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October 31, 2005

Why Oh Why Can't We Have a Better Press Corps? (Carl Hulse of the New York Times Edition)

Carl Hulse of the New York Times takes a baby step toward becoming a real journalist. He writes:

Congress Mounts Drive for Big Budget Cuts - New York Times: WASHINGTON, Oct. 30 - Congress will embark this week on a major cost-cutting drive that conservative Republicans see as their party's chance to revive its reputation for frugality. But the conservatives face stiff resistance from united Democrats and skeptical fellow Republicans.

With Republican leaders pointing to a need to reduce spending elsewhere to pay for hurricane recovery, the Senate will begin considering a plan on Monday to pare $39 billion over the next five years. The House is assembling its own $50 billion package with an eye toward additional across-the-board cuts this year.

Those pushing hardest for Congress to tighten the federal belt say this is a crucial moment for Republicans who have strayed far from their fiscally responsible roots by engaging in profligate spending and overseeing a vast expansion of government programs. "I think this is a test of character for the Republican majority in Congress," said Representative Mike Pence, an Indiana Republican, who leads a caucus of House conservatives. "The American people are watching and waiting."...

The baby step is that he is including the fact that the $39 billion and $50 billion numbers that are being thrown around are not for this fiscal year but are over five years--i.e., between $8 billion and $10 billion a year.

But he is still very far from being a real journalist: a real journalist would remind his readers in the first two paragraphs that $10 billion a year is 2% of the on-budget deficit (i.e., excluding the Social Security surplus), 0.4% of annual federal spending, and 0.1% of annual GDP. It would need 50 successful "major cost-cutting drives" like this to get the budget to where it ought to be.

It's a big deal only in the propaganda of Republican congressional leaders who want to pretend to fiscal responsibility, and reporters who don't see anything wrong with being their megaphones.

Posted by DeLong at 09:41 AM | Comments (0) | TrackBack

Roger Lowenstein on the Pension System

Roger Lowenstein writes about the messed-up U.S. pension system. Congress has succumbed to lobbying to keep the U.S.'s private-sector defined-benefit pensions underfunded. And Congress has not managed to reform ERISA in order to make 401(k)s a very good substitute.

I do think Roger is unfair to Mark Warshawsky, Assistant Secretary of the Treasury for Economic Policy, in writing that Mark "merely said that [ERISA reform] was under study. Anything that smacks of regulation (like rules to make sure employees get a particular menu of choices, whether for annuities or for their portfolios) gives the administration shivers." It's widely recognized among the administration's economists that the 401(k) system is broken and that more can be less where investment choices are concerned (see, for example, Alicia Munnell (2005), "Test Drive Suggests 'Ownership Society' May Be a Lemon," Economists Voice http://www.bepress.com/ev/vol2/iss1/art9/). And there has been considerable staffwork to support a bunch of small but very important and powerful reforms that only idiots think would count as 'overregulation'. If President Bush and Senator Grassley could agree on making pension reform a high priority, we could have it quickly. It's a failure of political will, not of analysis or of ideological blinders.

The End of Pensions By ROGER LOWENSTEIN: When I caught up with Robert S. Miller, the chief executive of Delphi Corporation, last summer, he was still pitching the fantasy that his company, a huge auto-parts maker, would be able to cut a deal with its workers and avoid filing for bankruptcy protection. But he acknowledged that Delphi faced one perhaps insuperable hurdle - not the current conditions in the auto business so much as the legacy of the pension promises that Delphi committed to many decades ago, when it was part of General Motors. This was the same fear that had obsessed Alfred P. Sloan Jr., the storied president of G.M., who warned way back in the 1940's that pensions and like benefits would be "extravagant beyond reason." But under pressure from the United Auto Workers union, he granted them. And as future auto executives would discover, pension obligations are - outside of bankruptcy, anyway - virtually impossible to unload. Unlike wages or health benefits, pension benefits cannot be cut. Unlike other contracts, which might be renegotiated as business conditions change, pension commitments are forever. And given the exigencies of the labor market, they tend to be steadily improved upon, at least when times are good.

For the U.A.W., Miller noted forlornly, "30 and Out" - 30 years to retirement - became a rallying cry. Eventually, the union got what it wanted, and workers who started on the assembly line after high school found they could retire by their early 50's.... Earlier this month, Miller and Delphi gave in to the pressure and sought protection under the bankruptcy code.... It followed by a few weeks the Chapter 11 filings of Delta Air Lines and Northwest Airlines, whose pension promises to workers exceeded the assets in their pension funds by an estimated $16 billion. The three filings have blown the lid off America's latest, if long-simmering, financial debacle....

The amount of underfunding in corporate pension plans totals a staggering $450 billion. Part of that liability is attributable to otherwise healthy corporations that will most likely, in time, make good on their obligations. But the plans of the companies that fail will become the responsibility of the government's pension insurer, the Pension Benefit Guaranty Corporation.... Given that pension promises do not come due for years, it is hardly surprising that corporate executives and state legislators have found it easier to pay off unions with benefits tomorrow rather than with wages today. Since the benefits were insured, union leaders did not much care if the obligations proved excessive.... The P.B.G.C. is now $23 billion in the red - a deficit that is expected to grow, significantly, as more companies go under. The balance sheet for the end of September will very likely show a deficit of more than $30 billion. If nothing is done to fix the system, the Congressional Budget Office forecasts, the deficit will mushroom to more than $100 billion within two decades....

[T]he problem of state and local government pensions is even worse. Public pensions, which are paid by taxpayers and thus enjoy an implicit form of insurance, are underfunded by a total of at least $300 billion.... In San Diego... the city has been forced to allocate $160 million, or 8 percent of the municipal budget, to the San Diego City Employees Retirement System this year, with similar allocations expected for years to come. San Diego has tabled plans for a downtown library, cut back the hours on swimming pools, gutted the parks and recreation budget, canceled needed water and sewer projects and fallen behind on potholes....

Bradley Belt, executive director of the P.B.G.C.... points out, the number of workers covered by pensions is shrinking without government help. In 1980, about 40 percent of the jobs in the private sector offered pensions; now only 20 percent do....

To understand why pensions are still important, you have to understand the awkward beast that benefits professionals refer to as the U.S. retirement system. It is not really one "system" but three, which complement each other in the crudest of fashions. The lowest tier is Social Security, which provides most Americans with a bare-bones living (the average payment is about $12,000 a year). The highest tier, available to the rich, is private savings. In between, for people who do not have a hedge-fund account and yet want to retire on more than mere subsistence, there are pensions and 401(k)'s.... During most of the 90's the decline in pension coverage was barely lamented. It was not that big companies were folding up their plans... but that newer, smaller companies weren't offering them....

From the beneficiary's standpoint, pensions mean unique security. The worker gets a guaranteed income, determined by the number of years of service and by his or her salary at retirement. And pensions don't run dry; workers (or their spouses) get them as long as they live.... A 401(k), on the other hand, promises nothing. It's merely a license to defer taxes - an individual savings plan. The employer might contribute some money, which is why 401(k)'s are known as "defined contribution" plans. Or it might not....

Various people have studied how investors perform in their 401(k)'s. According to Alicia Munnell, a pension expert at Boston College and previously a White House economist, pension funds over the long haul earn slightly more than the average 401(k) holder. Among the latter, those who do worse than average, of course, have no protection. Moreover, pensions typically annuitize - that is, they convert a worker's retirement assets into an annual stipend.... This might seem a trivial service.... [But as] Jeffrey Brown, an associate finance professor at the University of Illinois at Urbana-Champaign and a staff member of the president's Social Security commission, notes that as baby boomers who have nest eggs in place of pensions begin to retire, they will be faced with a daunting question: "How do I make this last a lifetime?"...

[I]n the first half of the 20th century... government policies turned pensions into a tool of social policy. First came the tax deduction. This feature was abused, as companies used pensions to shelter payments to their executives. The rules were gradually tightened... forcing plans to include the rank and file. World War II gave more incentives to create pensions: punitive tax rates made the pension shelter enormously attractive.... The effect of these policies was to encourage unions to bargain for pensions and to pressure employers to grant them....

The Studebaker failure was a watershed. Thousands of employees, including some who had worked 40 years on the line, lost the bulk of their pensions. Stunned by the loss, which totaled $15 million, the U.A.W. changed its tactics and began to lobby in earnest for federal pension insurance.... [I]n 1974, Congress finally passed the Employee Retirement Income Security Act, or Erisa, which, among other protections, established the P.B.G.C. to insure private pensions.... Erisa, which would be amended several times, was supposed to ensure that corporate sponsors kept their plans funded. The act includes a Byzantine set of regulations that seemingly require companies to make timely contributions. As recently as 2000, most corporate plans were adequately funded, or at least appeared to be.... Corporations have been gaming the system by using the highest rates allowable, which shrinks their reported liabilities, and thus their funding requirements. The P.B.G.C., when calculating the system's deficit, uses what is in effect a market rate.... Depending on whom you talk to, General Motors' mammoth pension fund is either fully funded or, as the P.B.G.C. maintains, it is $31 billion in the hole.

What is not in dispute is that... falling stock prices, plunging interest rates and a recession in the beginning of this decade was the pension world's equivalent of the perfect storm.... As the P.B.G.C. assumed responsibility for more and more pensioners, it became clear that the premium it charged was way too cheap. Mispriced insurance, like mispriced anything, sends the market a distorted signal.... United Airlines did not make contributions to any of its four employee plans between 2000 and 2002, when it was heading into Chapter 11, and made minimal contributions in 2003.... Bethlehem Steel similarly enjoyed a three-year funding holiday as it was going through hard times, letting its liabilities swell in advance of turning them over to the government.... Neither Bethlehem nor United broke any laws.... As Belt testified to the Senate Committee on Finance in June, "United, US Airways, Bethlehem Steel, LTV and National Steel would not have presented claims in excess of $1 billion each - and with funded ratios of less than 50 percent - if the rules worked."... [C]orporations - airlines in particular - have been lobbying for greater permissiveness for several years. And they have gotten it. Congress has twice relaxed the rules, permitting pension sponsors to use a higher rate to calculate their liabilities.

Enter the Bush administration... [which] wants the funding rules tightened.... G.M. and other industrial companies, along with their unions, have harshly attacked the Bush pension proposal, which would force many old-economy-type corporations to put more money into their pension funds just when their basic businesses are hurting.... The Senate is still divided, however, on how to treat corporations with junk credit ratings - the ones most likely to wind up in the P.B.G.C.'s lap. Hard-liners like Senator Chuck Grassley insist they should be forced to strengthen their pension plans in a hurry; Senators Mike DeWine and Barbara Mikulski (both from states with blue-collar constituencies) want to give such companies lenience....

Even in states where budget restraint is gospel, public-service employees have found it relatively easy to get benefit hikes for the simple reason that no one else pays much attention to them.... The average voter doesn't take notice when the legislature debates the benefits levels of firemen, teachers and the like. On the other hand, public-employee unions exhibit a very keen interest, and legislators know it. So benefits keep rising.... Because public pension benefits are legally inviolable, default is not an option. Sooner or later, taxpayers will be required to put up the money.... [T]he West Virginia Teachers Retirement System has, embarrassingly, only 22 percent of the assets needed to meet its expected liabilities.... According to Barclay's Global Investors, if you use realistic assumptions, the total underfunding in all public plans is on the order of $460 billion....

Earlier this year, Schwarzenegger tried to move California to a 401(k)-style defined contribution plan (for new employees), but the Legislature refused to go along.... De Maio, the San Diego watchdog, is lobbying for a federal law that would impose Erisa-type rules on public plans....

Elaine Chao, the secretary of labor... made no bones about the fact that, in the administration's view, traditional pensions are losing their relevance.... It's hard to argue with her.... Although 44 million people are covered by private-sector plans, half are people who have already retired and are collecting benefits or whose plans have been frozen or terminated.... [T]he private-sector pension community will mostly die off in a generation.... [I]t would make sense to try to incorporate their best features into 401(k)'s. The drawback to 401(k)'s... [T]he government could... require that a portion of 401(k) accounts be set aside in a lifelong annuity... [make] a high contribution rate the "default option" for employees.... Promoting an annuity culture is probably the single best way to make up for the demise of pensions. Yet most companies that provide 401(k)'s don't even give the option of purchasing an annuity when people cash in their accounts. As Brown, the Illinois professor, notes, "There is no box to check that says 'annuities."' That is a minor scandal. "I wish someone in Washington were thinking bigger thoughts about what the optimal retirement package should look like," says Watson Wyatt's Coronado.... Mark Warshawsky, the Treasury's top economist, has written about the need for annuities, and in an interview he allowed that as 401(k)'s become the primary, or the only, source of retirement income for more people, "I think it is a concern that annuities are not being offered in those plans." When I asked what the Treasury was doing about encouraging annuities, Warshawsky merely said that it was under study. Anything that smacks of regulation (like rules to make sure employees get a particular menu of choices, whether for annuities or for their portfolios) gives the administration shivers....

When it passed Erisa, Congress agreed that corporations that invested tax-sheltered retirement funds - pensions - should have to live by certain rules. But in the defined contribution world - the world of 401(k)'s - there are no rules. Employers can contribute or not. Employees can diversify or blow it all on the company stock (even if it is Enron). If nothing else, the century-long experiment with pensions has proved that in the absence of the right rules, the money will not always be there. The purpose of pension reform should be not merely to avoid a fiscal disaster but to find a fiscally sound way to preserve the likelihood of secure retirements...

Posted by DeLong at 09:41 AM | Comments (0) | TrackBack

Things That Shouldn't Work But Somehow Do

Strangely successful:

WAKE THE DEAD : Welcome to the WAKE THE DEAD website -- home of the World's First Celtic All-Star Grateful Dead Jam Band. The way this hot Northern California septet blends Celtic traditional music and the songs of the Grateful Dead is delighting Deadheads, folkies, jam band fans, and adventurous music lovers alike around the world.

Posted by DeLong at 09:41 AM | Comments (0) | TrackBack

Banking Panics in the 1930s: Liquidity Crises or Solvency Crises?

Were the banking crises during the Great Depression liquidity crises or solvency crises? Gary Richardson is coming to talk about this tomorrow. I'm looking forward to it:

Gary Richardson and William Troost (2005), "Monetary Intervention Mitigated Banking Panics During the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border in Mississippi, 1929 to 1933" http://orion.oac.uci.edu/~garyr/papers/MS_23may2005_final.pdf:

Abstract: The Federal Reserve Act of 1913 divided Mississippi between the 6th (Atlanta) and 8th (St. Louis) Federal Reserve Districts. Before and during the Great Depression, these districts’ policies differed. The Atlanta Fed championed monetary activism and the extension of credit to troubled banks. The St. Louis Fed adhered to the doctrine of real bills and eschewed expansionary initiatives. Outcomes differed across districts. In the 6th District, banks failed at lower rates than in the 8th District, particularly during the banking crisis in the fall of 1930. The pattern suggests that discount lending reduced failure rates during periods of panic. Historical evidence and statistical analysis corroborates this conclusion.

Even if the Federal Reserve had tried to alleviate the banking crisis, no clear evidence exists that it could have helped depository institutions. Two schools of thought exist on this issue. One school believes the principal causes of banking crises were withdrawals of deposits, illiquidity of assets, and the Federal Reserve’s reluctance to act. The Fed could have alleviated banking problems by acting as a lender of last resort (Friedman and Schwartz, 1963; Elmus Wicker, 1996). The second school concludes that banks failed because the economy contracted. Asset prices fell. Loan default rates rose. Banks became insolvent, continuing a process of liquidation and consolidation in the banking industry that began during the 1920s. In such circumstances, the Fed could not aid banks by injecting liquidity into the banking system (Temin, 1976; Charles Calomiris and Joseph Mason, 2003)...


St. Louis was a staunch advocate of non-intervention. Atlanta was a leading advocate of assisting banks in need. The St. Louis and Atlanta Feds applied their different policies to the portions of Mississippi lying within their jurisdictions. The adoption of these policies preceded the onset of the depression, and had little to do with circumstances in Mississippi, which was a small and peripheral portion of each Federal Reserve district, and much to do with the philosophies and experiences of the leadership of the two banks. Thus, the application of Federal Reserve policies to Mississippi possessed the characteristics of an exogenous policy experiment...


Compounding over the 73 days of the fall ’30 crisis reveals that the panic increased the cumulative hazard for each bank by 11.0%. The fall ’30 crisis, in other words, accounts for approximately one third of the total cumulative hazard experienced by banks in Mississippi between July 1929 and March 1933. Similar calculations reveal the effect of the Atlanta Fed’s expansionary policy during the fall ’30 crisis. Cumulative hazard in the 6th District was 10.2% lower than cumulative hazard in the 8th District. In other words, in the 8th District, where the St. Louis Fed followed the real bills doctrine, the crisis in the fall of 1930 raised cumulative hazard by 11.0%, while in the 6th District, where the Atlanta Fed followed Bagehot’s Law, the crisis increased cumulative hazard by only 0.8%...

Posted by DeLong at 09:39 AM | Comments (0) | TrackBack

'The Assassins' Gate': Occupational Hazards - New York Times

Fareed Zakaria on George Packer's The Assassins' Gate:

'The Assassins' Gate': Occupational Hazards - New York Times: FAREED ZAKARIA: IN "The Assassins' Gate," his chronicle of the Iraq war, George Packer tells the tale of Drew Erdmann, a young American official in Baghdad. Erdmann, a recent Harvard Ph.D. in history, finds himself rereading Marc Bloch's classic firsthand account of the fall of France in 1940, "Strange Defeat." He was particularly drawn to a few lines. "The ABC of our profession," Bloch wrote, "is to avoid . . . large abstract terms in order to try to discover behind them the only concrete realities, which are human beings." The story of America in Iraq is one of abstract ideas and concrete realities. "Between them," Packer says, "lies a distance even greater than the 8,000 miles from Washington to Baghdad."

Packer begins his absorbing account with... neoconservatives, most prominently Paul Wolfowitz, had long believed that ousting Saddam Hussein would pave the way for a grand reordering of the Middle East, pushing it... toward modernity and democracy... particularly good for Israel's security.... "They were supremely confident," Packer writes, "all they needed was a mission."

But they wouldn't have had one without 9/11.... After 9/11, Bush - and many Americans, including many liberals - were searching for a use of the nation's power that mixed force with idealism and promised to reorder the Middle East. In Iraq they found it.... Packer provides page after page of vivid description of the haphazard, poorly planned and almost criminally executed occupation of Iraq. In reading him we see the staggering gap between abstract ideas and concrete reality.

Hard as it is to believe, the Bush administration took on the largest foreign policy project in a generation with little planning or forethought. It occupied a foreign country of 25 million people in the heart of the Middle East pretty much on the fly.... "Swaddled in abstract ideas . . . indifferent to accountability," those in positions of highest responsibility for Iraq "turned a difficult undertaking into a needlessly deadly one," he writes. "When things went wrong, they found other people to blame."

Packer recounts the prewar discussions in the State Department's "Future of Iraq Project"... the need for large-scale forces to maintain security. One would think that this Hobbesian message - that order is the first requisite of civilization - would appeal to conservatives. In fact all of this careful planning and thinking was ignored or dismissed....

The State Department was regarded as the enemy, so what chance was there of working with other countries? The larger problem was that Defense Secretary Donald Rumsfeld (and probably Dick Cheney) doggedly believed nation-building was a bad idea.... Rumsfeld's spokesman, Larry Di Rita, went to Kuwait in April 2003 and told the American officials waiting there that the State Department had messed up Bosnia and Kosovo and that the Bush administration intended to hand over power to Iraqis and leave within three months. So the Army's original battle plan for 500,000 troops got whittled down to 160,000.... [Tommy] Franks's predecessor, Anthony Zinni, inquired into the status of "Desert Crossing," his elaborate postwar plan that covered the sealing of borders, securing of weapons sites, provision of order and so on. He was told that it had been discarded because its assumptions were "too negative."

As the looting began and went unchecked, the occupation lost its aura of authority and began spiraling downward. Iraq's first czar, Jay Garner, was quickly replaced.... L. Paul Bremer... an intelligent man but his previous administrative experience was confined to running the American Embassy in The Netherlands... his two catastrophic decisions were probably made in Washington - disbanding the Iraqi Army and de-Baathification.... In one day, Bremer had upended the social structure of the country. And he did this without having in place a new ruling cadre that could take over....

Packer describes an occupation that was focused more on rewarding confederates than gaining success.... Garner received instructions from Feith and Wolfowitz to be nice to... Ahmad Chalab.... State Department officials were barred from high posts.... Senior jobs went to Feith's former law partner and to the brother of Ari Fleischer, Bush's press secretary. Friendly American firms like Halliburton were favored... something that has infected conservatism.... The result, in government, journalism and think tanks alike, is a profusion of second-raters whose chief virtue is that they are undeniably "sound."...

[S]tarting around May 2004, Washington began reversing course wholesale.... Where is Iraq today? The continuing violence in the Sunni areas has kept most Americans from recognizing what is actually happening in the country. America's blunders forced Washington, hastily and with little planning, to hand over power to... the Kurds and the Shiite religious parties.... In the north, the Kurds run a relatively benign form of one-party democracy. In the south... Shiite religious groups... have imposed their rule.... "Inside the Green Zone, long hours of negotiation about the role of Islam and women's rights... outside a harsh social code enforced by vigilante rule." And in the center, of course, is a war zone.

Let's be clear: Iraq today is a much better, even more liberal, place [today].... But Iraq is also plainly not what so many had hoped it would be - a model and inspiration.... For every day of elections, there are months of chaos, crime and corruption....

Was all this inevitable?... That seems to be the conventional wisdom.... [But] what to make of Afghanistan?.... Two million Afghan refugees have voted with their feet and returned to their country.... The United States allied itself with forces on the ground that could keep order. It handed over the political process to the international community.... It partnered with NATO.... [T]he Afghan National Army is being trained by the United States - and France....

"The Iraq war was always winnable," Packer writes, "it still is. For this very reason, the recklessness of its authors is hard to forgive." But it is not just recklessness.... Above all... the fatal cost of arrogance...

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

Posted by DeLong at 09:38 AM | Comments (0) | TrackBack

Fafblog on the Plame Case

As is so often true these days, only Fafblog can approach today's news and press on the appropriate level. It is as true as it ever was that Fafblog is the world's only source for Fafblog:

Fafblog! the whole worlds only source for Fafblog.: If Only Corruption Came With Cliff Notes!

Michael Kinsley points us to a compelling flaw in the rationale behind the Fitzgerald investigation today: Michael Kinsley doesn't understand it.

True, the Plame scandal is simple enough to be summarized in one sentence(1), but the devil is in the details. There are names and people and places - names like "Niger", which sounds very much like Nigeria and yet is not Nigeria - and people like "Scooter", which is the name of the Vice President's chief of staff and yet is also the name of a muppet. Will the muppet be indicted? If so, will the muppet himself be charged alone, or are the puppeteers who operate his mouth and limbs also under investigation? Was he voiced by Jim Henson, and if so, how will the Justice Department prosecute the dead? Sorting out these intricate questions of "who" and "what" would take a reporter, and Mr. Kinsley doesn't appear to know any of those.

Mr. Kinsley is also troubled by the impossible paradox of press freedom the Plame scandal presents. Should reporter-source privilege be an implied contract in which a journalist protects her source's identity in exchange for reliable information, or should it be an absolutist right wantonly abused by state officials to disinform the populace, crush their critics, and commit crimes from beyond the veil of a shield law? Mr. Kinsley can't quite decide.

The Medium Lobster could answer these questions, but that isn't the point. The point is that he shouldn't have to. Scandals should be accessible and easy to follow for all of us - even for someone like Mr. Kinsley, who was an editor of The New Republic and remains easily distracted by shiny things. America is meant to have a government of the people - and its scandals should be scandals of the people, too. Outing CIA agents, silencing war critics, covering for the false pretext of a false war - it's all too cerebral to have the kind of mass entertainment value that is the raison d'être of the American criminal justice system. Where's the heart, the soul, the semen-stained dress?

Don't worry, Mr. Kinsley - we'll work on getting you a proper, decent scandal with a proper, decent blowjob. After that there will be a big car chase and many flashing lights.

(1) "White House staffers leaked a covert CIA agent's name to the press in an attempt to discredit a critic of the flawed intelligence used to support the Iraq War."

Posted by DeLong at 09:38 AM | Comments (0) | TrackBack

The Wall Street Journal Defends Libby

The Wall Street Journal says that perjury that successfully covers up felonies should not be prosecuted:

WSJ.com - Obstruction for What?: Patrick Fitzgerald's investigation took nearly two years, sent a reporter to jail, cost millions of dollars and preoccupied some of the White House's senior officials. The fruit it has now borne is the five-count indictment of I. Lewis "Scooter" Libby, the vice president's Chief of Staff -- not for leaking the name of Valerie Plame to Robert Novak, which started this entire "scandal," but for contradictions between his testimony and the testimony of two or three reporters about what he told them, when he told them, and what words he used....

Mr. Fitzgerald has been dogged in pursuing his investigation, and he gave every appearance of being a reasonable and tough prosecutor in laying out the charges yesterday. But he has thrust himself into what was, at bottom, a policy dispute between an elected administration and critics of the president's approach to the war on terror, who included parts of the permanent bureaucracy of the State Department and CIA. Unless Mr. Fitzgerald can prove beyond a reasonable doubt that Mr. Libby was lying, and doing so for some nefarious purpose, this indictment looks like a case of criminalizing politics.

The "and doing so for some nefarious purpose" is in there because the Wall Street Journal knows full well that the evidence that Libby perjured and obstructed justice is very strong. Either Libby is guilty or:

  1. An Under Secretary of State
  2. A senior officer of the Central Intelligence Agency
  3. The Vice President of the United States
  4. Libby's own notes of his meeting with the Vice President.
  5. A briefer from the Central Intelligence Agency.
  6. Libby's then-principal deputy.
  7. Judith Miller.
  8. Tim Russert.
  9. The White House Press Secretary.
  10. The Counsel to the Vice President.
  11. The Assistant to the Vice President for Public Affairs.
  12. "White House Officlal A".
  13. Matthew Cooper.

are lying. Libby's story is contradicted not just by a few journalists, but by his own notes and more than a half-dozen senior administration officials as well.

Hence the Wall Street Journal's declaration that if the obstruction of justice is successful--if it keeps the prosecutor from being able to prove the underlying offense beyond a reasonable doubt--it should not be prosecuted.

Posted by DeLong at 09:38 AM | Comments (0) | TrackBack

It's Nice When Smart People Give Me Lots of Pointers to Interesting Things...

Daniel Gross is on a roll, posting a great many things of interest:

Daniel Gross: October 23, 2005 - October 29, 2005 Archives: PRIUS ENVY: When discussing the Prius and the potential of hybrid cars, critics--generally U.S. car makers--generally focus on the fact that the gas savings don't make up for the higher price people have to pay for the hybrids. That may be true in the short-term. But gas isn't the only operating cost associated with a car. If a car breaks down, or needs repairs frequently, that adds to the operating costs. There's the cost of maintenance, and the cost of your time spent taking it to and from the dealer. Lets say your time is worth $100 an hour, and driving a hybrid saves you 15 hours a year in time--fewer trips to the gas station, fewer trips to the dealer, etc.--then the investment would pay of in two years, regardless of how much you save on gas.

And guess which car requires the fewest trips to the mechanic?

Karen Lundegaard reports on the Consumer Reports reliability survey in the Wall Street Journal: "Of the top 31 most reliable vehicles, 15 were from Toyota and Lexus and eight were from Honda. The most reliable 2005 model? The Toyota Prius hybrid car, with only 4% of drivers having to take the vehicle into the dealership for service."

STEEL MAGNOLIAS: The Russians are invading Mississippi! And they're bringing several hundred million dollars! Peter Marsh reports in the Financial Times: "In a project that will be widely watched in the global steel industry, Severstal, the large Russian steelmaker, is taking a majority stake in an $880m venture in the US to make steel sheet for automotive bodies..."

INFLATION WATCH: It's a good thing that inflation is contained to the food and energy sectors, and not seeping into the larger economy. Otherwise there would be real inflation. So what to make of the strong quarterly reports of railroads Norfolk Southern and CSX. Daniel Machalaba reports:... "Norfolk Southern Corp. and CSX Corp. reported gains in third-quarter profit, buoyed by rising freight rates that helped offset higher costs from more-expensive fuel and from hurricane disruptions.... Earlier this week, railroad company Burlington Northern Santa Fe Corp. reported a large third-quarter profit gain. 'After years of price declines, they are finally able to get across-the-board rate increases', said Anthony Hatch, an independent transportation analyst in New York."... Both companies said they are capitalizing on strong demand and tight supply of rail transport to make rate increases stick.

MOST PROFITABLE, NOW BIGGEST: Toyota provides proof that you don't have to give away your cars to build volume. David Ibison and James Mackintosh report in the Financial Times: "Toyota Motor is poised to become the world's largest carmaker, ousting General Motors of the US from the top spot, according to a new business plan to be released in December. The plan is expected to state that Toyota aims to make more than 9.2m vehicles in the year to March 2007 - a figure that should allow it to surpass GM if the US carmaker continues to suffer from falling sales and is forced to cut production further. GM made 9.1m vehicles last year, and last week predicted a fall of about 20,000 units this year."...

GASBAGS: This is rich stuff. Carl Hulse of the New York Times reports on the brilliant new strategy of Republican Congressional leaders to reduce oil prices: begging. "WASHINGTON, Oct. 25 - After forcing through two pieces of legislation with significant benefits for the oil industry this year, House Republican leaders on Tuesday called for oil companies to return the favor by building new refineries and taking other steps to increase fuel supply and lower gas prices. 'It is time to invest in America', said Speaker J. Dennis Hastert, who said that in a period of soaring industry profits, 'we expect oil companies to do their part to help ease the pain American families are feeling from high energy prices'.... 'If you couple that with the fact that we are seeing record profits by the oil companies', said Representative Eric Cantor, Republican of Virginia and chief deputy to Mr. Blunt, 'there are questions being raised by our constituents across America wondering how such a situation could exist'."

Earth to Rep. Cantor: it's called the free market. And it's how the American system works. Indeed, as Holly Yeager reports in the Financial Times, House Speaker Dennis Hastert stepped a bit on his colleague's line by holding up the oil companies' massive profits as a ringing affirmation of all that makes this country great....

LACK OF DEPTH: Caroline Daniel and Christopher Swann of the Financial Times make a good point about the void left by the appointment of Ben Bernanke. "'When Ben Bernanke clears out his desk, he will leave unfinished work: as chairman of the Council of Economic Advisers, he will not sign off on the Economic Report of the President, the annual tome that charts US economic progress. The administration will miss not only his signature but also his role as a useful but relatively low-profile defender of George W. Bush's economic policies. This will mean there is one less voice out there.... It is crucial to have a solid economic voice in the White House', says a former administration economist. Mr Bernanke's departure for the Federal Reserve points to a lack of strong and influential economists across the administration, the person says. 'Of the new people who have now been finally confirmed at the Treasury, none is trained as an economist. There is no one in the White House now, with the exception of the two young CEA nominees who are not yet confirmed, who has a good understanding of economics....' Few analysts expect Mr Bush to appoint a powerful CEA chairman to replace Mr Bernanke...

NEW ECONOMY/OLD ECONOMY: Sometimes the new economy looks a lot like the old economy. One of the reasons Amazon.com and other online retailers were supposed to crush bricks-and-mortar retailers was that their hyper-efficient, asset-light operations would run at significantly higher operating margins. Oops. Amazon.com's... third-quarter results... had operating income of $95 million on sales of $1.86 billion, or about 5.1 percent. That's not bad.... But it's down from the previous year. And as... competition continues to increase, the margin seems to be slipping....

WAL-MART WOES Great piece of reporting by Steven Greenhouse and Michael Barbaro on Wal-Mart's scrooge-like attitude toward employee benefits in the New York Times....

