Category Archives: Economics

Regulatory Complexity Gone Wild

The complexities of the Affordable Care Act (aka Obamacare) are multiple, metastasizing, and increasingly well-known. Less known is an additional layer of health care regulation slated for implementation next year: the system by which doctors and hospitals code for conditions, injuries, and treatments. By way of illustration, in the old system, a broken arm might get the code 156; pneumonia might be 397. The new system is much more advanced. As Ben Domenech notes:

In all, the new system, known as ICD-10, will boast 140,000 codes, a near-eight-fold rise over the mere 18,000 codes in ICD-9. It is a good example of the way bureaucracies grow in size and complexity in an attempt to match the complexity of society and the economy. This temptation, however, is usually perverse.

Complexity in the economy means new technologies, more specialized goods and services, and more consumer and vocational choice. Economic complexity, however, is built upon a foundation of simplicity – clear, basic rules and institutions. Simple rules encourage experimentation, promote long-term investments and entrepreneurial ventures, and allow the flexibility to drive and accommodate diversity.

Complex rules, on the other hand, often lead to just the opposite: less experimentation, investment, entrepreneurship, diversity, and choice.

It is difficult to quantify the effects of the metastasizing Administrative State. It is impossible to calculate, say, the cost of regulations that prohibit, discourage, or delay innovation. Likewise, what is the cost of the regulations that, arguably, helped cause the Financial Panic of 2008 and its policy fallout? No one can say with precision. For twenty years, though, the Competitive Enterprise Institute has catalogued regulatory complexity as well as anyone, and its latest report is astonishing.

Federal regulation, CEI’s latest “10,000 Commandments” survey finds, costs the U.S. economy some $1.8 trillion annually. That’s more than 10% of GDP, or nearly $15,000 per citizen. These estimates largely predate the implementation of the ACA, Dodd-Frank, and new rounds of EPA intervention. In other words, it’s only getting worse.

The legal scholar Richard Epstein argues that

The dismal performance of the IRS is but a symptom of a much larger disease which has taken root in the charters of many of the major administrative agencies in the United States today: the permit power. Private individuals are not allowed to engage in certain activities or to claim certain benefits without the approval of some major government agency. The standards for approval are nebulous at best, which makes it hard for any outside reviewer to overturn the agency’s decision on a particular application.

That power also gives the agency discretion to drag out its review, since few individuals or groups are foolhardy enough to jump the gun and set up shop without obtaining the necessary approvals first. It takes literally a few minutes for a skilled government administrator to demand information that costs millions of dollars to collect and that can tie up a project for years. That delay becomes even longer for projects that need approval from multiple agencies at the federal or state level, or both.

The beauty of all of this (for the government) is that there is no effective legal remedy. Any lawsuit that protests the improper government delay only delays the matter more. Worse still, it also invites that agency (and other agencies with which it has good relations) to slow down the clock on any other applications that the same party brings to the table. Faced with this unappetizing scenario, most sophisticated applicants prefer quiet diplomacy to frontal assault, especially if their solid connections or campaign contributions might expedite the application process. Every eager applicant may also be stymied by astute competitors intent on slowing the approval process down, in order to protect their own financial profits. So more quiet diplomacy leads to further social waste.

Epstein argues the FDA, EPA, FCC, and other agencies all use this permit power to control firms, industries, and people beyond any reasonable belief they are providing a net benefit to society.

The agencies are guilty of overreach and promoting their own metastasis. Yet without Congress and the President, they would have little or no power. Congresses and Presidents increasingly pass thousand-page laws that ask agencies to produce tens of thousands of pages of attendant rules and regulations. Complexity grows. Accountability is lost. The economy suffers. And the corrective paths, which fix mistakes and promote renewal in the rest of the economy and society, are blocked. We then pile on tomorrow’s complexity to “fix” the flaws created by yesterday’s complexity.

The hyper-regulation of the economy is not merely an annoyance, not merely about inefficient paperwork. It is damaging our innovative and productive capacity — and thus employment, the budget, and our standard of living.

