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December 31, 2004

Worries About the Bush Administration

Ex-CEA Chief Economist Andrew Samwick worries about the competence of the Bush administration:

WSJ.com - The Economic Crystal Ball: Cloudy, or Clearing?: My biggest question about economic policy in 2005 is whether the federal government will make tangible progress in putting its fiscal house in order. For example, if we are in a cyclical upturn, then why are our tax and spending policies such that we are running budget deficits (even including the Social Security surplus) in excess of $400 billion? Why have we settled for a rather timid goal of merely cutting that budget deficit in half over five years? Leaving aside the longer-term solvency issues of Social Security and especially Medicare for the moment, if the president and Congress cannot balance the budget with six quarters of growth at a 4.4% annual rate and steady growth in the economic forecast, then I will be considerably less optimistic next year that price changes will be mild and that economic growth will continue....

Cutting taxes isn't the rational way to make the government smaller, the one true purpose of a Republican administration's fiscal agenda. The way to do that is to reduce government spending so that tax rates can subsequently be lowered with the budget in balance over the business cycle. We are nowhere close to that scenario, and so discussions in Washington policy circles of yet more tax cuts are particularly unhelpful. Taxes may be "bad," but long-term deficits are surely much worse. The president needs to keep some of his tax cuts, rescind or sunset the others, rationalize the alternative minimum tax, and then move on to entitlement reform of Social Security and Medicare, which remain the long-term fiscal challenges....

Posted by DeLong at 09:31 PM | Comments (17)


Duncan Black notes NPR throwing facts down the memory hole:

Eschaton: You know, I'm happy that the Bush administration has decided to increase the promised [Indian Ocean tsunami] aid substantially, but that's no reason for NPR to keep reporting that the Bush administration has increased aid from the "initial offer of $35 million." The initial offer was $15 million. If the Bushies want to claim that was never their final offer, that's fine, but it certainly was their initial offer.

Posted by DeLong at 09:19 PM | Comments (11)

The Socialist Calculation Debate

Tyler Cowen has the good thought that we should reopen the socialist calculation debate:

Marginal Revolution: The socialist calculation debate: Here is one of my (very short) essays that nobody ever read; it is now on my home page.  We all know that communism and socialism fail because planners do not have access to market price signals.  They therefore cannot calculate the best means of producing goods and services.  But is the argument so simple?  I start with a few questions: 1. How does rational calculation take place within the firm?  Keep in mind that some corporate giants are larger in economic terms than the smaller socialist economies. 2. If one person owned (privately) all the firms in the economy, would rational calculation be possible? 3. If one dictator controlled all the firms in the economy, would rational calculation be possible?

Posted by DeLong at 09:15 PM | Comments (27)

Intellectual Garbage Pickup

*Sigh.* A new quarter is about to begin, so it's time once again for me to take on my share of intellectual garbage pickup. It's an unpleasant job with no rewards. But somebody leads to lay down markers to the effect that Donald Luskin simply doesn't know what he is talking about.

In the past we have had such gems as Luskin's misunderstanding of what a real exchange rate is, Luskin's claim that David Brooks is both 100% correct and is a traitor to his party for saying that the Bush administration routinely lies, Luskin's denial that the yield on a bond is an interest rate, Luskin's accusation that Gretchen Morgenstern is a plagiarist, Luskin's claim that George Soros might try to crash the market on October 31, 2004, Luskin's false attack on the Ludwig von Mises Institute's Robert Blumen for being a Paul Krugman sympathizer, Luskin's claim that an administration whose economic growth rate ranks tenth among the last fourteen administration's is a "boom", and many others.

This time... well, let's do just the first one that I found. Go to National Review Online and find Luskin claiming that:

Donald Luskin on the Thrift Savings Plan and Social Security on NRO Financial: [the] Thrift [Savings Plan's]... [annual] administrative costs are only about six one-hundredths of 1 percent of invested assets. That compares especially favorably to Social Security, which has [annual] administrative costs that are more than five times greater, even though you’d think its vast scale would lead to significant economies...

Read this, and if you believed that Donald Luskin was telling you the truth you would think that the annual cost of Social Security's managing its asset portfolio is 0.3% of the combined balance in the Social Security Old Age and Survivors' and Disability Insurance trust funds. The trust fund balance is about $1.8 trillion. 0.3 percent of that is $5.4 billion dollars. And that is the total administrative costs of the entire Social Security system.

The total administrative costs of the entire Social Security system. Think for a second--as Luskin hasn't--about what that means.

Social Security does a lot of things that the Thrift Savings Plan doesn't. Social Security runs a nationwide Disability Insurance program. Social Security is overwhelmingly not an investment trust but a pay-as-you-go social-insurance system. The bulk of its administrative costs are the costs of paying out $400 billion in benefits, and those costs would be there--and would be unchanged--whether the Trust Fund balance was $4 trillion, $0, or -$1 trillion. Luskin is setting up an apples-to-oranges comparison: comparing the costs of managing an investment fund with the (tiny) costs of managing Social Security's trust fund plus the costs of running a nationwide disability insurance program plus the costs of running a pay-as-you go social-insurance system. He has set up his administrative costs comparison to be as unfair as possible to the current Social Security system.

If the TSP had to run a nationwide disability insurance system and pay out $400 billion a year of pay-as-you-go benefits to every retired American, would it be able to keep its costs at six-hundredths of one percent of invested assets?

If anyone editing National Review is reading this: Guys, I understand that you need partisan hacks rather than real economists writing for your magazine, because job one is justifying the unjustifiable policies of the Bush administration. But this--you should be really ashamed of yourselves.

Posted by DeLong at 06:40 PM | Comments (8)

Income Instability (Peter Gosselin Does Very Good Department)

Peter Gosselin continues his excellent LA Times series about income instability and its consequences:

Peter Gosselin: By last Christmas, the Saab and Volvo were long gone. The big clapboard house with the wraparound porch was headed for a sheriff's sale. As the last vestiges of wealth were being stripped away, John and Kim Ryan couldn't help but be startled at how far they had fallen. The two had risen so quickly in the world. Now in their late 40s, both were products of small-city Iowa, both the first in their families to go to college. John landed a job straight out of law school with the electric utility where his father was a unionized power-plant operator. Kim Ryan traveled the country recruiting students for a local college.

Along the way, the couple made a few mistakes. In the early 1990s, they purchased their home before selling a smaller one, saddling themselves with two mortgages for a time. Neither saved enough. "I'm kind of embarrassed we didn't take better care of the money," Kim Ryan said. But nowhere in the hundreds of pages of dunning notices and legal briefs on file with the U.S. Bankruptcy Court is there evidence of some wild investment or irresponsible career move. Nowhere is there a hint of unbridled spending. "They look like you and me," said Elizabeth Warren, a Harvard Law School professor and co-author of a book on the rising rate of personal bankruptcy in America, who reviewed the Ryans' court files at The Times' request.

In fact, what happened in the Ryans' case -- an economic implosion triggered by a succession of layoffs for John and a medical crisis for Kim -- has become increasingly common among the nation's working families during the last 25 years. Setbacks such as job losses and prolonged illnesses have always taken their toll, of course. But they haven't always packed the economic punch they now do. Since the 1970s, the odds that a family will see its income chopped in half when hit by this kind of shock have nearly doubled to more than 20%, according to statistics generated by The Times in cooperation with researchers at UC Davis. "Working families stand a good chance of sustaining big blows to their incomes even from fairly commonplace events," said UC Davis economist Marianne E. Page, who with colleague Ann Huff Stevens helped The Times with its analysis. "The odds of suffering a sizable setback have grown considerably in recent years."

Throughout this series, The Times has sought to make sense of an American paradox: why so many people report being less financially secure even as the nation, by many measures, has grown far more prosperous. The answer, the newspaper has found, lies in the shifting of economic risks from the broad shoulders of business and government to the backs of working families. Over the last quarter of a century, many safeguards that people once counted on to shield them from financial harm have been weakened or completely lost. These include formal protections such as guaranteed corporate pensions and state and federal unemployment benefits. And they include informal ones, like the loyalty that employers once showed their workers by offering secure jobs with relatively little prospect of long-term layoff. Other cushions that families like the Ryans have relied on, such as the financial stability that comes with a college education, also have eroded....

During the early '70s, the inflation-adjusted income of most of those in the middle of the economic spectrum -- making about $50,000 a year in today's terms -- bounced up and down by no more than $6,500 annually. By the beginning of this decade, those fluctuations had climbed to as much as $13,500, the newspaper's figures show. At the same time, the increase in volatility has been far greater for the working poor, while even top earners haven't been immune from ever-larger income swings.

To supplement these findings on income volatility, the paper looked at specific income-rattling experiences. In conjunction with Page and Stevens at UC Davis, it explored how frequently a representative sample of families was hit by any of seven common but potentially destabilizing events. They were: divorce or separation, a decline in a spouse's work hours, death of a spouse, birth of a child, retirement or disability of the main breadwinner, unemployment and serious illness. The Times then assessed what fraction of the families touched by any of these episodes suffered a 50% or greater decline in their annual income. For every type of setback, the size of the group that took such a huge financial hit climbed substantially between the 1970s and 2000. This occurred even though the odds of at least one of these events befalling a family over the course of a decade remained fairly constant, at about 1 in 5. For example, among families in which the head of the household was unemployed for two months or more, 13% watched their income shrink by at least half during the '70s. But in recent years, that number surged to 27%....

Some financial industry executives and Bush administration officials suggest that the rise in bankruptcies reflects profligacy among Americans. They are particularly incensed about Chapter 7 bankruptcies, which let people effectively wipe out their debts after forfeiting most of their assets but not their future earnings. These critics of the law want to change it by making it harder to go bankrupt. A Chapter 7 filer is a predatory borrower, Assistant Treasury Secretary Wayne A. Abernathy suggested in a speech last year, someone who "in a calculated way borrows as much as he can, with little thought of paying it back, or in some cases, with no intention of paying it back."

But Warren, the Harvard law professor whose Consumer Bankruptcy Project has conducted extensive surveys of bankrupt families, believes that fundamental economic change -- rather than moral laxness -- is behind the increase in filings. "People's jobs have grown more unstable," she said. In many communities, "the basics of middle-class life -- a good house in a good neighborhood with good schools -- have gotten so much more expensive. That's what is knocking families off their financial blocks." Warren said that, in interviews for her project, people described the extraordinary lengths to which they would go to avoid filing for bankruptcy. "For the overwhelming majority of these families," she said, "bankruptcy is a humiliating admission that they just can't make it in the middle class."

In the Ryans' case, the couple initially refused to file for Chapter 7. Instead, they filed for Chapter 13, under which they agreed to reimburse their creditors the full amount due them, but with the payments stretched out over four years. For a time, the plan worked. John was hired by a Pittsburgh-based division of Philip Services Corp., a rapidly expanding Canadian firm that was pushing into environmental work. Kim pieced together part-time employment on her way to a full-time teaching job.... Then, in January 1998, the Ryans' world was shaken anew. Just weeks after moving into elaborately renovated offices atop the 54-story One Mellon Bank building in downtown Pittsburgh, Philip, like Chambers before it, disclosed that it had accounting problems. The company eventually filed for bankruptcy protection, and John was laid off for the third time in five years.

As it turned out, being unemployed again wasn't the worst thing that would befall the family. In April, Kim suffered a miscarriage, which led to tests. In June, she was diagnosed with cervical cancer. "I was so scared," Kim said. "I couldn't believe that we had to declare bankruptcy. Then I got cancer, and the bankruptcy didn't matter."...

UPDATE: Matthew Yglesias finds and reacts very negatively to a Washington Post story that reads like a second-rate knockoff of Gosselin:

Matthew Yglesias: Blaming The Brown People: The highlight is that jobs are less secure than they once were, and that even when you have a job, you're likely to bear more risk in terms of needing to pay for your own health insurance and save for your own retirement, rather than having these things taken care for you by your employer. Strangely, though, the article seems to just assume that the only possible reason anything could be worse in any way is that "foreign competition" is to blame. The authors, in other words, take semi-seriously the claim that everything's fine, but they don't seem to even consider the possibility that things might be un-fine for reasons that have nothing to do with Chinese, Indians, or Mexicans competing us out of our less-risky former economic structure.

The main thing that seems to me to be happening is that we have higher rates of job turnover than we used to, for reasons that have more to do with technological change and policy shifts away from an economy dominated by regulated monopolies and oligopolies. These policy shifts have brought about a lot of benefits, but one of the costs of job churn is that it's made defined-benefit pensions and employer-based health care less viable. At the same time, industries without strong unions offer workers less bargaining power and therefore a worse deal. But the issue here isn't that service-sector jobs are "worse" in some metaphysical sense than are manufacturing jobs. Rather, the manufacturing sector is older, and largely became unionized at a time when labor law was friendly to organization. Sectors that have arisen during the prolonged period in which the legal environment has been hostile to unionization tend not to have unionized workforces and hence produce "worse" jobs.

In both cases, though, the answer isn't to go pining away for the good old days. Among other things, those good old days barely existed. The 1970s were hardly the salad years of the US economy, and if you go much further back than that you're talking about an economic structure based on the systematic exclusion of women and African-Americans from broad swathes of social and economic life -- hardly a model we're going to return to. Instead, you need a public sector that responds to the realities of short-tenure employment. Offering health care as a universal guarantee rather than a contingent factor of employment. Boosting, (rather than, as the president proposes, reducing) the public sector's role in offering some measure of guaranteed retirement security. Legal changes that make it easier to unionize new workplaces, so that the jobs we will, in fact, have will be good jobs, rather than having the country fight a hopeless rear-guard action to save the good jobs of the past. Indeed, it seems to me that the Lou Dobbs theory of the economy -- blaming trade and immigration for dislikable elements of the contemporary scene -- is a very dangerous toxin that's extremely counterproductive to sound social democratic goals. By focusing the ire of suffering people on various brown-skinned types both at home and abroad, this brand of pseudo-populism distracts attention from the policy shifts that could actually help and the powerful actors that stand in the way of those shifts. Chinese peasants and India's aspiring professional class are not the bad guys here.

It is true that the Post story is--well, given the state of the Post these days, I can't say shockingly bad. But I certainly wouldn't hire the authors for any purpose.

The story starts out talking about Teresa Geerling, a woman with a high-school diploma who used to make $16 an hour plus $2 an hour in health benefits working for American Airlines, but was laid off and now makes $14 an hour as a nurses' aide. Then we are told that her predicament is the result of "technology and global economic forces," but that "economists and scholars" say that "the new structure ultimately will create many kinds of jobs as yet unimagined, in fields such as education, health care and science," and that today's "new era requires that workers shoulder more responsibility and risk on the way to financial security, economists say." But these economists and scholars are not named, save for John McCarthy of Forrester Research who says something very different--that "you have to take the leap of faith that the economy will evolve and there will be this innovation economy that comes."

Then we are told that "tomorrow's middle-class jobs are likely to be enhanced variations of today's lower-wage jobs.... 'You can't be some kid who is good with a computer and get that job anymore,' said Anthony Carnevale, senior fellow at the National Center on Education and the Economy. The successful job seeker will be 'someone who can do the computer stuff but also knows the business.'... [T]echnology savvy, analytical thinking and interpersonal skills that could be the magic formula for U.S. workers..."

And by this time you are wondering what this has to do with Teresa Geerling and her problems. And the answer is: nothing. And there is not even a pretense of analysis. There's nothing like Gosselin's argument that rising incomes have been accompanied by rising risk and hence the chance of rapid downward mobility has increased; no argument that the weak labor market of the past four years has put downward pressure on lots of people's wages; no argument that rising health costs are putting pressure on a broken benefits-financing system; no argument even about what the restructuring of the labor market is--other than that it is the result of "technology and global economic forces"; the closest the Post piece comes to even trying to tell its readers what is going on is a plug at the end for America to invest more in education.

The Post would have served its readers much, much better if it had simply reprinted Gosselin's series.

Posted by DeLong at 12:56 PM | Comments (31)

The Invention of Tradition: Christmas Carol Department

Chad Orzel writes about traditions without realizing the extent to which they are invented:


Uncertain Principles: Right at the start, I'd like to say that I really like the distinction Tris McCall makes (via Bill Higgins) between Christmas carols and Christmas music:

Christmas carols are very old, and are by and large about Jesus. Christmas music is mostly from the latter half of the Twentieth Century, and generally replaces Jesus with Santa Claus.

I think this is dead on, and while he goes on to really badly overanalyze the whole Santa/Jesus thing, the basic distinction is a very useful one. Taking the two groups separately, the problem with the Santa-positive Christmas music is that most of it is either insipid, or crass, or both. Add in the fact that the whole Sinatra/ Crosby/ Cole crooner thing doesn't do much for me, and, well, there's not much here for me to like. There are some songs whose craftsmanship I can admire, and some really disgustingly effective earworms, but by and large, I just don't care for this whole class of stuff.

Which brings us to the Christmas carols. These start in a slightly uneasy position, given that they tend to be explicitly religious, and I'm, well, not. But then Christmas really is a religious holiday, so I'm actually more or less OK with that. To be honest, I'd prefer more angels singing to shepherds and fewer chestnuts roasting on sleigh rides.<

The problem with the carols isn't really with the songs themselves, so much as the way they're presented. My parents have a big collection of Christmas CD's and tapes, mostly put together by Hallmark, and they all do the same thing: they try to turn "God Rest Ye Merry Gentlemen" into Bach. Big orchestras, complicated arrangements, huge choirs with lots of different parts running simultaneously. They take simple songs, and try to render them into spectacle. And for me, that really misses the whole point....

Christmas carols... survived through the years (or just became popular in the first place) not because they're grand and timeless explorations of the best that orchestral music has to offer, but because they're catchy, memorable, and can be sung effectively by large groups of people who don't necessarily have any musical ability.... Tarting these songs up with big choirs and complicated arrangements drains all the life out of them. It takes a moving participatory number, and attempts to turn it into Art.... "Joy to the World" is impressive when sung by the Mormon Tabernacle Choir backed up by the London Philharmonic. But it's moving when belted out by tone-deaf farmers as the recessional at Midnight Mass. They don't have the technical ability of professionals, but it means enough to them to be standing there singing at one in the morning, and that's worth a lot. You lose that when you add the strings and the nineteen different vocal parts.

And that's the problem with most recorded Christmas carols: they take simple songs, and make them needlessly complicated. They turn what ought to be a participatory experience into something where it seems almost rude to sing along, if you can even manage it....

I suspect that most Christmas carols are much newer than Chad Orzel realizes. Of the three he mentions, "Joy to the World" dates from 1848, the "Cantique de Noel" from the 1830s, and only "God Rest Ye Merry Gentlemen" is something that Richard III might have heard (but might not). Here are some claims as to origins:

Carols of the Nativity by Phillip Lester: 1. O Come, All Ye Faithfu: While the origin of the words remains uncertain, the melody is credited to John Reading (1692), an English composer and organist at Winchester College. In 1751, John Francis Wade, an English priest and music copyist working in France, combined the Latin words with Reading's music resulting in the hymn known in Latin as "Adeste Fidelis". It was first publicly performed in London at the Portuguese embassy and thus it became known as the "Portuguese hymn" 

2. Angels We Have Heard on High: The words began as a poem by James Montgomery which he printed in his newspaper on Christmas eve in 1816 in Sheffield, England. The melody was composed by a blind composer and organist, Henry Smart. The original title, "Regent Square", was named after the location of St. Phillips Church where Smart was organist.  The words and music were first published together in a collection of carols in 1855. 

3. It Came upon a Midnight Clear: When American composer Richard Willis (1819-1900) composed this melody he referred to it as "Study no. 23." Coincidentally, in the same year (1849), Edmund Sears (1810-1876), a minister in Wayland, Massachusetts, wrote  words for a Christmas song reflecting upon that winter season and the sobering reality that the country was on the verge of civil war. With that background, the glorious song of "peace on earth, good will toward men" takes on added significance.  The words and music were joined together in 1850.  

4. Away in a Manger: Although sometimes known as Luther's Cradle Hymn, there is no basis for the legend that Martin Luther both composed and sang it to his children. The song originated in America in the mid 1800's.  It remains an anonymous carol considered a traditional, universal Christmas lullaby telling the story of the nativity with gentle and sweet imagery. While the words have been set to several different melodies, one of its  most popular settings  is Flow Gently Sweet Afton which has been incorporated into the introduction of this instrumental arrangement.

5. O Come, O Come, Emmanuel: This melody has its origin in a Gregorian Chant.  The version we are most familiar with came from Thomas Helmore, who in 1854, adapted this haunting melody from a Latin hymn.  The words go back 800 years to a style  called Plainsong from the days before written music. It was often sung without harmony or strict meter by monks in the seven days leading up to the Christmas service. On each evening the song would be sung, a different Biblical name of the Messiah would be substituted in the opening verses including Emmanuel or Immanuel  meaning "God with us" according to the  Old Testament prophecy  (Isaiah  7:14 and  9:6).

6. We Three Kings: The words and music were both composed by John Henry Hopkins (1820-1891). Hopkins was a poet, composer, church rector, and designer of stained glass windows.  This carol was one of several he wrote for an annual children's Christmas pageant. Though written in 1857, it was thought to be taken from an anonymous medieval composition because of its unusual style and combination of modes. This arrangement is performed on the high strung acoustic guitar.

7. O Holy Night: Adolphe Adam (1803-1856) was a French composer of several stage and ballet productions. He took his melody to his close friend, the French poet Cappeau de Roquemaure who supplied the lyrics. They titled their collaboration "Cantique de Noel." The English words we use today were written by an American clergyman and musical scholar,  John Sullivan Dwight. Adam's composition was initially met with criticism from French church officials who denounced it for its "lack of musical taste and total absence of the spirit of religion." It has gone on to become one of the most popular works in the repertoire of popular and sacred holiday music.

8.  Hark ! The Herald Angels Sing: The lyrics are attributed to Charles Wesley in 1730.  Felix Mendelssohn wrote the music 100 years later as part of a celebration commemorating Gutenberg, the printer. The melody and lyrics were joined together by English musician William Cummings in 1855.

9. God Rest Ye Merry, Gentlemen: Its actual meaning is  God keep you, gentlemen, in merry spirits. The true origin of this carol has never been established, however, it was likely a popular London street song and was  even mentioned in Charles Dickens' A  Christmas Carol.

10. Silent  Night: On the day before Christmas in 1818, Joseph Mohr, a young associate minister, brought a poem he composed to Franz Gruber, the church organist, to be set to music.  Since the organ was broken, the two finished and performed the song that night using a guitar for accompaniment. The organ repair man finally showed up in the spring. While testing out the repaired organ, Gruber performed "Silent Night".  The repairman, after hearing the song, was so impressed he took a copy of the hymn to his town.  From there it was passed on to a traveling musical group and its popularity spread throughout the world. In 1863 it was translated into English and became an American favorite.

I know, I know. I was blown away when I learned that although the tune, "Greensleaves," really is Tudor, the words to the Coventry Carol--"What Child Is This?"--were composed in 1865 by William Dix.

But then, maybe to Chad Orzel everything before 1950 is "very old," and only the fact that the temporal center of my day job is 1800-1900 makes me regard Dix, Mohr, Mendelssohn, and company as nearby.

