Stop worrying and love nuclear power. Fuel rod meltdowns are happening now but they're only temporary. More quotes.

“..the government believes that the meltdown [of fuel rods at No 2 reactor] is only temporary.”[1]

“…the radioactive releases of iodine-131 in Japan had reached about 2.4 million curies by March 22, 2011. That is about 160,000 times the best estimate of the amount released during the TMI accident in Pennsylvania (15 curies) and about 140,000 times the maximum estimate of 17 curies. It is about 10 percent of the estimated amount released during the Chernobyl accident…”[2]

“…radiation-induced cancers do not simply arise immediately following exposure. It's not as though it will be like the Black Plague, where one would see one's neighbors being hauled out of their houses, dead. This damage to human life, these murders, will only be visible -- if they are allowed to be visible -- in statistical data collected long years after the exposure event…”[3]

“Why Fukushima Made Me Stop Worrying and Love Nuclear Power … Atomic energy has just been subjected to one of the harshest possible tests, and the impact on people and the planet has been small. The crisis at Fukushima has converted me to nuclear power.”[4]

“All of the information media are at fault here I think. They are saying stupid things like, why, we are exposed to radiation all the time in our daily life, we get radiation from outer space. But that’s one millisievert per year. A year has 365 days, a day has 24 hours; multiply 365 by 24, you get 8760. Multiply the 400 millisieverts by that, you get 3,500,000 the normal dose. You call that safe?[5]

“Should the public discover the true health cost[s] of nuclear pollution, a cry would rise from all parts of the world and people would refuse to cooperate passively with their own death.” [6]

“Let's not beat about the bush. They have visibly lost the essential of control (of the situation). That is our analysis, in any case, it's not what they are saying.'”[7]

“The mechanisms of the accident would be very different than Chernobyl, 4 where there was also a fire, and the mix of radionuclides would be very different. While the quantity of short-lived radionuclides, notably iodine-131, would be much smaller, the consequences for the long term could be more dire due to long-lived radionuclides such as cesium- 137, strontium-90, iodine-129, and plutonium-239. These radionuclides are generally present in much larger quantities in spent fuel pools than in the reactor itself. In light of that, it is remarkable how little has been said by the Japanese authorities about this problem.[8]

“…there are disputes over whether or not Chernobyl's nuclear fuel still poses a threat of causing another explosion. There is also a teetering reactor core cover and the deteriorating sarcophagus itself that may collapse and send plumes of radioactive dust in all directions. …with tens of millions of lives at stake, nation actors that have the ability to assist in mitigating this disaster now, but choose instead to squander their manpower and resources elsewhere (like in Libya), must remember that their actions today will be remembered and judged for centuries to come.”[9]

“….During the Chernobyl disaster, reactor workers barley prevented a second nuclear explosion that has been covered up to the public for many years. This secondary explosion would have been powerful enough and toxic enough to wipe out the population of half of Europe according to Russian officials.”[10]

REFERENCES:
[1]URGENT: Radioactive water at No. 2 reactor due to partial meltdown: Edano
TOKYO, March 28, Kyodo
http://english.kyodonews.jp/news/2011/03/81431.html

[2]Institute for Energy and Environmental Research
Takoma Park, MD 20912
For Immediate Release Friday, March 25, 2011
'Radioactive Iodine Releases From Japan's Fukushima Daiichi Reactors May Exceed Those of Three Mile Island by Over 100,000 Times'
http://www.ieer.org/comments/Fukushima_IEER_press_release_2011-03-25.pdf

[3]James Cronin, as quoted in:
CounterPunch Diary
Libya, Oh What a Stupid War; Fukushima, Cover-Up Amid Catastrophe
By ALEXANDER COCKBURN
http://www.counterpunch.org/

[4] George Monbiot, the Guardian newspaper. 21st March 2001
As quoted in:
CounterPunch Diary
Libya, Oh What a Stupid War; Fukushima, Cover-Up Amid Catastrophe
By ALEXANDER COCKBURN
http://www.counterpunch.org/

