January 03, 2004
Note: Statistical Discrepancies

In the second quarter of 1994 some $39.7 billion more worth of goods and services were sold to customers than were earned as income--an amount equal to 2.4% of the then-ongoing flow of national income. This cannot be, of course: the National Income and Product Accounts are set up to enforce the identity that the money paid for everything sold becomes somebody's income, that income is equal to expenditure. But the NIPA numbers are estimates, and fuzzy estimates at that--this 2.4% of GDP in 1994:II was thus a statistical discrepancy (and a very unusually large number for this discrepancy. By the first quarter of 2000 this statistical discrepancy had swung around to be -$42.9 billion: incomes were some $42.9 billion--some 2.0% of national income--higher that quarter than the value of goods and services sold. This large swing in the statistical discrepancy matters for our picture of growth in the late 1990s: according to income measures, the U.S. economic growth rate from 1994:II to 2000:I was some 0.8% per year higher than according to output or expenditure measures. Since 2000, the statistical discrepancy has swung back. This latest quarter--the third quarter of 2003--the statistical discrepancy was $13.5 billion, or 0.6% of...

Posted by DeLong at 05:13 PM

December 27, 2003
Notes: Books and Articles Read: Through December 27, 2003

Books and Articles Read Through December 27, 2003 Lars Svennson (2003), "Optimal Policy with Low-Probability Extreme Events" (Cambridge: NBER Working Paper 10196). Benjamin Friedman (2003), "The LM Curve: A Not-So-Fond Farewell" (Cambridge: NBER Working Paper 10123). Andrei Shleifer and Daniel Triesman (2003), "A Normal Country" (Cambridge: NBER Working Paper 10057). Martin Gardner (1983), The Whys of a Philosophical Scrivener (New York: Norton: 0312206828). Martin Gardner (1996), The Night Is Large (New York: Norton: 0312169493). Martin Gardner (2001), The Colossal Book of Mathematics (New York: Norton: 0393020231). John Gardner (1977), The Life and Times of Chaucer (New York: Vintage: 039472500X). Tariq Ali (1985), The Nehrus and the Gandhis: An Indian Dynasty (London: Picador: 0330289853). Steven Saylor (1992), Arms of Nemesis (New York: Ballentine: 0804111278). Bethany McLean and Peter Elkind (2003), The Smartest Guys in the Room: The Amazing Rise and Fall of ENRON (New York: Penguin: 1591840082). Lucien Bebchuck (2003), "Why Firms Adopt Antitakeover Arrangements" (Cambridge: NBER Working Paper 10190). Robert Shiller (2003), "The Invention of Inflation-Indexed Bonds in Early America" (Cambridge: NBER Working Paper 10183). Edward Glaeser (2003), "Reinventing Boston: 1640-2003" (Cambridge: NBER Working Paper 10166). Paul Berman (2003), Terror and Liberalism (New York: Norton: 0393057755). G.E.M. de Ste. Croix...

Posted by DeLong at 03:21 PM

December 23, 2003
Notes: The Musical Lenin

From Michael Pugliese: Lionel Trilling, in The Liberal Imaginstion, quotes this from Comrade Lenin. I know of nothing more beautiful than the Appassionata, I could hear it every day. It is marvellous, unearthly music. Every time I hear these notes, I think with pride and perhaps childlike naivete, that it is wonderful what man can accomplish. But I cannot listen to music often, it affects my nerves. I want to say amiable stupidities and stroke the heads of the people who can create such beauty in a filthy hell. But today is not the time to stroke people’s heads; today hands descend to split skulls open, split them open ruthlessly, although opposition to all violence is our ultimate ideal--it is a hellishly hard task. Vladimir Ilyich Lenin, quoted in Maxim Gorky, Days with Lenin http://www.artsjournal.com/aboutlastnight/archives20031214.shtml What a pity he did not become a full-time music critic......

Posted by DeLong at 12:08 PM

December 01, 2003
Notes: Economic History Seminar: December 1, 2003

Halvor Mehlum, Edward Miguel, and Ragnar Torvik (2003), "Rainfall, Poverty, and Crime in Nineteenth-Century Germany" (Berkeley: U.C. Berkeley). ABSTRACT: We estimate the impact of poverty on crime in nineteenth century Bavaria, Germany. Rainfall levels are used as instrumental variables for the price of rye to address identification problems found in the existing literature. The rye price was a major determinant of poverty during this period, as grain purchases constituted a large proportion of total households expenditures [up to 80%] for the poor. We find large, positive, and statistically significant effects of the rye price on property crime: a one standard deviation [40%] increase in the rye price increased property crime by 8 percent. This result is robust to another poverty measure (the real wage), and when we restrict attention to lagged rainfall measures as instruments.... We also find that higher rye prices lead to significantly less violent crime [0.5 coefficient], though, and argue that higher beer prices... are a likely explanation... RELEVANT: The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, beg in the streets or steal bread. Anatole France (1844–1924) The Red Lily, ch. 7 (1894)....

Posted by DeLong at 05:02 PM

November 26, 2003
Notes: Robert Rubin's View of Health Care Reform

Robert Rubin and Jacob Weisberg's In an Uncertain World on health care: pp. 149-150: ...giving the Health Care Task Force a hundred-day deadline to submit legislation was probably unrealistic. More significantly, health care cuts across much of the domestic side of the government, and significant participants in the administration--including the members of the economic team, even though most agreed with the general approach--didn't think, at least until nearer the end, that this process aired their views in a way that seriously affected decision making. Consequently, people whose internal backing was crucial too often felt somewhat disaffected, and cooperation was less than it could have been. At one point, for instance, Lloyd Bentsen said he couldn't produce cost estimates because he didn't feel adequately informed. Also, important arguments and criticism weren't exposed in the way that would have occurred in an NEC-type decision-making process. And, of course, the health reform process had the additional complication of having the First Lady in charge. I [had] told [Clinton] I liked the idea--she was smart and effective and clearly knew the subject well.... What I didn't understand at that stage was how being the President's wife would complicate her role.... People tend to pull...

Posted by DeLong at 11:29 AM

November 23, 2003
Notes: Long-Term Budgeting

Yet another book to add to the must-read-soon pile: Economist.com | Economics focus: ...the long-term budgetary risks are real and looming ever closer, says Peter Heller, deputy director of fiscal affairs at the International Monetary Fund, in a thought-provoking new book*. These risks arise not only from the effects of an ageing population on pension and health-care bills, but also potentially from medical technology, global warming, security and globalisation. Irrespective of ageing, advances in medical technology are likely to push up public spending on health care: the more medical science and public health services can provide, the more people will want... *Who Will Pay? Coping with Aging Societies, Climate Change, and Other Long-Term Fiscal Challenges: www.imf.org/external/pubs/nft/2003/wwp/index.htm...

Posted by DeLong at 04:17 PM

October 31, 2003
Note: GDP and Unemployment at Business Cycle Frequencies

Note: the last four quarters have seen real GDP grow at a rate of 3.4% per year, and have also seen the unemployment rate rise from 5.7% to 6.1%. Our old Okun's Law rule-of-thumb would take these numbers and say that they indicate that potential output growth is 4.4% per year--that as long as real GDP growth is less than 4.4% per year, the unemployment rate will keep rising. And it would say that to get the unemployment rate down to... pick a number... 5.5% by a year from now, we would have to see real GDP growth accelerate to 6.9% over the next year starting now. But these numbers are so far outside historical experience that nobody I can find will say that they still believe in our old Okun's Law rule-of-thumb that the change in the unemployment rate over a year is -0.4 times that year's excess or deficiency of real GDP growth relative to potential output growth....

Posted by DeLong at 04:18 PM

September 14, 2003
Note: Strong Views Weakly Held

In comments, A. Pressler asks: I've always wondered why inflation is such a huge bugaboo to AG and many corporate economists (other than their tendency to see things from the POV of lending institutions.) In my relatively short life, the only serious inflation problem was the supply-shock inflations created by energy costs in the 1970s.... I understand the theoretical arguments, but what is the worry when the inflation rates are still under 5% (as they were in the late '80s) or under 3% as for most of the Clinton administration? Well, the argument that inflation above 10% per year does serious harm to resource allocation and economic growth (as incentives get scrambled by an inflexible tax system, as nobody is sure what relative prices really are, and as perceptions of risk rise substantially) seems solid. And then you can argue that you need to keep inflation at 5% or below in order to eliminate the risk that a couple of bad shocks will land you in the bad zone of more than 10% annual inflation. You can also argue (and Larry Summers and I did argue back in 1992) that you want to avoid deflation and the liquidity trap--you want...

Posted by DeLong at 02:04 AM

September 13, 2003
Note: Yes, Budget Deficits Tend to Raise Interest Rates

Ammunition for the next time the White House starts lying about the likely effects of its economic policies: Eschaton: "We must do all we can to keep the days of deficits in the past. Budget deficits force the Government to borrow money in the private capital markets. That borrowing competes with (1) borrowing by businesses that want to build factories and machines that make workers more productive and raise incomes, and (2) borrowing by families who hope to buy new homes, car, and other goods. The competition for funds tends to produce higher interest rates." From the White House produced Citizen's Guide to the Federal Budget, 2001.(thanks to innerlooper)...

Posted by DeLong at 10:21 PM

Note: Ian Buruma for Secretary General

Norm Geras flags an essay in the Financial Times by the always-sane and extremely smart Ian Buruma: FT.com | Search | Article: Here is Gore Vidal, often hailed as the most important literary essayist in America, a liberal maverick, whose languid but always spirited voice of opposition to most US administrations since Kennedy's Camelot never fails to find the keen ears of the European liberal-left. He was asked on Australian radio about what Vidal calls the "Bush-Cheney junta", and how the Iraqis could have been freed from Saddam Hussein's murderous regime without US armed force. His answer: "Don't you think that's their problem? That's not your problem and that's not my problem. There are many bad regimes on earth, we can list several hundred, at the moment I would put the Bush regime as one of them." He was asked on the same show what he thought might happen in North Korea. Answer: "I don't think much of anything is going to happen; they'll go on starving to death as apparently they are or at least so the media tells us." And what about those media, specifically Fox TV? This is when the elegant drawl of the habitual old wit...

Posted by DeLong at 08:42 PM

September 12, 2003
What Does Alan Greenspan Know That I Do Not?

That was a question I asked Don Kohn at Jackson Hole. I did not get an answer. Let me explain. Eight times since his appointment to his post as Chair of the Board of Governors of the Federal Reserve, I have thought that Alan Greenspan has made a significant monetary policy mistake. Eight times. And at least six of those eight times, I have been wrong. I conclude that Alan Greenspan knows things--important things--about macroeconomics, about monetary policy, and about the relationship between economic structure and macroeconomics that I do not. These eight times are: Greenspan's rapid reduction in interest rates after 1987 stock market crash. I thought it was excessive--that the links from the stock market to the investment climate were weak, and that Greenspan's policies were likely to spark a substantial runup in inflation. I was wrong about the second--it didn't--and I'm not sure I was right about the first. Greenspan's not raising interest rates faster in 1988-1989. Once again, I thought he was behind the curve in controlling inflation. Once again, I was wrong. Greenspan's steep reduction in interest rates in 1990-1991 seemed to me, once again, to run a risk of reigniting the cycle of inflationary...

Posted by DeLong at 10:36 AM

Notes: On the Advantages of Not Having a Theory

Interesting conversations at Jackson Hole with Allen Sinai and Mickey Levy on how one of Greenspan's advantages at making monetary policy has been his lack of strong attachment to any particular framework. As a result, he has been much quicker to notice whenever the world changes than academic forecasters who have built their models and are quite attached to them....

Posted by DeLong at 10:14 AM

Note: Indicative Planning

Stephen Cohen (from memory, only approximate): "Indicative planning" is supposed to indicate that what is going on is something very different from Soviet- or Ludendorffian-style command. Whether in Japan, Korea, or metropolitan Paris, the idea is not command-and-control but rather to try to reset the drift of market outcomes in a way that takes into account important things that you can see that the market is not taking into account....

Posted by DeLong at 08:58 AM

September 08, 2003
Note: Globalization and the Recovery

Stephen Roach writes: Morgan Stanley: ...What lies behind this extraordinary shortfall in job creation? That, of course, is the burning question of the moment. Many have been quick to conclude that ongoing headcount reductions are an unavoidable implication of a secular uptrend in US productivity growth. Courtesy of IT-led breakthroughs, goes the argument, increasingly efficient US businesses are able to make do with less -- especially workers. In my view, this explanation seriously over-simplifies the story. There are, in fact, far more important forces at work. At the top of my list is what can be called the globalization of the US business cycle. Significantly, this is the first cyclical recovery in the United States that has unfolded since the advent of the Internet in 1995; as such, it has been driven by-IT-enabled outsourcing as never before. Now, with the click of a mouse, increasingly high-value-added labor input can be extracted from low-cost production platforms in Asia, central and Eastern Europe, and Latin America. Not only is that true with respect to foreign sourcing of manufacturing input, but it%u2019s increasingly the case in services as well. That means for a given increment of domestic demand, important new external leakages are...

