Don't these guys ever even consider telling the truth about what they are doing? I mean, just as a theoretical option... "We will not pass along our problems to other Congresses, to other presidents, and other generations..." (George W. Bush, 2004 State of the Union Address)...

Ah. Here's what's going on: Rex Nutting of CBS Marketwatch asks Bill Gale of Brookings and Glenn Hubbard of the CEA about the effects of "an extra $200 billion in deficits." Glenn Hubbard interprets the question to be, "What would be the consequences of increasing the deficit by $200 billion above the previously-anticipated baseline this year only, and then reversing the increase and returning the deficit back to its original baseline next year, and leaving it there into the indefinite...

Crossing my desk today... Marketwatch: "Glenn Hubbard, chairman of the president's Council of Economic Advisers, suggested recently that an extra $200 billion of deficit would only raise interest rates by a tenth of a percentage point at the most..." $200 billion of deficit would only raise interest rates by 0.1 percentage point.... Does this mean that Glenn Hubbard thinks that $3.5 trillion of annual deficit--a doubling of the national debt held by the public this year, and an expectation of...

Even a year ago people could think that the finances of the U.S. federal government were not grossly out of balance for at least two generations to come. Looking beyond 2050, projections of an ever-aging population and ever-growing health care costs sent the budget into increasing deficit. But the long-run budget projections in the back of the 2003 Budget documents told us that the yawning gap between the pledges and spending policies of the U.S. government on the one hand...

The Washington Post comes out against "dynamic scoring". So do ex-Congressional Budget Office head Dan Crippen, and (last year, at least) future CBO head Douglas Holtz-Eakin. Dan says that it would "pose intractable problems." Doug says that although dynamic scoring is "'conceptually correct'... he also acknowledged that it was 'difficult' to implement and said there was 'no need to embed dynamic scoring in the existing budget process.' Instead, he suggested, in some cases the broader impact of tax or spending...

Three years ago it looked as if finally, at long last, after much heavy lifting and a lot of very hard very public-spirited political work by people who had the long-term welfare of the country at heart, that America's long-term spending plans were about to be brought back into balance with the long-term resources of America's government. It looked as though the large budget surpluses now (and in the near future) needed to begin the process of financing the public...

The Economist is very, very optimistic about the ability of Brazilian President Lula to get his camel through the eye of his particular needle... Economist: Lula's Task: Brazil's president | Lula's message for two worlds | Jan 30th 2003 | PORTO ALEGRE | Can Brazil's president continue to appeal to Porto Alegre as well as Davos? PERHAPS no other world leader could have pulled off the feat achieved last weekend by Brazil's new president, Luiz Inácio Lula da Silva. First,...

Tonight's nighttime reading. FromBrookings Institution: Economic Studies. William Gale and Peter Orszag (2003), "Perspectives on the Budget Outlook."...

Len Burman writes about how to do corporate tax integration--the good idea now buried deep within the confused thing that is the Bush Administration's "stimulus" proposal--the right way, so that it works and is a good thing: Tax Policy Center | A Project of the Urban Institute & the Brookings Institution: ...The Bush Administration has proposed, as the centerpiece of its economic stimulus plan, to eliminate the double taxation of corporate income. Corporate tax integration, as tax experts call it,...

The most puzzling thing about the Bush Administration economic "stimulus" proposals (besides the fact that policy-oriented economists from outside--from Marty Feldstein to James Galbraith--do not believe that the proposals do enough to boost aggregate demand in the next year or two) is the administration's apparent beliefs that the benefits from reducing the double taxation of dividends more than offset the costs of widening the deficit. It is hard to argue that reducing dividend taxation will do much--will do anything--to stimulate...

John S. Irons rants about those who confuse the 1990s boom with the 1990s bubble: two different (but related) things with very different effects: ArgMax Economics Weblog: Bubble Confusion: Bubble Confusion: In a recent series of articles in the Washington Post, yet another writer confuses the stock market with the economy. (See below.) I've fumed about this before (with nice graphs as well), but it looks like I need to say it again. The "Bubble" of the late 1990's was...

THE VIEW FROM 2023: WSJ.com Economists Failed to Predict Shift as the Poor Get Richer By J. BRADFORD DELONG It is extraordinary how few people back in, say, 2003, foresaw the economic changes that the past two decades have brought. I certainly did not. There were plenty of clues. Some visionaries said the biotechnology revolution was about to arrive. Others trumpeted the positive effects of computers and telecommunications. Economists like Dale Jorgenson, studying productivity growth, noted the rapid fall in...

The World Outside the U.S. Will Have to Make Its Own Luck Once again it looks as though if the world economy is going to have a decent recovery, it rests on the ability of U.S. demand to rise rapidly--and for the U.S. to keep on fulfilling its role as importer of last resort. And there is little chance of this happening. There is some optimism about Japan, but no more so than there has been every two years for...

Project Syndicate: America's Second Gilded Age: J. Bradford DeLong : November 2002 The richest Congressional district in the US is the so-called "silk-stocking" district of New York City's Upper East Side, with a per-capita income of $41,151 per year. The poorest Congressional district is a largely Hispanic-immigrant district in Los Angeles, with a per-capita income of $6,997 a year. In 1973 the poorest fifth of America's families had incomes that averaged $13,240 a year (in today's dollars); in 2000 the...

Marty Feldstein, back before the start of the euro, was greatly worried that a single currency would result in too much business-cycle volatility across Europe: countries would not be able to use either fiscal or monetary policies to stabilize their domestic economies because both would be fit to a common European pattern. In Business Week this week, some evidence that his fears were well-founded. Of course, that doesn't tell us what to do now... BW Online | January 24, 2003...

In my view, the Economist is a little too smug and comfortable with the watering-down of the Sarbanes reforms as they move towards implementation: Economist.com: America’s Securities and Exchange Commission has approved a new set of corporate-governance rules, as required by Congress under the Sarbanes-Oxley act passed last summer. After intense lobbying from accountants and lawyers, the rules have lost some of their bite.... The SEC has, however, backed down on one of its most far-reaching proposals: that lawyers be...

Why Bother to Quote Somebody Out-of-Context? I have never understood why a bunch of people in Washington DC behave the way they do. In the comments section of this weblog, there is a quote of Kevin Hassett citing Doug Elmendorf (of the Federal Reserve) and Greg Mankiw (of Harvard) as concluding that the academic economic literature "has typically supported the Ricardian view that budget deficits have no effect on interest rates." It is necessary to point out that Hassett's quote...

