Over at Commentary, they're partying like it's 2003. Here is Jonathan Tobin on Maureen Dowd's column today:

Dowd sees [Mitt Romney] and running mate Paul Ryan as the cat’s-paws of a shadowy group of “powerful” Jewish “neocons” who are out to seize the country in his name and enforce, “a duty to invade and bomb Israel’s neighbors,” on Americans....Those who write about “neocons slithering” are clearly intending to stoke prejudice.

....The bottom line here is the same despicable “Israel Lobby” smear that seeks to silence friends of Israel through the use of traditional anti-Semitic stereotypes. Dowd’s column marks yet another step down into the pit of hate-mongering that has become all too common at the Times.

I know, I know: it's Commentary. What do you expect? But can't we ever put a stop to this? Neocons exist. They're neither shadowy nor conspiratorial. They're part of an actual political movement with a very visible public profile. They tend to be hawkish, solicitous of Israel's right wing, hostile toward Arabs, and they played a big role in committing the United States to a disastrous war in Iraq. That's just reality, and the mere fact that many neocons are Jewish doesn't give them a magic shield that protects them from criticism.

There's nothing anti-Semitic in Dowd's column. She just doesn't like neocons, and she doesn't like the fact that so many of the neocons responsible for the Iraq debacle are now advisors to Mitt Romney's campaign. Pretending that this makes her guilty of hate-mongering toward Jews is reprehensible.

A couple of days ago I wrote a post suggesting that Scott Sumner may have had less influence on Thursday's Fed announcement than many in the blogosphere think.1 Roughly speaking, I had two reasons in the back of my mind for saying this:

  1. Most of the commentary contained a built-in assumption that the Fed's action was sort of a mini version of NGDP targeting, which Sumner has been crusading for. But it's really not. It's an attempt to use future guidance to affect market expectations. That's a component of NGDP targeting, but nothing more. If I spend years crusading for more energy efficient houses and you then decide to replace your windows, that doesn't mean I influenced you just because new windows happen to be a component of my energy efficient housing plan. You probably knew about the benefits of UV-coated windows already. (And that goes double if you're a world expert in energy efficient housing.)
  2. A lot of bloggers learned about NGDP targeting (and the expectations channel) from Scott Sumner. I certainly did. But it's a leap to think that just because we were influenced by Sumner, this means that Ben Bernanke and the Fed's economists were influenced by Sumner. Maybe they were, maybe they weren't. I don't know, and neither does anyone else in the blogosphere. But Michael Woodford, who is indisputably influential on this subject, says point blank that Sumner's blog didn't affect him. That's not surprising: like Ben Bernanke, he's been studying this stuff all his life. He already knew it.

In my original blog post, I admitted that I felt sort of churlish for pointing this stuff out. But Robert Waldmann, who would probably not object to being labeled a bit churlish now and again, writes that there may be an even bigger problem here. Regardless of who influenced the Fed to try out expectations management, it doesn't seem to have worked:

We have new relevant evidence on the effectiveness of QEIII as forward guidance about future short term rates. Medium term rates are expected average short term rates plus a risk premium. If there is more certainty that short term rates will be very very low, both terms should decline.

[From a later post]: From Wednesday close (before the announcement) until Friday close (latest data) the 5 year rate changed 0.00%....Now I admit that my approach of focusing on changes over 48 hours and then declaring the matter settled is not the same as the approach of Michael Woodford, the leading advocate of the focus on the expectations channel. In his huge paper, he analysed transaction by transaction data and only looked at the day of the announcement....To claim that the question is still open, however, would require those who stress the importance of the expectations channel to argue that a statistical method is perfectly fine when it gives them results of the sign they like (although always of trivial magnitude) but invalid when it gives the answer they don't like.

To be as rude as possible, if they don't admit they were wrong (and I was right about the potential on Wednesday for further future guidance) their reasoning is like the argument that defence spending creates jobs but ARRA spending doesn't.

By Woodford's rules, the debate is over and he lost.

Basically, Waldmann is saying that if the expectations channel works, medium-term and long-term interest rates should have declined immediately after the Fed announcement on Thursday. But they didn't. The forward guidance enthusiasts were wrong.

Personally, I'd be a little more charitable. One of the problems with the Fed's announcement was that it was extremely weak. Yes, it tried to provide future guidance by promising open-ended action, but (a) the action was fairly modest, (b) the Fed didn't really make any concrete promises about how long it would continue its QE program, and (c) there's an election coming up and there's really no telling how long Ben Bernanke will be in charge of such decisions anyway. It's hardly any wonder that the bond markets had a muted response.

