Flying Fish - Dave Barry: >In December 1941, shortly after Pearl Harbor, a Pennsylvania dental surgeon named Lytle S. Adams thought of a way that the United States could fight back against Japan. It will come as no surprise to anyone who has undergone dental surgery that the idea he came up with was: attaching incendiary bombs to bats and dropping them out of airplanes. The idea was that the bats would fly into enemy buildings, and the bombs would go off and start fires, and Japan would surrender. >So Dr. Adams sent his idea to the White House, which laughed so hard that it got a stomachache. >No! That's what you'd expect to happen, but instead the White House sent the idea to the U.S. Army, which, being the U.S. Army, launched a nationwide research effort to determine the best kind of bat to attach a bomb to. By 1943 the research team had decided on the free-tailed bat, which "could fly fairly well with a one-ounce bomb." Thousands of these bats were collected and -- remember, we are not making any of this up -- placed in ice-cube trays, which were then refrigerated to force the bats to... Continue reading

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Robert Skidelsky: >Austere Illusions: The doctrine of imposing present pain for future benefit has a long history – stretching all the way back to Adam Smith and his praise of “parsimony.” It is particularly vociferous in “hard times.” In 1930, US President Herbert Hoover was advised by his treasury secretary, Andrew Mellon: >>Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system...People will...live a more moral life...and enterprising people will pick up the wrecks from less competent people. >To “liquidationists” of Mellon’s ilk, the pre-2008 economy was full of cancerous growths – in banking, in housing, in equities – which need to be cut out before health can be restored. Their position is clear: the state is a parasite, sucking the lifeblood of free enterprise. Economies gravitate naturally to a full-employment equilibrium, and, after a shock, do so fairly quickly if not impeded by misguided government action. This is why they are fierce opponents of Keynesian interventionism. >CKeynes’s heresy was to deny that there are any such natural forces…. Economies, Keynes believed, can become stuck in prolonged periods of “under-employment equilibrium”; in such cases, an external stimulus of some kind is... Continue reading

**Ben McLannahan:** BoJ holds amid signs of economy ‘picking up’ | **Paul Krugman:** The point, I think, is that you can simultaneously fault the Fed and economists in general for failing to see this crisis coming, and ridicule the hedge fund guys for giving advice right now that is both ludicrous and dangerous. And you should | **Martin Wolf:** Global inaction shows that the climate sceptics have already won | **Barry Ritholtz:** GMAMX: Goldman Sach’s Muppet Fund of Funds | **Robert Skidelsky:** Austere Illusions | **John Williams:** [Commencement Address: Economics Department: University of California, Berkeley: "Life’s Unpredictable Arc"](http://www.frbsf.org/news/speeches/2013/john-williams-0520.pdf) | **Peter Orszag:** As Job Flow Slows, Americans Get Stuck in Place | **Felix Salmon:** Don’t fear the bubble | **Eduardo Porter:** A Keynesian Victory, but Austerity Stands Firm | * **Mark Thoma:** The Unemployed Need Bold, Creative Moves from the Fed: "The Federal Reserve has increased the size of its balance sheet nearly four-fold since the onset of the financial crisis, from around $870 billion in 2007 to $3.35 trillion today. This has caused people like Peter Schiff to predict that we are headed for a severe outbreak of inflation. An inflation problem is just round the corner we’ve been told... Continue reading

Why oh why can't we have a better press corps? To extend a metaphor originated by R.G. Hawtrey: the house is on fire, and Michael Kinsley is out there screeching about how we dare not hook up the firehose because there was a flood 40 years ago. And now Ryan Cooper tells me Kinsley is back--this time screeching not just because those of us who know what we are talking about want to hook up the firehose, but also because we are not treating him with the sufficient respect he believes is his due. So Ryan Cooper attempts a mitzvah, and tries to get through by taking the advice Saris offers in *Galaxy Quest* as to how one should talk to Mathezar: >A Calm, Reasonable Explanation of Why Michael Kinsley Is Wrong about Austerity: Writing in TNR, Michael Kinsley is annoyed Paul Krugman and his “attack dogs” calling him lots of nasty names… as a (sometimes unsuccessful) proponent of a more generous lefty discourse, perhaps a bit of decency might get through. To wit: >1. Inflation is nothing to worry about. Kinsley has been wringing his hands about this since 2010…. Inflation is no worry because there is still a... Continue reading

