Politico reports that the Obama administration, in the person of Jan Eberly, Treasury’s new assistant secretary for economic policy, is pushing back on the Republican notion that "regulatory uncertainty" is damaging the economy. It's sort of sad that she has to waste valuable neurons on this, when she could instead be doing actual useful work, but I guess that's politics for you.

Anyway, her case is here. And part of her case is that the American economy isn't actually suffering from any more uncertainty than the rest of the world, which suggests that American regulations can't really be having much of an impact. The chart below shows two measures of stock market volatility, one for the U.S. and one for Europe, and as you can see, they've moved pretty much in lockstep during the Obama era.

Which, to make a separate point, is an impressive demonstration of the fact that we live in a global economy, not just an American one. When stuff happens, it affects us all. Keep that in mind when American bankers and Treasury officials keep telling us that "we aren't very exposed" to a possible eurozone disaster. My guess is that we're pretty exposed after all, which is a good reason for all of us to hope that Europe gets its act together soon.

How should the Fed manage monetary policy? The hot topic these days is NGDP level targeting, an old idea that's become newly popular as the economy continues to splutter and current Fed policy seems less and less effective. So let's take a look at NGDP targeting and try to answer two questions:

  • Question #1: Why target NGDP levels? Why not something else?
  • Question #2: How do we target NGDP? Can the Fed really control it?

First, though, a technical definition. NGDP is nominal GDP. That is, it's the total output of goods and services without any correction for inflation. So if the Fed's target is, say, 5% growth per year, that could come from any combination of real GDP growth plus inflation. From a monetary perspective, you don't care. If real GDP doesn't grow at all, you want 5% inflation. If real GDP is on fire and growing 5%, you want no inflation. One way or another, though, you want spending — the number of dollars spent on goods and services — to grow on a stable, predictable path. With that, onward.

Warning! The following is both long and tentative, because I don't really know what I'm talking about. So I'm putting the rest below the fold. If you click "More," do it with the understanding that (a) some of it might be wrong and/or misguided due to a lack of understanding on my part of key concepts, and (b) you're just following along for the ride as I try to puzzle through some stuff in public. OK?

From Daniel Kahneman, in an op-ed written on my birthday:

You should not take assertive and confident people at their own evaluation unless you have independent reason to believe that they know what they are talking about.

Good advice. Also, as I'm sure Kahneman himself would acknowlege, advice that's unlikely to have any impact at all on the real world.

The whole piece is good, but I have to confess that I was stumped by the following story. It's about a test of leadership ability that he and other psychologists supervised back when he was in the Israeli army:

One test, called the leaderless group challenge, was conducted on an obstacle field. Eight candidates, strangers to one another, with all insignia of rank removed and only numbered tags to identify them, were instructed to lift a long log from the ground and haul it to a wall about six feet high. There, they were told that the entire group had to get to the other side of the wall without the log touching either the ground or the wall, and without anyone touching the wall. If any of these things happened, they were to acknowledge it and start again.

A common solution was for several men to reach the other side by crawling along the log as the other men held it up at an angle, like a giant fishing rod. Then one man would climb onto another’s shoulder and tip the log to the far side. The last two men would then have to jump up at the log, now suspended from the other side by those who had made it over, shinny their way along its length and then leap down safely once they crossed the wall. Failure was common at this point, which required starting over.

I would like someone to make a cartoon animation of this. My spatial skills suck, and I simply can't visualize this. Or, more accurately, I should say that the visualization I have in mind seems impossible. If I'm understanding it correctly, failure wouldn't be "common" at the end point, it would be universal.

Then again, maybe these groups typically had a few really strong people in them. But if it were me, I'd recommend taking off someone's helmet, putting it on the ground and jamming the pole into it. See? The log isn't touching the ground. And I'd take off someone's shirt and drape it over the top of the wall and then lean the log against it. See? The log isn't touching the wall. And then we'd all climb over.

And I'd get chewed out for being a smart ass. But at least we'd be safely on the other side of the wall.

Mitt Romney's campaign strategy is fairly simple. He can't afford to dive too far down the tea party rabbit hole because that would hurt his chances in the general election, but he still needs the tea party vote in the primaries. So instead of flat taxes and electrified fences, he tries to appease them with absurdly over-the-top criticisms of the Great Satan himself, Barack Obama. Here's how this worked today, in his reaction to Obama's announcement that all U.S. troops would withdraw from Iraq by the end of the year:

President Obama’s astonishing failure to secure an orderly transition in Iraq has unnecessarily put at risk the victories that were won through the blood and sacrifice of thousands of American men and women. The unavoidable question is whether this decision is the result of a naked political calculation or simply sheer ineptitude in negotiations with the Iraqi government. The American people deserve to hear the recommendations that were made by our military commanders in Iraq.