LEE SCOTT KENNEDY: Wal-Mart CEO Lee Scott channels Ted Kennedy, advocating a higher minimum wage out of enlightened self-interest. He finally realizes there's a connection between the minimum wage failing to rise over the past ten years and Wal-Mart's stock failing to rise over the past five years. Ann Zimmerman reports:... "Mr. Scott, noting that minimum wage hasn't changed in almost a decade, described Wal-Mart's core customer base as finding it increasingly difficult to afford basic necessities between paychecks. 'We simply believe it is time for Congress to take a look at the minimm wage and other legislation that can help working families'."

VALUE PRICING: Well, that didn't last long. Several weeks ago, the Big Three said they'd stop the ruinous practice of offering gimmicks like 0% financing, massive rebates, and employee discounts to cover for the fact that buyers weren't willing to pay anywhere near sticker price. Instead, they'd just change the sticker price.... But sales are off again, so they're going back to the well....

BLUE MOON ALERT! Useful and interesting content on the Wall Street Journal editorial page. Writer John Schnapp chronicles GM's woes, and casts a wary eye on the folks exercising oversight over management. "Inadequate corporate governance. A company like GM badly needs a board with at least a core group of directors able to advise and evaluate management from their own successful turnaround experiences. The central GM directors have not. George Fisher... left Eastman Kodak after having been unable to halt its downward spiral. Eckhard Pfeiffer drove Compaq into a ditch. Percy Barnevik virtually destroyed engineering giant ABB.... Karen Katen is a vice-chairman of Pfizer, whose share price collapse has paralleled GM's.... The only GM director who had reinvigorated a sickly company, A.G. Lafley of Proctor & Gamble, quietly withdrew from its board in April."...

ALL THE TEA IN CHINA: You mean to tell me that an until-recently totalitarian Communist dictatorship that has comparatively little experience in free markets and has an insolvent banking system may be fudging its numbers? Don't tell Tom Friedman. Richard McGregor writes in the Financial Times. "'The Chinese economy expanded 9.4 per cent year-on-year, basically the same as in the first and second quarters, despite the fact there has been a major deterioration in the external contribution from the second to the third quarter that should have chopped GDP growth substantially', [Jim Walker] said in a research note....

OWNERSHIP SOCIETY: A piece of stunningly bad news, from Louis Uchitelle's piece in the Sunday New York Times: “Thus far this year, the median weekly wage earned by blacks fell by 5 percent, to $523, adjusted for inflation, according to an analysis of Bureau of Labor Statistics data. Whites as a group are also experiencing a drop in their median weekly wage, but for them the decline this year is less than 1 percent, to $677, adjusted for inflation.”...

Posted by DeLong at 09:35 AM | Comments (0) | TrackBack

The Perjury of I. Lewis Libby

Well, that was an interesting Friday afternoon...

The extent of I. Lewis Libby's perjury is truly bats--- mindblowing. Here are the people who say that his story is simply not true:

  1. An Under Secretary of State
  2. A senior officer of the Central Intelligence Agency
  3. The Vice President of the United States
  4. Libby's own notes of his meeting with the Vice President.
  5. A briefer from the Central Intelligence Agency.
  6. Libby's then-principal deputy.
  7. Judith Miller.
  8. Tim Russert.
  9. The White House Press Secretary.
  10. The Counsel to the Vice President.
  11. The Assistant to the Vice President for Public Affairs.
  12. "White House Officlal A".
  13. Matthew Cooper.

Recollections differ. Memories are fallible. People forget. But I cannot see how any conceivable jury could fail to find Libby guilty on all counts, if the witnesses testify as the indictment suggests they will.

So what did Libby think he was doing? There are two possible answers. Answer 1: Libby is certifiable. Answer 2: Libby is erecting a perjury firebreak to keep Patrick Fitzgerald from knowing that he, Cheney, Rove, and possibly others knew very well that Valerie Plame Wilson was a covert operative and thought that blowing her cover would be a nice way to warn the CIA not to leak information that contradicted what Cheney and company had said.

In a normal case, right now Fitzgerald would be offering Libby the choice between spending decades in prison or giving up Rove or Cheney or somebody even more interesting. If Libby doesn't want to sing, he spends decades in prison. If Libby cannot sing--if Libby is in fact the prime mover--than Libby has tough luck and spends decades in prison. If Libby tries to give up Rove or Cheney but just has one-on-one conversations to relate, than once again Libby has tough luck and spends decades in prison: no prosecutor would think that he can convict on the word of a confessed perjurer without corroborating evidence. Only if Libby wants to sing and can point Fitzgerald to corroborating evidence that gives Fitzgerald a conviction of somebody more interesting would he be able to avoid spending a long time in prison.

In the present circumstances, things are complicated by the existence of the presidential pardon power.

So I want to ask a real lawyer: What kinds of discussions among whom about the exercise of the presidential pardon power rise to the level of conspiracy to obstruct justice?

Posted by DeLong at 09:34 AM | Comments (0) | TrackBack

Oil Shocks and Inflation

Mark Thoma channels Bharat Trehan:

Economist's View: Oil Price Shocks and Inflation: This FRBSF Economic Letter looks at oil prices and inflation and finds that oil price shocks are often assigned too much responsibility for the high inflation of the 1970s because the effects of faulty monetary policy and drifting inflationary expectations are underestimated....

Oil Price Shocks and Inflation, by Bharat Trehan, Research Adviser, SF Fed: Oil prices have risen sharply over the last year, leading to concerns that we could see a repeat of the 1970s, when rising oil prices were accompanied by severe recessions and surging inflation. ... This Letter ... argue[s] that oil shocks are sometimes assigned too large a role in the run-up in inflation during the 1970s because analysts tend to ignore the part played by inflation expectations and by monetary policy during this period. The implication is that the recent oil shock should not lead to as much inflation as the 1970s would suggest. Financial markets provide confirming evidence. ... there is little evidence to suggest that markets are expecting substantially higher inflation as a result of the run-up in oil prices since the beginning of the year. As discussed ..., this could be because the markets are expecting the Fed to respond vigorously to the run-up in oil prices. But a look at the fed funds futures markets reveals that markets are not expecting very large policy moves. ... Thus, financial market expectations do not appear to be out of line with the statistical analysis. Markets do not expect the recent substantial rise in oil prices to lead to a substantial increase in inflation, and they expect this result to occur without the kind of funds rate increases one saw in the 1970s...

Jim Hamilton is quoted making similar points. Alan Greenspan views the degree of pass through as an area of considerable uncertainty, but if this research holds up, it implies less pass through of oil shocks to core inflation than commonly assumed, and hence less need for tightening of interest rates to prevent an outbreak of inflation.

It is, I think (or so I tell my classes), important to recognize that there are three things going on in the early 1970s:

  1. A tripling of oil prices
  2. The erosion of the Federal Reserve's credibility as an inflation fighter
  3. A large productivity slowdown, as the rate of labor productivity growth in the American economy falls from 2.5% per year to 1.0% per year and stays there until 1995.

The stagflation of the 1970s is often blamed on (1) along. But I think--and have argued--that (2) and (3) are important factors. See http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.

Posted by DeLong at 09:34 AM | Comments (0) | TrackBack

Uncovered Interest Rate Parity

Jim Hamilton Menzie Chinn writes about interest differentials and exchange rate movements:

Econbrowser: Whither the dollar?: What the interest differentials say. One of my long term interests is in the predictability of exchange rates... myself, Yin-Wong Cheung and Antonio Garcia Pascual.... We compared several popular models, including the Dornbusch and Frankel sticky price monetary model, a model based upon productivity differentials, interest rate parity (essentially the forward rate), and a specification incorporating many of these channels -- sometimes called BEERs (for behavioral equilibrium exchange rate models). All of these were compared against a random walk characterization of the exchange rate.

We found that... there was little evidence of outpredicting a random walk, although at long horizons, interest differentials did the best.... [T]he interest parity relationship, even at the long horizon, is not a strong one (the adjusted R-squared from the regression of 5 year changes on 5 year interest rates is 0.05). At the short horizon (one month, 3 months), don't even try using this for G-5 currencies -- the forex traders make plenty of money betting against this relationship (it's called the carry trade).

One last caveat in using interest rates. The past couple of years have seen what some considered aberrant behavior in long term interest rates. Several papers (Chinn and Frankel; Warnock and Warnock) have discussed this. So it may prove even more perilous than usual to rely on long term interest rates to infer dollar movements...

This is one of the most puzzling puzzles in macroeconomics: that foreign-exchange speculators are not very good at linking domestic money and bond markets to the foreign exchange market. Not enough money seems to be engaged in betting that a currencie with a high nominal interest rates will not decline in value fast enough to make investing in its securities unprofitable. Why not? It's an easy thing to do.

Posted by DeLong at 09:33 AM | Comments (0) | TrackBack

The Traditions of the Military

We do have some officers:

TPMCafe || Military Leaders Back McCain-Graham : By Anne-Marie Slaughter: This letter, from 28 distinguished retired military leaders, was posted on Sen. John McCain's website, dated Oct. 3, 2005.

Dear Senator McCain:

We strongly support your proposed amendments to the Defense Department Authorization bill concerning detainee policy, including requiring all interrogations of detainees in DOD custody to conform to the U.S. Army's Field Manual on Intelligence Interrogation (FM 34-52), and prohibiting the use of torture and cruel, inhuman and degrading treatment by any U.S. government agency.

The abuse of prisoners hurts America's cause in the war on terror, endangers U.S. service members who might be captured by the enemy, and is anathema to the values Americans have held dear for generations. For many years, those values have been embodied in the Army Field Manual. The Manual applies the wisdom and experience gained by military interrogators in conflicts against both regular and irregular foes. It authorizes techniques that have proven effective in extracting life-saving information from the most hardened enemy prisoners. It also recognizes that torture and cruel treatment are ineffective methods, because they induce prisoners to say what their interrogators want to hear, even if it is not true, while bringing discredit upon the United States.

It is now apparent that the abuse of prisoners in Abu Ghraib, Guantánamo and elsewhere took place in part because our men and women in uniform were given ambiguous instructions, which in some cases authorized treatment that went beyond what was allowed by the Army Field Manual. Administration officials confused matters further by declaring that U.S. personnel are not bound by longstanding prohibitions of cruel treatment when interrogating non-U.S. citizens on foreign soil. As a result, we suddenly had one set of rules for interrogating prisoners of war, and another for "enemy combatants"; one set for Guantánamo, and another for Iraq; one set for our military, and another for the CIA. Our service members were denied clear guidance, and left to take the blame when things went wrong. They deserve better than that.

The United States should have one standard for interrogating enemy prisoners that is effective, lawful, and humane. Fortunately, America already has the gold standard in the Army Field Manual. Had the Manual been followed across the board, we would have been spared the pain of the prisoner abuse scandal. It should be followed consistently from now on. And when agencies other than DOD detain and interrogate prisoners, there should be no legal loopholes permitting cruel or degrading treatment.

The amendments proposed by Senator McCain would achieve these goals while preserving our nation's ability to fight the war on terror. They reflect the experience and highest traditions of the United States military. We urge the Congress to support this effort.


Gen. Joseph Hoar, USMC (ret.)
Gen. John Shalikashvili, USA (ret.)
Gen. Donn A. Starry, USA (ret.)
Lt. Gen. Ron Adams, USA (ret.)
Lt. Gen. Robert G. Gard, Jr., USA (ret.)
Lt. Gen. Jay M. Garner, USA (ret.)
Vice Adm. Lee F. Gunn, USN (ret.)
Lt. Gen. Claudia J. Kennedy, USA (ret.)
Vice Adm. Al Konetzni, USN (ret.)
Lt. Gen. Charles Otstott, USA (ret.)
Vice Adm. Jack Shanahan, USN (ret.)
Maj. Gen. Eugene Fox, USA (ret.)
Maj. Gen. John L. Fugh, USA (ret.)
Rear Adm. Donald J. Guter, USN (ret.)
Maj. Gen. Fred E. Haynes, USMC (ret.)
Rear Adm. John D. Hutson, USN (ret.)
Maj. Gen. Melvyn Montano, ANG (ret.)
Maj. Gen. Robert H. Scales, USA (ret.)
Maj. Gen. Michael J. Scotti, USA (ret.)
Brig. Gen. David M. Brahms, USMC (ret.)
Brig. Gen. James Cullen, USA (ret.)
Brig. Gen. Evelyn P. Foote, USA (ret.)
Brig. Gen. David R. Irvine, USA (ret.)
Brig. Gen. Richard O'Meara, USA (ret.)
Brig. Gen. John K. Schmitt, USA (ret.)
Brig. Gen. Stephen N. Xenakis, USA (ret.)
Ambassador/Former Vietnam POW Douglas "Pete" Peterson, USAF (ret.)
Former Vietnam POW Commander Frederick C. Baldock, USN (ret.)
Former Vietnam POW Commander Phillip N. Butler, USN (ret.)

Posted by DeLong at 09:33 AM | Comments (0) | TrackBack

NYT, please don't let Jodi Wilgoren write about evolution anymore

P.Z. Myers gets hives by reading the _New York Times_:

NYT, please don't let Jodi Wilgoren write about evolution anymore: She's hurting the children.

Look at how she reports on the rebuke of Kansas's science standards by the NAS and NSTA.

Two leading science organizations have denied the Kansas Board of Education permission to use their copyrighted materials as part of the state's proposed new science standards because of the standards' critical approach to evolution.

We like critical approaches to science, at least when they're intelligently done. Her very first sentence put me on edge.... As expected, buried deeper in the article, we discover the real reason:

In the statement and in letters to the state board, the groups opposed the standards because they would single out evolution as a controversial theory and change the definition of science itself so that it is not restricted to the study of natural phenomena. A third organization, the American Association for the Advancement of Science, echoed those concerns in a news release supporting the copyright denial, saying, "Students are ill served by any effort in science classrooms to blur the distinction between science and other ways of knowing, including those concerned with the supernatural."

I guess they're just following the new strategy of Mike Behe and the Discovery Institute: use such a vague and sloppy definition of science that astrology can fit under it.

But of course, Jodi Wilgoren doesn't care. She doesn't know anything.

Posted by DeLong at 08:59 AM | Comments (0) | TrackBack

Some Dare Call It Treason...

A correspondent reminds me that it is time once again to surf over to Donald Luskin's website and to once again lay down a marker that you check everything he says before you trust it. But I don't have the heart to do it. It's just too depressing.

So let me grab one thing from my archives: Donald Luskin's declaration that the doings of the Bushies in the Valerie Plame Wilson case are "tantamount to... treason":

Donald Luskin on Paul Krugman and Valerie Plame on NRO Financial: Paul Krugman, America's most dangerous liberal pundit, has made a statement in his Times column today which... [is] an extraordinarily serious allegation, tantamount to accusing Bush administration officials of treason: "...Bush administration officials have exposed the identity of a covert operative."

Hold on to that thought in light of Patrick Fitzgerald's statement that Bush administration officials have exposed the identity of a covert operative:

Fitzgerald News Conference - New York Times: October 28, 2005 TranscriptValerie Wilson was a CIA officer. In July 2003, the fact that Valerie Wilson was a CIA officer was classified. Not only was it classified, but it was not widely known outside the intelligence community. Valerie Wilson's friends, neighbors, college classmates had no idea she had another life. The fact that she was a CIA officer was not well- known, for her protection or for the benefit of all us. It's important that a CIA officer's identity be protected, that it be protected not just for the officer, but for the nation's security.

Valerie Wilson's cover was blown in July 2003. The first sign of that cover being blown was when Mr. Novak published a column on July 14th, 2003. But Mr. Novak was not the first reporter to be told that Wilson's wife, Valerie Wilson, Ambassador Wilson's wife Valerie, worked at the CIA. Several other reporters were told. In fact, Mr. Libby was the first official known to have told a reporter when he talked to Judith Miller in June of 2003 about Valerie Wilson....

Now, something needs to be borne in mind about a criminal investigation.... Investigators do not set out to investigate the statute, they set out to gather the facts. It's critical that when an investigation is conducted by prosecutors, agents and a grand jury they learn who, what, when, where and why. And then they decide, based upon accurate facts.... It was known that a CIA officer's identity was blown, it was known that there was a leak. We needed to figure out how that happened, who did it, why, whether a crime was committed, whether we could prove it, whether we should prove it. And given that national security was at stake, it was especially important that we find out accurate facts.

There's another thing about a grand jury investigation. One of the obligations of the prosecutors and the grand juries is to keep the information obtained in the investigation secret, not to share it with the public.... [I]f information is gathered about people and they're not charged with a crime, we don't hold up that information for the public to look at.... But as important as it is for the grand jury to follow the rules and follow the safeguards to make sure information doesn't get out, it's equally important that the witnesses who come before a grand jury, especially the witnesses who come before a grand jury who may be under investigation, tell the complete truth. It's especially important in the national security area....

That brings us to the fall of 2003....And to be frank, Mr. Libby gave the FBI a compelling story.... [I]f only it were true. It is not true.... The indictment alleges that Mr. Libby learned the information about Valerie Wilson at least three times in June of 2003 from government officials.... [A]t least four people within the government told Mr. Libby about Valerie Wilson.... Mr. Libby, the indictment alleges, was telling Mr. Fleischer something on Monday that he claims to have learned on Thursday.... Mr. Libby testified that he told the reporters he did not even know if Mr. Wilson had a wife....

[But] Mr. Libby discussed this information about Valerie Wilson at least four times prior to July 14th, 2003: on three occasions with Judith Miller of the New York Times and on one occasion with Matthew Cooper of Time magazine... June 23rd of 2003... July 8th.... At the end of the day what appears is that Mr. Libby's story that he was at the tail end of a chain of phone calls, passing on from one reporter what he heard from another, was not true. It was false. He was at the beginning of the chain of phone calls, the first official to disclose this information outside the government to a reporter. And then he lied about it afterwards, under oath and repeatedly....

[W]hy is this a leak investigation that doesn't result in a charge?... If you saw a baseball game and you saw a pitcher wind up and throw a fastball and hit a batter right smack in the head, and it really, really hurt them, you'd want to know why the pitcher did that. And you'd wonder whether or not the person just reared back and decided, I've got bad blood with this batter. He hit two home runs off me. I'm just going to hit him in the head as hard as I can.... And what you'd want to do is have as much information as you could. You'd want to know: What happened in the dugout? Was this guy complaining about the person he threw at? Did he talk to anyone else? What was he thinking? How does he react? All those things you'd want to know. And then you'd make a decision as to whether this person should be banned....

In this case, it's a lot more serious than baseball. And the damage wasn't to one person. It wasn't just Valerie Wilson. It was done to all of us. And as you sit back, you want to learn: Why was this information going out? Why were people taking this information about Valerie Wilson and giving it to reporters? Why did Mr. Libby say what he did? Why did he tell Judith Miller three times? Why did he tell the press secretary on Monday? Why did he tell Mr. Cooper? And was this something where he intended to cause whatever damage was caused?... [W]hat we have when someone charges obstruction of justice, the umpire gets sand thrown in his eyes. He's trying to figure what happened and somebody blocked their view.... [T]he harm in an obstruction investigation is it prevents us from making the fine judgments we want to make.

I also want to take away from the notion that somehow we should take an obstruction charge less seriously than a leak charge. This is a very serious matter and compromising national security information is a very serious matter. But the need to get to the bottom of what happened and whether national security was compromised by inadvertence, by recklessness, by maliciousness is extremely important. We need to know the truth. And anyone who would go into a grand jury and lie, obstruct and impede the investigation has committed a serious crime.... [I]f what we allege in the indictment is true, then what is charged is a very, very serious crime... [given] the public interest in finding out what happened here...

Posted by DeLong at 08:59 AM | Comments (0) | TrackBack

Paul Krugman Is Mellow Today

He praises Ben Bernanke. He even praises Alan Greenspan (somewhat):

Bernanke and the Bubble By PAUL KRUGMAN: By Bush administration standards, the choice of Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve was just weird. For one thing, Mr. Bernanke is actually an expert in monetary policy, as opposed to, say, Arabian horses.... Bernanke's partisanship... is so low-key that his co-author on a textbook didn't know he was a registered Republican. The academic work on which his professional reputation rests is apolitical. Moreover, that work is all about how the Fed can influence demand - there's not a hint in his work of support for the right-wing supply-side doctrine....(1) [H]e's a policy activist who advocates aggressive government moves to jump-start stalled economies. For example, a few years back Mr. Bernanke called on Japan to show "Rooseveltian resolve"... supported a proposal by yours truly that the Bank of Japan try to get Japan's economy moving by... announcing its intention to push inflation up to 3 or 4 percent per year....

It's even hard to imagine him doing what Mr. Greenspan did: throwing his prestige... behind... tax cuts.... Has President Bush been so damaged by scandals and public disapproval that he has no choice but to appoint qualified, principled people to important positions? O.K., seriously, many economists and investors feared that Mr. Bush would try to place a highly partisan figure in charge of the Fed. And ... there was widespread concern that Mr. Bush would try to select a John Snow type - a businessman whose only qualification is loyalty....

So should we all feel confident.... Alas, no.... Mr. Greenspan, for all his flaws, has repeatedly shown his ability to divine from fragmentary and sometimes contradictory data which way the economic wind is blowing. As an academic, Mr. Bernanke never had the occasion to make that kind of judgment. We'll just have to see whether he can develop an economic weather sense on the job....

[But] my main concern is that the economy may well face a day of reckoning soon after Mr. Bernanke takes office. And while he is surely the best politically possible man for the job (all the other candidates I would have been happy with are independents or Democrats), coping with that day of reckoning... may be beyond anyone's talents... two unsustainable trends: a huge surge in house prices and a vast inflow of funds from Asia. Sooner or later, both trends will end, possibly abruptly....

When all is said and done, the Fed controls only one thing: the short-term interest rate. And it will be a long time before we have competent, public-spirited people controlling taxes, spending and other instruments of economic policy.

Paul Krugman worries about the problems that Bernanke will have to face, and about the fact that he will be virtually the only grownup in the economy's control room for a while. I worry too. Why, I remember last summer nearly getting out the flamethrower when a reporter referred to the Fed Chairship as a "plum job." It carries a healthy (although not absurd) salary. But it also carries great responsibility. And it does not carry the power that should come with that much responsibility.

From what I hear, it does seem likely that Krugman is right when he speculates that the reaction to Harriet Miers saved us from a Harriet Miers-like Fed appointment. All the whispering over the summer about how the establishment consensus candidates--Hubbard, Feldstein, Bernanke, Kohn, Ferguson--were good but not great sounded and sounds as though it was meant to prepare the ground for somebody else.

(1) I would say that Bernanke has the standard economist's attitude toward supply-side factors: taxes carry excess burdens, the ruling principle is to broaden the base and lower the rates, budgets should not be grossly unbalanced, and public finance ought to be an empirical, technocratic discipline rather than one of religious zealotry. He does, however, occasionally talk about financial crises and the chains of bankruptcy and disintermediation that they generate as "supply-side" factors. I understand what he means, but I do still find it a little jarring.

Posted by DeLong at 08:58 AM | Comments (0) | TrackBack

October 27, 2005

Perhaps the Ultimate Platonic Dialogue

By Nathaniel Daw:

Quentin Tarantino's REPUBLIC DOGS: Socrates: My humble little idea goes something like this. [He is suddenly extremely loud and violent. Roars:] Justice is only the will of the stronger. What do you think about that, a--hole? [Slaps Thrasymachus across the face with his gun]

Thrasymachus: Uh, uh, uh ...

Socrates: Come on... come on, you wanna try and disprove my theory, you weak little s---? Yeah? Yeah? S---, I think I feel a proof coming on. [Shoots him.] Why, thank you Thrasymachus, you've certainly opened my eyes.

Narrator: Thrasymachus. Alcibiades. Aristotle. Socrates -- are Quentin Tarantino's Republic Dogs.

Posted by DeLong at 07:25 PM | Comments (0) | TrackBack

How Do Computers Do What They Do?

The Twelve-Year-Old wants to learn more about computers. Is there anything better to read than Charles Petzold (1999), Code: The Hidden Language of Computer Hardware and Software (Redmond: Microsoft Press: 073560505X)?

Here's what I wrote about Code half a decade ago:

In some sense, this is the book that I have been looking for for twenty-five years--the book that will enable me to understand how a computer does what it does. And--given the centrality of computers in our age--it has been a long wait. But now it is over. Charles Petzold (1999), Code: The Hidden Language of Computer Hardware and Software does a much better job than anything else I have ever seen in explaining computers--what they really are, and how they really work.

Have you ever wondered just how your computers really work? I mean, really, really work. Not as in "an electrical signal from memory tells the processor the number to be added," but what the electrical signal is, and how it accomplishes the magic of switching on the circuits that add while switching off the other circuits that would do other things with the number. I have. I have wondered this a lot over the past decades.

Yet somehow over the past several decades my hunger for an explanation has never been properly met. I have listened to people explain how two switches wired in series are an "AND"--only if both switches are closed will the lightbulb light. I have listened to people explain how IP is a packet-based communications protocol and TCP is a connection-based protocol yet the connection-based protocal can ride on top of the packet-based protocol. Somehow these explanations did not satisfy. One seemed like answering "how does a car work?" by telling how in the presence of oxygen carbon-hydrogen bonds are broken and carbon dioxide and water are created. The other seemed like anwering "how does a car work" by telling how if you step on the accelerator the car moves forward.

Charles Petzold is different. He has hit the sweet spot exactly. Enough detail to satisfy anyone. Yet the detail is quickly built up as he ascends to higher and higher levels of explanation. It remains satisfying, but it also hangs together in a big picture.

In fact, my only complaint is that the book isn't long enough. It is mostly a hardware book (unless you want to count Morse Code and the interpretation of flashing light bulbs as "software." By my count there are twenty chapters on hardware, and five on software. In my view only five chapters on software--one on ASCII, one on operating systems, one on floating-point arithmetic, one on high-level languages, and one on GUIs--is about ten too few. (Moreover, at one key place in his explanation (but only one) he waves his hands. He argues that it is possible to use the operation codes stored in memory to control which circuits in the processor are active. But he doesn't show how it is done.)

Charles Petzold's explanatory strategy is to start with the telegraph: with how opening and closing a switch can send an electrical signal down a wire. And he wants to build up, step by step, from that point to end with our modern computers. At the end he hopes that the reader can look back--from the graphical user interface to the high-level language software constructions that generate it, from the high-level language software constructions to the machine-language code that underlies it, from the machine-language code to the electrical signals that load, store, and add bits into the computer's processor and into the computer's memory.

But it doesn't stop there. It goes further down into how to construct an accumulator or a memory bank from logic gates. And then it goes down to how to build logic gates--either out of transistors or telegraph relays. And then deeper down, into how the electrons actually move through a transistor or through a relay and a wire.

And at the end I could look back and say, yes, I understand how this machine works in a way that I didn't understand it before. Before I understood electricity and maybe an AND gate, and I (maybe) understood high-level languages (to some degree). But the whole vast intermediate realm was fuzzy. Now it is much clearer. I can go from the loop back to the conditional jump back to the way that what is stored in memory is fed into the processor back to the circuits that set the program counter back to the logic gates, and finally back to the doped silicon that makes up the circuit.

So I recommend this book to everyone. It is a true joy to read. And I at least could feel my mind expanding as I read it.

Posted by DeLong at 07:24 PM | Comments (0) | TrackBack

A Very Good First Weblog Post

Mathematician vs. Philosopher has a very good first weblog post:

Mathematician vs. Philosopher: So this is the inaugural post for Mathematician vs. Philosopher. Eventually, this site will blossom into a formidable team blog, where the uneducated masses will come to dip their dirty heads into our trough of knowledge and irreverent commentary -- supping until they are filled full of our unique brand of highly-informed and magnificently-recorded insolence.

But that's eventually. Presently, the site is more like a drunken street person -- staggering about in all directions and yelling in an agitated fashion, but not making a lot of sense, nor looking terribly fabulous for the effort. And is that lady over on that corner a little bit frightened? Yes, I think she is.... [S]it back and watch your respect for us plummet.

Posted by DeLong at 07:23 PM | Comments (0) | TrackBack

Somebody Needs to Be the Institutional Advocate for Sound Fiscal Policy

We are live in the Financial Times:

FT.com / Comment & analysis / Comment - Fiscal stability should be Fed's new mantra : Many -- including myself -- will spend the next three months praising the monetary stewardship of the Greenspan Fed.... Mr Greenspan... and his team managed the extraordinary feat of monetary policy fine-tuning: their policies proved superb at preserving macroeconomic stability and at nurturing rapid long-run economic growth.... [T]here is no doubt the Greenspan Fed hit a grand slam.... But...

[T]he Greenspan Fed has fallen down on part of its job. It did warn that effective budget balance is necessary to controlling inflation in the long run, but its warnings were too soft. Mr Bernanke thus faces a difficult problem. In the absence of other institutions that will do so, the Fed itself needs to preach the gospel that monetary stability ultimately rests on fiscal balance. This is not how the Fed usually perceives its role, but it is difficult to see how it can avoid taking on this burden while ensuring effective price stability.

FT.com / Comment & analysis / Comment - Fiscal stability should be Fed's new mantra : By Brad DeLong Published: October 27 2005 20:15 | Last updated: October 27 2005 20:15: On January 31, Alan Greenspan will preside over his last federal open market committee meeting and retire soon after as chairman of the US Federal Reserve. Many -- including myself -- will spend the next three months praising the monetary stewardship of the Greenspan Fed. The preceding Volcker Fed felt it had no choice but to inflict on the US economy the very painful Volcker disinflation of 1979-83. In so doing, it re-established the Fed's credibility as the guardian of effective price stability.

Mr Greenspan watered and tended this credibility so that it grew tall and strong. He and his team managed the extraordinary feat of monetary policy fine-tuning: their policies proved superb at preserving macroeconomic stability and at nurturing rapid long-run economic growth. You can say that the Volcker Fed loaded the bases -- creating the right preconditions. But there is no doubt the Greenspan Fed hit a grand slam. All of this is true. But...

Looking ahead, I cannot avoid concluding that Ben Bernanke, Mr Greenspan's designated successor, and Mr Bernanke's successor thereafter, are being dealt bad cards. Perhaps it is Mr Bernanke whose hand will be called. Perhaps it is his successor. Either way, it seems clear the Fed is not going to find it easy to maintain relative price stability. And Mr Greenspan has to shoulder part of the responsibility.

Why? Because rising government nominal debt puts irresistible upward pressure on price levels. The government needs to balance its budget in the sense of keeping the growth of nominal government debt in line with real gross domestic product growth. If the government does not achieve effective balance, the market will balance the budget for it. And when the market balances the budget, it does so by levying the inflation tax on the economy. That is the unpleasant monetarist arithmetic.

The inflation tax is a bad tax. It haphazardly redistributes income and wealth. It degrades the ability of the price system to convey accurate signals on social scarcities. It redirects business attention from making more and better products that consumers want to focusing on any change in the value of the monetary standard.Through the 1970s, America had a strong institutional mechanism that kept the government budget from getting too far out of balance. Bracket creep -- the fact that with a progressive but unindexed tax system, inflation raised taxes as a share of GDP -- gave an automatic yearly boost to revenues whenever inflation increased. In the 1980s, this institutional mechanism was erased. In the 1990s, thanks to the leadership of George Mitchell, Tom Foley and George H.W. Bush who negotiated the 1990 deficit-reduction budget deal, America found a replacement: the Budget Enforcement Act's procedural Paygo requirements.

Now this institutional mechanism has also been erased. The president's public response to Paygo and the Budget Enforcement Act is to make fun of them.

Without strong core support in both political parties for effective budget balance America will not have the institutions needed. Without institutions, America will not have effective budget balance. Without effective budget balance, America cannot have effective price stability in the long run.

Thus it is uncertain how long the post-Greenspan Fed can succeed in its mission of maintaining effective price stability. President George W. Bush and his Republican majority have taken three steps to unbalance America's federal budget: the smallest is the military move into the Middle East (a big spending increase with no additional taxes to fund it); a larger one is the tax cuts the administration wants to extend (revenue reductions without any spending-reduction offset); and the largest is Medicare, Part D: the drug benefit plan for pharmaceutical companies and the elderly (a staggering expansion of spending with no additional taxes to fund it). These have been loaded on to a federal budget that an ageing population has already unbalanced for the long run.