I was cited in a Washington Post profile of CEA Chair R. Glenn Hubbard yesterday: washingtonpost.com: An Economist On a Mission: ...Princeton University economist Paul R. Krugman, also a New York Times columnist, and J. Bradford DeLong, a Clinton administration Treasury official now at the University of California at Berkeley, accuse Hubbard of sacrificing his sterling academic reputation with politically motivated but nonsensical economic utterances. "This is a delicate game," DeLong wrote on his Web site. "You need to retain...

I call an intellectual foul. Penalty. Fifteen yards against the Washington Times: The deficit drumbeat -- The Washington Times: ...Bush administration economists do not deny that a larger deficit will raise interest rates ? all other things being equal ? but think the impact is much less than the Brookings economists believe. They base their estimate on the work of economists N. Gregory Mankiw of Harvard and Douglas Elemendorf of the Federal Reserve. This research indicates that a $100 billion...

The Economist publishes an Economics Focus column that says that the answer is "Yes," and that favorably cites Peter Orszag and William Gale's recent survey paper. They could also have cited Doug Elmendorf's and Greg Mankiw's survey paper, or Glenn Hubbard's Money and Banking textbook, or Greg Mankiw's Macroeconomics textbook, or a host of other sources. Economist.com: ...These results are similar to the numbers built into many macroeconomic forecasting models used by official and private-sector organisations (including the Federal Reserve...

Business Week's Howard Gleckman doesn't like the facts that the Bush Administration is calling its proposal a "stimulus package" and a "dividend tax cut." It's not a stimulus package. And while it's a cut on the taxation of corporate income, it's not right to describe it as a cut on taxes on dividends: BW Online | January 21, 2003 | The Secret of Bush's "Stimulus" Package: Nearly as much misinformation is floating around about President Bush's tax plan as about...

Rick Hertzberg bangs his head against the wall at the Bush Administration's sales pitch for its non-stimulus package. He quotes the Financial Times--<sarcasm>that left-wing partisan Democratic newspaper</sarcasm>--calling the Administration's claims "...obviously bogus..." and "...dishonest and... designed to prevent a proper discussion of the long-term fiscal costs and benefits..." The New Yorker: The Talk of the Town: ..."These tax reductions will bring real and immediate benefits to middle-income Americans," Bush said in Chicago. "Ninety-two million Americans will keep an average of...

It's MLK Day. Martin Luther King - Letter from Birmingham Jail AUTHOR'S NOTE: This response to a published statement by eight fellow clergymen from Alabama (Bishop C. C. J. Carpenter, Bishop Joseph A. Durick, Rabbi Hilton L. Grafman, Bishop Paul Hardin, Bishop Holan B. Harmon, the Reverend George M. Murray. the Reverend Edward V. Ramage and the Reverend Earl Stallings) was composed under somewhat constricting circumstance. Begun on the margins of the newspaper in which the statement appeared while I...

When I need an informed view on tax and fiscal policy, I usually draw on Bill Gale and Peter Orszag. They come through again: (1) "The President's Tax Proposal: First Impressions," by William Gale President Bush's new tax plan is an answer in search of a question. It would provide little short-term stimulus. It seems unlikely to provide much of a long-term boost to growth or jobs. It is an incomplete way to reform corporate taxes. It would not boost...

And here the LA Times's Peter Gosselin has an interesting take on why non-economists' reactions to the Bush Administration non-stimulus proposals has been unenthusiastic: WASHINGTON DISPATCH: Arguments for Tax Cuts Weaker Than in the Past By Peter G. Gosselin Times Staff Writer January 17 2003 WASHINGTON -- When it comes to judging big policy proposals, the simplest questions are often the best. In the case of President Bush's recently released "jobs and growth" plan, here's one: Can Washington really think...

Paul Krugman uses the "drunkard" analogy to describe Bush Administration fiscal policy... Off the Wagon: Picture a recovering alcoholic falling off the wagon. First he says he can handle a few drinks. Then, when his inebriation can't be denied, he insists it's only a temporary lapse. But eventually he turns mean. "What's so great about being sober?" he growls, reaching for another bottle. As a drunk is to alcohol, the Bush administration is to budget deficits. During the 2000 campaign...

A preliminary version of this reading list, prepared by Fernando Machado Goncalves... From: Fernando Machado Goncalves Subject: Re: reading course Monetary and Fiscal Policy Reading Course: Spring 2003 1. Monetary Policy A) A framework for analyzing monetary policy Cecchetti, Stephen G. (1998), "Policy Rules and Targets: Framing the Central Banker's Problem," Economic Policy Review of the Federal Reserve Bank of New York 4 (June 1998) 1-14. Clarida, Richard, Jordi Gali, and Mark Gertler (1999), "The Science of Monetary Policy: A...

Andrew Tobias tries to sketch out what a tax bill that would be good for the country would look like. I think he's right: Andrew Tobias - Money and Other Subjects: Burton Malkiel's Wall Street Journal piece on the Bush dividend proposal last week makes the case for freeing dividends from tax – not the macroeconomic case as relates to the budget deficit, but the case as it relates to corporate behavior. A lot of us who oppose the Bush...

The Wall Street Journal's David Wessel writes about Hoyt Bleakley's dissertation: WSJ.com - Capital: At the beginning of the 20th century, the South was a blemish on the American economy. Its per capita income was a third of New England's. A 17-year-old in the Midwest was three times as likely to be a high-school graduate than a Southerner. And 40% of school-age Southern children were infected with hookworm, an energy-sapping parasite.... [John D.] Rockefeller gave $1 million -- more than...

From Dwight Meredith: P.L.A. - A Journal of Politics, Law and Autism: What Is Wrong With A Little Spin Among Friends? Newsweek reports on a small piece of spin put out by the White House:Bush wanted some answers from his team: the then Treasury Secretary Paul O’Neill, the then economic adviser Larry Lindsey, Commerce Secretary Don Evans and chief economist Glenn Hubbard. In the instant history that the White House put out last week, Bush’s question elicited a “universal consensus,”...

Our first exhibit of snarkiness comes from Mark Kleiman: Mark A. R. Kleiman:   -->CAN YOU SAY "OFF THE RESERVATION"?: See? Only partisan Democrats like Krugman and DeLong think Bush's stimulus plan won't stimulate much. What is he referring to? This: PITTSBURGH - Former Treasury Secretary Paul H. O'Neill said the president's plan to eliminate taxes on corporate dividends will do little to improve the nation's economy. "I would not have done it," he said. Speaking out for the first...

