"Why Janet Yellen, Not Larry Summers should lead the Fed"

An appointment of Larry Summers to the Fed Chair fits perfectly the definition of insanity attributed to Albert Einstein: "Insanity is doing the same thing over and over again and expecting different results."

In that vein, Joseph Stiglitz argues contra Mr. Summers @ NYTs, with a great in-depth analysis of the background and the stakes in this appointment:

The controversy over the choice of the next head of the Federal Reserve has become unusually heated. The country is fortunate to have an enormously qualified candidate: the Fed’s current vice chairwoman, Janet L. Yellen. There is concern that the president might turn to another candidate, Lawrence H. Summers. Since I have worked closely with both of these individuals for more than three decades, both inside and outside of government, I have perhaps a distinct perspective.

But why, one might ask, is this a matter for a column usually devoted to understanding the growing divide between rich and poor in the United States and around the world? The reason is simple: What the Fed does has as much to do with the growth of inequality as virtually anything else. The good news is that both of the leading candidates talk as if they care about inequality. The bad news is that the policies that have been pushed by one of the candidates, Mr. Summers, have much to do with the woes faced by the middle and the bottom.

Corey Booker's bona fides...

Corey Booker, soon-to-be Senator from New Jersey has enormous star-power.  There are things to admire about Booker - he seems to have done a good job as Mayor of Newark against steep odds. He strikes me as slightly ridiculous in the degree of his obsession with ephemeral social media, but that's probably generational.  (Politicians in their mid-40s like Booker tend to be desperate to comport to an older person's notion of what younger potential voters are all about.)

But IMHO Booker is absolutely not the kind of Democrat we need more of on the national

scene - he's way too cozy with the 1%, clearly open to cutting bad deals for the young folks he's eager to impress around their long-term Social Security benefits, babbling right-wing nonsense on the Sunday morning idiot gabfests about deficits as a major problem when we need to be focused on when unemployment has been the burning issue for five years, shamelessly pointing fingers regarding the origins of the financial crisis of 2008 without mentioning the word "banks."

 Noam Sheiber @ TNR has a good break-down of Bookers' deep flaws as an incoming high-profile Democrat addressing issues at the national level:

Exactly what kind of senator will Cory Booker make once he coasts to (a near-certain) victory this fall? On the one hand, Booker—the Newark mayor and reigning viceroy of Twitter—has a habit of lionizing the tech and finance executives who are his biggest campaign donors. Last year on “Meet the Press,” he famously criticized President Obama’s “nauseating” assault on the private-equity industry. Booker’s ease around business moguls is such that he betrayed no sheepishness when The New York Times disclosed that several had funded his personal Internet venture, potentially worth millions to him, while he was ensconced in City Hall.

Reagan, the Republicans and Chemical Weapons

Never forget...never again...

Visit NBCNews.com for breaking news, world news, and news about the economy

"Are the rich getting too much of the economic pie?"

Derek Thompson @ The Atlantic:

"Not Really Labor’s Day"

Economist Nancy Folbre @ NYT's Economix:

The annual holiday supposedly celebrating labor has long lacked much celebratory feel. Over the last 30 years, employment has become more precarious and real wages for most workers have stagnated. Since 2008, in particular, the corrosive impact of persistent unemployment and declining wages on American workers has been felt at holiday picnics and parades.

The seasonally adjusted July unemployment rate of 7.4 percent showed a slight decline from last year’s 8.2 percent, but the gains came largely as a result of declining labor force participation rather than job creation.

The larger measure of underemployment (known as U-6) that includes people working part time because they cannot find full-time work, and those who want a job and have looked for one in the last 12 months but have given up currently looking, was a seasonally adjusted 14 percent in July, compared with 14.9 percent a year earlier.

Public policies could help. As Jared Bernstein explained in an earlier Economix post, the federal government could become an employer of last resort. A new report from the Urban Institute outlines several specific strategies to lower long-term unemployment in particular.

Scary Thought on Labor Day Weekend: Obama's Economic Team Think They Are Doing a Good Job

Dean Baker @ Center for Economic & Policy Research:

Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama's economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.

We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon.

And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.

I could go on but what's the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that's a bit like saying that the 1962 Mets didn't lose all their games. Horrible is horrible.

" The Audacity of the Fight for Higher Wages"

Jared Bernstein @ NYT's Economix:

I was struck Thursday by the juxtaposition of two stories in the news (two and half, really).

