Can I Please Go Back to My Home Timeline Now? - Grasping Reality with Both Hands
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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.
Economics 210a Weblog Archives DeLong Hot on Google DeLong Hot on Google Blogsearch October 04, 2010
Can I Please Go Back to My Home Timeline Now? If you had told me four years ago that come October 2010 I would be forecasting that highly-efficient American steel companies would be operating at only 70% of normal capacity in 2011, that the U.S. Treasury would be able to borrow for 30 years at 1.61%/year real and at 3.71% per year nominal placing all inflation risk on the creditor, and that the last six months' CPI inflation would be 0.1% at an annual rate... ...I would simply not have believed you. I would have said that that could happen in some strange alternate universe in which Spock was evil and had a beard, but not in any real world that could plausibly exist. ...I would have said that, in the real world, with that much excess capacity and those low borrowing rates, 90% of both the Senate and the House would get behind big programs to push taxes off into the future and pull infrastructure into the present. How the &^#%^*@! did we get here? And why can't we get out? Brad DeLong on October 04, 2010 at 12:13 AM in Economics, Economics: Federal Reserve, Economics: Finance, Economics: Fiscal Policy, Economics: Macro, Obama Administration, Politics, Utter Stupidity | Permalink
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Comments christofay said... We haven't had all Demo gov. We have a strong GOP minority and Mod Republicans in the White House, administration, Fedup Reserve, Senate, think tanks, and on and on, play along to pay long Change is continuity Hope is what you feel when you're heading to dentist As in, I hope I don't need to get another root canal Reply October 04, 2010 at 02:40 AM Michael Turner said... Spock's not evil? He doesn't have a beard? Wait a minute: you DO remember that, on Sep 11th, 2001, the Starship Enterprise was flown into the Twin Towers, and that we're now bogged down fighting an insurgency on Vulcan, right? You liberals. It's like you're living in some alternate reality. Reply October 04, 2010 at 02:55 AM Davis X. Machina said... It is more important to have heroes and villains than jobs. You're an economist, you live in an economy, you see an economy. The rest of us, we live in an economy but see a morality play. Reply October 04, 2010 at 03:42 AM save_the_rustbelt said... The workers who received their last pay checks for packing up the factory for shipment to China were predicting a crash for years. But since they were mere high school graduates with calloused hands no one cared what they thought, least not economists. Reply October 04, 2010 at 04:20 AM CVS said... Sora: No, there is no fundamental contradiction. The problem is, there are lots of http://delong.typepad.com/sdj/2010/10/can-i-please-go-back-to-my-home-timeline-now.html
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different types of spending and taxing. Under GWB, we got a permanent tax plan (at least, it was envisioned as such - if not extended, i.e. everybody's tax cuts go up next year, it's not so bad) that will bankrupt us long term. We got Medicaid part D, which was a huge unfunded mandate that will help bankrupt us long term Brad is pushing for enough temporary tax breaks and spending now to break the recession cycle. Note his phrase "push taxes off into the future and pull infrastructure into the present." If done correctly, it will actually decrease the debt relative to the GDP, as it will stimulate growth, and debt is cheap now. This is something fundamentally different. In the long run, the only thing that will economically bankrupt us is substantially lowed economic growth, and rising health care costs -- hence the need for stimulus, and for health care reform, which is at least projected in most scenarios to reduce medical costs. Reply October 04, 2010 at 05:02 AM rickstersherpa said... I found Nancy Folbre's opinion piece in the N.Y. Times's Economix fairly enlightening about the sociological and political economic transformation since the period of 19291970 to today enlightening. Bottom line, America's elite, the upper 1%, both in the media and in wealth holding, have fewer common interests with most Americans then they did during that earlier period. The one common ground may be fear of Islamic and Eco-terrorists (the latter group being very much imaginary). http://economix.blogs.nytimes.com/2010/10/04/what-would-keynes-say-today/?hp ...In other words, the cross-class coalition that supported strong state participation in the United States economy in the post-World War II has come undone. If Keynes were around today, I think he would emphasize a supreme irony of Neoliberalism: No country has taken better advantage of free trade than China, with its controlled currency and strong industrial policies, including huge public investments in renewable energy technologies. China’s state capitalist regime has borrowed Keynesian theory from the West and garnered huge profits from it. But I don’t think Keynes would take much pride in this. He would be deeply disappointed that democratic capitalist countries like the United States seem unwilling to commit themselves to policies that could reduce unemployment and promote sustainable economic growth. He would explain our current shortfall of aggregate demand as the result of a tragic shortfall of national solidarity." Reply October 04, 2010 at 05:15 AM DrDick said... "How the &^#%^*@! did we get here? " The Republican Party and Conservadems "And why can't we get out?" The Senate.