Hence the Greenspan Fed has fallen down on part of its job. It did warn that effective budget balance is necessary to controlling inflation in the long run, but its warnings were too soft. Mr Bernanke thus faces a difficult problem. In the absence of other institutions that will do so, the Fed itself needs to preach the gospel that monetary stability ultimately rests on fiscal balance. This is not how the Fed usually perceives its role, but it is difficult to see how it can avoid taking on this burden while ensuring effective price stability.

Posted by DeLong at 07:09 PM | Comments (0) | TrackBack

The Asian Century Won't Begin Until 2040 or so

Pranab Bardhan warns that the Asian twenty-first century--the twenty-first century that is China's and India's--will begin in 2040 at the earliest:

China, India Superpower? Not so Fast!: Pranab Bardhan: BERKELEY: The media, particularly the financial press, are all agog over the rise of China and India in the international economy. After a long period of relative stagnation, these two countries, nearly two-fifths of the world population, have seen their incomes grow at remarkably high rates over the last two decades. Journalists have referred to their economic reforms and integration into the world economy in all kinds of colorful metaphors.... While there is no doubt about the great potential of these two economies in the rest of this century, severe structural and institutional problems will hobble them for years to come. At this point, the hype about the Indian economy seems patently premature, and the risks on the horizon for the Chinese polity – and hence for economic stability – highly underestimated.

Both China and India are still desperately poor countries. Of the total of 2.3 billion people in these two countries, nearly 1.5 billion earn less than US$2 a day.... Of course, the lifting of hundreds of millions of people above poverty in China has been historic....

India is as yet a minor player in world trade, contributing less than one percent of world exports. (China's share is about 6 percent.)

What about the hordes of Indian software engineers, call-center operators, and back-room programmers supposedly hollowing out white-collar jobs in rich countries? The total number of workers in all possible forms of IT-related jobs in India comes to less than a million workers – one-quarter of one percent of the Indian labor force. For all its Nobel Prizes and brilliant scholars and professionals, India is the largest single-country contributor to the pool of illiterate people in the world. Lifting them out of poverty and dead-end menial jobs will remain a Herculean task for decades to come.

Even in China, now considered the manufacturing workshop of the world (though China's share in the worldwide manufacturing value-added is below 9 percent, less than half that of Japan or the United States), less than one-fifth of its labor force is employed in manufacturing, mining, and construction combined.... Nearly half of the country's labor force remains in agriculture (about 60 percent in India). As per acre productivity growth has stagnated, reabsorbing the hundreds of millions of peasants will remain a challenge in the foreseeable future for both countries. Domestic private enterprise in China... is relatively weak... Chinese banks are burdened with "bad" loans... capital is used much less efficiently in China than in India.... Commercial regulatory structures in both countries are still slow and heavy-handed....

China's authoritarian system of government will likely be a major economic liability.... China is far behind India in the ability to politically manage conflicts...

Posted by DeLong at 07:06 PM | Comments (0) | TrackBack

Are There No Oracle Databases? Are There No PERL Programmers?

Why doesn't Land's End care enough about saving money to not send three copies of its Christmas catalog to one single-famly house? Removing redundant rows in the database table should be straightforward...

In other junk mail news, we congratulate PetMeds on successfully cross-referencing the name of America's Silliest DogTM with our first names. We acknowledge that we do give her heartworm prevention and tick repellent. The answer to why we don't also give her glucosamine is that we do--but that PetMeds' glucosamine price does not match Target's price for human-quality glucosamine.


Posted by DeLong at 07:04 PM | Comments (0) | TrackBack

Jeff Weintraub Has a Weblog!

A not-unrepresentative sample:

Jeff Weintraub: To: Members of PoliSci. 181-601 (Modern Political Thought) From: Jeff Weintraub Re: Montesquieu in Damascus: In case you're interested, this recent New York Times op-ed piece about Syrian politics happens to have a bearing on Montesquieu's comparative analysis of regimes and on some of the practical implications of his approach, so you might find it useful to consider in connection with reading and thinking about Montesquieu's Spirit of the Laws. (If not, fine. This is optional.)

The author of this piece, Joshua Landis, is an intelligent and well informed analyst of Syrian society & politics. I don't always agree with his arguments, but what he has to say is always worth taking seriously.... I want to draw attention to the theoretical logic underlying Landis's analysis of Syrian politics--which should be familiar to you from your reading of Montesquieu...


Landis believes that undermining the Syrian regime or pressuring it very hard to change would be a bad idea.... [I]f it breaks down, the result will not be a more "democratic" regime, but instead chaos and civil war. And, in the end, if this regime is overthrown it will almost certainly be replaced by another despotic regime that will be even worse.... Why? Fundamentally, Landis argues that the character of Syrian... political culture renders these outcomes inevitable.... Here's the heart of his analysis.

Mr. Assad's regime... even its most hard-bitten enemies here do not want to see it collapse. Why? Because authoritarian culture extends into the deepest corners of Syrian life, into families, classrooms and mosques. Damascus's small liberal opposition groups readily confess that they are not prepared to govern... they fear the deep religious animosities and ethnic hatreds that could so easily tear the country apart if the government falls.... The religious tolerance enforced by the government has made Syria one of the safest countries in the region. Washington is asking Mr. Assad to jeopardize this domestic peace. Worse, if Mr. Assad's government collapsed, chances are the ethnic turmoil that would result would bring to power militant Sunnis who would actively aid the jihadists in Iraq.

What is Landis arguing here? In Montesquieu's terms, his argument is that the structure and, above all, the mores of Syrian society make a stable despotic regime, like that of the Ba'ath Party, the best alternative that is realistically available. In particular, according to Landis, what are missing from Syrian society are precisely the kinds of mores that would be required to make a regime of democratic republicanism work--that is, the mores of genuine citizenship. The dominant mores diffused through Syrian society, Landis argues, are not republican but "authoritarian." Furthermore, Syrian society as a whole does not have the fundamental sense of solidarity... for republican self-government to be workable. And so on....

Posted by DeLong at 07:03 PM | Comments (0) | TrackBack


Glaukon: NOC NOC.

Thrasymakhos: Who's there?

Glaukon: Not "knock knock." "NOC NOC." Non-Official Cover.

Thrasymakhos: CIA. Spies. Secret agents.

Glaukon: Victoria Wilson AKA Valerie Flame AKA Valerie Wilson AKA Valerie Plame AKA Valerie Plame Wilson.

Thrasymakhos: Do you understand it?

Glaukon: No. Does anybody?

Thrasymakhos: Tom Maguire might. I doubt it.

Glaukon: Well, you don't claim to understand it.

Thrasymakhos: Indeed not. But my not-understanding is at a very elevated and sophisticated level.

Glaukon: Do tell: what do you not understand?

Thrasymakhos: I do not understand why Scooter Libby (or whoever was Novak's source) did not take a dive in the fall of 2003. From the moment the CIA asked for an investigation, it was clear that this could be big trouble--for the administration was guilty as hell. At that moment Scooter Libby should have stood up and said: "I did it. I was pushing back against Wilson's lies and I forgot that his wife's status at the CIA was secret. I'm guilty." He would then resign, go to work for the campaign, get pardoned if there were to be any jail time--no criminal intent, Bush would say--and come back into the administration in early 2005. If you're guilty--especially if you're guilty--that's the dominant strategy. It gets you a sterling reputation as a stand-up guy. It wins you eternal gratitude from all the other guilty people who now escape scrutiny.

Glaukon: Sounds like the role Nixon had assigned to John Dean.

Thrasymakhos: Exactly.

Glaukon: Dean didn't take it.

Thrasymakhos: Dean is a patriot. That's why he didn't take it. Why didn't Libby (or whoever) take it? I don't know.

Glaukon: What else do you not understand?

Thrasymakhos: Perjury. This right-wing claim that if you can't prove that they're guilty of a more serious fundamental crime, you shouldn't indict on perjury or obstruction of justice. Almost invariably the point of committing perjury or obstructing justice is to muddy the waters so you can't be convicted of the more serious fundamental crime of which you are, in fact, guilty...

"Almost invariably"?

Thrasymakhos: The exception is Clinton. He lied not to try to cover up some crime but because he knew his adversaries would leak what he said, and he was scared of his wife. But, as I was saying, refusing to prosecute perjurers who are in fact guilty of a serious fundamental crime just because their perjury keeps you from proving their guilt--that just rewards the competent perjurers.

Glaukon: I wondered how you were going to draw a distinction that allowed you to advocate the keelhauling of Republicans for actions--lying to federal investigators--for which Democrats like Bill Clinton got off scot-free.

Thrasymakhos: Focusing on the seriousness of the underlying act--trying to hide one's pathetic little affairs with interns from one's wife vs. harming the national security--works well, doesn't it?

Glaukon: Yes, it does. I am lost in admiration.

Thrasymakhos: I am a trained professional.

Glaukon: Yes you are. What else do you not-understand?

Thrasymakhos: Alger Hiss.

Glaukon: Alger Hiss?

Thrasymakhos: Yes. Alger Hiss was convicted not of espionage but perjury. On today's right-wing line of argument, charges should have been dropped once it became clear they couldn't prove espionage. Doesn't anyone on today's right remember Alger Hiss? Everyone who was anyone on the right was there: J. Edgar Hoover, Richard M. Nixon, Joe McCarthy, William F. Buckley, Whittaker Chambers...

Glaukon: No.

Thrasymakhos: No?

Glaukon: No. William F. Buckley remembers that Alger Hiss was convicted not of espionage but of perjury. Perhaps a few of Buckley's epigones remember. (But they are keeping very quiet.) Nobody else. What else do you not-understand?

Thrasymakhos: The pointless, boastful lying in the fall of 2003. Cheney: "I don't even know who Joe Wilson is!" Bush: "Gee. I really hope they catch those leakers!" When all the while both of them knew that Cheney had launched the leaking campaign and that Rove, Libby, and company were in it up to their necks. It didn't gain them anything. And now it makes them look like the sleazy liars that they are--and makes them look so in a soundbite simple enough for the media to understand it. That I really don't understand.

Glaukon: You don't have much experience with fratboys, do you?

Thrasymakhos: I'm afraid not.

Glaukon: So are they guilty?

Thrasymakhos: Of course. From Cheney's perspective, that's the whole point. You want to tell the CIA to back off and shut up. What better way than to signal that you can and will leak information that will destroy the organization if the CIA continues its campaign of opposition-to-the-White-House-via leak?

Posted by DeLong at 07:02 PM | Comments (0) | TrackBack

Tiny Revolution Reports: "My God, They Really Are Insane"

I'm not going to check to see if this is true:

A Tiny Revolution: My God, They Really Are Insane : I usually don't visit the fever swamps of America's right because it makes my head hurt. But Sifu Tweety at the Poorman just lured me to National Review Online to witness Jonah Goldberg expressing this forlorn hope:

Byron, Andy, someone: Is it possible that Wilson will be indicted too, or is that pure pie-in-the-sky talk? Because that would sure help a lot of bitter pills go down.

Now, that's good bat-shit crazy. But Goldberg apparently received this bat-shittier response from NRO's Stephen Spruiell:

Wilson was never obligated to keep his trip a secret, although if leaking his wife's name is a crime he should be indicted for ensuring it would happen when he wrote his op-ed.

I agree! Also, if stabbing Nicole Simpson to death is a crime, she should be indicted for ensuring it would happen with all her slutting around.

Posted by DeLong at 07:01 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps?

I really cannot stand it any more.

A correspondent sends me Victor Canto on Ben Bernanke at National Review:

Victor A. Canto on Ben Bernanke and the Price Rule on NRO Financial: In the cases where central banks have performed well, an explicit price-rule mandate has been in effect. The domestic version of this rule targets domestic inflation, and the international rule targets the exchange rate.... In October of 1979, then-Fed chairman Paul Volker changed the central bank’s operating procedure. The Fed abandoned its targeting of monetary aggregates, and switched, in my view, to a domestic price rule or an inflation-targeting apparatus. The result was nothing short of spectacular. The inflation rate abruptly declined and more than two decades of relative price stability followed...

Ummm. No. Here's from David E. Lindsey, Athanasios Orphanides, and Robert H. Rasche (2005), "The Reform of October 1979: How It Happened and Why" (Washington: Federal Reserve Board Finance and Economics Discussion Series: Working Paper 2005-2):

Volcker’s nomination enjoyed wide support across the political spectrum, and his confirmation hearing on July 30 [1979] was relatively uneventful. At the hearing Volcker reiterated his well-publicized views in favor of curbing inflation and stressed that “if we’re going to have price stability” it was “indispensable” to bring down the growth of monetary aggregates....

October 6, 1979, Paul Volcker led a change in Federal Reserve operating procedures, and issued a press release:

In characterizing the essence of the new technique, the release noted....

Actions taken are:... 3. A change in the method used to conduct monetary policy to support the objective of containing growth in the monetary aggregates over the remainder of this year within the ranges previously adopted by the Federal Reserve. These ranges are consistent with moderate growth in the aggregates over the months ahead. This action involves placing greater emphasis in day-to-day operations on the supply of bank reserves and less emphasis on confining short-term fluctuations in the federal funds rate.

Then a press conference was scheduled for 6:00 p.m.... [Volcker] indicated that the purpose of the new procedures was to hit the money growth ranges for the current year....

Mr. Volcker. I would emphasize that the broad thrust is to bring monetary expansion and credit expansion within the ranges that were established by the Federal Reserve a year ago...

October of 1979 saw not an abandonment of the Federal Reserve's monetarist targeting of monetary aggregates, but a reinforcement of them: a downweighting of indicators of market prices--interest rates--and an upweighting of indicators of liquidity quantities--the money stock measures.

Canto has it exactly backward.

I'm going to have to go cold turkey. I swear.

Posted by DeLong at 07:00 PM | Comments (0) | TrackBack


Keep this woman far away from California. I'm just saying...

Alameida at Unfogged: Finally, never be ashamed to tart up your vegetables with a small amount of white sugar. Corn a bit old and starchy? No more! Vegetable soup bland? Uh-uh. Tomato sauce for spaghetti not lively enough? Solved that.

Now if we were talking about sex-workering up our vegetables with a small amount of organic thistle honey, things would be different...

Posted by DeLong at 06:59 PM | Comments (0) | TrackBack

October 25, 2005

A Lost Teachable Moment...

When the Fifteen-Year-Old asked, "Why is so much of Africa so poor?" he was not expecting--and did not react well to--a dramatic reading of parts of James Ferguson (1999), Expectations of Modernity: Myths and Meanings of Urban Life on the Zambian Copperbelt (Berkeley: University of California: 0520217020).

The sociology and the ground-level description in the book are both quite good. But I am unwilling to recommend the book to anyone. From my perspective, it suffers very badly from its impoundment inside one of those grand sociological hall-of-mirrors metanarratives that are totally disconnected from reality. In this case, the grand metanarrative is that the Zambian part of this fallen world is helpless in the grip of Satan--Jeffrey Sachs--and all his minions:

But now the high priests of economics may be changing their message yet again. No less a figure than Jeffrey Sachs... has recently suggested that... an agriculture-led development strategy for African economies may have been a mistake. With the same cavalier disregard for economic history displayed by his predecessors, Sachs reduces the variation in global patterns of economic growth to four "factors": initial conditions, physical geography, government policy, and demographic change.... [I]t is physical geography, he suggests, that turns out to be decisively important for tropical regions like sub-Saharan Africa. Permanently "penalized" by the disadvantages of its tropical climate.... "Nowhere has tropical agriculture led the escape from poverty," he declares....

[I]t is not clear that there is any place for Africa at all in the new global economy being designed by Sachs and his associates, beyond its historical role as an open field for pillaging mineral wealth.... Effectively "redlined" in global financial financial markets... sub-Saharan Africa today functions as... a zone of economic abjection that also makes a convenient object lesson for third-world governments in other regions that might, without the specter of "Africanization" hanging over them, be tempted to challenge capital's regime of "economic correctness"...

The Lord knows that I am no acolyte of Jeffrey Sachs's. But he does not have "a cavalier disregard for economic history": he has always paid close attention to and thinks a lot about economic history. He has not switched sides from "Back to the Land" to "Back to the Factory": he has always noted the force of both (a) the Prebisch-Singer-Lewis point that (except in exceptional periods) the terms-of-trade the world offers tropical primary-product exporters are lousy, and (b) the Bauer-Krueger point that tariffs that cut off foreign competition create politically-protected monopolies that can be equally poisonous to development. He is not "designing" a global economy in which Africa has "no place": he tries to raise consciousness in the rich industrial core of what is going on in the rest of the world, and has--I think--been remarkably effective.

Posted by DeLong at 08:59 PM | Comments (0) | TrackBack

Horace Greeley Hjalmar Schacht??

Richard Evans (2005), The Third Reich in Power (New York: Penguin: 1594200742), claims that interwar German central banker and Nazi war machine funder Hjalmar Schacht was not christened Hjalmar Horace Greeley Schacht, but rather Horace Greeley Hjalmar Schacht. I'm going to have to run this down. Nazi cabinet members who are really named "Horace" are kinda scarce.

In any event, it is the most inappropriate birth-name I've heard since I first learned that W.W. Rostow and Eugene V. Rostow were really Walt Whitman Rostow and Eugene V. Debs Rostow.

Posted by DeLong at 08:59 PM | Comments (0) | TrackBack

Easy Answers to Important Questions

Slacktivist asks:

slacktivist : Seriously, is there any way to keep track of the time spent keeping track of one's time without it coming across as sarcastic?



It is especially impossible because your log sheet has to look like this:

1PM-5PM: Work

5PM-5:15PM: Entering time into time-reporting system.

5:15PM-5:20PM: Entering time spent entering time into time-reporting system into time-reporting system.

5:20PM-5:22PM: Entering time spent entering time spent entering time spent into time-reporting system into time-reporting system into time reporting system.

5:22PM-5:23PM: Entering time spent entering time spent entering time spent entering time into time-reporting system into time-reporting system into time reporting system into time reporting system.

5:24PM: Brain explodes.

Posted by DeLong at 08:58 PM | Comments (0) | TrackBack

The Press's Definitive Word on Ben Bernanke

Ana Marie Cox of Wonkette sums up the press's assessment of Ben Bernanke:

BREAKING: Ben Bernanke Not a Female Texan Lawyer with Penchant for Exclamation Points - Wonkette : Who is Ben Bernanke, Bush's nominee for Fed chair? We'll tell you one thing: He's not Harriet Miers.

"New Fed chief no Harriet Miers" (The Gazette)
"Ben , he's no Harriet Miers!" (Fortune)
"The anti-Harriet-Miers" (USAT)
"Everything Harriet Miers isn't." (LAT)
"The perfect counterpoint to the Harriet Miers selection" (AP)

Posted by DeLong at 08:38 PM | Comments (0) | TrackBack

The Economist on Ben Bernanke

The Economist on Ben Bernanke:

Economist.com: On Monday October 24th, Mr Bush... announc[ed] that he would nominate Mr Bernanke, who used to work at the Federal Reserve, to succeed his former boss.

No one doubts that the 51-year-old Mr Bernanke has big shoes to fill.... Mr Greenspan['s]... track record is... impressive... the spectre of inflation was finally banished... America has experienced some of the longest booms of its history, punctuated by only the mildest of recessions. And this has been achieved despite a series of crises: stockmarket crashes in 1987 and 2000, the savings-and-loan debacle, the Asian financial meltdown of 1997-98, the phoney scare of Y2K and the real terror of September 11th 2001....

The stockmarket has already endorsed Mr Bernanke, leaping upwards in response to his nomination (though the market for government bonds weakened, thanks to Mr Bernanke's reputation for erring on the expansionist side of monetary policy). This stands in stark contrast to the sharp drop that greeted news of Mr Greenspan's appointment, driven by the perception that he was a Republican yes-man.... Once he steps into Mr Greenspan’s shoes, Mr Bernanke will undoubtedly try to keep a low profile for a while as he feels out the new job. But he will probably not be able to maintain it for long. For one thing, Mr Bernanke, unlike Mr Greenspan, has endorsed the idea of setting an explicit target for inflation, which would be a substantial policy shift for the Fed. For another, the new chairman will face considerable challenges. Though guiding monetary policy is less fraught than it used to be, now that the Fed has established its hawkish credentials through a long period of stable prices, there are storm clouds gathering on the economic horizon.

The most worrying of these is America’s housing bubble. Soaring house prices have been crucial in underpinning consumer spending since 2001 as Americans have blithely ridden out slowing income growth by releasing large sums of home equity. A related problem, the gaping (and growing) current-account deficit, has many observers worried about a sudden dollar devaluation triggering a “hard landing” for America’s economy—-and thus the world economy. And rising oil prices have once again raised the spectre of the devastating combination of high consumer prices and slow growth that haunted the 1970s. There are no clear answers to any of these problems, and Mr Bernanke will have to feel his way with the eyes of the world upon him...

I don't like this stuff about Bernanke "erring on the expansionist side of monetary policy." It seems to me that it's based on a misreading of Bernanke' Fed speeches--speeches in which Bernanke wanted to make the point that the Fed had the power to halt any deflation before it could get going have been interpreted as meaning something more--and on a whispering campaign being carried out by the Bushies to the effect that they choose Bernanke because he was more of an inflation dove than Hubbard, or Feldstein, or Ferguson, or Kohn. This is (a) false and (b) likely, if carried further, to promote a reaction in which Bernanke demonstrates that it is false.

Posted by DeLong at 08:33 PM | Comments (0) | TrackBack

The Bush Who Stole Fitzmas

I disclaim all responsibility for this:

They'd stand hand-in-hand. And the Aides would start singing!
They'd sing! And they'd sing!
And the more the Bush thought of the Aides' Fitzmas Sing
The more the Bush thought, "I must stop this whole thing!
I MUST stop Fitzmas from coming!
...But HOW?"
Then he got an idea!
An awful idea!

New York Daily News - News & Views - Bushies take aim at probe: BY KENNETH R. BAZINET: President Bush's damage-control handlers are plotting a sophisticated war room offensive to fight back against possible indictments in the CIA leak probe.... Team Bush was finalizing its campaign to discredit and undermine special prosecutor Patrick Fitzgerald's conclusions, sources told the Daily News. The White House strategy is counting on major help from GOP allies and neocon commentators who turned on Bush for naming Harriet Miers to the Supreme Court and are now looking for redemption with a miffed President.

An emerging theme in the Bush war room is arguing that his top political aide, Karl Rove, simply got tripped up on his recollections of whom he talked to and what he told them when questioned about the outing of CIA spy Valerie Plame. He shouldn't be indicted simply because of contradictory grand jury testimony, a source said.

Bush allies have already begun casting perjury and obstruction charges as irrelevant in a probe created to find out who leaked classified information.... Asked in 1999 about Clinton's impeachment by the House, Bush responded, "I would have voted for it."...

Posted by DeLong at 08:29 PM | Comments (0) | TrackBack

The Circular Firing Squad of Flying Attack Monkeys...

Bloomberg reporter Richard Keil is told that Cheney has cut Libby loose:

Bloomberg.com: Top Worldwide : I. Lewis Libby, Cheney's chief of staff, first learned of agent Valerie Plame's identity in a conversation with Cheney weeks before her name became public in July 2003, the New York Times reported last night, citing lawyers involved in the case. The disclosure doesn't indicate that the vice president did anything wrong, said a senior Republican with ties to Cheney. The person declined to make a similar statement about Libby.

The senior Republican, who spoke on condition of anonymity, sought to portray Cheney as uninvolved in any violation of a 1982 law forbidding the revelation of a covert intelligence agent's identity. The official noted that both Cheney and Libby had the security clearances necessary to discuss Plame's identity.

The Times report focuses new attention on Cheney's role in an affair that holds serious legal and political jeopardy for top officials in President George W. Bush's administration. Special Counsel Patrick Fitzgerald is nearing the end of a 22- month investigation into potential criminal wrongdoing in the leaking of Plame's identity and is believed to be considering indictments against top White House officials, including Libby and deputy chief of staff Karl Rove.

The Times said it based its account on Libby's notes from a June 12, 2003, meeting between him and Cheney. According to lawyers involved in the case who described Libby's notes to the Times, they indicate Cheney got his information about Plame from George Tenet, then director of the Central Intelligence Agency....

Posted by DeLong at 08:28 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps?

For my sins, a correspondent sends me John Tamny, writing in National Review on Ben Bernanke:

John Tamny on the Ben Bernanke and the Federal Reserve on NRO Financial : And to prove that Bernanke's output-gap inflation theories are long-held, as opposed to being one-time slips-of-the-tongue, various speeches and editorials over the years make clear that in his model, neither inflation nor deflation are monetary events.

Let's go to the videotape:

Ben Bernanke: Ultimately, inflation is a monetary phenomenon, as suggested by Milton Friedman's famous dictum.... [T]he expectational Phillips curve is fully consistent with inflation's being determined by monetary forces in the long run. This point, originally made by Friedman himself, has been demonstrated in many textbooks...

Posted by DeLong at 07:35 PM | Comments (0) | TrackBack

Western European Unemployment Rate

Western European Unemployment Rate

The strange course of western European unemployment.

Posted by DeLong at 07:35 PM | Comments (0) | TrackBack

Bernanke as Inflation Fighter

Mark Thoma writes:

Economist's View: Will the Bernanke Fed Retain Its Inflation Fighting Credentials? : I have heard and read worries that the Fed under Ben Bernanke will not be as committed to fighting inflation as the Fed under Greenspan, a worry I do not share...

Mark is right: there is no reason, no reason at all to believe that Ben Bernanke will be less concerned with maintaining effective price stability than Don Kohn or Roger Ferguson or Glenn Hubbard or Martin Feldstein would have been--or than Alan Greenspan and Paul Volcker were.

But there is a problem: when Fred Barnes is making a mess on the editorial page of the Wall Street Journal by claiming that the reason that Cheney and Card backed Bernanke is that he would be complaisant and not raise interest rates in response to a deficit-caused inflationary gap... The only thing to say is that either Barnes does not know what he is talking about, or Cheney and Card do not know what they are talking about.

Posted by DeLong at 07:33 PM | Comments (0) | TrackBack

It's Another Game of Dingbat Kabuki! (Why Oh Why Can't We Have a Better Press Corps?)

And it's yet another game of Dingbat Kabuki, as Fred Barnes blathers away about Federal Reserve Heir Apparent Ben Shalom Bernanke on the opinion page of the Wall Street Journal. It's amazing how many misrepresentations Barnes can pile into a short column:

WSJ.com - Why Bush Picked Bernanke: WASHINGTON -- President Bush knew exactly what he wanted yesterday when he picked a successor to Alan Greenspan as chairman of the Federal Reserve Board. He sought a nominee as risk-free as possible.... Alone among the candidates, Mr. Bernanke had no detractors.

That was only one of his strengths. He is an expert on monetary policy and that, of course, is what the Fed sets.... President Bush had another major concern: protecting his economic policy. He wanted a Fed chairman who wouldn't differ sharply with his emphasis on tax cuts and tolerance of large budget deficits.... President Bush, like President Reagan two decades ago, feels economic growth is more important than deficit reduction...

But on page 598 of Ben Bernanke and Robert Frank (2001), Principles of Economics (New York: McGraw Hill: 0072289627) http://www.amazon.com/exec/obidos/asin/0072289627 we find:

Suppose the government increases spending without raising taxes, thereby increasing its budget deficit.... An increase in the government budget deficit... reduces public saving... [and] will reduce national saving as well.... At the new equilibrium F', the real interest rate is higher at r', and both national saving and investment are lower... the government has dipped further into the pool of private savings to borrow the funds to finance its budget deficit... investors [must] compete for a smaller quantity of available saving, driving up the real interest rate... mak[ing] investment less attractive, assuring that investment will decrease along with national saving.

The tendency of government budget deficits to reduce investment spending is called crowding out. Reduced investment spending implies slower capital formation, and thus lower economic growth.... This adverse effect of budget deficits on economic growth is probably the most important cost of deficits, and a major reason why economists advise governments to minimize their deficits....

Barnes is completely impervious to Bernanke's elementary textbook point: deficit reduction--Bernanke's advice that governments need to "minimize their deficits"--is a means to faster economic growth. Bernanke is as "unfriendly" to a high-deficit long-run fiscal policy as is Kohn or Ferguson--or Feldstein, for that matter.

Barnes blathers on:

It was President Bush's fear of a Fed chair hostile to his policy that doomed Mr. Greenspan's candidates -- Fed vice chairman Roger Ferguson, 54, and Donald Kohn, 62.... Even at the risk of slowing the economy, the White House was told, they would continue raising interest rates so long as the president refused to raise taxes and seriously address the deficit...

Yet if Barnes had gotten to page 753, he would have seen what Bernanke advises a central bank to do in the case in which a budget deficit produces:

[the] source of inflation [which] is excessive aggregate demand, which leads to expansionary output gaps.... To reduce inflation policymakers must reduce aggregate demand, usually through tight monetary policy [i.e., high interest rates]... reduced output and higher unemployment... a recessionary gap. These short-run costs of disinflation must be balanced against the long-run benefits of a lower rate of inflation...

There's no daylight between Bernanke and Ferguson-Kohn here either.

And there's still more!

Glenn Hubbard, 47... worked for President Bush in his first term. Mr. Hubbard, now dean of Columbia Business School, was CEA chief. He favored the Bush policies of tax cuts and partial privatization of Social Security, but the president felt Mr. Hubbard sometimes talked down to him...

I do think that of mainline Republican economists Ben Bernanke is the best choice for Fed Chair--monetary policy is his thing. Glenn Hubbard is much better qualified for the most senior jobs at the Treasury. But to refuse to consider Glenn Hubbard's extremely strong merits because Bush's feelings are hurt because he thinks Glenn "talked down" to him... that's a hell of a way to run a personnel selection process, that's all I'm sayin.

Posted by DeLong at 07:31 PM | Comments (0) | TrackBack

An Informed View of the Iraqi Army

Peter Galbraith writes to Juan Cole:

Informed Comment: Dear Professor Cole:. . .

You quoted today the Brattleboro Reformer's account of my remarks last night to the Windham World Affairs Council. You noted a transcription error in my description of the sorry state of Iraqi military and said you would seek clarification. I am happy to provide it.

I described the Iraqi Army as consisting of nine Kurdish battalions, sixty Shiite battalions, and 45 Sunni Arab battalions. There is exactly one mixed battalion. The Kurdish battalions have no Arab officers, while there are a few Kurdish and Sunni Arab officers with Shiite battalions. Being a Kurdish or Shiite officer of the Sunni Arab battalions is risky, so there are not many at all. This is hardly the picture of a national institution. I also noted that up to half the nominal troop strength consists of ghost soldiers. As there is no direct deposit in Iraq, the battalion command can pocket the salaries of soldiers that don't exist, so there is an incentive to maintain full strength on paper. More of this can be found in my October 6 article in the New York Review of Books, "Iraq's Last Chance", which also analyzes the new Constitution.

You also describe me as advocating the break up of Iraq. My position is slightly different. I argue that Iraq has already broken up, and that it will be much more costly--in terms of lives and money--to put it back together than to accept the new reality. One reason I like the new Constitution is that I believe it is realistic.

You argue that partition could lead to hundreds of thousands of deaths, but you ignore the fact that holding Iraq together has already cost well more than 100,000 lives in the various Kurdistan wars.

I also think you draw the wrong lessons from the break-up of Yugoslavia, about which I have a certain experience. The US and Europeans focused on trying to hold Yugoslavia together when there was no way to do so. Instead, US and European diplomacy should have focused on the issues that caused the war. The war was preventable; the break up was not.

I do not believe it is possible to keep people in a state they hate, and the Kurds clearly want out of Iraq. I do not think the break up of the rest of Iraq is inevitable, but it is possible.

Saddam murdered over 100,000 Kurds, used poison gas, and destroyed more than 4000 villages in Kurdistan as part of his effort to keep Iraq united. Mismanaged divorce can be costly, but so is an unwanted marriage. The human cost of holding Iraq together may be much higher than that of a negotiated separation.

All the best.

Peter Galbraith

Posted by DeLong at 06:47 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (New York Times Employees Rend Each Others' Flesh! Department)

Not much friendly laptop-carrying going on at the New York Times these days, is there?

