Early May 2002 Archives Page

J. Bradford DeLong

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2002-05-14 Knowledge Worker Productivity

The Permanent Link to This Will Be: <http://www.j-bradford-delong.net/ToTW/Daily_Journal_2002_05.html#2002-05-14-productivity>

Over the past decade, the U.S. economy has invested an extraordinary amount of its wealth in information technology equipment and software. The macroeconomic statistics strongly say that this burst of investment has produced overwhelming benefits for the U.S. economy. But the link between the micro investments and the macro economic growth remains much more obscure than we would wish. How, exactly, have computers and networks made real people more productive at their jobs?

2002-05-14: Freedom to Innovate?

The Permanent Link to This Will Be: <http://www.j-bradford-delong.net/ToTW/Daily_Journal_2002_05.html#2002-05-14-unsettling>

Lurking behind the legal case that is now Unsettling States v. Microsoft has always been a whispered sotto voce claim by Microsoft that competition--in the market for PC operating systems, for office productivity suites, for browsers--is a bad thing. Technological innovation needs a single, strong, dominant, monopolistic firm to set the standard, and to tell the industry when it is time for the standard to change. Whenever I make this (possibly true, possibly false) point, I refer to UNIX-on-micros in the 1980s, when an operating system technologically superior to MS-DOS went nowhere because the lack of a dominant standard-setter prevented growth and allowed the emergence of enough small incompatibilities to fragment the market and discourage applications development (which led John Doerr to once say that I knew nothing about UNIX in the 1980s, applications development, or software markets.)

I have never been able to evaluate this argument satisfactorily. But last week something happened to one of its biggest boosters. Keith Teare, CEO of Real Names, who had favored the maintenance of Microsoft's monopoly in web browsers as pro-consumer because "without Microsoft [to set the standard, and make sure that Real Names's products are included in the standard set of browser capabilities] it could take years to deliver [Real Names's] Internet Keywords globally." With Microsoft as monopolist standard-setter that had "embraced our open standards-based architecture in March 2000 because it makes perfect sense for consumers to use Internet Keywords within MSN and Internet Explorer," Teare was looking forward to a rapid real-time test of whether internet users would prefer Real Names's way of finding things on the Internet to the (badly broken) URL-based way.

But while Real Names's information technologies were impressive, and while it did seem that Real Names had a chance to catch on, it turns out that it will never get that market test. Last week Microsoft decided to remove support for Real Names's products from its web browser, Internet Explorer. Since Real Names's way of naming web sites requires the permission and help of the browser manufacturer to work, and since Microsoft appears to have decided that Real Names's success would diminish Microsoft's share of some future market in Internet searching, Real Names is now gone.

Note that if the market for web browsers were not monopolistic but competitive--if Microsoft's share of the market were not 80% plus, but were 40%--Real Names would be in a much better position. No one would dare pull support from a promising and potentially very useful technology out of the fear that it would become "the next big thing," and that one's browser would lose market share because it did not support what turned out to be something browsers really wanted. But with other browser shares below 20%, the normal discipline a competitive market exercises on firms that think about pulling capabilities--making their products less useful--just does not apply.

Dan Bricklin's proposed solution is for Microsoft to be an altruistic technology leader, doing what is right to maximize innovation and user welfare rather than what Microsoft believes will earn its shareholders the most profits: He hopes that "Microsoft will make amends for this by completely opening up an API for address resolution in a way that does not leave themselves as a bottleneck nor as a toll taker. This is fundamental to the Internet advancing. Microsoft has a duty as the leading company in the client-side world (with officially a monopoly whether they like it or not) to do things that are in the world's maximal interest even if it's not in their specific maximal interest."

My--economist's--reaction is, "When pigs fly." That economist's reaction is not entirely fair. After all, no matter what Microsoft's other shareholders are in the game for, Bill Gates is in the game not to earn more money so that he can buy more things, but for some other purpose. I don't know whether Bill Gates is playing to gain bragging rights by piling up the highest billionaire score or to be the person who shapes the future by bringing the world into the information age, but if Bill Gates is playing the second game then appeals to him to have Microsoft act in the public interest may succeed.

But my economist's reaction is that Microsoft is much more likely to focus its energy on doing things that are in the world's maximal interest--things that make its products as useful and valuable as possible--if it fears the market: if it thinks that failure to make its products as useful and valuable as possible will lead to its disappearance, and that success at making its products as useful and valuable as possible will lead to organizational success, organizational expansion, large bonuses, and lots of in-the-money stock options.

But how to preserve competition and create effective market discipline when all the economics--high fixed costs, effectively zero marginal costs, demand-side economies of use, network effects, upstream and downstream interdependence, the advantages held by whatever firm becomes the standard-setter--pushes for natural monopoly? If you do preserve competition, how to keep it focused on innovation rather than on the creation of small incompatibilities that segment the market and rob the economy of network effects and economies of scale? And does preserving competition mean that you rob successful firms of the profits that were their spur to innovate in the first place?

These are hard and deep questions. Two years ago Real Names's CEO Keith Teare thought that they had simple answers: keep Microsoft in shape to keep maintaining its monopoly no matter what the violations of antitrust law that it had as a matter of fact committed: "It seems to us that the American dream of working hard and prospering is being called into question by the treatment Microsoft is receiving. I came to the United States because I believed it supports entrepreneurs and I still believe that America wants entrepreneurs to succeed. And although the government and the court seem to be sending an opposite message, I do not believe that ordinary Americans should allow one of the country's most successful entrepreneurs to be effectively neutralized because he was 'too successful'."

Today Real Names's ex-CEO Keith Teare sees things somewhat differently: his "...naming technology... is being killed at birth - before it succeeds and becomes "out of control". A small private company is being denied an audience--not because of money--but because of [Microsoft's] fear of losing control.... I am bitterly disappointed by the lack of vision... the defence of search and the URL against a truly global and multi-lingual naming platform with built in directory services.... Naturally I'm pretty unhappy about this. Microsoft seems to be playing the role of the referee who decides whether any innovations succeed ... they've just brought innovation in internet naming to a grinding halt - and the internet *really* needs innovation in naming. RealNames will not be the only victim - there's a whole ecosystem that stretches all around the world that Microsoft is turning off. CNNIC in China, Forval in Japan and other companies in Belgium, Holland, France, Finland, Sweden, Denmark and Norway. There are more than 100 registrars of Keywords and they in turn have thousands of resellers. There are more than 100,000 customers..."

The Address Bar bottleneck


Comments from Frankston, Reed, and Friends

Monday, May 13, 2002

DanB at 2:48 PM [url]:

As Bob Frankston has pointed out on this web site and in other essays, we have real problems with having only the current one-level DNS as a mechanism for turning URLs into IP addresses. We need to experiment with other ways of getting to web sites.... The Internet isn't just for "famous names" like Coca Cola, unless they want to pay for the whole thing and pay us to use it (which we won't if it's only for them). They're riding on something that serves everybody, not just them.

The current system won't pass the "side of a truck or bus" test Clay Shirky proposes. We need a way to tell people something quickly and concisely that allows them to find us in a known way. "Able Pest Control. Look under 'Pests' in the Yellow Pages." Of course, in real life the sign on the side of the truck or bus doesn't pass this test, either. If I take a delivery truck with "Four Corner's Pizza, Tel: 965-6565" written on its side to another city the "obvious" bindings don't work. (Only the locals know where "Four Corners" is -- the four gasoline stations there are now down to two -- and what about the area code? 965-6565 is not unique in the world.) Assuming the domain name "www.fourcornerspizza.com" is just as bad. There may be hundreds of "Four Corners", each with a pizza place nearby, each with a telephone exchange of "965". It turns out that "fourcornerspizza.com" is owned by someone in Phoenix, Arizona, not Newton Highlands, Massachusetts, where my Four Corners is. (At least his phone number ends in "65", too.) If you search Google for "four corners" as a phrase, you get 286,000 items -- with places in the USA, Germany, Australia, etc.

We need a way to experiment with different ways of naming things on the Internet in addition to the "unique text to IP address" bindings of the current use of DNS technology. It is crucial to making the Internet work for small businesses and individuals. Whatever we use should probably work in places that include the Address Bar (also known as the "Location Toolbar" to Netscape users) in browsers. We also know that to do such experimentation, we need to let all comers try their hands, using something like a plug-in architecture or other open API. The users and marketplace will choose the method (or methods) that work best for the various needs.

That brings me to today's news. RealNames is out of business (News.com, Scripting News, Keith Teare's personal account). They were an attempt by an outside company to provide a way of naming web sites that works in addition to the normal DNS way. To implement it, they needed the permission and help of the browser manufacturer, Microsoft in this case. Microsoft apparently decided that they don't like that way of resolving names (a Microsoft person decided, not the marketplace) and anyway it seems Microsoft only wants things like this that they can control. This is not a good sign for resolving of the naming problem nor for advancing other important architectural issues. Hopefully Microsoft will make amends for this by completely opening up an API for address resolution in a way that does not leave themselves as a bottleneck nor as a toll taker. This is fundamental to the Internet advancing. Microsoft has a duty as the leading company in the client-side world (with officially a monopoly whether they like it or not) to do things that are in the world's maximal interest even if it's not in their specific maximal interest.


Keith Teare's Home Page


This is my personal web site and all opinions here are my responsibility and mine alone.

I want to say at the outset that I am not "anti-Microsoft". Indeed, I believe that innovation on the Internet can no longer be purely "standards driven". This is because the scale of the internet makes it impossible to distribute standards without the support of applications. This fact places a new responsibility on the application - the responsibility for deciding what is and what is not a standard. This is decided through a decision to adopt or to not adopt. In this new world Microsoft - because its browser has almost 90% market share - either steps up to allow innovation or innovation doesn't happen. It's as simple as that. I place no value-judgment here. It is just a fact. So to be anti-Microsoft is almost to be anti-innovation. Having said that, if Microsoft refuses to innovate then innovation itself will not happen. So neither am I "pro-Microsoft". I am pro-innovation.

Microsoft is no longer just an application developer building on its own platform. The .NET process and Visual Studio .NET both demonstrate good vision and an awareness of the responsibility to build tools and applications on top of the Internet as a Platform. Adding features to this Platform is essential to progress. Microsoft clearly understands the need for authentication services and real time messaging services as Platform services. The vision that this embodies is right albeit limited.

Sadly, many employees at Microsoft have grown up in a company used to building applications. Product Managers who build wholly owned apps and tools have great difficulty embracing any vision that includes non-owned infrastructure. The internal war at Microsoft is between those who want to work in wholly owned environments like the application, the server, the enterprise - where it is possible to have full control; and those who understand the need for Microsoft to build infrastructure like .NET. The latter group seem to have lost if this story is to be believed.

Last Tuesday Microsoft informed me that it was not renewing RealNames Corporation's contract to resolve Keywords in the IE browser. When the current contract comes to an end on 28 June 2002 the service will be terminated.

I am no longer an employee of RealNames. Along with 79 others I was terminated on Friday 10 May, 5 years after starting the company.

I am sure that Microsoft will do an excellent job of misinforming the public about the reasons for this decision and so I want to put the record straight.

During the past 2 years Microsoft was GIVEN 20% of RealNames stock and $15m in cash guarantees during 2000-2001 (more than 100% of our revenue that year). We were due to pay another $25m in guarantees during 2001-2002 (more than 200% of our revenue that year) but with the bursting of the bubble (and thus no IPO) the second years payment was converted to a note. The note came due on May 2nd 2002.

RealNames proposed continuing the relationship and offered Microsoft the following:

1. $5m now as payment against the note.

2. $5m between July 1 2002 and June 30 2003 or 15% of revenues - the greater of. 3. Microsoft's rev share to be able to reach 40% in steps if our revenues grew sufficiently. The guarantees for the first 5 years of a new deal were $5m, $6m, $7m, $8m and $9m.

We valued a 5 year deal - if Microsoft would execute on all of the opportunities - at $200m to Microsoft. Far more than the guarantees. At their current PE of 40 that is worth about $2.4 billion post tax in a $100m year 5.

VeriSign had just committed to a plan to give every com, net and org customer 5 free promotional Keywords for 30 days. This would have resulted in widespread awareness and great revenue boost.

RealNames was succeeding. We had 3 quarters of growth behind us, we broke even on a cash flow basis in Q1 - for the first time. Usage was growing (500m resolutions in Q1).

The justification we were given by MSN was:

1. It isn't about money. Even if you paid we would not renew.

2. We do not believe in "Naming", we believe in search. This is because we control search 100% whereas we could never control naming. Some of us believe search results are a better experience than navigation through naming. Sure the URL and the DNS are broken, but to fix it is a big job with no clear reward for Microsoft.

3. The recent public discussion indicates that .NET initiatives which take the form of architecture are greeted with hostility if delivered by Microsoft. So, we could never own this. If it worked, and we liked it we still wouldn't do it. Therefore the plan to put 120m free Keywords out there is our worst nightmare. It would be "out of control".

So far as I can see this is a classic case of "not invented here". Microsoft dislike the product because they cannot control it. As this is likely to be the situation wherever infrastructure [which is by definition shared] is involved it also implies Microsoft is stepping back from its .NET commitments to build infrastructure.

In this case the widespread use of the browser and its absolute requirement for our system means that Microsoft's decision has resulted in innovation being stopped. The only naming technology in the world capable of allowing non-ASCII characters to be used as web addresses is being killed at birth - before it succeeds and becomes "out of control". A small private company is being denied an audience - not because of money - but because of fear of losing control. If Microsoft wants to become a major player in internet platform technologies it will have to overcome this fear. What is shared cannot be controlled.

As a former very vocal supporter of Microsoft (see http://www.realnames.com/body/pressreleases/pr_060700.asp) I am bitterly disappointed by the lack of vision I encountered. I truly hope that the Chief Architect - Bill Gates - and the CEO - Steve Ballmer - are aware of the narrowness of the vision - the defence of search and the URL [ASCII based naming] against a truly global and multi-lingual naming platform with built in directory services. If they are not then a crime has happened under their noses.

Naturally I'm pretty unhappy about this.

Microsoft seems to be playing the role of the referee who decides whether any innovations succeed .

Microsoft only seems comfortable at the application level where they have control, not at the infrastructure level - and this ultimately keeps many innovations from happening.

Because of this they've just brought innovation in internet naming to a grinding halt - and the internet *really* needs innovation in naming.

RealNames will not be the only victim - there's a whole ecosystem that stretches all around the world that Microsoft is turning off. CNNIC in China, Forval in Japan and other companies in Belgium, Holland, France, Finland, Sweden, Denmark and Norway. There are more than 100 registrars of Keywords and they in turn have thousands of resellers. There are more than 100,000 customers including many well known ones like IBM, Xerox [who made RealNames partner of the year last year], EBay, Mattel - who have Keywords on every Barbie Box, and many more.

Now, Bill Bliss - who runs MSN Search and was until recently in charge of the RealNames relationship, has in the last few weeks been moved to "Natural Language Platforms" and is charged with developing a variant of our system. The browser is now back under Microsoft's control and it is possible that - having learned much from RealNames - it will develop its own version of our resolution service.

Here are a number of documents that I am releasing personally:

1. A scribes notes of the meeting between Microsoft and RealNames, held in Redmond on Tuesday 7 May 2002.
2. An 88 page PDF file with RealNames proposal to Microsoft and supporting documents.
3. RealNames official release on the issue.
4. My statement at the time of the Microsoft/DoJ trial decision. Just to indicate that I am not an opponent of Microsoft historically.
5. An analysis of the quality of Keywords sold since RealNames moved to a channel model in 2001. This document refutes the idea that since RealNames moved to a channel model the quality of Keywords has declined. Better than 94% of all resolutions - which have themselves grown by 300% in the time - are from human adjudicated Keywords (Keywords Plus and Test bed Keywords). Almost no Keywords have been rescinded by Microsoft.
6. RealNames Technical Documents.
7. My first ever White Paper on RealNames [then called Go!]
8. My Patent - assigned to RealNames

What can you do? Probably nothing.

I am skeptical that this group will change their mind. It will probably need Microsoft Corporation executives to look at this afresh. I'm also skeptical of that - but hopeful that they will at least examine the issues.



Decision is Absurd, Says RealNames Founder and CEO

REDWOOD CITY, Calif. - June 7, 2000 - RealNames, the market leader in Internet Keyword navigation, today announced that it condemns the US Government's decision to prosecute Microsoft and the court's decision to break up the company.

According to Keith Teare, founder and CEO of RealNames Corporation, "Has anybody considered what this means for Microsoft's partners and the future of technology? RealNames is a start-up with technologies that improve the Internet experience for consumers through a natural language navigation system, using Internet Keywords instead of lengthy web addresses. Microsoft embraced our open standards-based architecture in March 2000 because it makes perfect sense for consumers to use Internet Keywords within MSN and Internet Explorer. The service is already available in the United States, Germany, the UK, Spain, France and will soon be available in Japan, Korea and China. Without Microsoft it could take years to deliver Internet Keywords globally."

"Microsoft's 20 percent investment in RealNames has meant a lot to our company. If this decision were to discourage them from embracing early stage technologies it could seriously slow down the adoption of these technologies" said Teare. "For example, Microsoft's investment figured prominently in Panasonic's decision to adopt Internet Keyword navigation as a central part of their web strategy. We believe that Microsoft's investments should be seen for their positive impact not as sign of monopolistic hidden agendas," continued Teare.

RealNames' partnership with Microsoft is not exclusive and the company is openly enthusiastic about forming partnerships with others such as AOL/Netscape. RealNames has also formed strategic relationships including equity ownership, with Network Solutions (NASDAQ: NSOL); AltaVista; The GO Network (NASDAQ: GO); Inktomi (NASDAQ: INKT) and others. Additionally, Microsoft is a 20 percent stake holder in the Company.

Additionally, New Line Cinema, a Time-Warner company, recently adopted Internet Keywords to run alongside AOL Keywords for all of its movie trailers. For example, Robert Deniro's new movie, 15 Minutes, is currently being previewed in theatres with Internet Keywords as its web address.

Keith Teare, a native of England, also stated, "It seems to us that the American dream of working hard and prospering is being called into question by the treatment Microsoft is receiving. I came to the United States because I believed it supports entrepreneurs and I still believe that America wants entrepreneurs to succeed. And although the government and the court seem to be sending an opposite message, I do not believe that ordinary Americans should allow one of the country's most successful entrepreneurs to be effectively neutralized because he was 'too successful'."

About RealNames Corporation
RealNames Corporation, is the market leader in Internet Keyword navigation. It develops and markets products and services that simplify web navigation, enables media convergence, and monetizes Internet traffic for browsers, search engines, directory services and portals. Major brands use RealNames products and services to unify their identity online and offline. Internet Keywords have been integrated into Microsoft's Internet Explorer browser, and are used by leading search and portal sites such as AltaVista, Inktomi, Google, MSN and the GO Network as part of their infrastructure to improve directory look-up and search results. Founded in 1997, RealNames is based in Redwood City, California.

Recent Entries:

Freedom to Innovate? | Economic Forecasts | Let Us Now Praise Right Wing Hacks | McKenna Lecture | Meaning of the Crusades | The Silence of the Priests | Free Pants! | Jean Dreze Sounding Neoliberal | McCarthyite Nutboys in the OEOB | Unemployment Release | Republicans: The Stupid Party | Origins of "Information Economy" | Peter Temin on Argentina | Dan Kennedy on Bush Foreign Policy | Boneheaded Paul Kennedy | The Private Sector and Repairing One's Laptop

| April | International Productivity Comparisons | Krugman too Partisan? | Value of the Dollar | Politicizing the CEA | Jose Bove | Axis-of-Evil | Krugman: Bad Air Day | First Quarter GDP Release | Microsoft | We Are Californians | Servants of the People? | Does It Matter That George W. Bush Is Dumb and Lazy? | Why There Will Be No Peace in Palestine | Morrison Plan for Peace in the Middle East | Tax Day | Productivity Forecasts | Productivity Discrepances | Nightly Business Report | Cognitive Anticipation | Neutrinos | Dealing with Robert Skidelsky | Questions About India | Indian Retail Politics

|March| Twirlip of the Mists | Stephen Moore | Monetary Policy at the Zero-Interest Rate Bound | Laptops Outside | Steel Tariffs | Trade Deficit | David Brock

|February| ipaqs | The Unbearable Presence of the World Trade Center | Eating Meat


Write to Alan Murray at alan.murray@wsj.com

Enron in California Teaches A Lesson About Deregulation

California Gov. Gray Davis and his backup singers, Sens. Dianne Feinstein and Barbara Boxer, say it is a crime, and want Attorney General John Ashcroft to investigate. They think memos released last week, detailing Enron Corp.'s trading schemes with colorful names such as "Death Star," "Get Shorty" and "Fat Boy," are the smoking gun that will prove the energy company ripped off Californians during their time of crisis.

