Tag Archives: economy

By Age 40, Your Income Is Probably as Good as It’s Going to Get

by BrentP59cdnn Posted on February 11, 2015

Mother Jones

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By age 40 you’re done. That’s the conclusion of a report from the New York Fed that looks at lifetime earnings from age 25 through retirement. The charts on the right tell the story.

The top chart shows average earnings by age. It’s a little hard to immediately see how dramatic the income peak is since the y-axis shows the log of earnings, but if you do the arithmetic it demonstrates that, on average, by age 40 you’re within about $1,000 of your peak earnings. You’ll get inflation adjustments after that, but for the bulk of us, that’s it. Real earnings pretty much plateau after age 40.

The bottom chart illustrates this in a different way. The yellow rectangle shows earnings growth for the bottom 80 percent. The blue line is for ages 25-35, and there’s a fair amount of earnings growth except at the very bottom. The red line is for ages 35-45, and it’s pretty close to zero. There’s virtually no earnings growth for anyone. And the green line is for ages 45-55. It’s actually negative. If you put the latter two age groups together, the report concludes that “average earnings growth from ages 35 to 55 is zero.”

Now, outside the yellow box we have the top 20 percent: the well off and the rich. Those folks show a lot of earnings growth when they’re young, but they also show fairly healthy growth between ages 35-45.

And the top 1 percent? That’s on the very far right, and as you can see, they show earnings growth at every age level.

None of this will come as much of a surprise to anyone, but I thought it was interesting to see it in black and white, so to speak. If you’re planning to make your fortune, you’d better do it by age 40. With only a few exceptions—and those exceptions are mostly for people already making a lot of money—you’re done by then. Your income just isn’t likely to ever go up much after that.

(Via Wonkblog’s Danielle Paquette.)

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By Age 40, Your Income Is Probably as Good as It’s Going to Get

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Is Republican Concern About Middle-Class Wage Stagnation Just a Big Con?

by HayleyFaulding Posted on February 11, 2015

Mother Jones

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Over the past few weeks, Republicans have become oddly troubled about the state of the American economy. It’s not just that recovery from the Great Recession has been slow. Their big concern is that income inequality is growing. Middle-class wages are stagnating. GDP growth is benefiting corporations and the rich, but no one else. The economy is becoming fundamentally unfair for the average joe.

This is certainly a sharp U-turn for a party that’s traditionally been more concerned with cutting regulations on businesses and lowering taxes on the rich. Why the sudden unease with the fact that the rich are doing so well?

The cynical side of me says the answer is simple: Republicans don’t really care about the growing unfairness of the economy any more than they ever have. They’ve just decided to attack Democrats on their strongest point, not their weakest. This was a favorite tactic of Karl Rove’s, and over the past decade or two it’s become a fairly conventional strategy. If Hillary Clinton thinks she can make hay by pointing out how the well the rich are doing at the expense of everyone else—well, let’s just defuse that right from the start by agreeing with her. Thomas Edsall puts it like this:

The danger for Democrats is that they will lose ownership of the issues of stagnation, opportunity and fairness. But they also face what may be a deeper problem: What happens when their candidates are not the only ones who can harness the emotional power that stems from the anger many Americans feel as they helplessly watch the geyser of wealth shooting to the top?

The less cynical view is that the Republican Party is finally responding to the views of the “reformicons,” a loose group of youngish thinkers who have urged the GOP to adopt a more populist, family-friendly economic agenda. This, goes the story, is pushing Republicans in a more centrist direction, and is responsible for their increasing attention to issues of economic fairness. As Edsall says, they have to move to the center if they want to win in 2016. However, Yuval Levin, one of the most prominent of the reformicons, says this is just flatly wrong:

A lot of Edsall’s confusion would be resolved if he considered the possibility that we are actually trying to drag the party to the right, not the center—on the tax question that is his focus, and on the other issues we have taken up.

….Edsall’s treatment of the tax question as the one on which the reformers have stepped furthest from traditional conservative arguments is a good illustration of his failure to see this dynamic….The kind of proposals that “reform conservatives” tend to call for, and the sort that Lee and Marco Rubio have advanced in Congress, consist of the same basic components as most of the successful conservative tax reforms of the last three decades….It does emphasize the business tax code in pursuit of growth more….It does emphasize marginal rate reductions less….It does deliver more of its tax relief through payroll-tax cuts….It does prominently feature the over-taxation of parents among the distortions it seeks to correct.

