Dan, Moe, Welcome back to the Lake.

Moe, Thank you for Hosting today’s Book Salon.

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Hi Maureen, thanks for chiming in. Putting aside all the things you wrote about me personally (what was that all about?) here are few things to point out about the book.

First, several big factors have contributed to economic weakness in the US, perhaps including: 1) structural changes in the economy, 2) the crisis in Europe, 3) the housing bubble, 4) failures in monetary policy, and 5) failures in fiscal policy. I acknowledge all of these, but I focus on (5) – which I believe is mostly the fault of the GOP, though, as I write, the Democrats also acted insufficiently – and the degree to which (5) has caused (4). I can see only two explanations for (5): it was deliberate or the result of incompetence. Both strike me as sufficiently worrying to take the GOP to task.

You could argue that (5) resulted from a failure of the field of economics. I disagree. It is widely accepted in academic economics that countries which have no trouble borrowing should not pursue austerity measures in the middle of an economic downturn. The costs in terms of general well-being – I talk about costs ranging from hunger to “hysteresis” in the labor market in the book – can be enormous. Yet that’s just what the GOP tried to do. Either their economic philosophy was decidedly heterodox, or they wanted the economy to tank.

Also, the focus of the book is not solely the debt ceiling crisis. The book gives almost equal time to a) how austerity in unemployment benefits and support to the states affected the economy and b) the inappropriate burden placed on the Fed via GOP intransigence on fiscal policy. There is also a cautionary tale of how the United Kingdom, which did not have a debt ceiling crisis, fared under austerity.

Finally, just for the record, it’s Dalberg without an “h”, and I’m no longer director of thought leadership there. I still serve on the expert advisory board. So much for Google!

I actually have a few questions for you: First, why is it that “austerity measures by definition consist of unnecessary and gratuitous good cop-bad cop charades”? In the book I use the example of Latvia – didn’t seem to happen there. Also, which elites are you talking about when you say there is an “unspoken rule of global elites about not speaking ill of elites”? Certainly Mitch McConnell and John Boehner are part of an elite, even a different elite from that of Gordon Brown? And what “apologies” would you like to see for the field of economics? As I said, the economics at issue here is pretty simple, mainstream stuff. That’s what makes it so baffling that the GOP got it so wrong.

Good afternoon Daniel and Maureen and welcome back to FDL this afternoon.

Daniel, I have not read your book so forgive me if you address this in there but given how much of the “economics establishment” seems to spend their time being surprised that their predictions are wrong, how do they have any credibility? The folks like Krugman, Stiglitz, Roubini, and Dean Baker seem to have an understanding of things but they get no more respect from the Dems than they get from the Repubs.

While I am no fan of the “Party of No” – the blame does seem to be widespread on both sides. Or am I misunderstanding your points?

Welcome Dan! Do you belong to the Bilderburg Group too? Maybe we should start with your reaction to yesterday’s exciting news.

It’s true, we keep seeing the same faces in the economics teams of both parties. (Don’t forget, though, that Stiglitz was chair of the CEA under Clinton.) That doesn’t mean there haven’t been some great economists in Washington – Betsey Stevenson and Christina Romer are good examples. The thing is, the folks in charge don’t always listen to them. As I wrote in the book, Romer wanted a much bigger stimulus package, but she was bargained down by Larry Summers before it even went to Obama. Maybe it *is* time for some new faces to get some respect.

What’s the Bilderburg Group?

Seriously, I’m Googling it now….

We’ve been talking about this for 3+ years. What’s new?

w/r/t the “not speaking ill of” …You made my point. GOP elites are much more comfortable with populist (and anarchist) rhetoric than Democratic Party elites, which is just one of the innumerable facts pointing to the critical complicity of the Democratic Party in enabling our current disastrous state of affairs I have basically accused you of eliding…

So it’s the Democrats’ fault for letting the GOP get away with it. So it would have gone like this: even though the GOP controlled the House, the Dems would have named and shamed them into acting in the interest of the country and abandoning their silly austerity plans. The Dems just didn’t use enough swear words… or maybe I should have put my book out a few months earlier. After all, as you said, I’m giving the Dems all the ammo they’ll ever need, right?

I guess I could have been a bit more fiery than this:

“From 2010 to 2012, the Republicans did everything they could
to defeat Barack Obama. The economy and any collateral
damage it suffered were secondary. Perhaps the Republicans
truly believed that their economic philosophy was right, despite
all the evidence to the contrary. Perhaps they couldn’t see the
harm their every move was inflicting on the economy. Or,
perhaps they were even more cynical than they seemed –
deliberately harming the livelihoods of millions of Americans
for years to come just to put a Republican in the White House
in 2012. “

This is shock doctrine. The economic disaster was the D’s plan all along, all the better to loot the economy. Blaming the Rs for it was part of the plan.

Uh Dan? Dems did control the House from ’07 – ’10.

But the Dems seemed to refuse to use all available tools and looked for reasons to NOT do things

It’s a shame the Republicans hurt our recovery by asking for a stimulus that was much too small and forcing the president to shift to deficit reduction too soon.

One of the things that I think deserves more attention is the situation facing the Fed. Even a lot of Dems – Matthew Yglesias and Justin Wolfers are good examples – are putting most of the focus on the Fed, urging them to do more to stimulate the economy. The problem is, it’s not clear whether more credit easing would do a lot to stimulate the economy, but it is clear that there would be costs for the Fed long-term. I’m incensed by this, because the Fed wouldn’t be in this position were it not for the GOP blocking stronger fiscal policy. They put the Fed in this no-win situation.