Of course, this is a fundamental problem with expectations management: it only works (even in theory) if investors are absolutely convinced that the Fed (a) can do what it says and (b) will do what it says. That's pretty hard to pull off, and it's one of the reasons that the blogosphere should probably be a little more skeptical than it is on the topic of both NGDP targeting and expectations management in general. For more on this subject, Mark Thoma has some sensible comments here.

1The backstory behind all this is long and complicated, and if you have no idea what I'm talking about here, I apologize. But it's just too convoluted to explain in a sentence or two. On the bright side, your life will be no poorer if you just skip the whole thing.

UPDATE: Sorry to add even more to this, but Matt Yglesias emailed me a comment that suggests I should clear something up. Michael Woodford thinks that using the expectations channel should immediately reduce long-term interest rates. Market monetarists like Scott Sumner think it should raise long-term interest rates because it raises expectations of future economic growth. I started this post with a comment about Sumner's influence on the Fed, which might have made it sound like Robert Waldmann was responding to Sumner. He wasn't. He was responding to Woodford.

So who's right? I think it's hard to tell. Waldmann uses the Wednesday closing rate vs. the Friday close for 5-year T-notes. By that measure, nothing changed. Sumner uses the 10-year T-note, which was up about 6%. If, instead of the Wednesday close, you use the rate just before the Fed announcement as the starting point, both rates are up.

So either (a) the market monetarists are right, (b) nobody is right because rates didn't change, or (c) there's too much noise to tell. Take your pick.

Tod Kelly on his visit to this week's Values Voter Summit: "Surprisingly nutty, even with expectations going in." And he's got a few clips to prove it:

1. By the tally I kept, the number of times I heard Main Floor Speakers not named Paul Ryan mention Barack Obama: 157. Number of times I heard Main Floor Speakers not named Paul Ryan mention Mitt Romney: 5.

2. Most of the votes for Democrats in Presidential elections come either from people on welfare, or people committing voter fraud. (Gary Bauer, American Values President)

3. The Obama administration has begun secretly plotting with the Organization for Islamic Cooperation. They have begun to “brainwash” FBI and other security agents to be receptive to the messages of Islam, so that Sharia law speech laws can be enforced unchallenged after Obama’s reelection. (Michele Bachmann, US Rep-MN)

....5. Planned Parenthood is an organization created for the purpose of killing off the white race. (Rep. Tim Huelskamp, US Rep-KS)

....7. The Obama administration is planning to make illegal all churches and synagogues, and put in jail any Americans that attend them. This will happen this January, “March at the latest.”  (Kamal Saleem, Debunked Ex-Terrorist Impersonator)

There's more at the link, including the VVS crowd's surprising reaction to Ronald Reagan. Tod promises more VVS-related detail in future posts.

Jonah Goldberg today:

The establishment-press position is that Mitt Romney outrageously jumped the gun in his condemnation of the Obama administration’s response to the attacks on our embassies....I understand and can respect the opposing point of view, by the way. I don’t think it’s ridiculous to argue that Romney jumped the gun. I do think, however, the obsession with the issue is beyond ridiculous.

I'm not surprised that conservatives are trying so hard to change the subject here, but we shouldn't let them. For the record, then: the unseemly haste of Romney's comment following the 9/11 attacks on the embassy in Cairo was, at best, a distant third of three reasons that most of us were so disgusted with him. Remember, this is what Romney said:

It’s disgraceful that the Obama administration’s first response was not to condemn attacks on our diplomatic missions, but to sympathize with those who waged the attacks.

There are two big problems with this:

  1. It's a lie. The embassy statement Romney is referring to was issued several hours before the attack. It was not a response to the attacks.
  2. It's scurrilous to suggest that Obama "sympathized" with the attackers. There was nothing in the embassy statement that suggested any kind of sympathy, and the actual first response from the Obama administration very clearly condemned the attacks.

Later, of course, Romney denounced the anti-Islam video at the heart of the current riots, thus taking exactly the same stand as both the embassy and the Obama administration. So when he issued his statement late on the evening of 9/11, he knew perfectly well that the embassy statement hadn't been issued in response to the attacks and he knew perfectly well that he agreed with the sentiments in the statement anyway. That's what made his response so odious. The fact that he was so eager to score cheap political points was just a small added fillip.

After running a story about voter access laws last Sunday, the New York Times got some complaints from readers about its he-said-she-said treatment of whether voter fraud is a serious problem. Margaret Sullivan, the Times' public editor, asked the reporter and editor of the piece for their views:

The national editor, Sam Sifton, rejected the argument. “There’s a lot of reasonable disagreement on both sides,” he said. One side says there’s not significant voter fraud; the other side says there’s not significant voter suppression. “It’s not our job to litigate it in the paper,” Mr. Sifton said. “We need to state what each side says.”

