I interpret these remarks by James Bullard, president of the St. Louis Federal Reserve Bank, as throwing down the gauntlet to federal policymakers:

CHICAGO, Jan. 7, 2012 /PRNewswire/ — Federal Reserve Bank of St. Louis President James Bullard previewed a new research paper he will release next week, titled “Death of a Theory,” at an event sponsored by the Korea-America Economic Association on Saturday. The event was held during the annual meeting of the American Economic Association/Allied Social Science Associations.

In his remarks, Bullard discussed business cycle stabilization using fiscal rather than monetary policy. The former attempts to react to aggregate shocks to the economy through changes in taxes and spending, while the latter reacts to aggregate shocks by targeting the nominal interest rate or by influencing inflation and inflation expectations through quantitative easing when the interest rate is at the zero lower bound.

Bullard noted that over the two decades leading up to the financial crisis, the conventional wisdom concerning macroeconomic stabilization was that fiscal policy was in fact not a good tool. Shorter-run stabilization issues should be handled by the monetary authority while fiscal authorities should focus on a stable taxing and spending regime to achieve economic and political goals over the medium and long run.

not to mention the economist advocates of using fiscal stimulus during economic downturns. Considering Fed Chairman Bernanke’s reluctance to deploy additional monetary tools, it may signal a brewing battle among the Fed governors as well.

If the three graphs in this post on why compensation for top management at Goldman-Sachs will decline is any gauge, that portion of income inequality due to the enormous expansion in size and wealth of the financial sector may be resolving itself.

I found this graph (hat tip: Bill McBride) very interesting. Here’s the story that Bill tells about it:

Here is a graph of the annual change in government payrolls since 1970. Over the last 3 year government employment has decreased significantly (this is a combination of Federal, State and local government). It appears job cuts will slow in the first half of 2012, and government employment might be neutral in the 2nd half of this year.

For 2011, the BLS reported 280 thousand government jobs lost, and my guess is this will slow to around 100 thousand in 2012 and most of the jobs lost will be in the first half of the year.

I think that there are any number of other stories that could be told about it. Here’s what the graph says to me.

Over the period of the last thirty years federal, state, and local governments have taken on new employees at a far faster rate than the increase in population overall not to mention a faster rate than the increase in private sector employment. The employees taken on in the 70s and 80s are now beginning to retire with pensions in excess of what, by and large, have been available in the private sector for decades. State and local governments that have not prepared for this adequately (most of them) see their budgets being squeezed. Additional budget pressures have come about as a consequence of contractual pay raises for government employees and declining revenues as a result of the recent economic downturn. As a consequence they’ve laid off a significant number of government employees. The number laid off is a small fraction of the astonishing increase that has occurred over the period of the last thirty years. Despite the reduction of state payrolls state budgets did not decline last year.

If Keysnesian stimulus works as advertised it would be nice if state and local governments hadn’t hired all of those people over the last thirty years so they could afford to hire a few more now rather than laying off employees. If state and local governments had more contract flexibility they wouldn’t need to lay off employees, either.

The moral: it is best to prepare for the days of necessity.

The word of the day appears to be “opportunity”, whether in Paul Krugman’s column:

Last month President Obama gave a speech invoking the spirit of Teddy Roosevelt on behalf of progressive ideals — and Republicans were not happy. Mitt Romney, in particular, insisted that where Roosevelt believed that “government should level the playing field to create equal opportunities,” Mr. Obama believes that “government should create equal outcomes,” that we should have a society where “everyone receives the same or similar rewards, regardless of education, effort and willingness to take risk.”

As many people were quick to point out, this portrait of the president as radical redistributionist was pure fiction. What hasn’t been as widely noted, however, is that Mr. Romney’s picture of himself as a believer in a level playing field is just as fictional. Where is the evidence that he or his party cares at all about equality of opportunity?

Let’s talk for a minute about the actual state of the playing field.