I was also disappointed in the Dems’ willingness to compromise with the GOP and their timidness in stimulus. But the economy was still on its way to a moderate recovery in early 2010. Just look at the growth figures – pretty steady starting in 3Q09. Then the GOP, once it got its first foothold in power, slammed on the brakes. That’s wrong.

And then Summers was himself bargained down, am I right?

When I moved to DC in September 2010—I have since, mercifully, moved back—all I heard, day in and day out, from the proverbial both sides, was Peterson sanctioned austerity rhetoric. Social security needed to be privatized, Medicare slashed, deficit deficit deficit. It was the consummately bipartisan issue. Oh right, but the economy was still to fragile to repeal the Bush tax cuts on the wealthy. And the financial system was too unstable to attempt to induce bankers to stop stealing.

In the face of the kind of grotesque systemic failure our government has so conspicuously wrought, what do you think would be a realistic multiplier on the average dollar of fiscal stimulus? I’m not arguing that it wouldn’t be higher pumped into just about any sector other than the financial one, but…is the proverbial spread so wide that the failure to pass a larger stimulus bill seems to you to be the ultimate tragedy of Obama’s first term?

I think for some investments that have been neglected during the past couple of decades, the multiplier could be quite high. In the book, I cite data on investments in infrastructure during downturns:

“Looking at data going back to the
1950s, economists from the University of California at Berkeley
found that during recessions, every additional dollar spent on
goods and services by the government yielded between 1.5
and 2.1 dollars of economic activity. For investments in
infrastructure and other forms of public capital, the effects
were bigger: 2.8 to 3.4 dollars of economic activity for every
dollar spent. The effects were large, the economists wrote,
because during recessions the additional spending was very
unlikely to crowd out any consumption or investment by the
private sector.”

I would also suggest that basic research may have been neglected – Bush actually froze funding for the National Science Foundation during his term. And when things have been neglected for a while, that’s when the bang for the buck is usually highest.

I am hardly the only one who has detected a considerable degree of complicity in the Obama Austerityfest from within the Democratic establishment. Neil Barofsky comes to mind. But I wouldn’t have believed it if I hadn’t been in Washington for the whole thing. There is no other place I can think of where reality has been so definitively drowned out by corporate speech.

But doesn’t that go directly back to the timidness the Ds showed? I’m one of the long term un/underemployed and have been forced to learn far more than I wanted about economics. That “moderate recovery” you speak of was largely due to census hiring – something that occurs every 10 years without fail. Most of the rest of it was a mirage.

I base this on anecdotal evidence obviously but I was following the job market online and those jobs shown were not much more than come-ons and not good long term positions

You’re not going to get any argument from me that both parties have been co-opted to a great degree by the corporate sector, and in particular by finance. Still, it’s possible to make good and bad decisions under that constraint.

Isn’t the finance sector one of the groups pushing the “austerity” – at least partly in hopes of getting their hands on Social Security? How can those decisions be ‘good’ in any way?

Welcome, Dan. Thank you for joining us.

I am the parent of two recent college graduates [classes of '08 and '10] and have watched them [and their friends, particularly the class of '10 ones] struggle to find gainful employment — hell, ANY employment.

What baffles me about the whole “austerity kick,” whether promoted by the Repubs or cheered on by the Dems is, don’t these guys have any children? Do they have no parents? Don’t they know ANYONE who is struggling?

My kids went to “top tier” schools, did well [as did their friends] but that certainly didn’t assure them any sort of decent job.

What’s the plan of the “austerity freaks” re where consumer demand is going to come from, if an increasing number of folks can’t find jobs, if parents are raiding their retirement funds to support their kids [and pay for their own health care], if everyone is frightened?

Are these folks SO overcome with the rhetoric of “supply side” that they can’t see what’s in front of their own lying eyes?

I’m obviously with you on this, but the Democratic Party policy as executed by Geithner actually constitutes the inverse of stimulus spending. We now know that HAMP, the program that set off the Tea Party, was nothing more than a ploy to “foam the runway” for the most destructive (and least efficient) sector of the economy at the hands of underwater homeowners. No one to my knowledge has attempted to put a multiplier on the aggregate Obama bailout regime, but what if they did? Certainly the stimulus would probably fare pretty decently but what about all the other trillions NOT authorized by Congress? What of the $350 billion or so we’ve plowed into the GSEs? If Keynesian fiscal stimulus was really such a priority for the Obama White House, why did the Treasury Department act so decisively to stimulate the least stimulative sector of the economy, and why did the Justice Department act so decisively to immunize it from the rule of law?

That’s a bit of a longshot, even for the finance folks. I don’t see privatization happening to Social Security – even partial privatization – for a very long time. You can still get a decent amount of mileage out of raising the eligibility age, reducing inflation adjustments, raising the tax rate, etc. I bet most of those things will happen first.

Finance folks used to push austerity because they thought that high government spending would drive up interest rates. It’s not much of an issue right now, but even if it were, how much are you really going to get out of austerity when, under normal conditions, non-defense federal spending is usually under 3% of GDP? http://www.danielaltman.com/Altman-FedvsSLspending.pdf

Yay Yurii Gorodnichenko and Alan Auerbach!

