Wednesday, November 25, 2009

Imaginary blinders

Add these to yesterday's reflections, and just package the whole thing together under the same heading.

First, Tim Duy takes a deserved swipe at the idiocy of "reigning in the deficits" in the middle of a tepid recovery (check out his charts too, which, one might point out, bear more than a passing resemblance to this model, with the picture of Karl Marx on the cover one might point out)

And where are policymakers as we slog through the final month of 2009? The Administration is poised to do virtually nothing:

The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit, administration officials said.

There is as yet no agreement within the White House or in Congress on how to try to curb the U.S. jobless rate. But the differences in opinion suggest that rifts could emerge among Democrats as they wrestle with how to beat back the highest unemployment rate in a generation.

...Hamstrung by the nation's $1.4 trillion deficit and his pledge not to raise taxes on middle-class Americans, Mr. Obama is keen to avoid any measures suggestive of a second, big-ticket stimulus.

Indeed, the failure of the Administration to take bold moves early in the year now cripples it in any attempt to take bold action now. Apparently, the best we can expect now is a "Cash for Caulkers" program that will dribble money into the economy, ensuring that we do little if any better than limp along.

This is why I've already had enough of the man with the deep tan we elected last year.  There's all sorts of ways to defend what's he's done in the face of a difficult situation.  Twelve dimensional chess and all.  But the truth is that we spend all our time defending the long-term implications of the way he takes a bow, and we never get to him actually doing anything NOW.  Saying that Obama is not "bold" has got to be the understatement of the century, and it doesn't help to defend this as something that will play out over the years. There's a midterm election in one year that is I fear is going to spring out of the box like a coiled political snake, and, after Carter, we need to remember that they don't give you a second term for your long-term planning, but for what you do in the first 4 years of strutting and fretting.  Pretty soon I'm not going to have any more sympathy for the "deck was stacked against him" argument -- a real player would have flipped the table over and started fresh.

Fundamentally what's happening here is the lack of imagination we see everywhere playing out in a political context.  Nobody can imagine anything changing.  So it doesn't.

Second, we have the inertia of the same clueless policymakers who helped us get to this sorry state of economic affairs.  Duy already mentions this, but there is even dissension deep within the ranks, as David Altig's latest macroblog salvo illustrates.

If you ask me, it's time to get "real," pun intended—that is to ask questions about the fundamental sources of persistent low inflation and risk-adjusted interest rates (a phrase for which you may as well substitute U.S. Treasury yields). To be sure, the causes behind low Treasury rates are complex, and no responsible monetary policymaker would avoid examining the role of central bank rate decisions. But the road is going to eventually wind around to the point where we are confronted with the very basic issue that remains unresolved: Why is the global demand for real physical investment apparently out of line with patterns of global saving?

The charts he provides are perfect.  Everyone is panicked about the government debt and the rise in yields and all the new ... bank ... lending ... and wait a second, all of those things are just phantoms of a bankrupt (pun intended) past.  There's no lending and rates are staying very very low.  No one can seem to imagine that the economy wasn't in equilibrium before, and so it's not going to just go back to the same massive disequilibrium of 2003-2008 (or longer).  There's no lending because the banks are fried, and because nobody in the US wants to borrow any more.  So the only place you have to worry about inflation is in China, where they're actually still building shit.

It's the same phenomenon as we see politically.  Despite the fact that we ran the country in the ground, we keep using the same tools and applying them in the same way, expecting, like lunatics, to achieve a different result.  Once again, the biggest obstacle to change is simply the inability to imagine a different world.  I respectfully suggest that if we are unable to do this, we let Google do it for us.  The rest of the cosmos certainly isn't going to put up with tired bullshit for long.

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