The McKinsey Global Institute helps us understand why this matters from a macro perspective. McKinsey chose a dozen existing and emerging technologies and estimated their potential economic impact in the year 2025. It found industries like the mobile Internet, cloud computing, self-driving cars, and genomics could produce economic benefits of up to $33 trillion worldwide. The operative word, however, is “might.” Innovation is all about what’s new. And regulation is often about disallowing or discouraging what’s new. The growing complexity of the regulatory state, therefore, can only block some number of these innovations and is thus likely to leave us with a simpler, and thus poorer, world.

— Bret Swanson

The Growth Effect on Jobs

Is the persistently high unemployment rate a secular, rather than cyclical, occurrence? Is it, in other words, a basic shift in the labor market that will leave us with semi-permanently higher joblessness for years or decades to come — no matter what we try to do about it?

Ed Lazear of Stanford and James Spletzer of the U.S. Census Bureau dug into the matter and presented their findings over the weekend at the Fed’s Jackson Hole economic gathering. Lazear also summarized the research in The Wall Street Journal. “The unemployment rate has exceeded 8% for more than three years,” wrote Lazear.

This has led some commentators and policy makers to speculate that there has been a fundamental change in the labor market. The view is that today’s economy cannot support unemployment rates below 5%—like the levels that prevailed before the recession and in the late 1990s. Those in government may take some comfort in this view. It lowers expectations and provides a rationale for the dismal labor market.

Lazear and Spletzer looked at what happened in particular industries and specific jobs, asking whether the real problem is that some industries are too old and aren’t coming back and whether there is substantial “mismatch” between job requirements and worker skills that prevent jobs from being filled. No doubt the economy is always changing, and few industries or jobs stay the same forever, but they found, for example, that

mismatch increased dramatically from 2007 to 2009. But just as rapidly, it decreased from 2009 to 2012. Like unemployment itself, industrial mismatch rises during recessions and falls as the economy recovers. The measure of mismatch that we use, which is an index of how far out of balance are supply and demand, is already back to 2005 levels.

Whatever mismatch exists today was also present when the labor market was booming. Turning construction workers into nurses might help a little, because some of the shortages in health and other industries are a long-run problem. But high unemployment today is not a result of the job openings being where the appropriately skilled workers are unavailable.

Lazear and Spletzer concluded that no, the jobless problem is not mostly secular, and we shouldn’t accept high unemployment.

The reason for the high level of unemployment is the obvious one: Overall economic growth has been very slow. Since the recession formally ended in June 2009, the economy has grown at 2.2% per year, or 6.6% in total. An empirical rule of thumb is that each percentage point of growth contributes about one-half a percentage point to employment.

The economy has regained about four million jobs since bottoming out in early 2010, which is right around 3% of employment—just the gain that would be predicted from past experience. Things aren’t great, but the failure is a result of weak economic growth, not of a labor market that is not in sync with the rest of the economy.

The evidence suggests that to reduce unemployment, all we need to do is grow the economy. Unfortunately, current policies aren’t doing that. The problems in the economy are not structural and this is not a jobless recovery. A more accurate view is that it is not a recovery at all.

The upside of this dismal situation is that we can do something about it. Think about what a different set of pro-growth policies could mean for American workers. Using Lazear’s very rough rule of “one point growth, half a point employment,” we can get an idea of what faster growth might yield in the labor market.

At today’s feeble 2% growth rate, we might expect to add several tens of thousands, or maybe a hundred thousand or two, of jobs each month. Over the next five years, at 2%, we might add something like seven million jobs. But that’s barely enough to keep up with population growth. Three percent growth, the historic average, meanwhile, would likely yield around 10 million net new jobs, 3 million more than at today’s 2% growth rate.

But three percent growth coming out of a deep recession and slow recovery is itself slower-than-usual recovery speed. It is certainly not an ambitious objective. Coming out of a slump like today’s we should be able to grow at 4, 5, or 6% for several years, as we did in the mid-1980s. Four percent growth for the next five years could add 14 million net new jobs, and 5% growth could add 17.5 million — meaning in 2017 something approaching 11 million more Americans would be working compared to today’s sclerotic 2% growth.

Keep in mind, these are rough rules of thumb, not forecasts or projections, and we’re leaving out lots of technical dynamics. There’s a lot going on in an economy, and we do not pretend these are precise estimates. The point is to show the magnitudes involved — that faster growth can provide jobs for millions more Americans in a relatively short period of time.