He goes on to mount a spirited defense of the Women, Infants and Children program, Pell grants, and the PPACA. Whether those programs are worthwhile or not I’m not certain there’s a straight-line connection between them and equality of opportunity. Even with those programs are all kids equally likely to attend Yale, become economics professors at Princeton, Nobel Prize winners, or New York Times columnists? Surely not. Doesn’t work ethic, inherent ability, family culture, the benefits that your family can give to you, or family connections count for anything?

As I mentioned last week in a very homogeneous society you would expect chance to be the primary determinant of outcomes. In a very diverse society you would expect less equality of outcomes and, indeed, of opportunity.

Coincidentally, in another article from the NYT opinion page eight columnists muse over whether America is still the “Land of Opportunity”. The mix of opinions is pretty much what you’d expect from the NYT opinion page and I don’t think they really add a great deal to the discussion.

Turning to the Washington Post scholar and advocate Michael F. Ford debunks five myths about the American Dream:

1. The American dream is about getting rich.
2. Homeownership is the American dream.
3. The American dream is American.
4. China threatens the American dream.
5. Economic decline and political gridlock are killing the American dream.

This snippet jumped out at me:

While money may certainly be part of a good life, the American dream isn’t just about dollars and cents. Thirty-two percent of our respondents pointed to “freedom” as their dream; 29 percent to “opportunity”; and 21 percent to the “pursuit of happiness.” A fat bank account can be a means to these ends, but only a small minority believe that money is a worthy end in itself.

On the other hand, 34% of respondents listed financial security as their definition of the American Dream and I can’t help but wonder if they see a direct connection between opportunity and financial security. I strongly suspect that many Americans are relatively indifferent to opportunity and would actually prefer a good stable (government) job where they can work 9 to 5, never get fired, and retire at 65 with a generous pension.

I suspect that most of my readers are familiar with Winston Churchill’s definition of success:

Success is the ability to go from one failure to another with no loss of enthusiasm.

However, I equally suspect that most have never considered its inherent class prejudices. The consequences of failure depend not only on your personal responses and abilities but on your station in life. For the upper class or upper income there may be an indefinite number of chances to fail without irrevocable consequences. For the middle class there may be a few. For the poor or lower class one bad failure may be enough to stunt a life. To me that’s the very definition of class.

Don’t get me wrong. I’m in favor of increasing equality of opportunity. I just don’t know how to accomplish that.

As I’ve said before I’m skeptical of higher education as a means to increased opportunity or better lives for that matter. I strongly suspect that waiters, sales clerks, or garbage collectors with college educations (and piles of educational debt) is not precisely what anybody has in mind when they think of opportunity or a better life. I don’t believe that more people with college educations automatically creates more jobs that require a college education or bring the benefits we associate with such jobs. I think it’s more the reverse: more jobs that require the skills you can acquire through higher education brings those benefits and also incentives people to pursue higher education. We’re not presently creating those jobs other than in areas that are receiving massive government subsidies. If it’s the subsidy that makes the difference rather than the education it would be better policy to eschew the educations and eliminate the middle man.

Low rates of on-time high school graduation from inner city schools have been frustratingly persistent for generations. I’m not sure what to do about that. Smaller, less centralized, less bureaucratic school districts? Breaking the teachers’ unions? Compulsory birth control? I just don’t know.

Imagine my surprise last evening when I went to use my trusty food processor and it made a horrible noise. I tried again. Same noise. I examined it closely and found that the shaft on the chopping blade was cracked. The noise was the motor shaft rotating within the shaft of the chopping blade. And after only 35 years of use!

I don’t use the food processor as often as I used to—I don’t cook for a crowd nearly as frequently as once I did and that’s when it really comes in handy. Maybe once a month. I suspect that the last time it was used was on Thanksgiving.

My food processor is an early Cuisinart. Not one of the original models but shortly thereafter—back when they were still offering a lifetime warranty on the motor. I’ve got the certificate filed away.

Have no fear! A few minutes of quick googling identified any number of places that sell the replacement part. After market, I suspect, but I believe that’s good enough for my purposes.

