I agree with both Paul Krugman and Brad DeLong here:

Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won't support another round of bailouts even if it becomes desperately necessary. I agree -- but I think the bigger cost is that we've greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it's all confounded in their minds with the deeply unpopular bailouts.

It is not the general public that is confounded here, Prof. Krugman. Small concentrated interests, whether they be the farm lobby or Wall Street, will always use governments to exploit large-scale diverse interests. Particularly when the line between Wall Street and the Treasury Department are blurred.

I believe it is time for all economists to re-read The Logic of Collective Action.

Veronique de Rugy in Where's That Inflation?:

In an email message, Murphy adds: "I believe we are currently witnessing a bubble in Treasury debt. I consider the current yields on 10-year U.S. government bonds to be absurdly low, just like the price of housing was absurdly high in early 2006. After this bubble bursts, investors will slap themselves on the forehead and say, 'What were we thinking? Why did we rush into Treasurys even as the government told us it was planning to double the federal debt burden in a decade?' "

The St. Lawrence University economist Steven Horwitz agrees both that inflation is already happening and that it is widely misunderstood. Monetarists, he says, were "too focused on aggregates like 'the' price level, which led economists to ignore the way inflation could distort individual prices at the microeconomic level, causing resource misallocation in the process." Virtually all economists now agree, for example, that the Fed's low interest rates inflated housing prices earlier in the decade. Yet as the prices of houses went up, few economists worried about inflation because the CPI looked relatively stable, due in part to a decrease in energy prices. When housing started to crash in 2007, many economists thought the Fed should inject still more funds into the system to stave off further declines. They failed to see that the Fed had distorted relative prices in the first place.

The majority position currently seems to be that a housing bubble that burst caused our current economic woes. During the previous recession, many blamed the poor economic conditions on a stock market bubble that burst. In both instances we saw very high levels of asset price inflation.

If asset price inflation is the problem, then why are we even looking at the CPI as a measure of how overheated (or underheated) the economy is? According to the above narratives economic woes were not caused by rises in the price of orange juice or golf clubs or vacations. It seems to me that either our choice of indicator of the price level is wrong or our narratives about what caused the last two recessions are wrong.

More on this topic: Should We Adjust Prices For Inflation?

Another topic I have discussed before - see How Good Intentions Lead to Crushing Marginal Tax Rates on the Working Poor.

FreeExchange wonders if effective marginal tax rates of above 100% really do create a poverty trap:

Here is what I'd like to see CBO, or someone, put together: a statistical investigation into whether or not the trap actually traps. It's not that I don't understand the negative incentive effects at work here, it's just that those aren't the only factors being considered by individuals deciding how much to work.

If the line shown above ended with the dip just below the $40,000 level, the effects of the change in implicit tax rate would be clear. But it doesn't. Notably, it continues to the right, on a steady upward slope. And one assumes that the only way to move from a point to the left of that dip to a point on the right of that dip, which is where you want to be, is to go through the dip. Any worker opting to return to a lower income level would essentially be cutting off the possibility of moving to the fat part of the line with the next raise.

I do not find it particularly plausible that someone earning $10,000 a year would accept above-100% marginal tax rates because it is the only way they will be able to earn $40,000+ levels of income in the future. I suspect that an income level that high would be seen as too far off.

That being said, I think there are reasons to wonder how much the poverty trap actually traps. Because the tax and transfer system is so unbelievably complicated, I suspect that ex-ante people do not realize exactly how high marginal tax rates are. They only discover, ex-post that their 'take' would have been higher had that not attempted to increase their market income.

From CBC News:

Fast food, coffee and newspapers are some of the items the Ontario government says will be exempt from a controversial blended sales tax the province will implement next year.

"It's important for Ontarians to know that today's announcement is about far more than not raising coffee prices," Ontario Finance Minister Dwight Duncan said in front of the backdrop of a Tim Hortons franchise in Toronto's west end.

Taxing everything else but excluding fast food is a de facto subsidy on fast food, which contributes to a rise in chronic diseases such as Type II diabetes. A Starbucks tall cafe mocha, with 25 grams of sugar, will be exempt from taxation. Is this really the kind of thing governments anywhere should be promoting?

I have said it three times this week (see here, here and here) - if we want the government to be improving the health of the population, and obvious first step would be for the government to get rid of the laws that contribute to poor health!