Tag Archives: paul krugman

Why we’re all keeping an eye on the interest rate

The New York Stock Exchange has continued well into this week its steady (and for many, confusing) decline. Among the other effects of that is the stifling of an earlier conversation about the Federal Reserve raising the US’s federal funds rate. An incentive typically retained for crises or to address inflation, a heightening of that rate would increase the interest on loans between banks, credit unions, and other institutions, ultimately raising the interest rates on most other loans and forms of investment in the broader economy. Since a low interest rate is so useful in a crisis, the argument goes, the already currently quite low rate should be maintained to give investment circles and other parts of the financial system a bit of a breather.

federal funds rateThe historical federal funds rate, from here.

A crucially missing part of that expectation that the Federal Reserve should keep the historically low rates is a very specific understanding of why the Federal Reserve lowers rates. In the view that argues for keeping the current rate, a lowered rate is in and of itself the goal. A lower rate, so the theory goes, means transactions happen. It’s an indirect and finance-heavy form of economic stimulus. Is the lower figure on the interest rate itself the necessary end though? Can’t the lowering of the rate also be in and of itself a process?

Financial institutions act a specific way before the rate is lowered, and then alter their behavior when it reduces. In short, it’s about changing how they act through changing expectations of how profitable a given investment, loan, or other action would be. The key word there is change. This is about altering expectations of what a given rate would be.

In light of that differing view of the federal funds rate’s power, what use is it in the situation of an anemic economic recovery and jittery investors? What’s more, there’s not really anywhere for it to go lower to. It’s tapped out as a means of promoting economic action that otherwise wouldn’t happen within the economy. While raising it is probably not the wisest choice either, since it’s possible that would create a ripple effect of rising and disincentivizing interest rates across the economy, the centrality of the interest rate in the on-going discussion of how the US government can respond to a disastrous week on Wall Street is a bit odd.

A more illuminating portrait of the economic situation, in which the federal funds rate is only a bit player, was painted by Paul Krugman. He noted that a key part of what’s gone wrong so far on Wall Street is indicative of an on-going pattern of crises: first the economic downturn of various Asian economies in the 1990s, then the the boom-bust of the US economy from the early 2000s on, then a 2009-2010 Euro crisis, and finally another currency crisis in many other less developed economy (most notably Brazil). Krugman links these together as a recurring pattern of speculative “gluts,” each fed by the former as a source of initial investment funds and feeding the latter by driving investors there after that specific economic bubble pops.

In essence, the uncertainty of investors that could pull their funds out of the US economy and create economic distortions elsewhere is the problem, and the possibility of a not-very-well-timed federal funds rate increase is simply a justifying moment of bad luck. That’s the spark that could light a powder keg of huge investing resources concentrated in globally a small number of flighty hands and given greater mobility than ever before historically. The interest rate can’t go up, and various political groups are noting that necessity, but the structural reality that has made that and virtually all other stimulant economic policies must-haves to avoid an economic catastrophe needs to be talked about as well.

Our financial system (like many others around the world) is essentially set up to fail, and at moments like these it seems like there might be a clear reason why: to make anything less than stellar news for the financial sector even more disastrous for everyone else. There’s no better way to keep the policies you want than to make them in everyone’s best interest.

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Even if inflation were such a problem…

Brad Delong has put together an excellent summary of the recent economics spat between the now Fox-affiliated pundit Erick Erickson and actual economist Paul Krugman, who lays out a pretty undeniable case that inflation has not been a problem that impacts average people in the United States. After all, there’s charts like this:


(Originally from here.)

But those reveal that inflation, or failing that price instability, was a phenomenon for those basic commodities somewhat recently during the 2007-2008 economic crisis. That said, it’s important to locate the important events of that crisis in time, and specifically as beginning under the Bush administration and has at least begun to be resolved under the Obama administration. Recalling the most memorable moments of that crisis, we can see how much they track to the beginning and end of the period of price instability for basic foods:


(The above image with modifications. The red line coincides with the bursting of the US housing bubble, the first obvious indication of the crisis. The green marks the beginning of the associated stock market crash, when the crunch was at its worst. The blue line indicates peak unemployment, after which the average person’s purchasing power at least stopped decreasing.)

There is, of course, a problem here as both of these staples have maintained their high prices in spite of sluggish improvement on unemployment and decades of stagnant wages. There are economic problems within which inflation (or rather, price instability) plays a clear role, but it’s important to remember the causes of that, which seem inseparable from Republican-led banking deregulation and the Bush era’s unbelievable mismanagement. The assignment of these problems to the Obama administration that Erickson recently took part in relies on both inaccurately understanding the nature of the problem but also fudging the context of the problem in a way that obscures solutions to the actual problems.