[5]Hirose Takashi
As quoted in:
CounterPunch Diary
Libya, Oh What a Stupid War; Fukushima, Cover-Up Amid Catastrophe
By ALEXANDER COCKBURN
http://www.counterpunch.org/

[6]Dr. Rosalie Bertell. “No Immediate Danger,” xiii.
[7]French Industry Minister Eric Besson
As quoted in:
'They've lost control': French claim Japan is hiding full scale of nuclear disaster as TWO more reactors heat up. Wednesday, March 16, 2011
http://ibloga.blogspot.com/2011/03/theyve-lost-control-french-claim-japan.html

[8]Arjun Makhijani, president of the Institute for Energy and Environmental Research in Maryland
As quoted in:
CounterPunch Diary
Libya, Oh What a Stupid War; Fukushima, Cover-Up Amid Catastrophe
By ALEXANDER COCKBURN
http://www.counterpunch.org/

[9]When Does a Nuclear Disaster End? Never.
Tony Cartalucci, Contributing Writer
Activist Post. Sunday, March 27, 2011
http://www.activistpost.com/2011/03/when-does-nuclear-disaster-end-never.html

[10]Fukushima Radiation Found In Massachusetts Rainwater As “Bio-Robots” Fight To Prevent Disaster
(AP / Yomiuri Shimbun, Takuya Yoshino)
The Intel Hub
Shepard Ambellas
March 27, 2011
http://theintelhub.com/2011/03/27/fukushima-radiation-found-massachusetts-rainwater-as-bio-robots-fight-to-prevent-disaster/

Greg Mankiw Confuses Social Security with Medicare Part D

Brad DeLong is not happy with something Greg Mankiw wrote:

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid … If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided.

Brad correctly notes:

Mankiw is talking about President Reagan, his supporters, and his appointees. Mankiw is talking about President George W. Bush, his supporters, and his appointees. And--as one of George W. Bush's cabinet-level appointees, Chairman of the Presidents Council of Economic Advisers in 2003-2004--he is talking about himself. Is it too much for me to expect, from him, an apology to America? A whispered: "I am sorry"? An admission that the unfunded 2001 tax cuts that he cheerled for were a mistake, and that we as a nation would have been better off had they not been passed? An admission that the unfunded 2003 tax cuts that he cheerled for were a mistake, and that we as a nation would have been better off had they not been passed? An admission that the unfunded 2003 Medicare Part D prescription drug benefit that he cheerled for was a mistake, and that we as a nation would have been better off had it not been passed?

Let me simply add this: we did choose to tax ourselves to pay for Social Security benefits.

Why Libyan Partition Will Not Happen: Oil And Geography

Having argued a few days ago that a partition between East and West in Libya might be an outcome based on their long history of disunity and numerous differences, I am now thinking that this is a very unlikely outcome for a variety of reasons, although oil and geography are at the top of the list.

So, for a stable partition, it would probably need to be the case that there would be a relatively even split of the oil revenues between the two sides. However, of the six oil terminals in Libya, four are clustered near each other at the east end of the Gulf of Sidra and have changed hands between the two sides. Currently Qaddafi's forces control three of them, but the most intense front line of the battle appears to be happening at Ajdaibiya (sp?), where according to Juan Cole, the rebels are gaining strength and control. For anything other than a 5-1 or 1-5 division of the terminals, a stable line would have to be established drawn through the middle of these terminals, but this looks extremely unlikely to me. One side or the other will probably take them and whoever does so will win overall.

Another fact is that while in general the rebels are stronger in the East and Qaddafi's supporters in the West, the rebels continue to have support in and control certain locales in the West, with the new Allied air strikes helping them defend those locales, particularly Misurata, the third largest city in Libya, and Zaitan in the southwest. Qaddafi's strongest base, his hometown of Sirte, is east of those cities. There simply is not a neat division and I suspect that there will not be.