Posted by DeLong at 06:57 AM

September 05, 2003
Note: Year 2000 Wealth Thresholds

Top 2%: 705,000 Top 1%: 1,146,000 Top 0.5%: 1,848,000 Top 0.25%: 3,067,000 Top 0.1%: 5,687,000 Top 0.05%: 9,210,000 Top 0.01%: 24,515,000 Source: Wojciech Kopczuk and Emmanuel Saez (2003), "Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns" (Berkeley: U.C. Berkeley xerox)....

Posted by DeLong at 07:17 PM

Notes: Glenn Loury

Paul Krugman on Glenn Loury's intellectual trajectory. Andrei Shleifer says that his Du Bois Lectures are very, very well done....

Posted by DeLong at 06:26 PM

August 27, 2003
Note: Productivity in the Third Quarter

If seasonally-adjusted hours worked in August and September just equal those in July (a reasonable bet for August at least), then labor input in the third quarter of 2003 will be 0.4% below labor input in the second quarter of 2003--labor input will be falling at a 1.6% annual rate. That means that a third-quarter seasonally-adjusted growth rate of 4% per year would be associated with a productivity growth rate of 5.6% per year......

Posted by DeLong at 09:41 AM

August 24, 2003
Notes: Microsoft Price Discrimination

Interesting. But what is the price of Windows in the U.S.? Really? How much do businesses and OEMs pay? Gartner: Microsoft cuts Windows price to $40 in Thailand - Computerworld: In a move that could lead to lower prices for Microsoft Corp. software in other countries, the company has cut the price of its Windows operating system and Office applications suite in Thailand, according to a report released by market research firm Gartner Inc. "Microsoft -- in response to a Linux threat -- recently reduced pricing to $40 for an Office and Windows package it offered as part of a government initiative in Thailand," the report said. "Microsoft may offer a similar package in China as an incentive to keep Chinese enterprises using its products," the report added. Microsoft officials couldn't immediately be reached for comment. While Gartner didn't disclose the specific Linux threat faced by Microsoft in Thailand, Hewlett-Packard Co. is selling Linux-based laptops in Thailand for $450 as part of a program initiated by the country's Information, Communications and Technology ministry to make affordable PCs available in the country. Those laptops went on sale in May, and HP has described demand as overwhelming. The Microsoft price cuts in...

Posted by DeLong at 01:02 PM

Notes: Internal Fed Divisions

Ah. Interesting: WSJ.com - Fed Officials Play Down Recovery, Suggesting Continued Low Rates: ...there was new evidence that Fed officials were more divided than usual on the right interest-rate move at their June 24-25 meeting, which may have played a part in bond markets putting too much weight on the remarks of more pessimistic officials. In the days preceding the meeting, only five of the Fed's 12 regional banks had voted for a quarter-point cut in rates; three had voted for a half-point cut and four voted for none at all. Boards of regional banks vote on the little-used discount rate, charged on short-term loans from the Fed to member banks, which moves in tandem with the federal-funds rate. The Fed's seven governors in Washington vote on such requests. The Fed released minutes to the governors' deliberations on discount rate requests Thursday... It is unusual for there to be such a big divergence in the Fed's view of the world....

Posted by DeLong at 12:00 PM

August 08, 2003
Notes: Nixon and Civil Rights

Topic: Notes: Nixon and Civil Rights From Sally L. Todd Sistersara@aol.com: In the election of 1960, Martin Luther King Senior did not endorse Nixon. After Kennedy personally called Coretta King when Martin Jr. had been sent to the Georgia Penitentiary for driving on an expired license, "Daddy" King made a public statement to the effect that he had a bushel full of votes he planned to deliver to John Kennedy. There is another intersection between Civil Rights and Cold War International Relations that emerged in the 1960 campaign that is most telling, though sadly it has not gotten sufficient attention. Beginning about 1957 the Ford Foundation, and a number of educational groups and institutions did a substantial study of College and Graduate Level opportunities and achievements among elite in African countries scheduled for independence or decolonization. Of course they found much lacking. Their recommendation was to establish a significant number of places in quality American institutions for offer to young Africans with both academic promise and leadership ability. In the fall of 1960 this program was scheduled to begin with the arrival of 500 African students. Ford and other foundations had arranged full scholarships for this group, with many institutions...

Posted by DeLong at 08:00 PM

August 02, 2003
Notes: Mortgage-Backed Securities

Ed Yardeni thinks that the volatile duration of mortgage-backed securities is the principal factor behind the extraordinary recent volatility of the ten-year bond: Treasuries as Predictor and, Maybe, Shocker: Edward Yardeni, chief investment strategist at the Prudential Equity Group, took some time last week to chat about the implications of the rise in interest rates for the economy and the stock market.... "Bonds did get dramatically overbought. But much of what has happened in the last few months probably had more to do with derivative transactions related to mortgage-backed securities. As mortgage rates declined, prepayments increased, reducing the duration of mortgage backs. Mortgage portfolio managers with certain duration requirements then had to go out and buy Treasury bonds, which pushed rates lower. They were the most aggressive buyers in May and June. In many ways what happened is similar to what happened in the fall of 1987, when the purchase of portfolio insurance exacerbated the slide in stock prices... "The announcement from the Treasury that they would need to raise $450 billion over the course of the next year started to reverse the process. With that announcement, the bond market realized they were going to get stuffed with a lot...

Posted by DeLong at 07:00 PM

July 29, 2003
Notes: Reminder: Berkeley Economic History Lunch

Reminder to self: Berkeley Economic History lunch Friday noon......

Posted by DeLong at 04:07 PM

Notes: Some Historical Questions

Some historical questions I want to find the answers to: - What difference did it make for medieval economies--and for the relative prosperity of the Muslim world in the middle ages--that Muhammed was a merchant? What was the typical pre-agricultural density of hunter-gatherer populations? What share of the world's population lived in the Iraq-Turkey-Syria-Lebanon Fertile Crescent in 5000 BC? 2000 BC? We hear a lot about the military revolution at the end of the sixteenth century: we hear about Gustaf Adolf, about Maurice van Nassau, even about (the earlier) Gonsalvo de Cordoba. We hear about the effective use of firearms and cannon. Discipline. Logistics--both ammunition supply and keeping guys fed and (relatively) plague free. And we hear of the victories won by Maurice van Nassau and Gustaf Adolf of Sweden over the half-modernized Spanish and Austrian armies, just as we hear of the victories won a century earlier by Gonsalvo de Cordoba and his half-modernized tercios over the unmodernized Italian mercenaries and French cavaliers. But we don't hear much about similarly striking victories won a little bit earlier somewhat further to the east: we hear little about Babur the Mogul or about Mehmet II the Conqueror of the House...

Posted by DeLong at 04:04 PM

July 26, 2003
Notes: In the Shadow of Malthus

Begin with the shape of the demographic transition since 1820, with population growth rates plotted as a function of levels of guestimates of levels of real GDP per capita (measured in Maddison's 1990 "International Dollars") for the world's various regions for six irregular (but sensible) subperiods.* The figure shows how population growth rises rapidly as societies progress and grow their annual per-capita incomes from a Malthusian near-subsistence level of $400 (1990 International Dollars) per person per year up to $1,100 or so. Then population growth levels off--typically at 1.75% per year or so--as fertility restriction becomes widespread. Once societies pass $4,000 per capita a year or so, the demographic transition proper sets in, and population growth rates start to decline markedly. Underlying data source: Angus Maddison (2001), The World Economy in Millennial Perspective (Paris: OECD). Raw preliminary spreadsheet at: http://www.j-bradford-delong.net/movable_type/data-TCEH/Maddison_Millennial_Numbers.xls. Let's concentrate on the left-hand side of the figure--the one that lets us hypothesize that human population growth rates are essentially zero when annual GDP per capita levels (guessed-at in 1990 international dollars) are around $400, and that each ten percent increase in living standards above that subsistence level boosts population growth rates by about 0.2 percentage points per year:...

Posted by DeLong at 07:26 AM

July 25, 2003
Notes: Current Life Expectancies Worldwide

Atlas of life expectancy worldwide...

Posted by DeLong at 09:11 PM

July 22, 2003
Notes: Steve Ross: Finance a Theory of Sharks, Not of Rational Portfolio Allocation

Steve Ross: Neoclassical finance is a theory of sharks and not a theory of rational homo economicus, and that is the principal distinction between finance and traditional economics. In most economic models aggregate demand depends on average demand and for that reason, traditional economic theories require the average individual to be rational. In liquid securities markets, though, profit opportunities bring about infinite discrepancies between demand and supply. Well financed arbitrageurs spot these opportunities, pile on, and by their actions they close aberrant price differentials. Of course, this leaves such things as the determination of the low-risk real interest rate and the risk premium flapping wildly in the breeze......

Posted by DeLong at 07:30 PM

Notes: Dwight Perkins: Chinese Mysteries

Notes: Dwight Perkins: Chinese Mysteries I had a delightful lunch with Dwight Perkins at Randall Morck's Lake Louise conference. He was mercilessly quizzed by Caroline Fohlin on exactly what he thinks of Ken Pomeranz, and how one understands Chinese economic history. It is a mystery. We have the facts that: Around 1000 China was the most technologically dynamic society in the world--compass, printing, gunpowder, new rice strains, ironworking. In the next several century or so, China became and remained a market society. But no industrial revolution. It is one of the greatest mysteries. I tend toward some version of the Weber-self-governing-European-city thesis myself......

Posted by DeLong at 07:28 PM

July 21, 2003
Notes: Kindleberger in Government

K. Harris provides a pointer to an oral history interview with Charles Kindleberger about his experiences during and after World War II: Truman Library Kindleberger Interview...

Posted by DeLong at 07:54 PM

Notes: Kaiser on the Vietnam War

One of the peak intellectual experiences of my friend Mike Levitin was a freshman seminar on the origins of World War I run by historian David Kaiser. Here Kaiser gives his one-sentence assessment of American policy in Vietnam: In 1965 there was obviously more support for the Viet Cong in South Viet Nam than for the Saigon government, and our attempt to make the Saigon government prevail killed, literally, millions (certainly well over one million) without affecting the result.... In short: Long-run benefits: zero. Short-run costs: millions dead. Even if you are fighting on the side of the good guys, it is only worth making war if the odds that you will win are very, very high indeed....

Posted by DeLong at 02:54 AM

July 20, 2003
Notes: Forged Nigerian Uranium Documents

Forged Nigerien Uranium Documents...

Posted by DeLong at 02:13 PM

July 17, 2003
Note: Nozick and "Rectification"

Everything Robert Nozick says in Anarchy, State, and Utopia about the principle of "rectification" to repair past injustices. One would think this would be a very important topic, given that there is not a single square inch of earth (outside of Antarctica) where title is not claimed at least partially by right of conquest: through force and violence. One would think that any advocacy of a capitalist libertarian minimal state would have at its core a long exploration of how to make a silk purse out of a sow's ear--how to arrive at a current "just" distribution of resources considering that everything I own, at least, is the fruit of at least three poisoned trees: William the Bastard's conquest of England in 1066, the overthrow of the Stuart dynasty in 1688, and the American attack on Mexico in 1846-8. But not so: Nozick's asides on "rectification" are sparse and scattered: pp. 152-3: "Not all actual situations are generated in accordance with the two principles of justice in holdings: the principle of justice in acquisition and the principle of justice in transfer. Some people steal... defraud... enslave.... The existence of past injustice... raises the third major topic under justice in...

Posted by DeLong at 12:32 PM

July 16, 2003
A Debatable--and Probably False--Proposition

A debatable--and probably false--proposition: p. 274: It has often been noted both by proponents of laissez-faire capitalism and by radicals that the poor in the United States are not net beneficiaries of the total of government programs and interventions in th eeconomy. Much of government regulation of industry was originated and is geared to protect the position of established firms against competition, and many programs most greatly benefit the middle class... [no references] Robert Nozick (1974), Anarchy, State, and Utopia (New York: Basic Books: 0465097200)....