Posted by DeLong at 09:17 AM | Comments (20)

The Tech Central Station Ring of the Clown Show

Is bloodthirsty Uzbek dictator Islam Karimov a client of the DCI Group lobbying operation? The latest from Tech Central Station makes me think that it is. Otherwise, this is completely inexplicable. Justin Logan has the goods:

JustinLogan.com: Our Man in Uzbekistan: Demonstrating that strategery isn't their only weakness, Steven Schwartz shows that neocons can be just as immoral as realists:

As I write, on December 29, the results of the Uzbek vote are both incomplete and controversial. The allocation of seats to the various parties, including the ruling National Democratic Party of President Islom Karimov, has yet to be announced, and functionaries of the Organization for Security and Cooperation in Europe (OSCE), have declared the balloting insufficiently democratic. But the OSCE inspires little confidence in such matters. For myself, I have witnessed several years of OSCE meddling and mismanagement of the promised transitions to democracy in Bosnia-Hercegovina and Kosovo, and do not perceive the OSCE as possessing moral standing to issue such criticisms.

At the same time, while observing the Uzbek elections, I was reminded of earlier chapters in the history of post-Communist democratization. Whether the OSCE was satisfied or not, ordinary Uzbeks lined up enthusiastically to cast their votes on a multipage paper ballot. Meanwhile, the Uzbek authorities made extensive preparations to accommodate foreign journalists, who did not show up in substantial numbers.

Now, wait a minute, who's the bad guy here?  Well, the OSCE, of course.  Schwartz is right to criticize the OSCE and its observer missions, but they deserve to be criticized for being too soft on despotic regimes, not too tough! Their previous and numerous failures to stand up to Russian chicanery in places like Moldova are indeed regrettable, though the institution is showing signs of healing. But Schwartz, for his part, paints Karimov as the good guy, who is regrettably being shoved around by those bastards from the OSCE.  Schwartz, who I'm not sure speaks one word of either Uzbek or Russian, might want to apply for a job as a CIS election observer.  Or maybe he can find himself a foreign patron to fund these little propaganda missions of his.

Meanwhile, Muhammad Salih, reporting from exile in Europe, gives the real scoop on the elections:

Uzbek voters knew absolutely nothing. They did not know who to vote for because they did not have any information about the candidates running for parliament. Everything was shrouded in mystery, except the fact that all parties in the race had been founded by state authorities.

Another curious aspect of the Dec. 26 elections was that they were held under an artificial state of emergency. Particular attention was paid to the Ferghana Valley, Bukhara and Samarkand. Ten days before the elections, troops from the Interior Ministry, the Defense Ministry and the National Security Service began regular patrols of these regions. Security forces took full control of all city mosques and public places, supposed potential sites for terrorist attacks. Operations to detain "extremist elements" also took place. So-called suspicious persons were brought into local police stations and booked, or were simply arrested on the spot. These included political activists calling for a boycott of the elections. Arrests occurred across Uzbekistan, and human rights activists and opposition party members were followed, put under house arrest and not allowed to register at the polls, even though the main opposition parties, Erk and Birlik, had been excluded from the race.

There was one person, however, who seemed happy with the elections, namely Vladimir Rushailo, who led the observer mission from the Commonwealth of Independent States. He was so pleased with things that he flew off to Kiev before the polls had even closed. For once, everything went off just as Russia had hoped.

Check out what the evildoers at the OSCE had to report, and Karimov's attempt to spin it...

Posted by DeLong at 08:33 AM | Comments (5)

Long-Run Fiscal Priorities

Andrew Samwick writes:

Vox Baby: Answering Some Comments: Brad DeLong also makes some useful points about how things have changed to the point where he is out of the crisis mode (i.e., his view that the uptick in productivity since 1995 looks to be here to stay and this is not reflected in the Trustees' projections). However, I think these comments are incomplete. In particular, leading demographers think the Trustees' assumptions about longevity understate the decline in mortality and thus program costs. (See this paper for a recent example.) I discussed these issues in more detail in an earlier post.

So I still think we are in crisis mode, or, more precisely, that we are in "impending crisis" mode. If we do nothing, we hand a growing stream of annual Social Security shortfalls to future generations of workers with little policy flexibility to deal with them. I am trying to avoid that outcome. In the whole set of posts that I have done on Social Security, I haven't asked the Democrats to do anything that is more difficult than what I have asked the Republicans to do. I acknowledge that the problems facing Medicare are larger than those facing Social Security. That doesn't mean that we shouldn't solve Social Security's problems....

Touche on the life expectancy point. If I were running Social Security projections, I would up productivity growth, up immigration, leave natural increase alone, and up life expectancy. The net effect would be, with reasonable uncertainties, a 40% chance that the system would be in 75-year deficit. (As opposed to what happens when you take current Social Security central estimates, which with my uncertainties give an 85% chance that the system would be in 75-year deficit.)

I wouldn't, however, say that I'm not in crisis mode. I'm in Medicare crisis mode. I'm in ex-Medicare General Fund crisis mode. I'm even in Social Security crisis mode--after all, the first big hurdle the Social Security system faces is not that the system lacks resources to pay promised benefits after 2050, but that the General Fund--according to the Bushies' current policies--lacks resources to repay the Social Security trust fund after 2018.

As to Democratic proposals... Diamond-Orszag looks fine, but it doesn't address the systematic problems of governance that the Republican Party has inflicted upon America since the start of the 1980s. Whether you think that the Reagan deficits slowed American economic growth by only 0.3% per year in the 1980s and early 1990s or by somewhat more, it was without a doubt a domestic governance disaster of a magnitude that has only recently been matched by the renewed derangement of America's fiscal situation in the 2000s. This is why I'm attracted to the Federal Reserve model. Get the cabinet secretaries out as Trustees of Social Security. Replace them with guys appointed for fourteen-year terms. Mandate that they keep the system in actuarial balance--just like the Federal Reserve has a mandate to preserve price stability. And have them raise and lower the retirement age a bit at a time as the fortunes of the system wane and wax.

What I don't understand is why there aren't more right-of-center economists saying, "Stop this process now." They must realize that--as one Republican former CEA member says--you have to evaluate a policy initiative neither on the basis of whether your favorite set of reforms will be a net plus nor on the basis of whether the White House's ultimate proposal will be a net plus but on the basis of whether it will still be a net plus after Congress has done its worst to it. And I think that for this particular Bush initiative--as for almost all Bush initiatives to date, whether Medicare drugs or the steel tariff or the bra quotas or the corporate tax bill or the deficit--the answer is very clear.

Posted by DeLong at 08:24 AM | Comments (14)

December 30, 2004

Expanding Your Own World Wide Web

Bruce Bartlett tells us what to read:

Bruce Bartlett: The blogger take on the issues: What I have discovered in the past year is that there is increasing specialization among bloggers, with more staking out narrow areas of commentary.  Since my main interests are economics and tax policy, I have singled out a few blogs in these areas that I have found to be valuable resources.

 In the tax area, the most prolific blogger is tax professor Paul Caron of the University of Cincinnati.  I find him useful because he really keeps on top of the scholarly research among other tax professors.  In most cases, this research is available on the Internet in the form of working papers that may be available months or even years before they appear in inaccessible law reviews.  This is extremely valuable to me in terms of keeping ahead of the curve on tax research.

 Other tax professor bloggers are James Maule of Villanova University and Daniel Shaviro of New York University.  They tend to talk more about current tax policy issues from an academic point of view. What I like about both of them is that they are highly opinionated.  Neither pulls any punches in saying what they think is stupid about recent or proposed tax legislation.  I don’t always agree with them, but they always make me think.

 Another tax perspective comes from Kerry Kerstetter, a certified public accountant.  His commentary is less academic and more practical.  He offers advice on real world tax problems, especially those faced by small businessmen.  And he seems to find every cartoon dealing with taxes that appears anywhere.

 On economics, I have become a regular reader of the blog jointly produced by George Mason University professors Don Boudreaux and Russell Roberts.  They are particularly good on free trade, an area where even some free marketeers have been seduced by the siren song of protectionism.  Boudreaux and Roberts also do a good job of making technical issues accessible to a general audience.

 On international trade, an indispensable blogger is political scientist Daniel Drezner of the University of Chicago.  He has been especially outstanding on the so-called outsourcing issue and does an excellent job of staying on top of the research in this area.  Unfortunately, despite the fact that every single serious article or paper on this subject has shown it to be a non-issue, it continues to excite xenophobes and others who lie awake nights worrying about the trade deficit.

 Blogger professor Andrew Samwick of Dartmouth University may become must reading in the coming year because he is an expert on Social Security privatization.  Although favorable to the idea in principle, he is skeptical of free-lunch solutions, which could make his commentary particularly timely.
I am right leaning, politically, but I continue to find value in the commentary from friends on the left.  The best is Kevin Drum of Washington Monthly magazine.  The magazine itself has gone downhill, in my opinion, having become more doctrinaire and less iconoclastic since the retirement of its founder, Charlie Peters.  But Kevin remains sufficiently independent to keep me reading.

 Another lefty web site that I read regularly is someone known only as “Angry Bear.”  I don’t know who he is, but he offers sophisticated commentary by an economist with a left wing perspective.  He is very good at poking holes in weak conservative arguments for policies that I support, helping me strengthen those arguments and help get them enacted.

 One disappointment this year in the blog area has been the weakness of some institutional blogs, those sponsored by newspapers and thinks tanks.  They are often unreadable and seldom linked to.  It confirms my view that blogs are necessarily idiosyncratic and need to be pretty independent in order to be successful.

 I believe that the Internet has barely scratched the surface in using blogs to analyze and disseminate information.  I look forward to their continued evolution.

Posted by DeLong at 06:59 PM | Comments (15)

December 29, 2004

In Defense of the 1st and 4th Infantry Divisions

First, a few numbers. A U.S. World War II infantry division had a full strength of 14,087--of whom about 6000 were front-line rifle-carrying officers and men, and the rest were cooks, artillerymen, staff, orderlies, drivers, medics, et cetera. The U.S. 1st Infantry Division hit Omaha Beach on June 6, 1944. From then until the end of the war it was in combat for 292 days. It suffered 2,924 killed and missing, 11,448 wounded in combat, and 631 captured. The 4th Infantry Division hit Utah Beach on June 6, 1944. From then until the end of the war it was in combat for 299 days. It suffered 5,348 killed and missing, 16,985 wounded, and 121 captured.

If we're willing to assume that 80% of the casualties were inflicted on the rifle elements, we can calculate hazard rates: sign up with a 4th ID rifle formation, and after six months--if you hadn't been wounded badly enough to be pulled out first--there was a 36% chance that you were dead; sign up with a 1st ID rifle formation, and after six months there was a 22% chance that you were dead. The riflemen of the 1st and the 4th Infantry Divisions very much wanted to survive and come home. But they also wanted to defeat Hitler. They fought bravely and aggressively, and many of them never came home at all.

Now come Ross Douthat and Max Hastings arguing that the riflemen of the 1st and 4th Infantry Divisions lacked the "martial virtues" because they were citizens of democracies rather than subjects of dictatorships, and that their commanders were too cautious and prudent, unwilling to spend the lives of their men on an appropriate scale for geopolitical advantage.

In so arguing Douthat and Hastings show themselves greatly in need of remedial military history:

www.AndrewSullivan.com - Daily Dish: It's instructive, therefore, to consider just how tough it was for the Western Allies to defeat Nazi Germany, even in 1944 when everything seemed to be going the Allies' way. Max Hasting's new book out the 1944-45 slog, called Armageddon, is reviewed in this Sunday's Times, and this passage struck me as worth highlighting:

...the generals' failure to knock Germany out of the war in late 1944 reflected the kind of armies they led as much as their own deficiencies as leaders. The British and American armies were composed of citizen soldiers, who were usually prepared to do their duty but were also eager to survive. ''These were,'' Hastings writes, ''citizens of democracies, imbued since birth with all the inhibitions and decencies of their societies.'' Such peacetime virtues are not easily transformed into military effectiveness. James Gavin, whose airborne division was among the finest units in any army, filled his diary with harsh comments about the average soldier's military quality. ''If our infantry would fight,'' he wrote in January 1945, ''this war would be over by now.... Everybody wants to live to a ripe old age.'' When Winston Churchill complained to Montgomery about the British Army's lack of initiative, Montgomery replied by recalling the carnage on the Western Front during World War I: ''It was you, Prime Minister, who told me that we must not suffer casualties on the scale of the Somme.''

By contrast, Armaggedon points out, the Soviets were prodigal with the lives of their soldiers -- and ended up in a much-better postwar position because of it.

One does not know where to begin.

Does one begin with the observation that if the riflemen of the 1st and 4th Infantry Divisions thought that surviving the war was more important than fighting and beating Hitler, they did not do a very good job of it? Does one begin by asking how Zhukov's waste of hundreds of thousands of lives in frontal assaults at Seelowe Heights and elsewhere made the post-WWII Soviet Union any stronger? The post-WWII Soviet Union would have been stronger with more young men, not with controlling more acres of sand planted in rye and farmed by unruly peasants who would thraten to revolt every decade or so.

Does one start with the observation that Somme-scale casualties are usually viewed as the nadir rather than the zenith of generalship, and that Montgomery was very good at set-piece assaults and attrition battles? Does one point out that commanders who don't care about the lives of their soldiers and launch "human wave" attacks against fortified positions like the Chinese in the Korean War or the Iranians in the Iran-Iraq are commanders who lose?

Does one start by noting that if James Gavin really was--in his considered judgment--disappointed with the performance of the 82nd Airborne, he had no reason to be? Three times in 1944 the 82nd Airborne should have been overrun and annihilated, but all three times--after the initial drop into Normandy, during Market Garden, and when they held the northern flank ofthe breakthrough against the 6th SS Panzer Army during the Bulge--they fought much more stubbornly and effectively than any bunch of light infantry on a mechanized battlefield had any business doing.

Does one start by pointing out that at different points during World War II the Russian commanders fought stupid and fought smart, and that they broke the back of the Nazi army not when they fought stupid--were prodigal with the lives of their soldiers--but when they fought smart? Uranus, Bagration, the flank attacks near Belgorod and Kharkov that sapped the Nazis of the strength they had hoped to use to encircle Kursk, General Rotmistrov's convincing the Nazis that his Fifth Guards Tank Army was at full strength by successively putting those tanks he had that were still running under the commmand of each of his corps headquarters, the Russian understanding of mass production and the superb design of the T-34 tank--those were the big reasons that the Russian broke the back of the Nazi war machine. Does one start with Patton's observation that he did not want soldiers who would die for our country, but soldiers who would make the other damned bastards die for their country?

Does one start by pointing out that the initiative possessed by citizens of democracies is very valuable in wartime? That their nature as democracies was one of the things that made it possible for Britain and the U.S. to mobilize on an awesome scale and to use their mobilized resources effectively, with much less of the hideous waste because noone dares tell the leaders that things are going wrong found in Nazi Germany--and in Stalinist Russia?

I think the place to start is with the typical operational tempo of World War II campaigns. Generally a World War II campaign had the following stages:

  1. An attrition battle, which ends either when:
    • The attacking side--taking heavy casualties as it assaults dug-in and fortified troops--runs out of reserves to fuel the attack
    • The defending side's line ruptures
    In this second case, the campaign then continues with:
  2. Exploitation, as the attacking side's mechanized troops rush through the breakthrough, destroy supplies, disrupt communications, and surround elements
  3. Panic, as the defending side's forces lose cohesion and their commanders lose control
  4. Retreat, as everyone on the defending side who can attempts to get out of the way of the exploitation forces
  5. Reestablishment, as the remnants of the old forces and reinforcements establish a new front line far enough behind the old one that the attacking side cannot bring up enough fuel and ammunition and replacements to continue the assault against more than minimal opposition.

This breakthough-and-exploitation-to-the-limits-of-supply happened over and over in World War II. After the success of the initial landings, the ETO in 1944 followed this standard pattern. First came an attrition battle in Normany, a battle that was well set-up by Eisenhower and company as airpower isolated the battlefield and strategic deception froze the movement of Nazi reserves for a while, and that seems to have been well-fought by Montgomery (in spite of terrain and in spite of World War I-style front densities, the attrition ratio was, we think, quite favorable to the allies). Then came the breakthrough with Operation Cobra and what may have been Eisenhower's best decision of the war: to hand control over the exploitation to Patton. Then came the pursuit to the limits of Allied supply at the German border.

Further exploitation into Germany itself in the fall of 1944 would have required better supply--three times as many trucks in the Red Ball Express or a much earlier clearing of the port of Antwerp. An Allied unwillingness to take casualties was none of it: the Allied armies took casualties in the Normandy bocage, in the Huertgen Forest, and elsewhere, and kept coming. Perhaps you can blame Montgomery for not understanding either how to conduct an exploitation or that clearing Antwerp was the highest priority. But probably not. The iron law of World War II is that exploitation stops where supply becomes problematic.

So why do Ross Douthat and Max Hastings talk about how a key Red Army edge during World War II was Russian commanders who were "prodigal with the lives of their soldiers"? Prodigal the Russian commanders were at times. But that was not why they won big. And why do they think that British and Americans valued their lives too much to be good soldiers?

I think the origin of this line of thought comes in the self-justifying memoirs written about the War in the East by Nazi commanders in the 1950s. They were unable to face up to the fact that during the long retreat from Stalingrad to Berlin they had been out-weaponed (because the Russians understood mass production while the Nazis did not), out-generaled (Stalingrad, Kursk, Bagration), and simply out-fought (Vatutin's tank crews sealed up their tanks to see if they could run them underwater across the branches of the upper Dneiper: about half of them made it across alive). So they wrote that they had been massively outnumbered--outnumbered by the Asiatic hordes they faced who had been ideologically indoctrinated not to value their own lives.

But just because ex-Nazi commanders wrote it doesn't make it true.

Posted by DeLong at 02:03 PM | Comments (91)

Why Oh Why Are We Ruled by These Idiots? (Administration Priorities Department)

Another swift about face by the Bush administration:

Political Wire: Bush Will Delay Tax Overhaul: "Wholesale changes to the tax code that just weeks ago were identified as a Bush administration goal by the end of 2005 are being pushed back for at least another year," the Washington Post reports. White House officials "have determined that they have their hands full with Bush's pledge to overhaul Social Security and a budget plan that will demand politically painful cuts to non-defense spending."

So is tax reform now stacked behind the Mars mission as far as administration priorities are concerned? Bear in mind that neither the "painful cuts" nor the Social Security "plan" are far enough along even for serious trial balloons to have been floated...

Posted by DeLong at 01:56 PM | Comments (17)

A Letter to a Noble Friend on the U.S. Budget

You asked my opinion about Social Security, and about the long-run federal budget mess more general...

Well, the way I look at it (and this *is* what I do at my day job), we think that the promises and commitments the U.S. government has made and its standard operating procedures for setting spending amounts commit us to an average federal spending level of 25% of total production over the next two or so generations. We know that number will be off--it might be 23%, it might be 27%. But 25% is the number we should have in our minds when we plan.

Now taxes are currently set so that, if standard operating procedures for tax break extension, et cetera, are followed, the federal government will collect some 18% of total production in taxes. 18% is a lot less than 25%.

We as a society have two choices. We can either ignore the gap between 18 and 25 until the foreigners we borrow from lose confidence that we will ever solve it, and our economy and currency go smash in the way that Argentina's seems to every generation, that Mexico's did in 1994, that Germany's did in 1923, and so forth. Or we can take steps to close the gap between 18 and 25. And the sooner we start to take those steps, the easier things will be.

Let's assume that we decide not to let the economy and currency go smash, and that we take option 2. First, we wonder "Where did this gap come from?" Well, if we did not have the Bush tax cuts--or if we let the Bush tax cuts expire--we will be at 21 instead of 18 on the tax side, and face a long-run fiscal gap of not 7% but 4% of total production, a smaller problem.

In fact, if we hadn't done the Bush tax cuts, we would over thenext five years be (as we were in 2000; remember?) in surplus, with taxes at about 21 and current spending levels at about 20 percent of total production. But even though we would be in current surplus, we would not be in long-run surplus. The aging of the population and greater life expectancy is going to push Social Security spending up by about 2% of total production. Better and more costly medical technology coupled with the aging of the population and greater life expectancy is going to push Medicare and Medicaid spending up by about 4% of total production.

Taking care of the 2% of production rise in the long-term funding gap coming from Social Security is straightforward. Either cut benefits (by raising the retirement age by 3 years, by cutting everyone's benefits by about a quarter, by shifting some of the risk that the stock market will tank from the government to Social Security beneficiaries by turning some of their benefits into private investment accounts, or some combination), raise Social Security taxes (by either removing the current lid on Social Security taxes, by increasing the Social Security tax rate by a couple of percentage points, by using general revenues to pay future Social Security benefits,* or some combination).

The increase in the gap coming from the rise in Social Security spending is thus a serious, but a fixable problem. The system only goes smash if we take no steps over the next two generation to either cut benefits or raise taxes.

The increase in the fiscal gap coming from Medicare and Medicaid is a bigger--and harder--problem. All trends suggest that the next two generations will see extraordinary improvements in medical technology coupled with large increases in medical costs. We believe that people who are sick should be treated: we don't think that the poor should die in the street because they cannot pay their hospital bills. But somebody has to pay. So either we grit our teeth and accept very large tax increases to preserve an income-independent right to medical care, we keep our taxes where they are and begin to ration life-saving and life-extending medical care bigtime depending on the thickness of your wallet, or we think up some clever scheme to make the medical system work much much better so we can get better medical care at much lower cost. I vote for the "clever scheme" option myself, and there are bunches of people working for John Kerry who are trying to think of what the clever scheme should be (in contrast to the people working on health care for George Bush, who seem more interested in boosting the prices of drug companies and then jumping to drug-company jobs). But I'm not optimistic. I think we have a very hard social choice before us over the next couple of generations.

Although the choices are hard, we can make them. We do have options. Decide what to do about health care, decide how much in the way of benefit cuts and how much in the way of tax increases we want for Social Security, let the Bush tax cuts expire--and we have a functioning, solvent government with in all probability a healthy, rapidly-growing economy.

But if over the next generation or so we fail to make our social decisions about health care, fail to accept either benefit cuts or tax increases in Social Security, fail to let the Bush tax increases expire, continue to elect people like this pathetic bunch of modern Republicans.... Well, there is nobody outside to come and save us from the consequences of our own follies of governance.

*As we are currently scheduled to do: the general fund owes Social Security a considerable hunk of change.

Posted by DeLong at 01:47 PM | Comments (37)

Why Oh Why Are We Ruled by These Idiots? (Moral Leadership Department)

It's the little things that are the most bizarre. Here's Josh Micah Marshall:

Talking Points Memo: by Joshua Micah Marshall: December 26, 2004 - January 01, 2005 Archives: President's latest response to the tsunami tragedy: badmouth Bill Clinton. From the Post ...

Earlier yesterday, White House spokesman Trent Duffy said the president was confident he could monitor events effectively without returning to Washington or making public statements in Crawford, where he spent part of the day clearing brush and bicycling. Explaining the about-face, a White House official said: "The president wanted to be fully briefed on our efforts. He didn't want to make a symbolic statement about 'We feel your pain.' " Many Bush aides believe Clinton was too quick to head for the cameras to hold forth on tragedies with his trademark empathy. "Actions speak louder than words," a top Bush aide said, describing the president's view of his appropriate role.

