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June 08, 2005

Jefferson Morley on the "Thin" Coverage of the Downing Street Memo

Everyone read the elite media's cover of the "Downing Street Memo"--i.e., Walter Pincus in that prominent spot on page A-18? In an online chat, Jonathan Morley muses about why elite media coverage has been so "thin":

World Opinion Roundup: Blair and The Downing Street Memo:

Jefferson Morley: I think some combination of cynicism, complacency and insulation has stifled the instincts of very good reporters. I also think there is also a failure of leadership at the senior editorial level. The issues raised by the Downing Street minutes are very serious. To pursue them is to invite confrontation. This means that 'beat' reporters cannot realistically pursue the story.I say all this way of explanation, not rationalization. There are several natural follow up stories to the Downing Street memo that we should be pursuing right now...

I think its because the Washington press corps is oriented around 'news' as generated by the White House and the executive branch. When it comes to Iraq's non-existent weapons of mass destruction, the White House and the Congress have settled on the following narrative: that the U.S. government had every reason to fear the nexus of Al Qaeda and Saddam Hussein, that the intelligence community agreed that Hussein had WMD and therefore war was not only justified but necessary.The Downing Street Memo invites the thought that maybe that was illusory, that in fact people in the Bush administration were having meetings dedicated to figuring how, as Richard Dearlove said, 'fix the facts and the intelligence.' I think its hard to journalist's born and bred in the ways of Washington to contemplate the implications...

I've given some reasons, focusing on the responsibility of the media.But a big part of the problem is that there are no voices in the majority party demanding accountability. Remember, no small part of the growth of the opposition to the Vietnam war were the very serious and informative hearings that Sen. William Fulbright had in 1965-66. It was here that the American people heard policymakers explain and defend their policies. There is no such venue for accountability today...

I understand the temptation of cynicism. News organizations in Washington have lost their bearings but I have to believe that they can recover them. This is a story about credibility and accountability. To me the Downing Street Memo is directly related to the military's recruiting problems. There have been a lot of good stories about parents trying to thwart military recruiters. Once proud to send their kids into post-September 11 action against the country's deadliest enemies, mothers and fathers now hesitate because they don't believe the government's statements on the war.The Downing Street Memo is one reason why...

The Senate Intelligence Committee did not interview Richard Dearlove and they didn't interview many of the U.S. policymakers with whom he was dealing, so we really don't know why he came away from consultation with the administration saying that 'the facts and the intelligence' would be fixed to meet the policy. If Dearlove was fantasizing about the intentions of U.S. policymakers, then the minutes of his meetings kept by the U.S. side should show that. On the other hand, such minutes might confer Dearlove's account. Those minutes, needless to say, are highly classified...

I have shared my view that the story can and should be pursued.If Post reporters don't ask Blair about the memo, they have abdicated responsibility in my view...

There is no dispute about the authenticity of the Downing Street memo.Reporters need to assess its accuracy. Who is Richard Dearlove? Is he a reliable reporter? Does he have an animus against Bush policy or policymakers? What was said in the meetings he attended that gave him the idea that the Americans were seeking to 'fix' the policy. questioning other people who attended the same meetings as Dearlove...

Talk about it with your friendsWrite a letter to your Congressman asking for his/her explanation. Write a letter to the editor of your local newspaper asking them to print the Downing Street Memo and comment on its significance...

I think Congress is unlikely to investigate until the story is better understood. I hope Blair is asked about it. My two-fold question would be, 'Mr. Prime Minister why do you think your intelligence chief came away from meetings with U.S. officials in July 2002 seeming to believe that they were seeking to 'fix' facts and intelligence to justify an invasion of Iraq? And in your experience was Mr. Dearlove a reliable reporter of U.S. government policy deliberations?'...

The reason that the Downing Street Memo story is so potentially big and politically difficult to address is because it radically challenges the Bush administration's account of the 'intelligence failure' on Iraqi WMD...

No one questions the authenticity of the memo and the administration has provided no accounts of its meetings with Richard Dearlove in July 2002 that dispute his account. If the administration supporters are correct in their claims that there is no story here, then the minutes of the U.S. meetings with Dearlove should confirm their viewpoint...

What's new is Richard Dearlove's statement that Bush policymakers were seeking to 'fix the facts and intelligence' to justify a U.S. attack on Iraq. No Bush administration official has ever said this. No intelligence official, American or British, has ever said this. The question is, Is Dearlove a reliable reporter?Asking this question is not 'trashing the war effort' and it is not undermining the troops. People who are risking and losing their lives on our behalf deserve the whole truth, not just the truth preferred by elected officials...

Well, Fox News is hostile to the story so I wouldn't expect Fox outlets to pursue but, no, I have not noticed a pattern of ownership shaping coverage. It is something worth keeping track of. The problem here is that the normal journalist impulses seem to be checked: Any editor knowledgeable in the ways of the national security bureaucracy can come with follow up stories on the Downing Street Memo that would have nothing but readers. It is time for us to start doing a couple of those stories and see where they lead us. If the President's partisans are correct that there is no story here, then good reporting should show that...

I did read that piece and it doesn't change my point of view that further reporting is warranted. Indeed Robbins raises a useful question that needs to be answered: Did Dearlove talk to the President? (Or Vice President Cheney) And he asks another useful question Maybe Rycroft or Dearlove could elaborate; by 'fixed around' did they mean that intelligence was being falsified or that intelligence and information were being gathered to support the policy? There is nothing wrong with the latter - it is the purpose of the intelligence community to provide the information decision-makers need, and the marshal their resources accordingly. So I read Robbins and I come away more convinced than ever that we need to do more reporting...

The questions raised by the Downing Street memo are very specific to run-up to the Iraq war in 2002. The memo doesn't concern the Clinton administration. It is true that Clinton pursued a policy of regime change against Iraq and used military force and it is clear that he and his advisers used U.S. intelligence sources in making that policy. But no senior intelligence official has said that Clinton and aides were fixing facts and intelligence to pursue their policy. If you have such information, that would be a good story. Please send such information to jeff.morley@wpni.com. All information will be held in strictest confidence...

My job is covering the foreign media, not the White House or the intelligence community. I am conveying to as many editors as possible my own belief that there are stories worth pursuing here. I don't talk about the stories that I am or am not pursuing...

The Downing Street memo was published in the Times of London on May 1. The Times did not identify its source (of course) but made clear that it came from forces critical of Blair's war policy in the senior level of the British government. The story received front page treatment on the Sunday before the British elections, so it go major coverage, even from The Time's competitors. The British government responded by saying there was 'nothing new' in the memo. The authenticity of the memo was not disputed...

We should be very concerned about the implications of the memo. If facts and intelligence were deliberately altered to magnify threats and justify war, then U.S. soldiers who risk their lives on our behalf were deceived. If this is a possibility, the press needs to investigate. A decent sense of patriotism requires it...

O'Neill was talking about pre-9/11 planning. Clark was talking about post 9-11 planning. The Downing Street minutes document the war planning in the summer of 2002. But there does seem to be a continuum there...

The Downing Street Memo has gotten very little attention in the Arab press. I think this is in part because of a wide consensus in the Arab world that, of course, the Bush administration acted in bad faith. I also think it is based on lack of knowledge about how the Western national security bureaucracies truly function...

Let's not romanticize the past. No one regarded Woodward and Bernstein or their sources as heroes when they were reporting on Watergate in 1972 and early 1973. They were out on a limb and much criticized by the White House. Its not a pleasant place to be and reporters are understandably reluctant to go there...

I think it does clarify it. It may be that one of the ways to 'fix' the intelligence, was to remove from positions of responsibility people who might put forward intelligence that impeded the war policy. We need to know more about Bolton's actions in 2002 to know if this is the case. I would like to know: Did Dearlove or his deputies meet with Bolton in 2002?...

What are they afraid of?I don't think Post reporters are afraid of this story.In general, I think reporters are afraid of being used by the President's opponents. I think they're afraid of a secret document that they don't have. I think they are afraid of losing access to high-level sources. Such fears are entirely justified. The reporter who doesn't think about them isn't doing the job right. Of course, acknowledging fears does not require succumbing to them...

I'm puzzled. Charles Deulfer and David Kay of the CIA investigated and concluded that Saddam Hussein did not have weapons of mass destruction in 2003. They were not trying to destroy this country. Nor am I. I love this country and love that free speech is one of its foundations. I am trying to say there's a real story worth perusing here. If Richard Dearlove was way off base in his reporting on the Bush administration's policies in mid 2002, then U.S. government and officials should be able to demonstrate that with more accurate recollections and documents. Your notion that there was consensus in the West on Iraq's WMD is not historically supported. The British officials who met with Blair said the case for war to remove Saddam's alleged WMD was 'thin.'...

Posted by DeLong at 06:19 PM

June 07, 2005

David Wessel on Equal Opportunity and the Meritocracy

He writes, relying on the work of the excellent Joe Ferrie among others:

WSJ.com - As Rich-Poor Gap Widens in the U.S., Class Mobility Stalls: The notion that the U.S is a special place where any child can grow up to be president, a meritocracy where smarts and ambition matter more than parenthood and class, dates to Benjamin Franklin. The 15th child of a candle-and-soap maker, Franklin started out as a penniless printer's apprentice and rose to wealth so great that he retired to a life of politics and diplomacy at age 42. The promise that a child born in poverty isn't trapped there remains a staple of America's self-portrait....

But the reality of mobility in America is more complicated... the gap between rich and poor has widened... the odds that a child born in poverty will climb to wealth -- or a rich child will fall into the middle class -- remain stuck.... Americans are no more or less likely to rise above, or fall below, their parents' economic class than they were 35 years ago. Although Americans still think of their land as a place of exceptional opportunity... the evidence suggests otherwise....

As recently as the late 1980s, economists argued that not much advantage passed from parent to child, perhaps as little as 20%. By that measure, a rich man's grandchild would have barely any edge over a poor man's grandchild.... [Today a] substantial body of research finds that at least 45% of parents' advantage in income is passed along to their children, and perhaps as much as 60%.... [E]conomists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity. Miles Corak... 'The U.S. and Britain appear to stand out as the least mobile societies among the rich countries studied,' he finds....

Even Karl Marx accepted the image of America as a land of boundless opportunity, citing this as an explanation for the lack of class consciousness in the U.S. 'The position of wage laborer,' he wrote in 1865, 'is for a very large part of the American people but a probational state, which they are sure to leave within a longer or shorter term.' Self-made industrialist Andrew Carnegie, writing in the New York Tribune in 1890, catalogued the 'captains of industry' who started as clerks and apprentices and were 'trained in that sternest but most efficient of all schools -- poverty.'

The historical record suggests this widely shared belief about 19th-century America was more than myth. 'You didn't need to be told. You lived it. And if you didn't, your neighbors did,' says Joseph Ferrie, an economic historian at Northwestern University, who has combed through the U.S. and British census records that give the occupations of thousands of native-born father-and-son pairs who lived between 1850 and 1920.... The biggest factor, Mr. Ferrie says, is that young Americans could do something most British couldn't: climb the economic ladder quickly by moving from farm towns to thriving metropolises. In 1850, for instance, James Roberts was a 14-year-old son of a day laborer living in the western New York hamlet of Catharine. Handwritten census records reveal that 30 years later, Mr. Roberts was a bookkeeper -- a much higher rung -- and living in New York City at 2257 Third Ave. with his wife and four children.

As education became more important in the 20th century -- first high school, later college -- leaping up the ladder began to require something that only better-off parents could afford: allowing their children to stay in school instead of working. 'Something quite fundamental changed in the U.S. economy in the years after 1910 and before the Great Depression,' says Prof. Ferrie....

Why aren't the escalators working better? Figuring out how parents pass along economic status, apart from the obvious but limited factor of financial bequests, is tough. But education appears to play an important role. In contrast to the 1970s, a college diploma is increasingly valuable in today's job market. The tendency of college grads to marry other college grads and send their children to better elementary and high schools and on to college gives their children a lasting edge....

In the U.S., race appears to be a significant reason that children's economic success resembles their parents'.... 17% of whites born to the bottom 10% of families ranked by income remained there as adults, but 42% of the blacks did....

Posted by DeLong at 10:19 PM

Is Inequality a Concommitant of Rapid Growth?

Greg Mankiw writes to the New York Times:

To the Editor:
Your chart about the percentage of income earned by the top 0.1 percent of taxpayers was fascinating, but "Richest Are Leaving Even the Rich Far Behind" failed to draw the obvious conclusions from it.
The data show that the rich take a rising share of income when the economy is booming, such as during the 1920's and 1990's. Their share declines when the economy hits hard times, such as during the Great Depression and the most recent recession.
The rich took their smallest slice of the economic pie during the 1970's - a period when productivity growth was low and unemployment and inflation were rising.
Here's the lesson: If policy makers' primary goal is to reduce income inequality, they should put the economy through the wringer. But if they want economic prosperity for all, they should avoid focusing on the politics of envy.
N. Gregory Mankiw
Cambridge, Mass., June 5, 2005
The writer, a professor of economics at Harvard University, was chairman of President Bush's Council of Economic Advisers, 2003-2005.

Well, let's see. Let's take the state-of-the-art data on income inequality from Emmanuel Saez and Thomas Piketty (2003), "Income Inequality in the United States, 1913-1998," Quarterly Journal of Economics 118:1 (February, pp. 1-39) (http://emlab.berkeley.edu/users/saez/pikettyqje.pdf), and plot it against the previous ten years' growth in GDP per capita from eh.net (http://eh.net/hmit/gdp/gdp_question.php):

The rich do take a rising share during the 1920s and 1990s, but growth income per capita was no faster in the 1990s as a whole than in the 1980s and 1970s--it was only the last half of the 1990s that saw rapid growth. And the fastest-growth decades of all are the 1960s--with a low share of income inequality--and the 1940s (driven by recovery from the Depression and the high-pressure economy of World War II).

The correlation between economic growth--defined as ten-year growth in GDP per capita--and income inequality that Greg Mankiw asserts exists? I certainly cannot see it in the data.

But maybe I'm wearing the wrong-colored glasses :-).

Posted by DeLong at 10:17 PM

An Historical Document: Long-Term Capital Management CEO John Meriwether Asks for Money

I believe this to be authentic. Meriwether was right in what he wrote on September 2, 1998: LTCM's portfolio and trading strategies promised very high returns. But, as Andrei Shleifer and Robert Vishny say in their "Limits to Arbitrage", the moments when your expected returns from "convergence" strategies are highest are the moments when you have just taken a huge bath--and few are willing to add to your stake when the past month's results suggest that you aren't in control.

Date: September 2, 1998
To: Investors in the Investment Vehicles of Long-Term Capital Portfolio, LP
From: John W. Meriwether
Subject: Impact on Net Asset Value of August Market Conditions

Dear Investor:

As you are all too aware, events surrounding the collapse in Russia caused large and dramatically increasing volatility in global markets throughout August, capped by a last-day decline in the Dow Jones Industrial Average of 5123 points. The resulting dislocations in markets and greatly increased uncertainty have driven investors to safer and more liquid assets. With increases in both risk and liquidity premia--investment funds widely, many Wall Street firms, and money-center banks have reported large trading losses with resulting sharp declines in their share prices. Investors everywhere have experienced large declines in their wealth.

Unfortunately, Long-Term Capital Portfolio ("Fund") has also experienced a sharp decline in net asset value. As you know, our formal procedure for releasing our official net asset value normally takes about ten days after month end. Following our usual practice to give you an early estimate of the Fund's performance, it is down 44 percent for the month of August, and 52 percent for the year to date. Losses of this magnitude are a shock to us as they surely are to you, especially in light of the historical volatility of the Fund. The losses arising from the event-driven major increase in volatility and the flight to liquidity were magnified by the time of year when markets were seasonally thin.

The losses in August occurred in a wide variety of strategies, distributed approximately 82 percent in relative-value trades and 18 percent in directional trades. Emerging markets across both trade categories accounted for 16 percent of the month's total losses in the Fund. Within emerging markes, holdings involving Russia accounted for less than 10 percent of total losses.

A distinguishing characteristic of the Fund's invetment philosophy has always been that its returns are generally expected not to exhibit systematic correlation with the returns on global bond, stock, and currency markets. August saw an accelerating increase in demand for liquidity in nearly every market around the world. Consequently, Government bonds have been the best performers, while small-cap common stocks and other relatively illiquid and risky instruments such as high-yield bonds have performed poorly. Many of the Fund's investment strategies involve providing liquidity to the market. Hence, our losses across strategies were correlated after the fact from a sharp increase in the liquidity premium.

The majority of the Fund's risks are in our core investment strategies; that is, convergence, relative-value, and conditional convergence trades in the U.S., Japan, and in the larger markets of Europe. Although we have hedged risk-exposure components that were not expected to add incremental value to performance, large divergences in August occurred in many of our key trading strategies that resulted in large losses. The use of leverage has accentuated these losses.

With the large and rapid fall in our capital, steps have been taken to reduce risks now, commensurate with our level of capital. We have raised the risk-return tradeoff requirements for positions. Risk and position reduction is occurring in some strategies that do not meet the new standard. This is a prudent step given the level of capital and uncertainties in the marketplace.

On the other hand, we see great opportunities in a number of our best strategies and these are being held by the Fund. As it happens, the best strategies are the ones we have worked on over many years. We will focus on these high expected return-to-risk positions and, thereby we can manage them more aggressively.

A cornerstone of our investment management philosophy is the availability and efficiency of financing to support the long horizon for many of our investment strategies. Our capital base is over $2.3 billion, and it is quite liquid. Our financing is in place, including secured and unsecured term debt and long-dated contractural arrangements. These term arrangements provide time to reduce our positions, if needed, as markets become more settled. We continue to work closely with counterparts.

Investors in the Fund proviDeLong-term equity capital that can only be withdrawn in multi-year stages at each year-end. This capital allows the Fund to secure stronger term financing and contractual agreements. It also provides greater flexibility to adjust positions, given changes in the level of its capital. The first date that any investors can withdraw capital is year-end 1998 and that potential withdrawal is less than 12 percent of the capital of the Fund. The principals of LTCM represent over a third of the capital of the Fund. To provide a solid foundation for the Fund and to capitalize on the materially richer investment opportunity set, LTCM is in the process of seeking to raise additional capital.

The poor performance of the Fund, year-to-date and especially in August, has been very disappointing to all of us. However, I would ask in assessing performance going forward, that you keep in mind that the Fund's relative-value strategies may require a relatively long convergence horizon. The expected horizon for convergence on our trades range from six months to two years, or even longer. Implementation of these strategies involves large positions that take significant time to accumulate and to reduce efficiently. The convergence return pattern of these core trades normally implies that the day-to-day volatility is much greater in proportion to time than the month-to-month or year-to-year volatility of their performance. This does not imply, however, that the reported short-term performance of the Fund is in any way an inaccurate or invalid measure of actual returns. The mark-to-market valuations on positions in the Fund reported to you are always derived from actual dealer and broker quotations.

The Fund returned approximately $2.7 billion of its capital at year-end 1997 when it appeared that the existing investment opportunities were not large and attractive enough to warrant its retention. Many of the trades had converged producing profits and were unwound. Over the past several months, however these trades that had converged once again diverged. The Fund added to its positions in anticipation of convergence, yet largely because of last month's market events, the trades diverged dramatically. As a result, the opportunity act in these trades at this time is believed to be among the best that LTCM has ever seen. But, as we have seen, good convergence trades can diverge further. In August, many of them diverged at a speed and to an extent that had not been seen before. LTCM thus believes that it is prudent and opportunistic to increase the level of the Fund's capital to take advantage of this unusually attractive environment.

With limited expectations, the Fund has been closed to new investment since July 1995. Many of you have asked to add to your investment in the Fund. Since iti s prudent to raise additonal capital, the Fund is offering you the opportunity to invest in the Fund on special terms relating to LTCM fees. If you have an interest in investing, please contact Richard Leahy at LTCM (203-552-5511) for additional information.

I cannot close without telling you about the remarkable performance of the LTCM employees during this particularly difficult month. Over the first four years of the Fund, we had the great good fortune of consistent return performances resulting in larger-than-expected returns with lower-than-expected volatility. We expected that sooner or later that this good fortune could not continue uninterrupted and that we as a firm would be tested. I did not anticipate, hoever, how severe the test would be. I am happy to report the magnificent performance of our employees operating as a team--administration, technology, operations. legal, and strategies--coordinated across the Greenwich, London, and Tokyo offices during this extreme period. August has been very painful for all of us, but I am confident that as a consequence LTCM will emerge a stronger and better firm.

Sincerely,

John W. Meriwether
CEO
Chairman of the Management Committee

Posted by DeLong at 10:15 PM

Another Welcome New Recruit to the Order of the Shrill

Joe Gandelman is a professional voice. His schtick on the internet is that of a professional moderate voice, someone who is reasonable, who avoids the excesses of partisanship, who takes a deep breath and realizes that there are two sides to every story and that we need to be... calm, reasonable, and thoughtful always.

He reads Peggy Noonan.

His brain explodes.

Now he is one of us! Embrace your destiny! Feel the power of Shrillness!

Welcome to the Ancient and Hermetic Order of the Shrill, Mr. Gandelman--those of us who have been driven into shrill unholy madness by the mendacity, stupidity, incompetence, recklessness, and idiocy of the Bush administration and its allies. Your personal copy of the Krugmanomicon (along with additional promotional material containing many valuable offers) is on its way. Do not read more than ten pages a day, under pain of falling even further into shrill unholy madness. Your rank is Palaeozoic Tentacled Swamp-Dweller, 2nd Class. When in your non-human form, remember not to devour any endangered amphibians. Pray vainly to the dead, uncaring stars at least once a month, preferably when the moon is in the second decant.

Clear the weekend of July 37 for the annual Miskatonic University summer conference, barbecue (don't ask), and wine-tasting. Driving directions to picturesque Arkham, Massachusetts will follow. A side-trip to Tanglewood for the concerts is recommended, but beware Shoggoths on the road near South Campus at moonrise. And remember: Yog-Sothoth is the Gatekeeper!

Joe Gandelman: Peggy Noonan's latest Wall Street Journal column reads as if it's a satire piece— but, no, folks it is 100 percent for real. It's truly hard to believe it is. Before we even discuss it we MUST say a few things:

This is the last column of her's we'll read. We already subscribe to Mad Magazine and although her writing is a bit funnier, we get more variety in Mad. And we suspect if the column below was submitted as a satire, Mad would reject it for being too off-the-wall. The Onion? Her column isn't quite cutting edge enough.

In all seriousness, her newest column echoes the bitter, angry, attack-mode words of former Nixon speechwriter Ben Stein and overall near-hysteria on the part of far right conservatives, Watergate-era officials and talk show hosts who are using the revelation of key source Deep Throat as a chance to rebattle Nixon's impeachment, argue it was all liberal plot, a media plot and suggest that the REAL villains weren't the people in the administration abusing the American people's trust by misusing the government and lying (the word is ACCURATE here because the tapes proved it) but those who dared to bring Nixon down. These GOPers convieniently forget the Republican PATRIOTS such as Barry Goldwater who let Nixon know it was time to go.

...Here are a few excerpts for the latest attack on the 91-year-old former second in command at the FBI who we now know was Deep Throat:

Was Mr. Felt a hero? No one wants to be hard on an ailing 91-year-old man. We're SURE, Ms. Noonan was shedding tears as she began to start her part of the parade of GOPers seeking the equivilent of revenge on Felt for his role in the Watergate stories. MORE:

Mr. Felt no doubt operated in some perceived jeopardy and judged himself brave.

No, Ms. Noonan: MILLIONS of Americans even today consider him brave. That includes many in the Republican party who, to judging by our emails, are aghast at the spectacle of fellow GOPers going after Felt and defending Nixon's Watergate behavior. It's GOP hacks — those who put loyaly to their party and to one man before the country's sacred democracy — who are out there using every argument possible to go after Felt and try to polish up the buried corpse of Nixon...

He had every right to disapprove of and wish to stop what he saw as new moves to politicize the FBI. But a hero would have come forward, resigned his position, declared his reasons, and exposed himself to public scrutiny. He would have taken the blows and the kudos. (Knowing both Nixon and the media, there would have been plenty of both.) Heroes pay the price. Mr. Felt simply leaked information gained from his position in government to damage those who were doing what he didn't want done. Then he retired with a government pension. This does not appear to have been heroism, and he appears to have known it. Thus, perhaps, the great silence.

A hero who was President... wouldn't have put the country through the agony that Nixon put the US through — until patriotic Democrats and REPUBLICANS had to march into his office to his office to tell him there was no hope due to the "smoking gun" tapes that had just come out.... Doesn't she and Stein realize what they're saying? Republican Gerald Ford REPLACED Nixon. So she and Stein are suggesting Ford was incompetent. Henry Kissinger was Secretary of State under Ford. She she's suggesting Kissinger was an incompetent. The fallacy of this argument is so stupifying it defies description.... The GOP has many thoughtful people, who cooly make their party's arguments with logic. Noonan, Stein and Buchanan, in particular, now deserve a room on Mars with Dennis Kucinich and Alan Keyes. They are entertaining but truly not to be taken seriously as thinkers or analyists anymore. They have become self-parodies.

But HERE is where Noonan has made yours truly decide pass on reading anything she writes in the future (of course, she may threaten to stop reading The Moderate Voice, but we will press on with life somehow):

Were there heroes of Watergate? Surely many unknown ones, those who did their best to be constructive and not destructive, those who didn't think it was all about their beautiful careers. I'll give you a candidate for great man of the era: Chuck Colson. Colson functioned in the Nixon White House as a genuinely bad man, went to prison and emerged a genuinely good man. He told the truth about himself in "Born Again," a book not fully appreciated as the great Washington classic it is, and has devoted his life to helping prisoners and their families. He paid the price, told the truth, blamed no one but himself, and turned his shame into something helpful. Children aren't dead because of him. There are children who are alive because of him.

So COLSON is the hero [of Watergate]. Note that Colson went to prison FIRST and was born again, wrote a book, etc. Colson didn't do anything in the White House to come forward with what he knew. Nor did he do anything to halt the unfolding scandal. Nor did he march into Nixon's office and tell him the proper thing was to resign.... [Colson] is a Republican, worked for Nixon and isn't a liberal. He is on Noonan's "team" while Felt was working against her "team."

Do THINKING conservatives realize how badly this makes people in their camp look?.... Hero? Maybe Felt wasn't perfect. But, no, Peggy and Ben, don't blame Felt for genocide, since Ford and Kissinger WERE THE ONES running foreign policy when Nixon resigned.... No matter what charges you throw at this 91-year-old man, he proved more of a patriot in the Watergate era than the people who were abusing government power, lying to Congress and in front of television cameras and who eventually had to go to jail because they were CONVICTED of crimes — or who didn't go to jail because they were pardoned...

Ph'nglui Mglw'nafh Gandelman R'lyeh Wagn'nagl Fhtagn!! Ganelman Fhtagn!! Gandelman Fhtagn!!

Posted by DeLong at 10:13 PM

More Alan Furst Blogging

More Alan Furst blogging, this time from Unqualified Offerings:

Unqualified Offerings: Henry Farrell got me into a to-do for novelist Alan Furst at GWU this evening. The food was fabulous and the author did not disappoint. Controversial GWU President Stephen Joel Trachtenberg did the introduction, and it was good - the kind of informed appreciation a writer can get, if lucky, from a very smart fan. See previous Furst-blogging on this site and current Furst-blogging from Brad DeLong. Furst read a few pages from The Foreign Correspondent, which will be out in time for Father's Day - 2006. I have to say, the excerpt completely hooked me...

Now excuse me while I turn green with envy.

Posted by DeLong at 10:11 PM

Trade

The SanityPrompt worries:

The SanityPrompt: The Myth of Comparative Advantage: But it rests on the idea that, like people, each country can do one thing best and should do that. But what if countries are not like people? Some may be if they are small and endowed with limited (or like the Mideast, abundant) natural resources. But what about the large nations? I say this because increasingly it is becoming clear that China, India, Singapore and other places are not going to compete with us just in the area of unskilled labor. As Friedman shows in a NYT Magazine piece, they will compete with us in almost everything. This means that countries, unlike people, might be able to do a lot of different things at once. In fact, as globalization increases apace, and technology shrinks distances further, it seems clear that some countries like India will be able to do everything we can do. Soon, there will be almost nothing that we do in this country that cannot be done in India for less.

The reason outsourcing has become such a hot political issue is that all those skilled workers have suddenly found out that being educated and skilled in the global economy is no protection if someone can do your job for $10 an hour while you require $80. The old saw that we all need to up our skills and training may offer us no help if there is no profession to which we can upgrade because all the jobs can be done in India for less. Pretty soon our exportable industries will be movies and capital. And who is to say that India can't make movies better and more cheaply for a mostly yellow, brown and black world? What professions that are productive will be left for Americans? Remember that most American jobs are in the service sector -- even academia, law and medicine.

A good friend works for one of those Indian outsourcing companies, a rival of Infosys, sent me the Friedman NYT Magazine piece It's a Flat World After All -- having seen it first hand. I sent him this reply:

It used to be that the free traders comforted us with the notion that unskilled labor ought to go overseas so we could focus on our comparative advantage -- skilled creative work. What this means for the unskilled is they essentially have to go into service jobs to service the skilled, usually at a lower standard of living -- if they themselves can't get skilled. What India shows us is that now all labor can shift over seas. That there really isn't all that much that a Westerner can do that a person living in a less developed country can't also do for a whole lot less money. Perhaps Marx was right after all. Soon, the only advantage we will have over other countries will be our financial capital and that will be concentrated in a few hands. America will become the place where all the money is (of course, before too long, if the current account deficit persists, we won't be - China will).

