DeLong and Summers on fiscal policy in a depressed economy is out. The headline point is the argument that austerity when you’re in the liquidity trap may well worsen, not improve, your long-run fiscal position; I’ve been making the same point for a couple of years, but Brad/Larry present some evidence from the birth of Eurosclerosis and the downgrading of US potential output estimates since the crisis began.

They also emphasize the crucial point that even if austerity doesn’t literally worsen the long-run position, it does at best very little to improve that position — yet imposes large current costs. So the cost-benefit analysis is overwhelmingly in favor of stimulus as long as you’re in the liquidity trap.

And what that says, in turn, is that the embrace of austerity by policy and political elites in late 2009 and early 2010 was an almost inconceivably terrible blunder. The result of that embrace was the imposition of huge economic and human costs, with little if any benefit.

I’ve been posting various versions of a scatterplot showing the relationship between one indicator of fiscal policy and growth since the crisis began. Here’s a version restricted to eurozone countries and countries maintaining a fixed exchange rate against the euro, with many of the countries labeled:

(All data from Eurostat).

No, I haven’t fitted a regression line, for a couple of reasons. On one side, this is an imperfect measure of fiscal policy; austerity countries have been raising taxes and slashing transfer payments too, so this only gets part of the story. Also, there is some reverse correlation, with the countries that had the biggest bubbles forced into the deepest austerity.

Still, is this the kind of outcome you would have expected if you believed what the Austerians were saying? Or is it what you would have expected if you’d been reading those of us horrified by the turn to austerity?

What gets me about all of this is the incredible, unwarrented arrogance of the austerians. They decided that they knew better than textbook macroeconomics, even though none of them had predicted the crisis or even seen the possibility of such a crisis.

And the wreckage now lies all around us.

Remember how Ireland’s vigorous recovery proved Keynesian economics — and smarty-pants Keynesian economists — wrong?

Neither do I.

Just a thought: the latest conservative line is that America may be recovering, but the recovery would be much faster if it weren’t for Obama. Also, the same people believe that the Cameron government in the UK is wonderful, and we should be doing austerity here too.

Hmm.

From Eurostat.

Way back in 2010 I declared that Paul Ryan — who was rapidly becoming the darling of the “fiscal responsibility” crowd — was a fraud, a flim-flam man. Very Serious People were very seriously annoyed — they’d anointed him, and they didn’t want to hear anything negative. They even gave him a “Fiscy”, an award for fiscal responsibility.

So I wonder: are they willing to concede, at long last, that he’s a clown?

His latest budget proposal has received some harsh critiques. It calls for huge tax cuts, supposedly offset by closing loopholes and ending tax expenditures — except that in a long report he fails to name a single tax expenditure that he would cut. It assumes drastic cuts in discretionary spending, basically eliminating everything except defense. And over the medium term, of course, it’s a plan to savage the poor while giving big tax breaks to the rich.

So actually two questions: are people finally willing to concede that Ryan is not now and has never been remotely serious? And — I know this is probably far too much to ask — are they going to do a bit of soul-searching over how they got snookered by this obvious charlatan?

I’m going to be doing family stuff the next two days; little if any blogging.

Too funny not to share. From SXSW, a cute sing-along of “This land is your land”, led by Bruce Springsteen:

And in the comments, furious complaints that some of the people on stage were trying to make it into a political statement. Because trying to appropriate Woody Guthrie on behalf of progressive politics is just crazy, right?

Greg Sargent has more bang-your-head-against-the-wall material about the Obama administration’s “pivot” to deficits. Quoting a new book by David Corn:

Plouffe was concerned that voter unease about the deficit could become unease about the president. The budget issue was easy to understand; you shouldn’t spend more money than you have. Yes, there was the argument that the government should borrow money responsibly when necessary (especially when interest rates were low) for the appropriate activities, just like a family borrowing sensibly to purchase a home, to pay for college, or to handle an emergency. But voters needed to know — or feel — that the president could manage the nation’s finances.

The depth of political malpractice here is just mind-blowing.

Read more…

Read the comments on today’s column and you’ll find many, many references to the alleged fact that the estimated cost of the ACA has risen by a trillion dollars — which happens to be a complete lie.

The remarkable thing is how quickly the lie has become part of what everyone on the right knows. And even if some of the people citing this “fact” could somehow be convinced that it wasn’t so, they’d brush it off, because there’s such a pattern of liberal duplicity, demonstrated by lots of other supposed facts — all of which are also lies.

This is the reality of modern American politics: a large and cohesive bloc of voters lives in an alternative reality, fed fake facts by Fox and Rush — whom they listen to out of tribal affiliation — and completely unaware that it’s all fiction.

It’s also, by the way, why attempts at outreach by Obama will fail. Even if he gives the GOP 95 percent of what it wants, these voters will never hear about it; they will still know, just know, that he’s a radical bent on destroying America.

A slightly updated version of the figure:

That’s European manufacturing from the League of Nations, starting 1929 — with annual data placed at the midpoint of each year — and Eurostat for the EU15, starting January 2007.