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Reply October 04, 2010 at 05:39 AM Neal said... Quite simply, if you look further back in the chart where the employment/population ratio is the same as now, you see the 1970's. Oddly enough, that is the same time that credit and asset inflation began to substitute for real wage gains. Is it really all that surprising that we end up in the same place as where we began when the most widely held and touted asset (real estate) has collapsed and it is clear that the consumer has run past all semblance of credit-worthiness? How dis we get here? We got here by the substitution of a real economic engine with the engines consisting of asset-inflation and easy credit. Why can't we get out? Because when there is damn little other than an expectation of privilege based on 30 golden post-WW2 years of economic domination, the bluff gets called eventually. The major flaw in recovery assumptions is the hubristic assumption that the "forever" arc of the US would follow the ever-upward trajectory set in the 50's, 60's and 70's. When you no longer can pay your own way, it gets difficult. The change happened a couple of decades ago, not a couple years ago. Reply October 04, 2010 at 06:19 AM DrDick said in reply to Neal... I would argue that it has been the substitution of easy credit for wage gains which allowed channeling of ever more wealth and income into the coffers of the wealthy that has caused this situation. It is the fact that now that the credit has dried up the middle class, which has really driven the post-WW II economy, has no resources available. The very wealth have literally sucked the life out of the economy for their own narrow benefit and are now staging a "billionaires' coup" as Frank Rich and Krugman are proclaiming. Reply October 04, 2010 at 06:27 AM Neal said... The "interest-collectors" always win over the "interest-payers" in a credit-based society. Reply October 04, 2010 at 06:42 AM Graydon said... The 20th Century US economy rested on oil. Said economy _still_ rests on oil (and is still the 20th Century economy, and not doing what it ought) because the folks who get real power from oil don't want to give it up. They know they're going to lose that power; they know it's a really bad idea to be basing the economy on oil here and now in rationalist terms. But giving up the power means they lose relative status. (If some of them were actually to be prosecuted, *lots* of relative status.) Combine that with a wealth-makes-me-good, the poor-are-poorbecause-god-hates-them aristocratic movement, and there is a real, strong, and truly vigorous preference for a catastrophic crash in the unspecified future (preferably after the individuals in question are dead) rather than rationally driven change to a better future. If you can crack this problem in practical terms by means short of bloody revolution, well. That would be one for the history books. Reply October 04, 2010 at 06:49 AM
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bakho said... How did we get here? Labor has been marginalized. Our government has been captured by elites who make money in the FIRE sectors and just don't care. Just as the voices of those who opposed the Iraq war were shut out of the conversation and marginalized, now the voices calling for action on jobs are marginalized. Money controls politics by controlling the ability to message. Ever since media consultants found a way for Big Tobacco to bamboozle the public about lung cancer, the same tactics have been successfully applied to other elite causes. Reply October 04, 2010 at 07:00 AM Full Employment Hawk said... Obama had the opportunity to turn things around, but he totally bungled it. Making the economy grow fast enough so that the unemployment rate would be coming down significantly during the 6 months before the election should have been the overriding objective of the administration. If that were happening, Obama would have a strong approval rating and would therefore be politically much stronger. And the Democrats would have a very good November. There a nubmer of things that should have been done and were not. This is an incomple list: They should have tried for a stimulus that was larger by including a lot more investment in infrastructure. A heavy emphasis on infrastructure had a good chance of getting some moderate Republican support. They should have included a second stimulus in the 2009 budget using reconciliation, which would have only required 50 votes in the Senate. Not all types of stimulus could have been passed using reconciliation, but it could have been a numerically large amount. The vacancies on the Board of Governors should have been proptly filled with full employment hawks. The beggar-thy-neighbor merchantilist policy of China, which destroys American jobs, should have been agressively confronted. Unfortunately Obama chose people who are in tune with Wall Street and out of contact with Main Street as his chief economic advisors. These people do not understand how crucially having a good job and not having to be afraid of losing it is to ordinary working people (both for themselves and for their relatives and friends) and if that is not happening that they show their anger and frustration by voting against the incumbents. Reply October 04, 2010 at 07:01 AM Tim Connor said... The billionaires don't want us out. Between Fox News and the Kochs, the Conservative movement is bought and sold. Reply October 04, 2010 at 07:51 AM Jacob Davies said... And the new east span of the Bay Bridge is being built with Chinese steel because American steelmakers (now with 30% slack capacity) couldn't come up with a competitive bid, or didn't have - and didn't want to invest in building - the facilities necessary to manufacture piece of that size. It's an interesting question why that is the case.