Well, the naked political calculation was that instead of withdrawing American troops by the end of 2009, as he originally said he'd do, he agreed to follow the timeline negotiated by....George W. Bush in 2008. And talks over troop immunity failed because the agreement negotiated by — yes, George W. Bush in 2008 — cut off immunity at the end of 2011 and the Iraqi legislature flatly refused to consider extending it. And finally, the opinion of the military commanders in Iraq is, I'm pretty sure, adamantine: no immunity, no troops. Admiral Mike Mullen made this clear a couple of months ago when he — not Obama — insisted that troops would stay in Iraq only if they were (a) given immunity from local prosecution and (b) the immunity agreement was approved by Iraq's parliament.

So Mitt is being a horse's ass here. Still, as a campaign strategy it's not bad. And his decision not to try to out-wingnut the wingnuts was vindicated by Michele Bachmann's statement, which said that not only should we have stayed in Iraq, but we should have "demanded that Iraq repay the full cost of liberating them given their rich oil revenues." Even Dick Cheney never went that far.

On the left, we have the miracle of foreshortening. It looks like Domino is investigating a rose about twice the size of her head, but the rose is actually a couple of feet in front of her. What she's really looking at is probably some invisible dust mote in the cat dimension. On the right, we have the miracle of bad framing. As usual, I focused on Inkblot's eyes and then forgot to reframe the shot, cutting him off at his knees. Or whatever passes for knees on a cat. Still, it's sort of a cool picture. It's amazing how a few blurry leaves in the foreground can make it look like Inkblot is in the middle of the Amazon rain forest, isn't it?

Dan Drezner imagines Obama giving a campaign speech about the difference between foreign and domestic policy:

As president, I have to address both domestic policy and foreign policy. Because of the way that the commander-in-chief role has evolved, I have far fewer political constraints on foreign policy action than domestic policy action. So let's think about this for a second. On the foreign stage, America's standing has returned from its post-Iraq low. Al Qaeda is now a shell of its former self. Liberalizing forces are making uneven but forward progress in North Africa. Muammar Gaddafi's regime is no longer, without one American casualty. The wars in Afghanistan and Iraq are winding down. Every country in the Pacific Rim without a Communist Party running things is trying to hug us closer.

Imagine what I could accomplish in domestic policy without the kind of obstructionism and filibustering that we're seeing in Congress — which happens to be even more unpopular than I am, by the way. I'm not talking about the GOP abjectly surrendering, just doing routine things like actually confirming my appointments. I've achieved significant foreign policy successes while still cooperating with our allies in NATO and Northeast Asia. Just imagine what I could get done if the Republicans were as willing to compromise as, say, France.

Roger that. In other foreign policy news, President Obama announced today that we'd be pulling all our troops out of Iraq by the end of the year:

According to a White House official, “this deal was cut by the Bush administration, the agreement was always that at end of the year we would leave, but the Iraqis wanted additional troops to stay. We said here are the conditions, including immunities. But the Iraqis because of a variety of reasons wanted the troops and didn’t want to give immunity.

“So that’s it. Now our troops go to zero,” the official added.

That last line is now mysteriously missing from the ABC News story, but it was in the initial version they emailed me. No immunity, no troops.

I wonder what Republicans are going to say about that? I'm sort of afraid to look. In a normal world, pretty much everyone would agree that if a host country won't cut some kind of immunity deal for military troops in what's still, after all, basically a warzone, then the troops have to come home. But we don't live in a normal world, so I imagine Republicans are going to turn this into some kind of massive appeasement/apology tour/lack of willpower outrage on Obama's part, frittering away the hard won gains of the Bush administration etc. etc. Or something. Let me know in comments.

New York magazine's Dan Amira took a look at President Obama's fundraising database today and created this map of his financial prowess. It shows the number of per capita donors in each state, with darker blues indicating more donors. Obviously Obama is doing well in the Northeast and the Pacific coast, which is no surprise. He's also doing pretty well in Colorado and New Mexico. What else is there to see here?

Its biggest revelation, in our opinion, is Ohio. With its eighteen electoral college votes and working-class population, Ohio is a perennially important swing state. Obama won it by 5 percent in 2008. But as the map shows, it has a pretty low Obama donors-per-capita ratio. Every other state in Ohio's color tier was won by John McCain except for Indiana (and nobody expects Obama to win Indiana again) and that one weird Omaha electoral vote in Nebraska. This doesn't bode well for Obama's chances in Ohio.

Well, it's still early days. But this map does suggest that it's going to be a very close election.

The global economy has gotten ever so slightly better this year. Hooray! Of course, even a slightly stronger economy means rising oil prices. Brad Plumer tells us what that means:

In 2011, as gas prices have risen, Americans have cut back on fuel consumption by about 1.8 percent. But that’s not nearly enough to offset the price increase: overall gas expenditures still rose 25 percent over the past year, or $102 billion. That essentially wiped out all of the benefits from President Obama’s middle-class tax cut.

