From Brad DeLong and Larry Summers in "Fiscal Policy in a Depressed Economy":

Even without hysteresis effects—even with η = 0—expansionary fiscal policy still might be a good idea in a depressed economy. With η = 0, (9) becomes:

(10) ΔV = [μ - ξ(1 - μτ)]ΔG

For a multiplier μ = 1, then expansionary fiscal policy is a good idea unless ξ ≥ 1.5, unless raising $1.00 in extra tax revenue reduces incomes by more than $1.50.

In English, they're asking whether running a big deficit is good not just for the economy today, but also for the economy in the future. The usual view is that it's not: stimulus might get you back to trendline growth faster, but that's all. DeLong and Summers, however, suggest that staying in a recession too long can have permanent effects on the long-term trendline thanks to "the shadow cast by the downturn through discouraged workers, lost skills, broken organizations, and missing investment on future productivity." If so, then a stimulus that gets us out of a recession faster might improve long-term growth and therefore pay for itself.

But it all depends on the famous Keynesian multiplier, which tells us whether a dollar of government spending produces more than a dollar of total spending in the national economy. In normal times, they say, government spending has no net effect. The multiplier is usually around zero because the Fed will push monetary policy in a tighter direction if it sees the government goosing the economy too hard. But these aren't normal times. The Fed has made it clear that monetary policy will stay loose for at least the next couple of years. There will be no countervailing action, and the Keynesian multiplier won't be zero. It will be perhaps 1.0, or more pessimistically, 0.5.

If the multiplier is 1.0, "The long-run Treasury borrowing rate needs to be above [] 9.5%/year in nominal terms for fiscal expansion to be a bad deal." And even if the multiplier is only 0.5, treasury rates would need to be above 5.75% for deficit spending to be a bad deal. Right now, of course, treasury rates are far lower than either of these numbers, which means that federal deficit spending is self-financing. "There are no costs. No future tax increases are needed to amortize the extra debt, because economic growth does it on its own." Put another way: "Expansionary fiscal policy passes its benefit-cost test as long as raising $1.00 in extra [future] tax revenue reduces incomes by less than $10.00." And even the most rabid supply-sider doesn't think that raising taxes has an effect anywhere near that big.

In fact — and this is equation 10 above — even if you assume the multiplier is zero, additional spending is a good idea unless $1 in future taxes reduces incomes by more than $1.50. This is highly unlikely. So spending money now is a good deal for both the present economy and for the trajectory of the future economy:

How could this argument go wrong?

The fear is that expansionary fiscal policy will lead to a collapse in confidence in the government and a spiking of interest and inflation rates to previously-unseen values: that larger deficits this year will cause Alfred Marshall’s Confidence Fairy to flee and the Bond Market Vigilantes to arrive.

Since austerity is more likely to erode the government's fiscal room to maneuver than temporary expansion, this seems backward. If the logic of this argument is correct, then it is a failure to engage in expansionary fiscal policy right now—a failure to speed recovery and so reduce the long-term shadow cast on future productivity by the downturn—that is the real threat to long-run fiscal stability.

I'm left with only one question: how much spending? Surely the multiplier isn't a constant, but declines as spending increases. So where does it cross the line into being counterproductive? What's the point at which current-year spending starts to increase the long-term deficit instead of reducing it?

The New York Times had an interesting item in this morning's paper about nepotism in Congress. Basically, a new investigative report by the group Citizens for Responsibility and Ethics in Washington found that hundreds of legislators use their positions to enrich family members, either directly by paying them for campaign-related activities or by earmarking funds for organizations where relatives serve as board members. According to the report, for instance, Rep. Ron Paul doled out more than $300,000 in salaries and fees to kin or in-laws. (There were payments of various kinds to Paul's wife, daughter, two sons, grandson, daughter's mother-in-law, two granddaughters, daughter-in-law, and a grandson-in-law.) CREW looked at the 2008 and 2010 election cycles and found 248 legislators worthy of inclusion in its report, which also included pols with lobbyist relatives and other sketchy stuff—see belowTo find out whether your own elected officials muck about in this ethical swamp, you can download the org's full report from the link above. But here are the summary stats: 

  • 82 members (40 Democrats and 42 Republicans) paid family members through their congressional offices, campaign committees and political action committees (PACs);
  • 44 members (20 Democrats and 24 Republicans) have family members who lobby or are employed in government affairs;
  • 90 members (42 Democrats and 48 Republicans) have paid a family business, employer, or associated nonprofit;
  • 20 members (13 Democrats and 7 Republicans) used their campaign money to contribute to a family member’s political campaign;
  • 14 members (6 Democrats and 8 Republicans) charged interest on personal loans they made to their own campaigns;
  • 38 members (24 Democrats and 14 Republicans) earmarked to a family business, employer, or associated nonprofit.

