Via Tyler Cowen, an interesting dialogue between Senator Jeff Sessions and CBO Director Doug Elmendorf in which Sessions gets Elmendorf to agree that the American Recovery and Reinvestment Act made the projected 2019 GDP lower than it would have been in a no-ARRA scenario:

I’m not certain I agree with that forecast, but I think the country would have been about a million times better off if these were the terms in which ARRA had been debated. The CBO view is that ARRA boosted growth and employment in the short-term, but created a long-term drag on growth with no employment implications. Democrats thought that was a good trade-off, but Republicans thought it wasn’t. That would have been a perfectly sensible disagreement to have, and wouldn’t have required anyone to adopt exotic big picture economic theories. I could have written blog posts about how in a wealthy society like the United States, unemployment is more hedonically significant than GDP levels. Then with ARRA passed, everyone could have switched positions on the relative importance of short-term and long-term issues when debating climate change.

The strange thing about the “super committee” process is that it’s been clear from the beginning that the Democrats will end up surrendering one way or the other. That’s because of the way the “trigger” has been structured. The automatic cuts are supposed to be evenly divided between domestic programs that Democrats want to protect and defense programs that Republicans want to protect, but Democrats also favor protecting those defense programs. Almost from the beginning you’ve heard Leon Panetta and others deploring the terrors of the trigger. That means Democrats have merely re-created the original debt ceiling problem for themselves. They don’t want to agree to an all-cuts deficit reduction, but they really don’t want to experience the alternative.

Republicans, by contrast, have no problem with the defense trigger. As Dave Weigel writes, super committee failure merely means “21 [Democratic] senators are vulnerable to truth-remixing Crossroads GPS ads about how they literally pried guns out of the hands of soldiers.” The two interesting questions are as follows. One is whether Democrats will surrender during the super committee negotiations or wait until the super committee deadlocks and then surrender on separate legislation to reverse the defense cuts. The second is whether in the latter scenario, Democrats will get any of the non-security trigger cuts rolled back alongside the defense ones.

Maciej Ceglowski is not a fan of the concept of a “social graph”:

Social graph proponents seem uninterested in the signaling problem. Leaving aside the technical issues of how to implemented, how does cutting ties actually work socially? Is there any way to be discreet, for example, or have connections naturally degrade over time? In real life, all relationships fade naturally if you don’t maintain them, but right now social networks preserve ties in amber until we explicitly break them. Is my sister going to resent me if I finally defriend her annoying husband? Can I unfollow my ex now, or is that going to make her think I’m still hung up on her?

You might almost think that the whole scheme had been cooked up by a bunch of hyperintelligent but hopelessly socially naive people, and you would not be wrong. Asking computer nerds to design social software is a little bit like hiring a Mormon bartender. Our industry abounds in people for whom social interaction has always been more of a puzzle to be reverse-engineered than a good time to be had, and the result is these vaguely Martian protocols.

I suppose there’s not a lot to be said about the fact that Newt Gingrich got paid $1.6 million by Freddie Mac beyond simply observing that Newt Gingrich got paid $1.6 million by Freddie Mac. Paul Krugman notes, however, that people should try to wrap their heads around the fact that even as it’s true that “Freddie Mac was a deeply corrupt institution,” it’s also true that Fannie/Freddie are not responsible for the housing bubble or the subsequent financial crisis.

What the Newtsters involvement in this mess does remind me of, however, is the strange and slightly distressing post-2008 ideological polarization of the Fannie/Freddie issue. The way this used to work is that informed people generally acknowledged that kludgy loan subsidies for homeownership were a bad idea, but political elites across the board liked it. See, for example, Newt Gingrich’s 7-figure payday. Then after the crisis hit, a lot of conservatives started wildly over-blaming Fannie/Freddie for things and in response progressives started perversely positioning themselves as Fannie/Freddie defenders. This is a very counterproductive dynamic. The federal government should not be creating weird off-books lending entities. The policy objectives of the GSEs were somewhat dubious in my view, but even beyond that there was no legitimate reason to pursue those goals in this way.