I would say that the four principal economic policy failures of the Obama administration have been:

1. The reappointment of Ben Bernanke, and the monetary policy that he has subsequently carried out.
2. The failure to deal with the housing crisis–to the point that when Tim Geithner finally wanted to he found that he couldn’t because he had given away his opportunity to control FHFA.
3. The failure of Erskine Bowles to stake out a Democratic position on the long-run budget for Obama to start negotiating from.
4. The failure to do a $1.8 trillion three-year initial Recovery Act program.

With (4) being probably the least important failure.

Now as I understand blame for (4), Romer came in with a $1.8T three-year bid and said it would do the whole job, Summers told her that if she comes in with a 13-figure number that she will simply be ignored by the process as too far out there, so Romer proposes an $0.9T Recovery Act and says it will do half the job–counting on Obama to do the math–Emmanuel says that whatever they propose will grow in the Congress and that they run a risk of nothing if they go higher than $0.8T, so they propose $0.8T and get $0.6T through Congress with only one vote to spare.

That suggests to me that principal blame for the small size of the Recovery Act should be placed where it belongs: on the 39 Republican senators who voted against it, on the 3 Republican senators who threatened to filibuster any larger proposal, on the Republican members of the House who voted against it, and all their enablers.

I mean, I could enjoy a good Geithner-bashing. But I at least am looking for red meat of a different flavor today…

Brad DeLong

And then yesterday happened, and we all realized we’d probably have to vote for Obama again,

I’m pretty progressive and I assure you, I will not be voting for obama again

I said a long time ago they would field an unelectable candidate and if they couldn’t they would undermine the ticket.

ryan is part of the plan, our quaterback is scoring points for the other team, he is the trojan horse and all they are doing with ryan is trying to convince us the trojan horse is so much prettier now.

sorry, we are better running defense against the nutcases at large then we are trying to stop our quaterback from throwing goals into their endzone

And there is where you lose me and many others. Raise the cap on SS. You are buying in that it is in “crisis” of you think raising the eligibility age and reducing inflation adjustments are the answer in any way.

The folks who push higher age for eligibility are the folks who least need Social Security. It is already at 66 for me. People in low wage/manual labor positions are those in most need of a strong Social Security yet would be most penalized by the actions you mention.

I guess how I’d link this to “austerity” is that there are a mountain of tasks out there that need to be done: tutoring kids, caring for the elderly, cleaning up parks and highways — and this is just the jobs that DON’T require an advanced degree.

In the “good old days,” we could count on “government,” particularly during down times, to spend some money to pay for getting these tasks done — in addition, of course, to spending money on infrastructure, schools, hospitals, etc.

Admittedly this only addresses the “jobs” portion of the problem, not the “safety net” feature. I see how the selfish Ayn Randians hate the “safety net”/social contract portion of government spending, but it’s harder for me to see why they’d object to putting people to work — and collecting taxes from their wages.

Supply-side policies are policies that affect the economy’s long-term capacity to produce goods and services. So some of the investments I’m talking about – infrastructure, research, etc. – are very much supply-side policies. But the GOP’s “supply-side” rhetoric is about reducing the government’s role in the economy: deregulation, lower taxes, lower spending, etc. These can definitely be appropriate policies for some economies, but they are still aimed at the long term. In the short term, we need two things: supply-side policies that have short-term effects (like the infrastructure investments that would create jobs) and demand-side policies that act quickly on the economy (like extended unemployment benefits). That’s where the GOP dropped the ball. They didn’t understand or care about the pain that people were experiencing in the past few years, or about the long-term effects of that pain. Ironically, that suffering will probably have negative supply-side effects in the long term, as I describe in the book.

Hi Brad, I take all your points, but don’t you think the GOP bears a lot of the blame for Bernanke’s excess of caution? If they hadn’t dropped the ball on fiscal policy, the Fed wouldn’t be in such an extreme position. I mean, even if Bernanke had a predisposition to hawkishness, they certainly forced it to express itself.

That’s certainly the $64,000 question mauimom@23. I don’t know what Mr. Altman’s opinion is, but in view of the facts you cited the only reasonable explanation is that there is another agenda afoot in the country which is important enough to some powerful group to make the devastation caused by these policies acceptable collateral damage. And both the Dems and Repubs are equally complicit in pushing the hidden agenda. It’s not a question of paranoia, nothing else makes any sense.

I’d dispute the notion that it’s a “constraint.” Our health care costs are twice as high per capita as Germany’s and our lifespans are three years less costly. Our most revered corporation reaps 31% operating profit margins while the corporation that manufactures everything it sells reaps 1% operating margins. We have a congress that passed a very simple law against corporate fraud that no one ever bothered enforcing; a few years later the same congress passed a law prohibiting the federal government from using its buying power to bargain with pharmaceutical companies. What it all amounts to is that we don’t actually have an economic policy; we don’t have industrial policy, as a very deliberate legacy of the neoliberal Hayekian agenda against even believing such a thing is possible. And the biggest obstacle to this—and it always has been—is the superrich.

Okay, so how do the super-rich persuade so many Americans to vote for their agenda, or otherwise to hide it? Or are we discussing a different book now?

BRAD you know as WELL AS I DO that Tim Geithner oniy wants to fire DeMarco because he sued lots of banks. Tim Geithner doesn’t give a shit about homeowners and it’s insulting that you would attempt to make that case in a comments section being moderated by me!