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The image of the country “we are becoming”

In the wake of the 2012 Presidential Election, I wrote about Paul Krugman’s explanation that that election was something of an extension and expansion on the themes in the 2008 elections. Among other indications, it was a symbol that the idea of the United States as an open and diverse society was not merely a fluke of the 2008 electoral cycle, but an increasingly integral part of the country.

Sometimes, it’s difficult to keep sight of that within what I’ve called the “unreality” of politics here. It’s difficult sometimes to remember how utterly unrepresentative much of the media and the politics in the US actually are. To that point, there’s been two major explorations of how wide that gap is in the past two weeks.

comparison of Sunday shows proportionate representation of White men - all greater than 60% aside from Up with Chris Hayes which is 41%
(The comparison of the Sunday shows’ demographics, from here.)

Media Matters recently released this chart showing how Up with Chris Hayes more accurately depicts the actual demographic reality in the United States, especially when compared to other Sunday shows. The problem of overrepresenting male and White perspectives, unfortunately, is merely one that Hayes’ show has challenged in anyway, not one that his show has actually actively resolved. It’s worth noting that while 41 percent of his guests are White men (compared to 39 percent of the overall population), only 37 percent of his guests are women. Again, this is significantly higher than other shows – but the fact that Up is an outlier, while it still so chronically underrepresents women of all races, is cause for concern.

Likewise, as I’ve pointed out before with regards to MSNBC’s coverage, people of color and women are not the only groups systemically locked out of discussions on policies and attitudes that most directly impact them. Still, in spite of its failings, this is chart fairly concisely shows just how out of touch most broadcasts are with who US residents actually are – in terms of just race and gender alone.

But what’s particularly interesting is that a large swathe of the country is moving towards pluralism on such issues even while hindered by a media that rarely allows all of those “others” to air their concerns or perspectives. Nate Silver a few days ago pointed out that aside from Republicans, the United States is rapidly becoming more accepting of marriage equality. The research he cites breaks it down in terms of both partisan identity and general political identity.

Comparison of marriage equality support since 2001 between political groupsComparison of marriage equality support since 2001 between political parties
(Click to enlarge. Pew Research shows long terms increases in support for marriage equality among different political parties and identities over the past decade, from here.)

It’s intriguing to see how support for marriage equality has been steadily gaining support for years – some of them under the notoriously prejudiced Bush Administration. Likewise, although both the increase is smaller and the results less impressive, this is something that’s even improved among Republicans and conservatives.

There’s something in actually visually seeing that fact – that some segments of the media are actually becoming more representative in terms of race and gender and that the polling shows as well that we’re growing more inclusive as a country.

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The GOP: we alienate everyone because we almost can

You may have heard some the talk recently in the US about how the blowout re-election of President Obama was due to the Republican Party alienating every voter they could, and there’s a lot to say on that issue. Election night was full of animated analysis of the gender gap, and particularly the marital dimension of it. The past few weeks, discussion of how that occurred for Black and Latin@ voters has been a common theme in political media. In more recent days, analysis of the stark movement of Asian electoral support from the Republican to Democratic Party has been the newest item of the on-going discussion.


(Various Asian voters historically favored Republicans, but the past twenty years of neo-nativist rhetoric have stunningly reversed that, making other shifts, like Bush’s gains with Latin@s look inconsequential in comparison. From here.)

The last bastion of Republicans strength outside of a narrow subculture of straight, cisgendered, White, Christian, wealthy patriarchs seems to be among the middle class, as Romney’s campaign strategist recently wrote in a Washington Post opinion piece. The facts are, however, that Romney only won the range of voters with yearly personal incomes greater than $50,000 when viewed all together. There isn’t data specific the “middle class” segment of that, however we might define it.

But of course, it comes as no great shock to note, as Paul Krugman has, that the Republicans have tried to push through a compromise on the expiration of the Bush tax cuts that would have sacrificed the current rates of many of those making between  the not-really-middle-class-anymore-right? $250,000 and a shocking $400,000 yearly, to keep the current low rates on income greater than that bracket. So, for those with income within that bracket, the message from Republicans is clear: the political demands of even the rich are irrelevant compared to those with those of the astounding wealthy.


(From Krugman’s article.)

How long will those who fit into the Republic pigeonhole in every way other than class keep voting for them? Did we just see the straw that broke the camel’s back?

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2012 is the new 2008

TW: racism, heterosexism

For a long time, right-wingers — and some pundits — have peddled the notion that the ‘real America’, all that really counted, was the land of non-urban white people, to which both parties must abase themselves. Meanwhile, the actual electorate was getting racially and ethnically diverse, and increasingly tolerant too. The 2008 Obama coalition wasn’t a fluke; it was the country we are becoming.