….This approach to tax reform is precisely an application of longstanding conservative principles and goals to contemporary circumstances….So on taxes, the question between some reform conservatives and some other conservatives is how best to move Republicans to the right….At its core, at least as I see it, “reform conservatism” is just applied conservatism. In many areas of policy, we’re trying to move Republicans from merely saying no to the left, or worse yet saying “yes, but a little less,” to showing what the right would do instead.

I remain unsure what to think of this argument. In one sense, it just seems opportunistic. Reformicons have so far made little headway with a Republican Party that’s been relentlessly moving to the right, so now they’re trying to insist that their agenda is more conservative than even the tea party agenda. Honest. You just have to squint at it in the right way.

But in another sense, I buy Levin’s pitch. Most of the reformicons really are trying to shrink the size of government and lower the overall tax take. The fact that their proposals are perhaps more likely to get adopted in the real world makes them, in a practical sense, more conservative than a firebrand who just wants to scream about taxes with no real chance of ever getting a conservative tax plan passed.

That said, I still think Levin underestimates some of the differences here. The reformicons, he admits, do emphasize marginal rate reductions less than traditional conservatives. But this is not just some minor point of tactics. Ever since Reagan, lowering marginal rates on the rich has been one of the two or three unshakeable Holy Grails of the conservative movement. You see this over and over again when Republicans actively oppose tax cuts if they don’t include a rate cut at the top. They don’t want to reduce payroll taxes. They don’t want to increase child tax credits. What they want is to cut tax rates on the rich. The evidence on this point could hardly be more crystal clear.

Overall, then, I’d say Edsall has the better of this argument, and he’s right to be a bit befuddled. The reformicons may say that their agenda is both more populist and more conservative than traditional Republicanism, but that’s a hard argument to swallow. And when it comes to issues other than taxes, the problems get even worse. Reformicons mostly want to accept the welfare state but transform it into something more efficient. That’s not a message that the modern Republican Party is open to. Ditto on social issues, where reformicons tend to simply stay quiet. But in real life, politicians don’t get to stay quiet. They either toe the line on social issues or else they’re drummed out of the movement.

The bottom line remains the same as it’s always been. To the extent that reformicons are successful, it’s because they aren’t really reformers. To the extent that they’re true reformers, they aren’t successful. Maybe that will change in the future. But not yet.

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Is Republican Concern About Middle-Class Wage Stagnation Just a Big Con?

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Quote of the Day: Who Would Be Dumb Enough to Trust Republicans With the Economy Yet Again?

by StellaAnderson Posted on February 9, 2015

Mother Jones

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From Kevin Hassett, a conservative economist who’s advised both John McCain and Mitt Romney, explaining what Hillary Clinton’s economic message should be in the 2016 presidential campaign:

The Republicans gave us a crappy economy twice, and we fixed it twice. Why would you ever trust them again?

Not bad, Kevin! Thanks. This comes via Ed Kilgore, who’s similarly impressed: “Wow, no kidding. Hillary Clinton should say that. It would almost fit on a bumper sticker, and with a few photos would make killer text for a 30-second ad.”

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Quote of the Day: Who Would Be Dumb Enough to Trust Republicans With the Economy Yet Again?

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Here’s the Big Problem With Liberals’ "Middle Class" Agenda

by VivianOcasio Posted on February 4, 2015

Mother Jones

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President Obama recently advanced two proposals designed to help the middle class—part of a middle-class agenda that’s recently become something of a liberal rallying cry for the 2016 election. The first proposal was a mortgage plan available to anyone who bought a home. The second was a college tuition plan that would have helped middle-income workers with money saved by eliminating 529 college savings plans.

The mortgage plan has met with considerable enthusiasm. The tuition plan, by contrast, flamed out within days and has already been withdrawn. Mechele Dickerson comments:

While both of these proposals ostensibly targeted the middle class, the mortgage plan was lauded because its financial relief applies to all homeowners, regardless of how much they earned. The 529 proposal, by contrast, was doomed because of a fatal flaw: it actually tried to provide relief for just the middle class, carving it out by income.

The success of one and not the other was actually quite predictable. The mortgage proposal, though modest, was welcomed because it was designed to make it easier and cheaper for families to buy homes. Republicans, Democrats, Americans and the financial entities that benefit all agree that any plan that increases homeownership rates is good, even if most of the benefits go to higher-income households and barely reach the middle class.

….The same is true with 529 plans….Fewer than 3 percent of families save for college using 529 plans, according to Federal Reserve data….Since it’s the richest who have the largest accounts, most of the benefits of the tax break go to them. While the average account has about $20,000 in it, the accounts of the top 5 percent average more than $106,000.