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Duncan Black: >Eschaton: Not Too Late For The Helicopters: A big tragedy of the last few years is the failure to recognize that being in a low inflation world at the zero lower bound was a tremendous opportunity to massively enhance human welfare in this country. Mailing out 10 grand checks to everyone would have been an egalitarian massive boost to the economic well-being of huge numbers of people. Instead, the Fed has goosed asset prices, mostly benefiting the rich. Trickle down through another means, but still trickle down. Better than doing nothing, probably, but there were other ways. How can you oppose a social-democratic economic policy that had the endorsement of Robert A. Heinlein? Continue reading

Brad DeLong: It is far too soon to end expansion: It was in 1829 that John Stuart Mill made the key intellectual leap in figuring out how to fight what he called “general gluts”: he saw that what had happened was an enormous excess demand for particular financial assets was driving an enormous excess supply of goods and services – and if you relieved the excess demand in finance you would cure the excess supply of labour. When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy. But what happens should a government print more bonds than investors think it will dare raise future taxes to pay off? What happens... Continue reading

An Article IV consultation for a reserve-currency sovereign that might actually matter: Rachel Cooper: >Osborne braced for IMF verdict on UK economy: George Osborne is braced for the International Monetary Fund's verdict on Britain's economic prospects amid speculation it will urge him to change course. On Wednesday, the IMF presents its annual healthcheck on the UK and the international body is expected to suggest that deficit reduction should be slowed amid anaemic growth. The “Article IV” report is expected to recommend Mr Osborne change his plans and borrow more to invest in infrastructure or cut taxes. Previously, the IMF was among the strongest backers of the Chancellor's economic strategy, but has gradually changed its tone in response to dwindling growth forecasts. >Last month, the IMF cut its UK growth forecast for this year from 1pc to 0.7pc. While the organisation's head, Christine Lagarde, has insisted she still supports the Government's policy, she has said that "should growth be particularly low… there should be consideration to adjusting by way of slowing the pace". IMF chief economist Olivier Blanchard has been more direct in expressing doubts about the continuing wisdom of the austerity policy, suggesting that the Chancellor was "playing with fire"... Continue reading

Release of "Mission to Moscow": >"Mission to Moscow" was made at the behest of F.D.R. in order to garner more support for the Soviet Union during WWII. It was from the book by Joseph E. Davies, former U.S. Ambassador To Russia. The movie covers the political machinations in Moscow just before the start of the war and presents Stalin's Russia in a very favorable light. So much so, that the movie was cited years later by the House Un-American Activities Commission and was largely responsible for the screenwriter, Howard Koch being Blacklisted. Continue reading

**Mark Thoma:** Economist's View: Inequality and Economic Growth: Paul Krugman and Tony Atkinson | **Dylan Matthews:** Senior poverty is much worse than you think | THE humble shipping container is a powerful antidote to economic pessimism and fears of slowing innovation. Although only a simple metal box, it has transformed global trade. In fact, new research suggests that the container has been more of a driver of globalisation than all trade agreements in the past 50 years taken together | * **Paul Krugman:** Jaime Caruana, general manager of the Bank for International Settlements, warning of the dangers of easy money and the need to raise rates now to avert … something or other. And his views matter, says the Wall Street Journal: "Mr. Caruana is no disgruntled outvoted hawk on a policy-setting council, trying desperately to set the record straight after being outvoted. Rather, he’s the mouthpiece for a global college of central bankers, almost all of whom find themselves under intense pressure from their national governments to keep things ticking over while they try to repair the economy...." What I do recall, however — which the Journal apparently doesn’t — is that the BIS has spent years warning about... Continue reading

Why oh why can't we have a better press corps? Charles Lane emulates Clive Crook and Michael Kinsley in not citing and not quoting from the people he is criticizing. But he goes further: he doesn't even try to read what they have just written. Daniel Kuehn delivers the smackdown: >Facts & other stubborn things: An email to Charles Lane of the Washington Post: Perhaps I'm missing something, but isn't your "compromise" option precisely Krugman's position? I think it's the right idea, but I think that's exactly where Keynesians are. The tough part is figuring out how to get the pro-austerity crowd to that point. >Keynes actually advocated separating the current budget from the capital budget, and it was the current budget that was supposed to be balanced, not necessarily the two together. Most economists agree that you can run perpetual budgets and still maintain a stable debt ratio as long as the deficits aren't too large. >Daniel Kuehn Doctoral student, Department of Economics American University Charles Lane: >Austerity and Keynes can coexist: For those of us trying to sort out the debate over economic “austerity,” there’s a limit to what can be learned by inspecting the credentials of the... Continue reading