Actions speak louder than words? Actions?

Posted by DeLong at 04:27 AM | Comments (45)

December 28, 2004

A Republic, If You Can Keep It

This is very bad. Michael Froomkin reports:

Discourse.net: Delay, Delay, Don't (re)Count the Votes: Is there any way to understand this sort of tactic as anything other than an attempt to prevent an honest recount: "Ohio Official Refuses Interview Over Vote"? (Note that the headline is British understatement — in fact the Ohio Secretary of State is apparently trying to get a court order to block having to explain the weird things he’s done to lock out recounters, prevent observers from actually observing, and other very suspicious hijinks.)

Posted by DeLong at 07:26 PM | Comments (18)

A Big Problem with Social Democracy

Max Sawicky writes:

MaxSpeak, You Listen!: PUBLIC OWNERSHIP
: Froomkin's points are well-taken, but he seems to gloss over the fact that we already have such accounts run under the auspices of state governments. Until recently, there have been no problems that I can recall in their management. State funds seemed to bear the blow-up of Enron much better than many individual investors.

The two recent instances of problems I can recall were in New Jersey and Florida. Republican Governor Christine Todd Whitman started underfunding one of the public employee pension funds to ease state budget problems. And stooges appointees of Republican Governor Jeb Bush proposed to use a state fund to bail out the Edison Project, the school privatization company. So the simple safeguard here is to keep political control of the funds out of the hands of Republicans, especially those with the surname "Bush."

But what if we can't keep political control of these funds out of the hands of people surnamed "Bush," "Whitman," and other Republicans? What then? What if the voters persist in electing such?

This is why I'm attracted to the Federal Reserve model. Technocracy seems worth a try...

Posted by DeLong at 07:23 PM | Comments (15)

Mark A. R. Kleiman Finds His Pro-War Novel

It tolls for thee:

Mark A. R. Kleiman: In search of the pro-war novel:
    We have a winner!
: My reader's innocent question about whether there was a pro-war novel of obviously high literary quality written since 1700 produced lots of interesting (to me, at least) definitional discussion and a wealth of interpretative material, but no unambiguous counterexample (i.e., a well known document that a literature professor wouldn't be ashamed to be seen reading, not fantasy or SF, not "historical" as in the Aubrey/Maturin series, not pure genre fiction of the Tom Clancy variety). Until now, that is. Two readers finally had the blinding flash of the obvious we had all been missing: For Whom the Bell Tolls.

Posted by DeLong at 07:19 PM | Comments (9)

December 26, 2004

Earthquake: How to Help

Unqualified Offerings points us to:

The Command Post - Global Recon - Earthquake: How to Help [Updated].

Posted by DeLong at 06:20 PM | Comments (22)

The Andrew Samwick Fraction Grows with the Defection of the Renegade Froomkin

Writing from the historical origin point of the modern industrial bourgeoisie, my best-friend-since-second-grade Michael Froomkin turns renegade, denounces my tentative attraction to Equity-Premiumism-in-One-Country, and explains all the reasons that I am wrong and Andrew Samwick is right--that if we are going to prefund Social Security and invest a large hunk of the Trust Fund in stocks, we need to do it via the mechanism of private accounts to avoid massive government-failure problems. There is also a nice dig at the incapability of the liberal-economist mind to even begin to comprehend the potential scale and scope of how government intervention in the market can go wrong.

:-) :

Discourse.net: Government Invstment In Equities: It's Not As Simple As It Looks: Although attractive in the abstract, the idea that the government might try to invest in equities and thus directly enjoy some of the fruits of the very capitalism it creates a safe environment for (rather than just benefitting indirectly via taxes) is, I think, much more fraught than the economic mind instinctively recognizes. While I’d be happy if we could make it work, I don’t think we are up to it in practice (and I’m certain the Bush administration is not up to it!): the problems that need surmounting are much worse than Brad suspects, and are much worse then just “magnify[ing] our corporate oversight and control problems,” although who votes the government’s shares and according to what policy is no small problem.

No, the first-order problem isn’t that having the feds control a lot of equities will magnify existing corporate oversight and control problems. It’s that the way in which the feds choose what to hold and sell will create huge new problems.

Start with the buying end. Buying will either be mechanistic, delegated, or discretionary. If it is mechanistic, we have the wrangle over the formula, which then distorts markets unless the formula is to buy a basket consisting of the entire stock market (even this, arguably, has secondary effects on the bond market, but let’s not go there).

In fact, this is the only buy/sell formula that doesn’t create huge problems right off: have the feds buy a basket that represents all the shares in a multiplicity of exchanges (not just the big ones). But this isn’t easy to do, especially for small-cap stocks, without distorting markets. Even here, though, a mechanistic sell policy may have some undesirable depressive effects at inconvenient times driven by demography. And while it’s arguable that similar selling would be happening anyway if the funds had been in private pension funds, that may be the wrong comparison, since the funds might otherwise come out of general tax revenue, and thus spread the effects beyond the stock market.

If the feds use any formula other than whole-market, it becomes very distortionary given the sums involved. For example, if the feds just buy the S&P 500, or even just a NYSE basket, the effect of being listed in that group or that one among competing exchanges (or, worse, de-listed) is substantially magnified because it comes with an investor who can be relied upon not to sell based on market shifts, and whose buying and selling generally is predictable. Not to mention that the biggest equity gains may well be in the stocks that are not in the S&P 500 or the NYSE (think, for example, NASDAQ).

If buying is delegated to fund managers, they become incredibly powerful and lack the sort of checks on performance that would be needed since the government is highly unlikely to exit an under-performing fund. I suppose one could in theory create some performance-related pay for the managers that might substitute for market discipline, but there is no real chance that politics would allow the feds to create a performance pay scheme that would have the right sort of long-term incentives. (Again, imagine the Bush administration writing the rules here…)

If the feds themselves have any discretion as to what to buy, we’re in for even worse crony capitalism than we have now, with a dash of ‘lemon socialism’. Imagine if campaign contributions might, or even are thought to maybe, have a chance of turning the feds into a buyer of your shares. At this point, having the Bush administration in charge is just a nightmare. And imagine the pressure to have the government buy into ‘critical industries’ or key local employers to prop them up or protect them from foreign takeover. (It may be that the new TRIPS and GATT regimes protect against this somewhat; it’s been a very long time since I looked.) And try re-telling the Lockhead or Chrysler stories if the government has an equity buying scheme.

It’s even worse on the sell side. If the formula for selling shares is anything but mechanistic, then a government sell decision will be seen as a massive vote of no-confidence. [Side issue: can the government use its information about the economy to decide what to buy and sell? Or rather, what information is it allowed to use generally?]

Then there are the macro issues: just imagine the times when Congress and local pols will be pressing the feds to buy or sell as an aspect of counter-cyclical policy…

So while it makes sense in the abstract to have the government be a direct holder of equities, the details are just swarming with devils, demons, pitfalls, and mixed metaphors.

I think that Andrew and Michael are wrong. The government failure problems, while first order, are solvable. (Federal Reserve model, anyone?) And the consequences of individuals' churning the asset allocation of their private accounts, plus the management fees, plus the pressure on Congress to create loopholes to allow people to tap their accounts before retirement are, in my judgment, bigger than the government-failure problems.

In a better world than this one we would be debating this. But engaging in arguments about the substantive effects of different policies is not the Bush administration's forte: we are told that now is not the time to do so.

Posted by DeLong at 06:03 PM | Comments (37)

Kevin Drum's Head Spins...

All that's solid melts into air as he confronts the fact that right-wing economists aren't what they used to be. He suspects a serious right-wing line wobble:

The Washington Monthly: I'll admit that I haven't kept up with recent thinking about the equity premium, and I haven't kept up with the recent thinking of Martin Feldstein either. But even so, here's why I'm puzzled. The United States is the biggest and most dynamic capitalist country in the world. Likewise, the U.S. stock market is the biggest and most dynamic stock market in the world. It is, in fact, practically a shrine to free market capitalism. And yet Brad would have me believe that conservative economist Martin Feldstein believes that:

The U.S. stock market is the victim of a massive, persistent, and inexplicable market failure,


The best cure for this is an immense government program that forces its citizens to invest in the stock market.

Either conservative economics has taken a turn I'm not aware of, or else Brad is misrepresenting Feldstein's views. But which is it?

Wassamatta U? Hasn't Kevin ever heard of Equity-Primiumism in one country before?

Posted by DeLong at 05:41 PM | Comments (4)

Not a Good Sign. Not a Good Sign at All...

Michael Kinsley writes:

washingtonpost.com: If It's Right, It's Wrong: Privatization, in other words, rests on persuading Americans to accept a theory [that stocks are underpriced] that must be widely disbelieved in order to be true. It's like Tinker Bell in reverse: If too many people are convinced that the theory is right, it's wrong. And the White House is campaigning hard to convince everyone the theory is true. If the campaign succeeds, the theory fails. Where am I wrong here? Gregory Mankiw, outgoing chairman of the Council of Economic Advisers, sent me a polite e-mail saying now was not the best time "to engage in an on-the-record debate . . . on the validity of your economic theorems." He also sent excerpts from a speech on Social Security reform that may help explain why he is outgoing, because he declared, "There are no free lunches here."...

How can it be the case that now is not the best time for the Council of Economic Advisors to go on-the-record explaining the economic rationale behind George W. Bush's non-proposals? Isn't that just another way of saying that there is no credible economic rationale behind George W. Bush's non-proposals?

Posted by DeLong at 10:57 AM | Comments (21)

Social Security Yet Again: A Clarification

A clarification: Michael Kinsley writes:

washingtonpost.com: If It's Right, It's Wrong: Berkeley economist Brad DeLong... challenged my argument that nothing about privatization promises to increase private investment. They cited the well-known research by economist Martin Feldstein showing that Social Security reduces personal savings. Big surprise: If you know you've got a bit of a nest egg coming from the government, you may not be as avid a saver. It follows that less Social Security should increase personal savings. But privatization is not supposed to produce a net loss in anyone's retirement nest egg. In fact, if it worked as promised, it would enlarge the nest egg. By the Feldstein thesis, that would reduce private saving. So, once again: Privatization relies on a theory that is wrong if it's right, and right only if it's wrong....

I was actually thinking of a different line of argument that Marty makes. These days he is more likely to stress not the reduction in personal savings that may be generated by expectations of the continuation of the pay-as-you-go Social Security system, but the gap between stock and bond returns. Marty's argument these days is much more likely to be the claim (with which I have a lot of sympathy) that the stock market does a lousy job of mobilizing society's risk-bearing resources. Stocks appear to be priced as though the marginal investor is a rich 62-year old with some clogged arteries and a fifteen-year life expectancy who is not expecting to leave a fortune to his descendants. But if the stock market were working well, the marginal investor would be a 40-year old in his or her peak earning years looking out to retirement spending 40 years in the future--an investor much less averse to risk than the 62-year old.

Turning Social Security into a forced-equity-savings program would, Marty believes, not only produce huge profits for the system but also materially improve the efficiency of U.S. financial markets.

I would rather see this forced equity savings done not through private accounts but through allowing the Secretary of the Treasury to invest the Trust Fund in equities. I would rather see this done by the Treasury Secretary for three reasons: (1) if I'm wrong, then there's no great harm, while there is great harm if you cut people's benefits assuming expected stock returns will be high and they aren't; (2) there's still a lot of risk out there, and the government is better-positioned to bear that risk than individuals; (3) offer individuals the opportunity to do so and they will churn their investments, buying high and selling low. The only reason to use private accounts for this forced equity savings is the fear that having the Secretary of the Treasury control a lot of equities will magnify our corporate oversight and control problems, and I don't see this is a first-order problem.

Posted by DeLong at 10:53 AM | Comments (15)

Max Sawicky Writes Dialogue

Max Sawicky sits down in the grove of Academe and writes a dialogue. It's good, but there are no Greek names, alas:


Posted by DeLong at 10:33 AM | Comments (8)

Moral Duties to Our Food

What moral duties do we owe to our food?

Alex Tabarrok hints that he believes our duties are few and limited:

Marginal Revolution: Politically Incorrect Chef: Here from Anthony Bourdain's Les Halles Cookbook is the glossary entry for foie gras.

Foie Gras: The fattened liver of a goose or duck.  Unfortunately, an endangered menu item with the advent of angry, twisted, humorless, anti-cruelty activists who've never had any kind of good sex or laughed heartily at a joke in their whole miserable lives and who are currently threatening and terrorizing chefs and their families to get the stuff banned.  Likely to disappear from tables outside France in our lifetimes.

I find myself believing I have a (weak) moral obligation to try to cause the chickens whose eggs I eat to have lives that aren't spent entirely in their cages...

Posted by DeLong at 10:27 AM | Comments (26)

The Clown Show at National Review

The Angry Bears descend on the clown show that is the National Review's economics commentary. They leave a few shreds and gobbets lying around, but nothing more:

Angry Bear: Low Savings Rate: Myth or Scare? The clown show at the National Review would have you believe that national savings has not been harmed by the fiscal recklessness of the Bush Administration. Its most recent offering... guest contributor John Tammy... maybe we should look at table B.100 from the Federal Reserve’s Flow of Funds accounts, which reports household net worth. Since the end of 1999, nominal net worth has increased by a mere 10.2% - less than the increase in the price-level. So, Mr. Tammy forgets to tell NRO readers that by his own measure, savings has been negative....

[A] Ricardian Equivalence type such as NRO’s Victor Canto would not include government debt held by the public as net wealth. Yet, Canto focuses on the same variables as Tammy even as his most recent NRO oped contradicts itself.... So the savings has fallen but it has stayed the same? And isn’t the sum of savings AND the increase in net worth double counting?...

Let’s make this simple for Mr. Tammy and Dr. Canto. Last year, the sum of consumption and government purchases was 89.4% of GDP leaving only 10.6% of GDP to cover depreciation and allow for increase in net worth. This compares with a sum of consumption and government purchases equal to less than 82% of GDP twenty-five years ago. And had Mr. Tammy and Dr. Canto bothered to check the real value of household net worth as of 2004Q3 v. the end of 1999, they would have noticed it had fallen. Not to scare anyone – but the lack of savings is a reality.... [That]... you’ll get an honest account of economics from the National Review is the only myth.

Posted by DeLong at 10:22 AM | Comments (7)

Indian Ocean Tsunami

via the Blogging of the President: a friend of a friend of a friend writes:

The Blogging of the President: 2004: Dear All:

I am in India right now.

2 days ago, I was at the very tip of India, away out in the water visiting a temple, where you can admire the geographic glory of three bodies of water meeting and curving around the horn of India. Stunning. Millions of holiday travelers from all over India and the world. Impressive number of people. Then we were off for a lovely dinner at Kovalam beach.

Yesterday, I was in Alleppuzha on a houseboat for Christmas. We wandered around the backwaters of Kerala and marveled at how close people live to the water, as if it never ever floods there.

Today, we got off the boat at about 10 am and got on a bus to Cochin at about 10:20. By the time we got to Cochin, 2 hours later, we began to get the inkling that something was very wrong.

The water in Cochin harbor was unbelievably strange and frothy, the beaches were unusually narrow and wet, and none of the fishing boats had returned. People were everywhere, lined up waiting for their loved ones and watching the strange surf. We heard then the news about the earthquake and tsunami. We heard that Alleppuzha and the backwaters are flooded. Kovalam is hard hit. Then we heard that the temple we had been on, just two days ago, is gone, along with all its many holiday travelers who come to marvel at the geography of India.

It is a strange and sad day. We--along with what seemed to be most of Cochin--spent most of it marveling at the force of the water and cheering when the coast guard started going out in full force and cheering even louder when the fishing boats finally started coming home in the evening.

Even here, all around the horn of India far from the line of force from the earthquake, the water was able to turn back the very strong river that flows out to meet the sea. There finally came the moment when a cry was raised and we saw it, a dark line way off on the horizon, and as it came closer you could see a wall of water. Sure, wall of water, but it was only about a metre high, we thought. No problem. So no-one moved from where we were watching (about 15 metres up on a rocky outcrop, gotta be safe, right?) and there were people and touts offering their wares on the beach. But when it hit the beaches were completely underwater, all of the people on the beach had to run away fast, we on the rocky outcrop got soaked, the touts--carts were swept away, and the children were in hysterics. No-one was hurt, but we all treated the wall after wall after wall of water that came, all afternoon and evening, and even now continues as I write, with a great deal more respect.

And if it could be this strange and threatening in Cochin, imagine the east coast and Sri Lanka.

I hope that all of your friends and family are safe and that the powers that be offer speedy aid to this part of the world.


Posted by DeLong at 09:52 AM | Comments (4)

December 25, 2004

On Reading Jo Walton's "Tooth and Claw"...

Jo Walton (2003), Tooth and Claw (New York: Tor: 0765349094) really is as delightful as I was told it would be.

I do have one question, however. Consider the heraldic postures of dragons--and other beasts--to wit:

Why have only the first and the last--entered the normal English vocabulary?

Posted by DeLong at 07:30 PM | Comments (17)

Signs of the Apocalypse II

Our fancy new German-made dryer has just refused to operate: it has announced that it will not start drying until its lint screen is cleaned.

Posted by DeLong at 02:20 PM | Comments (5)

Signs of the Apocalypse I

My father has moved to Arlington, VA. But his home phone number still has a "202" area code.

This is wrong. This is very, very wrong.

Posted by DeLong at 02:18 PM | Comments (0)

December 24, 2004

Merry Christmas

In the beginning was the Word, and the Word was with God, and the Word was God.
The same was in the beginning with God.
All things were made by him; and without him was not any thing made that was made.
In him was life; and the life was the light of men.
And the light shineth in darkness; and the darkness comprehended it not.

There was a man sent from God, whose name was John.
The same came for a witness, to bear witness of the Light, that all men through him might believe.
He was not that Light, but was sent to bear witness of that Light.
That was the true Light, which lighteth every man that cometh into the world.

He was in the world, and the world was made by him, and the world knew him not.
He came unto his own, and his own received him not.
But as many as received him, to them gave he power to become the sons of God, even to them that believe on his name:
Which were born, not of blood, nor of the will of the flesh, nor of the will of man, but of God.

And the Word was made flesh, and dwelt among us, full of grace and truth...

Posted by DeLong at 06:53 PM | Comments (30)

An Unexpected Addition to the Order of the Shrill?

Shrill Report: We now have an unconfirmed report that the latest Robert Novak column reveals the hidden secret that the latest convert to shrill unholy madness is the Secretary of Defense himself. Yes, the latest shrill unbalanced critic of George W. Bush and member of the Ancient and Hermetic Order of the Shrill is... Donald Rumsfeld:

Rumsfeld is often bracketed with the neocons, but that is incorrect. In a long political career that dates back to his election to Congress in 1962, he has not even been associated with the traditional conservative movement. In the run-up to the attack on Iraq, he was not aggressively pressing intervention by force of arms, but instead was shaping a military response to fit President Bush's command.


Posted by DeLong at 12:02 PM | Comments (15)

General Glut Foresees Balancing Down

When the U.S. current account deficit returns to something more normal, will it be because a falling dollar has boosted net exports and encouraged or been accompanied by policy changes that boost saving, or will it be because a fall in investment has reduced U.S. incomes, caused a recession, and so diminished imports? General Glut argues for the second:

General Glut's Globblog: Brad DeLong today gives a tepid endorsement of a "soft-landing" scenario for the US current account deficit.

To restate: (1) the dollar falls, (2) as a result net exports rise, (3) export and importing-competing industries hire workers, (4) unemployment falls, (5) wages start rising and bring rising inflation with them, (6) the Federal Reserve raises interest rates to stop any inflationary spiral, (7) the economy cools off as higher interest rates reduce construction and investment spending and raise unemployment back to its natural rate.

It could happen--if exports react rapidly and substantially to the falling dollar, and if the rising long-term interest rates that diminish employment in construction and investment-goods production are somewhat delayed...

But well before we get to step [7], it would be nice to see some actual evidence that we can even get to step [2]. Thus far we have had nearly three years of [1] ("the dollar falls") and not a bit of [2] ("net exports rise"). From February 2002 to December 2004 the dollar has fallen 16% in real terms (per the broad dollar index) while the trade deficit has grown in real terms about 60%. I keep hearing the "delayed effects" mantra, but it's beginning to wear really thin for me.

What if there is no necessary connection at all between [1] and [2]? What if the US is the global price-setting market, and thus rather than importing inflation via a falling dollar which would cut into import consumption, the US exports deflation instead and maintains import consumption at current or even rising levels?

The key mechanism to correct the CA deficit is not a falling dollar, but -- as I discussed early last week -- rising savings.

International economists are divided into those who look at prices like exchange and interest rates and how they affect imports, exports, and capital flows; and those who look at the circular flow of national income and how the savings-investment balance determines net exports. We have airtight theoretical arguments that these two analytical roads lead to the same place. So why is it that those who focus on exchange rates ("falling desire to hold dollar-denominated assets reduces the value of the dollar") are more likely to see a happy, balancing-up resolution while those who focus on the circular flow ("falling desire to hold dollar-denominated assets leads to a sharp fall in the financing available for investment and a spike in interest rates") are more likely to see an unhappy, balancing-down resolution?

Posted by DeLong at 11:45 AM | Comments (22)

Turning Up the Heat

Matthew Yglesias wonders why so few of those who are opposed to Social Security on ideological grounds will denounce George W. Bush's misleading rhetoric:

Matthew Yglesias: Other Reasons: Waddling Thunder says he doesn't buy "the Matthew Yglesias/other leftist line that there's nothing wrong with the [Social Security] system" before explaining that "Paying 12% of your first $80,000 to the government in addition to all your other taxes is itself the crisis. Nothing more needs to be said in favor of reform." But now of course this doesn't mean that he doesn't buy my argument at all. My argument is that, contrary to the President's contention, there is no Social Security crisis. No this is not a genuine disgreement between myself and Bush. Rather Bush, like WT, simply finds Social Security objectionable on ideological grounds. But rather than present an honest argument in favor of his ideas, he prefers to try and mislead people in order to try and gain popular support for an agenda that, were it presented honestly, would stand no chance of passing. See also the Iraq War and every major Bush legislative initiative so far.

At any rate, other people I respect also just find Social Security to be intolerable for ideological reasons and are, therefore, hoping that Bush's campaign of deception will win the day. I don't really have any inclination to get into an argument on this front, since I don't really think there's a purpose to having purely ideological arguments of this sort. Looking around me, I don't see a country in which a rather large mandatory social insurance program has created a nation of serfs. More to the point, the privatization schemes I've actually seen put forward only amount to a rather trivial injection of actual human choice into the system. The main difference between the status quo and the most popular forced savings plans is the distributional one. Social Security is progressive, mandatory tax-free savings would be regressive. Some people think government policies aimed at redistributing income are, as such, immoral. Other people think that people who think that are a bit crazy. The clever ones among the anti-redistributivists -- the president, for example -- never say that this is actually what they believe since running on a platform of "We Must Do More to Help Rich People!" wouldn't work very well.

