[Guest post by Noam Scheiber:] The idea's been bouncing around for a while, but Politico suggests some Senate Dems are now seriously considering it, even if many of their colleagues aren't wild about it: Senate Democrats struggled Thursday to figure out what that next step would be.
Last week, in between leading a graduate seminar on Proust and delivering a long-scheduled lecture on mass spectrometry, former Alaska Governor Sarah Palin ventured a few ticks beyond her acknowledged area of expertise and reflected on monetary policy at a convention in Phoenix. The occasion for her unexpected soliloquy—I’m actually serious about the economics speech—was the Fed’s decision to buy some $600 billion in long-term government securities, a practice known as quantitative easing. “We shouldn’t be playing around with inflation,” Palin said, in a typically Delphic pronouncement.
Over in the comments section for our editorial about the deficit commission, several readers have taken umbrage with our claim that the mortgage-interest deduction overwhelmingly favors the wealthy. One makes his case by citing this paragraph from a recent Paul Krugman column: Actually, though, what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class.
There were many factors that led us to the financial crisis of 2008—dangerous derivatives, irresponsible ratings agencies, negligent regulators—but one was more important than the rest. We now know it as the “too big to fail” problem. What brought the economy to the edge of disaster wasn’t only that financial institutions had made rash bets on lousy investments, but that those institutions were so massive that when their bets went bad, they threatened to take the rest of the economy down with them.
[Guest post by Noam Scheiber:] David Brooks thinks voters are rejecting Obama because he’s too liberal. I think voters are mainly (if not entirely) pissed off because unemployment is really high, and that Brooks’s argument, which he’s been making for a while now, leans on some pretty implausible assumptions. I don’t think either side of this debate is going to convince the other any time soon. But maybe it’s at least worth pointing out two places where today's Brooks column comes up a bit short. 1.) Brooks writes: Some Democrats believe their policies have nothing to do with the debacle.
With Republicans poised to sweep into office and obstruct Obama's agenda, is there anything he can do to revive the economy over the next two years? Last week I wrote about the possibility that we’re in a Japan-style recession—a rare form of economic disease that’s largely unresponsive to conventional remedies, like lower interest rates. This type of malady—the fashionable term is “balance-sheet recession”—tends to follow a collapse in the price of housing or stocks, at which point people become so preoccupied with paying down debt that they refuse to borrow even on super-attractive terms.
[Guest post by Noam Scheiber:] I'm of the view that it's a bit futile to worry about Social Security's long-term actuarial balance before you've figured out what to do about Medicare and Medicaid, whose contributions to our deficits over the next several decades are far, far bigger.
[Guest post by Noam Scheiber:] The linguistics nerds over at The Economist have launched an entire blog devoted to the subject--called "Johnson," of course--netting us this fascinating insight: THE idea of "phonetic symbolism"—specifically a link between sounds and perception of size—appeared to me for the first time in Steven Pinker's Language Instinct. Some vowels are "high" in phonetic terminology, like [i] (as in "sweet"). Others are "low" (like [o]).
[Guest post by Noam Scheiber:] Interesting bit of trivia from a blogger named "madhedgefundtrader," posted on the iconoclastic finance site Zero Hedge (via Politico's Morning Money): Before he left, I pulled out all the cash in my wallet and pointed out to Geithner that while I had bills signed by previous Treasury Secretaries Larry Summers, Paul O’Neil, and Robert Rubin, I lacked one with his illegible scrawl. Did he have any which he could exchange with me?
[Guest post by Noam Scheiber:] I'm a little late coming to this, but the indispensable Mike Konczal has a great post pivoting off of the piece I wrote earlier this week on consumer spending, and what it tells us about the kind of recession we experienced and the prospects for recovery. In the piece, I discuss the work of Japanese economist Richard Koo, who argues that in so-called "balance-sheet recessions," which follow the bursting of asset-price bubbles, consumers and businesses become preoccupied with paying down debt.