My…..what a lively discussion!

I would say they are helped by their moderately rich employees in the TraditionalMedia – all of whom are in the top per cents of income – and all of whom are invested in continuing the status quo so are willing to ‘overlook’ things

3. The failure of Erskine Bowles to stake out a Democratic position on the long-run budget for Obama to start negotiating from.

Brad,
maybe you could elaborate a bit on what you mean here. You mean Bowles of Simpson and Bowles deficit reduction committee? Wasn’t this Pres. Obama’s pet committee with no legal authority, i.e, not authorized by congress? How, then, could Erskine Bowles’ “failure” be more important than the insufficient stimulus?

Plus they can all point to the shiny object of the black man in the White House as reason enough for many people to vote against their economic interests

Sorry to insert myself in a question directed to Maureen, but I think the tried-and-true method of media saturation with cleverly worded propaganda eagerly put out by large corporate news outlets anxious to twist facts has been doing a bang-up job in that area.

My Republican relatives (not tea partiers!) pointed out that they despise Obama because NO bankers have gone to jail and the fraudster Mozillo is still walking free. They believe (foolishly, I think) that Romney/Ryan will be more honest than the Obama Administration. We are screwed!

Oh I don’t know, maybe by busting every union, dismantling the manufacturing sector, blanketing the newspapers and filling the airwaves with a century of free market propaganda, radically defunding education and victimizing its seekers by rendering student loans immortal, etc. etc. etc.

What fucking choice do we have? No one chose this. It’s disgraceful.

Yes, one of the great failings of the media is that they take both sides seriously even when one is talking and doing absolute rubbish. Why? They think it’s good television. You know what else is good television? A well-informed journalist pressing politicians with hard questions and making them seem like idiots. But that’s too much work; you can’t just read a teleprompter. It’s sad.

It’s not just too much work, it’s too likely to render said journalist unemployed and unemployable by any major news outlet. You don’t dis your boss and get away with it.

Thank you

Daniel@43: the media is bought and paid for. They only care about access. And, no, Luke Russert is NOT a journalist!

Why did you quit journalism and what is it like working with Clive Crook?

So, is Maureen the (un)lucky Cassandra who saw through it all, while everyone else kept taking soma? Or has everyone else also given up in resignation? What does everyone here say?

Wow, Dearie, that’s fascinating!

Damn I think you just explained my “career.”

Daniel, It seems you came to the same conclusion as Thomas Mann and Norman Ornstein in their book – It’s Even Worse Than It Looks. That is that the two political parties do not share the blame equally for our government’s inabilty to deal rationally with our nation’s problems. Rather, the larger share of the blame lies with a radicalized Republican Party.

I agree.

But the GOP’s “supply-side” rhetoric is about reducing the government’s role in the economy: deregulation, lower taxes, lower spending, etc. These can definitely be appropriate policies for some economies, but they are still aimed at the long term.

those policies aren’t aimed at the long term economy they are aimed at redistributing middle class assets into the hands of the wealthy

wealth migrates up it does not trickle down, the oceans cause the rain the rain does’t create the ocean

if we were to start on an island from scratch without one single monetary instrument, there would of course be jobs, that would create financial and monetary instruments and then you can have wealth, all wealth comes from labor not the other way around

as a matter of fact, money is caveat labor

“trickle down” or top down investment is propaganda

now, there are times you can target tax relief, torward an industry that is struggling or you want to grow, but if you do not get a positive return that tax incentive was a failure and has to be revisited

Clive’s a very smart guy. I enjoyed debating him in editorial meetings. I think he’s plagued by the feeling that people don’t appreciate him and his ideas enough.

I quit journalism because I didn’t think I was doing anything that really improved people’s lives. I was writing columns on the global economy for the International Herald Tribune and The New York Times – basically helping rich people to get richer by understanding the global economy better. Of course, the websites of these newspapers were free then, and they also got a lot of international viewers, especially people from poorer English-speaking countries who were looking for some fairly reliable news. But overall I didn’t find it very satisfying, so I decided to do more work in international development. Now most of my efforts are devoted to a new venture that will broaden product markets in poor communities around the world: http://danielaltman.com/edc/EDC-flyer.pdf

But how does that explain the Democrats’ willingness, not to say eagerness, to embrace the same bad policies, i.e. austerity?

OK. I humbly ask permission to revise and extend my remarks. Strike “to the point that when Tim Geithner finally wanted to he found that he couldn’t” and replace with “to the point that when Tim Geithner finally said that he wanted to the point was moot because he couldn’t”.

Administrations are not unitary rational actors. Treasuries are not unitary rational actors. Hell, individuals are not unitary rational actors. In general there is less “it’s a trap!” and more “it’s a clusterf***!” than one would believe.

But I don’t want to do Geithner bashing today! That’s for the Grunwald Salon. Today is for Boehner, McConnell, Ryan, and Romney bashing, please!

I am going to say most of the problem is allowing private investment in our elections

I’m not one of those types who claims to have seen through it all. I’ve just been paying attention! it’s actually pretty implausible that a country like ours would fail so epically, and that a guy like Obama would enable that. It makes more sense when you study cold war history, which is of course where the Tea Party came from. And I guess that’s my general quibble with your thesis. SABOTAGE has been the point of the right wing nihilist faction of the GOP for a very, very long time. Since the Liberty Lobby at least. And centrist (southern) Dems have been historically in many cases more complicit in this than centrist Republicans, which I think is why GOP apostates like Sheila Bair and Trevor Potter find themselves to the left of the Dem establishment.

