Economics

On Monday the Obama administration has promised to spell out its thinking on long-term deficit reduction. Something to read while you’re waiting: “What we hope to see from the Super Committee,” courtesy of the Committee for a Responsible Federal Budget. “Go big” sums it up. Might support for that actually be building? A news conference with Alan Simpson and Erskine Bowles from earlier in the week is worth watching.

An event at the Brookings Institution launched a new report, Rethinking Central Banking, by a team of economic eminences including Barry Eichengreen, Raghu Rajan, Eswar Prasad, Carmen Reinhart, Kenneth Rogoff, and others. I’ve only skimmed it so far but the presentation was interesting and the report looks valuable. The basic thesis is that central banking has become a lot more complicated than it used to be, and the “dominant framework guiding central banking practice” therefore needs to change.

President Obama’s speech to Congress was impressive. Good to see some leading from the front, for a change. The tone was commanding, confident, and purposeful. Crucially, he took the initiative and presented a detailed plan. No more, “I’m willing to consider this.” No more, “I’d like to see that.” Instead, again and again, “Pass this bill.” They won’t, but the point of last night’s speech was not to persuade the House that this or any other new jobs plan makes sense. The House isn’t listening. The president’s goal was to regain public support, and hence make the GOP’s fiscal-policy defeatism harder to sustain. Making the case for specific proposals was a vital part of that. Scored with this in mind, I think it was a fine performance.

It’s not every day that you see the editors of the Wall Street Journal agreeing with the leaders of the AFL-CIO on an issue of economic policy. Both authorities deplore the Justice Department’s action against AT&T’s takeover of T-Mobile. The Journal objects on standard “let the market have its way” grounds; AFL-CIO objects because it says the merger would create jobs (and, as AFL-CIO president Richard Trumka put it when the deal was first announced,  because of “the pro-worker policies of AT&T, one of the only unionized U.S. wireless companies“).

In yesterday’s column I discussed some of the arguments for and against additional monetary stimulus. On balance, I’m for it–and I wouldn’t bet against it happening in the next month or two. The August 9th FOMC minutes released today confirm what we already knew: since QE2 ended in June, the Fed has learned that the recovery is slower and more fragile than it previously thought, and that inflationary pressures have eased. There you have it: what else does the Fed need to know before it embarks on QE3?

A lot of Tea Party types want to put the US back on the gold standard. One wonders how many of them even know what this means. Barry Eichengreen examines this “oddball proposal” in A Critique of Pure Gold, in the new National Interest.

Two other economics readings: Vincent Reinhart, Is the Economy Freefalling?, in the AEI Economic Outlook series; and the CBO’s updated Budget and Economic Outlook.

 

There’s a lot to digest about Rick Perry and the Texas Miracle/Unmiracle. ProPublica has a nice reading guide on the topic. It mentions Paul Burka’s indispensable advice to Yankee journalists and National Journal’s thorough review of Perry and the Texas economy.

The Economist’s Erica Greider has written a good piece on the state’s record of job creation. I agree with her: it’s a complicated story but the achievement is striking nonetheless. In general, the Texan economy has a lot to boast about, and some things (notably its healthcare system) to be ashamed of. Perry’s significance on both sides of the ledger is less than his biggest admirers and critics maintain.

Paul Krugman gives Texas credit for an intelligent land-use policy which keeps housing cheap, and for effective regulation of mortgage lending which avoided the worst of the housing bust. Later in the same article, though, he says any state could do what Texas did and steal jobs from elsewhere with “weak regulation”. What weak regulation is that–the strong regulation of mortgage lending he just mentioned, or the light zoning regulation he just praised? Confusing. Still, you can’t quarrel with his observation that people are moving to Texas for the climate. The sparkling lakes and lush verdant forests are also quite a draw.

 

The global beating shares just took had many causes, no doubt. Still disgusted by the US debt-ceiling fiasco, I am apt to give that masterclass in malice and incompetence more of the blame than it really deserves: the talk in markets today was more about signs of stalling growth in the US and mounting anxieties over Europe than about US fiscal impotence. Still, it can’t help to know at such a time that the US government is clueless and paralysed–or that any US fiscal policies one might recommend (extended payroll-tax relief and unemployment benefits) would have to be taken up by the US Congress. Once it gets back from vacation.

That leaves the Fed and quantitative easing. Weeks ago I said I thought the case for QE3 was strong. At that point, there seemed little chance of it: inflation hawks on the FOMC were asserting themselves. The bad growth numbers for the first half surely ought to be changing their minds. QE3 looks like necessary insurance against a second dip and possible deflation. Now, unlike then, you can accept most of the inflation hawks’ way of thinking and still be in favour of QE3. The facts have changed, sir.

Paul Krugman and EJ Dionne agree that too much centrism is what ails the United States. What the country needs is fewer moderates and more people ready to stand firm on principle come what may. (Actually Dionne draws a distinction that eludes me between moderation and centrism–they are not just different but opposed–but let that pass.)

Lacking a Nobel prize, I find this theory odd. If only centrists would come over to the left and deplore Republicans more vigorously, all would be well? Right now, I would be willing to help out–but would this do much to reduce the House Republican majority? If centrist commentators only joined Krugman’s anti-Republican crusade, the country would see its mistake and put things right at the next election? It’s flattering, but surely we feeble soggy centrists have nothing to offer that would improve on the quality of the arguments already put forward by writers such as Krugman, Dionne, and many others. Surely they are refuting conservatism as effectively as anybody can.

House Republicans are dictating US fiscal policy not because centrists have given them a pass, but because voters have given them a majority. This is something that progressives tend not to mention, despite propounding the theory that “elections have consequences” for two years after 2008, and using that theory to justify, for instance, passing a health-care reform that the country was not sure it wanted. In Krugman’s view, of course, 2010 only confirms that more than half the country is evil or stupid. But in that case, what would centrists achieve by taking up arms with progressives? It won’t help. If Krugman is right, the idiots out there just don’t get it. We centrists might as well carry on saying what we think.

My column this week deplored the breakdown in Washington. I was having second thoughts, I said, on my previous optimism about the country’s prospects.

On one side you have the unrivalled energy and ambition of the American worker. On the other you have the unrivalled complacency, self-righteousness and bloody-mindedness of Washington. I never thought I would say this, but I am starting to wonder which will prevail.

Speaking of unrivalled complacency, self-righteousness and bloody-mindedness, you might be interested to read Paul Krugman’s response. He actually blames America’s plight on me, and on moderates like me. What can one say?

By the way, I don’t think that the blame for incapacity in Washington lies equally on both sides, certainly not in the debt-ceiling case. I think previous columns of mine (such as this one) have made that clear. But I do find it funny that Krugman is so appalled by the idea that, if positions were reversed, Democrats would be equally intransigent, and feel entitled to do whatever it took to frustrate what they regarded as a radical GOP agenda. I concede that this prediction on my part might be wrong. But one thing I’m quite certain of is that Krugman would be leading those who would say that the Democrats are not just entitled but morally obliged to stop the evil Republicans by any means necessary, and would be deploring and calling out all those who suggested, ugh, compromise, just as he is now.

 

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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