Nothing is ever obsolete so long as it still performs the function for which it was intended in a satisfactory manner and it’s cheaper to repair than to replace.

We could do worse. And probably will.

Check out Pat Lang’s scathing criticism of the Republican candidates vying for their (and his) party’s nomination. Here’s his analysis of President Obama:

On the other hand we have the incumbent, a disguised Rockefeller Republican who opted for Black identity because he didn’t think he could be “white.” Colin Powell made the same decision years ago under the influence of his wife. Obama is a man who wrings his hands and then signs laws like the Defense Authorization bill that authorizes the armed forces to arrest and hold American citizens on American soil and to hold them indefinitely without benefit of habeas corpus. In apology for this outrage he says that he will not arrest Americans in his time in power. Apres lui, quoi, le deluge? Did he put a “frowny face” after his signature?

If you’re not familiar with Pat he’s a retired Special Forces colonel and the first instructor of Arabic at West Point (not to mention being a good egg). The paleocons speak.

Her name may not exactly be a household word for you but if you’re a film buff you know her works. Frederica Maas, a ground-breaking film writer of the silent era, died last week:

One of the last links to the silent film era, Frederica Sagor Maas wrote the script for 1925’s “The Plastic Age,” which launched actress Clara Bow. But she watched in horror as her serious treatment on women and work was turned into a frivolous 1947 musical, “The Shocking Miss Pilgrim,” starring Betty Grable.

It was Maas’ final Hollywood credit.

Disgusted by the “shallow” industry, she and her screenwriter husband contemplated suicide before leaving the movie business altogether, she later wrote.

For Maas, living an exceedingly long life was the best revenge.

“It’s my only consolation to think, ‘All you lousy so-and-sos are all 20 feet under, and I’m still here.’ It’s a satisfaction, but not a great satisfaction,” she told the San Francisco Chronicle in 1999.

Her screen writing credits, many of them concerning women in the workplace, included:

The Shocking Miss Pilgrim (1947)
The Way of All Flesh (1927)
It (1927) (which made Clara Bow the hottest actress on the screen)
Flesh and the Devil (1926) (which made John Gilbert and Greta Garbo the most sizzling couple on the screen)
The Plastic Age (1925) (which made Clara Bow a star)
His Secretary (1925) (Norma Shearer’s star-making turn)

She was 111 when she died.

Last night my wife and I watched Waiting for “Superman”, streaming via Netflix. My wife had already seen it (on a transcontinental American Airlines flight, of all places) and was eager for me to see it. It’s a documentary on the American public education system with a focus on charter programs and magnet schools, especially Geoffrey Canada’s Harlem Success Academy and the Knowledge Is Power Program with drama provided by the heart-wrenching lottery system for getting into some schools achieving strong results with kids from difficult areas. Highly recommended.

I thought there were some shortcomings in the film’s editorial view. For example, it’s not clear to me how much influence selection bias has in the results that various programs have achieved. The film also completely buys into the view that the path to a bright future for Americans, particularly poor Americans and members of racial minorities, is through higher education which I believe is a cruel fraud. Ignored, for example, is the experience of Germany where significantly fewer young people attend or graduate from college but which does have apprenticeships and vocational training.

I also think that another conclusion that can be drawn from the documentary is that teachers’ unions are the primary barrier to reforming our public schools for the better with the federal system running a close second.

Something else that was unstated in the documentary but I think is important: the on-time graduation rate in inner city schools has been stable at an appalling low level for sixty years. Considering how much the racial makeup of the cities has changed over that period I think that rules out racial explanations for the graduation rate. I will also state a prejudice of mine which I won’t bother to substantiate: I think we’re doing more to educate all of the kids in the country, truly universal education, than other OECD countries. That we’re spending a lot of money with painfully little in the way of results should hardly be surprising under the circumstances.

Unfortunately, I can’t say I took a great deal of hope away from this documentary. It’s clear to me that the public education system needs substantial reform and it’s hard for me to see how that happens without tearing what’s there down and starting over which ain’t gonna happen.