Well, good luck getting a conviction. Californians certainly were shortchanged. But it is far from clear Enron committed a crime.

I carry no brief for Enron. The company's accounting chicanery, to my legally untrained mind, clearly constituted fraud. Executives brazenly lied to shareholders. But in the California situation, Enron executives were doing what their shareholders wanted: buying low and selling high. "This is just arbitrage, and arbitrage is what traders do," says Stanford University economist Frank Wolak. The complaining California politicians are like a man who leaves a $100 bill lying on the sidewalk, and then cries "thief" when he discovers it missing.

Yes, the California market did have prohibitions against "gaming," "anomalous market behavior" and "unusual trades or transactions." But the energy lawyers I have talked to say such prohibitions were so vague as to be almost useless. Where, exactly, is the line between aggressive, profit-maximizing trading, on the one hand, and "gaming," on the other? No one really knows. And if no one knows, no one is likely to go to jail for stepping beyond that line.

There are a couple of points deep in the memos that suggest something sinister. The discussion of the "Get Shorty" strategy, for instance, talked of the need to submit "false information that purports to identify the source of the ancillary services" that are being traded. A related strategy of selling nonfirm -- or interruptible -- power as firm -- or noninterruptible -- power also reeks of misrepresentation. The lawyers at the Federal Energy Regulatory Commission, which is investigating to see if crimes were committed, no doubt will zero in on both those strategies. But even there, they will find it difficult to make a case. "Firm" and "nonfirm" energy are indistinguishable as the electrons whiz into California via transmission lines. The crucial factor will be whether Enron intended to defraud state authorities, and proving such intent will be difficult unless some current or former Enron executives decide to squeal.

So what are the lessons to be drawn from these new memos?

Well, they shouldn't be taken as evidence that deregulation is a bad idea. The benefits of deregulation, which if done correctly can both lower prices and encourage innovation, can hardly be overstated. From airplanes to banks to trucks to telecommunications, a quarter century of deregulation helped fuel the American economic boom at the end of the 20th century. The U.S. demonstrated an almost unique ability to remake itself, foiling the grim predictions of historians such as Paul Kennedy, political scientists such as Mancur Olson and economists such as Tibor Scitovsky, who all argued that a sort of economic sclerosis would inevitably infect the U.S., as it has all wealthy and powerful nations. After a century of global economic dominance, the U.S. managed to head off sclerosis, and emerge in a new century as still the strongest and most nimble economy in the world.

Instead, the California experience highlights one of the great paradoxes of deregulation -- that it can be more difficult than regulation itself. The notion government regulators can simply close up shop, and let a fully functioning and competitive marketplace emerge, has been disproved time and again. Libertarians argue all market problems have their roots in government actions. Maybe so, but that is a chicken-and-egg argument that has little use when overhauling a marketplace that has been controlled by the government for a century.

A former Federal Communications Commission chairman, whose name I'll withhold to protect the sanctity of sideline soccer-dad chat, once complained to me his picture never appeared in The Wall Street Journal, while those of his recent successors, Reed Hundt and Michael Powell, appear frequently. That is because the 1996 telecommunications act, designed to get government out of the business, actually had the perverse effect of making the FCC more important than ever. It stands in judgment over pivotal decisions about how the marketplace will be shaped.

The same holds for electricity. California's bungled effort to create a free market for energy shouldn't be seen either as an argument against Enron, or an argument against electrical deregulation. Instead, it should be taken as a lesson that 1) deregulation of the nation's electrical system needs to be designed by smart people who are acting, as much as possible, in the public's interest; 2) the deregulated system needs to have very clear rules that apply nationwide, and don't vary state to state; and 3) those rules need to be enforced by a well-staffed, muscular federal-regulatory agency.

Deregulation, it turns out, is hard government work.

2002-05-13: Economic Forecasts

The Economist's poll of forecasters produces an average forecast rate of GDP growth for the United States of 2.8% in 2002 and 3.5% in 2003--which cumulates to a full two percentage points more of growth in the next two years for the United States than the Euro zone. The only industrial economy forecast to grow faster than the United States over the next two years is Australia. Any signs that the 00s will be the decade for some other country than the United States to lead the industrial core in growth are still invisible.

There are two remarkable things about this pattern of forecast growth. The first is that the fastest-growing countries of Australia and the United States are also the countries with enormous trade deficits. (In absolute values, of course, Australia's trade deficit is much smaller than the U.S. because it is a much smaller economy; but as a share of GDP it is comparable.) Normally large trade deficits are a sign that aggregate demand has outrun supply. This time, however, it appears at least as likely that the large trade deficits are driven from the capital account side--that it is because foreign investors want a share of the opportunities that they see in these fast-growing economies. This does not mean that these trade deficits are benign: U.S. Treasury Secretary O'Neill's rediscovery of the Lawson doctrine that trade deficits are good when they are not accompanied by budget deficits is likely to prove short-sighted. But it does mean that good things are probably going on on the supply side of both of these fast-growing economies.

The second remarkable thing is that the implicit forecasts of U.S. unemployment show little or now change over the next two years. If the growth forecast comes true, unemployment is likely to be in the 5.5% to 6.0% range in two years. Whether this is to be mourned or not depends on what one thinks the NAIRU of the U.S. economy is. It seems likely that Alan Greenspan thinks that the NAIRU is considerably less than 5.5%, and so is now looking for tools with which to stimulate aggregate demand further. But what tools does he have? Short-term interest rates are now down to 1.75% per year.

2002-05-12: Let Us Now Praise Right-Wing Hacks

David Broder* thinks that the success of the Heritage Foundation and the Cato Institute is "something to cheer" because they are so "proficient in generating and promoting ideas" and have great "intellectual honesty." I disagree: I think David Broder has lost his ability to distinguish intellectual wheat from partisan chaff. Cato and Heritage's main function is to provide soundbites. As a result,their work can rarely be relied on: too much of the time, even when the good, straight, accurate arguments are on their side, the guys from Cato and Heritage are likely to come up with something twisted, inaccurate, and misleading that sounds punchy. (Brendan Nyhan also disagrees with Broder, and expresses it better than I do.)

For example, consider Stephen Moore, sometime Director of Fiscal Policy Studies at Cato, sometime a Fellow at the Heritage Foundation. Let me pull down from the shelf Stephen Moore and Julian Simon (2000), _It's Getting Better All the Time: 100 Greatest Trends of the Last Hundred Years_ (Washington, D.C.: Cato Institute). It's a book I by and large agree with: things are a lot better now than they were 100 years ago. It's a book I'm sorry I bought, because I cannot refer to it without carefully checking every word, and wondering on each page, "Is this a place where Moore is trying to make me into a fool?"

Let me open it at random....

Page 59... in "the broadest measure of a nation's overall economic performance" they headline total GDP rather than GDP per capita. GDP per capita has multiplied more than sixfold over the century, but GDP has grown by more--more than twentyfold. But is total GDP a good measure of overall economic performance? No. A country where population quadrupled and living standards halved would see its total GDP double....

Page 61... nothing wrong here...

Page 63... the graph of median family income is no series I have ever seen before: certainly it is not the case that the years 1989-1994 are the only years since 1947 in which median family income has declined...

Page 65... oh this is an absolute beauty: "The Millionaire Next Door... less than 5000 Americans, or less than 0.1 percent of households, were millionaires in 1900.... Today there are almost 8 million millionaire households in the United States [or 7.7% of households." The problem is that a dollar back in 1900 had about 20 times the purchasing power of a dollar today. If you want to answer the question "How many people today are as wealthy as a 1900-millionaire?" you need to look at the people today with wealth more than $20 million--about 0.5% of households. Now it's not that Moore is confused about the statistics--it's just that he would rather give you the (phony) number that an American today is 77 times more likely than an American in 1900 to be a "millionaire" than the (real) number that an American today is 5 times more likely to have the purchasing power of a 1900-era-millionaire than an American in 1900.

Now on all four of these charts the basic point Moore wants to make is true: America is much richer and there are many more millionaires now than in 1900, median family income has risen steeply over time, the U.S. edge over other countries in productivity has grown, and American economic growth in the twentieth century has been amazing and remarkable. He can tell his story and he can tell it strong without resorting to false, erroneous, or misleading calculations at all.

Yet still he makes them. Only one of the four items above headlines what everyone would agree are the right numbers. The other three do not. Moore simply cannot resist gilding the lily. He cannot resist making things much "clearer than truth." The result is that I cannot believe a word he writes. It's frustrating. Moore's book is completely usless.

Now why does Moore follow this strategy of grasping for the weak and false but good-sounding bite when there are strong, powerful, and valid arguments on his side? The reason is that he is embedded in an ecology in which the major players are people who can't evaluate the substantive strength of intellectual and policy arguments, aren't especially interested in learning the substance of public policy in any depth, yet have acquired substantial journalistic influence without every learning that their own biases and kneejerk reactions are not automatically valid. In such an ecology, what use are a commitment to education first and partisanship second? What use are scruples? What use is an unwillingness to make the worse appear the better cause? You lose them if you swim in the seas of Cato and Heritage, just as animals that live underground lose their eyesight...

*Thanks to Two Think Tanks--Heritage and Cato

by David S. Broder
Wednesday, May 8, 2002; Page A21

This is a week of celebration for two of Washington's great dissenters on the right. On successive nights, dinners are honoring Edwin Feulner for his 25 years at the helm of the Heritage Foundation and Edward Crane for his role in founding the Cato Institute a quarter-century ago. The success of their think tanks is something to cheer, even if, as is my case, you often disagree with their policy prescriptions.

To appreciate what they have achieved, you have to recall that in 1977, when Feulner left his congressional staff job to run the four-year-old Heritage (which he had helped found) and when Crane started Cato out in San Francisco, Jimmy Carter had just been inaugurated and Democrats controlled both houses of Congress. "It was not a hospitable time for Republicans, let alone conservatives," Feulner recalled.

Today, with Republicans running the White House and the House of Representatives and one vote away from regaining control of the Senate, it is easy to see the triumph of conservatism as a historical inevitability. It was not. The political victory can be credited largely to Ronald Reagan. But it was also an intellectual battle, in which Heritage and Cato, along with the older American Enterprise Institute, played a critical role.

Heritage and Cato have become so proficient in generating and promoting ideas that the liberal movement has had to create its own think tanks to compete. With generous corporate and foundation support and thousands of grass-roots contributors, Heritage boasts a staff of 185 and a budget of $28 million; Cato, 98 staffers and $16 million.

In their headquarters buildings, Heritage on Capitol Hill and Cato in a handsome modern structure closer to the White House, they sponsor a steady stream of conferences and churn out papers and books, nudging and prodding the policymakers and opinion-shapers. Feulner has Heritage on hair-trigger, rushing out suggestions before congressional hearings and bill markups. "We sweat the details" critical to the legislative process, he told me. Cato, Crane remarked in a separate interview, "is a little more academic and long-term in its thinking."

Heritage, which had a foothold in Washington when Reagan arrived, wrote a blueprint for his first term called Mandate for Leadership, which became a kind of handbook for the new administration. Tax cuts, missile defense, enterprise zones for cities and scores of other ideas migrated from Heritage to the White House and Capitol Hill.

Cato, which moved to Washington in 1982, has sponsored legal studies influential in the Supreme Court decisions reviving the 10th Amendment limits on federal authority. At times, their agendas overlap. A central, but still unfulfilled dream of Cato's since 1979, now shared by Heritage, is the conversion of Social Security into a system of private retirement accounts.

But the two are not twins. Heritage is mainstream conservative, emphasizing free-market economics and robust national security policy, with some forays into social policy on health care and welfare reform. Cato is libertarian in its roots, more radical in its critique of federal programs, more skeptical about the U.S. international role and decidedly liberal (in the classic sense) on issues of personal freedom and civil liberties.

Their usefulness in Washington politics stems from their intellectual honesty and their willingness to question conventional wisdom, even when their friends are in power. A case in point is the bipartisan but outlandishly expensive farm subsidy bill, which President Bush is preparing to sign. Heritage's Stuart Butler denounced it last week as "a shameless example of corporate pork-barrel spending." And when the establishment was recently cheering the latest campaign finance "reform," Cato and Heritage held forums challenging the government's right to regulate political speech.

In this city, noted for the narrowness of its intellectual range, it is sometimes wildly unpopular -- but absolutely vital -- to have institutions that question fundamental assumptions and occasionally declare that the emperor of the moment has no clothes. Cato and Heritage do that -- to Republican presidents as well as Democrats.

They are also models of healthy democratic discourse at a time when too much of the policy debate here takes the form of "Crossfire"-style exchanges of insults. They have staffed themselves with scholars and writers who share their basic political orientations. But their doors are open to other views, and the policy forums they run are not only stimulating but good-tempered.

What Crane told me is true: "The Washington think-tank world is a great example of how people can have a civil discussion and debate. You don't see it in politics, but politics these days is largely devoid of content."

As long as that is true, all of us who work here in politics or journalism have reason to be thankful that Heritage and Cato are around.

Spinsanity: Creaky foundation

A journalism dean credits the Heritage Foundation for being what it's frequently not: Rigorous, evenhanded and scholarly.

- - - - - - - - - - - -
By Brendan Nyhan

May 10, 2002  |  In his latest column, the Washington Post's David Broder extols the virtues of the Heritage Foundation and the Cato Institute, two of the nation's most powerful and influential think tanks, on their 25th anniversaries. He writes that their "usefulness in Washington politics stems from their intellectual honesty and their willingness to question conventional wisdom, even when their friends are in power."

But his paean fails to acknowledge how ideology and public relations concerns can dictate -- and distort -- much of Heritage's work. What about the foundation's methods, which are more than just an intellectually honest questioning of the "conventional wisdom"? As John Judis describes in his book "The Paradox of American Democracy," the foundation is dedicated to producing good conservative P.R., not rigorous scholarship. Founder Edward Fuelner wanted a "quick response capability" and article-length pieces rather than dense scholarship. Some years ago, Burton Pines, a Heritage vice president, said this of the think tank's mission: "We're not here to be some kind of Ph.D. committee giving equal time. Our role is to provide conservative public-policy makers with arguments to bolster our side."

Of course, there is nothing wrong with this in general, and Broder surely understands how Heritage operates. However, it should be pointed out that the many position papers and Op-Eds it pumps out are often less than rigorous (or worse).

Consider the flaws in some recent Heritage work. Last year, the foundation's Center for Data Analysis launched an attack on a report by the Center on Budget and Policy Priorities (CBPP) about income inequality and tax policy. CBPP responded by taking Heritage's charges apart in embarrassing detail. Most notably, Heritage blatantly misstated the source of CBPP's data, which was clearly cited in the original report, in an attempt to cast doubt on it. This was either a massive error or a troubling attempt at misdirection.

The CBPP authors wrote that their study "relies primarily on the latest data available from the Internal Revenue Service on income and income tax trends." Heritage's rejoinder: "Shapiro and Friedman badly misuse data to create a statistical mirage of growing income inequality in America from 1992 to 1998. The Census Bureau warns researchers not to do this because of major survey changes in 1994." However, these changes were made in the Current Population Survey carried out by the Census Bureau, not the IRS data used by CBPP.

Or consider the March 28 Washington Times Op-Ed by Heritage's Daniel Mitchell praising Russia's flat tax, which Jonathan Chait rightfully excoriated in the New Republic Online. (As the McKenna senior fellow in political economy, Mitchell is blessed with the imprimatur of the institution and given assistance in placing Op-Eds, securing radio interviews, etc.) In his piece, he argues that the fact that Russia has seen tax revenues rise "proves the class-warfare artists in Washington completely wrong when they argue that tax revenues would fall and the rich would get a big tax cut if America adopted such a system. The Russian experience confirms -- again -- that tax revenues rise under a flat tax."

Of course, "intellectual honesty" would require Mitchell to at least acknowledge that he's drawing a conclusion with little evidence to support it. Russia's previous tax system was corrupt; President Vladimir Putin instituted a flat tax as part of a reform effort that also included toughened enforcement. As Chait says, "Any system that involved a strong central government rationalizing and enforcing tax laws would be more efficient than the old Russian system." Moreover, the situation in the United States is obviously almost totally different, yet Mitchell pretends as if Russia's experience provides a useful comparison.

Despite this slipshod work, Broder's overwrought praise continues. He calls the think tanks "models of healthy democratic discourse at a time when too much of the policy debate here takes the form of 'Crossfire'-style exchanges of insults."

While Heritage generally doesn't put out highly aggressive jargon, its experts employ public relations tactics that often polarize public debate. Mitchell in particular appears to specialize in highly charged metaphors equating tax policy with civil rights.

In an Op-Ed in the Washington Times this week, Mitchell condemns the Supreme Court's infamous 1857 decision in the Dred Scott case (which ruled that slaves who escaped to free states were still considered the property of their previous owners) and then attempts to connect the case with a proposed change in corporate tax policy, writing that "some U.S. companies soon may be treated in a similar manner" to slaves under Dred Scott due to a bill in Congress that would prevent U.S. corporations from re-chartering in countries with "better tax laws," such as Bermuda. "The politicians who support this are acting as if these companies belong to the government," he writes. Does Broder actually believe that comparing corporations, legal entities chartered by the government, to human beings owned as slaves is somehow superior to "'Crossfire'-style exchanges"?

Last year, in an interview with the New Republic's Anand Giridharadas, Mitchell similarly compared tax evasion with the civil rights movement, saying that he could not condemn a family that "deposits their assets offshore in the face of a confiscatory tax like the death tax, any more than I would condemn Rosa Parks for sitting in the front of that bus."

Obviously, Mitchell feels passionately about these issues, and it is his job to serve a strong advocate for them. But this shouldn't be what passes for intellectual honesty and healthy democratic debate in Washington. Broder should expect more.

2002-05-11: Finding the Speed of Light with Marshmallows (found via Patrick Nielsen Hayden)

Finding the Speed of Light with Marshmallows-A Take-Home Lab

Robert H. Stauffer, Jr., Cimarron-Memorial High School, Las Vegas, Nevada, USA

I have heard that at 16 years old, Albert Einstein constantly wondered what it would be like to ride on a beam of light. Students in physics always seem to be fascinated by the properties of light. However, speed-of-light demonstrations often require extensive preparation or expensive equipment. I have prepared a simple classroom demonstration that the students can also use as a take-home lab.

The activity requires a microwave oven, a microwave-safe casserole dish, a bag of marshmallows, and a ruler. (The oven must be of the type that has no mechanical motion-no turntable or rotating mirror. If there is a turn-table, remove it first.) First, open the marshmallows and place them in the casserole dish, completely covering it with a layer one marshmallow thick. Next, put the dish of marshmallows in the microwave and cook on low heat. Microwaves do not cook evenly and the marshmallows will begin to melt at the hottest spots in the microwave. (I leaned this from our Food Science teacher Anita Cornwall.) Heat the marshmallows until they begin to melt in four or five different spots. Remove the dish from the microwave and observe the melted spots. Take the ruler and measure the distance between the melted spots. You will find that one distance repeats over and over. This distance will correspond to half the wavelength of the microwave, about 6 cm. Now turn the oven around and look for a small sign that gives you the frequency of the microwave. Most commercial microwaves operate at 2450 MHz.

All you do now is multiply the frequency by the wavelength. The product is the speed of light.


