Lesson of the Year

In 2012 I concluded
That my vote for the House is deluded,
Since the shape of my district
Regrettably IS tricked
To keep the opponent excluded.

As we count down the hours of 2012 with no deal reached in Washington on the basic questions of government revenues and expenditures, many wonder how it is possible for the Congress to remain so deadlocked in the face of a clear electoral outcome for the nation as a whole. The answer is, in part, that members of the House of Representatives do not answer to the nation as a whole, or even to the whole of their own districts. Rather, because most Congressional districts are gerrymandered to ensure the continued representation of the incumbent party, the typical house member feels most beholden to the extreme elements in that party who participate most intensely in the primary election.

In 2013, we must resolve to undo this gerrymandering, as a first step toward truly representative government.

Cliff Looms, Consumer Consumes

Said a retail consumption authority:
"Consumers now have the priority
Of avoiding the "Cliff",
Regardless of if
It's mystery to the majority."

As the days and hours before the fiscal cliff dwindle, and the year-end economic data accumulate, opinions differ sharply regarding the influence of the former over the latter. According to perpetually hyperventilating Business Insider, "everyone is talking about how the fiscal cliff is crushing the consumer." The Insider's sleepless economics editor Joe Weisenthal cites recent, weak data from MasterCard and the Consumer Confidence survey in support of his point.

"Total BS," replies the Guardian's Heidi Moore. Digging deeper into the data, Moore cites a litany of reasons for recent slowdowns in consumer spending. Seasonal factors, and the fact that Black Friday and Cyber Monday spending broke records, loom larger than the Fiscal Cliff, though the latter may still be a secondary concern.

Noël Greetings

Merry Christmas to friends far and near,
And retailing holiday cheer,
With a dovish Fed rule
To stimulate Yule,
And a fiscally balanced New Year!

 - Dr. Goose

This Is The End

An ancient foretelling of verity
Said the world with go out with severity,
But may really impend
The recovery's end
In Washington's leap to austerity.

The Republicans' fiscal cliff diver
Advanced a proposal that neither
The White House or Senate
Would ratify when it
Was passed, which it never was, either.

One shouldn't put too much reliance
On the art of political science,
Which tends to foretell
The future as well
As the calendar made by the Mayans.

If you are reading this, then the world did not end on December 21, 2012, as predicted by the Mayan calendar. The negotiations to avoid the "fiscal cliff", however, are another story. Earlier in the week, optimism ran high as proposals advanced by House Speaker John Boehner and President Barack Obama were "only" $200 billion apart in long-term revenue raising.

Seemingly at the last minute, the Speaker shifted gears and announced a "Plan B" that, although rejected in advance by the White House and the Democratic-controlled Senate, had placed enough constraints on tax hikes to garner the needed support of House Republicans. In the event, the legislation was pulled due to many many of those Republicans' resistance to even modest tax increases on the very wealthy. With legislators now heading home for the holidays, it appears that Mr. Boehner's reputation as a negotiator is preceding the federal budget over the cliff.

Mayan Hashtag Hijinx

With the approach of the end of time (as predicted by the Mayan calendar), the Twittersphere has teemed with end-of-the-world confessions by those wishing to go out with a clean conscience. Believing that confession is good for the soul of even the Dismal Science, Dr. Goose - who tweets under the name of @DrGooseEcon - created a hashtag to facilitate economists' unburdening:

#EndOfTheWorldEconfessions I answered the household survey under an assumed name.

— Dr. Goose (@DrGooseEcon) December 20, 2012

Thanks to noted economist Justin Wolfers, #EndOfTheWorldEconFessions became a trending topic among the global society of Twitter econ nerds. Here then are some of the top econ-fessions on Twitter:

#EndOfTheWorldEconfessions I secretly want to make Basel I, II, and III into the best movies ever.

— Rob Blackwell (@ABWashBureau) December 20, 2012

#EndOfTheWorldEconfessions I imagine the Fed's dual mandate as a duel mandate between Ron Paul & Ben Bernanke

— Betsey Stevenson (@BetseyStevenson) December 20, 2012

I have used Venn diagrams drawn on napkins to make a point in the context of a romantic spat #EndoftheWorldEconfessions

— Matina Stevis (@MatinaStevis) December 20, 2012

Accidentally announced a Blue Light special at the discount window. #endoftheworldEconfessions

— Philadelphia Fed (@philadelphiafed) December 20, 2012

#EndofTheWorldEconfessions Sometimes I forget to maximize utility.