The problem is that U.S. policy before and after the financial panic and recession has not supported growth — I’d argue it has impeded growth. Faster growth is so important, we should be doing everything possible to enact policies that encourage it — or, if we can’t enact them today, then at least pointing the nation in the right direction.

A more efficient tax code that rewards rather than punishes investment and entrepreneurship would make a huge difference. Unfortunately, some in Washington and the states are proposing higher tax rates and new carve-outs and favors that will make real tax reform impossible. We need to ensure that Washington doesn’t keep consuming an ever greater share of the economy. But again, we’ve just seen a huge jump in the government-economy ratio, from 20% to 25%, and the current budget path just makes this ratio worse and worse over time.

Does anyone believe we have a regulatory system that promotes economic growth? In each of the last two years, the Federal Register of government regulations has grown by more than 81,000 pages. We’ve recently seen Washington drape vast new blankets of regulation over finance and health care and interfere at every turn with our energy economy — a sector that is poised to deliver explosive growth in coming years. Other regulatory actions, like FCC interference in broadband and mobile networks, can slow growth at the margins or, depending on how zealous regulators choose to be, severely disrupt an innovation ecosystem.

The economy is too complex to dial up exactly what we want. I am not suggesting a simple flip of a switch can achieve this dramatic improvement. But we should be giving ourselves — and American citizens — as many chances as possible. Given what’s at stake, there’s no excuse for not lining up policy to maximize the opportunities for faster growth.

— Bret Swanson

John Cochrane’s “Unpleasant Fiscal Arithmetic”

Can economic growth stop the coming fiscal inflation?

See my new Forbes column on the puzzling economic outlook and a new way to think about monetary policy . . . .

Rajan v. Krugman

Raghu Rajan’s Fault Lines is perhaps the most thoughtful book on the financial crisis, and now Professor Rajan is continuing his incisive analysis at a U. Chicago blog. Here, he defends his own criticism of the Fed’s ultra-easy monetary (both leading up to the crisis and again today) against Paul Krugman’s crude Keynesianism.

Some excerpts:

Before saying the real problem is we are not providing enough monetary stimulus, should we not worry about why corporations did not invest then and what other problems will emerge as we  keep rates ultra-low while hoping corporations will see the light?

. . .

If the government raised taxes explicitly to provide the interest subsidy, everyone would scrutinize the use this money was being put to carefully. Because the Fed picks investors’ pockets silently and forcibly through its ability to set the short term interest rate, no one asks questions about cost.

. . .

Of course, the Fed now disingenuously claims that the worst excesses in the housing market were committed when it had already started raising rates, and therefore it is not responsible for the housing boom. But it was complicit in setting off the boom by keeping interest rates too low for too long before then!

I may disagree with Rajan’s take on “global imbalances” (as I wrote about here) but nevertheless think he has become one of the smartest academic analysts of today’s confusing economic landscape.

Quote of the Day

“The defenders of modern macroeconomics argue that if we just study the economy long enough, we’ll soon be able to model it accurately and design better policy. Soon. That reminds me of the permanent sign in the bar: Free Beer Tomorrow.

“We should face the evidence that we are no better today at predicting tomorrow than we were yesterday. Eighty years after the Great Depression we still argue about what caused it and why it ended.

“If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That’s hard enough. But they can’t tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.

“We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.

“The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one’s thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don’t know and what we may never know. Admitting that publicly is the first step toward respectability.”

— Russ Roberts, February 27, 2010

Quote of the Day

“I have only one project, one big idea: uncertainty. It crosses many different disciplines — math, political science, psychology, risk management — and I swing in between those, but it is always on what we call the epistemological question. There are two parts to this question: math and computation, and psychology. The second causes us to think we know more than we do. It is an endless topi. Bernanke has six problems: One, his education is in tools that aren’t helpful — and he doesn’t know it. Two, he studied the Great Depression, and he thinks he knows too much — this is nothing like the Great Depression. You can’t compare this and the Depression. Three, 99% of risk is tied to the debt/leverage and the explosion of connectivity. It’s like he did not see a truck coming right at him. Four, he has no notion of nonlinearities, and how monetary policies can be responsive in nonlinear ways. Five, he doesn’t understand fat tails. Six, he doesn’t realize that the biggest risk of failure is signified by the Federal Reserve: He thinks we need more regulation; we actually need smaller institutions. And not one person in Congress had the presence of mind to ask him these questions.”