The National Journal's budget expert, Stan Collender, is extremely, extremely unhappy with the prospect of "dynamic scoring." It's easy to see why he is unhappy. As it is existing estimates of program costs and tax revenues are likely to underestimate the amount by which they will increase the deficit. "Dynamic scoring" creates the potential for additional fudge factors that will further widen the gap between what the estimates are and what the true likely outcome is. The CBO and the...

Joe Stiglitz is Losing His Argument Two of the things I learned at the American Economic Association meeting was that Joe Stiglitz is losing his argument over the desirability of international capital mobility, and why he is losing his argument. Now I think that Joe should lose the argument. I think that by and large international capital mobility is a Good Thing: I think that international capital mobility raises the earnings of savers and lowers the cost of capital...

David Warsh's online "Economic Principals" has a nice summary of Steve Cecchetti's ideas for a Framework for Fiscal Policy. I think his particular framework is a bad idea: the existence of the baby-boom generation, rising medical costs, and the belief that everyone ought to be able to see a doctor together more-or-less force federal government spending up from its current twenty percent or so of GDP to somewhere between twenty-five and thirty percent over the next generation. Cecchetti's belief that...

The Wall Street Journal quotes Alan Auerbach--one floor down and eight offices north--on the likely effects of the dividend tax cut. WSJ.com - Dividend Plan Straddles Debate Among Academics: ...Alan Auerbach began arguing a new theory. He said the traditional view of dividend taxes told only half of the story. Lowering dividend taxes did make it easier for companies to raise capital, increasing a company's incentive to invest in new projects, he said. But it also made shareholders more demanding....

More people are waking up to notice that the Bush Administration tax proposal contains very, very little real economic stimulus for 2003. From the G7 Group: It's not getting all that much attention, but the Bush folks now concede that their package offers only $59 billion in stimulus in 2003.... Understand that this $59 billion figure certainly pales in comparison with what has already been dumped into the economy (and is pretty modest in trying to move a $10 trillion...

The first defense comes from the highly-intelligent Phil Swagel, writing from the Council of Economic Advisers. Phil argues that Glenn Hubbard's and the CEA's position on important issues is given by longer, more serious, more nuanced materials--like Glenn Hubbard's December 10th speech at the American Enterprise Institute to celebrate the 30th anniversary of Tax Notes--rather than by what he politely calls "news accounts"--news accounts that report that Glenn claims that there is "no evidence" that the Bush-Mitchell-Foley and Clinton-Mitchell-Foley deficit-reduction...

Ah. We are told that the Bush tax cut means that every year "ninety-two million Americans will keep an average of $1,083 more of their own money." But this is not what the average family will receive: think $265 instead. (On the other hand, it is worth $90,000 a year to the average family making more than one million a year.) Spinsanity - Taxing the public's trust: The Bush administration is stretching the truth again to sell its latest tax...

The job market news for December was surprisingly bad. It gives us another reason to wish that we had a stimulus package, rather than what Paul Krugman calls the "irrelevant proposal"--the Bush Administration capital income taxation reform. WSJ.com - Employers Slash Jobs, Surprising Economists: Employers made the steepest job cuts in 10 months in December, surprising economists who had expected a slight improvement in the employment picture. Nonfarm payrolls tumbled by 101,000, the Labor Department said Friday. November payrolls were...

Brookings Institute-Urban Institute Bush Tax Cut Proposal Distribution Tables...

Ken Rogoff says that those who think that destroying the IMF will improve the lot of developing countries are making as much sense as those who think that getting rid of fire departments will reduce the number of fires. In the three crises in the past decade that I have watched closely as they developed, the lesson I took away was that one big problem was that the IMF (and the U.S. Treasury) were too deferential to borrowing-country governments. The...

The Economist is pleased that the Argentine economy is doing better than expected. But it cannot maintain its optimism for even a full article. Toward the end, the tone changes: Argentina's current policies do not grapple with its core problems--a bankrupt state and an insolvent financial system. The veranito rests on financial controls, autarchy and a very weak exchange rate. Argentina has no access to outside financing (not even trade finance). It ought to be poised for an export-led boom:...

The SEC has freaked out the assembled corporate lawyers of America by pointing out that there is a difference between maintaining attorney-client privilege so you can provide your client with a fair defense on the one hand, and becoming an accessory in large-scale on-going corporate fraud on the other. The SEC's action is, I think, a very hopeful sign on the corporate control front. Now we will see just how much lobbying clout the assembled corporate lawyers of America have...

David Greenlaw of Morgan Stanley takes his crack at budgetary and financing implications of the Bush proposal. Morgan Stanley: ...The White House is using a figure of $98 billion in tax relief over the next 16 months in describing their proposal. This time frame was selected because much of the impact will show up in April 2004 tax season payments and refunds. On a fiscal year basis, our estimates show the package is worth $56 billion in FY 2003, $117...

The G7 Daily Briefing seems to be becoming more interesting and more useful--at least, it teaches me things that I didn't know, and teaches them in a short space: US Fiscal -- Not Much Stimulus This Year The Bush tax package is clearly an ideological package aimed at getting Bush re-elected -- not stimulating the economy in '03. That may not make sense to the markets (which often make the mistake of thinking tax policy is driven by a desire...

Here we have a bunch of people who seem unclear on what they are arguing for. For them to say that the system they favor was not on its way to frying 100 innocent people, but only on its way to frying 30 innocent people is not a powerful argument in their favor: Death penalty gains unlikely defenders: Professors speak out in support of executions: ...about a dozen professors and social scientists... are attacking... [the claim] that more than 100...

An interesting and instructive hour. It's always very nice debating Michael Boskin--he tries very hard to make substantive rather than cheap points, his view of the world is different enough from mine to be interesting, and yet his view is close enough to mine for communication to be achievable. I made only about half the points that I wanted to make, but from my perspective the most interesting thing was Michael Boskin's defense of the Bush Administration tax proposal. In...

Lucian Bebchuk is unhappy with the settlement the investment banks made to get out of their analyst-conflict-of-interest problem... New York Times December 27, 2002 Settling for Less By LUCIAN BEBCHUK CAMBRIDGE, Mass. One week ago regulators and the nation's top investment firms announced what they described as a historic settlement. To settle government claims that they misled investors, the country's 10 largest securities firms will pay $1.4 billion and will make certain changes in how they operate. Industry regulators said...

Do we need a stimulus package? Not now, but there is a good chance--one in four--that we will need one in a year or so. Usually we rely on the Federal Reserve to cut interest rates to boost spending, demand, and employment. But the Federal Reserve has lowered interest rates almost to zero already. What if more is needed? Fiscal policy--spending increases and tax cuts--is are only choice. So we should start now. If it turns out to be...