The comparison is in aid of several projects, most immediately a Princeton talk next month. My point is that Europe isn’t actually doing all that much better than it did in the Great Depression. And why should it be doing better? It has effectively replicated both the troubles of the gold standard and the misguided focus on austerity.

A note to myself: European industrial production post 1929, from League of Nations, versus European industrial production post 2007, from Eurostat. Better this time, but not as much as you might think — and stalling:

Via Rich Yeselson, Alec MacGillis has a fantastic piece in the New Republic (unfortunately paywalled) about how hedge fund managers’ love for Obama has turned into blind, spitting hatred. His main argument is that it’s all about feeling disrespected:

[M]asters of the universe rarely get much guff in their daily routine: “The guy at the top, the name on the door who raises all the money and makes the big decisions: How’s that guy treated? How many times does someone tell that guy that he might not be a good guy, that, you know, you’re kind of a dick? These guys are not used to getting dinged at all.” And it wasn’t just anyone knocking them–it was the president of the United States, notes Eugene Fama, a legendary finance professor at the University of Chicago and Asness’s former mentor. “Lots of [hedge fund managers] started out poor, and made a huge amount of money, and created thousands and thousands of jobs in the process. They’re used to being the American Dream, and now you have the president who looks at them and sneers at them like they’re bad guys.”

For all the brashness and bravado that goes with their world, it seems the managers are oddly insecure about their purpose. For years, “most people in the financial service sector were viewed with enormous, out-of-the-box respect and adulation,” says Daley. “These guys were on pedestals, and now that pedestal’s gone, and now, in a lot of people’s minds, the industry doesn’t have that glow, and that bothers them, and now they join that with the president and his theoretically bashing the wealthy. They’ve got to blame somebody, and they blame him because he is representative of that group of people who ‘aren’t us.’” Former Official B told me, “Whether it’s [former Fed Chairman Paul] Volcker saying there’s been no financial innovation worth a shit since the ATM or the president saying his thing, they’re hypersensitive.” Former House Financial Services Committee Chairman Barney Frank was more scathing: “They don’t just want us to represent their interest, they want to be told that what they do is very good. They want to be honored for what they do for society. And Obama has hurt their feelings. Raising their taxes is not simply a blow to their income. It is a blow to their psychic income, a failure to recognize the enormous good they do for the world.”

This seems completely right to me. When you make a billion dollars a year, you can buy anything you want — which means that goods and services yield almost no marginal utility. What you crave, then, is what money can’t buy: respect.

Actually, I’ve seen this in action at meetings where financial big wheels and professors mingle. You’d think that the people with the big bucks would be confident; on the contrary, they’re insecure, because they want respect for their minds. And I know for a fact that some of Obama’s big-money early backers were motivated in large part by the lure of being in the inner circle in a way that someone like Hillary, with her long record and connections, couldn’t offer.

And now Obama says what anyone paying attention would: that these big-money people were, to some extent, making their money in socially destructive ways — and they go insane, precisely because in their hearts they know that he’s right.

And because money talks in politics, this pettiness, this display of ego and hurt vanity, may have disastrous consequences.

Many pundits still like to pretend that we’re having something resembling a rational national debate, with members of both parties saying reasonable things given their views about how policy works. And when you find a politician saying something not at all reasonable, there’s a lot of false equivalence — surely both sides do it, even if you don’t have any, you know, actual examples from one side.

Then you encounter something like this: the CBO puts out its latest update (pdf) on the cost of the subsidies in the Affordable Care Act, and the chairman of the House Republican Policy Committee puts out this statement:

House Republican Policy Committee Chairman Tom Price, M.D. (R-GA) issued the following statement regarding the Congressional Budget Office’s (CBO) updated cost estimate of the president’s health care law. The new CBO projection estimates that the law will cost $1.76 trillion over 10 years – well above the $940 billion Democrats originally claimed.

It’s not just that all of this comes from moving the window — because the Act doesn’t take effect until 2014, the 10-year cost as measured from 2012 is higher than measured from 2010 (and no, this doesn’t mean that the original claims of deficit reduction were cooked; see Ezra.) It’s the fact that the CBO report says this:

CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of just under $1.1 trillion over the 2012–2021 period—about $50 billion less than the agencies’ March 2011 estimate for that 10-year period

And where does this statement that the estimated costs have fallen, not risen, appear? On the very first page of the report.

Tell me that this is a rational, honest debate. Or if you claim that everyone does it, find me a senior Democrat — not some random pundit or backbencher — making an equivalent howler.

No special insight — I just wanted dibs on this now that Rick Santorum has decided to focus on our most pressing national issue.

Reed Abelson at Economix points us to a startling study on the effects of the Great Recession on health insurance. You can see similar trends in the Census data, but for whatever reason this survey — carried out by a highly reputable group — is even stronger. Here’s the key picture:

What this says is that the system that has provided workable insurance coverage to many (but not enough) Americans is coming apart at the seams. And this in turn means that if health reform goes down, we’re going to be looking at a wave of misery spreading across the land.