First, the banks had another banner quarter in terms of profits, up $42 billion, or 23 percent from last year.  News reports emphasized lower loan losses, meaning the banks had to mark down or charge off fewer nonperforming loans.  That increases the share of their capital that they can put to work spinning off profits, something they are very good at.

A classic case of it takes money to make money.

At the other end of the economy were the striking fast-food workers, calling for an increase in their pay to $15 an hour (the average for these workers is around $9, up from $8.66 in 2009).

I also noted — this is the half-a-report I mentioned above — that in the upward revision to second-quarter gross domestic product that came out on Thursday, corporate profits were  again up near record highs as a share of national income while compensation fell again and is now at the lowest share it has been since the year I was born (1955 — ancient history, I know).

And yet, what I mostly heard about this was about the audacity and the economic illiteracy of the strikers.  Don’t they realize that it’s still a tough economy?  Don’t they get that their employers are not the big corporations but the franchisees who can’t afford to pay more?  Don’t they get that the increase will just have to be passed on in prices?

"Japan's pump-primed recovery proves US deficit hawks wrong"

Dean Baker @ The Guardian:

Many of the people who ridicule efforts at using government spending to boost the economy and create jobs like to turn to Japan to warn countries from following that route. After all, Japan's budget deficit last year was more than 10% of GDP. That would be more than $1.6tn in the US economy today. Its gross debt is more than 245% of GDP. That would imply a debt of almost $40tn in the United States, which would mean a debt of $125,000 for every man, women, and child in the country.

Those are the sorts of numbers that policy types in Washington find really scary. Fortunately for the Japanese people, the folks currently running their economy are more interested in sound economic policy than pushing scare stories about debt and deficits. Rather than rushing to reduce the deficit, Japan's new prime minister, Shinzo Abe, went in the opposite direction. He deliberately increased spending to create jobs.

He also appointed a new head of Japan's central bank who is committed to raising the inflation rate. Japan has been suffering from near-zero inflation, or even deflation, since the collapse of its stock and housing bubbles in 1990. Abe's pick as head of the central bank has committed the bank to raising the inflation rate to 2%. Implicit in this commitment is the notion that the bank will buy up as many Japanese government bonds as needed to reach its inflation target.

In other words, the bank is prepared to print lots of money.

While we are still in the early days of Abe's program (he just took office at the end of 2012), the preliminary signs are positive. The economy grew at a 2.4% annual rate in the second quarter, after growing at a 3.6% rate in the first quarter. By comparison, GDP in the United States grew at an average rate of just 1.4% in these two quarters.

Median Income Still 6% Below Level at Start of Recession in ’07

Robert Pear @ New York Times:

Median household income has begun to recover over the last two years, but households still have not come close to regaining the purchasing power they had before the financial crisis began, a new study says.

"Why are we rushing to get rid of Fannie & Freddie?"

Barkley Rosser @ Econospeak:

"How many Virginians does it take to change a light bulb?
Five: One to change the bulb and four to talk about how great the old bulb was."

I think I am turning into my late father, a conservative in the old traditional way of defending existing institutions and practices.  Here I go, about to defend Fannie Mae and Freddie Mac, whom all Very Serious People know should go as soon as possible.  President Obama thinks they should go, and we have two bills in Congress that will lead to that outcome, one in the Senate co-sponsored by Dem Sen. Warner of VA (my state) and Rep Sen. Corker of TN, both VSPs in good standing, while in the House Banking Chair Hensarling (R-TX) also has such a bill.  I mean wow, we have both the president and VSPs from both parties in Congress on this.  It must be great.  I mean, we all know that they were responsible for all the problems in the housing market that led to you know what!

Well, except maybe not.  Buried in the Saturday Real Estate section of the Washington Post today we have Kenneth Harley raising some questions.  Yes, indeed, both of these entities are most certainly open to serious criticism.  To varying degrees they have had histories of mismanagement and even corruption.  They were buying lots of subprime mortgages at the peak of the housing bubble.  Republican critics even claim that they were prime instruments in getting the whole bubble going because they supposedly pressured banks to lend to inappropriate poor minority home buyers under pressure from Clinton, although most observers do not buy this case.  Furthermore, they essentially went belly up with the bust and needed to be bailed out by a government takeover.  The case looks pretty strong for at least reforming them, if not outright getting rid of them.