— Binyamin Appelbaum (@BCAppelbaum) December 20, 2012

...and the number one econ-fession:

#EndOfTheWorldEconfessions: Every October I make early-morning prank calls to famous economists, in a convincing Swedish accent.

— Justin Wolfers (@justinwolfers) December 20, 2012

GDP, or GDI?

Though GDP seems to be surging,
Economists' views are diverging,
For if growth is discerned
By what's made (vs. earned)
May foretell if it's flat or encour'ging.

There are many ways of measuring an economy, among which are gross domestic product (GDP) - the value of all goods and services produced - and gross domestic income (GDI), the earnings of all economic actors. Theoretically, GDP should equal GDI, since the product I buy is equal to the income you earn. However, sometimes they diverge, and rarely more so than today.

This morning the Bureau of Economic Analysis released the third revision of 3rd quarter GDP.  As Matt Yglesias blogged in Slate: "the news is good. What was initially reported as growth at a 2 percent annual rate and then revised up to a 2.7 percent annual rate now stands at a very respectable 3.1 percent annual rate. In nominal terms, we now have Q3 clocking in at 5.9 percent growth which is the kind of thing that's consistent with catchup." So, all's well? Not quite: GDI grew by only 1.4%. Now, ours is a big economy and certainly not easily measured, but that's a big divergence. Yglesias suspects that the more optimistic GDP number is closer to the truth, on the evidence of President Obama's decisive electoral victory. After all: in politics, "it's the economy, stupid."

The Futility of Liquidity

Though the Fed may be funding us cheaply,
Recovery's not rising steeply,
Until and unless
We consumers express
More demand again, broadly and deeply.

This was the message conveyed by Federal Reserve Bank of Dallas President Richard Fisher in a speech in Gainsville, Texas on Tuesday. While "quantitative easing is a necessary but insufficient tool to spark job creation," said Mr. Fisher, "employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell." This is actually a mild statement for the Dallas Fed president, who, while not a member of the Fed Open Market Committee, has consistently opposed its stimulative measures, arguing that quantitative easing and Operation Twist would have little impact against the resistance of regulatory burdens and tax uncertainty. In his latest remarks, he sounds almost Krugmanesque.

The End (Of the Fiscal Cliff) Is Near

Said the President: "Well, We are possibly
Confounding the ominous prophecy.
If I may be concise,
We differ on price,
And not fundamental philosophy."

Reports are that President Barack Obama and Speaker of the House John Boehner are close to a deal that may avert the "fiscal cliff." The New York Times reports that the President has offered a deal that would raise revenues by $1.2 trillion over the next decade but keep in place the Bush-era tax rates for any household with earnings below $400,000. This offer is not very far from that which the Speaker proposed on Friday, suggesting that the two sides are dickering on price rather than looking out over an unbridgable gulf.

At this rate, a solution to the Federal deficit standoff may be found before the December 21 end of the world predicted by the Mayan calendar.

More QE, Please

Said Bernanke: "More QE is planned
To give job creation a hand"
(Though it's tricky to know
How banks full of dough
In the aggregate, pump up demand).

Ben Bernanke's announcement of a shift in Fed policy has baffled many in the markets, as Heidi Moore writes in the Guardian. Having moved from a regimen in which rate-setting was linked to both unemployment and inflation, to one in which low inflation is simply assumed while a jobless rate cap of 6.5% is targeted, has raised a number of questions as to implementation and projected timing of eventual interest rate hikes.

More broadly though is the question of how, when US banks already have over $1 trillion in reserves, flooding the system with even more cash will make a difference in the pace of hiring. Most economists agree that the proximate cause of our unemployment level is the lack of aggregate demand. The Fed's purchasing of more billions of Treasury and mortgage bonds may lower yields and therefore move investors into riskier assets such as equities. However, with regard to job creation, quantitative easing is more of a desperation play by a central bank that wishes that the Federal government would hire people to fix the damn infrastructure, already, but expects that they won't.