A bad thing happened

Some things should be put simplistically because they are, at heart, very simple. Because they're core truths.
1. Our freedom of speech is near absolute. Our government's stated purpose is largely to protect it. Plumbing the intent of a citizen's speech, subjecting him or her to criminal investigation because of it, or using government power to identify a citizen to those angered by the speech is unconscionable.

2. It is also particularly foolish when it comes to people who appear to want to be angered or offended. Can anyone suggest a remotely workable way in which Americans would be able to exercise our core freedoms without fear of giving offense to these sort of folks? I don't. Sometimes people need to step back from the minutiae and look at the big picture.

Why Do People Talk About Means Testing of Social Security?

I don't understand why anyone would waste time talking about this.

Social Security is already means tested; every dollar of SS benefits is considered taxable income.

Thus, much of the benefits that accrue to rich beneficiaries is already recovered by the government. What's the point of arguing about the accounting mechanics of it, which are almost entirely government accounting fictions. (If the government chose to, it could certainly classify some of those tax revenues as recapture of social security, but so what?)

And sure, it's inefficient to cut a check and then have everyone send some back later (although in a world of electronic deposits, it's not that inefficient) there's also the advantage that this form of "means testing" via the income tax should generally work in favor of people who actually get themselves stuck in bad situations- i.e. a rich senior who has a sudden fall in income (perhaps they invested in GM or Chrysler bonds) will automatically be supported through the current situation.

Alternatively, under means testing, the same person would presumably have to go fill out some kind of paper work, have their new and additional benefit levels approved but a complicated and expensive bureaucracy. And how would you measure prospective income anyway- isn't it inherently more difficult than simply seeing what your income actually was over the course of a year? It sure is to me. I guess you could save some money by making the means testing rule based on past income only, but of course that will generate significant hardship exactly the sort of people (those who suddenly lose income) we're setting things up to try and help.

So basically, no offense, this is yet another situation in which our seemingly insane government has evolved to a more rational, flexible outcome than a comprehensive and purely rational approach would likely get to.

We want our politicians to be good liars

OK, assume the worst intentions (which I don't, but for the sake of argument) it's still better to have a competent liar than an honest fool.

• Party R holds the true belief but the voting public holds the false belief. Party R must lie to win the election and implement their true belief.
• Party D holds the false belief and is in power. They have steadfastly refused to question their false belief to their own and their country's great detriment.

Following this log a D victory ensures no monetary expansion. Not only do they philosophically not believe in it, the public doesn't support it and their key constituencies would be especially hurt by too much inflation if the policy fails. An R victory gets a higher likelihood of the right policy. An R campaign of honesty gets us a higher likelihood of a the wrong policy, because, again, it is extremely unpopular and poorly understood.

And, by the way, counld someone write an entertaining account for us of what one of those monthly Obama-Bernanke meetings sounds like?

John Taylor: Abandon the employment goal to reach it

Scott Sumner posted on John Taylor's piece in Bloomberg the other day, and thinks it says Taylor is calling for tight money. I just re-read Taylor's piece, and I don't think he's arguing for a cut in inflation targeting or tight money.

Why has the Fed gone cuckoo over interest rates? I mean, they’re doing crazy stuff to further lower them!

It's because they are focused on employment! To the detriment of hitting their price stability target. Because they’re totally locked in on the wrong concept to the exclusion of all else. Why? because our basic economic theory, the sort we teach and learn in econ 101, and that even most non-economists intuitively understand, is that low interest rates lead to more borrowing which leads to more employment.

Taylor is saying this pursuit of the the unemployment mandate, to the exclusion of everything else, is counterproductive to reducing unemployment.

Why Bernanke and co don’t understand low rates aren’t the solution to this kind of problem, I don’t understand, but I do understand the situation when I view it from that perspective.

Not will low rates not work in this situation, they focus and background conditions cause the Fed to ignore price stability and allow deflation. Which, of course, kills employment.

By abandoning the employment goal, the Fed gets to stop caring about interest rates and focus on the price level. Which will help the now unstated employment goal.

It's elegant, ingenious, and it might actually be right.

Will Obama be the 2012 Democratic Nominee?

Ann Althouse surveys articles talking about this and says:

I'm sorry, I can't see the Democratic Party thriving by ousting Obama. What chaos! And Hillary would have to compete in the primaries. Presumably, other Democrats — those characters who are otherwise waiting for 2016 — would jump into the fray. (But who are those other Democrats? What is the next wave of presidential-seeming Democrats?) I think it would be an awful mess if he were publicly hounded into withdrawing.
If some powerful alliance of liberals really wanted Obama to withdraw, they would — I imagine — be operating in private. It would be handled in a way that would preserve Obama's ability to come forward and present his withdrawal in a very grand and lofty style, as a matter of his own decision and not out of desperation and for highly altruistic reasons.

I agree that the Democrats wouldn't stand a chance by challenging him, but I don't see any logic to some secret cabal operating in private. Suppose he resigns or chooses not to run. What on earth does his Democratic successor run on? The successor can't do much to change policy over the next year, and the economy sucks. Nobody wants to step up and own that.

So why do we see media outlets talking about this like it might happen? Because non-stories are popular. Up next, Pete Rose should be in the Hall of Fame!

What should the Fed do?

Is it treasonous to believe what might be the right policy in the abstract would be the wrong policy in practice?

* Can the Fed be trusted to get things right on its own? With 2008-present as evidence, even though I favor targeting a higher NGDP rate instead of 2% inflation, I see a real possibility for them to botch it badly, and for things to get out of control.

* The Fed ultimately relies on its credibility and the expectations of the larger public to act to do this, and memories of the 70s and 80s inflations scare the hell out of people. The real and perceived actions of the Fed in 2008 to present don't add to its credibility.

* If we have a President who fundamentally misunderstands economics but nonetheless holds a lot of both hard and soft power, he could cause a lot of really bad things to happen. Another year of this would suck, but the current situation doesn't portend riots, bloodshed, wide-spread class warfare, constitutional crises, or government defaults.

In short, lots of "very bad things" could happen if the Fed acts in a significant way, and having them not happen depends on lots of people with differently aligned interests all acting in concert. In an election year.

Obama's grasp of economics and social graces

From Althouse, we apparently the President's first words to former economic adviser Christina Romer were:

""It’s clear monetary policy has shot its wad" is what Obama said to her before even "hello."

Stay classy, Barack! Worse, as an economist, she was clearly right and Obama (and the Larry Summers faction of economists he sided with on monetary policy) was plain old wrong, and have made things much worse following their mistaken beliefs.


While the language is bad the bigger problem is that Obama was meeting one of the world's foremost scholars of monetary (and fiscal) policy and immediately dismissing one of her primary findings.

It'd be like meeting Einstein and the first words out of your mouth are "relativity is bullshit".