Moving beyond this basic oil-geography issue, there are other matters. One is that both sides appear determined to claim total victory. The only way that such a partition will occur is if there is a stalemate after long fighting, but I think other dynamics are at work, with Juan Cole pointing to the volatility of tribal loyalties. In this case, the key tribe is Libya's biggest, the Warfalla, at 1 million nearly a sixth of the whole population, who happen to have a major base in rebel-held Misurata. The Warfalla have long been among Qaddafi's strongest supporters, fellow Arabized Berbers (although with more intermarriage with real Arabs than in Qaddafi's tribe), and long providing many of his innermost staff and guards, despite leading an attempted coup in 1993.

As it is, the Warfalla are reportedly vacillating, possibly having shifted back and forth twice already in this conflict. But they may not wish to have a stalemate, and if they tilt strongly to the rebels, this might tilt things in the rebels' direction, leading to a major move in the military to stop supporting Qaddafi, particularly given the apparent unwillingness of the military to fight too much against the Allied air strikes (and with the Libyan air capapbility reportedly shut down pretty much already). The word of actual Arab support for the Allied force from Qatar and UAE (the only two Arab nations not to have had any demonstrations or uprisings so far in this Arab Spring) may add to this impetus, along with the withdrawal of the US from commanding it to behind the skirt of NATO, with formerly opposed Germany and Turkey now acquiescing.

Adding further to this is that the US and French and others appear to be becoming more enthusiastic about the rebel leadership. There has been much muttering about Islamist influences (and the former king Idris was the grandson of one of the founders of the radical Islamist Salafi movement), but the new leader of the provisional government, which has now established a central bank and oil company, Jibril Mohammed, got a PhD in strategic planning from the U. of Pittsburgh and appears to be a pro-western secularist, even described as a supporter of "neoliberalism" in his newly written (with misspellings) Wikipedia entry. Expect this to encourage stronger external support for the rebellion, which will seek to topple Qaddafi, even if Germany and Turkey mumble unhappily (and Putin and Medvedev argue over whom Russia should support).

However, the key to the outcome will be if the Warfalla and other tribes that have been supporting Qaddafi, as well as their members in the military, decide that it is not worth it supporting him any longer. If they turn on him, it will be all over. But the bottom line looks like it is much more unlikely than I previously thought that there will be any sort of stable partition as an outcome of all this.

Quotes About the Global Nuclear Emergency

“We have not four but 13 reactors out of control now. Thirteen reactors have lost capacity to cool. Once a reactor loses capacity to cool, they heat and begin releasing radiation. I do not believe they are not leaking.” [1]

“Mitsuhiko Tanaka says he helped conceal a manufacturing defect in the ... steel vessel installed at the Fukushima Dai-Ichi No. 4 reactor ..Tanaka has called [the reactor] a “time bomb,”...When Tokyo Electric sent a representative to check on their progress, Hitachi distracted him by wining and dining him... Rather than inspecting the part, they spent the day playing golf and soaking in a hot spring, he said. The guy wouldn’t have known what he was looking at anyway,” Tanaka said. “The people at the utility have no idea how the parts are made.”…. ... Thirty- six years later, that reactor pressure vessel is the key defense protecting the core of Fukushima’s No. 4 reactor…Two years [after Chernobyl] Tanaka says he went to the Trade Ministry to report the cover-up he’d been involved in more than a decade earlier. The government refused to investigate and Hitachi denied his accusations, he said.” [2]

“So if, for example, one of the reactors at Daiichi goes down, the other five are only a matter of time. We can’t know in what order they will go, but certainly all of them will go. And if that happens, Daini isn’t so far away, so probably the reactors there will also go down. Because I assume that workers will not be able to stay there.” [3]

In 1982, the House Committee on Interior and Insular Affairs received a secret report received from the Nuclear Regulatory Commission called "Calculation of Reactor Accident Consequences 2". In that report and other reports by the NRC in the 1980s, it was estimated that there was a 50% chance of a nuclear meltdown within the next 20 years which would be so large that it would contaminate an area the size of the State of Pennsylvania, which would result in huge numbers of a fatalities, and which would cause damage in the hundreds of billions of dollars (in 1980s dollars). Those reports were kept secret for decades. [4]