— Nassim Nicholas Taleb, AI5000, Jan/Feb 2010

Hayek vs. Keynes

Malpass foresight beats Bernanke hindsight

Fed chairman Ben Bernanke over the weekend gave a big speech at the American Economic Association annual meeting in Atlanta. He defended his and and Alan Greenspan’s unprecedented easy money through the 2000’s and acknowledged no connection between monetary policy and the financial crash.

Economist David Malpass, however, had the whole thing nailed back in 2002. Here’s Malpass in a note today:

Today’s New York Times front page has a David Leonhardt article on the Fed entitled “If Fed Missed Bubble, How Will It See New One?”  It criticizes Chairman Bernanke’s Atlanta speech: “This lack of self-criticism is feeding Congressional hostility toward the Fed.”

I’ve attached my 2002 WSJ article on the same topic (The Fed’s Moment of Weakness).  It argued that Chairman Greenspan was “letting himself off the hook” in 2002 by saying that the Fed couldn’t anticipate asset bubbles. The 2002 article concludes that: “If the value of the dollar is allowed to fluctuate as wildly in the future, then momentum will dominate the global economy as it did in the 1990s, creating constant boom/bust cycles.”

We expect Chairman Bernanke to be reappointed and the Fed’s lagging monetary policy to continue for at least one more cycle.  For now, this feels good to financial markets (everything is up today except the dollar — gold, oil, the euro, U.S. equities and especially foreign equities in dollar terms.)  However, this gradually channels capital away from the U.S. and especially from the many small businesses (and yet-to-be-created businesses) left out of Washington’s aggressive credit rationing process.  This undercuts U.S. growth and leaves unemployment much higher than it should be.

We often say hindsight is 20/20. Monetary policy is in a sorry state when the hindsight of the insiders lags the foresight of the outsiders. By eight years and counting.

(My own contributions to the debate here and here.)

Quote of the Day

“The flow of capital away from the U.S. is broad, deep and long-term. Investors can buy 20-year debt denominated in Brazilian reals or Chinese yuan, a monumental shift in the allocation of long-term capital. U.S. companies are shifting operations offshore in order to build and innovate more profitably. Meanwhile, the U.S. government is trapping billions of tech dollars — the lifeblood of innovation — offshore through an excessive repatriation tax. This is blocking much-needed industry consolidation, because an acquirer is forced to pay for the offshore cash without getting access to it.”

— David Malpass, August 20, 2009

Would you believe, growing income equality?

Two years ago, Alan Reynolds’s book Income and Wealth poked a million holes in the argument that the gap between millionaires and everyone else was growing in an unprecedented and deeply distressing way. In his powerful critique of the pessimistic new arguments, Reynolds focused mostly on the misleading data and statistical analysis of quintiles and cohorts, the unexamined distinction between income and wealth, the changing nature of “households,” and the often ill-defined nature of income itself.

Now, in a new article, Reynolds’s colleague Brink Lindsey teases out many additional unappreciated factors in the apparent recent increase in wage inequality. Among the most important overlooked factors is the huge influx of immigrants over the relevant period:

Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the “un-American” system of national-origin quotas and its “twin barriers of prejudice and privilege.” The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.

This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration’s more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.

Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.

In sum, immigration has been mostly good for overall U.S. economic growth and for the immigrants themselves, whose “low” U.S. wages are dramatically higher than were their home-country wages. But immigration has altered the statistics of aggregate “inequality” in a misleading way, rendering much of the debate moot.

Don’t forget asset markets

Amid the crash in GDP, or income, John Rutledge reminds us about the also falling but still massive balance sheet, or assets, of the U.S.

Why is it that people know so much about something so small (GDP) but so little about something so big (total assets)? I think it is because since the 1930’s macroeconomics has developed into a discipline concerned almost exclusively with who is spending how much money. Very little attention is paid to the capital base, or balance sheet, that makes it possible to produce the goods and services measured as GDP.

