Summer Doldrums

I apologize for the sparse blogging recently. I have, however a perfectly reasonable excuse: there’s not much new to talk about, and I, like you no doubt, am tired of repeating the same old stuff. News does continue to trickle out, so here’s an update:

• The economy is chugging along slowly. Too slowly to make much of a dent in our ongoing unemployment problem, but just quickly enough to allow politicians to avoid doing anything – they can all claim that good news is just around the corner. The first quarter’s growth in GDP of 1.8% would be derisory under normal circumstances, but given the gridlock in Washington, the ineffective nature of economic policy – is there one? – and the desperate need on the part of our collective leadership to duck responsibility, such growth is the best we can expect.
• I have been saying for more than a year that, in the absence of more government support via stimulus, the economy would limp along with growth between 2.0% and 2.5%. The stupid and dangerous spending cuts we know as the sequester will reduce growth as the year progresses. This suggests that the first quarter is a portent of what is to come. It may even be our high point for the year.
• Hot spots in the economy do exist: construction and real estate are coming back to life nicely. Manufacturing noodles along, bouncing on the precipice between growth and decline, and consumption does just enough to offset the vagaries elsewhere.
• You will have heard about the fuss caused by recent Federal Reserve Board statements. The story is this: various Fed officials, including Bernanke, opined about the potential ‘tapering off’ of the Fed’s aggressive support of the economy. Nowhere did they announce a policy change, all they said was that they were watching things closely and were prepared to ease off support – which means encourage higher interest rates – when the economy looked able to withstand such a change. Almost immediately longer term interest rates jumped. This was an absurd reaction to the Fed’s statements. Wall Street’s interpretation was that monetary policy was about to change and thus some investors dumped treasuries so as to avoid taking a loss later in the year. This interpretation was wrong and was based on gossip rather than the actual text of what was said. To understand this you need to recall that Wall Street is inhabited by the financial equivalent of the legendary fishermen’s wives. Gossip and guesswork dominate fact. The reason is clear: everyone has access to fact, so there is no trading edge or advantage to having simple facts. All the gain is to be made in understanding the hidden meanings. Perhaps a better analogy is with the old Kremlin watchers who made profound pronouncements based upon the order in which Soviet Officials stood at the May Day parades. So it was with the misinterpretation of the Fed’s statements. Nowhere did the Fed say it was about to raise rates.Yet within hours the common view on Wall Street was that a policy change was imminent. These are the same fools that brought us the crisis from which we are still digging out, so none of this ought be a surprise.
• Meanwhile the economics profession continues its merry dance towards ever greater irrelevance. No one seems willing to admit errors of theory, despite the mass of evidence. We are treated to a never ending series of ‘he said-she said’ types of exchanges that advance our knowledge not one whit. The ideological taint grows ever more pronounced. And, as a group, economists refuse to acknowledge that their public policy role implies an ethical relationship with society that needs to be made explicit. The libertarians reject all notions of ethical codes on the basis that such codes represent an affront to their liberty. The rest seem to take it personally that anyone could dare suggest that economics needs to act like all the other professions. They act as if to call for a code of ethics is to call them each and severally unethical. I wonder if doctors react that way to the old Hippocratic Oath?
• Lastly: with the Federal deficit now receding and the medium term budget looking decidedly benign, what will the Republicans do? They were using the budget’s red ink as a back door to attack government. Now they will have to be a little more overt. Then again they seem overly preoccupied with abortion and blocking minority voters. The economy doesn’t matter to them the way it did.

Oh. One last thing: if I read one more paper or book by a tenured libertarian economists bemoaning the lack of wage flexibility – by which they mean our general unwillingness to avoid taking real pay cuts – I think I will scream. The standard right wing answer to unemployment is that it exists only because workers resist taking lower wages. They also argue that unemployment assistance allows workers to be more choosey when they look for work and thus prolongs the period people are willing to be unemployed. It is all well and good to have such ideas, although I disagree with them, it is not at all well and good to proselytize such ideas from behind the comfortable walls of a tenured position. It is the height of hypocrisy. It screams a lack of ethics. But it is far too common.

It’s already been a dull summer. It looks set to stay that way.

Doldrums indeed.