America will be where the owners are and everyone everywhere, even here, will work for the owners, the capitalists, at paltry but equalized wages set to the lowest common denominator. If that doesn't sound like a race to the bottom I don't know what is. If that doesn't make you protectionist I don't know what will. Countries are not likely to be able to specialize, but people are. And unless you choose to specialize in something that few elsewhere can do, your wages will be whatever the cheapest source of that same labor is likely to be. So what will Friedman and Co. tell those Americans who fear further economic integration? How will they compete if there is nothing that could even begin to make them competitive? Any honest macro-economist will tell you that the notion that free trade represents a pareto improvement in which all are made better off is a fiction.

One--accurate--path through the swamp is to distinguish between (i) productivity improvements abroad that make foreigners more efficient at producing what we import and (ii) productivity improvements abroad that make foreigners more efficient at producting what we export.

The first set of productivity improvements is a boon for us: the prices of goods we import fall as foreigners become more efficient at producing them, and our standards of living rise. The second set of productivity improvements is a bane for us: as our exports face more competition, the prices we can charge for our exports fall, and so our exports buy less in the way of imports, and our standards of living fall. How bad can this second force be? Well, in the limit--in which foreigners become so good at making stuff that there's nothing we make they want to buy at a price at which we are willing to sell--we are as badly off as if there were no international trade at all. The worst thing that engagement with the international economy can yield is the same as... the no-trade autarky outcome. What's at stake isn't our absolute impoverishment: it's the loss of some (or most?) of what had been our gains from international trade.

This, of course, assumes competent domestic macroeconomic policy. And this assumes that we do a good job of distributing the gains and losses from trade across our society. Incompetent macro policy and a government that wages class war can cause lots of damage. But in these cases the real problem isn't trade or globalization, is it?

Posted by DeLong at 10:08 PM

Why Oh Why Can't We Have a Better Press Corps? (The Janissaries in the Bush Class War Revolt! Edition)

The New York Times editorial page is angry. At long last they have figured out that they and theirs--people with household incomes between $100K and $200K--have been played for suckers by the Bushies. I have only one question: what took them so long?

They are really angry:

The Bush Economy - New York Times: In last Sunday's Times, David Cay Johnston reported that from 1980 to 2002, the latest year of available data, the share of total income earned by the top 0.1 percent of earners more than doubled.... [T]he unheralded effect of [Bush's] tax policy is its unequal impact on the modestly well to do. By 2015, those making between $80,000 and $400,000 will pay as much as 13.9 percentage points more of their income in federal taxes than those making more than $400,000.... The divide between rich and poor is unfortunately an old story, but income-class warfare among the top 20 percent of the scale is a newer phenomenon.... [M]any families making between $100,000 and $200,000 are not exactly on easy street. They don't face choices anywhere near as stark as those encountered further down the income ladder, but they face serious tradeoffs not experienced by the uppermost crust, particularly when hit with the triple whammy of college for the children, care for aging parents, and preparing for their own retirement.

There is something deeply wrong about a system that calls into question a comfortable retirement or a top-notch education for people who have broken into the top 20 percent of income earners. It starts to seem politically explosive when you consider that in a decade, those making between $100,000 and $200,000 will pay about five to nine percentage points more of their income in federal taxes than those making more than $1 million, assuming the Bush tax cuts are made permanent.

This is not about giving wealthy people more money to invest back into the economy. At this level, it's really about giving more money to those who have nothing to do with it except amass enormous estates for their heirs. Fixing the problem will require members of Congress to summon the courage to say no to a president who wants more for the richest of the rich at the expense of everyone else. We're not holding our breath.

Hey! New York Times! Average--not median, average--gross weekly earnings of nonsupervisory workers are $540--that's $27,000 a year. Average--not median, average--gross weekly earnings of nonsupervisory workers in retail trade are $380 a week--that's $19,000 a year. Many of them face the same problems of trying to get their children the education and skills they need to have opportunities, of caring for aging parents, and of preparing for their own retirement as do those making $200K a year who are "not exactly on easy street."

That "the divide between rich and poor is unfortunately an old story" does not mean that the focus of our attention should be on how to redistribute income and wealth from the top 0.1% to the top 20%.

Posted by DeLong at 10:07 PM

Weaknesses of Collaborative Distributed Filtering, Espionage Novels, and the Trenton Train Station

Paul Krugman emails, apropos of Alan Furst:

I discovered Alan Furst at the Trenton train station, three or four years ago. And I think there's a lesson in that.
Background: Trenton station is a miserable, grimy little place that happens to be my gateway to the world, because many Amtrak trains stop there but not at Princeton Junction. The newsstand is tiny, selling at most 50 different books at any given time. But whoever decides on the book selection has eccentric, pretty good taste. And so there, circa 2002, was Dark Star, which wasn't even a new book.
The thing is that I would never have looked for Furst on my own - in fact, I wasn't even into spy thrillers at that point. And I would never ever have found him on Amazon, which only confirms your tastes, without broadening them.
Two lessons: randomize now and then, look for serendipity. And when in Trenton, do check out the train station newsstand. You'll probably be pleasantly surprised.

There's probably a connection here to sociologist Mark Granovetter's work on the strength of weak ties: Granovetter believes that you're unlikely to find out about a possible job from someone you know well--because, by and large, you know what they know and they know what you know. You're more likely to find out something useful from somebody who you know only casually, because the overlap in your respective domains of knowledge is relatively small.

Posted by DeLong at 10:05 PM

Bolton and Wolfowitz (Why Oh Why Are We Ruled by These Fools? Department)

More thuds and screams from inside the Topkapi Palace:

Here's Thomas Fingar of the State Department sticking his knife into the back of U.N. Ambassador-nominee John Bolton before Senate Foreign Relations:

PAUL FOLDI: What did Mr. Bolton say to you?

MR. FINGAR: That he was the President's appointee, that he had every right to say what he believed, that he wasn't going to be told what he could say by a mid-level INR munchkin analyst.

PAUL FOLDI: Did he actually use those terms?

MR. FINGAR: That's my recollection. He said that, one way or another, several times. Said that he wanted Westermann taken off his accounts. I said, "He's our CW/BW specialist, this is what he does." He expressed again, as I remember it, that he was the President's appointee, he could say what he wanted, I said, "John, I'm coming into this cold, let me go downstairs and find some facts." I said, "I don't even know what you're talking about in terms of a document." And I left. After I looked into it, saw the e-mail that accompanied it, I sent an e-mailed up, which re-versed two points that I made in his presence, again, which was that we had two fundamental obligations in handling material -- intelligence-derived materials to use in speeches -- one was protection of sources and methods to make sure things were properly cleared; and the other was to make sure that policymakers were aware when they were going to say something that would not be supported by the Intelligence Community. That if asked, "Do you agree with this?" that the Intelligence Community would say yes, or no. That we owed it to him to flag that, and I thought that is what Christian was doing.

PAUL FOLDI: What did you tell Mr. Westermann? Did you get a chance?

MR. FINGAR: I didn't see him until the next day, as I remember, and I told him what had transpired in the conversation. I told him that he, Mr. Bolton, wanted him taken off of those accounts. I said we had no intention of doing that, no to worry about it, he was our CW/BW analyst...

FRANK JANNUZI: Was Mr. Westermann ever disciplined, or punished for his conduct in the clearance of this language?

MR. FINGAR: No....

FRANK JANNUZI: Subsequent to this incident, it's our understanding Mr. Westermann was instructed -- perhaps by his office director, perhaps by someone else -- to essentially try to minimize his personal contact with Mr. Bolton, is that correct?

MR. FINGAR: Yes, it was in the context of -- he didn't have a particular responsibility to go to that office, to be the one carrying materials up there -- and it was sort of, why walk into a buzz saw?... I knew I was dealing with somebody who was very upset, I was trying to get the incident closed, which I didn't regard as a big deal. I knew John was mad. I assumed, when people are mad, they get over it. So, did I lean over in the direction of "Sure, we'll take responsibility"? He thanked me for it, at least as far as I'm concerned, in my dealings with Bolton, that closed it....

Here's Thomas Fingar being chosen by new intelligence czar John Negroponte as a principal deputy--as the guy who controls what Bush will see and what he will not see each morning:

Thomas Pincus: Thomas Fingar, head of State's Bureau of Intelligence and Research, will become Negroponte's deputy director for analysis and chairman of the National Intelligence Council. The intelligence reorganization legislation gives Fingar responsibility and authority for setting standards and coordinating objectives for U.S. intelligence efforts, although it leaves the analysts at their respective agencies with the goal of allowing them to present independent views. Fingar will also have what a senior intelligence official involved in the process described to reporters Friday as "governance" over the President's Daily Brief, the summary of most important items given to Bush daily....

Negroponte does not seem unhappy at Fingar's use of colorful metaphors--"walking into a buzz saw"--or at failure to soften his recollection of what dealing with Bolton was like.

One correspondent writes that the Bush administration's treatment of Bolton and Wolfowitz is best thought of as like:

...that scene in "Animal House" where the dis-favored pledges are sent off to sit with the foreign-exchange students. The Bushies are mad at Bolton and Wolfowitz: they said that Iraq would be easy, and it isn't. But the Bushies don't want to fire them--one Richard Clarke and one Paul O'Neill are enough. So the Bushies send them to the U.N. and the World Bank: getting them out of the White House decision-making loop by sending them to sit with the foreign-exchange students. These moves are sold as promotions--or at least as lateral moves--but the real upshot is that Bolton will be interminably lectured by Third World ambassadors, that Wolfowitz will rack up the miles visiting the world's un-garden spots, and that both will be out of all important loops.

The problem with this, of course, is that the Bush administration is wrong to view the World Bank and the U.N. as unimportant backwaters where nogoodniks can be safely parked.

The jobs of World Bank President and U.N. Ambassador are key to the U.S.'s foreign policy effort: they are how we deploy a great deal of our soft power.

Posted by DeLong at 10:03 PM

June 06, 2005

Alan Greenspan Is Worried

Edmund Andrews reports:

Greenspan Says Low Rates Tempt Investors to Risk More - New York Times: Alan Greenspan, chairman of the Federal Reserve, warned Monday night that the baffling persistence of low long-term interest rates was driving investors to hunt for higher returns by plowing money into hedge funds that will not be able to deliver on their promises. Speaking to a conference of central bankers in Beijing, Mr. Greenspan reiterated that he is perplexed that long-term Treasury bond rates are lower today than they were a year ago, when the Federal Reserve began systematically raising short-term rates. The persistence of cheap money is 'clearly without recent precedent' and defies simple explanation, Mr. Greenspan said.
Mr. Greenspan warned that low rates are driving investors to seek higher returns by taking on higher financial risks - particularly in hedge funds and private equity funds that hold out the prospect of higher profits through sophisticated trading strategies. He took particular aim at packages of debt known as collateralized debt obligations, which have been one of the fastest- growing businesses on Wall Street. Mr. Greenspan raised worries about the proliferation of hedge funds based on arcane but not fully tested trading strategies. 'I have no doubt that many of the new hedge fund entrepreneurs are embracing a strategy of pinpointing temporary market inefficiencies, the exploitation of which is expected to yield above-average rates of return,' Mr. Greenspan said. But, he cautioned, 'most of the low-hanging fruit of readily available profits' has already been picked.
Normally, long-term rates climb when the Fed raises short-term rates. But rates on 10-year Treasury bonds, which directly affect rates for mortgages and corporate bonds, have declined nearly one percentage point, to less than 4 percent, since the Fed began raising rates in June 2004.

Posted by DeLong at 09:26 PM

Yet Another Big Mac index

From Rising Hegemon:

Rising Hegemon: How long does it take to buy a Big Mac?: "How long does it take to buy a Big Mac? The folks at the Asian Labour News have created a Big Mac index, which asks the eternal question: How long does it take employees at McDonalds restaurants in the Asia-Pacific region to earn enough money to purchase a Big Mac at their own place of work?

The scale is quite illuminating: Australia %u201417 minutes; New Zealand %u2014 28 minutes; Hong Kong %u2014 41 minutes; Malaysia %u2014 1 hour, 26 minutes; South Korea %u2014 1 hour, 29 minutes; Philippines %u2014 2 hours, 19 minutes; Thailand %u2014 2 hours, 45 minutes; China %u2014 3 hours, 58 minutes; Sri Lanka %u2014 5 hours, 53 minutes; India %u2014 8 hours, 34 minutes; and the winner is Pakistan, where it takes a McDonalds worker 14 hours, 14 minutes to buy a lousy burger...

Posted by DeLong at 09:25 PM

External Storage Price Trends

From Paul Kedrosky:

Infectious Greed: Better to Be a Buyer than a Seller of External Storage: "Neat duelling stats in the booming external storage market (from IDC): Year-over-year revenue growth: 6.7% (to $3.8-billion). Year-over-year capacity growth: 58.6% (to 409 petabytes in Q1).

That's a 33% price decline in the price of storage in one year. In the race between processor power, bandwidth, and storage, storage is winning.

Posted by DeLong at 09:23 PM

BizarroWorld

It's official. BushLand is BizarroWorld. Eric Umansky writes:

Eric Umansky: Payrolls in Iraq: The LAT reports that the Iraqi government is considering doing serious layoffs. I have no doubt the government is full is slacker workers and plenty of others who don't show up. Still, in the midst of a growing insurgency, creating thousands of pissed-off unemployed men seems like Bad Idea Jeans. But here's what really caught my eye is this bit buried deep down:
On Sunday, members of Iraq's elite police commando units, heralded by U.S. and Iraqi officials as a key to stemming the insurgency, staged a protest outside Baghdad's heavily fortified Green Zone, saying they hadn't been paid in four months, witnesses said.

WTF? Now, there are all sorts of commando units out there. But anybody heard reports of this before? Swopa? Praktike?

Posted by DeLong at 09:17 PM

A Reasoned Reaction to Apple's CPU Choice

The Crazy Apple Rumors website:

Crazy Apple Rumors Site: Apple Switches to Intel: AAAAAAAAAAAAAGH!!! OH MY GOD! AAAAAAAAAAA!!! NOOOOOOO!!! WHAT WILL BECOME OF US?!!? WHAT WILL BECOME OF US ALL!!! WE ARE DOOMED!!! ALL OF US DOOMED!!! THERE IS NO GOD! THERE IS NO GOD! AHHH-WAHAHAHAAAAAAA!!! NOOOOOOOOOOOOOOOOOO!!!

We'll have more on this developing story later in the day.

Posted by DeLong at 09:14 PM

I Guess Nino Scalia Really Wants to Be Chief Justice

I must confess that I am surprised at how shallow Scalia's commitment to federalism is when push comes to shove:

Justices Say U.S. May Prohibit the Use of Medical Marijuana: Justice Scalia, by contrast, explained himself at length. He did not sign the majority opinion, instead offering a separate concurring opinion that was no less definite in its support for federal authority. 'Where necessary to make a regulation of interstate commerce effective, Congress may regulate even those intrastate activities that do not themselves substantially affect interstate commerce,' Justice Scalia said. He cited opinions from the early 1940's, after the Supreme Court rallied to support the New Deal and gave Congress a degree of power over national affairs that was not seriously challenged until the Rehnquist Court began invalidating federal laws in the mid-1990's.... As a prime mover of the court's federalism revolution, Justice O'Connor did not hide her dismay. The court's opinion provided a roadmap to 'removing meaningful limits on the Commerce Clause' and 'threatens to sweep all of productive human activity into federal regulatory reach,' she said....
The sharpest dispute was over the meaning of two of the core decisions of the Rehnquist Court's approach to federalism. Both struck down federal laws, the Gun-Free School Zones Act and the Violence Against Women Act, on the ground that they exceeded Congressional authority, and both were decided by five-member majorities that included Justices Kennedy and Scalia. While Justice O'Connor declared that the marijuana decision was 'irreconcilable' with the earlier ones, Justice Scalia disagreed. Neither of the earlier decisions 'involved the power of Congress to exert control over intrastate activities in connection with a more comprehensive scheme of regulation' comparable to federal drug laws, he said...

Posted by DeLong at 09:12 PM

Why Oh Why Are We Ruled by These Liars? (Bush Tax Cuts Edition)

David Corn writes:

David Corn: I know that only a few of us in the media still bother to worry about Bush's veracity and his tilted-to-the-rich tax cuts. But I was reminded yesterday of how easily Bush has gotten away with lying about his handouts to the wealthy. The New York Times, as part of its ongoing series on class in America, published a large chart on the distribution of all of Bush's tax cuts (including his current proposal to extend his tax cuts indefinitely). The numbers are amazing. The top .1 percent of taxpayers--145,000 taxpayers--receive 15.2 percent of all these tax cuts. (These folks make over $1.6 million a year). The top 1 percent--1.4 million taxpayers who bag over $383,000 a year--pocket 30.6 percent of the trillions of dollars in so-called 'tax relief.' (Is it 'relief' when you give millionaires $100,000 or more each year in tax cuts?) Looking at the other end of the ladder, we see that the bottom 60 percent--those 87 million people making less than $44,000 a year collect 15.1 percent of Bush's tax cuts, averaging a little over $300 a year in annual tax savings.
Three hundreds buck--a dollar a day--may mean something to these people. (Hey, that covers the cost of The New York Times!) But such a princely gain comes at a tremendous cost--which includes nearly $500 a day for the wealthiest.
The Times chart made me nostalgic. I remembered the days of the 2000 campaign, when Bush claimed, 'The vast majority of my tax cuts go to the bottom end of the spectrum.' It wasn't true then. And it's not true now. Does anyone care that Bush misrepresented his plan and continues to downplay his relieve-the-rich actions? Not much, it seems. I'm willing to bet my tax 'relief' that the Runaway Bride has gotten far more coverage on TV news than Bush's tax policy over the past year...

Posted by DeLong at 09:11 PM

When Household Utensils Attack!

From Crooked Timber:

: Do not, under any circumstances, heat an empty Teflon-covered nonstick pan on the range for more than two or three minutes. At temperatures above 500 degrees (beyond the range of normal home cooking), Teflon will release fumes that cause flu-like symptoms in humans and can be fatal to birds. (No birds were harmed in the preparation of this post. One human, however, feels like he%u2019s been chewed up and spit out of something big.)

Posted by DeLong at 09:10 PM

Apple Migrates to Intel

Interesting news of the day:

Economist.com: On Monday June 6th, Mr Jobs was set to use the platform of Apple%u2019s annual developers conference to announce that the firm will switch from the chips supplied by IBM and Motorola for over a decade to products from Intel, the world%u2019s biggest chipmaker.... Apple blamed it's current chip suppliers for slow delivery last year, which held up production of some lines. And chip development has not lived up to promises Apple made for improvements in processing speed. Intel%u2019s chips are faster and run cooler than Apple%u2019s current chips. And cooler chips are important for the production of better laptops, a market growing considerably faster than that for desktop PCs. But there is much speculation that Intel can simply supply chips more cheaply than IBM and Motorola, and that Apple can use the saving to cut the retail price of its computers....
[I]n mid-April the firm announced another blistering set of quarterly results: revenues up by 70% compared with the same period the year before, and net profits 530% higher, at $290m; Apple shipped over 1m computers (a 43% rise) and a staggering 5.3m iPods (over six times more than the year before). The iPod has done wonders for Apple, providing not only profits but a positive brand image to a swathe of new young consumers... it has amassed some two-thirds of the world market for hand-held music devices.... iTunes, Apple%u2019s online music store, leads the field....

Posted by DeLong at 09:01 PM

Life in the Information Age

There are all these people I know... who don't have weblogs... and then when I run into or call them, the usual thing is to find out how each of us is doing by trading stories... but I don't have any stories to trade--they've already read them on my weblog.

It's awkward. I propose a new social custom: if you don't have a weblog, you have to pretend that you haven't been reading the weblog of the person you are talking to until you have listened patiently to at least their three best relatively-new stories.

Posted by DeLong at 09:00 PM

The Super-Rich

A pretty good article by David Cay Johnston, who writes:

Richest Are Leaving Even the Rich Far Behind: The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.... Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income... average income for the top 0.1 percent was $3 million in 2002... two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980.... The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002....

The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent. The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America.... Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent... more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers....

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them.... To determine those differences, The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projections and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable....

The hyper-rich have emerged in the last three decades as the biggest winners in a remarkable transformation of the American economy....

While most economists recognize that the richest are pulling away, they disagree on what this means. Those who contend that the extraordinary accumulation of wealth is a good thing say that while the rich are indeed getting richer, so are most people who work hard and save. They say that the tax cuts encourage the investment and the innovation that will make everyone better off. "In this income data I see a snapshot of a very innovative society," said Tim Kane, an economist at the Heritage Foundation. "Lower taxes and lower marginal tax rates are leading to more growth. There's an explosion of wealth. We are so wealthy in a world that is profoundly poor."

But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators. Speaking of the increasing concentration of incomes, Alan Greenspan, the Federal Reserve chairman, warned in Congressional testimony a year ago: "For the democratic society, that is not a very desirable thing to allow it to happen."

Others say most Americans have no problem with this trend. The central question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who served in the Reagan and George H. W. Bush administrations. "As long as people think they have a chance of getting to the top, they just don't care how rich the rich are." But in fact, economic mobility - moving from one income group to another over a lifetime - has actually stopped rising in the United States, researchers say. Some recent studies suggest it has even declined over the last generation.

Posted by DeLong at 08:56 PM

Deep Pockets

Brad Setser writes:

Brad Setser's Web Log: So will the proliferation of hedge funds end with a bang or a whimper: To take an example from LTCM: if you are betting on the convergence of the price of a 29 and 30 year Treasury bond -- shorting say the on-the-run 30 year and going long the off-the-run 29 year -- you are hedged against rising interest rates, but not against a widening of the differential between the price of a 29 and 30 year Treasury bond...

But--if you are well enough capitalized--a widening differential between 29 and 30 year Treasury bonds is not a risk but an opportunity. You're long the 29-year and short the 30-year because the 29-year was underpriced. If the price of the 29-year drops relative to the price of the 30-year, it's even more underpriced--and the appropriate response is to double up your position. As long as you are well enough capitalized to be able to hold them both to maturity if necessary--as long as you can wait as long as it takes for their prices to converge--you're still fine.

I have been told that the people who took over LTCM's positions in the fall of 1998 did very well with them indeed.

Posted by DeLong at 08:48 PM

Nixonites Lecture Us on Ethics

Perhaps the most bizarre thing I've seen in months: G. Gordon Liddy and Charles Colson lecturing us on ethics. Martin Schram reports:

Newsday.com: Nixon's henchmen lecture us on ethics: History's latest con happened right before our eyes Tuesday night.... [T]hose faces that just popped up in the looking-glass/screen were all the president's men, once in power and then in disgrace, more than three decades ago. Richard Nixon's ex-convicts - who did jail time for their crimes against democracy and then profited from their crimes by writing books and becoming celebrities - had returned to work one more con. Nixon's former senior White House assistant, Charles Colson, and the Nixon team's burglar-in-chief, G. Gordon Liddy, worked the cable news circuit, expressing moral indignation that the FBI's former deputy director, W. Mark Felt, was Deep Throat. He was the source who had blown their cover by feeding facts to the Washington Post's Bob Woodward - truths that helped land many in jail and drove Nixon from office.
'I was shocked because I worked with him closely,' Colson said on MSNBC. 'And you would think the deputy director of the Federal Bureau of Investigation, you could talk to with the same confidence you could talk to a priest.' Then on CNN: 'I was shocked, because ... I talked to him often and trusted him with very sensitive materials. So did the president. To think that he was out going around in back alleys at night looking for flowerpots, passing information to someone, it's . . . not the image of the professional FBI that you would expect.'
Ah, image. Conjure Colson, with Nixon and others in the Oval Office, as Nixon orders a burglary at the Brookings Institution, a Washington think tank. Meanwhile on CNN, Liddy tells Paula Zahn: 'I view him [Felt] as someone who violated the ethics of the law enforcement profession.' Then, back on MSNBC, Liddy brags that not only had he plotted the burglary of the Democratic Party's Watergate offices but, 'I planned the Brookings break-in.' It wasn't done, Liddy said - 'too expensive.'...
Lost in the wailings of Nixon's men is the one thing Americans need to know to understand Felt's dilemma. Felt couldn't go to his boss... an unqualified Nixon loyalist - L.Patrick Gray III, who proved his worth by destroying documents and slipping others to officials running the White House cover-up. Felt couldn't go to the attorney general... a Nixon loyalist not trusted by many FBI hands... the Senate Watergate Committee didn't exist yet. Felt certainly couldn't go to Nixon.... So he helped his young reporter friend, Bob Woodward.
And, three decades later, these Nixon criminals popped up on our looking-glass/screens, doing their shtick. They wailed like pro wrestlers pounding the mat in feigned pain....

Posted by DeLong at 08:47 PM

Memo to Self

Rajnish Mehra, author of:

Rajnish Mehra and Edward Prescott (1985), “The Equity Premium: A Puzzle,” Journal of Monetary Economics 15, pp. 145-61.

Rajnish Mehra (2003), “The Equity Premium: Why Is It a Puzzle?” (Cambridge: NBER Working Paper 9512, February).

and of much other brilliant work as well, spells his first name with an "i" and not an "ee".

You'd think that an ex-Latin scholar like me would be able to consistently grok this...

Posted by DeLong at 08:45 PM

David Brooks Takes Aim at Today's Young Republicans

He writes, scornfully (I don't think he has the juice to attain snarkiness):

Life Lessons From Watergate - New York Times: "Entering the world of the Higher Shamelessness, they begin networking like mad, cultivating the fine art of false modesty and calculated friendships. The most nakedly ambitious - the blogging Junior Lippmanns - rarely win in the long run, but that doesn't mean you can't mass e-mail your essays for obscure online sites with little 'Thought you might be interested' notes.
They create informal mutual promotion societies, weighing who will be the crucial members of their cohort, engaging in the dangerous game of lateral kissing up, hunting for the spouse who will look handsomely supportive during some future confirmation hearing, nurturing a dislike for the person who will be the chief rival when the New Yorker editing job opens up in 2027.
And of course they are always mentor-hunting, looking for that wise old Moses who will lead them through the wilderness and end their uncertainty. They discover that it's socially acceptable to flatter your bosses by day so long as you are blasphemously derisive about them while drinking with your buddies at night.
This is now a normal stage of life. And if Bob Woodward could get through something like it, perhaps they will too...

Perhaps somebody who knows more about Young Republicans than I do can tell me who his principal--but, alas, unnamed--targets really are?

Posted by DeLong at 08:43 PM

Hilzoy on Watergate

She writes:

Obsidian Wings: Watergate: For The Record: I haven't spent a lot of time talking about Watergate recently, but I have encountered a few people who have tried to argue that Nixon didn't do anything that LBJ and Kennedy hadn't done before him. Some, I think, were not old enough at the time to recall, and have just heard, vaguely, that he did some bad stuff and concluded: well, most politicians do bad stuff; so what? Some, like Ben Stein, ought to know better but don't:

"Can anyone even remember now what Nixon did that was so terrible? He ended the war in Vietnam, brought home the POW's, ended the war in the Mideast, opened relations with China, started the first nuclear weapons reduction treaty, saved Eretz Israel's life, started the Environmental Protection Administration. Does anyone remember what he did that was bad?

Oh, now I remember. He lied. He was a politician who lied. How remarkable."

This sort of historical revisionism bothers me, so, for the benefit of anyone here who was either not around at the time or not old enough to recall, a few quotes to indicate why, exactly, what Nixon did was neither normal nor tolerable. First, William F. Buckley:

"On January 5, 1973, Howard Hunt, an old friend and my sometime boss in the CIA, came to see me, accompanied by one of his daughters (my goddaughter, as it happened). He told me the appalling, inside story of Watergate, including the riveting news that one of the plumbers was ready and disposed to kill Jack Anderson, the journalist-commentator, if word came down to proceed to that lurid extreme."

Riveting? Not the word I would have chosen. Ask yourself how Hunt would have known that someone was willing to kill Jack Anderson had it not been seriously discussed.

Next, John Dean:

"Even by the standards of the Nixon White House, the plan to blow up Washington’s pre-eminent think tank seemed crazy, presidential counselor John W. Dean III recalled here Monday.

But there was White House aide John Ehrlichman on the phone one day in 1971, telling Dean that “Chuck Colson wants me to firebomb the Brookings (Institution).” Describing the incident Monday to several hundred presidential history junkies at the John F. Kennedy Library and Museum, Dean said he was dumbfounded.

“I said, ‘John, this is absolute insanity,’ ” he remembered. “People could die. This is absurd.” (...)

It seemed incredible, but now that he has listened to earlier tapes, Dean said he has heard Nixon “literally pounding on his desk, saying ‘I want that break-in at the Brookings (Institution).’ " "

From the Nixon tapes:

"Nixon: Did they get the Brookings Institute raided last night? No? Get it done. I want it done. I want the Brookings Institute's safe cleaned out and have it cleaned out in a way that it makes somebody else responsible."

This is not just the normal lying, cheating, and minor corruption (although Nixon had a particular flair for that.... This is planning murder, arson, and of course burglary... financial corruption.... (Nixon, from the tapes: "Please get me the names of the Jews. You know, the big Jewish contributors of the Democrats. Could we please investigate some of those c---suckers?")

This is not just "what all politicians do". This was different...

Posted by DeLong at 08:41 PM

What Did William F. Buckley Know and When Did He Know It?

