A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Hey, I Found Something On Which Romney’s NOT Hypocritical

by evanmcmurry

The left side of the internet is having a lot of fun with Romney’s weird incantation in the latter portion of last night’s debate that “Government does not create jobs! Government does not create jobs!” But elect me and I’ll create 12 million of them, joked liberals on Twitter and elsewhere. It’s a nice riposte, but there’s no inconsistency—one of the few things Romney believes no matter what his audience is that rescinding government regulations, especially in the form of upper class taxation, will stimulate employment. You can agree or disagree with that—not going to sleep reading The Road To Serfdom every night, I disagree—but there’s no contradiction that I can see between Romney claiming that government doesn’t create jobs and his claim that as the head of that government he’d create millions of them.

Of course, you could easily argue that government does create jobs—it’s called the public sector—and that its underperformance during the Obama administration, thanks entirely to ill-conceived, ill-timed austerity measures (hi Tea Party!), is one of the primary drags on our economic recovery. Ironically, Romney’s right: government has not created jobs in the past four years. Too bad for us.

The Two Numbers To Watch In The Post-Debate Polls

by evanmcmurry

Romney gained in numerous ways from his strong first debate performance, but the two most important were his favorability ratings and his performance among women voters. Before two weeks ago, Romney’s favorability ratings had been underwater in multiple swing states, largely due to a successful push by Obama’s campaign to paint him as a heartless, offshoring plutocrat. Romney managed to flip those numbers with his debate win, and his rise in the polls, especially in states like Florida and Pennsylvania, followed his rise in favorability ratings; only in Ohio, where the Bain attacks hit especially hard, has Romney not seen a significant increase in his favorability, though he has still gained there. Per Greg Sargeant, Romney also significantly closed the gap among women voters, which, during the legendary contraception wars of the spring of ought-12, was almost comically large.

In Tuesday night’s debate, Obama hit Romney hard in both these areas. Obama’s constant, Biden-like interruptions about the mendacity of Romney’s claims, his reminders that Romney has often held differing positions for differing audiences, his resuming the vulture capitalism trope, his Bain attacks, his nice line about Romney’s pension—all of these were in the same key as the attacks that kept Romney in the high-30s to low-40s favorability for much of the general election. Obama also brought up Planned Parenthood four times (even when it wasn’t particularly relevant); had one of his strongest answers when speaking on the Lily Ledbetter Act and women’s health access; and quite insightfully spun a question about Bush economic policies onto Romney’s arguably more extreme social policies—all points aimed at reminding women voters why they were turning from the GOP in droves a few months ago.

Last night’s debate is unlikely to change the national polling numbers—as Kevin Drum points out in a spot-on post, the national polling is exactly where we thought it would be given the dynamics of the race and is unlikely to change. But just as Romney’s general rise in the polls has been the aggregated result of specific* gains in certain categories, look for Obama’s strong debate performance to be felt not in the national poll averages but in targeted areas like Romney’s favorability and women voters—areas that, however narrow they may seem, could be pivotal in important swing states.

* The first and last time Mitt Romney benefited from specifics in this race.

No Mitt, this Recession is Different from the one in 1980-1982

by pdxblake

Well, I though Obama did quite well in the debate tonight.  But, who cares what I think (I am decidedly NOT an undecided voter).  However, I though it was interesting that Romney tried to play the card that things would be better if only Reagan were still president (*shudder*).  Romney compared the recession recovery to the economy Reagan had when he became president, which is fundamentally dishonest because they were two very different economies (something which Carmen Reinhart and Ken Rogoff also want people to stop misleading about).  Going into 1980, the inflation rate was high, and the Fed needed to establish its credibility by lowering inflation expectations into the future.

Look, for example, at the interest rate on the basic 30 year mortgage:

Coming into 1980, it was in the neighborhood of 12.5%.  Even with mortgage interest rates at that level (due in part to the inflation in the economic that was driven by the oil price spikes in 1974 and 1979 (you can see the smaller spike in interest rates in 1974 that led to a recession, marked in the shaded area).  By 1980, inflation was not out of control by any means, but it was far above today’s Fed’s preferred area of around 2%:

So, in 1980, if you are the Fed chairman, newly appointed in August 1979 by Jimmy Carter and your mandate is to get maximum employment in the context of stable inflation are you to do when inflation is above 10% and rising?  Keep in mind that the two inflation spikes in the 1970s are in the periods when the primary driver of inflation is the rise in oil prices (the US was then consuming more barrels of oil for every $1 of GDP than we do today)?

Well, you raise interest rates to force a recession (or two) to slow the economy to get inflation expectations down to lower levels.  And that’s just what Volcker did (yes, the same Volcker who had a rule named after him).  When inflation is increasing >10% per year, the Fed has the tools to bring the expected rate of inflation down.  It just hikes its short-term targeted rate and the recession leads to lower expected rates of inflation.  The Fed knows how to tame high and rising inflation.

But the situation today (and even more in 2009) was that the Fed’s target short-term rate was near zero and the economy was still in recession.  Now, a digression.  There is a relationship between the short-term rates the Fed sets and longer-term rates (like the 10-year Treasury on which many mortgages are based, see above for where that is..).  The yield curve shows the interest rate on bonds of varying maturity (maturity is how far out they are coming due).  Long-term rates, like the 10 year Treasury are essentially summations of what the short-term rates will be for the next 10 years.  So, even if rates are now near zero, if there is expected to be a pickup in inflation starting 5 years from now, that would raise rates on the 10 year.  If, however, deflation (i.e. the economy slides back into recession) is expected, then the longer term Treasuries would have a lower yield.

When the economy is depressed and recovering from a period of debt-built expansion that has now turned into deleveraging, there is a risk that people will forecast a double-dip recession.  This is especially the case when the political system has become so disfunctional that economic growth (which would increase the incumbent’s chances of re-election) becomes anathema and the opposition prefers gridlock or worse (GOP threats to default on the US debt, or imposing calendar-dated fiscal retrenchment pledges in a deleveraging cycle).

As bad as the 1970s may have been for the high inflation and high unemployment (and higher during the period after interest rates were raised by the Fed), there was a recovery around the bend.  When a recession is caused by central bank that is trying to curtail inflation expectations, it can always lower interest rates to ease the pain.  When it gets to near 0% interest rates, it neeeds to do more (and has, thanks to the lessons learned by Ben Bernanke from his study of Milton Friedman and Anna Schwartz’s analysis of the monetary policy factors that intensified the Great Depression).

It is an error and a lie for Mitt Romney to correlate the current recovery (caused by the bursting of the housing and financial bubbles) and the recovery in the early 1980s (which was instead driven by the Fed to lower inflation expectations, even if it was also painful). It is disingenuous at best and a full on lie at worst (I lean toward the latter).