Last Friday, I wrote a diary, "The moral battle of our age", in which I discussed Paul Krugman's Jan 13 column, "A Tale of Two Moralities". In it, I raised a number of objections to how Krugman was framing things, and I also linked to a diary by Teacherken Dkos, which raised a somewhat different, but not unrelated set of concerns. What's significant, though, is that this column by Krugman was obviously part of a process of trying to think things through, which can be seen in a number of his blog posts as well, as he tries to grapple with how economic and moral visions are interacting with one another. Some of what he's writing seems in need of criticizing--as, indeed, Dean Baker ably criticized an earlier blog post (which I hope to write about soon). But just after the column I wrote about, Krugman did a short blog post that I think was particularly on target, and therefore worth focusing on. Here's the first two paragraphs:
Monetary Morality
A further thought inspired by the meditations that led me to today's column: I think I now understand the otherwise weird resurgence of paleomonetarism in the midst of a prolonged liquidity trap. It's not really about analysis, it's about morality.
You see, if you're the kind of person who views being taxed to pay for social insurance programs as tyranny, you're also going to be the kind of person who sees the printing of fiat money by a government-sponsored central bank as confiscation. You may try to produce evidence about the terrible things that happen under fiat currencies; you may insist that hyperinflation is just around the corner; but ultimately the facts don't matter, it's the immorality of activist monetary policy that you hate.
I think this is a very crucial insight, which doesn't just apply to attitudes towards current evidence. It also gets projected backwards into historical justifications. Indeed, I would argue that eggregious libertarian misreadings of Locke's social contract theory have essentially the same "moral" derivations: people with a simplistic, Randian, "what's mine is mine" mentality simply cannot see the social aspect to social contract theory, even though it's right there in the name.
I also think this connects directly with what Brad DeLong was looking for some time back, in trying to understand why commonsense measures to reduce unemployment were not being undertaken. In "The Retreat of Macroeconomic Policy" he wrote:
America's housing bubble still deflating
As they failed to spot the bubble, most economists seem oblivious of the threat of further market falls to come Dean Baker
If house prices fall by 15% in 2011, the likely cut in consumer spending could cost 1% in GDP. Photograph: Reuters/Shannon Stapleton
How many economists does it take to see an $8tn housing bubble?
The answer to that question has to be many more economists than we have in the United States. Very few economists saw or understood the growth of the $8tn housing bubble, whose collapse wrecked the economy. This involved a degree of inexcusable incompetence from the economists at the Treasury, the Fed and other regulatory institutions who had the responsibility for managing the economy and the financial system.
There really was nothing mysterious about the bubble. Nationwide house prices in the United States had just kept even with the overall rate of inflation for 100 years from the mid 1890s to the mid 1990s. Suddenly, house prices began to hugely outpace the overall rate of inflation. By their peak in 2006, house prices had risen by more than 70%, after adjusting for inflation. Remarkably, virtually no US economists paid any attention to this extraordinary movement in the largest market in the world.
Had they bothered, they would have quickly seen that there was no plausible explanation for this jump in prices in either the supply or demand side of the market....
Therefore, it should have been easy for any competent to economist to recognise the housing bubble. Moreover, the dangers for the economy should also have been apparent. The boom in construction (both residential and non-residential) had raised its share of GDP by more than 3 percentage points above its long-term average. In addition, the creation of $8tn in housing bubble wealth predictably led to a consumption boom, as households spent on the basis of the new equity created by the bubble.
All of this presaged disaster for the time after the bubble burst....
Yet, almost no economists saw what was clearly in front of their eyes. They thought everything was just fine, until the house of cards eventually collapsed in 2007-2008.
Unfortunately, the reign of error is not over.
