Linking ≠ endorsement.
⇧ The Depression’s Unheeded Lessons – NYTimes.com
Why did public opinion turn so decisively, and quickly, against a stimulus strategy that had been considered uncontroversial to generations of economic policy makers?
“Politicians are prone to overpromising,” Mr. Eichengreen said, and policy makers did not grasp how bad things were or how high joblessness would rise in spite of stimulus spending. “We didn’t understand in real time how fast the economy was contracting in 2009. We overpromised in terms of what would be achieved in terms of the unemployment rate, not knowing the extent of the rise in unemployment that was already baked in.”
We’ll take issue with that for the sole reason that once it became clear even to the novice, the course wasn’t reversed so that enough stimulus would be applied. In other words, we think the hawks didn’t want more stimulus because we think they wanted an opportunity to damage the New Deal more than they already had. They wanted to be able to consolidate more and to privatize more, etc. A booming economy the result of enough stimulus would have ruined their opportunities.
⇧ Non-Chart of the Day: Where’s the Austerity? | Mother Jones
Good job from Kevin Drum:
The story here is simple: for a little while, in 2009 and 2010, stimulus spending partially offset state and local cuts, but by the end of 2010 the stimulus had run its course. From then on, the drop in government expenditures was steady and significant. It was also unprecedented. If you run this chart back for 50 years you’ll never see anything like it. In all previous recessions and their aftermaths, government spending rose.
Finally, in 2014, the spending decline stopped. Austerity was over, and now we’re even starting to see a small uptick in government spending. At the same time, the economy started to pick up.
⇧ Jacob Lew: Let’s leave Wall Street’s risky practices in the past – The Washington Post
Is this softball or mushball? Jacob J. Lew, US Treasury Secretary:
The arrival of a new Congress in Washington this week provides a fresh opportunity for congressional leaders and the administration to find common ground to get things done, and it is clear there are areas where we can make progress in the weeks and months ahead.
⇧ Oil Drillers Bail on U.S. Boom, Idle Most Rigs Since 1991 – Bloomberg
After six straight months of plunging oil prices, U.S. shale drillers have sent the clearest signal to date that they’re retreating.
Thirty-five horizontal rigs, their weapon of choice for reaching oil deposits in tight-rock formations such as North Dakota’s Bakken shale and Texas’s Permian Basin, were idled last week alone. It was the biggest single-week drop since a drilling boom touched off six years ago that propelled domestic production to the highest level in three decades and eventually helped trigger the global price war that the U.S. and OPEC find themselves in today.
The decline, the largest in a decade and the seventh in a row, threatens to halt U.S. oil production growth by slowing drilling in tight-oil plays that make up virtually all of the nation’s new output. …
“Unless oil prices recover, absolutely, this is the end of the drilling boom,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, said by telephone yesterday. “The total rig count should hit 1,000 by March or April, and oil production growth should be flat or declining by mid-year.”
The Organization of Petroleum Exporting Countries, responsible for 40 percent of the world’s oil supply, has meanwhile resisted calls to cut output since deciding in November to maintain a collective target. United Arab Emirates won’t curb production, no matter how low prices fall, Yousef Al Otaiba, the nation’s ambassador to the U.S., said at a Bloomberg Government lunch in Washington Jan. 8.
“Saudi Arabia and their allies has been very clear about not giving up market share,” R.T. Dukes, an upstream analyst at Wood Mackenzie, said by telephone from Houston. “It’s making development in the U.S. and other places sub-economic. There’s not much in the world that looks good at $50 oil.”
The US is hurt in the oil sector but benefits concerning the general gas-consumer and in the environmental area concerning stopping the KXL pipeline and the dirtiest oil but not for bringing on more clean, alternative sources.
Meanwhile, Russia, Iran, and Venezuela are economically hammered, just as the Obama administration wants.
⇧ Fed’s Lacker Says Oil Plunge Complicates Inflation Outlook – Real Time Economics – WSJ
“… I expect inflation to move tolerably close to the FOMC’s 2% target after the fall in energy prices has played out.”