From Daniel Davies: There are three issues here: The general level of taxation The degree of progressivity of the tax system The distortions caused by the tax code. The current Bush proposal is arguably wrong in terms of the first, seemingly certainly bad in terms of the second, but potentially good in terms of the third. There is a quote from "Yes Minister" which seems apropos; it is a principle of the British Civil Service to advise "If You Must...

It's Time for Glenn Hubbard to Quit as CEA Chair On December 18th, the Wall Street Journal's Bob Davis reported: To sell a package of tax cuts that will further deepen the budget deficit, the White House says that deficits don't matter. Is that true? Certainly, says Glenn Hubbard, chairman of the White House's Council of Economic Advisers. He derides the "current fixation" with budget deficits, and labels as "nonsense" and "Rubinomics" the view espoused by former Clinton Treasury Secretary...

Distribution Table The New York Times has a dividend-tax-cut distribution table... Income Percentile Income Range (Adjusted Gross Income) Average Change in Income Tax 0-20 $0-$9,964 -$6 20-40 $9,965-$21,349 -$20 40-60 $21,350-$37,834 -$47 60-80 $37,835-$68,329 -$168 80-90 $68,330-$98,053 -$304 90-95 $98,054-$133,858 -$622 95-99 $133,859-$316,894 -$1,777 99-100 $316,895- -$13,243...

The Economist is puzzled by the fact that George W. Bush's "economic stimulus" proposals will not stimulate the American economy: Economist.com: ...The bulk of the latest package comprises measures which may not provide the short, sharp boost for which many political leaders, including Mr Bush himself, have been calling. The single most controversial measure is the abolition of tax on share dividends, costing $300 billion over ten years. White House insiders are quoted as saying this should boost share prices—in...

Jonathan Chait tracks the mendacious twists and turns of Bush Administration fiscal policy: TNR Online | Deficit Reduction (print): ...Perhaps the hardest part of criticizing the Bush administration's economic logic is simply keeping track of it from week to week. Consider President Bush's view of deficits. His initial position, while peddling his tax cut on the campaign trail and in the first months of his presidency, was that a return to deficits was inconceivable. "We can proceed with tax relief...

The Economist has a good piece on just how difficult Brazil's new president's job is going to be: Economist.com: Lula's balancing act Jan 2nd 2003 From The Economist Global AgendaBrazil’s new president has stirred up enormous expectations. Can he deliver? AFPBrazil expects, Lula EXTRAVAGANT celebrations, in the best Brazilian tradition, accompanied the inauguration on January 1st of Luiz Inácio Lula da Silva as Brazil’s president—its first working-class leader, and the first from a left-wing party. A 200,000-strong crowd packed the...

Unqualified Offerings thinks about Bush Administration policy toward North Korea and bangs its head against the wall: Unqualified Offerings: Say this for the Bush Administration - it has sent a message to potentially hostile regimes that is admirable for its clarity if nothing else: Get nukes as fast as you can, one way or another. If you miss your deadline, like Iraq, you can be toppled with something close to impunity. If you act with dispatch, like Korea, you're golden....

Joshua Micah Marshall thinks about Bush Administration policy toward North Korea over the past two years, and bangs his head against the wall: Talking Points Memo: by Joshua Micah Marshall: ...The White House called the Clinton policy craven and dishonorable. That policy was essentially to pay the North Koreans to behave and hope that in the medium-term a better solution -- perhaps a soft landing in the North -- would arise. Not pretty certainly, but it was a difficult situation....

The EPI's Larry Mishel thinks it is time--long past time--for a big fiscal stimulus: to try to boost real GDP by two percent (and cut unemployment by 0.8 percentage points) by spending increases and tax cuts that will significantly widen the short-term deficit. I agree for the short term: for 2003, 2004 (and possibly 2005 aned 2006) a bigger federal deficit is not a problem but a solution, for monetary policy alone looks to lack the power to get the...

The Wall Street Journal's Michael Phillips notes that negotiating a free-trade agreement for the Americas will cause the Bush administration some serious political pain. In this context, I see nothing to make anyone believe that this free-trade agreement will actually be negotiated: opening up America's markets to Latin American steel, apparel, and sugar is--from the point of view of Brazil and company--the whole point, and domestic producers are not political interests that the Bush Administration has been willing to cross....

Andrew Northrup reads Bush at War and has the same reaction I had: the book left me much more scared than I had been before. And this is in spite of the book's plot which is, as Northrup puts it, "The plot of the book is that we beat up Afghanistan, and then Bush listened to Rumsfeld and Cheney about Iraq, and Cheney ran his mouth off in public one time, but now Bush is under Powell's wing and we're...

Why not live in truth? The Economist asks the European Central Bank to bring its rhetoric about its policies into line with the reality of its policies. It's not going to happen--there are those on the ECB who wish to push the policies back toward the rhetoric, and who would regard acknowledging what the policies have been as a substantive defeat: Economist.com: ...a slightly easier inflation target—one point either side of 2.5%, say—and the demolition of the monetary pillar would...

The world continues to go to hell in a handbasket. The three big threats that may turn the twenty-first century into an abbatoir are (i) the possible emergence of an expansionist, militaristic Wilhelmine China, (ii) a failure of "transition" that results in the emergence of a Weimar Russia, and (iii) Hindu nationalistic communalism leading to the emergence of a Fascist India--a place where encouraging mobs to kill Muslims and burn their houses wins lots of votes. (The threat of an...

Stanford's Eddie Lazear calls for California to pay its teachers more money. He strongly believes in the economist's belief that some sort of variation-and-selection emulation-of-successful and shrinkage-of-unsuccessful institutions is an important and powerful social tool to raise quality of education. But he also focuses on the fact that the best and quickest way to make teaching a more attractive profession is to pay teachers more. EDUCATION IN CALIFORNIA / Teachers for the new century: ...The reduction in class size mandated...

Jean Dreze thinks remarkably neoliberal thoughts about India's Public [Food] Distribution System... The Hindu Monday, February 26, 2001 Starving the poor By Jean Dreze THERE IS no greater scam in India at this time than the so-called food subsidy. Under the cover of ``food security'', the Government is keeping millions of tonnes of food out of reach of poor people. Even at the best of times, undernutrition levels in India are extraordinarily high. According to the second National Family Health...

Alan Greenspan thinks through a large number of monetary policy issues in a speech in front of the economic club of New York. The things that I felt most interesting were two: first, that Greenspan is not completely confident that his policy toward the late-1990s stock market bubble was the right one (although I think it was); second, that Greenspan believes that the post-1995 productivity growth acceleration makes deflation significantly less worrisome than it would be otherwise. FRB:Speech, Greenspan--Issues for...

