that pesky carbon issue Johnson wants to ignore) and the ongoing shift of wealth and economic opportunity from the bottom and the middle to a narrowing class of the socially-disconnected rich (PDF).

In that context, Johnson’s tag line at his proto-campaign site — “Good Government is Easy” — is simply the raving of a resident of Bedlam.  And E. D. Kain is apparently his keeper, but is yet unaware that he is as much an inmate of the asylum as the man he praises.

Image:  Jan Fyt “Big Dog, Dwarf and Boy,” 1652