Via Erik Loomis, an informative Jason Scott Smith article about the Civilian Works Administration, an early New Deal-era effort to mobilize unemployed workers on public works projects. He notes that this kind of thing has not been attempted again in the future by subsequent administrations, but I think undersells the reasons why. In general I find that progressives underestimate the difficulty involved with doing this on a large scale under modern conditions. The basic reason is that the United States in 2011 isn’t the United States in 1931 and we already have a lot of people working full-time on public projects — public sector workers. And they get paid.

Here’s a chart from the Economic Policy Institute, which is not exactly a bastion of union-bashing or small-government enthusiasm, comparing public-sector to private-sector compensation levels at varying levels of education:

Their bottom line is that “Public-sector Workers Earn Less,” which, as you can see, is true on average based on their methodology. But this is all about highly educated professionals who have low unemployment rates. You’re not going to hire a mass army of cheap government lawyers as a public works project. The idea would be to hire large quantities of relatively low-skill workers, people in the categories that currently have high unemployment rates, and put them to work doing something. Now we have a question. What do we pay them? If we pay them less than current public employees make, then current public employees and their unions are going to be very upset — it’s union-busting disguised as work-relief. But if we pay them the union premium wages that low-skill government workers get, then we’re going to have a different set of problems. If we target the program exclusively at the currently jobless, then currently employed people are going to think it’s unfair for their tax dollars to be supporting premium wages. But if we don’t narrowly target the program, then people are going to quit private sector jobs and go take work-relief jobs. Whether you think that’s a good outcome or not, what you’re talking about under that scenario is a quasi-permanent increase in the size of the public sector that needs to be paid for with higher taxes, not an emergency economic relief effort that can be responsibly financed through pure borrowing.

What’s more, the whole thing is largely unnecessary. Since we already have a lot of people working in the public sector, and since state and local governments are constrained by balanced budget requirements, you can simply have the federal government borrow money to give to states and localities in order to avoid layoffs. This is a big part of the administration’s American Jobs Act, and it’s both easier to implement and less politically problematic than trying to launch a brand new public works program.

The word on the street today is that the European Central Bank is making big bond purchases today in an effort to reverse — or at least contain — the bond market chaos unleashed yesterday by the Bundesbank. It doesn’t seem to be working.

This should come as no surprise to anyone. Central bankers around the world seem to repeatedly fail to grasp that their most important power is the ability to set expectations. Ordinary market participants impact prices by buying and selling things. But central banks have a unique capacity to buy and sell certain classes of things in essentially unlimited quantities. That means they can move prices by simply threatening to buy and sell things. This is how the Federal Reserve conducts “normal” monetary policy operations. It sets a target for short-term interest rates and, sure, does a bit of buying or selling to move the market toward the target. But the real work is done by the target, not by the purchases. Everyone knows that the Fed is committed to doing what it takes to hit the target, so markets naturally move toward the target. The Swiss central bank did something similar recently with its currency. It said that it would intervene in the foreign exchange markets and it would keep intervening until the Swiss Franc got below a certain target. Then they did a bit of intervening. But just a bit. Markets move on their own in anticipation of the target.

If the ECB wants to cap Italian interest rates that’s what it needs to do. State clearly and concisely what the target is. There’s an old saying about how you shouldn’t pick a fight with someone who buys ink by the barrel. By the same token, it would be absurd to gamble in Euro-denominated asset markets against an institution capable of printing Euros in unlimited quantities. But if they insist on intervening without setting a target, they’re going to fail to achieve their goals and simultaneously discredit themselves in the public eye.

While on vacation, I read Race Against The Machine, a widely praised new book from MIT professors Erik Brynjolfsson and Andrew McAffee. The basic thesis is that contra the Cowen/Thiel view that we’ve had a technological slowdown, we’ve actually witnessed an acceleration of technological growth. Digital computers and information technology, they posit, should be seen as a fundamental breakthrough like electricity rather than a nifty appliance like television. They say that if we’re facing economic problems those are due not to a slowdown in the pace of advance, but to something more like the Katz/Goldin Race Between Education And Technology where skills growth hasn’t kept pace with technological progress.

I think the praise this book has gotten is largely deserved, but I do have to register one giant complaint with it. Knowing Cowen as I do and being a loyal reader of his blog and his books, I don’t think he would disagree with any of their policy recommendations. That’s because they’re all basically “sensible center” reform ideas that don’t link very tightly to the thesis.