Posted by DeLong at 10:59 AM | Comments (7)

Jeff Madrick on Social Security

Jeff Madrick gives us his bottom line on Social Security:

The New York Times > Business > Economic Scene: The Bottom Line on Overhauling Social Security: Investing part of the payroll taxes we pay in stocks and bonds to produce a personal nest egg is alluring. But until there is a detailed plan to analyze, we cannot know the true consequences. At last week's economic summit meeting, the Bush administration began to give clues as to its plan. The administration appears to be leaning toward the Reform Model 2 proposed in December 2001 by its Commission to Strengthen Social Security, which was under the direction of former Senator Daniel Patrick Moynihan and Richard D. Parsons, the chief executive of Time Warner. The plan is disheartening....

The Bush privatization plan coming into view would work as follows. Workers now pay to Social Security 6.25 percent of their wages up to $87,900, matched equally by their employer. Workers would be allowed to divert four percentage points, up to a maximum of $1,000 a year, to private investments in stocks and bonds. The investment accounts would be limited to highly diversified mutual funds, or even index funds, and the transactions costs would be kept to a minimal 0.3 percent.... Social Security benefits guaranteed under the present system would be cut slightly for each dollar the individual worker diverts to his or her private accounts. More important, future benefits would also be cut by indexing them to the rise in consumer prices rather than, as is now done, to rising wages....

Will the magic of private investment accounts make up for the reductions? The answer is no. We can compute how retirees fare if they earned the historical average of 4.6 percent a year (after transaction costs) on a portfolio of stocks and bonds. William Dudley, chief economist of Goldman Sachs, has calculated that benefits for a typical retired one-earner family would come to about 93 percent of the projected benefits from the present Social Security system in 2022. In 2075, the benefits would fall to only 77 percent of present-system benefits....

[B]y no means is everyone going to earn the 4.6 percent average. The history of private investment unmistakably shows that there is a wide dispersion of results. Some will invest only in bonds, others may choose the wrong mutual fund, or switch from one to another at exactly the wrong times. And some will have the bad luck of retiring in the midst of a bear market. Many workers will therefore inevitably earn less, and some considerably less.... Mr. Dudley worked out some calculations under Reform Model 2. The results are stunning. If a worker earns just the respectable expected bond rate of 3 percent a year, or 2.7 percent after transactions costs, then the typical one-earner family will retire on only about 58 percent of the projected benefits under current law. If the investor earns zero over time, which may well occur for some investors, the projected retirement benefit is only a little more than 38 percent of the current benefit. These are considerably worse than the projected adjustments needed to bring the present system into balance....

Consider the potential impact from borrowing as much as $2 trillion... the projected transition costs.... [T]he ultimate decision Americans will have to make is over the purpose of the public pension system. Social Security was originally intended to guarantee a minimum retirement income for workers. For all the alarm over Social Security, the present guaranteed system can be fixed with only moderate tax increases and through less harsh benefit reductions, particularly if Americans are prepared to raise the official retirement age slightly.... The privatization plan the Bush administration is leaning toward, in contrast, will divide people into winners and losers. It may make some workers better off in retirement, and may well reduce costs somewhat to government, if all goes well. But a significant number of American retirees will do poorly.

Posted by DeLong at 09:43 AM | Comments (12)

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Social Security Edition)

The usually-excellent Edmund Andrews of the New York Times talks to CJR Campaign Desk about Social Security. He opens with the ritual "both sides are equally mendacious" declaration:

CJR Campaign Desk: Archives: The Social Security overhaul issue is one where there are a great number of armies of vested interests pushing either an ideological or financial agenda for private accounts or a well-organized union-backed effort to fight Social Security reform. There is a lot of mischaracterization of the issues at stake. It seems to me that one of things we can contribute as journalists is to cut through and identify the real issues that are at stake here...

But when the rubber hits the road it appears that the big lies are--as everyone with even a quarter of a brain knows--on the Bush side:

EA: The first thing to say is that both those [Bush administration long-term deficit] numbers [$3.7 trillion and 10.4 trillion] should be taken with a grain of salt.... [I]t's probably more honest to talk about a $3.7 trillion deficit over the next 75 years. The much higher number, which the administration sometimes calls $10.4 trillion -- sometimes they boost it to $11 trillion.... I think that they use this number to heighten the sense of crisis. One of the administration's themes is that we are at a crisis point [with Social Security]. But there is a lot of debate about that. And even $3.7 trillion, which sounds like a big number, may or may not constitute a crisis.... The problem with throwing out these numbers is that it sounds big, but 75 years is a long time.... [T]he projected gap... can be addressed in a lot of different ways. And these personal savings accounts really don't make much difference one way or another.... [P]eople need to be very, very skeptical about when they hear the rhetoric. They need to be quite skeptical of claims that there is a crisis coming that needs to be addressed right now in a particular way. They need to be very skeptical of any claim that personal savings accounts are the solution to this crisis or shortfall -- because they aren't. They may have a lot of virtues but they really don't do much one way or the other to solve the problem. Some argue that they even, in the long term, make the fiscal gap worse....

It's hard. I don't want to be partisan. I don't want to be manipulated by one side or another in this....

But Mr. Andrews, when you open with a declaration of equality--with statements like "great number of armies of vested interests pushing either an ideological or financial agenda for private accounts or a well-organized union-backed effort to fight Social Security reform. There is a lot of mischaracterization of the issues..." you have already been manipulated by the Republicans. As Paul Krugman jokes, if the Bush administration were to claim that the earth is flat, the story leads the following day would be "opinions on shape of earth differ."

Andrews goes on, making it clear that he doesn't really enjoy this particular job:

It's hard. One of the hard things about this subject is that it is rather dry and arcane. Some of the biggest disagreements are over seemingly obscure things that most people, including myself, really don't want to devote a whole lot of brainpower to in our relaxation time... the issues are complex enough that there is a huge opportunity for fudging over the truth of what is really at debate. So that is why I think, in this case, there is a real role for the media to play in dissecting the issues dispassionately because there is an awful lot of smoke and mirrors going on.

And then, at the end, Andrews returns to blaming both parties relatively equally:

And not just on the Republican side. When Democratic groups imply that this is something you can put off for decades -- that's also a very dubious assertion. When people say, "Don't worry about it. The Social Security fund will not actually be exhausted until 2042 and even then Social Security revenues will be good for 80 percent of the obligations at that time" -- that's a misleading way to describe the situation.

But he can't seem to come up with a coherent explanation of why the Democratic talking point--"the Trust fund will last until 2042 and at that point Social Security revenues will be good for 80 percent of obligations"--is misleading. He says its because it denies the need for reducing benefits. But it appears to me a declaration that current projections say that unless more revenues are raised benefits will have to be cut by 20% relative to current law in 2042, and by more in years further in the future:

The misleading part of that [is that there] is a long term gap. The only question is, how much? The sooner you deal with it, the better and less painful it is. And part of that pain very well may be cutting back on future benefits. There is no question that the obligations lined up right now seem to exceed the revenues that people expect to come in, for demographic reasons and others. And each year that you put it off you run a serious risk of forcing more painful choices down the road. And what a lot of people are mobilized to oppose is any hint of reducing benefits. But that might be necessary. The debate needs to be honest and it is often not an honest debate. [Overall,] there's a huge opportunity for mischief in this. It just seems to be much more so than a lot [of other debates].

I believe that the Democratic talking point is in fact misleading in two ways, but Andrews identifies neither of them. The first is that it takes the SSA's economic and demographic projections seriously, while it now seems very likely that they undershoot what productivity and labor force growth will be over the next couple of generations: there is a greater than 50-50 chance that things will turn out better than the SSA's current numbers. (And, indeed, unless the political thumb is put on the scales, the next SSA report on March 31 will paint a more optimistic picture.

The second way that the Democratic talking point is misleading is that it assumes that the SSA will be able to draw down its trust-fund balance in an unproblematic way. But the General Fund is in much greater and much more immediate crisis, and at the moment there are no plans on the part of the administration for fixing the extraordinary financial mess they have gotten the General Fund into. To say that the Trust Fund is projected to last until 2042 sweeps a huge number of important issues under the rug, and misses an opportunity to educate the public on how dire the General Fund is and how much rapid action is called for.

It is somewhat discouraging to think that Edmund Andrews is as good as it gets (outside the FT, the WSJ news pages, and I would once have said (five years ago) The Economist). But he's trapped by the belief that objectivity requires that he say "a plague on both your houses." And he's writing about things he doesn't find terribly interesting: "dry and arcane... disagreements are over seemingly obscure things... most people, including myself, really don't want to devote a whole lot of brainpower to in our relaxation time..."

Posted by DeLong at 09:39 AM | Comments (11)

December 23, 2004

The Accursed--and Expensive--Kings and Pricey Company

The cheapest copy Amazon knows about of Maurice Druon's The Iron King is $32.

The cheapest copy Amazon knows about of Kage Baker's Mendoza in Hollywood is $20.

I now have a renewed appreciation for the skill of the acquisition and collection maintenance policies of the Contra Costa County Library...

But there are definite market opportunities for reprints here, people...

Posted by DeLong at 06:10 PM | Comments (11)

The Soft Landing Scenario

Macroblog fills in the outlines of its soft-landing scenario:

macroblog: Exactly What Was I Thinking?: Actually, the story I was telling was all about reversing the big capital inflows and trade deficits, one that starts with the presumption that foreigner's taste for absorbing ever more dollar-denominated assets has come to an end.  The current account side of ending the capital account surpluses -- that is, the accumulation by foreigners of U.S. Treasury securities and the like -- is a shrinking trade deficit, as the weaker dollar stimulates export demand and restrains the demand for imports.

In this scenario, spending by American consumers and businesses will have to be satisfied by domestic production.  That will almost certainly result in upward pressure on interest rates, which ought to work in the direction of restraining domestic consumption and increase saving rates (and business investment on plant and equipment, of course), as required.

To restate: (1) the dollar falls, (2) as a result net exports rise, (3) export and importing-competing industries hire workers, (4) unemployment falls, (5) wages start rising and bring rising inflation with them, (6) the Federal Reserve raises interest rates to stop any inflationary spiral, (7) the economy cools off as higher interest rates reduce construction and investment spending and raise unemployment back to its natural rate.

It could happen--if exports react rapidly and substantially to the falling dollar, and if the rising long-term interest rates that diminish employment in construction and investment-goods production are somewhat delayed...

Posted by DeLong at 01:05 PM | Comments (44)

Is This Some Kind of a Joke?

Henry over at Crooked Timber finds John DiIulio attacking liberals for their political cowardice. On this, at least, I am the anti-Voltaire: I may agree with what he says, but I will fight to the death against his right to say it:

Crooked Timber: Sinful Inequalities : John DiIulio of ‘Mayberry Machiavellis’ fame has a short article on ‘Attacking “Sinful Inequalities”’ in the current issue of Perspectives on Politics: "Bible-believing Christians are supposed to heed the call to “be not afraid” of any worldly challenge..."

This is, I presume, the same John DiIulio who wrote the letter to Ron Suskind:

For/On the Record.... Clinton was "the natural," a leader with a genuine interest in the policy process who encouraged information-rich decision-making. Clinton was the policy-wonk-in-chief. The Clinton administration drowned in policy intellectuals and teemed with knowledgeable people interested in making government work.... The Bush West Wing is very nearly at the other end of this Clinton policy-making continuum.... the administration has not done much, either in absolute terms or in comparison to previous administrations at this stage, on domestic policy.... In eight months, I heard many, many staff discussions, but not three meaningful, substantive policy discussions. There were no actual policy white papers on domestic issues. There were, truth be told, only a couple of people in the West Wing who worried at all about policy substance and analysis... the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking -- discussions by fairly senior people who meant Medicaid but were talking Medicare.... This gave rise to what you might call Mayberry Machiavellis -- staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.... As one senior staff member chided me at a meeting at which many junior staff were present and all ears, "John, get a faith bill, any faith bill." Like college students who fall for the colorful, opinionated, but intellectually third-rate professor, you could see these 20- and 30-something junior White House staff falling for the Mayberry Machiavellis. It was all very disheartening to this old, Madison-minded American government professor... the relative lack of substantive concern for policy and administration. I had to beg to get a provision written into the executive orders that would require us to conduct an actual information-gathering effort related to the president's interest in the policy....

And then immediately became afraid, very afraid:

John DiIulio on National Review Online: DiIulio went into full retreat. "My criticisms were groundless and baseless due to poorly chosen words and examples," he said in a statement. "I sincerely apologize and I am deeply remorseful. I will not be offering any further comment, or speaking or writing further on any aspect of my limited and unrepresentative White House experience or any matters or persons related thereto. I regret any and all misimpressions. In this season of fellowship and forgiveness, I pray the same." DiIulio even apologized for statements he maintains he didn't make. The [Esquire] article quotes him taking a shot at White House policy aide Margaret LaMontagne, saying that what she "knows about domestic policy could fit in a thimble." In his apology, DiIulio said that, "I did not write, and I do not recall making, the statement quoted regarding Ms. LaMontagne. I humbly and sincerely apologize to her just the same."

Posted by DeLong at 12:57 PM | Comments (9)

The Economic Policy Institute on Social Security

What the program is:

Social Security Issue Guide: Facts at a Glance: Facts about Social Security finances: To pay for benefits, Social Security receives income from three sources.
Most of the money that is needed to pay for benefits comes from payroll taxes. Currently, employees and employer each pay 6.2% to Social Security, for a combined tax rate of 12.4% of wages and salaries. Self-employed workers pay the full 12.4% out of their earnings. Taxes, however, have to be paid only up to an earnings ceiling, which is $90,000 annually in 2005. Earnings above the ceiling are not subject to the payroll tax. In 2003, Social Security received a total of $535.2 billion in payroll taxes.

As a result of reforms to Social Security in 1983, a trust fund was specifically set up as a savings account to pay for baby boomers. Since then, Social Security has taken in more money than it has paid out in benefits. Consequently, it has built up a trust fund over the years. Social Security earns interest on this trust fund. In 2003, the Old Age and Survivor's Insurance trust fund received 6.0% interest on its assets, earning $75.2 billion in interest, and the Disability Insurance trust fund received 5.9% interest, earning $9.7 billion in interest.

Finally, some Social Security benefits are subject to taxes, which are then paid to Social Security. In 2003, taxes on Social Security benefits amounted to a total of $13.4 billion.

>Social Security is building up a trust fund: Because income is currently exceeding expenditures, Social Security is building up a trust fund. Total income to Social Security was $632 billion in 2003. Its expenditures came to $479 billion, $471 billion of which was benefit payments. Consequently, Social Security managed to increase its trust fund by $153 billion in 2003. As a result, Social Security held a total of $1,531 billion in assets at the end of 2003. If Social Security faces a shortfall in income, the trust fund assets can be used to pay for the additional benefits.

Trust fund assets are invested in government bonds: Social Security trust fund assets, currently worth over $1.5 trillion, are invested in special, non-tradable government bonds. Each year the U.S. Treasury issues these government bonds, up to the amount of the Social Security trust fund surplus, to be added to the account. The bonds earn an interest rate comparable to the market interest rate for tradable government bonds. During 2003, the effective annual interest rate earned on all bonds held by the trust funds was roughly 6.0%.

Social Security is not going broke: Each year, in early spring, the trustees of Social Security release their report. As required by law, the trustees present what can be described as their best guesses for three different scenarios for the future of Social Security. In their annual report for 2004, the trustees project that Social Security will take in more in income than it will pay out in expenditures until 2018. Between 2018 and 2028, interest income earned on the trust fund assets is forecasted to make up the difference between income and expenditures. After 2028, Social Security is expected to draw down its trust funds to pay for the expenditures that are not covered by income. Finally, in 2042, the trust fund assets are expected to be gone, and income is projected to be less than expenditures. However, the trustees project that Social Security will still be able to pay 74% of its promised benefits from 2042 to 2078, and those benefits would still be higher in real (inflation-adjusted) terms than retirees are being paid today.

Social Security is not going broke. The trustees instead project a financing shortfall that may happen almost 40 years from now. The nonpartisan Congressional Budget Office doesn't project a shortfall until 2052.  The trustees' projections are based on pessimistic assumptions. Real growth is expected to fall to between 1.7% and 1.8% over the long-run, which has never been the case for an extended period of time during the post-war years. Similarly, the trustees assume that in the long-run the economy will settle on an average productivity growth rate of 1.6%, which is again too low by historical standards. Higher productivity and consequently faster real wage growth -- which have both historically been about 2.0%—would be more realistic and improve Social Security's finances.

Posted by DeLong at 12:41 PM | Comments (14)

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Washington Post Edition)

CJR Campaign Desk Reports:

CJR Campaign Desk: Archives: Speaking of investments, Josh Marshall and Mystery Pollster Mark Blumenthal caught ABC and the Washington Post misrepresenting the results of their poll on Social Security investment funds. Both the original and revised versions of the Post article report even support and opposition to a Social Security plan permitting private investments (specifically, 47 percent in favor to 46 percent against) when respondents are told that "the cost of the transition to a new program could reach $2 trillion over time."

As Marshall and Blumenthal both point out, this question was only asked of those 53 percent of respondents who said they favored private accounts earlier in the survey. Thus, in Marshall's words, "just under 25 percent of respondents support Bush's plan once they know the costs and an overwhelming 69 percent oppose it." Blumenthal looks deeper into the numbers and finds that, "Only 7 percent of Americans say they would invest 'all or most' of their Social Security funds in the stock market if it meant their retirement benefits would go up or down with the market."

John Harris, Dana Milbank, and Richard Morin need to publish and prominently distribute a correction as quickly as possible. Their professional reputations depend on it.

Posted by DeLong at 12:14 PM | Comments (3)

The Fly Bottle Plays Social Security Three-Card-Monte

Will Wilkinson plays Social Security three-card-monte with us. He starts out by saying that Matthew Yglesias is wrong in claiming that there is no Social Security crisis:

The Fly Bottle: Social Security Crisis on Infinite Earths: Yglesias seems to be on a one man "there is no social security crisis" crusade. Now, it's true that no one is going to perish in a mangled, fiery, blood-soaked heap of runaway social security next week, or even next decade. But let me say a couple things. (There will be MUCH MUCH MUCH more in coming months).

How is Matt wrong? Wilkinson doesn't say--instead he says that we are facing a "comprehensive fiscal crisis":

First, we are approaching something very like a comprehensive fiscal crisis. Check out Jagadeesh Gokhale's and Keith Smetters's paper on the "Fiscal Imbalance" or "FI." The FI is "current federal debt held by the public plus the present value of all projected federal non-interest spending, minus all projected federal receipts." A sustainable fiscal policy has an FI of zero. The estimated FI is about $47 trillion. That's real money. To get the gravity of the problem, think about this: Holding other options fixed we could wipe out the FI if we (pick one):

-- raised federal income tax collections by 70.1%.
-- raised payroll tax collections by 96.7% [!].
-- cut discretionary spending by 107.8%. [Impossible!!!]
-- cut Social Security & Medicare outlays 45.9%.

We are indeed facing a comprehensive fiscal crisis in the General Fund. But Wilkinson makes no mention of the triple origin of this crisis: (1) runaway health care spending on Medicare and Medicaid, (2) the Bush tax cuts, (3) failure to plan for the repayment by the General Fund of its debt to the Social Security. Why not mention the origins of our comprehensive fiscal crisis? Because it would lead to the question, "Why is Bush dinking around with Social Security, then?" And the answer--because he's incompetent--is not one Wilkinson wants to plant in people's minds.

Clearly, a real solution will be some combination of spending cuts, small tax increases (big raises can cost more is distortion than they bring in in revenue) and Social Security and Medicare reform. It is just not possible to correct the massive FI by tinkering around the edges of the major entitlement programs until they really are in a genuine crisis...

As I said, the intellectual equivalent of three-card-monte. Try to make people think that the big problem is under the "Social Security" cup when it is not.

Stop using sleight of hand and come back to the reality based community,, Mr. Wilkinson. At least we can hold our heads up and look at ourselves in the mirror without being ashamed.

Posted by DeLong at 11:41 AM | Comments (17)

The Difference Between the Current Account Deficit and the Trade Deficit

For the U.S., this difference has been unimportant for the past two decades. It is about to become important. Brad Setser writes:

Brad Setser's Web Log: One more point on Martin Wolf: It is a simple point, but an important one. Wolf says the United States would be fine if it reduced its current account deficit from 6% of GDP to 3% of GDP. External debt to GDP then stabilizes at 50% of GDP. All true.

But remember that cutting the current deficit in half likely requires cutting the trade deficit by much, much more. Right now, net interest payments on US external debt are close to zero. That is largely due to a combination of good investments (The US accumulated a lot of European assets when it was running current account surpluses in the 50s and 60s, and these assets generally provide the US with a decent return) and good luck: foreigners hold lots of US debt, and US interest rates are very low.

But over time, as debt levels rise and US interest rates rise, the income balance will turn negative. If the US pays just 4% interest on a (net) external debt to GDP ratio of 50%, interest payments would be 2% of GDP. A 3% of GDP current account deficit therefore is consistent with a trade deficit of 1% of GDP -- compared to about 6% of GDP now.

This oversimplifies. If the US continues to earn a higher rate of return more on its offshore assets than it pay on its external liabilities, its "income" from borrowing abroad to invest abroad (what I call financial intermediation) will offset some of the interest payments on its net debt. A net external debt of 50% of GDP might imply external assets of 50% of GDP and external debts of 100% of GDP. Suppose the US pays 4% on all its liablities, and earns 5% on its assets. US net interest payments would be 1.5% of GDP in this scenario. Then a trade deficit of 1.5% of GDP is consistent with a current account deficit of 3% of GDP.

My point is simple: cutting the current account deficit in half over time will require cutting the trade deficit by more than half. Realistically, the trade deficit (technically, the balance on trade and transfers) will need to fall by between 4.5 and 5% of GDP ...

There is no guarantee that the US will be able to bring its current deficit down to 3% in an orderly way. Emerging markets typically do not adjust smoothly. Rather, once capital inflows dry up, they swing from current account deficits to current account surpluses. They rarely end up in the sweet spot -- that is, they typically are not able to run the small ongoing current account deficits that can be consistent with a stable debt to GDP ratio.

Posted by DeLong at 08:54 AM | Comments (10)

Gregory Djerejian Twists Slowly in the Wind

He writes:

THE BELGRAVIA DISPATCH: I supported Bush because I thought, as between his team and Kerry's, Dubya would be the better bet to continue seeing a major 5-10 year effort through. But Rumsfeld's policies, that the President and Dick Cheney don't appear to be forcefully re-appraising, are now beginning to imperil the war effort. Pas serieux. This is not panicky carping from the sidelines. Elections are not a panacea leading to stability. Ethnic tensions will mount and the post-election millieu will prove a period of great flux and danger. Talk of an exit strategy with trained Iraqi forces taking over by '06 is claptrap and farcical. Those forces, btw, will often be infiltrated by Iranian agents, Baathists restorationists, and other enemy groupings. Hell, such infiltrators might have had a hand in the Mosul attack. The quicker the rush to Iraqify--the more half-assed the effort will be. A real training and equipping effort will take place over years, with the insurgency pacified, and with post-electoral inter-communal relations set on a stable (as much as possible) course (this measured in years not months). American forces, and in large enough number to be credible, will have to act as guarantors of security during this exceedingly complex and lengthy transition period. Do enough people in the Administration get this? Not yet, I fear.