The Fed is widely expected to begin raising interest rates sometime in the middle of 2015 from effectively zero, where they have stood since December 2008. …
As for the decline in oil prices, he expects it be transitory but doesn’t think the market has hit bottom yet. “If oil prices were going to come back rapidly, they wouldn’t be falling this rapidly,” he said.
In our view and assuming the oil-price crash continues (including flatlining), there’s no way the Fed should raise rates in 2015. It’s going to take until 2016 for oil prices to start rising again, which will start hurting general-American-gas consumers. It would make more sense to wait 2015 out at the very least. There are also other geopolitical issues up in the air that if not reversed soon, will negatively impact the entire global economy.
⇧ The Fed Explains Bank Supervision and Regulation – YouTube
Healthy banks and healthy economies go hand in hand. The latest in the Atlanta Fed’s animated video series explains how the Federal Reserve ensures banks are doing business safely and providing fair and equitable services to their communities.
The following video sounds great; however, regulations have been getting weaker and weaker even before all the reforms that were passed have been implemented.
⇧ House Democrats Kill Deregulation Bill in New Congress – Truthdig
Just hours into the 114th Congress, House Republicans tried to pass a melange of 11 bills from the previous body that was meant to weaken regulation of banks and the financial industry.
With a vote of 276 to 146, House Democrats didn’t support the package in sufficient numbers to make it into law.
They won’t give up. They’ll keep trying to deregulate again until we are even more deregulated than before the Great Recession started.
⇧ How California Bested Texas – The New Yorker
The states, real estate, oil, and diversification:
These days, though, no one is talking about the lessons California should learn from Texas. California’s economy is improving, and its budget is finally balanced—partly because of budget cuts and a voter-approved tax hike in 2012, and partly because the stock-market boom has translated into more tax receipts from California’s wealthiest residents (the ones with those high income-tax rates). These changes happen to come as Texas, the nation’s biggest oil-producing state by far, is grappling with a collapse in oil prices, which has depressed the price of a barrel of West Texas Intermediate crude oil to under fifty dollars a barrel for the first time in more than five years.
We’re surprised Vauhini Vara didn’t mention the drought in California or the extremely high cost of housing relative to wages and salaries, though she did hint a bit at the latter.
We think both states would benefit immensely by establishing state public banks along the lines of North Dakota’s.
⇧ Bernie Sanders opens a new front in the battle for the future of the Democratic Party – Vox
His big move: naming University of Missouri – Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.
We have followed Stephanie Kelton for years. We’ve included her on this blog before.
It’s long past time MMT have a seat at the highest table of economic-policy formulation.
This is not only dramatic (as Bernie Sanders is gearing up for a run at the Presidency on a relatively populist platform), it’s very positive. Stephanie will help Bernie argue intelligently with data to back it up for a huge increase in fiscal spending on much needed infrastructure. He’s already announced a plan of $1 trillion, which we think is way too low. He has to start with something others can swallow though.
It will take a great deal of educating the public about MMT before the mainstream will be able to grasp just how easy it can be to afford a massive increase in governmental spending on public works and jobs, etc., and all without inflation worries.
Great choice, Bernie Sanders! Congratulations, Stephanie Kelton.
BTW, the last time we checked, she was the chair of the Economics Department, which is a bastion of MMT economists who take a very dim view of Wall Street bankers running roughshod over the American people.
⇧ India’s economic reforms gather pace – YouTube
More public spending planned; good idea:
Jayant Sinha, India’s minister of state for finance, talks to the FT about the government’s reform programme and the country’s push to improve its manufacturing sector.
⇧ Deflation and its discontents – YouTube
So far in 2015, the data have shown Europe lapse into outright deflation, while wages stagnate in the US and the oil price has fallen more than 10 per cent. John Authers previews the start of the corporate earnings season, and an intensifying dilemma for central banks.
⇧ The global deflation shock — how big and how bad? | Gavyn Davies
The US deflationary shock will therefore be sharp, but very temporary, and good deflation will clearly be in the ascendancy. Interestingly, the Atlanta Fed’s estimate of the probability of deflation becoming endemic in the period up to 2018, derived from the index linked bond market, remains at precisely zero.