Why oh why can't we have a better press corps? Daniel W. Drezner: >The worst piece of conventional wisdom you will read this year: Stagflation in the 1970s was caused primarily by an inward shift of the aggregate supply curve due to a surge in commodity prices, particularly energy. Some central banks responded with accommodating monetary policies that accelerated inflation even further. Fiscal policy was an innocent bystander to this whole shebang. So I honestly don't know what the hell Kinsley is talking about. More importantly, the current macroeconomic climate is really, really different from the 1970s. Inflation was a Big Bad Problem during that decade. It is not a problem right now. If inflation were spiking, then a genuine debate could be had on macroeconomic policy options. But that's not the case. >In his final paragraphs, Kinsley has managed to epitomize the exact critique that Krugman has served up. The irony of this whole thing is that the Congressional Budget Office's recent figures put the lie to Kinsey's hidden assumption that the federal budget deficit is getting bigger and bigger. Right now it's shrinking at the fastest rate in postwar economic history. The CBO also warns that the deficit... Continue reading

Why oh why can't we have better foundations? Tim Noah: >Gore, Sullivan, and "Fifth Column": Andrew Sullivan wants to know why it was OK for Al Gore (in an interview with the New York Observer) to describe Fox News, Rush Limbaugh, and the Washington Times as a "fifth column," but not OK for Sullivan to use that same epithet to describe the tiny band of leftists who, after Sept. 11, opposed the war against al-Qaida. As one who criticized Sullivan for slinging the term "fifth column," Chatterbox will gladly explain: It's the context, stupid. >"Fifth columnist" means "traitor." (For a fuller definition, click here.) When Sullivan (in an essay that appeared in the Sept. 16, 2001 SundayTimes of London) used the term "fifth column," he used it in the context of imminent war: >>The middle part of the country—the great red zone that voted for Bush—is clearly ready for war. The decadent Left in its enclaves on the coasts is not dead—and may well mount what amounts to a fifth column. >Reading this as the United States prepared to invade Afghanistan, it was impossible to avoid the literal reading that Sullivan believed anti-war dissenters were morally indistinguishable from traitors. (Sullivan... Continue reading

If I have the right numbers in my head (which I may not), Apple currently makes $40 billion a year in profits, has $150 billion in free cash, and has a market value of $500 billion. That's a (price-cash)/earnings ratio of 7.75. In what way is that divorced from fundamentals? Sounds like the market thinks that Apple has a very good franchise with a half-life of seven years, which seems about right to me. But if you told me the franchise was twelve years, I would not be surprised. And if you told me Apple was going to pull a Microsoft or a GM and burn all of its cash and its future earnings in a vain attempt to preserve a franchise beyond its natural life, I would not be surprised either. Apple's fundamentals are uncertain, but it does not seem to me that its market price is or was disconnected from them… Muhammed El-Erian writes: >We should listen to what gold is really telling us: Like Apple, valuation has become divorced from fundamentals…. >The consensus gold narrative is a familiar one… investors rushed into gold as a means to hedge against identifiable risks (inflation), as well as to counter... Continue reading

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Martha L. Olney and Aaron Pacitti: >More services means longer recoveries: The four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007…. The shift from being a goods-producing, manufacturing-based economy to a service economy… is causing the pace of economic recoveries to slow…. Because services can’t be inventoried nor, for the most part, exported, services are only produced when domestic demand exists. >Goods-producing businesses… can produce in anticipation of increasing demand or in response to increased external demand. Either way, domestic demand need not increase before goods production increases. Service producers are not so lucky. A restaurant won’t produce a meal before you are in the booth. And your dentist can’t produce and inventory a teeth cleaning. You have to be in the dentist’s chair. So service producers must wait…. The greater the share of services in the economy, the greater the share of businesses that must wait for domestic demand to actually pick up… Continue reading

Ezra Klein: >Is the future of American health care in Oregon?: Two weeks ago, the group reported… that Medicaid coverage increased the amount of health care people used, offered almost total protection against catastrophic health expenses and reduced depression by 30 percent, but it didn’t show a statistically significant effect on blood pressure, cholesterol or blood sugar…. The sample of sick people was too small to show statistically significant improvements in those measures…. It’s a critique that Katherine Baicker, a Harvard health economist who was one of the principle authors of the study, partially accepts: >>Our power to detect changes in health was limited by the relatively small numbers of patients with these conditions. Indeed, the only condition in which we detected improvements was depression, which was by far the most prevalent of the four conditions examined. >She also noted that the diabetes results were consistent with the improvements one would expect from the clinical literature but the number of people with diabetes was too small to establish significance. However, she said the sample size was large enough to rule out large improvements in blood pressure and cholesterol, at least over the first two years. >All this might make for... Continue reading