....The amount that families are spending on gasoline has leapt dramatically since 2004, as fast-growing countries like China and India nudge up oil prices. In states such as Montana and Mississippi, where even routine trips are long and transit alternatives rare, a whopping 19 percent of median income now goes toward gas.

Stimulus is hard in an energy-constrained world. I confess that the more I think about this, the more I wonder if conventional fiscal/monetary policy has as much traction as we believe. I'm not an energy fundamentalist by any stretch, but the constraints are real. Ordinary stimulus measures still work, and we should be pursuing them more aggressively, but I can't help but suspect that we're entering an era where they're getting less effective all the time.

I can't help but be fascinated by these excerpts from Walter Isaacson's new biography of Steve Jobs:

Jobs, who was known for his prickly, stubborn personality, almost missed meeting President Obama in the fall of 2010 because he insisted that the president personally ask him for a meeting. Though his wife told him that Obama "was really psyched to meet with you," Jobs insisted on the personal invitation, and the standoff lasted for five days. When he finally relented and they met at the Westin San Francisco Airport, Jobs was characteristically blunt. He seemed to have transformed from a liberal into a conservative.

"You're headed for a one-term presidency," he told Obama at the start of their meeting, insisting that the administration needed to be more business-friendly. As an example, Jobs described the ease with which companies can build factories in China compared to the United States, where "regulations and unnecessary costs" make it difficult for them.

Jobs also criticized America's education system, saying it was "crippled by union work rules," noted Isaacson. "Until the teachers' unions were broken, there was almost no hope for education reform." Jobs proposed allowing principals to hire and fire teachers based on merit, that schools stay open until 6 p.m. and that they be open 11 months a year.

OK, three things. Regarding the first paragraph: Jeebus, what a dick Jobs could be. Regarding the second paragraph: We all know why it's easier for Foxconn to open a factory in China. I think I'll keep our child labor and environmental rules intact, thank you very much. And regarding the third paragraph: Just where does Jobs think the massive budget increase is going to come from that would allow schools to stay open ten hours a day and eleven months a year? Even if he's right about the dire effect of teachers unions, something with pretty scanty empirical evidence, I don't think that California, to pick a state at random, is really up for the $20-30 billion tax increase it would take to roughly double instructional hours. Besides, even a really good intensive preschool program would cost less than that and almost certainly deliver better results. Think different, people!

Other than that, though, Jobs sounds like a great guy.

Matt Yglesias is annoyed with a New York Times piece about Barack Obama supposedly trying to replicate George Bush's awesome reelection strategy of 2004:

I’ve written about this before, but the fact of the matter is that this theory is based on a largely mythical recollection of what happened in 2004. Democrats seem to have persuaded themselves that the hideously unpopular Bush won re-election by trashing the reputation of John Kerry. The fact of the matter is that Kerry’s vote share outperformed most fundamentals-based models. The solid foundation of Bush’s re-election strategy was that on Election Day most voters said they approved of Bush’s job performance. Kerry got an extraordinary 93 percent of the vote of Bush-disapprovers. The phenomenon of the anti-Bush voter who voted for him anyway out of disgust with Kerry’s flip-flopping was extremely rare.

I don't actually disagree with this much. Economic fundamentals matter a lot, and on that score it's true that Kerry did better than expected. (Just as Democrats did worse then even the lousy fundamentals predicted in 2010.) But I don't feel like writing about Muammar Qaddafi again, so I'm going to disagree anyway.

Presidential elections, of course, aren't won by national vote shares. They're won in the electoral college. And if John Kerry had won Ohio, he would have won the election and become the lucky overseer of our economic catastrophe in 2008. (And John McCain would probably be president right now.)

So what happened in Ohio? Obviously economic fundamentals played the same role there that they played everywhere else. But there's also this: Kerry lost Ohio by only 120,000 votes. This means that a switch of 60,000 Kerry voters to the Bush column was enough to give him a second term. And Ohio was, infamously, ground zero for saturation TV ads from the Swift Boat Veterans group about how Kerry was a conniving, lying, phony war hero who didn't deserve his military decorations and, in fact, was something of a coward who connived to get his fake bronze stars so he could skedaddle out of Vietnam as soon as he could.

The Swift Boat smears ran in heavy rotation in Ohio. Did that make a difference of 60,000 votes? Political scientists might say no: TV ads don't have a huge effect, and they especially don't have a huge effect months before an election, which is when the ads ran. But I'm not so sure. In a state like Ohio, these ads left a very sour taste in a lot of mouths. They not only took away Kerry's aura as a decorated war hero, but actively tarred him as the worst kind of sniveling opportunist, a man who used fake wartime decorations to grease his way up the political pole. I don't have a hard time believing that this might have switched 60,000 votes out of the 5 million cast in Ohio.

So yes, fundamentals matter. But sometimes campaigns matter too. I think the 2004 presidential campaign is actually pretty good evidence for both.