William F. Buckley writes:

William F. Buckley Jr. on Mark Felt and Deep Throat on National Review Online: Nixon's overreaction to the publication of the Pentagon Papers didn't mean that his mandate to govern was for that reason forfeited.... Mr. Felt... over a period of months, was to report to two industrious journalists at the Washington Post, Bob Woodward and Carl Bernstein... the traffic of dollars to and from the Committee to Reelect the President... the background and the activities of everyone associated with the White House, from the Attorney General down to the plumbers.
As evidence accumulated of wrongdoing and crime, he reported not to the director of the FBI (his immediate superior), not to the Justice Department, but to the two journalists.... Such things happen. On January 5, 1973, Howard Hunt, an old friend and my sometime boss in the CIA, came to see me, accompanied by one of his daughters (my goddaughter, as it happened). He told me the appalling, inside story of Watergate, including the riveting news that one of the plumbers was ready and disposed to kill Jack Anderson, the journalist-commentator, if word came down to proceed to that lurid extreme.
I took what I thought appropriate measures...

So William F. Buckley, on January 5, 1973, learns that:

Richard Nixon is running a criminal enterprise--a group of people who believe that their job is the burgle and assassinate at Richard Nixon's command.
Former Attorney General John Mitchell is handling the cover-up.

What, exactly, were the "appropriate measures" that William F. Buckley undertook?

Posted by DeLong at 08:32 PM

The Complicated State of the Labor Market

Kash of Angry Bear writes:

Angry Bear: Samwick argues that some ancillary statistics that the BLS reports about the strength of the labor market (e.g. the numbers of discouraged workers, and those who otherwise do not have jobs but would like one) agree with the major statistics that the labor market is improving, and that there are not an unusually large number of people involuntarily out of the labor force. DeLong, on the other hand, argues that there are other types of evidence that suggest that the labor market has been very weak for years now, and that Occam's Razor therefore suggests that the labor force participation ratio is low because of this weak labor market - i.e., because people have been involuntarily excluded from the labor market.
Today's employment report gives me a chance to insert a couple of other bits of evidence into the mix. The first is the amount of work that people currently holding jobs are being asked to do by their employers: average weekly hours worked. The second is the real hourly wage that workers are earning.... Hours worked has not risen much from the low levels of early 2003, and real hourly wages have been stagnant. Both of these series therefore support the idea that the labor market has been and remains quite weak. I therefore think that it is time to accept these two stylized facts:

The labor market is indeed weak, by any number of measures. The demand for labor is unusually low for this point in the business cycle.

According to household surveys, relatively few people consider themselves to be 'unemployed', and surprisingly few non-working people say that they would like to work if they could.

Now we just need to reconcile these two apparently conflicting facts.

Posted by DeLong at 08:31 PM

Now He Tells Us (Why Oh Why Can't We Have a Better Press Corps?)

Shouldn't Newsweek's Baghdad bureau chief have been writing stories like this last year? Why wait until now?

Good Intentions Gone Bad - Newsweek World News - MSNBC.com: NEWSWEEK's Baghdad bureau chief, departing after two years of war and American occupation, has a few final thoughts .Scott Nelson / WPN for Newsweek: Two years ago I went to Iraq as an unabashed believer in toppling Saddam Hussein. I knew his regime well from previous visits; WMDs or no, ridding the world of Saddam would surely be for the best, and America's good intentions would carry the day.
What went wrong? A lot, but the biggest turning point was the Abu Ghraib scandal. Since April 2004 the liberation of Iraq has become a desperate exercise in damage control. The abuse of prisoners at Abu Ghraib alienated a broad swath of the Iraqi public. On top of that, it didn't work. There is no evidence that all the mistreatment and humiliation saved a single American life or led to the capture of any major terrorist, despite claims by the military that the prison produced 'actionable intelligence.'
The most shocking thing about Abu Ghraib was not the behavior of U.S. troops, but the incompetence of their leaders. Against the conduct of the Lynndie Englands and the Charles Graners, I'll gladly set the honesty and courage of Specialist Joseph Darby, the young MP who reported the abuse. A few soldiers will always do bad things. That's why you need competent officers, who know what the men and women under their command are capable of--and make sure it doesn't happen.
Living and working in Iraq, it's hard not to succumb to despair. At last count America has pumped at least $7 billion into reconstruction projects, with little to show for it but the hostility of ordinary Iraqis, who still have an 18 percent unemployment rate. Most of the cash goes to U.S. contractors who spend much of it on personal security. Basic services like electricity, water and sewers still aren't up to prewar levels. Electricity is especially vital in a country where summer temperatures commonly reach 125 degrees Fahrenheit. Yet only 15 percent of Iraqis have reliable electrical service. In the capital, where it counts most, it's only 4 percent.
The most powerful army in human history can't even protect a two-mile stretch of road. The Airport Highway connects both the international airport and Baghdad's main American military base, Camp Victory, to the city center. At night U.S. troops secure the road for the use of dignitaries; they close it to traffic and shoot at any unauthorized vehicles. More troops and more helicopters could help make the whole country safer. Instead the Pentagon has been drawing down the number of helicopters. And America never deployed nearly enough soldiers. They couldn't stop the orgy of looting that followed Saddam's fall. Now their primary mission is self-defense at any cost--which only deepens Iraqis' resentment.
The four-square-mile Green Zone, the one place in Baghdad where foreigners are reasonably safe, could be a showcase of American values and abilities. Instead the American enclave is a trash-strewn wasteland of Mad Max-style fortifications. The traffic lights don't work because no one has bothered to fix them. The garbage rarely gets collected. Some of the worst ambassadors in U.S. history are the GIs at the Green Zone's checkpoints. They've repeatedly punched Iraqi ministers, accidentally shot at visiting dignitaries and behave (even on good days) with all the courtesy of nightclub bouncers--to Americans and Iraqis alike.
Not that U.S. soldiers in Iraq have much to smile about. They're overworked, much ignored on the home front and widely despised in Iraq, with little to look forward to but the distant end of their tours%u2014and in most cases, another tour soon to follow. Many are reservists who, when they get home, often face the wreckage of careers and family.
I can't say how it will end. Iraq now has an elected government, popular at least among Shiites and Kurds, who give it strong approval ratings. There's even some hope that the Sunni minority will join the constitutional process. Iraqi security forces continue to get better trained and equipped. But Iraqis have such a long way to go, and there are so many ways for things to get even worse. I'm not one of those who think America should pull out immediately. There's no real choice but to stay, probably for many years to come. The question isn't 'When will America pull out?'; it's 'How bad a mess can we afford to leave behind?' All I can say is this: last one out, please turn on the lights.

Posted by DeLong at 08:25 PM

Yes, It's Back!

The machine to end all machines:

Posted by DeLong at 08:24 PM

Richard Nixon = Moses

Andrew Sullivan reads the American Spectator so the rest of us do not have to:

www.AndrewSullivan.com - Daily Dish: [Mark Felt's] posterity is now dragging out his old body and putting it on display to make money. (Have you noticed how Mark Felt looks like one of those old Nazi war criminals they find in Bolivia or Paraguay? That same, haunted, hunted look combined with a glee at what he has managed to get away with so far?) And it gets worse: it's been reported that Mark Felt is at least part Jewish. The reason this is worse is that at the same time that Mark Felt was betraying Richard Nixon, Nixon was saving Eretz Israel. It is a terrifying chapter in betrayal and ingratitude. If he even knows what shame is, I wonder if he felt a moment's shame as he tortured the man who brought security and salvation to the land of so many of his and my fellow Jews...

Yes, this is Ben "I Want a Crook for President" Stein writing...

Posted by DeLong at 08:22 PM

June 04, 2005

Lawrence Eagleburger on Richard Nixon

From what I hope was the very last "Crossfire":

CNN.com - Transcripts: And joining us from Charlottesville, Virginia, the distinguished, superb former secretary of state, former Nixon administration official, Lawrence Eagleburger.
LAWRENCE EAGLEBURGER, FORMER SECRETARY OF STATE: You had to say that, didn't you?
CARVILLE: It was on the prompter, Mr. Secretary. And I might add Reagan administration and Bush administration and every other administration, too.
WATKINS: OK. Secretary Eagleburger, this is the million dollar question. I mean, folks have been waiting for three decades to know who Deep Throat was or is. Is Mark Felt, in your opinion, Deep Throat?
EAGLEBURGER: Probably.
WATKINS: Do you think he's Deep Throat?
EAGLEBURGER: Probably. You know, President Nixon once suspected him. I'm surprised he didn't end up dead somewhere because of that...

Posted by DeLong at 10:23 AM

Ed Kilgore on American Social Democracy and the Information Age

He writes from the Josh Micah Marshall Imperium:

TPMCafe || Politics, Ideas & Lots Of Caffeine: The Golden Age of Social Democracy By Ed Kilgore Section: Politics: Matt Yglesias has posed, and Mark Schmitt has elaborated on, a central question about the relationship between the progressive vision and our understanding of where were are as a society in the broader sweep of history. I'll have more to say about the general issue at a later date, but for now, I wanted to immediately respond to a comment Mark made about the transformation we've experienced in the last few decades. "Again and again, we have traded, voluntarily or involuntarily, the security of the 1950s middle class for greater opportunity, but also greater risk."
This axiom captures a major source of the communications breakdown that has long affected discussions between Democrats from different regions and different social backgrounds.
It took me a while to figure this out, but after wondering for years about the strong resistance of many traditional Democrats from the midwest and northeast to economic change, I finally began to understand that the 1950s and 1960s represented for them a sort of social democratic "golden age." It was, if you were a unionized industrial worker in, say, Michigan, an era in which you could graduate from high school, get your union card and go on the line, work your way up, buy a house, raise kids on one salary, maybe even send some or all of them to a state college, and eventually, retire and move to Florida to bask in the sun and maybe bet modest amounts at the greyhound track. Sure, there might be bumps in the road, and periods when you had to rely on strike funds. But this basically secure existence was a reality for many members of what the Marxists called America's "labor aristocracy."
Well, where I come from, in the Deep South, this golden age never existed, and the 1950s in particular were a pretty crappy time, especially if you were black, but so, too, if you were white (per capita income in the South was barely more than half of the national average well into that decade).... Precisely because the South (with the exception of a few heavy industry and unionized pockets) only marginally enjoyed the fruits of the industrial age, southerners, and particularly rural southerners, have a peculiar openness to post-industrial economic opportunities and policies.
If you paid any attention at all to Mark Warner's successful 2001 gubernatorial campaign, you had to be struck by the fact that this stereotypical urban tech magnate actually won in southwest (i.e., Appalachian) Virginia (the same region where Al Gore and John Kerry just got killed in 2000 and 2004) with an economic message based on technology, education and worker training as the salvation for the "backwards" regions of the state. And this same approach is generally accepted in economic development circles elsewhere in the South: people and communities who were basically "losers" in the industrial economy might catch up with, or even leapfrog their urban kin with a combination of distance-shrinking technology, skills-focused education and training, and a superior quality of life.
I make this point for two reasons: (1) I think it's important to understand why the politics of social-democratic nostalgia doesn't work very well in less-industrial parts of the country; and (2) we all need to get over the stereotype that "information-age" economic strategies, including a focus on technology, training, and quality of life, are just a latte-class relic of the 90s tech boom that we should now acknowledge as a partial betrayal of the economic interests of working Americans.
But who knows: maybe my perspective is colored by the fact that I am posting from a cheap motel in eastern North Carolina that nonetheless has an ethernet connection in every room. Or perhaps I am feeling especially southern because I have a belly full of barbecue and brunswick stew.

Posted by DeLong at 10:16 AM

June 03, 2005

Why Oh Why Are We Ruled by These Idiots? (Urinating on the Koran Edition)

Just what in Jeebus's holy name is going on in there?!:

Guantanamo Detainees Full Coverage on Yahoo! News: AP - 1 hour, 41 minutes ago: WASHINGTON - The Pentagon on Friday released new details about mishandling of the Quran at the Guantanamo Bay prison for terror suspects, confirming that a soldier deliberately kicked the Muslim holy book and that an interrogator stepped on a Quran and was later fired for 'a pattern of unacceptable behavior.'... [W]ater balloons thrown by prison guards caused an unspecified number of Qurans to get wet; a guard's urine came through an air vent and splashed on a detainee and his Quran; and in a confirmed but ambiguous case a two-word obscenity was written in English on the inside cover of a Quran...

Posted by DeLong at 07:23 PM

A Bad Mistake at the Bookstore

I follow the custom of buying book with "Alan Furst" on the cover as soon as I see them. They're all good, but the best is the truly great Dark Star--in my judgment the best espionage novel ever written. So when I saw Alan Furst's name on the cover of The Book of Spies I snatched it up immediately.

It was only when I got home that I discovered:

It is not a new espionage novel by Alan Furst.
It is not a new collection of espionage short stories by Alan Furst.
It is not even a collection of Alan Furst's favorite espionage stories by other writers.
It is a collection of excerpts chosen by Alan Furst from espionage novels by other writers.

There's nothing worse than novellitus interruptus when the novel is a good one. I can see that this is in the end going to prove to have been a very expensive and very time consuming purchase indeed.

Novels excerpted are:

Eric Ambler, A Coffin for Dimitrios
Anthony Burgess, Tremor of Intent
Joseph Conrad, Under Western Eyes
Maxim Gorky, The Spy
Graham Greene, The Quiet American
John le Carre, The Russia House
W. Somerset Maugham, Ashenden
Charles McCarry, The Tears of Autumn
Baroness Orczy, The Scarlet Pimpernel
John Steinbeck, The Moon Is Down
Rebecca West, The Birds Fall Down

Alan Furst writes:

The characters... work at the blurred edge of the Manichean Universe, where Good struggles with Evil for the destiny of humankind. Work... plagued by moral uncertainty, and always in secrecy... foreign lands, living the sort of independent and adventurous existence that may lead to love or lechery or both. There were two standards for the selections... good writing... and the pursuit of authenticity.... Taken as a subgroup, the former intelligence officers... sophisticated, cynical, and mordant... write with a kind of cloaked angst... the world is a place where political power is maintained by means of treachery and betrayal.... [L]et us being Chapter One and put a good person--at least one who is trying--into this hell and watch him do even worse. By the final paragraph, it's evident that victory is not moral triumph, and, with a few turns of the globe and changes in politics, no longer victory. Not good.

But not always. Clandestine conspiracy is always good when the opposition is evil.... Steinbeck's... Orczy's.... Clandestine conspiracy is always bad, on the other hand, when initiated by the secret police.... Conrad and Gorky, who knew what they were writing about... West....

For humor... I've included the magnificent Tremor of Intent by Anthony Burgess. Burgess may have started out with the idea of writing a send-up... but what seems to have happened next is extraordinary. He seems to have become fascinated by the genre... produced a fruity and seductive spy fiction where passages meant to skewer the conventions... don't so much satirize them as do them better, a lot better....

Posted by DeLong at 07:14 PM

One If By Land, and Two If By Sea...

Tom Burka is a national treasure:

Opinions You Should Have - June 2005 Archives: Republicans today criticized Paul Revere for his famous ride, saying that he had violated professional colonial ethics by divulging military secrets in violation of his duty to his lord, the King of England. 'These were sensitive informations about military troop movements with which he had been entrusted,' said G. Gordon Liddy, an expert on ethics in government and a professor at several unaccredited law schools.
'Paul Revere was a traitor and a law breaker,' said Anakin Skywalker in a confidential interview shortly before his limbs were lopped off and he burst into flame.
Conservatives all over America pointed out that Revere also endangered people's lives by riding willy nilly all over Massachusetts at a full gallop in the dark of night. 'He could have trampled someone,' said Bill O'Reilly. 'Paul Revere was a reckless and irresponsible nazi,' he added.
Pat Buchanan derided Revere as a 'coward' and a 'snake' who was unwilling to be direct with the British government regarding his complaints about the monarchy. 'There were channels,' he said.
Peggy Noonan shook her head. 'There's nothing sadder than Americans who have no respect for the rule of law,' she said.

Posted by DeLong at 04:31 PM

When Track Coaches Have Fun...

"What's really fun is to take the sprinters to the Piedmont Distance [Running] Festival and enter them in the 800 meters!"

Coach Brady-Smith,
at the track
awards banquet.

He didn't say why it was fun. The reaction of the other contestants at the pace set by the sprinters in the first 100 meters? The reaction of the sprinters when they realize what they are in for?

Posted by DeLong at 04:31 PM

News From Arkham, Massachusetts

It's time to post this again, a variant on the Nigerian 419 scam:

Scam o Rama: It's all here, friends. An urgent plea for help. A living human head, the victim of a 'failed body transplant.' Loneliness. Friendship. Trust. Life. Betrayal. Death. Lawyers. Returns from the dead. More lawyers, Western Union, mothers who 'collarpse,' and so much more!

Posted by DeLong at 03:45 PM

Was the Euro a Bad Idea?

Now they tell us. The Economist suggests that the euro was a bad idea:

The Economist: Even before the euro was adopted, in 1999, it was clear that neither the EU nor the 12-member subset that has joined the monetary union was an optimal currency area. Ideally, currency zones should be compact and homogenous enough to show little regional variation in business cycles—otherwise a one-size-fits-all monetary policy will leave some regions lingering in recession, while others grow so fast they overheat. Many argue that this is what is happening in Europe, where a few countries, like Ireland, are experiencing rapid growth while big economies, like Germany and Italy, stagnate.
There are ways to mitigate imbalances within big currency areas.... America has important features that temper the problems of unified monetary policy. Federal programmes act as automatic fiscal stabilisers, siphoning off tax revenues from booming areas and transferring them to ailing regions as unemployment insurance or health benefits for the poor. America’s labour market is also highly flexible... capital flows freely as well.... In Europe, by contrast, few mechanisms exist to bring the euro area’s widely divergent business cycles into sync. The ECB has been trying to chart a middle course between slow- and fast-growing countries while establishing its credibility as an inflation-fighter. The result has been a monetary policy that is too “hot” for some, too “cold” for others, and “just right” for almost no one.
The lack of adjustment mechanisms means that “ever closer union” is not just a glowing ideal; it is a matter of survival. Language and cultural barriers-—not to mention wide differences in social insurance and retirement programmes-—encourage workers to stay in their own country, no matter how bad the economy, closing off one of the easiest avenues of convergence. If Europe’s economies do not drive forward towards... labour markets that are more flexible (and international), there is a growing risk that some of its members will eventually find the gulf between their economies and their monetary policies too wide to endure....
[R]ecent policy moves have all been in the wrong direction. Not only has the stability and growth pact, which was supposed to help force fiscal policies into rough alignment, been weakened... stalled... EU’s services directive... fierce public resistance to eroding generous worker and consumer protections... governments unwilling, or unable, to implement... deep structural reforms.... [T]he euro will probably be able to limp along, at least for a while—-particularly if the ECB cuts interest rates.... But if nothing is done, the instability will mount. Already Italy is being compared to Argentina.... At this point such comparisons are scary possibilities, not likely outcomes...

Posted by DeLong at 02:45 PM

Thank God I'm Not a Republican!

If I were a Republican, I would have to support candidates whose staffs do things like this:

Separated at Birth: Bret Schundler and Howard Dean:

One photo was taken at a 2004 Dean for President rally sponsored by the American University College Democrats in Washington, D.C.

The other photo comes from Bret Schundler's campaign website, advertising Schundler's Reform Gear

Photo Copyright John Pettitt 2003, courtesy CloudView.com

\\

Click hear to see the song written by American University College Democrat Laura Reznick -- she's the one wearing the Schundler hat and holding up the Schundler sign, and the one wearing the Dean hat and holding up the Dean sign.

All Schundler needed was ten enthusiastic young supporters and a camera. And he couldn't find them?

Posted by DeLong at 02:35 PM

In Praise of Ken Duberstein

Robert George writes:

The Huffington Post | The Blog: Ken Duberstein is a mensch.
Who's he and why say that?
Duberstein, for those who don't know... was Ronald Reagan's chief of staff after Nancy sacked Don Regan. And, it is because of that position that he has a unique perspective on the Mark Felt/'Deep Throat' saga....
[O]therwise smart Republicans... in lashing out at the liberal/media lionization once more of Woodward and Bernstein's greatest moment, they feel the need to character assassinate Mark Felt and portray a Richard Nixon that never existed.... For... them, presidential lying is no big thing... what's wrong with a few 'dirty tricksters' in the White House?...
The answer to that sentiment and that question can be found in the words of Ken Duberstein.... I called Duberstein's office. He graciously took my call and said, that his statement was that 'Felt is a hero.' In not-exactly-easy circumstances, 'He put America first.' (I eventually found the original quote; it's right here.) Duberstein said that, in reading all the media reports of the last few days, he put himself back in his shoes as White House chief of staff. He thought, with the information Felt had in front of him, 'What options did he have?' 'He couldn't go to the White House Chief of Staff (Haldeman or Ehrlichman); he couldn't go to the Justice Department (John Mitchell); he couldn't go to the White House Counsel (John Dean). He did something responsible. The congressional committees hadn't been formed yet. What do you do? Felt put America first.'...
What Watergate should still tell us -- but Stein, Noonan and Buchanan appear to willfully ignore -- is that a corrupt administration is dangerous.... This was a high-level criminal conspiracy, whose members were willing to destroy personally and professionally any and all who crossed them.
How much did the president know? We may never know. But the fact is that a criminal enterprise was run out of the West Wing of the White House.... Are Felt's motives suspect because he was upset that he was passed over to succeed J. Edgar Hoover? Perhaps, but it wasn't just that Felt wanted the top job. It was also that he believed that someone coming from the White House would be more likely beholden to the White House than to the Bureau -- which is exactly what happened with Nixon's pick L. Patrick Gray, who ended up resigning for destroying evidence.
Ken Duberstein has very strong Republican Party ties. He is a self-described 'Nixon loyalist.' Yet, he can still recognize what was at stake in 1972 and why Mark Felt did what he did.
And that's why Ken Duberstein is a mensch. Stepping above party, he, too, can put America first.

Posted by DeLong at 02:09 PM

White House Personnel

Praktike writes:

Priorities | Liberals Against Terrorism: I don't usually go in for cheap shots these days, as they're so easy ... but what's up with the Bush administration rushing to name the pro-Enron Chris Cox as the new SEC Chair when AFAIK there's been no similar rush to fill long-vacant counterterrorism slots and top Treasury jobs, the State Department is still waiting for Karen Hughes to do whatever she's doing, and there's been no US ambassador in Iraq for some months now?

Posted by DeLong at 02:05 PM

Funniest Thing I've Read All Week

Majikthise catches this one:

Majikthise: Neil Pollack has written the definitive satire the of 'inept, entitled, but reflective parent' essay.... Pollack pushed all the buttons, from 'Our marriage suffers' to 'Did I mention my mental illness?' to 'I feel like a bad mother when my negligence ends in disaster.' You might have to watch an ad to read "When Toddlers Get Fired," but it's worth it...

Posted by DeLong at 02:01 PM

June 02, 2005

No to a Market Society!

The French left's complaint with Jacques Chirac is that he is too neoliberal for their taste:

French Workers Greet New Prime Minister With Rail Strike - New York Times: French workers greeted the new government of Prime Minister Dominique de Villepin today not with a show of solidarity, but with a national transportation strike.... The protest came as the popularity of President Jacques Chirac has plunged to the lowest level of his ten-year presidency. A poll conducted by TNS Sofres after French voters decisively rejected a Constitution for Europe on Sunday - a vote that was also a rebuff of Mr. Chirac's presidency - said 74 percent of voters did not trust him. Only 24 percent said they had confidence in President Chirac.
Fifty-eight percent of those polled said that unemployment, at a five-year high of 10.2 percent, was their primary concern. The strike... forced the cancellation of up to 75 percent of commuter trains between Paris and its suburbs, and disrupted rush-hour traffic. Some 65 percent of national-line trains and 40 percent of the country's high-speed TGV trains were also out of service. "With the nomination of Dominique de Villepin as prime minister, the president does not seem to have understood," said the CGT - the Confédération Générale du Travail - one of the striking unions, in a communiqué today. It added that it was awaiting "concrete actions" to "eradicate unemployment, misery and poverty."...

Posted by DeLong at 12:58 PM

Alberto Gonzales Is a Bad Man (Why Oh Why Are We Ruled by These Liars? Department)

In comments, JR writes:

Gonzales'references to athletic uniforms and scientific equipment was a classic rhetorical tactic - find some minor thing in the Convention to ridicule and thereby invite your reader to conclude with a sneer that the whole thing needs to be junked.... Gonzales' references... are lies. There is no requirement that POWs be "afforded" athletic uniforms and scientific instruments. There IS a requirement that prisoners be allowed to receive mail, including packages, which may include such things as "foodstuffs, clothing, medical supplies and articles of a religious, educational or recreational character which may meet their needs, including books, devotional articles, scientific equipment, examination papers, musical instruments, [and] sports outfits..." (Geneva Convention III, Art. 72).
So in order to ridicule the Geneva Convention, Gonzales had to lie about it.
And why are we not surprised to find Okrent repeating Gonzales' lies in his parting column?

Posted by DeLong at 12:25 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (Yet Another New York Times Edition)

I do not like the work of Maureen Dowd--I think that she exemplifies a lot of what is wrong with American journalism today. Nevertheless, I would like to note on her behalf that Danny Okrent is being grossly unfair when he complains that:

13 Things I Meant to Write About but Never Did: Maureen Dowd was still writing that Alberto R. Gonzales "called the Geneva Conventions 'quaint'" nearly two months after a correction in the news pages noted that Gonzales had specifically applied the term to Geneva provisions about commissary privileges, athletic uniforms and scientific instruments.... No one deserves the personal vituperation that regularly comes Dowd's way.... But that doesn't mean that their boss, publisher Arthur O. Sulzberger Jr., shouldn't hold his columnists to higher standards...

It is true that Gonzales does not think the whole Geneva convention is "quaint": he thinks that it is obsolete, and that the restrictions it places keep Americans from doing what must be done by opening the possibility of their being put on trial for war crimes. Given what Gonzales does think of the Geneva Conventions, accusing him of calling them "quaint" seems a very minor sin indeed.

Here is Gonzales in context:

As you have said, the war against terrorism is a new kind of war. It is not the traditional clash between nations adhering to the laws of war that formed the backdrop for GPW. The nature of the new war places a high premium on other factors, such as the ability to quickly obtain information from captured terrorists and their sponsors in order to avoid further atrocities against American civilians, and the need to try terrorists for war crimes such as wantonly killing civilians. In my judgment, this new paradigm renders obsolete Geneva's strict limitations on questioning of enemy prisoners and renders quaint some of its provisions requiring that captured enemy be afforded such things as commissary privileges, scrip (i.e., advances of monthly pay), athletic uniforms, and scientific instruments.

Although some of these provisions do not apply to detainees who are not POWs, a determination that GPW does not apply to al Qaeda and the Taliban eliminates any argument regarding the need for case-by-case determinations of POW status. It also holds open options for the future conflicts in which it may be more difficult to determine whether an enemy forcea s a whole meets the standard for POW status.

By concluding that GPW does not apply to al Qaeda and the Taliban, we avoid foreclosing options for the future, particularly against nonstate actors.

Substantially reduces the threat of domestic criminal prosecution under the War Crims Act (18 U.S.C. 2441).

That statute, enacted in 1996, prohibits the commission of a "war crime" by or against a U.S. person, including U.S. officials. "War cime" for these purposes is defined to include any grave breach of GPW or any violation of common Article 3 thereof (such as "outrages against personal dignity"). Some of these provisions apply (if the GPW applies) regardless of whether the individual being detained qualifies as a POW. Punishments for violations of Section 2441 include the death penalty. A determination that the GPW is not applicable to the Taliban would mean taht Section 2441 would not apply to actions taken with respect to the Taliban...

Posted by DeLong at 12:24 PM | Comments (0) | TrackBack

Why Are Auto Dividends So Low?

Dan ~~Bill~~ Gross is surprised that GM and Ford are paying so much in dividends--a 6.33% dividend yield for GM, and a 4% dividend yield for Ford. I, by contrast, am surprised that they are paying so little. According to Gross, Ford has $23 billion in cash and yet a stockholder's total equity value of only $18 billion. If that is true, why not spend $18 billion on a special cash dividend? They will then have gotten their entire current investment out. And they will still own the company, and have their equity claim on whatever future profits it will make. That would do more for shareholder value than the managers' current strategy is doing. And managers do have a fiduciary duty to pursue shareholder value wherever they find it, right?

Ford's dividends are so low precisely because its managers are not concerned solely with shareholder value, but also with the long-term survival of the company, and do balance off the interests of other stakeholders against the interests of the shareholders who supposedly elect them. And Ford's dividends stay low because the perceived political risks to Wall Streeters who mount a takeover of the company and then pump out its cash are very high.

Here's Dan ~~Bill~~ Gross's column:

The Poisonous Gift - Ford and GM are in big trouble. So, why do they keep paying fat dividends? By Daniel Gross: The stocks of GM and Ford may be slumping. But investors can take solace in the healthy dividends they pay: $2.00 per share annually for GM, representing a 6.33 percent yield; and 40 cents per share annually for Ford, representing a 4 percent yield.

But why do these struggling companies still spend cash on dividends when they could use it for R&D or to meet pension obligations? After all, many analysts believe that if current trends continue, GM may be headed for bankruptcy. Standard & Poor's in early May downgraded GM's debt to junk status. GM has acknowledged that it might not be able to meet the pension and health-care obligations it has made to employees and retirees. Ford, in somewhat better shape, is still clinging to its investment-grade credit rating. There's substantial doubt as to whether GM and Ford can meet the financial commitments to which they are legally obligated, which makes these discretionary dividend payments seem all the more baffling. Dividends are a means of sharing profits with shareholders and of encouraging investors to hold on to stocks--both worthwhile and sensible goals. With the passage of the dividend tax cut in 2003, dividends are an even stronger tool. When companies make money and can easily cover their debt payments and pension obligations, dividends are a no-brainer way to please shareholders.