As with Iraq, the reward for being right is to continue being ignored. Baker continues, to explain the appearance of a new housing slump:
Evidence, logic and reason cannot explain conservative beliefs--ie about economics. Tribal myth-making can. This is a case in point
My previous diary, "GOP denial of reality complete: House adopts rules of fiscal madness", dealt with Paul Krugman's op-ed, "The New Voodoo", which warned of the institutionalized fiscal madness that House Republicans have now committed themselves to, the ice-cream-pizza-and-beer diet "fiscal discipline by cutting taxes." Most ominously, Krugman wrote:
How did Republican leaders reconcile their purported deep concern about budget deficits with their advocacy of large tax cuts? Was it that old voodoo economics - the belief, refuted by study after study, that tax cuts pay for themselves - making a comeback? No, it was something new and worse.
To be sure, there were renewed claims that tax cuts lead to higher revenue. But 2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don't matter. For example, Senator Jon Kyl of Arizona - who had denounced President Obama for running deficits - declared that "you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans."
It's an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether?
The GOP madness is so transparent, and Krugman's platform so high that he just had to be attacked for saying this out loud. But there's nothing to attack him for. The GOP position is pure madness. So if there's nothing to attack him for, the solution is simple: just (1) make shit up and (2) ridicule him. It's Third Grade Bullying 101.
Take for example, Tom Maguire, whom Brad DeLong focused on over the week-end. DeLong used Maguire's feeble effort to go after bigger game: top Republicans silently signed on to this madness. But I'm happy enough to focus on Maguire himself, because he shows how entire mythologies get created with layer upon layer of BS to justify their biggest lies, lies such as "We have a spending problem, not a revenue problem." Or "tax cuts don't matter for the deficit." Here's DeLong:
Tom Maguire Says That All the Republicans Who Have Been Claiming to Worry About the Deficit Over the Past Two Years Are Liars
Tom:
JustOneMinute: One Day, When The Times Has An Economist As A Columnist...: The idea that deficits created by tax cuts don't matter is hardly new or magical, except perhaps to Krugman and any Times readers who lean on him for economic insight. IF YOU CAN'T TRUST FOX ON THIS: Per Fox, the Republican message has been that we have a spending problem, not a revenue problem. Very Ricardian, and how did Krugman miss it? SO WHO HAS ALZHEIMERS NOW, MR. SMARTY-MOUTH?
Seems like Tom is a bit harsh on his fellow Republicans to me. I think a bunch of them--people like Alan Greenspan, Paul O'Neill, etc., etc.--do worry about the deficit, but have been told to fall in line and be quiet for a while.
The most prominent feature here is trash-talking Krugman--in ALL CAPS, NO LESS! It drives conservatives crazy that the guy has a Nobel Prize and a prominent media platform, so trash-talking him helps build their group identity, and this group identity sustains them in the lack of any coherent set of facts, principles or ideology--the lack of which Krugman has just explosed. To actually discredit Krugman and his argument, Maguire would have to show that it's not delusional/magical thinking to diet on pizza, beer and ice cream cut deficits by cutting taxes.
But he can't do that, because it is magical thinking. So he does the best that he can: He tries to ridicule Krugman by pretending that the idea isn't new--that in fact it's well over 100 years olds, and associated with a venerable classical economist whom most conservative true believers probably never even heard of--David Ricardo--but it will make a really cool cover story, if they can all just get their stories straight.
But he can't do that, because Ricardo never said that tax cuts don't matter for deficits. So Maguire does the next best thing: he pretends that Ricardo said that tax cuts don't matter for deficits by implicitly equating it with what's known as "Ricardian equivalence" (hence "hardly new or magical" as Ricardo was early 19th Century) and he pretends that Krugman was just too obtuse to see it, even though Krugman had actually written about it before. (Hence the reference to ALZHEIMERS... MR. SMARTY-MOUTH!)
Unfortunately for Maguire, though, one of the things Krugman had written, which Maguire had missed, was the totally on-target prebuttal, "One more time" in which Krugman took aim at those who do "not understand the implications of their own model", in this case, Ricardian equivalence. In that prebuttal, Krugman had utterly demolished the basis of Maguire's "argument" if it can be called such, since Maguire's misunderstanding is even farther off the mark. But Krugman certainly demolished the authority of conservative economists on which Maguire relies.
This may all seem a bit overwhelming for non-economists, but split into bit-sized pieces, it turns out to be pretty easy to follow....