Extraordinary admission

Last night on Charlie Rose, Treasury Secretary Tim Geithner made an extraordinary admission. Here’s the exchange:

Rose: “Looking back, what are the mistakes, and what should you have done more of? Where were your instincts right but you didn’t go far enough?”

Geithner: “There were three broad types of errors in policy. One was that monetary policy here and around the world was too loose for too long.  And, that created just this huge boom in asset prices; money chasing risk; people trying to get a higher return; that was just overwhelmingly powerful.” 

Rose: “Money was too easy.”

Geithner: “Money was too easy, yeah . . . . Real interest rates were very low for a long period of time . . . .”

There you have it. Pretty simple. And yet it is the first time I can recall that any U.S. executive branch official, spanning the Bush and Obama Administrations, has admitted monetary policy was even one factor, let alone the central factor, leading to the crash. This is very big stuff. (more…)

Comparing collapses … and recoveries

Good historical analysis from Mike Darda:

Here we should look to three historical examples where aggressive monetary expansion was wedded to an aggressive fiscal policy: the U.S. during the mid-1930s, Germany through the 1930s, and Japan in the early 2000s. In each case there was a recovery, although policy errors led to significant setbacks. These episodes can help assess U.S. growth prospects, and the risks to a sustainable recovery.

The Great Depression in the U.S. came in two stages, a downturn from 1929-33 in which real GDP collapsed by 26.5% and unemployment rose to 25% from 3%, and a relapse in 1937-1938, with a 3.4% decline in real GDP and a rise in unemployment to 19% from 14%.

The first stage of the depression was associated with a collapsing equity bubble (1929), protectionist tariff legislation (1930), contractionary monetary policy (1931) and a sharp rise in tax rates (1932). Between 1934 and 1937, however, there was a rapid recovery, in part due to the severity of the downturn that preceded it. Real GDP expanded by 9.5% per annum, while the unemployment rate fell 11 percentage points.

The recovery was spurred in no small part by monetary policy. In 1933-34, the dollar was devalued against gold to $35 per ounce from $20.67 per ounce, which allowed the Fed to push reserves into the banking system. This allowed the Fed to finance FDR’s deficits with the printing press. After falling at an average rate of 6.7% per year from 1930-33, the Consumer Price Index rose by an average 2.7% per year from 1934-37.

Jack Kemp, 1935-2009

I have a photo of my father from around 1982, standing on the tarmac of South Bend airport with Jack Kemp. The economy was in the tank, and America’s world standing was uncertain. My Dad had gone to pick up Kemp, who was to speak at an event for his fellow Republican, Jack Hiler, who was our friend and congressman from northern Indiana. I was maybe eight years old at the time. We were Reagan-Kemp-Hiler conservatives, interested in entrepreneurship, economic growth, and a muscular but prudent international stance.

Some 15 years later I would go to work for Kemp as an economic analyst. It was not preordained, but neither was it a complete coincidence, I suppose, that I spent several years working for the man who, more than any other public official, had articulated and even helped shape my, and my family’s, worldview. Kemp and I even shared the same birthday, July 13.

It is difficult to overestimate Kemp’s impact on history. For those who don’t grasp the importance of economics in politics and geostrategy, that will seem a wild overstatement. But I do think Kemp changed the arc of human events by helping to launch the U.S. on a much higher growth trajectory. By freeing American workers and businesses and attracting the world’s human and financial capital, the Reagan-Kemp economic strategy of tax cuts, sound money, and deregulation unleashed two and a half decades of amazing feats in technology and entrepreneurship. Within just a few years, the American boom of the 1980s shook the Communist world and allowed Reagan to peacefully conclude the Cold War. These events not only bolstered the wealth and ideological foundations of the West but freed hundreds of millions of people in the East and set the stage for the next great wave: the low-tax-free-trade phenomenon we call globalization, which has brought at least a billion more people out of poverty.

Kemp was not immune to the ego-pumping of life on the Potomac. But football and his middle-class upbringing had given him a healthy concept of “the team.” More than almost any politician I have encountered he was deeply interested in ideas. (What other politician would spend so much time — or any time at all — on the intricacies of monetary policy?) And in getting at the truth. And in building a positive sum politics through energy and persuasion, not cleverness or negativity. He was a builder, not a destroyer.