But the calculus should change when losses pile up and when long-term mismatches between resources and obligations start to take shape. As Ford's most recent quarterly report shows, the company has about $23 billion in cash and $161 billion in debt. In the quarter, it spent nearly $2 billion on interest payments. Ford, which has already reduced profit projections for the year, hopes that its auto unit will scratch out a pre-tax profit in 2005. And yet the company plans to pay out more than $732 million in dividends this year.... In the first quarter of 2005 alone, GM spent nearly $3.7 billion on interest on its $291 billion in debt. Yes, GM has $52 billion in cash and marketable securities, and much of the debt rests on the company's profitable financing arm. But as the quarterly report notes, the company owes more than $37 billion in pension and other post-retirement benefits to employees. Worse, it's hemorrhaging cash. GM's automotive operations lost $1.3 billion in the first quarter of 2005. And yet GM plans to spend $1.13 billion on dividends this year....

At both companies, the dividend payments are tiny compared to revenues, overall debt loads, and outstanding pension and health-care obligations. But if every dollar counts, so does every billion. There may well come a time in the not-too-distant future when $1 billion could mean the difference between bankruptcy and solvency for one of the carmakers. Both companies are facing intense pressure to make the best use of their cash. GM could take the money it spends on dividends and pay down a chunk of the debt on its auto operations or chip away at its mountain of liabilities--things it's required to do by contracts and that would enhance its long-term solvency.

Of course, were they to eliminate the dividend, Ford and GM would give the institutions that hold most of their stock an incentive to flee. And to the extent shareholders automatically reinvest the dividends in GM and Ford stock, it can allow the companies to issue new stock continuously without going to the trouble of making large offerings. Dividends are also a great tool for compensating executives on the sly. Shareholders might look askance at large bonuses and salaries for executives when the company is floundering. But dividends--which are paid to all shareholders--are less likely to raise hackles. According to GM's proxy statement, CEO Rick Wagoner owns about 200,000 shares, making the dividend worth about $400,000 annually to him. (His base salary and cash bonus in 2004 totaled $4.66 million.) At Ford, members of the founding Ford family still own huge slugs of stock, detailed in Ford's proxy statement. The 26.28 million shares owned by William Clay Ford Sr. throw off $10.5 million in cash in dividends annually. Bill Ford, the current CEO, owns nearly 8.7 million shares. So, he can make highly public symbolic belt-tightening statements--like agreeing to give up his salary until the car business starts making money again, as he did last week--without forgoing compensation. Bill Ford will take home about $3.5 million in dividends in 2005, taxed at a rate far lower than his wage income would be.

Ford and GM pay dividends because they are obsessed with the goodwill of shareholders. This solicitous attitude contrasts sharply with the generally antagonistic attitude they take toward their unions. Faced with a slow-growing business and difficulty in making profits, management each quarter has to decide whether it will meet its obligations to capital (dividends and interest payments) or its obligations to labor (pension and health-care benefits). Every quarter, as GM and Ford dole out their dividends while contriving ways to shirk promises made to employees and retirees, capital wins another battle.

Posted by DeLong at 12:23 PM | Comments (0) | TrackBack

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

I suppose that this is Jonah Goldberg trying to be nice. But that still doesn't keep it from being painful to read:

The Corner on National Review Online: "SOCIAL SECURITY [Jonah Goldberg]Because I'm so cool, I watched a big chunk of some Senate hearings on Social Security on C-Span last night. It seemed to be a Democratic deal -- there were no Republican Senators asking questions when I tuned in and the panel seemed to be wildly overstocked with opponents. There was a woman who barely said a word (so I don't know if she's pro or con). And there was an economist from Yale, the Brookings gu, Peter Orszag, and Brad Delong the blogger and economist. The only outspoken witness in favor was my old friend Derrick Max. I thought Derrick did a great job, especially given the odds. But I have to say that I thought the liberals made some very strong arguments, including DeLong (who, to date, has never had a kind word for yours truly). I'm still in favor of reforming the system and I'm still in favor of private accounts, but I thought the arguments were pretty persuasive that there are serious downsides to the idea too. I'd get into specifics, but that would give Ramesh all weekend to sharpen his scalpel. So, I'll keep pondering and start in again on Monday.

Yes, in a *Democratic* Policy Committee Hearing the senators doing the questioning will be Democrats. The fact that it is apparently news to Goldberg that people like defined-benefit pensions, and that it's hard to make private accounts with a 3% real interest rate clawback a good deal for beneficiaries--that's depressing.

So this doesn't make me more predisposed to say kind words about Goldberg. Especially when you combine it with last week's Exhibit A, Jonah Goldberg's insightful comments on stem cell creation via replacement of the egg nucleus:

I HOPE [Jonah Goldberg] Dr. Woo Suk Hwang didn't go to high school in the States. That'd be one hard name to carry around.

And with last week's Exhibit B:

ATTENTION... [Jonah Goldberg] Gun nuts, second ammendment enthusiasts, military tech-geeks and keepers of the faith that the arsenal of democracy could always use a little more oomph: The DREAD weapon system:

DREAD WEAPON SYSTEM: Devastating, Jam-Proof, and Silent: Imagine a gun with no recoil, no sound, no heat, no gunpowder, no visible firing signature (muzzle flash), and no stoppages or jams of any kind...

The phrase "no recoil" is the giveaway. From elementary school physics we know that there is no such thing as a "no recoil" projectile weapon in any universe in which Newton's Third Law of Motion holds. And we do have good reason to believe Newton's Third Law holds in *this* universe.

Nevertheless--in the absence of anyone who knows any elementary school physics--it becomes a topic of heated debate at the National Review:

THE DREAD WEAPON SYSTEM [Warren Bell]: France just surrendered...
DREAD: IT'S REAL [Jonah Goldberg ]: I feel sorry for the French. It must be like doing calisthenics what with the posts saying it's real and then it's not real. Each time they hear it's real they gotta drop to the ground in surrender. Anyway, stay down Frenchies. It's real. Here's the Patent.... Here's an explanation how it works from a reader...
DREAD [Jonah Goldberg]: Email is split so far... from a military guy: "Military.com is a reputable site. I cant vouch for the artists conception of the weapon but for the most part they are too savvy to be duped by scammers."
DREAD: ARGGGHHH [Jonah Goldberg]: I've been inundated with email from physicists. I really don't want to be the clearinghouse for this....

Remember: Newton's Third Law: Gun initially stationary. Bang. Projectile moves forward. Gun moves back.

Posted by DeLong at 12:22 PM | Comments (0) | TrackBack

The Global Savings Glut Argument

Brad Setser has musings on Ben Bernanke's "global savings glut" argument:

Brad Setser's Web Log: Bernanke's global savings glut: Bernanke's global savings glut argument is quite subtle, more subtle than I perhaps have recognized in the past. Bernanke's argument goes beyond the 'US current account deficits don't matter since there is a global savings glut' headline that I occasionally push.
Bernanke takes his argument that there is a global savings glut to its logical conclusion. He argues that without a federal budget deficit, the global savings surplus that was invested in US government debt over the past few years would instead have been invested in other US assets. Real interest rates would be even lower, housing prices would be higher, investment in housing would be higher, and consumption in the US would be even stronger. As a result, the US current account deficit would not be much different:

The weakening of new capital investment after the drop in equity prices did not much change the net effect of the global saving glut on the U.S. current account. The transmission mechanism changed, however, as low real interest rates rather than high stock prices became a principal cause of lower U.S. saving. In particular, during the past few years, the key asset-price effects of the global saving glut appear to have occurred in the market for residential investment, as low mortgage rates have supported record levels of home construction and strong gains in housing prices. Indeed, increases in home values, together with a stock-market recovery that began in 2003, have recently returned the wealth-to-income ratio of U.S. households to 5.4, not far from its peak value of 6.2 in 1999 and above its long-run (1960-2003) average of 4.8. The expansion of U.S. housing wealth, much of it easily accessible to households through cash-out refinancing and home equity lines of credit, has kept the U.S. national saving rate low--and indeed, together with the significant worsening of the federal budget outlook, helped to drive it lower. As U.S. business investment has recently begun a cyclical recovery while residential investment has remained strong, the domestic saving shortfall has continued to widen, implying a rise in the current account deficit and increasing dependence of the United States on capital inflows...

I find it easier to think about these issues if we formalize them. Start with the savings-investment side of the national income identity:

I = S_p - D_G + D_T

Investment I is necessarily equal to private savings S_p minus the government deficit D_G plus the trade deficit D_T. And start with the premise that savings outruns investment elsewhere in the world, and this shows us as a large U.S. trade deficit as savers abroad soak up the dollar earnings of foreign exporters and invest them in the United States.

As long as investment is still high--as long as we are still in the dot-com boom--then, Bernanke says, U.S. private savings can be normal. But after the dot-com boom ends and investment falls, the savings-investment identity no longer balances: with lower-than-normal investment (especially business investment) as a share of GDP and a large capital inflow associated with the trade deficit, something else has to change in order to keep the savings-investment identity in balance. One thing that changes is the government deficit. But the rise in the government deficit is not sufficient--the private savings term S_p has to fall as well.

What makes S_p fall? Well:

S_p = Y - T - C = Y - T - (C₀ + C_y(Y-T) + C_wW(r)) = (1-C_y)(Y-T) - C₀ - C_wW(r)

Private savings, in Bernanke's implicit model, is equal to a fraction (1-C_y) of disposable income (Y-T), minus a term C₀ that depends on consumer confidence, minus a term C_wW(r) that tells us that private savings drops when household wealth W increases--and household wealth increases when the interest rate falls.

Thus the chain of causation in Bernanke's model runs roughly like this:

After the end of the dot-com boom, U.S. domestic investment falls as a share of GDP and the capital inflow rises. Excess savings thus appear in the flow-of-funds market. These excess savings push down interest rates. As real interest rates fall wealth--especially household real estate wealth--rises. Rising wealth induces households to cut their savings until the flow-of-funds is back in balance.

In this model the federal budget deficit is a minor player. As Brad Setser says, the implicit prediction is that it does not affect the trade deficit. Had the Bush administration pursued a balanced-budget policy there would still have been a fall in investment and there would still have been a rise in the capital inflow. With a balanced budget, excess supply of savings in the flow-of-funds would have been greater. Interest rates would have fallen further. Housing prices would have risen further. And private savings would have fallen further. After all:

I - D_T = S_p - D_G

And if D_G does not grow as D_T grows, then S_p must fall by more--and the only thing that can make S_p fall is an increase in household wealth W, which is the result of falling interest rates r.

This is Bernanke's argument. What do we think of it?

I'm very skeptical. It is of a brand of macro that I think of as one-identity-economics. You take an accounting identity. You assume that certain terms of it are fixed. And you then derive conclusions--in this case, that the growth of the budget deficit has moderated the fall in private savings.

The problem with one-identity-economics lies with the assumption that certain terms in it are fixed. There are lots of channels of adjustment in the world economy, and it is a safe bet that with different levels of interest rates and different levels of wealth we would see different levels of corporate investment and of net exports.

Posted by DeLong at 12:21 PM | Comments (0) | TrackBack

Danny Okrent of the New York Times Jumps the Shark (Why Oh Why Can't We Have a Better Press Corps?)

Danny Okrent writes:

13 Things I Meant to Write About but Never Did - New York Times: Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults.... [S]ome of Krugman's enemies are every bit as ideological (and consequently unfair) as he is. But that doesn't mean that their boss, publisher Arthur O. Sulzberger Jr., shouldn't hold his columnists to higher standards...

May one ask Danny Okrent for an example? He doesn't give one. I was taught in middle school English that the first requirement was to support one's points with examples.

Posted by DeLong at 12:20 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (Yet Another New York Times Edition)

Does Ben Stein really think that Alan Greenspan does not know that there is a large and ongoing inflow of capital to the United States from Asia?

Ben Stein: To: Alan Greenspan, Chairman, Federal Reserve Board, Washington, D.C.
Dear Mr. Greenspan:
You have always been a great friend to the little Stein family. You invited us to your viewing of the Fourth of July fireworks for many years. You spoke warmly and kindly of my father on his 80th birthday and after his death.... In the same spirit of friendship that you have shown to my family and to the nation and world, I hereby offer you some possible mental and emotional relief on two perplexing economic and monetary policy issues.... [Y]ou recently pronounced that you were puzzled by what you called the 'conundrum' of why long-term interest rates were so low, as the economy gathered steadily more strength and as inflation heated up, albeit to a lukewarm temperature.
May I suggest a reason for the low long-term rates? It has to do with a certain circularity in the world flows of capital. American consumers and businesses buy far more from the Japanese and the Chinese than the United States sells to them. The difference is in the hundreds of billions of dollars annually. The Asians do not respend this money in America by buying Big Macs. Instead, they use a large chunk of it - again, hundreds of billions - to buy Treasury bonds.
That creates a floor under the dollar, keeps their own currencies low and makes their products very competitive. But this voracious buying of Treasury bonds - at varying lengths of maturity - keeps a high floor under bond prices as well. That, in turn, keeps the interest rate low, because interest rates move inversely to bond prices.
In other words, interest rates are suppressed at very low levels by the recycling of the trade deficit into Treasury bonds. It may be just that simple. In turn, this keeps the mortgage rates low.... Maybe I am missing something here, but this is at least a possible answer to your conundrum...

Greenspan does not think there is a "conundrum" because he fails to understand that Japan's and China' central banks are purchasing U.S. bonds. Greenspan thinks that there is a conundrum because he believes that those who are selling U.S. bonds to Japan's and China's central banks should be more eager to sell them and should be selling them at lower prices. It is highly likely that the value of the dollar will decline by 30% sometime over the next ten years. That means that people holding dollar denominated bonds are taking a big risk of serious capital losses, and should be eager to sell them until their prices fall so far that they are yielding about 3% per year more than assets of equivalent riskiness denominated in other currencies. U.S. short-term interest rates are headed higher--perhaps by one percentage point, perhaps by two, perhaps by more--over the next year or two. People should be very eager to sell long-term bonds when their yields aren't equal to expected short-term yields plus an allowance for risk. Yet market prices tell us that they are not eager to sell at all.

Investors holding U.S. bonds at current prices and yields are taking on huge amounts of exchange rate risk and interest rate fluctuation risk for no extra return relative to what they could get in other assets. That's the conundrum: the relationships of asset prices are out of whack.

Those who know no economics often focus on the actions of one single group and use that to account for what's going on in markets. That's a mistake. It's a common mistake. But it's an elementary mistake. What's going on in markets is the result of everybody's actions: some people are eager to buy, some people are eager to sell, and the result is an equilibrium market price and volume. You can't get an economist's license (except at the American Enterprise Institute) if you pretend to explain things by looking at just demand. You have to look at supply too--and it is the low supply of long-term bonds by those eager to sell that is at the heart of Greenspan's conundrum.

Posted by DeLong at 12:19 PM | Comments (0) | TrackBack

A Guy with a Truly Thankless Job...

White House Social Security substance person Andrew Biggs gets whomped by Democrats:

Wonkette - Strunk & White House: SSA Official Proofs Independent Lobbyist Report: The Pentagon? Not so responsive on the fact-checking, according to Michael Isikoff. The Social Security Administration? Maybe a little too responsive:

From Congress Daily: 'Senate Democrats are investigating whether Social Security Administration Assistant Commissioner Andrew Biggs violated a federal ban on congressional lobbying by federal employees when he edited the prepared testimony for a lobbyist [named Derrick Max] appearing before a recent Democratic Policy Committee Social Security hearing, Senate aides said Wednesday.'

Max and Biggs believe that what they did was okay, because they're personal friends, and because the edits Biggs made were minor, and mostly grammatical. Here, for example, is what appears to be Biggs' advice on how to deal with split infinitives: 'Include some info from the doc we put out yesterday; it shows that widows and divorced women do better than scheduled and the plan pulls a lot of them out of poverty.' -- GREG BEATO

And he gets whomped by Republicans:

President Discusses Strengthening Social Security in North Carolina:

THE PRESIDENT: Andrew Biggs. We are here with one Andrew Biggs, a fine lad, as you can see. (Laughter.) What do you do? Work for me, of course. (Laughter.) Tell them what you do, Andrew, please -- Andrew and I have done this before, see, so I'm used to needling him. (Laughter.)
DR. BIGGS: My name is Andrew Biggs, and I'm Associate Commissioner for Retirement Policy at the Social Security Administration, which in short language means I think about Social Security reform quite a bit. The good news on Social Security, even it seems very complex --
THE PRESIDENT: Andrew has a PhD, by the way. (Laughter.) Which -- it's an interesting lesson for those of you who are worried about your college career. Andrew has a PhD, and I got a C. (Laughter and applause.) And look who's working for who. Anyway -- (laughter.)
DR. BIGGS: All those years of effort gone to waste, I guess.
THE PRESIDENT: It's a cheap shot, Andrew, I know. Do we have a problem with Social Security? You look at it, you analyze it.
DR. BIGGS: Sure, we do. The good news is you don't need a PhD to understand how this works. (Laughter and applause.) The biggest misunderstanding people have --
THE PRESIDENT: I'll let it pass, Andrew. (Laughter.)

74 words during which you can say nothing of substance, and then from the transcript it looks like you get cut off for good.

I can't figure out why any substance people at all still work for this White House. Surely you'd have more influence--and better working conditions--on Thomas's or Grassley's staff, or back at Cato?

Posted by DeLong at 12:14 PM | Comments (0) | TrackBack

Robert Waldmann Is Utopian (Why Oh Why Can't We Have a Better Press Corps?)

He expects New York Times reporter Benedict Carey to actually know that 17/111 is greater than 10/110:

Robert's Stochastic thoughts: [Before the jump] Benedict Carey writes... "the stimulator was no more effective than surgery in which it was implanted but not turned on."

But after the jump Carey writes:

"17 of the 111 patients who had implants turned on and completed the trial showed significant improvement. But 11 of 110 who had no stimulation and completed the trial also felt significantly better."...

Robert comments:

It appears that Mr Carey is unaware of the subtle mathematical point that 17/111 is greater than 11/110.... [T]he difference does not reject the null that the two rates are the same, that is, that the treatment is ineffective.... It is, indeed, very strange that the FDA is considering approval of a treatment supported by such weak evidence. Like various experts quoted in the article, I would have expected that FDA advisory panel to tell Cyberonics Inc., the Houston company that makes the stimulator that the device would only be approved after they performed a larger study.... Still my basic point stands 17/111 > 10/110, weak evidence in favor of the alternative is not proof that the alternative is false...

Posted by DeLong at 12:13 PM | Comments (0) | TrackBack

Are There Any Senators in the Republican Party?

And does anyone who really is a senator--rather than a participant in a clown show--really want to put Patricia Owen on the federal bench:

Pandagon: Useful information: "The Houston Bar Association just released 2005 judicial evaluations, so everyone can check out what the bar association of one of the most conservative cities in the country thinks of Priscilla Owen's service on the Texas Supreme Court. It's a pdf file, so I'll summarize--they think she stinks. 39.5% rated her as outstanding, 15.2% rated her as acceptable and 45.3% rated her as poor. Of course, in Bushland, having nearly half of your constituency think that you can't tell your ass from your head is considered a mandate.

Posted by DeLong at 12:12 PM | Comments (0) | TrackBack

Snarkiest Thing I've Read Today

English literary critic Terry Eagleton on U. Va. philosopher Richard Rorty. From Terry Eagleton (1996), The Illusions of Postmodernism (London: Blackwell: 0631203230):

...postmodernism combines the worst of [liberalism and communitarianism].... It has, to begin with, an embarrassing amount in common with communitarianism.... The self for both doctrines is embedded in a purely parochial history, and moral judgements thus cannot be universal. Moral judgements, for [Richard] Rorty and his ilk, really say "We don't do that kind of thing around here"; whereas... to say "sexual discrimination is wrong" usually means that we do do that kind of thing around here, but we shouldn't.... [pp. 85-86]

One kind of postmodern skeptic of universality believes in culturalist style that moral values are just embedded in contingent local traditions, and have no more force than that. An egregious example of this case is the American philosopher Richard Rorty, who in an essay entitled "Solidarity" argues that those who helped Jews in the last world war probably did so less because they saw them as fellow human beings but becasue they belonged to the same city, profession, or other social grouping as themselves. He then goes on to ask himself why modern American liberals should help oppressed American blacks. "Do we say that these people must be helped because they are our fellow human beings? We may, but it is much more persuasive, morally as well as politically, to describe them as our fellow Americans--to insist that it is outrageous that an American should live without hope." Morality, in short, is really just a species of patriotism.

Rorty's case, however, strikes me as still too universalist. There are, after all, rather a lot of Americans, of various shapes and sizes, and there is surely something a little abstract in basing one's compassion on such grandiosely general grounds. It is almost as though "American" operates here as some sort of metalanguage or metaphysical essence, collapsing into unity a vast variety of creeds, lifestyles, ethnic groupings, and so on. Would it not be preferable for an authentic critic of universality to base his fellow-feeling on some genuine localism, say the city block? On second thoughts, however, this is still a little on the homogenizing side, since your average city block does of course contain a fair sprinkling of different sorts of people; but it would surely be a more manageable basis for social justice than some universal abstraction like America. One might demonstrate compassion to those in the next apartment, for example, while withholding it from those down the street. Personally, I only ever display sympathy to fellow graduates of the University of Cambridge. It is true that such credentials aren't always easy to establish: I have occasionally tossed a coin towards some tramp whom I thought I recognized as a member of the class of 1964, only to retrieve it furtively again when I realized my mistake. But the alternatives to such a strategy are fairly dire. Once one begins extending compassion to graduates of Oxford too, there seems no reason not to go on to Sheffield, Warwick, and the Lower Bumpstead College of Agricultural Science, and before one knows where one is one is on the slippery slope to universalism, foundationalism, Juergen Habermas, and the rest.

I have not, incidently, yet resigned from the Campaign for Nuclear Disarmament, merely adjusted my reasons for belonging. I now object to nuclear warfare not because it would blow up some metaphysical abstraction known as the human race, but because it would introduce a degree of unpleasantness into the lives of my Oxford neighbors. The benefit of this adjustment is that my membership of the campaign is no longer the bloodless, cerebral affair it once was, but pragmatic, experiential, lived sensuously on the pulses. If my bit of Oxford survives a nuclear catastrophe, I really couldn't care less about the University of Virginia.

Rorty, commendably enough, really does seem to believe that getting rid of pointless abstractions like "universal humanity" would actually allow us to be more morally and politically effective. He is not so much opposed to them because they are false, a kind of judgement he does not much relish making in the first place, as because they are distractions from the true tasks in hand. He would need, however, to find grounds for distancing himself from the kind of anti-universalist who believed that murder was wrong for everyone except for aristocrats who were above the law, benighted heathen who knew no better, and those whose time-hallowed tradition happened to sanction it. It is this kind of privilege which the Enlightenment was trying to counter, and it is surely a case with strong intuitive force. In theory if not always in practice, it provided you with a powerful counterblast to those paternally-minded colonialists who thought that the natives weren't up to moral virtue or simply had ideas of it which failed to mesh with their own. The idea of human emancipation is part of the progeny of Enlightenment, and those radical postmodernists who mobilize it are inevitably in debt to their antagonists. In a similar way, the Enlightenment itself inherited concepts of universal justice and equality from a Judaeo-Christian tradition which it frequently derided. Universality just means that, when it comes to freedom, justice, and happiness, everyone has to be in on the act... [pp. 114-116]

Posted by DeLong at 12:11 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (Who's Going to Pay to Read John Tierney? Department)

Matthew Yglesias reads John Tierney so that we don't have to. Today he comes across John Tierney's claim that the ethics of Darth Vader are those of Adam Smith:

Darth Vader's Family Values - New York Times: [Darth Vader] says he could never betray the Jedi because they're his family, but then the chancellor puts the family question in perspective: 'Learn to know the dark side of the Force, Anakin, and you will be able to save your wife from certain death.' Anakin promptly recognizes the limits of altruism, just as Adam Smith did in the 18th century. Smith knew that some people professed love for all humanity, but he realized that a man's love for 'the members of his own family' is 'more precise and determinate, than it can be with the greater part of other people.' Hence his famous warning not to rely on the kindness of strangers outside your family: if you want bread, it's better to count on the baker's self-interest rather than his generosity...

Matthew, quite rightly, goggles at this--first, because praise of the ethics of Darth Vader is simply bizarre, and, second, because it is a clear misreading of Adam Smith:

Matthew Yglesias: Tierney on Smith and the Sith: Today's column is certainly more interesting than your usual rightwing effort. Still, I can't help but think it strange that not only The Wealth of Nations (which, NB, I haven't read and thus hesitate to comment on) but also Adam Smith's Theory of the Moral Sentiments are listed at the end as 'further reading' on the theme. Tierney seems to be pushing an Ayn Rand-style 'greed is good' line here that is very much not what Smith's other book, at least, says...

The self-interest on which Adam Smith suggests we rely--our mutual willigness to enter into win-win deals as we truck, barter, and exchange--is a self-interest that has already been channeled and tamed by an extraordinary degree of development of our moral sentiments. Consider highland Scotland, where people are divided into three groups: clan members to be aided, clan enemies to be killed, and strangers to be robbed. No getting your bread from the baker's self-interest there, especially if he is a MacDougal.

And then it gets really weird, for Tierney goes on to denounce the United States as an enterprise, claiming that America is not a community with a "national sense of shared purpose" because:

America is not a clan with shared values. It is a huge group of strangers with leaders who are hardly altruists - they have their own families and needs.

And that those who say that we are all, in some sense, Americans are conning us:

We are born with an instinct for altruism because we evolved in clans of hunter-gatherers.... [W]e no longer live in clans small enough for altruism to be practical, but we still respond to politicians who promise to make us all part of one big selfless community.... [L]iberals stressed charity and social programs for all, while conservatives promoted patriotism and spending on national security - but they both expanded the government....

And, according to Tierney, that was bad.

Now there are places in the world in which altruism is not practical--places into which John Tierney dare not venture because he would be beaten bloody and senseless by the first person he came across who wanted his watch. But that is not a good description of America and Americans. The overwhelming majority of people in America are altruistic toward each other, and altruism toward your fellow citizens has a name: patriotism.

Posted by DeLong at 12:10 PM | Comments (0) | TrackBack

Why Oh Why Are We Ruled by These Liars? (Yet Another Bush Social Security Edition)

Daniel Froomkin watches the clown show that is the Bush administration on Social Security:

Exploiting a Misconception: President Bush's meticulously stage-managed presentations on Social Security have slowly shifted into a new phase, in which White House aides find misinformed young people to share the stage with the president and assert that Social Security won't be there at all when they retire. And rather than correcting them on their misconception -- government estimates, after all, say that after 2041 Social Security will still be able to pay at least three-quarters of currently promised benefits without any changes -- Bush congratulates them on their perspicacity....
Take a look at the transcript of Bush's event yesterday in Milwaukee and in particular his exchanges with the panelists winnowed by the White House from a pool of contestants selected by the local chamber of commerce. Bobby Kraft, 27, who is president of a local printing and mailing company, told Bush: 'Before I got into printing I did have a short stint as an investment advisor. And the first thing I learned getting into the industry and studying all the financial books is that don't count on Social Security to be there. We... teach our employees that they need to take advantage of the 401(k) we put in place for them because of the fact, the way the Social Security system is set up, we cannot count on that to be here.
Bush: 'Yes, let me stop you. Young guy sitting here in Milwaukee, Wisconsin, in front of the President -- don't count on Social Security to be there. A lot of people feeling that way here in America. What I'm telling you is, if we can get the United States Congress to listen to you, we can put a plan in place to make sure Social Security is there. (Applause.)... 'Bush: 'Interesting, isn't it? They took a survey amongst youngsters. Somebody explained to me, I didn't actually watch -- see the survey, but I heard what the person said. He said, more people are -- that are Christy's age think they're more likely to see a UFO than get a Social Security check. (Laughter.) Pretty funny when you think about the fact that a lot of young people are going to be putting a lot of money into a system that may not be around....'
Is it just a coincidence that so many of the young people sharing the stage with the president are laboring under this particular misconception? No. As Warren Vieth writes in a break-out Los Angeles Times story today, the White House is specifically looking for such people.... Writes Vieth: 'Although it is common for advocacy groups and political organizations to spotlight supportive views at public events, the WIPP memo suggests that the White House has provided outside organizations with explicit instructions on the kind of participants it has in mind.'

Posted by DeLong at 12:09 PM | Comments (0) | TrackBack

Very Good News on the Biological Science Front

Carl Zimmer summarizes:

Of Stem Cells and Neanderthals: Closing the Circle: Corante > The Loom > : Today in Science scientists reported a potentially big advance.... [T]ake skin cells from patients, inject them into donated eggs emptied of [the eggs'] own DNA, and nurture them along.... The cells were able to develop into a wide range of cell types, their chromosomes were normal, and they were so similar to the cells of the indvidual patients that they would not be rejected as foreign tissue. The research stopped there, but the dream behind this work is to heal your failing liver or heart or dopamine-producing neurons by clipping off a little skin and farm new cells that could regenerate those organs....
Reading about this advance, I felt a grim sense of irony. As I wrote in my original post, President Bush stopped federal funding for research on stem cells using new lines... despite the fact that most of the already existing lines were contaminated by this lost sugar. American scientists have been making some progress with stem cells with private money and state initiatives, but guess where scientists finally figured out how to solve this evolutionary problem with cell sugars? South Korea.
Reading about this research, I was also reminded of an article I read last week during the Kansas 'trial' over evolution and creationism.
Leonard Krishtalka, the director of the Kansas University Natural History Museum, was quoted pointing out how Kansas is raising $500 million to foster a bioscience and biotech industry in the state. It was ironic, he said, that the state's board of education was simulataneously 'trying to remove and water down the basic fundamental concept of evolution that underlies all of biology.'
Case in point: try to imagine a stem cell therapy company deciding where to set up shop. I doubt they'd be excited about a state that doesn't make sure their high school students understood mutations, natural selection, the origin of species, the fossil record, and all the other elements of evolutionary biology--that thinks it's fine just to claim that the broken sugar gene in our genome was just stuck there for reasons unknown by some mysterious designer...