Velocity = Frequency x Wavelength

Velocity = 2450 MHz x 0.122 m

Velocity = 2.99 x 10^8 m/s

This works in my physics class, often with less than 5% error. Then the students can eat the marshmallows.

(Reprinted with permission from The Physics Teacher, vol. 35, April 1997, p. 231. Copyright 1997 American Association of Physics Teachers )

2002-05-10: Steven Runciman: The Meaning of the Crusades

From the conclusion to Steven Runciman (1954), A History of the Crusades: Volume III: The Kingdom of Acre and the Later Crusades (Cambridge: Cambridge University Press: 0521347726):

"Seen in the perspective of history the whole Crusading movement was a vast fiasco.... The Crusades had nothing to do with... access to the stored up learning of the Muslim world..... [I]t was Sicily rather than the lands of Outremer that provided a meeting place for Arab, Greek, and Western culture.... The Crusades were not the only cause for the decline of the Muslim world... [but] the intrusive Frankish state was a festering sore that the Muslims could never forget. As long as it distracted them, they could never wholly concentrate on other problems. But the real harm done by the Crusades was subtler... the effect of the Holy War on the spirit of Islam. Any religion that is based on an exclusive Revelation is bound to show some contempt for the unbeliever. But Islam was not intolerant in its early days.... The Holy War begun by the Franks ruined these good relations. The savage intolerance shown by the Crusaders was answered by growing intolerance among the Muslims.... By the time of the Mamelukes, the Muslims were as narrow as the Franks.... The Muslims enclosed themselves behind the curtain of their faith; and an intolerant faith is incapable of progress. The harm done by the Crusades to Islam was small in comparison with that done by them to Eastern Christendom...


Asking the wrong question
I just finished reading Bernard Lewis' book, What Went Wrong: Western Impact and Middle Eastern Response. I can't help feeling that, while Lewis isn't asking the wrong question (it's the Islamic world that's asking it), his grasp of what differentiated the West, and when it began to follow a course unique in human history, is shaky, and that mars the work.
Long ago, in 1982 to be precise, I took an introductory anthropology class. Our teaching assistant asked this question: What is the fundamental skill man has that the rest of the animal kingdom lacks. Several ideas were tossed out: language, art, religion, the opposable thumb, but the answer was the tertiary tool. Man is the only animal with the ability to use a tool to make a tool to make a tool. Birds use primary tools; some of the primates will even use secondary tools, but -- I'll say this again -- man is the only animal with the necessary amount of cognitive ability to use a tool to make a tool to make a tool. It is technology that separates us from the animals.
Throughout most of human history, technology has advanced without benefit of science. Indeed, classical science for the most part ignored experimentation (although there was a fair amount of observation). The mechanic, the engineer and the toolmaker, by contrast, experimented and refined based on experience. You can tell right away whether the cask you designed is waterproof. The Ptolemaic model of the solar system made sense to all sorts of people who'd never observed the heavens, just as the Copernican system is now accepted by the vast majority of us as a matter of faith, rather than proof. I can get out my old physics textbooks and reread Einstein's Theory of Relativity, and even dope out a few of the equations. But I can test through experience whether or not the damn lawn mower's promise of "easy starting" is true or so much advertising bunk (it's definitely the latter).
Bernard Lewis describes history this way: The world of Islam (in contrast to Christendom) was the pinnacle of civilization in the medieval era. Scientifically, culturally, economically and politically, it was far ahead of Europe, rivalled only by the Far East. Islam was relatively tolerant. It preserved the classical inheritance of Greece and Rome, and it transmitted a great deal of learning to Europe. (All of this, except for the "pinnacle of civilization" stuff, is true.) At some point in the Renaissance, and in the succeeding centuries, Western Europe began to surpass Islam. Let me give a few quotes from Lewis on this:

[Islam] had achieved the highest level so far in human history in the arts and sciences of civilization. Inheriting the knowledge and skills of the ancient Middle East, of Greece and of Persia, it added to them new and important innovations from outside...To this rich inheritance scholars and scientists in the Islamic world added an immensely important contribution through their own observations, experiments, and ideas. In most of the arts and sciences, medieval Europe was a pupil and in a sense a dependent of the Islamic world, relying on Arabic versions even for many otherwise unknown Greek works. (p. 7)
In the medieval Middle East, scientists developed an approach rarely used by the ancients--experiment. Through this and other means they brought major advances in virtually all the sciences.
Much of this was transmitted to the medieval West, whence eager students went to study in what were then Muslim centers of learning in Spain and Sicily, while others translated scientific texts from Arabic into Latin, some original, some adapted from ancient Greek works. Modern science owes an immense debt to these transmitters.
And then, approximately from the end of the Middle Ages, there was a dramatic change. In Europe, the scientific movement advanced enormously in the era of the Renaissance, the Discoveries, the technological revolution, and the vast changes, both intellectual and material, that preceded, accompanied, and followed them. In the Muslim world, independent inquiry virtually came to an end, and science was for the most part reduced to a corpus of apporved knowledge. (p. 79)
So, in art, science, politics, etc., Europe progressed, while Islam (for convenience, I'll stipulate that by Islam I mean the rough equivalent of Christendom, and not the religion) began to stagnate, roughly around the time of the Renaissance. When the West's advances over Islam became apparent in the 18th and 19th centuries (thanks to the battlefield), many in the Islamic world asked, "What Went Wrong?" Lewis traces some of the attempts to answer the question. He doesn't offer his own answers, and he provides a tremendous amount of valuable insight as to how Islam, or some of its cultural and political leaders, saw itself over the past few centuries.
The problem with Lewis' book is that he misses a fundamental fact about Europe in the Dark Ages and Middle Ages. It was the technological engine of the world. As early as the eighth century, Europeans were accepting new technologies that radically altered the way they lived. The heavy plow. The stirrup (which initiated the age of shock combat). The horse collar. The three field system of agriculture.
By 1000 A.D., Europeans had embarked on a systematic program of harnessing the forces of nature -- water, wind, fire -- to power labor-saving machines, which were widely adopted across the continent. Windmills and watermills were regular features of the European landscape; in Islam, they were rare. It is also significant that, by the year 1000, slavery had all but disappeared in Christendom (replaced by a system of mutual obligation and rights among social classes), whereas slave labor remained a feature of the Islamic economy for another 8 or 9 centuries.
It is not wrong to say that Islam excelled in some areas in which Europe lagged far behind. Science (not technology) was one of them. But consider: In the eleventh century, a Muslim scientist wrote a treatise on the science of optics. About 185 years later, a European invented eyeglasses. I've never read the optical theory of Ibn al-Haytham (latinized as Alhazen), but I'm typing this while wearing a pair of glasses. Sure, you could argue that without Ibn al-Haytham, we wouldn't have eyeglasses, but I suspect you'd be wrong. Some of al-Haytham's optical theories were off, whereas eyeglasses have worked for more than seven centuries, regardless of the state of anyone's optical theory.
Like eyeglasses, the labor-saving machine was a common device in medieval Europe, easing the life of peasant and noble alike. Even religious orders were high tech; here's a description of a Cistercian monastery:

Entering the Abbey under the boundary wall, which like a janitor allows it to pass, the stream first hurls itself impetuously at the mill where in a welter of movement it strains itself, first to crush the wheat beneath the weight of the millstones, then to shake the fine sieve which separates flour from bran. Already it has reached the next building; it replenishes the vats and surrenders itself to the flames which heat it up to prepare beer for the monks, their liquor when the vines reward the wine-growers' toil with a barren crop. The stream does not yet consider itself discharged. The fullers established near the mill beckon to it. In the mill it had been occupied in preparing food for the brethern; it is therefore only right that it should now look to their clothing. It never shrinks back or refuses to do anything that is asked for. One by one it lifts and drops the heavy pestles, the fullers' great wooden hammers...and spares, thus, the monks' great fatigues. ...How many horses would be worn out, how many men would have weary arms if this graceful river, to whom we owe our clothes and food, did not labor for us....
When it has spun the shaft as fast as any wheel can move, it disappears in a foaming frenzy; one might say it had itself been ground in the mill. Leaving it here it enterst the tannery, where in preparing the leather for the shoes of the monks it exercises as much exertion as diligence; then it dissolves in a host of streamlets and proceeds along its appointed course to the duties laid down for it, looking out all the time for affairs requiring its attention, whatever they might be, such as cooking, sieving, turning, grinding, watering, or washing, never refusing its assistance in any task. At last, in case it receives any reward for work which it has not done, it carries away the waste and leaves everywhere spotless.
This description, quoted in The Medieval Machine by Jean Gimpel (and yes, part three of "The Strange Case of Jean Gimpel" is coming, for those one or two people who are curious), was written in the twelth century. Gimpel compares the medieval Cistercian monastery to the assembly lines of Henry Ford; that may be a slight exaggeration, but it's not a crazy statement. These were industrial parks, high tech workplaces, state of the art manufacturing centers. And again -- these were monasteries -- centers of religious devotion.
I think the most significant part of the quote is this: "How many horses would be worn out, how many men would have weary arms if this graceful river, to whom we owe our clothes and food, did not labor for us..." This attitude toward labor was, well, unique in human history. The idea that men--even common men, even the lower orders--should be spared a life of toil was uniquely Western, uniquely a feature of Latin Christendom. The idea that you should make tools to make machines to make the life of the peasant more congenial was revolutionary in human history. Its implications go far beyond any of the ideas of freedom posited in the classical world, whose philosophy (and attitude toward technology) informed the Islamic world. After all, watermills were known in the classical world, but were used sporadically. Why build an expensive watermill when a slave can do the work (never mind if his arm grows weary)? Windmills were first built in Islamic Afghanistan, but the technology didn't catch on there. It did in Europe. Think about this for a moment: Europe, with an abundance of rivers, adopted a supplemental power source (wind) to make men's lives easier. The Islamic lands, which were less blessed with rivers, did not adopt either technology. Neither did the Far East, for that matter.
In Lewis' eyes, in the eyes of many scholars, the medieval Islamic world outstripped Europe in the things that matter: science, philosophy, high culture. I happen to think these things matter too. But in and of themselves, they were no match for what was going on in Europe: a technological and societal revolution that impacted not just the elite, but everyone. So the question in my mind isn't so much what went wrong in the Islamic world, but what went right in the European world. This statement isn't intended as a criticism of Lewis; he's merely tracing the history of a question which has in fact been asked in the Islamic world. But I do criticize Lewis for his acceptance of the Islamic narrative, that up until the Renaissance or the Enlightenment, the world of Islam was far more advanced than Latin Christendom, and it was only comparitively late in history that Christendom surpassed the Islamic world. In one crucial area (and for the bulk of mankind, far more crucial than all the commentaries of Averroes) -- the most basic and important human skill of tool making, of technique, of technology -- Europe was far ahead of Islam.
posted by Bill Allison at 9:39 PM

I'm not gloating here at all. Several of my correspondents have shared their sense that Islamic culture, as presently constituted, ensures backwardness. I've briefly alluded to my suspicion that the Islamic clerics we hear from today don't accurately portray the religion; the Wahhabis are a particularly radical departure from, not an affirmation of, orthodoxy. People change over time. One of the passages from the Gospels I hear quoted most frequently is "Judge not, lest ye be judged." The other is "Let he among you who is without sin cast the first stone." Both are wonderful sentiments, but it's not as if the Gospels or the other books of the New Testament are strictly about tolerance. I'm not knocking Christianity; I'm just pointing out that in the 21st century, you can be a devout Christian without, a la Savanarola, making a bonfire out of Renaissance paintings, books, and sculptures. There was a time when that was debated by a sizeable number of the religion's adherents. Similarly, you don't have to live like the Amish. But both Savanarola and the Amish have their scriptural justifications for doing what they do. For the mass of Christians, however, those views are fringe. (Also, understand, I'm not beating up on the Amish; I just wouldn't want to live like them. However, I wouldn't want to force an Amish man to live like me, either.)
In part, a new understanding of Christianity, coupled with what were probably more important developments in the secular realm (particularly the American Founders) saved us from the religious excesses of the Age of Reformation. It also made modernity possible. I think the same thing is possible for even the most -- well, okay, I'll say it -- backward areas of the Islamic world.
So understand, I find a story like this one to be especially depressing:

A random Arab News survey of Saudi students studying at various levels in the education system has revealed that most of them do not know the number of planets in our solar system, or their names.
The majority also admitted they were unaware of the existence of any heavenly bodies, except the moon and the sun. The vast majority, moreover, have never received any education on the existence of pre-historic creatures; nor have they received any lessons on computer science or the Internet, meaning they were left to learn it by trial and error.
A number of them claim that they are being given computer classes, but they learn from manuals on DOS that date from the 1970s.
I noticed that the lead story in USAToday Friday morning was about the dismal performance of U.S. students in school, particularly in history and the sciences:

Most U.S. high school seniors have a poor grasp of the nation's history, and their knowledge hasn't improved in seven years, says a Department of Education report out Thursday.
At a time when the United States is at war in Afghanistan and under terrorist threat, seniors' ''truly abysmal scores'' on the 2001 U.S. History Report Card are alarming, said Diane Ravitch, historian and education professor at New York University and a member of the test's governing board. It's especially grim considering how close these students are to voting age, she said.
''Our ability to defend -- intelligently and thoughtfully -- what we as a nation hold dear depends on our knowledge and understanding of what we hold dear,'' Ravitch said during the presentation of the report. ''That can only be achieved through learning the history we share, and clearly, far too many high school seniors have not learned even a modest part of it.''
Unqualified teachers are cited as one reason for the poor performance. Education Department statistics show 54% of junior and senior high school students in 1996 were taught history by teachers who neither majored nor minored in the subject, and a new study soon to be released shows similar results. The only subject worse than history is physical science, where 56% of students have teachers out of field.
I suppose it's worth noting that Saudi and American students suffer from some of the same problems: an educational system that doesn't provide them with the fruits of Western knowledge.
The Arab News story seems to confirm this, with two anecdotes that should remind us that no matter how inadequate our public education is, it could be worse:

Nada Tashkandi, 12, is in the seventh grade at a girls’ school in Riyadh.
She received her elementary education in the United States when she lived there with her parents. Asked about the main difference between the education systems here and there, she said: “Everything here takes place in the classroom. There aren’t any field trips.”
She added: “We also progressed faster there. Fourth grade there is like sixth grade here.”
Asked about why girls never went on field trips or to visit science or other museums, the reply was short and to the point: “There is a difference between America and here!”
Amen, Nada. Here's the other bit:

Arab News spoke to one Saudi teacher in the public school system who is married to a German woman. So little faith does he have in the Kingdom’s schools that he insisted on sending his own son to an international school. Usually, this is illegal, but he threatened the authorities that he would give his German wife permission to leave the country with his son unless they conceded to his demand.
“In the end, they gave us permission,” he said. “How could I give my son such a bad education if I have another choice?” he asked.
For those who don't have a choice, the ignorance that is their lot is tragic. I think this is far more significant than the MTV story, with far more pessimistic implications. Joe Katzman suggested I was wrong to discount the effect MTV would have on Arab youth, but I suspect that no amount of pop culture will overcome their basic backwardness.
posted by Bill Allison at 12:54 AM

The Arab News reports on Crown Prince Abdullah's conditions for recognizing Israel:

“The withdrawal of their forces will not be enough in itself. They must return to the pre-1967 borders, end their occupation of Jerusalem (which will be the capital of Palestine), and allow refugees to return to their homeland. Moreover, Syria should get the Golan Heights, and Lebanon its remaining occupied land,” he said. Prince Abdullah made this statement in an exclusive interview with Asharq Al-Awsat newspaper, a sister publication of Arab News. The interview appears in the Arabic daily today.
“If this can end the plight of five million Palestinians and restore the lands of three countries, ensuring stability in the region, wouldn’t (full diplomatic relations) be a price worth paying?” the crown prince asked when queried on diplomatic ties with the Jewish state.
I'm reminded of the scene in Monty Python's Life of Brian, in which the People's Front of Judea are discussing their demands for returning the wife of Pilate (whom, of course, they haven't kidnapped yet): The complete dismantling of the Roman state in 24 hours. Like the hapless Reg of the PFJ, I think the Saudi Crown Prince is likely to be disappointed. What really strikes me, though, is the utter nonsense of his very ambitious demands and what little he's willing to offer in return. He wants Israel to unilaterally withdraw into what is a military indefensible position, allow all the refugees -- real and ersatz -- back in, and then, and only then, they'll consider recognizing...what? The new state formerly known as Israel? Greater Syria?
The other astonishing thing is that such nonsense is taken seriously. After all, if you want peace, you have to talk. If the Saudis are interested in peace, at a minimum, it seems to me, they should be willing to engage the Israelis in negotiations. When will the Saudis announce they're sending a high level delegation to meet with Sharon? Okay, maybe they don't like Sharon, but did they send a delegation to meet with Barak? Rabin? Did they invite one to travel to Riyadh? It seems to me that if the Saudis really wanted to be peacemakers, they would, as a first step, open talks, instead of issuing ridiculous demands that are impossible for Israel to accept.
posted by Bill Allison at 12:43 AM

McKenna Lecture...

2002-05-10: Perhaps the most stunning thing about the current roman catholic clergy child abuse scandal is the silence of the priests.

Think of it: 1000 diocesan priests in the Archdiocese of Boston. In the last ten years alone, the Archdiocese has settled 70 different child abuse cases. Consider how many people worked with those 70. Consider how many hands any piece of official paperwork moves through. Consider the normal human tendency to hang from the gossip vine. From these numbers alone, it is clear that most diocesan priests knew or had to work hard not to know of Bernard Law's child abuse policies. Yet did any of those who knew or ought to have known go to the Globe or the Herald? No. Did any protest to Bernard Law that his policies were unwise, offensive, sinful, un-Christian? I have found one who did: Bishop John D'Arcy.

The breadth of the scandal is important. In Timothy Noah's version of Bernard Law's "management tips," Law "doesn't sweep the mess under the rug. He has people to sweep messes under the rug for him." Calls for the resignation and defrocking of Bernard Law seem grossly inadequate, almost beside the point--even if he is telling the truth about how quickly and completely he forgot what his child abuse policies were. Law did not do it alone. There are his peers--Egan, Mahony, and others. There are the implementers of Law's policies--Thomas Daily (now bishop of Brooklyn), Gilbert Phinn (sometime director of clery personnel) who told pedophiles shifted to new parishes *not* to tell the pastors of their new churches about their crimes, John McCormack (now bishop of Manchester), Robert Banks (bishop of Green Bay), Alfred Hughes, William Murphy, and how many others? There are those who worked for the implementers. And then there are the 500 who knew, or ought to have known, almost all of whom seem to have been too cowardly to consider the well-being of their parishioners, or the honor of their God.

Out of 500, only one known to be righteous. At the level of institutions, this says shocking things about the processes by which diocesan priests are chosen and trained: you have to work very hard to get such a large proportion of cowardly yes-men who will not think or act for themselves.

At the moral level.... What do the 499 say to themselves when they look in the mirror? I cannot imagine. What do their parishioners think of the 499? That I can imagine very well indeed...

2002-05-09 Free Pants!

"Free pants!" I say, coming into the bedroom, waving them around. "Yes, dear," says Ann Marie. "Free pants!" I say again. "Yes, dear. They sent you three pairs," says Ann Marie. "I thought it was two pairs?" say I. And it is true: Land's End has sent me free pants. Land's End has sent me multiple pairs of free pants. I am not sure whether the correct number is two or three.

Why is Land's End sending me multiple pairs of free pants?

"It's because you're a typical American male," said Ann Marie, when the first email from Land's End--send us your measurements and we'll send you a free pair of pants--showed up in my inbox. "They're guessing that you don't like to shop, value convenience above all, and will pay through the nose just to avoid having to go to the store. So they bait you--send us your measurements and we'll send you a free, customized pair of pants. And then, forever after, every month they send you an email saying, 'Click here, and we'll send you a pair of pants. And you'll do it.'"

And she was right. Every month, that email from Land's End shows up in my inbox. Sometimes I click, and in due course a new pair of pants shows up. Ann Marie sniffs: "I have bought ten times as much stuff from Land's End's overstock website as you've bought from all of Land's End online. And they've never offered *me* a free pair of pants."