In an excerpt from his Sept 27 "Government Deficits and Debts Lecture", Brad DeLong lays out his "Five Rules for Public Finance," and a conservative critique that he gives too much credit to. Why is that? Because the conservative critique is less an objective observation of how governments in the welfare state era had acted up to that point than a prospective justification for the conservative looting that was to come.
First, here's DeLong's rules (with some shorting that cuts out some interesting, but not essential details in #4 and #5):
Five Rules for Public Finance: And so now we have arrived at five rules for public finance:
(1) The government must do whatever is necessary in order to make sure that people have confidence it will pay back its debts.
(2) You really ought to have budget balance over the business cycle. It is fine to run cyclical deficits in times of high unemployment, but you really should balance them with surpluses when the economy is in a boom.
(3) That implies Milton Friedman's Pay-as-You-Go principle that he set out in his late 1940s framework for fiscal and monetary stability: whenever the government takes on a mission to do some long term spending program, it also needs to match that by imposing some tax large enough to fund the spending. Changes in government spending plans over time should be accompanied by changes in taxes so that when politicians make decisions and when voters evaluate politicians there is no gaming the system.
(4) You need to keep plenty of headroom in your debt capacity in normal times. In normal times you should aim to keep your debt-to-GDP ratio fairly low. There will come emergencies and opportunities during which you will want to increase your debt-to-GDP ratio. Remember 1803: Thomas Jefferson was president and Napoleon I was about to become Emperor and was willing to sell French "rights" to the entire Louisiana territory. The United States had plenty of debt capacity and could easily afford to borrow--and Jefferson did. Thus we have a United States that doesn't end at the Mississippi river but instead continues all the way on from the Atlantic to the Pacific Coast. The War of 1812, Civil War, World War I, World War II--in all of them we were very grateful that we started with a low national debt-to-GDP ratio. The government wanted to fight these wars for reasons that it thought were sufficient. It was able to borrow in order to build the armies and navies and air forces to fight them, It could not have done that if the debt to GDP ratio was really high. The Great Depression and the current Great Recession--we want to respond to them by deficit spending as well....
(5) But that does not mean that countries should not borrow except in emergencies. It is perfectly okay for a government to borrow and run up its debt when it is undertaking projects that are going to primarily benefit future generations.Taxing the citizens of the East Bay and San Francisco right now to pay for the entire reconstruction of the Bay Bridge seems unfair--the new Bay Bridge will still be there and be earthquake-safe 50 years from now. People who are going to move into the San Francisco area 40 years from now will benefit from the bridge. They should pay some part of the cost. Thus you should finance infrastructure projects that build up productive capacity through borrowing and debt.
You should also finance current spending through borrowing and debt if you think the future is going to be a lot richer than the present....
So here we have our five rules for public finance.
Originally, I was going to offer some critique of DeLong's blind spots. But... another paper has been published which does a remarkable job of making sense of what ultimately befuddles DeLong. It's not centered on Obama's circle, but it encompasses that circle as it illuminates a much broader shift in the dynamics of economic hegemony. I'll discuss that paper, "A World Upside Down? Deficit Fantasies in the Great Recession" by Thomas Ferguson and Robert Johnson, in a diary later today or tomorrow.
and he says that the latter diary fails to deliver, arguing:
Finance is a very powerful interest group, and finance is interested in deregulation. But finance is not interested in austerity.
Back before World War I finance was interested in austerity: their assets were primarily nominal debt, and relatively safe nominal debt as well. They wanted hard money. They did not care much about capacity utilization or employment. But nowadays finance's portfolios are as diversified as anybody's, and financiers lose as much from slack capacity and low demand as anybody.
So right now we have Austerians--our Pointless Pain Caucus--without there being any politically-powerful investor group that benefits from austerity.
I clearly wasn't clear enough in making my argument. But I also think Brad knows better himself. In one context, he surely knows that finance has become decoupled from the underlying economy. But in this context he seems to forget. The argument is not that financiers or investors want austerity out of any particular rational motive. It's that they can make money either way, which allows for what might otherwise be trivial or irrelevant factors or motives to sway them. Or possibly even no factors or motives at all, merely the force of habit. That's what the oligopoly argument is all about.