Mr. Bronner agreed. “Both sides have become very angry and very suspicious about the other,” he said. “The purpose of this story was to step back and look at both sides, to lay it out.” While he agreed that there was “no known evidence of in-person voter fraud,” and that could have been included in this story, “I don’t think that’s the core issue here.”

This is a pretty remarkable response. I don't have a problem with giving both sides some air time, but by far the main focus of the voter access battle is stringent photo ID laws — and the only real justification for stringent photo ID laws is that it stops in-person voter fraud. (That is, the kind of fraud where people show up in person at a polling place and pretend to be someone they aren't. Even in theory, photo ID laws can't stop any other kind of fraud.) This means that the existence of in-person voter fraud is exactly the core issue. If you don't address the truth of that claim, you simply haven't done a good job of informing your readership.

And apparently Bronner knows this. He agrees that there's no known evidence of in-person voter fraud. So why on earth would he not make that clear in a story about voter ID laws? This wouldn't require him to take a stand on the laws themselves, only to point out to readers in his own voice that in-person voter fraud basically doesn't exist. They can then draw their own conclusions about whether voter ID laws are a good idea anyway and what the motivation for them is.

There are plenty of gray areas in the fight over voter access, which includes things like early voting hours, voter roll purging, and so forth. But on the specific subject of voter ID laws there are two clear facts: (a) the primary justification for the laws is in-person voter fraud, and (b) in-person voter fraud doesn't exist. Anyone writing about the subject is doing a disservice if they don't acknowledge this.

Do lower tax rates produce higher economic growth? The evidence in favor of this theory has always been thin, especially when tax rates are fairly modest, as they are in the United States. Everyone agrees that taxes produce deadweight losses, but those losses are fairly small and are often offset by the benefits that a strong central government provides to an economy. When you net everything out, low tax rates don't seem to have a big effect.

But this is in the news yet again, since Mitt Romney promises that his tax plan will be revenue neutral because his tax cuts will supercharge the economy and thus produce extra revenue to make up for his tax reductions. So the Congressional Research Service took another look at this question for the period 1945-2010, and the results are pretty gloomy for the supply siders and their dynamic scoring methods. Low tax rates appear to be associated with:

  • Higher investment
  • Lower savings
  • But no change in growth rates

None of these three results were statistically significant, but a fourth result was: lower top marginal tax rates mostly benefit the rich, leading to much higher income inequality. The study found similar results for capital gains tax rates. All the charts are below and the full study is here.

One caveat: Generally speaking, marginal tax rates were high from 1945-1980 and low from 1980-2010. So the CRS results might just be an artifact of the fact that growth was higher during the postwar period and lower during the post-Bretton Woods era. In other words, it might have nothing to do with tax rates. But of course, that's the point. Nobody thinks that raising taxes is actively good for the economy, except to the extent that it helps balance the federal budget. The question is whether there's any evidence that lowering taxes boosts economic growth. And there really doesn't seem to be.

This is Domino doing her best Queen of Sheba pose. She's been quite perky lately, which Marian and I both appreciate except when she decides to become perky at 4 am. That seems to be settling down a bit, though. Today she waited until 6:30 to leap on my stomach.

You probably want an update on the pills, don't you? Well, a bunch of you recommended pill pockets, soft little bits of yumminess that you can stuff a pill inside and then feed to your cat. So we got some. My plan was this: feed some of them to Domino without any pills stuffed inside so she'd get used to them as ordinary cat treats. Then alternate throughout the week, sometimes giving her the treats with a pill inside and sometimes not, so she'd never associate the treats with the yucky green pills.

You've probably already figured out the ending to this story: she was too smart for me and refused to eat the treats whenever there was a pill inside. But no! For once, the humans outsmarted the cat. I have no idea whether my clever plan was necessary at all, but no matter. Domino inhales the treats eagerly whether there's a pill inside or not. We only have two more days of pills to give her, and the whole thing has been a breeze. Why didn't anyone tell us about this before?

Yesterday the Fed announced an open-ended commitment to monetary easing. That is, they didn't announce a specific amount of easing, they announced that they would buy $40 billion in mortgage-backed bonds every month for an indefinite period until the labor market showed signs of recovery. This was an attempt to leverage the "expectations channel" — that is, to affect the behavior of the market by making a credible promise that monetary policy will remain loose far into the future.

So who should we credit for the idea that Fed guidance could be an important policy tool when short-term interest rates are already at the Zero Lower Bound and can't be reduced further? Maybe the guy who wrote this in 2004:

Although communication is always important, its importance may be elevated when the policy rate is constrained by the ZLB. In particular, even with the overnight rate at zero, the central bank may be able to impart additional stimulus to the economy by persuading the public that the policy rate will remain low for a longer period than was previously expected. One means of doing so would be to shade interest-rate expectations downward is by making a commitment to the public to follow a policy of extended monetary ease. This commitment, if credible and not previously expected, should lower longer-term rates, support other asset prices, and boost aggregate demand.