“Only one reactor blew at Chernobyl and it was only 3 months old, with new cores holding relatively little radiation; these ones have been operating for 40 years and would hold about 30 times more radiation than Chernobyl’s.” [5]

"There is talk of an apocalypse and I think the word is particularly well chosen. Practically everything is out of control. I cannot exclude the worst in the hours and days to come." [6]

"When I held up samples of the rocks the plant was sitting on, they crumbled like sugar in my fingers. "But the power company told us these were really solid rocks!" the reporters said. I asked, "Do you think these are really solid?' and they started laughing." [7]

REFERENCES:
[1] Exclusive: Fukushima babies, pregnant women nuclear fallout rescue underway
Deborah Dupre (* Human Rights Examiner) March 23rd, 2011 1:32 pm ET
http://www.examiner.com/human-rights-in-national/exclusive-fukushima-babies-pregnant-women-nuclear-fallout-rescue-mission

[2] Fukushima Smoking Gun Emerges: Founding Engineer Says Reactor 4 Has Always Been A “Time Bomb”, Exposes Criminal Cover Up. Tyler Durden, Zero Hedge. March 23, 2011
http://www.prisonplanet.com/fukushima-smoking-gun-emerges-founding-engineer-says-reactor-4-has-always-been-a-time-bomb-exposes-criminal-cover-up.html

[3] What They're Covering Up at Fukushima By HIROSE TAKASHI
Introduced by Douglas Lummis. Okinawa
"You Get 3,500,000 the Normal Dose. You Call That Safe? And What Media Have Reported This? None!"
http://www.counterpunch.org/takashi03222011.html

[4] Governments Have Been Covering Up Nuclear Meltdowns for Fifty Years to Protect the Nuclear Power Industry. Saturday, March 19, 2011
http://www.washingtonsblog.com/2011/03/governments-have-been-covering-up.html

[5] Caldicott: Japan may spell end of nuclear industry worldwide. Thursday, March 17, 2011. Helen Caldicott at globalresearch.ca
http://poorrichards-blog.blogspot.com/2011/03/caldicott-japan-may-spell-end-of.html

[6] Japan nuclear plant disaster: warning of an 'apocalypse’ as fallout hits danger levels. 16th March 2011
http://www.telegraph.co.uk/news/worldnews/asia/japan/8384809/Japan-nuclear-plant-disaster-warning-of-an-apocalypse-as-fallout-hits-danger-levels.html

[7]
Japan's deadly game of nuclear roulette. Sunday, May 23, 2004
By LEUREN MORET. Special to The Japan Times
http://search.japantimes.co.jp/cgi-bin/fl20040523x2.html

Austerity is no Surprise

This extract comes from The Confiscation of Economic Prosperity. It serves as a reminder that this crazy demand for austerity should not come as a surprise.

Besides, the problem is not the size of the deficit but the policy changes that the right wing can engineer by stoking fears about the disaster that deficits can create. The idea is that with the government facing seemingly unmanageable deficits, the public will be stampeded into a wholesale slashing of government spending.

As a result, regulatory policies that inconvenience the corporate sector as well as social programs that might benefit ordinary people will disappear. The right wing gleefully refers to this situation as the starve-the-beast strategy -- by depriving the government of adequate revenue, its regulatory powers will necessarily shrink.
Traditionally, Republicans represented themselves as the party of fiscal sobriety, insisting that balanced budgets were essential to solid economic performance. In the 1980s, a new strategy began to emerge. Conservatives began to welcome huge deficits.

For example, in 2001, President George W. Bush expressed his support for this tactic, reporting that the government's fast-dwindling surplus (created by his own tax cuts) was "incredibly positive news" because it will create "a fiscal straitjacket for Congress" (Sanger 2001). Similarly, California Governor Arnold Schwarzenegger said that he wanted to use his budget plan to "starve the public sector" without raising taxes, "because we don't want to feed the monster" (Delsohn 2005).