The only bug in the system is that Land's End made me this offer twice... or was it three times? Why? I don't know. I presume that their computer couldn't figure out that Brad DeLong <delong@econ.berkeley.edu> and J. Bradford DeLong <jbdelong@uclink.berkeley.edu> were actually the same person, and so sent the "send-us-your-measurements-and-we'll-give-you-a-free-pair-of-pants" email once to each address.

Now I am tempted to set my browser's email to DeLong9478@hotmail.com, or some such, poke the Land's End computer again, and see what it will do...

Meanwhile, there has been a slight change in the economy: There is a fraction less of a job in men's pants sales and tailoring in California; there is a fraction more of a job keeping a server running somewhere where Land's End keeps its servers; and somewhere in Mexico a factory has shifted its mix of products to occasionally make not the normal run of pants that then need to be altered, but a special pair of pants made just for me.

2002-05-09: Interesting Articles From This Week's Economist:

2002-05-08: Development economist Jean Dreze sounding amazingly neoliberal--shrink the (corrupt and incompetent) state and grow the market--as he rips into India's Food Distribution Program.

2002-05-08: Did the U.S. Encourage the Failed Coup in Venezuela Because the National Security Council Is Staffed by McCarthyite Nutboys?

Did the U.S. Encourage the Failed Coup in Venezuela Because the National Security Council Is Staffed by McCarthyite Nutboys? With a lead in like that, you certainly expect the answer to be, "Yes." And the answer is, "Probably." Consider Elliott Abrams, Senior Director of the National Security Council for "Democracy, Human Rights, and International Operations" and fervent believer in the righteousness of Senator Joe McCarthy.

Back in 1986 Elliott Abrams wrote an article for National Review ("McCarthyism Reconsidered," National Review February 26, 1996, pp. 57-60) in which he advanced five theses that I still cannot believe the National Review editors allowed to see the light of day:

(1) The key issue in assessing Joe McCarthy was whether the State Department was running its security policy poorly. Senator McCarthy did not need to demonstrate that there were spies in the State Department. Instead, all he needed to do was to show that there was *some* evidence the State Department had overlooked that an employee was a security or loyalty risk.

(2) In most of his cases McCarthy adduced persuasive evidence; the State Department's efforts stood condemned; and the screams of 'Red Scare' were efforts to occlude the truth.

(3) That in spite of some blunders, McCarthy's record for truthfulness was, given his metier, extremely good. After all, McCarthy was not in physics but in politics, a business that "permitted a certain latitude."

(4) Buckley and Bozell's book, McCarthy and His Enemies deserves special praise for standing up to the liberal anti-McCarthyist hysteria of the 1950s. It challenged the liberals' claim to the moral high ground. Buckley and Bozell rightly claimed that the essence of McCarthyism was to defend liberty from Communism.

(5) McCarthy fell not because he was a bad man working for a bad cause but because he was smeared by the iron triangle of liberal journalists, liberal bureaucrats, and liberal politicians.

If this is the kind of person who staffs the Bush National Security Council, is there any hope that this administration will have a foreign policy true to America? It seems very unlikely...

2002-05-06: Unemployment Release

Why did the unemployment rate jump to 6.0% in April? The big reason is the extension of unemployment benefits: whenever the government extends the duration of unemployment benefits from 26 to 39 weeks, even workers who see no prospect of finding a job in the near future will stay in the labor force to collect unemployment benefits. According to the BLS's household survey from which the unemployment rate is calculated, in April the number of employed rose by 82,000 and the number of those unemployed rose by 483,000--a 565,000 rise in the total labor force in a single month. Therefore expect the unemployment rate news over the next several months to be bad--but that has little to do with the strength and likely duration of the economic recovery.

Source: briefing.com

More important and more interesting is the tremendous surge in productivity in the first quarter of 2002. Productivity in the first quarter of 2002 was 2.1% higher than in the fourth quarter of 2001--productivity grew at an annual rate of 8.6%. Couple this with a -1.9% annual rate of change in hours worked (and a few adjustments in moving from the nonfarm business sector to the whole economy) and you get a GDP growth rate in the first quarter of 2002 of 6.5%. Over the past six months productivity has grown at an annual rate of 7.1% while hours worked have shrunk at an annual rate of 2.6%. Thus as far as employment is concerned, the economy is still in the downswing recession phase of the business cycle. But because -2.6 + 7.1 = 4.5, the 4.5% rate of real GDP growth over the past six months is nearly twice what we used to think of as the sustainable rate of growth of the U.S. economy.

2002-05-05: More Evidence That Republicans Really Are the Stupid Party

When Dick Armey calls for Israel to "grab the entire West Bank" and for Palestinians to move to a Palestinian state someplace else--in their "hundreds of thousands of acres of land... and soil and property and opportunity" that Arab countries have, does he know what he is saying? As I see it, there are three ways to interpret what Armey said to Christ Matthews:

I think the most likely interpretation is (I): that Armey's just not too swift, not well-briefed, and doesn't remember very much of what his aides told him three hours before.

What does it say about the Republican Party that it elects such a guy--either a moral imbecile, or just an imbecile--to head it in the House of Representatives?

And what does it say about the assembled conservative opinion-makers of the United States that they are desperately unwilling to talk about what Armey really meant?

From Hardball, May 1, 2002: Chris Matthews and Dick Armey:

ARMEY: I'm content to have Israel grab the entire West Bank.

MATTHEWS: Well, where do you put the Palestinian state, in Norway? Once the Israelis take back the West Bank permanently and annex it, there's no place else for the Palestinians to have a state.

ARMEY: No, no, that's not--that's not at all true. There are many Arab nations that have many hundreds of thousands of acres of land and--and soil and property and opportunity to create a Palestinian state.

MATTHEWS: So you would transport--you would transport the Palestinians from Palestine to somewhere else and call it their state?

ARMEY: I would be perfectly content to have a homeland, just as--most of...

MATTHEWS: But not in Palestine?

ARMEY: Most of the people who now populate Israel were transported from all over the world to that land and they made it their home. The Palestinians can do the same, and we're per--perfectly content to work with the Palestinians in doing that...

MATTHEWS: Right, no. No, that's not the question and that's not your answer. The question here is: What is the future of the Palestinians who are fighting Israel right now? You say there future is somewhere besides Palestine. That runs in the way of US policy going back to 1948. It runs--it runs completely against the president's policy and every policy I've heard a president take, which is that Israel has to give up its settlements on the West Bank and give it back to the Arabs in exchange for peace. You say the deal should be the Palestinians leave?

ARMEY: That's right...I happened to believe that the Palestinians should leave.

MATTHEWS: Have you ever told George Bush, the president from your home state of Texas, that you think the Palestinians should get up and go and leave Palestine and that's the solution?

ARMEY: I'm probably telling him that right now.

MATTHEWS: Well, just to repeat, you believe that the Palestinians who are now living on the West Bank should get out of there?


Later on, Armey made a statement that is itself mendacious in at least three ways that I can see:

"In my exchange with Chris Matthews tonight, I left the impression that I believe peaceful Palestinian civilians should be forcibly expelled from the West Bank and Gaza Strip. This does not reflect my views. I was merely trying to convey my strong belief that Israel should yield no further territory until its security is assured and that the individuals who support terrorist acts may properly be exiled from the area.

"Let me be clear. Israel is fighting the same war on terrorism that we are fighting. I reaffirm my support for their right to defend themselves and secure their peace and security."

2002-05-05: Origins of "Information Economy"

From: Paul Saffo <psaffo@iftf.org>
Date: Wed, 01 May 2002 18:11:11 -0700
To: Stuart Silverstone <ss@graphics.org>
Cc: Dave Farber <farber@cis.upenn.edu>
Subject: Origin of the Attention Economy

I you might be interested to know who actually thought the "attention
economy" idea up first:

It was none other than Herbert Simon, who wrote as follows in 1971:

"What information consumes is rather obvious: it consumes the attention
of its recipients. Hence a wealth of information creates a poverty of
attention, and a need to allocate that attention efficiently among the
overabundance of information sources that might consume it."
--Herbert Simon "Designing Organizations for an Information-rich World"
in Computers, Communications and the Public Interest" Martin Greenberged,
ed. (Baltimore, The Johns Hopkins Press) 1971 pp 40-41

I subsequently learned from Ed Feigenbaum that Herb was actually talking
about this way back in the 1950s...



Paul Saffo
Institute For The Future
2744 Sand Hill Rd.
Menlo Park, CA 94025
v: 650-854-6322 f:650-854-7850

2002-05-02:Peter Temin on the *Last* Argentinian Currency Board

Gerardo della Paolera and Alan M. Taylor, _Straining at the Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability, 1880-1935_. Chicago: University of Chicago Press, 2001. xviii + 275 pp. $35 (hardcover), ISBN: 0-226-64556-8.

Reviewed for EH.NET by Peter Temin, Department of Economics, Massachusetts Institute of Technology. <ptemin@mit.edu>

Argentina is endlessly fascinating. It is the counter-example to all theories of industrialization and growth. Hailed as one of the richest countries a century ago, with every prospect of remaining a member of what has become "the first world," Argentina fell out of the progression toward continually increasing prosperity and wealth. It is no longer a rich country, and its recurrent crises are in the news. This year, for example, the peso has been devalued by half, banks have been closed, foreign debts have been renounced, and Argentina is in one of its periodic disastrous crises.

How did this happen? Argentina is not tropical. It is not land-locked. It is not over-populated or devoid of natural resources. European settlers did not die in Argentina, and malaria was not widespread. Rounding up the usual suspects will not resolve the mystery. This is what makes Argentina such a valuable case study. Not that we would wish for such a doleful example. But economic historians do not cause the disasters they study, and we would be remiss if we did not investigate them.

Gerardo della Paolera and Alan Taylor have tried to shed light on this question in their new book, _Straining at the Anchor_. Note the title. The gold standard was a fetter to Keynes and later Eichengreen; it is proposed as an anchor for Argentina. This, of course, is the dual message of the gold standard. It, and its more recent analogues, can be an anchor that preserves a country's economy and relation to the rest of the world only if it also is a fetter preventing that country from policies that imperil this position. The current crisis, the experts assure us, was not due to any problems with the anchor; Argentina's currency board generated a decade of stability, trade and growth. But Argentina evaded the fetter of policy and spent unwisely and excessively. A foreign-exchange crisis was the inevitable result.

This book argues that the story is not that simple. It centers on the predecessor of Argentina's recent currency board, its commitment to gold from 1890 to 1931. As with the currency board, the gold standard was the cure for Argentina's existing problems, deriving from the Baring Crisis of 1890 and its aftermath. Unlike the recent currency board, Argentina's commitment to gold lasted forty years, surviving the massive shock of the First World War and succumbing finally only to the even bigger shock of the Great Depression. The authors analyze in fine detail the benefits and costs of this long period of exchange-rate stability, as well as the chaos before it and what they characterize as progress thereafter.

The authors employ the tools of modern international macroeconomics to perform this analysis. They describe the institutional history of Argentina's policy formation, and they chart the progress of many specific decisions. They adapt a wide variety of models from the literature for their history, and the book illustrates how much we can learn about the workings of an economy from the application of well-known models. The models in question range from structural VARs to regime changes, from the formal and econometric to the institutional and historical. The narrative, livened by a selection of Argentinian political cartoons, demonstrates the power of applied economics.

The picture of any decade becomes clearer under this scrutiny, but the picture of the century remains clouded. There are several reasons why the trees are illuminated while the forest remains dark. One reason is that the book ends in 1935. Reviewers never should criticize authors for writing the book they wrote rather than the one the reviewer wants, but one cannot stifle a bit of disappointment that the authors have not taken on the problem of Peron and of Prebisch after the war. They describe Prebisch as a far-sighted economist who promoted useful and productive policies in the 1930s, and Argentina was on the way to creating modern macroeconomic controls. Was the post-war disaster an exogenous event that aborted this promising beginning? Or was Peron endogenous to the long history of ill-formed policies and recurrent crises recounted in the book? Was Prebisch part of the solution or of the problem? Only a future book will essay an answer.

Another limitation is that this book is a "money and banking study" (p. 140). The benefit of economic models is that they clarify the economic connections among diverse economic actions and variables. The problem is that they do this by ignoring the political and social constraints on policy that may determine how these interactions take place. A book as focused as this one on the technical aspects of monetary and international policies cannot reach for a broader synthesis of Argentine history. Like the gold standard, the methodology used here has both benefits and costs. Illumination in the small is the benefit; continued ambiguity in the large is the cost.

There also is some reticence on the part of the authors. They note that deflation in the 1890s had costs. They acknowledge that staying on gold during the First World War and paying foreign debts during the Great Depression had costs for Argentina. But they do not explore the relation of these costs to the benefits of fixed exchange rates. This could be done from the point of view of modern observers. We could use macroeconomic tools to do a cost-benefit analysis of orthodox Argentinian policies over almost a half century. Or we could analyze the debates prompted by these experiences. The pain was visible in the short run, while the gains only arrived in the long run. Was this apparent to people at the time? Could the political system deal with this maturity mismatch?

Readers therefore will gain understanding of the specifics of Argentine history from this book. They will understand how skillful use of modern models from international macroeconomics can illuminate the past. But they will remain unclear why Argentina is still a basket case. This book was written in the 1990s, when the recent currency board was working well, or at least appeared to be working well. The authors may be forgiven for not realizing that there was trouble to come that would make the broad sweep of Argentinian history more problematic. But we still await a book that will explain why this promising country of the early twentieth century is such a problem for the early twenty-first.

Peter Temin is a former president of the Economic History Association. His EHA presidential address was "Is It Kosher to Talk about Culture?" _Journal of Economic History_ (June 1997).

2002-05-01: Strange and Sinister Sect of British Imperial Conservatives, Round II...

So I'm on the plane, hopping back from Claremont-McKenna College in suburban LA to Berkeley, reading a little book that Strobe Talbott (former Clinton DepSec State) and Nayan Chanda (author of a wonderful book about postwar Vietnam) edited about 911, when I come across what I hope will be the most boneheaded thing I read this month. Paul Kennedy, British historian residing at Yale, writes that:

"... the overtaking of Britain by the U.S. a century ago also involved two democracies, and the declining country found the process a painful one..."*

"Painful," I thought. "Painful compared to what? More painful than practicing the Hitler salute and sending one's Jewish neighbors off to the extermination camp?" That is, after all, what Paul Kennedy would be doing today if Britain had not been "overtaken" by the U.S.: a Britain that had successfully curbed the growth of American economic and strategic power around 1900 would have been a Britain where Hitler slept in Buckingham Palace in 1944. Paul Kennedy's failure to imagine that the "overtaking" of Britain by the U.S. was a powerful force multiplier for Britain where it counted most is one of the most boneheaded statements by a British historian I have read since... since... since... Donald Cameron Watt wrote that that Romans won the Battle of Cannae, or John Keegan wrote of Bulgaria's common border with the Soviet Union...

*Paul Kennedy (2002), "Maintaining American Power," in Strobe Talbott and Nayan Chandha, eds., The Age of Terror (New York: Basic Books: 0465083560), p. 72.

2002-05-01: Three Cheers for the Private Sector:

The Private Sector: Apple Computer's Mail-in Repair Service:

04/30/2002 19:11:00 PT Shipped/Completed
04/30/2002 16:46:00 PT Unit In Burnin
04/30/2002 14:04:00 PT Unit In Repair
04/26/2002 11:22:00 PT Unit In Repair
04/26/2002 11:22:00 PT Hold-Admin/Requote
04/26/2002 10:00:00 PT Unit Received
04/22/2002 16:13:00 PT Request Acknowledged
Tracking Number: 76513889373

The Non-Profit Sector: U.C. Berkeley's Workstation Hardware Support Group

04/22/2002 11:00:00 PT Give up. Call Apple Computer Mail-in Repair, and ask them to send me a laptop box overnight express so I can get the fix started...
04/22/2002 10:50:00 PT Think of embarking on major campaign to improve quality of life at Berkeley by taking an axe to the root of the bureaucracy, and getting rid of managers who think that people seeking services (and expecting people to do what they said they would do--or make sure you know they've changed their course of action) are annoyances to be brushed off. Think of writing to Chancellor...
04/22/2002 10:40:00 PT Think of other clever things should have said to manager, like: "Have you thought about changing your name from 'Workstation Hardware Support Group' to 'Workstation Hardware Inconvenience Group'?"
04/22/2002 10:30:00 PT Think of clever things should have said to manager, like: "2000 machines a year? That's 40 machines a week. 8 technicians? That's one machine per technician per day. Sounds to me like plenty of time to communicate with your customers..."
04/22/2002 10:20:00 PT Call WHSG again. Talk to manager. Say one (lost) voice mail warning me that they are not going to do what they said they would do was not enough. They say it should be enough. They say listen to your voice mail. They say get reliable cell phone provider. I ask whether anybody thought it strange that laptop has now sat on shelf for seven days given I brought it in within one hour of problem emerging. They say no. They say not keep track of machines on shelf.

I change tack. I say disappointed they not make certain that contact was achieved. Say expect followup voice mail or email if no response to their message. Manager says: 2000 machines a year; no time for followup voice mails or emails; my fault warning message not gotten. I ask what WHSG can do to make my life easier, since laptop repair delayed for week. Manager says: no loaner machines. Manager says: you can pick your machine up anytime between 10 and 4 and send it to Apple yourself.

04/22/2002 10:15:00 PT Go back over Verizon voice mail. No sign of message from F--- G---. (But Verizon voice mail has been somewhat wonky recently.)
04/22/2002 10:10:00 PT Call technician F--- G---. Leave message. Call again. Talk to somebody. They say records show "in communication" with me last Monday. I say no conversation at all, last Monday or any other time. They correct themselves: say F--- G--- left message on my Verizon voice mail number.
04/22/2002 10:00:00 PT Call Workstation Hardware Support Group to see when laptop expected back from Apple. Workstation Hardware Support Group says machine never sent to Apple--machine sitting on shelf in WHSG office. I ask why machine not sent. They respond that machine too damaged to send to Apple. I query: surely send damaged machine to get fixed? They respond that case damaged, and that Apple likely to give me a better deal if I send machine in myself. I query why nobody told me about this--and ask how long machine would have sat there on shelf had I not checked up? They shrug shoulders. Suggest I call technician, F--- G---.
04/15/2002 10:00:00 PT Socket where laptop mates with its power plug broken. Laptop cannot be charged up or run off of AC power because cannot be plugged in. Frantically transfer tax files to other machines over Airport as battery dies. Take laptop to Berkeley Workstation Hardware Support Group. They say unit will have to be sent to Apple--and that either I can do it, or they can do it. I say, "You do it. I really don't have time." They say, "OK." I say, "I'll call back early next week to see how things are going." They say, "OK."

From an economist's point of view, this is an excellent example of just why it is that private-sector businesses are so much more efficient on average than public-sector or non-profit-sector bureaucracies. I'm not going to go back to WHSG for any service, ever again, if I have any control over things: from my perspective--if I am, as I think I am, willing to pay $40 a day to get my laptop fixed and back faster--WHSG has burned $300 worth of well-being by its (a) changing its mind about what to do without talking to me, and (b) failing to make the minimal effort needed to make sure that I was informed about the change of plan. Since they've just cost me the equivalent of $300 for no reason--how have they benefitted from this? Not at all--I don't want to see them again.

But do they care? Does their manager care that the next time I need a machine fixed, I won't go to WHSG? Almost surely not. The flow of machines into WHSG is by and large a command-and-control process dictated by Berkeley's internal bureaucratic procedures. The flow of machines into WHSG is not directly connected to his budget. So there are no costs to him of having me annoyed. There is a--small--cost involved in speaking sharply to his technicians, and saying: "Geez. Make sure people know what you are doing if you change the plan." But the only thing impelling him to make that effort to improve communication between technicians and people wanting their machines fixed is the subjective feeling of doing a good job, and that plus $2.00 will barely get you three stops on the BART at rush hour.