In the eurozone, however, the numbers look rather different. The impact of lower oil prices will be to reduce the headline HICP index by about 1.0 per cent, less than half the size of the impact in the US. However, because the headline inflation rate prior to the shock was already running as low as 0.5 per cent, the oil shock will still take it into negative territory for a prolonged period.
We aren’t convinced that the Atlanta Fed can properly gauge the impact of the fracking boom/bust and just how quickly things will bottom out.
⇧ Full Employment Alone Won’t Solve Problem of Stagnating Wages | The Fiscal Times
Mark Thoma, University of Oregon macroeconomist:
Inequality has been increasing for over three decades, and during that time we have been at or near full employment many times. Yet, wages over this time period have been flat. As noted by the Economic Policy Institute, “Since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline—even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth.” The idea that market forces alone will increase wages sufficiently to offset increasing inequality is not supported by the evidence from these years.
…improvements in labor demand relative to supply could make some difference, and a tight labor market is certainly better for the working class than a labor market with high levels of unemployment and a large number of discouraged workers, but should we suddenly expect workers to receive a higher share of national income — income that has increasingly flowed to those at the very top of the income distribution — once we reach full employment?
…(owners and managers of large firms are paid much more than their counterparts in other countries, an indication that something beyond market forces is at play).
The falling oil price will have a major impact by shifting production and investment between sectors (from energy-efficient to oil-intensive, from oil industry to the rest of the economy). It will also shift substantial wealth — in the order of half of global oil export revenues in 2013: $1 trillion — from oil-exporting countries to oil-importing countries.
… Growth in the EU in 2015 will be mainly driven by factors other than the oil price.
⇧ West Michigan industrial real estate got healthy again in 2014 | MLive.com
“It’s now become more of a landlord’s market, with the rents going up, terms becoming longer, and significantly less incentives needed to attract tenants,” the report said.
⇧ World Bank forecasts moderate growth in 2015 | Business | DWDE
“The euro area and Japan accounted for more than half of the downward revisions to global growth in 2014 and one-third of the downward revisions to global growth in 2015,” said Ayhan Kose, the World Bank’s director of development prospects.
“Japan continues to stagnate, and Russia is likely to go into a recession. The only major economy that is doing well is the United States. In other words, the world is running on a single engine,” Basu said. But even in the US, the recovery in jobs has not been accompanied by any wage increases, which limits the recovery’s positive effect on aggregate economic demand.
Stormy weather blasted parts of Western Washington with torrential rain, causing landslides and flooding in the lowlands and heavy snow in the mountains before turning to rain there as well.
The team found that volcanoes may have caused global cooling of 0.05 to 0.12 degrees Celsius since 2000.
Prior to 2011 it was believed that only very large events, such as the 1991 Mount Pinatubo eruption which ejected 20 million metric tons of sulfur into the atmosphere, could impact global climate.
The authors of the most recent paper however found the evidence they needed between atmospheric layers. Satellite measurements of the sulfuric acid droplets between the stratosphere and the troposphere, where weather takes place, provided evidence of volcanic cooling. The researchers believe that sulfur could be responsible for cooling of 0.05 degrees to 0.12 degrees Celsius since 2000.
⇧  Meltdown in Venezuela, the Detroit auto show, and economic inequality – YouTube
Inflation in Venezuela remains among the highest in the world; the Venezuelan central bank said inflation had reached 63.6% in the 12 months to November. While Venezuela has confirmed that it has entered into a recession, that confirmation hasn’t done much to stem the swelling lines at Venezuelan supermarkets. Business leaders have assured Venezuelans that the situation will improve in the coming days and have blamed the slowdown in deliveries on an extended Christmas holiday. Erin weighs in.
Then, Erin sits down with David Beckworth — professor of economics at Western Kentucky University and adjunct scholar at The Cato Institute. David tells us what he thinks could get Japan going again and gives us his take on wage growth. And he deconstructs output level targeting in much greater detail.
After the break, Erin is joined by James Galbraith — professor of economics at University of Texas and author of “The End of Normal.” James tells us how wage growth and income inequality play out in terms of the social issues surrounding the path of growth in the US and gives us his take on infrastructure.
And in The Big Deal, Erin and RT correspondent Manila Chan are talking about the North American International Auto Show in Detroit. Take a look!