Nobody has been more adamant about pursuing this strategy than our old friend, Grover Norquist, who told an interviewer: "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub" (Norquist 2001). Conservative economists, such as Milton Friedman, agree, although in less colorful terms. They applaud growing federal budget deficits created by tax cuts, which will eventually create pressure to cut social programs and regulation (Friedman 1988; 2003).

In reality, all except a handful of principled libertarians have no interest whatsoever in thoroughly starving the beast. To the extent that government subsidizes and protects business, conservative class warriors welcome the governments' engagement with open arms. Only when the government lends support to the poor and disadvantaged does the right wing regard state spending as an abomination.

What Kind of Science Would Economics Be if it Were Really a Science?

A nice rant about economists not understanding biology or living up to its intellectual standards has been bouncing around the blogosphere. At the egotistical pleasure risk of blowing my own horn, here's something I wrote back in 2008:

After explaining why I thought the two chief characteristics of "real" science are minimization of Type 1 error and pursuit of causal mechanisms, I point out

Economists have been seduced by a different vision of science, with its roots in those same ancient geometric proofs: that the foundation of science rests on a deductive theory, where “explanation” means “producing a story that can itself be expressed as a deduction from top-level theory”. This is a dream of mathematics and much of physics. It is not characteristic of scientific work in general, however, and its usefulness is limited in fields of research that are extremely complex and dependent on a vast array of contingent factors. Geology would be such a case, where certain general concepts (like plate tectonics) are broadly accepted, but what matters in practice is the knowledge of concrete mechanisms, such as what forces are at work in the subduction of plates or, on a more mundane level, the movement of subsurface water through various soil and rock strata. Geologists cannot give you a general theory of earthquakes, but they can describe rather accurately the process by which the force generated by plate collisions is stored and transmitted in specific formations, and the same can be said for the skills of the hydrologist you might consult before deciding whether you ought to build your house on a particular slope.

Causal mechanisms are the preferred subject matter of science for several reasons. They appease our curiosity. They are more likely to be testable in ways that minimize Type I error than process-independent claims about prior and subsequent states. Above all, they provide knowledge that is frequently useful even when it is incomplete—as knowledge invariably is in complex domains. If you know some mechanisms but not all of them, you still know something about how a system works.

Any my conclusion:

So what would a scientific economics look like? I have mostly answered this already: it would look like other sciences whose objects of study are complex, heterogeneous and context-dependent. It would study mechanisms primarily and end states only for heuristic purposes. It would be predominantly empirical, where this encompasses both statistical work and direct observations on economic behavior (which may also entail statistical analysis). It would ruthlessly identify potential sources of Type I error and strive to eliminate them in hypothesis testing. Experimentation, in the lab and in the field, would become more common, but even more important, primary data collection of all sorts would be accorded a very high value, as is the case in all true sciences. Its macro models would come to look like macro models in hydrology or biogeochemistry: simultaneous differential equations representing mechanisms rather than static end states embodying (a single) equilibrium. Economists would increasingly find it useful to collaborate with researchers from other fields, as their methodological eccentricities are abandoned. Finally, there would be a much clearer distinction between the criteria governing scientific and policy work, insulating the former from some of the influence exerted by powerful economic interests and freeing the latter to adopt an ecumenical and risk-taking approach to tackling the world’s problems.

Kling’s Misunderstanding of the IS-LM Model and Liquidity Traps

Now I see how Arnold Kling has gotten so confused:

The difference being that you might one day see a unicorn.
A liquidity trap requires
1. Low nominal interest rates. (The nominal interest rate is the interest rate as stated.)
2. High real interest rates, due to low or negative inflation.* (The real interest rate is the nominal interest rate minus the rate of expected inflation. If the nominal interest rate is 5 percent and the expected inflation rate is 2 percent, then the real interest rate is 3 percent.)
3. No way for the monetary authority to escape from (1) and (2). Hence the term trap.
(*In this post, Paul Krugman surprises me by stating implying (as far as I can tell) that high real interest rates are a sign that we are not in a liquidity trap. That is completely the opposite of my understanding.