My points above were general ones. There are definitely countries out there that need some deregulation (take India during the “License Raj”), lower taxes (business taxes in Ukraine are huge), or lower government spending (some Gulf countries qualify here – the private sectors are underdeveloped). But I agree, the US has gone plenty far in these directions already.

Obama and Romney work for the same people!

Matt Taibbi put the list below together

Obama’s top 20 list included:

Goldman Sachs ($1,013,091)
JPMorgan Chase & Co ($808,799)
Citigroup Inc ($736,771)
WilmerHale LLP ($550,668)
Skadden, Arps et al ($543,539)
UBS AG ($532,674), and…
Morgan Stanley ($512,232).

McCain’s list, meanwhile, included (drum roll please):

JPMorgan Chase & Co ($343,505)
Citigroup Inc ($338,202)
Morgan Stanley ($271,902)
Goldman Sachs ($240,295)
UBS AG ($187,493)
Gibson, Dunn & Crutcher ($160,346)
Greenberg Traurig LLP ($147,437), and…
Lehman Brothers ($126,557).

Obama’s list included all the major banks and bailout recipients, plus a smattering of high-dollar defense lawyers from firms like WilmerHale and Skadden Arps who make their money representing those same banks. McCain’s list included exactly the same banks and a similar list of law firms, the minor difference being that it was Gibson Dunn instead of WilmerHale, etc.

Read more: http://www.rollingstone.com/politics/blogs/taibblog/iowa-the-meaningless-sideshow-begins-20120103#ixzz1icl0E0pm

Obamacare = Romneycare this was a great play by the SUPER RICH!!! they have the two guys who love making Insurance Companies Richer running for the White House.

Obama has to pray that the Intelligent Left votes for him, because this is probably going to be a very close election.

The Intelligent Left not voting for Obama will probably result in the following
White House going GOP
House going Dem
Senate going Dem

Old Gold, you sound like a MSNBC cheer leader for OBAMA?

Has Obama ever beaten the GOP? No! He is their QB not ours.

Okay, how about this: Paul Ryan actually denied that a default could damage the economy (http://www.reuters.com/article/2011/06/08/us-usa-debt-skepticism-idUSTRE75700720110608).

I would like to see some evidence that Bernanke has been constrained in expansionary policies by Republican Fed bashing. He certainly hasn’t been using it as an excuse for not doing more. Now it could really be a reason, and he could just be embarrassed to use it as a public excuse. But is there evidence to that effect?

I would be interested in more about the extent to which the Republican are (a) the party of no, because if anything gets done while Obama is president he gets the credit; as opposed to (b) the party of let’s kill the economy because then Obama looks even weaker and people are even more pissed.

Since Krugman and Stiglitz both predicted accurately what the economy would look like at this stage when they saw the size of the stimulus in 2009, I think you focus too much on the Republicans after 2010. The stimulus ran out as scheduled. But Obama had to have his historic bipartisan triumph.

You can’t make your point that we’ve reached the stage where it’s fiscal policy or nothing often enough or loudly enough. All the Fed can do now is inflate the stock market and subsidize the carry trade.

It’s going to take more than a firm grip on the nose for f@cking retards to vote for O when we know his primary agenda item will be Son of Grand Bargain. I suggest that you recommend aerosol rated air filters.

Re: “Okay, how about this: Paul Ryan actually denied that a default could damage the economy (http://www.reuters.com/article/2011/06/08/us-usa-debt-skepticism-idUSTRE75700720110608).”

Wow! How did I miss this?

You must not be putting your twitter feed in ALL CAPS!!1!!, Daniel…

I’ll agree there is a pendulum that swings, this pendulum has swung since reagan, here when they say “deregulate” what they mean is “we don’t want to pay our own bills”

I think Bernanke shares some of Plosser’s worries (admittedly to a much less wild-eyed degree) about excessive use of credit easing. I know Dudley does. They also doubt that you can get much more mileage out of credit easing if the real rate of return in the private sector is lower than usual (which it might be). How many investors, homebuyers, managers, etc are really on the fence waiting for QE3 before buying something or hiring someone? They have their doubts (and I share some of them). But again, we wouldn’t even be here without GOP intransigence on fiscal policy.

It’s in the book!

excellent summary, perris

basic productive economics: money is used to represent labor, materials or service provided and creates wealth.

we’re rapidly becoming a pillage economy.

I think that Obama realized his mistake in 2010, but it was too late. He lost the House, and the GOP would not play ball, even if the livelihoods of millions of Americans hung in the balance. My suspicion? They were happy to hurt all those people if it raised their chances of winning back the White House even a little.

Daniel@68: I doubt that Obama even understands why he lost the House in 2010. And, frankly, I don’t think he gives a damn.

The Fed does a lot for their Super Rich Buddies

Fed members gave their own banks $4 trillion during bailout

This report reveals the inherent conflicts of interest that exist at the Federal Reserve,” Sen. Bernie Sanders (I-Vermont) says in a statement about the report. “At a time when small businesses could not get affordable loans to create jobs, the Fed was providing trillions in secret loans to some of the largest banks and corporations in America that were well represented on the boards of the Federal Reserve Banks,” adds Mr. Sanders. “These conflicts must end.”

http://rt.com/usa/news/fed-federal-reserve-report-938/

Obama knows this happens, and he thinks we have Debt problem? really?