This highlights one of the fundamental problems of liberal attempts to help the middle class. In theory, universal programs like Obama’s mortgage plan are designed to help the middle class, and this is what makes them both popular and politically palatable. In practice, though, the bulk of their benefits usually go to the well off, and this is what really makes them politically palatable. That’s why the tuition program met an instant death. It really did help the middle class—and only the middle class—and this meant it lacked the all-important political support of the well off. In fact, since the well off would be losing a benefit to pay for it, it attracted their instant opposition. And that was that.

As Dickerson says, the problem here is that the American definition of “middle class” is so broad. We basically have the poor on one end and the 1 percent on the other, and everyone in between considers themselves middle class. So if you say your program helps the middle class, it needs to help virtually everyone—including lots of people who make an awful lot of money. It’s a good bet that virtually all of those folks with $106,000 in their 529 accounts think of themselves as middle class even if they earn well more than six-figure incomes.

Needless to say, this makes “middle class” programs really expensive. In practice, they have to be effectively universal, and since benefits often scale with income (as with tax deductions and savings plans), including the top 5 percent of the income ladder in these programs balloons their price tag by a whole lot more than 5 percent.

There are answers to this. You can offer tax credits rather than tax deductions. You can cap savings programs. But if you do very much of this, you effectively eliminate benefits for the well off and you lose their support. And as plenty of research has shown, it’s the well off who really have political clout. This means you have to buy them off if you want to do something for the middle class, and that makes “middle class programs” a lot pricier than you’d think. It’s something that any liberal agenda to help the middle class is going to have to figure out.

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Here’s the Big Problem With Liberals’ "Middle Class" Agenda

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Grover Norquist Turns on His Anti-Tax Bae Sam Brownback

by ColemanCroteau Posted on January 30, 2015

Mother Jones

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Grover Norquist—the president of Americans for Tax Reform and the man who for decades has served as conservatives’ leading anti-tax zealot —had seemingly found his ideal politician in Kansas Gov. Sam Brownback. After Brownback was elected governor in 2010, he went on a mission to eradicate his state’s income tax—slashing rates across the board in two rounds of cuts and setting rates to drop further over the coming years—eventually to zero if everything clicked in place.

Read more about how Sam Brownback created a Kochtopia in Kansas.

Norquist loved it. He visited Topeka in 2013 to show his support during Brownback’s State of the State address. In an interview with National Review a year ago, Norquist touted Brownback as a strong contender for the 2016 presidential nomination.

But political allies often prove fickle. Brownback’s tax cuts have wrecked the state budget and forced the governor to propose raising taxes in order to avert fiscal calamity. And Norquist is now rallying conservatives in the Kansas Legislature to oppose the Republican governor’s plan.

Earlier this week, Norquist penned a letter to state lawmakers encouraging them to thwart Brownback’s proposal to raise taxes on liquor sales and tobacco products. Although Norquist hewed to his normal claims that taxes end up hurting the state’s bottom line, he also adopted a tactic that you’d normally hear from liberals: Don’t raise these specific taxes because they overburden the poor. “The fact is, so called ‘sin taxes’ like the cigarette tax and alcohol tax disproportionately impact consumers who can afford the tax increase least. A pack-a-day smoker would end up paying an extra $547.50 in taxes a year,” Norquist wrote in the letter, according to the Topeka Capital-Journal. “Kansans living along the Missouri border may opt to avoid the tax altogether by purchasing their tobacco products in Missouri—where the tax would be lower.”

A spokesperson for Americans for Tax Reform didn’t respond to several interview requests.

It’s a bit rich for Norquist to show concern for plight of low-income Kansans now. Spending on social services plummeted during Brownback’s first term in office. And the tax cuts that Norquist praised predominantly favored the state’s wealthy citizens—particularly thanks to a decision to zero-out taxes for nearly 200,000 privately held companies. An analysis by the Center on Budget and Policy Priorities last year noted that the total effects of all the tax code changes in Kansas in fact raised taxes by 1.3 percent on the bottom 20 percent of the state’s earners.

And although slashing state income taxes may have earned Brownback praise from the likes of Norquist and Reagan taxmaster Arthur Laffer, they left the governor in a tricky spot. There’s a $710 million hole in the state’s budget through June 2016. Brownback isn’t relying on tobacco and liquor taxes alone to close that gap. He has also proposed slowing down planned decreases in the state’s income-tax rates. But Brownback still vowed to stick with his original endgame. “We will continue our march to zero income taxes,” he said in this year’s State of the State address. Even when the evidence might suggest otherwise, conservatives like Brownback must still bow before the infallible altar of trickle-down economics.