I clearly wasn't clear enough in making my argument. But I also think Brad knows better himself. In one context, he surely knows that finance has become decoupled from the underlying economy. But in this context he seems to forget. The argument is not that financiers or investors want austerity out of any particular rational motive. It's that they can make money either way, which allows for what might otherwise be trivial or irrelevant factors or motives to sway them. Or possibly even no factors or motives at all, merely the force of habit.
That's what the oligopoly argument is all about--a decoupling of in-group interests from out-group interests along with the intensification of in-group power. Furthermore, the decoupling of interests is not just a static, one-time thing, or a matter of disposition. It's driven by autocatalytic processess reflecting what our friends at the Situationist blog would no doubt call, "the situation of oligopoly," and as they've repeatedly argued, situationist factors routinely trump dispositionist ones.
As I said, in one context, DeLong surely understands this. He's no believer in rational expectations trumping irrational exuberance. He knows that derivative markets can become radically disconnected from the underlying commodities. He must surely know, for example, that there's a great deal of money to be made from green technology, but that there's relatively scant financial market motivation to chase after that money when you can make so much more just churning derivatives all day long. But somehow, this knowledge has become compartamentalized for him. It's not the sort of causation he's looking for, and so he just doesn't see it.
What he's looking for is something that fits into the schema he described in his recent Project Syndicate commentary, "The Retreat of Macroeconomic Policy", where he wrote:
One disturbing thing about studying economic history is how things that happen in the present change the past - or at least our understanding of the past. For decades, I have confidently taught my students about the rise of governments that take on responsibility for the state of the economy. But the political reaction to the Great Recession has changed the way we should think about this issue.
Governments before World War I - and even more so before WWII - did not embrace the mission of minimizing unemployment during economic downturns. There were three reasons, all of which vanished by the end of WWII.
First, there was a hard-money lobby: a substantial number of rich, socially influential, and politically powerful people whose investments were overwhelmingly in bonds. They had little personally at stake in high capacity utilization and low unemployment, but a great deal at stake in stable prices. They wanted hard money above everything.
Second, the working classes that were hardest-hit by high unemployment generally did not have the vote. Where they did, they and their representatives had no good way to think about how they could benefit from stimulative government policies to moderate economic downturns, and no way to reach the levers of power in any event.
Third, knowledge about the economy was in its adolescence. Knowledge of how different government policies could affect the overall level of spending was closely held. With the exception of the United States' free-silver movement, it was not the subject of general political and public intellectual discussion.
All three of these factors vanished between the world wars. At least, that is what I said when I lectured on economic history back in 2007. Today, we have next to no hard-money lobby, almost all investors have substantially diversified portfolios, and nearly everybody suffers mightily when unemployment is high and capacity utilization and spending are low.
With these factors gone, we should just be fixing things. It's a no-brainer. And yet we are not. That's DeLong's dilemma. And the answer just doesn't look like one expects it too. It's a telepathic Ganymedean slime mold, not a proper multi-celular bipedal chordate like you'd expect. A field exo-biologist wouldn't have a problem recognizing this, but most of us certainly would.
Still, DeLong is closer to getting there than he realizes. When he gets around to talking about "Nietzschean Ressentiment" as a potential causal explantion, he's put his finger on a key ingredient--a micro-psychological factor that just doesn't care who's "better off", so long as someone else is worse off. The problem is, this is only one piece of the puzzle. But it's the right sort of piece and it's the right puzzle. The power of oligopoly that Ferguson and Johnson describe is a more macro-level view of what the puzzle's picture is. The oligopolists aren't the ones feeding on ressentiment, but they sure make a lot of money off of it. And it's fairly likely that Akerloff's work on identity economics could even help to make some degree of sense of all this in the sort of language that DeLong understands very well.
This is not a full-blown course of therapy, I admit. It's barely a beginning. But I hope there's enough here to indicate that it is a beginning. And not just a failed smackdown.