**Brink Lindsey:** Jason Richwine's IQ-based argument that American Hispanics are less intelligent than native-born whites has been called racist. It's also wrong | **Jon Bakija et al.:** Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data | The World Top Incomes Database | Unconventional Monetary Policies | [Summary of Informal Discussion](http://www.imf.org/external/np/pp/eng/2013/042913.pdf) | **Robert Litan:** Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity | **Jagdish Bhagwati and Arvind Panagariya:** Why Growth Matters: How Economic Growth In India Reduced Poverty and The Lessons For Other Developing Countries | **Timothy Jost:** Implementing Health Reform: Defining ‘Minimum Value’ For Employer Coverage | * **Henry S. Farber** and **Robert G. Valletta:** Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market: "In response to the Great Recession, the availability of unemployment insurance (UI) benefits was extended to an unprecedented 99 weeks in many U.S. states in the 2009-2012 period. We use matched monthly data from the CPS to exploit variation in the timing and size of the UI benefit extensions across states to estimate the overall impact of these extensions on individual exit from unemployment,... Continue reading

Jeff Frankel: >On Whose Research is the Case for Austerity Mistakenly Based?: Several of my colleagues on the Harvard faculty have recently been casualties in the cross-fire between fiscal austerians and stimulators…. Carmen Reinhart and Ken Rogoff… the statistical relationship between debt and growth…. Niall Ferguson… “suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay.” >But what does it all have to do with the debate between austerians and stimulators? Not much. But the battle lines of the austerians have been wavering lately under the continuing onslaught of facts (most notably the recessions in Europe and Japan’s recent conversion to stimulus), and the stimulators find the missteps of Reinhart-Rogoff and Ferguson to be convenient stones to…. Sorry: they are throwing the wrong stones. >The Reinhart-Rogoff controversy is not in fact relevant to the question whether governments should expand or contract at a given point in time. The basic finding in their papers continues to hold up… Ahem! There is nothing special about 90%. That is also true for 80%, and 70%, and 60%, and 100%. As I am going to say, again, today, for... Continue reading

CBI Roundup: >BAD NEWS FOR JAPS: Fighter pilots of the 14th Air Force have been erasing Jap planes out of the skies with regularity during the past three weeks. These pilots recently drove into a formation of bombers and Zeros and, though greatly outnumbered, knocked down 10 confirmed and eight probable enemy. Left to right seated on the fuselage: Maj. Edmund Goss, Lt. Col. John Alison, and Lt. Roger Pryos; standing on ground: Lt. Joe Griffen, Lt. Mack Mitchell, Capt. John Hampshire, and Capt. Hollis Blackstone. This was the last picture taken of Hampshire, who was later shot down after he had bagged 14 confirmed Jap planes to become the Theater's leading ace. Continue reading

**Paul Krugman:** Financial Repression | **Fernando Duarte** and **Carlo Rosa**: Are Stocks Cheap? A Review of the Evidence | **Gavin Kennedy:** Adam Smith's Lost Legacy: Keynes on Laissez-Faire | **Brad DeLong:** Notes on Carmen Reinhart and M. Belen Sbrancia: "The Liquidation of Government Debt" | **Alan M. Taylor:** Comment on “The Liquidation of Government Debt” | **Olivier Blanchard:** Rethinking Macroeconomic Policy | **Brad DeLong:** IS-LM Watch: Smart Words from Karl Smith | Karl Smith Has a Stiglitzian Credit-Rationing View of the Flow-of-Funds Through Financial Markets Department | Three Ways of Looking at a (Closed-Economy) IS Curve: Karl Smith Raises My intelligence Department | **Raghu Rajan:** Has Financial Development Made the World Riskier? | General Discussion | * **Jeff Weintraub:** Peggy Noonan goes Krugman (Hendrik Hertzberg): "Rather than waste time wondering what is going through [Peggy Noonan's] mind when she does this or how she gets away with it—is she really that clueless, or is she being cleverly hypocritical?—we should begin with the fact that she generally does get away with it and consider what Noonan's inversions of reality might tell us, symptomatically, about current political discourse…. That seems to be a hypothesis that Hendrik Hertzberg is toying with, at least,... Continue reading