Posted by DeLong at 04:41 PM

July 15, 2003
Notes: Ken MacLeod

Dear Mr. MacLeod: Any chance that you have actually written down your analysis/critique of _A Moon Is a Harsh Mistress_ anywhere? Or that you might be persuaded to do so sometime in the near future? MacLeod:Perhaps not all that could be said, but there is this, from a draft of my article 'Politics and SF' in _The Cambridge Companion to Science Fiction_ (CUP, forthcoming): [preceded by discussion of other Heinlein works] The work of Heinlein's which has had a more direct, if small, political effect - through its influence on David Friedman and other theorists of anarcho-capitalism, a significant minority strand in modern libertarianism - is The Moon is a Harsh Mistress. What is not immediately evident is that the book's hero and narrator is, albeit unwittingly, the villain of the piece. The carefully plotted revolution in a Lunar penal colony - in the name of free trade with Earth - actually succeeds in setting up a democratic state, which destroys the stateless capitalist anarchy which the colonists already enjoyed under the Warden's distant rule. They had liberty already, had they but known it, and by the end there's nothing for a good libertarian to do but move out to...

Posted by DeLong at 04:09 PM

July 14, 2003
Notes: Tax-Deferred Savings

Alan J. Auerbach, William G. Gale, and Peter R. Orszag (2003), "Reassessing the Fiscal Gap: Why Tax-Deferred Saving Will Not Solve the Problem" (Berkeley: U.C. Berkeley). Abstract: A variety of recent studies have found that the United States faces a substantial fiscal gap--that is, a sizable imbalance between projected federal outlays and receipts. A recent study by Boskin (2003) suggests these findings are overstated because they largely or entirely omit projected revenues from tax-deferred saving plans. This paper reassesses estimates of the long-term fiscal status of the United States in light of Boskin's analysis and draws three principal conclusions. First, the nation continues to face a substantial long-term fiscal gap, as conventionally estimated. Second, Boskin's projections of revenue from tax-deferred accounts have only a very modest effect on the long-term fiscal outlook because almost all of the relevant revenue is already incorporated into the revenue projections that generate sizable fiscal gaps. Third, the primary focus of Boskin's analysis is the overall effect on the budget from retirement accounts--not how much of that effect is already included in the budget projections. We also find that his estimated overall budgetary effect is substantially overstated....

Posted by DeLong at 01:49 PM

Notes: Khmer Rouge

Bruce Sharpe (2002), Cambodia: Noam Chomsky and Edward Herman: Averaging Wrong Answers (http://www.mekong.net/cambodia/chomsky.htm)....

Posted by DeLong at 01:21 PM

July 11, 2003
Notes: Ralph Nader

More evidence that Ralph Nader is an idiot: http://www.arktimes.com/mccord/120100mccord.html: Some believe that Nader wanted Bush to win all along, that his goal was to cripple the Democratic Party so as to make the Green Party and Ralph Nader more powerful in future elections (Nader will be 70 in 2004, by the way). It's the old notion that things will have to get worse before they get better. After criticizing Gore as part of a do-nothing administration in a speech at Chapman University in California, Nader said: "If it were a choice between a provocateur and an anesthetizer, I'd rather have a provocateur. It would mobilize us."... Two-thirds of those who voted for Nader said they would have voted for Gore if Nader hadn't been on the ballot....

Posted by DeLong at 11:03 PM

July 08, 2003
Notes: Blanchard on Transition

Olivier Blanchard's view on the transition from communism to capitalism as of the mid-1990s. If I read his Economics of Post-Communist Transition right, the key problem was the absence of a Marshall Plan to keep demand high and employment high during transition. In the immediate aftermath of World War II in Western Europe, the Marshall Plan allowed countries to maintain high aggregate demand without worrying about balance-of-payments constraints. There was no similar inflow of hard currency in the early 1990s to allow transition governments to create the demand to rapidly reemploy those laid off from state industries. The Bush I Administration had, because of the Reagan deficits, "more will than wallet." As a result, Blanchard argues, high unemployment led to a fear of reallocation and restructuring, and the slowing of the entire process of reform down to a glacial pace. If only demand and employment could have been kept high during the initial stages of transition... And since the mid-1990s? Since Blanchard wrote his book, what has happened? If I read the data right, economic progress in Central Europe has been slow, in Eastern Europe has been very slow, and in the former Soviet Union (where there never was the...

Posted by DeLong at 03:28 PM

Notes: Keynes on Trotsky

Floated across my desk this morning... http://www.marxists.org/history/etol/document/comments/keynes01.htm. Review of Trotsky On England (Where is Britain Going?), by John Maynard Keynes. From John Maynard Keynes (1933), Essays in Biography (London: Harcourt, Brace). A CONTEMPORARY reviewing this book says: "He stammers out platitudes in the voice of a phonograph with a scratched record." I should guess that Trotsky dictated it. In its English dress it emerges in a turbid stream with a hectoring gurgle which is characteristic of modern revolutionary literature translated from the Russian. Its dogmatic tone about our affairs, where even the author's flashes of insight are clouded by his inevitable ignorance of what he is talking about, cannot commend it to an English reader. Yet there is a certain style about Trotsky. A personality is visible through the distorting medium. And it is not all platitudes. The book is, first of all, an attack on the official leaders of the British Labour Party because of their "religiosity", and because they believe that it is useful to prepare for Socialism without preparing for Revolution at the same time. Trotsky sees, what is probably true, that our Labour Party is the direct offspring of the Radical Non-conformists and the philanthropic bourgeois,...

Posted by DeLong at 01:02 PM

Notes: Hayek and Democracy

I have long been of the opinion that Friedrich Hayek saw more deeply into why the market economy is so productive--the use of knowledge in society, competition as a discovery procedure, et cetera--than neoclassical economics, with its Welfare Theorems that under appropriate conditions the competitive market equilibrium (a) is Pareto-Optimal or (b) maximizes a social welfare function that is the sum of individual utilities in which each individual's weight is the inverse of their marginal utility of income. I have also long been of the opinion that Karl Polanyi saw more deeply than Hayek into what the necessary foundations for a well-functioning and durable market economy--and good society--were. But last night I ran into a passage that makes me wonder whether Hayek in his inner core believed that democracy had any value--even any institutional value--at all. It came on pp. 171-2 of Friedrich Hayek (1979), Law, Legislation and Liberty: The Political Order of a Free People vol. III (Chicago, Il.: University of Chicago Press: 0226320901): Egalitarianism is of course not a majority view but a product of the necessity under unlimited democracy to solicit the support even of the worst.… It is by the slogan that 'it is not your...

Posted by DeLong at 11:54 AM

June 29, 2003
Notes: Sticky Information...

Yet another thing for me to add to the "must read" pile... Disagreement about Inflation Expectations N. Gregory Mankiw, Ricardo Reis, Justin Wolfers | NBER Working Paper No. w9796 | June 2003: Abstract: Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. Moreover, this disagreement shows substantial variation through time, moving with inflation, the absolute value of the change in inflation, and relative price variability. We argue that a satisfactory model of economic dynamics must speak to these important business cycle moments. Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple sticky-information' model broadly matches many of these facts. Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news....

Posted by DeLong at 07:46 PM

June 24, 2003
Notes: Desai, Marx's Revenge

The first thing to note about Marx's Revenge is that it is not in any sense a history of economic thought. What do I mean by this? Well, consider Desai's description of Marx's argument in Capital's chapter "The General Law of Capitalist Accumulation"--which Desai describes as a chapter about cyclical growth: There are three strands of analysis of the dynamics of capitalism [cyclical growth, balanced growth, and the falling rate of profit] in the three volumes of Capital. Since all three volumes were written in draft at the same time... these are not just mistakes... but consistent aspects of the same model. there is also... an apocalyptic vision, practically repeated from the Communist Manifesto, which sits uneasily with the rest of Capital. Thus Marx has three responses, not altogether contradictory, to the question of the dynamics of capitalism.... Cyclical Growth There is a cyclical pattern to a capitalist economy which is due to the way in which the rate of profit fluctuates. Capitalists employ workers to make profits, but as they employ more workers, unemployment goes down. This puts pressure on real wages. As real wages, as well as employment, go up, th eshare of profit goes down, and there...

Posted by DeLong at 10:06 PM

June 22, 2003
Notes: Intro to History of American Corporate Control

I'm going to talk about the rise of American financial and bank-group capitalism, and Marco is going to talk about its fall. Together we'll talk about the waxing of the House of Morgan and the Dynasty of Rockefeller and their other peers, and then their waning. How the U.S. first becomes and then moves from being, a century ago, a "normal" country--with family pyramids and powerful investment banks--as far as corporate control and financial organization is concerned to being a distinctly abnormal country. Our general rhetorical strategy is to take refuge in historians' standard argument #3: that things are really complicated, and all neat, clean theories by people like our friends Mark Roe (1993) and Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1998) are only partial and incomplete because they do great violence to historical reality and ignore complexity, contingency, just dumb luck, and sheer chance. So let me start with a passage from the tallest Canadian economist. A generation ago on the very first page of his New Industrial State John Kenneth Galbraith wrote about--perhaps mourned?--the passing of the influence of the great business families of America: Seventy years ago the corporation was the instrument of its owners...

Posted by DeLong at 10:56 AM

Notes: Fads and Fashions in Thought About Corporate Control

Countries studied at this conference: Canada, France, Germany, Britain, Italy, Japan, Netherlands, Sweden, United States. China, India. The first nine have all done very, very well, in spite of having substantially different systems of financial organization and corporate control. That suggests that it is unwise to claim that there is one philosopher's stone right structure for finance, and that all other financial structures are poisonous. We have, after all, lived through a number of fads and fashions in what the "right" organization of financial systems happens to be: The Japanese Model: Remember the Japanese model? The days when Japan's version of the German "universal bank" system--the keiretsu--was the clearly superior mode of financial organization and mechanism of corporate control? When it allowed for effective corporate supervision and patient capital? How the short-termism of Wall Street wsa destroying American industry? The Eclipse of the Public Corporation: Remember Michael Jensen and the eclipse of the public corporation? The claim that the public corporation with diversified shareholding was an outmoded, obsolete, disfunctional form of corporate organization? Takeovers as Salvation: Takeovers to keep boards and managers on their toes... The Venture Capital-Fed Entrepreneurial Genius of Silicon Valley: In which we talk about how big...

Posted by DeLong at 10:38 AM

Note: What Does "Control" Mean?

A note on Caroline Fohlin, "Ownership and Control in the German Corporation": I want to load yet another task onto our conference organizer and editor Randall Morck's broad, tall, northern, Albertan back. Yet another thing that our editor needs to do is to give us a definition of "control" that we can all use in our papers. In the U.S. context, which is the only one I really know--when Morgan right-hand George F. Baker tells AT&T during the Panic of 1907 that he will rollover their loans only if they will replace their current president with Theodore N. Vail and if they will change their entire strategy from the "Macintosh" one of selling high-priced telephones to rich people to the "Microsoft" strategy of universal nationwide low-price service, is that control? When NY, NH, & Hartford RR president Charles Mellen tells journalist C.W. Barron that he is proud to wear the Morgan [thrall] collar, is that control? When other board members of the Union Pacific tell Frank Vanderlip to be quiet and stop complaining about the fees the U.P. is paying its underwriters because Vanderlip's bank is getting its fair cut, is that control? In all three cases, I would say,...

Posted by DeLong at 10:35 AM

June 21, 2003
Note: Before the Accord

Greg Ip writes that the Federal Reserve now thinks that it cannot effectively peg the ten-year bond rate without moving very very carefully to control expectations about its projected path for short rates: WSJ.com - Fed's Next Interest-Rate Cut May Be Smaller Than Expected: ...beyond that next rate cut, the Fed now faces a daunting challenge: How to continue to ward off potential deflation when short-term interest rates are closer to zero than they have been in 45 years. Several months ago, officials said that in such a near-zero scenario the Fed could keep rates down by buying Treasury bonds, as it did in the 1940s. Such a buying spree would raise bond prices and lower their interest yields, which move in the opposite direction. But after months of study, Fed officials have concluded that today's far-more-complex bond market would frustrate that strategy. The Fed's key rate already is at 1.25%. After next week's move, cutting it even closer to zero will pose problems. Too low a rate would imperil money-market mutual funds, for instance, because they might no longer clear enough money to cover expenses and pay a return to investors. It would leave the impression the Fed was...

Posted by DeLong at 11:14 AM

June 10, 2003
Notes: Life in North Korea

Marcus Noland on life in North Korea: Testimony: Life in North Korea: North Korea is into its second decade of food crisis. It experienced a famine in the 1990s that killed perhaps 3 to 5 percent of the pre-famine population. Yet remarkably little has changed since then; grain production has not recovered; and inexpertly enacted policy changes, a deteriorating diplomatic environment, donor fatigue, and an utterly ruthless government have brought the country once again to the precipice of famine.... Unlike other communist countries that have experienced famine, the case of North Korea represents less the introduction of misguided policies than the cumulative effect of two generations of economic mismanagement and social engineering. As a consequence, the policies are so imbedded in the social and political fabric of the country that they may well prove more difficult to reverse than has been the case elsewhere. The country could improve food availability by freeing up resources currently devoted to the military, but as long as the country pursues "military-first" politics, this is unlikely. Aid is not a viable long-term solution to the North Korean food crisis-the food gap is too large, and the political sustainability of aid too precarious. And while incentive...