Bill Keller, June 7, 2004:

Judith Miller's WMD reporting - New York Times war reporting - Hunt for WMD: "Judy is a smart, relentless, incredibly well-sourced, and fearless reporter," says Keller. "It's a little galling to watch her pursued by some of these armchair media ethicists who have never ventured into a war zone or earned the right to carry Judy's laptop."

Bill Keller today:

I wish that when I learned Judy Miller had been subpoenaed... I had sat her down for a thorough debriefing.... I missed what should have been significant alarm bells.... I didn’t know that Judy had been one of the reporters on the receiving end of the anti-Wilson whisper campaign. I should have wondered why I was learning this from the special counsel, a year after the fact. (In November of 2003 Phil Taubman tried to ascertain whether any of our correspondents had been offered similar leaks. As we reported last Sunday, Judy seems to have misled Phil Taubman about the extent of her involvement.) This alone should have been enough to make me probe deeper.... [I]f I had known the details of Judy’s entanglement with Libby, I’d have been more careful in how the paper articulated its defense, and perhaps more willing than I had been to support efforts aimed at exploring compromises...

Judith Miller today:

The Corner on National Review Online: Judith Miller reponds to Byron Calame:

I'm dismayed by your essay today. You accuse me of taking journalistic "shortcuts" without presenting evidence of what you mean and rely on unsubstantiated innuendo about my reporting. While you posted Bill Keller's sanitized, post-lawyered version of the ugly, inaccurate memo to the staff he circulated Friday, which accused me of "misleading" an editor and being "entangled" with I. Lewis Libby, you declined to post the answers I sent you to six questions that we touched on during our interview Thursday. Had you done so, readers could have made their own assessment of my conduct in what you headlined as "the Miller mess."

You chose to believe Jill Abramson when she asserted that I had never asked her to pursue the tip I had gotten about Joe Wilson's trip to Niger and his wife's employment at the C.I.A. Now I ask you: Why would I -- the supposedly pushiest, most competitive reporter on the planet -- not have pushed to pursue a tantalizing tip like this? Soon after my breakfast meeting with Libby in July, I did so. I remember asking the editor to let me explore whether what my source had said was true, or whether it was a potential smear of a whistleblower. I don't recall naming the source of the tip. But I specifically remember saying that because Joe Wilson's op-ed column had appeared in our paper, we had a particular obligation to pursue this. I never identified the editor to the grand jury or publicly, since it involved internal New York Times decision-making. But since you did, yes, the editor was Jill Abramson...

Byron Calame today:

The Miller Mess: Lingering Issues Among the Answers - New York Times: By BYRON CALAME: [T]he journalistic practices of Ms. Miller and Times editors were more flawed than I had feared.... [T]he tendency by top editors to move cautiously to correct problems about prewar coverage.... journalistic shortcuts taken by Ms. Miller... the deferential treatment of Ms. Miller by editors....

Ms. Miller... a series of Times articles in 2002 and 2003 that strongly suggested Saddam Hussein already had or was acquiring an arsenal of weapons of mass destruction... inaccurate.... The paper should have addressed the problems of the coverage sooner. It is the duty of the paper to be straight with its readers, and whatever the management reason was for not doing so, the readers didn't get a fair shake.

The most disturbing aspect... revelation of the journalistic shortcuts that Ms. Miller seems comfortable taking.... Miller said in an interview for the retrospective that she "made a strong recommendation to my editor" that a story be pursued. "I was told no." But Jill Abramson, now a managing editor and the Washington bureau chief in 2003, would have known about such a request. Ms. Abramson, to whom Ms. Miller reported, strongly asserted to me that Ms. Miller never asked.... When I asked her, Ms. Miller declined to identify the editor she dealt with.

If Ms. Abramson is to be believed, and I do believe her, this raises clear issues of trust and credibility. It also means that because Ms. Miller didn't let an editor know what she knew, Times readers were deprived of a potentially exclusive look into an apparent administration effort to undercut Mr. Wilson and other critics of the Iraq war.

The negotiation of an attribution for a conversation that Ms. Miller had with Mr. Libby is also bothersome. She mentioned in her first-person account last Sunday that, to get Mr. Libby to give her certain information about the Plame situation, she had agreed to identify him as "a former Hill staffer" rather than the usual "senior administration official." She went on: "I agreed to the new ground rules because I knew that Mr. Libby had once worked on Capitol Hill."...

The apparent deference to Ms. Miller by Arthur Sulzberger Jr., the publisher, and top editors of The Times, going back several years, needs to be addressed.... What does the future hold for Ms. Miller? She told me Thursday that she hopes to return to the paper after taking some time off. Mr. Sulzberger offered this measured response: "She and I have acknowledged that there are new limits on what she can do next." It seems to me that whatever the limits put on her, the problems facing her inside and outside the newsroom will make it difficult for her to return to the paper as a reporter.

Posted by DeLong at 06:45 PM | Comments (0) | TrackBack

This Just Holographed in from the Gamma Quadrant

Norm Ornstein of the American Enterprise Institute proposes the removal of the George W. Bush administration and its replacement by a government of national unity:

The Blog | Norm Ornstein: The Way Out | The Huffington Post: Americans all have to consider the implications now of a worst case scenario--the problems of scandal and polarization result in a meltdown of the W. Administration and a collapse of governance in Washington. No Doubt some hard core partisans and ideologues would exult. But with the domestic and foreign policy challenges the country faces, it would be a disaster for all of us. We are in the same boat, and if it is rudderless, we all sink. So how can we deal with the consequences if that worst case scenario occurs? Here is one simple three steop roadmap:

  1. Vice President Cheney resigns--and President Bush replaces him not with Condoleeza Rice, as the rumors in Washington speculate, but with his father, George H.W. Bush.
  2. President Bush resigns, allowing his father to move up to the presidency.
  3. Bush 41/44 chooses his best buddy and surrogate son Bill Clinton (42, that is) to be Vice President. Talk about a fusion White House. Talk about bringing us together. Talk about compassionate triangulation.

Keep this roadmap in your back pocket for now. And remember, you heard it here first.

Posted by DeLong at 06:44 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps?

Yes, it's another National Review edition! Larry Kudlow writes appropos of Ben Bernanke's nomination to be Chair of the Federal Reserve:

The Corner on National Review Online : Thank heavens that Fed board member Donald Kohn, who is a demand-sider and a Phillips Curver, did not get the nod.

But Ben Bernanke is a demand-sider and a Phillips Curver. Here's a representative speech:

FRB: Speech, Bernanke--An unwelcome fall in inflation?--July 23, 2003: Much of the analytic framework used by the [Federal Reserve] staff and other leading forecasters can be summarized by an expectations-augmented Phillips curve, of the type implied by the work of [Milton] Friedman (1968) and [Ned] Phelps (1969), further augmented by measures of "supply shocks," as suggested for example by the work of Robert Gordon (for a recent application, see Gordon, 1998). This model is familiar from many textbook treatments. In addition, most variants of the model include dynamic elements, in order to capture aspects of expectations formation, multi-year contracts, and other factors.... If aggregate demand is below potential output, implying a positive output gap, the rate of increase in labor compensation and other input costs should slow, firms should be less able to pass price increases, and thus inflation should slow.... Of course, this model, like any model, will have an error term, which represents a portion of the behavior of inflation that we can't reliably explain or predict.... You may have noted that I did not include money growth in this list of inflation determinants. Ultimately, inflation is a monetary phenomenon, as suggested by Milton Friedman's famous dictum. However, no contradiction exists, as the expectational Phillips curve is fully consistent with inflation's being determined by monetary forces in the long run. This point, originally made by Friedman himself, has been demonstrated in many textbooks and so I will not discuss it further here. I only note that, as an empirical matter, instabilities in money demand, financial innovation, and many special factors affecting the monetary aggregates make them relatively poor predictors of inflation at medium-term horizons. For this reason, the role of the money supply remains implicit in this discussion...

Posted by DeLong at 06:43 PM | Comments (0) | TrackBack

Reuters Reports Bernanke as Fed Chair

If true, a very good choice:

Latest Business News and Financial Information | Reuters.com : WASHINGTON (Reuters) - President George W. Bush was expected to announce on Monday that he has picked top economic adviser Ben Bernanke to succeed Federal Reserve Chairman Alan Greenspan, a knowledgeable source said.

An announcement was to come at 1 p.m. EDT. Bush told reporters there would be "an announcement soon" on his choice to replace Greenspan, whose 18-year tenure at the Fed runs out on January 31.

Bernanke is chairman of Bush's Council of Economic Advisers. He served on the Fed's Board of Governors for nearly three years before moving to the White House in June.

His move to the White House was watched with interest on Wall Street because of the belief that he was on the fast track to replace Greenspan...

Posted by DeLong at 06:42 PM | Comments (0) | TrackBack

October 21, 2005

What to Do in New Orleans?

Writing in our (mine, Aaron Edlin's, and Joe Stiglitz's) The Economists' Voice http://www.bepress.com/ev/vol2/iss4/art4/, the extremely wise Ed Glaeser worries about whether rebuilding all of New Orleans makes sense. It may well cost hundreds of thousands of per New Orleans family to rebuild and protect from future hurricanes. Wouldn't it be better to rebuild fewer sub-sea level houses and build more above sea-level houses along, say, the road between New Orleans and Baton Rouge? Or to simply give people the money and let them choose whether to spend it rebuilding in New Orleans or keeping it as a nest egg and moving to Phoenix, San Jose, or Anchorage?

There are a bunch of non-convexities here: the cost of protecting future New Orleans from future hurricanes is not proportional to how many people live in the city itself. And there are very good reasons to have a City of New Orleans: the entertainment and historic district of the French Quarter, the great transshipment between river barges and ocean-going container ships, and the administration of the Gulf oil and gas industry. But are there good reasons to have a lot of people living below water level in the shadow of Lake Pontchartrain?

Posted by DeLong at 03:30 PM | Comments (0) | TrackBack

More Dingbat Kabuki! (Yet Another New York Times Edition)

Daniel Gross finds yet more Dingbat Kabuki

Daniel Gross: October 16, 2005 - October 22, 2005 Archives : BABBLING BROOKS: Erstwhile smart social critic turned apparatchik David Brooks is excited at doings in Washington. On page A27 of today's New York Times, he writes:

"On the G.O.P. side, this is a moment of Republican glasnost. After years of following the leaders, Republicans are suddently rebelling and innovating on all fronts. Conservatives like Mike Pence and moderates like Mark Kirk are joining forces to battle the DeLay institutionalists to actually cut spending, including cuts in defense and veterans affairs."

Here's the headline from page A18 of the same paper: "House Republicans Put off Vote on Cuts." Carl Hulse reports: "Acknowledging that they were short of the necessary support, House Republican leaders Wednesday abruptly put off a vote on their plan to cut federal spending.... The leadership's inability to round up the votes for its initial plan to raise the broad target for spending cuts to $50 billion from $35 billion showed how difficult the specific cuts will be to achieve...."

By the way... the $50 billion in question is over five years, or $10 billion a year. In the fiscal year just concluded, total federal expenditures were $2.47 trillion. So these bold and highly divisive cuts, which the Republicans can't even bring to a vote, constitute four tenths of one percent of last year's spending.

Glasnost? Nyet.

Posted by DeLong at 03:29 PM | Comments (0) | TrackBack

More Dingbat Kabuki! (Why Oh Why Can't We Have a Better Press Corps? New York Times Edition)

Carl Hulse of the New York Times is not nearly as bad a reporter as Jonathan Weisman of the Washington Post, but Hulse too leads with a claim that the House leadership deficit reduction plan is to "cut federal spending by $50 billion" without finding space in his first paragraph to say that the $50 billion number is (a) only a $15 billion increase over previous plans and (b) applies to five fiscal years--i.e., that the plan is to cut spending by about $3 billion in each year.

House Republicans Put Off Vote on Cuts - New York Times : WASHINGTON, Oct. 19 - Acknowledging that they were short of the necessary support, House Republican leaders Wednesday abruptly put off a vote on their plan to cut federal spending by $50 billion and said they would go back to the drawing board to draft a fuller proposal that could win majority backing.

No reason to write "cut federal spending by $50 billion" instead of "increase their planned reductions over five years in federal spending from $35 billion to $50 billion." No reason at all--save that the politicians on the Hill want the number to sound *big*, and are more friendly to complaisant journalists than to critical ones.

Hulse does, however, manage to squeeze in a mention that this is a five-year number in paragraph three. And he does manage to say that it is an increase from a previous $35 billion plan in paragraph five.

Posted by DeLong at 03:12 PM | Comments (0) | TrackBack

October 19, 2005

Mark Thoma Summarizes Tim Geithner

He writes:

Economist's View: New York Fed President Geithner on Global Imbalances: Geithner:

sees substantial risks due to global imbalances, risks that are not fully understood.

is insistent that fiscal authorities need to regain control of the budget and says "Improving our fiscal position is the most effective means we have available to reduce our vulnerability during this prolonged period of adjustment."

in equally insistent that fixed exchange rate regimes must allow more flexibility.

worries that increases in demand growth in the foreign sector needed to offset a decline in U.S. consumption and increase in U.S. saving will have to overcome difficult political hurdles.

says smooth adjustment requires, in addition to improved fiscal management, a strong and flexible financial system and open and free trade.

says that avoiding protectionism calls for "improving educational opportunity and achievement in this country, and perhaps also in improving the design of the temporary assistance we provide individuals who bear the brunt of the adjustment costs than come with greater global economic integration."

We are, I think, very fortunate to have Tim on our side.

Posted by DeLong at 10:22 PM | Comments (0) | TrackBack

The Cheney-Rumsfeld Cabal

Colonel Lawrence Wilkerson, Colin Powell's Chief-of-Staff, is the shrillest creature on the planet earth:

FT.com / World - Transcript: Colonel Lawrence Wilkerson: transcript of talk given by Colonel Lawrence Wilkerson, chief of staff to Mr Powell until last January.

I want to thank Steve [Clemons] and the American Foundation for giving me this opportunity and thank some of my friends for turning out. I see an assistant secretary over here, I think he's left that post now, who used to spend some time in my office. And I see others around the room. I see some journalists in here who have been trying religiously to get me over the last 3 or 4 months. You finally got me....

[I]n a very intimate way, I saw the George W. Bush administration from 2001 to early 2005.... I don't think even his critics would have argued that FDR wasn't a brilliant politician and a brilliant leader. But... how often does America get brilliant leaders?... I can count them myself on one hand.... So we need a system of checks and balances and institutional fabric that can withstand anybody, or at least nearly so. You laugh, but I'm not trying to solicit your laughter.... It's the old business of checks and balances....

Decisions that send men and women to die, decisions that have the potential to send men and women to die, decisions that confront situations like natural disasters and cause needless death or cause people to suffer misery that they shouldn't have to suffer, domestic and international decisions, should not be made in a secret way.... [F]undamental decisions about foreign policy should not be made in secret.... I would say that we have courted disaster, in Iraq, in North Korea, in Iran, generally with regard to domestic crises like Katrina, Rita and I could go on back, we haven't done very well on anything like that in a long time. And if something comes along that is truly serious, truly serious, something like a nuclear weapon going off in a major American city, or something like a major pandemic, you are going to see the ineptitude of this government in a way that will take you back to the Declaration of Independence....

Now, let me get a little more specific.... Almost everyone since the 1947 act, with the exception, I think, of Eisenhower, has in some way or another, perterbated, flummoxed, twisted, drew evolutionary trends with, whatever, the national security decision-making process.... John Kennedy trusted his brother... far more than he should have. Richard Nixon, oh my God.... Jimmy Carter allowed Brezinski to essentially negate his Secretary of State.... [W]hat Sandy Berger did to Madeline Albright.... But no one... has so flummoxed the process as the present administration. What do I mean by that? Remember what I said about the bureaucracy: if it's going to implement your decisions it has to participate in those decisions.... The complexity of the crises that confront governments today are just unprecedented.... [Y]our bureaucracy has got to be staffed with good people and they've got to work together... under leadership they trust....

That is not the case today....

[T]he case that I saw for 4 plus years was a case that I have never seen in my studies of aberration, bastardizations, changes to the national security process. What I saw was a cabal between the Vice President of the United States, Richard Cheney, and the Secretary of Defense... that made decisions that the bureaucracy did not know were being made.... Read George Packer's book The Assassin's Gate.... And I wish... I had been able to help George Packer write that book. In some places I could have given him a hell of a lot more specifics.... But if you want to read how the Cheney-Rumsfeld cabal flummoxed the process, read that book. And, of course, there are other names in there, Under Secretary of Defense Doug Feith, whom most of you probably know Tommy Frank said was the "stupidest blankety blank man in the world." He was. Let me testify to that. He was. Seldom in my life have I met a dumber man. And yet, and yet, after the Secretary of State agrees to a $400 billion department, rather than a $30 billion department, having control, at least in the immediate post-war period in Iraq, this man is put in charge. Not only is he put in charge, he is given carte blanche to tell the State Department to go screw themselves in a closet somewhere. That's not making excuses for the State Department. That's telling you how decisions were made and telling you how things got accomplished. Read George's book.

In so many ways I wanted to believe for 4 years that what I was seeing... was an extremely weak national security advisor [Condi Rice]... an extremely powerful Vice President... an extremely powerful... Secretary of Defense, remember a Vice President who's been Secretary of Defense... and also is a member of what Dwight Eisenhower... called in his farewell address the military industrial complex and don't you think they aren't....

So you've got this collegiality there between the Secretary of Defense and the Vice President. And then you've got a President who is not versed in international relations. And not too much interested in them either. And so it's not too difficult to make decisions in this... Oval Office cabal... that are the opposite of what you thought were made in the formal process.... And to myself I said, okay, put on your academic hat. Who's causing this? Well, the national security advisor. Even if the framers didn't envision that position, even if it's not subject to confirmation by the Senate, the national security advisor should be doing a better job. Now, I've come to a different conclusion.

Posted by DeLong at 10:21 PM | Comments (0) | TrackBack

Astrology, Here We Come!

Abola Lapite notes that "intelligent design's" defenders regard themselves as peers of astrology:

Foreign Dispatches: Astrology, Intelligent Design and Other Sciences: Take a look at this revealing courtroom admission by Michael Behe, Lehigh University biochemist and Intelligent Design proponent.

Astrology would be considered a scientific theory if judged by the same criteria used by a well-known advocate of Intelligent Design to justify his claim that ID is science, a landmark US trial heard on Tuesday.

Under cross examination, ID proponent Michael Behe, a biochemist at Lehigh University in Bethlehem, Pennsylvania, admitted his definition of %u201Ctheory%u201D was so broad it would also include astrology.One wonders what exactly wouldn't fall under the label "theory" under Behe's definition. Phrenology? Phlogiston? Invisible pink unicorns on Saturn? How about intelligent falling?

The Discovery Institute people must be kicking themselves tonight on hearing of Behe's admission, but I'll give the man this much - at least he's honest, even if being under oath in a court of law does constrain one's scope for dishonesty somewhat.

Posted by DeLong at 10:18 PM | Comments (0) | TrackBack

There Are, You See, Few Right-Wing Think Tanks that Dare Hold George W. Bush's Feet to the Fire...

Andrew Samwick hopes that Bruce Bartlett will land at the New America Foundation:

Vox Baby: Bruce Bartlett--Liberated: Via Dan Drezner, I learn that the New York Times has written about Bruce Bartlett's dismissal from the National Center for Policy Analysis. Last December, I wrote of my admiration for Bruce's writing:

In truth, he's more like a blogger than he is a reporter, but perhaps more accurately he is the rare columnist who is the best of both worlds rather than the worst.


But note that he's an independent thinker--he would very likely offend people across the political spectrum with that one.

I started reading Bruce's columns when I worked at the CEA last year. He's been out in front of the MSM on so many issues--the Medicare bill, outsourcing, tax policy, and others. I wish I had been reading him earlier. His online archive stretches back to 2000. For those of you who arrived here by some way other than Bruce, bookmark the page. Skim it, read it, and enjoy it.

I think that's still good advice and that we should view what has transpired as Bruce being liberated. I hope his newfound freedom from the NCPA will lead to a better placement. I would suggest the New America Foundation, which I think is the most interesting policy think tank in Washington for people with interesting ideas and an ability to write an op-ed. If I had the right zip code and the requisite talent, that's where I would want to be.

Posted by DeLong at 10:17 PM | Comments (0) | TrackBack

Tax Reform

Go to the Tax Policy Center to learn about the Bush tax reform proposals:

Tax Policy Center | News & Events: ON OCTOBER 18, 2005, the President's tax reform panel released recommendations eliminating a host of special tax breaks and streamlining the filing process. Tax Policy Center scholars have played a fundamental role in guiding the panel's tax reform recommendations, including testifying before the panel on return-free tax systems, fair reform for families, reforming the individual Alternative Minimum Tax, and issues resulting from a consumption tax base. Additionally, the Tax Policy Center has conducted extensive research on many of the options considered by the panel...

And go to the Carpetbagger Report to see some fur fly:

The Carpetbagger Report
: 'Tax reform' may be even less popular than 'Social Security reform': Geography is but one of many problems for this would-be proposal. Kevin did an excellent job summarizing (with a nice table) who's likely to benefit most from all this restructuring and "simplification." I don't want to spoil the surprise, but I'll give you a hint: it's not middle- or lower-income families.... On the left, we have folks like Sen. Chuck Schumer (D-N.Y.), among others, calling it a "dagger to the heart." But that's nothing compared to what the right has been saying.

  • Phil Kerpen, policy director of the Free Enterprise Fund, said, "The panel, in its primary focus, seems headed away from its mission to develop a plan for fundamental tax reform." He accused the panel of "a series of tax hikes on the U.S. middle class to balance out relief for upper-income elites."
  • Leo Linbeck, who wants a federal retail sales tax, called Bush's commission a "fraudulent political theater designed to protect the corrupt tax code and those who profit from its manipulation."
  • Larry Hunter, chief economist for the Free Enterprise Fund, said, "If George Bush thinks he has problems with Harriet Miers, wait until it dawns on people that his tax-reform panel is recommending a huge tax cut for rich people in blue states and a huge tax increase for middle-class folks in the red states."

...The last time such sweeping changes were made in tax law was in 1986. Enactment of that measure required the unqualified commitment of President Ronald Reagan, then at the peak of his popularity; the political mastery of his Treasury secretary, James A. Baker III; the work of a bipartisan coalition in Congress that included many of the most influential senators and representatives; and two years of intensive maneuvering and horse trading.

Posted by DeLong at 10:16 PM | Comments (0) | TrackBack

Favorite National Hurricane Center Forecasters

Michael Froomkin is distressed that he has a favorite NHC forecaster:

Discourse.net: Wilma and Franklin Are Funny In Different Ways: [T]hree things are clear:

  1. They don't really have much confidence what this storm is actually going to do. A 1650 nautical mile gap in the five-day forecast is indeed rather heroic. [A nautical mile is 6080 feet or about 1853m.]
  2. Forecaster Franklin really does have a wry sense of humor. He's much more fun to read than the other forecasters.
  3. Things have come to a pretty pass when one has a favorite National Hurricane Center forecaster.

Posted by DeLong at 10:14 PM | Comments (0) | TrackBack

The Job Is Demanding!

Wonkette finds another less-than-well-regarded Bush administration appointee: Porter Goss:

Keeping Porter Down on the Farm - Wonkette: The WaPo's Dafna Linzer examines Porter Goss's troubled one-year reign as CIA director, which has seen a steady stream of high-level resignations among veteran analysts and officers. It seems Goss, himself a 1960s agency operative and a fierce critic while in Congress of George Tenet's handling of terror intelligence, has a rather, uhm, idiosyncratic view of the job's demands.

In March, Goss complained during a speech that his job was overwhelming and that he was surprised by the number of hours it demanded. "The White House wasn't amused by that," one intelligence community official said. Then in June, Goss told Time magazine that he had "an excellent idea" where Osama bin Laden was but that the United States could not get him because of diplomatic sensitivities. This time, the White House and the State Department publicly disputed the remarks.

In a now-infamous e-mail to overseas station chiefs, Goss said appointments with visiting intelligence chiefs should be arranged for Tuesdays or Thursdays. The memo was apparently meant to assure station chiefs that he was setting aside extra time for important visits, but it bewildered officers in the field.

What's so bewildering? The guy needs Mondays, Wednesdays and Fridays free to continue dogging bin Laden! Our favorite detail, though, is this:

A work trip to picturesque Slovenia . . . raised eyebrows, from the spy division to the legal department, officials said, because Goss, an avid organic farmer, arranged for one meeting to take place at a local organic farm.

That's right--an "avid organic farmer" is now in charge of monitoring the most sensitive information affecting American global interests...

For not taking care that the laws be faithfully executed, impeach George W. Bush. Impeach him now.

Posted by DeLong at 10:14 PM | Comments (0) | TrackBack


Kevin Drum and Matthew Yglesias watch Jacob Weisberg: a 9.4, 9.3, 8.8, and a 3.1 from the East German judge:

Kevin: Jacob Weisberg's bizarre Slate thumbsucker in which he preemptively suggests there's no evidence of wrongdoing in the Plame case simply because Patrick Fitzgerald hasn't released any of his evidence yet.

Matthew: I'm not sure I really understand Jacob Weisberg's contrarian take on the Plame case:

No one disputes that Bush officials negligently and stupidly revealed Valerie Plame's undercover status. But after two years of digging, no evidence has emerged that anyone who worked for Bush and talked to reporters about Plame... knew she was undercover. And as nasty as they might be, it's not really thinkable that they would have known....

Evidence hasn't emerged because Patrick Fitzgerald hasn't made any charges public or revealed what evidence he may or may not have to support those charges. It would convenient for us in the commentariat if he'd been running a sloppy investigation full of grand jury leaks giving us more juicy nuggets to chew over, but the Ken Starr precedent aside that's not what prosecutors are supposed to do. If Fitzgerald's charges, when they emerge, prove to be trumped-up, overblown, or unsupported by the evidence then naturally it would make sense to start condemning him. But concluding that his case is bogus before we see his evidence because we haven't seen his evidence would be bizarre.

Posted by DeLong at 10:13 PM | Comments (0) | TrackBack

Marginal Revolution Loses a Bet

Railway shares:

Marginal Revolution: The Undercover Economist, part II : I once made the mistake of entering into a sportsman's bet with the economist John Kay. He wondered what would have happened if you had bought shares in the Great Western Railway, the most famous of all the rail companies in Britain, the birthplace of train travel. He speculated that even had you bought them on the first day they were available, and held them for the long term, your returns would have been quite modest, say, less than 10 percent a year. I couldn't conceive that one of the most successful companies of the railroad revolution could have possibly returned such a modest sum to shareholders. Off I went to flick through dusty nineteenth-century editions of The Economist and find out the answer. Of course, Kay was right. Not long after the Great Western Railway shares were put on sale for 100 pounds a share in 1835, there was a tremendous burst of speculation in rail shares. Great Western shares peaked at 224 pounds in 1845, ten years after the company was formed. Then they crashed and never reached that level again in the century-long life of the company. The long-term investor would have received dividend payments and would have made a respectable but unremarkable 5 percent annual return...

Posted by DeLong at 10:11 PM | Comments (0) | TrackBack

Let Us Now Praise Famous Knight-Ridder Reporters


Let us now praise famous men, and our fathers that begat us. The Lord hath wrought great glory by them through his great power from the beginning. Such as did bear rule in their kingdoms, men renowned for their power, giving counsel by their understanding, and declaring prophecies: Leaders of the people by their counsels, and by their knowledge of learning meet for the people, wise and eloquent are their instructions...

Among those who are leaders of their people by their counsels--famous men worthy of praise--are Knight-Ridder reporters Jonathan Landay and Warren Strobel.

The Poor Man Institute for Freedom and Democracy and Unlimited Numbers of Ponies for All Whlo Want Them: As my good friend Neil Cavuto has argued, it’s a lot easier to make headlines for doing something bad than for doing your job right. Maybe, in order to balance out the liberal media’s unfair obsession with the Judith Miller kerfuffle, Mr. Cavuto could do a balancing piece on Knight-Ridder reporters Jonathan Landay and Warren Strobel, who did their f---ing jobs. I’m sure FOX’s viewers would be heartened to know that American journalists were correctly reporting in 2001 and 2002 that Saddam was not tied in any significant way to international terrorists, that his WMD program was likely not as advanced as the White House was claiming, and that Bush made his final decision about war with Iraq in February 2002 at the latest.

How did they accomplish this miracle? Jonathan Landay explains:

We may have asked questions other journalists failed to ask. In addition, high-level sources on whom other journalists depended were pushing the agenda for war. Many of our sources were “working stiffs” in defense, intelligence and diplomacy, people who were not invested in the political agenda.

A technique reminiscent of Sy Hersh, who has gotten one or two stories right over the years. But I’m sure he doesn’t get to summer with Lil’ Russ on Martha’s Vineyard, either.

But one does get praised as a famous man by whom the Lord hath wrought great glory...

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

DeLong Smackdown Watch!

Robert Waldmann--who knows about biochemistry and medicine--wields the bludgeon:

Robert's Stochastic thoughts: Dean Baker asks:

Just for the record, the U.S. government already spends $30 billion a year on biomedical research.... Why shouldn't we believe that if we doubled this appropriation, to replace the $25 billion that the drug industry claims to spend on drug research?...

Brad DeLong applauds Baker and (but) replies:

The answer is that we don't trust the NIH to be able to set up procedures that cover all the bases in drug research. Low-probability but high-payoff projects are likely to be underfunded by the government--but properly funded by private companies willing to roll the dice.

I think Brad is totally wrong. The idea is that the private sector is willing to take risks for huge potential profits. This is very true of startups where decision makers are effectively protected by bankruptcy law. [But] the patent holders in the pharmaceutical industry are huge corporations which will not benefit from the services of a bankruptcy court. Decisions are made by people who will do very well if they just keep on keeping on. A sporty business compared to retailing, but not one that requires particular daring.

In contrast, the US Federal Government is willing to shoot for the moon (literally) spending huge amounts of money for purely speculative possible advantages. It is just a fact that the most daring research and development is publicly financed mostly by the US DOD. A closer look at what big Pharma and the NIH do with their money makes this very clear. Big pharma takes chances with drugs which might be valueless because of side effects or something. They bet with a worse than 50 % of a big payoff. The NIH bets with a miniscule chance of a huge payoff, as is typical of public sector research.

The Federal government has very deep pockets. It should have huge risk tolerance compared to well anything else.... It's just not true that public research is more cautious and short term. Quite the opposite. The private firms often come in when the basic concept is proven and details need to be fixed, roughly the development stage not the research stage. A pharmaceutical company issue is making a drug so that we don't digest it in our stomach, piss it away immediately or metabolise it (pharmacokinetics). While outstanding original path breaking research has been done by drug companies, they generally come in at the relatively low risk close to market phase. In fact, the advantage of the big drug companies is the advantage of a large firm whih can coordinate a huge team. Thus agents developed by say biotech startups are brought to market by big pharma.

Oddly NIH employees interact with big pharma roughly the same was biotech start ups do. The NIH is huge, but to avoid bureauschlerosis it is organised in an immense number of tiny fiefdoms with senior investigators who can't be fired and do what they want (think full professors but there are many more of them proportionally). The NIH budget is spent on an absolutely immense number of tiny organisations (think of an NSF grant and that's like an NIH grant except there are many fewer NSF grants). Often the principal investigators have no reason to fear risk, can shoot for the moon and do.

So why is it that the federal bureaucracy is better than the private sector at daring original high risk research and worse at anything requiring organisation ? Well I think one big factor is ideology. The NIH is in the USA and for it to develop drugs and bring them to market would be socialism. Can't have that even if it works (see general debate about health care). Another is that too much freedom is licence.... NIH funded researchers study things which are interesting scientifically. Congress tries to push them towards more applied work (failing to calculate the return so far on pure and applied work which shows that more bang has consistently been obtained for the pure research buck). The boring work of improving a molecule and testing and testing and testing it (after applying and applying and applying to the FDA for permission to do so) is something few people will do without pressure indirectly from shareholders via ruthless managers.