My suspicion? They were happy to hurt all those people if it raised their chances of winning back the White House

that’s a suspician of yours?

limbaugh said it outright and put the republicans on notice, they MUST create failure so they can get power again

he didn’t even duck the point he was proud of it

I don’t want to excuse Ben on anything but what exactly can the fed do at this point?

Can I embed a graph in this thing? Apparently not…

Let me put it this way: the core price level now is 4% below what people back in 2007 expected it to be. The core inflation rate now is not the 2.5%/year that people thought the Fed was aiming at back in 2007 but rather 1.5-2%/year for the foreseeable future. That means that at a ten-year horizon prices are undershooting their pre-crisis expected values by 11.5%.

That is one hell of a deflation to put into effect in a modern economy that is in the middle of a deep balance-sheet recession. Whatever dangers come from excessive credit easing (which are somehow never specified) are dwarfed by the dangers of making everybody’s debts they owe in 2017 worth 11.5% more than had been previously expected.

That will teach me to skim your book…

Yeah, that’s the gist of Dudley’s argument. If the real rate of return is below 2%, the Fed may not be able to do much. Some folks I know want Bernanke to commit to hold rates low for even longer… but he may not even be around long enough to maintain that policy.

i don’t think we disagree. My point is that I don’t see a way where Fed action can be turned efficiently into jobs.

I’m wondering where the country goes if the Repubs have their way, or even if President Obama gets his second term and pursues his “grand bargain”. Their fiscal policies will surely result in disaster, and do you think we’d be able to recover from that?

That’s the most powerful argument I’ve heard yet for QE3. Of course, it doesn’t necessarily mean that QE3 will work.

of I were the fed;

“anyone who gives a raise or hires a new employee or gives health care or a retirement fund I will lend at 0 percent interest straight from the federal reserive, no bank vig”

something like that I guess, or aim it at infrastructure maybe

Are you saying people actually “expect” to pay that much more in 2017?

I agree with you

Agreed it’s more a clusterfuck than a trap. One thing that actually surprised me talking to lobbyists is how scared they were of the Tea Party freshmen, and how Boehner and the GOP establishment actually did not know who was controlling them or how to negotiate with them. Then it occurred to me that the old GOP establishment mostly represented districts and states that are net recipients (as opposed to net benefactors) of federal spending so the small government rhetoric had traditionally had for policy purposes been entirely opportunistic and rhetorical. The Tea Party freshmen were different, and the sharp distinction between them and the 1994 freshmen despite a virtually IDENTICAL campaign blueprint sort of exposed to me the fundamental chaos of the enterprise.

One reason the public does not quite grasp how central the campaign finance thing is to the problem is that the numbers seem so small. It’s downright embarrassing how little our elected officials have received from Goldman etc. relative to what they’ve received. What people don’t understand is how exhausting it is to raise money, and how much time and effort politicians and their staffs much invest in the attempts to keep their jobs. Public financing of campaigns is the only real first step to a systemic solution, but even that opens a pretty viscious can of structural worms. Sigh.

It seems to me the fed is basically helpless in this situation. If they go buy treasury bonds all the do is exchange the bonds for fed reserves. Nothing happened.

There’s no doubt that the nation needs to reduce its liabilities. We can 1) raise taxes, 2) cut spending, 3) cut retirement benefits and Medicare, or 4) try to improve economic growth. Obviously 4) is worth doing. I think we have to do 1) to restore the progressivity of the tax system and close loopholes. It’s also the area where we’ve strayed furthest from historical norms. And I think some of 3) and 2) are inevitable; 3) for practical reasons – unless we can get serious about controlling health care costs and 2) for political reasons. My hope is that we will stop spending money on wars and spend more to promote equality of opportunity and a meritocratic economy that encourages entrepreneurship and innovation. That’ll be the only way to come out of this better off than we are now.

Are they allowed to do that legally? The fed does not have fiscal responsiblity.

Mistake? It’s hard to believe that Obama is the reincarnation of St. Francis of Assisi until one of his OWN campaigns, when he turns into a no holds barred Rottweiler.

In 2009/10 liberal organizations were primed to respond to the tea party in kind. Obama’s people called them off. Instead of responding to their outrageous rhetoric when it could have been effective, he turned the bully pulpit over to a bunch of bullies.

You’re a nice man and your heart is in the right place, but Obama needs the crazies so he can cut social security and Medicare while you and Bill Press tell us how much worse the alternative is.

the real purpose of a progressive income tax code is to offset the regressive nature of most other taxes

I think it would be a far easier sell and easier to maintain would be a method for equalizing regressive taxes

if we could come up with a method or system to do that I believe it would be almost politically bullet proof

Resignation, I’d say. Plenty of people have seen what’s going on. Yves Smith, Bill Black, Jane Hamsher, Glenn Greenwald, Chris Hedges are just a few. We won’t have any kind of social recovery until the financial system is reformed or self destructs. Obama lost any hope of being a great president with his choice of financial team, We dirty hippies may be childish, idealistic, and ignorant of the realities of politics and policy but we can at least try to understand what is actually happening and work towards a world that isn’t a Hobbesian nightmare, a dictatorship of consumerism ruling over an enforced passivity.

