As regular readers will have noticed, I’m putting a lot of indie music on this blog to lighten things up. Where’s that coming from? A little bit from a discovery, a little bit from technology.

About the technology: a little while back Robin got me a Galaxy Tab. The idea was that sometimes, instead of sitting and surfing the web, I could walk on the treadmill and surf the web. And I do indeed do that.

But what I’ve discovered about the Galaxy is that it isn’t so great for browsing. On the other hand, it really is great for watching videos: use it in landscape mode and it’s nearly ideal.

Meanwhile, my very belated discovery of Arcade Fire punctured my dour baby-boomer belief that nothing good has come out of music since I turned 30 or so. So I’m now on the lookout for post-1990 music I like (hey, I’m serious about that baby-boomer stuff), often finding it by following recommendations from videos of other music I like. As you may have noticed, my tastes run very strongly to indie bands — I don’t think I’m going to fall in love with any of the mega-commercial artists, although you never know. Also, I like live performances a lot better than highly produced videos.

And every few weeks I discover a new band I really, really like. It’s wonderful — and it’s providing some much needed relief from the dismal stuff that is my business.

I’m not big on the favorite Beltway gotcha, which takes the form of “you once said A, now you say B, so how can you explain that, huh?” As I see it, it’s all too often a substitute for actually talking about substance. Never mind what somebody said in 2004, or 1994, since circumstances are rarely identical and views change; the thing is to ask whether what they say now makes sense and is ethically acceptable.

And so the big complaint about Eric Cantor’s attempt to hold Irene victims hostage to his spending-cut agenda is that this is a bad and immoral policy, not the fact that he was against pay-as-you-go, for both disaster relief and mega-expensive wars, as long as a Republican was in the White House. Nonetheless, he is getting some grief over his 2004 vote against more or less the same thing he’s demanding now, and it couldn’t happen to a nastier guy.

So what’s his explanation? His spokesman emails Sam Stein:

[T]he national debt at the time was under $8 trillion and was $8.67 trillion when Nancy Pelosi became Speaker, Today the debt stands at $14.625, meaning that while Democrats controlled the purse string, the national debt literally exploded. We are living in different times.

Notice the bizarre claim that Nancy Pelosi was determining the deficit with Bush still in the White House. Also, I think this guy literally has no idea what “literally” means. But here’s a more substantive point: Cantor wants to emphasize the horribleness of the debt, because $8 trillion is no big deal while $14.6 trillion is catastrophic; and we know this because …. well, just because.

Well, let me make the case that pay-as-you-go was much more justified in 2004 than it is now.

One reason is that in 2004 we weren’t in a liquidity trap; indeed, the Fed was raising rates to head off too rapid an economic expansion. So to a first approximation, back in 2004 spending on disaster relief had no net effect on employment, because any expansionary impact would be offset by tighter money, whereas now that’s not at all the case.

But consider, too, the price. Here are interest rates, nominal and real, since 2003:

In 2004 federal borrowing paid a nominal rate of more than 4 percent and a real rate of about 2 percent. Today it pays a nominal rate of a bit more than 2 percent and a real rate barely above zero. This means that the burden of borrowing to pay for disaster relief (or anything else) is much lower now than it was then.

So circumstances have indeed changed since 2004 — but they have changed in a way that makes offsetting disaster relief with spending cuts elsewhere a much worse idea. Cantor’s changing line has moved in exactly the wrong direction.

Iceland is no longer under an IMF program; here’s the IMF report (pdf) pronouncing the adjustment program successful. Indeed. Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis, it has regained access to international capital markets, and has done all that with its society intact.

And it has done all that with very heterodox policies — debt repudiation, capital controls, and currency depreciation. It was as close as you can get to the polar opposite of the gold standard. And it has worked.

Steve Landsburg critiques my critique of Eric Cantor’s demand that emergency relief be offset by spending cuts elsewhere. But I think that he misses the point.

Landsburg points out, correctly, that the proposition that a spending increase should be offset with a little bit of pain everywhere and everywhen — that is, with higher current and future taxes and lower current and future spending on many things — follows from assuming that the government starts from a position of doing the right thing. If you think the government’s priorities are all wrong, then theory doesn’t tell you much about what should happen.

But wait: Eric Cantor is the one claiming that there’s a principle here, that any spending rise on disaster relief must be offset with current spending cuts. I’m critiquing that assertion; there is no such principle. I should have been clearer on that.