Republicans have so many dumb inside jokes and weird paranoid theories that it's hard to keep track of them. There's the teleprompter jokes, a never-ending source of inane merriment. There's the dustup over dust. Lately there's been some weird uproar over kids working on family farms. And of course, there's Newt Gingrich mocking President Obama's idea of getting fuel from algae.

There aren't enough hours in the day to look into all this stuff. I mean, 90% of these things turn out to be a crock, so the ROI on devoting time to checking them out is pretty low. In particular, I've just been too lazy to check into the whole algae thing. I mean, it's not as if biofuels in general are some kind of outlandish science fiction pipe dream, but algae? Beats me.

Luckily, our own James West has a quick five-minute video that will get you up to speed. Aside from learning that Australians apparently pronouce algae with a hard g, I also now know whether algae is coming to a gas pump near you anytime soon. Click the link and you'll know too.

Thanks to the fact that we won World War II, the United States traditionally gets to pick the president of the World Bank. The deadline for nominations is Friday, and one question on everyone's mind is whether Obama will nominate a non-American for the first time ever. Via Ezra Klein, Nancy Birdsall explained last month why this is unlikely even though there are some pretty good non-American candidates available:

Can the Obama White House in an election year, facing a Congress suspicious of a globally honored president, eschew pushing through its own American candidate? And anyway would a non-American at the helm in the World Bank be able to raise the resources on Capitol Hill that have already been committed in principle by the United States for the next several years? The election year timing puts the White House in an especially unenviable position. There is a risk that the World Bank could become a highly partisan, U.S. hot-button issue, as the UN has too often been.

Fine. But Hillary Clinton and John Kerry don't want the job. Everyone thinks Larry Summers would be a disaster. The White House doesn't like Jeffrey Sachs. Susan Rice doesn't have a high enough profile. So who?

I recommend Tim Geithner. He's got a high profile. He's accustomed to inside politicking. Obama likes him. And it would get him out of the Treasury Department. What's not to like?

In political warfare, truth matters little. That's what Karl Rove demonstrated today in a Wall Street Journal op-ed piece that blasted the 17-minute film recently released by the Obama reelection campaign. This campaign infomercial notes that the Osama bin Laden raid President Obama launched was the "ultimate test of leadership." Rove, who served a president who did not defeat Bin Laden in such a fashion, begs to disagree—and he claims that Bill Clinton backs him up on this point.

Rove asserts,

As for the killing of Osama bin Laden, Mr. Obama did what virtually any commander in chief would have done in the same situation. Even President Bill Clinton says in the film "that's the call I would have made." For this to be portrayed as the epic achievement of the first term tells you how bare the White House cupboards are.

Yet that is not what Clinton said about the decision. George W. Bush's ex-brain is engaging in highly selective editing. Greg Sargent notes that the full Clinton quote in the film presents a much different perspective, for Clinton said of Obama:

He took the harder and the more honorable path. When I saw what had happened, I thought to myself, "I hope that’s the call I would have made."

He hoped. So Rove flipped the meaning of Clinton's words 180 degrees.

My new book, Showdown: The Inside Story of How Obama Fought Back Against Boehner, Cantor, and the Tea Party, details the nail-biting decision-making prior to Obama green-lighting the bin Laden mission and shows it was indeed no routine move.

On the night of April 28, 2011, Obama held a top-secret meeting with his closest national security aides to discuss how to proceed. The CIA had earlier informed Obama that its analysts had concluded there was a 60 to 80 percent certainty that Bin Laden was in the Abbottabad compound. But the agency had conducted a red team exercise, in which a set of analysts who had not previously worked on this case evaluated the intelligence. This group ended up with lower odds: 40 to 60 percent.

Several of Obama's national security advisers were worried by the red team results. Michael Leiter, the chief of the National Counterterrorism Center, believed the CIA had inflated the case. And when the president went around the horn and asked for recommendations, both Vice President Joe Biden and Defense Secretary Bob Gates counseled waiting for more definitive intelligence. Other advisers in the room opted for a missile strike (which would be less risky but could yield a less definitive outcome and cause collateral damage). Leon Panetta, then the CIA chief, and John Brennan, Obama's chief counterterrorism adviser, backed the proposed helicopter raid. Such an operation, though, was not supported by a majority of Obama's advisers. Everyone in the room knew that much could wrong with such an operation. (Gates had lived through Black Hawk Down and the failed Desert One rescue attempt during the Iranian hostage crisis during the Carter administration.) And they also realized—though it was not explicitly discussed—that if the Bin Laden mission went bad, it would probably sink Obama's presidency. Nevertheless, the next day, Obama greenlighted the raid.