– Paul Krugman, in an article written in the wake of the election Tuesday

I’m not sure why, but people often seem very eager to declare major events as the ‘end of history’ or something similar. Whether it was academics talking about the containment and disintegration of the Soviet Bloc creating a post-conflict world or political strategists arguing that Republican-brand conservatism is the end-all-be-all of US politics, we’re all quite quick to declare temporary changes to be permanent, irreversible trends. That being said, I think Krugman is in the right here. 2008 was the first sight of something new on the political landscape, and 2012 is a clear sign that it’s not going away with any speed. What I desperately hope, however, is that it keeps growing and changing and improving itself, because 2012 might not look it, but it’s been a much sturdier and impacting victory for less powerful Americans.

This goes against the simplest electoral math, of course, since in 2008 the Democrats (and Senate independents) swept the House, the Senate, and the Presidency. But did liberals? The House was notoriously full of “blue dog” Democrats that leaned rightward enough that they helped the Republican Party water down and then almost destroy health care reform. The Senate was and to this day remains impotent as a result of the filibuster. The President who was elected was unfortunately quite beholden to his campaign contributors from the financial industry that donated to him quite handsomely.

This year’s election, admittedly doesn’t necessarily fix these problems, as the House is still under Republican control, which may prove worse than the mixed bag of Democratic rule, and Obama shed a few electoral votes. Still, we could always pull out the nuclear or constitutional option in the Senate and its notable that this year Obama won without the strings attached by Wall Street. If this year has been a limited victory, it seems about as constrained as 2008 was. Both years have honestly been a bit of a wash in terms of the means progressives acquired to implement their vision for the country, but 2012 has seen a small but important improvement over 2008 in terms of what that vision was: solidarity-driven.

I’ve written ranted here before about the central place that we have to provide solidarity in modern progressive politics, but I think nowhere is that more obvious than in comparing the 2008 and 2012 elections. 2008 was, from its primaries onward, marinated in denying the existence of intersectionality or the need for solidarity. For far too many voters, the choice between Hillary Clinton and Barack Obama for Democratic Presidential Nominee was equated with choosing between combating sexism or racism. A small but vocal number of Clinton supporters treated Obama’s eventual victory as a sign that racism was seen as more serious than sexism.

Then, in the aftermath of California’s narrow approval of Proposition 8, which added to the constitution the definition of marriage as “between a man and a woman”, Dan Savage and other pundits argued that Black voters (and occasionally Latin@ voters as well) were fundamentally responsible. Savage even directly stated that he was “done pretending” that anti-Black racism was “a bigger problem for African Americans, gay and straight, than the huge numbers of homophobic African Americans are for gay Americans, whatever their color”. One of the most prominent responses from the Black community to this insulting argument contained the admission “I had some personal misgivings before casting my vote against. Perhaps gay rights activists needed to better explain […] how a No vote wouldn’t affect schools or teach children about gay marriage.” Apparently, allowing same-sex marriage was apparently just within the lines, but having schools acknowledge the existence of LGBT* people was beyond the pale. Just as Savage required Black voters to prove their worth to him, Roker lamented that marriage equality advocates hadn’t done a good enough job proving their worth to straight audiences (of various races).

From start to finish the elections in 2008 seemed to butt into this dynamic time and time again: of different disenfranchised groups competing for acknowledgement of their struggles and assistance in overcoming them. In some ways, it’s a miracle that 2008 wasn’t a disaster and progressives were able to be unified enough to challenge conservatives in many contexts.

2012 was completely different. Obama’s presidential reelection was driven by many issues, but among them was his administration’s attention to the needs of women. Repeatedly, he or his campaign would reiterate that they perceived abortion and contraception as the choice of each woman, not of politicians. Likewise, they highlighted his effort to end wage discrimination both with better laws and stronger enforcement of them. And of course, this graphic came up frequently as well:

Insurance Discrimination against Women will be nationally banned in 2014 by Obamacare
(Originally from here.)

But this was more than a phenomenon playing out on the national stage – there were a number of local elections that provided us in 2012 with smaller but more varied “first” Senators or Representatives in comparison to the also historic first Black President in 2008. In almost every case, what created these landmark elections was that the elected officials belonged to multiple groups. In 2012, we saw intersectional candidates begin to win, whose own identities challenged the bitter rivalries that were so prevalent in 2008.