This is a shame, because I think it actually matters a lot whether we think Brynjolfsson/McAffee are right or whether Cowen/Thiel are right! Sensible center reforms that make sense whether or not we’re experiencing a slowdown or an acceleration are all well and good, but it would be nice to really explore claims that hinge on the correctness (or not) of the core thesis.

“Here we are in America again on the eve of a major budgetary decision by yet another bipartisan ‘super committee,’” observes Thomas Friedman in the New York Times, “and does anyone know what President Obama’s preferred outcome is? Exactly which taxes does he want raised, and which spending does he want cut?”

The answer is probably that few Americans do know the precise details of President Obama’s proposals for achieving long-term budget balance. One reason is that most people don’t really care. Another reason is that many more-engaged Americans rely on major newspapers to convey this kind of information to them. But those of us familiar with the world-flattening capabilities of the Internet are able to find such documents as “Living Within Our Means And Investing In The Future: The President’s Plan for Economic Growth and Deficit Reduction” (PDF) published by the Office of Management and Budget in September. As you might gather from the title, it contains a plan, endorsed by the president, for economic growth and deficit reduction. The details on the tax side are spelled out starting on page 43, with other sections dealing with mandatory savings and health savings separately. There are a bunch of summary tables in the back, too. Unfortunately the tables are too wide to be reproduced on the blog in a way that preserves legibility. But interested parties can and should download the document! My guess is that if Friedman phones up the OMB press office someone there would be happy to walk him through it. Barring that, here’s a four page fact sheet (PDF) and here’s video of OMB Director Jack Lew.

Portugal has a number of old-school, state-owned firms, including the airline TAP and several utilities companies that the government is supposed to privatize as part of the terms of its semi-bailout by the European Union. The difficulty with mandating this kind of reform as a crisis measure is that there’s not a ton of international interest in Portuguese utilities and the domestic market for purchasing Portuguese enterprises is depressed due to the very economic crisis that’s forcing the bailout and thus the privatization.

So Prime Minister Pedro Passos Coelho, who’s from the Social Democratic Party which despite the name is the right-of-center party in Portugal, has hit upon the innovative idea of trying to drum up interest in Angola, Portugal’s former colony. As the former colonial power, Portugal has a lot of personal and business relationships with Angola. And Angola, though poor, is growing rapidly lately thanks to oil exports. Already Angolans own about 3.8 percent of the value of the Portuguese stock market.

Earlier this week, Texas Gov. Rick Perry unveiled a dangerously unsound plan to de-professionalize Congress by turning it into a part-time legislature with lower pay. You see legislatures of this sort at the state level quite frequently, so it’s obvious that the basic concept has a lot of appeal to voters. Unfortunately, it’s also a terrible idea. The basic problem is that under modern conditions, de-professionalizing a legislature tends to make it more corrupt and less responsive to either the views or objective interests of the public.

You can see this along a number of dimensions. One is that if members of Congress need to work second jobs, their business relationships will involve conflicts of interest. A second is that to the extent that earning extra income takes up more of members of Congress’ time, they’ll become more dependent on lobbyists and special interest groups for information and assistance with their projects. A third is that lower pay tends to induce legislators to retire sooner, and less-senior legislators are more dependent on lobbyists and special interest groups for information and assistance with their projects. A fourth is that to the extent you cut legislators’ pay, a larger share of the real compensation for doing legislative work is the opportunity to “cash in” after you leave office. A fifth and related consideration is that to the extent you cut legislators’ pay, a larger share of the real compensation for doing legislative work is the ability to raise PAC and campaign funds that you spend on yourself. Last, but by no means least, to the extent that you reduce the desirability of winning re-election, you encourage members of the legislature to ignore their constituents in favor of pleasing others.

It’s also worth observing that Perry’s notion that congressional pay is scandalously high is mistaken. Matt Glassman observes that real wages for members of Congress have been nearly stagnant over a 100 year time frame:

The decline in congressional compensation over the past 20 years, in particular, has likely tended to have a corrupting influence on the legislative process.