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Reply October 04, 2010 at 07:58 AM beezer said... They didn't win because their government didn't make them win. It's the corrosive idea that government can't make a positive difference in the private economy. It's total nonsense, of course. But it is believed by enough people to effectively remove that 'tool' of our economic reality from our tool bag. Reply October 04, 2010 at 08:32 AM hartal said... OK but we need some good explanation of why the govt is not borrowing and spending more. Here's one explanation that takes on Krugman http://mrzine.monthlyreview.org/2010/wolff031010.html Reply October 04, 2010 at 09:10 AM hartal said... Yes the Folbre analysis is interesting but it implies that Keynes was himself averse to the the propping up of effective demand through neo-mercantilist policy based on low wages rather than deficit financed government expenditures. There was a dark nationalist side to Keynes' thinking whitewashed by Skidelsky who after all was once quite interested in Oswald Moseley. Reply October 04, 2010 at 09:40 AM the idler said in reply to Michael Turner... The goateed Spock was the evil one? I preferred that mirror universe. The Empire's "sword through the earth" symbol was pretty cool. I am surprised the neocons haven't adopted it. Reply October 04, 2010 at 10:20 AM low-tech cyclist said... "Can I Please Go Back to My Home Timeline Now?" Hey, I feel like we've been in one of those alternate realities, along the lines of "What if the Confederates had won the Civil War?", since the 2000 election was resolved. I want back to the timeline where Gore won, and I want there...um, 'now,' whatever the heck that means when making such a demand. Reply October 04, 2010 at 10:32 AM Bob Athay said in reply to DrDick... I could elaborate, but I can't improve on your explanation. Well stated! The only apparent difference between now and 80 years ago is that Bernanke, (Hank) Paulson & a few others had the good sense not to repeat the mistakes of the Liquidationist camp. But since we didn't actually crash, Obama must be a Bad Nanny because we're not back where we were before the bubble burst. Reply October 04, 2010 at 10:38 AM Mahopac cleaning service said... We won't get out until there's major constitutional reform. Read George Packer's profile of the Senate in the New Yorker - it's hair-raising stuff. Reply October 04, 2010 at 10:42 AM Peter K. said... Bob Athay' correct. I feel like the kid in the backseat of the Range Rover in Jurassic Park at night, who sees the T-Rex's eye in the window shines the flashlight on it and it dilates, but no one else http://delong.typepad.com/sdj/2010/10/can-i-please-go-back-to-my-home-timeline-now.html
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has noticed even though they had heard the stomping. We had a near miss. That alternate reality would have really been mind-blowing. The main problem is the successful propaganda drive discrediting of big government from Reagan through the husband of Hillary Clinton through George W. Bush. This enabled the rise of the shadow banking system, the demogoguery over TARP and government bailouts, and the fake concern over "runaway" government debt and bond vigilantes. But everything is Obama's fault because he's not tough enough.... Reply October 04, 2010 at 10:56 AM kharris said in reply to Sora... "Am I the only one who thinks it's really weird that you simultaneously castigate Republicans for worsening the long-term fiscal scenario whenever they take office and then try to spur Democrats to spend more?" No, but most of the people who find it weird don't catch the point that fiscal expansion is meant for now, fiscal rectitude once the economy is back near capacity. Right now, the economy is far below capacity and seems likely to remain so to the point that trend capacity will be lower than trend capacity half a decade ago. What we had under Bush for 5 of his first 6 years in offers was fiscal stimulus when the economy was running along in good fashion. When the time came to fend off recession, what we had was TARP to help financial firms and no stimulus package for the real economy. Backwards, don't you see? It's all a question of timing. Reply October 04, 2010 at 11:15 AM Bill K said... Your point about inflation risk reminded me of Bill Clinton's "#%^*-ing bond traders" comment. If inflation risk has been pushed onto a powerful interest group, then we may be locking in this very low inflation rate environment. This means we may really be stuck for quite a