At this point someone is sure to raise an objection: "Isn't Apple Computer a big bureaucracy too? Why shouldn't it be as rude, as inefficient, and as careless with its customers as Berkeley Workstation Hardware Support?" The answer is that the pressures are there, but that they are offset by market discipline. If Apple does not sell its products and services to buyers, it dies as an organization, and everyone inside Apple knows that their jobs depend on the organization's profits in a very real and immediate sense. So there are constant pressures on Apple to make its customers happy wherever it can do so cheaply--and putting the status of repairs-in-process up on Apple's website in real time is one thing that makes customers happy, and is cheap and easy to do.

Now this doesn't mean that everything should be privatized: you don't want ruthless and efficient concentration on improving the bottom line $$$$$ figure everywhere. But surely Workstation Hardware Support should be privatized. Surely it's in no one's interest to have repair technicians who have never been told that keeping customers happy when they can do so easily and cheaply is part of their job, and that making sure customers know what is going on is an easy way to keep them happy.

2002-05-01: Dan Kennedy on Bush-Era Foreign Policy

How Dubya lost his groove
From the Middle East to Venezuela, from the oil fields of Alaska to the coca farms of Colombia, the Bushies find themselves in a world of trouble

Has Bush really lost his groove? To post your response, go here in the Phoenix Forum.

THE leak-proof discipline of George W. Bush’s White House was broken last week. The crack in the façade of unity that the Bush administration has worked so relentlessly to cultivate was displayed for all to see on the front page of Friday’s Washington Post. Beneath the headline POLICY DIVIDE THWARTS POWELL IN MIDEAST EFFORT, the Post reported that aides to Secretary of State Colin Powell were frustrated with hard-liners such as Secretary of Defense Donald Rumsfeld and his top deputy, Paul Wolfowitz, who were criticized for undermining Powell’s peace mission to the Middle East.

Reported staff writer Alan Sipress: "These officials use words like ‘despondent’ and ‘disheartened’ to describe the mood in Foggy Bottom [a reference to the State Department’s Washington headquarters], saying they cannot remember a time in recent years when they have felt so badly beaten up."

It was a brutal capstone to what have been an ugly couple of months for the Bushies. No doubt it was just a coincidence that Bush’s iron-willed alter ego, communications director Karen Hughes, had announced her departure just several days earlier. But for an administration that has prided itself on its ability to stay focused, to speak with one voice, and not to leak, the Bush regime’s recent steps have been remarkably inept.

From the Israeli-Palestinian conflict to the Venezuelan almost-coup (in which the White House was caught backing antidemocratic forces), from the oil fields of Alaska to the coca farms of Colombia, the clarity and unity that George W. Bush projected in the months immediately following September 11 have dissipated.

Even the war against terrorism has foundered. Last year, Bush basked in the afterglow of having routed the Taliban and Al Qaeda. This year, we are beginning to wake up to the unsettling truth that Osama bin Laden is still at large, and that Afghanistan is once again overrun with violent warlords — a replica of the situation that made the country a hotbed of terrorism in the first place.

As for what’s next, the White House is reportedly putting the finishing touches on a plan to oust Iraqi dictator Saddam Hussein. But, unlike with the war in Afghanistan, there appears to be little agreement on what it will take to accomplish the Iraq mission, whether our fragile alliances can survive it, or even if it’s necessary, given that US military forces have been restricting Saddam’s freedom of movement since the end of the first Gulf War a decade ago.

In June 1999, Time magazine published a story titled "How George Got His Groove." The then–Texas governor was described as a "late bloomer" who’d quit drinking, found Jesus, and had made the switch from dilettante to do-bee. This week, Time paints a different picture — that of a man who is past both the uncertainty of his first few months in office and the do-no-wrong period that followed the terrorist attacks.

Time’s Michael Duffy wrote that Bush "is now in a third age, more challenging than the previous two, where nothing is simple, and many of the tools that served Bush so well after 9/11 not only don’t help him anymore but actually may be doing him harm. Four weeks after Bush leaped into the Middle East crisis by dispatching Secretary of State Colin Powell to the region, it is clear that the President has come back to where he started, unable or unwilling to end the bickering among his top advisers and struggling to implement a plan because he cannot craft one in the first place."

Newsweek put it more succinctly last week, giving Bush a down arrow in its "Conventional Wisdom" column and noting: "Mideast impotence, Venezuela coup reversal, ANWR drilling loss. A real Bushwhacking."

It’s the sequel, "How W. Lost His Groove." And it may soon be playing on a television set near you.

TO DATE, the media rumbling about Bush’s woes is taking place just below the surface. According to the Tyndall Report, which tracks what the network newscasts are covering, violence in the Middle East has been the lead story for the past few weeks — a tragedy for which Bush obviously cannot be blamed, regardless of his flip-flops. To the administration’s credit, the ceasefire negotiated last weekend may even improve matters — at least for a while. The pedophile crisis that has engulfed the Catholic Church has also chewed up hours that might otherwise have gone to dissecting Bush’s recent failures. Lately it seems that you can’t turn on a talking-head show without seeing a Roman collar — or two or three. That will change.

Bush is still riding high in the polls, though not as high as he was. The most recent New York Times/CBS News survey of Americans 18 and older showed Bush with a rating of 76 percent favorable/15 percent unfavorable. At Bush’s peak, early last October, he scored a 90/5. The president’s current score is much higher than was Bill Clinton’s at the same stage of his presidency (58/37 in April 1994, according to a CNN/Time poll, just six months before the House went Republican).

But Bush can’t expect his high numbers to last indefinitely. Look at how his father’s 90 percent approval rating dissipated in the months after the Gulf War. The Christian Science Monitor recently reported that Republican pollster Matthew Dowd expects Bush’s numbers to continue their "slide down" to "a somewhat realistic level" later this year. The New York Times’ Richard Berke reported on Monday that the Republicans are in danger of losing a majority of governorships this fall for the first time in eight years, which "would carry serious consequences for other Republicans in November and hinder President Bush’s re-election drive in 2004." Wall Street Journal columnist Al Hunt went so far as to write a column headlined a presidency in disarray, complete with a chart comparing the collapse of Bush I’s popularity with the recent downtick in Bush II’s numbers.

What this means is that, nearly seven months after the attacks on the World Trade Center and the Pentagon, political life is returning to normal, or something like it. Bush is once again starting to look like the limited, incurious president who lost the popular vote and won the presidency only because of a dubious rush to judgment by the US Supreme Court. It’s possible to criticize him again. It’s even possible to make fun of him. The online magazine Slate has revived its "Bushisms," and the latest — first reported by the New York Daily News — is a doozy: "This foreign-policy stuff is a little frustrating."

Echoes of Will Farrell whining, "This presidentin’ stuff is hard."

THOUGH THE ISRAELI-Palestinian mess is by no means the only, or even the most compelling, example of White House folly, it has certainly attracted the most attention. And it is instructive, because it illuminates the president’s shortcomings, some of which we already knew (his inability to master the nuances of a complicated issue), and some of which have come as something of a surprise (his unwillingness to decide on a course of action and stick to it).

The battle between Israel and the Palestinians, of course, does not just predate Bush’s presidency — its origins lie in the earliest days of the Zionist movement, in the late 19th century, and it has flared up repeatedly since the founding of the Israeli state more than 50 years ago. Nevertheless, Bush inherited a rather discrete problem from Clinton: a Palestinian uprising that dates from mid 2000, when Yasser Arafat walked out of peace negotiations despite an offer from Israel’s then–prime minister, Ehud Barak, that was unprecedented in its generosity. Palestinian terrorist groups — including, apparently, those with direct ties to Arafat — unleashed a wave of suicide bombings (which the White House clumsily tried to label "homicide bombings"). That, in turn, prompted Israel’s current prime minister, Ariel Sharon, to send his army into the West Bank to root out terrorists and to keep Arafat under virtual house arrest.

The ceasefire the United States finally helped broker last weekend is good news, even though early indications are that the shootings and bombings will — at best — slow down rather than stop. For weeks, though, the administration’s approach was defined by confusion and 180-degree turns. Whether you believe the United States should order Sharon to back down and resume peace talks, or instead allow him to unleash Israel’s full power against Palestinian terrorists, the one thing Bush should not have done was pursue both options simultaneously. Yet that’s what he did. He demanded that Sharon withdraw from Palestinian strongholds, and then, when Sharon didn’t, backed off and called the prime minister a "man of peace." He dispatched Colin Powell to try to reinvigorate the peace process, then publicly undermined him while he was in the region.

From the dovish point of view, Newsweek columnist Fareed Zakaria blasted Bush for caving in to Sharon and stabbing Powell in the back — and asked, "Do we really want to go back to the Carter years?" (During the presidency of Jimmy Carter, the staffs of the hawkish national-security adviser, Zbigniew Brzezinski, and the dovish secretary of state, Cyrus Vance, openly battled for power and influence.)

Speaking for the hawks, National Review editorialized: "The administration has leaked away prestige and credibility with nearly every new statement, and has bent to the logic of the Arab world, which is that nothing can ever be done in the Middle East without bullying Israel first."

And representing political schizophrenics everywhere, the Weekly Standard’s Robert Kagan and William Kristol first blasted the Powell mission, then, later, praised it for "providing diplomatic cover for an ongoing Israeli military operation that has made significant strides against the terrorist infrastructure in the Palestinian territories." (You can almost picture Bush channeling Jon Lovitz and saying, "Yeah, that’s what I was doing. Sure. That’s the ticket.")

But at least Bush’s failures in the Middle East appear to be based on a genuine desire for peace. And he is hardly the first statesman to fall short in finding a solution to the Palestinian-Israeli conflict. By contrast, some of Bush’s other recent failures are rooted in who he is. And who his friends are.

EVEN DURING the sordid 1980s, when Ronald Reagan backed right-wing paramilitary forces in El Salvador (to defend a weak, pro-American government) and Nicaragua (to overthrow a weak, anti-American government), the United States did not manage to unseat a democratically elected ruler in Latin America. For that, you’d have to go all the way back to 1973, when Richard Nixon and Henry Kissinger conspired to topple Chile’s socialist president, Salvador Allende. Allende was assassinated, and his successor, the brutal but pro-American Augusto Pinochet, set off a wave of right-wing terror that did not abate for two decades.

Enter George W. Bush. Last month, following days of civil unrest, Venezuelan president Hugo Chávez was overthrown by that country’s military and replaced by an unelected businessman. The coup leaders reported that Chávez had resigned — a claim promptly exposed as a lie several days later, when the left-leaning populist Chávez rode popular support back into office.

The trouble for the Bush administration was that it had made no secret of its support for the coup. Administration officials reportedly even met with coup plotters and gave them encouragement. The Economist, in an otherwise negative assessment of Chávez, wrote: "If this is true, it would suggest extraordinary shortsightedness by Latin America’s mighty neighbour. A message that George Bush welcomed the overthrow of inconvenient elected politicians would be noted in barracks everywhere." In a similar vein, the ultraconservative Wall Street Journal editorial page denounced Chávez as "an anti-American thug," but added: "But he is a twice-elected thug, and some expression on behalf of democratic values from the White House would have helped U.S. credibility in the long run."

Then, too, Venezuela is the world’s fourth-largest oil exporter — and, potentially, much easier to manipulate than that nasty Crown Prince Abdullah of Saudi Arabia, who showed up in Crawford, Texas, last week insulting the president and demanding that no women guard his precious air space. So it’s hardly surprising to learn that Chávez’s real sin against the US may have been to ram through a recent law that raised from 16 percent to 30 percent the royalties that foreign companies must pay to pump its oil. "This explains Chávez’s unpopularity — at least within that key constituency, the American petroleum industry," wrote Greg Palast, a columnist for the British newspaper the Guardian. (NarcoNews.com has put up some great links on the almost-coup and its aftermath, as well as commentary by publisher and former Phoenix staffer Al Giordano.)

A lust for oil is also behind the Bushies’ continued obsession with drilling in the Arctic National Wildlife Refuge, or ANWR. The plan was killed last month in the Senate, with two of Bush’s potential presidential rivals, Massachusetts senator John Kerry and Connecticut senator Joe Lieberman, leading the way. Not that there isn’t some cynicism on both sides here — by all accounts, there is so little oil in ANWR that this has become a fight about symbolism more than substance, with the environmental lobby and oil interests turning this into a loyalty test for their respective supporters. Environmentalist rhetoric about the pristine wilderness would ring pretty damn hollow if ANWR were a genuine alternative to Saudi Arabia. But it’s not, and the Bush administration’s insistence that ANWR will become a campaign issue is likely to backfire.

Nowhere, though, is American policy more likely to go bad (or, rather, get worse) than in Colombia, into which the US has been pumping vast sums of military aid in the hopes of stemming that country’s 40-year-old civil war and crippling its cocaine trade. "Plan Colombia" got going under Clinton, but the proper analogy is to Vietnam: Clinton, like John Kennedy, made a terrible decision to help a corrupt and inept government. Now Bush, like Lyndon Johnson, is pushing his predecessor’s decision past the point of no return.

As veteran Latin America reporter Marc Cooper recently wrote in LA Weekly, Plan Colombia puts us on the side of a government implicated in numerous human-rights abuses — not to mention right-wing paramilitary forces that wreak mayhem and murder among the civilian population — in what has been an endless war against left-wing rebels. "Plunging ahead into Colombia really is akin to racing into the proverbial dark tunnel," Cooper wrote, adding: "All sides in the conflict — the Colombian state, the leftist insurgents and right-wing paramilitaries — have become enmeshed in the drug traffic." Worse, Newsweek International recently reported (see also the Phoenix's coverage, "Colombia's Narco-candidate," This Just In, March 29) that Álvaro Uribe Vélez, a right-wing extremist likely to win Colombia’s presidential election next month, has been directly tied to the country’s notorious drug cartels.

Oh, did I mention that Colombia has oil, too?

MAYBE IT ALL began to go bad during Bush’s State of the Union address, in January, when he declared war — metaphorically, if not in reality — against an "axis of evil" comprising Iraq, Iran, and North Korea. "Axis of incoherence," sniffed Slate.

As Slate’s dismissal suggests, it wasn’t so much that Bush’s harsh rhetoric offended the Europeans. After all, everything offends the Europeans. It was that it made no sense. It lumped Iraq, a country that may be developing nukes and that may, indeed, need to be taken out, with two other very bad countries that pose little threat to us and that may, slowly, be turning more moderate and less warlike. Bush made no distinctions and offered no guidance as to what, if anything, we are likely to do about Iran and North Korea. It was weird and puzzling.

Presidents go through good and bad patches, of course, and Bush could well regain his footing before the fall elections. As syndicated columnist George Will recently observed, Bush is lucky in his opponents: the recent re-emergence of Al Gore did nothing to excite the anti-Bush forces. Poor Al may have beaten Bush once, but he’s not likely to beat him again. And so far, at least, no one else is making Bush break a sweat, either. As New York Times columnist Bill Keller put it a couple of weeks ago, "if the Democrats insist on speaking up, isn’t it fair to ask that they have something interesting to say?" It’s gotten so bad that top Democrats such as Senate majority leader Tom Daschle have taken to whining that Bush is getting more TV time than he deserves. And recent pieces in the New Republic on the Democrats’ ongoing quest for relevance inspire more pity than enthusiasm.

But there’s always the possibility that Bush’s recent woes are not a blip, but rather a resumption of the pre–September 11 political order. To return for a moment to those favorable/unfavorable ratings: last August, the New York Times/CBS News poll had Bush at 50/38, down from the 60/22 he had enjoyed just five months earlier. In August 1993 CNN/Time had Clinton at roughly the same level, 54/41.

What this shows is that, in ordinary times, George W. Bush is a very mortal president. He deserves the praise he’s gotten for the cool, measured, but decisive manner in which he responded to the terrorist attacks. But if he wants our continued support, he’s going to have to earn it.

Based on the record of recent months, that’s going to prove a much tougher challenge than keeping Osama bin Laden and Mullah Omar holed up in a cave somewhere in Afghanistan.

Dan Kennedy can be reached at dan@dankennedy.net

2002-04-29: It's Amazing What You Can Learn from the Manchester Guardian These Days...

"What Europe can teach Uncle Sam." In the second extract from his eagerly awaited new book, Will Hutton reveals why the American economic miracle is not all it seems. Monday April 29, 2002. The Guardian.

"... In some respects, it would be surprising if the US was not successful. It is a continent of 280 million people who share the same language, government, unified market and legal system. Throughout the 20th century, its companies have produced on a scale unknown in other countries, taking advantage of the simple rule that the more you make, the lower the unit cost. Yet in reality the US is no more productive than many European economies. Although little reported, during the past 20 years, output per hour worked in France, the Netherlands, Belgium and the former West Germany has risen so that it is now higher than in the US, because the Europeans have invested more and organised their businesses more effectively..."

(To order a copy of The World We're In, Published by Little, Brown, for £14.99 plus p&p (rrp £17.99), call the Guardian book service on 0870 066 7989. Delivery is 99p or £1.99 for 1st class.)

This American observer has a very different view of the statistics than does Will Hutton. Consider Belgium, for example: this observer thinks that Belgium has a higher output per hour worked than the U.S. because the Belgian government keeps Belgians who want to work but lack skills from getting jobs.

In Belgium in 1997 real output per hour worked was 8% higher than in the United States, but where we also think that material standards of living--output per capita--was 28% higher in the U.S. Why these huge differences between the numbers? First of all, 6 percentage points more of Belgians want jobs and can't find jobs than in the United States. And labor force participation rates are different. An astonishing 28 percentage points less of Belgians aged 15-64 are in the labor force than in the United States. Are all of these out-of-the-labor-force Belgian women and young men really happy with their out-of-the-labor-force status? Or are they out of the labor force because they think it would be hopeless to look for a job?

My back-of-the-envelope hunches are that all of differences in unemployment and one-third of differences in labor force participation represent social waste: enforced idleness that leaves Belgians no happier than if they were working. In my view, the right number is neither the +8% Belgian edge "output per hour worked" nor the +28% U.S. edge "output per capita" but instead a U.S. edge of 7% arrived at by taking account of involuntary unemployment and discouraged workers. A large chunk of the +28% U.S. edge in the often-cited "output per capita" figure is an illusion, due to the fact that Europeans choose and enjoy a more leisurely and slower-paced style of life. But in my view, at least, not all of the edge is an illusion.

My main point, however, is that the world is complicated, and single statistics are bound to be incomplete. There is immense regional inequality within the United States. There are important and and often-debated issues of measurement, and even of what we are trying to measure involved in international comparisons. Anyone who presents to you one single number for a nation--and then draws sweeping conclusions from it--is interested in driving you into the corral as if you were a panicked sheep. Don't pay attention to such people. Seek out those who regard it as their highest priority to give you a full picture, a thick description of the situation instead.

2002-04-29: Is Paul Krugman Too Partisan? A Conversation: "Do you think Paul Krugman's Times columns are too partisan?" "No. Remember 1993? His vicious [and IMHO unfair] attacks on Laura Tyson? His attack on Summers for 'joining the Japan-bashers' in Peddling Prosperity? His inability to write the word 'Clinton' and so all the references to the 'Rubin-Greenspan economy'?" "Yeah. But people think he is." "Maybe." "He needs to find some worthwhile economic policy decision that Bush has made and praise it." "Yeah. But what?" (very long pause, followed by silence...)

2002-04-29: The Value of the Dollar: "Weighing against the dollar is... a mound of historical evidence suggesting that big current-account deficits always collapse in the end. A study by the Federal Reserve of large current-account deficits in developed economies found that deficits usually began to reverse when they exceeded 5% of GDP. And this adjustment was typically accompanied by an average fall in the nominal exchange rate of 40%, along with a sharp slowdown in GDP growth. America’s current-account deficit, at an estimated 4.2% of GDP, is currently under that threshold, but is growing at such a rate that it is likely to move into the danger-zone by the end of this year. In previous recessions, the deficit has narrowed as domestic demand and imports weakened. But consumers are continuing to spend. Morgan Stanley, an investment bank, predicts that the deficit could reach almost 6% of GDP by the end of 2003. That would be the biggest deficit run by any G7 economy in the past 30 years." From the Economist.