Posted by DeLong at 12:08 PM | Comments (0) | TrackBack

Paris Hilton and Company Are Secretly Unhappy...

Don Herzog dredges up the argument that we should feel sorry for Paris Hilton and company--that they have been harmed by lower marginal tax rates for the rich and would be harmed by permanent estate-tax repeal:

Left2Right: blast from the past (two): Don Herzog: May 20, 2005: It's one of my favorite pamphlets, but alas, it isn't reprinted any more. After the author published it, he handed it off to the Association for Preserving Liberty and Property against Republicans and Levellers — yup, they don't name political groups like they used to — and they circulated it widely.... This delicious pamphlet hasn't even been publicly available online. But I have boldly taken matters in hand and now it is. The pamphlet is William Paley's Reasons for Contentment, Addressed to the Labouring Part of the British Public, first published in 1792.... Anyway, you should read Paley's deathless pamphlet. All nine pages of it....

His pamphlet insists so vehemently on the superiority of poverty that it becomes entirely mysterious why the rich don't try to find some poor suckers to take their wealth off their hands. Or for that matter why they don't just burn it outright.... Providence has ensured that most people can be happy without wealth. Workers are busy, so they have no time for the "irksome and tormenting" thoughts that afflict the wealthy in their leisure. "Frugality itself is a pleasure." The poor provide more easily for their children:

All the provision which a poor man's child requires is contained in two words, "industry and innocence." With these qualities, tho' without a shilling to set him forwards, he goes into the world prepared to become an useful, virtuous, and happy man.

The poor even get more pleasure from food and drink.

The rich who addict themselves to indulgence lose their relish. Their desires are dead. Their sensibilities are worn and tired. Hence they lead a languid, satiated existence. Hardly any thing can amuse, or rouse, or gratify them. Whereas the poor man, if something extraordinary fall in his way, comes to the repast with appetite; is pleased and refreshed; derives from his usual course of moderation and temperance a quickness of perception and delight, which the unrestrained voluptuary knows nothing of.

Posted by DeLong at 12:07 PM | Comments (0) | TrackBack

Sing, O Muse, of the Ire of Teresa Nielsen Hayden and Company...

They are annoyed. This is far better than "your father was a hamster and your mother smelled of elderberries":

Making Light: On reading Thomas Friedman again: I was right. Thomas Friedman is indeed one of those rare enlivening bad artists who inspires better writers to bouts of splenetic eloquence. What better proof could you ask than the following poems, written upon the occasion of my previous post?

The first, by John M. Ford, from the comments thread:

Much have I travell’d on the feet of gold,
And many tumbled walls and maidens seen,
Round many horny Africs have I been
Which bards like bosoms in their welkins hold,
Oft of a spare expanse had I been told
That fence-swung Homer looked on as demesne;
Yet never did I breathe its mountains clean
Till I heard Friedman speak out uncontrolled,
Then felt I like some Cousteau of the skies
When a new bubble undermines his ken,
Or sack-like Falstaff, when with precast eyes
He stared at echoes—and his fellow men
Harked back in multitudes like single spies
Silent, past their peak in Darien.
The second came in the mail from James D. Macdonald:

On first looking into Friedman’s Flathead
Much have I travell’d in a chartered jet
And munched betimes upon a Cinnabon;
Upon my iPod listened to Don Juan
Which I downloaded from the wireless ‘Net.
I did not understand the ‘Nineties lore
Of Windows systems and of Pizza Hut,
How one was opened and the other shut,
Till I heard Friedman speak in metaphor.
Then felt I like a steroid in a vein:
Jose Canseco on a level field,
Whose random thoughts of glory and of pain
Were like an ice-cream sundae all congealed.
The moral is, when put by words in train,
That which does not exist can’t be revealed.

This becomes interesting. If it continues, Friedman may conceivably hope to someday outdo Gene Steinberg as one of the Muses of Eloquent Indignation.

Only time will tell.

Addendum: Jonathan Vos Post has weighed in:

Friedmandias
I met a traveller from the New York Times
Who said: ‘Two vast and Lexus legs of stone
Stand in Bangalore. Near their paradigms
Half sunk, a shattered visage lies, whose frown,
And open Windows, and sneer of the Berlin Wall,
Tell that its sculptor often ate at Pizza Hut
Which yet survive, stamped on this Lilliput,
T.I. that mocked them as ephemeral.
And on the plinth by this Michelangelo—
“My name is Friedmandias, king of the IPO:
Look on my prose, ye Mighty, and despair!”
Nothing coherent stays. Round the decay
Of that steroidal wreck, boundless and bare
The level playing fields stretch far away.’

Those who prefer their inspired indignation in the form of prose may appreciate Ademithopur’s Venting at Cinematic Rain:

a commenter cited this little excerpt from a review of Mr Friedman in the LATimes book review, which set me off, hence the need to vent. my apologies
“… Friedman recounts that he first realized the extent of these changes recently at the KGA Golf Club in southern India when his playing partner pointed at two shiny glass-and-steel buildings and declared, ‘Aim at either Microsoft or IBM….’”
IIRC, ~~nearly~~more than half the indian population is under the age of 25, a good number of whom live in abject poverty.

i seriously doubt that there are enough jobs at any level in IBM or MSFT or all the software startups in the world combined to satisfy such a vast labor market (250 freaking million jobs over the next 15 years, to keep up with population aging). the reason that people are pissed is because the MNC’s have this Massive advantage in the labor market and are abusing it thoroughly, making employees work crap hours for marginally higher pay. these are the ‘haves’ btw. the have-nots are pissed because they have no avenues to get a piece of this action.

i am from south india. my cousin works for HP in B’lore. i visited him this past december. i also visited chennai and hyderabad. there are a lot more poor, hungry people in india than there are employees at HP. these people have not received any of the ‘trickle-down’ effects of globalization. the situation is pretty standard for a developing nation. rich get richer, poor get bent over and penetrated with a wooden spoon. the right-wing politics that held sway the past 4 years hasn’t helped at all, only causing more social rifts while failing to heal or treat the economic ones.
It makes such a difference in the language when the writer knows something.

Posted by DeLong at 12:05 PM | Comments (0) | TrackBack

The Logical Structure of the Geneva Conventions

Paul Lukasiak writes:

The key to understanding the Geneva Conventions is that they were designed to protect everyone placed under the authority of an "enemy" during wartime. Absent the findings of a competent tribunal that someone had committed war (or other) crimes, everyone had to be treated as either a POW or a "non-combatant".
The granting of POW status is not a "benefit" under the conventions -- it is designed to enumerate (and thereby restrict) the rights of captured combatants (as opposed to captured non-combatants). In other words, there are rights granted to captured non-combatants that are far greater than those granted to combatants. The definitions for "POW status" deliniate whom a capturer can provide the limited rights afforded to combatant --- and the rights afforded "POWs" are the minimum rights granted under the Conventions.

Posted by DeLong at 12:02 PM

As the Sun Sets on Daniel Okrent Day...

This is perhaps the most bizarre thing of all. As Mr. Spock would say, fascinating...

Did Daniel Okrent really say that David Cay Johnston is the leader of a lynch mob?

Did Daniel Okrent really say that he hoped that by the end of his stint as "Public Editor" everyone would know that the New York Times does not deserve to be called the newspaper of record?

Did Daniel Okrent really read 40,000 words--200 pica courier pages--written by Luskin?

Did Daniel Okrent really say that Don Luskin is better looking than Paul Krugman?

A correspondent directs us here:

Donald Luskin on Daniel Okrent and Paul Krugman on NRO Financial: New York Times "pubic editor" [sic] Daniel Okrent.... I've met with him and corresponded with him... 40,000 words.... Yes, I'm the one Okrent was talking about when he referred to "Krugman's enemies."... [W]hy didn't Okrent go further with his critique? And why, as the self-described "readers' representative," did he feel it was necessary at the same time to take a gratuitous swipe at me--one of his readers?...

[A] fear of reprisal.... Okrent wasn't always afraid.... When I first met him in early 2004 he was full of the burning zeal of the reformer, and eager for intellectual allies. His first words to me were, "You're much better looking than Paul Krugman." He told me that the Times didn't deserve to be called the "newspaper of record" and vowed, "When I'm done with this assignment, I want everyone to know that."... I knew it wouldn't last.... I wondered how long Okrent could maintain his independence... the glittery social world of Times management.... Times staff fought Okrent.... David Cay Johnston... organize[d] other reporters into what Okrent called a "lynch mob"....

the Times's campaign coverage... Okrent... asking, "Is The Times systematically biased toward either candidate? No."... What, you are no doubt wondering, could Okrent possibly have been thinking?... the Times's coverage of the presidential campaign... self-evidently biased toward John Kerry to the point of self-parody.... hundreds of e-mails from the Angry Left....

Okrent had not only succumbed to the pressure from the Left, he had cracked under it. Here we had the "readers' representative" using the mighty power of the New York Times to lash out at one of its own readers... calling him a "coward"... quoting him... in defiance of his pleading not to be quoted....

So, Okrent ends his 18-month[s]... a broken man, having turned against the readers he was supposed to represent...

Posted by DeLong at 11:58 AM

Matthew Yglesias on Infopolitics

He has moved into the Josh Micah Marshall Empire:

TPMCafe || Politics, Ideas & Lots Of Caffeine: Infopolitics as Metaphor and Reality: Back in my TPM guest-blogging days, I concluded by asking my now-colleague here at the cafe what it was, exactly, that New Democrats and New Labour had in common, given that the policy status quo in the U.K. is so far to the left of the status quo here in the U.S.A. He replied that 'the main dividing line between New Labour and New Democrats and the more recalcitrant portions of their respective parties is a realization that the industrial age has come and gone' and that certain things follow from that.
And, indeed, I see on page 258 of Kenny's book that this is Al From's official account, too. Indeed, you see this idea popping up all over the place. It's in a bunch of really bad Joe Klein columns about Social Security, and also in his rather better book about the Clinton administration. Andrei Cherney's book, The Next Deal, which I've just been reading is positively dripping with it. It even says 'The Future of Public Life in the Information Age' right there on the cover.I think it's notable that in all these contexts, 'the information age' almost always serves as a kind of metaphor for the notion that the public sector ought to become more flexible, more consumer-oriented, and so forth. Which is to say that when Andrei writes about charter schools, he doesn't literally mean that we should move to a program of universal public school choice because people nowadays have cell phones. What he means is that in an environment increasingly driven by choice in the consumer world, a hierarchical system of segmented school monopolies sticks out like a sore thumb and rubs against peoples' sensibilities.
All that's fine as far as it goes (except when, as in the case of Klein's enthusiasm for privatization it's not fine), but it leaves what I think is a pretty noteworthy blank spot -- the literal politics and policy of the information age. There's a broad set of issues related to intellectual property law, telecommunications policy, the dispensation of the radio spectrum, and so forth that are actually about the information age where the policies we have nowadays are unsatisfactory and where mainstream liberal figures have tended not to show much leadership. I've got an article forthcoming in the Prospect about one corner of this -- broadband competition -- and hope to do more work on the subject in the future. In addition, we've got Reed Hundt, a bona fide expert on a lot of this stuff, as part of the Coffee House team.
For now I'll just note that even though it doesn't seem to me that Washington's New Dem institutions do a notably better job on this front than the Old Dem ones do, the problem here does fit very well with a lot of the New Dem critique of the party and progressive politics more generally. Which is to say that Democrats have gotten very bad at addressing issues in a systematic and consistent way unless there's some organized liberal constituency group making the issue a top priority. But better digital policy isn't a labor issue, it isn't a black issue, it isn't a feminist issue, it isn't an environmental issue, etc. But it's still an important issue, and while a political party that claims not to believe in the necessity for a public sector role in the economy can afford to simply ignore it, the party that claims to believe in the vitality of such a role really can't.

Posted by DeLong at 11:52 AM

Hitting a Nerve...

John McGowan writes at Michael Berube Online:

John McGowan: A hit, a palpable hit. The President, Vice-President, Secretary of State, the Secretary of Defense, and the Head of the Joint Chiefs of Staff all responded this week to Amnesty International’s latest Human Rights Report. Bush called Amnesty’s concerns “absurd” and Rumsfeld, while acknowledging that “some abuses” had occurred, objected most strongly to the terms “gulag” and “concentration camps”.... The gents protest too much.... Our government officials keep trying, with their talk of a few bad apples in the lower ranks or of outrage... to obscure from view that the US is forcibly detaining people against their will outside of any legal process. To “admit” and “punish” abuses in this schema actually serves the larger policy because once you agree to use the word “abuses” about some of the behavior, you are granting the legitimacy of the day-to-day operations.
Recall that the Supreme Court has ruled that the detainees at Guantanamo must have hearings. How many have gotten their Court-mandated hearings so far? I’m having a Brad DeLong—“why can’t we have a better media?”—moment on that question. An hour reading the news stories on Guantanamo failed to yield an answer. The Court ruling came on January 31, but I can’t find any updates on what has been done in way of compliance. And nobody raises the question—no less answers it—in the current spate of stories about the Amnesty Report. Except, of course, it is right there in the Amnesty Report. Will the answer shock you? None. Nada.
Rule that the Geneva Conventions are quaint. Ignore a ruling from the US Supreme Court. But jump all over the “excessive” language of “gulag” and “concentration camp.” How many times can these guys—and Condi—pull off this trick?
Hannah Arendt was very clear that evils done to humans in the modern world—which is organized politically around the form of the nation-state—begin by rendering people “stateless,” by moving them outside of any legal structure in which they are recognized as citizens with certain rights or have access to a legal system in which to contest their treatment. The US has headed down that path, not on the scale of 20th century evils, but making use of the same forms. (Of course, I didn’t have to look long to find a conservative blog that is full of scorn for legal protections for obviously wicked people.) In that respect, Amnesty’s terms are apt—and, if sensationalist, reflect a desperate attempt to get somebody’s, anybody’s, attention.
Keep the pressure on. We’ve got this brief swinging of the media’s attention to our detention centers once again. We have an administration placed once again on the defensive—and reacting by swinging out wildly at its accusers. Maybe even someone in the mainstream media will read the Amnesty report and remember the Supreme Court decision.

Impeach George W. Bush. Impeach Richard Cheney. Do it now.

Posted by DeLong at 11:50 AM

Ted Barlow's Speaker's Corner

Ted Barlow is reading around:

Ted Barlow: Speaker's Corner: I am very, very sorry that it took me so long to pull this together. Many thanks to Anthony at Things You Don’t Talk About in Polite Company for the name, and many thanks to those who emailed. Newish bloggers, I’m going to do this again in two or three weeks, and I’d love to hear from you about your best posts. Opinions expressed are not necessarily mine.

Mark Thoma at Economist’s View has a terrific basic-principles primer about The Need for Social Insurance.

Charles Norman Todd at Freiheit und Wissen compares the Bush administration’s treatment of two different Latin American governments in Guatemala and Venezuela: Two Models for U.S. Diplomacy. He also edits the Carnival of the Un-Capitalists:

Our Carnival is not meant to be anti-capitalist. Rather, we are just trying to gather the best economic posts from the left on issues ranging from globalization and neoliberalism, to income disparity, free-trade, corporate malfeasance, etc, and so on.

Patrick Smith at Tiberius and Gaius Speaking… is likely to get some angry comments about Is the Republican Party truly fascist?

Wufnik at Bazzfazz is an American ex-pat in the London. He’s got an interesting post on Team Horowitz’s take on European anti-Americanism:
American xenophobia.

Delicious Pundit has a nice metaphor going on in The martini of public policy.

Nick at News From Beyond The North Wind writes about Cumbrian company towns in These Preterite Shoes.

Chase McInerney at Cutting to the Chase is a freelance journalist in Oklahoma; he writes In Defense of Newsweek.

Posted by DeLong at 11:50 AM

Gene Sperling on Social Security

He writes, at Bloomberg:

Bloomberg.com: Gene Sperling: June 1 (Bloomberg) -- Yesterday, President George W. Bush promised that his strategy for selling his now sinking Social Security private accounts proposal will eventually cut through opposition ``like water through a rock.'' Perhaps a more fitting water-related metaphor for Bush's proposal could be found at the end of the movie ``Annie Hall''.... I think what we've got on our hands is a dead shark.''....
When that moment of realization comes, the White House will certainly blame Democrats for being unwilling to negotiate on private accounts for purely partisan reasons.... Conservatives claim they simply want Democrats to come forward with their own positive ideas on Social Security. I drew a couple of pats on the back from them for proposing a three-part framework calling for no debt increases, a 3 percent surtax on any income exceeding $200,000, and a Universal 401(k) with matching credits to low- and middle-income savers.... What non-political reason, I am often asked, could there be for someone like myself who supports Universal 401(k)s outside of Social Security to so stubbornly refuse to even consider private accounts within Social Security?
The answer is twofold. First, Social Security is simply the wrong vehicle.... In our three-legged retirement system -- which includes market-sensitive private savings, home equity and pensions -- Social Security is the only leg free of market and economic risk.... The second substantive rationale for a hard ``no'' on privatization is that virtually every private-account plan is designed to make Americans undervalue the social-insurance benefits of Social Security and overvalue their private accounts.... By requiring borrowed funds for private accounts to be paid back not from the accounts themselves but by reducing Social Security benefits, [Bush's] plan is designed to make private accounts seem deceptively large and Social Security benefits appear deceptively small. This absurd design serves only one purpose: to encourage the healthy and the well-off to misconstrue Social Security as a bad deal...

Posted by DeLong at 11:46 AM

Don't Forget the Noseplugs!

I don't know about you, but I'm taking noseplugs to my next car-shopping expedition:

The Washington Monthly: TRUST....Swiss researchers have discovered a hormone that increases your trust in fellow human beings:

Ernst Fehr of the University of Zurich and colleagues tested 194 healthy male students in a series of sophisticated games of risk and trust....Some players were given a whiff of oxytocin, some inhaled a vial of air. None of the players knew what they were sniffing and none knew whether the trustees were trustworthy or not: they had to make a decision. Those who sniffed oxytocin showed a greater propensity to trust someone than those who simply inhaled air.
But when the trustee was replaced with a computer, both sets of investors showed much the same judgment. So the oxytocin did not make the investors generally more gullible or profligate: the effect was only visible when they had to deal with another human being.

How sad that Lee Atwater isn't around to take advantage of this development. Just think what he could have accomplished.

Posted by DeLong at 11:44 AM

Advice for Berkeley

Our after-school babysitter has gotten into Cal--Berkeley--and will be going there next year.

Current students polled have two pieces of advice:

Don't try to park.
If you're running late, think that there has to be someplace legal to park at Berkeley, and fail, DO NOT park in a Nobel-prizewinner spot.

Posted by DeLong at 11:44 AM

A Worrisome Trend...

That makes three graduate students in the past three days who have asked me if they might borrow a book from me, because "all the good books are checked out of the library and recall doesn't work."

So far this week I am down:

Robert Bates (1984), Markets and States in Tropical Africa (Berkeley: University of California Press: 0520052293).
Francois Furet (1999), The Passing of an Illusion (Chicago: University of Chicago: 0226273407).
Paul Blustein (2005), And the Money Kept Rolling in (and Out): Wall Street, the IMF, and the Bankrupting of Argentina (New York: PublicAffairs: 1586482459).
Iain M. Banks (2004), The Algebraist (London: Orbit: 1841491551).

Posted by DeLong at 11:42 AM

Mirror of Wildernesses...

Susan Madrak directs us to:

Behind the Looking Glass in Iraq: On May 10, Raja Nawaf Farhan al-Mahalawi, the newly appointed governor of Iraq's Anbar province, was kidnapped by insurgents. Five days later, according to news reports, he was freed. But today, more than two weeks after he was freed, he was "found dead along with his militant captors after a clash with U.S. forces."
Notice anything unusual in this chain of events? You do? No one in the media did. Not one report that I've seen of al-Mahalawi's death mentions that, according to the Iraqi government, he had been freed by his captors 16 days previously. I wonder why. Why was't one editor brave enough to print the following, "Raja Nawaf al-Mahalawi, the governor of Iraq's Anbar province, was killed along with his kidnappers 16 days after they had released him." After all, if you're going to print statements of U.S. and Iraqi officials as legitimate news--that is, if you're going to print absurdities--why try to hide them?
An examination of what else was happening in Iraq on May 15 explains the mystery. That was the day of Condoleezza Rice's surprise one-day visit. Evidently, it was too embarrassing for Iraq's putative leaders to have to meet with their boss while the governor of Iraq's largest province was being held by the insurgents. So they "freed" him. Simple as that. Reality? It's no longer a limitation.

Posted by DeLong at 11:39 AM

The Europeans Figure Out How to Stop the Appreciation of the Euro

Edward Hugh refers us to:

Bloomberg.com: Germany: The German Finance Ministry declined to comment on a magazine report that discussions took place last week between Finance Minister Hans Eichel, Bundesbank President Axel Weber and economists on a possible failure of European Monetary Union.
Stern magazine said in a pre-released article today that the group discussed a scenario for the single currency's collapse as differences in inflation and growth rates within the union grow. An internal ministry document formed the basis of discussions, Stern said.
The Finance Ministry ``doesn't comment on internal papers or meetings,'' said spokeswoman Sandra Hildebrandt in a telephone interview today. ``The euro is a success story.''
Inflation and growth differentials ``can lead to a meltdown in a couple of years, the collapse of the euro,'' the German magazine quoted Joachim Fels, chief fixed-income economist at Morgan Stanley, who took part in the meeting, as saying.
"The gap risks widening, so that the danger of an adjustment crisis is growing bigger,'' Stern quoted the Finance Ministry document as saying. Germany's lower house of parliament has commissioned a legal opinion on a possible reversal of EMU and the right of one of its members to leave the currency, Stern said.
The introduction of the euro has cost Germany its former advantage of lower financing costs, which partially explains why it's lagging behind the other euro members, the ministry said in the report, according to Stern.

Posted by DeLong at 11:33 AM

When Wingnuts Read!

A Washington lawyer friend of mine who reads Wonkette on an hourly basis directs us to a great piece of right-wing wingnuttery:

HUMAN EVENTS ONLINE :: Ten Most Harmful Books of the 19th and 20th Centuries:

The Communist Manifesto
Mein Kampf
Quotations from Chairman Mao
The Kinsey Report
Democracy and Education
Das Kapital
The Feminine Mystique
The Course of Positive Philosophy
Beyond Good and Evil
General Theory of Employment, Interest and Money

Posted by DeLong at 11:32 AM

Social Causation and Discouraged Workers

Early in March 1980, about 100 of us Harvard sophomores began carrying around--everywhere we went--a large book with a bright red cover, and the word "SUICIDE" emblazoned on the front in large black letters.

It had been--as it always is in Cambridge, Massachusetts--a miserable winter: not cold enough for the snow to be a constant delight, but just a wet garbage-filled slushness. The absence of sun had given us all seasonal affective disorders. And we were desperate for spring and sunlight to come as we opened our copies of our books and smeared turkey tetrazini from the Leverett House dining hall across the table of contents.

To make things worse, our roommates and passers-by used the books we carried as an opportunity for jokes: "Don't do it, Brad! You still have plenty to live for!" was about as good as it got.

What we were reading, of course, was Emile Durkheim's Suicide. As we were taught the book, Durkheim was attempting two very important things:

A critique of classical liberal modernity, as tending to cause a great deal of distress as people found themselves severed from their communities and turned into isolated Benthamite machines or, more optimistically, Millian agents.
A stunning demonstration of the power of sociology: nobody about to commit suicide will say "I'm doing this because I'm Protestant and not Catholic" or "I'm doing this because I live in a big city rather than a small town," and yet suicide rates exhibit powerful variation in response to standard sociological variables. What the sociological background is can provide the extra push that makes the normal (or abnormal) stresses of life unbearable, or can provide the extra support that makes the unbearable bearable.

It is for this reason--call it social causation--that I find unconvincing Andrew Samwick's argument that because people don't say that the primary reason they're dropping out of the labor force is because jobs are hard to find that we can therefore conclude that people aren't dropping out of the labor force because jobs are hard to find:

Vox Baby: Re-critiquing Krugman, with Friends: What generated the several posts of mine last fall was my attempt to figure out the extent to which the decline in the unemployment rate is due to the fact that 'some of those without jobs stopped actively looking for work, and therefore dropped out of the unemployment statistics'.... I considered the three usual augmented measures of the unemployment rate that the BLS tabulates in Table A-12 each month that specifically track those who are not in the labor force because they are not actively looking for work....

Unemployment Rate: Fell from 6.3 to 5.4 percent

UR, Incl. discouraged workers: Fell from 6.6 to 5.7 percent

UR, Incl. discouraged and other marginally attached workers: Fell from 7.2 to 6.4 percent

UR, Incl. marginally attached workers and those employed part-time for economic reasons: Fell from 10.3 to 9.4 percent

Subsequent exchanges with readers and with some helpful folks at the BLS revealed that the BLS also collects information monthly on those who are not in the labor force but want a job, even if they have not searched recently enough and/or are not currently available to work. So we could add another bullet point (from my last post in the series in October) to include these people:

UR, Incl. any who wants a job: Fell from 9.2 to 8.4 percent

Even measures of the unemployment rate that are specifically designed to pick up people who are out of the labor force because they stopped actively looking for work declined over the period in question. All of them fell by 0.8 - 0.9 percentage point, compared to the decline of 0.9 percentage point in the official unemployment rate. I don't even get 'primarily' from this...

I am not convinced by Andrew. Falling unemployment rates with roughly constant employment-to-population ratios and disappointing real wages seems to me more consistent with the hypothesis that discouragement is pushing more people across the psychological line that leads them to drop out of the labor force, people who when asked what is their primary reason for leaving say that it is to get more schooling or have a kid or just take some time off.

On the other hand, he is not convinced by me. And he's right to some degree at least: I should be worried by the fact that the Labor Department's attempts to pick up this phenomenon that I believe is going on do not succeed in doing so.

Posted by DeLong at 11:30 AM

Interesting Dreams He Has

Tyler Cowen writes:

Marginal Revolution: Usually I find books like this only in my dreams: Fischer Black and the Revolutionary Idea of Finance, by Perry Mehrling.

That's not what happens in my dreams at all! Nevertheless, the book is highly recommended.

Posted by DeLong at 11:27 AM

Why Oh Why Can't We Have a Better Press Corps? (Jonathan Chait No Like Danny Okrent Department)

Chait writes:

The New Republic Online: etc.: OKRENT'S LAST WORD: I didn't think Daniel Okrent, the departing New York Times public editor, could get any more cowardly. But he just did.
If you didn't notice, Okrent included in his final Times column a parting shot at columnist Paul Krugman and two other Times columnists. Okrent wrote, 'Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults.' Okrent declined to offer a single example of such slicing and dicing, or even to expound upon his accusation in any way. By way of explanation, he wrote: 'I didn't give Krugman, Dowd or Safire the chance to respond before writing the last two paragraphs. I decided to impersonate an opinion columnist.'
This is, of course, a shockingly dumb explanation. No, op-ed columnists don't give their targets a chance to respond. But they do make some effort to substantiate their claims. Krugman wouldn't write that President Bush told a lie in a recent speech and leave it at that. He would pass on to the readers what Bush said and explain why he felt it was a lie. Is Okrent really so dim that he couldn't grasp this point?
Maybe, but more likely he doesn't have the guts to do it. In an online debate, Krugman pressed Okrent to substantiate his accusation. You can read the debate here. It's truly pathetic. Krugman explains why Okrent's accusations were wrong, and Okrent repeatedly dodges the substance.
For instance, Okrent writes, 'His 5/9/05 column on progressive indexing. The column itself (without the ex post facto explanation) suggestively conflates 'retirement income' and 'social security benefits' without sufficient explanation, but with plenty of apparent point-making.'
Krugman replies:

I explained that the term 'retirement income' normally refers to income from all sources, not just Social Security benefits (the Social Security Administration says on its Web site that 'you should not count only on Social Security for your retirement income.') I supplied him with a study (pdf) that used Social Security Administration data to show that because high-income workers depend much less than middle-income workers on Social Security, they would have smaller percentage cuts in overall retirement income than middle-income workers. This was similar to a point I made, using different data, a week earlier (5/1/05), so I was surprised that Mr. Okrent even raised the issue.
So Okrent simply launches even more personal attacks. For instance, he writes: 'For a man who makes his living offering strong opinions, Paul Krugman seems peculiarly reluctant to grant the same privilege to others. And for a man who leads with his chin twice a week, he acts awfully surprised when someone takes a pop at it.'
But of course Krugman didn't challenge Okrent's right to disagree with him, only his right to launch unsubstantiated attacks on his integrity.
The sneakiest thing in Okrent's latest entry is this:
Believe me--I could go on, as could a number of readers more sophisticated about economic matters than I am. (Among these are several who, like me, generally align themselves politically with Prof. Krugman, but feel he does himself and his cause no good when he heeds the roaring approval of his acolytes and dismisses his critics as ideologically motivated.)
Note what's going on here. First, Okrent implies that there are lots of examples of Krugman abusing data but declines to provide them. Next, he conflates that accusation with a completely different one--that Krugman plays to his liberal base and dismisses those who disagree too easily. I think there's some truth to the latter criticism. But that's a completely different accusation. Being too ideological or partisan is a common flaw among pundits, and it's in the eye of the beholder. Manipulating data is far more serious. Readers can judge for themselves if Krugman is playing to the liberal crowd. They can't judge whether he's using numbers dishonestly. To say he does so is to tell readers they can't trust him.
Okrent continues on with other snide remarks, including this parting shot: 'If he replies to this statement, as I imagine he will, I'll let him have what he always insists on keeping for himself: the last word. I hate to do this to a decent man like my successor, Barney Calame, but I'm hereby turning the Krugman beat over to him.' Look, many journalists have been in the position of wanting to dodge a reader who harbors a burning desire to debate some obscure point and lots of time on his hands. But Krugman isn't some crank, and he's not debating some obscure point. Okrent smeared him in his own newspaper, and he has a right to clear his name.
I'm not saying there are no quarrels that anybody could ever make with any of Krugman's data. He deals with very complicated questions in a very small space. He simply can't devote endless technical paragraphs to establishing his every premise. (That's why I happen to think his recent series of columns on health care, which allowed him to develop his thoughts at greater length without rushing through his premises, have been his best ones.) So Krugman can't chase every rabbit down every hole, but given the constraints of his column, he does a very good job. Okrent ought to be ashamed of himself.