It's easy to beat up on me, as Brad DeLong does, for not stating that the buck stops with POTUS. Except that Kerry would have been even worse--all but guaranteeing that Iraqi democratization would not have been seriously pursued ("wrong war, wrong place, wrong time"; troops out w/in 4 years, interim authority head but a "puppet", the better to play into the insurgent's propaganda and handbook). Between arguably underwhelming options in elections, sometimes, hard decisions have to be made. But what's clear now is that it is in all of our interests that the Iraq project not flounder. This would prove the biggest American foreign policy disaster since Vietnam, perhaps worse even. It would allow radical jihadists to renew their momentum, render risible talk of Middle Eastern democratization, and make America appear a paper tiger again (as during the abdication-of-global-leadership-ridden Clinton years). These are critical times. Rumsfeld, if we're stuck with him, needs to be persuaded to rotate more troops into theater. It's not only Chuck Hagel and John McCain who need to raise the pressure. Joe Lieberman and Evan Bayh, on the other side of the aisle, should consider doing so to. Better safe than sorry. Force matters. The Powell Doctrine is not dead. Rumsfeld must snap out of denial and get back to basics. Quickly.

But Bush administration policy in Iraq is driven by three "nots":

Instead, Bush and his White House appear to be telling Rumsfeld and Cheney: You told us this would be quick and easy--no call-up, no higher taxes, lots of good press. You were wrong. Now fix it--but with the resources you have: no call-up, no higher taxes.

Posted by DeLong at 08:38 AM | Comments (35)

December 22, 2004

The Continued Erosion of American Soft Power

Andrew Higgins of the Wall Street Journal reports on Poland:

WSJ.com - At Expense of U.S., Nations Of Europe Are Drawing Closer: Opinion polls show a big majority of Poles want their troops out of Iraq and also want Europe to have a common defense policy, something Washington views as a possible threat to the U.S.-led North Atlantic Treaty Organization.

Washington's ebbing influence in this most pro-American swath of Europe reflects a broader phenomenon this series of articles has explored: Some of the largest challenges facing the U.S. now flow from the sources of its great power.

Its democratic domestic politics can leave it deaf to even its closest friends abroad. America's sheer size and might breed resentment and, in the geopolitical marketplace, stir competition. Its economic example spurs Europe to band together to compete. Its faith in elections prompts an effort, in Iraq and Afghanistan, to impose democracy through arms. For many abroad, America's goals inspire, but its actions often exasperate.

"America failed its exam as a superpower," says Lech Walesa, the former Solidarity trade-union leader who became Poland's first post-Communist president. "They are a military and economic superpower but not morally or politically anymore. This is a tragedy for us." Mr. Walesa laments what he sees as America's squandered leadership because he thinks the EU isn't ready for prime time.... [C]an Europe offer itself and the wider world a vision to match, and perhaps one day even supplant, America's role as "leader of the free world"?

In a campaign debate this fall, President Bush chided Sen. John Kerry for belittling the coalition in Iraq. "Well, you forgot Poland," said Mr. Bush. On a host of issues, however, many Poles, as well as some other allies, wonder if Mr. Bush has forgotten them.

Many Britons, for example, complain that Prime Minister Tony Blair has gained little in return for his steadfast support in Iraq. From climate change to treatment of detainees at Guantanamo Bay and the Middle East peace process, Washington has mostly sidestepped British requests. Poland, America's other keen ally on the Continent, smarts over Washington's refusal to grant Poles visa-free access to the U.S., a privilege enjoyed by France and 26 other countries.... A state-owned arms company filed a formal protest earlier this year after it lost a bid to equip the Iraqi army. Polish officials also feel they got short shrift in Washington when they tried to influence U.S. decision-making in Iraq.

"We shed our blood for them but they don't treat us well," says Mr. Walesa, who visited the U.S. this fall to meet officials and politicians. He had no trouble getting a visa himself but made little headway in securing easy entry for his compatriots. "America doesn't like Poles; it only likes Walesa," he says.

Poland is still far from embracing Gaullist dreams of a European superpower.... When Poland joined the EU along with nine other nations in May, it was seen in some Western European capitals as a spoiler: a country more interested in nurturing close ties with the U.S. than in building a united Europe. Poland had haggled hard over its entry, and on Iraq it had sided with the U.S. against Germany and France.... Today, even as economics and disquiet about the conflict in Iraq weaken bonds to Washington, turmoil in neighboring Ukraine has also pushed Poland more toward Europe. Poland drove a firm European policy on Ukraine....

Posted by DeLong at 08:33 PM | Comments (21)

The Lileks That Stole Christmas

Here is something bizarre. James Lileks thinks that Christmas comes from a store--and that America's stores aren't pulling their weight. There's something very wrong here. There's something very wrong with the soul of somebody who thinks that Christmas is diminished because shopping malls don't put up MERRY CHRISTMAS in six-foot high letters. He needs to go watch "How the Grinch Stole Christmas", or read the the first three chapters of the Gospel of John, or start taking his meds again, or do all three:

Wednesday Dec 22: [C]lerks... seem flummoxed when you say “Merry Christmas”... the curious way the Post Office titled its “holiday” stamps... it called the Christmas stamp “Holiday Traditional.” I thought this was... unusual. Of course I meant so much more, but I dasn’t let on what I really feel. I did write a long, angry paragraph about how I blamed this webpage on sodomite penetration of the venerable postal service... and I warned you all, warned you, that unless we put CHRISTMAS atop the page in 72 point type we are doomed to go the way of ancient Rome, lost in a swirl of sybaritic vapors and unable to resist the Huns with thier hordes of gay Jewish trial lawyers, or something like that. But I took it out. The truth may set you free, but it gets you called to the editor’s office, too. I’m on shaky ground as it is, coming out with a Brave Defence of Christmas in a major newspaper....

If they’re saying Merry Christmas on the Upper West Side, then obviously my first-hand observations in Minnesota shopping malls are baseless. I stand covered with chastenedness.... What amuses me, if that’s the term, is the way retailers and large media have shied away from saying “Merry Christmas” because it might offend the prissy little busybodies who spend their life like a dental filling in a tinfoil blizzard. It’s not because these organizations have great red flaming antipathy to Christianity; they’re just taking the path of least resistance. Quietly scuttling Columbus Day sales doesn’t mean they are opposed to 15th century Iberian seafarers; it just means they don’t want protestors on the sales floor throwing blood on the Calvin Klein hosiery in the name of the anti-imperialistic cause.

It’s been a long time coming.... Ads in ’44 mentioned Christmas a great deal; it was one of the things we were fighting for... the announcer gave a list of things for which the audience should be grateful, including “our God-granted victories in the war.”... I suspect that if a Fox anchor ascribed the conquest of Fallujah to God’s will, [James] Wolcott would erupt in hives so great and so lurid his cats would scuttle under the sofa, and would not come out until he’d coaxed them out with a crab cake from Dean and Deluca....

The balance began to shift in the 80s; by 2002... it’s all Seasons Greetings.... And if the term has faded from the common language of advertising, then it reflects something in the culture. Or rather the overculture – that twitchy, cheery, idiot blare produced by a stratum of coastal types who think the rest of America truly gives a shite whether Lindsay Lohan lost her Blackbird at a party last week, and who actually know who Anna Wintour looks like....

[I]s it possible that some people in the overculture lack an elemental understanding of what this holiday means?... I don’t think people in the Evil Coastal Godless Baal-Loving Media hate Christianity.... [they] hold it in disinterested contempt, the way they view NASCAR and Simplicity dress patterns and those giant salad forks some people inexplicably used as kitchen-wall decorations. But for many -– yes, the dreaded inexact “many” -– religious ideas don’t register at all, so they don’t know how their actions might seem to those who take the whole God thing seriously.... 98.025 of the population has no trouble with Merry Christmas shouted long and loud and clear this time of the year. Why, then, do the retail giants and big corporations seem to get a frozen Joker-smile when you bring it up?... Southdale, the nation’s first enclosed shopping mall, hung MERRY CHRISTMAS in six-foot tall letters in 1963. This year? Not a word.... If you don’t think that’s an interesting development, or wonder why it happened or what it means, fine....

Note: in one of those classic little asides meant to endear him to the chic upper-left-side Mo-Dowd demographic whose uteruses have turned to something indistinguishable from papyri rescued from Herculanuem, [Wolcott] refers to me as a “blogger beloved in the daycare community.” Whether this is a swipe at my infantile politics or tendancy to write about my child, I don’t know.... Everything about his work suggests that he has cats... a soul whose incessant pissy hauteur is best expressed at the moment when they dump a stinky disk of fish guts into the bowl and mutter something clever to the elegant creatures feasting at their feet. The fact that the cats don’t quite get what you’re saying is irrelevant....

Posted by DeLong at 08:24 PM | Comments (36)

Yes, Virginia, There Is (Still) a Shrillblog

Shrillblog marches on:

Shrillblog: The Offical Blog of the Ancient and Hermetic Order of the Shrill:

Trent Lott... John McCain... William Kristol... Chuck Hagel... It's pretty amazing.

Posted by DeLong at 05:11 PM | Comments (4)

"Ladies and Gentlemen?" Shouldn't That Be "Horrors and Monsters"?

The Poor Man brings us the breaking news that Chuck Hagel (R-NE) is shrill:

Ladies and gentleman, please put your tentacles together for the new Grand Heresiarch of the Order of the Shrill, Nebraska Republican Chuck Hagel!

Deteriorating conditions in Iraq are a consequence of "the arrogance and incompetency of the civilian leadership at the Pentagon," Sen. Chuck Hagel said Monday. Increasing violence and instability spring from "the accumulation of a series of bad judgments," the Nebraska Republican said. Pointing to decisions to disband the Iraqi army, dismantle the Baathist government bureaucracy and attempt to secure the country with an inadequate number of U.S. troops, Hagel suggested "the buck does stop somewhere." ...

"It's always the uniformed military that has to bear the brunt of bad decisions," Hagel said. "They do the dying and the suffering," he said, and their families sacrifice, too. Never will he utter "a criticism of the warrior," Hagel said, but the military's civilian leaders must be held accountable. "I went through one of these wars," he said. As a member of the Senate, he said, "I am not going to stand back and allow it to happen again." Hagel was twice wounded as an Army sergeant in Vietnam.

"These men and women deserve leadership that is worthy of them," Hagel said. When Secretary of Defense Donald Rumsfeld "flippantly dismisses" a young soldier's question about lack of protective armor on military vehicles in Iraq, Hagel said, "that is not worthy." When it was discovered Rumsfeld's signature on letters of condolence to slain soldiers' families was signed by an auto-pen rather than by the secretary himself, Hagel said, "that tells me an awful lot." ...

Responding to questions from students, Hagel said he believes the United States needs to seek more international cooperation rather than simply exercise its military might. "I would put a whole new focus on diplomacy, building coalitions of common interest," he said. "We have strayed from that very wise course."< p/>

Senator Hagel, I believe I speak for everyone here tonight when I say "ph'nglui mglw'nafh Hagel R'lyeh wagn'nagl fhtagn."

"Arrogance and incompetency" is good. But what do we call those who hire and keep the arrogant and incompetent in their jobs? The shoggoths, after all, do work for Yog-Sothoth--not the other way around.

Posted by DeLong at 01:11 PM | Comments (18)

Economic Slowdown in Japan

Well, this is not good:

WSJ.com - Japan's Economic Activity Declined 0.4% in October: Japanese economic activity fell 0.4% in October compared with the previous month, the government said Wednesday, confirming recent data pointing to an economic slowdown. The fall in the Ministry of Economy, Trade and Industry's all industries index, a supply-side measure of economic activity, was worse than a median forecast of a 0.2% on-month fall, according to a Dow Jones Newswires survey of economists. The index rose 0.1% in September and rose 0.2% in August...

Posted by DeLong at 11:43 AM | Comments (21)

WSJ.com - Model Reveals Social Insecurity

Modelling Social Security private accounts on the U.S. Federal Government's Thrift Savings Plan is a lot better than almost every other private account option I can think of. But there is still the danger that account holders will use their (limited) set of investment options to churn their portfolios, buying risky equities high and selling them low. This is not appropriate for what is supposed to be the baseline, low-risk tranche of retirement income.

WSJ.com - Model Reveals Social Insecurity: By TOM LAURICELLA Staff Reporter of THE WALL STREET JOURNAL December 22, 2004; Page C1: ...the Thrift Savings Plan, the government's version of a 401(k) retirement program. Now, it is being touted as a model for the private investment accounts that are central to the Bush administration's proposal to revamp Social Security. "People are not going to be allowed to take their own money for their retirement account and take it to Vegas to shoot dice," President Bush said last week. Any investment accounts, he added, would be "similar to the thrift savings plans that we federal employees have available to us now."...

A look at the TSP shows that the limited menu of investment options -- the TSP offers five options, less than half as many as the typical corporate 401(k) retirement plan -- doesn't protect participants from losses in the stock or bond markets. Nor are participants insulated from making the common investing mistake of chasing hot performance and, as a result, buying when prices are high and selling when prices are low... those who made changes in recent years rushed to buy stocks at the height of the bull market. Then, after stock prices collapsed, participants moved out of their stock funds and into bonds.... Financial advisers generally say investors should stick with an appropriate investment strategy and not overreact to the market's ups and downs....

Created in 1986, the TSP today has 3.4 million participants and holds more than $147 billion in assets. Of its five investment options, four are index funds managed by Barclays Global Investors.... The TSP was launched with just three... the Standard & Poor's 500-stock index... a Lehman Brothers bond-market index and a fund in which participants' money is invested directly in short-term U.S. government securities. In May 2001, the TSP added a fund that tracks an index of small-company stocks and an international-stock index fund.

The TSP often wins praise for extremely low fees. In 2004, the total cost to participants has been a meager 0.06% of assets, which would amount to just $6 in fees on every $10,000 invested through the plan. Even by the standards of low-cost index funds, that's a bargain....

Posted by DeLong at 11:40 AM | Comments (14)

A Rant by Joel on Software

Joel Spolsky thinks that computer science courses have become too abstract, and that they need to get much closer to the semiconductors:

Joel on Software - Back to Basics: At this point a good programmer would say, well, let's parse the XML into a tree in memory so that we can operate on it reasonably quickly. The amount of work that has to be done here by the CPU to SELECT author FROM books will bore you absolutely to tears. As every compiler writer knows, lexing and parsing are the slowest part of compiling. Suffice it to say that it involves a lot of string stuff, which we discovered is slow, and a lot of memory allocation stuff, which we discovered is slow, as we lex, parse, and build an abstract syntax tree in memory. That assumes that you have enough memory to load the whole thing at once. With relational databases, the performance of moving from record to record is fixed and is, in fact, one CPU instruction. That's very much by design. And thanks to memory mapped files you only have to load the pages of disk that you are actually going to use. With XML, if you preparse, the performance of moving from record to record is fixed but there's a huge startup time, and if you don't preparse, the performance of moving from record to record varies based on the length of the record before it and is still hundreds of CPU instructions long.

What this means to me is that you can't use XML if you need performance and have lots of data. If you have a little bit of data, or if what you're doing doesn't have to be fast, XML is a fine format. And if you really want the best of both worlds, you have to come up with a way to store metadata next to your XML, something like Pascal strings' byte count, which give you hints about where things are in the file so that you don't have to parse and scan for them. But of course then you can't use text editors to edit the file because that messes up the metadata, so it's not really XML anymore.

For those three gracious members of my audience who are still with me at this point, I hope you've learned something or rethought something. I hope that thinking about boring first-year computer-science stuff like how strcat and malloc actually work has given you new tools to think about the latest, top level, strategic and architectural decisions that you make in dealing with technologies like XML. For homework, think about why Transmeta chips will always feel sluggish. Or why the original HTML spec for TABLES was so badly designed that large tables on web pages can't be shown quickly to people with modems. Or about why COM is so dang fast but not when you're crossing process boundaries. Or about why the NT guys put the display driver into kernelspace instead of userspace.

These are all things that require you to think about bytes, and they affect the big top-level decisions we make in all kinds of architecture and strategy. This is why my view of teaching is that first year CS students need to start at the basics, using C and building their way up from the CPU. I am actually physically disgusted that so many computer science programs think that Java is a good introductory language, because it's "easy" and you don't get confused with all that boring string/malloc stuff but you can learn cool OOP stuff which will make your big programs ever so modular. This is a pedagogical disaster waiting to happen. Generations of graduates are descending on us and creating Shlemiel The Painter algorithms right and left and they don't even realize it, since they fundamentally have no idea that strings are, at a very deep level, difficult, even if you can't quite see that in your perl script. If you want to teach somebody something well, you have to start at the very lowest level. It's like Karate Kid. Wax On, Wax Off. Wax On, Wax Off. Do that for three weeks. Then Knocking The Other Kid's Head off is easy.

Posted by DeLong at 11:29 AM | Comments (35)

Rollover Crisis?

Nouriel Roubini makes me look like a real optimist.

I don't see any possibility of a severe crisis for the U.S. as long as our foreign debt is denominated in dollars or consists of equities. The dollar falls steeply, interest rates rise, the U.S. has a slowdown and (likely) a recession as eight million foreign-funded jobs in construction, investment, and consumer services vanish and the workers have to find new jobs in export and import-competing industries--but the big problems all all abroad. Foreigners and their central banks take huge capital losses on their dollar-denominated assets and find the U.S. market for their exports drying up. It's our currency, but it's their problem.

Nouriel, however, sees a very, very different scenario as likely:

Nouriel Roubini's Global Economics Blog: December 2004 Archives: Thus, as the US economy currently looks like the biggest and most leveraged emerging market of all, the legitimate question emerges of whether the US could be subject to such a liquidity run or rollover crisis....

[R]ollover risk is high if the short term liabilities are in a foreign currency and the country has limited short-term foreign assets... In the case of the US... its domestic government debt is in local currency... it would not need to use scarce forex reserves to service its foreign debt; it could just print dollars to do that (and/or sharply increase interest rates)... it is highly beneficial to be a country not subject to "original sin" and the ensuing "liability dollarization"; lucky those who can borrow in their own currency and who are also reserve currencies.

But things get a little more complicated when one scratches the surface... the consequence of such monetary financing of a roll-off crisis would be a surge of liquidity that would lead to a sharp fall in the currency value. So, you can avoid a rollover crisis by printing money but you then exacerbate the currency crisis.... [I]n this roll-off scenario an attempt to increase domestic interest rates to stem the currency run would not work as it would require a Fed open market sale of treasury bills: but given the roll-off crisis, foreign investors in US Treasuries are exactly wanting cash (and exiting $ assets) rather than T-bills and thus such a open market operation is effectively unfeasible (unless one spikes massively interest rates, something we will discuss later). Thus, a rollover crisis would take the form of a very sharp dollar fall as little could be done to stop it....

[O]nce investors start to lose faith in a country's currency and its assets, they want to keep the maturity of their holdings of local assets as short as possible to be able to run if a crisis is incipient.... It is indeed the deadly combination of fiscal deficits, large short-term debt and low forex reserves that triggers a currency run and/or a rollover run.... [T]he average maturity of US government bonds has sharply fallen... 70 months in 2000... 55.1 in September 2004.

How to explain such a sharp fall in the average maturity of the US government debt?... Treasury has tried to limit the short run fiscal costs of the growing budget deficit by reducing the maturity, and thus the interest bill, of government debt. But, as the experience of Mexico in 1994 suggest, this is a dangerous debt management strategy.... [O]ne of the main reasons for the shortening of the US debt maturity is given by the identity and preference of the holders of this debt... by now 51% of all US government debt is held by foreigners and at least 29% of all US foreign debt is held by foreign central banks. These figures are very large and historical highs for the US.

So, what is the risk of a rollover crisis for US Treasuries? The official conventional wisdom is that such a risk is close to zero as the US has the largest, deepest and most liquid government bond market in the world.... [But] in the next few years the US will have to roll over every year hundreds of billions of government bonds that are coming to maturity (about $500 billion in 2005, rising to about $800 billion by 2009 and closer to a trillion by 2014).... [T]he US will every year have additional net borrowings from the bond market equal to the US fiscal deficit... $412 billion in fiscal 2004... almost as large... in 2005 and could be as large as $1,134 billion in 2014.... So, next year the US will have to rollover over and borrow over one trillion dollar of US Treasuries and by 2014 that fiscal financing need could be as large as $2 trillion a year....

[S]ince 2001, net holdings of US Treasuries by US residents have been effectively flat... the net increase... has been absorbed by foreign investors (and increasingly foreign central banks). If such investors were to expect a continued depreciation of the US dollar, the expected capital losses on their holdings of Treasuries would be massive. Even a 10% nominal depreciation of the trade-weighted US dollar implies losses as high as $200 billion for foreign holders of US Treasuries.... And, as discussed in previous blogs of mine (here and here) and of Brad, there are good reasons to believe that foreign investors will soon tire of financing the US at these cheap rates if we continue our reckless fiscal policies.

When will this hard landing of the dollar and bond market occur? If the administration fiscal policy goals are aggressively pursued in 2005, there are increasing chances that such hard landing nightmare scenario may occur in 2005 or, at the latest, in 2006.

Is this nightmare scenario far-fetched and too pessimistic? No, if you look carefully at the data, at the US financing needs and the dangerous combination of fiscal and external imbalances, reckless fiscal policy and reckless public debt management (extreme shortening of the maturity of public debt). Again, the lesson of past emerging market crises is that desperate governments start to play accounting games and try to shorten the maturity of their public debt as a way to reduce the interest cost of increasing fiscal deficits. Such maturity shortening is very dangerous as it increases liquidity/rollover risk in exchange for very short-term financing costs benefits.... In the best scenario, the US would still be able to keep on financing itself, in the middle of a debt rollover crisis, by sharply increasing short term and long term interest rates. That however would imply a severe recession in the US and the global economy.

Am I alarmistic or unrealistic? No if you consider how our reckless fiscal and public debt policies, the absence of adult policy supervision in Washington and mediocre or inexistent US economic policy leadeship will soon lead us to what I referred before as the "Upcoming Twin Financial Train Wrecks of the U.S." You have been warned here first..

Posted by DeLong at 11:00 AM | Comments (41)

Marlowe in Action... But is it Christopher or Phillip?

The Queen of Misrule opens this winter solstice's formal entertainment at the Seelie Court:

Making Light: Marlowe in action: ...a formally declared amusement for the holiday season. Last year we did Tolkien as written by other authors, with points for identifying the author being imitated, and applause for a good imitation...

The rules are the same as last year: One point for a correct identification. No points if the identification is phrased as a suggestion or guess. No points for figuring it's so obvious that everyone else will have guessed already. Universal admiration is awarded for a good pastiche--which this year shall be Raymond Chandler's subject matter in another author's style, or another author's subject matter in Raymond Chandler's style. There will be minimal penalties for substituting Dashiell Hammett for Raymond Chandler...

You may take it as a meta-rule that sufficient grace will always trump the rules proper.

And here are three notable early entries:

Kip Williams: Raymond Chandler's The Big Sleep as written in the style of Christopher Marlowe's Doctor Faustus:

For long and weary hours, I bored myself
Counting the old, tired webs of spiders
In my narrow office. Just then I heard
A ringing sound from the bell out front,
And in my dismal garret I beheld
A wench who made a good first impression
To my eyes. Her face, I thought could launch
A thousand or so ships, her eyes burn down
A hell of a lot of topless towers.
I took in her form and her tear-streaked face

She beseechingly asked, “Mister Marlowe? I’m in trouble. They told me you could help.”