2002-04-29: from the New Republic...

Bush's war on honest economics.: Numbers Game, by Noam Scheiber

Post date: 04.29.02
Issue date: 05.06.02

In mid-February the White House Council of Economic Advisers (CEA) put out one of the several documents it generates each year. Under the headline "PRESIDENT BUSH'S 2001 TAX RELIEF SOFTENS THE RECESSION," the two-page report argued that without last year's tax cut, the economy would have shrunk much faster than it actually did. The study went on to make a few pro forma comments about "[increasing] the incentives for saving," and "reducing an important impediment to ... the overall accumulation of wealth," before noting that the tax cut would continue to work its magic in the coming months. "[B]y the end of 2002," the report concluded, "the President's tax relief will have helped the private sector to create 800,000 more jobs."

On its face, this was nothing out of the ordinary. Economists--particularly those employed in Washington--run these estimates as a matter of routine. But there was something curious about the CEA report: Nowhere did it contain so much as a hint as to the study's methodology--no statistical appendix, no footnotes about assumptions, not even a phone number you might call to request that information. In fact, the closer you looked, the less "economic" the report appeared. Logical contradictions stuck out like a sixth finger, among them the suggestion that the tax cut, which by definition dramatically decreased national saving (i.e., the surplus), was at the same time increasing saving. And some of the language sounded oddly political, like the suggestion, right out of a George W. Bush stump speech, that the tax cut had "strengthened families." As William Gale, a senior fellow at the Brookings Institution who served on CEA in the first Bush administration, recalls, "[T]he report ... was basically an assertion, not an analysis. If there was an analysis, it was nowhere to be seen."

A cynic might ask why anyone should be surprised. After all, CEA serves the president and as such its priorities and research agenda are set by the White House. "Life in the political world is different from academia," concedes Harvard economist Jeffrey Frankel, who was a member of the Clinton CEA and worked on the staff of the Reagan CEA. And yet, for most of its 56-year history, CEA has been notable for the lack of politics in its work. The Council is composed almost entirely of academic economists, on one- or two-year leave from universities, whose sole mission is to provide the president with objective economic advice. While bureaucracies like the Treasury, Commerce, and Labor Departments employ highly competent economists of their own, CEA is "the only group of economists in the government that doesn't have some agency ax to grind," as Nixon CEA Chairman Herb Stein famously quipped.

As a result, CEA economists are widely viewed in economic policy circles as scrupulously nonpartisan. In a 1992 article excerpted on the CEA website, former Reagan CEA Chairman Martin Feldstein wrote that "[t]he tradition of professionalis[m] is so strong that even in a presidential election year the CEA chairman appoints members of the staff for the coming academic year with the clear understanding that they will continue to serve even if the party in power loses the presidential election." And over the years CEA officials have been fiercely protective of their independence. Though a pro-business conservative himself, Feldstein quickly found himself out of favor with the Reagan White House for advocating deficit reduction and publicly supporting the Fed's tight monetary policy. Feldstein reportedly so infuriated Reagan Treasury Secretary Don Regan that Regan instructed members of Congress to "throw away" CEA's annual economic report.

All of which is to say that if the Bush administration were using its CEA to put an academic imprimatur on political decisions of questionable economic merit, it would be very big news indeed. Former Jimmy Carter CEA Chairman Charles Schultze once succinctly described CEA's mission as pushing decisions "as far as possible in the direction of sanity." If CEA is no longer pushing, there may be few limits on how far in the direction of insanity this administration will go.


For years CEA was pretty much the only game in town for serious economic analysis. But starting in the 1970s economists began cropping up in all corners of government. In response, recent presidents have tended to rely on a single entity to collect all the economic advice being offered. In the first Bush administration, this entity was called the Economic Policy Council (EPC), and was essentially managed from the Treasury Department. But having run on campaign themes like, "It's the economy, stupid," Bill Clinton needed a higherprofile body, and so he moved the EPC into the White House and renamed it the National Economic Council (NEC). All of a sudden CEA had a rival--and an intensely political one--in its own backyard. For much of the Clinton administration that rivalry never materialized. According to White House lore, Clinton CEA Chair Laura Tyson recognized the potential for conflict early on and worked out an informal arrangement with Robert Rubin, the first NEC head, to defuse it. "There was agreement about the relative size and relative makeup, and the difference in mission," Tyson says. As former Eisenhower aide Bradley Patterson explained it in his book The White House Staff, Tyson sought "to maintain CEA's long-standing reputation as the purveyor of hard, factual economic data-- gathered, analyzed, and distributed without any bending to political considerations or the need for `spin.'"

Remarkably, that arrangement more or less held up even after Tyson and Rubin left their respective positions. And because it did, CEA remained largely apolitical. That's not to say its arguments always held sway. Janet Yellen, Clinton's third CEA chair, recounts a discussion with NEC over a graph in the president's 1998 annual economic report that noted an alarming number of personal bankruptcies despite otherwise solid economic news. Yellen ultimately removed it after asking herself, "Is this really important? Does it really matter? ... We're not adding something untrue, but removing something marginal." But more often CEA stood its ground. For example, the Council convinced the Clintonites to adopt a market-based approach to key elements of the Kyoto Protocol. And it helped limit the president's protectionism on steel. Yellen recalls, "I told President Clinton protecting steel would cost about eight hundred thousand dollars per year per job ... [and] he's probably thinking, `Give me a break; I've got unions and senators and congressman from steel states breathing down my neck.'" In the end, though, the economists largely prevailed. "He didn't do nothing, but not nearly as much as Bush," says Yellen.

It wasn't long after the inauguration of George W., however, that the divide between the politicos at NEC and the economists at CEA broke down altogether. While the campaign's top economic adviser, Lawrence Lindsey, was quickly installed as NEC director and assistant to the president for economic policy, CEA lacked a chairman for more than a month. So Lindsey began filling the void. "Lindsey came and started to tell us he'd like to work with CEA really closely, that he would like us to start a weekly memo to him," says one former staff member.

This posed a big problem. After all, not only was Lindsey in a political job, but he was the primary author of Bush's tax cut and had earned a reputation as something of an ideologue. "We started to feel like, `Hey, he's acting like he's our boss. Gee, this doesn't feel right.' No one knew what to do about that," adds the staffer.

In the meantime, rumors swirled. Some feared the White House was planning to consolidate NEC and CEA. "After [Lindsey] became head of NEC, we were concerned about him having joint custody. Justifiably," recalls another economist. Others heard--and the press reported--that the administration was having difficulty finding a CEA chair because Lindsey's prominence within the administration would inevitably mean taking a back seat. And Lindsey did little to deflect these suspicions. At an early meeting with the CEA staff, for example, he allegedly referred to himself as the "de facto CEA chair." (Lindsey confirms through a spokesman that he convened the meeting but doesn't remember using the phrase.) One former CEA economist was so concerned she "got in touch with John Taylor [rumored to be a candidate for the CEA chairmanship] and he gave me a little pep talk.... He said, `Yes, it's right for you to worry about working with [Lindsey].'"

In many ways Lindsey was more a symptom of the problem than its underlying cause. From the beginning of his presidency, Clinton essentially cast his lot with Wall Street, betting that if he reined in the deficit, bond traders would reward him with lower long-term interest rates. In other words, Clinton's entire economic strategy hinged on winning credibility in the financial world, which made it vital that respected, mainstream economists play a prominent role in his administration. Bush, on the other hand, came into office having hitched his fortunes to a massive supply-side tax cut. But because supply-siders take it on faith that lowering marginal tax rates will trigger economic growth, establishing credibility among economists was much less of a concern.

All of which explains why the CEA staff was relieved when Columbia economist Glenn Hubbard was finally appointed to be the Council's chair. Though a committed supply-sider like Lindsey--and a devout proponent of the tax cut-- Hubbard was at least highly regarded as an academic. As one CEA economist puts it, "At least he was talking the same language as the senior staff."

But Lindsey continued to exercise considerable influence even after Hubbard's arrival, parceling out and supervising many of the Council's projects. As another CEA economist describes it, "In the current environment NEC functions as workload manager--distributing projects and watching projects.... NEC is more integrated in the work." And Lindsey's primary method for distributing and watching projects was the CEA chief of staff, Diana Furchtgott-Roth, a former colleague of his from the American Enterprise Institute (AEI), who had spent her career advocating for conservative economic causes and who once served as an economist at the American Petroleum Institute, the lobbying arm of the oil industry. Former CEA economists say Furchtgott-Roth exercises enormous authority over substantive issues. "Diana's job is very much taking what she hears in her meeting with Larry Lindsey each morning and turning it into CEA analysis," explains one former colleague. (According to Hubbard, Furchtgott-Roth attends the daily NEC staff meeting.) Another complains, "She [has] a blatantly political agenda," and recalls that Furchtgott-Roth once directed him to poke holes in work another agency had already done because "Larry Lindsey said ... they did this analysis incorrectly." (Furchtgott-Roth says through a spokesman that she has no recollection of the exchange.) "If you're looking for a villain, she's it," says the economist.

By most accounts, the power Furchtgott-Roth wields is unprecedented. The CEA chief of staff under Clinton was little more than an administrative position and almost never exercised authority over analytical questions. Many CEA chiefs of staff don't even have backgrounds in economics. According to Tyson, "The chief of staff when I was there was not involved in the substantive agenda.... It was representing institutional issues." "In the past, I remember getting direction from members," reflects another former CEA staffer. "In this case, we also got direction from the chief of staff. That was new." But even more troubling is Furchtgott-Roth's role in representing a political adviser like Lindsey rather than Hubbard, her ostensible boss. Peter Orszag, who worked in Clinton's CEA, says flatly: "In my experience at CEA, it would have been highly unusual for the chief of staff to represent the interests of anyone other than CEA. That was what the chief of staff did."


Hubbard seems to have responded to Lindsey's influence not by digging in his heels, like many of his predecessors, but by making CEA more political itself. One of his early acts as CEA chairman, say former employees, was to ask senior staff to identify the economic literature that showed a strong correlation between economic growth and tax cuts. "He had me talk with macro modelers like [well-known conservative] Allen Sinai to try to get more concrete empirical analysis that supported it," says a former CEA economist in charge of tax policy. On one occasion, Hubbard came across a report by the conservative Heritage Foundation that he found promising, and he asked for a more credible source that made a similar argument. "Hubbard was interested in it," the economist recalls. "But he said, `No one's going to believe this.' So he sent me off looking for other sources of information." (Hubbard has no recollection of the episode.)

Another CEA staff economist recounts a similar experience while working on Social Security. Hubbard had become interested in a short article by AEI Fellow Kevin Hassett comparing the returns under a hypothetical private pension system to actual returns under Social Security. Eager to make use of the analysis, Hubbard asked the staffer to reexamine Hassett's work to see if it checked out. When he did, the numbers proved misleading--the economist notes that Hassett's argument broke down "quickly once you worked past its carefully constructed example"--and Hubbard declined to recommend them for use elsewhere in the administration. But neither did he call attention to the shortcomings in the privatization argument. Instead, Hubbard simply tried a different approach: He dispatched another CEA economist, Jeffrey Brown, to help author the Bush administration's Social Security report, which made the case for privatization not on the basis of financial returns but on overtly political grounds like the value of individual choice. (Hubbard recalls a short, nontechnical piece he co-authored with Hassett for AEI, but not the incident in question; he confirms having assigned Brown to the Social Security task force.) In principle, one could defend the value of having an economist like Brown work on the report. Yet once CEA had discredited the economic rationale, it's not clear how much a CEA economist could contribute to a commission set up to propose privatization.

Of course, as Orszag points out, working at CEA means "there's always a tension between being relevant and being academically pristine." But usually this results in CEA economists and members agonizing over whether they're comfortable with an argument the administration favors--and respectfully disagreeing when they're not. Orszag, for example, recalls the Clinton administration's efforts to link free trade with job growth, whereas the real benefit lay not in adding jobs but in replacing them with better ones. "CEA was always very reluctant to say trade is good because it creates jobs, even though it was the rhetoric of other agencies and the president," he says. At the current CEA, however, these distinctions are almost never made. Instead, the basic operating assumption is that CEA's position is the administration's position--regardless of the underlying economics.

Perhaps the most glaring instance of this, former CEA officials say, was Hubbard's performance during last fall's stimulus debate. The original House bill, which the president supported, was by all accounts laughable. Even the president's own Treasury secretary, Paul O'Neill, referred to it derisively as "show business." Academic economists tended to see its numerous longer-term measures--a repeal of the corporate alternative minimum tax, a three-year-long tax break for investment--as exactly wrong for the short-term economic problems facing the country. Hubbard had even endorsed that logic himself in a 1996 academic paper. Nonetheless, he spent the fall defending a similar proposal and criticizing rival ones, often suspending the laws of economics to do so. In December CEA released the intellectual forebear to the February study--a two-page report asserting that the stimulus bill's business tax provisions "address[ed] the fundamental source of economic weakness over the past year." One month earlier Hubbard had dubbed it "a major fallacy to praise new [Democratic] spending plans as `stimulus'" in a Washington Post op-ed, which one former CEA member says "was just a joke." "This is no one's economics," the former member says. "It's not even right-wing economics.... If an undergrad wrote that, you'd give the statement and the logic behind it a D."

Would any one economic decision have come out differently had the Bush CEA been more independent? It's impossible to say. An assertive CEA might have objected to the Bush energy plan's near-exclusive emphasis on supply-- citing the potentially larger gains from reducing demand--or to the stimulus plan's long-term giveaways. But even if it had, an administration bent on rewarding the business interests that helped elect it probably wouldn't have backed down. Even former Clinton CEA officials concede they spent a lot of time being ignored.

On the other hand, there has been at least one instance where the White House was genuinely torn between economics and politics: the internal debate over steel tariffs, which, by all accounts, was agonizingly close. To his credit, Hubbard--like his predecessors in other administrations--opposed steel tariffs as economically counterproductive. But the reason some of those predecessors succeeded in blunting the political urge toward protectionism was their prestige as independent economists. By the time this spring's steel decision came along, Hubbard had already undermined that independence. And once you've lost your independence as an economist, you're just another political adviser--which means you might as well not be there at all.

2002-04-29: Modern European Antisemitism, part 5327: Left-wing anti-McDonalds anti-globalization "activist" Jose Bove: "It was thus alarming to see Bove, after a pro forma denunciation of anti-Jewish violence, informing viewers of the TV channel Canal Plus that the attacks on French synagogues were being either arranged or fabricated by Mossad. 'Who profits from the crime?' Bove asked. 'The Israeli government and its secret services have an interest in creating a certain psychosis, in making believe that there is a climate of anti-Semitism in France, in order to distract attention from what they are doing.' " From <http://www.weeklystandard.com/Content/Public/Articles/000/000/001/187bvgea.asp>


"I'm a farmer, and these (Palestinian) people are farmers too. So I am fighting with them to help them protect their land," Mr Bove told the watching media. With Mr Arditi caught in the middle of the crowd, the soldiers started elbowing reporters out of the way, and the shoving began. Minutes later one of the activists was arrested and dragged away. "No violence! No violence!" chanted Mr Bove and his friends. A group of Palestinians nearby took up chanting but maybe misheard the French accent as they shouted: "No peace! No peace!"

From Jim Henley: http://www.highclearing.com/

A Minor Streak - Unqualified Offerings enjoys Richard Cohen maybe a third of the time. The rest of the time it thinks he's a gasbag. But the man has had two good columns in two weeks now. In today's, he demolishes a recent op-ed that went out under the byline of Saudi Ambassador to the US, Prince Bandar bin Sultan, who first came to public prominence during the Iran-Contra hearings.

The truest thing in Bandar's piece is his anger. It is white hot. He feels, to his very depth, that the Palestinians are being -- and have been -- pushed around. He feels that they are treated like dirt.

I'm with Bandar on that. The persistent expansion of West Bank settlements is an outrage. Palestinians have been living under occupation long enough. When Arafat's man in Washington said on "Meet the Press," "I, Hassan Abdel Rahman, have been in exile 29 years," it overlaid the personal on the political so that it was, for once, easily understood.

Bandar may be entitled to his anger. But we are entitled to ask just what exactly his government did until very recently to advance the peace process. We are entitled to ask, in other words, what was the Saudi role before its own nationals started flying airplanes into American buildings and the kingdom embarked on a public-relations campaign, once again throwing money at a problem.

In an April 2nd column about the War in Israel and the Territories, he made some points I thought of working into my various pieces on disgorgement. Specifically, he compares the situation between Israel and the Palestinians to the Algerian civil war with France:

The Battle of Algiers is now being fought in Jerusalem and Tel Aviv, in Haifa and Netanya -- anywhere a Palestinian suicide bomber can infiltrate. It is being fought, too, with increasingly desperate Israeli tactics -- first pre-emptive assassination, now the virtual reoccupation of the West Bank.

The turn that the war -- the Palestinian struggle -- has taken may be lost on Sharon and, it seems, President Bush, but not on some of those involved. "If they kill us, we kill them," said Muhammad Odeh. "It will never stop." Odeh knows whereof he speaks. His son, Abdel Basset, blew himself up in Netanya last week, killing 22 others at a Passover seder.

In the week since reading it, I've come to realize that the "Algiers" column is not valuable chiefly for sort of echoing my own ideas on the topic, nor even as advice to Israel. No, it is most valuable for its implicit warning to the Palestinians. It does matter, however some deny it, how you win your independence. Algeria prevailed over France by adopting a Fanonist strategy. Their enthusiast, Jean-Paul Sartre famously said that "to shoot down a European is to kill two birds with one stone, to destroy an oppressor and the man he oppresses at the same time: there remain a dead man, and a free man; the survivor, for the first time, feels a national soil under his foot."

Things have worked out real well for independent Algeria. It's been suffering a vicious civil war between Islamist radicals and the aging socialist revolutionaries Sartre and Fanon so celebrated since the Algerian Army nullified the election of 1992. The Islamist parties turned, of course, to terrorism. The government to brutal counterinsurgency. But one of the things that hamstrung the government in the "hearts and minds" battle was its own genesis. Algeria was birthed in terrorism. Its founding myth necessarily reified that "dead man and free man" stuff. Its civic education stressed the rightness of terroristic violence in the nation's struggle for "freedom."

And their civics lessons bit them in the ass. Because while the religious radicals may have despised the Old Guard, they also took it as their model. And the Old Guard had no moral case to make over the heads of the terrorists to their people.

Palestinians who want the West Bank and Gaza for some reason other than the chance to engage in factional bloodletting unmolested should think about the Algerian example long and hard.

from Patrick Nielsen Hayden, Electrolite

March 13, 2002
There are no words
11:37 PM

Via Little Green Footballs, this item from MEMRI, presenting

...No. I can't bring myself to print this stuff.

Look for yourself.

An article by a leading Saudi academic explaining how Jews extract blood from Gentiles to make Purim pastry.

By "columnist Dr. Umayma Ahmad Al-Jalahma of King Faysal University in Al-Dammam."

Published in the Saudi government daily newspaper Al Riyadh, March 10, 2002.

That was this past Sunday. While you were reading your New York Times, with its thoughtful thumbsuckers about the "Saudi peace plan." And living your happy Western lives.

Maybe you were going to church. Maybe you were sleeping in. Or reading Patrick O'Brian novels. Or blogging. Or watching TV.

Whatever you were doing, while you were doing it, Saudi newspaper readers were reading a calm, authoritative explanation that "the Jews" spilling human blood to prepare pastry for their holidays is a well-established fact, historically and legally, all throughout history. This was one of the main reasons for the persecution and exile that were their lot in Europe and Asia at various times."

Nick Denton dismisses anti-Saudi sentiment as part and parcel of "monstrously hawkish" blogger groupthink.

It feels strange and terrible to have lived into a future in which being shocked by an absolute monarchy that sponsors blatant Jew-hatred is regarded by otherwise intelligent people as "monstrous" and "conservative."

Please, please, this is the wrong future. Take me back, please. Start again.