Posted by DeLong at 09:52 PM

Notes: Turning Japanese

The Institute for International Economics's Adam S. Posen worries that Germany is turning Japanese--that Germany today looks a lot like Japan in 1994......

Posted by DeLong at 09:46 PM

June 09, 2003
Notes: Meredith Beechey Oral Exam

Things I need to read if I'm going to do a good job in thinking about Meredith Beechey's dissertation prospectus, "Technological Change and Quality Improvement": Weitzman, M.: 1976, "On the welfare significance of national product in a dynamic economy," Quarterly Journal of Economics 90(1), 156?162. Weitzman, M.: 1999, "A contribution to the theory of welfare comparisons." NBER Working Paper Series No. 6988. Costa, D.: 2001, "Estimating real income in the us from 1888 to 1994: Correcting cpi bias using engel curves," Journal of Political Economy 109(6), 1288?1310....

Posted by DeLong at 03:56 PM

Notes: Competition as a Discovery Procedure

Greg Ransom tells us that: PrestoPundit.com: Friedrich Hayek's important essay "Competition as a Discovery Procedure" is now available on the web (pdf). This version of the essay is a translation from a lecture given in 1968 at the U. of Kiel. It differs in several small ways from the essay published in Hayek's New Studies... In my view this particular essay combines brilliance and antibrilliance in remarkable degrees......

Posted by DeLong at 12:41 PM

June 06, 2003
Notes: Ben Bernanke

CNBC has a nice (albeit short, and a little simplistic) article about Ben Bernanke: New governor is shaking up the Fed...

Posted by DeLong at 03:32 PM

June 03, 2003
Notes: Kent Smetters

Kent Smetters, late of the U.S. Treasury--a smart guy who knows a lot more than I do about the federal government's health programs and is terrified at the prospective high cost and low health statust-improvement return of Medicare over the next two generations--will be visiting the Burch Center here at Berkeley this summer. This means that he'll be a fifth-floor person, which means I'm going to have to make a serious effort to see him, given how architecture separates us sixth-floor people from the fifth-floor people. Ted Keeler says we have a health economics summer visitor as well......

Posted by DeLong at 09:26 PM

May 30, 2003
Notes: Beveridge Curve

Help-wanted advertising in newspapers at record lows. I need to figure out if newspaper ads are still a good index of vacancies. It has powerful implications for the location of the Beveridge Curve--the relationship between workers looking for jobs and jobs looking for workers. Bloomberg: Help-wanted advertising falls to 41-year low as firms delay hiring BLOOMBERG NEWS. WASHINGTON - The volume of help-wanted advertising in major U.S. newspapers fell in April to the lowest in more than 41 years as companies put off hiring to focus on cutting costs. The Conference Board's help-wanted advertising index dropped to 35, the lowest since September 1961, from 38 in March. It was the third consecutive monthly decline. The index stood at 47 in April 2002. "April may represent a low point for the ailing labor market," said Ken Goldstein, an economist at the research group, which is based in New York. "After initial unemployment claims revealed a big rise in layoffs, want-ad volume significantly declined from already very depressed levels." The jobless rate rose to 6 percent in April, matching an eight-year high, the government reported earlier this month. Companies cut payrolls for a third month, bringing to 525,000 the number of workers...

Posted by DeLong at 12:08 PM

May 27, 2003
Note: Don't Forget Lunch

Note to self: don't forget: lunch Heath Pearson Free Speech Movement Cafe noon. Of course, the Free Speech Movement Cafe always gives me the willies: I keep looking at the picture of Mario Savio and wondering if the guy ever realized just how much help he had given Ronald Reagan in his quest to become Governor of California......

Posted by DeLong at 11:26 AM

Notes: Krugman: Social Insurance State

Notes: Paul Krugman on our very strange economic policy... May 27, 2003 Stating the Obvious By PAUL KRUGMAN "The lunatics are now in charge of the asylum." So wrote the normally staid Financial Times, traditionally the voice of solid British business opinion, when surveying last week's tax bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can't possibly afford it while keeping its other promises. But then maybe that's the point. The Financial Times suggests that "more extreme Republicans" actually want a fiscal train wreck: "Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door." Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable. It's no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration's policies might actually be driven by those ideologues ? that the administration was deliberately...

Posted by DeLong at 11:10 AM

Note: Greenspan's Views as of May 2003

Greenspan's views, May 2003... Testimony of Chairman Alan Greenspan The economic outlook Before the Joint Economic Committee, U.S. Congress May 21, 2003 Mr. Chairman, I appreciate the opportunity to testify before the Joint Economic Committee. As you will recall, when I appeared here last November, I emphasized the extraordinary resilience manifested by the United States economy in recent years--the cumulative result of increased flexibility over the past quarter century. Since the middle of 2000, our economy has withstood serious blows: a significant decline in equity prices, a substantial fall in capital spending, the terrorist attacks of September 11, confidence-debilitating revelations of corporate malfeasance, and wars in Afghanistan and Iraq. Any combination of these shocks would arguably have induced a severe economic contraction two or three decades ago. Yet remarkably, over the past three years, activity has expanded, on balance--an outcome offering clear evidence of a flexible, more resilient, economic system. Once again this year, our economy has struggled to surmount new obstacles. As the tensions with Iraq increased early in 2003, uncertainties surrounding a possible war contributed to a softening in economic activity. Oil prices moved up close to $40 a barrel in February, stock prices tested their lows of...

Posted by DeLong at 10:44 AM

May 25, 2003
Notes: Begala, Conason, Hitchens, Kelly

It appears that Christopher Hitchens may have committed an error in mistaking the late Michael Kelly for a reliable source: From http://rogerailes.blogspot.com/: In the once not-bad Atlantic Monthly, Hitch starts a paragraph decrying the misrepresentations of "spin doctors"... The privatized and privateering class of spin doctors, advisers, consultants, fundraisers, and reputation mongers displays a weird combination of cynicism and naivete... Not long ago in this magazine David Brooks mapped a political sociology elaborating on the notion that the country was in theory divisible between heartland "red" districts and more coastal "blue" ones... Soon afterward one of Bill Clinton's reliable yes-men, Paul Begala, issued a response, asserting that it was in "red" districts that gay men like Matthew Shepard were lynched, or black men like James Byrd were dragged behind pickup trucks until they died... ...Joe Conason and Bob Somerby revealed this fraud three years ago, when [Michael] Kelly selectively quoted the same sentence from Begala. Joe Conason explained: "This does violence to what Begala actually wrote... readers of Kelly's column would have no way of knowing he had left out... 'But that's not the whole story either.... My point is that Middle America is a far more complicated place than...

Posted by DeLong at 11:17 AM

May 24, 2003
Notes: The New York Times on the Laffer Curve

Notes: The New York Times on the Laffer Curve: http://www.nytimes.com/2003/05/18/business/yourmoney/18VIEW.html?fta=y May 18, 2003 Name That Tune About Tax Cuts By DAVID E. ROSENBAUM WASHINGTON ONE of the most enduring political images of the last generation is the one of Arthur Laffer, an obscure economist from the University of Southern California, scribbling a parabola on a cocktail napkin one night in the late 1970's to illustrate how tax cuts would lead to more government revenue, not less. The Laffer Curve became the basis of a whole political movement. Prominent politicians like Jack F. Kemp, then a Republican congressman from Buffalo, bought the theory. Then Ronald Reagan adopted it, and it became the justification for the main plank of his 1980 campaign for president (in the face of the elder George Bush's ridicule that it was "voodoo economics"). After Mr. Reagan was elected, he rammed through Congress in 1981 a tax cut that was then the biggest ever, and his staff produced forecasts showing that within a few years, the budget would be balanced. Of course, the budget deficits mushroomed. In economics circles, the idea that tax cuts would pay for themselves was never widely held and was mostly abandoned by the...

Posted by DeLong at 03:22 PM

Perry Anderson's Missing Book

In the early 1970s Perry Anderson wrote his Passages from Antiquity to Feudalism and Lineages of the Absolutist State. The first covered the rise and decline of classical Mediterranean civilizations and the rise and transformation of the European feudalisms that grew out of and followed them. The second covered the "absolutist" European monarchies that in turn grew out of feudalism in the early modern period. I don't agree with them exactly--I am much more of a techno-organizational determinist than Anderson. But they are very interesting and thoughtful works indeed. The natural next step seemed to be for Anderson to take his particular analytical framework--what I think of as neo-Weberian "modes of domination" coupled with a close look at politico-economic institutions all of which Anderson ties up in a package and pretends is some form of Marxism--to the eve of the Industrial Revolution: a study of European politics in the age of the democratic revolutions coupled with a look at the pace of the industrial economic transformation. It would have been an extraordinarily stimulative work on the birth of "modernity"--political democracy, urban culture, mass politics, the industrial revolution, market capitalism, and how and whether they all hung together as a system....

Posted by DeLong at 11:24 AM

May 17, 2003
Notes: Arteta Dissertation

Carlos Arteta (2003), "Are Highly Dollarized Countries More Prone to Costly Crises?" (Berkeley: U.C. Berkeley xerox). In this paper, I aim to present some stylized facts on the links between financial dollarization and crises, in order to answer two related questions: Does high dollarization of deposits and credits increase the likelihood of banking crises and currency crashes? And does it make banking crises and currency crashes more costly? To do so, I employ the first comprehensive database on financial dollarization for a large sample of developing and transition economies, previously used in Arteta (2002), as well as a variety of estimation methods and an extensive battery of sensitivity tests. Extensive econometric analysis finds little evidence of any particular link between high bank dollarization and the likelihood of banking crises or currency crashes. In particular, the presumption that high dollarization heightens the probability of banking or currency turmoil doe snot receive empirical support.... [W]hile... banking crises and currency crashes are contractionary, there is no evidence that highly dollarized countries suffer more costly crises or crashes... deposit dollarization may act as a buffer.... On the other hand... sharp devaluations have more severe contractionary effects than sharp depreciations: Large downward movements of the...

Posted by DeLong at 10:25 AM

May 16, 2003
Notes: Terry Pratchett: Getting Medieval

Terry Pratchett can invent two significant characters and warp the entire plot of his novel as an excuse for making one joke (well, more than one joke: but this is the biggest one): "...An' then... then I'm gonna get medieval on his ***." There were more pressing problems, but this one intrigued Mr. Pin. "How, exactly?" He said. "I was thinking of a maypole," said Mr. Tulip reflectively. "An' then a display of country dancing, land tillage under the three-field system, several plauges, and then, if my ---ing hand ain't too tired, the invention of the ---ing horse collar." From The Truth....

Posted by DeLong at 05:43 PM

Notes: Among the Believers

Joshua Micah Marshall has a teaser quote from V.S. Naipaul's Among the Believers: Talking Points Memo: by Joshua Micah Marshall: The new men of the villages, who feel they have already lost so much, find their path blocked at every turn. Money, development, education have awakened them only to the knowledge that the world is not like their village, that the world is not their own. Their rage --- the rage of pastoral people with limited skills, limited money, and a limited grasp of the world --- is comprehensive. Now they have a weapon: Islam. It is their way of getting even with the world. It serves their grief, their feeling of inadequacy, their social rage and racial hate (p. 227)....

Posted by DeLong at 09:46 AM

May 14, 2003
Notes: Franklin Ford: French Nobility

From Franklin Ford (1953), Robe and Sword (Cambridge: Harvard University Press), p. vii: But consider the same class a century later, in the 1780s. It had ruined Maupeou and Turgot, reconquered every bishopric in the realm, imposed the rule of four quarterings of nobility for high army appointments, and forced the monarchy into a cowed, ultimately fatal solicitude for privileged interests.... [T]heorists such as Pereto and Sorel have sneered at the humanitarian anemia which had sapped its capacity for violence in its own defense. Nevertheless, the French aristocracy, if it did not have the strength to suppress revolution, had at least recovered enough strength to make revolution inevitable......

Posted by DeLong at 05:41 PM

Notes: La Bruyere: French Nobility

From Franklin Ford (1953), Robe and Sword (Cambridge: Harvard University Press), p. vii: There is a passage in La Bruyere which expresses as concisely as I know the familiar historical impression of the French nobility under Louis XIV: "A nobleman, if he lives at home in his province, lives free but without substance; if he lives at court, he is taken care of but enslaved." There, in miniature, is the picture of a class of subjects reduced to indigence by economic developments beyond their powers of adaptation or broken to sycophancy by the cardinal and the king who had dominated the Grand Siecle......