I do appreciate your appearing here and getting into it with the not so gracious host, I think honest debate is so important, but I don’t terribly much daylight between the parties on economic issues. The financial industry is so out of control, it’s a parasite that is sucking the life out of our lives by degrading both values and social equality.

Please link your analysis with the results of QE and QE2. What can the Fed actually do? They aren’t going to pay people to borrow.

the fed gives loans to banks, the government gives loans directly to some companies as well, i don’t know if my proposal is legal though

Why is it hard to believe that Obama is the reincarnation of St. Francis of Assisi until one of his OWN campaigns, when he turns into a no holds barred Rottweiler?

Seems to fit the evidence…

Obama needs the crazies so he can cut social security and Medicare while you and Bill Press tell us how much worse the alternative is.

indeed, a must read

It disappoints me to hear that you feel that cutting benefits is the way to reduce healthcare costs. I don’t know anyone who uses healthcare like entertainment: I’ve got nothing better to do next month, so I think I’ll have an expensive medical procedure.

Because the same facts fit the hypothesis that the St. Francis routine is an act and he actually wanted most of the resulting “compromises.” I find that possibility more likely.

Well, it’s the crazies – I may be stretching the definition – who got us Obama in the first place. A guy like him (at least the guy people thought he was in 2008) could never have been elected if the Bush administration hadn’t turned into such a kleptocratic bloodbath. So I guess there’s that.

You can be sure that seniors, who used to [and were counseled to] rely on “save” returns from CDs and money market funds, won’t be around either.

The Bilderburg group is one of the bigger John Birch Society-sanctioned conspiracy theory groups of rich elites who run the world. It’s just another thing like the Trilateral Commission or the Council on Foreign Relations or the Illuminati.

Without conspiracy theories like “global warming is a hoax” or “fluoride is a communist plot” or “socialism is a Jewish plot to ruin civilization” right wing ideology is just nonsense. The conspiracy theories, while mostly themselves conspiracies, often have small but amusing kernels of truth to them.

Sorry, but if you are talking about federal governemnt debt I think that is nonsense. But I agree that taxes on our elites needs to be raised rather significantly, not bc I give a rats ass about their money but bc income and wealth inequality needs to be addressed. The very last thing I think anyone should do is reduce SSMM.

If you want to talk about growth, go hire some of the twenty odd million walking around looking for work.

Thank you for the link.

it’s true bush gave is obama.

the flip side is, obama gave bush back to us

The fed is forced to make overnight loans to banks to enable bank clearing. I don’t know who they loan money to.

thank you! that is a Must Read!

Made me realize I am not going crazy!

Obama is pure evil, just like Romney

again thank you! Great Article

That’s not what I said. I said cutting retirement benefits and (separately) Medicare were a way to reduce the federal government’s liabilities. I do think we need less-intense end-of-life care, but I think we need much more emphasis on efficiency in the health care system. We’re doing tons of unnecessary procedures, ignoring the benefits of preventive care, and sending too many people who have no other option to the emergency room. Huge efficiency gains to be had there, and in what Maureen pointed out – the fact that Medicare and Medicaid can’t bargain directly with producers for drugs and other medical commodities. That’s a scandalous issue that I wrote about in a recent paper on universal health coverage.

Ah, but there’s another side to the issue. People who can’t afford the risk nevertheless feel they must invest in stocks because the return on their savings is so pathetically small. Granted, their money is chickenfeed to the financial sector, but every little bit helps.

Restoring progressiveness to such a regressive tax system is precisely the outcome the system seems currently engineered—mostly by the GOP, but with a shit ton of complicity from the Dems—to banish from possibility.

There is no doubt there can be better spending controls in health care.

You don’t think the federal government needs to reduce its debt/GDP ratio in the long term?

All right, I’ll certainly grant you those points, particularly end-of-life care. But you still sound as if you feel that reducing the government’s liabilities is more important than the elderly who will suffer under the conditions you describe.

Let me be very clear NO!!!

I do

however the real problem with high debt is debt service, right now money is almost free, the debt is an issue when debt service becomes a problem

While politically untenable to the Insurance industry and BigPharma, single-payer (or Medicare for all) would go a long way toward actually controlling health care costs rather than the current clusterf*ck of the current system.

And would be cheaper for most people

Not in this household!!!!

It’s clear to me that they’re trying as hard as they can to shove us into the stock market, but I am a “better safe than sorry” investor.

After 2008, I’m also of the “fool me once” mentality.

100% agreed.

As too healthcare: don’t worry about it……fewer Medicaid recipients can find a doctor who will accept them as a patient. Fewer Medicare recipients will be able to find a doctor who will accept them as patients once the Advantage Plans are scaled back (or deleted completely.) My own doctor of about 2 decades told me he’d have to drop me if I didn’t get an Advantage Plan when I recently joined Medicare coverage. Grayson was correct: die quickly.

no is strong, we don’t know what tomorrow brings, super inflation to service the debt sometimes

my answer is “not yet”

Of course, we’d still have doctors trying to game the system by billing unnecessary procedures etc. We need to crack down more on that stuff. But just the increase in bargaining power with hospitals and pharmas – if we decided to use it! – would have an incredible effect.

More nonsense. You think the government is going to run out of money? Ok when we are at full employment of our resources I will agree.

As we come to the final minutes of this Book Salon discussion,

Daniel, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book, the current economic crisis.

Maureen, Thank you very much for Hosting this great Book Salon.

Thanks all, Have a great week.