Teresa Nielsen Hayden: Geoffrey Chaucer's Canterbury Tales as written in the style of Raymond Chandler's Red Wind:

There'd been a drought in March, and enough rain in April to raise false hopes, but that night there was a desert wind blowing--one of those hot dry Santa Anas that can wither tender crops in a single night. They come roaring down through the mountain passes and curl your hair and make your nerves jump and your skin itch. It's a good night to sleep with your eyes open. Small foolish men with their veins full of liquor pick the kind of fights that end with a bunch of cheap flowers on a cheap wooden coffin. More respectable citizens look for any excuse to go on pilgrimage. Meek little wives feel the edge of the carving knife and study their husbands' necks--then hastily book themselves into a weekend religious retreat where the murder victim is a holy blissful martyr, and the police will never turn up asking questions about him.

Alex Cohen: Edmund Spenser's Faerie Queen as written in the style of one of Robert Parker's Spenser novels:

The kid had the equipment, I'll give him that. The armor was class-A, better than the stuff I had worn when I was in the service. The shield was silver, and had seen plenty of action. But the kid -- well, my guess was that he hadn't wielded any arms in his time. And underneath that cheer, I could tell there was something pretty sorrowful. I thought I should get him to talk to Susan.

"Look, Mr. Spenser, I don't need your help. I'm not afraid of the Dragon."

"Don't be an idiot. That Dragon would eat you alive. Literally ingest you. In the mean time, you need something to eat."

We headed into the kitchen, and I started a wine sauce for the chicken.

Posted by DeLong at 10:22 AM | Comments (4)

Adam Smith Day!

It's time to repost Davey Hume's letter to Adam Smith, giving Adam the bad news about the reception in London of Smith's first book, the Theory of Moral Sentiments: "Supposing, therefore, that you have duly prepared yourself for the worst by all these reflections; I proceed to tell you the melancholy news..."

Lisle Street, Leicester Fields
April 12, 1759

Dear Smith,

I give you thanks for the agreeable present of your Theory [of Moral Sentiments]. Wedderburn and I made presents of our copies to such of our acquaintance as we thought good judges, and proper to spread the reputation of the book. I sent one to the Duke of Argyle, to Lord Lyttleton, Horace Walpole, Soames Jennyns, and [Edmund] Burke, an Irish gentleman, who wrote lately a very pretty treatise on the sublime. Millar desired my permission to send one in your name to Dr. Warburton.

I have delayed writing to you until I could tell you something of the success of the book, and could prognosticate with some probability whether it should be finally damned to oblivion, or should be registered in the temple of immortality. Though it has been published only a few weeks, I think there appear already such strong symptoms, that I can almost venture to fortell its fate. It is, in short, this--

But I have been interrupted in my letter by a foolish impertinent visit of one who has lately come from Scotland. He tells me, that the Univerity of Glasgow intend to declare Rouet's office vacant upon his going abroad with Lord Hope. I question not but you will have our friend, [Adam] Ferguson, in your eye, in case another project for procuring him a place in the University of Edinburgh should fail. Ferguson has very much polished and improved his treatise on refinement, and with some amendments it will make an admirable book, and discovers an elegant and singular genius.

The Epigoniad, I hope, will do; but it is sometimes uphill work. As I doubt not but you consult the reviews sometimes at present, you will see in the Critical Review a letter upon that poem; and I desire you to employ your conjectures n finding out the author. Let me see a sample of your skill in knowing hands by your guessing at the person.

I am afraid of Lord Kames's Law Tracts. A man might as well think of making a fine sauce by a mixture of wormwood and aloes as an agreeable composition by joining metaphysics and Scotch law. However the book, I believe, has merit; though few people will take the pains of dividing into it.

But to return to your book, and its success in this town, I must tell you--

A plague of interruptions! I ordered myself to be denied; and yet here is one that has broken in upon me again. He is a man of letters, and we have had a good deal of literary conversation. You told me that you were curious of literary anecdotes, and therefore I shall inform you of a few that have come to my knowledge.

I believe I have mentioned to you already Helvetius's book De l'Esprit. It is worth your reading not for it philosophy, which I do not highly value, but for its agreeable composition. I had a letter from him a few days ago, wherein he tells me that my name was much oftener in the manuscript, but that the censor of books at Paris obliged him to strike it out.

Voltaire has lately published a small work called Candide, ou l'Optimisme. It is full of sprightliness and impiety, and is indeed a satire upon Providence, under the pretext of criticizing the Leibnizian system. I shall give you a detail of it--

"But what is all this to my book?" say you--

My Dear Mr. Smith, have patience: compose yourself to tranquillity: show yourself a philosopher in practice as well as profession: think on the emptiness and rashness and futility of the common judgments of men: how little they are regulated by reason in any subject, much more in philosophical subjects, which so far exceed the comprehension of the vulgar.

Non si quid improba Roma, elevet, accedas examenque improbum in illa, perpendas trutina, nec te quaesiveris extra.* A wise man's kingdom is his own breast: or, if he ever looks farther, it will only be to the judgment of a select few, who are free from prejudices, and capable of examining his work. Nothing indeed can be a stronger presumption of falsehood than the approbation of the multitude; and Phocion, you know, always suspected himself of some blunder when he was attended with the applauses of the populace.

Supposing, therefore, that you have duly prepared yourself for the worst by all these reflections; I proceed to tell you the melancholy news, that your book has been very unfortunate: for the public seem disposed to applaud it extremely.

It was looked for by the foolish people with some impatience; and the mob of literati are beginning already to be very loud in its praises. Three bishops called yesterday at Millar's shop in order to buy copies, and to ask questions about the author. The Bishop of Peterborough said he had passed the evening in a company where he heard it extolled above all books in the world.

You may conclude what opinion true philosopher will entertain of it, when these retainers to superstition praise it so highly.

The Duke of Argyle is more decisive than he uses to be in its favour: I suppose he either considers it as an exotic, or thinks the author will be serviceable to him in the Glasgow elections. Lord Lyttleton says that Robertson and Smith and Bower are the glories of English literature. Oswald protests he does not know whether he has reaped more instruction or entertainment from it: but you may easily judge what reliance can be put on his judgment, who has been engaged all his life in public business and who never sees any faults in his friends.

Millar exults and brags that two-thirds of the edition is already sold, and that he is now sure of success. You see what a son of the earth that is, to value books only by the profit they bring him. In that view, I believe it may prove a very good book.

Charles Townsend, who passes for the cleverest fellow in England, is so taken with the performance that he said to Oswald he would put the Duke of Buccleuch under the author's care, and would endeavor to make it worth his while to accept of that charge. As soon as I heard this, I called on him twice with a view of talking with him about the matter, and of convincing him of the propriety of sending that young nobleman to Glasgow: for I could not hope tht he could offer you any terms which would tempt you to renounce your professorship: but I missed him. Mr. Townsend passes for being a little uncertain in his resolutions: so perhaps you need not build much on this sally.

In recompense for so many mortifying things, which nothing but truth could have extorted from me, and which I could easily have multiplied to a greater number; I doubt not but you are so good a Christian as to return good for evil and to flatter my vanity; by telling me that all the godly in Scotland abuse me for my account of John Knox and the Reformation, etc.

I suppose you are glad to see my paper end, and that I am obliged to conclude with

Your humble servant,

David Hume

*"If foolish Rome underweighs anything, neither go up and correct the false tongue in the balance, nor seek anyone besides yourself." Persius, Satirarum Liber

From pages 33-36 of Ernest Campbell Mossner and Ian Simpson Ross, eds., The Correspondence of Adam Smith 2nd ed. (Oxford: Clarendon Press, 1987).

Posted by DeLong at 09:57 AM | Comments (2)

They Are Led by an Invisible Hand...

AdamSmithee believes that I am guilty of sharp practice:

AdamSmithee:...it does seem unfair that, as noted by other commentators, you attack Herzog for quoting Smith without looking at the broader context and then turn around and with the weasel words "In the Wealth of Nations, at least" you yourself ignore most of Smith's writings.

The number of times that Smith suggested the desire for wealth was principally driven by vanity is far too high to assume the thought was a mistake or minor aside. Indeed, he thought that vanity was an important tool to ensure that there was some level of equality in the distribution of necessities. The rich, by employing the poor "for their own vain and insatiable desires... make nearly the same distribution of the necessities of life... had the earth been divided into equal portions among all its inhabitants," he argued.

Again, 'the whole industry of human life is employed' in satisfying 'the nicety and delicacy of our taste.' And 'an augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means most vulgar and most obvious...'

Read Albert Hirschman's 1977 classic "The Passions and the Interests: Political Arguments for Capitalism Before Its Triumph."

I accept the criticism, and will report to the reeducation camp tomorrow.

In partial mitigation of my offense, I plead The Adam Smith Problem: to what extent is the authorial voice of An Inquiry into the Nature and Causes of the Wealth of Nations consistent and compatible with the authorial voices of Smith's other writings and lectures? Did Smith change his mind over time? Did he not think it very important to make his political economy consistent with his moral psychology? These are all big questions on which I find my views changing every half decade or so, each time I reread Smith's collected works.

But enough from me. Let's turn the microphone over to The Man from Kirkcaldy himself, and read his great paean to short-sighted vanity--the first place, IIRC, that he ever uses the phrase "invisible hand":

From The Theory of Moral Sentiments:

The poor man’s son, whom heaven in its anger has visited with ambition... admires the condition of the rich. He finds the cottage of his father too small.... He is displeased with being obliged to walk.... He... judges... a numerous retinue of servants would save him from a great deal of trouble. He thinks if he had attained all these, he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquillity of his situation. He is enchanted with the distant idea of this felicity.... To obtain the conveniencies which these afford, he submits in the first year, nay in the first month of his application, to more fatigue of body and more uneasiness of mind than he could have suffered through the whole of his life from the want of them. He studies to distinguish himself in some laborious profession. With the most unrelenting industry he labours night and day to acquire talents superior to all his competitors.... Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquillity that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it....

But in the languor of disease and the weariness of old age, the pleasures of the vain and empty distinctions of greatness disappear.... In his heart he curses ambition, and vainly regrets the ease and the indolence of youth, pleasures which are fled for ever, and which he has foolishly sacrificed for what, when he has got it, can afford him no real satisfaction. In this miserable aspect does greatness appear to every man when reduced either by spleen or disease to observe with attention his own situation, and to consider what it is that is really wanting to his happiness. Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies.... They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death.

But... when in better health and in better humour... We are then charmed with the beauty of that accommodation which reigns in the palaces and oeconomy of the great.... The pleasures of wealth and greatness... strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it.

And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth.

The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice.

The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements.

They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.

Posted by DeLong at 09:44 AM | Comments (4)

December 21, 2004

Yet More Intellectual Property Weirdness

I wonder if this is completely true?

The Graphing Calculator Story

Pacific Tech's Graphing Calculator has a long history. I began the work in 1985 while in school. That became Milo, and later became part of FrameMaker. Over the last twenty years, many people have contributed to it. Graphing Calculator 1.0, which Apple bundled with the original PowerPC computers, originated under unique circumstances.

I used to be a contractor for Apple, working on a secret project. Unfortunately, the computer we were building never saw the light of day. The project was so plagued by politics and ego that when the engineers requested technical oversight, our manager hired a psychologist instead. In August 1993, the project was canceled. A year of my work evaporated, my contract ended, and I was unemployed.

I was frustrated by all the wasted effort, so I decided to uncancel my small part of the project. I had been paid to do a job, and I wanted to finish it. My electronic badge still opened Apple's doors, so I just kept showing up.

I had many sympathizers. Apple's engineers thought what I was doing was cool. Whenever I gave demos, my colleagues said, "I wish I'd had that when I was in school." Those working on Apple's project to change the microprocessor in its computers to the IBM PowerPC were especially supportive. They thought my software would show off the speed of their new machine. None of them was able to hire me, however, so I worked unofficially, in classic "skunkworks" fashion...

I knew nothing about the PowerPC and had no idea how to modify my software to run on it. One August night, after dinner, two guys showed up to announce that they would camp out in my office until the modification was done. The three of us spent the next six hours editing fifty thousand lines of code. The work was delicate surgery requiring arcane knowledge of the MacOS, the PowerPC, and my own software. It would have taken weeks for any one of us working alone.

At 1:00 a.m., we trekked to an office that had a PowerPC prototype. We looked at each other, took a deep breath, and launched the application. The monitor burst into flames. We calmly carried it outside to avoid setting off smoke detectors, plugged in another monitor, and tried again. The software hadn't caused the fire; the monitor had just chosen that moment to malfunction. The software ran over fifty times faster than it had run on the old microprocessor. We played with it for a while and agreed, "This doesn't suck" (high praise in Apple lingo). We had an impressive demo, but it would take months of hard work to turn it into a product.

I asked my friend Greg Robbins to help me. His contract in another division at Apple had just ended, so he told his manager that he would start reporting to me. She didn't ask who I was and let him keep his office and badge. In turn, I told people that I was reporting to him. Since that left no managers in the loop, we had no meetings and could be extremely productive. We worked twelve hours a day, seven days a week. Greg had unlimited energy and a perfectionist's attention to detail. He usually stayed behind closed doors programming all day, while I spent much of my time talking with other engineers. Since I had asked him to help as a personal favor, I had to keep pace with him. Thanks to an uncurtained east-facing window in my bedroom, I woke with the dawn and usually arrived ten minutes before Greg did. He would think I had been working for hours and feel obliged to work late to stay on par. I in turn felt obliged to stay as late as he did. This feedback loop created an ever-increasing spiral of productivity.

People around the Apple campus saw us all the time and assumed we belonged. Few asked who we were or what we were doing.When someone did ask me, I never lied, but relied on the power of corporate apathy. The conversations usually went like this:

Q: Do you work here? A: No. Q: You mean you're a contractor? A: Actually, no. Q: But then who's paying you? A: No one. Q: How do you live? A: I live simply. Q: (Incredulously) What are you doing here?!

At that point I'd give a demo and explain that the project had been canceled but that I was staying to finish it anyway. Since I had neither a mortgage nor a family, I could afford to live off savings. Most engineers at Apple had been through many canceled projects and completely understood my motivation.

Apple at that time had a strong tradition of skunkworks projects, in which engineers continued to work on canceled projects in hopes of producing demos that would inspire management to revive them. On occasion, they succeeded. One project, appropriately code-named Spectre, was canceled and restarted no fewer than five times. Engineers worked after hours on their skunkworks, in addition to working full time on their assigned projects. Greg and I, as nonemployees who had no daytime responsibilities, were merely extending this tradition to the next level.

In September, Apple Facilities tried to move people into our officially empty offices. They noticed us. The Facilities woman assumed that I had merely changed projects and had not yet moved to my new group, something that happened all the time. She asked what group I worked in, since it would be that group's responsibility to find me space. When I told her the truth, she was not amused. She called Security, had them cancel our badges, and told us in no uncertain terms to leave the premises.

We were saved by the layoffs that began that month. Twenty percent of Apple's fifteen thousand workers lost their jobs, but Greg and I were safe because we weren't on the books in the first place and didn't officially exist. Afterwards, there were plenty of empty offices. We found two and started sneaking into the building every day, waiting out in front for real employees to arrive and casually tailgating them through the door. Lots of people knew us and no one asked questions, since we wore our old badges as decoys.

We were making great progress, but we couldn't get it done alone. Creating sophisticated software requires a team effort. One person can use smoke and mirrors to make a demo that dazzles an audience. But shipping that to a million customers will expose its flaws and leave everyone looking bad. It is a cliche in our business that the first 90 percent of the work is easy, the second 90 percent wears you down, and the last 90 percent - the attention to detail - makes a good product. Making software that is simultaneously easy to learn, easy to use, friendly, useful, and powerful takes people with an incredible combination of skills, talent, and artistry working together with intensity and patience. Greg and I could do the core engineering, but that was a far cry from creating a finished product.

Among other things, we needed professional quality assurance (QA), the difficult and time-consuming testing that would show us the design flaws and implementation bugs we couldn't see in our own work. Out of nowhere, two QA guys we had never met approached us, having heard about our venture through the rumor mill. (We had become a kind of underground cause célèbre.) Their day job, QA-ing system software, was mind-numbingly boring. They volunteered to help us, saying, "Let's not tell our boss about this, OK?" One guy had a Ph.D. in mathematics; the other had previously written mathematical software himself. They were a godsend. They started right away.

Next, we needed help writing software to draw the three-dimensional images that our software produced. A friend with expertise in this area took a weekend off from his startup company to write all of this software. He did in two days what would have taken me a month.

My skunkworks project was beginning to look real with help from these professionals as well as others in graphic design, documentation, programming, mathematics, and user interface. The secret to programming is not intelligence, though of course that helps. It is not hard work or experience, though they help, too. The secret to programming is having smart friends.

There was one last pressing question: How could we get this thing included with the system software when the new machines shipped? The thought that we might fail to do this terrified me far more than the possibility of criminal prosecution for trespass. All the sweat that Greg and I had put in, all the clandestine aid from the friends, acquaintances, and strangers on whom I had shamelessly imposed, all the donations of time, expertise, hardware, soft drinks, and junk food would be wasted.

Once again, my sanity was saved by the kindness of a stranger. At 2:00 one morning, a visitor appeared in my office: the engineer responsible for making the PowerPC system disk master. He explained things this way: "Apple is a hardware company. There are factories far away building Apple computers. One of the final steps of their assembly line is to copy all of the system software from the 'Golden Master' hard disk onto each computer's hard disk. I create the Golden Master and FedEx it to the manufacturing plant. In a very real and pragmatic sense, I decide what software does and does not ship." He told me that if I gave him our software the day before the production run began, it could appear on the Golden Master disk. Then, before anyone realized it was there, thirty thousand units with our software on the disks would be boxed in a warehouse. (In retrospect, he may have been joking. But we didn't know that, so it allowed us to move forward with confidence.)

Once we had a plausible way to ship, Apple became the ideal work environment. Every engineer we knew was willing to help us. We got resources that would never have been available to us had we been on the payroll. For example, at that time only about two hundred PowerPC chips existed in the world. Most of those at Apple were being used by the hardware design engineers. Only a few dozen coveted PowerPC machines were even available in System Software for people working on the operating system. We had two. Engineers would come to our offices at midnight and practically slip machines under the door. One said, "Officially, this machine doesn't exist, you didn't get it from me, and I don't know you. Make sure it doesn't leave the building."

In October, when we thought we were almost finished, engineers who had been helping us had me demonstrate our software to their managers. A dozen people packed into my office. I didn't expect their support, but I felt obliged to make a good-faith effort to go through their official channels. I gave a twenty-minute demonstration, eliciting "oohs" and "ahhs." Afterward, they asked, "Who do you report to? What group are you in? Why haven't we seen this earlier?" I explained that I had been sneaking into the building and that the project didn't exist. They laughed, until they realized I was serious. Then they told me, "Don't repeat this story."

Then things got really weird. The QA manager assigned people to test our product. (I didn't tell him that those people were already working on it.) The localization group assigned people to translate it into twenty languages. The human interface group ran a formal usability study. I was at the center of a whirlwind of activity. Nevertheless, Greg and I still had to sneak into the building. The people in charge of the PowerPC project, upon which the company's future depended, couldn't get us badges without a purchase order. They couldn't get a purchase order without a signed contract. They couldn't get a contract without approval from Legal, and if Legal heard the truth, we'd be escorted out of the building.

The director of PowerPC software was an academic on leave from Dartmouth. The director of PowerPC marketing was the son of a math teacher. Seeing the value of putting this educational software on every Macintosh in every school, they promptly adopted us.

Greg was lurking outside one day, trying to act casual, when another engineer accosted him and said, "I'm sick and tired of you guys loitering in front of the building every day!" Later he phoned the appropriate bureaucrats on our behalf. I listened to his side of the conversation for twenty minutes: "No, there is no PO, because we're not paying them. No, there is no contract, because they are not contractors. No, they are not employees; we have no intention of hiring them. Yes, they must have building access because they are shipping code on our box. No, we don't have a PO number. There is no PO, because we're not paying them." Finally, he wore them down. They said to use the standard form to apply for badges, but to cross out Contractor and write in Vendor. Where it asked for a PO number, we were to use the magic words "No dollar contract." We got badges the next day. They were orange Vendor badges, the same kind the people working in the cafeteria, watering the plants, and fixing the photocopy machines had.

Official recognition made life exciting. Suddenly even more people became enthusiastically involved. When formal usability testing with students and teachers began, we discovered, again, that we were far from being done.

I had long been proud of the elegance and simplicity of our design. I wanted our program to ship with every Macintosh, so I had designed it for all users, even those who know little about computers and hate math. I wanted to make mathematics as easy and enjoyable as playing a game. In a classroom, any time spent frustrated with the computer is time taken away from teaching. Sitting behind a two-way mirror, watching first-time users struggle with our software, reminded me that programmers are the least qualified people to design software for novices. Humbled after five days of this, Greg and I went back and painstakingly added feedback to the software, as if we were standing next to users, explaining it ourselves.

Our recognition made life interesting in other ways since we could no longer remain a well kept secret. After a demo to outside developers, one person called Apple claiming that we infringed his patent, causing a fire drill until I could show prior art. Another company, the makers of Mathematica™, simply demanded that our product be pulled. Apple very politely declined. One week we were evading security, the next week Apple is rising to our defense.

By November, we were in full crunch mode, working sixteen hours a day, seven days a week, and feeling the pressure. The home stretch was a blur - wake up, grab a bagel, eat it while driving, work till we drop, sleep, repeat. If this story were a movie, you would now see the clock hand spinning and the calendar pages blowing away in the wind.

We finished in January 1994. Graphing Calculator has been part of the Macintosh ever since. Teachers around the world use it as an animated blackboard to illustrate abstract concepts visually. It shipped on more than twenty million machines. It never officially existed.

Why did Greg and I do something so ludicrous as sneaking into an eight-billion-dollar corporation to do volunteer work? Apple was having financial troubles then, so we joked that we were volunteering for a nonprofit organization. In reality, our motivation was complex. Partly, the PowerPC was an awesome machine, and we wanted to show off what could be done with it; in the Spinal Tap idiom, we said, "OK, this one goes to eleven." Partly, we were thinking of the storytelling value. Partly, it was a macho computer guy thing - we had never shipped a million copies of software before. Mostly, Greg and I felt that creating quality educational software was a public service. We were doing it to help kids learn math. Public schools are too poor to buy software, so the most effective way to deliver it is to install it at the factory.

Beyond this lies another set of questions, both psychological and political. Was I doing this out of bitterness that my project had been canceled? Was I subversively coopting the resources of a multinational corporation for my own ends? Or was I naive, manipulated by the system into working incredibly hard for its benefit? Was I a loose cannon, driven by arrogance and ego, or was I just devoted to furthering the cause of education?

I view the events as an experiment in subverting power structures. I had none of the traditional power over others that is inherent to the structure of corporations and bureaucracies. I had neither budget nor headcount. I answered to no one, and no one had to do anything I asked. Dozens of people collaborated spontaneously, motivated by loyalty, friendship, or the love of craftsmanship. We were hackers, creating something for the sheer joy of making it work.