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Grover Norquist Turns on His Anti-Tax Bae Sam Brownback

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Here’s What’s at the Heart of the Crisis in Greece

by MalcolmA33 Posted on January 29, 2015

Mother Jones

If you’re in the market for some interesting commentary on Greece, there have been a couple of good ones recently. The first comes from Paul Krugman, who, among other things, makes a point that often gets missed: Greece is already running a primary surplus. That is, they’ve cut spending enough over the past few years that their budget would be balanced if it weren’t for interest payments on their gigantic debt. What’s more, their primary surplus is slated to rise to 4.5 percent in the future:

If Greece were to adhere totally to the previous terms, over the next five years it would make resource transfers of about 20 percent of one year’s GDP. From the point of view of the creditors, that’s a trivial sum. From the point of the Greeks, however, it’s crucial; the difference between a primary surplus of 4.5 percent of GDP and, say, 1.5 percent of GDP for the Greek economy and the welfare of its citizens is huge. The only reason for the creditors to play hardball would be to make Greece an example, to discourage other debtors from trying to negotiate relief.

In other words, the EU is demanding that Greece not just balance its budget, but run a large surplus that it will mostly send to large countries for whom it’s a trivial sum. For Greece, though, it’s a huge sum, the difference between years of penury and a return to growth. This is at the heart of the conflict between Greece and the EU.

The second commentary comes from Daniel Davies, who makes the point that Greece’s gigantic debt doesn’t really matter as debt. Everyone knows Greece will never be able to pay it back. But if everyone knows this, why are Germany and the rest of the EU so hellbent on refusing to write it off?

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills.

….It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem.

In other words, Greece doesn’t want to run a large budget surplus. They want to increase government spending in order to dig their way out of their massive economic depression. The rest of the EU wants no such thing. They’re afraid that if they let Greece off the hook, then (a) everyone else will want to be let off the hook, and (b) Greece will go right back to its free-spending ways and soon require another bailout. If the price of that is years of pain and unemployment, so be it.

There’s more at both links, and both are worth reading.

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Here’s What’s at the Heart of the Crisis in Greece

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The FBI Just Arrested an Alleged Russian Spy Who Wanted to Know How to Trigger an Economic Meltdown

by Opal04Epbqih Posted on January 26, 2015

Mother Jones

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On Friday, federal prosecutors in New York filed a complaint accusing three men, Evgeny Buryakov, Igor Sporyshev, and Victor Podobnyy, of spying for Russia. Buryakov, who was arrested in the Bronx on Monday, allegedly posed as a Russian bank official while working for Russia’s intelligence service, the SVR. According to the 26-page complaint, which was unsealed Monday, Buryakov had a good reason to choose that cover: He was interested in learning about high-speed Wall Street trading, automated trading algorithms, and “destabilization of markets.”

This is a real threat. As I reported in 2013, markets have become dramatically faster in the years since the collapse of Lehman Brothers. Automated trading algorithms can buy and sell financial products in less time than it takes you to blink. Markets move way too fast for regulators to monitor. On August 1, 2012, rogue computer code at Knight Capital ran for 45 minutes before anyone at the firm could stop it. By the end of the day, the company was insolvent. And that was just “a canary in the mine,” says Michael Greenberger, a University of Maryland law professor and former regulator at the Commodity Futures Trading Commission (CFTC). The big worry is trading algorithms causing “a series of cascade failures,” warns Bill Black, another former regulator. “If enough of these bad things occur at the same time, financial institutions can begin to fail, even very large ones.”

So is it possible Russian spies are trying to find out how to purposefully unleash this chaos? The complaint doesn’t make clear whether the alleged spies were trying to find out how to destabilize US markets or worried about Russian markets being destabilized. But “fears of algorithmic terrorism, where a well-funded criminal or terrorist organization could find a way to cause a major market crisis, are not unfounded,” John Bates, a computer scientist who, in the early 2000s, designed software behind complicated trading algorithms, wrote in 2011. “This type of scenario could cause chaos for civilization and profit for the bad guys and must constitute a matter of national security.”

