That's My Congressman

The Cincinnati Enquirer reports:

Boehner praised President Barack Obama's address before the joint session of Congress, which dealt mainly with the non-controversial topics of better health care and education while cutting earmarks and wasteful spending. "With few exceptions, it was a speech I could have given," Boehner said, joking that he probably couldn't have delivered it quite as well. "It was a very conservative speech. Very few parts that I disagreed with."

Ahh, yes.. if you can't beat 'em, pretend like they've joined you.

Turning Japanese?

Paul Krugman, among others, really thinks so. But the Curious Capitalist points us to Foreign Affairs, where Richard Katz argues that we are not repeating Japan's mistakes:

The consequences of the 2008 U.S. financial crisis will be different from Japan's slump in the 1990s for three reasons: the cause of the current crisis is fundamentally different, its scope is far smaller, and the response of policymakers has been quicker and more effective...

The Japanese and U.S. crises differ in many ways, but the starkest contrast is in the response of policymakers. Denial, dithering, and delay were the hallmarks in Tokyo. It took the Bank of Japan nearly nine years to bring the overnight interest rate from its 1991 peak of eight percent down to zero. The U.S. Federal Reserve did that within 16 months of declaring a financial emergency, which it did in August 2007. It has also applied all sorts of unconventional measures to keep credit from drying up.

It took Tokyo eight years to use public money to recapitalize the banks; Washington began to do so in less than a year. Worse yet, Tokyo used government money to help the banks keep lending to insolvent borrowers; U.S. banks have been rapidly writing off their bad debt. Although Tokyo did eventually apply many fiscal stimulus measures, it did so too late and too erratically to have a sufficient impact. The U.S. government, by contrast, has already applied fiscal stimulus, and the Obama administration is proposing a multiyear program totaling as much as five to six percent of U.S. GDP. When it comes to crisis management, it is far better to do too much than too little.

Bretton Woods

The Times' travel section visits the Mount Washington hotel, in Bretton Woods, New Hampshire. The cross-country skiing is good, apparently, but the 1944 United Nations Monetary and Financial Conference remains its claim to fame:

The choice of Bretton Woods as the location then was partly a concession to the failing health of John Maynard Keynes — the most renowned economist of the 20th century and Britain’s chief representative — in an era before air-conditioning. Keynes had a bad heart and pleaded with Harry Dexter White, the United States Treasury economist with whom he was making the plans, not to “take us to Washington in July, which should surely be a most unfriendly act,” according to Keynes’s biographer, Robert Skidelsky.

State Department officials lobbied for a resort in Indiana, but Henry Morgenthau, the Treasury secretary, directed White: “Have it in Maine or New Hampshire, some place up in the mountains there.” The fact that State Route 302, which runs through the basin, could easily be sealed for security is thought to have played a role in the decision, too, along with President Franklin D. Roosevelt’s friendship with Senator Charles Tobey of New Hampshire.

I have yet to make the pilgrimage...

Bernanke Rorschach Test

As of 7 pm, the glass is half-full in Washington, where the Post says: and half-empty in New York; the Times reports:

A Metaphor

for the Treasury's efforts, at Calculated Risk. Check it out!

Silver Lining Dept.

The AP reports: Animal spirits, indeed. HT: Michael Crowley.

Memo to Oxford, Ohio City Council

We could use some of these: From Piled Higher and Deeper, where there's more.

The Econ Bubble Bursts?

At the Atlantic's new Brave New Deal blog, UC Davis' Gregory Clark considers "how the crash is reshaping economics." To paraphrase Keynes, he seems to think economists may become humbled, incompetent people:

[T]he shock to the world of finance has been echoed by a shock to the world of academic economics that is just as profound.

In the long post WWII boom, as free market ideology triumphed, economists have won for themselves a privileged place inside academia.

First there is the cash.... most high ranked economics departments have professors earning in excess of $300,000. Not much by the pornographic standards of finance, but a fat paycheck compared to your average English or Physics professor.