2002-04-27: Martin Sieff in National Review: "President Bush's now famous--and notorious--inclusion of Iran in an international 'axis of evil' in his State of the Union speech this year is widely regarded in Tehran and, indeed, throughout the region, as a crucial turning point. Since then, pro-American sentiments in Tehran have been less enthusiastically expressed and popular feeling has coalesced anew behind a government that, for all its faults, is seen as a representative of the national interest against a potential direct threat from the dominant superpower."

2002-04-26: Paul Krugman: "Is there anything good to say about the Bush administration's air-quality plans? The answer is yes. But--you knew there would be a but --the good stuff is tentative and inadequate, while the bad stuff is being instituted with alacrity and determination..."

April 26, 2002

Bad Air Days


On Earth Day George W. Bush staged a photo op in the wilderness and touted his "clean skies" initiative. Democrats jeered and called him a tool of polluting interests.

Is there anything good to say about the Bush administration's air-quality plans? The answer is yes. But — you knew there would be a but — the good stuff is tentative and inadequate, while the bad stuff is being instituted with alacrity and determination.

The current system for controlling air pollution badly needs an overhaul. Back in the 1970's the Clean Air Act set strict rules, but only for "new" sources of pollution. Existing power plants, factories and so on were grandfathered. The idea was that over time, old, dirty facilities would close down.

The result was predictable. Polluters kept those old facilities operating, precisely because they were exempted from the new rules. Indeed, corporations poured money into existing power plants and factories, expanding their capacity, rather than build new ones.

The Clinton administration tried to crack down on this practice, suing companies that it said were creating new pollution sources under the guise of maintaining old ones. Not surprisingly, polluters hated "new source review," and they contributed millions to Mr. Bush's campaign.

There ought to be a better way, and there is. It's called "cap and trade." Under cap and trade, existing pollution sources receive permits to emit specified amounts of pollutants — but they can sell those permits to others. This creates an incentive to reduce pollution from old facilities in order to free permits for sale. Cap and trade has already been instituted for some pollutants, notably sulfur dioxide from power plants, with great success. And by gradually reducing the number of permits, the government can use cap and trade to achieve long-term reductions in pollution.

Sure enough, the substantive part of the Bush administration's air pollution plan is a cap-and-trade system for sulfur dioxide, nitrogen oxides and mercury. So what is there to complain about? Alas, lots.

First, the plan conspicuously fails to include carbon dioxide, the main cause of global warming. Aside from violating one of Mr. Bush's campaign pledges, this omission casts a long shadow over future policy. Environmental experts tell me that it would be much cheaper to reduce carbon dioxide emissions as part of an integrated, multi-pollutant strategy than to add on carbon dioxide controls later, after key investment decisions have already been made. So by doing nothing about global warming, this administration compromises the policies of future administrations too.

Second, the Bush plan still allows twice as much pollution as experts at the Environmental Protection Agency privately think appropriate. The cost of an additional 50 percent reduction in pollution, according to internal E.P.A. documents, would be pretty small. But the administration apparently prefers not to ask industry to bear even those small costs.

Finally, and most important, so far the administration's "clean skies" initiative is pie in the sky: no legislation has been introduced, and there doesn't seem to be any urgency. Meanwhile, the administration is moving rapidly to scuttle new source review, saving its financial backers billions in cleanup costs at the expense of the environment (especially in the downwind states of the Northeast). And by scuttling new source review, the administration may well be undermining political support for its own anti-pollution initiative. As long as they were under the gun, polluting companies favored a new, less cumbersome system of pollution control. Now they, and their powerful Congressional allies, would just as soon leave things as they are.

There is evident demoralization at the E.P.A., where the hazardous-waste ombudsman recently joined a parade of officials resigning in protest. Staff members feel that they have no backing from their political superiors. Eric Schaeffer, who recently resigned as the chief of civil enforcement, put it this way: "The E.P.A. is in the back seat, or maybe even riding the bumper, and the energy industry is having a field day."

So what's actually on offer is a modest new pollution initiative, maybe, eventually, if and when the administration gets around to it. Don't you know there's a war on? And meanwhile the big polluters get what they paid for in campaign contributions: a multibillion-dollar free pass.

2002-04-26: First Quarter GDP Release:

In the fourth quarter of 2001 U.S. businesses shrunk their inventories by $30 billion. In the first quarter of 2001 U.S. businesses shrunk their inventories by $9 billion. This reduction in the rate at which inventories declined all by itself induced a +3.1 percentage point swing in the rate of real GDP growth between the fourth quarter of 2001 and the first quarter of 2002.

Why? The national income accountants think of it this way: $21 billion more was spent on inventory investment in the first quarter of 2002 than in the fourth quarter of 2001. But this is just one quarter's change in inventories. If the reduced pace of inventory reduction was maintained for a year, over that year it would add up to an extra $84 billion of investment in inventories. So the swing in inventories is a swing of $84 billion in the inventory contribution to the level of GDP measured at an annual rate.

But this swing in the level of GDP measured at an annual rate is just one quarter's swing. If we were to have a similar swing over the next three quarters as well, it would boost the level of GDP by $336 billion--or 3.1%. Thus the swing in inventories boosts the rate of growth of GDP from the fourth quarter of 2001 to the first quarter of 2002 by 3.1%.

So the swing in inventories means that a -0.2% of a year's GDP reduction in inventories that was there in the fourth quarter of 2001 was not there in the first quarter of 2002. That meant that first-quarter GDP was 0.8% higher than fourth-quarter GDP. And this 0.8 percentage point jump in the level of real GDP in one quarter translates into a 3.1 percentage point contribution to the annual GDP growth rate: a *big* swing to come out of a $21 billion shift in spending patterns.

from briefing.com:


* Q1 GDP 5.8%, final sales 2.6%, price deflator 0.8%

Key Factors

* The rapid slowing in inventory contraction ($83 bln) lifted Q1 GDP by 3.1%. 
* Final sales (GDP ex inventories) rose a respectable 2.6%.  That's the Fed's focus next to business investment.
* Growth was entirely a consumer/government event.
* Personal consumption rose a strong 3.5% after the auto-boosted 6.1% in Q4. 
* Residential investment rebounded 15.7% afater a decline in Q4.
* Government spending surged a surprisingly strong 8% after the 10% Q4 boom.  Outlook is for significant softening.
* Business investment in equipment and software showed a 6th quarterly decline, but light at just -0.5%.
* Business investment in construction/structures dove by a weighty 20% after 34% Q4 plunge. 
* Stronger import growth (16%) than export growth (7%) left trade slicing 1.2% from Q1 growth.
* Chain-weight deflator of just 0.8% despite boost from energy prices.  Core PCE deflator up same 0.8%. 

Big Picture

"The boom through mid 2000 gave way to the bust and now recovery.  The corporate profit recession leaves businesses cutting costs as the manufacturing sector edges out of severe contraction.  The downturn never wounded the consumer despite massive equity losses, large layoffs, sharply reduced global trade and the 9/11 attacks which added to the decline in consumer confidence.  In sum, the economy is digging out of a recession as the transition turn in inventories add strongly to growth.  The economic recovery is in its early stage as a continued drag from business investment and a soft rebound from consumer spending argues for modest strength.  Fiscal and monetary policy are extremely stimulative and are resuscitating the economy.  Inflation concerns are void given the plunge in commodity prices and the weak global economy ..."

Economy Surged 5.8% in 1st Quarter As Businesses Slowed Inventory Cuts


The U.S. economy grew at a sizzling 5.8% annual rate in the first quarter, rocketing back after last year's recession and the terrorist attacks.

After limping through the last six quarters, gross domestic product -- the broadest measure of the economy's health -- posted its strongest showing since the final quarter of 1999, the Commerce Department reported Friday.

The figures reinforced the view that the country not only emerged from a recession that began in March 2001 but that the downturn will probably go down as the mildest in history.

The economy's first-quarter rebound is especially remarkable given that GDP shrank at a 1.3% rate in the third quarter of 2001. The economy grew at a 1.7% rate in the fourth quarter.

"Growth is back!" said Ken Mayland, president of ClearView Economic. "This economy is getting back on a good growth track, which down the road will mean good things for the restoration of jobs and companies' profits."

Economists' predictions of first-quarter GDP varied widely, according to a survey by Thomson Global Markets. On average the forecast was for a 5% rise, but predictions ranged from 3.5% to 6%.

The jump in GDP was driven largely by businesses eased off on paring inventory. Businesses also slowed their cuts to spending, and consumer spending -- a key component of economic growth -- remained healthy.

Business inventories fell just $36.2 billion in last quarter after falling a record $119.3 billion in the fourth. The change added 3.1 percentage points to GDP.

Friday's report also showed that businesses began shedding their reluctance to spend. Business investment, which has been dropping for more than a year, fell once again. But the 5.7% reduction was much milder than the 13.8% plunge in the fourth quarter. And spending on equipment and software declined by only 0.5% after sharper drops in previous quarters.

Consumer spending, which accounts for two-thirds of overall economic growth, rose at a 3.5% annual pace in the first quarter, down from the strong 6.1% pace in the fourth quarter. Fourth-quarter spending had been driven largely by temporary financing promotions from auto makers.

Spending on durable goods in the first quarter, which includes autos, fell by 8%. That was offset by an 8.4% gain in spending for nondurable goods such as clothing and food, as well as a 3.8% rise in spending for services. Home purchases jumped 15.7%.

Consumer Sentiment Ebbs

A separate report released Friday suggested consumers may not continue to spend at such a brisk pace. The University of Michigan's index of consumer sentiment dropped to 93 at the end of April, from a 94.4 reading at mid-month and 95.7 at the end of March.

The report, which is available only to subscribers, also showed that consumers' expectations for the future have fallen slightly. That index slipped to 89.1 from 92.7 in March. An index that measures current conditions fell to 99.2 from 100.4 a month earlier.

There are fears that a drop in consumer confidence could hurt spending. Other recent reports have shown that while consumers remained concerned about the economy, they are not likely to sharply cut back on their spending. The Conference Board said consumer confidence surged in March.

Meanwhile, the trade deficit remained a weak spot. The deficit shaved 1.22 percentage points off first-quarter GDP as the improving U.S. economy lifted Americans' demand for foreign-made goods. That compared with a reduction of 0.14 percentage point in the fourth quarter.

Federal Reserve Chairman Alan Greenspan told Congress earlier this month that the economy's outlook is looking brighter, but signaled that the central bank is in no rush to boost short-term interest rates, now at 40-year lows.

Friday's report showed that inflation continued to remain in check. The price index for personal consumption, a measure watched closely by Fed policy makers, rose by 0.6% after advancing 0.8% in the fourth quarter. The chain-weighted price index for gross domestic purchases increased just 0.7% after a 0.5% rise the previous quarter.

Updated April 26, 2002 11:01 a.m. EDT

2002-04-25: Charlie Cooper, Executive Editor/Commentary | CNet: "The integration of Internet Explorer into the operating system has been a disaster for innovation"

Flipping through Bill Gates' written testimony on the eve of his appearance in a Washington court this week, you're left with no doubt that the man believes what he says. The synopsis of his 155-page cri de coeur is that Microsoft's ability to innovate would be indelibly crippled by the adoption of proposals submitted by nine states opposing an earlier remedy worked out with the Justice Department and the remaining states in the antitrust lawsuit. My two cents: You can never predict the future, but you can sum up the past.

When it comes to accessing the Internet via browsing software, that verdict was in long ago: The integration of Internet Explorer has been a disaster for innovation. In the absence of a viable rival, Internet Explorer has advanced only in fits and starts. Ever since America Online acquired Netscape in 1999, Microsoft hasn't really needed to exert itself to develop a killer Web browser. Things were a lot different before Netscape sued for surrender. When the browser battle raged at full flame, the rivals constantly pushed each other to improve their respective Web offerings. (If the forward and back buttons are
the height of user functionality, then we're in a lot of trouble.) Without fighting the question of whether Netscape was done in by its own mistakes or by Microsoft's illegal exploitation of its desktop monopoly, it must be said that its removal from the scene as a serious contender has been a Net loss for us all.

Charlie Cooper, Executive Editor/Commentary | CNet

2002-04-25: A Pearl of Wisdom from Francis George, Called by Some Archibishop of Chicago:

"There is a difference between a moral monster... who preys upon little children... and... someone who, perhaps under the influence of alcohol, engages in an action with a... sixteen-year-old young woman who returns his affection."

In short, molesting pre-teen boys is wrong, but teenage girls are different. In Francis George's view, they are the Temptress Eve, Allies of Satan, Sinks of Iniquity, put on earth and armed with pheromones to try to lead good, honest priests astray...

In other news...

"Cardinal Bernard Law of Boston, who has been accused of mishandling sex abuse cases, did not attend a press conference that closed the meeting. Law has not spoken to the media in two months. 'Before he left ... last week he said that he probably was not going to be available to the press because he didn't want the issue to be about him, he wanted it to be about the conference, and what all the cardinals were trying to do," said Boston Archdiocese spokesman the Rev. Christopher Coyne.'"

"Vatican sources had said earlier that all the American cardinals would be at the press conference, including Cardinal Law. But the press conference was delayed for two hours because drafting the final document took longer than anticipated, and Theodore McCarrick of Washington, D.C., was the only cardinal from the U.S. hierarchy to appear before the press. In reply to questions, Bishop Wilton told reporters Cardinal Law was 'not dodging the press conference,' but could not attend because the late start clashed with another engagement..."

2002-04-23: Wow! We Are Californians After All!

For some time--years, actually--my wife Ann Marie and I have been sneering about how we will never be true Californians. We don't have even a trace of any of the California accents. We don't believe in human potential, or in the consumption of royal jelly hand-gathered from organic hives. We have even been known to say that they shook the country, and the flakes fell down to the west coast. But then came the moment when we were driving around Somerville, Massachusetts, at 7:00 AM on a Sunday morning, wondering, "Why aren't any of these gas stations open?"

It started innocently. We had a late morning plane to catch back to the west coast. I wanted to stop off and see my college roommate Paul Kafka-Gibbons, his wife Patty, and their children before going to the airport. But we also wanted to fill up the rental car--paying Avis $4 a gallon for gas struck us as highly uncool. So before going to bed the night before, we discussed whether we should get gas before or after breakfast. "Before," we decided, and went to bed

So we set out the following morning. "There's a gas station!" one of us would carol. Then, "Oh! It's closed."

After this had happened about five times, Ann Marie said to me, "Dear?"


"This is Massachusetts."

"I know Dear."

"Gas stations aren't open 24 hours a day 7 days a week in Massachusetts."

"I'm beginning to realize that, Dear."

"What kind of fools were we to think we could find an open gas station at 7 A.M. on a Sunday in Somerville, Massachusetts?"

"Big ones, Dear."

"We're really Californians, aren't we?"

2002-04-20: Argentina

I don't have an informed view about Argentina: when I need one, I borrow one from Barry Eichengreen next door or from Alan Taylor at U.C. Davis. These days their opinions are bleak indeed. Each of Argentina's provinces is printing its own private money to finance its continued expenditures. None of them are raising the taxes needed to cover their expenditures. Indeed, tax revenues are about to decline in real terms as inflation rises and the lag between tax assessments and tax collections drains government revenue of its real value. A government that cannot tax, continues to spend, and cannot borrow--the real resources needed to cover government spending cannot be created out of thin air, and are instead taken through the inflation tax, which is a very high tax levied on one particular very narrow class of assets.

Unless Argentina can bring its budget into balance very soon--either by collecting the taxes due to it (which it has failed to do for a decade in spite of increasingly shrill cries from the IMF that tax evasion must be brought under control) or by cutting spending--it risks renewed hyperinflation. Hyperinflation will reduce real incomes by perhaps a fifth, once again destroy a large chunk of domestic savings (making it much harder to convince anyone in the future to invest in Argentina), and pseudo-randomly redistribute wealth around the country, dividing it once again into profiteers and the robbed...

Meanwhile, the yahoos of the anti-globalization left are condemning the IMF for calling for cuts in Argentina's public spending, and being careful not to even whisper that what the IMF wants is a balanced budget--that they would be as happy with a successful tax evasion reduction campaign as with spending cuts. I cannot tell whether they know so little economics that the equation (continued spending) + (inability to borrow) + (low tax receipts) = (hyperinflation) = (economic disaster) escapes them, or whether they are simply cynical: Is it that because Argentina was held up as a neo-liberal model for much of the 1990s, it is important that its crash be as severe and devastating as possible?

From the Economist...

Eduardo Duhalde tried to persuade his countrymen that he had something to show from his first foreign trip since he became Argentina's president in January. But his meetings in Monterrey with Horst Kohler, the IMF's boss and Paul O'Neill, the United States' treasury secretary, produced only the news that the IMF will start formal talks on a rescue package in April. Any loan may be less than half the $20 billion Mr Duhalde wanted, and it remains subject to a long list of conditions. And when might it arrive? "Maybe in three months," said Mr O'Neill.

Argentina's currency and its government may not be able to wait that long. Mr Duhalde floated the peso in February, after the collapse of the country's fixed exchange rate. Recently, the peso's fall has turned to rout as Argentines queued at foreign-exchange houses, desperate for dollars at any price. On March 25th, the government imposed controls aimed at calming financial hysteria: the exchange rate for sales of less than $1,000 to individuals will now be set by the central bank. That brought temporary relief.

The peso's latest plunge was prompted partly by the melting of a freeze on bank savings imposed in December. Known as the corralito (or little fence), this triggered the bloody protests that brought down the government of Fernando de la Rua. But in January, under public pressure, the Supreme Court ruled the corralito unconstitutional. That prompted Mr Duhalde's congressional allies to start impeachment proceedings against the court. In apparent retaliation, the judiciary has granted injunctions returning deposits to tens of thousands of savers. Unless this haemorrhage is stopped, many banks may soon collapse (see article).

Surveys show that the price of a "basic basket" of groceries has risen by up to 50% since the start of the year. Argentines have begun hoarding household supplies. They fear the return of the hyperinflation that they suffered in 1989-90. Mr Duhalde is said to be preparing an emergency food-distribution scheme; he has pondered on price controls, though he admits these would be hard to enforce.

The economy's decline is continuing unchecked. So far this year, industrial output is around 15% below that of the same period last year. Argentines fear shortages of home-made goods, as well as imports. Though protests have subsided, falling living standards could stoke them again.

For Argentina to start recovering, Mr Duhalde needs the boost to confidence that an IMF agreement would bring. But several things still stand in the way. First, there is the fiscal question. Congress has approved a budget which cuts spending by 14%. But the fall in tax revenues means further cuts may be required. Despite a commitment to do so, provincial governments are making little effort to rein in their deficits. Instead, they are paying some bills with scrip--exchangeable IOUs which may never be redeemed.

The IMF wants a more watertight reform of provincial finance, and a more realistic budget. One way of achieving these would be to cut the hordes of political appointees at all levels of government. Such steps are the more urgent since Mr Duhalde faces demands to spend more on the poor, and on propping up the banks. The Fund also wants changes in a new law on bankruptcy (which favours debtors). Mr Duhalde has said he may not be able to achieve much of this, though he said he will try to amend another law, against "economic subversion", which had lain unnoticed for years until prosecutors started using it against bankers.

For the time being, Mr Duhalde retains the support in Congress both of his own Peronists and of Mr de la Rua's Radicals. But such support could evaporate if protesters return to the streets. Defections have started: Jorge Capitanich, the president's chief of staff, has said he will soon step down, without even telling his boss first.

Mr Duhalde says there is no "Plan B". Others are proposing alternatives. Pedro Lacoste, an economist, suggests removing the corralito and allowing the currency to fall. He argues that the central bank's reserves of $13 billion would be easily enough to buy up savers' freed (but devalued) pesos, thus eventually bringing stability to the exchange rate. Others suggest outright dollarisation, before the peso's plunge triggers hyperinflation. If Argentines continue to eschew pesos, dollarisation may happen anyway.

This discussion reflects a growing fear that the longed-for deal with the IMF may never come. Noting that neighbouring Uruguay has received swift IMF aid, some Argentines claim that their country is being made an example of for defaulting on its $155 billion public debt. But having been criticised for being over-lenient with previous Argentine governments, IMF officials seem determined to be tougher now.