According to the complaint, the FBI learned of the alleged spies’ interest in market destabilization by eavesdropping on a May 2013 phone call between Buryakov and Sporyshev, a Russian trade representative. Sporyshev was the person “responsible for relaying assignments from Moscow Center to Buryakov,” according to the complaint; Podobnyy was mostly responsible for “analyzing and reporting back to Moscow Center about the fruits of Buryakov’s intelligence-gathering efforts.” (Sporyshev and Podobnyy, who were protected by diplomatic immunity, were not arrested and have left the country.) Buryakov and Sporyshev usually met in person, but on that day they didn’t have time. On the phone, Sporyshev asked Buryakov what questions an unnamed Russian news organization should ask New York Stock Exchange executives that would be useful to Russian intelligence, according to the complaint. Buryakov allegedly suggested the news organization inquire about high-frequency and automated trading systems.

According to the complaint, Buryakov was especially interested in Exchange-Traded Funds (ETFs), which are baskets of financial products that are combined and bought and sold like stocks. Many Americans might assume the Russians were interested in destabilizing American markets, but “it might be the other way around, where they are concerned with us attacking them,” says Eric Hunsader, who runs Nanex, a market data firm that tracks high-speed trading. On April 23, 2014, Hunsader’s company tracked extremely unusual movement in trades of RSX, RUSL, and RUSS—three ETFs that are based on the Russian stock index. “It was something that was definitely manipulated,” Hunsader says. “You don’t generally see that kind of movement go on…Maybe they’re concerned about us screwing with them.”

But here’s another fear: If foreign intelligence services are looking into algorithms, high-speed trading, and destabilizing financial markets, nonstate actors are probably not that far behind.

Here’s a relevant excerpt from the complaint:

dc.embed.loadNote(‘//www.documentcloud.org/documents/1509342-buryakov-et-al-complaint/annotations/200527.js’);

Read the rest of the complaint against the alleged Russian spies here.

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The FBI Just Arrested an Alleged Russian Spy Who Wanted to Know How to Trigger an Economic Meltdown

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GOP Speech Pushes Immigration Reform—in Spanish Version Only

by GerardoWhitting Posted on January 21, 2015

Mother Jones

On Tuesday night, freshman Rep. Carlos Curbelo of Florida delivered the Republicans’ Spanish-language response to President Obama’s State of the Union address. His remarks initially were billed as a translation of Iowa Sen. Joni Ernst‘s official GOP response. That put the GOP in an awkward spot, as Mother Jones first reported on Tuesday: Ernst has long been a proponent of making English the official language of US government communications.

In the end, Curbelo’s speech wasn’t an exact replication of Ernst’s. Whereas the senator relied upon numerous anecdotes of life in small town Iowa, Curbelo stuck to more general platitudes to open and close his speech. But when it came to policy, each largely followed the same script—Curbelo’s essentially used the same structure and rephrased the same talking points, albeit in a different language.

But there was also a conspicuous divergence: While Ernst’s speech included comments about abortion politics, Curbelo instead touted the need for immigration reform. “We should work through the appropriate channels to create permanent solutions to our immigration system, modernize legal immigration, and strengthen our economy,” he said, according to a translation by the Democratic opposition research firm American Bridge. From there, Curbelo went directly back into language also found in Ernst’s speech, saying: “In the past, the President has expressed support for ideas like these; now we ask him to collaborate with us to get it done.”

Similarly, Curbelo briefly touched on education reform and Cuba—two topics Ernst didn’t broach.

Ultimately, it’s not too surprising that Ernst included no mention of immigration reform. In the past she has said that she couldn’t support a bill that offered “amnesty” to undocumented workers.

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GOP Speech Pushes Immigration Reform—in Spanish Version Only

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The Problem With Obama’s Bold SOTU

by CyrilApplegate Posted on January 21, 2015

Mother Jones

Barack Obama is very good at getting elected president (two for two!) and pretty darn good at policy (Obamacare, the stimulus, the auto industry rescue, Wall Street reform, ending Don’t Ask/Don’t Tell, Cuba, immigration reform executive action, dumping DOMA, middle-class tax cuts, new EPA limits on emissions that cause climate change, banning torture, downsizing the wars in Iraq and Afghanistan, and killing Osama bin Laden). But there’s one key piece of the job description where he’s fallen short: shaping the ongoing political narrative of the nation.

The president is the country’s storyteller-in-chief. And despite his inspiring powers of oratory (see Campaign 2008) and his savvy understanding of the importance of values in political salesmanship (see Campaign 2012), Obama, as his aides concede, has not effectively sold the nation on his own accomplishments, and, simultaneously, he has failed to establish an overarching public plot line that explains the gridlock in Washington as the result of GOP obstructionists blocking him on important issues where public opinion is in his favor. With his State of the Union speech Tuesday night, Obama had one last chance to take a swing at forging this narrative. Though he did adopt a muscular stance in presenting a forceful and vigorous vision—going on offense in the fourth quarter of his presidency, as his advisers have put it—the president let the Republicans off easy.