Thanksgiving weekend I read a lot of stuff relating to economics that I wanted to write about, but rush of events last week meant that I didn't get to most of them. Some of them I'll still try to do more or less as I originally intended. Some it I'm going to deal with differently in light of more recent developments. One of those in the later category is Brad DeLong's paper, Batterd But Not and Beaten, prepared for a late October conference. I still think it's valuable to consider as much for what it reveals as for what it's puzzled and confused by. In a later diary, this will stand in contrast to a much more lucid overview of our present confused state contained in a more recent paper presented last Wednesday at a Roosevelt Institute panel in NYC, "A World Upside Down? Deficit Fantasies in the Great Recession" by Thomas Ferguson and Robert Johnson.
But first, to DeLong. He begins, rather unconventionally, as follows:
Is This Really Our Proper Timeline?
This talk has turned out to be rather more of a self therapeutic exercise-or perhaps a call for psychological help--than is appropriate for this conference.
But you go to the conference with the talk you have, and not the talk you wish you had. So let me start.
These days I wake up. Blearly-eyed, I stumble down the stairs. And while I am eating my wheaties the macroeconomic situation hits me. And I stop, with the spoon halfway between the bowl and my mouth. I then find myself thinking:
This cannot be real. This has to be some horrible mistake, some dystopian alternate timeline--like that Star Trek episode with the transporter malfunction and evil-Spock-with-a-beard...
And then I stare unproductively at the wall for a while as I try to piece together how exactly we got here.
The entire paper continues in this vein, albeit with a good deal more attention to economic content. Nonetheless, the recurrent question "How did we get here?" (ala Talking Heads "Once in a Lifetime" as much as Gene Roddenberry), never goes away and never gets answered.
DeLong begins with looking back at what he was writing and thinking two years ago, and marvels that it all made such unremarkable common sense, and yet none of it has happened:
Last month, the Center on Budget and Policy Priorities report "What the 2010 Trustees' Report Shows about Social Security " by Kathy Ruffing and Paul N. Van de Water contained this graph:
along with the admonition that "Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat."
Naturally, Versailles has done its level best to ignore this. But the few conservatives who have none-the-less stumbled across it have all had their heads explode. Trying to put them back together again has been a rather humorous silent-movie sort of affair, but Brad Delong somehow misses the humour as he wails Did Megan McArdle Really Graduate from a Business School?:
Ezra Klein likes Paul Ryan. Methinks that this is the first time Ezra has run into a charming and personable Republican selling deficit-exploding plans as deficit reducing ones.
But some of us have seen this story many times before...
This is yet another--if somewhat milder--example of the sensible center critiquing the "sensible center". As DeLong implies, there's nothing new here. In fact, it's just another incarnation of Lucy with the football. But the really annoying part is when Ezra gets all superior to those like DeLong (hey, I'm staying out of it as much as I possibly can, while not staying out of it all!) who've actually got a handle on what's going on:
And now let's get to the paragraph a lot of you will flay me for: I don't think Ryan is a charlatan or a flim-flam artist. More to the point, I think he's playing an important role, and one I'm happy to try and help him play: The worlds of liberals and conservatives are increasingly closed loops. Very few politicians from one side are willing to seriously engage with the other side, particularly on substance. Substance is scary. Substance is where you can be made to look bad. And substance has occasionally made Ryan look bad. But the willingness to engage has made him look good. It's given some people the information they need to decide him a charlatan, and others the information they need to decide him a bright spot. It's also given Ryan a much deeper understanding of liberal ideas than most conservative politicians have.
So do Ryan's arguments persuade me? Not as far as the Roadmap goes. But I'm glad to give him space to try to persuade all of you, so long as he's willing to let me try and poke holes in his arguments while he's doing it. That's an offer I've extended to every legislator interested in taking me up on it, and it still stands.
Ah, where to begin? Ezra's smug superiority? Or the part where Lucy pulls away the football, and Ezra lands flat on his ass? Or the part where Ezra totally misses the point of everything?