The horrible thing about Paul Krugman's critique of Bush Administration economic policy is that it is not overstated: Quo Vadis, Karl?: ...Finally, there's economic policy. Fears that the economy would suffer a "jobless recovery" similar to that of the first Bush administration are no longer hypothetical: over the past year G.D.P. has grown, but employment has continued to shrink, and the risk that the U.S. will slide into a Japanese-style pattern of slow growth and deflation no longer seems remote....

Michael Kinsley has a good column marvelling at the "breathtaking dishonesty" of the Bush White House's sudden embrace of deficit spending, that their relabeling of concern for balancing the budget from its old labels--"Bush-the-Elder-onomics," "Reaganomics," "Eisenhoweronomics"--to "Rubinomics." It is marvelous and ridiculous. There's one angle that Kinsley doesn't pick up on and that I wonder about: Why try to pick on Bob Rubin? Kinsley writes that the name "Rubinomics" is "promoted by people who apparently believe that the best way...

Remind me again: just why are we ruled by these fools? Talking Points Memo: by Joshua Micah Marshall: Compare and contrast "There is no precedent in any modern White House for what is going on in this one: a complete lack of a policy apparatus," DiIulio tells Esquire. "What you've got is everything—and I mean everything—being run by the political arm. It's the reign of the Mayberry Machiavellis" -- Esquire,January 2003 The [decision over which side to take on the...

Bill Gale and Peter Orszag write that budget deficits slow economic growth and raise interest rates. In truth, this is only something that needs to be done in Washington D.C. In a normal place, a normal economist would say: Demand curves slope down. A government budget deficit increases the quantity supplied of bonds. Because demand curves slope down, a rise in the quantity supplied of bonds reduces the price of bonds. The interest rate is inversely related to the price...

Fund the SEC! From Alex Berenson, via Andrew Tobias Andrew Tobias - Money and Other Subjects In 1939, when a total of 260 million shares traded – all year – the S.E.C. had 1,700 employees. In 2001, when 2 billion shares traded a day, the S.E.C. had the equivalent of 2,936 full-time employees. The number of brokers and mutual funds and annual reports and proxy statements had exploded – not to mention hedge funds and all the rest – yet...

Why does the Bush family think that jokes about accounting fraud are funny? *Sigh.* And these are the people we're supposed to rely on to appoint the people in charge of making sure that companies are scared to report fake numbers Enron Videotape Surfaces: ...A videotape of a January 1997 going-away party for former Enron President Rich Kinder... half an hour of absurd skits, songs and testimonials.... In one skit, former Administrative Executive Peggy Menchaca played the part of Kinder...

John Williamson defends his version of the Washington Consensus: Speech: Did the Washington Consensus Fail?: ...Let me remind you of the ten reforms that I originally presented as a summary of what most people in Washington believed Latin America (not all countries) ought to be undertaking as of 1989 (not at all times): 1. Fiscal Discipline. This was in the context of a region where almost all the countries had run large deficits that led to balance of payments crises...

Alan Krueger writes about Marianne Bertrand and Sendhil Mullainathan's study of discrimination. The results are very depressing indeed--a lot of discrimination based on the racial association of the names on resumes, a lot more discrimination than I had thought such a study would find. What's in a Name? Perhaps Plenty if You're a Job Seeker: ...To test whether employers discriminate against black job applicants, Marianne Bertrand of the University of Chicago and Sendhil Mullainathan of M.I.T. conducted an unusual experiment....

The Economist approves of Bush's "Friday Morning Massacre." Certainly in retrospect the three people criticized were wrong for their jobs--Harvey Pitt seems never to have figured out that his job was to make investors confident they weren't being lied to, Paul O'Neill seems never to have tried to learn what his job was, and Larry Lindsey never had the power to make others in the White House staff fear and respect him. But as the Economist admits, reshuffling people won't...

Here is a good reason for Stephen Friedman and John Snow to decline their opportunities to join the Bush administration. The chief problem with Bush economic policy hasn't been that it has been poorly sold, but that the quality of what they have to sell is so low: washingtonpost.com: New Team To Sell Policy on Economy: ...White House and congressional sources say the shake-up will have little impact on Bush's economic policies. The new team's role will be primarily to...

Good News on the Corporate Surveilliance Front Good news on the corporate surveillance front. From the G7Group: Sen. Richard Shelby (R-AL) now sits at the helm of the Senate Banking Committee, which oversees the Treasury, the Federal Reserve Board and the SEC. In a speech before the Consumer Federation of America today (assuming it's not snowed out!) Shelby plans to detail his priorities. Expect him to: Emphasize privacy. Shelby has long been concerned that consumers lack privacy in the new...

Judge Motz doesn't seem to like Microsoft very much: Judge Likens Microsoft's Effect on Java to a Bang on the Knee: The judge questioned testimony for Microsoft by Kevin M. Murphy, a University of Chicago economist who said Sun should be limited to seeking monetary damages. Sun, which wants at least $1 billion in damages, sued after a federal judge ruled in the government's landmark antitrust case that Microsoft had broken the law. "Is there a social value on being...

Paul Krugman congratulates himself on his now long-ago judgment that Paul O'Neill was unlikely to be a good Treasury Secretary. I confess that Paul Krugman was right. The Treasury Secretary should (a) be a strong voice helping the U.S. pursue good economic policies, (b) understand what the economic policies of the United States are, (c) be effective at using his extremely prominent and powerful post to tell outsiders about the economic policies of the United States, and (d) know how...

Between March and November of 2002, as expectations of European growth in 2003 fell from 3 percent per year to 1.5 percent per year, the ECB stood by and did nothing. Only this month did it bestir itself to cut interest rates by fifty basis points--half a percentage point. Here the Economist tries to figure out why the ECB seems to be doing so badly as a policy-setting institution. They seem to blame the ECB's institutional setup, but it is...

Ah. Finally the ECB cuts interest rates. But it's a lot later than it should have been. And it's too little--Europe's macroeconomy seems to be in deep enough trouble that it's hard for me to understand why ECB rates are higher than Federal Reserve rates. WSJ.com - ECB Cuts Key Interest Rate To Boost Sluggish Economy: ...The European Central Bank Thursday cut its key interest rates by half of a percentage point, lowering rates for the first time in more...

Mark Kleiman has a pointer to Doug Besharov's truly excellent Public Interest article on welfare reform. As a liberal, I have to say that Mark is wrong in his claim that it is "unpleasant reading for either liberals or conservatives." It's very pleasant reading: for a number of reasons--a strong economy that meant that TANF gave us twice as many dollares-per-welfare-recipient to spend after 1995 than in the 1980s or early 1990s, sensible application of the workfare rules, some excellent...