You could ask how many principal investigators at the NIH have ever received FDA approval for an IND (Investigative New Drug), a necessary step in the drug development process. Now if you suggest that they and they alone get to divy up the 20 billion a year, then I'm all for it. Conflict of interest disclaimer. I only know of one such person, and he is my father.

Posted by DeLong at 10:09 PM | Comments (0) | TrackBack

October 18, 2005

Too Much Linear Algebra

You know too much linear algebra when...

You look at the long row of creamer pitchers at Peet's--soy, skim, low-fat, whole, and half-and-half--and think: "Why so many? Aren't soy, skim, and half-and-half a basis?"

Posted by DeLong at 04:15 PM | Comments (0) | TrackBack


The National Center for Policy Analysis in Dallas has fired Bruce Bartlett, havingdecided that it is not a think tank for conservative ideas but rather in the tank for the Bush family. I wonder who the NCPA thinks will pay any attention to what it produces in the future?

Wonkette observes:

Righty Fratricide: No One Gets Away Clean - Wonkette: The first thing we do is kill all the better-qualified lawyers. Then we sack the think-tankers. Bruce Bartlett of the Dallas-based conservative brains trust, the National Center for Policy Analysis, has been axed from his position there as a senior research fellow. Now, we're not saying it's because he recently scribbled this:

"[The nomination] of a patently unqualified crony for a critical position on the Supreme Court was the final straw..."

Or because he has a book coming out called this: The Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.

Or because, in a Townhall.com column entitled "Bless the Blogs," he cited Andrew Sullivan as his favorite post-and-linker, characterizing him (correctly) as a "gay British conservative with a Ph.D. from Harvard," and then characterizing him (incorrectly) as a former lefty with a therefore keener insight into that particular ideological affliction. (To keep one creed's a task grown quite Herculean, / Is it not so, my Tory ultra-Julian?)

David Frum moving the family to Fort Sumter by nightfall.

And Matthew Yglesias writes:

TPMCafe || The Purge: Bruce Bartlett, rapidly becoming every liberal's favorite rightwing economist, has been fired from the National Center for Policy Analysis for insufficient loyalty to Team Bush. Via Marshall Whittman we see that was no coincidence:

Bush's friends contend that it is the conservative élite, not the President, who miscalculated and that self-righteous right-wingers stand to lose their seats at the table of power for the next three years. "They're crazy to take him on this frontally," said a former West Wing official. "Not many people have done that with George Bush and lived to tell about it." If a Justice Miers eventually takes her seat on the court, vocal critics can only hope the Bush Administration handles the punishment of the treasonous as poorly as it is currently promoting one of its most loyal subjects.

Sad to say, I think Bush's friends may well be right about this. Despite the tumult in the punditsphere, the latest Gallup poll shows Bush's approval rating still sinking, but not sinking among conservatives. Instead, he's managed to grow even more unpopular with Democrats and Independents. Not only is the rank-and-file still loyal to Bush, but dare I say that the pundits who matter are. Fox News and the talk radio hosts with big audiences are still in his corner. I work professionally in the exciting worlds of small magazines and new media, but the broadcast bohemoths are still the really influential segment of the press.

If Rupert Murdoch decides to turn on the GOP leadership someday, then that would spell huge trouble for them, but there's no indication that's happening.

The remarkable thing, IMHO, is not that Bush is losing his right-wing supporters but that he ever had any. Bush believes in:

  1. Appointing cronies--qualified or unqualified--to high federal office.
  2. Making snap decisions without understanding the issues at hand, and then refusing to revisit them.
  3. Having the federal government do lots of stuff--take on an expanded role in education, buy drugs for the elderly, invade and then engage in long-term occupations of countries.
  4. Cutting taxes on the rich.

An amusing parlor game--amusing for those people with my sick, twisted, perverted sense of humor that is--is to sit prominent Bush-supporting economists down on a couch and ask which they hate more: Bush's Medicare Part D drug benefit, which gives the pharmaceutical companies the ability to charge essentially whatever they want for the medicines Medicare buys, and thus mandates either mammoth tax increases or hyperinflation in our future; or the alternative Democratic Medicare Part D drug benefit, which gives HHS the power to "negotiate" drug prices with pharmaceutical crises, and thus essentially imposes a set of government-chosen price controls on the industry.

This is not a right-wing administration. This is an incompetent administration.

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 04:14 PM | Comments (0) | TrackBack

firedoglake: A Little Soft Shoe to Start?

Now that it is starting to look as though Patrick Fitzgerald might indict somebody, the effort to blacken his reputation has begun. It's being led by Richard Cohen, Victoria Toensing, Mary Matalin, and William Kristol, all of whom appear to think that now is the time to be sock puppets for Karl Rove and company.

Here's firedoglake:

firedoglake: A Little Soft Shoe to Start?: And so it begins. The pushback at Patrick Fitzgerald has already started, before charges have even materialized for anyone involved in the Traitorgate mess. A little softshoe, testing the waters to see what works, what grabs hold and resonates, what will be a good set of repeated catch-phrases and talking points for the Rush crowd and dittoheads.It started with a little testing of the waters by Victoria Toensing, Mary Matalin and hack-columnist Richard Cohen last week, a little hint here, a little dig there.

"He's lost his mind," Toensing tossed out on Hardball.

"He should go back to Chicago and not bother with petty criminal charges like lying to investigators or lying under oath," Cohen said....

[T]his post... on Bullmoose....

What is more sad though: that the attack dogs will not attack the charges based on their merit... that the first reaction is always, always to go after the prosecutor personally.... It isn't surprising, after all, that this would be the means used by Karl Rove and his buddies. We saw this very sort of smear in South Carolina in 2000, after all, when John McCain trounced W in New Hampshire's primary.... His response was not to fight it out on the merits, on the ideas, on the things that actually make a difference to the American people and their day to day lives. No, his response was to wallow in the gutter -- to begin a whisper campaign that McCain had fathered an illegitimate mixed-race child, when, in fact, McCain and his wife had adopted a Bangladeshi orphan.

What sort of person tries to smear a man with his act of decency? Ask Rove. It's been his MO since he cut his teeth in politics...

But why this focus on Rove? The first cause is not Rove, but Bush. The cossacks work for the Czar.

Posted by DeLong at 04:13 PM

Thinking About Economic Security

PGL at Angry Bear reads about economic security:

Angry Bear: Economic Security: A Couple of Good Op-eds: The funds for retirement for many workers will come from a variety of sources including Social Security (a publicly run defined benefits plan), private defined benefits plans, defined contribution plans, and even bank accounts. Just as FDIC and FSLIC were designed to provide insurance for bank accounts, PBGC was designed to provide insurance for private defined benefits plans. The National Review ran a very good discussion of the problems facing PBGC by John Boehner. I wish we had more principled conservatives in Congress such as Mr. Boehner.

On the general issue of economic security and how some in the GOP are proposing ways to undermine the protections of Social Security, see Jonathan Cohn who echoes some of the wisdom on these issues that have been provided by Mark Thoma.

Alas, the National Review had to run a weak attempt to rebut Mr. Cohn from Michael Cannon:

Which would you rather have, freedom or security? … Social Security privatization, school vouchers, and deregulating healthcare would expand the menu of choices available to ordinary people.... From whom would you rather buy bread: a government monopoly, a private monopoly, or one of a number of competing grocery stores? It's really not much of a contest. The government and private monopolies would have consumers right where they want them.... In essence, health-insurance regulation is a product.

Insurance is not the product, it’s the means to pay for the product. The health care debate is complicated and not all liberals are advocating socialization of prescription drugs and doctors. But it would be hard to argue that the current market system in the U.S. provides health care efficiently... [or] address[es] the health care needs of the poor....

The government monopoly canard belongs to George Will.... What this crew fails to appreciate is that households can already pursue higher expected returns in their private defined contribution plans to combine with the low risk, modest returns from bonds held in the public defined benefits plan we call Social Security. Of course, Mark Thoma would remind us of longevity risks, which are one of the reasons why putting some of one’s retirement savings into a defined benefits plan might be optimal. In theory, the private sector could provide such mechanisms, but for some reason – private markets have not done so.

Well, where is the company today that is big and stable enough to credibly offer a defined benefit plan to 25 year olds? I've swung around to the view that only the federal government is big enough to do so--and it is an important thing that people value dearly, hence an appropriate mission for the government.

Let me, however, make a small minor dissent from PGL: the poorer half of America's population is effectively excluded from investing in the stock market by a variety of "transactions costs." Having them put some of their Social Security money in the stock market would be a good thing (albeit not the way that the Bush administration structured it).

Posted by DeLong at 04:12 PM | Comments (0) | TrackBack

A Justice Should Know That This Is a Free Country

Ah. Very bad news about Harriet Miers:

Think Progress: Sen. Chuck Schumer said yesterday that Harriet Miers told him she was "not ready to give an answer" on whether the 1965 Griswold v Connecticut case was "settled law."... Griswold struck down a law that criminalized the use of contraceptives by married couples. Coupled with her previous support for a constitutional ban on abortion, Miers's silence on the matter is notable.... John Roberts, who refused to discuss his position on virtually any past cases during his hearings, did state his support for Griswold...

The most important thing a Supreme Court Justice needs to know is that the United States is a free country. This doesn't seem to be something that Harriet Miers knows.

Posted by DeLong at 04:11 PM | Comments (0) | TrackBack

GM and the Macro Outlook

General Motors amazes Jim Hamilton:

Econbrowser: GM losses and other economic news: No matter how amazing your accomplishments, it's always nice to try to set your goals even higher. I was pretty impressed when General Motors managed to lose $1.2 billion on its North American operations in the second quarter of this year. But yesterday GM announced it had outdone even this, losing $1.6 billion on its North American operations in the third quarter.... For those of us who have worried about the short-run macroeconomic implications of developments in the auto industry, yesterday's news adds to the concerns, even if the market has hopes that over the long run, GM can dig out of the hole it's in right now.

What picture is emerging elsewhere in the economy? Calculated Risk, who follows housing more closely than anybody, expects the housing decline to begin shortly.... Macroblog sees last week's news of 0.2% gains in retail sales in September (1.1% ex-autos) as a positive, but is worried by the 1.3% drop in industrial production. Altig also reports that the fed funds futures reflect a market expectation of 25-basis-point rate hikes at each of the next three FOMC meetings, which would leave us at 4.50% by January. Prospects for relief from that dimmed even further with today's release of the producer price index, whose 1.9% rise in September was the fastest growth in 15 years.

Oh, and by the way, there's a new possibility of yet another hurricane that could threaten the Gulf.

Other than that, the news is great.

Posted by DeLong at 04:11 PM | Comments (0) | TrackBack

MSN Search as Algebra Homework Helper

Will my grandchildren ever have to remember the quadratic formula?

MSN Search Solves Equations: For those tackling math equations, MSN Search has a nice feature: it solves them. Try [((122.78+(x^2))/190)=.93] and the direct answer (as taken from MSN Encarta) will read:

((122.78+( x^2))/190)=.93 = x=7.343024 x=-7.343024

And that's a feature not even the Google Calculator has.

Now I can procrastinate by feeding it equations, hoping to find one that will break it...

Posted by DeLong at 04:10 PM | Comments (0) | TrackBack

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

"Retire" Richard Cohen. "Retire" Richard Cohen now.


Miers: Faithful to Whom? : A clarification: A number of readers, some of them formerly of the CIA, got the impression from my last column that I don't consider the outing of a covert employee a serious matter. I do.

Last week:

Let This Leak Go : The best thing Patrick Fitzgerald could do for his country is get out of Washington, return to Chicago and prosecute some real criminals.... Go home, Pat. The alleged crime involves the outing of Valerie Plame, a CIA operative.... Not nice, but it was what Washington does day in and day out.... This is rarely considered a crime. In the Plame case, it might technically be one...

Posted by DeLong at 04:09 PM | Comments (0) | TrackBack

Hooray for Google Print!

Eric Schmidt talks about Google Print--a magnificent endeavor:

Books of Revelation, by Eric Schmidt: Imagine sitting at your computer and, in less than a second, searching the full text of every book ever written. Imagine an historian being able to instantly find every book that mentions the Battle of Algiers. Imagine a high school student in Bangladesh discovering an out-of-print author held only in a library in Ann Arbor. Imagine one giant electronic card catalog that makes all the world's books discoverable with just a few keystrokes by anyone, anywhere, anytime. That's the vision behind Google Print, a program we introduced last fall....

Google's job is to help people find information. Google Print's job is to make it easier for people to find books.... For many books, these results will, like an ordinary card catalog, contain basic bibliographic information and, at most, a few lines of text where your search terms appear. We show more than this basic information only if a book is in the public domain, or if the copyright owner has explicitly allowed it by adding this title to the Publisher Program... Any copyright holder can easily exclude their titles from Google Print -- no lawsuit is required....

Just as any Web site owner who doesn't want to be included in our main search index is welcome to exclude pages from his site, copyright-holders are free to send us a list of titles that they don't want included in the Google Print index. For some, this isn't enough.... [W]e believe... that the use we make of books we scan... is consistent with the Copyright Act, whose "fair use"... allows a wide range of activity... all without copyright-holder permission.... The aim of the Copyright Act is to protect and enhance the value of creative works in order to encourage more of them... We find it difficult to believe that authors will stop writing books because Google Print makes them easier to find, or that publishers will stop selling books because Google Print might increase their sales....

Imagine the cultural impact of putting tens of millions of previously inaccessible volumes into one vast index... searchable by anyone, rich and poor, urban and rural, First World and Third, en toute langue ... entirely for free. How many users will find, and then buy, books they never could have discovered any other way? How many out-of-print and backlist titles will find new and renewed sales life? How many future authors will make a living... solely because the Internet has made it so much easier for a scattered audience to find them? This egalitarianism of information dispersal is precisely what the Web is best at; precisely what leads to powerful new business models for the creative community; precisely what copyright law is ultimately intended to support; and, together with our partners, precisely what we hope, and expect, to accomplish with Google Print.

Posted by DeLong at 04:07 PM

Nationalize Tamiflu Now!

Dean Baker writes some very good sense about Tamiflu and compulsory licensing:

MaxSpeak, You Listen!: BIRD FLU, BIRD BRAINS, AND ECONOMISTS : Those of you who like to prepare for potential crises in advance, rather than waiting until after the fact (i.e. not FEMA), may have been following the debate over dealing with a potential outbreak of the Avian Flu.... One of the key issues is whether the government should be stockpiling large quantities of Tamiflu.... The major obstacle to large-scale stockpiling is that the drug is under patent by Roche, the Swiss pharmaceutical company. Roche has limited manufacturing capacity for Tamiflu, and would charge a high price in any case.... [T]he claim of manufacturing complexity is not accurate. The Indian drug manufacturer, Cipla, determined how to reverse engineer the drug in two weeks and is now prepared to begin making a generic version of the drug available in January....

The most extreme case is the one that Roche may find itself in. It may have monopoly rights to a drug that could literally mean the difference between life and death to tens of millions of people in the rich countries. This could be REALLY big money. If the government takes away the potential for this incredible windfall, by requiring that the drug be licensed so that it can be mass produced, then it does reduce the expected return on future investment. To put it simply, if there is a 1 in 10,000 chance that a drug company's new drug will be the next Tamiflu, but the company knows that it will then be required to license this drug rather than making $200 billion in profit, it will reduce its expected profits on its new drugs by $20 million ($200 billion/10,000).

While we cry over this loss of expected profits, let%u2019s ask why are we in this mess to begin with? In other words, why are we relying on patent monopolies to finance drug research? The Holy Grail in economics is that price should equal marginal cost. Yet, drug patents lead to situations where prices are hugely out of line with marginal cost, in some cases by a factor of 100 or more. Drugs are almost invariably cheap to produce; they are only expensive to consumers because of patent monopolies.

Of course patent monopolies in prescription drugs lead to all the bad things that economists warn about when prices diverge from marginal cost. The most immediate effect is the deadweight loss that results from people not getting drugs that they could afford at the competitive market price, but not at the patent protected price. And, this is not just poor people in Sub-Saharan Africa, there are tens of millions of people in the United States who do not take the optimal drug or the optimal dosage because patent protection makes it too costly. Monopoly profits give drug companies incentives to undertake expensive and often deceptive marketing campaigns.... Patent monopolies also provide incentives to research copycat drugs.... Patent monopolies also encourage drug companies to conceal negative research findings.... [P]atent monopolies encourage drug companies to spend large amounts of money on lawyers, lobbyists, and propaganda to protect and extend their monopolies.

The $220 billion question (current U.S. spending on prescription drugs) is where are the economists? Remember, economists are people that get high blood pressure from 10 percent tariffs on shoes or pants. When Bush put a temporary tariff on steel imports that maxed out at 30 percent, economists all over the country became apoplectic. So why is the economics profession overwhelmingly silent about drug patents, which are the equivalent of tariffs of 300 percent on average, and affect a product that is much more important to our economy and our health?

We recognize that patents are a way to provide incentives for research, but where is the economic research that shows that they are the most efficient way? You won't find it, because economists have mostly chosen to ignore the issue.

Just for the record, the U.S. government already spends $30 billion a year on biomedical research.... Why shouldn't we believe that if we doubled this appropriation, to replace the $25 billion that the drug industry claims to spend on drug research?...

Given the enormity of the stakes, you would think that there was a major debate within the economics profession about the best method of financing drug research. While there has been a limited amount of writing devoted to the topic, most economists are too busy dealing with tariffs on pants and other crucial items. Maybe mass deaths from a flu pandemic will help to reorient priorities in the profession.

The answer is that we don't trust the NIH to be able to set up procedures that cover all the bases in drug research. Low-probability but high-payoff projects are likely to be underfunded by the government--but properly funded by private companies willing to roll the dice.

However, these ex ante considerations vanish ex post when an epidemic threatens: nationalize Tamiflu now!

Posted by DeLong at 04:07 PM | Comments (0) | TrackBack

Pourquoi Mourir pour Ibrahim Al-Jaafari?

Morton Halperin writes:

democracyarsenal.org: Training Whom For What: The debate over Iraq is at one level a debate about what the true lessons of Vietnam were. Former Secretary of Defense Melvin Laird has weighed in with the Kissinger version of Vietnam -- by a combination of a carefully phased withdrawal, matched by training of the Vietnamese and threats of further escalation, we had won the war, only to see victory taken away by the American people who removed the threat of escalation and cut aid to our allies. The fatal flaw in that argument is what I want to discuss, because it goes to the heart of the question of how well we are doing in training the Iraqi army and when that will enable us to leave. We tried to do the same in Vietnam and there is much that we should learn from that effort.

First we need to ask who we are recruiting... to whom he (or she) gives loyalty. In Vietnam we learned after it was over that about one third of those we armed and trained were actually in the Viet Cong... one third of the trainees in the Republic of Vietnam's army (ARVN) would quickly take the weapons they were given and sell them on the black market. In Iraq we again see signs of the same thing with large desertion levels and US weapons showing up in insurgency hands. The remaining ARVN troops... were in it for the pay and for the prestige and the opportunity to plunder....

[W]e put much of our faith and our hope in the process of training the Iraqi Army. The unstated assumption is that Iraqi men do not know how to fight and if only exposed to western methods will be able to deal with the insurgency.... The unexamined but false assumptions behind this policy are monumental.... We need to consider who we are actually training

Posted by DeLong at 04:05 PM | Comments (0) | TrackBack

Willie Stark

Chris Lehmann does not like All the King's Men:

"Why Americans can't write political fiction." by Christopher Lehmann :

In most respects, Warren's novel has aged poorly. Its Faulknerian prose manages to be both purple and flat while its political reflections are just banal. ("Man is conceived in sin and born of corruption," runs Willie Stark's oft-quoted motto, "and he passes from the stink of the didie to the stench of the shroud"--a nugget of wisdom as hard-won as it is subtly voiced.) At the simple level of characterization, Jack Burden's odyssey is unpersuasive--his alleged innocence is more a product of tedious grad school soliloquizing than any discernible virtue. Likewise, Willie Stark's temptation of Burden into the lurid exercise of demagogic power is pasteboard populism, an opportunity to score cheap points against a discredited leader like Long--and the grievously distorted political persuasion he represented--on behalf of what is ultimately an aristocratic conception of Old South noblesse oblige. Yet Warren's overheated language of sin and corruption does hearken back to the odd moral fastidiousness that shapes so much of the obdurate badness of American political fiction...

I did not read All the King's Men as scoring cheap points against Huey Long at all...

Shows how reading is an activity that takes place between the ears, and how your mileage may vary.

Posted by DeLong at 04:05 PM | Comments (0) | TrackBack

Another Gulf Storm...


This is not a good thing to see. I hope the Gulf of Mexico has cooled off *a lot* over the past month.

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

Dingbat Kabuki! (Yet Another Why-Oh-Why Can't We Have a Better Press Corps? Edition)

Jonathan Weisman of the Washington Post is on the front page getting the story... umm... not quite right:

House GOP Leaders Set to Cut Spending: Leadership Shake-Up Spurred Policy Shift. By Jonathan Weisman: House Republican leaders have moved from balking at big cuts in Medicaid and other programs to embracing them, driven by pent-up anger from fiscal conservatives concerned about runaway spending and the leadership's own weakening hold on power. Beginning this week, the House GOP lawmakers will take steps to cut as much as $50 billion from the fiscal 2006 budget for health care for the poor, food stamps and farm supports, as well as considering across-the-board cuts in other programs...

But if you read to the end of the article--and if you understand budget concepts and reporting conventions--you can see that Weisman's announcement that the House Leadership has changed course and wants a new "cut... $50 billion from the fiscal 2006 budget" is... strange. It seems that Speaker "Hastert... announce[d] that... cuts to entitlement programs such as Medicaid, food stamps and farm supports would be raised from $35 billion to $50 billion." So its a $15 billion change in direction--not $50. And it's not in the fiscal year 2006 budget. The original $35 that has been topped-off to $50 are cumulative "entitlement cuts over five years"--originally $7 and now $10 in each of the next five years.

So we're not talking about a $50 billion cut relative to baseline in entitlement spending for fiscal year 2006. We're talking about a $3 billion cut.

But everyone--well, everyone except those of us who actually care about responsible fiscal policy--happy to sell this a $50 billion cut?

Five reasons:

  1. The Republican House leadership wants this to seem like a big deal. They want to appear fiscally responsible. They want the base not to be made at them. They will be grateful if Jonathan reports it as $50 billion in FY 2006 rather than $3 billion.
  2. The conservative Republican House members who believe in smaller government want this to seem like a big deal: they have been powerless, and think that if they can appear powerful they will become powerful. They too will be grateful if Jonathan reports that they were able to pressure Hastert and company into a $50 billion change-of-direction in 2006 rather than a $3 billion change-of-direction.
  3. The Democrats will be happy too: a $50 billion cut in food stamps and Medicaid in FY 2006 is a very effective base-energizing talking point.
  4. It's hard to convince one's editors that a $3-billion-in-FY-2006 change-of-direction is worth putting on the front page. It's much easier to convince one's editors that a $50-billion-in-FY-2006 change-of-direction deserves placement on page 1.

And the readers of the Post? People who might care whether the number is $3 or $50 billion? People who might want to know what the relevant scale is--that $3 billion is 0.6% of the $500 billion annual deficit (excluding the Social Security surplus), is 0.04% of the $8 trillion gross federal debt? They're not in the picture.


Make no mistake: this is the kind of reporting that the Washington Post likes. Let's turn over the mike to its editors:

Jonathan Weisman Moves to National

After a terrific three-year run in Financial, Jonathan Weisman will join the National staff covering the House of Representatives. Jonathan's timing is perfect. He's inheriting a beat with so many great running story lines -- from the plight of Tom Delay to the frayed relations between the White House and congressional Republicans to the coming midterm elections -- that he should have little trouble making an early mark. Jonathan is a terrific, tireless reporter with a long history of bringing home scoops and setting the agenda on his beat, two traits he promises to bring to his new assignment.

He also comes with a deep familiarity of the Hill, earned from covering economic policy issues, from budgeting to taxation to Social Security and Medicare, for many years. Before joining The Post, Jonathan worked for USA Today, where he covered economic policy, then defense issues after Sept. 11. His reporting career has included coverage of the Clinton White House, the 2000 presidential campaign and major congressional issues for The Baltimore Sun, as well as more detailed tax, energy and transportation coverage for Congressional Quarterly. For five years, he wrote about science, energy and nuclear weapons issues for The Oakland Tribune in California.

Jonathan will move quickly into his new role, while helping us keep current on economic policy issues until Jill Dutt can find his replacement.

Readers of the Post beware...

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

Syllabus Part II: Economics 101b Fall 2005

Economics 101b Fall 2005

Syllabus Part II

October 14, 17: Japan's Decade-Long Slump

Readings: Paul Krugman, “Japan’s Liquidity Trap” < http://web.mit.edu/krugman/www/japtrap.html#Figure%201>
Paul Krugman, “Japan: Still Trapped” http://web.mit.edu/krugman/www/japtrap2.html
Adam Posen, “Macroeconomic Mistake, Not Structural Stagnation” http://www.iie.com/publications/chapters_preview/35/1iie2628.pdf
Adam Posen, “Recognizing a Mistake: Not Blaming a Model” http://www.iie.com/publications/chapters_preview/35/6iie2628.pdf

October 19, 21, 24: Europe's High Unemployment

Readings: Olivier Blanchard and Lawrence Summers (1986), "Hysteresis and the European Unemployment Problem" http://papers.nber.org/papers/w1950
Olivier Blanchard and Justin Wolfers (1999), "Shocks and Institutions in European Unemployment" http://papers.nber.org/papers/w7282
Olivier Blanchard (2004), "The Economic Future of Europe" http://papers.nber.org/papers/w7282

October 26, 28, 31: America's "New Economy"

Readings: Alan Blinder and Janet Yellen (2001), The Fabulous Decade: Macroeconomic Lessons from the 1990s (New York: Century Foundation)
William Nordhaus (2004), "The Story of a Bubble" http://www.nybooks.com/articles/16878

November 2, (no class on the 4th), 7, 9: Emerging Market Financial Crises:

Readings: Michael Mussa (2002), Argentina and the Fund: From Triumph to Tragedy http://bookstore.iie.com/merchant.mvc?Screen=PROD&Product_Code=343
Morris Goldstein (1998), The East Asian Financial Crisis http://bookstore.iie.com/merchant.mvc?Screen=PROD&Product_Code=22

November 14, 16: America's Current Macroeconomic Dilemma

Readings: Lecture notes to be issued...

Posted by DeLong at 04:01 PM

Daniel Gross Writes About the Class War

The class war by the rich against the non-rich, that is:

Daniel Gross: BUSH BOOM, CONT'D From an AFP story on today's inflation numbers, which showed the Consumer Price Index has risen 4.7 percent in the past 12 months, and 1.2 percent in September alone.

Dick Green at Briefing.com said he viewed the report as positive.

"Gasoline prices at the pump have declined since this survey, and global oil prices continue lower," he said. As energy prices in CPI flatten (or even drop) the next several months, the total index could post some very low numbers."

"It is amazing how much pessimism persists amidst such good news," Green added.

Well, one reason people could be pessimistic is that inflation is rising (which means things cost more) and wages are falling (which means people have less money to buy all that stuff that costs more.)

From the same article:

"Wage pressures were tame. In a separate report, the Labor Department said average weekly earnings fell 1.2 percent after adjusting for inflation. Real average hourly earnings are down 2.4 percent in the past year, while real average weekly earnings are down 2.7 percent, the biggest drop in 14 years."

At least that dreaded inflation in workers is under control.

Falling real wages are not a sign of an economy near full employment, but one that still has enormous amounts of slack in the labor market.

Posted by DeLong at 03:59 PM | Comments (0) | TrackBack

Our Revels Are Now Ended

Shakespeare in the Berkeley Hills at night on October 15.... Well, come to think of it, it's no colder than Shakespeare in Regent's Park in London in mid-June...

Posted by DeLong at 03:59 PM | Comments (0) | TrackBack

Ralph Waldo Emerson on Coal

From Barbara Freese (2003), Coal: A Human History (New York: Penguin: 0142000981):

In the late nineteenth and early twentieth century, all kinds of people--engineers, plant scientists, businessmen, and theologians--were inspired to write books and articles in which they waxed poetic about the glories of coal. Even transcendentalist philosophers... Ralph Waldo Emerson wrote this about coal:

Every basket is power and civilization. For coal is a portable climate It carries the heat of the tropics to Labrador and the polar circle; and it is the means of transporting itself whithersoever it is wanted. Watt and Stephenson whispered in the ear of mankind their secret, that a half-ounce of coal will draw two tons a mile, and coal carries coal, by rail and by boat, to make Canada as warm as Calcutta; and with its comfort brings industrial power.

Posted by DeLong at 03:58 PM | Comments (0) | TrackBack

Power, Knowledge

Aaron Swartz has decided that the extremely insightful Doug Henwood will have a weblog--whether he wants one or not:

Doug Henwood Talks : What's going on here? This is a weblog built from posts by Doug Henwood, editor of Left Business Observer and author of Wall Street and After The New Economy. This weblog is not affiliated with or endorsed by Doug Henwood or Left Business Observer. It is run by Aaron Swartz (me@aaronsw.com).

Posted by DeLong at 03:57 PM | Comments (0) | TrackBack

America's Silliest Dog Strikes Back

Reactions to America's Silliest DogTM, Rancho Laguna Park, October 15 AM. America's Silliest DogTM is five years and three months old:

4: What a cute Lab puppy!
3: How old is your Lab puppy?
3: Off. Off! Down!!
2: How do you get your dog to run like that? I wish my dog would run.
2: How did your dog get so muddy?
1: Where did she find that branch?
1: No jump! No jump!
1: It must be nice to have a puppy.
1: When she grows up, you should get her a companion dog to play with to keep her active.

UPDATE: For some reason, nobody said: "I see your dog likes to roll in horse urine-soaked hay."

Posted by DeLong at 03:56 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (Sourcing Edition)

Duncan Black writes:

Eschaton : Sideshow: This is the least important element of this case, though surely an important one for the press generally:

Mr. Fitzgerald asked about a notation I made on the first page of my notes about this July 8 meeting, "Former Hill staffer."

My recollection, I told him, was that Mr. Libby wanted to modify our prior understanding that I would attribute information from him to a "senior administration official." When the subject turned to Mr. Wilson, Mr. Libby requested that he be identified only as a "former Hill staffer." I agreed to the new ground rules because I knew that Mr. Libby had once worked on Capitol Hill.

Did Mr. Libby explain this request? Mr. Fitzgerald asked. No, I don't recall, I replied. But I said I assumed Mr. Libby did not want the White House to be seen as attacking Mr. Wilson."

Okay, look. You grant anonymity because a source is leaking information they aren't really supposed to. Maybe you grant anonymity in that somewhat comical fashion of "the source declined to be identified by name because of the administration's policy of not commenting" which is ridiculous but at least it's mostly transparently ridiculous. What Libby wanted was to, in essence, grant the entire senior administration "anonymity" by pretending the information was coming from somewhere. No idea if Miller ever granted such a thing, but any reporter who ever did should be fired, along with their editors.

But, Duncan, Miller says that she did grant Libby his request: she "agreed to the new ground rules."

The fact that Libby asked does carry the information that this is a request that complaisant reporters could be expected to grant...

Posted by DeLong at 03:55 PM | Comments (0) | TrackBack

October 10, 2005

Waiting in Vain

Paul Krugman on energy conservation:

Waiting in Vain :

Remember that guy I had lunch with? He’s a pretty good writer and you can read him here:

During the California electricity crisis, Dick Cheney sneered at energy conservation, calling it a mere “sign of personal virtue.” But this week Samuel Bodman, the energy secretary – who is widely regarded as Mr. Cheney’s proxy – declared that “the main thing that U.S. citizens can do is conserve.” Is the Bush administration going green?

No, not really. This administration’s idea of encouraging conservation is an ad campaign centered on a cartoon pig. When it comes to substantive energy policy, the administration is still thinking drill-and-burn.

The background to Mr. Bodman’s remarks is growing public anger over high energy prices. Most of the focus right now is on the price of gasoline, but the worst is yet to come: just wait until people see their winter heating bills, especially for natural gas, which has roughly doubled in price since last year.