Mr Duhalde, a populist now apparently converted to pragmatism, still inspires mistrust abroad. He came back from Monterrey seemingly shaken at the lack of faith that other world leaders had shown in Argentina. Decisive action in the next few weeks could yet secure an IMF deal, and his government's survival. But both things look to be in the balance.

From the BBC, April 21, 2002...

Argentina's entire financial system could collapse if the run on its banks continues, President Eduardo Duhalde has warned.

His comments come a day after all foreign exchange and banking transactions were halted indefinitely. Banks have come under renewed pressure because of increasing cash withdrawals after courts overturned restrictions on access to savings. Limits were first imposed last year as Argentina sought to tackle an economic crisis which began in earnest after it defaulted on part of its massive foreign debt.

Serious concern about the situation has been expressed by leading industrialised nations meeting in Washington. But no new agreement was reached in talks between the IMF and Argentine Finance Minister, Jorge Remes Lenicov, although the IMF is sending out a new mission to negotiate the terms of financial aid. In his weekly national radio address on Saturday, President Duhalde said a solution to the problem of capital outflows was urgently needed and that his advisers were working on alternatives. " We run the risk that the system will explode if the judges continue to authorise people to withdraw their money," he said. On Friday alone, account holders withdrew $200m dollars from banks in Argentina, according to one newspaper estimate. Huge crowds gathered outside banks as people tried to cash their salary cheques and get money from automated teller machines. The Argentine authorities had limited withdrawals to $500 a month in December, but individual account holders gained access to their savings after mounting legal challenges. Government figures say about $70m were withdrawn by individual savers armed with court orders in the first 10 days of April.

The government is hoping to pass a bill that would convert most depositors' savings into 10-year bonds, making it harder to legally overturn limits on withdrawals.

In Washington, IMF chief Horst Koehler said on Saturday he expected a team to go to Buenos Aires "as soon as possible, the middle of May". But he maintained that the Argentine Government still needed to adopt key reforms to qualify for a resumption of aid. BBC economic correspondent Andrew Walker says there are still differences between the two sides over how much Argentina should reduce the deficit in the government finances, and that Mr Koehler wants credible reassurances about the control of spending by provincial governments.

Argentina's Central Bank is suspending banking and currency exchange operations indefinitely from Monday. The BBC is reporting the move follows a growing number of court rulings that allow people to take money out of their accounts, despite Government restrictions on cash withdrawals. Argentine television has been showing emotional pictures of crying families unable to buy food and angry bank customers saying they have only a few dollars to last until the banks reopen. The banks are likely to remain closed until the Government can pass a new law restricting people to taking government bonds out of their accounts instead of cash. While that may be the only way of stopping the banks from collapsing, it will do little to stop the economic downward spiral in which Argentina is caught. There is a total loss of confidence in the system. The government appears to be putting all its hope in the International Monetary Fund, but at present it seems unlikely to get more than a minor loan.

2002-04-20: Was Mrs. T. a Good Thing?

2002-04-20: Life Without My External Brain Pack

2002-04-20: Weblog Form

2002-04-19: Wow! I'm certainly cranky today!

2002-04-19: Servants of the People?

I am sitting here, reading the second page of this book by Andrew Rawnsley, wondering whether I should go on with it or simply move it to the "do not read" pile. It's called _Servants of the People_: The Inside Story of New Labour_. It's about the rise to power of Tony Blair, Gordon Brown, and their political allies, and their subsequent exercise of power in the first British Labour government since the 1970s.

The problem is that on his second text page--page xiv--Rawnsley writes that New Labour's "... desire for hegemony... was chillingly suggestive to some of those tyrranical regimes which call themselves 'People's Democarcies' are are neither." Now in my view an author who writes such a sentence--who says that in the eyes of "some" Tony Blair = Josef Stalin--owes me another sentence immediately following. He can write that "such hysterical falsehoods serve as an index of how unbalanced the opposition to New Labour became." He can write that "there is some truth in the charge that New Labour's internal politics is profoundly undemocratic." He can write that "such charges are substantively true: Tony Blair is a tyrannical totalitarian thug." What--to my mind at least--he cannot do is raise the equivalence Tony Blair = Josef Stalin, attribute it to "some," and then back away, as if he could deny that he planted such a bomb by wiping his fingerprints off of it. When such a sentence goes off it must have an effect on the mind of the reader. The author has, I think, an obligation to diffuse this bomb or to set out the extent to which it is his view, rather than the view of "some."

Reading along, I discover that Tony Blair = Josef Stalin is Rawnsley's view, or at least is a view that Rawnsley wants to make sure is whispered into his readers ears, without, of course, leaving too many of his own fingerprints on it. I have found:

And we are only on the fourth text page of Rawnsley's book....

In the first four text pages of his book, Rawnsley repeatedly deploys the rhetorical tropes of dictatorship against Tony Blair and New Labour. The most polite thing that can be said about them is that they are gross overstatements. Tony Blair did not "take power over the country": he was *elected* by the voters of Britain. Tony Blair did not "seize control of [the Labour Party]": he was chosen its leader. Tony Blair did not shoot his way into the presidential palace at the head of a "junta who had executed a coup d'etat". Those who truly cannot distinguish between Stalin's Kremlin and Tony Blair's Number 10 Downing Street deserve only pity. Those who can distinguish and choose not to deserve only scorn.

Why the use of the grossly inappropriate rhetoric of dictatorship for the--popular--elected leader of one of the world's oldest democracies? There is only one explanation I can think of. Rawnsley wants to undermine Blair's claim to legitimate democratic authority. He can't do it head on. But he can whisper in his readers' ears by associating "Blair" and "dictator" as often as possible, and hoping that the connotations and rhetorical excess will leak across into denotations, and persuade people that Blair is somehow an illegitimate Prime Minister. Rawnsley has this goal, and resorting to the smarmy rhetoric of a partisan hack is the only weapon he can use.

Thus when Rawnsley comes to write a summary sentence about how it was that Tony Blair and his right-hand-man Gordon Brown were such an effective team in public, Rawnsley calls it a "tribute to the [(i)] discipline of both men and [(ii)] their mutual desire for power.." These are two somewhat discreditable reasons. Are there other reasons for their ability to become and remain a highly effective team? Yes. In addition to Rawnsley's (i) and (ii), I can think of:

Why do only reasons (i) and (ii) make it into Rawnsley's list, when there is at least as much evidence for each of (iii) through (vii)? Why if not that Rawnsley is trying very hard to make New Labour look bad wherever he can? Thus it is very clear how to read the book. If Rawnsley says something creditable about New Labour, believe it. If Rawnsley says omething discreditable, be very, very wary of trusting that you have the full or even an unmendacious account.

Indeed, I believe that if you read closely you can see the seams and bad stitching in Rawnsley's mendacious argument. So farI have read only one chapter closely: chapter 3, "Bank of Brown," about Chancellor of the Exchequer Gordon Brown's immediate post-election decision to shift responsibility for setting interest rates away from the (political) Treasury to the (technocratic) Bank of England. In thic chapter we learn that because of Gordon Brown's "pathological urge to be in control" he had long wanted to get rid of and had "in his [gun]sights" the Deputy Governor of the Bank of England, Howard Davies (p. 36). But the next time we hear of Davies, on page 41, Brown has offered Davies a promotion. He has asked him if he would become Chairman of a brand-new regulatory agency to oversee financial markets, the Securities and Investment Board, and thus be placed on a level equivalent to that of his current boss, Bank of England Governor Eddie George.

Thus the only possible human reaction is, "Huh?" If you are desperate to get rid of people, you do *not* immediately promote them to the headship of a powerful regulatory agency, the creation of which is going to be one of your flagship initiatives. Whatever the relationship between Brown and Davies, it is much more complicted than Rawnsley lets us know--and shame on him and on his editor for not thinking that we readers are too dumb to notice that what is said on page 36 is inconsistent with what s said on page 41.

Or consider another person whom Rawnsley says that Brown wanted to be rid of as part of his "pathological urge to be in control": Principal Secretary Terry Burns. By the end of chapter 3, we know two things about Burns: First, Burns's people had demanded "a month" to get ready for the handover of control over monetary policy to the Bank of England. Why? There is no conceivable substantive reason. At the U.S. Treasury in the early 1990s, John Auten's people--now Karen Hendershott's--could have gotten all the analytical and staffwork for such a decision done in two days if the Treasury Secretary had said that it was his highest priority (although they would probably have asked for a week). Either Burns was trying to demonstrate that he could keep things from happening quickly, and Brown had better get used to that, or Burns was hoping that delay would allow the assembly of a coalition that would block the shift of substantive power away from Burns's bailiwick and to Eddie George's--never mind that his boss the Chancellor wanted that shift of substantive power to happen.

Second, Burns had exceeded the limits of his authority and knowledge by promising Bank of England Governor Eddie George that "nothing was likely to happen about the Bank of England's [non-monetary and] other powers in the near future."

If I had a subordinate who had given false assurances about what I was going to do, and who had dragged his feet for no possible reason save bureaucratic cussiness with respect to my very first policy initiative, I would have wanted him gone too, and gone fast. No government department can afford to have a Humphrey Appleby (from the TV series, "Yes, Minister") at the head of its civil service, ever. Yet the only two things we learn about Terry Burns in chapter 3 seem to conclusively demonstrate that that was the role he was trying to play.

Moreover, there is one much more important criticism to be made about Rawnsley's book. One finishes reading chapter 3 without Rawnsley having provided any ******* information at all about the substantive issues at stake in Gordon Brown's policy decisions.

Had Rawnsley been interested enough to take notes and spent five minutes talking about the substance with Gordon Brown, Ed Balls, or any of a host of others, he could have easily written four concise and informative substantive paragraphs. Those four paragraphs would give a reader a good grasp of just why Gordon Brown thought turning over control over interest rates to the Bank of England was "the right thing to do". They would speak to the substance of government, rather than to the public relations. And they would be highly creditable to New Labour. Ten minutes with any of them, and Rawnsley would have been able to write as well just why Brown thought (and thinks) that a proper financial supervisory organization needs a certain independence from the banker-centered interest rate-setting Bank of England.

But does Rawnsley spend those ten minutes learning about the policy substance from Ed Balls? No. A reader finishes the chapter with his or her knowledge about monetary and regulatory policy completely unchanged. For those of us who think that the important thing about government is not that it is an amusing if badly-scripted soap opera, but that the government's policies shape real people's opportunities and lives, Rawnsley's astonishing ignorance of the substance of government is a high intellectual crime indeed.

Thus when Rawnsley complains--and he complains long and bitterly--about how so many in the Blair Administration are accomplished spin artists, masters of journalistic manipulation, my reaction is that he is the carnivore complaining that the antelope are speedy. The Blair Administration is filled to the brim with people who focus on the substance of policy, and of how policies can make Britain better. But Rawnsley does not care about them, does not talk to them, does not see them.

If he could see them, he would have written a much better, and a less dishonest, book.

2002-04-19: Things That Make You Go "Hmmm..."

So I was reading a book edited by Robert Cowley, _What If? The World's Foremost Military Historians Imagine What Might Have Been_, when I came across the first "thing that made me go, 'Hmmm...'" I was reading an essay by John Keegan, British military historian, and came across the passage: "Molotov, the Soviet foreign minister... proposed that the Soviet Union... guarantee Bulgaria's frontiers, despite already having taken a large share of Bulgarian territory..." I stopped. I reread it. Bulgaria? The Soviet Union doesn't border on Bulgaria. The Soviet Union never bordered on Bulgaria. What slice of Bulgarian territory did Stalin snatch? What could Keegan possibly mean?

And then it struck me: Romania. He means Romania. He has lost track of which Balkan country is which--forgotten that it is oil-rich Romania that borders on Russia and lost its northern Moldavian province to Stalin, and Bulgaria that is to the south and borders on Turkey.

But if you are going to build a reputation as a trustworthy military historian, shouldn't this be the kind of detail that you work very hard to remember, and sweat to get right?

And then there was D. Cameron Watt's _How War Came: The Immediate Origins of the Second World War_. At one point Watt writes of how the German offensive against Poland was planned to be a "... great encircling manoeuvre... on the model of a Zulu impi or the Roman armies against Carthage at Cannae..." Now I realize that the purpose of Watt's similes is not to inform the typical reader--few, very few, readers know in any detail the military organization established by Shaka Zulu, or have received a classical education. These similes are not there to help the reader by comparing what the author is describing to something the reader already knows well. These similes are there to impress readers with the breadth of Watt's mind and the depth of his scholarship.

But if Watts wants us to be impressed, shouldn't his scholarship and learning be deep enough for him to get the winner of Cannae correct? Shouldn't he remember that the Romans under the command of the consuls Lucius Aemilius Paullus and Caius Terrentius Varro did not encircle and destroy the Carthaginians at Cannae, but were themselves encircled and destroyed by the Carthaginian army commanded by Hannibal?

Now I know that nobody is perfect: even Homer sometimes nods. But that Hannibal won at Cannae is one of the first things anyone learns about Rome's Punic Wars. And that Romania is north of Bulgaria is not *that* hard a concept to hold on to...

2002-04-19: Hugo Award Nominees

The Curse of Chalion by Lois McMaster Bujold (HarperCollins/Eos)
American Gods by Neil Gaiman (Morrow)
Perdido Street Station by China Miˇville (Macmillan (UK)(2000); Del Rey)
Cosmonaut Keep by Ken MacLeod (Orbit (UK)(2000); Tor)
Passage by Connie Willis (Bantam)
The Chronoliths by Robert Charles Wilson (Tor)

2002-04-18: Edward Said on Why There Will Be No Peace in Palestine:

"...peace, which is a lovely word but in the present context usually means Palestinians are told to stop resisting Israeli control over their land..."

Not so. "Peace" means that the Palestinian Authority should resist Israeli control over their land by means other than sending suicide bombers to blow up guests at bat mitzvahs and at passover seders. Palestinians are free to use a wide number of other political tools to resist: tools that might actually be effective rather than counterproductive...

But as long as people like Edward Said define "blowing up guests at bat mitzvahs" as "resisting Israeli control over [Palestinian] land," there will be no peace.

2002-04-18: Ken Rogoff's Take on the 'E-conomy'

The National Bureau of Economic Research in the United States faced a similar quandary, and decided to call the US downturn a recession. In truth, the US downturn probably does qualify as an employment-growth recession, but probably does not qualify as a full-fledged output recession. The reason, of course, is that productivity growth held up to a degree that is quite unusual, so that even though employment growth was negative over several quarters, output fell only in one quarter. Productivity growth means the same number of workers are producing more. This is good news, and encourages us to think our optimistic analysis on productivity growth associated with the IT revolution in the October WEO was correct. There, based on historical analogy with earlier technological revolutions including electricity, railroads, and the steam engine, we argued that despite the current downturn, the medium-term productivity trend outlook was very positive, indeed not only for industrialized countries but also for developing countries.

2002-04-18: Amos Oz's Fantasy Plan for Peace in the Middle East

Amos Oz calls for unilateral Israeli withdrawal from Gaza and the West Banki, in return "...not [for] some paper signed by Yasser Arafat, but a solid agreement concretely linking Israel with Nato and the European Union, so as to deter the promoters of the Islamic holy war and to lay to rest once and for all the dream of eliminating Israel – and also to ensure that the end of the occupation will not be a shot in the arm encouraging those who are inflamed with warmongering Arab nationalism, and will not enable them to attack Israel after it relinquishes its control over the Palestinians..."

Can Amos Oz find a single European head of government--besides Tony Blair and Silvio Berlusconi--who would even consider for a moment extending NATO's umbrella over Israel?

2002-04-17: The Morrison Plan for Peace in the Middle East

A crack group of political scientists, social psychologists, techno-libertarians, socialist-technoids, and others, meeting at a secret base under the Antarctic have come up with a plan for peace in the Middle East: the Morrison Plan.

It has six simple parts:

(1) U.S. sealift command to move all Israelis to Utah immediately.

(2) U.S. airlift command to move all Palestinians to Afghanistan (alternatively, western Australia: the only desert even further from the Utah high desert than Afghanistan) immediately.

(3) No right of return for any of them, ever, to any spot in former cis-Jordan British Mandate Palestine. Any who violate this provision to be shot on sight immediately.

(4) Former cis-Jordan British Mandate Palestine to be rented out by the U.N. to the Walt Disney Corporation to establish religious-historical theme park: "Holy Land."

(5) Walt Disney Corporation to have all rights of high and low justice in "Holy Land," without appeal.

(6) Rent paid by Walt Disney Corporation to finance all other U.N. activities.

2002-04-18: Does it matter that George W. Bush is dumb and lazy? Recall his trip to Japan last February--the one where he momentarily destabilized the foreign exchange market by saying that Japanese Prime Minister Koizumi had stressed the "devaluation issue" (instead of "deflation issue"), and recalled the "century and a half"-long U.S. Japanese alliance (skipping over that little unpleasantness between 1941 and 1945: he was supposed to say "half a century"). Anyone who has ever given an exam will recognize these mistakes: they are the typical mistakes made by a student who has had too good a time during the semester, and hasn't cracked the books at all until the week before the exam. These are mistakes you literally cannot make unless you are kind of hazy about when World War II happened, and haven't yet firmly formed distinct neural pathways associated with each of the economic concepts you are supposed to know. Remember the White House lawn press conferences in the week after September 11--the ones in which Bush kept saying "the leader of Pakistan" because he could not yet recall that Pakistan's dictator is named Pervez Musharraf.

Defenders of Bush say that the fact that he is a slow study with a weak general knowledge base who doesn't crack the books too hard and doesn't think too fast doesn't matter. Why not? Because Bush has smart people to do his thinking for him: Condi Rice, Colin Powell, Donald Rumsfeld, Paul Wolfowitz, et cetera. In Bush's own words, "My job isn't to try to nuance. My job is to tell people what I think. And when I think there's an axis of evil, I say it. I think moral clarity is important..." Once the President has given his people clear moral clarity as to what the important things are, they will have their marching orders, and good policies will emerge.

The first problem with this is that the President's words are actions, and should be considered actions. If you have a potential adversary that you are trying to isolate--Iraq--and if its largest neighbor Iran hates Iraq more than it hates you, you should not pop up and in your State of the Union address say that Iraq, Iran, and North Korea are an "axis of evil." That instantly gives the country you are trying to isolate two new allies. There would be substantial benefits to having a President smart enough to know, while his State of the Union address was being written, that Iraq, Iran, and North Korea were not an "axis"--an alliance--of any sort. And there would be substantial benefits to having a President who would think far enough ahead to consider whether his State-of-the-Union rhetoric might make his diplomats' task of isolating Iraq needlessly harder.

The second, and more important, problem is that even the smartest group of subordinates will not generally produce good policy out of their mutual tug-of-war. You need somebody at the top smart enough to harmonize--to have a policy of his or her own into which the talents of subordinates can be fit. If you don't have a smart boss, then decisions about the views of which subordinate should prevail on which issue are made randomly as the boss chooses one over another on a case-by-case basis for no good reason. What emerges is not a policy, but an incoherent mishmash.

Thus Colin Powell tries to isolate Iraq through diplomacy. Karl Rove drafting the State-of-the-Union address wins Iraq two new allies--one of which, Iran, hated Iraq more than anything else up until the State-of-the-Union address gave them powerful interests in common. Colin Powell persuades Bush to call for Israeli withdrawal from the West Bank. Donald Rumsfeld blocks Bush's words from being backed by any deeds to put more than verbal pressure on Ariel Sharon. Karl Rove pushes the nice rhetorical line that the sponsors of terror are as guility of it and are as much enemies of the United States as the terrorists themselves. Donald Rumsfeld points out that the Saudis who financed Al-Qaeda and who finance Hamas today are necessary allies in any campaign against Iraq.

The net result? No one, anywhere in the world, has any idea of what American policy actually is. No one, anywhere in the world, thinks that they can trust American words to be backed up by American deeds. Neoconservatives like Michael Kelly try to assure us that this is all part of some deep, cunning plan. But it isn't. It is the inevitable result of having a dumb boss. Smart subordinates with different views of the world then play tug of war with the dumb boss in the middle, and the result is total chaos.