It is not just the stars. Journeyman assistant professors in economics routinely come in at $100,000 or more. And, unlike the hard sciences, they do this fresh from their PhDs, without a publication to their name and without years of low pay as post-docs....

Why did academic economics generate so much prestige? Sure, modern economics is technically demanding. But so, for example, are theoretical physics and archeology, and physics and archeology professors are (relatively) dirt poor.

The technical demands helped limit the supply of economists. But what drove demand was the unquenchable thirst for economists by banks, government agencies, and business schools - the Feds, the Treasury, the IMF, the World Bank, the ECB. Economics had powerful insights to offer the world, insights worth a lot of treasure. Economics was powerful voodoo. Any major university or research institute wanted to arm itself with this potency.

The current recession has revealed the weaknesses in the structures of modern capitalism. But it also revealed as useless the mathematical contortions of academic economics. There is no totemic power. This for two reasons:

(1) Almost no-one predicted the world wide downtown. Academic economists were confident that episodes like the Great Depression had been confined to the dust bins of history. There was indeed much recent debate about the sources of "The Great Moderation" in modern economies, the declining significance of business cycles...

(2) The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1. What is the multiplier from government spending? Does government spending crowd out private spending? How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.

The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s. There has essentially been no advance in our knowledge in 80 years.

Well, 73 years... but it is striking how much of the discussion of our current troubles revolves around the textbook Keynesian framework we teach our principles students. While that raises the question of what, exactly, we've been doing since the General Theory (and why anyone is paying us to do it), I'm not convinced its entirely a bad thing for us economists. Introductory economics is, to a large extent, our public face - far more people take intro economics than read academic journals. While Clark may be right that this crisis provokes doubt about the value of some of our research, outside the profession we are not judged by the contents of Econometrica.

I'm actually somewhat heartened that what we teach in macro principles seems more relevant than ever, and the crisis is increasing interest in the subject (one might say we're naturally hedged). I'd like to think many of our past students are coming belatedly to a realization that they learned some very helpful tools for understanding the world in Econ 1 (Econ 202 here - apparently we have a higher rate of course-number inflation than Davis). While it is too late for them to revise their course evaluations, former students certainly could dash off a note to the Dean describing their increased appreciation of their Econ professors...

So, I'm not as gloomy as Clark about the demand for our services, but I do think some self-criticism is in order. Another striking feature of the crisis has been that we find ourselves talking about Keynes more than ever, and names like Irving Fisher and Frank Knight are popping up with increasing frequency. One salutary outcome of this bout of navel-gazing would be more attention to the history of economic thought, which I have urged previously.

But who am I to say? Apparently I haven't even attained "Journeyman" status yet...

Geithner Looking Pretty Good

The Japanese finance minister apparently had a little too much, uh, cold medicine before a press conference at the G-7 confab in Rome:


Wow. The Journal reports:

Japanese Finance Minister Shoichi Nakagawa said Tuesday that he will resign from his post after passage of various budget bills.

"To take responsibility for the trouble I caused (at the Group of Seven press conference), I'd like to submit my resignation after passage of budget bills," he said at a press conference....

Takeo Kawamura, chief cabinet secretary, said at a news conference he understood Mr. Nakagawa's behavior was caused by taking too much cold medicine. But he added: "It wouldn't be true if we said he didn't drink any alcohol."

Irving Fisher!

The financial crisis and recession have renewed interest in Irving Fisher's "debt deflation" theory, a scary portent indeed.... At Vox, Enrique Mendoza offers "Crisis Lessons from Irving Fisher," and he gets a profile in The Economist:

[Fisher] described debt deflation as a sequence of distress-selling, falling asset prices, rising real interest rates, more distress-selling, falling velocity, declining net worth, rising bankruptcies, bank runs, curtailment of credit, dumping of assets by banks, growing distrust and hoarding.

So, is the "Minsky Moment" to be followed by an "Irving Fisher Interlude"? We can count on Ben Bernanke, whose own academic work on the "financial accelerator" follows in Fisher's footsteps, to continue to use all the tools he has - and all that he can dream up - to make sure it isn't.

Update: Krugman is also thinking about Fisher.