However, Harley notes that they are now making money and paying off their loans.  Furthermore, not only have they been funding many housing market deals during these recent years of a desperately weak housing market, they were the only entity in the US that was doing so at the pit of the crash (a point Harley does not make).  Indeed, Harley reports that "Economists at Moody's Analytics estimate that dumping the companies and switching to a plan advocated by Sens. Bob Corker (R-Tenn) and Mark Warner (D-VA) 'would increase the interest rate for the average mortgage borrower' by one-half to three-quarters of a percentage point."  And, it should be noted that in contrast to the Hensarling plan in the House, the Corker-Warner plan actually does propose putting in place a housing market equivalent of the FDIC to provide insurance for housing lenders in the absence of the evil Fannie and Freddie.  Presumably the rates would go higher under the no-backdrop-at-all-plan of Hensarling.

Inside a Subprime Mortgage Bundle...6 years later

Peter Eavis @ NYT's Dealbook:

A subprime deal came back to haunt Fabrice Tourre, a former Goldman Sachs trader, when a federal jury in Manhattan found him liable for civil securities fraud.
He is not the only one feeling the pain of a subprime transaction six years on.

Hundreds of thousands of subprime borrowers are still struggling. Some of their mortgages ended up in another Goldman deal that was done at the same time as Mr. Tourre was working on his own financial alchemy.

In February 2007, just before everything fell apart, Goldman Sachs bundled thousands of subprime mortgages from across the country and sold them to investors. This bond became toxic as soon as it was completed. The mortgages slid into default at a speed that was staggering even for that era.

Despite those losses, that bond still lives. It has undoubtedly left its mark on ordinary borrowers. But the impact of the deal spread ever further. It touched the bankers who sold the deal. It even landed on taxpayers, who ended up owning a large slice of the Goldman bond.

Does Walmart create jobs?

Kathleen Grier @ Salon:

Contrary to Walmart’s self-glorifying mythology, the retailer is anything but a job creator — in fact it is a huge job killer. Not only that, destroying jobs is an essential component of Walmart’s anti-worker business model. Let’s put aside Walmart’s happy talk and examine the cold, hard facts.

First, let’s look at the impact of Walmart on local labor markets. The largest, most rigorous study conducted on the subject is this peer-reviewed article from 2008. Its lead author is economist David Neumark, who is no wild-eyed liberal. (See, for example, this anti-minimum wage op-ed he wrote for the Wall Street Journal).

Earlier studies did not adequately deal with selection bias: i.e., the problem that when and where Walmart chooses to open new stores is not random, but tends to be correlated with other variables. Those confounding variables make it difficult to determine whether local employment outcomes are causally related to Walmart‘s entry, or to something else. I’ll skip the technical details, but suffice it to say Neumark and his co-authors devised a sophisticated methodology that accounts for the selection bias. Using data from over 3,000 counties, their results show that when a Walmart store opens, it kills an average 150 retail jobs at the county level, with each Walmart worker replacing about 1.4 retail workers. These results are robust under a variety of models and tests.

Other strong studies found similar results. A 2008 peer-reviewed study that looked at Maryland concluded that Walmart’s presence significantly decreased retail employment, by up to 414 jobs. And a 2009 study by Loyola University found that the opening of a Chicago Walmart store was “a wash,” destroying as many jobs as it created: “There is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area,” according to the report. In short, when Walmart comes to town, it doesn’t “create” anything. All it does is put mom-and-pop stores out of business.

Justice for all...

The Daily Show on "Too Big To Jail"

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,The Daily Show on Facebook

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,The Daily Show on Facebook

The economy is worse than the lower unemployment rate suggests

Wonkblog/ Ezra Klein @ WaPo:

From the Center on Budget and Policy Priorities:

The core issue here is that the unemployment rate only counts people actively looking for work. That means there are two ways to leave the ranks of the unemployed. One way — the good way — is to get a job. The other way is to stop looking for work, either because you’ve retired, or become discouraged, or begun working off the books.

The yellow line on the left shows the official unemployment rate since 2008. It’s fallen from over 10 percent to under 8 percent. But the red line on the right shows the actual employment rate — that is, the percentage of working-age adults with jobs. What should scare you is that the red line has barely budged.

At the beginning of 2007, the employment rate was 63.3 percent, and the unemployment rate was 4.7 percent. By the end of 2009 — so, after the worst of the recession — it had fallen to 58.3 percent, and unemployment was up to 9.9 percent. Today, it’s 58.7 percent, even though unemployment has fallen to 7.6 percent. That means a lot of the people who’ve left the rolls of the unemployed haven’t gotten a new job. They’ve just left the labor force altogether.