Throughout his presidency, as the GOP has consistently sought to block him, Obama has responded inconsistently. He often has pleaded for reason and looked to craft a deal—frequently (and justifiably) to prevent a hit to the economy. (This was the adult-in-the-room strategy.) At times, he has praised House Speaker John Boehner, while pointing to Boehner’s tea party wing as the cause of the partisan paralysis. And then he has occasionally—but not too often—flashed anger and slammed Republicans for being irresponsible and reckless (the debt ceiling scuffle, the assorted government shutdown showdowns). He has not presented a steady and stark tale in which he stars as the fighter for the middle- and lower income Americans who are stymied repeatedly by always-say-no Republicans aligned with plutocrats, the gun lobby, corporate polluters, and other foes of progress. Consequently, he has often borne blame for the sluggish economy and the mess in Washington, with the Democratic Party paying the price for the dips in his approval rating.

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The Problem With Obama’s Bold SOTU

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Did Market Monetarist Predictions Trounce Everyone Else During the Great Recession?

by VanessaDeBavay Posted on January 18, 2015

Mother Jones

Via James Pethokoukis, Scott Sumner claims that Market Monetarists got things right during the aftermath of the Great Recession when others didn’t:

It must be a major embarrassment to the profession that us lowly MMs turned out to be more correct during the crisis than any other major group (New Keynesians, New Classical, RBC-types, etc.) and indeed more accurate than other groups on the fringes (old Keynesians, old monetarists, Austrians, MMTers, etc.):

1. It’s now obvious that Fed, ECB, and BOJ policy was far too tight in late 2008 and early 2009, but MMs were just about the only people saying so at the time.

2. We correctly pointed out that fiscal austerity in 2013 would not slow growth in the US because of monetary offset, whereas in a poll of 50 elite economists by the University of Chicago, all but one gave answers implying it would slow growth.

3. We pointed out that massive QE would not lead to high inflation, while many other economists on the right said it would.

4. We correctly predicted that the BOJ and Swiss National Bank could depreciate their currency at the zero bound, while many on the left said monetary policy was pushing on a string at the zero bound.

5. We pointed out that the ECB’s tightening of policy in 2011 was a huge mistake, which now almost everyone recognizes.

I’m a little puzzled by this. Unless I’m misremembering badly, prominent lefty economists like Paul Krugman and Brad DeLong have been saying most of these things all along. And while I’m not really quite sure if these guys think of themselves as New Keynesians or Neo-Paleo Keynesians or modified Old Keynesians or what, they’re basically Keynesians.

The only one of Sumner’s five points where there’s disagreement, I think, is #2, and I’d argue that this is a very difficult point to prove one way or the other. My own read of the evidence is that the modest austerity of 2013 might very well have had a modest effect on growth, but frankly, a single year of data is all but impossible to draw any firm conclusions from. However, it’s certainly true that there were no huge changes in the trend growth rate.

As for the others, the Keynesian types argued strongly that (a) conventional Taylor Rule calculations called for much looser Fed policy in 2008-09, (b) QE would not lead to inflation in the face of a huge demand shortfall and continued deleveraging, (c) monetary policy in countries with their own currency still had traction, but fiscal policy had a powerful role too at the ZLB, and (d) the ECB’s tight monetary policy in 2011 was nothing short of a cataclysmic disaster.

I’m sympathetic to the market monetarist advocacy of NGDP level targeting, but then again, so are folks like Krugman and DeLong. So in a way, it’s sometimes unclear to me exactly how far they diverge in practice, even if they subscribe to different theoretical fundamentals. My own tentativeness about NGDPLT is mostly practical: it’s not clear to me that central banks can even target inflation as powerfully as many people think, let alone NGDP levels. Part of the reason is that I simply have less faith in the expectations channel than many NGDPLT advocates. It seems like something that will work fine until markets test it to find out if the Fed really has the independent power to set NGDP levels anywhere it wants even in the face of investor panic, and then suddenly it won’t work anymore and the Fed’s aura of invincibility will be broken. And that will be that. But that may simply reflect a lack of understanding my part. Or perhaps just a lack of faith.

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Did Market Monetarist Predictions Trounce Everyone Else During the Great Recession?

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