Showdown has more details on these deliberations. (An excerpt from the Bin Laden chapter can be read here.) It's quite hard to belittle the steeliness Obama demonstrated during these deliberations. Only a spinmeister would deny that this was a gutsy call.

After the mission was successfully completed and the president had received word that bin Laden had been killed, he worked on a statement with aides and told them what he considered to be a significant aspect of the raid. "It's important to be able to prove that America could do something difficult that takes a long time," he said. That was the message he wanted to convey to his fellow citizens.

Rove, the fellow who put a president in a flight suit and had him land on an aircraft carrier where he spoke in front of a "Mission Accomplished" banner, now contends this was no big deal. He obviously hasn't read the book—or bothered to consider the facts.

Conservative Supreme Court justices really, really hate the idea that we live in the 21st century:

Defendants in criminal cases have a constitutional right to a competent lawyer's advice when deciding whether to accept a plea bargain, the Supreme Court ruled, providing a significant expansion of rights that could have a broad impact on the justice system.

"Ours for the most part is a system of pleas, not a system of trials," Justice Anthony M. Kennedy said for the majority in a pair of 5-4 decisions. Noting that about 97% of federal convictions and 94% of state convictions result from guilty pleas, Kennedy wrote that "in today's criminal justice system, the negotiation of a plea bargain, rather than the unfolding of a trial, is almost always the critical point for the defendant."

The ruling drew a sharply worded dissent from Justice Antonin Scalia, who took the unusual step of expressing his disagreement in the courtroom...."Until today, no one has thought that there is a constitutional right to a plea bargain," Scalia [said].

Well, there's still no constitutional right to a plea bargain. It's at the discretion of the prosecutor, the same as it's always been. But Kennedy has this one right: in 1787, the "criminal prosecutions" mentioned in the Sixth Amendment were all jury trials. In 2012, virtually all criminal prosecutions are plea bargains. Like it or not, times have changed, and for the vast majority of defendants it's the plea bargain that's effectively their trial.

What's more, this case sets a pretty low bar for "competent" representation. Reading further in the LA Times piece, I see that in one case a guy turned down a plea deal because his lawyer told him he couldn't be convicted of attempted murder since he had shot below the waist. That's the kind of thing that might be a funny line if it were delivered by a breezy Bill Murray in a lawyer version of Stripes, but not so funny when it's real life and puts a guy in prison for 30 years.

This case really seems to capture the bankruptcy of judicial originalism in a nutshell. Scalia and his fellow conservatives just can't stand the idea that constitutional rights are necessarily going to evolve as the nature of society evolves. So they stamp their feet and pound their fists and insist that, by God, a trial is a trial even if only 3% of modern-day defendants ever actually get one. Their starry-eyed attachment to a gauzy vision of 18th-century virtue is puerile at best and actively malign at worst.

Felix Salmon says Twitter is going to get more annoying:

During SXSW, for instance, there was a steady drumbeat of people on my timeline complaining about all the tweets from SXSW. (I was there, and even I got annoyed by the endless banal SXSW tweets; I’m sympathetic to their plight.)

We’re going to have to live with many more annoying tweets going forwards, if things like Amex’s “tweet your way to savings” campaign take off. The VentureBeat headline is “American Express transforms Twitter hashtags into savings for cardholders,” but another way to put it is that American Express is trying to make money by getting people to spam their friends with hashtags like #AmexWholeFoods which have no value to the reader whatsoever.

And then there are people like Porter Versfelt III, who will get annoyed if I dare to express a personal opinion on Twitter. For Mr Versfelt, I have a “core purpose” on Twitter, which is to provide him with financial news, and anything I do outside that purpose is annoying.

Meh. The same thing happened to blogs too. When I post anything less-than-totally-serious, I routinely get complaints that I'm ignoring world poverty in favor of fluff. Other bloggers routinely get complaints that they post way too much on some hobbyhorse or another. And the world is full of comment spam and cyborg-like corporate blogs.

To a large extent, I think this is inevitable for any platform, and demonstrates less that a platform has gotten annoying and more that the rest of us take the complainers more seriously than we should. Felix probably finds Porter Versfelt III annoying. I would too. But really, who cares? He's one guy. He doesn't like something. Big deal. And yet, for some reason people who say annoying things stick with us more than their sheer numbers justify. I'm don't know why. I'm sure there's some nifty ev psych explanation related to survival on the veldt.