Some of that’s natural. The population is aging, and the labor force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests. And instead of doing anything to help those people get back to work, Washington canceled the payroll tax cut, permitted sequestration to go into effect, and is now arguing about whether to shut down the federal government — and possibly breach the debt ceiling — in the fall.

"Sex, Money & Gravitas"

 Krugman @ NYTs:

Can a woman effectively run the Federal Reserve? That shouldn’t even be a question. And Janet Yellen, the vice chairwoman of the Fed’s Board of Governors, isn’t just up to the job; by any objective standard, she’s the best-qualified person in America to take over when Ben Bernanke steps down as chairman.

Yet there are not one but two sexist campaigns under way against Ms. Yellen. One is a whisper campaign whose sexism is implicit, while the other involves raw misogyny. And both campaigns manage to combine sexism with very bad economic analysis. 

Let’s start with the more extreme, open campaign. Last week, The New York Sun published an editorial attacking Ms. Yellen titled “The Female Dollar.” The editorial took it for granted that the Fed has been following disastrously inflationary monetary policies for years, even though actual inflation is at a 50-year low. And it warned that things would get even worse if the dollar were to become merely “gender-backed.” I am not making this up. 

True, The Sun is a marginal publication, with strong gold-bug tendencies, and nobody would pay much attention if the rest of the right had ignored or distanced itself from that editorial. In fact, however, The Wall Street Journal immediately followed up with its own editorial along the same lines, in the course of which it approvingly quoted The Sun piece, female dollar and all. 

The other campaign against Ms. Yellen has been subtler, involving repeated suggestions — almost always off the record — that she lacks the “gravitas” to lead the Fed. What does that mean? Well, suppose we were talking about a man with Ms. Yellen’s credentials: distinguished academic work, leader of the Council of Economic Advisers, six years as president of the San Francisco Fed, a record of working effectively with colleagues at the Board of Governors. Would anyone suggest that a man with those credentials was somehow unqualified for office? 

Sorry, but it’s hard to escape the conclusion that gravitas, in this context, mainly means possessing a Y chromosome. 

Both anti-Yellen campaigns, then, involve unmistakable sexism, and should be condemned for that reason. As it happens, however, both campaigns have another problem, too: They’re based on bad economic analysis. 

The Summers of our discontent

Jason Linkins @ Huffington Post:

Way way back at the end of this period of time that we like to call "the 1990s," Time magazine featured Alan Greenspan, Robert Rubin, and Larry Summers on its cover and called them "The Committee To Save The World." And that was basically the moment that put the American economy on the Darkest Timeline. Somewhere, out there, there is a parallel universe where Brooksley Born, Sheila Bair, and ... I don't know, let's say a bottle of sriracha were appointed to the same committee, and there, the economy is humming and Elizabeth Warren didn't even need to run for Senate.

How did that work out?

In the intervening years since the Frio Trio were plastered all over your dentist's office, Greenspan has been forced to admit that his overarching theories were kinda-sorta all cocked up. Rubin ... well, he at least fell into a swimming pool at a big Wall Street to-do at the 2012 Democratic National Convention, in the most cosmically just thing that has ever happened at a political event. But Larry Summers has proven to be the sort of dread beast that even Ash Williams couldn't send off to a spectral dirt nap. Now, it is being rumored that Summers is atop the list of possible replacements for Ben Bernanke at the Federal Reserve.

Lordy, it was just 18 months ago that we were forced to ruminate on the possibility that Summers might end up leading the World Bank. At the time, the best (among many!) arguments against this came from Felix Salmon, who recognized that running the World Bank called for "a very high level of cultural and interpersonal sensitivity," and not, say, a high level of whatever personality traits lead one to opine, "I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable."

Obamacare is still driving Republicans crazy

 Professor Krugman @ NYTs:

Leading Republicans appear to be nerving themselves up for another round of attempted fiscal blackmail. With the end of the fiscal year looming, they aren’t offering the kinds of compromises that might produce a deal and avoid a government shutdown; instead, they’re drafting extremist legislation — bills that would, for example, cut clean-water grants by 83 percent — that has no chance of becoming law. Furthermore, they’re threatening, once again, to block any rise in the debt ceiling, a move that would damage the U.S. economy and possibly provoke a world financial crisis.

Yet even as Republican politicians seem ready to go on the offensive, there’s a palpable sense of anxiety, even despair, among conservative pundits and analysts. Better-informed people on the right seem, finally, to be facing up to a horrible truth: Health care reform, President Obama’s signature policy achievement, is probably going to work. 