After six months of grueling unpaid labor, Greg couldn't explain to his parents what he had done. They didn't use computers, and the only periodical they read was the New York Times. So as the project was winding down, I asked Greg if he wanted his photo in the Times so his parents would know what he was up to. He gave the only possible response: "Yeah, right." We made a bet for dinner at Le Mouton Noir, a fine French restaurant in Saratoga. To be honest, I expected to lose, but I made a phone call. Greg doesn't bet against me any more: On March 11, 1994, the front page of the Times business section contained an article on the alliance among Apple, IBM, and Motorola, picturing Greg and me in my front yard with a view of the Santa Cruz Mountains. Someone I knew in Apple Public Relations was livid. I had asked if she wanted to send someone for the interview, but she had said that engineers are not allowed to talk with the press. It's hard to enforce that kind of thing with people who can't be fired. It was positive press for Apple, though, and our parents were pleased.

We wanted to release a Windows version as part of Windows 98, but sadly, Microsoft has effective building security.

Postscript: After the events described, we made everything retroactively legitimate by licensing the software to Apple for distribution. Pacific Tech started a few years later, and continued to develop Graphing Calculator, both in new free versions that Apple bundled with Mac OS 8 and Mac OS 9, and commercial releases. Visit http://www.PacificT.com/FreeStuff.html to download the software.

Copyright © 2004 Ron Avitzur.


Posted by DeLong at 07:14 PM | Comments (21)

Intellectual Property Weirdness

For a while I've been idly thinking that I should find an excuse to favorably link to Dori Smith and Tom Negrino's excellent weblog, "Backup Brain." But I find that I cannot. For here we have another sign of intellectual property land grabs getting out of hand:

Backup Brain: "Backup Brain" is us: I'm starting to see it more and more, and while I'm not a lawyer, my understanding is that we need to nip this in the bud. If you read our What is Backup Brain? page, you'll see that we claim "Backup Brain" as a trademark, and have for quite some time.

If you want to use the phrase "backup brain," and in particular to use it regarding weblogs, we'd greatly appreciate it if you'd reference or link to this site in some way. For instance, this is the right way to do it:

Wagner's Weblog: It's delightful! It's del.icio.us!: I attended a terrific lunch of San Diego bloggers. Asked why they blog, several of the attendees said they basically use the blogs as a backup brain. If they find a site that's interesting, they bookmark that site on the blog, with a brief description, and then they can find the site if they want to find it later.... And, of course, the fact that other people can read the blog entry and comment on it is an added benefit. Many bloggers use their blogs as a backup brain in that fashion. Indeed, there's even a blog called "Backup Brain."...

OTOH, this is not:

Napsterization: Just a note about the use case. Mary's power use may be leading edge, but it is well within scope. If you spend hours of each workday online or at your laptop, then any RSS client becomes integral. It replaces bookmarks. It replaces addressbook entries. It replaces listerv archives. It becomes the place you look for your own blog posts, a backup brain. To pick up threads of conversation. To detect trends and be a little smarter. The place to find contact info, places to go, things to do. So it's indispensable....

Thank you for your attention to this matter.

I believe that the right answer to Tom and Dori is simply, "No." Or, perhaps, "Just how crazy are you?" Phil Wolfe and Mary Hodder are doing nothing wrong in referring to their set of RSS feeds as a "backup brain" without cross-referencing Smith and Negrino's backupbrain.com. The San Diego bloggers talking about their "backup brains" at their lunch have a perfect right to do so. The phrase "backup brain" gets 108,000 hits on Google, for chrissake. There's no bud to be nipped. It's a forest.

Smith and Negrino can, of course, claim "Backup Brain" as the unique, trademarked, and servicemarked name of their weblog. But control how the rest of us use the metaphor in our speech and writing? When they chose to name the weblog after the metaphor because it did have meaningful resonance? No way.

I've been sporadically calling my laptop my "backup brain" and my "external brain pack" for at least a decade...

Posted by DeLong at 05:53 PM | Comments (9)

If Only Batiushka, the Little Father, the Czar Knew...

Blogging from the root cellar as he watches the depredations of the cossacks who are the Office of the Secretary of Defense, Gregory Djerejian closes his eyes and desperately repeats the myth that if only the cossacks weren't misleading the Czar, Batiushka, the Little Father, he would do the right thing and all would be well. George W. Bush needs "better advice on the Iraq war than he is currently getting from the civilian leadership of the Pentagon." Well, Gregory, the cossacks work for and always have worked for the Czar: George W. Bush has the advisors and gets the advice he wants:

THE BELGRAVIA DISPATCH: Another Rightist Anti-Rumsfeld Voice: ...what is really needed now is leadership and straight talk--including an honest facing up regarding the resources we may need to ensure we get the job of Iraqi democratization done.... Bush... to his immense credit, is trying to see this hugely difficult endeavour through, which is far and away the main reason why I supported him. But he seems to be hoping the elections (and a too hasty train and equip program) will prove panaceas of sorts. Put differently, and even beefing up to 150,000 (albeit too many of these overstretched, underqualified reserves), he's trying to do it on the cheap, with fingers crossed, hoping things will get better after January 30th. But as Kagan and other adult, non-chest beating, non-breezily self-congratulatory conservatives are pointing out, that may not be the case.... Don Rumsfeld doesn't seem capable of honestly reckoning with those contingencies (nor, it appears, do the other pet budget-interested, transformationalist cheerleaders around him). So in my view, and it's getting increasingly important, the President (whom I believe truly cares about the Iraq project and has the conviction to match--but doesn't appear to fully appreciate the quantum of prospective dangers ahead) needs to get better advice on the Iraq war than he is currently getting from the civilian leadership of the Pentagon....

It is indeed very hard work to make sure that the blame for everything is laid not at the feet of Batiushka, but at the feet of the leader of the cossacks:

THE BELGRAVIA DISPATCH: A Catalogue of Shame: Stuff happens, after all. And quite frequently, it appears. Still, war is an ugly business, of course. And Rumsfeld can't be held accountable for every last action of a private in some far-flung penal colony (though a different man, confronted with such dismaying torture scandals over the past odd year, might not have written last June: "(h)owever, I stand for 8-10 hours a day. Why is standing limited to 4 hours?") But anyone with half a brain who continues to insist that the torture (sorry, "abuse") story is about a few bad apples taking a frat hazing a tad too much to heart at Abu Ghraib alone are full of it and doing the country a disservice through their intellectual dishonesty. It's clear that, while not some God-awful American gulag archipelago--torture has manifestly occurred in detention facilities from Afghanistan to Iraq to Cuba. Likewise, it's time to say loud and clear that the fact that those tortured are Arab and South Asian detainees is noteworthy. Why? Because it's reminiscent of the different treatment afforded the Japanese... during WWII... race matters.... Islam has too often been conflated in the popular imagination with the radical jihadists who would so gleefully kill thousands as they did in lower Manhattan that fateful day.... [I]t's time for intellectuals who care about the moral fiber of our polity, on both the Left and Right, to start speaking more loudly about these worrisome trends. America's better angels, and our more aspirational national narratives, simply demand it.

I would say it's at least nine months past time for the intellectuals of the right to start "speaking more loudly about these worrisome trends."

Posted by DeLong at 02:12 PM | Comments (19)

Mass Customization

Wired's Chris Anderson writes about the extraordinary variety of potential consumer demand (The Long Tail:Yes, the book deal is now official):

Wired 12.10: The Long Tail: Unlimited selection is revealing truths about what consumers want and how they want to get it in service after service, from DVDs at Netflix to music videos on Yahoo! Launch to songs in the iTunes Music Store and Rhapsody. People are going deep into the catalog, down the long, long list of available titles, far past what's available at Blockbuster Video, Tower Records, and Barnes & Noble. And the more they find, the more they like. As they wander further from the beaten path, they discover their taste is not as mainstream as they thought (or as they had been led to believe by marketing, a lack of alternatives, and a hit-driven culture).

An analysis of the sales data and trends from these services and others like them shows that the emerging digital entertainment economy is going to be radically different from today's mass market. If the 20th- century entertainment industry was about hits, the 21st will be equally about misses.

For too long we've been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching - a market response to inefficient distribution.

The main problem, if that's the word, is that we live in the physical world and, until recently, most of our entertainment media did, too. But that world puts two dramatic limitations on our entertainment.

The first is the need to find local audiences. An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run; that's essentially the rent for a screen. An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that's the rent for a half inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands.

In each case, retailers will carry only content that can generate sufficient demand to earn its keep. But each can pull only from a limited local population - perhaps a 10-mile radius for a typical movie theater, less than that for music and bookstores, and even less (just a mile or two) for video rental shops. It's not enough for a great documentary to have a potential national audience of half a million; what matters is how many it has in the northern part of Rockville, Maryland, and among the mall shoppers of Walnut Creek, California.

There is plenty of great entertainment with potentially large, even rapturous, national audiences that cannot clear that bar. For instance, The Triplets of Belleville, a critically acclaimed film that was nominated for the best animated feature Oscar this year, opened on just six screens nationwide. An even more striking example is the plight of Bollywood in America. Each year, India's film industry puts out more than 800 feature films. There are an estimated 1.7 million Indians in the US. Yet the top-rated (according to Amazon's Internet Movie Database) Hindi-language film, Lagaan: Once Upon a Time in India, opened on just two screens, and it was one of only a handful of Indian films to get any US distribution at all. In the tyranny of physical space, an audience too thinly spread is the same as no audience at all.

The other constraint of the physical world is physics itself. The radio spectrum can carry only so many stations, and a coaxial cable so many TV channels. And, of course, there are only 24 hours a day of programming. The curse of broadcast technologies is that they are profligate users of limited resources. The result is yet another instance of having to aggregate large audiences in one geographic area - another high bar, above which only a fraction of potential content rises.

The past century of entertainment has offered an easy solution to these constraints. Hits fill theaters, fly off shelves, and keep listeners and viewers from touching their dials and remotes. Nothing wrong with that; indeed, sociologists will tell you that hits are hardwired into human psychology, the combinatorial effect of conformity and word of mouth. And to be sure, a healthy share of hits earn their place: Great songs, movies, and books attract big, broad audiences.

Posted by DeLong at 11:50 AM | Comments (16)

Alex Tabarrok's Children Are Upset

He writes:

Marginal Revolution: Tivo Blues: I am on holiday in Canada.  Never having known anything different, the children are terribly confused and distraught to find that at Nana's house their shows are not on whenever they want them to be on. I use the opportunity to tell them about progress - when Daddy was little he had to get off the couch just to change the channel! - I refrain from further explaining that the CPI does not adequately account for improvements in the quality of life.  Tivo is great.   

Posted by DeLong at 10:28 AM | Comments (10)

Tim Dunlop Reports on the Bushies Destruction of American Power Worldwide

He writes:

the road to surfdom: Last night I had an interesting conversation with a friend who works on Capitol Hill. He was recently part of a Congressional delegation that went to India. The delegation was mainly Republicans. They spoke to a lot of Indian government people and the message from them was very clear, and in a nutshell it was this: "We don't much care about America." He said they were very polite but almost indifferent. Maybe matter-of-fact is a better description. The conversation went something like this:

We consider ourselves as in competition with China for leadership in the new century. That's our focus and frankly, you have made it very difficult for us to deal with you. We find your approach to international affairs ridiculous. The invasion of Iraq was insane. You've encouraged the very things you say you were trying to fix - terrorism and instability. Your attitude to Iran is ridiculous. You need to engage with Iran. We are. We are bemused by your hypocrisy. You lecture the world about dealing with dictators and you deal with Pakistan. We are very sorry for your losses from the 9/11 terror attacks. Welcome to our world. You threaten us with sanctions for not signing the non-proliferation treaty, but you continue to be nuclear armed and to investigate new weapons. You expect us to neglect our own security because you want us to. We don't care about sanctions.

They also spoke about economic development and the message here was that we're doing fine thanks. We can't address the poverty in our country wholesale--most of it is rural poverty anyway--but we find we have skills in the hi-tech area. We will continue to pursue that. We currently produce around 10,000 (I think, ed) science PhDs a year. We will build up a rich, well-educated strata.

Another thing he said that was mentioned a number of times was the relationship with Australia. They spoke of educational exchanges and the growing number of immigrants. Australia was thought of highly.

Like I said, this was a Congressional delegation and it spoke to key people in the Indian government. I gather it was a real eye-opener for those involved. (Having friends back home who have worked on Indian issues for Australian governments going back twenty years, I doubt you would get the same level of surprise.)

Posted by DeLong at 09:03 AM | Comments (20)

Projecting Shadows on the Walls of the Cave

Kevin Drum says that we should stop trying to lead the American people and the American press corps out of the cave so that they can perceive the Forms directly by the bright light of the sun--their eyes simply cannot cope, and their brains have been so enfeebled that they cannot understand arguments based on policy substance. Instead, Kevin says, we need to concentrate on making the appropriate shadow puppets on the walls of the cave to induce voters and the press corps to behave in the way they would behave if they could see and grasp the Forms:

The Washington Monthly: However, as both Garance and Ezra point out, factual arguments will only get you so far. For the broad public you also need emotional and political arguments. Is it possible to make them? I think it is. Although the first step is to convince opinion makers that the facts have changed in the past decade, the second step is to construct a more, um, practical campaign. It would include arguments like this:

  1. Politicians lie all the time, and now they're lying about Social Security being in trouble. What is it they're really after?
  2. Wall Street tycoons are being cagey about this, but the truth is that they can't wait to get their hands on your retirement money. Management fees is what this is really all about, isn't it?
  3. Today your retirement benefits are guaranteed. With private accounts you're taking on a big risk. What happens if you turn 65 right after a stock market crash?
  4. Take a look at Chile. Take a look at Argentina. They tried private accounts and look how their retirees are doing.

You get the idea. Facts and figures work on some people, but populist arguments are how you win the ground war. The question is, who's going to take on the job of getting down and dirty with this stuff?

I disagree. I'm going to keep grabbing people by the neck and dragging them out of the cave. Someday, dammit, Jonathan Weisman is going to perceive the Forms by the light of the sun whether he wants to or not.

Posted by DeLong at 08:56 AM | Comments (33) | TrackBack

Macroblog Thinks Barry Eichengreen Is Too Pessimistic

It writes:

macroblog: Does A Current Account Correction Spell Doom?: There is a world of difference between falling investment and consumption growth that arises because spenders are pessimistic , or facing higher taxes, or whatever, and falling investment and consumption that is prompted by higher interest rates resulting from an excess demand for goods and services.  It seems to me that the latter is the relevant situation in the Eichengreen/DeLong scenario, and I don't think even conventional Keynesian-types are apt to predict recessions when the fundamental dynamics in the economy point to overheated demand.

Somehow the Fed gets wrapped up into all of this.  I agree it could be the case that  "[T]he Federal Reserve will have to raise interest rates faster than currently expected."  But as I explained here, a higher feds fund rate target in an environment of rising of market rates is not necessarily the same thing as tighter monetary policy.  And while it may true that the falling dollar and resulting current account adjustments could yield some upward pressure on the price level, those pressures should be temporary.  The FOMC has worked long and hard to keep such transitory ups and downs in the rate of inflation from becoming embedded in private expectations.  We can at least hope that Fed credibility will see us through whatever adjustments are to come, without the need for extraordinary measures to contain the inflation trend.

None of this to say that the reversal of our current account deficits will occur seamlessly, or without some sort of disruption to the U.S. economy.  I just don't know.  But this is one doomsday case I'm not quite buying.

I'm curious about just what macroblog's medium-run scenario is. Is it that a steep decline in the dollar makes foreigners think investments in America are attractive, and so big capital inflows and trade deficits last for a decade or more? Is it that something happens to massively raise America's national savings rate as the capital inflow ebbs? What could that something be?

Posted by DeLong at 08:48 AM | Comments (4)

December 20, 2004

Barry Eichengreen Stitches the Short Run to the Medium Run and Sees Recession

Writing in the FT, Barry Eichengreen tries to stitch together the current short run of U.S. savings much lower than investment, a large current account deficit, and low interest rates with the medium run we all foresee of savings roughly equal to investment, a current account in rough balance, and higher interest rates. His message: DOOM (or at least recession):

Narrowing the US [trade] deficit... require[s]... increased savings and lower investment. The falling dollar will bring this about by tending to drive interest rates up.... Asian central banks... sell some of their existing holdings... upward pressure on US Treasury yields.... [A]s the dollar falls, there will be upward pressure on US import prices.... [T]he Federal Reserve will have to raise interest rates faster than currently expected. Higher interest rates will make borrowing more expensive and slow investment growth. They will have a negative impact on... house prices. US households... will have to start saving again. With investment down and saving up, the current account deficit will narrow.

Unfortunately, this happy observation is not the end of the story. A significant decline in both consumption and investment will mean a recession in the US. This conclusion is so obvious that the only question is why the markets are not forecasting it already.

The answer, presumably, is that investors do not believe that the dollar's decline will produce a significant increase in inflation. The historical data say that a 10 per cent fall in the dollar produces 3 additional percentage points of inflation, which in turn implies a 450 basis-point increase in the discount rate. Clearly, we have not seen anything like this yet.... Maybe the... traditional relationship between dollar depreciation and inflation no longer holds.... But... [this] just means that the dollar will have to fall further to generate enough inflationary pressure to force the Federal Reserve to raise interest rates. At the root of the dollar's decline is the view that the US current account deficit is unsustainable. Foreigners will therefore keep selling dollars until it narrows. This in turn means that the dollar will keep falling until US inflation heats up to the point where the Fed does indeed have to raise interest rates. The implication, that the US economy will slow or more likely succumb to recession, is unavoidable.

The question is whether there is anyone to take up the slack.... Europe is stagnant, and the European Central Bank has shown no awareness of the need for monetary stimulus. China is cooling off.... Japan's modest recovery will disappoint now that it has to raise taxes to control its own spiralling debt. Countries outside the Group of Four nations (the US, the UK, Japan and Germany) are simply too small to make a difference. The implication is that the correction of the US current account deficit that is now getting under way will mean a recession not just for the US but for the rest of the world. The optimists who are welcoming the dollar's fall should think again.

That's the thing about accounting identities like S - D - I = NX. Either you craft economic policies that make them hold at full employment, or the market takes care of making sure that they hold for you--but usually not at full employment. Stagnant or falling wages that boost corporate profits could boost savings S by boosting retained earnings. A Bush administration serious about cutting the deficit could provide financing for investment and keep interest rates from rising. Big booms abroad could raise U.S. exports and reduce investment as the Fed took steps to shrink investment to avoid inflationary overheating. Otherwise, it is indeed hard to argue with Barry just across the north wall of this office: the dollar falls; has the fall produced enough inflationary pressure to lead the Fed to raise interest rates and so reduce investment and the current account deficit? no? then repeat.

Posted by DeLong at 05:35 PM | Comments (21)

Crisis? What Social Security Crisis?

Garence Franke-Ruta writes:

TAPPED: December 2004 Archives: I seriously doubt that asserting that there is no Social Security crisis will work as a Democratic strategy at this late date, even though it's largely true. It simply won't sound credible. Not after Paul Tsongas founded the Concord Coalition in 1992 with Warren Rudman and ran for office on a platform of fiscal responsibility and saving Social Security from collapse -- a platform widely hailed as being too courageous and truthful to win. Not after the young Democrats at Lead -- or Leave declared that "America's Social Security system is in trouble. It has become an unfair, unsound program... ." Not after the 2030 Center's Hans Reimer won plaudits for launching a Gen-X think tank to, according to a 1999 NPR report, "save Social Security before America's 75 million baby boomers begin retiring." Not after his right-leaning generational compatriots at Third Millenium launched their Campaign to Reform Social Security project. Not after Ross Perot....

Well, fifteen years ago I would have said that we had a (long-run) Social Security crisis, and ten years ago I said that we had a (long-run) Social Security crisis: we were still in the age of diminished expectations--the age of the productivity slowdown--in which productivity growth was slow and there was no certainty that it would accelerate. But between ten and five years ago there came the new economy boom, and the accompanying acceleration of productivity growth. Five years ago I said that there was a Medicare crisis but no Social Security crisis: the projected surplus in the general fund was enough to more than cover the Social Security (although not the Medicare) deficit. Today I would say that we have a Bush-caused general fund crisis, and a Medicare crisis. But Social Security crisis? That has melted away.

The fact that since Perot and Tsongas we have had wonderful news about the likely shape of future productivity growth is an important fact that Garence ignores. And he she shouldn't ignore it.

Posted by DeLong at 05:35 PM | Comments (34)

Why Oh Why Are We Ruled by These Idiots? (No, I Don't Have a Social Security Plan Department)

So not only does Bush not have a Social Security proposal, he has now committed himself to never having a Social Security proposal:

Talking Points Memo: by Joshua Micah Marshall: December 19, 2004 - December 25, 2004 Archives: Sam Rosenfeld on today's press conference:

The president got a tad petulant when fielding questions on Social Security. His emphatic response to any and all queries about his position on the subject was an indignant, righteous refusal to answer: “You’re not going to get me to negotiate with myself,” he repeatedly told the perplexed reporters. “I know what you’re trying to get me to do. You’re trying to get me to answer ‘Why this,’ ‘why that,’ to take positions -- don’t bother to ask me.” Rather than merely dodge the questions, Bush seemed intent on staking out an explicit, principled position in favor of dodging the question. There may have been a method to this madness above and beyond Bush’s stated explanation that “Congress writes legislation” and therefore he, as the president, shouldn’t be setting specific guidelines for a Social Security reform proposal...

Gee. I guess nobody has told Bush of his Constitutional duty to "recommend to [the Congress's] Consideration such Measures as he shall judge necessary and expedient." Anybody want to clue him in?


Posted by DeLong at 05:35 PM | Comments (9)

James Lileks Is the Latest Shrill Critic of George W. BushYahoo! News - Text of President Bush's News Conference


Yahoo! News - Text of President Bush's News Conference : PRESIDENT BUSH: Thank you. Please be seated. Good morning and happy holidays to you all. I thought I'd come and answer some of your questions...


Backfence: The traditional yule fear factor: We prefer the term "festive season."... You must understand that this is not about Christmas, but about the holiday season, which encompasses many beliefs.

Hence the trees, the lights, the berries, the Santa costumes, the Nutcracker statues, the Nat King Cole music on the speakers, the poinsettias, and other symbols of Hinduism. Come on! It's Christmas! What's the problem?"

Sir, you needn't use that tone of voice. It's hostile, and --

"It's not hostile. It's festive! See? I'm happy! Big grin. I'm happy for a variety of reasons, and one of them is the yearly reminder that my britches are not as tightly cinched as yours. You could celebrate every single religious holiday and I wouldn't mind. If your staff all wished me a merry whatever, I'd take it as an expression of goodwill. The other day, for example, the Disney Channel had a little ad between shows wishing the viewers a Happy Hanukkah. My kid asked what that meant, and I explained it as best I could, even spinning around like a giant dreidel. We went to the grocery store and got latkes, even. With some nice cream cheese. If anyone had looked at us, your textbook goyim, and said "Happy Hanukkah" I would have taken it as a warm and friendly wish to celebrate the goodwill inherent in the holidays crucial to the great religions. So why can't I say Merry Chris -- no. Wrong question. Why can't you say it?"