And the political danger to the administration is obvious: polls suggest that many people blame energy companies for high energy prices, and blame the administration for failing to control price gouging.

Funny, isn’t it? During the California crisis, some of us deduced from economic evidence that electricity shortages were artificial, the result of market manipulation by energy producers and traders. This deduction was later confirmed by the Enron tapes, but at the time we were voices crying in the wilderness.

Now, much of the public believes that corporate evildoers with close ties to the administration are conspiring to drive prices up. But this time they aren’t, at least so far.

Just in case you think I’ve gone soft on the energy industry, let me say that claims that we’re having a crisis because environmentalists wouldn’t let oil companies do their job are equally bogus. When you hear someone talk about how no refineries were built for 25 years, remember that until recently, oil companies weren’t interested in building refineries, because they had excess capacity and profit margins were thin.

In fact, the current crisis is nobody’s fault, except Mother Nature’s. Both Katrina and Rita were stronger hurricanes when they plowed through offshore oil and gas fields than when they made landfall. And because damaged refineries and other energy facilities are competing for a limited number of repair crews, it’s taking a long time to get those facilities back up and running.

What this means is that a lot of “demand destruction” must take place over the next few months. That is, one way or another, people will have to be persuaded to limit their consumption of natural gas, gasoline and heating oil to match the available supply.

In the absence of an effective conservation policy, prices will do all the persuading: the cost of fuel will rise until people drive less and turn down their thermostats. The problem, of course, is that high prices will impose serious hardship on many families.

And that’s why administration officials are sounding vaguely greenish: they hope to limit the price pain by persuading people to curb their energy consumption out of a sense of public duty. Done right, such a campaign really could make a difference. In fact, energy conservation played a significant role in ending California’s crisis four years ago.

But as you might expect, the administration’s conservation push lacks conviction. President Bush has spoken in favor of conservation, but he seems more interested in trying to justify the Iraq war. And the administration’s attempt to promote “Energy Hog,” a cartoon pig in a leather jacket, as a conservation mascot verges on the pathetic.

So it’s going to be a long, cold winter. But what about the longer term?

The long-term case for energy conservation doesn’t have much to do with the current shortages. Instead, it’s about national security, broadly defined – reduced dependence on Middle East oil supplies, reduced emission of greenhouse gases. But one might have hoped that the administration’s new willingness to use the language of conservation would spill over into long-run policy.

No such luck: when it comes to substantive actions, as opposed to public relations, it’s still the same old, same old. Mr. Bush has called for more refineries, but has said nothing about raising mileage requirements and efficiency standards for appliances. And as for a higher gasoline tax, which would be politically possible only with broad bipartisan backing – don’t be silly.

Conservation’s day will come. But it hasn’t happened yet.

Posted by DeLong at 07:19 PM | Comments (0) | TrackBack

Nobel Prizes to Aumann and Schelling

A sociologist talks about the Bank of Sweden Nobel Memorial Prize in Economic Science:

Economics Nobel for Schelling and Aumann. Posted by Kieran Healy : Tom Schelling and Robert Aumann have been awarded this year's Bank of Sweden Memorial Prize.... Schelling's work is probably the better known of the two outside of economics, because in addition to being excellent it's very readable. I use a chunk of his classic Micromotives and Macrobehavior *in my undergraduate social theory class, for instance. We read a bit of *The Wealth of Nations and then we read some Schelling, partly in order to get across the idea that co-ordination can be disaggregated and bottom-up process, and partly to see that markets are also a special case of a bigger class of co-ordination problems.

From an outsider's perspective, and speculating a bit on the politics of it all, the result seems like an interestingly balanced way to mark the rise of game theory in economics. While Schelling's work is analytically acute (and the man himself is famously sharp in discussion), it is not presented in a technical mode. You can sit down and read the essays. Aumann, on the other hand, represents a much more mathematized wing of the field, proving theorems and developing new conceptual tools with precise formal properties. So, for instance, while Schelling can write essays like "Strategic Relationships in Dying" and "The Mind as a Consuming Organ", Aumann's papers have titles like "The Bargaining Set for Cooperative Games" and "Subjectivity and Correlation in Randomized Strategies." The prize committee has seemed to make these kind of balanced choices on other dimensions before, sometimes in consecutive years (Merton and Scholes followed by Sen) sometimes in the same year (Kahneman and Vern Smith).

On a side note, I'm not surprised to learn from Tyler [Cowen] that Schelling was his mentor. You can see it in the way he thinks about problems.

Posted by DeLong at 07:19 PM | Comments (0) | TrackBack

The U.S. Welshes on Its NAFTA Obligations

The U.S. Welshes on Its NAFTA obligations:

TheStar.com - Martin pushes back : Prime Minister Paul Martin struck just the right notes with American business leaders this week, in a forceful but restrained speech arguing that Washington's refusal to play by the rules on softwood lumber is a "breach of faith" between partners.

While Martin drew bigger headlines in Canada than in the U.S., the Wall Street Journal, CNN and news agencies all carried his complaint that Washington has damaged free trade by hammering us with $5 billion in unfair tariffs. With a Canadian federal election no doubt in mind, Martin vowed to continue pressing our case in the U.S. courts, Congress, the White House and with business and the public. The tariffs will cost the U.S. 25 jobs in industries that depend on cheap Canadian wood for every job they save in the U.S. lumber industry. Tariffs also have depressed home ownership by driving up building costs.

The PM raised eyebrows by reminding Americans that Canada is their closest and safest major energy supplier. Some saw in that an implicit threat to sell energy preferentially to rising giants like China and India, if the U.S. cannot bother to play fair. But Martin's real cautionary message was linked to the mad cow scare. U.S. ranchers kept the border closed needlessly, he noted. That forced us to ramp up our domestic processing capacity, instead of shipping beef south. That hurt U.S. processors. It also forced us to compete with the U.S. for sales in China, Japan and Korea. That can't help U.S. exports. Martin's message was thoughtful, and appropriately blunt. When the U.S. cheats on trade, it cheats its own consumers and workers. It's all bad.

The Bush administration: worse than you can imagine.

Posted by DeLong at 07:19 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have a Better Press Corps? (New York Times/Jodi Wilgoren Edition)

Jodi Wilgoren illustrates why one has to give more credence to the average person you see on the street than to the average New York Times reporter. The average person you see on the street--even those claiming that Henry Kissinger is the lover of the Queen of England--has thought about what the truth of the matter is, and is trying hard to communicate that truth to you. They are speaking in good faith. Jodi Wilgoren, by contrast, simply doesn't care--either about what the truth is, or about communicating it to you.

Let me hand the microphone to Duncan Black before I lose perspective and start ranting:

Eschaton: Journamalism: Jodi Wilgoren tells us how she sees her job:

I don't consider myself a creationist. I don't have any interest in sharing my personal views on how the canyon was carved, mostly because I've spent almost no time pondering my personal views -- it takes all my energy as a reporter and writer to understand and explain my subjects' views fairly and thoroughly.

One of the complaints journalists have with bloggers is that they don't do "original reporting." But, now we see that "original reporting" has, for some journalists, become nothing more than finding people who have opinions on stuff and telling readers what those opinions are. And, amazingly, according to Wilgoren, she expends no effort in contemplating the credibility of those views. Apparently her editors are happy with this.

Jeebus. As PZ Myers writes:

Who needs facts, ideas, and research? The reporter's brain is like an empty sponge, free of content, which just soaks up everyone's opinions indiscriminately and without judgement, and is then wrung out over the pages of the newspaper. Actually thinking and evaluating those opinions in the light of evidence isn't possible with a sponge for a brain.

When did journalism come to this deplorable state?

When did the NY Times decide that porosity, permeability, and flocculence were important job qualifications?

Posted by DeLong at 07:19 PM | Comments (0) | TrackBack

Renovate the West Wing?

The Carpetbagger Report reads Time's Joe Klein--the man, you will remember, who staked his journalistic integrity on his assertion that he was not the author of the novel Primary Colors:

The staff isn't the problem: Time magazine's Joe Klein... sugges[s] that Bush's presidency has effectively fallen apart, but offering the president some advice on setting things straight -- "Renovate the West Wing."

"This Administration has been excellent at politics and spin," [an unnamed Republican Senator] told me. "It hasn't been very good at governance. Perhaps it's time for Bush to do what Ronald Reagan did to shore up his White House in the final years -- bring in a team of terrific managers, people with credibility from Day One." Faced with the Iran-contra scandal, Reagan brought in Howard Baker and then Ken Duberstein as chiefs of staff, Frank Carlucci and then Colin Powell as National Security Advisers....

President Bush confronts nothing so threatening to his Administration as Iran-contra. But it's probably time to renovate the West Wing staff under new leadership...

Klein misrepresents what went on. Reagan didn't bring in Baker, Duberstein, Carlucci, and Powell. Moderate Republicans (and Democrats) in the Congress said that they would have no confidence in the government unless the crazies--North, Poindexter, et cetera--and those out of their depth--Regan, et cetera--were thrown out, Howard Baker brought in to control who talked to the (by this time almost completely passive) Ronnie, and Howard Baker's sign-off required on everything. It was not Ronald Reagan renovating his White House staff. It was, rather, a change of government--a change of ministers--while keeping the same figurehead chief-of-state.

Klein may well understand this: he may understand that what he is calling for is the elevation of George W. Bush to the position of figurehead who rubber-stamps the decisions reached by the High Councils--the NEC, the NSC, et cetera--under the guidance of a strong Prime Minister... excuse me, White House chief-of-staff: a transition of George W. Bush's role from that of an (incompetent) Tony Blair to that of a Queen Elizabeth.

I used to be in Joe Klein's camp: I used to think that things would be OK if only we could get wise and persuasive men and women as chief-of-staff and as the heads of the NSC, NEC, et cetera to guide George W. Bush along a good path.

But I don't think that any more. There is no reason to think that George W. Bush--who by all accounts does not realize how unqualified he is to exercise the office of Presiden tof the United States--would be willing to accept such a change-of-role. As the Carpetbagger Report writes:

Klein's approach... miss[es] the point of Bush's troubles. "Terrific managers" aren't trivial, but the need for "new leadership" starts with the one White House staffer who can't be fired -- the one in the Oval Office. The problem isn't that Bush's aides and managers are incompetent; it's that Bush has personally created an atmosphere of ignorance and fear. "It's a standing joke among the president's top aides: who gets to deliver the bad news? Warm and hearty in public, Bush can be cold and snappish in private, and aides sometimes cringe before the displeasure of the president of the United States, or, as he is known in West Wing jargon, POTUS.... Bush can be petulant about dissent; he equates disagreement with disloyalty."

The president could "bring in a team of terrific managers," but would they change Bush's worldview? If Rove, Card, and Bartlet were gone, what, exactly, would change with a 21st century version of Baker, Duberstein, and Carlucci? It was Bush's choice to surround himself with yes-men. It was Bush's choice to tell those around him to tell shield him from news he may not like. It was Bush's choice to embrace "Bubble Boy" policies that expose him exclusively to pre-screened sycophants...

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 07:19 PM | Comments (0) | TrackBack

Macroeconomic Oil Shock in Progress?

Jim Hamilton says: maybe.

Econbrowser: Macro effects of oil shocks-- what should we be looking for next? : If we thought of measuring %u03B1 by the dollar value of U.S. crude oil expenditures as a fraction of GDP, we'd come up with a value below 4%, meaning that a 10% reduction in oil supplies should result in only a 0.4% drop in real GDP.... [Looking at] the 5 most dramatic historical oil supply disruptions along with the magnitude of the decline in U.S. real GDP that we observed in the U.S. between the oil shock and the trough of the subsequent recession, typically an interval of a little over a year... [suggests] an effect on GDP that is an order of magnitude larger than the above calculation....

My own interpretation is that energy disruptions only start to matter a great deal for the economy when utilization rates of other factors of production besides energy are observed to adjust. For example, in deciding to cancel flights, the airline is not just using less energy but also likely laying off workers. A typical pattern in the above episodes was that consumers suddenly became very apprehensive following the supply disruptions, postponing big ticket purchases such as automobiles. As automobile sales declined and workers were laid off in autos and the industries that sell to the auto makers, further cutbacks in spending by those affected led the economy into recession.

So where do we stand right now? In response to the rapid run-up in gasoline prices in August and the devastation from Katrina, the University of Michigan's index of consumer sentiment fell from 96.5 in July to 76.9 in September. Consumption spending fell 0.5% in August, with sales of many SUV's down 50% in September compared with the year earlier... U.S. nonfarm payroll employment fell by 35,000 jobs in September. Given that we'd normally expect to see a monthly increase in employment of 150,000 jobs, the September figure amounts to 185,000 jobs lost... about 1/4 of a recession-inducing employment shock....

The key question now is very much the same one I raised a month ago, namely, how the Katrina-induced unemployment will interact with the other macroeconomic disruptions.... We'll have a much better view of this in another month. The key indicators that I'll be watching for are further declines in consumer sentiment and spending, the timing and magnitude of the layoffs in auto- and airline- related industries, whether investment or export spending can take the place of reduced consumption, and whether house prices and construction join in with the other negatives.

Posted by DeLong at 07:18 PM | Comments (0) | TrackBack

Economist's View: Fed Watch: Clearly Hawkish Signals

Tim Duy watches the Federal Reserve grow increasingly hawkish:

href="http://economistsview.typepad.com/economistsview/2005/10/fedwatch_clearl.html"> Economist's View: Fed Watch: Clearly Hawkish Signals : Fed policy makers are taking some of the fun out of the game at this point with their clear warnings on inflation. Indeed, even “Mr. Eighth Inning,” Dallas Fed President Richard Fisher, who I had previously dubbed a dove, has delivered a series of market rattling comments. David Altig’s compilation... provides a great overview of this increasingly hawkish language that appears to point to only one thing – more rate hikes in the coming months. Indeed, this is the theme picked up in this morning’s Wall Street Journal. And incoming data and anecdotal evidence remain supportive of that path.

Probably the most important piece of data to arrive last week was the September labor report, which came in well above expectations with a 35,000 dip in payroll.... [T]he labor report will only be supportive of the Fed’s contention that the impact of Katrina and Rita on the demand side of the economy is minimal and locally contained....

What about the continuing troubles in the automotive and airline industries?... Will this rattle Fed officials? Doubtful. As I have argued before, this is part and parcel of the ongoing saga of the US auto industry – an industry whose profits depend upon a vehicle type fewer people want to purchase.... [A]irlines are also caught in a structural straightjacket. High labor costs, high fuel costs, and relentless competition all conspire to force an ongoing shakeout....

Greenspan can’t be happy with... FedEx announcing a 5.5% increase in shipping rates.... FedEx is clearly confident enough about the outlook to pass on rising fuel costs to consumers. And it’s not just FedEx that’s raising prices – the Wall Street Journal reported that railroad customers are expecting a 5.6% rate hike in the next six months. It is also widely expected that UPS will join the party as well. These are the kinds of price increases that feed their way into virtually every business in the country....

In short, worries about demand will not resonate with Fed officials who see enough goods being shipped around the country that freight companies can push through higher prices. In fact, these are the kinds of stories that leave a central banker sleepless at night, because, as Fisher so clearly stated, “any central banker worth his or her salt is genetically unable to tolerate inflation.” The Fedspeak suggests that other officials agree, loudly and clearly, on this point.

Posted by DeLong at 07:18 PM | Comments (0) | TrackBack

Worse than You Can Imagine

The Bush administration: worse than you can imagine. More personnel appointments by the man Virginia Postrel calls the "dumb, parochial, cronyist hack":

War and Piece: : What do the geniuses in the Bush administration public health bureaucracy DO ALL DAY?! From the NYT:

As concern about a flu pandemic sweeps official Washington, Congress and the Bush administration are considering spending billions to buy the influenza drug Tamiflu. But after months of delay, the United States will now have to wait in line to get the pills.

Had the administration placed a large order just a few months ago, Roche, Tamiflu's maker, could have delivered much of the supply by next year, according to sources close to the negotiations in both government and industry.

As the months passed, however, other countries placed orders that largely exhausted Roche's production capacity this year and next...

It is just hard to grasp the staggering incompetence, the lack of planning, the 'who me?' culture that pervades that place. Doesn't anyone have a brain? Doesn't anyone consider it their responsibility to stay on top of this stuff? Maybe they should hire some consultants from France, Switzerland and those other countries that manage to get their orders in on time, year after year.

Update: Reader LL points to this Tapped post about Bush's point man at HHS on bioterrorism and public health emergencies (from a TNR story on Bush hacks):

According to his official biography, Stewart Simonson is the Health and Human Services Department's point man "on matters related to bioterrorism and other public health emergencies." Hopefully, he has taken crash courses on smallpox and avian flu, because, prior to joining HHS in 2001, Simonson's background was not in public health, but ... public transit. He'd previously been a top official at the delay-plagued, money-hemorrhaging passenger rail company Amtrak. Before that, he was an adviser to Wisconsin Governor Tommy Thompson, specializing in crime and prison policy. When Thompson became HHS secretary in 2001, he hired Simonson as a legal adviser and promoted him to his current post shortly before leaving the Department last year. Simonson's biography boasts that he "supervised policy development for Project BioShield," a program designed to speed the manufacture of crucial vaccines and antidotes. "That effort, however, has by most accounts bogged down and shown few results," The Washington Post reported last month.

Really, do we have to wait for a catastrophe every time to get these people replaced by professionals? Doesn't Leavitt have the will to fire this sort of crony?

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 07:18 PM | Comments (0) | TrackBack

Medicare, Part D

Max Sawicky writes:

MaxSpeak, You Listen!: MEDI-PRAYER : If you think Bush is in trouble now, wait till people start experiencing the new Medicare drug benefit. This is going to be a huge debacle.

Friend of mine met with some local health care providers and consumers. People have no idea what they're in for. Some drugs with no substitutes aren't covered at all. Some generics give some people side effects, but the name-brand stuff won't be covered. If you don't sign up for a plan on time, you get penalized. You get put into a default plan. Then there's the big donut hole -- what one person called "an abyss." All kinds of shit.

What you have are all sorts of Catch-22s aimed at cutting the cost -- which is through the roof anyway -- so that the R's could run on passage of the bill in 2004. Unfortunately they won't be able to run on its actual implementation. They'll be running from it.

Democratic moral of the story, going into the '06 midterms: don't let Republicans write social insurance legislation....

Bigger moral: we need Medicare for all.... Don't screw around with "public-private partnerships" to save the health insurance industry.

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

Lower Standards

From the Carpetbagger Report:

Lower Standards: One has to wonder if Knight Ridder's Joseph Galloway was giggling when he wrote this lead earlier in the week:

Army Secretary Francis J. Harvey and vice chief of staff Gen. Richard Cody said Monday that the Army was using looser Defense Department rules that permitted it to sign up more high school dropouts and people who score lower on mental-qualification tests, but they denied that this meant it was lowering standards.

Classic. Lower standards? Of course not; all we're doing is making it easier for the Army to accept young recruits who don't have a high school degree and who fail mental-qualification tests, who would have otherwise been rejected under the yardsticks used in recent years.

What makes anyone think this would be an example of lower standards?

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

Love Your Enemies, Do Good to Them Which Hate You...

Normblog contemplates George W. Bush's assurance that he is the Arm of the Lord:

Guardian Unlimited | Special reports | George Bush: 'God told me to end the tyranny in Iraq' : Nabil Shaath, who was Palestinian foreign minister at the time, said: "President Bush said to all of us: 'I am driven with a mission from God'. God would tell me, 'George go and fight these terrorists in Afghanistan'. And I did. And then God would tell me 'George, go and end the tyranny in Iraq'. And I did."

And writes:

normblog : Whether George Bush actually said what he was reported on the front page of the Guardian as having said seems to be in some doubt now. But, whatever the case, there it was on the front page - as also of the Independent - and yesterday the Guardian readership was following up. It's a case of shock and mock, isn't it (the headlining and then the quips)?

What's behind it? Is it just that, for secular liberals and leftists, all those invoking a line to, or about, God in decisions and actions in the public realm, with far-reaching effects on others, are to be seen as laughable, grotesque, or worse? I guess that must be it...

There seems to be one very important thing that Normblog doesn't understand. The God of the Christians does not believe that one should deal with one's enemies by using fuel-air explosives and M1 Abrams tanks to wage wars that cause massive collateral damage. What does the God of the Christians believe? Let's turn over the mike:

Luke 6:27 ff.: I say unto you which hear, "Love your enemies, do good to them which hate you, bless them that curse you, and pray for them which despitefully use you. And unto him that smiteth thee on the one cheek offer also the other; and him that taketh away thy cloak, forbid not to take thy coat also. Give to every man that asketh of thee; and of him that taketh away thy goods ask them not again. And as ye would that men should do to you, do ye also to them likewise.

"For if ye love them which love you, what thank have ye? for sinners also love those that love them. And if ye do good to them which do good to you, what thank have ye? for sinners also do even the same. And if ye lend to them of whom ye hope to receive, what thank have ye? for sinners also lend to sinners, to receive as much again. But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest: for he is kind unto the unthankful and to the evil. Be ye therefore merciful, as your Father also is merciful.

"Judge not, and ye shall not be judged: condemn not, and ye shall not be condemned: forgive, and ye shall be forgiven: Give, and it shall be given unto you; good measure, pressed down, and shaken together, and running over, shall men give into your bosom. For with the same measure that ye mete withal it shall be measured to you again."

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

Off in Bizarroworld, the Stupidest Man Alive Contest Continues...

Jonah Goldberg writes:

The Corner on National Review Online : WANTED: HERBERT SPENCER EXPERT [Jonah Goldberg]I'm working on a chapter of the book which requires me to read a lot about and by Herbert Spencer. There's simply no way I can read all of it, nor do I really need to. But if there are any real experts on Spencer out there -- regardless of ideological affiliation -- I'd love to ask you a few questions in case I'm missing something.

Ummm... Jonah, perhaps you should consider writing a book about stuff you know, rather than about stuff you don't know? I mean, shouldn't books that require that the author have read a lot about and by Herbert Spencer--and thought about it--be written by people... who have read a lot about and by Herbert Spencer, and thought about it?

Am I missing something here?

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

Why Oh Why Are We Ruled by These Incompetents? (Yet Another Occupation-of-Iraq Edition)

Gideon Rose of Foreign Affairs on George Packer's The Assassins' Gate:

Welcome to the Occupation: How could the strongest power in modern history, going to war against a much lesser opponent at a time and place of its own choosing, find itself stuck a few years later, hemorrhaging blood and treasure amid increasing chaos? Americans will be debating the answer for decades, and as they do, they are unlikely to find a better guide than George Packer's masterful new The Assassins' Gate.

In the run-up to the 2003 war, three rationales were offered for the invasion: fear of Iraq's weapons of mass destruction, links between Iraq and terrorism, and a desire to bring liberal democracy to Iraq and the Middle East at large. The first was essentially an honest mistake.... The second was essentially a dishonest one; there were never any good reasons to think Iraq was connected to the Sept. 11 terrorist attacks or likely to work closely with al Qaeda. The third... was a high-stakes gamble.... [F]ew experts thought it would be possible to transform Iraq's domestic structures quickly or easily, to say nothing of sparking a regional democratic revolution....

Packer... tells the story of this third rationale -- how it emerged, how the Bush administration tried to implement it and how things turned out... the case for democratization played an important role in buttressing the other two arguments and was the most exciting aspect of the endeavor.... The book is framed by the story of Kanan Makiya, an idealistic Iraqi exile whose writings had exposed the evil of Saddam Hussein's republic of fear and who had come to see American power as Iraq's only hope for a better future....

A hawkish liberal himself, Packer was torn between his sympathy for Makiya's goals and his misgivings about whether they were likely to be achieved. "I would run down the many compelling reasons why a war would be unwise, only to find at the end that Saddam was still in power, tormenting his people and defying the world," he writes. "The administration's war was not my war -- it was rushed, dishonest, unforgivably partisan, and destructive of alliances -- but objecting to the authors and their methods didn't seem reason enough to stand in the way." Eventually, crossing his fingers and deciding that Saddam Hussein had to be considered the greater evil, he went along for the ride (as did I). Packer's sketch of the prewar debates is subtle, sharp and poignant....

Writing with barely suppressed fury and continued bafflement, he describes how the great and noble enterprise he supported is inexplicably handed over to those least qualified to make it work: "No one at the top level of the administration was less interested in the future of Iraq than Donald Rumsfeld. Yet he would demand and receive control over the postwar, and he would entrust it to his more ideologically fervent aides, in whom he placed the same incurious confidence that the president placed in Rumsfeld." The result... has been one of the worst self-inflicted wounds in the history of U.S. foreign policy. The military leadership under Gen. Tommy Franks abdicated any responsibility... the civilian leadership at the Pentagon and in the vice president's office... block[ed] others from doing anything useful; a feckless president surrounded by sycophants and ideologues....

Thuggish Iraqis grow bolder as crime goes unpunished; decent Iraqis grow despondent as the occupying troops stand down and let chaos unfold.... Soon even Washington realized that things were not going well, and the first postwar team was abruptly sent packing. As Jay Garner and his hapless Office of Reconstruction and Humanitarian Assistance were replaced by L. Paul Bremer and his Coalition Provisional Authority, a U.S. official tells Packer, the American approach shifted from "arrogance" to "hubris": "The arrogance phase was going in undermanned, underresourced, skim off the top layer of leadership, take control of a functioning state, and be out by six weeks and get the oil funds to pay for it. We all know for a variety of reasons that didn't work. So then you switch over to the hubris phase... we'll attack it with everything we have, we'll throw the many billion dollars at it, and to make Iraq safe for the future we have to do a root-and-branch transformation of the country in our own image."

That didn't work either, in part because ill-considered early decisions to pursue radical de-Baathification and disband the Iraqi army led many in the country's Sunni minority to oppose the occupation. Eventually the Bush administration shifted course again.... Packer relates all this clearly and briskly, painting moving portraits of both Iraqis and Americans while skillfully guiding the reader through the intricacies of colonial administration, Iraqi ethnic politics and Beltway skullduggery... putting the reader at the side of Walter Benjamin's angel of history, watching helplessly as the wreckage unfolds at his feet....

Ultimately, Packer refuses to tie the threads of his analysis together in a tidy bundle and settle accounts.... Given the sorry tale he has just told, this seems something of a cop-out. But it is also not entirely unreasonable, for although events in Iraq have now largely passed out of Washington's control, there is still a remote possibility that the worst outcomes... might be kept at bay, leaving the ending of one of the cruelest tyrannies in modern history as an accomplishment worth savoring.

It is not too soon, however, to return a judgment on those at the helm who took a difficult job and made it infinitely more so, dramatically undermining America's regional and global position in the process. They were "careless people," as Fitzgerald said of Tom and Daisy Buchanan, who "smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made." That, if nothing else, can stand as a lesson for future tender souls contemplating the possible benefits of liberal imperialism and mulling attempts to do the right thing with the wrong partners.

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

High School Questions I Cannot Answer

It happened last year when biology got seriously cellular and molecular.

It's happening again with chemistry: some questions I cannot answer:

Why does the 4s orbital fill before the 3d orbital, anyway?

What is it with Chromium--it has only one electron in its 4s orbital, while both its predecessor Vanadium and its successor Manganese have two?

Similarly, Niobium, Molybdenum, Technetium, Ruthenium, Rhodium, Silver, Platinum, Gold, plus the whole horde of f-orbital filling elements--what's going on with them?

The periodic table in the book says that elements 110 and 111 have only one electron in the 4s orbital. Do we know this from experiment? Do we know this from quantum-mechanical calculation? Or is it just a guess from the behavior of Platinum and Gold?

I'm still further handicapped by the fact that I *never* understood the chemistry of metals at all...

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

And a Pony!

Ponies for everyone! Belle Waring has still written the Best Weblog Post Ever:

John & Belle Have A Blog: If Wishes Were Horses, Beggars Would Ride -- A Pony! : [W]ishes are totally free. It's like when you can't decide whether to daydream about being a famous Hollywood star or having amazing magical powers. Why not -- be a famous Hollywood star with amazing magical powers! Along these lines, John has developed an infallible way to improve any public policy wishes. You just wish for the thing, plus, wish that everyone would have their own pony! So... not only wish that Bush would say a lot of good things about democracy-building and fighting terrorism in a speech written for him by a smart person... also wish that Bush should actually mean the things he says and enact policies which reflect this, and he should wish that everyone gets a pony. See?

I am reminded of this by Jim Henley of Unqualified Offerings:

Time to Get Serious!: Yglesias quotes Harry Reid pontificating on the matter of Iraq:

The time has come for the Bush Administration to stop driving blind and make sure its plans coincide with real-life in Iraq's neighborhood. We need a regional strategy that induces Iraq's neighbors to act responsibly; accepts other countries' offers to train Iraqis; seals the border with Syria; and shifts spending to smaller, Iraqi-run projects that have a chance at success.

  1. To coin a phrase, And a pony! (Belle, you hereby owe every libertarian on Earth an apology.)
  2. You call that a strategy!? I can beat that! I hereby call for the appointment of an Iraq War Czar.

There! I am now the most officially serious strategist EVAR.

And, of course, by Duncan Black, the Incomparable Atrios:


Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

The Cult of Serenity

Seth Stevenson is a member of the cult of Joss Whedon--but thinks his comparative advantage is in making not movies but TV shows:

Joss Whedon - Why he should stick to television. By Seth Stevenson : I'd much rather he pitch some new show to HBO. Don't get all silver-screen-y on me, Mr. I've Got a Fetish for Teenage Girls Who Know Karate. I eagerly await your return to my living room.

I guess it's time to go see Serenity.

Posted by DeLong at 07:17 PM | Comments (0) | TrackBack

October 07, 2005

Why Is the Right so Angry?

Virginia Postrel has a theory:

Dynamist Blog: Why the Anger? : I don't think the [right wing] activist rage over the Miers nomination stems primarily from fears that she'll "vote wrong" on the Court, as though the Supreme Court were a legislature. If you're a results-oriented conservative, she'll may very well do fine, just as Fred Barnes assured viewers on Fox a couple of nights ago. (If only there were some evidence of how she'd come to the "right" results...)

No, I think people are enraged in large measure because, given a terribly important appointment opportunity, Bush has made himself look like the dumb, parochial, cronyist hack that his enemies have always said he was. That makes anyone who actively supported him look like a fool. (I would distinguish between "actively supported" and "voted for," since, unlike a president picking a Supreme Court justice, voters didn't have much to choose from.) David Frum, who is taking some unfair abuse for questioning Miers's qualifications, posts the following reader comment, among many others:

You just gave a laundry list of "why Miers" with a negative point of view. Why on earth did you not apply the same principles, questions and concerns about W? He appointed a loyal friend because that's what he knows and understands. He has never been required to perform, has never been held accountable, and has rarely, if ever suffered any negative consequences he actually earned. This character forming lifestyle began in his youth and continues.

You supported the most unqualified, unaccomplished, unremarkable man who has probably ever even considered running for major office.

I think that last line is hyperbole, but, in light of this nomination, it doesn't look like a complete slur.

There is something wrong with the first sentence of Virginia's second paragraph. It's not that Bush has "made himself look like the dumb, parochial, cronyist hack that his enemies have always said he was." It's that Bush has made it impossible to deny with a straight face that he is the dumb, parochial, cronyist hack that people who have looked closely have always known he was.

Posted by DeLong at 04:38 PM | Comments (0) | TrackBack

Danger! Will Robinson! Danger!

A note in my email:

The middle elevator on the southside of Evans is continuing to malfunction: emanating a high-pitched sound and is non-responsive to control buttons. It appears to be stuck on the 6th floor, opening and closing its doors. Do not attempt to board it. The doors do not automatically retract when an object/persons are in their path - it just crushed a box I tried using as a test. Physical Plant has been notified and a warning sign will be posted.

Ah. Deferred maintenance...

Posted by DeLong at 04:38 PM | Comments (0) | TrackBack

Danger! Will Robinson! Danger!