Having been a central player in creating the long boom, Kemp was also a long-time critic of the wildly gyrating monetary and dollar policies that led to the crash and ended this particularly prosperous period in American history. Not coincidentally, it is Kemp’s enthusiastic, expansive, inclusive brand of politics that might help his party regain its footing so it can help launch the next great American wave. Kemp would have no doubt whatsoever America’s biggest, best, brightest days are ahead. 

I join many friends and former colleagues in offering Mrs. Kemp, Jeff, Jimmy, and the whole Kemp family my condolences, and deep gratitude for sharing Jack with the world.

Associated Press


“Capitalist for the Common Man” – The Wall Street Journal

“The Jack Kemp I Knew” – Richard Rahn

“Jack Kemp: The Happy Warrior” – Bruce Bartlett

“Jack Kemp, Our JFK” – Mona Charen

“Will the GOP Forget Reagan and Kemp?” – Dan Henninger

“He Had the Power of the Happy Man” – Peggy Noonan

“The Life of His Party” – David Broder

“Jack Kemp: Conservative Hero”The Economist

“Quarterback of GOP Ideas” – Ed Rollins

C + I + G + (X – M) ≠ economics

The motto of this blog is “Supply creates its own demand.” But in the current crisis, this central insight of economics is being turned on its head. After all this time, the argument over which comes first, supply or demand, is still in many ways the chief economic debate.

Here’s Russell Roberts with a good, brief explanation of why GDP accounting does not good economics make. GDP, or Consumption + gross Investment + Government spending + eXports – iMports, is just an “ex post” way of describing what happened, or what the component parts of past output were. The perennial line that “70% of GDP is consumption” is one of the most misleading slogans in all of economics. GDP is, after all, gross domestic product. Consumption, which is fairly easy to measure, is just a way at deriving production, or output, or supply.

Mark to Mayhem, Part IX

Brian Wesbury and Bob Stein make yet another strong argument against the mark-to-market accounting regime:

The history seems clear. Mark-to-market accounting existed in the Great Depression, and according to Milton Friedman, who wrote about it just 30 years after the fact, it was responsible for the failure of many banks.

Franklin Roosevelt suspended it in 1938, and between then and 2007 there were no panics or depressions. But when FASB 157, a statement from the Federal Accounting Standards Board, went into effect in 2007, reintroducing mark-to-market accounting, look what happened.

Two things are absolutely essential when fixing financial market problems: time and growth. Time to work things out and growth to make working those things out easier. Mark-to-market accounting takes both of these away.

The Three-week Collapse

Larry Lindsey with a good summary of the quick confidence collapse in Obama’s new economic plans.

The Geithner announcement was repeatedly put off while each of the options was publicly discussed. In the end the political decisionmakers decided there was no politically acceptable decision. But expectations had been building, stoked higher with each postponement of the speech. When Geithner finally spoke and by omission essentially admitted that the Obama administration hadn’t come up with a solution, the stock market plummeted.

But it wasn’t only the stock prices of America’s publicly traded companies that collapsed. So did the stock of the Obama administration. A discredited stimulus package followed by an overly hyped but largely vacuous bank-rescue speech proved to be too much. The mainstream media, which had given Obama a free ride since the election, turned on their choice. In the space of just over three weeks, Obama and company squandered the greatest stock of political capital any president since Lyndon Johnson had inherited from an election.

Barro vs. Krugman

Clive Crook has a long and lively exchange with Harvard’s Robert Barro on Keynesian multipliers, Ricardian equivalence, and economic etiquette.

Revolution needed

Anatole Kaletsky says we don’t need to fix the existing economic models. We need to start over — a complete reboot.

Wolf vs. Wesbury

The FT’s Martin Wolf is beyond pessimistic on the economy. “Worse than Japan,” he thinks. But probably not as bad as the 1930s. Wonderful. He does, however, think the U.S. and other government spending binges will at least help.

But Brian Wesbury unveils a new chart showing how government spending and unemployment are correlated, beyond the normal cyclical boosts in recessionary government spending. This reinforces work by Alberto Alesina, Robert Barro, and others.

Wesbury says government spending boosts unemployment.

Wesbury says government spending boosts unemployment.

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