Posted by DeLong at 12:37 PM | Comments (20)

Jon Chait on the Political Composition of Academia

At least among economists, I can assure everyone that Jon Chait is right. Ever since the days in the late 1970s that Irving Kristol decided that pushing supply-side economics was a way to keep the balanced-budget Republicans from fighting with the tax-cut Republicans, it has been agony to be both a serious economist and a line-toeing Republican. Hence the small numbers of Republicans in what is a very market-loving and intervention-skeptical discipline:

A few weeks ago, a pair of studies found that Democrats vastly outnumbered Republicans among professors at leading universities. Conservatives gleefully seized upon this to once again flagellate academia for its liberal bias. Am I the only person who fails to understand why conservatives see this finding as vindication? After all, these studies show that some of the best-educated, most-informed people in the country overwhelmingly reject the GOP. Why is this seen as an indictment of academia, rather than as an indictment of the Republican Party?

Conservatives have a ready answer. The only reason faculties lean so far to the left is that deans, administrators and entire university cultures systematically discriminate against conservatives. They don't, however, have much evidence to back this up. Mostly, they assume that the leftward tilt is prima facie evidence of anti-conservative discrimination. (Yet, when liberals hold up minority underrepresentation at some institutions as proof of discrimination, conservatives are justifiably skeptical.)...

But the rise of fashionable left-wing scholarship can be blamed for only a tiny part of the GOP's problem. The studies showing that academics prefer Democrats to Republicans also show that this preference holds in hard sciences as well as social sciences. Are we to believe that higher education has fallen prey to trendy multiculturalist engineering, or that physics departments everywhere suppress conservative quantum theorists?

The main causes of the partisan disparity on campus have little to do with anything so nefarious as discrimination. First, Republicans don't particularly want to be professors. To go into academia — a highly competitive field that does not offer great riches — you have to believe that living the life of the mind is more valuable than making a Wall Street salary. On most issues that offer a choice between having more money in your pocket and having something else — a cleaner environment, universal health insurance, etc. — conservatives tend to prefer the money and liberals tend to prefer the something else. It's not so surprising that the same thinking would extend to career choices.

Second, professors don't particularly want to be Republicans. In recent years, and especially under George W. Bush, Republicans have cultivated anti-intellectualism. Remember how Bush in 2000 ridiculed Al Gore for using all them big numbers?

That's not just a campaign ploy. It's how Republicans govern these days. Last summer, my colleague Frank Foer wrote a cover story in the New Republic detailing the way the Bush administration had disdained the advice of experts. And not liberal experts, either. These were Republican-appointed wonks whose know-how on topics such as global warming, the national debt and occupying Iraq were systematically ignored. Bush prefers to follow his gut.

In the world of academia, that's about the nastiest thing you can say about somebody. Bush's supporters consider it a compliment. "Republicans, from Reagan to Bush, admire leaders who are straight-talking men of faith. The Republican leader doesn't have to be book smart," wrote conservative New York Times columnist David Brooks a week before the election. "Democrats, on the other hand, are more apt to emphasize … being knowledgeable and thoughtful. They value leaders who see complexities, who possess the virtues of the well-educated."

It so happens that, in other columns, Brooks has blamed the dearth of conservative professors on ideological discrimination. In fact, the GOP is just being rejected by those who not only prefer their leaders to think complexly but are complex thinkers themselves. There's a problem with this picture, all right, but it doesn't lie with academia.

Posted by DeLong at 12:21 PM | Comments (35)

The Last Crusade

The pauperes commilitones Christi Templique Solomonici ride one last time:

Times Online - Britain: THE VATICAN is giving “serious consideration” to apologising for the persecution that led to the suppression of the Knights Templar. The suppression, which began on Friday , October 13, 1307, gave Friday the Thirteenth its superstitious legacy. A Templar Order in Britain that claims to be descended from the original Knights Templar has asked that the Pope should make the apology.... by 2007, the 700th anniversary of the start of the persecution, which culminated with the torture and burning at the stake of the Grand Master Jacques de Molay for heresy and the dissolution of the Order by apostolic decree in 1312.... In Rome, a Vatican spokesman said that the demand for an apology would be given “serious consideration”. However, Vatican insiders said that the Pope, 84, was under pressure from conservative cardinals to “stop saying sorry” for the errors of the past, after a series of papal apologies for the Crusades, the Inquisition, Christian anti-Semitism and the persecution of scientists and “heretics” such as Galileo.

Everybody should read Maurice Druon's seven-volume Le Rois Maudits series, if only for the great set-piece that is the execution of the last Templar Grand Master, Jacques de Molay, who cries from the stake as the flames lick around him:

Pope Clement! King Philippe! Keeper of the Seals Guillaume de Nogaret! I summmon you to the bar of heaven for judgment before the year is out!

Since all three did die within a year of Jacques de Molay's curse, some might say that an apology for their actions has already been made by a Higher Authority.

Posted by DeLong at 12:11 PM | Comments (6)

Brad Setser Tells Me What to Read

Brad Setser says I should read (a) Morgan Stanley, (b) the guy in the office immediately to the north, and (c) the about-to-be-rotated-off Buttonwood:

Brad Setser's Web Log: Plaza, or Louvre?: Two last notes. First, Morgan Stanley's year end spectacular on global rebalancing is worth reading, if only to see how Morgan Stanley's regional/ country economists reponded to Roach's demand that they lay out what their region/ country could do to support global rebalancing. The most common answer was not very much -- that lends support to Barry Eichengreen's pessimism in today's Financial Times. Second, I am going to miss this year's Buttonwood columnist in the Economist. Buttonwood's column highlighting the similarities between the US and a hedge fund was a classic. The new Buttonwood could start by highlighting the growing similarities between Asian central banks and macro hedge funds: afterall, Asian central banks are making big, and increasingly leveraged, macro bets on both the dollar and US interest rates ... Not exactly the macro bet I would want to be taking, but a macro bet all the same...

Unfortunately, the FT won't let me read Barry Eichengreen's column due to excessive server load...

Posted by DeLong at 11:52 AM | Comments (5)

Why Does Libertarianism Descend So Quickly Into Self-Parody?

Reason's Jacob Sollum writes:

Hit and Run: The point, I hasten to add, is not that today's "public health" paternalists are Nazis. I am not suggesting that everyone who hates smoking is just like Hitler. But there is an unmistakable totalitarian logic to the notion that the government has a responsibility to promote "public health" by preventing us from engaging in activities that might lead to disease or injury. The implication is that we all have a duty to the collective to be as healthy as we can be, an idea the Nazis embraced but one that Americans ought to find troubling.

And let's start by removing those annoying signs at the gas station telling Jacob to remove the gas can from the bed of the pickup truck and put it on the ground before filling it! There really is something totalitarian about the government's reminding people that they really don't want to be in the middle of their own little fuel-air explosion, isn't there?

Posted by DeLong at 11:39 AM | Comments (39)

Destructive Intellectual Theology and the Thought of Adam Smith

I go to Left2Right, and leave it cranky and annoyed. I am cranky and annoyed because Don Herzog lines up six quotations from Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations:

Left2Right: market fundamentalism: Okay, gang, quiz time. (Look, no moaning. You're reading a blog written by professors. What did you expect?) Identify the authors of these snippets. Using Google is cheating and will be savagely punished:

Vanity drives the struggle for wealth. The rich want "to possess those decisive marks of opulence which nobody can possess but themselves."

Market society is profoundly inegalitarian. "For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many."

There's nothing fair or evenhanded about the role of government in any of this. The government, "so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all."

The division of labor is profoundly dehumanizing. "The man whose whole life is spent in performing a few simple operations ... generally becomes as stupid and ignorant as it is possible for a human creature to become." Eventually he becomes "incapable of relishing or bearing a part in any rational conversation [or] of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life." Instead of abandoning the workers to their "drowsy stupidity," the state ought to supply public education.


"The cruellest of our revenue laws, I will venture to affirm, are mild and gentle, in comparison of some of those which the clamour of our merchants and manufacturers has extorted from the legislature, for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be written all in blood." The state should be wary in responding to these capitalists, because they "have generally an interest to deceive and even to oppress the publick."


Labor markets are fundamentally coercive. Wealthy employers can outlast their workers in the event of disputes. "It is not ... difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms."

Much as I believe and endorsed Herzog's (correct) point that Adam Smith was not a "market fundamentalist," I cannot approve of the way that four of these six quotes are ripped from context and glossed.

The first--which Herzog says shows that Smith thinks that "vanity drives the struggle for wealth" comes as a brief aside in Smith's Book I analysis of why precious metals and jewels have such a high market price. If you read through the Wealth of Nations, you find far more places, principally in Book II, in which Smith attributes wealth not to vanity but to... frugality. Relative frugality, it is true, but frugality. And frugality that acquires a holy and sacred character. Rather than being primarily the result of the indulgence of a vice (vanity), for Smith the accumulation of wealth is primarily the result of the practice of a virtue (frugality), and this accumulation of wealth--so long as it is not perverted and wasted--is a holy act of charity, an act of consecration, that boosts the incomes of the poor.

For example:

Whatever a person saves from his revenue he adds to his capital.... Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates; but whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.

Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whose labour adds to the value of the subject upon winch it is bestowed.... It puts into motion an additional quantity of industry, which gives an additional value.... What is annually saved, is as regularly consumed as what is annually spent, and nearly in the same time too : but it is consumed by a different set of people. That portion of his revenue which a rich man annually spends, is, in most cases, consumed by idle guests and menial servants, who leave nothing behind them in return for their consumption. That portion which he annually saves, as, for the sake of the profit, it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people: by labourers, manufacturers, and artificers....

By what a frugal man annually saves, he not only affords maintenance to an additional number of productive hands, for that of the ensuing year, but like the founder of a public work-house [note: these are not Dickensian workhouses: Smith wrote long before the abolition of outdoor relief] he establishes, as it were, a perpetual fund for the maintenance of an equal number in all times to come. The perpetual allotment and destination of this fund, indeed, is not always guarded by any positive law, by any trust-right or deed of mortmain. It is always guarded, however, by a very powerful principle, the plain and evident interest of every individual to whom any share of it shall ever belong....

The prodigal perverts it.... Like him who perverts the revenues of some pious foundation to profane purposes, he pays the wages of idleness with those funds which the frugality of his forefathers had, as itwere, consecrated to the maintenance of industry. By diminishing the funds destined for the employment of productive labour, he necessarily diminishes... the value of the annual produce of the land and labour of the whole country, the real wealth and revenue of its inhabitants. If the prodigality of some were not compensated by the frugality of others, the conduct of every prodigal, by feeding the idle with the bread of the industrious, would tend not only to beggar himself, but to impoverish his country...

Similarly, the second and third quotes, which Herzog glosses as Smith saying that "market society is profoundly inegalitarian.... There's nothing fair or evenhanded about the role of government in any of this," are again profoundly ripped from context. The discussion comes from Book V, Chapter 1, Part ii, begins by stating that the civil government's role in protecting the property of the rich is fair, or at least just, and that it is useful--for without a government that protects the property of the rich, society as a whole cannot accumulate wealth, cannot have a sophisticated division of labor, and so must be very poor:

The second duty of the sovereign, that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, requires two very different degrees of expense in the different periods of society.

Among nations of hunters, as there is scarce any property... there is seldom any... regular administration of justice.... [W]hen one man kills, wounds, beats, or defames another, though he to whom the injury is done suffers, he who does it receives no benefit. It is otherwise with the injuries to property.... Envy, malice, or resentment, are the only passions which can prompt one man to injure another.... But the greater part of men are not very frequently under the influence of those passions.... Men may live together in society with some tolerable degree of security, though there is no civil magistrate to protect them from the injustice of those passions.

But avarice and ambition in the rich, in the poor the hatred of labour and the love of present ease and enjoyment, are the passions which prompt to invade property ; passions much more steady in their operation, and much more universal in their influence. Wherever there is a great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy to invade his possessions. It is only under the shelter of the civil magistrate, that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate, continually held up to chastise it. The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary...

Smith is no leveller and no Marx: his observation that great wealth must bring great inequality with it is not a condemnation of market society but an observation, and--to Smith--the government that protects the property of the rich from the poor is engaged in preventing "injustice."

I could go on. Smith's advocacy of public education and fear of what the divison of labor does to the minds and capabilities of citizens is the only quote that Herzog has not ripped from context--Smith is enough of a civic humanist to want to see the free development of each citizen as a necessary part of a free society. But Herzog's gloss of Smith as believing that "labor markets are fundamentally coercive" cannot be sustained if one bothers to read four paragraphs on from the sentence that Herzog quotes:

There are certain circumstances, however, which sometimes give the labourers an advantage... raise their wages considerably above... the lowest which is consistent with common humanity. The demand for those who live by wages... naturally increases with the increase of national wealth.... It is... in those which are growing rich the fastest, that the wages of labour are highest. England is certainly, in the present times, a much richer country than any part of North America. The wages of labour, however, are much higher in North America than in any part of England. In the province of New York, common labourers earned in 1773, before the commencement of the late disturbances, three shillings and sixpence currency, equal to two shillings sterling, a-day ; ship-carpenters, ten shillings and sixpence currency, with a pint of rum, worth sixpence sterling, equal in all to six shillings and sixpence sterling; house-carpenters and bricklayers, eight shillings currency, equal to four shillings and sixpence sterling ; journeymen tailors, five shillings currency, equal to about two shillings and tenpence sterling. These prices are all above the London price... If the money price of labour, therefore, be higher than it is anywhere in the mother-country, its real price, the real command of the necessaries and conveniencies of life which it conveys to the labourer, must be higher in a still greater proportion....

Convince your readers that--as Herzog implies--Adam Smith believed that the accumulation of wealth was principally driven by vanity, that mammoth inequality was a defect of market society, that government is unfair in protecting the property of the rich, that the dehumanizing effects of the division of labor are powerful and need to be counteracted by the government, that labor markets are inherently coercive, and that the political influence of businessmen is a danger to the public, and you have convinced your readers of more things that are false than things that are true.

Herzog might respond that he is engaged not in intellectual history but in destructive theology: that the Wealth of Nations has become the sacred text of a world religion of market fundamentalism; that the evangelists of market fundamentalism neither know nor care about the structure of Adam Smith's thought; and that his enterprise of using out-of-context quotes from the sacred text to demolish the arguments of True Believers who similarly use out-of-context quotes from the sacred text for their own purposes is a worthy one.

To which I would respond: Yes. They may not care about what The Wealth of Nations that Smith wrote meant, or about what The Wealth of Nations that Smith's contemporaries read meant. But I do.

In The Wealth of Nations, at least, Smith believes that he has an extraordinarily penetrating and largely new insight: that the market economy--the "system of natural liberty," he calls it--as an immensely powerful and benevolent social mechanism for promoting general prosperity. This is, Smith believes, cause for a revolution in how we should think about Political Oeconomy. The power and benevolence of the market is not the only important consideration to take into account in thinking about questions of Political Oeconomy, but it is the most important consideration--as important, relatively speaking, as is the gravity of the sun in calculating the motions of the planets. Just as you cannot ignore the influence of Jupiter or even the Earth when calculating the orbit of Mars, so you cannot ignore considerations of civic humanism or employer collusion or monopoly in thinking about Political Oeconomy. But to not give pride of place to Smith's love of the "system of natural liberty" is to be false to Smith's thought. And the guy deserves more respect than that.

If you want to tell you readers what the core of the Wealth of Nations says, you turn to Book I, Chapter 1:

It is the great multiplication of the productions... in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods.... He supplies them abundantly with what they have occasion for, and they accommodate him asamply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society.

Observe the accommodation of the most common artificer or daylabourer in a civilized and thriving country... the number ofpeople, of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production.

How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country? How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world?

What a variety of labour, too, is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brickmaker, the bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them....

[W]ithout the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated. Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy ; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king...

And always recall that Smith is not, in our context, a left-winger or a critic of the market. He believes in the right to property, the right to incomes derived from property, the right of inheritance, that the rich who employ their capital productively are public benefactors who give more to the rest of society than they take out, that the market economy is a wonderful thing, that public order and protection of property are more important than democracy; that a good polity places power in the hands of a landed aristocracy; et cetera. That he believes the market economy is not perfect, and relies on the judicious statesman taking due account of other principles to improve it, does not keep him from being the biggest market economy-booster of all time.

Posted by DeLong at 11:18 AM | Comments (19)

December 19, 2004

Something Else I *Need* to Be Reading: Lowest Deep

Following my trackbacks... down, I guess... leads me to the excellent Adam O'Neill:

The Lowest Deep: There's a lot of confusion about how social security benefits are indexed to wages and to prices and how changing indexing will change benefits. Part of the confusion stems from the fact that when people talk about switching from wage indexing to price indexing they're often not talking about the same thing.

There are two different and important components of Social Security indexed to wage growth: 1) Your average earnings over the 35 highest earning years of your life (your AIME) and 2) Parameters of the benefit calculator called (rather scientifically) "bend points" that are used to extrapolate the benefit amount from your AIME. Social Security takes your earnings each year and multiplies them by wage growth between that year and today, finds the monthly average to get your AIME, and then compares your AIME to the formula based on the "bend points." You get 90% of your earnings back up the first "bend point" 35% between point 1 and point 2 and 15% after point 2 up to a maximum benefit.

The effects of changing from wage indexing to price indexing depend crucially on if you are changing one or the other...

Posted by DeLong at 10:19 PM | Comments (2)

Cognitive Dissonance

Academia als Beruf has a problem:

This Academic Life: Certification: It may be a failure of understanding on my part, but I cannot for the life of me wrap my brain around the concept of a terminal MA degree in international relations. This despite the fact that I teach in a program where the MA program is the center of gravity, both in terms of population and in terms of our intellectual life; we hire faculty to teach MA students, get speakers who are largely practitioners and government officials rather than scholars, and generally devote more resources to the MA program than we devote to either the undergrad or the PhD program. In fact, both of those other programs are often folded into the MA program in various ways: many of our undergrads are basically doing pre-MA work, with a not insignificant proportion of them deciding after three years to enter the five-year BA/MA program and this end up with an MA anyway, while about half of our PhD students in any given year are actually doing MA work -- policy analysis, advocacy, etc. -- instead of PhD work (academic research, negotiating theoretical debates within the discipline, and so on). So I find myself in the rather odd and sometimes uncomfortable position of teaching in a program that I do not really understand, and teaching students who I understand even less...

If it's any consolation, I find the idea of a terminal B.A. in international relations even harder to wrap my brain around than a terminal M.A. Design your own major, yes; interdisciplinary social science, yes; poli sci, yes; but IR as a major in itself?

Posted by DeLong at 05:15 PM | Comments (4)

Robert Gordon on Productivity

Why haven't I read this yet? It goes to the top of the pile immediately...

Matthew Yglesias: Projections: Kevin Drum emailed me a link to this in-depth discussion (PDF) of future economic growth projections. The stuff at the beginning about technical modeling is incredibly dense.... Later... [Gordon] gets into the core relevant areas -- projected productivity growth, projected falls in mortality for people over 65, and projected immigration and makes a compelling case that the SSA figures for all three topics are biased toward bad news for Social Security. He concludes on page 270 that futue GDP growth will likely be 3.28 percent per year versus SSA projections of 2.4 percent...

Robert Gordon (2003), "Exploding Productivity Growth: Context, Causes, and Implications," Brookings Papers on Economic Activity 2003:2.

Posted by DeLong at 01:26 PM | Comments (8)

Ask Dr. Social Security Projections

Matthew Yglesias has some questions for Dr. Social Security Projections. But first, the answers:

Here are Yglesias's questions:

Matthew Yglesias: Questions, Questions: I was talking to Mark Schmitt and Henry Farrell the other day about the blogosphere's potential as a mechanism for distributed policy analysis, and the SSA's economic assumptions page raises all sorts of questions that for reasons of either mathematical ignorance, ignorance about where to obtain the correct historical statistics, or simple time constraint that I can't work on. If you think you're someone who can do a little math and would be interested in helping to pierce through the web of suppositions and alleged crises, read on.

The first thing that would be nice to calculate if someone can figure out how to do it is the exact average productivity growth over the next 75 years that we need to make sure that the Trust Fund is never exhausted. We know that under the "low cost" projection, the fund stays solvent forever, but the low cost scenario is actually lower in cost than needed. Where's the tipping point? I can't begin to understand how one would do the requisite math.

The other set of questions I have in mind right now pertain to the point I made here about how they estimate producitivity growth. This is done by breaking up the past into a series of economic cycles measured peak-to-peak (with the most recent peak in 2000) calculating the average annual producivity growth for each cycle, and then averaging together the results for the last four cycles. That's obviously a pretty arbitrary method. I'd be interested in knowing what you get if you try some different methods. What happens if you use the last four business cycles measured trough to trough? Or what if you use the last five (or six or...) business cycles? What happens if, instead of using the double-averaging method, you just take average annual productivity 1966-2000? How sensitive, in other words, are the long-term projections of doom to minor changes in how the analysis is done? Has the SSA just happened to pick the most pessimistic possible way to do this? That'd be quite the coincidence.

Posted by DeLong at 11:43 AM | Comments (12)

Another Thing I Should Read More Often

Dean Baker's Economic Reporting Review.

"In the Timing of Option, Many, Um, Coincidences" Gretchen Morgenson: New York Times, December 5, 2004, Section 3, Page 1: This article reports on a new study showing that the issuing of stock options to top executives seems to precede the announcement of good news for corporate earnings. This indicates that companies are effectively giving unrecognized compensation by allowing top executives to buy stock (through purchasing options) in advance of market rises.

Posted by DeLong at 07:17 AM | Comments (7)

Recent Wage Trends

Jared Bernstein writes:

EPI: As of last month, the economic recovery that officially began in November 2001 was three years old... hourly earnings (adjusted for inflation) fell 1.3% over the past year and are now at about the same level now as they were when the recovery began.... [E]ven though the economy began to add some jobs last year, the rate of growth has been too slow and inconsistent to absorb the slack that remains in the job market.  Under such conditions, employers are less compelled to pass along gains in profits or productivity onto workers’ wages.... [T]he general trend over the past year has been negative, with the buying power of the hourly wage down $0.21 (or 1.3%) this year.  Thus, three years into an economic recovery that has seen robust profits and productivity growth, the hourly wage of most workers has not advanced at all...

I do find this almost impossible to believe: I can accept that--in spite of the moderate unemployment rate--the labor market is weak. But this weak? Weak enough to combine 3-4% productivity growth with no real wage growth year after year? It's tremendously disturbing.

Posted by DeLong at 07:10 AM | Comments (25)

Bonny Doon

Lynne Kiesling rediscovers the Bonny Doon winery:

Knowledge Problem: We rediscovered Bonny Doon this September, when we had a long weekend in the area. They are refreshing for lots of reasons: they don't take themselves too seriously, they make good wine that is good value for money, and they are embracing the screw top. Three for three!.... What an incredible wine for 13 bucks. It's a Sangiovese, but done in a new world, zinfandel style as befits its Monterey County origins.

Mark me down as not being enthusiastic about the screw-top.

Posted by DeLong at 07:04 AM | Comments (19)