Business Week's Howard Gleckman fears the consequences of Bush administration tax policy: more tax cuts for the rich, lower investment in the United States, slower economic growth, and a government unable to perform vital missions: BW Online | December 3, 2002 | The Tax-Cut Recipe for Ruin: ...The White House argues that locking those tax cuts in beyond 2010 -- when they're now due to expire -- will provide an immediate boost to growth. That claim is just silly. No...

Over the past two years, the U.S. Federal Reserve has cut its interest rate target by 5.25 percent. The European Central Bank has cut its interest rate target by only 1.5 percent. Admittedly, Europe was not in an extravagant boom in 2000. But I can think of no reason at all why European interest rates should be higher than American interest rates today. The somewhat peculiar thing about the Economist's current reports on European monetary policy is its failure to...

John DiIullio on the Bush Administration policy process. The contrast between what he describes and the policy-centered and -focused Clinton Administration could not be greater... To: Ron Suskind [ESQUIRE Magazine] From: John DiIulio Subject: Your next essay on the Bush administration Date: October 24, 2002 Dear Ron: For/On the Record My perspective on the president and the administration reflects both my experiences at the White House and my views as a political scientist and policy scholar. Regarding the former, I...

The Economist's Economics Focus considers the Zimbabwean model of development. It's point--by and large an accurate one--is that the policies adopted by Mugabe are implicitly those that follow from a number of the standard critiques of the "Washington Consensus." Indeed, it was by watching experiments like those of Mugabe that the "Washington Consensus" developed in the first place... Economist.com: Economics focus The Zimbabwean model Nov 28th 2002 From The Economist print editionThe pros and cons of opting out of the...

From Slate : The NYT flags a coming Esquire interview with a former White House aide who says that the administration is obsessed with the political impact of things and doesn't give two-hoots about actual policy: John J. DiIulio Jr., who used to head the Office of Faith-Based and Community Initiatives and is, it should be noted, a Democrat, said, "There is no precedent in any modern White House for what is going on in this one: a complete lack...

The Wall Street Journal's Alan Murray believes that the biggest accomplishment of the next congress is going to be a substantial expansion of the social insurance state: WSJ.com - Political Capital: ...The Republicans who will lead Congress when it convenes in January already are touting a conservative agenda of tax cuts, abortion curbs and rollbacks in government spending. But privately, many acknowledge that the signal achievement of the 108th Congress may turn out to be something very different: the biggest...

Paul Krugman worries about the growing respectability of inherited status. He thinks that American ideas of "meritocracy" are being corrupted by a semi-feudal strain of thought according to which "choosing the right parents" has merit of its own: The Sons Also Rise November 22, 2002 | By PAUL KRUGMAN America, we all know, is the land of opportunity. Your success in life depends on your ability and drive, not on who your father was. Just ask the Bush brothers. Talk...

The G7 Group has a nice summary of the likely implications of the recent election in the United States. I find myself agreeing with almost all of it. There is, however, one thing that I think they miss. Congress has a "reconciliation" process that can be used to move large-scale budget legislation through the Senate in a filibuster-proof way. If the Republicans reach agreement early next year on what they want to do, they could stuff a lot of spending-...

The Wall Street Journal's David Wessel bangs his head against the wall as he contemplates the Bush Administration's lack of a long-run economic policy. "Why... dangle a Social Security plan that pretends we can preserve benefits without increasing taxes, by turning to the stock market?" There is no good answer. "Saving more, Bush economists say, is key to investing more, and investing more is key to keeping productivity growing. Government deficits soak up savings. So what's the Bush plan for...

The Economist takes a look at Japan, and bangs its head against the wall in despair: Economist.com Bumping along the bottom Nov 19th 2002 From The Economist Global AgendaJapan’s banks have seen their share prices tumble further amid growing speculation that one or more of them will be nationalised in an effort to put the economy on a sounder footing. The drop came as the OECD issued a gloomy report about the Japanese economy IT WAS just possible to find...

Wile E. Coyote Explains Bush Administion Fiscal Policy One of the weirder things one hears from Republicans these days is that our current medium-sized (and our larger prospective future) federal deficits are not the accidental results of lack of policy-making competence on the part of the Bush team but part of a clever strategy to advance the long-run Republican goal of shrinking federal spending as a share of the whole economy. How is this strategy supposed to work? Republicans cut...

Writing in the Wall Street Journal, Steve Liesman is--politely--incredulous at and infuriated by the arguments the ECB uses to justify its monetary policy: WSJ.com - The Macro Investor ...The ECB held [interest rates] pat for reasons I find unconvincing. With its two largest economies -- France and Germany -- now stalling, the ECB held firm to its dogmatic policy that its raison d'etre is fighting inflation, not promoting growth. (The U.S. Fed, by contrast, has a dual mandate to promote...

If you haven't seen it before, you should know that briefing.com provides a valuable (and free) Federal Reserve Policy Briefing: Briefing.com Free Services: Fed Brief: A Strong 50 bp Finish? The FOMC surprised the markets with an unexpectedly strong 50 bp ease in both the federal funds rate target and the discount rate. The 1.25% funds rate target is the lowest in 41 years as you have to travel past our 56 year history to find a discount rate lower...

Alan Krueger points out in the New York Times that Americans' basic fundamental belief in rugged individualism and in control of your own destiny is--to a greater degree in America than in other countries--false. We seem to have less equality of opportunity than most other industrialized countries: "a child born in the bottom 10 percent of families ranked by income has a 31 percent chance of ending up there as an adult and a 51 percent chance of ending up...

Vernon Smith's view of the world: Redwood Dragon: Experimental Libertarian: Vernon L. Smith is an experimental economist who recently won the Nobel Prize for Economics "for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms." He started his intellectual odyssey as a socialist, but as he learned more about economics, and began conducting experiments to test the received wisdom of the field, his socialist tendencies faded and he now calls...

J. Bradford DeLong (2002), "The U.S. Is Lucky in Its Central Bank," Nightly Business Report (November 25) [TV]....

At its mid-November meeting, the United States's Federal Reserve decided that it needed to lower the short-term nominal interest rate by half a percentage point, to 1.25 percent per year. At its--immediately following--mid-November meeting, the European Union's European Central Bank decided that there was no need to change its short-term nominal interest rate, which remains fixed at its previous value of 3.25 percent per year. Is this inaction because the ECB expects economic growth in Europe to be faster than...