Where Landsburg really goes where he shouldn’t, though, is by comparing Cantor’s proposal to denying someone goodies unless he shapes up elsewhere — he uses the example of a teenager who won’t be allowed to go to the prom unless he does his chores. Is that really a good metaphor for what’s happening here?

Remember, Cantor isn’t denying something called “the government” the right to do something it wants to do. He’s denying disaster relief to people hard hit by a hurricane. That is, he’s holding suffering Americans hostage to his goal of smaller government. And the whole point of his offsetting spending cuts thing — his invention of a nonsense principle — is to obscure the ruthlessness of the blackmail involved.

Is this really a tactic you want to defend?

A conversation I had earlier today suggested that it might be worth pointing out a fact that isn’t as widely known as it should be: namely, that there has not been an explosion in debt over the past few years. There has been a big rise in federal debt, but this has gone along with a collapse in private borrowing, so that overall debt growth has been lower than it was in the pre-crisis years:

Source.

Bear this in mind when someone starts ranting about hyperinflation just around the corner thanks to explosive debt growth.

Just go read his column today, which is very close to my own thinking. And not just on the economics. Martin is usually cautious on matters political, but this time he lets fly:

Mr Obama wishes to be president of a country that does not exist. In his fantasy US, politicians bury differences in bipartisan harmony. In fact, he faces an opposition that would prefer their country to fail than their president to succeed. Ms Merkel, similarly, seeks a non-existent middle way between the German desire for its partners to abide by its disciplines and their inability to do any such thing.

Quite. And yes, this was what worried me about Obama from the beginning, way back in 2007-2008, when I got huge grief from progressives for criticizing him.

Well, let’s see what the jobs plan looks like — and more important, since the GOP will block everything, how (and if) he makes a political issue of that obstruction.

A reader directs me to the Times interactive photo map of Irene, which includes this photo of the pedestrian underpass at Princeton Junction train station:

I guess three days without power wasn’t all that bad …

There have already been a number of commentaries on the newly released minutes of the Federal Open Market Committee (the people who decide interest rate policy). The most interesting thing, I think, is the description of the arguments raised by the no votes, the people who opposed even the mild easing implied by the Fed’s sorta-kinda-not-really commitment to keep rates low until mid-2013. For what’s remarkable is how flimsy their arguments are:

Messrs. Fisher, Kocherlakota, and Plosser dissented because they would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an “extended period,” rather than characterizing that period as “at least through mid-2013.” Mr. Fisher discussed the fragility of the U.S. economy but felt that it was chiefly nonmonetary factors, such as uncertainty about fiscal and regulatory initiatives, that were restraining domestic capital expenditures, job creation, and economic growth. He was concerned both that the Committee did not have enough information to be specific on the time interval over which it expected low rates to be maintained, and that, were it to do so, the Committee risked appearing overly responsive to the recent financial market volatility. Mr. Kocherlakota’s perspective on the policy decision was shaped by his view that in November 2010, the Committee had chosen a level of accommodation that was well calibrated for the condition of the economy. Since November, inflation had risen and unemployment had fallen, and he did not believe that providing more monetary accommodation was the appropriate response to those changes in the economy. Mr. Plosser felt that the reference to 2013 might well be misinterpreted as suggesting that monetary policy was no longer contingent on how the economic outlook evolved. Although financial markets had been volatile and incoming information on growth and employment had been weaker than anticipated, he believed the statement conveyed an excessively negative assessment of the economy and that it was premature to undertake, or be perceived to signal, further policy accommodation. He also judged that the policy step would do little to improve near-term growth prospects, given the ongoing structural adjustments and external challenges faced by the U.S. economy.

So, let’s see: Fisher thinks that the problem is “uncertainty” caused by our Muslim socialist president “fiscal and regulatory initiatives”. This happens to be just wrong, as shown by lots of evidence; businesses aren’t expanding because of lack of demand, not because they fear Obamacare. But even if it were true, you don’t have to refill a flat tire through the hole: monetary policy is what you use when demand is insufficient, for whatever reason.

Kocherlakota basically says that the Fed has already done enough, because unemployment is down since the Fed’s last policy change, while inflation is up. But the Fed’s policy was supposed to put unemployment on a steadily declining trend, which hasn’t happened, while inflation was clearly a temporary bulge from commodity prices, now fading out.