Posted by DeLong at 05:40 PM

Notes: Grigore Pop-Eleches, "Refracting Conditionality: IMF Programs and Domestic Politics During the Latin American Debt Crisis and the Post-Communist Transition"

I have to read a political science dissertation tonight. It's very good... Grigore Pop-Eleches (2003), "Refracting Conditionality: IMF Programs and Domestic Politics During the Latin American Debt Crisis and the Post-Communist Transition" (Berkeley, CA: U.C. Berkeley Ph.D. Diss.). To the extent that neoliberal reforms are consolidated in any but the most developed countries of the two regions, the relative success stories discussed in this dissertation (Bolivia and Bulgaria) revealed a highly contingent pattern of deep initial economic crisis, skillful political coalition building, and generous Western support... the importance of taking advantage of the initial economic crisis... to forge a more durable political coalition in support of economic reforms. While.. the importance of such coalitions is easy to ignore during the post-electoral honeymoon period, governments that succumb to the temptation of insulated economic policy decision-making have a much more difficult time sustaining economic reforms once their popularity is undermined by the sometimes sizeable social costs of such reforms.... another interesting dilemma... the statistical results and the discussion of Bolivia's unlikely neoliberal reform coalition confirm the importance of rent sharing as the glue that binds together social and political actors.... On the other hand, the increasing neoliberal emphasis on privatization, deregulation,...

Posted by DeLong at 05:18 PM

May 13, 2003
Notes: Terry Pratchett: Public Interest and Public Opinion

"Oh yes. Busy, of course. Such a lot of reading to catch up on. But I thought I should take a moment to come and see this 'free press' Commander Vimes has told me about at considerable length." He tapped one of the iron pillars of the press with his cane. "However, it appears to be firmly bolted down." "Er, no, sir. I mean 'free' in the sense of what is printed, sir," said William. "But surely you charge money?" "Yes, but--" "Oh, I see. You meant you should be free to print what you like?" There was no escape. "Well... broadly, yes, sir." "Because that's in the--what was the other interesting term? Ah, yes... the public interest?" Lord Vetinari picked up a piece of type and inspected it carefully. "I think so, sir." "These stories about man-eating goldfish and people's husbands disappearing in big silver dishes?" "No, sir. That's what the people are interested in. We do the other stuff, sir." "Amusingly shaped vegetables?" "Well, a bit of that, sir. Sacharissa calls them human interest stories." "About vegetables and animals?" "Yes, sir. But at least they're real vegetables and animals." "So... we have what the people are interested in,...

Posted by DeLong at 06:07 PM

Notes: Terry Pratchett: Getting Medieval

Terry Pratchett can invent two significant characters and warp the entire plot of his novel as an excuse for making one joke (well, more than one joke: but this is the biggest one): "...An' then... then I'm gonna get medieval on his ***." There were more pressing problems, but this one intrigued Mr. Pin. "How, exactly?" He said. "I was thinking of a maypole," said Mr. Tulip reflectively. "An' then a display of country dancing, land tillage under the three-field system, several plauges, and then, if my ---ing hand ain't too tired, the invention of the ---ing horse collar." From The Truth....

Posted by DeLong at 05:44 PM

May 12, 2003
Notes: Translations from the Trotskyist

My email has some messages accusing me of posting incomprehensible gibberish. Let me provide some help. When Perry Anderson writes: The final effect of this general redisposition of the social power of the nobility was the State machine and juridical order of Absolutism, whose coordination was to increase the efficacy of aristocratic rule in pinning down a non-servile peasantry into new forms of dependence and exploitation. He means: Look: When at the early-seventeenth century start of The Three Musketeers M. d'Artagnan the Younger sets out to seek his fortune, he does so very differently than a noble predecessor of five centuries before would have. A noble predecessor of five centuries before would have spent his time (a) waging private war against his neighbors to enlarge the number of serfs under his control, (b) catching and bringing back runaway serfs, (c) participating in crusades and other episodes of pillage and destruction, and (d) making sure his peasants spent the proper amount of time working on his demesne. M. d'Artagnan the Younger sets out for Paris to join the regiment King's Musketeers, where he seeks fame and fortune by carrying out the commands of M. le Cardinal, M. le Roi, M. le...

Posted by DeLong at 06:39 PM

Notes: Polanyi: Aristotle Discovers the Economy

Karl Polanyi, "Aristotle Discovers the Economy," in Trade and Market in the Early Empires... A whole bunch of this article is simply wrong: the claims that "in the fourth century... Greeks initiated the gainful business practices that in much later days developed into the dynamo of market comnpetition" are false. This means that Polanyi is wrong when he says that Aristotle is examining a new phenomenon when he looks at the economy. Aristotle is examining an old phenomenon from the point of view of an Athenian aristocrat. But there is much of value in Polanyi's exposition of what Aristotle says... p. 79: Trade is "natural" when it serves the survival of the community by maintaining its self-sufficiency... the operation of giving a share... from on's surplus. The rate... follows from the requirement of philia, i.e., that the goodwill among the members persist.... The just price, then, derives from the demands of philia as expressed in the reciprocity which is of the essence of all human community... p. 80: Trade... is "natural" as long as it is a requirement of self-sufficiency. Prices are justly set if they conform to the standing of the participants in the community, thereby strenghening the goodwill...

Posted by DeLong at 04:14 PM

Notes: The Character of the Absolutist State in Western Europe

Perhaps the most interesting argument about why the demographic crisis produced by the Black Death did not lead to the reemergence of serfdom in Western Europe (as lords discovered that, with population down by 1/3, they would rather be labor lords than landlords) is that made by Perry Anderson in his book Lineages of the Absolutist State. Anderson argues, first, that the particular role of Western European towns made a formal reimposition of servile bondage impossible: "...the aristocracy had to adjust to a second antagonist: the mercantile bourgeoisie... towns... the intercalation of this third presence... prevented the Western nobility from settling its accounts with the peasantry in Eastern [European] fashion, by smashing its resistance and fettering it to the manor. The medieval town... hierarchical dispersion of sovereignties... feudal mode of production... freed urban economies from direct domination by a rural ruling class.... [Urban] economic and social vitality acted as a constant, objective interference in the class struggle on the land, and blocked any regressive solution to it by the nobles." Feudal lords could agree among themselves and with the king to reimpose serfdom, but they lacked the power to do so if peasants could still (as they could in Western...

Posted by DeLong at 02:02 PM

Notes: Liquidity Trap

John S. Irons has a nice pice here: ArgMax Economics Weblog: Liquidity Trap...

Posted by DeLong at 11:35 AM

May 09, 2003
Notes: Historical Online Archives

The Harvard Crimson Online Archives now extend back in time to 1900. A huge amount of work in American history and sociology is now potentially a lot easier... </P...

Posted by DeLong at 10:39 AM

May 07, 2003
Notes: World Bank Private Sector Development Forum

PSD FORUM History--JMK and HDW. Feared a world in which the capital requirements of development were immense (think Alex Gerschenkron), and in which sovereigns had a very difficult time borrowing. When you think about it, after all, given experience from start of WWI, why should sovereigns have been able to borrow on a large scale? Bulow and Rogoff. Hence World Bank. Broadly speaking, belief in the US during the 1930s and 1940s that successful growth and development required three things: Public investment in infrastructure. Social democracy--understood as full employment, safety net, income distribution sufficiently equal to make politics a positive rather than a zero-sum game in which, say, rich in U.S. inheritance taxes poor in Ghana take the cocoa export revenues fron the Ashantl. Third: market competition: Low tariffs, stable currencies, exports, comparative advantage, markets, and private businesses. Extraordinary success in nw and s europe. Extraordinary success in East Asia. Had you asked people in 1945 economic destiny of France... One of my teachers, David Landes, reputation France family capitalism... Italy... Argentina. Elsewhere. Disappointing. Glass half-empty. Indicative planning administrative guidance seemed to work fine in France and East Asia--for a while at least. Elsewhere... Infrastructure... Exchange rates... Regional development... If...

Posted by DeLong at 09:45 PM

Notes: Alexander Gerschenkron

Recommended by Rebecca Hellerstein... Nicholas Dawidoff (2002), The Fly Swatter: How My Grandfather Made His Way in the World (New York: Pantheon: 0375400273). Alexander Gerschenkron p. 10: ... someone who was going to grow up to be a person of true principle would get that way by proving his loyalty to small things, like the Boston Red Sox. I was cautioned never to blame the umpire for the many disappointments suffered by the Red Sox. My grandfather wanted me to feel that a person creates his own luck. Although he accredited fate, felt that fate--like God--was immutable, he also seemed to find it oddly beside the point and believed that a man stood a better chance in life if he ran out every routine ground ball to second base. "Nicky boy, you never know," was one of his prized phrases... p. 34: ... To a very real degree, Shura was raised on an ecumenical creed with tenets best expressed by Pushkin in his poem "I Built a Monument Not Made by Hands"--the last verse in particular: "Long will be remembered by the nation That of the good in men's hearts I did speak-- That I praised freedom in this age...

Posted by DeLong at 07:39 PM

May 05, 2003
Notes: Berkeley Needs a Strategy

Conclusion: Berkeley needs to build lots of new dorms. Lots of new dorms. Even with effectively zero tuition, it is becoming unaffordable to go to Berkeley. We need to charge higher fees to business and law students (and maybe some of our engineering students?) and use the money to build lots of new dorms......

Posted by DeLong at 04:37 PM

May 04, 2003
Notes: Budget Deficits and Economic Growth Once Again

Bill Gale and Peter Orszag continue their series of surveys of the evidence on the effects of budget deficits on long-run growth. From my perspective, the most interesting thing is how few people disagree with them. Whether it's Glenn Hubbard and company correcting a Dow-Jones wire article implying that their CEA estimates were orders of magnitude lower than Gale and Orszag's, the predictions of the Macroeconomic Associates model at the core of CEA analytical work, the estimates of the CBO presided over by former Bush CEA Chief Economist Douglas Holtz-Eakin, the approach taken by current CEA Chair-Designate Greg Mankiw's textbooks... All in all, it is a remarkable near-consensus given how extraordinarily strong the political and ideological pressures on economists are: Gale and Orszag: Over the past two years, the long-term budget outlook has deteriorated markedly. Although many policymakers and economists have expressed concern that this fiscal deterioration will reduce future national income and raise interest rates, Bush administration officials and others have publicly denied the existence of such adverse effects. This paper examines the relationship between long-term fiscal discipline and economic performance, with two main results. First, as almost all economic research and standard textbooks suggest, declines in budget surpluses...

Posted by DeLong at 02:13 PM

Notes: Judith Butler

Leonard Cassuto writes: ...humanists... highly technical jargon. Attempts to popularize have often been met with the special hostility that attends defense of hierarchy -- consider the philosopher Judith Butler's assertion on the op-ed page of The New York Times that her ideas were so complex they couldn't be expressed in a way that regular people might understand. I must confess I did not get far into the only Butler book I ever tried to crack--The Psychic Life of Power. It seemed to me that the things she was trying to say about the relationships between the different meanings of "subject" were simply wrong: mistakes that it was possible to make only because she had never done the basic research of looking up the word in the Oxford English Dictionary to see the historical evolution of meanings and usage patterns. You see, "subject" started out as somebody "under the yoke" of a king, then moved to grammar (for the "subject" of a sentence is definitely "under the yoke" of the sentence), then moved to philosophy with a large meaning shift (in which the "subject" is not seen as controlled by the sentence that describes it, but as an agent acting in the...

Posted by DeLong at 08:31 AM

April 30, 2003
Notes: Employment Dimensions of the Current Recession

Notes: The Current Recession: Employment Dimensions The output and production recession--the one that the National Bureau of Economic Research tracks and that the business press reports--began in the spring of 2001. The employment recession began a year earlier, at about the same time as the peak of the NASDAQ. Relative to the size of America's working age population, Americans worked 6.2 percent fewer hours in the winter of 2003 than they had three years before, in the winter of 2000. The working-age population of potential workers has grown by almost exactly 3 percent in the past three years, yet the absolute raw number of hours worked has fallen by 3.2 percent. 1979-1982 may have seen a larger decline in hours--need to check... EPI understates magnitude of employment fall. Hours worked in spring 2001 already a full percentage point below hours worked in winter 2000, yet EPI starts counting from spring 2001......

Posted by DeLong at 03:45 PM

Notes: Psychology: Sandra Bullock

Why does it take 15 minutes of staring at her on the screen before I can come up with the name of Sandra Bullock? Why do I keep thinking "Sarah Jessica Parker... no... that's not it"? Is my brain really so crowded that I have only one memory location for "modern actress whose first name begins with an S"? Or am I just losing my mind?...