Nathan Newman finds and comments on a couple of thoughtful Economist pieces on the Microsoft trial: NathanNewman.org - News and Views: Economist on Microsoft Trial: I haven't written anything since the court upheld the weak-ass Justice Department settlement with Microsoft, partly because I have written so much over the years-- see my Tech page with my work from NetAction. My basic reaction was in my article written after the Appeals Court overturned the original Microsoft sanctions. But I think The...

The Economist summarizes all the reasons that movement toward freer trade is unlikely under the Bush administration: Economist.com ...Making progress will be an uphill task. In some areas, agriculture above all, developments this year have made agreement more elusive, not less. America’s farm bill, providing large extra subsidies to farmers, soured the atmosphere. Developing countries wonder how that squares with the aims of making it easier for poor-country farmers to compete in global markets and have proper access to the...

The Economist worries about the danger of deflation in the United States and in Germany. One point it does not stress is that rapid underlying productivity growth in the U.S. means that the U.S. needs a couple of years of more than 4 percent real growth in order for there not to be downward pressure on the rate of inflation. If you think that psychology changes sharply when prices start falling and central banks lose their ability to affect the...

The Economist provides a nice little summary of the chief points at issue in deciding how companies should account for stock options they grant: Economist.com: ...The IASB does not, though, specify exactly which method of fair-value option pricing should be used. And here academics dispute vigorously. Mr Merton helped to devise the Black-Scholes model for pricing options, named after Myron Scholes (who shared Mr Merton's Nobel prize) and Fisher Black (who would have done, had he lived a little longer)....

"But the ECB did nothing in the daytime!" "I know. That was the curious incident." The Economist tries to explain just how it is that the U.S. Federal Reserve and the western European Central Bank can undertake such different policies. The Federal Reserve has just lowered short-term nominal interest rates in the U.S. by fifty basis points to 1.25 percent per year. The ECB has kept its interest rate steady at 3.25 percent per year. Are European growth forecasts higher...

A correspondent writes that Harvey Pitt's crash-and-burn at the SEC is not a surprise. As chair of the SEC, he took the White House to be his client, and he took his fellow commissioners to be the opposing attorneys. After all: Harvey Pitt is a big-shot securities lawyer at a prestigious firm. This means he has gotten very rich doing three things: Thinking of reasons why his clients can do what they tell him they want to do. (The White...

David Wessel of the Wall Street Journal has a five-point plan that he thinks Bush should pursue to try to fix the economy: WSJ.com - Capital: ...Cut taxes more now, less later. The next installments in the Bush income-tax cuts don't come until 2004, too late to shore up consumer spending.... The obvious solution: Cancel or delay some out-year tax cuts to inject a little more stimulus into the economy now.... Assure business that the corporate-corruption cure won't be worse...

Well... I'll tell you why I'm whingeing and snivelling right now... It's not so much because Republicans control all three centers of power--the presidency, the house, and the senate... It's because I have a low opinion of *these* particular Republicans... You see, it's not that I think America would be a better country if Republicans never had a majority in any house of congress and never held the presidency. I kind of think periods of Republican political dominance should be...

At least six months after I would have done so (were I in charge), the Federal Reserve cuts short-term safe interest rates from 1.75 percent per year to 1.25 percent per year. This interest rate cut will have effects on economic activity roughly around Christmas of 2003, boosting real GDP then by perhaps $150 billion at an annual rate. Given that it doesn't look to be matched by similar rate cuts in Europe and Japan, it looks too small to...

After the Fall of Harvey Pitt: We Are Still in Bigger Trouble than We Realize J. Bradford DeLong A First Draft Harvey Pitt was in bigger trouble than he realized. He is now gone: he submitted his resignation as Chair of the Securities and Exchange Commission [SEC] on the evening of 2002's election day. But his resignation does nothing to get the rest of us out of big trouble. There is drastic, urgent need for significant and immediate reforms in...

Media Unspun catalogs reactions to the latest Microsoft decision: Media Unspun: ...In his 1998 book "Barbarians Led by Bill Gates," the lead [Microsoft] engineer on the Pen Windows project, Marlin Eller, wrote of bucking up a discouraged co-worker after Pen Windows shipped but was not selling many copies. "Pen Windows was a winner. We shut down [the] GO [Corporation]. They spent $75 million pumping up this market, we spent $4 million shutting them down. They're toast. That company is dead....

The Register is unimpressed by the latest Microsoft decision: The Register: ...CKK decided that the court should retain jurisdiction over the matter for five years and have the authority to issue orders ensuring compliance with the settlement and to punish infractions, all of which will be eagerly brought to its attention by the MS board.... CKK's insistence that MS open its Windows communications protocols.... The loophole here is the emphasis on Windows as the locus of compatibility and interoperability. If...

The Rittenhouse Review is on the edge of despair about the current state of corporate reform and the total idiocy of Harvey Pitt: The Rittenhouse Review: Today while reading about the latest machinations of the chairman of the Securities and Exchange Commission, the question that kept arising in my mind was, “What kind of an idiot is Harvey Pitt?” I’m not quite sure I’ve answered that question to my satisfaction, or even whether it could be answered to my liking....

It is hard to believe this is happening. It is really hard for me to believe this is happening. I know that I said that I thought William Webster was unqualified to be chair of the Public Companies Accounting Oversight Board, but I never in my life believed that he was this unqualified: New York Times | Stephen Labaton | Audit Overseer Cited Problems in Previous Post: ...While Mr. Webster headed [U.S. Technologies'] audit committee, it was delisted from trading...

The Public Company Accounting Oversight Board lumbers down the runway. It is having a difficult time taking off... New Arbiters of Auditing ...For William H. Webster, named on Friday to head the new Public Company Accounting Oversight Board, the reverse is true. He and his four colleagues will have to decide the most basic matters, ranging from where the board will meet to how it will function. They must also hire a staff that will no doubt be sizable. But...

Greg Ip of the Wall Street Journal writes a "Fed will cut interest rates" story. It's no secret that I think that the Fed should, both because demand growth is slack and because (due to rapid productivity growth) potential supply growth is strong. The Fed's job is to keep the output gap between effective aggregate demand and potential output supply as small as possible. But it is not clear to me that the arguments within the Fed today that I...

Sebastian Mallaby writes in the Washington Post: On Sept. 11 this year, [SEC Chair Harvey] Pitt had lunch with John Biggs, the head of a big pension fund, and asked him to apply for the chairmanship of the new audit oversight body that is the core of the post-Enron legislation. According to Harvey Goldschmid, another SEC commissioner who was present, Pitt said to Biggs, "I will support you." There was no doubt in Goldschmid's mind, nor in Biggs's either, that...