Here's my suspicion about Twitter: as it matures, we're all going to start following fewer people, not more. I'm already pretty astounded at the fact that people routinely follow 200, 500, sometimes a thousand or more feeds. That's crazy. I follow 171 feeds at latest count, and even at that I can only dip into my Twitter feed now and then to see what's going on. I can't even make a pretense that I'm truly paying attention to everyone I follow. If I were smart, I'd probably try to keep myself limited to no more than a hundred feeds, and rotate 20 or 30 of them out on a regular basis.

This, again, is similar to the evolution of political blogs, I think. Back in the day, lots of early adopters followed dozens of bloggers. As time went on, and as content got a little more homogenized, that number went down. Today, I suspect that outside of a small hardcore set of readers, most people have settled down to three or four favorite political blogs. If you pick the right ones, you won't miss much.

This is just a guess. Maybe I should put my money where my mouth is and prune down my Twitter feed list today. If I do, don't take offense if I unfollow you. It's all in the cause of science.

Are the United States and Iran on a collision course over the Middle Eastern country's controversial nuclear program? We'll be posting the latest news on Iran-war fever—the intel, the media frenzy, the rhetoric.

The chairman of the House Armed Services Committee is pushing for the upcoming 2013 budget to include items that would further beef-up the Pentagon's ability to fight a war with Iran. Carlo Munoz at The Hill's defense blog reports:

Committee Chairman Buck McKeon (R-Calif.) is spearheading an effort to pump defense dollars into a specific slate of weapons and programs that could be used in a potential conflict with Tehran.

On Tuesday, the California Republican refused to back down from that plan, even if it could further inflame tensions between the two countries. "We are doing what we can to make sure [the United States] is protected…and that is what we are going to do," McKeon told reporters during a briefing on Capitol Hill...[Rep. Michael Turner (R-Ohio)], chairman of the committee's Strategic Forces sub-panel, added that the United States cannot afford to bet against Iran turning bellicose rhetoric into action.

Right now, it is unclear what programs or weapons systems would be included in the proposed budget items. (McKeon, Turner, and other committee members declined to comment on specifics.) In recent weeks, the United States military has augmented its sea and land defenses in the Persian Gulf to combat any potential efforts by Tehran to shut down the Strait of Hormuz (a loudly publicized threat from the Iranian regime that is, likely, another bluff). This has included expanded surveillance, more mine-detection technology, and requests for extra shore-launched cruise missiles.

Earlier this week, the New York Times ran a story on a classified war game conducted by Central Command—titled "Internal Look"—that mapped out possible consequences of a preemptive airstrike on Iran by the Israeli military. The two-week exercise held earlier this month yielded some grim hypothetical scenarios, including the retaliatory sinking of a US Navy ship, an initial body count of at least 200 American sailors, and the escalation to a larger regional war.

Tourists riding the subway in Washington this week are likely to see more than just the new cherry blossom stickers newly affixed to the turnstiles. They'll also be getting schooled in one of the more obscure fights going on in Congress right now: whether to replace the dollar bill with a coin.

Opponents of a proposed bill that would replace the paper dollar have bought a raft of advertising in DC Metro stations, including virtually every available billboard at the system's hub at Metro Center, to rally Americans to save the paper dollar. Posters sponsored by "Americans for George" (as in George Washington) cover tunnel walls, imploring people to save the iconoclastic emblem of American heritage.

A quick look at the website for Americans for George suggest that the ads are the joint product of a bunch of laundromats, bowling alleys, vending machine companies and some bars, including one Scalawags Fish & Chips restaurant. But the average laundromat does not have the sort of deep pockets to cover Metro Center in slick ads. Instead, the deep pockets behind the George campaign are those of the Crane paper company, which is best known for making swanky wedding invitations but also manufactures the paper that US currency is printed on.

Crane, which is based in Massachusetts, is an American institution. According to the company, Paul Revere engraved banknotes for the Colony of Massachusetts Bay on Crane paper to help finance the American Revolution. Crane obviously has a big stake in the elimination of the dollar bill, and so it's taken to the streets (or rather, the subway tunnels) to gin up opposition to the proposed law. The company's got a pretty good case to make. For decades, Americans have firmly resisted any efforts to introduce dollar coins into circulation, and new polling data that the Americans for George commissioned from pollster Frank Luntz and others confirms that Americans really hate the dollar coin.

In the spectrum of alternative fuel sources, biofuel made from algae is perhaps the most easily mocked. How could the slimy green muck that grows in your aquarium and washes up on the beach be a future cornerstone of American energy independence? So when President Obama stood before the University of Miami recently and said algae could provide up to 17 percent of our transportation fuel, we wanted to know: Is he right? Here's what we found out:

In February, President Obama announced the Department of Energy would allocate $14 million in new funding to develop transportation fuels from algae. DOE is already supporting over 30 such projects, together worth $94 million. Click through the map below to learn more about these projects.