Posted by DeLong at 03:42 PM

Notes: Mankiw: Charlatans and Cranks

Ah. Here it is. The exact reference and the exact context, which I have been looking for for a while: N. Gregory Mankiw (1998), Principles of Economics (New York: Dryden: 0030982383). Thinking Like an Economist: Why Economists Disagree: Charlatans and Cranks: pp. 29-30: An example of fad economics occurred in 1980, when a small group fo economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would raise by so much, they claimed, that tax revenue would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as too optimistic. Lower tax rates might encourage people to work harder, and this extra effort would offset the direct effects of lower tax rates to some extent. But there was no credible evidence that work effort would rise by enough to caues tax revenues to rise in the face of lower tax rates. George Bush, also a presidential candidate in 1980, agreed with most of the...

Posted by DeLong at 03:40 PM

April 29, 2003
Notes: St. Mary's State-of-the-Economy Conference

The New Economy and the Old Business Cycle From the early 1970s, well before today's undergraduates were even gleams in their parents' eyes, labor productivity growth one percent per year... From 1994--when today's freshmen were 9--acceleration of trend pdty growth to 2.5 percent per year... On top of this superimposed business cycle... Boom of the 1990s... Falling NAIRU... Screeching to a halt in 2000, when today's seniors in their second semester of freshman year... Not screeching. More like a slow-motion traln wreck. Unemployment: up from 4 to 5.8 percent. Would expect 6.5 percent given behavior of employment. Employment and hours: hours down 1 percent to spring 2001. Hours now down 3 percent. 6.2 percent "hours gap." Production peaks in early spring 2001. Falls for 9 mos. Recovers. NBER business cycle dating committee. -expect slow labor force growth (less than 1 percent) -potential labor productivity? -Silicon Valley producers -consumers of SV products -historical analogies -aggregate demand? -Terroris -corporate fraud -overhang -fear of low aggregate demand -defense. -interactions? -how much does low investment slow productivity growth? Bay Area Economic Pulse WSJ website 2003 quarter-by-quarter consensus forecast: 1.6, 2.1, 3.8, 4.0 Write to Barsky/Killian about stagflation Somebody uses the 0.015 percent number for...

Posted by DeLong at 08:33 PM

Notes: Robert Barro Quotes

Robert Waldmann recalls a quote from 1988 by Robert Barro, in response to some leftist student claiming that there was a second-best argument for some scorned-by-Barro policy: Isn't there an existence theorem proving that there is a second best argument for any policy?...

Posted by DeLong at 01:34 PM

April 26, 2003
Notes: Carlos Fuentes on Castro

Notes: Carlos Fuentes on Castro:   Cuba's Paradise Lost: Fed up with Fidel Castro? Join the club. By Carlos Fuentes Carlos Fuentes is the author of numerous books, including "The Death of Artemio Cruz" and "The Years With Laura Diaz." April 20, 2003 LONDON -- When I arrived in Havana on Jan. 2, 1959, Fidel Castro had not yet entered the Cuban capital. He was advancing slowly by jeep along a victory route from Santiago, accompanied by a dove trained to stay on his shoulder. He would interrupt his speeches along the way with a rhetorical question: "Am I going the right way, Camilo?" The question was ostensibly addressed to Camilo Cienfuegos, his second in command during the revolution, but in a sense it was also addressed to all Cubans. He was met with jubilation. But Cubans expected more than just the overthrow of a bloodthirsty and corrupt tyrant. They expected political democracy, freedom of expression, freedom to gather, a mixed economy, a parallel strengthening of private enterprise and the state, better education and health care. They got some of these things. But they also got a repressive government that ignored basic human rights. In his latest crackdown, Castro has...

Posted by DeLong at 10:29 AM

April 23, 2003
Notes: Canal Road

The Clara Barton Parkway. Canal Road. When Canal Road works, transportation from my mother's house in Cabin John to downtown DC is amazingly quick and convenient. 25 minutes door-to-door to the World Bank this morning. Makes the idea of living in Washington seem relatively pleasant... except for the months of June, July, August, and September... except for the humidity... and, of course, often Canal Road does not work at all......

Posted by DeLong at 08:58 PM

Notes: The Rule of Three

The Rule of Three: Something I have done once or twice I tend to remember as an individual experience. Something I have done three or more times--I seem to remember only that I have done this lots of times before. Is there a connection with my desire to find and mention three examples of everything when I write? To give only one or two implies those are the only examples I can think of--three seems to imply that there are a lot more examples, but that space is limited. I am told that ancient Indo-European had three different numbers for its words: each word had a singular, a dual, and a plural. Is this Rule of Three in some way hardwired into our brains?...

Posted by DeLong at 08:56 PM

Notes: Airline Load Factors and My Quality of Life

Memo to Self: Check load factors. On the way out from San Francisco to DC on Monday afternoon: plane 100% full. A horrible, horrible experience. On the way back from DC to San Francisco Tuesday evening: plane 15% full. Quite delightful. I slept. I stretched. I walked around. I read. I drank things. Aside from the high ambient noise level, it was a perfectly normal--and enjoyable, if rather constrained--time. Whenever a plane tips above 75% full, or so, my... I don't want to call it claustrophobia... sets in: too many people in too small a space, making it too hard to move around. It becomes impossible to stretch, impossible to sleep, impossible to walk around. So I need to figure out how to avoid planes with load factors above 75% on flights of more than two hours. If I could do this, my quality of life would improve significantly......

Posted by DeLong at 08:53 PM

Notes: Dismal Science

Thomas Carlyle: Latter-Day Pamphlets: "...the respectable professors of the dismal science..."...

Posted by DeLong at 08:51 PM

Notes: World Bank: Private Sector Development Forum

Where did the notes from my talk at the World Bank's Private Sector Development Forum go?...

Posted by DeLong at 08:35 PM

April 20, 2003
Notes: William Hitchcock, The Struggle for Europe

Notes William Hitchcock (2002), The Struggle for Europe (New York: Doubleday: 0385497989). p. 10: Simone de Beauvoir... Americans, she write, "approved of all Truman's speeches. Their anti-Communism bordered on neurosis; their attitude towards... France... arrogant condescension"... "we had loved them, these tall soldiers in khaki who had looked so peaceful; they were our liberty." Now they represented "our dependence and a mortal threat".... de Beauvoir's line of attack on the United States, echoed in the writings of hundreds... missed a crucial part of the overall picture. The Iron Curtain was quite real... a decidely nasty form of political order... could well ahve been visited upon France, Germany,a nd Italy, were it not for those tall U.S. soldiers in khaki. De Beauvoir failed to see--did not wish to see--the nature of the "people's democracies" being erected in Eastern Europe under Soviet coercion... distressed intellectuals did not publish memoirs and go on the lecture circuit; they wrote forced confessions and went to prison..." p. 17: ...Under this agreement, some 2 million Soviet D[isplaced ]P[ersonds] were repatriated from the Western portion of Germany under Anglo-American control; to these may be added another 3 million in Eastern Germany already in Russian hands.... Of the...

Posted by DeLong at 11:45 AM

April 15, 2003
Notes: Corruption

From William Easterly and Ross Levine (1997), "Africa's Growth Tragedy: Policies and Ethnic Divisions," Quarterly Journal of Economics 112, pp. 1203-1250: The history of Ghana provides an illustrative example of... ethnic conflict over economic rents.... Ghana's main export crop is cocoa, production of which is concentrated in the region of the Ashanti group who make up 13 percent of the population. The Ashanti Empire was odminant in precolonial times, to the resentment of other groups such as the... Akan.... Beginning with the runup to independence in the 1950s, cocoa... a bone of interethnic contention... Kwame Nkrumah... split off from the traditional Ashanti-based independence party. He pushed a bill through the colonial legislature in 1954 to freeze the producer price of cocoa... Ashanti-based opposition party to Nkrumah... failed. Nkrumah continued to tax cocoa heavily--through the Cocoa Marketing Board and through the growing overvaluation of the official exchange rate....

Posted by DeLong at 04:37 PM

Notes: Corruption

From Andrei Shleifer and Robert Vishny (1992), "Corruption," Quarterly Journal of Economics 108, pp. 599-618: Corruption with theft spreads [when the state is too weak to monitor and control its own functionaries] because observance of the law does not survive in a competitive environment... the buyer has no incentive to inform on the official... the likelihood that corruption is detected is much smaller... a further incentive for corruption.... Because corruption with theft aligns the interests of the buyers and the sellers, it will be more persistent than corruption without theft, which pits buyers against sellers.... [T]he first step to reduce corruption... accounting system... prevent theft from the government... ... the weakness of central government... allows... agencies and bureaucracies... independent bribes on private agents seeking complementary permits... entry of these agencies into regulation is free... bribe burden on private agents... infinity. A good illustration of this problem is foreign investment in post-Communist Russia. To invest in a Russian company, a foreigner must bribe every agency involved in foreign investment... foreign investment office... industrial ministry... finance ministry... local government... legislative branch... central bank... state property bureau, and so on. The obvious result is that foreigners do not invest in Russia......

Posted by DeLong at 04:34 PM

April 13, 2003
Notes: Ken MacLeod

Patrick Nielsen Hayden: Electrolite: Dark light: I have personally felt like I was living in a Ken MacLeod future since sometime not long after 9/11, and I wish he'd CUT IT OUT. But I recommend all of his books. Brits and Europeans should start with The Star Fraction. Science fiction aficionados should begin with The Cassini Division. Everyone else should go directly to The Stone Canal......

Posted by DeLong at 05:24 PM

April 10, 2003
Notes: LTCM

A short summary of what went wrong at LTCM....

Posted by DeLong at 09:35 PM

Notes: On the Efficient Frontier

William J. Bernstein's Efficient Frontier....

Posted by DeLong at 08:58 PM

Notes: More Finance Demand Curves Sloping the Wrong Way

Notes: Teaching: Econ 236: Behavioral: Finance: Yet More Demand Curves That Slope the Wrong Way This time it's due to performance-based arbitrage: PBA: circumstances in which the fact that prices move against fundamentals leads investors to think that their smart-money managers aren't so smart, and so withdraw funds: From Andrei Shleifer and Robert Vishny (1995), "The Limits of Arbitrage" (Cambridge: NBER Working Paper 5167). One model of risky arbitrage is that of a large number of investors taking small positions against the mispricing. Fama's (1965) classic analysis of efficient markets and Ross's (1976) Arbitrage Pricing Theory are based on this model. An alternative, and in many cases more realistic view, is that arbitrage is conducted by a few professional, highly-specialized investors who combine their knowledge with resources of outside investors to take large positions. They operate in markets where fundamentals are difficult to ascertain and correct hedging strategies are hard to implement, such as the currency and derivative markets. The fundamental feature of such arbitrage is that brains and resources are separated by an agency relationship. the money comes from wealthy individuals, banks, endowments, and other investors with only a limited knowledge of individual markets, and is invested by arbitrageurs...

Posted by DeLong at 03:49 PM

Notes: Risk Aversion

Teaching Notes for Econ 236: April 9: What do different risk aversion parameters imply about gambles? Kocherlakota (1995) [Narayana R Kocherlakota (1995), "The Equity Premium: It’s Still a Puzzle," Journal of Economic Literature, 1996-1, pp. 42-72.] reports that the raw "equity premium puzzle" implies a coefficient of relative risk aversion of 18... (and then there is the risk-free rate puzzle: at a crra of 18, you need a raw time preference factor of -8% per year to fit average per-capita consumption growth to the average real risk-free rate of interest. What does such a high risk aversion parameter mean? Well... ...At a coefficient of relative risk aversion of 1... you are indifferent between a this year's consumption level of $30,000 for certain and a 58% chance of $40,000 coupled with a 42% chance of $20,000. ...At a coefficient of relative risk aversion of 5... you are indifferent between a this year's consumption level of $30,000 for certain and a 86% chance of $40,000 coupled with a 14% chance of $20,000. ...At a coefficient of relative risk aversion of 10... you are indifferent between a this year's consumption level of $30,000 for certain and a 97.6% chance of $40,000 coupled with...

Posted by DeLong at 03:44 PM

April 07, 2003
Pay as You Go

Richard Kogan of the Center for Budget and Policy Priorities gives the state-of-play on perhaps the most important budget provision of the next five years--the exact form of the Senate's Pay-As-You-Go Rule...

Posted by DeLong at 12:11 PM

April 03, 2003
Notes: Checklist for Academic Papers?

Question: is there a checklist--a how-to list--for how to write a paper that is likely to get accepted at an economics journal? Graduate students would dearly love to have such a list of things to include/exclude to refer to, and a checklist of what to do when to make sure it will be taken seriously......