Posted by DeLong at 11:26 AM

Why Oh Why Can't We Have a Better Press Corps? (Paul Krugman Has Another Word Department)

He writes:

The New York Times: Public Editor's Web Journal (Forum/Message Board): Just one last word. Mr. Okrent has so far offered only one example that, if true, would have justified his all-out attack on my ethics. Everything else is picking nits: I could explain why 77 percent, not 64 percent, is the right number, but does it really matter? The only significant example was his claim that I blended household and establishment survey data on jobs, in an attempt to score political points. But as I showed in the previous note, I didn't and in the column itself I pointed readers to the correct data. Now Mr. Okrent claims that he was only referring to my assertion that the economy needs to add 140,000 payroll jobs per month, which for some reason he thinks comes from the household survey. (It doesn't.) Sorry, that's an unconvincing evasive maneuver. Mr. Okrent clearly accused me of playing mix and match with the job numbers themselves. In fact, in our correspondence, when I said that it was all payroll data, he declared that 'your insistence that you relied only on one set of numbers is very puzzling. I don't see how the math works any other way; maybe you could further enlighten me.' In other words, the only accusation that could have justified Mr. Okrent's attack was completely unfounded. And now he's not enough of a mensch to admit his error.

Posted by DeLong at 11:25 AM

Why Oh Why Can't We Have a Better Press Corps? (Danny Okrent Jumps the Shark Once Again Edition)

Paul Krugman writes:

My thingie and Okrent's reply are up:

http://forums.nytimes.com/top/opinion/readersopinions/forums/thepubliceditor/publiceditorswebjournal/index.html

Something you can quote me on:

"Okrent is lying to cover his mistake when he accused me of blending data from the household and establishment surveys. He now claims that he was only referring to my estimate of how many payroll jobs the economy needs to add per month [to keep labor market conditions from deteriorating], which for some reason he thinks is based on the household survey.

"But that's not what he said to me: he claimed that the basic numbers I gave on job growth were mix-and-match. In fact, in our correspondence, when I said that it was all payroll data, he declared that "your insistence that you relied only on one set of numbers is very puzzling. I don't see how the math works any other way; maybe you could further enlighten me."

"In other words, he screwed up completely..."

And here, in the extended entry, are Krugman and Okrent, with a few of my annotations:

The New York Times: Public Editor's Web Journal (Forum/Message Board): Daniel Okrent, in his May 22 farewell column as the first public editor of The New York Times, criticized Paul Krugman, an Op-Ed columnist for the newspaper. Prof. Krugman, who disputed the validity of Mr. Okrent's comments in the public editor's regular reader-letters column in The Times on Sunday, elaborated in a longer e-mail message for this Web Journal -- with the understanding that Mr. Okrent's response would be posted simultaneously.

* * *

Krugman Lays Out Why He Believes Okrent Was Wrong

When I asked Daniel Okrent for the specifics behind his final attack, he offered two examples of what he claimed was improper use of numbers. This was the first time I heard from him, or anyone else, about either alleged problem.

Let me start with the example that, I think, sheds most light on what is going on: Mr. Okrent's claim that I engaged in "blending, without explanation, numbers from the household survey and the establishment survey -- apples and oranges -- apparently in order to make a more vivid political point about Bush (5/25/04)."

He's referring to two different surveys conducted by the Bureau of Labor Statistics, which provide alternative estimates of employment. Some people play games by mixing and matching numbers from the two surveys, and Mr. Okrent has apparently spent the past year firmly believing (without having checked with me) that I did the same thing, to score political points. But I didn't. All the numbers in my 5/25/04 column came from the establishment survey.

Moreover, I not only played fair with my readers, I urged them to check the data for themselves. Here's what I wrote in the column:

"Go to the Bureau of Labor Statistics Web site at stats.bls.gov. Click on 'U.S. economy at a glance,' then on the green dinosaur next to 'Change in payroll employment' for a 10-year chart of monthly job gains and losses."

If Mr. Okrent had done that, he would have seen for himself that what I said about job growth was true.

For his other example, Mr. Okrent criticized me for "asserting that the 40 percent unemployed out of work for more than 15 weeks was a 20-year record" (2/10/04, 3/12/04) without acknowledging that the comparison only applies back to the redesign of the CPS questionnaire. See Polivka and Miller, "The CPS After Redesign," on the BLS Web site.

This sounds like another accusation that I blended two sources of data, without telling readers. In fact, all I did was use the Bureau of Labor Statistics data series on long-term unemployment, which is available on the BLS Web site, where there is no indication given to the public of any problem with comparisons between different time periods. Lou Uchitelle did the same thing in an article published in the New York Times business section, "The New Profile of the Long-Term Unemployed", two days after Mr. Okrent's blast. That article made the same point that I did in the columns Mr. Okrent criticized: long-term unemployment is unusually high.

After Mr. Okrent directed me to Polivka and Miller, I checked it out; it's a 1995 research paper which suggested that the 1994 redesign of the Current Population Survey questionnaire might have raised estimates of long-term unemployment. It wasn't an official statement that pre-1994 comparisons are improper, and the BLS didn't consider the questions raised in that paper serious enough to warrant a warning for consumers of its data. Like most such consumers, I don't go hunting for research papers suggesting possible problems with the numbers unless the BLS says there's reason to be concerned otherwise, it would be impossible to get any work done. Let me also say that the issue is pretty trivial: adjusting the data might put long-term unemployment at a 10-year rather than 20-year high, but it's unarguably very high by historical standards.

To summarize: when I asked Mr. Okrent for evidence of my malfeasance, he provided one example in which his description of what I did was simply wrong, and another in which he accused me of pulling a fast one on readers, when all I did was use official data in a standard way.

In correspondence with Mr. Okrent, I pointed out that his specific attacks -- especially the blatantly wrong characterization of my 5/25/04 column -- were unfair. I asked him to do what he would have expected me to do, and admit that he had been in error. He refused.

Let me repeat that Mr. Okrent never raised these issues as public editor. He now says that he didn't because he "experienced your best-defense-is-a-good-offense approach, and found it futile to deal with it."

Maybe a description of some of my experiences with him will give some sample of what he found difficult to deal with.

On 6/8/04, I made a numerical mistake, reading from the wrong line in a table of tax rates during the Reagan years. Although the mistake didn't change the column's conclusions, I reluctantly issued a correction. But I forgot to use the word "correction," which I hear got Mr. Okrent upset.

Mr. Okrent questioned my assertion (10/12/04) that Congressional Budget Office estimates show tax cuts were responsible for two-thirds of the fiscal 2004 deficit. I explained that in each of its budget projections the CBO estimates how much of the change from its previous projection is due to changes in tax law, and that the Center on Budget and Policy Priorities adds these numbers up to calculate the CBO's implied estimate of the overall cost of tax cuts since 2000. I provided Mr. Okrent with the data used for that calculation.

Mr. Okrent challenged my assertion (5/9/05) that the Bush Social Security "progressive indexing" plan would impose its largest percentage reductions in retirement income on middle-income workers.

I explained that the term "retirement income" normally refers to income from all sources, not just Social Security benefits (the Social Security Administration says on its Web site that "you should not count only on Social Security for your retirement income.") I supplied him with a study (pdf) that used Social Security Administration data to show that because high-income workers depend much less than middle-income workers on Social Security, they would have smaller percentage cuts in overall retirement income than middle-income workers. This was similar to a point I made, using different data, a week earlier (5/1/05), so I was surprised that Mr. Okrent even raised the issue.

If Mr. Okrent was unsatisfied with my explanations in these and other cases, it was his right to demand a fuller explanation, and, if he was still unsatisfied, to say something specific in his column.

I hope we aren't going to get into an extended period in which Mr. Okrent, who failed to air his concerns when that was his job, then failed even in private to provide examples that bear any resemblance to what he accused me of doing, keeps throwing out new accusations.

* * *
Okrent Responds

For a man who makes his living offering strong opinions, Paul Krugman seems peculiarly reluctant to grant the same privilege to others. And for a man who leads with his chin twice a week, he acts awfully surprised when someone takes a pop at it.

Because only a fool or a supply-sider would eagerly engage in a debate on economics with Prof. Krugman, I'll try to eschew argument and stick to facts -- or, at least, the sort of statements that he himself represents as purely factual:

1. I offered him only three examples of "shaping, slicing and selectively citing" (for some reason, he's left one out of his rebuttal) Note: the example Krugman left out is an Okrent complaint that is not about numbers at all--Okrent's complaint Krugman called a study by Jagadeesh Gokhale and Kent Smetters a "Treasury Study" rather than a "study by Treasury Department economists." But the study was much more than a mere academic study by Treasury underling economists. It was a study commissioned by ex-Treasury Secretary Paul O'Neill and reviewed by then-OMB Director Mitch Daniels and ex-NEC head Larry Lindsey--but that's too long to get into a 700 word column

CNN: The Financial Times reported Thursday that the Gokhale-Smetters study was commissioned by Paul O'Neill when he was treasury secretary, and Smetters told the paper that White House advisers Lawrence Lindsey and Mitch Daniels read and were 'very engaged' with it. The Treasury Department Thursday denied having anything to do with the study, which is likely to be published by the AEI in July, and Gokhale said it was meant only to be a 'talk piece.'

because I was at home when he began bombarding me with outraged demands for retraction and apology; I'd completed my tenure as public editor the preceding week, and did not have any files with me. When I had the chance to consult some of my reader mail later in the week, some of his greatest mis-hits immediately came to the fore. I'll get to a few of those in point No. 5, below.

2. This was the first he heard from me on these specific issues partly because I learned early on in this job that Prof. Krugman would likely be more willing to contribute to the Frist for President campaign than to acknowledge the possibility of error. When he says he agreed "reluctantly" to one correction, he gives new meaning to the word "reluctantly"; I can't come up with an adverb sufficient to encompass his general attitude toward substantive criticism. But I laid off for so long because I also believe that columnists are entitled by their mandate to engage in the unfair use of statistics, the misleading representation of opposing positions, and the conscious withholding of contrary data. But because they're entitled doesn't mean I or you have to like it, or think it's good for the newspaper.

3. The mixing of household and establishment numbers in his 5/25/04 column: Missing from the BLS chart he cites is any number that even resembles the 140,000 new jobs each month needed to keep up with the growing population a statistic he cites in the column, and upon which he seems to have based some of his computations. To my knowledge, that number only appeared in the household survey.

Note: to my--certain--knowledge, that number appears in neither the household nor the establishment survey: it's an estimate of the current trend growth rate of payroll employment driven by rising population. I have no idea who could have told Okrent it came from the household survey, or why.

4. The Polivka-Miller paper: On the substance, readers can come to their own conclusions by examining the report themselves, particularly the chart and related narrative addressing Duration of Unemployment on page 23 (pdf).

Note: Polivka and Miller's numbers imply that the 1994 CPS survey redesign raised the reported average duration of unemployment by a week. Unemployment duration is reported at 19.6 weeks today. It averaged 15.4 weeks in the 1984-1993 decade before the survey redesign, and 14.2 weeks in the decade before that. It's not quantitatively important.

On Prof. Krugman's defense of his unfamiliarity with it, he's effectively saying, "If I didn't know about it, it must not be important." This is a polemicist's dodge; no self-respecting journalist would ever make such an argument.

5. Some other examples of Krugmania that popped out of my copious files:

His 1/27/04 assertion that the cost of unemployment insurance "automatically" adds to the federal deficit. This two-fer misrepresents a pair of facts: that unemployment insurance is largely borne by the states, and that major federal contributions to the states come about only because of an act of Congress, which is hardly automatic.

His 2/3/04 assertion that tax proposals offered by Democrats would help the 77 pecent of taxpayers in the 15 percent bracket or less. The most recent generally accepted figures available at the time indicated that the number was actually 64 percent. Note: I believe that 77% of *all* taxpayers are in the 15% bracket or less; 64% of those who pay *income* taxes to the Treasury are in the 15% bracket or less; there are a bunch of people who pay taxes but not income taxes.

A very recent example that nonetheless escaped my memory until Prof. Krugman generously reminded me of it in his letter: His 5/9/05 column on progressive indexing. The column itself (without the ex post facto explanation) suggestively conflates "retirement income" and "social security benefits" without sufficient explanation, but with plenty of apparent point-making.
Believe me -- I could go on, as could a number of readers more sophisticated about economic matters than I am. (Among these are several who, like me, generally align themselves politically with Prof. Krugman, but feel he does himself and his cause no good when he heeds the roaring approval of his acolytes and dismisses his critics as ideologically motivated.) But I don't want to engage in an extended debate any more than Prof. Krugman says he does. If he replies to this statement, as I imagine he will, I'll let him have what he always insists on keeping for himself: the last word.

I hate to do this to a decent man like my successor, Barney Calame, but I'm hereby turning the Krugman beat over to him.

Posted by DeLong at 11:23 AM

A Defender of Daniel Okrent on Paul Krugman... Well, Half a Defender

Andrew Samwick of Dartmouth couches his lance and spurs his horse forward. But he's only going to defend Okrent halfway:

Vox Baby: I'm not going to get into the issue of whether Okrent should have provided an example.

This is wise on his part--for Okrent is indefensible. In fact, it's worse than Okrent not providing any examples. It looks like he didn't have any examples that stand up in mind--otherwise he would have provided them by now.

Samwick attempts a much more limited exercise:

The discussion that followed Okrent's piece might lead one to believe that there are no examples. I'll remind my readers of one that occupied our time back in October. It started with the post, 'Paul Krugman, Meet Irony.' The key quote (with the offending statement highlighted) from Krugman's op-ed, 'Checking the Facts in Advance' is:

Mr. Bush will boast about the decline in the unemployment rate from its June 2003 peak. But the employed fraction of the population didn't rise at all; unemployment declined only because some of those without jobs stopped actively looking for work, and therefore dropped out of the unemployment statistics. The labor force participation rate - the fraction of the population either working or actively looking for work - has fallen sharply under Mr. Bush; if it had stayed at its January 2001 level, the official unemployment rate would be 7.4 percent.

As I noted in my original post and the considerable discussion that followed (here, here, here, here, and here), there are two channels that allow the unemployment rate and the labor force participation rate to fall while leaving the employment-population ratio unchanged. The first is that people who want to work give up looking for work. (This takes the same person out of both unemployment and the labor force, with no one entering or leaving employment.) The second is that people who have jobs decide they don't want them anymore (perhaps to take care of their kids or go back to school), and they get replaced by someone who was previously looking for work. (This takes one person out of employment and the labor force and another person out of unemployment and into employment. Same net effect.) The two channels have opposite implications for whether we think the statistics are bad news for the economy. Krugman asserts--via the word 'only'--that the second channel doesn't exist...

I will concede that Paul Krugman should have written "primarily" rather than "only."

Andrew's two channels have the same effect on the unemployment rate and the labor force participation rate, but they have very different effects on wages. It's just supply and demand. In the Samwick channel--unemployment falling because some of the employed decide they don't want jobs anymore, and the unemployed fill their place--the driving force is a reduction in the supply of workers--a leftward shift in the labor supply curve. Such a leftward shift is associated with a higher price of labor: higher real wages relative to trend. In the Krugman channel--unemployment falling because some of the unemployed update their views of the state of the labor market and conclude it's no longer worth it to look for work (rather than doing something else)--the exit of people from the labor market is a response to lousy labor market conditions. It is a move downward and to the left along the supply curve rather than a leftward shift of the supply curve. It is associated not with higher but with lower real wages relative to trend.

So we can figure out which channel predominates--which is the primary cause--by looking at what has happened to real wages relative to some measure of trend. And the natural trend to use is that of labor productivity. If we plot total compensation per manhour deflated by labor productivity for the nonfarm business sector, all from Economic Indicators, we find:

Since the end of 2000, employee compensation--wages and salaries plus benefits--has been falling way behind productivity. This isn't what we would expect to find if changes in preferences had led to a leftward shift of the labor supply curve, making labor scarce and expensive. This is what we would expect to find if weak labor demand had pushed the economy down the labor supply curve.

I cannot come up with a story according to which the Samwick channel is the dominant one that is consistent with the growing gap between wages and productivity.

Posted by DeLong at 11:20 AM

The Medium Lobster Writes About Eggs and Omelettes

It's a wise crustacean. Is there a discount if you order it before 6?

Fafblog! the whole worlds only source for Fafblog.: sPerhaps, at this time, you may require some reassurance. Perhaps, if you are one of the handful of Americans not otherwise occupied with Amber Alerts and runaway brides and the curious sleepover habits of washed-up eighties pop stars, you may have accidentally happened upon a few bodies halfway across the world (Afwhatsistan? Bagrawho?), which may or may not have pricked whatever remains of a long-dormant and desensitized National Conscience. And you may be asking yourself what the point of all this has been, what has driven Americans halfway around the globe to sieze innocent men, beat their legs to pulp, and chain them to ceilings until they die.
Regrettable, yes, but let us remember that these two eggs, like the dozens before them, and the tens of thousands before them, were broken to make the greatest and worthiest of omelettes, the most succulent of breakfasttime generational commitments, the proudest and most visionary of truck stop slop. And when it is finished and served, to whomever it is served, will it not have been worth the mound of eggshells, the broken crockery, the shattered glass, the mountain of murdered cooks, the acres of burning kitchen, the unbroken stench of dead flesh? And if that omelette is never made, won't the idea of the omelette - finer and purer and more pristine than the thing itself - have been worth them all, in the end?
We must remember that for each complete failure the media reports - the innocents tortured to death without reason - there are hundreds of mere semi-failures we can never know about for reasons of vital national security, when the torture and murder of innocents stops a treacherous ticking bomb. Indeed, we must believe - no, assume - that with each new horror a new blow is struck for freedom, that with every new atrocity a fresh-painted Iraqi school blooms like a rose bud in spring.
The day will come when the justice of this is made manifest, when these heaps of corpses will be vindicated as unquestionably righteous. That day is ahead of us, a bright light at the end of this dark tunnel. Can you see it growing closer, brighter, louder? Victory is bearing down on us with the sound of thunder.

Posted by DeLong at 11:13 AM

Revenge of the Sith

Wow! What an experience! The misdirection as to the identity of the Evil Sith Lord in episodes 1 and 2 was completely successful! I was flabbergasted to learn who the evil mastermind really was!

It echoes through my mind still, and always will:

"Meesa no name Jar-Jar Binks! Meesa name: DARTH SIDIOUS!!!!"

Posted by DeLong at 11:09 AM

General Relativity Made Concise

John Baez writes:

Einstein's Equation: We promised to state Einstein's [general relativity] equation in plain English, but have not done so yet. Here it is:

Given a small ball of freely falling test particles initially at rest with respect to each other, the rate at which it begins to shrink is proportional to its volume times: the energy density at the center of the ball, plus the pressure in the x direction at that point, plus the pressure in the y direction, plus the pressure in the z direction.

In the final section of this article, we will prove that this sentence is equivalent to Einstein's equation. The reader who already knows general relativity may be somewhat skeptical of this claim. After all, Einstein's equation in its usual tensorial form is really a bunch of equations.... It is hard to believe that the single equation (2) captures all that information. It does, though, as long as we include one bit of fine print: in order to get the full content of the Einstein equation from equation (2), we must consider small balls with all possible initial velocities -- i.e., balls that begin at rest in all possible local inertial reference frames...

That is remarkably concise. Of course, the amount of auxiliary stuff you need to surround that equation with in order to calculate things with it is enormous...

And I wish somebody, sometime would tell me why Einstein's theory differs from Newton's in its prediction of the precession of the perihelion of Mercury...

Posted by DeLong at 11:08 AM

Variance of Price/Rental Ratios

General Glut makes excellent points:

General Glut's Globblog: There are many bits of evidence one can muster to identify housing bubbles. The Sunday New York Times trotted out a lot of data on purchase-to-rental price ratios to further bolster the argument that in California, Florida and parts of the Northeast, it's bubblemania.The logic of the indicator is, of course, that if purchase and rental prices both increase at roughly the same pace, there are some actual economic fundamentals driving the inflation: population growth, job growth, income growth, whatever. Of course, the ratio can increase somewhat if the quality of the purchased housing stock rises more than the quality of the rental housing stock, but there shouldn't be a complete disconnect between the two.
Read the entire article to get a flavor for the data, but check out this chart for something to chew on. What stands out most remarkably to me is that in 2000:I, before the US asset-based economy switched from stocks to housing, the purchase price to rental price ratio across all major US housing markets (data for 54 of them are reported) was virtually the same. The national average stood at 11.6, with San Jose at the high end (14.1) and Pittsburgh at the low end (10.5). Note that this gap was not wide: San Jose was 122% of the national average and Pittsburgh was 91%.
It's quite a different story five years later. In 2005:I, the ratio for the national average is up to 17.1, with the top and bottom at an amazing distance from one another. The peak is now San Francisco at a stunning 34.1 (San Jose is a close second at 34.0); the trough is Albuquerque at 11.8 -- still above the national average from five years ago, I might add. Thus the high is now 199% of average; the low, just 69%.
Not only is the gap tremendously larger with the peaks in the stratosphere. The opposite motions of purchased versus rental home properties in a few markets has to be a harbinger of danger. Over the past five years, rental prices have actually decreased in frothy San Jose, San Francisco and Oakland, and have barely budged in New York, all while purchase prices have vaulted skyward...

Posted by DeLong at 11:06 AM

Andrew Samwick at the Crossroads

Andrew Samwick thinks about what the Republican Party is--or, rather, what it might become:

Vox Baby: The Conservative Movement at the Crossroads: PGL from AngryBear notes that Max (of the newly and impressively redesigned MaxSpeak) linked to the Washington Post story in which I am quoted as follows:

"I'm inclined to support the Republican Party, but the question becomes, how much other stuff do I have to put up with to maintain that identification?" asked Andrew A. Samwick, a Dartmouth College economics professor who until recently was chief economist of Bush's Council of Economic Advisers.
I served on the staff at CEA from July 2003 through June 2004. The story quotes me later with:

Samwick said the disenchantment of small-government conservatives has been building since the passage of the USA Patriot Act, which some saw as infringing on individual liberties, and the Medicare drug benefit, which created future government liabilities that exceed the entire projected Social Security shortfall.

"Some of these outcomes are really starting to alienate people who might be Republican because they are for limited government," Samwick said.
The story quotes me accurately. The trigger for me has been the fiscal policy, and the unfunded expansion of Medicare in particular. I don't have big problems with the Patriot Act or the faith-based programs. However, the quotes should not be construed to suggest that I wouldn't support the President's Social Security plan relative to the status quo or that I was particularly impressed with the challengers that the Democrats managed to put on the ticket the last time around.

I was interviewed about this topic on the Arnie Arnesen radio show this afternoon. Like a lot of people, neither of the two political parties line up particularly well with all of my views. That's been true for a while with the Democrats for me. It's a newer phenomenon with the Republicans--as they have stood less and less for limited government, which best summarizes my general view.

I think this issue is well captured in Newt Gingrich's recent white paper, with the same title as this post. (The Speaker visited campus as a guest of the Rockefeller Center last month and presented these ideas in a Government course.) He's been out of elected office for long enough now that he can "campaign" as an outsider. Here's what he had to say in the paper's introduction:
For almost a half century, from the early effort of William Buckley and National Review and the publication of Conscience of a Conservativeby Barry Goldwater, the conservative movement has been a dynamic, defining force in American politics and government.

Now at the very moment that members of the movement are in control of the White House, the House and Senate, and many governorships and state legislatures, conservatives find themselves at a crossroads.

Elected officials find themselves caught between explaining and defending the institutions over which they preside and the impulse to continue to criticize and change those institutions. The longer people are in office the more likely they tend to defend the very bureaucracies and the very policies which they may once have campaigned against. The impulse to force a transformation of those institutions is gradually overwhelmed by an impulse to preside. Presiding over an existing bureaucracy is not the same as forcing the creation of a new form and style of government.

Should the conservative movement be:

1. A movement at the grassroots dedicated to insisting on transformation of government into an institution capable of meeting the challenges of a rapidly changing 21st century world within the values of smaller government, lower taxes, stronger national security, greater individual freedom and strengthening American civilization as a unique “Creator endowed” system of human liberty; or,

2. A national and state capital- focused system of defending whatever today’s compromises with the old order of liberal big government requires because after all the people presiding over the system are people we support.

To state it more directly, should we be comfortable with presiding over the bureaucracies, special interests, and spending of the liberal government we have inherited or must we insist on transforming that obsolete system into a new, more dynamic, and significantly different system of governing?
You can read more about Newt's ideas in his new book, Winning the Future.A lot of the book makes a lot of sense. He would prefer that the Republican Party focus on governmental transformation and reduced spending, but he makes an appeal to the religious constituency as well. However, we can also see dissension from those in the Republican Party who wouldn't necessarily agree with Newt's proposals any more than they would with the Administration's policies. Consider Christine Todd Whitman, and her new book, It's My Party, Too.She wants more fiscal balance and almost everything else on the party's current agenda except for the "social fundamentalist" issues.

So the question becomes, "What does the Republican Party look like when it emerges from this internal contest? Which of these politicians represents the core constituency's ideas in 2008--Bush, Gingrich, or Whitman?"

Posted by DeLong at 11:04 AM

While I Wasn't Looking...

...I climbed back onto Technorati's "Top 100" list, and acquired links from more than 2000 other weblogs:

Technorati: Top 100: 80. Brad DeLong's Semi-Daily Journal 2,715 links from 2,069 sources.

Thanks, guys. We must now redouble our efforts, to produce higher-quality and more useful weblogging...

Posted by DeLong at 11:02 AM

Tyler Cowen Says that Jesse Shapiro Is an Underappreciated Economist

Tyler writes:

Marginal Revolution: Underappreciated economists, a continuing series: Jesse Shapiro. Yes, he is a mere Youngling, having just finished his Ph.D. at Harvard (he was a Shleifer student, and now visiting at Chicago). But he is likely to be one of the leading economists of the next generation. He studies why and how large numbers of people can make, or appear to make, systematic errors. This is perhaps the frontier question in contemporary economics. Here is the abstract from Jesse's paper on advertising:

I present a model of advertising in the presence of bounded memory and limited recall. In the model, consumers' memories record the quality of their experiences with a product. Exposure to advertising leads to memories of good experiences. Crucially, I assume that consumers cannot recall whether a memory orginates from a genuine consumption experience or from exposure to advertising. The model yields several novel implications. First, advertisers will concentrate their efforts on past customers, because experienced consumers will be more likely to trust that their positive feelings toward the brand are genuine. The model may therefore help to explain why established, familiar brands continue to advertise extensively. Second, the firm's desire to "saturate" the consumer with positive memories can lead to the commonly observed phenomenon of "pulsing," in which a firm oscillates between no advertising and some positive amount. Third, exaggeration is limited, in the sense that advertisers may not cause consumers to remember haivng extraordinary experiences with the brand. Indeed, under some conditions an equilibrium in which advertising conveys the best possible impression of the brand can exist only when the total amount of advertising is small.

Posted by DeLong at 11:00 AM

After the Downing Street Memo

Big Brass Blog writes:

Big Brass Blog : The Big Brass Alliance was formed in May 2005 as a collective of progressive bloggers who support After Downing Street, a coalition of veterans' groups, peace groups, and political activist groups formed to urge that the U.S. Congress launch a formal investigation into whether President Bush has committed impeachable offenses in connection with the Iraq war. The campaign focuses on evidence that recently emerged in a British memo containing minutes of a secret July 2002 meeting with British Prime Minister Tony Blair and his top national security officials...

It's not clear to me why the Downing Street Memo makes a difference. Enough evidence--a mountain of evidence--already exists.

Posted by DeLong at 10:55 AM

The Flower Carrier

Diego Rivera's "The Flower Carrier" at SFMOMA:

The guide said, "You have to be able to think like a communist--or at least an economist--to understand this painting."

It's true. You have to note:

That in reality it's not the big basket of flowers that is bone-crushingly heavy--but the burden of being an unskilled worker under modern capitalism is very heavy.

That flowers are and are a symbol of pleasant luxury--but the flower carrier never sees them: for him they are not pleasant use values, but only exchange values.

It is, I think, my favorite painting at SFMOMA.