Plosser thinks things are better than they seem, or something. (Why do I think of Oscar Wilde saying that Wagner’s music was better than it sounds?) He also, if I read this right, believes that our problems are largely structural or external or something; maybe he thinks we’re suffering from a lot of structural unemployment, despite strong evidence to the contrary.

The point is that all three dissents sound like people who have decided that they’re against easy money, and are looking for reasons to justify that decision. I sort of knew that, but it’s useful to have that demonstrated so clearly.

Update — where the Wilde things aren’t: Thanks to all for the correction. It seems that the Wagner quote comes via Mark Twain, but he was quoting someone else, and the end is Nye.

Today’s FT has a piece on famous financial managers having a bad year; among them are John Paulson and Bill Gross. Regular readers may recall that back in 2010 Business Week ran an article contrasting my views with Paulson’s, with the tone of the article clearly conveying the message that we should trust the billionaire, not the silly academic. You might also recall that I was highly critical of Pimco’s assertions that the end of quantitative easing would lead to a spike in interest rates.

Now, the point of this post isn’t to gloat — OK, it’s not mainly to gloat. Instead, what I want to point out is that there has been a simple principle to getting things mostly right in the Lesser Depression — namely, remember your Hicks.

Read more…

In a way, I may be wasting my time doing any kind of rational analysis of Eric Cantor’s demand that any disaster aid in the wake of Irene be offset by spending cuts elsewhere. Cantor is, of course, being totally hypocritical; where were the demands for offsets to the cost of invading Iraq?

Still, it may be worth talking about just how bad an idea this is in terms of basic economics — and in this case, regular economics, not fancy-schmancy macro.

Think of the government budget as involving tradeoffs similar to those an individual household makes. On one side, there are all kinds of things the government could be doing, from dropping freedom bombs to providing children with dental care; think of each of these things as involving a certain marginal benefit per additional dollar spent, with the marginal benefit declining in the total amount spent on each concern. On the other side, raising revenue has a cost, both the direct cost of the money taken from taxpayers and the possible reduction in incentives from higher tax rates.

What the government should do, in this case, is set all the marginals equal: the marginal benefit of an additional dollar spent on bombs, dental work, national parks, soup kitchens, etc, should all be equal, and this common marginal benefit should equal the marginal cost of raising an additional dollar of revenue.

Now suppose a disaster strikes. What this does is raise the marginal benefit of spending on disaster relief. The appropriate response is to move all the marginals to get them in line: spend less on everything else, and also raise more in taxes. So even there it shouldn’t be all offsetting spending cuts.

But wait: even more important, the government can borrow (or, in principle, lend, if it pays off all its debt). So it should balance its budget in present discounted value terms, not year by year. This means that the tradeoffs should include future spending and taxes as well as this year’s spending and taxes. And a natural disaster, like a war, is a temporary event; it should be met largely through higher taxes and lower spending in the future rather than right away, which is another way of saying that it should be paid for in large part by a temporary increase in the deficit.

This isn’t some novel idea, by the way — it’s the standard theory of public finance during war, going all the way back to Ricardo. And the logic of wartime finance applies equally to natural disasters.

So the bottom line is that basic, regular economics says that Cantor isn’t making sense. Are you surprised?

And there was light — and internet access, too.

Not to mention hot water.

Whew.

OK, the power is still out at home — but over on Route 1, civilization, plus even a signal (I have Verizon’s internet anywhere, which is actually anywhere except where I live).

So, while the battery lasts: Alan is a fine choice as chief economic adviser. He’s done excellent work, he’s a really good guy, whom I know pretty well, since we keep getting each others’ mail.

Now the question is whether anyone in the administration listens to him …

Update: I gather that there’s some commentary to the effect that Alan is a labor economist rather than a macro person like Christy Romer, and that this means less emphasis on actually increasing demand and solving the slump.

I think that may be reading too much into it. Alan may write about labor markets, but he knows macro and is pretty salt-water and activist by inclination, as far as I know. His advocacy of job tax credits comes from an attempt to work within political constraints, not lack of interest in more decisive solutions. And I think the administration was looking for a high-profile, first-rate economist willing to take the job, rather than tilting toward a particular field.

Also, the reason we get each others’ mail is that Princeton relies on the advanced mail-processing technology known as pigeon-holes, and our slots are next to each other in the Woodrow Wilson School set.

Guys, you are still banned, no matter what new names you’re using. Same lies, same rhetoric, no place for it here. Find something else to do.

Update: Forgot to disable comments. Done now. What with the storm and all, no time to waste on meta.