In U.S. Interest Rates Are Not Zero, I neglected to make a really obvious point I should have made, to my shame. I mentioned how, although the Federal Funds rate is approaching zero, other important interest rates, such as those that are important to consumers and businesses are nowhere near zero.

Greg Mankiw has an excellent illustration of this by looking at the TED-spread, "the difference between the interest rates on interbank loans and T-bills". Does this look like we are living in a period of constant (and zero) interest rates to you?

One of my hobby horses is on how long run inflation is not a particularly meaningful concept, since a basket of goods changes so radically over time with new products being introduced (cell phones, laptops, teeth whitening strips) and changes in quality (desktop computers over the last 3 decades, fabrics, etc.)

Through Mark Perry I found a website that contains old Christmas catalogues - Wishbookweb.com. I have been having a great deal of fun looking through the 1976 JC Penney catalogue. It is rather eye-opening to see what products are in there (and at what prices) and to think about all the products that simply were not available in 1976. A few personal hilights:

1. A $20 calculator with less features than a current dollar store model.
   
   
2. I would run out and buy this bass guitar tomorrow if it were still for sale for $60.
   
   
3. Save $40 on a 12-inch color television - only $259.99! No remote control, but that is a pretty sweet VHF 'fine tuning' knob.
   
   
4. With this garage door opener you won't get wet getting out of your AMC Matador sedan.
   
   
5. Having a car stereo that plays MP3s is one thing, but this may be even better.
   
   
6. I always wanted one of these as a kid. NFL Electric Football! You can even get your choice of teams. LA Rams vs. Houston Oilers, here we come!
   
   
7. Lime Green Pantsuit! Added bonus: The model looks like she could be Fannie Flagg's kid sister.
   
   

Compared to a catalogue from today, this thing looks like it comes from another planet. I guess, in a way, it does.

I hate to keep on picking on Paul Krugman, when there are hundreds of other well-known economists saying things that are going to look downright embarrassing five years from now. But this statement he made nearly made me throw my laptop through a wall:

Consider an increase in government spending; assume that the interest rate is fixed (a good assumption right now, because interest rates are up against the zero lower bound).

Yes, the Federal Funds rate is near zero. Interest rates as a whole, are nowhere near those levels. Looking at bankrate.com the average interest rate for a 36-month new car loan in the United States is currently 7.05%, up from 6.70% last week. The interest rate on a 1 year CD is 2.47%, down from last week's 2.58%. A 30-year fixed mortgage fell 13 basis points in the last week to settle at 5.10%. I could continue on like this for hours, but you get the general idea. As Garth Brazelton has pointed out, interest rates paid by consumers and businesses have not fallen anywhere near the same degree that the Federal Funds rate has.

Krugman's entire argument, however, depends on constant consumer rates, but for some reason he uses the Federal Funds rate as his measure of interest rates. I find this highly troubling.

Not as big as the Canadian budget deficit... but, rather, as big as the country of Canada. The New York Times reports:

Changes in Social Security and Medicare will be central to efforts to bring federal spending in line, President-elect Barack Obama said on Wednesday, as the Congressional Budget Office projected a $1.2 trillion budget deficit for the fiscal year.

Canada GDP (PPP): $1.26 trillion (2007)

In other words, it is as if the U.S. Federal government were running a balanced budget, then decided to buy the entire yearly output of Canada - a wealthy country, the world's second largest as measured by landmass, and one with a shade over 33 million people.

And, by the way, that is before the new stimulus package:

If combined with the gigantic stimulus package of tax cuts and new spending that Mr. Obama is preparing, which could amount to nearly $800 billion over two years, the shortfall this year could hit $1.6 trillion.

So if buying all of Canada's yearly output was not large enough, the stimulus package will, in addition, buy all of Belgium's output - for two years.