Ben Bernanke, the replacement for Greenspan

not only that ... he recruited PAUL KRUGMAN! wingnut heads oughta be exploded en masse across the country now.

(seriously, this is a very good choice.)

Brown (attorney Marshall Davis Brown): "And you were married to Mrs. Bush?"

Bush: "Yes."

Brown: "Is that where you caught the venereal diseases?"

Bush: "No."

Brown: "Where did you catch those?"

Bush: "Diseases plural? I didn't catch..."

Brown: "Well, I'm sorry. How ... how many venereal diseases do you suffer from?"

Bush: "I've had one venereal disease."

Brown: "Which was?"

Bush: "Herpes."

"It was very unusual," Bush said.

Brown: "Do you know the name of that hotel? I may go to Thailand sometime."

"Oh, and you don't wanna look in that drawer right there."

He recruited Paul Krugman to teach international econ -- you shouldn't assume any ideological crossover.

Yeah, but does Paul Krugman's fiscal policy overlap with Bernanke's monetary policy? I think by the time you're a superstar economist (as both plainly are), you're not recruiting for someone whose worldview matches yours.

"Although a Republican, he is not seen as a highly partisan figure, appearing less comfortable as White House economic spokesman than as a Fed policymaker."

Krugman in the NY Times:

Why won’t the Fed act? My guess is that it’s intimidated by those Congressional Republicans, that it’s afraid to do anything that might be seen as providing political aid to President Obama, that is, anything that might help the economy. Maybe there’s some other explanation, but the fact is that the Fed, like the European Central Bank, like the U.S. Congress, like the government of Germany, has decided that avoiding economic disaster is somebody else’s responsibility.

Krugman is probably right enough about the Fed board being worried that any new actions to stimulate the economy would draw heavy fire from Republicans. Monetary policy has done about all it can, though, short of fully monetizing the federal debt - which even Krugman knows won't happen. It is Congress that is the key obstacle.

I think Krugman wants Bernanke to act anyway, no matter what the Republicans would think

http://deadhomersociety.files.wordpress.com/2009/07/trash-of-the-titans1.png?w=655

Beyond preventing a complete collapse, I'm not sure I've ever understood how additional fiscal stimulus is supposed to revive the economy. I think I may be starting to doubt krugman on this. What does fiscal stimulus do to address this:

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-story-of-the-housing-crash-recession-that-politicians-dont-want-to-tell

The basic story is actually quite simple. The housing bubble had been driving the economy prior to the recession. It created demand through several channels. A near-record pace of housing construction added about 2 percentage points of GDP to annual demand, or more than $300 billion in the current economy.

The $8 trillion in ephemeral housing wealth created by the bubble led to a huge surge in consumption. Tens of millions of people borrowed against bubble-generated equity or decided that they didn’t need to save for retirement. When house prices were going up 15-20 percent a year, the house was doing the saving. The result was a huge consumption boom on the order of 4 percent of GDP or $600 billion a year.

In addition, there was a bubble in non-residential real estate that followed in the wake of the housing bubble. This raised non-residential construction above its normal levels by close to 1 percent of GDP or $150 billion a year.

Adding these sources of demand together, the bubble generated well over $1 trillion in annual demand at its peak in 2005-2007. When the bubble burst, this $1 trillion in annual demand vanished as well. That is the central story of the downturn.

To recover we must find some way to replace this demand; however, that is not easy. People will not go back to their old consumption patterns because they know they need to save more. Tens of millions of people have much less wealth than they expected at this point in their lives after they saw the equity in their homes largely vanish. Tens of millions of baby boomers are approaching retirement with almost nothing but their Social Security to support them.

Given the huge loss of wealth from the collapse of the housing bubble, it is not reasonable to expect consumption to rise to fill the demand gap. It doesn’t make much more sense to expect investment to do the job. Historically, investment in equipment and software has been close to 8 percent of GDP. It is pretty much back to that level today. To fill the demand gap created by the collapse of the housing bubble, the investment share of GDP would have to nearly double to 14 percent.

This would be almost impossible to imagine at any time, but it is especially far-fetched at a time when much of the economy is operating far below its capacity. Businesses are unlikely to spend a lot of money expanding their facilities when the existing capacity is sitting idle regardless of how nice we are to job creators.

I'm not sure I've ever understood how additional fiscal stimulus is supposed to revive the economy.

That article rightly points out that consumers are tapped out and that businesses will not expand or invest in the face of such sluggish demand. But that is precisely why fiscal stimulus is needed. Fiscal stimulus injects money into the economy via government spending, so that it is not dependent on consumers or businesses as a source.

This is basic, basic Keynesian economics. His insight was that in times of economic contraction a vicious circle can develop, where the wholly rational actions of individual economic actors (consumers and businesses) in the face of low demand for labor and for consumer goods lead to further contraction, lower demand, and therefore further contraction, lower demand, etc.

He decided that the only way to break that vicious cycle was for governments to act in a way that would be irrational if it were done by an individual or a business, namely run up its debt and spend like there's no tomorrow. This was supposed to be counterbalanced by governments increasing taxes and revenues to pay down debt during boom times, but you know how well that idea went over.

I should also point out that fiscal stimulus is not the same as monetary stimulus, which is what the Fed does when it lowers interest rates. However, the most important thing the Fed can do to assist the goverment when the government decides on fiscal stimulus, is to buy government debt obligations (treasury bonds) and thereby underwrite some or all of the new debt the government is taking on in its effort to revive the economy.

Well I guess I meant to say monetary stimulus then.

Krugman has made the case for both US govt stimulus and Fed monetary policy stimulus. Wish I could explain why I think he's right about both.

Re housing sales and economic recovery:

http://www.motherjones.com/kevin-drum/2012/06/us-housing-market-starting-rebound

Why won’t the Fed act? My guess is that it’s intimidated by those Congressional Republicans, that it’s afraid to do anything that might be seen as providing political aid to President Obama, that is, anything that might help the economy.

the second of these might be right, but idk why krugman puts the blame on the gop house and not the hard-money hawks on all the fed governorships itself. it's an institution that has to move with unanimity otherwise markets get even more freaked -- dissenter statements whenever bernanke has persued easing have been held up in equivalent fashion to a scalia broadside-from-the-bench

There are a few problems with the supposed housing recovery imo. (1) Housing sales numbers and prices are being inflated or reflated right now by FHA-backed mortgages and absurdly low mortgage rates. (2) While I realize that there's also "pent-up demand" I wouldn't overestimate that amount -- overall household formation is down because of unemployment, student debt, etc. You're not going to see the same rate of homebuying in the current generation that you saw previously. People are still looking to get back to a "normal" that doesn't exist anymore. (3) In addition to that "pent-up demand" there's also still plenty of another catch phrase: "shadow inventory"

xpost

yeah the hawks on the fomc are the real problem here i think. these guys have been warning about the impending inflation disaster since about...2008? It's a view that's deeply embedded in the dna of the institution.

People are so traumatized by bursting bubbles that even if you pump a huge amount of money back into the system to replace all that was lost in the collapse, it still won't flow back into the market that bubbled and burst. It will flow elswhere and create a new bubble there.