But I also found William Kentridge's "Tide Table" to be very, very good as well:

artblog: Upstairs... we wound our way... into the permanent collection where we found the Kentridge piece, 'Tide Table' (2003).... The piece, like other Kentridge works, intertwines the character Soho Eckstein, a white industrialist who is the stand-in for the artist, with the lives of black South Africans. Here, Soho vacations at the beach and quickly the beach scene dissolves into one of hospital-dormitories with people dying of AIDS. The tide comes in, the tide goes out like the lives ebbing and flowing...

Posted by DeLong at 10:53 AM

Paul Krugman Gets in Touch with His Inner Friedrich Hayek

Not Hayek the post-WWII libertarian political philosopher, but Hayek the interwar business cycle theorist.

Hayek's theory of depressions was that they started when, for some reason, interest rates got too low--below fundamentals. If interest rates are low, asset prices are high--above their fundamentals. Because financial markets are sending false signals that capital--whether in the form of machines, business organizations, commercial buildings, or housing--is very valuable, the market shift resources into capital-producing sectors and adds to its capital stock.
Someday, however, interest rates return to their fundamentals. When they do, asset prices fall sharply: it becomes clear that there are a lot of business organizations, machines, commercial structures, and houses that do not produce value to cover their costs. The last thing needed is more investment. Workers, entrepreneurial energy, and capital have to be shifted out of capital-goods production and into the production of consumer goods and services. And, said Hayek, it is that painful, lengthy, but necessary process of shifting resources out of capital-goods production that we call a "depression."
In Hayek's monetary overinvestment theory of the business cycle, the magnitude of the depression depended on the magnitude of the required structural shift, which depended on (a) how much interest rates had been pushed below fundamentals, (b) how long they had been pushed there, and (c) how much damage--in terms of capital investments that should not have been made given fundamental values--the false prices fed to the real economy by the financial sector had done.
It was a corollary to Hayek's main theory that lowering interest rates when a boom was ending was a counterproductive thing to do. It would push off the depression, yes. But only at the price of magnifying the overinvestment imbalance and thus magnifying the magnitude of the depression when it finally arrived.
It was bad luck for Hayek that he proposed his theory just as the Great Depression arrived. It was not a plausible theory of the Great Depression, not a plausible theory at all.

But today we see Arch-Keynesian Magister Paul Krugman flirting with a Hayekian line wobble:

Running Out of Bubbles - New York Times: Remember the stock market bubble?... [A] few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I've never fully accepted that view. But looking at the housing market, I'm starting to reconsider.
In July 2001, Paul McCulley, an economist at Pimco, the giant bond fund, predicted that the Federal Reserve would simply replace one bubble with another. 'There is room,' he wrote, 'for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism.... [I]nterest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.
Now the question is what can replace the housing bubble.
Nobody thought the economy could rely forever on home buying and refinancing. But the...[I]f the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we'd be looking at a very nasty scene.... That's why it's so ominous to see signs that America's housing market... is approaching the final, feverish stages of a speculative bubble.... In parts of the country there's a speculative fever among people who shouldn't be speculators that seems all too familiar from past bubbles - the shoeshine boys with stock tips in the 1920's, the beer-and-pizza joints showing CNBC, not ESPN, on their TV sets in the 1990's....
[I]t's true that the craziest scenes are concentrated in a few regions, like coastal Florida and California. But these aren't tiny regions; they're big and wealthy, so that the national housing market as a whole looks pretty bubbly. Many home purchases are speculative; the National Association of Realtors estimates that 23 percent of the homes sold last year were bought for investment, not to live in. More than 30 percent of new mortgages are interest only, a sign that people are stretching to their financial limits.
The important point to remember is that the bursting of the stock market bubble hurt lots of people - not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn't been quickly replaced with a housing bubble. So what happens if the housing bubble bursts?...
Mr. Roach believes that the Fed's apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he's wrong. But the Fed does seem to be running out of bubbles.

I would admonish him for this wobble away from Keynesian orthodoxy toward Stephen Roach-Friedrich Hayek deviationism. But I feel the same way. With each month that passes Roach and Hayek look a little bit better.

Posted by DeLong at 10:51 AM

*Sigh*

For a long, long time--it was 43 years ago when Bob Solow made this point while working for the Kennedy Council of Economic Advisors--it has been next to impossible for an economist serious about boosting national savings to avoid saying "balance the budget". Balancing the budget--indeed, moving it into surplus--is almost certainly very close to a magic bullet for increasing national savings, and it's a very good bet that it's the most effective thing the government can do to boost national savings. It's the first an highest priority for those who do care about boosting national savings.

It is very difficult for a real economist to talk about boosting national savings without saying "balance the budget." Greg Mankiw manages:

Magazine - Economist Greg Mankiw Sounds Off on Karl Rove, Paul Krugman, and More - FORTUNE - Page 5: [W]hile the trade deficit isn't a problem in itself, it may be a symptom of a problem. The problem is that Americans aren't saving enough. I don't think there's a single magic bullet to increase national saving, but I do think a switch from an income tax to a consumption tax would help.

Q: But we don't seem to have had much success with efforts to bolster the savings rate, which remains near record lows.

A: I'm intrigued by some compelling evidence from [Harvard economics professor] David Laibson and others that if you design 401(k)s differently, you could improve saving a lot. For example, suppose we made the default for a 401(k) plan that people have to decide to opt out if they don't want to save, rather than having to opt in if they do want to save, as is currently the norm. The evidence suggests that the participation rate would increase substantially.

And let's not forget that while a trade deficit may not be a problem "in itself," a large trade deficit funded by foreign central bank purchases of dollar-denominated assets at a rate that they cannot sustain is a problem "in itself."

Posted by DeLong at 10:36 AM

Making Light: Getting serious about "getting serious"

Patrick Nielsen Hayden's Electrolite has been absorbed by his wife's Making Light in what is on Wall Street referred to as a "merger of equals". This leaves him time to get seriously shrill about "getting serious about national security":

Making Light: Getting serious about "getting serious": Atrios discusses self-identified "liberal hawks":

The primary conceit of the "liberal hawks" has been and is that only they are "serious" about the security of the nation. Support for the Iraq war demonstrated that seriousness, no matter how misguided it was. The truth is concern for our national security was a very real reason to oppose the Iraq war, and the primary reason for lots of its opponents.

He's right. The reason so many in the Democratic "base" are infuriated over being lectured by the likes of Peter Beinart and Joe Biden about the need to "get serious about national security" is that the people delivering the lectures are precisely those who were wrong about one of the most important national security questions of our time. As a result we've spent $172 billion and 1600 American lives, damaged our military immeasurably, trashed America's global reputation for justice and fair play, and given the bin Ladens of the world a gift that will keep on giving for generations to come. The entire enterprise has made us profoundly less secure. Meanwhile, I live three blocks from New York Harbor, and port security is still, by all reports, a complete joke.

The fact of the matter is that the supposed distance between self-identified "national security Democrats" and the allegedly dovish party "base" is based on a self-serving slur promulgated by people with something to hide. The NSDs want to impute that run-of-the-mill Democrats and liberals have a deficit of temperament, a persistent inability to understand that sometimes America has got to go out and kill people. In the wake of being spectacularly wrong about Iraq, the NSDs are even more eager to promote this.

It is, of course, a bum rap. Liberal Democrats like Atrios, or me, aren't remotely opposed to "national security." We're strongly in favor of it. Getting killed because I'm an American, at home or overseas: bad. Spending money and resources to protect me from getting killed: good. Maintaining a strong military, at least until planetary utopia breaks out and there are free Jill Johnston posters for everyone: really good. Making all of that far harder, and increasing my likelihood of getting killed, because some politicians and pundits needed to "look tough": really, really bad. Likelihood that I'm going to take my cues on "national security" from those politicians and pundits: low.

At times it all seems like some sort of Bizarro World faith-versus-works argument. Liberals wind up being the ones pointing out, endlessly, that national security is provided by actual practices, not just by holding your face right. Meanwhile popinjays like Joe Biden desperately file their chins to razor-sharpness in the probably vain hope that the electorate, having sometimes demonstrated a preference for strutting phonies, will mistake them for one. And of course the fact remains, as the Poor Man never ceases to remind us: Michael Moore is fat.

Posted by DeLong at 10:33 AM

Why Oh Why Are We Ruled by These Idiots? (Special California Edition)

Cory Doctorow finds this one:

Schwarzenegger creates, then fills Potemkin pothole: California governor Arnold Schwarzenegger dispatched a road crew to a residential street in San Jose to create a pothole, which he later turned up and filled, grinning for news-cameras and declaring his willingness to increase funding for transportation projects. The Potemkin pothole was later sealed by a roadcrew with a gigantic roller truck,
Porrovecchio and his business partner, Joe Greco, said that at about 7 a.m. they became fascinated watching '10 city workers standing around for a few hours putting on new vests,' all in preparation for the big moment with Schwarzenegger. But their street, he noted, didn't even have a hole to pave over until Thursday morning. 'They just dug it out,' Porrovecchio said, shrugging. 'There was a crack. But they dug out the whole road this morning.' 'It's a lot of money spent on a staged event,' said Matt Vujevich, 74, a retiree whose home faced the crew-made trench that straddled nearly the whole street. 'We still have the same problems. Everything's a press conference.'

Posted by DeLong at 10:30 AM

Spyware

The San Jose Mercury News says, "Get a Mac!"

Good Morning Silicon Valley: Sure, I could get a Mac, but the time I spend with my daughter removing spyware is very precious: Listening to Intel CEO Paul Otellini at the All Things Digital conference the other day, you'd think he was heading up Apple's marketing department. From today's Wall Street Journal:

Pressed about security by (a reporter), Mr. Otellini had a startling confession: He spends an hour a weekend removing spyware from his daughter's computer. And when further pressed about whether a mainstream computer user in search of immediate safety from security woes ought to buy Apple Computer Inc.'s Macintosh instead of a Wintel PC, he said, 'If you want to fix it tomorrow, maybe you should buy something else.'

Posted by DeLong at 10:29 AM

Jim Henley Has Some Good Advice

He tells us:

Things That Surely Go Without Saying But Don't: Beating captives to death does not exhaust the list of "abuses" one can commit against captives. We know of two people, so far, who had their legs crippled and were hung from the ceiling until they died. We have not been discussing the people who had their legs crippled but weren't hung from the ceiling, the people who were hung from the ceiling and didn't die, or those who were tortured in other ways at Bagram Air Base, but what we know makes it pretty clear such people existed. (For instance people whose legs were beaten, but not to the point of permanent ruin.) The torture apologists will intone "two people two years ago" because that's their established method: exaggerate a detail until it obscures the full story. Don't fall for it.

Fire Donald Rumsfeld. Impeach Richard Cheney. Impeach George W. Bush. Do it now.
>
Posted by DeLong at 10:27 AM

Bob Rubin on Social Security

From The Hill:

Rubin urges Democrats not to reveal their hand: Former Treasury Secretary Robert Rubin, the steward of President Clinton's economic policy, told the House Democratic Caucus yesterday that it needs to continue to "hold firm"... and advised the Democrats not to introduce their own plan, according to aides and lawmakers in the meeting. Rubin, who has gained huge stature in the party for presiding over the national finances during the Clinton boom years, counseled congressional Democrats against engaging Republicans on specifics. He urged them instead to cast the debate in terms of principles.... In a sweeping review of the fiscal health of the country, the strength of the dollar and international trade, Rubin said that Social Security ranks third behind deficit reduction and Medicare reform as the most important economic policy issue facing the country. He also warned his fellow Democrats that they would need to work in a bipartisan manner with Republicans to address Medicare's deep problems.... "From a political standpoint, [Rubin] said, hold firm because you have a difference in principles; their principle is a privatization plan, ours is not to add to the deficit, and there's not a whole lot of room for compromise. 'They control the playing field. We can't get into this debate without compromising our principles.'"

Posted by DeLong at 10:24 AM

New Principles of Economics...

Marty Olney reports that the teaser chapters from R. Glenn Hubbard and Anthony P. O'Brien (forthcoming), Principles of Economics (New York: Prentice-Hall: 0130675520), look excellent.

I'm also still waiting for Paul Krugman and Robin Wells (forthcoming), Principles of Economics (Worth).

Posted by DeLong at 10:23 AM

Musings on Finance
Powerpoint slides for a talk, Musings on Finance, that I gave at a Global Association of Risk Professionals San Francisco chapter meeting; Room 303, 425 Market St. (San Francisco State University Downtown Center), San Francisco, CA; May 26, 2005; 3:00 PM.
Posted by DeLong at 10:21 AM

Electricity in Iraq

Jim Henley notes:

Unqualified Offerings: Tim Lambert's tabular history of the "good news" on the [Iraq] electricity front is a useful contribution to the field. His summary:

Due to lack of maintenance, electricity production fell from 9000 MW in 1991 to 4400 MW before the war. Since then, there have been many announcements of improved generating capacity and production has fallen further to 3560 MW.

Sadly, Dana Gioia's poem, "News from 1984," is not online.

Posted by DeLong at 10:20 AM

Gillian Tett on Credit Derivatives and IB Losses

From the Financial Times:

FT.com / Companies / Financial services - Credit derivative swings hit hedge funds: Recent swings in the price of credit derivatives have inflicted losses of about $1bn (£550m) on hedge funds and large banks, according to estimates by Goldman Sachs. The figure - which some traders consider far too conservative - represents the first public estimate of the damage created by the recent turmoil in instruments such as collateralised debt obligations. "A back-of-the-envelope calculation suggests that the change in net present value among market-to-market players [in the CDO market in the past three weeks] is about $1bn," Claus Toft, a senior strategist at Goldman Sachs, told a conference in London....

Mr Toft stressed that the losses sustained by hedge funds and banks could be easily absorbed by the overall financial system. However, the estimates come amid intense curiosity about the problems faced by some institutions in the CDO market. So far no bank or hedge fund has admitted to serious losses from CDOs. And some bankers hope that these losses will shrink in the coming weeks, if credit market prices recover. Indeed, some bankers now believe that a rebound is under way, because new investors are coming into the market....
The main reason hedge funds and banks suffered was that they held the so-called "equity" tranches of CDOs, the riskiest slice of debt. These tranches fell in price in mid-May, partly due to the problems at General Motors and Ford, the US carmakers...

Posted by DeLong at 10:18 AM

Yes, Andrew Sullivan Is Still a Dork

He writes:

www.AndrewSullivan.com - Daily Dish: MANKIW ON KRUGMAN: Almost as damning as Dan Okrent.

And gets eviscerated by an anonymous correspondent:

You are dead wrong (as well as sloppy and lazy) in your portrayal of Okrent and Mankiw's statements about Paul Krugman. (For the record, I know both Paul and Greg. although not well.)
The Okrent case is the more egregious: he says that Krugman "slices and dices" data to support his point of view, without offering an example. I'm an economist myself, and know the macro data very well. I can't think of single example to support Okrent's statement. (Paul has published corrections regarding a couple of minor, and non-substantive, points.) Most conservative attacks on his arguments involve innumeracy or sheer ignorance of basic facts or basic principles of economics; many involve willful misrepresentation.
Now consider Greg's statement (and I'm paraphrasing) that "Paul seems to think that everyone who disagrees with him is either fool or a liar." To begin with, I'll stick to economics. The plain fact is that the Bush Administration has been consistently and deliberately mendacious in its public portrayal of its economic policies. (This characterization, by the way, is the overwhelming consensus in the professional economics world, which includes many conservatives.) Capable policy apointees (like Greg or Glen Hubbard) have had no meaningful input in this Administration; nor has the professional staff at places like Treasury or CEA. All economic policy involves politics. But the politicization of the policy making process in this Administration is without precedent in my professional life.
Paul would have been called a moderate or even conservative Democrat prior to this Administration. (Read his classical essay, "In Praise of Cheap Labor," if you're under the illusion that he's some sort of leftist.) So would I. Paul appears strident only because he's had the bad manners to say that people are lying when they're obviously lying. (A prominent case in point: many of the President's public statements about the finances of the social security system have been plain, simple untruths.) And what's maddening to Paul, and to me, is that there's no core of conservative principle in this Administration. A conservative devotion to free markets has been displaced by reckless spending, reckless tax cuts, crony capitalism and special interest give-aways. What "balanced" take on these issues should Paul offer?
More generally, you should know better. Remember, I've confined myself so far to economic policy. Do you want to defend the honesty and integrity of this Administration on, say, abuse of detainees?

And then gets re-eviscerated by Matthew Yglesias:

Matthew Yglesias: The Lies, The Lies: As we know, and as this letter writer to his site reminds us, Andrew Sullivan has been a pretty consistent proponent of the view that Paul Krugman is some sort of liar. At issue, are Krugman's repeated insistences that George W. Bush's economic policy is founded on a tissue of lies. Krugman is, of course, entirely correct about this. The unnoted irony here is that in his May 14, 2001 column 'Downsize,' Sullivan conceded Krugman's point:

Ah, but the details. The Krugmans and the Chaits will shortly have a cow, if not a whole herd of them. The Times will weigh in again with yet another barrage of articles, editorials, and op-eds opposing any tax relief that would actually benefit those who pay most of the taxes. And, to be fair to these liberal critics, they're right about one thing. One of the tax cut's effects will surely be that the United States won't be able to afford a vastly expanded Medicare drug benefit. And the archaic sinkhole known as Social Security won't be shored up either. And Medicare, may the gods preserve us, may even have to grow at a slightly slower rate. In fact, many of the spending programs that some still believe solve most human problems will encounter the only political resistance that matters in budgetary matters: insolvency.
To which my response is: Hoorah. We don't need these expansions of the welfare state. We need to privatize Social Security if we want to provide for our retirement in ways slightly more up-to-date than those based on economics and life-expectancy figures devised in the 1930s. We don't need to add yet another entitlement for the most pampered generation--our current seniors.
And if there is one thing we have learned in the past 20 years, it's that controlling government spending is simply impossible without deficits. Look back at the last decade. A huge part of Bill Clinton's economic success was his remarkable grip on public finances. He deserves credit for this, although the Republican Congresses from 1994 to 1998 were mainly responsible, and Ross Perot made deficit-cutting hot. But from 1998 on, all hell broke loose. Last year, discretionary spending increased by a whopping 8 percent--under the Republicans. The minute deficits became surpluses, in other words, the politicians started bribing the voters with their own money. The only relevant question is: Why do Dennis Hastert, Trent Lott, Dick Gephardt, and Tom Daschle know better than taxpayers how to allocate their own resources? . . . Some commentators--at this magazine and elsewhere--get steamed because Bush has obscured this figure or claimed his tax cut will cost less than it actually will, or because he is using Medicare surplus money today that will be needed tomorrow and beyond. Many of these arguments have merit--but they miss the deeper point. The fact that Bush has to obfuscate his real goals of reducing spending with the smoke screen of 'compassionate conservatism' shows how uphill the struggle is.
Yes, some of the time he is full of it on his economic policies. But a certain amount of B.S. is necessary for any vaguely successful retrenchment of government power in an insatiable entitlement state. Conservatives learned that lesson twice. They learned it when Ronald Reagan's deficits proved to be an effective drag on federal spending (Stockman was right!)--in fact the only effective drag human beings have ever found. And they learned it when they tried to be honest about taking on the federal leviathan in 1994 and got creamed by Democrats striking the fear of God into every senior, child, and parent in America. Bush and Karl Rove are no dummies. They have rightly judged that, in a culture of ineluctable government expansion, where every new plateau of public spending is simply the baseline for the next expansion, a rhetorical smoke screen is sometimes necessary. I just hope the smoke doesn't clear before the spenders get their hands on our wallets again.

Now needless to say, Sullivan differs from Krugman in thinking that this is a good thing, while Krugman thinks it's a bad thing. But that's really all there is to it. Bush was lying. As Sullivan correctly points out, the lies were integral to securing public tolerance for Bush's agenda. Krugman has tried to expose the lies in hopes of denying Bush's agenda public support. It's very hard to see how Krugman can be held culpable in this scenario.

Posted by DeLong at 10:16 AM

Why Oh Why Are We Ruled by These Liars? (George W. Bush Smirks Edition)

Kevin Drum's shrillness level exceeds aleph-null:

The Washington Monthly: "George Bush's rhetorical stance is that democracy is on the march and 138,000 troops are more than enough to get the job done in Iraq. He knows perfectly well this isn't true, but in public he just smirks and says that he'd be happy to send more troops over if any of his generals asked for them.... George Bush... [is] one of the shrewdest politicians to inhabit the Oval Office in a long time, but he doesn't sound like he's being shrewd. He sounds like he really believes that our current troop strength is perfectly adequate.
So what's the answer? As Juan Cole says, 'Sometimes You are Just Screwed.' Bush knows near term success is impossible with current troops levels, just as he knows that his economic policies are unsustainable as well. In both cases, he seems to be hoping only that he can avoid disaster during the next three years and then hand off both problems to his successor in 2009 while he retires to the ranch. Politics doesn't get much more cynical than that.

Posted by DeLong at 10:15 AM

Bob Rubin on Social Security

From The Hill:

Rubin urges Democrats not to reveal their hand: Former Treasury Secretary Robert Rubin, the steward of President Clinton's economic policy, told the House Democratic Caucus yesterday that it needs to continue to "hold firm"... and advised the Democrats not to introduce their own plan, according to aides and lawmakers in the meeting. Rubin, who has gained huge stature in the party for presiding over the national finances during the Clinton boom years, counseled congressional Democrats against engaging Republicans on specifics. He urged them instead to cast the debate in terms of principles.... In a sweeping review of the fiscal health of the country, the strength of the dollar and international trade, Rubin said that Social Security ranks third behind deficit reduction and Medicare reform as the most important economic policy issue facing the country. He also warned his fellow Democrats that they would need to work in a bipartisan manner with Republicans to address Medicare's deep problems.... "From a political standpoint, [Rubin] said, hold firm because you have a difference in principles; their principle is a privatization plan, ours is not to add to the deficit, and there's not a whole lot of room for compromise. 'They control the playing field. We can't get into this debate without compromising our principles.'"

Posted by DeLong at 10:13 AM

June 01, 2005

David Francis on Mobility and Inequality

Mark Thoma reads the Christian Science Monitor, and finds a good article:

Economist's View: Is The American Dream Fading?: This article discusses the decline in income mobility in recent decades and asks if the US "...is becoming less of a meritocracy, where skill and intelligence determine success, and... more of a class-bound society...":

The American Dream gains a harder edge, By David R. Francis, CSMonitor.com: The American dream, at least on the economic side, is fading.... Today... nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk. 'Income mobility has declined in the last 20 years,' says Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago. What that means is that the US is becoming less of a meritocracy, where skill and intelligence determine success, and becoming more of a class-bound society, where economic background, including the better education money can provide, matters more.... Most Americans don't believe that to be true, surveys show. But academic studies suggest that income mobility in the US is no better than that in France or Britain. It's actually lower than in Canada and is approaching the rigidity of Brazil. That marks a change from the past.... From 1950 to 1980, Americans were more and more likely to see their offspring move up - or down - the income ladder.... Today, it could take five or six generations to close the gap between poverty and middle-class status, calculates Mr. Mazumder...

Posted by DeLong at 04:55 PM | Comments (0)

Today's Snark Prize Goes to

Miriam Burstein. Very high quality snark:

The Little Professor: Cited by: Donald Kagan's Jefferson Lecture. Despite Kagan's warnings against the dangers of over-generalization, his critique of contemporary historiography was so non-specific--apparently, we're still stuck in 80s crusades against DWM--that I had a hard time finding the "there" there.... Being an English professor, albeit of the old-fashioned literary-historical variety, I naturally pricked up my ears (eyes?) when I stumbled across some references to Stanley Fish and Paul de Man. I was a tad puzzled to discover that Kagan didn't cite Stanley Fish and Paul de Man directly, but only from excerpts: Fish from Roger Kimball's Tenured Radicals and de Man from David Lehman's Signs of the Times: Deconstruction and the Fall of Paul de Man.
When I teach my graduate students how to evaluate secondary sources, I always ask them to consider how many times the author chooses to cite primary sources that have been quoted in other works, as opposed to citing directly from the original texts. While it's legitimate to cite a primary source "quoted in" another work when you cannot access the original text... there's no excuse for citing easily available sources in such a fashion. How can you tell if the quotation has been taken out of context or misquoted? What if your secondary source hasn't understood the original text? There's something rather depressing about reading a paean to traditional historical inquiry, only to discover that the author is generalizing about something that he apparently knows only in snippets and at secondhand.... Now, Richard J. Evans does a fine job of critiquing postmodern theories of history, precisely because he's done the reading, has clearly thought about it at some length, and can separate the wheat from the chaff. No vague handwaving there...

Posted by DeLong at 04:23 PM

Who Rules the Streets of Basra?

Praktike writes:

Tales from Basra | Liberals Against Terrorism: People who have been paying attention more or less knew this already, but Steven Vincent is reporting that the streets of Basra remain controlled by shadowy religious parties:

Sitting in the plastic chair beneath the harsh fluorescent lights, watching teary-eyed men smoke cigarettes and sip their tea, I wondered about these unnamed people in Basra who 'chose to take life so cheaply'--often in the name of the Iraqi people, sanctioned by their own idea of religious virtue, purity and divine retribution. They rule the streets of Basra now. Everyone is afraid of them, including me. But more on this topic, I cannot say.

Posted by DeLong at 01:35 PM

College Dropouts

Mark Thoma tells us to go read David Leonhardt:

Economist's View: The Dropout Boom and the Growing Education Gap: This article describes the rising college drop-out rate, particularly among lower income students, and the widening education gap this is bringing about. The article also looks at potential causes of the rising dropout rate and policies attempting to reverse the trend:

The College Dropout Boom, By DAVID LEONHARDT, NY Times: One of the biggest decisions Andy Blevins has ever made, and one of the few he now regrets, never seemed like much of a decision.... He had been getting C's and D's, and college never felt like home, anyway.... So he quit college... and... joined one of the largest and fastest-growing groups of young adults in America. He became a college dropout... Only 41 percent of low-income students entering a four-year college managed to graduate within five years, but 66 percent of high-income students did. That gap had grown over recent years....

Posted by DeLong at 01:33 PM

Rumors that GM Is Going to Shovel Lots of Cash Out of the Enterprise

The question of why the auto companies aren't shoveling cash out of their enterprises is partially answered. Lee Hawkins reports:

Heard on the Street: Wall Street is betting that General Motors Corp. -- facing the twin issues of having its bonds rated 'junk' and Las Vegas billionaire Kirk Kerkorian's tender offer under way -- soon will undertake a more ambitious restructuring... GM's highly profitable finance arm, General Motors Acceptance Corp., which last year earned $2.9 billion, or about 80% of GM's total net income. GMAC's potential for growth was crimped when Standard & Poor's downgraded GM's credit ratings to junk status earlier this month.... Now, some analysts say selling all or part of GMAC would help GM raise more cash to pay for an overhaul of its money-losing North American auto business -- or a payout to shareholders -- while allowing GMAC to obtain an investment-grade debt rating that will allow it to grow....
Action in GM's shares suggests that investors are betting that something big will happen, but watching the debt situation warily....
Getting concessions from the UAW to close more plants and reduce GM's work force still might not be enough to make a significant difference, says Ron Tadross, an auto analyst at Banc of America. 'The UAW is no silver bullet here,' he said, since labor costs represent only about 20% of the cost equation for GM.... The core of GM's current problem isn't cash -- it is sitting on $54.9 billion -- but declining revenues per vehicle in North America, a reflection of slumping sales of large sport-utility vehicles and mediocre demand for many of GM's cars....
Some shareholders want more significant steps. 'I would hate to see them split off some of their best assets, but at the same time they need to take some strong action to save the company,' says Christopher Ailman, chief investment officer of the California State Teachers Retirement System, the third-largest public pension fund in the U.S. Some analysts caution that it wouldn't be a simple matter for GM to simply sell GMAC.... If Mr. Wagoner raised cash with a GMAC transaction, how would he spend the money? Some analysts have suggested GM could use the proceeds of a GMAC deal to fund employee-buyout plans.... [A]ny windfall from a GMAC deal also could be returned to shareholders. Mr. Kerkorian has in the past invested in companies and then pushed management to return more wealth to shareholders.... 'The benefit [of selling GMAC assets] would be really to GM shareholders as opposed to GM as an ongoing company,' says Brian Johnson, an auto analyst at Sanford C. Bernstein. 'It gets money in their pocket and forces GM to negotiate with the UAW without the GMAC piggybank in their pocket.'...

Posted by DeLong at 01:31 PM

Egrades

An interesting email telling me why I can't submit my students' "egrades":

Date: Tue, 24 May 2005 23:18:20 -0700
To: Brad DeLong
From: Bear Facts Team
Subject: Re: Technical Issues

The system is heavily overloaded at egrades time. Response times are made slow by a heavy influx of students checking their grades, and the processor never gets a chance to recover because they just keep pounding on the system, making response times worse.

A system critical to the university's smooth functioning at a critical time. High demand not a surprise.

Posted by DeLong at 01:30 PM

Edward Hugh on the European Central Bank

He writes:

A Fistful of Euros: Crisis Looming At The ECB?: A right royal row is brewing at the ECB. Basically the old guard theorists of the "one size fits all" monetary policy are being challenged by more pragmatic observers of day to day realities. For the moments it is the politicians who are making the running (but there are plenty of competent economists in Germany and Italy who are ready to back them up), and yesterday the OECD joined the fray....