Substance is scary. Substance is where you can be made to look bad. And substance has occasionally made Ryan look bad. But the willingness to engage has made him look good.
Memo To Ezra: Looking good is the only game that Ryan's playing. By saying what you've just said, you've made yourself Ryan's bitch. That's the beginning, middle and end of the story.
And this:
It's given some people the information they need to decide him a charlatan, and others the information they need to decide him a bright spot. It's also given Ryan a much deeper understanding of liberal ideas than most conservative politicians have.
is the same sort of standard-less standard that's standard operating proceedure for making the Obama Administration such a staggering disappointment. (Since most conservative politicians understand liberal ideas about as well as meerkats understand quantum physics, I'm not terribly impressed that Ryan understands them as well as orangutangs understand quantum physics.)
Bottom line: Ezra suffers from the age-old liberal disease of thinking that conservatives are just liberals with a different set of policy preferences. They're not: They come from an entirely different culture: a pre-modern culture of warriors and priests. Not surprisingly, their only interest in ideas is as weapons.
It's one thing for Ezra to be taken in by Ryan's con. But he's actually doing much, much more: by legitimizing Ryan the way he does, he's actually participating in Ryan's con.
Despite--or perhaps because of--all his education and intelligence, Ezra really doesn't get that Ryan is offering excuses, rather than reasons, for doing things that any reasonably smart 13-year old can see are utterly catastrophic.
That is, any reasonably smart 13-year old that doesn't already want to be Paul Ryan or Ezra Klein when they grow up.
Brad DeLong is one terribly confused dude. He asks, "How Is It That We Have Lost the Argument?"
How is it that someone as smart as DeLong still thinks it's a matter of argument? The evidence that he's amassed quite clearly proves that it is not. It's no more a matter of argument than was invading Iraq to get rid of WMDS that weren't there, and that Iraq would never have used against us unless we invaded, even if they were there. Argument simply has nothing to do with it. To the contrary, the more vacuous and preposterous the "argument" is, the better. After all, anyone can make a sound argument. To make one bad argument after another for 20-30 years, and never suffer any consequences whatsoever--now that's a sign of real power.
DeLong writes (emphasis added):
A Keynesian economist would say that demand is way low--and that the government needs to boost it. A monetarist economist would say that spending is way low--and so the government can either boost velocity by boosting the opportunity cost of holding money (which is most easily done by printing more government bonds--running bigger deficits) or boost the money stock by printing money. A market-oriented economist would say that U.S. Treasury (and German government, and Japanese government bonds) right now are extraordinarily valuable assets--and thus that the way to maximize economic value is to print more of them, i.e. run bigger government deficits.
The only response I hear is that the market lacks confidence. But the market doesn't lack confidence in the government. THe market lacks confidence in the private sector--it lacks confidence that unemployment will be low and capacity utilization high enough for private businesses to make the operating profits needed to service their debt, and that the financial system is well-enough capitalized that those operating profits will flow through to newly-issued financial instruments rather than being diverted to cover unrecognized but very real past losses. I could understand: "we need to shrink risk premia by having the government guarantee new bond issues." I cannot understand: "we need to shrink risk premia by raising taxes and cutting spending for the fiscal year that starts in July."
I could understand losing the argument if consumer price inflation was rising, if expectations of inflation in the Treasury-TIPS spreads were rising, if real interest rates on long U.S. Treasury bonds were rising, if there were any signs at all that we were moving from the green zone to the yellow zone as far as the U.S. Treasury bond's status as safe asset in the world economy were concerned. But we are not doing that....
Somehow we seem to have lost the argument--within the ECB, within the French and the European governments, within the British Liberal Party, within the Bank of England, within the Federal Reserve, with U.S. Senator number 60, and even within the White House.
And I do not understand how, or why we have lost the argument.
Of course, invading Iraq was "just" a gargantuan war crime, costing the lives of a million people or more. The turn toward fiscal austerity could bring about such a vast worldwide economic catastrophe that it could trigger conflicts on a scale approaching WWII. That's certainly what happened the last time that the global economy was this badly mismanaged.
Does Washington care about unemployment?