Kling must be assuming away the possibility that the IS curve has shifted inwards. But isn’t the message here that the demand for investment has fallen and/or the national savings schedule has risen so much that even with very low interest rates, investment would not equal national savings at full employment?

De Facto Partition Of Libya Coming?

The new war in Libya is so new and fluid that it is hard to determine what is really going on or will go on, but I think a highly likely outcome will be a de facto partition of Libya. While the mandates from the Arab League and the UN Security Council only supported a no-fly zone to prevent Qaddafi's forces from killing civilians from the air, and this is the official position of the US, many leaders in the US and more openly in France and Britain, which are very prominent in the military action, have stated that the goal is to support the rebels and remove Qaddafi, with both Obama and Clinton effectively supporting this with statements that Qaddafi has lost legitimacy and should step down. Some observations I have not seen made elsewhere follow.

That a partition that could become semi-permanent may be the result arises from the obvious possibility of a military stalemate. Without the move to no-fly zone, it is likely that Qaddafi's forces would have fully defeated the rebels, having reached the outskirts of Benghazi, the rebel capital, after having retaken most of the major oil towns to the southwest of Benghazi, although one major city in the west, Misurata, continues to be held by the rebels. Even with his air force subdued, Qaddafi retains the superior edge in ground military force. It is unlikely the rebels can defeat him without outside ground support, and it is increasingly looking like there will be no active support from any Arab country in the air, and much less likely on the ground. Obama has stated the US will not deploy (and there will be major resistance to doing so from the US military), leaving only maybe the Brits and French to do so, but my guess is they will be reluctant to do so in sufficient force to overthrow Qaddafi without the US or Arabs involved, and parts of the rest of the world becomning more critical (both Russia and China have expressed "regret" over this new military action, despite their abstention in the UNSC vote because of the Arab League resolution). So, a likely outcome is a military stalemate after some further shuffling of the positions on the ground.

If Misurata falls to to Qaddafi's forces while the rebels control much of the east, what will emerge will look like the longstanding historical division between Tripolitania in the west and Cyrenaica in the east, the names of Roman provinces in those areas (a third province in the southwest, Fezzan, is essentially part of the western zone). Throughout most of history they have not been jointly ruled, and when they have, they have been distinct provinces. There are deep differences, with the population in the west having a substantial Berber element (Qaddafi and his tribe are actually "Arabized Berbers," that is, ethnic Berbers who speak Arabic). The east has often been ruled by whomever was ruling Egypt (and Egypt is the only Arab nation that might or could enter the action on the ground, and the current Arab League president, Amr Moussa, who is the main person responsible for their resolution, is running for President of Egypt and strongly supports the rebels). There have even been religious differences, with the east basically Maliki Sunnis, whereas there continues to be a Khariji Muslim community in the west, mostly concentrated in the Berber areas. More broadly, Tripolitania in the west has had long periods of independence, either de facto or de jure, including during the "Barbary pirates" period when the US warred with Tripolitania in the early 1800s, a period when Cyrenaica was under Ottoman rule (the Ottomans got back into Tripolitania later in the 1800s).

There is a further warning here having to do with history, specifically the fact that among the leading countries involved in this military action are the three European countries that ruled parts of modern Libya prior to its independence as a kingdom in 1951, namely Italy, France, and the UK. Italy began taking over Libya from the Ottomans in a war in 1911-12, although it was not able to subdue Tripolitania until 1923, with Libya as a unified entity under Italian rule declared in 1934. During WW II, the French came in from Algeria and took Fezzan in the southwest in 1943, while the British took control of the coastal provinces in warfare with Germany during 1941-42. Italy formally surrendered control in 1947, and the UN established a mandate under the joint control of France and Britain. In 1949, the British established a kingdom in Cyrenaica (capital, Benghazi) under Idris al-Senussi. When Libya was granted full independence in 1951, Idris was made king of all of Libya, but with the capital in Tripoli, triggering much resentment in the west of this rule by easterners, an important point in the current situation. In 1963 the old provinces were officially dissolved in favor of smaller administrative units. Qaddafi seized control in 1969, and while he is a despicable leader and human being whom I would love to see overthrown, when he falls back on old pan-Arab anti-colonialist rhetoric, he is not entirely talking through his hat in the eyes of many obervers around the world who know their history.