[Y]ou have the theorist of the old guard over at the ECB Otmar Issing: "European Central Bank chief economist Otmar Issing said euro zone growth differentials have to be addressed by national economic policies rather than by the ECB's interest rate policy." In fact Issing is really digging in. He provocatively gave this One Size Fits All speech on 20 May. His conclusions were as follows: "Let me conclude with a citation. On the eve of the changeover, I wrote a commentary on diversity and monetary policy in the euro area. To the question whether a single one-size monetary policy could fit all parties involved -- be they national entities, social partners or economic actors -- my answer was: 'One size must fit all'. The political decision on the creation of EMU had resolved all discussions on whether monetary union should precede or follow political unity and the fulfilment of the criteria for an optimum currency area. Today, in light of the evidence gathered so far in the euro area, I am more confident in saying: 'One size does fit all!'"
p>Obviously you have to ask whether Issing in now losing his grip on reality.... As the FT notes: "The ECB has insisted that a rate cut would be harmful and was not supported by sensible economists. Jean-Claude Trichet, the ECB president, told the European Parliament on Monday: 'The last time we met, we were absolutely convinced that we would not improve the situation [with a rate cut] but that we would hamper Europe if we would go in the direction that is suggested by some.' But now that the OECD, a bastion of orthodox economic thought, has flatly contradicted the ECB's position, Mr Trichet will find it more difficult in future to reject out of hand a discussion of lower rates."...
Just to give us a measure of who is and who isn't considered a "sensible economist", one might look at today%'s statement from Hans-Werner Sinn, President of Germany's prestigious Ifo index: he is reported as telling CNBC that: "the ECB has done a good last year in keeping interest rates stable, but we have a different situation now and the ECB should cut interest rates." This situation is not without its comic aspect: Sinn means sense, ie he is the real, true to life, sensible economist.

Posted by DeLong at 01:28 PM

More Signs of Incipient Senility...

For about two years now, I have been saying "Stu Eisenstat" when I mean "Dick Zeckhauser," and saying "Dick Zeckhauser" when I mean "Stu Eisenstat." I have no excuse and no explanation.

And then there was that horrible moment in lecture this year when I all of a sudden could not distinguish FDR's trustbuster Thurman Arnold from poet Thomas Arnold from Terminator Arnold Schwarznegger from golfer Arnold Palmer from Wilson's red-baiting Attorney General Mitchell Palmer.

Not to mention my also-inexcusable frequent confusion of Sandra Bullock with Sarah Jessica Parker...

Posted by DeLong at 01:17 PM

The Fed and the Housing Bubble

Mark Thoma's weblog has another Fed Watch by Tim Duy on The Fed and the Housing Bubble.

Posted by DeLong at 12:44 PM

Housing Bubble

James Hagerty and Ruth Simon find some people who are certainly acting like they would in a housing bubble. Up until six months ago, I could account for housing prices in terms of scarcity (they aren't building many houses near the California coast any more) and low interest rates. That's getting less possible with each passing day:

WSJ.com - As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate: A year ago, Ryan Epstein and his wife had whittled down the mortgage on their four-bedroom colonial house in North Beach, Md., to $130,000. Then Mr. Epstein had a chat with a mortgage broker. The broker helped the Epsteins refinance their home, valued at about $300,000, to take advantage of lower interest rates. He also encouraged the couple to take out extra cash, a popular technique called a cash-out refinancing. The Epsteins used that cash, $25,000, as the down payment to buy a rental property. That purchase swiftly led to others. Today, Mr. Epstein says he has about $1.4 million of equity in nine dwellings -- and $2 million in mortgage debt. Those rapid profits reflect surging house prices, rising at a double-digit rate in the Epsteins' area near Washington. "It's a wonderful market out there," Mr. Epstein says.
Five years into a housing boom that has boosted U.S. home values an average of 50% and added an estimated $5.5 trillion to the total market value of residential real estate, many Americans no longer think of their home as just a place to live. Instead, it's a cash machine that can be used to rapidly build wealth. To that end, a growing number of people are tapping into their home equity to invest in more real estate. That's a lot like using a margin account -- a line of credit backed by securities in an investor's portfolio -- to buy stocks. During the 1990s, many investors used such accounts to buy shares in fast-rising tech stocks. When the dot-com bubble burst, the value of the shares bought on credit cratered and investors' borrowing worsened their losses. Economists say today's debt-fueled investment binge in real estate is fanning the flames of an already overheated housing market, and making demand from people who actually need houses to live in seem stronger than it truly is.
In some markets, this buying is adding to a glut of rental housing and causing rents to fall, which will make it more difficult for investors to break even. Already, there are signs that a few investors are starting to get burned. On Friday, Federal Reserve Chairman Alan Greenspan suggested that house-price inflation in some parts of the country is starting to look excessive. "At a minimum, there's a little froth in the market," Mr. Greenspan said in response to a question at a lunch hosted by the Economic Club of New York. "We don't perceive that there is a national bubble, but it's hard not to see that there are a lot of local bubbles," he added. He played down the idea that the market could suffer a dramatic crash like the bursting of the dot-com bubble, in part because homes don't sell as quickly as stocks do. Also, most people still have plenty of equity in their homes, he noted, so the prospect of mass bankruptcies in the event of a housing-market decline seems far-fetched.
Others express more anxiety. Dean Baker, co-director of the Center for Economic and Policy Research, a think tank in Washington, says many Americans are being "incredibly reckless" in assuming that real-estate prices will keep rising or, at worst, flatten out. "It's a classic phenomenon you expect to see in a speculative bubble," Mr. Baker says. He is so bearish on housing prices that he sold his own home last year and now rents. In another sign of growing concern, the Federal Reserve and other bank regulators last week issued guidelines calling for lenders to tighten their criteria for making loans backed by home equity by looking more closely at borrowers' ability to repay under various possible future market conditions. The regulators are starting work on similar guidelines covering mortgage loans used to purchase homes. Among regulators' top concerns: the surge in popularity of interest-only loans, which allow people to pay only interest in the initial years and face the burden of paying back the principal later....
Why are people like the Balderstons so confident of strong returns from real estate even amid growing warnings about the dangers of a housing bubble? "People form their expectations on a backward-looking basis," says Jan Hatzius, an economist at Goldman Sachs in New York. Based on the experience of recent years, they tend to see real estate as a very promising investment, he says, adding: "That's probably not correct.... You should think pretty hard about whether you want to increase your exposure to real estate at a time when it is trading at historically high valuations." Like the Epsteins, who used their home equity to buy rental housing in Maryland, many real-estate investors see the stock market as far riskier. "If you buy stocks," Mr. Epstein says, "the next day they can tumble in the toilet." Home prices can't fall nearly as quickly as stocks, he reasons, because people tend to hang on to their real estate when prices are weak and await an upturn. And unlike those who buy stocks with borrowed funds, home buyers don't face margin calls, or demands from their creditors for additional funds, when prices fall....
What makes this get-rich-quick formula more dangerous is that many investors are willing to buy properties on which the rent is too low to pay for financing and other monthly costs. Their bet is that rising property prices eventually will make these deals profitable...

Posted by DeLong at 12:40 PM | Comments (0)

Virtual Steve Levitt Seminar at Crooked Timber

There is a very good virtual Steve Levitt seminar at Crooked Timber:

Steven Levitt Seminar - Introduction: Posted by Henry: Steven Levitt's work is familiar to many Crooked Timber readers. He's a professor in the University of Chicago's Economics Department, a winner of the John Bates Clark medal, [an] editor of the Journal of Political Economy, and the author of a rather terrifying number of peer-reviewed articles.... Freakonomics is currently Number Two on the New York Times bestseller list.... We asked Steve a while back whether he would be prepared to participate in a Crooked Timber seminar on freakonomics, economics, and the social sciences; he very kindly agreed, and you see the result before you. We're also grateful to have the participation of two non-CT regulars. Tyler Cowen is a professor at George Mason University; he blogs at Marginal Revolution and still puts in an occasional appearance at the Volokhs. Tim Harford writes the Dear Economist column for the Financial Times. His first book, The Undercover Economist, is coming out in November 2005.

I was supposed to participate, but inspiration did not strike and the time to write something good while uninspired was nibbled to death by bureaucratic ducks. *Sigh.*

It's very good.

Here's Steve's gracious response:

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner - William Morrow, 2005 : Posted by Steven Levitt: I'm not sure whether it says more about my own shortcomings, or the quality of these five commentaries above on Freakonomics, that I gained a great deal of self-awareness from reading them. It was a surprising reaction for me. There have been many published reviews of Freakonomics, and not one of them has given me the slightest insight into myself. Strangely, though, I felt like I understand my own motivations and goals better than I did a few hours ago. For me, that has always been one of the greatest benefits of inter-disciplinary interactions. Self-awareness is a scarce commodity, and a valuable one, so I am quite grateful for this remarkable gift that Tyler Cowen, Henry Farrell, Tim Harford, Kieran Healy, and John Quiggin have given me.
So let me try to pay these guys back with some thoughtful responses to their comments. Because the same themes ran through most of the comments, I address them collectively rather than individually.
Let's start with the title. Freakonomics. We debated endlessly over the title. From a naming perspective, the difficulty with this book is it doesn't have a theme. We thought about a question title ("What do sumo wrestlers and school teachers have in common?"), some non-threatening titles ("The Hidden Side of Everything" or "Ain't Necessarily So"), and some loopy titles ("E-ray Vision"). In the end, though, Freakonomics became the obvious choice, for reasons anchored in the contrast between my own research on names and that of others. Let's just assume that the research is right and it is really true that names matter for getting a resume callback, but don't matter for long-term life outcomes. Then this probably implies that names matter a little for first impressions, but then quickly get swept aside in importance once we gain some familiarity. When's the last time you thought to yourself, "Oprah is a ridiculous name, I certainly won't watch her show." Or, "The Beatles...what a ridiculous name for a band. No one would ever buy their records." In naming a book, you need something attention-grabbing to cut through the clutter of the thousands of competing books, but as shocking as "Freakonomics" sounds the first time you hear it, by the twentieth time it becomes familiar, like Oprah. My guess is that the commenters were already softening their hatred for the title by the time they finished writing. And a year from now, they may even forget that they ever hated the title. (At least, that is what happened with our publisher, who initially dismissed the title out of hand, only allowed it at the 11th hour, and now are telling us we need to sign up with them for a second book because who else can market our books as well as they do.) And if there is a second book, we have a title in mind that is so outrageous it will have to be loved.
So how about the absence of a unifying theme in the book? My own hunch, borne out by the public response to this book, is that nobody really cares about or even wants a unifying theme in a book. Everyone is just afraid not to have one, since almost all books do. (In this respect, I think unifying themes in books are a lot like campaign spending. All candidates feel compelled to spend a lot of money for fear of the disastrous consequences that could result if they take a chance and don't spend, spend, spend.) But when I read Malcolm Gladwell's incredible books, I don't care about the theme, I just love his stories. His books top the charts because he has incredibly good taste and he is the best storyteller going. For me, and others I talk to, the unifying themes sometimes get in the way of his stories which are individually so amazingly interesting. Books of short stories, similarly, have no unifying theme. I certainly don't feel cheated by that either. More valuable than anything else I or Dubner ever does, perhaps, would be to make the world safe for books that have great stories but no unifying theme.
All of the commentaries spent some time discussing where I fit into economics and the social sciences more broadly. If I got to make three wishes, perhaps one of them would be that I might turn into a truly interdisciplinary social scientist who uses data to inform human behavior in ways that both shed light on and draw upon not only economics, but sociology, political science, and psychology as well. But, let's be realistic. I'm having trouble even mastering the tools of my own discipline. (If you ask my students whether I know calculus, they will say "not very well." I'm not proud of that fact, but I am a realist. If you ask the really great economic thinkers like Gary Becker or Kevin Murphy, how often I'm right when I try to apply Chicago price theory, they will simply tell you that I am showing a lot of improvement because they are kind.) The only things I'm good at, really and honestly, are asking questions that people seem to find interesting, and figuring out how to trick data into answering those questions. I will never be even a passable sociologist, political scientist, or psychologist. But that is okay. I think the thing that gets a lot of economists into trouble is the false belief that they can be good at everything. A few years back, when I was on sabbatical at the Center for Advanced Study of Behavioral Sciences at Stanford, I gave a talk to the other fellows on my research. Some in the audience were indignant, asking why I called myself an economist given what I did. They said I was really a sociologist. One only had to look at the horror on the faces and the strong counter-arguments made by the sociologists in the room to see that I wasn't a sociologist either. But, by starting from the position that I donâ€™t know much, I am open-minded enough to co-author with an ethnographer (Sudhir Venkatesh), an econometrician (Jack Porter), a political scientist (Tim Groseclose), and now a journalist (Stephen Dubner). And maybe, in addition to making it safe for someone to publish a book without in a theme in the future, I will make it easier for academics from all social sciences to follow the sort of "adisciplinary" (as opposed to inter-disciplinary) path I'm on.
Next, there is the question of incentives. In the same way that "utility maximization" can be turned into a tautology, the commentors point out that our use of the term incentives is moving in that direction as well. By widening incentives to encompass not only financial, but social and moral incentives, we have covered just about everything. Still, I think there isn't really another choice. To focus just on financial incentives would obviously be misguided. On the flip side, for me (and I think this is the thing that makes me an economist ultimately) I just can't get away from the idea that people are active decision makers trying to get what they want in a reasonably sophisticated fashion. The most real sense in which I think incentives are the unifying theme of my research (even when they aren't obviously there like in the abortion-crime stuff), is that whenever I try to answer a question, I put myself in the shoes of the actors and I ask myself "what would I do if I were in that situation?" And I am the kind of person who is always trying to concoct some scheme to beat the system or avoid getting scammed, so I presume the people I'm studying are thinking the same way. So when I think about legalized abortion, I think it sounds like a really sick form of insurance policy against an unwanted pregnancy. When I see that one sumo wrestler has more to gain from a win than the other foregoes by losing, I figure they'll make a deal. When I think about real-estate agents, I'm constantly paranoid they are trying to screw me.
Finally, there is the question of whether I deserve to be called a rogue economist or not. There are two definitions of rogue. One kind of rogue is the Saddam Hussein-type. We have a few of those in economics, unfortunately, and we sure don't need any more. But when the book calls me a rogue, we mean it in the "mischievously playful" sense of the word that Webster's lists as the second definition. The rogue I have in mind is someone who strays from the subjects deemed appropriate for an economist, fails to treat economics with the necessary sense of seriousness (how dare I admit I can't do theory, or call the book Freakonomics), and embraces approaches that are implicitly disallowed by the profession (like ethnography and story-telling). As I said on the Daily Show, and apparently no one except me has seen Shrek 2, I like to think of myself as a rogue in the way that Antonio Banderas' character Puss 'n' Boots is a rogue.
I am the first one to admit that if all economists were like me, the field would probably be a disaster. But the fact that other economists more or less like me in spite of this, tells me that there is plenty more room for rogue economists in the profession.

Posted by DeLong at 12:29 PM

Wait a Minute Here!

Fortune's Peronet Despeignes interviews Greg Mankiw:

Magazine - Economist Greg Mankiw Sounds Off on Karl Rove, Paul Krugman, and More - FORTUNE - Page 7: Q: So you often read the paper and slap your forehead?
A: Let me give you example. This is as I was arriving [as the new chair of the White House Council of Economic Advisers]. Glenn Hubbard, my predecessor, was leaving. I read one of Paul Krugman's New York Times' columns, and he said something like, 'Hubbard said he was leaving to be with his family, but you could see the knives sticking out of his back.' The suggestion was that he's being kicked out. I knew that wasn't true. I knew I got the job in large part because Glenn recommended me. So here we have Krugman sitting in some office in New Jersey making a supposition about what's going on in Washington and then writing for the New York Times, with readers presuming that he knew something...

Wait a minute. Stop right there. I understood that when Paul Krugman was writing, Glenn Hubbard had just played the up-or-out game--promote me to a job that has more power and prestige, or I'll head back to Columbia. Remember that in the winter of 2003 Glenn Hubbard was being described as one of the "four horsemen of Bush economic policy," the "most influential chairman of the Council of Economic Advisers in two decades," a man who has "stretched his role far beyond tinkering with the tax code and overhauling the pension system." The Washington gossip vine in the fall and winter of 2003 was singing that Glenn would stay--but only for the right job, with more influence.

When Glenn went back to Columbia in early 2003, I was told by not-very-senior administration officials that it was because some feared that Glenn was just a little *too* smart and too capable, and that he was not "safe."When the Treasury and NEC jobs were opened up, Glenn did not get either of them--that's what Paul Krugman was referring to. (I think that everyone in the White House now agrees that this was a bad mistake: that Glenn would have greatly strengthened the administration's economic policy team over the last two and a half years.)

Greg is telling the truth when he says that Glenn recommended him for the job, and Greg is telling the truth when he says that Glenn could surely have stayed in the CEA chair job if had wanted to. But Greg's claim that Krugman is wrong? The best you can say is that it is... "incomplete."

Read Greg's _Fortune_ interview with this in mind, particularly when you come to statements like:

There are three kinds of people in Washington when they look at this budget situation. There are conservatives—honest conservatives—who think we need to reduce the size of government. There are honest liberals who want to raise taxes to make government bigger. And then there are people who are putting their heads in the sand who do not want to do either. It's very clear that this administration is filled with conservatives who believe in smaller government, leaner government, and the tax cuts go hand in hand with that.

No Greg. That's not clear at all. Not clear to anyone.

Posted by DeLong at 12:27 PM

More Intellectual Garbage Pickup

This is really a thankless task. But somebody needs to occasionally lay down a marker that Steve Antler writes with forked tongue.

He attempts to come to Daniel Okrent's defense:

EconoPundit: Professor Krugman says... "unemployment lasts much longer than it used to."... Daniel Okrent says: ...columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults."

A plot of the BLS statistic 'average weeks unemployed' from its 1948 start to the present illustrates Okrent's point:

The first gray arrow shows upward trending from 1948 to 1983. During those years Krugman was correct. The second gray arrow shows a slight downward trend since the mid 1980's. During these years, Krugman is wrong.

So which is it? Relative to 1948, unemployment now lasts longer than it used to. Relative to 1983 recession-peak-unemployment lasts about two weeks less than it used to.

I guess the question is one of interpretation. It just has to be left to the voters. Do they share Krugman's pessimism, or do they feel optimistic about the future?

Here is Antler's figure:

What should you think of this argument?

You should look at the duration of unemployment during business cycle peaks, and see a steady rise: 7.8, 10, 10.8, 11.9, 12.6--today's level is 19.3.
You should look at the average duration of unemployment during entire business cycles, and see a steady rise: 12, 10.5, 12.8, 15, 15.4, 17.1.
You should cyclically-adjust the series--after all, we know that the duration of unemployment will be relatively high whenever unemployment itself is relatively high--and calculate what the duration would be if the unemployment rate were six percent, as is shown here:
You should reflect on the fact that of these four possible ways of calculating the trend in unemployment duration, only one way--and a relatively weak way--produces Antler's downward trend since 1983. And Antler's way produces a much stronger upward trend in unemployment duration in the 1970s and early 1980s than any of the alternatives.
You should reflect on the fact that Krugman's "unemployment lasts much longer than it used to" is part of a tradition of analysis that contrasts the first post-World War II generation--the 50s, 60s, and early 70s--with today. There's nothing in Krugman to make anyone imagine that "used to" applies to the 1980s only.

But it really isn't economics that Steve Antler is doing here, is it?

Posted by DeLong at 12:25 PM

Louis Uchitelle Looks at the Long-Term Unemployed

The reliable Louis Uchitelle looks at the distressingly-high level of long-term unemployment:

The New Profile of the Long-Term Unemployed - New York Times: After three years of unemployment, Allen Gruenhut finally landed a job as director of human resources for a company in the stone business on Long Island. His age, 53, worked against him in his long hunt for work, he contends, and so did the six-figure salary he earned at his last job, in banking. "They would not take me seriously at job interviews when I said I would be happy with a lower salary," Mr. Gruenhut said.
Jackie Ellenwood, 31, is still without a job. She worked for three travel agencies over 13 years, until her last job, in Allen Park, Mich., ended in a layoff nine months ago. The industry is shrinking in response to more Internet bookings and cutbacks in corporate travel so Ms. Ellenwood is looking for work elsewhere and studying to become a nurse, confident that health care will continue to expand in an aging America. "I'm going to stick to my nursing courses," Ms. Ellenwood said, "even if I get a job."
The experiences of Mr. Gruenhut and Ms. Ellenwood help to explain why many of the nation's unemployed are still struggling to get back to work. Not since World War II has long-term joblessness - the percentage of the unemployed out of work for six months or more - been so high for so long after a recession has ended.... Several factors seem to be contributing to the rise in long-term unemployment. The swelling cost of company-paid health insurance is "inducing business to be less aggressive in its hiring," said Mark Zand.... The baby boomer bulge working its way through the labor force also plays a role; as this large group of workers ages it becomes harder for some who lose their jobs to find new work suited to their skills....
"It looks like employers are very hesitant about the future of the economy," said Lawrence F. Katz, a labor economist at Harvard. "It may be that we will fall into another weak economic period before we get a good recovery and really robust hiring." After World War II, when traditional industries dominated the economy, the usual pattern was for long-term unemployment to surge during recessions and die away quickly as recoveries took hold. That changed during the early 1990's and is even more evident in the current recovery, which began in November 2001. Rather than subside as growth resumed, long-term unemployment as a share of total joblessness continued to rise, according to the Bureau of Labor Statistics. It peaked 17 months ago at 23.3 percent and has only gradually tapered off since then, to 21.2 percent in April....
Toyota Motors of North America, whose sales are rising more rapidly than other automakers in the United States, is holding back on hiring although its plants are operating flat-out. Its payroll, said Dennis Cuneo, a senior vice president, has grown by only 600 jobs this year - all of them at newly opened plants - to a total of just over 32,000 employees. Existing factories continue on two shifts a day. Overtime and reconfigured work schedules help to squeeze out more production, without adding third shifts and the hiring that the additional shifts would require. "We are reluctant to bring people on immediately," Mr. Cuneo said. "We are going to wait and see what we can still get from improvements in productivity. If the demand is sustained, there will come a point where you have to add a shift."...
Sixty-six percent of the working age population was in the labor force in April, down from 66.7 percent at the start of the recovery. That is 1.6 million missing people, enough to raise the unemployment rate to 6.2 percent from its present 5.2 percent - if they all showed up....

Posted by DeLong at 12:23 PM

Alan Greenspan Is a Master at What He Does

Matthew Yglesias watches with a kind of awe:

Matthew Yglesias: Department of Equivocation: "Being Chairman of the Federal Reserve is sort of like the reverse of being a blogger -- you need to be very, very, very careful about every word that passes through your lips lest an unintentional slip create a financial panic. Thus, Greenspan's thoughts on housing are a true classic of the genre:'

Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern,' Mr. Greenspan told the Economic Club of New York at the Hilton New York hotel in Midtown. Mr. Greenspan emphasized that he sees no sign of a nationwide housing bubble, but he acknowledged concerns over 'froth' in the market and pointed to a big increase in speculation in homes - particularly in second homes. As a result, he said, there are 'a lot of local bubbles' around the country.

No bubble, but many small, local bubbles. Hence an overall froth. And, presumably, a bubble here in Washington, DC, where prices have gone up a lot. From the standpoint of self-interest, this seems to me to be the best possible outcome since a decline in local home prices would be give for me as a non-homeowner who plans on sticking around town for a whle, but a nationwide collapse would have all sorts of bad spillover effects. Therefore, I choose to believe that Greenspan's called this correctly.

Via Alina Stefanescu who notes that the equivocation has thrown the nation's headline-writing industry into crisis.

I am told that in Washington, whenever someone wants to know whether they are supposed to deepen the darkness or illuminate the issue, they are likely to say, "Should I Greenspan it?"

Posted by DeLong at 12:21 PM

Speaking of Ire...

The Daily Howler uses its verbal trebuchet to launch a rhetorical cow in the direction of Daniel Okrent:

Daily Howler: Daniel Okrent finally leaves--taking a cheap shot at Krugman: What a truly amazing flyweight is departed Times public editor Daniel Okrent! Yesterday, Okrent concluded his unfortunate reign, discussing thirteen topics he somehow avoided during his eighteen months of service.... Below, we present the second of these thirteen ruminations, in full. But alas! As Okrent slices and dices Paul Krugman, he provides the perfect public showcase for his fly-weight intellectual standards and his unexplained but omnipresent resentment. Try to believe that he actually wrote such a cheap slasher piece! Again, it's the second thing he "meant to write about" but somehow never did:

Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults....
[S]ome of Krugman's enemies are every bit as ideological (and consequently unfair) as he is. But that doesn't mean that their boss, publisher Arthur O. Sulzberger Jr., shouldn't hold his columnists to higher standards.
I didn't give Krugman, Dowd or Safire the chance to respond before writing the last two paragraphs. I decided to impersonate an opinion columnist.

Good grief! If the ivory-billed 'pecker is the "Lord God bird," that must be the "Lord God third paragraph....

In the case of Dowd and Safire, Okrent at least provides specific complaints... at least semi-valid.... But what about Krugman? Okrent goes after his troubling poster boy hard--but he doesn't cite a single specific example of the gentleman's troubling conduct! He calls Krugman every name in the book--but after eighteen months on the job, he doesn't give a single example of Krugman's deeply disturbing conduct. How exactly is someone like Krugman supposed to respond to such work?
For the record, Krugman is quite a bum--if you listen to Okrent. According to the exercised editor, Krugman "has the disturbing habit of shaping, slicing and selectively citing numbers." Beyond that, Krugman is "ideological" and "unfair," Okrent says--and he seems to say that the slippery scribe selects his misleading numbers in a fashion designed to "please his acolytes." These are very nasty charges. But in the style of classic hit-and-run bullies, Okrent provides no examples of his target's troubling conduct, and he bravely offers these ringing complaints in his final public editor column, depriving Krugman of a chance to respond (and knowing he wo't have to defend himself against the complaints that will come).
How big and brave is the mighty Okrent--this big, bold man who slithers away with so many loud complaints? The big, brave fellow had eighteen months to offer examples of Krugman's misconduct, but even now, he offers none.... In his very next item--undiscussed Topic 3--Okrent complains that three other writers have failed to let the great New York Times serve "as a guardian of civil discussion!" Was this an attempt at comic relief? Or is it the sign of a consummate flyweigh--the sign of a man who waded far over his head when offered this unwise assignment?...
The exercised ed had eighteen months to offer examples of Krugman's misconduct. Instead, he waits until his final column, then provides exactly no examples of the crimes he lustily limns.... [I]n Sunday's closing (cheap) shot against Krugman, he showed himself again as a cheap, petty thug--and as a flyweight for the ages. How does America's most important newspaper have such a flyweight in such a high post? We'll examine that important question all week, starting tomorrow with Okrent's Topic 5--an item which is almost perfect in its pure unalloyed dumbness.

Posted by DeLong at 12:19 PM

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June 08, 2005

Jefferson Morley on the "Thin" Coverage of the Downing Street Memo

June 07, 2005

David Wessel on Equal Opportunity and the Meritocracy

Is Inequality a Concommitant of Rapid Growth?

An Historical Document: Long-Term Capital Management CEO John Meriwether Asks for Money

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Weaknesses of Collaborative Distributed Filtering, Espionage Novels, and the Trenton Train Station

Bolton and Wolfowitz (Why Oh Why Are We Ruled by These Fools? Department)

June 06, 2005

Alan Greenspan Is Worried

Yet Another Big Mac index

External Storage Price Trends

BizarroWorld

A Reasoned Reaction to Apple's CPU Choice

I Guess Nino Scalia Really Wants to Be Chief Justice

Why Oh Why Are We Ruled by These Liars? (Bush Tax Cuts Edition)

When Household Utensils Attack!

Apple Migrates to Intel

Life in the Information Age

The Super-Rich

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Nixonites Lecture Us on Ethics

Memo to Self

David Brooks Takes Aim at Today's Young Republicans

Hilzoy on Watergate

What Did William F. Buckley Know and When Did He Know It?

The Complicated State of the Labor Market

Now He Tells Us (Why Oh Why Can't We Have a Better Press Corps?)

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Richard Nixon = Moses

June 04, 2005

Lawrence Eagleburger on Richard Nixon

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June 03, 2005

Why Oh Why Are We Ruled by These Idiots? (Urinating on the Koran Edition)

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News From Arkham, Massachusetts

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June 02, 2005

No to a Market Society!

Alberto Gonzales Is a Bad Man (Why Oh Why Are We Ruled by These Liars? Department)

Why Oh Why Can't We Have a Better Press Corps? (Yet Another New York Times Edition)

Why Are Auto Dividends So Low?

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

The Global Savings Glut Argument

Danny Okrent of the New York Times Jumps the Shark (Why Oh Why Can't We Have a Better Press Corps?)

Why Oh Why Can't We Have a Better Press Corps? (Yet Another New York Times Edition)

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Robert Waldmann Is Utopian (Why Oh Why Can't We Have a Better Press Corps?)

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Why Oh Why Can't We Have a Better Press Corps? (Who's Going to Pay to Read John Tierney? Department)

Why Oh Why Are We Ruled by These Liars? (Yet Another Bush Social Security Edition)

Very Good News on the Biological Science Front

Paris Hilton and Company Are Secretly Unhappy...

Sing, O Muse, of the Ire of Teresa Nielsen Hayden and Company...

The Logical Structure of the Geneva Conventions

As the Sun Sets on Daniel Okrent Day...

Matthew Yglesias on Infopolitics

Hitting a Nerve...

Ted Barlow's Speaker's Corner

Gene Sperling on Social Security

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Advice for Berkeley

A Worrisome Trend...

Mirror of Wildernesses...

The Europeans Figure Out How to Stop the Appreciation of the Euro

When Wingnuts Read!

Sigh

Rumors that GM Is Going to Shovel Lots of Cash Out of the Enterprise