while. Reply October 04, 2010 at 12:04 PM Sharon, wearing a red shirt said... You'll have to wait until interphase before you can get back to your Universe. Only one problem after that, the power is balanced for four, we've got five. Who do you leave behind? Reply October 04, 2010 at 01:05 PM Nick Rowe said... I would never have believed it either. It was the one thing I was most wrong on (marking my beliefs to market). Easiest problem in the world to fix, I would have said, and the one that is the most fun to fix. You just get to print money, and spend it on what you want, or give it so someone else to spend on what they want, or lend it to someone to spend on what they want. Like a kid in a candy store with a big wad of cash: the only problem would be trying to choose what to spend it on, and not eating too much so you inflate yourself. Reply October 04, 2010 at 05:45 PM j said in reply to kharris... So you're saying I shouldn't reappropriate Jr.'s tuition payments to pay my bookie- if only so that Jr. can take care of me in my old age? But gambling got me into this messand now you're saying I should bet on expanding Jr.'s future capacity? http://delong.typepad.com/sdj/2010/10/can-i-please-go-back-to-my-home-timeline-now.html
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Look, back when I was gambling, that was investing... and investing in Jr? Why, that's a gamble. Better Jr. and I make peace with our contracting productive horizons, and become my bookie's serfs. Reply October 04, 2010 at 09:11 PM Random Blowhard said... How did we get here? Let's see, Spending ourselves to death on worthless crap that delivers zero value add, Chimpy Mcflightsuit republicans, Hopey McChange democrats, Bailouts for billionaires, crooks, thieves and union hacks, Rule of Law - Meh, Constitution - Meh, Responsibility/Accountability/Ethics - Meh, Rewarding FAILURE with lavish Golden Parachutes for CEO incompetance - YES, ... Why can't we get out? Goldman Sachs is the only 'real world' solvent financial institution in the United States, all the rest are bankrupt. The current employment situation is the HIGH POINT of a new normal going forward. Democrats have no solutions, Republicans have no solutions, We spend 40% more than we earn, We are in the early stages of full blown economic collapse the end point of which may be The United States Of Argentina or PANEM if we get civil war. Reply October 05, 2010 at 12:26 AM ReturnFreeRisk said... I agree with your analysis. BUT the Fed's solution is bogus. AND ALL YOU ECONOMISTS KNOW IT. Monetary policy is not going to do anything. It will benefit speculators and commodity producers and KILL the unemployed already hard up. WHY DO YOU ECONOMISTS WANT QE - it will raise prices of food and fuel that the ordinary people need. WHY? who is it benefitting but the fat cats? Reply October 05, 2010 at 08:48 AM Banana_Republic said in reply to Full Employment Hawk... Thanks, FEH, for a concise and accurate summary of Democratic strategic idiocy. It's a welcome contrast from so many other comments in this thread that blame those Mean Old Republicans. I mean, sure, I get it, the Republicans are batshit crazy, and often sadistic to boot. Thing is, I can't think of a time in the last 20-30 years when the Dems did a damn thing to usefully oppose their excesses. Both parties work for the same masters. Voting (in national elections, anyway) only gives our broken political system a veneer of legitimacy. Reply October 05, 2010 at 10:10 AM Greg A said... Spock with a beard was the same as Spock without a beard - only the surrounding universe changed. Just sayin' Reply October 05, 2010 at 03:24 PM puzzle said... Maybe it's time for a paradigm change from laizzes-faire "company managers and ownership know best how to run the economy" to more focus on production and creating necessary factors of production such as skillbase and investments. In literature it is known as developmental state. Reply October 06, 2010 at 12:26 PM Elias said...
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If we're stuck in this timeline, at the mercy of Bearded Spock and the Tea Party, I wonder what our own timeline is like. Surely it's beset by the uber-hippies that swapped spots with us. I suspect that they've already passed the Mandatory Gay Marriage Act and the Infinite Deficit Amendment. Surely they've implemented a Marijuana-for-All system by now. What a strange world ours must be. Reply October 07, 2010 at 08:01 AM Comment below or sign in with TypePad
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