If you would like to contact the FDL Book Salon: FiredoglakeBookSalon@gmail.com

Ten minutes left – want to ask some concluding questions?

I don’t think they will run out of money I think the amount of money can run amok and then be worthless

I enjoyed hearing your views, Mr. Altman. Thank you.

Did you see what was said above? If anything we are in deflation conditions.

yes

I invented that “money is caveat labor” thingy, want your take on that point

I agree with you, that’s why I said “not yet”, right now there is no debt problem and I agree with you on that

Just a reminder: there’s a lot more material about GOP tactics and hypocrisy in the eBook, which is just $2.99 for Amazon (or free to Amazon Prime members): http://www.amazon.com/SABOTAGE-Republican-Crippled-Americas-ebook/dp/B008LMNDYO

also economic inequality is so dire right now it’s completely obvious that growth is possible.

If the government were to raise taxes on the 1%, tax capital gains as income, make student debt dischargeable in bankruptcy, pass cramdown, enforce laws against fraud, hire more regulators across the board at more sustainable salaries, repeal the Medicare Modernization Act, regulate derivatives and gradually start slashing the DEA quotas of annual oxycodone production, the growth would be astonishing. We don’t even need a real industrial policy to achieve serious economic growth at this point, we just need to reverse the redistribution of wealth from the 95% to the 0.1% that has been the salient national trend of my lifetime, and we need to keep reversing it for a GOOD LONG TIME. Oligarchs are bad for the economy, everyone knows this, that’s my primary frustration with economists.

thanks for the link daniel, will get that book, thanks for the talk

Please tell me when or what will trigger that? We have been running a trillion and a half deficit for going on four years. It’s coming. I feel it.

Note that as long as interest rates are at their current levels any full-employment deficit < 4% of GDP reduces the debt/GDP ratio–as long as we are actually at full employment…

yes, why in heavens name Obama does not take the opportunity with Romney’s taxes to raise the issue of carried interest is completly beyond me.

I do believe the government needs to create a situation where its debt/GDP ratio declines over the long run as it did from WWII to 1980.

Historical federal tax rates and adoption of any of the other health systems in the industrialized world could achieve this objective without smoke and mirrors. If you really want to be aggressive AFTER THE RECOVERY you can cut farm subsidies too.

Well we are not going to be near full employment for a little while yet.

I have no idea, the viet nam war did it way back, I thought bush’s iran craziness would do it, it did not

I do not know

maybe when those holding notes decide to spend their money here in the states, buy assets for far more then they are worth, like rockafeller center or the empire state building for 10 times actual market value just to get rid of their greenbacks

I don’t know

Well, I hope that’s not aimed entirely at me. Here’s some reading for you:

http://bigthink.com/econ201/the-one-economic-policy-america-truly-needs
http://bigthink.com/econ201/we-can-end-poverty-so-why-dont-we

I actually gave a whole speech on social mobility to the bricklayers’ union last year, too. Here’s a snippet (click on “Videos”):
http://www.apbspeakers.com/speaker/daniel-altman

I’d be happy to send you a copy of my first book, Neoconomy, which goes into the dangers of inequality for economic growth. You can email me your address via my website: http://www.danielaltman.com/contact.php

I like beliefs too. Any reason though?

Thank you for your time. I enjoyed the opportunity to interact with you.

I hope someone at FDL notices the outrageous introduction you received. I believe the community here owes you an apology.

(It gets cut off just as I start to talk about inequality in greater detail, alas… what was that about elites?)

Anyway, Daniel, thanks for being a good sport. You are correct that sabotage is the entire agenda of the current GOP. Didn’t the original Ryan plan entail slashing IRS and SEC enforcement funding? In any case, he would be better off teaching physical education, as would most of Washington’s powerful up and comers.

must read!!!

“And sure enough, as Dean Baker points out, a gang of incredibly wealthy CEOs are planning to gut entitlements regardless of which candidate wins in 2012. It’s not just CEOs, of course, it’s also the usual gang of corrupt Democratic establishment folk”

http://truth-out.org/news/item/10692-obamas-second-term-agenda-cutting-social-security-medicare-and-or-medicaid

what kind of man is Obama? read and find out

great article

Perris gave it to us

need to share this with everyone!

Thanks to all of you for being here and participating in this conversation. I hope we can do it again sometime soon, in better times. Please feel free to ping me on Facebook (facebook.com/altmandaniel) or Twitter (@altmandaniel). Good night!

Inflation happens when all resources are employed. There are also demand shocks like now the impact of climate warming on food prices and then you have the Saudis raising the price of oil. Those things are outside our control.

Late to the party.

Interesting Book Salon.

Thank you, Bev, as always.

I had thought that I would sit this one “out” …

But Firedogs, I’ve got to tell you, for the most part, you make me proud and damned glad to know each and every one of you.

Maureen, I thank you for speaking truth.

Daniel Altman, I hope you might take heed of the response you’ve received here, and consider that BOTH of the legacy parties, the money parties, are single-mindedly doing this nation, the people, and civil society great, grave, and unforgivable harm.

The Rule of Law is in shambles, the nation has “out-sourced” its capacity to provide what basics it needs, the people are being made paupers at the whim of a sociopathic elite … the media, which is part of the political class, is simply a propaganda organ for corporate money-agendas, and the rest of the political class is more interested in what riches will become theirs when they have reduced public trust to utter disgust and “moved on” from “public service” …

DW