A note in my email:

The middle elevator on the southside of Evans is continuing to malfunction: emanating a high-pitched sound and is non-responsive to control buttons. It appears to be stuck on the 6th floor, opening and closing its doors. Do not attempt to board it. The doors do not automatically retract when an object/persons are in their path - it just crushed a box I tried using as a test. Physical Plant has been notified and a warning sign will be posted.

Ah. Deferred maintenance...

Posted by DeLong at 04:23 PM | Comments (0) | TrackBack

First Midterm Exam: Fall 2005: Economics 101b

The fall 2005 first midterm exam.

Posted by DeLong at 01:14 PM

Problem Set 4: Econ 101b: Fall 2005

The fall 2005 problem set 4.

Note: I forgot to hand this out in lecture today, but here it is...

Posted by DeLong at 01:14 PM

Marginal Revolution: Six reasons why I don't like IS-LM analysis

Tyler Cowen gives six reasons that he does not like the Hicks-Hansen IS-LM way of thinking about short-run macroeconomics. I think that a seventh reason is more important:

The "LM" part of the analysis assumes that the money stock remains fixed as elements of the economic environment and economic policy change. No central bank in the world acts to offset changes in the money multiplier and holds the money stock fixed as elements of the economic environment and economic policy change. Some central banks' responses can be modeled as (temporarily) fixing (short-term, nominal) interest rates. Other central banks' responses need to be modeled as following some kind of reaction function, in which interest rates are a function of expected future inflation and unemployment. No central banks act as the "LM" part of the analsysi assumes they do.

Here are Tyler's six reasons:

Marginal Revolution: Six reasons why I don't like IS-LM analysis :

  1. It suggests that you can shift one curve without the other moving as well. In other words, it assumes that excess demands in the goods market are independent from excess demands in the money market.
  2. The IS curve -- which involves investment demand -- uses the real rate of interest, r. The LM curve -- which involves money demand -- uses the nominal rate of interest, i. These two curves are then put on the same graph. I have been told many times this can be done without contradiction; at best this is true only in the shortest of runs, when prices are not changing.
  3. Everything in the model is flows, but stocks matter too. No person in the model considers his or her intertemporal budget position. You don't have to believe in Barro's Ricardian debt-equivalence theorem to be worried by this.
  4. Coordination problems -- which should be at the center of macro -- are obscured by the aggregate apparatus.
  5. The IS curve, drawn from investment demand, uses the long-term rate of interest. The LM curve, drawn from money demand, uses short-term rates of interest. Yet the relative movements of short and long rates remain a significant puzzle and do not follow the predicted relationship.
  6. You see the curves -- which remind you of supply and demand curves -- and you wish to start manipulating them in the same manner. See #1.

Posted by DeLong at 01:14 PM | Comments (0) | TrackBack

In Defense of "Shock Therapy"

Leszek Balcerowicz of Poland's central bank defends the Polish escape route from Really Existing Socialism:

The Wealth of Nations: [I]t is so important to analyze which policies work and which ones fail, to generate lasting convergence -- and to bring poor countries out of poverty.... Communism, an extreme form of statism, went farthest to suppress markets and criminalize entrepreneurship. The opportunity costs of this organized folly were enormous: relative per-capita income in Poland, for example, declined from about 100% of that in Spain in 1950 to only 40% in 1990. And with the collapse of the communist system, a great natural experiment began. Looking at its results, one is struck by the huge differences among countries of the former Soviet bloc:

  • In 2004, GDP had increased, relative to 1989, by 42% in Poland, 26% in Slovenia, and 20% in Slovakia and Hungary. In contrast, it declined by 57% in Moldova and 45% in Ukraine. If the shadow economy were included in the calculations, the differences in output would be smaller, but they would still be large.
  • All transition economies have made considerable progress in lowering inflation, yet better long-run growth performance went hand in hand with lower inflation. This confirms that in countries that inherit high inflation, successful disinflation is conducive to long-term economic growth.
  • Foreign direct investment usually follows past economic success and strengthens future economic success. Between 1989-2003, the Czech Republic attracted $3,700 per capita in FDI, Hungary $3,400, the three Baltic countries $1,000-$2,400 and Poland $1,300. FDI inflows per capita to Ukraine and Moldova were only $128 and $210, respectively.

Countries with better economic outcomes tend to achieve better non-economic results as well... energy efficiency... life expectancy... infant mortality....

In terms of GDP growth, it is tempting to look at differences in the initial conditions.... [D]ifferences in initial conditions, however, can explain only a part of the difference.... [D]ifferences in longer-run growth are largely due to more extensive market-oriented reforms and more successful macroeconomic stabilization....

Postcommunist countries that moved more toward a market economy achieved better economic (and non-economic) results than those that implemented fewer market-oriented reforms or none at all.... [N]o poor country has achieved lasting convergence under any of the statist or failed-state systems.... [T]he acceleration of growth does not have to wait until "good" institutions emerge... growth may accelerate during the reform process... [if] reforms increase output and productivity in previously repressed sectors (agriculture in China or the service sector in the Soviet system), or because the previous incentive structure encouraged massive waste (command socialism)....

The common features of the "miracle countries" include low tax-to-GDP ratios due to a lack of extensive welfare states. This tends to increase labor supply and promote private savings.... An extensive welfare state crowds out the voluntary forms of human solidarity, and -- especially in poorer economies -- can obstruct economic growth. This is a warning to those poorer economies which have now much higher public-spending-to-GDP ratios than Sweden, Germany or France did when they had similar income per capita....

Reforms are frequently announced, but not implemented, or they may be implemented initially but then reversed or seriously amended. In such cases, criticizing the failure of market reforms is misplaced. Market-oriented reforms may well fail -- if they are incomplete in critical ways. One example would be introducing a fixed exchange rate regime without fiscal discipline. Argentina's recent collapse reminds us that fiscally irresponsible politics may undermine the results of genuine market reforms. Market-oriented reforms may also fail to generate lasting convergence if some of their crucial elements are badly structured, e.g. a serious miscalculation of the initial level of a fixed exchange peg or a bad incentive structure in the bankruptcy law. None of these problems validate the search for a "Third Way" solution.... They are merely hurdles to be overcome on the path to a full-fledged market economy.

There does seem to be a certain amount of koolaid-drinking going on. The growth costs of the taxes levied to support a social insurance state need to be weighed against the benefits from social insurance. But only somebody who has forgotten the first principles of economics can believe that "voluntary forms of human solidarity" are a good substitute: there is a collective-action incentive problem here, after all.

Posted by DeLong at 01:14 PM | Comments (0) | TrackBack

Unleash Chiang Kai-Shek

I'm sorry, but this is just too weird:

Gainesville.com | The Gainesville Sun | Gainesville, Fla.: After more than an hour of solemn ceremony naming Rep. Marco Rubio, R-West Miami, as the 2007-08 House speaker, Gov. Jeb Bush stepped to the podium in the House chamber last week and told a short story about "unleashing Chang," his "mystical warrior" friend. Here are Bush's words, spoken before hundreds of lawmakers and politicians:

"Chang is a mystical warrior. Chang is somebody who believes in conservative principles, believes in entrepreneurial capitalism, believes in moral values that underpin a free society.

"I rely on Chang with great regularity in my public life. He has been by my side and sometimes I let him down. But Chang, this mystical warrior, has never let me down."

Bush then unsheathed a golden sword and gave it to Rubio as a gift. "I'm going to bestow to you the sword of a great conservative warrior," he said, as the crowd roared.

The crowd, however, could be excused for not understanding Bush's enigmatic foray into the realm of Eastern mysticism. We're here to help. In a 1989 Washington Post article on the politics of tennis, former President George Bush was quoted as threatening to "unleash Chang" as a means of intimidating other players. The saying was apparently quite popular with Gov. Bush's father, and referred to a legendary warrior named Chang who was called upon to settle political disputes in Chinese dynasties of yore. The phrase has evolved, under Gov. Jeb Bush's use, to mean the need to fix conflicts or disagreements over an issue. Faced with a stalemate, the governor apparently "unleashes Chang" as a rhetorical device, signaling it's time to stop arguing and start agreeing.

No word on if Rubio will unleash Chang, or the sword, as he faces squabbles in the future.

When George H. W. Bush in the 1970s and 1980s threatened to "unleash Chang" on his tennis opponents, he was referring to China's onetime strongman and thereafter Taiwan's dictator Chiang Kaishek, leader of the Nationalist Party, the man who had largely reunified China in the 1920s with his army's "Northern Expedition," lost the Chinese Civil War to Mao Zedong's Chinese Communist Party, and then taken refuge with his Guomindang party cadres on Taiwan. After the start of the Korean War, the American 7th Fleet protected Chiang (and Taiwan) from Mao's People's Liberation Army.

Republican wingnuts, however, pretended that the 7th Fleet actually protected Mao's Communists (who had, after all, won the Chinese Civil War) from Chiang's Nationalists (who had, after all, lost it) by keeping Chiang Kaishek leashed. They periodically called for the U.S. to "unleash Chiang Kaishek"--so that Chiang, you see, could invade and conquer the Chinese mainland.

When George H. W. Bush, playing tennis (and losing) in the 1970s and 1980s, would threaten to "unleash Chiang," he was mocking the right-wing nuts of his generation.

But George H. W. Bush's sons--even the smart one, Jeb--never got the joke. They, you see, didn't know enough about world history or even the history of the Republican Party to know who Chiang Kaishek was, or what "Unleash Chiang!" meant. Hence Jeb Bush's explanation that twentieth-century Chinese nationalist, socialist, general, and dictator Chiang Kaishek was a "mystical warrior... who believes in conservative principles, believes in entrepreneurial capitalism, believes in moral values that underpin a free society."

To me, that level of uncuriosity is scary. Why is this family ruling us, again?

Posted by DeLong at 01:14 PM | Comments (0) | TrackBack

Don Kohn

The case for Don Kohn for Fed Chief:

Bloomberg Printer-Friendly Page: Kohn, Long Shot for Fed Chief, Helped Shape Greenspan's Views Oct. 3 (Bloomberg): During his 30 years at the Board of Governors, Kohn, 62, has attended more policy meetings than any current Fed member. He served as Greenspan's top strategist for 15 years before Bush promoted him to governor in 2002. He embraces much of Greenspan's thinking.... "After the chairman, at least in my opinion, Don has had a greater impact on the Fed's monetary policy process than any other single person," says Robert Parry, former San Francisco Fed Bank president. "He was very close to the chairman, and they discussed issues frequently. He and this chairman were really a team."

Kohn shows up as a long-odds candidate to replace Greenspan in surveys and on betting sites, well behind leader Ben S. Bernanke, a former Fed governor and now chairman of the Council of Economic Advisers. One drawback: Kohn has few visible alliances on Capitol Hill, analysts say. Kohn says he has no party affiliation and declined to be interviewed for this story, according to a Federal Reserve spokesman.... "If you talk to the Fed staff in private and ask them who would Greenspan like to replace him, the answer would be Don Kohn," says Roger Kubarych, economic adviser to HVB America Inc. and a former deputy director of research at the New York Fed. A Fed spokeswoman declined to comment....

"The staff and Don Kohn together are important sources of continuity," says Laurence Meyer, a Fed governor from 1996 to 2002. Without Greenspan, "Kohn becomes more important."... Kohn ranked fourth with 7.6 percent of the votes in a survey of 104 Wall Street professionals this month conducted by Stone & McCarthy asking who would be the "best, most qualified" successor to Greenspan. The top three picks were Bernanke, 51; former Treasury Secretary Robert Rubin, 67, now chairman of the executive committee of Citigroup Inc.; and Harvard University economist Martin Feldstein, 65, a former adviser to President Ronald Reagan. Kohn tied for fifth place with R. Glenn Hubbard, 47, Columbia University business school dean, in response to a question about who Bush was most likely to choose....

Posted by DeLong at 01:14 PM | Comments (0) | TrackBack

Reading Around: October 3-6, 2005

Thomas Geoghegan, The Law in Shambles

Pierre-Olivier Gourinchas and Helene Rey (2005), "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege" (Cambridge: NBER working paper 11563):

Does the center country of the International Monetary System enjoy an "exorbitant privilege" that significantly weakens its external constraint--as has been asserted in some European quarters? Using a newly-constructed dataset, we perform a detailed analysis of the historical evolution of U.S. external assets and liabilities at market value since 1952 We find strong evidence of a sizeable excess return of gross assets over gross liabilities. Interestingly, this excess return increased after the collapse of the Bretton Woods fixed exchange-rate system. It is mainly due to a "return discount": within each class of assets, the total return (yields and capital gains) that the U.S. has to pay to foreigners is smaller than the total return the U.S. gets on its foreign assets. We also find evidence of a "composition effect": the U.S. tends to borrow short and lend long. As financial globalization accelerated its pace, the U.S. transformed itself from a World Banker into a World Venture Capitalist, investing greater amounts in high-yield assets such as equity and FDI. We use these findings to cast some light on the sustainability of current global imbalances.

Aart Kraay and Jaume Ventura (2005), "The Dot-Com Bubble, the Bush Deficits, and the Current Account" (Cambridge: NBER working paper 11543).

Michael Dooley, David Folkerts-Landau, and Peter Garber (2005), "Savings Gluts and Interest Rates: The Missing Link to Europe" (Cambridge: NBER working paper 11520):

Data for world savings rates do not suggest that an aggregate glut of world savings has depressed U.S. and international interest rates in recent years. Unusual but offsetting changes in savings rates have been limited to three regions: sharp declines in the U.S. have been matched by sharp increases for developing Asia and the Middle East. The world saving rate has increased very little. There are two important features of this change in regional savings behavior. First, three-quarters of the increase in Asian and Middle Eastern savings has been placed in international reserves. Second, all these additional savings have been absorbed by the United States. Even if reserves are mostly placed initially in the U.S., we would not expect all the savings exported from these high savings regions to remain in the U.S. A collapse of expected profits outside the U.S. seems to us a compelling explanation for the U.S. current account and depressed international interest rates.

Jeremy Siegel (1998), "Valuing Growth Stocks: Revisiting the Nifty Fifty," American Association of Individual Investors (October):

The lofty levels reached by the Nifty Fifty in the early 1970s are often held up as an example of unwarranted speculation. But a glance in the rearview mirror indicates investors were right to predict that the growth of these firms would eventually justify their [high] prices.

J. Bradford DeLong and Andrei Shleifer (1991), "The Bubble of 1929: Evidence from Closed-End Funds," Journal of Economic History

We present evidence that a substantial component of the rise in stock prices up to and fall of stock prices away from September of 1929 was in fact excessive, and not based on rational revisions of warranted valuations. Our evidence is based on an analysis of the prices, discounts from net asset values, and new issue volumes of closed-end mutual funds during and after 1929. We estimate that at the peak the stock index was more than one-third above its fundamental value. Using a different souce of information--the interest rates charged on brokers’ loans--Rappoport and White (1990) have produced a similar estimate: they estimate, under the assumption that lenders were risk neutral, that at the market’s peak those banks making brokers’ loans thought the market overvalued by one-half.

Posted by DeLong at 01:13 PM | Comments (0) | TrackBack


Can anybody tell me why anybody ever thought that George W. Bush was qualified to be president?

Susie Madrak writes:

We’re On A Mission from God : Can’t make this s--- up:

President George W. Bush told Palestinian ministers that God had told him to invade Afghanistan and Iraq – and create a Palestinian State, a new BBC series reveals. In Elusive Peace: Israel and the Arabs, a major three-part series on BBC TWO (at 9.00pm on Monday 10, Monday 17 and Monday 24 October), Abu Mazen, Palestinian Prime Minister, and Nabil Shaath, his Foreign Minister, describe their first meeting with President Bush in June 2003.

Nabil Shaath says: “President Bush said to all of us: ‘I’m driven with a mission from God. God would tell me, “George, go and fight those terrorists in Afghanistan.” And I did, and then God would tell me, “George, go and end the tyranny in Iraq...” And I did. And now, again, I feel God’s words coming to me, “Go get the Palestinians their state and get the Israelis their security, and get peace in the Middle East.” And by God I’m gonna do it.’”

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack

Incentives for the Environment

John Quiggin notes that John Tierney advocates taxes on energy use. However, it somehow slips Tierney's mind to praise Al Gore, who was the driving force behind the Clinton administration's attempt to raise energy taxes back in 1993.

Funny, that.

Anyway, here's John Quiggin:

Hard Cash and Climate change Posted by John Quiggin: Tim Worstall gets us past that pesky NYT paywall to link approvingly to a John Tierney column arguing that the way to encourage energy conservation in the US is not to fiddle with standards but to raise prices. Broadly speaking I agree. At a minimum, getting prices right is a necessary condition for an adjustment to sustainable levels of energy use. Nevertheless, the rate of adjustment and the smoothness with which adjustment takes place can be greatly enhanced by the adoption of consistent pro-conservation policies, or retarded by the adoption of inconsistent and incoherent policies.

This is as good a time as any to restate the point that, given a gradual adjustment, very large reductions in energy use and CO2 emissions can be achieved at very modest cost. Rather than argue from welfare economics this time, I've looked at the kind of adjustments that would be needed to cut CO2 emissions from motor vehicle use (one of the least responsive) and argued that price increases would bring this about over time, without significant pain.... With the price of gasoline in the US passing $3/gallon and most of the remaining sceptics now conceding the reality of human-caused climate change, it seems like a good idea to re-examine some fundamental assumptions in the debate over climate change. Rather than focus on the short-run arguments about the Kyoto protocol, it seems more useful to focus on the question of whether anything can really be done to stop climate change.

A common estimate is that to stabilise the global climate, we would need to reduce emissions of carbon dioxide by 60 per cent, and proposals to achieve this by 2050 have been put forward. Assuming only a limited role for alternative energy sources, it seems reasonably to look at a 50 per cent reduction in primary energy use. It's a widely-held view that the kinds of changes required to stabilise the global climate must imply a fairly radical reduction in our material standard of living. This view is shared by radical environmentalists, who see such a reduction as a good thing, and by opponents of such changes most of whom, at least in developed countries are on the free-market right. The fact that radical environmentalists view the modern economy as critically dependent on unsustainable patterns of energy use is not surprising. On the other hand, supporters of the free-market generally praise the flexibility of dynamism. Currently, energy use accounts for about 6 per cent of GDP. The suggestion that reducing this proportion to, say, 3 per cent, is beyond our capacity seems to represent a very pessimistic view of our economic potential.

There's a standard economic technique for giving a rough estimate of the economic cost of such a shift. Begin with the assumption that in the long run, the demand for energy is sufficiently flexible that a 10 per cent increase in costs will eventually produce a 10 per cent reduction is usage, relative to the underlying trend. Although energy use responds slowly to price changes in the short run this is a fairly conservative estimate of price responsiveness over periods of a decade or more. Given this assumption, halving energy use would require a 100 per cent increase in prices.... A standard economic calculation suggests that the reduction in economic welfare associated with such a tax would be somewhere between 50 and 100 per cent of the revenue raised, or between 1.5 per cent and 3 per cent of GDP..... Remember that this estimate is not for the modest first steps required under Kyoto, but for a reduction in emissions on the scale required to stabilise climate.

Is such a broad-brush estimate reasonable? One way to check is to look in detail at the kinds of changes that would be needed to achieve such a reduction in the most sensitive single category of energy use, that of private motor vehicles.... [A] significant reduction could be achieved simply by improvements in the technical efficiency of fuel use. The motor vehicle industry, although technologically mature, still exhibits steady improvements in the efficiency of engines and other aspects of vehicle design. When fuel prices are low, much of the effort is allocated to improving performance. When fuel prices are high, and policy is oriented towards reducing energy use, innovations that improve fuel economy are favoured.... [T]he mix of vehicles in the fleet would change over time.... A small further saving, say 5 per cent, could be achieved through discretionary decisions on which vehicle to use for a given trip....

Now consider some changes in travel patterns... raising occupancy to 1.65 persons would reduce fuel use by 10 per cent for a given number of person-km travelled.... Adding all of these modest changes together would yield a reduction in fuel use of more than 50 per cent Some of these changes would be imperceptible, others would require marginal adjustments over a couple of decades. Taken all together, they would be barely noticeable relative to the changes in lifestyle that most people experience over such a period.

You might think that adding together a whole lot of small changes in the same direction is stacking the deck in some sense. But this is the way markets work. An increase in the effective cost of some commodity generates adjustments on many different margins, all in the direction of economising on that commodity. It is also the way coherent public policy works. If a goal of reducing energy use or CO2 emissions is properly embedded in public policy, it will be reflected in modest shifts in many different dimensions of policy, producing a significant aggregate impact...

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack


A valuable procrastination tool:

LibraryThing | Catalog your books online : Easy. Catalog your books online (example); no software required. Powerful. LibraryThing searches the Library of Congress and thirty other major libraries around the world. Enter 200 books for free; lifetime membership $10 (beta special). Tagged. LibraryThing allows blog/Flickr-style tagging (example). Shared. Show everyone your library, or keep your library private. You can even put a widget on your blog to show people what you're reading. Safe. LibraryThing's not going away, but you can export your data.

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack

What Do the Bushies Want in a Fed Chair?

The New York Times editorial board finally starts to get how bad a thing it is that George W. Bush is president:

The Next Alan Greenspan - New York Times : The job of chairman of the Federal Reserve Board is one of the biggest and most important in Washington, and given President Bush's record of appointing his pals to fill every position from Supreme Court justice to director of the Federal Emergency Management Agency, it's small wonder there is a lot of fretting about who will be tapped to succeed Alan Greenspan.... [T]his is... the same man who... believes that Harriet Miers, his onetime personal lawyer and present White House counsel, who has never been a judge, is the most qualified of all the people in the United States to be a Supreme Court justice. The president's aides have made it clear that he wants someone at the Fed with whom he can have a rapport. That should be the last thing on the president's mind for this job, but we know from bitter experience that Mr. Bush often places feeling comfortable with an appointee above actual competence. It's just that kind of thinking that landed America with Michael Brown at FEMA and John Snow at the Treasury Department.

Mr. Snow's lackluster tenure at the Treasury, in particular, says a lot about Mr. Bush's detachment from economic policy. The hapless Mr. Snow, who thankfully is on no one's list for Fed chairman, remains completely removed from any real policy making within the administration. His biggest role at the Treasury has been as cheerleader for Mr. Bush's tax cuts and salesman for his misbegotten plan to privatize Social Security.

The four names circulating around Washington are Martin Feldstein, a Bush adviser on Social Security and an economics professor at Harvard; Glenn Hubbard, Mr. Bush's former chairman of the Council of Economic Advisers and now dean of Columbia University Business School; Lawrence Lindsey, the former director of the White House National Economic Council; and Ben Bernanke, chairman of the Council of Economic Advisers.

Two of them - Mr. Bernanke and Mr. Feldstein - come with some independent credentials. Mr. Bernanke is deeply conservative, economists say, but respected for independent thinking and not inclined to wear that conservatism on his sleeve. Mr. Feldstein has pushed for Social Security privatization, but in the past criticized deficits run up by Ronald Reagan, for whom he was working at the time, to the everlasting ire of many Republicans. That hardly makes him a shoo-in for the job, but those are exactly the independent traits that Mr. Bush should be looking for if he is indeed serious about appointing a Fed chairman who isn't politically beholden to the White House....

But there are strange whispers coming out of the White House: that the White House wants a Fed Chair who not only has a "rapport" with Bush but also is a non-academic who "knows the markets"--like, they say, Greenspan does.

I have a bad feeling about this. Experience teaches that the Bush administration is worse than we imagine--even after taking account of the fact that the Bush adminisntration is worse than we imagine.

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack

Why Oh Why Can't We Have Better Think Tanks? (Council on Foreign Relations Edition)

Mark Schmitt observes the Council on Foreign Relations flaking out:

TPMCafe || The Council on Foreign Relations Doesn't Get It : A press release has arrived from the Council on Foreign Relations: A new Council report shows that "the current climate of partisan politics is weakening American leadership." Seems about right to me. We've seen America's role in the world weakened by a war of choice supported by deception, we've had our fiscal position eroded by massive tax cuts for the wealthy that leave us at the mercy of our Asian creditors, we've sent John Bolton to represent us in the United Nations, etc. The report calls for "bipartisan foreign policy" and says "the United States should work with all--not half--of its collective foreign policy brain and talent if it is to maintain primacy in today's globalized world." Right on. I open the links in the e-mail eagerly. The Council on Foreign Relations has a lot of smart people, and they've probably got something useful to say about why this happened.

Indeed. The very first culprit identified in the rise of one-party foreign policy and the weakening of America is (drum roll, please):

The congressional schedule! Yes, that's it: "The jam-packed Tuesday-through-Thursday schedule for members of Congress".... The schedule isn't the only factor in the "complex variety of social, cultural, and technological changes" at work. Partisan redistricting... the incumbent advantage in campaign finance... blogs: "It has become part of the game to have a proffered policy and its sponsor trashed in the media and disparaged in the blogs before it receives any traction."

And here's one you probably didn't think of: Democrats... the narrowness of Republican control of the House... causes one-party rule, because "the tighter margin of control has given Democrats a reason to hope that they might win back majority status every two years."... "On the flipside, this narrow control also makes it imperative for the majority party, now the Republicans, to demand party loyality."... [T]he report is alleging that Republican leaders have no choice but to twist arms and break kneecaps as they did on CAFTA and Medicare -- because, after all, they are entitled to enact "the most controversial parts of their agenda" -- whereas Democrats have made a choice....

This is offensive stuff, and the empirical assumptions are all wrong.... Republicans did not cooperate in Democratic policy before 1994.... Tip O'Neill most certainly could not "afford" to allow dissent among Democrats. Democratic defections gave Reagan a working majority in Congress on the 1981 budget and tax bills and at many other points. O'Neill would have vastly preferred to lead a more disciplined opposition to Reagan....

This 47-page report on one-party rule in Congress somehow completely fails to mention:

  1. The abuse of conference committees to drive through legislation written by a small group controlled by one party.
  2. The use of closed rules in the House to prevent amendments.
  3. The explicit "majority of a majority" rule under which the Speaker of the House refuses to move legislation that has bipartisan majority support unless it has support of a majority of Republicans alone.
  4. The abuse of the budget reconciliation process to drive through policies that lack bipartisan support and cannot be amended.
  5. Tom DeLay, Dennis Hastert, Bill Frist, Roy Blunt, the K Street Project, the Medicare bill, lobbyists writing legislation, the role of the Iraq invasion in eroding U.S. influence in the world, John Bolton, CAFTA, the list goes on...

It's tempting to ascribe bad faith to the main author of the CFR report, who is identified as a former Washington Times reporter and House staffer. But the project had a bipartisan advisory council, and I choose to see it as another example of just not getting it.... As Jacob Hacker and Paul Pierson write in their fabulous new book, Off-Center: The Republican Revolution & The Erosion of American Democracy, "the problem is not just polarization. It is unequal polarization -- unequal between Democrats and Republicans, unequal in its effects on the governing aims of liberals and conservatives, and unequal in in its effects on American society."

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack

The Pro-Torture Senators

Nine senators who do not belong in the legislature of a free country:

moquol - Journal - Hardened dead-enders still loyal to the regime : The following nine Republican Senators voted yesterday in favor of torture, indefinite detention, and disappearing:

Wayne Allard, Colorado
Kit Bond, Missouri
Tom Coburn, Oklahoma
Thad Cochran, Mississippi
John Cornyn, Texas
James Inhofe, Oklahoma
Pat Roberts, Kansas
Jeff Sessions, Alabama
Ted Stevens, Alaska

And, of course, George W. Bush has threatened to veto the Defense appropriations bill because it restricts his ability to order American soldiers to torture people.

Impeach George W. Bush. Impeach him now.

Posted by DeLong at 01:11 PM | Comments (0) | TrackBack

The National Debt

From Calculated Risk:

Calculated Risk: Fiscal 2005: National Debt Increases $553.7 Billion : The US Treasury Department reports that the US National Debt [including debt held by the Social Security Trust Fund and by other government agencies] increased $553.7 Billion in fiscal 200.... The total National Debt is now $7,932,709,661,723.50.... The initial estimates for fiscal 2006 are for a new record of approximately $650 Billion in new debt....

Posted by DeLong at 01:10 PM | Comments (0) | TrackBack

October 05, 2005

The Federal Reserve and the Stock Market: A View from 2000

An article that Jake Schlesinger of the Wall Street Journal wrote back in 2000:

Alan's stock answers: Wall Street Journal - May 8, 2000. How Alan Greenspan Finally Came to Terms with the Market. By JACOB M. SCHLESINGER Staff Reporter of THE WALL STREET JOURNAL: WASHINGTON -- On the morning of Dec. 3, 1996, having watched the Dow surge a dizzying 27% that year, Federal Reserve Board Chairman Alan Greenspan hosted a private meeting that became his own genteel version of the debate show "Crossfire." On one side was Abby Joseph Cohen, the belle of the bull market, who came from her post at Goldman, Sachs & Co. to defend investor sanity. She methodically gave Fed governors a list of reasons why underlying economic changes justified such lofty prices in the market.

On the other side were two Ivy League economists, Yale's Robert Shiller and Harvard's John Campbell, who painted a much gloomier picture, though they didn't address Ms. Cohen's comments directly. They illustrated their message of portent in 10 pages of handouts showing trends going back to 1872. The markets were destined, at best, to tread water, and possibly to crash, they warned.

As unusual as that meeting was, it didn't compare to what would follow two days later. At a black-tie banquet at the Washington Hilton, Mr. Greenspan delivered a speech that would contain the most memorable utterances of his career: "How do we know when irrational exuberance has unduly escalated asset values? ... And how do we factor that assessment into monetary policy?"

Minutes after he spoke, stocks began tumbling in Tokyo, where the markets were open. That was followed by more carnage in Europe, then the U.S. Over the next few weeks, the Dow Jones Industrial Average slipped 4% from its then-record of 6400. Back at Yale, Prof. Shiller's wife penned a Christmas letter to friends: "Recently, Bob has been troubled by the thought that he may have caused a worldwide stock market slide."

But Mr. Greenspan hadn't picked sides. He had deliberately posed his thoughts as questions, not statements. And in subsequent years, America's most influential economist continued to agonize over the causes and consequences of the unprecedented surge in stocks.

Mr. Greenspan's conclusions are evident in his recent words and actions. He has backed away from suggesting the market is overvalued, yet feels that monetary policy should reflect the market's impact on the economy. The bull market's surprising endurance has driven the Fed into its first sustained drive to raise interest rates in six years. Friday's report that unemployment fell to a 30-year low of 3.9% means that campaign will continue, as the Fed is expected to raise rates again -- possibly by half a point -- at its May 16 meeting.

Mr. Greenspan's current strategy provides only a glimpse of his journey. It has been, as described in interviews with current and former Fed officials, an enlightening and humbling odyssey during which he has changed his opinions 180 degrees on some key issues...

Mr. Greenspan didn't undertake the quest lightly. Both he and his institution have a deep-seated belief in the logic of free markets and in the Fed's ability, given enough effort, to divine it. He spent hours at his cluttered desk poring over reams of memos and dog-eared statistical tomes, the overflow spilling onto chairs and an oval table near his fireplace. All the while, he monitored market movements on two computer terminals and a television tuned to CNBC. And with each thousand-point rise in the Dow mangling the old models, the Fed staff kept building new ones.

The very fact of Mr. Greenspan's stock-market focus has been controversial. For three decades, Fed chairmen considered the topic taboo. They worried about spooking investors and saw stock prices as largely outside their concern.

Many of those who make their living in the stock market felt much the same way. "Why don't you guys shut the f--- up?" one investor told an official of the Federal Reserve Bank of New York at a recent social event. A businessman suggested to another Fed official that Congress require Mr. Greenspan to hold a broad-based stock portfolio so he would personally feel investors' pain. (To avoid conflicts of interest, Mr. Greenspan's wealth is invested largely in short-term Treasury bills.)

Some legislators also think the Fed should just stay out of the way. One day last month, as the Nasdaq was melting down, Kentucky Republican Jim Bunning sternly confronted Mr. Greenspan in a Senate hearing room. "The role of the Federal Reserve is to set monetary policy," he said. "I didn't know it was to jawbone ... the securities markets."