Until very recently there were virtually no women in the Senate or House, and while the 2012 elections helped improve that, there’s still a ways to go before the representation in federal government is actually representative. Among the women elected on Tuesday, however, were Tammy Baldwin, Mazie Hirono, Tulsi Gabbard, and Tammy Duckworth. But those four are all members of other chronically underrepresented groups in Congress as well. Baldwin is also the first openly LGBT* Senator in US history. Hirono is the first Buddhist Senator and Gabbard is the first Hindu to ever be elected into Congress. Tammy Duckworth is the first disabled woman and disabled person of color to have the honor and duty of representing constituents in the federal government. Joining her in the House of Representatives is also Mark Takano, the first LGBT* person of color to hold office in either legislative body of Congress.

I’ve already quote Krugman once, but let me do it again: this is “the country we are becoming”. We are and have been diverse, and not just in terms of a variety of identities, but also combinations of those identities. Finally, our political process has stuck its toe in the pool and tried representing that, just a little bit. I, for one, say we should go forward even more.

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Is class consciousness back in style?

Earlier today, Paul Krugman mused on the unexpected reversal of fortunes in the current presidential election. He noted that enthusiasm and unity have been shown on the Democratic side while decidedly lacking among Republicans, a bit of a contradiction of political stereotypes. But furthermore, he recognized a slow but steady shift in public attitudes:

Among other things, while we weren’t looking, social issues became a source of Democratic strength, not weakness — partly because the country has changed, partly because the Democrats have finally worked up the nerve to stand squarely for things like reproductive rights. […] The right is already set up to blame poor Mitt, claiming that he lost because he wasn’t conservative enough. But that’s not what we’re seeing; it looks as if voters are rejecting the right’s whole package, not just the messenger. As I said, not the election anyone was expecting — but a happy surprise for some, and a nasty shock for others.

There’s clear evidence on this point – as majorities of people in the United States now support same-sex marriage  and other progressive policy changes the Republicans oppose. I subtly suggested yesterday that the distinction between “social” and “economic” issues is a bit more fluid that usually acknowledged – economic protection from gender discrimination interacts with social policies towards women who either live independently or only with other women. I think it’s worth looking at issues of economic populism holistically – not just as political and economic issues but also as potential contexts of pop culture. From The Hunger Games to In Time, economic inequality has become a common topic in entertainment in the United States and elsewhere. Suzanne Collins, the author of the original Hunger Games trilogy, clearly called the trend as she planned out the books over the course of 2008 and published the first on September 14, 2008, a day before panic would break out on Wall Street after Lehman Brothers filed for bankruptcy.

For much of the following year, political debate in the United States would focus on class. It’s hard to deny the mingled forces of popular culture and economic populism in the following election. But even afterwards, a focal question at the time was whether deficit reduction (as suggested by the Tea Party protests) or unemployment (as suggested by the President’s and Congress’ stimulus plans) was the  greater danger for the poor and middle class. Ultimately, the discussion between restrained Keynesian approaches from the federal government and ostensibly grassroots protests from deficit-hawk conservatives was joined by the on-going Occupy protests of all forms of economic inequality. In spite of all these clearly economic issues being discussed, the national conversation couldn’t help remarking on the perceived hippie-ness of Occupy and the confederate undertones of the Tea Party. The protests were at once about common cultural values and economic policies. But as these movements’ influence continues to be felt through this election year, economic issues have seemed to be among the most salient of the issues making this election so “ideological” (as Krugman called it).

May 2011 protests in Madrid, Spain. (Photo from here.)

Meanwhile in the rest of the world, austerity policies and subsequent anti-austerity protests spread across Southern Europe, as the economic downturn reached around the world. Spanish and Portuguese protesters (called “los indignados”) marched across much of the Iberian peninsula, through a very perturbed France, and into the center of the European Union’s administration – Brussels, Belgium. Just as in the United States these sorts of protests were highly visible cultural events as much as political statements – with Portugal nominating a protest song to the massively popular Eurovision musical contest. Protests are only growing in intensity in Greece, so it seems clear that demands for retaining or augmenting redistributive economic policies will only get louder, and perhaps more embedded in popular culture.

Even in less directly affected countries throughout the Middle East, poor economic conditions stimulated mass protests. The original Arab Spring, in Tunisia and Egypt, was explicitly a reaction of the combination of economic as well as political malaise. Likewise, there was an explicitly cultural and artistic component to it, from the street art in the Arab world to the few gallery artists whose careers in other countries were launched by it. The protests elicited creative responses the world over, including reactions by Arabs living in other parts of the world [TW – police violence]:

It seems clear: culturally-resonant demands for economic populism are increasing their influence in much of the world, and it shouldn’t be a surprise to see it, along with other factors and issues, driving electoral choices in the United States and elsewhere in the near future.

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