New Interview with Michael Perelman

I had a nice interview at the Left Forum with a representative of very interesting platform. I was mostly covering material from The Invisible Handcuffs. Even if you are not hearing me, you might want to check out the entire site.

http://mantlethought.org/content/left-forum-2011-interview-michael-perelman

Kling Responds to Krugman in a Strange Way

Menzie Chinn agrees with Paul Krugman that real interest rates during the 1980’s were very high, but then he also notes an email from Arnold Kling that tries to defend the original blog post:

The topic was not crowding out. It was liquidity traps.

I would argue that this is an odd way to respond for a couple of reasons. One is simply that we were not in a liquidity trap during the early 1980’s. Secondly – why do we care whether we are in a liquidity trap or not? The reason has to do with whether fiscal stimulus will lead to crowding-out. A lot of the arguments against fiscal stimulus assume either that we are near full employment (which of course we are not) or that the LM curve is not flat. In other words – the fear of crowding-out. While these arguments made sense during the early 1980’s, they do not make sense now. So I would argue that the topic has always been crowding-out.

Arnold Kling is Not the First Economist to be Confused About the Reagan Deficits and Interest Rates

Arnold Kling confused nominal versus real interest rates here:

Many people predicted that the Reagan deficits would produce soaring interest rates. The deficits appeared, but the 10-year interest rate peaked before the Reagan tax cuts took effect and plummeted in the latter half of 1982, in spite of then-record deficits.

Paul Krugman responds:

The Reagan years were marked by two things: large budget deficits — although much smaller as a percentage of GDP than we’re seeing now — and a huge disinflation, engineered by Paul Volcker. So we need to look at real, not nominal interest rates — and real rates were in fact very high by historical standards during the Reagan years. 10-year bond rates ranged between 8 and 9 percent in the later Reagan years, while inflation generally ran under 4 percent. And may I say, I thought that this was part of what every economist knows — the story of the tight-money loose-fiscal mix of the Reagan era is, literally, a textbook case that’s in just about every undergrad macro book.

Not much to add except to note a couple of other economic papers that fell into Kling’s muddled thinking including something the American Economic Review published in March 1985 by Paul Evans entitled: “"Do Large Deficits Produce High Interest Rates?". His conclusion was no with part of his evidence being the same Reagan years. Alan Reynolds noted this paper and its Barro-Ricardian Equivalence explanation in defense of the Bush43 tax cuts. Reynolds goes onto to assert:

Confronted with this evidence, some began to say that it was not nominal interest rates that were driven up by deficits but real interest rates. But the only way deficits could raise real rates without raising nominal rates would be if deficits caused inflation to fall, which does not make sense.

I guess that since the Volcker tight money policy coincided with the Reagan fiscal stimulus, one could abuse the term “cause” to say deficits caused inflation to fall. I prefer to suggest that Reynolds was just being silly with this paragraph. Let’s also note the reason Barro-Ricardian Equivalence is supposed to make fiscal stimulus something that is not going to impact interest rates even in a full employment economy. The proposition is that households will fully save and not consume their tax cuts if they are not accompanied with at least some expectation of future spending cuts. But we should recall that U.S. consumption did jump after the Reagan tax cuts even though we never saw appreciable spending cuts. In a words – national savings fell, which in the full employment classical world that Robert Barro, Paul Evans, and Alan Reynolds live in means an increase in real interest rates. Which is exactly what we saw during the 1980’s.