Even some of Mr. Greenspan's Fed colleagues grit their teeth when they hear the chairman is at it again. In recent weeks, a few have suggested to his aides that he tone down his remarks. When pressed by a group of financial analysts earlier this spring, Philadelphia Fed President Edward Boehne said, "Any time central bankers get involved in the stock market, the potential for confusion is great."

Mr. Greenspan's focus on the stock market began long before he became a central banker. As a New York-based business consultant, he advised investment banks and brokerage firms on how economic conditions would affect the market, and vice versa. He worked extensively for clients trying to dissect the Japanese market's run-up in the early to mid-1980s, attempting to find -- in vain -- some justification.

He became Fed chairman two months before the 1987 crash, and his first major task was to pick up the pieces. He sought a way to predict at the beginning of each day how U.S. stocks would open, a precursor to the futures markets that have since evolved to perform that task. During volatile periods in the late 1980s, a Fed staffer would arrive at the office at 5 a.m., call Europe to find out trading activity and have that day's forecast on the chairman's desk by 7:30.

Mr. Greenspan's fascination with stocks was revived at the birth of the most recent bull market, when stocks began to seem impervious to traditional yardsticks such as growth, profits or dividends. In 1991, when the Dow was hovering around 3000, the Fed chairman directed one researcher to delve into a popular theory that investors' expectations of declining inflation could explain rising stock prices. The ultimate report was dubious.

By 1994, with the Dow nearing 4000, he asked researchers to dissect the popular explanations, such as the effect of globalization on profits, being floated on Wall Street. His staff was skeptical. "Bad science," and "Abby Joseph Cohen stories," the Fed staff called Wall Street's theories.

Throughout the mid-1990s, the staff prepared forecasts suggesting that the market would likely stop rising or suffer a 20% correction. Some of the economists told colleagues that they had personally gotten out of the market, and advised others to follow them into bonds.

Mr. Greenspan privately shared many of these doubts. When the Fed started raising interest rates at the beginning of 1994, the official explanation was that early signs of inflation were building. But behind the Fed's closed doors, Mr. Greenspan made clear that he was motivated by the stock market as well.

In February 1994, for instance, after the Fed made its first move to raise rates, the Dow dropped nearly 5% to about 3800. "We partially broke the back of an emerging speculation in equities," Mr. Greenspan contentedly told his colleagues in a conference call the afternoon of Feb. 28, according to transcripts. "We had a desirable effect."

Due in part to rising interest rates, Wall Street had a mediocre year in 1994. On Nov. 15, the Dow still was trading at about 3800. But Mr. Greenspan wasn't satisfied. At that day's meeting, the Fed chairman fretted that "the stock market, in my judgment, is still a little rich."

Then, stocks took off again. In 1995, the Dow soared by 33%; in 1996, 24%.

Mr. Greenspan kept asking questions. On Oct. 31, 1996, with the Dow at 6029, Fed researchers briefed him and some other board members on stock valuations. One aide explained that investors had been buying evermore expensive stocks, seeing double-digit returns, but that their purchases would make sense by historical standards only if they were willing to accept 2% returns in the future. Implicit in those remarks: Investors were nuts.

By late November, Mr. Greenspan decided to take his worries public. He was slated to receive an "eminent thinkers" award from the American Enterprise Institute, a conservative think tank, and chose that speech to launch his "irrational exuberance" project. The speech had already been written when the Wall Street vs. Ivory Tower debate was staged. Nothing said at that briefing persuaded the Fed chairman to retreat.

Nor did the red flags raised by colleagues who saw an advance draft of the text. One governor, Susan Phillips, an Iowan, says she wrote a note suggesting he make the point more subtle by citing an example of sharp price swings in corn prices rather than stock prices. Alice Rivlin, then the Fed's vice chairman, says she "went in to see the chairman and said, 'Do you really want to say that?' He said, 'I think I do.' "

Even after the "irrational exuberance" speech, Mr. Greenspan was mindful how risky, and difficult, it is for a central bank to pop a bubble. The two most determined efforts, by the Fed in 1929 and the Bank of Japan in 1989, succeeded only by destroying the rest of the economy.

So he put the burden of proof on the skeptics, not on the markets. It wasn't enough to say that he couldn't explain the Dow. He wanted to be able to prove that a sharp market drop was imminent. He had staffers repeatedly construct computer models of prior crashes, plugging in ever-changing variables: Returns on stocks vs. bonds. Public vs. private bonds. Short-term vs. long-term bonds.

No pattern emerged. The models, Mr. Greenspan has joked, predicted eight of the last three market plunges.

After 2 1/2 futile years, Mr. Greenspan dropped the project. To his 1996 question, "how do we know when irrational exuberance has unduly escalated asset values?" he finally gave this answer in 1999: It's impossible to know, except in hindsight.

Along the way, Mr. Greenspan came to another realization: The markets had been far more rational than he and his staff had suspected. The Fed's skepticism had rested in part on assumptions that the long-term potential for economic growth -- and thus corporate profits and stock prices -- was the same mediocre rate that had been in place since the early 1970s. Furthermore, the experts were convinced that a recession had to be imminent, simply because it had been so long since the last one.

Those assumptions turned out to be wrong, and Mr. Greenspan was among the first economists to see that. For years, he had suspected that productivity was rising, based on little-noticed trends like surging corporate investment in capital equipment and rising profit margins in spite of limited price increases. He tested his theories in his travels, asking executives what was happening in their companies. Convinced of the productivity trend even before the official data proved it, Mr. Greenspan began to argue that the acceleration in earnings growth justified a rise in price-earnings ratios.

He became more open, too, to notions that markets were working differently. In June 1998, the Fed again invited some outside experts to discuss the market. This time, Jeremy Siegel, a prominent bull and a professor at the Wharton School of the University of Pennsylvania, came to discuss the arguments in his influential book, "Stocks For the Long Run." The book asserted that investors understood the long-term stability of stocks, and that could explain higher values. Yes, he said, the market was "30% overvalued" by the old rules. But, he said in handouts, sometimes "historical yardsticks for valuation have been rendered useless in the past." Given that, market prices at the time "were not out of line."

Even when stocks soared beyond what could be explained by rising productivity, Mr. Greenspan became more willing to give investors the benefit of the doubt. The New Economy had ushered in tremendous ferment. Investors were gambling on the dot-coms, but that wasn't necessarily crazy. Disputing the assertion that the soaring Nasdaq was a bubble, he told a senator one day that stocks were driven largely by "very intelligent investors." He added, "That's not the same as saying that they're going to be right. But they are rational, informed judgments."

In August 1999, Mr. Greenspan formally announced his abandonment of "irrational exuberance" at the Fed's annual retreat in Jackson Hole, Wyo. He said the market reflected the "judgments of millions of investors, many of whom are highly knowledgeable about the prospects for the specific companies that make up our broad stock price indexes." The Fed had no business contradicting those investors, he concluded.

That didn't mean, however, that his concern with the market had gone away. He remained as preoccupied as ever, especially when the Nasdaq soared nearly 50% in the three months after Jackson Hole. But his line of his inquiry shifted from trying to understand why stocks were rising to the impact of rising stocks on the economy at large.

The buzzword inside the Fed became the "wealth effect" -- how riches generated by stocks and real estate were changing the psychology of consumers, leading them to spend more of their wages and salaries and putting a smaller portion into savings. In a presentation for the Fed chairman, forecaster Joel Prakken flashed a picture from his local paper, the St. Louis Post-Dispatch, with a dog in a spacious room under the headline, "Luxury boarding kennels are only one indication that people ... are spending more freely." Mr. Prakken inserted a caption that had the dog proclaim, "I sure enjoy consuming master's recent stock-market gains!"

Mr. Greenspan mixed and matched statistics to discern wealth effect patterns. His research indicated to him that, even if it were wholly rational, the bull market was hauling the U.S. economy into warp speed by generating greater spending.

Indeed, the more he and his colleagues believed that the New Economy and the stock market made sense, the more they worried that the economy was veering out of control. At policymaking sessions through late 1999 and early 2000, intense debates broke out as officials grappled with the ways that changing productivity affects the economy. It was a question the central bank hadn't confronted for four decades. Fed Vice Chairman Roger Ferguson literally dusted off his old macroeconomics textbook from college.

Fed officials were concluding that, contrary to popular belief, soaring productivity did not necessarily mean the central bank could afford to keep interest rates low. In debates, the more aggressive anti-inflation hawks, Fed governor Laurence Meyer and Richmond Fed President Alfred Broaddus in particular, argued that higher productivity could actually require higher rates. That's because the supply created by accelerating productivity takes time to build, but a stock market soaring in anticipation of that higher growth creates instant demand.

Mr. Greenspan found the case compelling and supported raising interest rates 1 1/4 percentage points over 10 months. "How the current wealth effect is finally contained will determine whether the extraordinary expansion ... can slow to a sustainable pace, without destabilizing the economy," he told Congress this past February.

Mr. Greenspan was comfortable with his new thinking, but he needed to sell it to the public. It was a difficult task. His evolution -- from contemplating targeting stock prices to countering the economic impact of stocks -- was subtle. And it was being used to justify an unpopular campaign of raising interest rates, a drive that made little sense by conventional logic since inflation, the Fed's main worry, remained low.

For all the effort that he put into pondering those questions raised in December 1996, he bungled the public-relations job.

The explanation put forth in his semiannual economic report to Congress in February was given in his trademark indirect jargon. In one sentence, he spelled out the likely consequence for bringing the economy back into balance: "This does not necessarily imply a decline in asset values -- although that can happen at any time for any number of reasons -- but that these values will increase no faster than household income," or roughly 6% per year.

Mr. Greenspan had hoped the passage would reassure investors that he wasn't contemplating driving down stock prices. He has told colleagues he was trying to send a signal that he was comfortable with a moderate rise in the market. But it became misinterpreted as an attempt to set a numerical "speed limit" for stocks, and a preference for stocks to go down.

To many observers, this was "irrational exuberance" all over again. House Banking Committee Chair Jim Leach followed up with a set of written questions, including, "Does the Fed have a proper role ... in 'jawboning' the market?" Cartoonists had a field day. One drew a bull labeled "Wall Street" standing on a window ledge while an impatient Mr. Greenspan asks: "Well, what are you waiting for?" The New Yorker showed him sitting impassively, Gandhi-like, surrounded by dancing nude women waving banners from dot-coms. The caption: "The temptation of Alan Greenspan."

That was the opposite of what the Fed chairman had intended to convey, and he became increasingly frustrated. He turned testy as normally deferential legislators tore into him during hearings. "Senator, I continue to deny and insist upon continuing to deny that our goal is to jawbone the stock market. It is not," he told one.

He scrambled to clarify his argument. Appearing at an early April White House seminar on the New Economy, he assured the audience that he believed "monetary policy should focus on the broader economy ... not asset prices."

To some in the Fed, Mr. Greenspan still doesn't get the point. The real lesson of the past three years, they believe, is that Fed officials shouldn't talk so openly about the market.

But Mr. Greenspan has remained unswerving in his basic belief, that one of the fundamental changes affecting the U.S. economy at the turn of the century is the impact of the market. "I could very readily stop talking about the stock market," he told a Fed staffer. "But if I do, I will not be explaining how the process is working... . There is no way to understand what is going on in this economy without reference to asset values."

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What Do Homeowners Expect

Barry Ritholtz says that homeowners don't have a clue:

The Big Picture: Polling Homeowners (they do not have a clue): Jonathan Miller's blog Matrix ("Interpreting the Real Estate Economy") has an interesting post (Consumer Reality Distortion, Or Is It?) outlining a recent WSJ poll on US Homeowners' perspectives and attitudes. In particular, Miller noted that:

Only 10% of homeowners polled said they believe that rising real-estate values had affected their spending.
85% of homeowners surveyed said they had experienced real-estate gains in the past three years.
70% saw gains of more than 10% in the past three years.
50% had extracted funds through home equity loans.
60% expect home values to rise at least 5% annualy for the next 3 years.
3% expect home values to fall over the next 3 years.
60% said rising energy costs were causing them to reign in spending.

Its fair to observe (as a commentor did at Matrix) that "only 10% said their spending had increased with the value of real estate, yet 50% had taken out loans against their equity. Is there a contradiction here?"

That's more than a contradiction; Its the entire underlying premise for why I believe a) Real Estate has been the key driver to the US economy; and 2) why so many people -- professionals included -- do not have a firm grasp on the underlying economy.

Any subsequent "retracement" will simply catch a majority quite unaware.

Its is all too true: Most people know not their own minds, including their biases and beliefs, their predelictions and prejudices . . .

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From National Review's Archives

Let's help National Review plumb its own archives!

National Review on J. R. R. Tolkien on National Review Online : EDITOR'S NOTE: National Review is celebrating its 50th anniversary this week. Throughout the week, NRO will run some pieces from the archives to help take a trip down memory lane. This piece appeared in the September 28, 1973, issue of National Review.

John Ronald Reuel Tolkien, who died a fortnight ago in his 81st year...

Here's a rather different piece!

National Review editorial, 8/24/1957, 4:7, pp. 148-9: The most important event of the past three weeks was the remarkable and unexpected vote by the Senate to guarantee to defendants in a criminal contempt action the privilege of a jury trial. That vote does not necessarily affirm a citizen's intrinsic rights: trial by jury in contempt actions, civil or criminal, is not an American birthright, and it cannot, therefore, be maintained that the Senate's vote upheld, pure and simple, the Common Law.

What the Senate did was to leave undisturbed the mechanism that spans the abstractions by which a society is guided and the actual, sublunary requirements of the individual community. In that sense, the vote was a conservative victory. For the effect of it is--and let us speak about it bluntly--to permit a jury to modify or waive the law in such circumstances as, in the judgment of the jury, require so grave an interposition between the law and its violator.

What kind of circumstances do we speak about? Again, let us speak frankly. The South does not want to deprive the Negro of a vote for the sake of depriving him of the vote. Political scientists assert that minorities do not vote as a unit. Women do not vote as a bloc, they contend; nor do Jews, or Catholics, or laborers, or nudists--nor do Negroes; nor will the enfranchised Negroes of the South.

If that is true, the South will not hinder the Negro from voting--why should it, if the Negro vote, like the women's, merely swells the volume, but does not affect the ratio, of the vote? In some parts of the South, the White community merely intends to prevail on any issue on which there is corporate disagreement between Negro and White. The White community will take whatever measures are necessary to make certain that it has its way.

What are the issues? Is school integration one? The NAACP and others insist that the Negroes as a unit want integrated schools. Others disagree, contending that most Negroes approve the social sepaation of the races. What if the NAACP is correct, and the matter comes to a vote in a community in which Negroes predominate? The Negroes would, according to democratic processes, win the election; but that is the kind of situation the White community will not permit. The White community will not count the marginal Negro vote. The man who didn't count it will be hauled up before a jury, he will plead not guilty, and the jury, upon deliberation, will find him not guilty. A federal judge, in a similar situation, might find the defendant guilty, a judgment which would affirm the law and conform with the relevant political abstractions, but whose consequences might be violent and anarchistic.

The central question that emerges--and it is not a parliamentary question or a question that is answered by meerely consulting a catalog of the rights of American citizens, born Equal--is whether the White community in the South is entitled to take such measures as are necessary to prevail, politically and culturally, in areas in which it does not predominate numerically? The sobering answer is Yes--the White community is so entitled because, for the time being, it is the advanced ace. It is not easy, and it is unpleasant, to adduce statistics evidencing the median cultural superiority of White over Negro: but it is fact that obtrudes, one that cannot be hidden by ever-so-busy egalitarians and anthropologists. The question, as far as the White community is concerned, is whether the claims of civilization supersede those of universal suffrage. The British believe they do, and acted accordingly, in Kenya, where the choice was dramatically one between civilization and barbarism, and elsewhere; the South, where the conflict is byno means dramatic, as in Kenya, nevertheless perceives important qualitative differences between its culture and the Negroes', and intends to assert its own.

National Review believes that the South's premises are correct. If the majority wills what is socially atavistic, then to thwart the majority may be, though undemocratic, enlightened. It is more important for any community, anywhere in the world, to affirm and live by civilized standards, than to bow to the demands of the numerical majority. Sometimes it becomes impossible to assert the will of a minority, in which case it must give way, and the society will regress; sometimes the numberical minority cannot prevail except by violence: then it must determine whether the prevalence of its will is worth the terrible price of violence.

The axiom on which many of the arguments supporting the original version of the Civil Rights bill were based was Universal Suffrage. Everyone in America is entitled to the vote, period. No right is prior to that, no obligation subordinate to it; from this premise all else proceeds.

That, of course, is demagogy. Twenty-year-olds do not generally have the vote, and it is not seriously argued that the difference between 20 and 21-year-olds is the difference between slavery and freedom. The residents of the District of Columbia do not vote: and the population of D.C. increases by geometric proportion. Millions who have the vote do not care to exercise it; millions who have it do not know how to exercise it and do not care to learn. The great majorit of the Negroes of the South who do not vote do not care to vote, and would not know for what to vote if they could. Overwhelming numbers of White people in the South do not vote. Universal suffrage is not the beginning of wisdom or the beginning of freedom. Reasonable limitations upon the vote are not exclusively the recommendations of tyrants or oligarchists (was Jefferson either?). The problem in the South is not how to get the vote for the Negro, but how to equip the Negro--and a great many Whites--to cast an enlightened and responsible vote.

The South confronts one grave moral challenge. It must not exploit the fact of Negro backwardness to preserve teh Negro as a servile class. It is tempting and convenient to block the progress of a minority whose services, as menials, are economically useful. Let the South never permit itself to do this. So long as it is merely asserting the right to impose superior mores for whatever period it takes to effect a genuine cultural equality between the races, and so long as it does so by humane and charitable means, the South is in step with civilization, as is the Congress that permits it to function.

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Grading the Greenspan Fed

For Nightly Business Report, October 3, 2005:

Let me join in the crowds praising the monetary stewardship of the Greenspan Fed. The Greenspan Fed has done a superb job at monetary policy. It has kept inflation low and stable, and it has played a big role in keeping recessions small. It is true that circumstances were very favorable when the Greenspan Fed took over: the Volcker Fed had loaded the bases--created the preconditions. But the Greenspan Fed then hit the grand slam. On monetary policy, the Greenspan Fed deserves the highest grade: an A-plus.

But on other dimensions of policy--things that have traditionally been secondary concerns of the Fed--the Greenspan Fed has not done as well.

It is a fact that inflation can be kept low over the long term only if the government deficit remains small. Too-big deficits for too long have always produced rapid inflation in the past. They will always produce rapid inflation in the future. If the executive and the legislature won't raise the taxes to pay for government spending and keep the budget in rough balance, the market will take over and balance the budget--by levying the inflation tax.

If the Fed is going to do its job as long-term guarantor of price stability, it needs to be assisted by an executive and a legislature who understand the importance of rough budget balance. The Fed has to teach them: it has to be an advocate within the government for balanced budgets. Here, since 2000, the Greenspan Fed has fallen down.

What the Greenspan Fed has done on monetary policy deserves high praise. What it has not done on fiscal policy will make the job of its successors much more difficult.

Posted by DeLong at 02:26 PM | Comments (0) | TrackBack

October 04, 2005

Columns for Project Syndicate

I have now written some forty columns for Roman Frydman, Kenneth Murphy, Andrzej Rapaczynski, and Jonathan Stein's Project Syndicate. Here they are:

America's Opposing Futures: http://www.project-syndicate.org/commentary/delong40 (Will the forthcoming decline in the dollar be benign or destructive?) 200509

Houses in the Air: http://www.project-syndicate.org/commentary/delong39 (Sources of America's housing boom.) 200508

Inviting the Avoidable: http://www.project-syndicate.org/commentary/delong38 (The fecklessness of American politicians on the budget outlook.) 200507

Europe's Neoliberal Challenge: http://www.project-syndicate.org/commentary/delong37 (How long, politically, can Europe sustain its relatively high rates of unemployment?) 200506

Economists' New World Order: http://www.project-syndicate.org/commentary/delong36 (The most interesting questions economists face are beyond the reach of the Marshallian toolkit.) 200505

America's Interest Rate Puzzle: http://www.project-syndicate.org/commentary/delong35 (Why are America's long-term interest rates so low?) 200504

In Search of Global Demand: http://www.project-syndicate.org/commentary/delong34 (How can the world economy rebalance if America is the only consistent source of world demand?) 200503

Fiscal Follies in America and Beyond: http://www.project-syndicate.org/commentary/delong33 (America's many fiscal problems) 200502

Bush's Crash Test Economics: http://www.project-syndicate.org/commentary/delong32 (America's Social Security problems rank low in the list of issues that need to be confronted.) 200501

America's Coming Social Democracy?: http://www.project-syndicate.org/commentary/delong31 (Rising inequality in America will provoke either a shift to Social Democracy or a new ideology to justify its economic order.) 200412

Taming Voodoo Economics: http://www.project-syndicate.org/commentary/delong30 (The low quality of economic debate in the presidential election season.) 200411

Can High Oil Prices Be Good?: http://www.project-syndicate.org/commentary/delong29 (The importance of conservation--and high prices to provide incentives for conservation.) 200410

Doomsday for the Dollar?: http://www.project-syndicate.org/commentary/delong28 (The U.S. current account deficit.) 200409

The End of Want?: http://www.project-syndicate.org/commentary/delong27 (What will the world of 2050 look like?) 200408

Welcome to the Era of Incompetence: http://www.project-syndicate.org/commentary/delong26 (Will future real interest rates be high or low?) 200407

The European Economic Model Lives: http://www.project-syndicate.org/commentary/delong25 (America has gained less ground relative to Europe in social welfare over the past decade than I had thought.) 200406

The Great Illusion: http://www.project-syndicate.org/commentary/delong24 (Modern war is a negative-sum game.) 200405

The Coming Age of Interest: http://www.project-syndicate.org/commentary/delong23 (At some point, interest rates will rise as central bankers begin to fear inflation.) 200404

America's Schizophrenic Economy: http://www.project-syndicate.org/commentary/delong22 (The divergence between output and employment in America.) 200403

Protectionism Rides Again: http://www.project-syndicate.org/commentary/delong21 (America starts to swing back toward protectionism.) 200402

The Richest Get Richer: http://www.project-syndicate.org/commentary/delong20 (The strange inward direction of international capital flows.) 200401

The American Mirror: http://www.project-syndicate.org/commentary/delong19 (America wastes its opportunity to experience continued economic boom.) 200312

Man's Fate/Man's Hope: http://www.project-syndicate.org/commentary/delong18 (The next two generations are a period of extraordinary opportunity.) 200311

Robert Rubin Revisited: <http://www.project-syndicate.org/commentary/delong17 (Why was Clinton-era economic policy so sensible?) 200310

Bush's Pseudo-Conservative Revolution: http://www.project-syndicate.org/commentary/delong16 (International relations is a positive-sum game.) 200309

The Weak Dollar's Impossible Strength: http://www.project-syndicate.org/commentary/delong15 (Yes, the dollar will decline in value--someday. Things that are unsustainable eventually stop.) 200308

The Fragile Roots of Productivity Growth: http://www.project-syndicate.org/commentary/delong14 (Why can't Europe nurture the kind of productivity growth acceleration that the U.S. has seen over the past decade?) 200307

Herbert Hoover and the Stability Pact: http://www.project-syndicate.org/commentary/delong13 (Europe's growth-and-stability pact is macroeconomically harmful.) 200306

The New New Thing in Economics: http://www.project-syndicate.org/commentary/delong12 (It is frightening how little progress we make in macroeconomic management.) 200305

The Roots of Islamic Backwardness: http://www.project-syndicate.org/commentary/delong11 (Take education to be the key link.) 200304

Is the U.S. Economy Still in Recession?: http://www.project-syndicate.org/commentary/delong10 (The odd divergence between output and employment in the American economy.) 200303

The Final Defeat of Thomas Malthus?: http://www.project-syndicate.org/commentary/delong9 (The population explosion is almost over.) 200302

Lula in the Shadow of Chavez: http://www.project-syndicate.org/commentary/delong8 (Trying to get Brazil onto the right track.) 200301

Atlas Slumps: http://www.project-syndicate.org/commentary/delong7 (The U.S. needs to start growing rapidly to avoid a serious global recession.) 200212

The Ghosts of Economics Past: http://www.project-syndicate.org/commentary/delong6 (Economic policymakers juggle sets of possible disasters, and each new theoretical consensus exposes new--or old--vulnerabilities.) 200211

America's Second Gilded Age: http://www.project-syndicate.org/commentary/delong5 (The unbelievable rise in U.S. income inequality.) 200210

Neoliberalism's Argentine Failure: http://www.project-syndicate.org/commentary/delong4 (Argentina implemented 80% of the neoliberal wish list in the 1990s. But that wasn't a large enough proportion to save it from disaster.) 200209

The New German Problem: http://www.project-syndicate.org/commentary/delong3 (High unemployment in Germany: is it a ticking sociological time bomb?) 200208

A Double-Dip Recession for the U.S.?: http://www.project-syndicate.org/commentary/delong2 (Signs of weak aggregate demand.) 200207

Down and Out in the United States: http://www.project-syndicate.org/commentary/delong1 (The American model has very real weak spots and failures.) 200206

Posted by DeLong at 06:51 PM | Comments (0) | TrackBack

Grading the Greenspan Fed

For Nightly Business Report, October 3, 2005:

Let me join in the crowds praising the monetary stewardship of the Greenspan Fed. The Greenspan Fed has done a superb job at monetary policy. It has kept inflation low and stable, and it has played a big role in keeping recessions small. It is true that circumstances were very favorable when the Greenspan Fed took over: the Volcker Fed had loaded the bases--created the preconditions. But the Greenspan Fed then hit the grand slam. On monetary policy, the Greenspan Fed deserves the highest grade: an A-plus.

But on other dimensions of policy--things that have traditionally been secondary concerns of the Fed--the Greenspan Fed has not done as well.

It is a fact that inflation can be kept low over the long term only if the government deficit remains small. Too-big deficits for too long have always produced rapid inflation in the past. They will always produce rapid inflation in the future. If the executive and the legislature won't raise the taxes to pay for government spending and keep the budget in rough balance, the market will take over and balance the budget--by levying the inflation tax.

If the Fed is going to do its job as long-term guarantor of price stability, it needs to be assisted by an executive and a legislature who understand the importance of rough budget balance. The Fed has to teach them: it has to be an advocate within the government for balanced budgets. Here, since 2000, the Greenspan Fed has fallen down.

What the Greenspan Fed has done on monetary policy deserves high praise. What it has not done on fiscal policy will make the job of its successors much more difficult.

Posted by DeLong at 06:51 PM | Comments (0) | TrackBack

Why Oh Why Are We Ruled by These Thieves? (Budget Discipline Edition)

Edmund Andrews on the Republican fiscal order:

Emergency Spending as a Way of Life - New York Times : By EDMUND L. ANDREWS: IF brevity is eloquence, President Bush and Congress set a new standard of brilliance after Hurricane Katrina. In approving Mr. Bush's request for $51.8 billion in emergency assistance, Congress passed a three-page law with fewer than 700 words. Here are the details: $1.4 billion would go to the military, $400 million would go to the Army Corps of Engineers and $50 billion would go for anything else tied to what was described only as "disaster relief."...

The problem facing Mr. Bush and the Republican-controlled Congress is not the cost of Katrina itself. The problem is that, even before Katrina, Congress and the White House had lost their grip on the budget. In the last few years, huge chunks of the federal budget have been channeled through emergency supplemental bills... wars in Iraq and Afghanistan and counterterrorism efforts from Uzbekistan to Africa. The budget is also packed with fiscal time bombs - Medicare prescription benefits, tax cuts and health care costs for veterans - that are set to explode in the next few years....

In theory, emergency spending bills are for one-time, unforeseeable calamities. In practice, Mr. Bush has financed the entire war in Iraq, as well as the war in Afghanistan, with emergency supplemental requests that totaled $248 billion over the last three years. With no sign yet of a troop reduction in Iraq, the costs are likely to exceed $80 billion in 2006....

"There just is no vision for limited government," said Representative Jeff Flake, an Arizona Republican.... "We've had very little support from the leadership on budget rules," Mr. Flake continued. "We've even given away the rhetoric. We've replaced the 'Freedom to Farm' bill with the 'Farm Security Act.' " The first one cut price supports. The second one increased them.

Mr. Bush has done little to slow the spending. He has yet to veto a single bill, including the transportation bill, which will cost $30 billion more than he initially demanded.... Permanently extending all of Mr. Bush's tax cuts from 2001 and 2003, a top Republican goal, would cost about $1.4 trillion over the next 10 years, plus interest. On top of that is the cost of fixing the alternative minimum tax, which was intended to prevent rich people from taking too much advantage of tax deductions. Because the alternative tax is not adjusted for inflation, it ensnares millions of additional families every year. Mr. Bush had said he would deal with the problem this year through a sweeping overhaul of the tax code. But tax reform has been delayed until at least next year, and many Republican lawmakers simply want to abolish the alternative minimum tax without making up for lost revenue. That would cost about $30 billion just for next year and as much as $1 trillion over the next 10 years, according to estimates by the nonpartisan Joint Committee on Taxation.

Even in the United States, that's a lot of money.

But I wouldn't say that the Republican leadership has "lost its grip" on the budget. That implies the process is accidental. Say, rather, that the Republican leadership has ripped the budget steering wheel off of the steering column and thrown it out the window.

Posted by DeLong at 06:50 PM | Comments (0) | TrackBack

Fighting Words!

The Fifteen-Year-Old's high school chemistry book refers to Wolfgang Pauli as a "chemist."

Hooo boy.

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October 03, 2005

A Fistful of Euros

One of the very best commentators on the European scene is A Fistful of Euros:

A Fistful of Euros: Germany To Exceed Deficit Limit Till 2010 : by Edward: The IMF has just published Chapter One of the autumn 2005 edition of the World Economic Outlook. The key section on the eurozone economies can be found between pages 25 and 29 (including the interesting Box 1.3). The Table where you can find the information on German debt projections is on page 15, and there you will see that the government deficit is projected to remain over 3% at least until 2010. In addition the level of indebtedness is projected to rise from just under 60% of GDP in 2002 to nearly 75% in 2010. (Italy incidentally is seen as quietly suffering from melt-up at 115% of GDP come 2010).The reasons for this trend:

Unsustainable medium-term fiscal positions remain a key risk. Among the major industrial countries, fiscal deficits are expected to decline only modestly over the medium term (outside Canada, which remains in surplus), with rising public debt ratios in Japan, Italy, and Germany of particular concern. In most countries, despite past reforms, fiscal pressures from aging populations remain a serious concern, especially for health care.

There is also a summary of the press briefing on the WEO given by Economic Counsellor and Director of the IMF Research Department Raghuram Rajan to be found here. The following interesting exchange takes place during the question and answer session:

QUESTION: I have a question on Germany. Germany has the weakest growth this year and next year according to your forecast. We just had elections with very inconclusive results. Germany could be drifting in any direction. What in your view has to be the hallmarks of the new German government to get going?

MR. RAJAN: Well, I think the previous German government or the current German government has undertaken a set of reforms. Those reforms have to be taken to their logical conclusion. For instance, on the one hand, we have created more labor supply in Germany. Now you have to create the demand for that labor by increasing the incentives for corporations to actually hire more people, for example by reducing some of the regulatory burden on them, reducing the extent of payroll taxes, and so on. So creating the demand for labor by making labor hiring more flexible and so on, this is an important step that has to be taken. Similarly, there are steps right through the economy, for instance in the financial sector, allowing for more competition between states. One could walk through the set of needed reforms. I think it is quite plain in Germany what has to be done, and I hope these things can, in fact, be done by the new government, whoever it is. David, would you like to add anything?

MR. ROBINSON (David Robinson, Deputy Director, Research Department): Just to add one further thought. I think another area where Germany and indeed many countries in Europe clearly also have to move forward is ensuring the medium-term fiscal situation is sustainable. When you look past 2010 in Germany and the pressures that will come on expenditures from both pensions and health, they are quite substantial. So, again, I would say that one thing that we feel quite strongly is that Germany needs to make, I would say, more progress towards getting its long-term fiscal house in order, with the aim of trying to get to broad structural balance on the fiscal accounts by 2010.

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