Posted by DeLong at 04:13 PM

Notes: Economic History 210a: Spring 2003

Tarek Hassan has a very nice draft opening paragraph for his paper for this course: In the 1990s, a number of Alexandrian residents founded a society for the preservation of some of the world?s most important pieces of architecture located in the city. Incidentally, the focus of this society is not on ancient Ptolemaic or Roman temples, but on classical Mediterranean residential buildings of the 19th century. These buildings are reminiscent of a mostly forgotten chapter of modern Egyptian history, when living-standards and infrastructure of Cairo and Alexandria were comparable to those of western Europe and cities like Alexandria attracted wealthy merchants from Europe and the Levantine. In the second half of the 19th century the Egyptian economy grew rapidly and the country was modernized at an impressive pace. The export of cotton propelled the economy forward, leading to many institutional reforms and massive investment in infrastructure. The country looked very much like the textbook example of economic development, with a massive increase in agricultural productivity leading to rapid modernization. However, contrary to the development of Japan and European countries, this did not lead to subsequent industrialization. The most rapid phase of economic expansion up to the 1880s paradoxically led...

Posted by DeLong at 01:17 PM

April 02, 2003
Notes: A Deepness in the Sky

[Potential Spoilers]. I just finished rereading Vernor Vinge (1999), A Deepness in the Sky (New York: Tor: 0812536355). On pp. 699-700, a brief paragraph completely reverses your understanding of the progress of the book's main plot: "Sherkaner Underhill didn't seem to notice. He moved his head back and forth under the [game] helmet's light show. 'There has to be reconnect. There has to be.' His hands twitched at the game controls. Seconds passed. 'It's all messed up now,' he sobbed." When you finish that paragraph, your picture of what is going on in the story is turned upside down. This time through the book, I looked for earlier clues that Vernor Vinge had dropped to what the real situation was. I found a great number of them, and felt like somewhat of an idiot for failing to pick up on what they might have told me had I paid more attention and thought harder: p. 359: Of course, Jaybert took the question to be about his work. "Damnedest thing. I put my new antenna..." p. 371: Locally, the translators had screamed something past the controllers, but the Spiders had not noticed... p. 403: "There has to be a way to...

Posted by DeLong at 06:00 PM

March 31, 2003
Note: State of the Business Cycle

The Economist now projects that the Euro area's economy will grow at 1.1% in 2003, that the Japanese economy will grow at 0.5% per year in 2003, and that the American economy will grow at 2.5% per year in 2003. I don't see why the America number is so high, given that the business-cycle news since January 1 has not been encouraging....

Posted by DeLong at 03:09 PM

March 27, 2003
Bureaucratic Ineptness and the Loss of the Columbia

Edward Tufte analyzes a Boeing PowerPoint slide. The headline on the slide is "Review of Test Data Indicates Conservatism for Tile Penetration." The tiny print at the bottom of the slide tells us that a better title would have been "The Piece That Hit Columbia is 640 Times Larger Than Any We Have Tested." undefined...

Posted by DeLong at 10:45 AM

March 25, 2003
Notes: What Should I Say?

From John Barnes, Earth Made of Glass (New York: Tor: 0812551613), p. 173: "...What should I say?" "What your best heart tells you to say.... [C]ompare that reality with the story, and say exactly what you would say if your honor, courage, and truth were perfect. And that is what you should always say, anyway, is it not?"...

Posted by DeLong at 07:55 AM

March 24, 2003
Not His Father's Persian Gulf Land Strike Force

A commentor on The Agonist has some very good questions about U.S. forces in Iraq: Questions" href="http://www.agonist.org/archives/000821.html">The Agonist: Questions: 1) What the heck were a unit of Marine LAVs doing bumbling around in the desert with so little screening or escort that they could be engaged by a 'brigade-sized' Iraqi unit? The LAV (the amphibious armored personnel carrier shown burnt out on CNN and others) is a pathetically thin-skinned vehicle. The only thing it's really of use for is crossing light water and having medium weapons (.50, 40mikemike) in a gunner's position. Medium to heavy MG goes through that thing the long way, and RPGs are (as we've seen) lethal. So how were they out there alone? 2) The reporter talking about the Apache strike on the RG seemed 'downbeat' and talked about the vicious AAA. My question: What are direct-fire slow-mover helos like Apaches doing engaging a dug-in armored enemy? The purpose of an atk helo is MOBILITY, and it should be used to pursue, herd, flank, and kill in the open. These things are horribly vulnerable to even small-arms in the right conditions (see Afghanistan!). Why wasn't this target prepared with airstrikes using JDAM, or even carpet bombs?...

Posted by DeLong at 07:30 PM

March 23, 2003
Notes: Basics of Monetary Policy

Date: Sat, 22 Mar 2003 10:19:05 -0800 To: bianj01@lycos.com From: Bradford DeLong Subject: Re: Question Status: Professor, >I came across your name on your website. I am a beginner >learning Macro Ecomnics. I would like to know Why the Federal >Reserve try to reign in the economy in a boom. When the >economy grows too fast, why is a bad thing, why Fed wants >to cool it down? >Thanks for your help! It's not the growth the Fed objects to. It's the inflation that comes with it. The Federal Reserve is scared that inflation will damage the efficiency of the price system in the long run, and thinks that it will be easier to control inflation if everyone expects the Fed to take a very tough line to stop even small amounts of inflation. Brad DeLong...

Posted by DeLong at 02:36 PM

March 22, 2003
China's New Prime Minister

The Economist tries to get a sense of China's new prime minister, Wen Jibao... Economist.com | China: THE new prime minister, Wen Jiabao, cannot be faulted on his grasp of the facts. He unflinchingly lists corruption, poverty, inefficient state enterprises, unemployment and non-performing loans as among his, and China's, "many problems". But he has given few clues as to how he plans to change things. On March 16th, Mr Wen took over from Zhu Rongji as manager of a fast-growing but structurally weak economy that is generating growing social tension. One of his biggest problems could be his own risk-averse style. Unlike Mr Zhu, who had extensive dealings with foreign business and political leaders before taking over as prime minister in 1998, Mr Wen comes to the job as something of an enigma to outsiders. Whereas Mr Zhu honed his leadership skills as mayor of Shanghai, China's financial capital, Mr Wen has risen to the top through service in much lowlier posts, including 14 years in the impoverished province of Gansu. From the late 1980s, he worked as chief of staff to successive general secretaries of the Communist Party. It was only in 1998, when he became Mr Zhu's deputy,...

Posted by DeLong at 06:34 PM

March 21, 2003
Note: Americans' Reactions Distorted by Misinformation

There is almost no evidence and very little chance that Saddam Hussein was involved in the planning or sponsoring of the World Trade Center atrocity on September 11, 2001. It is the oil barons of Saudi Arabia, not Saddam Hussein, who appear to have an ongoing deal: we fund you if you avoid Saudi targets. Doug Henwood reports from the AAPOR that almost half of Americans think--probably because they have been reading too many William Safire columns, or listening to people who have read too many William Safire columns--that Saddam Hussein was involved in 9/11. Of those who think that Saddam Hussein was involved, 80% approve of the invasion of Iraq. Of those who think that Saddam Hussein was not involved, only 50% approve of the invasion of Iraq....

Posted by DeLong at 01:52 PM

March 18, 2003
Notes: Gordon Hanson on Mexico

More information on how NAFTA has been (primarily) a blessing and (secondarily) a curse to Mexico... What Has Happened to Wages in Mexico since NAFTA? | Gordon H. Hanson | NBER Working Paper No. w9563 | Issued in March 2003 Abstract: In this paper, I examine the impacts of trade and investment liberalization on the wage structure of Mexico. Part one of the paper surveys recent literature on the labor-market consequences of Mexico's economic reforms in the 1980s. Mexico's policy reforms appear to have raised the demand for skill in the country, reduced rents in industries that prior to reform paid their workers high wages, and raised the premium paid to workers in states along the U.S. border. These changes have resulted in an increase in wage dispersion in the country. Part two of the paper examines changes in Mexico's wage structure during the 1990's. In the last decade, Mexico has experienced rising returns to skill, which mirror closely wage movements in the United States. There is, however, little evidence of wage convergence between the two countries. Regional wage differentials in Mexico have widened and appear to be explained largely by variation in regional access to foreign trade and investment...

Posted by DeLong at 09:52 AM

March 14, 2003
Joshua Micah Marshall Is Overcome with Rage and Despair

JMM bangs his head against the wall: Talking Points Memo: by Joshua Micah Marshall: As to the question of giddiness, one simply can't compete with the young war-hawks of the right in this department. I mean, it's just not possible, is it? Speaking for myself, and perhaps for some other internationalists who feel as I do, part of our frustrated anger over the current impasse is watching the present administration traduce and plow under the work of half a century and seeing the administration's acolytes greet every new disaster and *&$#-up as a grand confirmation of their beliefs and principles. It's like we've been transported into some alternative reality where the debate about international relations is some awful mix of The McLaughlin Group and Lord of the Flies. As these folks should be starting to realize about now, months of this arrogant mumbo-jumbo eventually draws a response -- at home and abroad....

Posted by DeLong at 02:26 PM

March 04, 2003
Notes: More from Henry Aaron

More from Henry Aaron's February 26 testimony: By its reckless insistence on tax cuts, which aggravate the fiscal shortfall, and its use of trust fund accumulations to pay for current government spending, the Administration?s program will reduce growth of national income by ever larger amounts?just under $500 billion in 2013. These tax cuts will add $130 billion annually to the governments interest payment burden in 2013. The revenue sacrificed by the tax cuts that the Administration has proposed since coming to office is more than sufficient to eliminate the entire projected deficits of the Social Security system and Medicare Hospital Insurance, with enough left over to double federal aid to higher education and bio-medical research and to support a major initiative to improve life chances for America?s children....

Posted by DeLong at 02:25 PM

Those Who Do Not Remember History...

Those who do not remember history are condemned to repeat it, and the rest of us are condemned to repeat it with them. Gerardo della Paolera and Alan M. Taylor point out that those who have studied the 1929 collapse of the gold standard in Argentina would have found few surprises indeed in the 2001 collapse of the currency board. Yet another brick in the wall suggesting that it is long-lasting institutional deficiencies that are the causes of the "bad policies" that overoptimistic economists like me think stand in the way of successful development and growth. Gaucho Banking Redux: Gerardo della Paolera, Alan M. Taylor | NBER Working Paper No. w9457 | Issued in January 2003 | Argentina's economic crisis has strong similarities with previous crises stretching back to the nineteenth century. A common thread runs through all these crises: the interaction of a weak, undisciplined, or corruptible banking sector, and some other group of conspirators from the public or private sector that hasten its collapse. This pampean propensity for crony finance was dubbed 'gaucho banking' more than one hundred years ago. What happens when such a rotten structure interacts with a convertibility plan? We compare the 1929 and 2001...

Posted by DeLong at 02:02 PM

February 24, 2003
Notes: European Economic History

Rui Pedro Estevez: Monday 11-12: Read for Febuary 24: Carlo Cipolla, Before the Industrial Revolution; Hoffman, Growth in a Traditional Economy, difference between 100% and 80% requirement for agreement with an enclosure... Internal trade blockages? Northern France vs. England. Physiocrats. Why was England first? Why was France second? Jean-Laurent Rosenthal knows more than anybody should about eighteenth-century canal building in Provence... Problems with North and Thomas. Places where the French state was to weak to support eighteenth-century development Read for March 3, Franklin Ford, Robe and Sword, John Brewer, Sinews of Power. A detour into political and cultural history--Franco-British comparison. Whatever bad things we say about French 18th century institutions, this is still the third-richest economy and second most powerful state in the world in the 18th century. It's institutions weren't that bad. Reach for March 10: de Vries on the Dutch Republic......

Posted by DeLong at 11:53 AM

February 22, 2003
Notes: Interesting Math Calculations

A suggestion for an "Interesting Math Calculations" problem--something that I don't know the answer to offhand (both because I don't know how small semiconductor circuit features can be before quantum mechanics ceases to be your friend, and I don't know how large semiconductor circuit features are today). How long can Moore's Law go on? Starting from the average distance between atoms in a silicon crystal, find the time when chip features will be (supposedly) one atom wide... Suggestions for Entries Page Interesting Math Calculations Index page...

Posted by DeLong at 02:42 PM

February 21, 2003
Notes: Peter Singer

Chris Bertram writes that "Moral philosopher Peter Singer inspires powerful feelings, often of loathing, for his willingness to follow consequentialist arguments to their unpalatable conclusions." I don't think "consequentialism" has much to do with it. I think that what gets people upset with Singer is that he has a strange, narrow, and crabbed view of what the appropriate ends for humans to pursue are. (Although I suppose you could rescue Bertram by saying that that is not a bad definition of what "consequentialism" is.)...