The Oil Empires Strike Back

It is increasingly clear that the Arab nations with lots of oil to export also have better means to crush their uprisings than the leaders in such non-oil exporters as Tunisia and Egypt. Thus, King Abdullah of Saudi Arabia has sent troops in to Bahrain, allowing the Sunni monarch there to use his police to move harshly against the largely Shi'i dissidents, even though the Shi'a are about 2/3 of the local population (there is a substantial population of expat workers, mostly Hindu Indians). The US has a naval base there, although reportedly the US administration has been unhappy about this move by the Saudis. But the Saudis apparently do not want any infection into their Shi'a, who, only 12% of the Saudi population, are concentrated in the oil-producing Eastern Province (and are heavily active in the oil industry itself).

In Libya we are reminded that the sine qua non of a successful revolutionary movement is when the lower levels of the military turn against their commanders and the national leadership to side with the rebels. That has not happened there subtantially for two reasons. The more widely reported one has been Qaddafi's ability to hire mercenaries given his oil funds. The other is that he enjoys the support of some of Libya's tribes, including the nation's largest one. This means that the civil war component probably does outweigh the revolutionary component, and despite the Arab League voting for a free fly zone (with Algeria and Syria abstaining), it looks that Qaddafi's troops are successfully heading towards the rebel capital of Benghazi. This could be all over soon, and it was never very likely that a free fly zone would have done anything anyway, given that Qaddafi has managed to retain the loyalty of most of the military on the ground (unfortunately in my opinion).

BTW, Syria has experienced its first demonstration, although only a small and brief one. However, given how repressive the regime is and how long it has been in power, plus the fact that the rulers there largely belong to a religious minority that is only about 10% of the population, the Shi'i Alawites (part of the reason they are friendly with Iran), it is a bit surprising there have been none earlier (and they are not oil exporters either).

Unsurprisingly, good reporting on both of these events can be found at http://www.juancole.com and http://xrdarabia.org .

Job Killing Spending Cuts

Larry Bivens reports on how a few freshmen Republican Congressmen are being criticized by their constituents for voting to eliminate the Workforce Investment Act:

Jim Golembeski, executive director of the Bay Area Workforce Development Board, which administers WIA services at five regional jobs centers and three smaller sites in 10 counties in Northeastern Wisconsin, says he would have to shut down his operation if the cuts are approved. As a result, about 30 people would be out of work, he said, in addition to many others who would not receive needed services it provides. The House-passed bill would eliminate funding for the remainder of the current fiscal year and provide no money for fiscal year 2012, which begins Oct. 1, according to an analysis by the Center on Budget and Policy Priorities. Wisconsin would lose $12.5 million in funding for the program for the rest of the calendar year, affecting 23,700 participants in the programs serving adults, dislocated workers and youths.

As a Keynesian economist, I would argue that the reduction in government spending leads to a further reduction in aggregate demand, which not only means the loss the 30 jobs that Mr. Golembeski refers to but likely some private sector jobs via the multiplier effect. I guess Republican politicians might argue that this Keynesian emphasis on aggregate demand is misplaced preferring to argue that high unemployment is due to a mismatch of worker skills and the needs of employers. Even if one held this view – how does eliminating a program that is designed to enhance worker skills do anything but make the labor market situation worse?

Price Indices: Let Them Eat iPads!

David Taintor notes the backlash that New York Federal Reserve President William Dudley’s received when he said:

"Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," Dudley said in Queens ... You have to look at the price of all things."

That statement may have gone over well with my neighbors on the Upper East Side of Manhattan where these well to do citizens do purchase all sorts of gadgets such as iPads and where food is not an overwhelming part of their consumption basket. But I would to venture to suggest that in some other New York neighborhoods, their consumption basket does not include gadgets such as iPads. Mr. Dudley should admit that we don’t all have the same consumption basket when he says we have to look at the price of all things.

Interview with Michael Perelman

Suzi Weissman interviewed me about The Invisible Handcuffs for the last 20 minutes of her show. The earlier guests are top notch.


http://archive.kpfk.org/parchive/mp3/kpfk_110311_170030bts_suzi.MP3