The author of this paper, of course, is Ben Bernanke (along with Vincent Reinhart and Brian Sack). It's a pretty well known paper, and the only reason I bring it up is to provide a counterpoint to a bit of budding blogosphere triumphalism that credits economist Scott Sumner with being the driving force behind yesterday's Fed announcement. Tyler Cowen, for example, wrote that the Fed’s move "probably would not have happened [] if not for the heroic blogging efforts of Scott Sumner."

I'm not so sure. Sumner has done heroic work, writing energetically about the power of Fed guidance for the past couple of years. There's no question that he's raised awareness of the topic, and he deserves kudos for that. At the same time, Ben Bernanke is one of the foremost monetary economists of our time, a guy who's written extensively about historical episodes where conventional monetary policy has lost traction. I honestly don't think he needed Scott Sumner to remind him of his options.

I know this sounds a little churlish, and I apologize for that. But I suspect the real backstory is a lot more complicated — and probably a lot more interesting, too. After all, Bernanke didn't just have a sudden brainstorm yesterday. He already knew the expectations channel could be an important tool. What Bernanke really accomplished yesterday was to get near unanimity from his Fed colleagues to give the expectations channel a try, something I suspect he's been working on for a while. What that took wasn't a daily reading of Sumner's blog, it was the simple passage of events. Up to now, his colleagues on the FOMC hadn't all been convinced that further aggressive action was necessary, and a split FOMC obviously makes it impossible to make the kind of credible commitment that the expectations channel requires. But last year's QE2 had a limited effect, Congress appears to be deadlocked on any kind of fiscal stimulus, and the labor market over the past four months has continued to weaken. Yesterday, at long last, nearly everyone on the board was willing to agree that something more was necessary. They were finally ready — very softly and very gingerly — to make a small and fairly fuzzy effort to use Fed communication as a tool to set future expectations.

Sumner may very well have played a role here. So did Michael Woodford. So, probably, did many others. But at a guess, the biggest role was played by exactly the guy you'd expect: Ben Bernanke.

From Mitt Romney, explaining his tax plan:

So number one, [] don’t raise taxes on middle-income people, lower them. Number two, don’t reduce the share of taxes paid by the wealthiest. The top 5% will still pay the same share of taxes they pay today.

Hold on. The top 5% will pay the same share of taxes they pay today. But that means the bottom 95% will also pay the same share they pay today. Right? That's just arithmetic.

So everyone will pay the same share of taxes they pay today. But we're going to lower taxes on the bottom 95%. So that means we have to lower taxes on the top 5% too. That's the only way to keep their shares the same.

In other words, Romney is going to lower everyone's taxes. Not just tax rates, actual taxes. And yet, his plan is going to be revenue neutral. How? Most likely it has something to do with Romney's tax cuts creating new incentives that will supercharge the economy blah blah blah.

I guess believers gotta believe, but if you believe a word of this, you're the kind of mark who'd still fall for the wire scam even after seeing The Sting a dozen times on late-night cable. You've got no one to blame but yourself.  After all, it's been less than ten years since George W. Bush ran the same swindle, and we all remember how that panned out, don't we?

On a more serious note than I ended with last night, it's worth a moment to do a little more than just mock Richard Williamson, the Romney advisor who insisted that if Mitt Romney were president, we'd be in a "different situation" in the Middle East. Those riots in Egypt? They wouldn't have happened thanks to Romney's "resolve." Ditto for Libya. And Yemen.

At one level, of course, this is just dumb campaign bravado. Your guy is weak and vacillating and our enemies laugh at him. My guy is strong and resolute and our enemies fear him. But it's also nonsense. Reagan's resolve didn't stop Lebanese militants from bombing a Marine barracks in Beirut. Bush Sr.'s resolve didn't stop Saddam Hussein from invading Kuwait. Bush Jr.'s resolve didn't stop al-Qaeda from destroying the World Trade Center and killing 3,000 Americans.

This kind of thing makes for pretty speeches, and Republican audiences lap it up. But there's nothing behind it. And it's especially laughable in Romney's case, since "resolve" is about the last thing anyone associates him with. Even his own supporters barely trust him not to change his long-held positions at the first whiff of political convenience. So if Romney truly has some ideas about how to improve our Mideast policy (aside from asking "how high" whenever Bibi Netanyahu tells him to jump) then he should let us know what they are. So far, though, he's been noticeably silent about just how he would have responded to the Arab Spring and how he'd respond to it in the future. Until he provides us with some concrete ideas on that score, instead of the pabulum he's shared so far, nobody should take his playground bravado seriously.