Posted by DeLong at 06:01 PM

February 20, 2003
Thinking About Aristotle of Stagira and Moses Finley

I'm never sure whether I should begin my economic history survey courses with Aristotle or not. As Moses Finley powerfully argues, Aristotle does not care about the economy. The fragments in his Ethics and Politics that economists like Joseph Schumpeter point to are, mostly, concerned with other things than economic analysis. Karl Polanyi thought that Aristotle's naivete was the result of the fact that a mercantile, market, commercial economy was something very new. He was surely wrong: it was not something new, but rather something that Aristotle as a Hellenic aristocrat would have been embarrassed to be caught thinking seriously about. Still, I now wish I'd started this semester's history course with more on Aristotle. His perspective is so different from ours that it provides a useful mental shock: On Aristotle: Consider, first, that Aristotle of Stagira was not an idiot (even if he did believe that women had fewer teeth than men). For two thousand years people--pagan Hellenes, Christian Europeans, and Islamic Arabs, Egyptians, Mesopotamians,and Iranians--called Aristotle of Stagira "the philosopher", as if there could be only one. Think of the way seventeenth, eighteenth, and nineteenth century Britons regarded Newton (or the way we regard Einstein). So we need...

Posted by DeLong at 08:57 PM

February 18, 2003
Notes: Alex Field: Technology in the 1930s

Alex Field lunch and seminar, "The 20th Century's Most Technologically Progressive Decade." Forthcoming in the AER. Responsibility for thinking about the 20th century as an economic epoch. Second quarter as TFP boom. What is responsible for the boom? The War? Probably not. "Vintage effect" Gordon: "One Big Wave" Serendipity? Was Andrew Mellon right? 1/4 of private capital in the 1930s in railroads...

Posted by DeLong at 08:10 AM

Notes: Catherine Wolfram, California Electricity Deregulation

Catherine Wolfram, "'Fat Boys' and Thin Markets": Trading Inefficiencies in California's Electricity Markets" Severin Borenstein, James Bushnell, Christopher Knittel, and Catherine Wolfram. Electricity deregulation, executive compensation, et cetera... California wholesale electricity markets opened in April 1998: PX (Power Exchange) a one-day-ahead market; ISO (Independent System Operator) a spot market. PX now defunct. Have expected prices converged in the two markets since they opened? Why do we care? Manipulation Learning in a new market Interesting economics of a non-storable commodity... Inefficiencies? Were there $20 bills lying around on the sidewalk? PX price came to vastly underpredict the spot market price... Is "underprediction" a peso problem effect? Probably not... Binding price caps... At end, underprediction on 70% hours. At opening, overprediction Significant differences thereafter By the beginning of 2000, prices appeared to be converging After May 2000, all hell broke loose--and underprediction emerged... August of 2000: buy from PX at $140 per megawatt hour, sell to ISO at $190 per megawatt hour... How many megawatts? 40 gigawatts traded through the ISO. $4 an hour difference in October. 40 gigawatts x $4 per hour per megawatt = $160,000/hour x 720 hours/month = $115,200,000 per month. By August 2000 we have $50 an...

Posted by DeLong at 08:09 AM

Notes: Medieval Monies

Notes: Rui Pedro Estevez and the Value of Castillan Monies Rui Pedro Esteves: He should go and read Sargent and Velde, "The Big Problem of Small Change," and also (perhaps) Usher, "The Early History of Deposit Banking in Mediterranean Europe." Otherwise, idea looks very good. A model of specie value plus "reform expectations" would be a good thing to explore... Data on how the value of the Castillan currency is specie value plus "reform expectations" looks very interesting indeed....

Posted by DeLong at 08:08 AM

February 14, 2003
Notes: Macro Field Course: February 12, 2003

Economics 236: February 12 Post-Class Notes On February 12 I taught Andrei Shleifer's "Implementation Cycles" (Journal of Political Economy, 1986) paper to my advanced macroeconomics Ph.D. students class. Once again, just has happened the week before, I didn't get through the paper. I had thought it would be easy--that I would finish with plenty of time to sketch extensions and qualifications. After all, the class does run from 12 to 2. However, that was not enough time. My recurrent problem is that I spend so much time in asides on the modeling strategy--"this term is in this definition because twenty minutes from now it will cancel that when we take a derivative to establish the first-order condition", "note that even though we have started with a rather general and flexible setup in which firms have a number of different decisions to make, the setup has been carefully designed so that when push comes to shove there is only one economically interesting and non-obvious decision a firm ever has to make", "note that if this condition is not satisfied, then the consumer's utility is infinite and it is not clear in what sense we can say that the model even has...

Posted by DeLong at 04:48 PM

February 10, 2003
Notes: and Klenow

Chang-Tai : Chang-Tai and Peter Klenow (2002), "Relative Prices and Relative Prosperity". -A broad consensus that rich countries have high investment rates. -Why do poor countries have low real investment rates? -Because they have low savings rates? -Investment distortions? --taxes, tariffs, monopoly? --high relative price of capital? ---Juan Domingo Peron This is a "facts" paper: -Savings rates not correlated with Y/L. (Me: Bela Balassa) -Why this divergence between savings effort and investment outcome? All in the denominator--a low price of consumption goods, not a higher-than-world price of capital goods. (Me: Fact true when? Just today? In the import-substitution 1960s as well.) Chang's instinct: true in the 1950s: Argentina and India are outliers. Two sector model: Distortions: tax on capital income, tax on investment goods. Simplifying assumption: tradable = capital goods nontradable = consumption goods Tradable capital goods means pk given by investment distortion. pc = pk times ratio of A's. CRRA preferences. tk: things that make you not want to save... ti: things that make investment unprofitable... ac/ai: bad technology 1980, 1985, 1996 -- focus Me: low prices and high savings go with high investment... components orthogonal to Y/L... Correlations: real investment highly correlated with Y/L. nominal investment correlation...

Posted by DeLong at 08:06 AM

Notes: Monetary and Fiscal Policy

Fernanco Machado Goncalves: Dickens; Akerlof, Dickens, and Perry; Truman Bewley. Gali. New institutions. CB secrecy and transparency, unraveling back to K-P bad equilibrium. Thatcher corset Bundesbank monetary aggregate. Jordi Gali. ECB who lends in cases of dernier ressort? Understanding the ECB. Exchange rate policy and interest rate policy: their relationship. Brazil: state-contingent changes of inflation targets are potentially a very good thing. Needed at end of this course: more papers on Wage rigidity, Fed structure, ECB financial stability and dernier ressort issues, fiscal interaction. international monetary coordination. Liquidity Trap: February 14: The New Open Economy Macroeconomics: February 21...

Posted by DeLong at 08:05 AM

Notes on Shleifer: The Regulation of Labor

DATA: STRUCTURE OF LABOR REGULATION Employment Laws --alternative employment contracts --job security Code employment laws in a dumb way Industrial Relations Laws --bargaining --participation in management --disputes Social Security Laws --OASDI --Health benefits --Unemployment benefits Enforcement very different in rich than in poor countries. In rich countries laws are obeyed... Employment Regulation Statutes Significantly less regulation of labor in rich countries... Substitution between labor regulation and social insurance? Protect privileged-sector workers in poor countries? IR laws: most regulations in middle income countries Social Security: most social security in rich countries Correlation only? IR and Employment correlated at 50% IR and SS uncorrelated... What determines the regulation of labor? Legal origins: socialist, French (Spanish), German (incl. Korea and Japan), Scandinavian. Socialist and French matter. US empl .94 1.47. Leftism in power matters for social security. Richard Freeman: Salazar and Franco had the most regulated labor markets in Europe. Blanchard: poor countries regulate and rich countries redistribute. Parties don't do very much. Countries that deal with problems through courts and contracts, and countries that deal with problems through regulation. This is much more important than ideology of party in power. Legal Origin Theory can explain why Latin America is poor. But why...

Posted by DeLong at 08:01 AM

August 26, 2002
2002-08-26: Notes on Corporate Reform

2002-08-26: Notes on Corporate Reform Other things that would be nice (but that are outside of Harvey Pitt's control): --No more than 10% of an IRA or 401(k) can be held in any individual instrument. -- 401(k) plans should not offer employer's stock as an option. Insider trading. Arthur Levitt's SEC greatly worried about how to further restrict insider trading. A very hard problem: an insider who doesn't have access to material, non-public information is truly an idiot who is not doing his or her job. Point of public policy: require *publicity* so that investors can see if the insiders are bailing out (hence only somebody truly ignorant of the purpose of the law could say that for insiders filing your sale-of-stock forms more than half a year late is the equivalent of doing 60 in a 55 mph zone, as President Bush's spokesmen have done); and to prohibit insiders from dumping (or accumulating) stock when the information gap between insiders and outsiders is egregiously large, for some vague definition of "egregiously large" that turns out in practice to be what a prosecutor can convince a jury to convict on......

Posted by DeLong at 03:27 PM

August 18, 2002
2002-08-18: A Few Stray Notes on Eric Hobsbawm, Age of Empire

2002-08-18: A Few Stray Notes on Eric Hobsbawm, Age of Empire These passages are embarrassing. Lenin as having "realistic" judgment? No one who promotes Josef Stalin to a high position can be accused of having "realistic judgment. H.A. Lorenz as "preferring theory to fact"? Nobody sane would accuse Lorenz and the other physicists of 1890-1920 as preferring theory to fact--they knew that the facts required new theories, and were extremely inventive in trying out different approaches. Lorenz was not Einstein, but who was? "[N]o ether... [of] interest to physicists"? Anyone who has seen enough of QED to know what a vacuum diagram is, or who has contemplated the cosmological constant, could possibly say such a thing... Hobsbawm, Age of Empire, p. 261: "In Russian intellectual circles the influence of the revolution in physics and philosophy was already such in 1908 that Lenin felt impelled to write a large book against Ernst Mach, whose influence on the Bolsheviks he regarded as both serious and deleterious: Materialism and Emperiocriticism. Whatever we think of Lenin's judgments on science, his assessment of political realities was highly realistic." Hobsbawm, Age of Empire, p. 249: "It will not surprise readers familiar with the history of...

Posted by DeLong at 01:39 PM

July 20, 2002
American Productivity Speedup

American Productivity Speedup--Draft Between 1973 and 1995, measured labor productivity growth in American non-farm business* averaged 1.35% per year. Between 1995 and 2002--if we take current consensus forecasts for the remainder of the current year--measured American labor productivity growth averaged 2.67% per year.** This acceleration in growth is one of the most rapid and remarkable changes to have taken place in the American economy in the past two generations. Two years ago some economists still saw it as a temporary flash-in-the-pan that would come to a rapid end when the internet bubble and the associated high-pressure economy ran into reality and produced the next recession. But the crash of the NASDAQ, the recession of 2001, and the terror-attack that destroyed New York's World Trade Center have not been accompanied by a slowdown in productivity growth. The 5.5% per year year productivity growth rate of the fourth quarter of 2001 and the 8.4% per year productivity growth rate of the first quarter of 2002 have made it very hard to argue that the rapdi productivity growth of the late-1990s was a transitory bubble- and boom-driven phenomenon. We here in America know where 1 percentage point of our labor productivity growth comes...

Posted by DeLong at 05:28 PM

Notes: Gerard Baker on the Durability of the New Economy

[Placeholder] An enduring miracle. By Gerard Baker Published: July 19 2002. While attention focuses on ailing financial markets and the illusion of past prosperity, the real US economy has - so far at least - weathered the rise and fall of 1990s excess in remarkable shape. After one of the shortest and shallowest recessions on record - it lasted about eight months and lowered gross domestic product by less than 1 percentage point - the overall US economy, on the relatively conservative assumptions of the Federal Reserve, is set to grow this year by about 3.5 per cent and, if the Fed is right, continue to expand next year at a similar pace. This is below the average rate of growth of the period 1995-2000 but well above the long-run average of about 2.6 per cent between 1975 and 1995. In the Fed's view, and that of economists at the White House and in Congress, it is roughly in line with the new potential rate of growth of the economy - which was elevated by precisely the technologically driven new economy investment that is now widely denigrated. If, as the sceptics insist, the economy's overall performance in the late 1990s...

Posted by DeLong at 03:14 PM

July 14, 2002
2002-07-13: Notes: African Development

2002-07-13 Notes: African Development: An Email Exchange > And? Don't keep us in suspense! Was the fertilizer plant feasible? > Was it built? Does it work? Do thousands of cheering Tanzanians daily > praise the name of ________ _______? > The plant was actually in Uganda, but Tan-zanier is one of the main markets. But no. It fizzled. Not because it wasn't feasible, it was an excellent project, IMO. Trouble was the whole thing ground to a slow stuttering halt, because there's too many people who want to know what you can do for them, instead of doing their jobs. <shrug> ________ > Too many people in Britain? In Cyprus? In Uganda? > > > Brad In Uganda. Like endemic bribery and corruption to a degree that was almost a self-parody. _________ But Yoweri Musaveni is supposed to be one of Africa's best rulers, and his government one of the most honest......

Posted by DeLong at 03:21 PM