André Meier at the IMF has a working paper (PDF) called “Still Minding the Gap—Inflation Dynamics during Episodes of Persistent Large Output Gaps” that examines what happens to prices during big recessions. Gavyn Davies offers a summary:

As the standard theory would predict, inflation fell in virtually all of these episodes. Interestingly, Meier finds that the extent of the decline in inflation is proportional to the rate of inflation in the year before the deep recession starts. This implies that countries which start out with a very high rate of inflation (e.g. the UK from 1980-83) see the biggest drop in inflation when a deep recession occurs. As a rough rule of thumb, the inflation rate seems to drop by about one fifth of the original rate for every year that the episode lasts, with much of the improvement coming in the first couple of years.

Since many developed economies, including the US, embarked on their present deep recessions with inflation at around 2-2.5 per cent, this rule of thumb would indicate that inflation should be dropping at about 0.5 per cent per annum, which is almost exactly what has been happening. So far, then, so bad.

But the really interesting thing is that this rate of decline in inflation appears to peter out altogether as inflation itself approaches zero. Admittedly, there are only two such episodes in the database – Japan in 2001-03 and Sweden in 1992-94. But they are nonetheless important, because we do not have much else to cling on to. These episodes of downward rigidity in inflation are probably explained by the fact that price and wage setters are extremely reluctant actually to cut prices or nominal wages in absolute terms, so a really massive shock (perhaps even bigger than the recent credit crunch) is needed to force the overall inflation rate below zero.

So probably not actual deflation, instead inflation rates stuck at around zero because “[t]here will be times when higher commodity prices, or declining exchange rates, will lead to temporary increases in inflation, counter to the dominant deflationary trend.” A huge negative shock—like a major Iran-related disruption in energy supplies—would change that, but mostly things will be flat. Davies observes that “in this netherland of zero inflation, many of the adverse dynamics of debt deflation (identified by Irving Fisher in the 1930s) will be working away, insidiously, under the surface.”

I would only add that if this comes to pass it will be more a political problem than an economic one. Central bankers may simply redefine their mission as “avoiding deflation” and congratulate themselves if the price level goes up 0-1 most quarters, while falling occasionally in response to negative shocks. They’ll chalk the resulting high unemployment up to “structural factors” and business groups and rich people will insist that only unpopular right-wing ideas can ameliorate the structural issues that are forcing unemployment up. The two percent inflation of the 1990s and 2000s will be redefined as “too high” just as today we’ve redefined the fine-at-the-time four percent inflation of the 1980s as “too high.”

The Obama administration’s view on how to expand access to higher education in the United States is pretty simple, provide more money but demand more accountability. Funds spent helping young people learn valuable skills are money well-spent, but funds spent on pointless churning are pure waste. Alec MacGillis has a great piece in the Post about how this plays out, including a revealing quote:

“Higher education is an interest group like any other, and what it wants is a lot of money from the taxpayer and no oversight of how that money is spent,” said Kevin Carey of the think tank Education Sector. “And they’ve been very successful getting it for a long time.”

Sarah Flanagan, a lobbyist for the National Association of Independent Colleges and Universities (NAICU), said the provisions crossed the line. They “put out national incentives and fund states and get states to get colleges to increase performance. That’s not how colleges operate,” she said.

And it’s true, that’s not how they operate and that’s the problem. I would add special kudos to the Post for running this piece because, as MacGillis notes at the end, one company that really, really, really, really doesn’t like the administration’s effort to not let poor-performing for-profit colleges soak up endless quantities of taxpayer cash is the Washington Post Company, whose Kaplan University group is among the worst-performing major players in the field.

Obama at Ben's Chili Bowl with DC Mayor Adrian Fenty

Steve M at No More Mr Nice Blog falls for the White House spin hook, line, and sinker:

Anyone remember when candidate Barack Obama was getting grief for going to Philadelphia and sampling expensive Spanish ham? Doesn’t sound like something a secret Muslim would eat — nor is the honey-baked ham the Obamas served along with the turkey last Thanksgiving. The half-smoke he got at Ben’s Chili Bowl a couple of weeks before Inauguration Day is a sausage that’s half-pork, half-beef. Oh, and the beer at that beer summit didn’t quite comport with the teachings of the Koran, did it? But all that was just weaving a web of deceit, right?

I’ll admit that for a long time my own views were along these lines. After all, the very first time I met State Senator (and US Senate candidate) Barack Obama we were at a hotel in Boston (I believe it was the Westin Copley Place) on line at a breakfast buffet fighting for the tongs to grab some bacon. But then I learned all about taqiyya which proves that counter-evidence to the “secret Muslim” thesis only demonstrates how far the conspiracy goes.

The current issue of Miller-McCune features a great Melinda Burns writeup of the moderately counterintuitive findings in the award-winning recent book Lobbying and Policy Change: Who Wins, Who Loses, and Why by Frank R. Baumgartner, Jeffrey M. Berry, Marie Hojnacki, David C. Kimball, and Beth L. Leech. I’m not 100 percent sure what the best way to characterize their findings is. I’ve heard it glossed as showing that lobbying “doesn’t matter” or doesn’t matter “as much as you think” but I’m not sure that’s quite right. I’d say it’s something more like “the policy agenda in Washington is dominated by issues that have substantial lobbies on both sides, and relative strength of the lobbies doesn’t determine the outcome; also the outcome is usually that nothing changes.”

Here’s how Burns puts it:

The real outcome of most lobbying — in fact, its greatest success — is the achievement of nothing, the maintenance of the status quo. “Sixty percent of the time, nothing happens,” says Frank Baumgartner, one author of the book and a political science professor at the University of North Carolina at Chapel Hill. “What we see is gridlock and successful stalemating of proposals, with occasional breakthroughs. We see a pattern of no change, no change and no change — and then some huge reform.”

But those large reforms — such as health care for 32 million uninsured Americans under President Barack Obama, the scheduled phase-out of the estate tax under President George W. Bush, and the normalization of trade relations with China under President Bill Clinton — are far more often linked to a change in who inhabits the White House than to campaign contributions or K Street hires.

On the one hand, this punctures some insidery illusions about change happening as a result of an awesome duel between skilled lobbyists and advocates with the better policy change ninja winning the day. At the same time, I think he does help explain the ways in which interest group strength do shape policy outcomes in decisive ways. It’s not possible to reform the health insurance system without arousing some powerful opposition. Consequently, to get it done it had to be done in such a way as to induce some other powerful lobbies—in the case of the Affordable Care Act, mostly pharmaceutical firms and labor unions—to line up in favor of change. But once you have strong lobbies on both sides, it’s not like you win by having more or better lobbyists: “across the board for the 98 issues, the side with more lobbyists, more PAC donations, bigger organizational budgets and more members won only half the time.”

There’s a lot you could say about this, but the main upshot is that reforms aimed at curbing the power of lobbyists or what have you seem to be somewhat barking up the wrong tree. More important than disempowering the most powerful actors is to find ways to try to empower the powerless. If you don’t have any lobbyists, donations, members, or organization at all then you’ve got a real problem. And the other is simply that the system’s overwhelming feature is its massive tilt toward the status quo—something I don’t like, that others do like, and that it might be possible to change.