Monthly Archives: October 2013

Fatas and Hunt on Reserves and Quantitative Easing

By Dan Kervick

Lacy Hunt reports on three recent academic studies indicating that the Fed’s unconventional asset purchasing programs have failed. Antonio Fatas is “sympathetic to the argument that Quantitative Easing has had a limited effect on GDP growth”, but takes issue with some parts of Hunt’s analysis, and argues that the way Hunt analyzes the relationship between reserves and the money multiplier “is not consistent with the conclusions reached about the lack of effectiveness of monetary policy actions.” I believe there are problems with both Hunt’s analysis and Fatas’s analysis of that analysis. My best guess is that QE has had negligible macroeconomic effects. But some of the considerations Hunt and Fatas adduce in attempting to evaluate that question are red herrings, and don’t get us closer to an answer.

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Obama Finally Fights GOP, Affirms a Role for Government, but Renews Threat to Shrink the US Economy

By Michael Hoexter

As the US government shutdown was still in effect and the prospect of a debt default loomed, President Obama held an extraordinary and revealing White House press briefing on October 8th in which he clarified his then position vis-à-vis the shutdown and debt ceiling.  After the shutdown was (temporarily) ended on October 17th, Obama made a fairly extensive public statement airing his views of how he sees economic policy and government’s role. While I have not followed every one of Obama’s press conferences or speeches, in both of these public appearances, Obama went into unusual detail and lengths to expand on his views of politics, government and the economy.  In addition, he marked out his most combative stance vis-à-vis the Republicans to date.  Also in his October 17th statement we had the clearest statement for a number of decades, of some of the benefits of having a government at all from a top American political leader.

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Dick Durbin Insults Everyone Else’s Intelligence About Social Security

By Joe Firestone

Yesterday on Fox, Senator Dick Durbin said:

WALLACE: I’m going to talk about ObamaCare on a second, but you’re not answering my question. Why does taxes — why do taxes have to be on the table? Why can’t you just make a deal, short-term spending for long-term entitlement reform — which, Senator, you support and President Obama support. You have supported the idea of some entitlement reform.

DURBIN: That’s right. I do, and I’ll tell you why — because Social Security is going to run out of money in 20 years. I want to fix it now, before we reach that cliff.

Medicare may run out of money in 10 years, let’s fix it now. And that means addressing the skyrocketing cost of health care. That’s what ObamaCare is focused on, and yet, the Republicans want nothing to do with it.

If we don’t focus on the health care and dealing with the entitlements, the baby boom generation is going to blow away our future. We don’t want to see that happen. We want to make sure that Social Security and Medicare are solid.

The “. . . may run out of money. . . . ” and “. . . dealing with entitlements. . . “ memes, in reply to Chris Wallace’s question together suggest that a deal trading increased revenues for Social Security and other entitlement cuts is acceptable to him. So, Durbin’s argument is that because Social Security Trustee and CBO projections, based on very pessimistic economic growth projections for the whole period, show a shortfall in the Social Security “Trust Fund” in 20 years, it is acceptable to make entitlement cuts now if the Democrats can get increased revenue from higher taxes, as if entitlement “reform” were the only way to meet the perceived Social Security solvency problem. But who would it be acceptable to?

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MMT vs. the merchants of doom: And the doomsayers don’t all hail from the right!

By Glenn Stehle

MMTers, I’ve observed, tend to be a somewhat optimistic lot.  This is true even, or maybe even especially, when placed in juxtaposition to influential factions of the left.

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Cowen Condemns the Corporations he Comes to Praise

By William K. Black

Tyler Cowen often seeks to defend corporations from what he views as unjust criticism.  He does not, however, evidence any understanding of the relevant criminology or economics literature on “control fraud” so his defenses sometimes actually represent indictments of the risks posed by corporations.  A good example is blog about libertarianism and the workplace.

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Market Myths and the Real Drivers of American Progress

By Dan Kervick

A dogma can be a very powerful thing. When dogma is sufficiently powerful, the people in its grip can lose sight of who they are, where they have come from, and how they got from the place where they started to the place they now occupy. Americans during the past few decades have been in the grip of an especially strong dogma, the dogma of Market Fundamentalism. Falling in with the preachers and zealots of this charismatic sect, they have convinced themselves that their once lofty economic place in the world was primarily due to an American preference for miniscule government coupled with the visionary leadership of free-wheeling entrepreneurial heroes, latter-day secular saints who were able to set the economic agenda and pursue it unencumbered by regulatory ties. For some Americans, this mythic free enterprise utopia, bestridden by business titans, represents the very essence of American freedom. And so the free market faithful have pursued a neoliberal political agenda in order to see to it that the tablets of this magnificent ancestral wisdom are carried down unbroken into the present all-too-errant age.

But the creed is bunk. It is a fictive concoction filled with tales of an imagined past that never existed. And yet, the more enthusiastically the apostles of Market Fundamentalism have attempted to put the spurious creed into practice, the further they have taken us away from historical truth and the real-world sources of our actual prosperity. We need to drop the totemic legends and look that real history squarely in the face, so we can remember who we really are.

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What Happens Now?

In the aftermath of the great 2013 government shutdown/debt ceiling crisis, and the kicking of the can down the road while maintaining austerity once more, the subject on many minds is where do negotiations over fiscal policy go from here? Will the new “budget committee” produce more austerity and do a grand bargain including the “chained CPI”? Will Congress finally turn towards economic growth and job creation, or will we continue to have more shutdowns and debt ceiling crises in 2014?

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How to Talk About Debt and Deficits: Don’t Think of an Elephant*

By Stephanie Kelton

Many economists (perhaps even those who agree with us) refuse to talk about the national debt and government deficits the way we do on this blog. Instead of boldly challenging the assertion that the U.S. faces a long-run debt (or deficit) problem, headline progressives typically do what Jared Bernstein did in his column today — i.e. they pay “obligatory” tribute to the Balanced Budget Gods, thereby reinforcing the case for austerity at some point in the not-so-distant future when we will be forced to to deal with this very bad thing called the government deficit. Followers of my work here and on Twitter know that I refuse to pay homage to the Balanced Budget Gods. Instead, I prefer to shift the burden of proof onto those who contend that the U.S. faces a long-term debt or deficit problem. The first step is to establish that solvency can never be an issue for a government that spends, taxes and borrows in its own (non-convertible) currency. The following quote from the St. Louis Federal Reserve usually does the trick, but this great confession from Alan Greenspan also helps.

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Why is The Economist Chortling over the Prospect of Oil Pollution in Ecuador?

By William K. Black

The Economist has increasingly been copying the descent of the Wall Street Journal into dogma.  One of it perennial hates is President Rafael Correa of Ecuador.  Correa, an economist, has committed the unforgivable offense of succeeding through economic policies that The Economist despises.  This is passing strange because Correa’s four foundational policies are expanded health care, expanded education, improved infrastructure, and encouraging entrepreneurs by reducing the time and cost of starting a business in Ecuador.  The Economists’ pages are littered with praise for right-wing governmental leaders and candidates who promise that they will implement those same four policies (but rarely do in practice).  Correa has actually delivered on his promises – quickly – and the improvements in the economy of Ecuador and the lives of ordinary citizens have been huge.  The result is that Correa is the second most popular head of state in the Americas.

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Here Lies the Tea Party, 2009 – 2013

Marshall Auerback appears on the Thom Hartman Program. Topics of discussion include the budget follies. (Marshall appears at about the 5:00 minute mark)