Robert Samuelson has a really serious problem of projecting his own conceptual confusions on others. In his column this morning he repeatedly uses "we" when he actually means "I."

"We overestimated our ability to control the economic environment. What we have learned is that outside events — here, the financial crisis and Great Recession — can overwhelm collective protections and discredit conventional beliefs. The economy is more random, unstable and insecure than we imagined. It is less susceptible to policy engineering."

Of course "we" did not overestimate the government's ability to control the economy. Some of us were completely aware of the dangers posed by the housing bubble and the amount of stimulus that would be needed to bring the economy back to full employment. As we pointed out, the Fed should have taken steps to burst the housing bubble, starting with public warnings like the ones that Federal Reserve Board Chair Janet Yellen made last summer in reference to junk bonds and social media company stocks. The Fed also could have used its regulatory power to crack down on fraudulent mortgages that were being securitized in huge numbers.

This is not the only error in Samuelson's piece. He also mistaken argues that because most government benefits go to the poor and middle class:

"it is not possible to pretend that the whole superstructure of government has somehow been turned against the middle class. This is not just a distortion of reality; it is the converse of reality."

In fact the government has structured the market over the last three decades in ways that cause most income to flow upward. For example its trade deals have been focused on putting less educated workers in direct competition with the lowest paid workers in the world. This has the predicted and actual effect of driving down their wages. At the same time, highly paid professionals, like doctors and lawyers, are largely protected from international competition. The government has also had longer and stronger patent protection, causing middle class people and the government to pay hundreds of billions more for prescription drugs than would be the case in a free market. The benefits from these forms of protectionism disproportionately go to the wealthy.

Mark WeisbrotFortune, December 29, 2014

Mark WeisbrotArizona Sunday Star, December 28, 2014

Confused thinking on inflation continues to abound, and not just from the folks convinced that hyper-inflation is just around the corner or already here. Recall that until recently we were supposed to be terrified that those low inflation rates in the euro zone might shift from being small positives to small negatives, and then the world would end.

Fortunately the I.M.F., among others, is now pointing out that the problem is simply an inflation rate that is too low. An inflation rate of -0.5 is more too low low than inflation of 0.5 percent, but this is just in the same way that an inflation rate of 0.5 percent is more too low than an inflation rate of 1.5 percent. The problem is that we would like the inflation rate to be higher to both facilitate declines in real wages in sectors seeing less demand (commentators please note, the issue of real wages being too high is in certain sectors, not a general problem) and to reduce the real value of outstanding debt. A higher rate of inflation will also reduce the real interest rate, which will encourage firms to invest more.

This brings us to a Reuters story that ran in the NYT telling readers that falling oil prices will make it harder for Japan to hit its 2.0 percent inflation target, therefore implying that low oil prices are bad for Japan's economy. Let's think this one through for a moment.

First, if we check the base paths, we see that Japan is almost 100 percent dependent on imported oil. This is different from the U.S. which has a substantial oil producing sector. That should make the story pretty unambiguous. In the U.S. we can say that areas like North Dakota and Texas might take a hit, even if other parts of the country will benefit from lower oil prices. Japan doesn't have a North Dakota or Texas, which means that they are only looking at paying less for their energy.

So how is this bad? Well, the Reuters piece says it means lower inflation. This is true, but we have to think of why lower inflation could be a problem. Let's imagine that if the price of oil were unchanged, then Japan's central bank would be hitting its 2.0 percent inflation target. Now because of lower oil prices, the overall rate of inflation will come in substantially under 2.0 percent.

I hate to put a damper on the party, but the some of the reporting on the economy is getting a bit out of hand. The Post gave us an example, with a piece on the revised fourth quarter GDP numbers headlined, "Robust Economic Growth in the third quarter raises hopes that a boom is on horizon." That's not what Mr. Arithmetic says.

First, just to be clear, the third quarter numbers were definitely good news. Five percent GDP growth is a solid economic performance by any measure, so there is no doubt that it is a big step forward by any measure. The economy is clearly growing, and likely at a reasonably respectable rate. The issue is whether the term "boom" is appropriate.

As this article and other reporting notes, the third quarter follows a strong second quarter of 4.6 percent growth, which in turn followed a first quarter where GDP shrank by 2.1 percent. The piece dismisses the drop in first quarter GDP as the result of bad weather. This is surely true, but the strong growth in the subsequent two quarters is clearly related to the drop in the first quarter. The growth in these quarters was a reversal of the decline in the first quarter.

If we take the average growth over the last three quarters, we get a 2.5 percent annual growth rate. This isn't bad, but it's hardly anything to write home about. If we assume the economy has a potential growth rate (the rate of growth of the labor force plus productivity) in the range of 2.2-2.4 percent, then with the 2014 growth rate we are filling the gap in output at the rate of between 0.1-0.3  percentage points a year. CBO estimates that the gap between potential GDP and actual GDP is still close to 4 percentage points. This means that at the 2014 growth rate we can look to fill that gap in somewhere between 13 and 40 years. Perhaps we should put a hold on that champagne.

On October 23 Haiti’s cholera victims finally had their first court hearing regarding their suit against the UN.  However, no one from the UN showed up.  Since 2011, representatives of the victims have sought to obtain reparations from the UN given the ov

I see that John Cochrane is once again attacking Keynesian economics, giving an “autopsy for Keynesians” in the Wall Street Journal. His central line is that Keynesian economics has been repeatedly proven wrong in the recovery. He sees the U.K.’s turn to austerity as a brilliant success; and the continued U.S. growth, in spite of deficit reduction, as further proof of the failures of Keynesian economics. He tells us that even Greece and Italy are sticking with the euro, rejecting the course of “devaluation and inflation.”

I understand that Cochrane’s polemic is directed at Paul Krugman, but as a card carrying Keynesian, I will take up the defense. First, it requires some serious re-writing of history to pronounce the Keynesians wrong at every turn in this recession and recovery. Going back to the days of Great Moderation, some of us Keynesian types noticed the economy was being driven by a housing bubble long before the beginning of the Great Recession.

I’m not sure where bubbles fit in Cochrane’s world, but in this economy they are run-ups in asset prices that are not consistent with the fundamentals of the market. In most cases they are not of great consequence for the economy as a whole, only for the markets directly affected. However when the market is a massive market, like the U.S. housing market, and the bubble grows to the neighborhood of $8 trillion (@ $10 trillion in today’s economy), it is a big deal. The housing bubble raised residential construction to a record share of GDP. The associated wealth effect led to a huge consumption boom with the saving rate pushed to a record low.

When the bubble burst, there was no component of GDP that would magically replace these sources of demand. The outcome was a severe recession. The real world followed pretty well on this Keynesian’s line of thinking.

Cochrane somehow thinks the Keynesians blundered in believing that the stimulus would set everything right:

“Our first big stimulus fell flat, leaving Keynesians to argue that the recession would have been worse otherwise.”

Well, some of us were arguing at the time that the stimulus was far too small to get the economy back on its feet, so we were hardly surprised when our prognostications proved correct. (Krugman made the same case in a far more visible forum.)

In early 2000, the civilian labor force participation rate peaked at a post-war high of 67.3 percent of the population aged 16 and over. Despite flattening out in the latter part of the decade at about 66 percent, participation rates never recovered and h

Mark WeisbrotH AY?H, 12 ?????????? ??? 2014

Dean Baker
The Hankyoreh, December 22, 2014

Alexander MainThe Hill, 19 de diciembre 2014En inglés