And the good news about Obamacare is, I’d argue, what’s driving the Republican Party’s

intensified extremism. Successful health reform wouldn’t just be a victory for a president conservatives loathe, it would be an object demonstration of the falseness of right-wing ideology. So Republicans are being driven into a last, desperate effort to head this thing off at the pass.

Some background: Although you’d never know it from all the fulminations, with prominent Republicans routinely comparing Obamacare to slavery, the Affordable Care Act is based on three simple ideas. First, all Americans should have access to affordable insurance, even if they have pre-existing medical problems. Second, people should be induced or required to buy insurance even if they’re currently healthy, so that the risk pool remains reasonably favorable. Third, to prevent the insurance “mandate” from being too onerous, there should be subsidies to hold premiums down as a share of income. 

U.S. Health Care Spending...Again

The world's least cost-effective health care system. Shirley Wang @ WSJ:

That the U.S spends a lot of money on health care is a refrain many Americans are familiar with, but the latest health expenditure data from the Organization for Economic Co-operation and Development still are striking. Here’s a graph of health-care expenditure as a percentage of gross domestic product for the 34 member nations of the OECD between 1980 and 2012. As you can see, there’s one country whose expenditure begins to distinguish itself from all the others — the U.S.

In 2011, the most recent year in which most of the countries reported data, the U.S. spent 17.7% of its GDP on health care, whereas none of the other countries tracked by the OECD reported more than 11.9%. And there’s a debate about just how well the American health-care system works. As the Journal reported recently, Americans are living longer but not necessarily healthier .

"Much of Dodd-Frank is dying on the vine"

Erika Eichelberger @ Mother Jones:

The Dodd-Frank financial reform act of 2010 turns three years old this month. But because of intense Wall Street lobbying, only about a third of the provisions it requires have actually been made into rules by Wall Street regulators, and many have gaping loopholes designed by industry lobbyists. A new analysis by the Sunlight Foundation, a non-profit that advocates for government transparency, starkly illustrates why regulatory agencies are so swayed by industry: over the past three years, those whose job it is to police Wall Street have met with big banks 14 times more often than pro-reform groups to discuss proposed Dodd-Frank rules.

The Sunlight Foundation reviewed three years worth of meetings that banks, industry lobbyists, corporations, and financial reform advocacy groups had with the Commodities Futures Trading Commission (CFTC), the Treasury Department and the Federal Reserve, and found that these regulators had met 2,118 times with financial institutions, and only 153 time with pro-reform groups. Here's what that looks like, via the Sunlight Foundation:

Inflation-Mania Cranks & Crackpots

Conservative policy analyst Bruce Bartlett @ NYT's Economix on the "Inflationphobes," who are apparently a...uh...bunch of cranks and crackpots:

When the most recent recession began in December 2007, there was no reason at first to believe that it was any different from those that have taken place about every six years in the postwar era. But it soon became apparent that this economic downturn was having an unusually negative effect on the financial sector that threatened to implode in a wave of bankruptcies. The Federal Reserve reacted by doing exactly what it was created to do — be a lender of last resort and prevent systemic bank failures of the sort that caused the Great Depression and made it so long and severe.

As the Fed lent freely to banks and other financial institutions, its balance sheet grew very rapidly. The reserves of the banking system grew concomitantly; reserves are funds that banks have available for immediate lending that theoretically should lead to credit expansion and new investment by businesses, durable goods purchases by households and so on.

 

Federal Reserve Bank of St. Louis

 

During the inflation of the 1970s, most economists became convinced that if the Fed adds too much money and credit to the financial system it will inevitably cause prices to rise. Since the increase in the money supply in 2008 and 2009 was unprecedented, many economists reacted fearfully to the Fed’s actions.

Given the order of magnitude of the increase in bank reserves, from virtually nothing to more than $1 trillion almost overnight and now to more than $2 trillion, it was not unreasonable to be concerned about the potential for Zimbabwe-style hyperinflation.

But inflation fell rather than rising. In the five and a half years since the start of the recession, the consumer price index has risen a total of 10.2 percent. In the five and a half years previously, it rose 17.7 percent. That is, the rate of inflation fell by almost half.

Now, I don’t expect all the people who filled The Wall Street Journal’s editorial page in 2008 and 2009 predicting an imminent rise in inflation to offer a mea culpa, but at some point I think the inflationphobes should at least stop saying that hyperinflation is right around the corner.