Schwarznegger to Obama: Watch and Learn — Marshall Auerbach – Excellent analysis of a risky new proposal. You can’t blame the Governor for this one. The federal government and his own state legislature hung him out to dry, so he’s using one of the last-resort weapons in his arsenal to prevent the most devastating bankruptcy in American history. From a monetary, fiscal, and constitutional perspective, the federal government should intervene immediately. From a political perspective, they probably won’t.
Looking for the Lenders’ Little Helpers — Gretchen Morgensen (New York Times) – I don’t know the law well enough to know if this type of claim will hold up, but it would certainly make one regulatory change easier — one which should be made, but as of now looks doubtful: shifting default risk away from investors to those who are better able to assess whether the homeowner will default. (The Obama administration, by contrast, is proposing a pathetically negligible equity stake for originators.)
Marginal Thinking about Fiscal Stimulus — Paul Krugman – Krugman and Brad DeLong, along with the usual cadre of progressive voices, have been contesting the conventional wisdom that a second fiscal stimulus is unwise. This post summarizes their basic point. What it misses is the dynamic timing issue. The world does not operate in standstill frames like this MB/MC graph; it’s a moving picture, and a second stimulus would not take effect until well into the future. Since it looks as though the economy is beginning to recover, would a second stimulus come too late, by which point the natural growth of the economy has closed the output gap and brought us back to the intersection on Krugman’s graph? If the second stimulus comes after aggregate demand has already risen back to long-run aggregate supply, then it risks inflation and unnecessary debt. Don’t get me wrong: Inflation and debt are not our most pressing problems right now, but it’s hard to believe that a second stimulus would be designed/timed perfectly not to overdo it.
Why Negative Nominal Interest Rates Miss the Point — Scott Fullwiler – You have to enjoy the intricacies of monetary policy to appreciate and follow this post, but for us econ-nerds it’s a much-needed look into the innerworkings that would play out under several unprecedented (or, as Fullwiler shows, precedented in ways we don’t usually consider) policy prescriptions for our current liquidity trap. If you plan to wade into the current fiscal-vs-monetary policy debate, this is a must-read. Of course, these are rare times, so no one is completely certain how aggressive monetary policy will fare.
More Bonkers Bolton Legacy? — Gordon Prather – Great article! The vast majority of Americans have no clue about this history, but it’s completely accurate and extremely important. It is a journalistic crime that our continued debate about Iran ignores these facts.
Who’s the Materialist? — Don Boudreaux – I’m working on a section of my forthcoming book that will deal with materialism and how economists measure value, especially in light of the recent consumption/saving and intertemporal problems. Boudreaux’s pithy thoughts are worth a read. Nice defense of capitalism.