In 1983, Ronald Reagan's Washington regarded high unemployment as a national emergency. Today, with unemployment kissing 10 percent, Barack Obama's Washington scarcely seems perturbed. Why?
....Today, the unemployment rate is kissing 10 percent. Global financial markets are sending us a message that the excess demand for high-quality financial assets is growing again.
Yet, unlike 1983, there is no sense of urgency in Washington.
And it's not just here in America.
Item: Krugman:
The Pain Caucus
.... When the financial crisis first struck, most of the world's policy makers responded appropriately, cutting interest rates and allowing deficits to rise. And by doing the right thing, by applying the lessons learned from the 1930s, they managed to limit the damage: It was terrible, but it wasn't a second Great Depression.
Now, however, demands that governments switch from supporting their economies to punishing them have been proliferating in op-eds, speeches and reports from international organizations. Indeed, the idea that what depressed economies really need is even more suffering seems to be the new conventional wisdom, which John Kenneth Galbraith famously defined as "the ideas which are esteemed at any time for their acceptability."
The extent to which inflicting economic pain has become the accepted thing was driven home to me by the latest report on the economic outlook from the Organization for Economic Cooperation and Development, an influential Paris-based think tank supported by the governments of the world's advanced economies. The O.E.C.D. is a deeply cautious organization; what it says at any given time virtually defines that moment's conventional wisdom. And what the O.E.C.D. is saying right now is that policy makers should stop promoting economic recovery and instead begin raising interest rates and slashing spending.
G20 drops support for fiscal stimulus By Chris Giles and Christian Oliver in Busan
Published: June 5 2010 11:54 | Last updated: June 6 2010 17:25
Finance ministers of the world's leading economies have been so spooked by the sovereign debt crisis that they have decided they can no longer wait until economies are growing strongly before they remove fiscal stimulus.
The meeting of the Group of 20 finance ministers and central bank governors in Busan, South Korea, at the weekend also dropped proposals for a global banking levy, giving countries leeway to do what they thought best for their domestic circumstances.
The communiqué of the meeting made clear the G20 no longer thought expansionary fiscal policy was sustainable or effective in fostering recovery because investors were no longer confident about some countries' public finances.
Item: Spinning off from the a discussion of the later, Digby writes:
Brad DeLong is more conservative than me. That's okay. Probably 99% of all Americans are more conservative than me. And 99% of the time, it really doesn't matter much that DeLong is more conservative than me. It's good to read folks who think clearly and freely share ideas, regardless of (if not because of) ideological differences. But this week a few weeks ago there was an exception, as DeLong pulled an old post quoting and commenting on a deeply flawed criticism of Naomi Klein's Shock Doctrine by Tyler Cowen. Given the ongoing potential destabilization of the world economy--caused by naked capitalism and resulting in unprecedented threats to the welfare state--the timing could not have been worse:
Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls--- : October 04, 2007:
He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view:
Shock Jock - October 3, 2007 - The New York Sun: Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation.... [T]he reach of government has been shrinking in India and China, to the indisputable benefit of billions.... [I]t is the New Deal -- the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein -- that was imposed in a time of crisis.... China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms.... [T]he reader will search in vain for an intelligent discussion of any of these points. What the reader will find is a series of fabricated claims, such as the suggestion that Margaret Thatcher created the Falkland Islands crisis to crush the unions and foist unfettered capitalism upon an unwilling British public.
I'm afraid that DeLong has it exactly backwards here. It's Cowen's review that fails the minimum standards test. And I say this as someone who's written hundreds of book reviews. For money. Not much money, mind you. But I was a paid professional, writing for daily and weekly newspapers, a political website, and Publishers Weekly magazine. In those capacities, I always regarded it as my duty to let readers know what the book was about. If I thought it was misconceived, I first felt obligated to say what it was, before saying why I thought it misconceived. I wanted people to find my reviews useful, even if they saw things quite differently. And this is the standard that Cowen's review utterly fails to meet. The condensed passage above gives no sense of her book, nor does Cowen's original. His clearest attempt to say something about it is this:
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