Jane Galt's Live from the WTC points to an interesting table from the Census: Mindles H. Dreck, before whose intelligence and erudition I kneel in awed admiration, has posted this table from the Census showing the income-to-poverty ratios from the census. This tells you, for each quintile (fancy word for fifth of the population, divided by income), what their income was as a percentage of the poverty line. What does it show? The bottom quintile held steady, or slightly faltered,...

Tom Maguire, in Just One Minute, has some extended meditations on Paul Krugman's New York Times Magazine article, "For Richer." His main point: he wants a way to separate out bad wealth (effete coupon-clipping heirs, corporate looters, robber barons, monopolists standing athwart the process of creative destruction yelling "stop!") from good wealth (industrial statesmen, bold entrepreneurs, and brilliant applied scientists). In short, what do the rest of us get in exchange for allowing our richest top one-ten thousandth of...

Why would anyone name a non-accountant--former FBI Director William Webster, for example--to head an accounting-oversight panel? It's bizarre. The whole point of an accounting-oversight panel is to oversee accountants: you want someone who understands the issues. It's hard to avoid the impression that SEC Chair Harvey Pitt had picked out a good chair for the accounting-oversight panel--John Biggs--and then been told by the White House and the Republicans and Congress, "No, no! We don't want somebody to oversee the accounting...

The European Central Bank counterattacks, claiming that all the budget and other problems Europe's governments are having are their own fault. For those of us who believe that the ECB is following counterproductive and excessively stringent monetary policies, this is more bad news about the prospects that they will shift their stance: WSJ.com - ECB Defends Its Fiscal Rules As Nations Call for Leniency By CHRISTOPHER RHOADS Staff Reporter of THE WALL STREET JOURNAL BERLIN -- The European Central Bank...

In today's New York Times, I read a letter to the editor from Senator Charles Grassley: A Tax Cut for Whom? October 25, 2002 A Tax Cut for Whom? o the Editor: Re "Springtime for Hitler," by Paul Krugman (column, Oct. 18): I stand by my call for unbiased tax data in policy debates. Some observers claim that 40 percent of last year's tax cuts went to the top 1 percent of taxpayers. The Joint Committee on Taxation, Congress's official,...

Andrew Sullivan has apparently taken to posting anonymous poison-pen letters attacking Paul Krugman: www.AndrewSullivan.com - Daily Dish: ...Keep up the pressure.... I... once regarded [Paul Krugman] as a Nobel Prize possibility. Alas, his politics and ego have become truly insufferable. Can you imagine an economist of his gifts falling back on the argument that the increasing relative compensation of CEOs has been a result of a change in the public's willingness to tolerate inequality in income distribution... I doubt this...

But... But... But this is how a market economy is supposed to work. If you build too much capacity in an industry, than firms in the industry go bankrupt, the bondholders lose their money, the bondholders get to choose a new management, and that new management then cuts prices and tries to make some operating cash flow in order to give something back to the ex-bondholders. From the standpoint of social welfare, we have a huge amount of telecom bandwidth...

For some reason it has become a journalistic tradition to write these stories in the "humor" genre. But what is starting to happen is something very important and very amazing. Before the invention of the steamship, only light-weight precious goods could be profitably traded across continents. Then, by stages, the set of intercontinentally-tradeable goods has become larger and larger. Now a very large chunk of what used to be seen as non-tradeable services--white-collar information-based services--have become internationally tradeable. I think...

An Open Letter to my friends at the Economic Policy Institute: Guys, you write: Trade deals accelerate deficits, eliminate jobs: Under NAFTA and the WTO, trade deficits have accelerated rapidly and eliminated a net total of 3 million actual and potential jobs from the U.S. economy Now I know that you never actually say that "NAFTA and the WTO" caused the growing deficits--the "under" phraseology is carefully calculated. I know that you know that the trade deficit is as much--hell,...

Toothless SEC Paul Krugman argues that properly funding the SEC is at least as important as getting the SEC's mission right--and that an underfunded SEC will be, effectively, a toothless SEC Business as Usual: The first big step in undermining reform came when Harvey Pitt, chairman of the S.E.C., backtracked on plans to appoint a strong and independent figure to head a new accounting oversight board. But that was only a prelude. The S.E.C. has been underfunded for years, and...

Alan Murray believes that Harvey Pitt has no choice but to appoint a tough reformer to be Chair of the Accounting Oversight Board. The problem from Pitt's perspective is that his political masters lack enthusiasm for the task, and would rather that the SEC went to sleep and the entire issue just went away. It's a tough spot to be in. WSJ.com - Political Capital The Wall Street Journal | October 22, 2002 | POLITICAL CAPITAL | By ALAN MURRAY...

Western Europe begins to take steps to free up its governments' abilities to use fiscal policy as a macroeconomic stabilization tool. If successful, this will remove one but only one of the major objections to the way western Europe currently runs its business-cycle stabilization policy. Economist.com Farewell to the stupidity pact? Oct 18th 2002 From The Economist Global AgendaThe European Union’s troubled stability and growth pact looks unlikely to survive much longer in its present form. But there is little...

The Rittenhouse Review is unsurprised that the Bush Administration didn't mean it when it committed last summer to the extremely rapid expansion of the SEC budget... The Rittenhouse Review: ...“Less than three months ago, President Bush signed with great fanfare sweeping corporate antifraud legislation that called for a huge increase in the budget of the Securities and Exchange Commission to police corporate America and clean up Wall Street. Now the White House is backing off the budget provision and urging...

Morgan Stanley's Steven Roach gets even gloomier, if possible, about the near-term future of the U.S. economy. I find myself drifting in his direction, but I'm not sure whether I'm catching up to his point of view or just following in his wake... Morgan Stanley: ...Retail sales sagged appreciably in September, consumer confidence was down sharply in early October, new claims for unemployment insurance benefits went back up after a statistically distorted plunge, and industrial production recorded its second monthly...

ABC's Political News Summary joins the chorus on the haplessness of Democratic politicians on income distribution matters. Here they approvingly cite Paul Krugman's most recent New York Times column. ABCNEWS.com : Political News Summary: At This Moment In Time: ...Today's Krugman effort is a front-and-center must-read for three reasons: LINK. 1) He demonstrates that — whether the president is actively culpable or not — Bush has failed to "change the tone" in Washington, thus failing to live up to one...

Jonathan Rauch writes about the long, slow victory of the idea that market mechanisms--taxes and charges--promise to be vastly better at pollution control than thumb-fingered direct quantity regulation. He gives much of the credit to the Washington think-tank Resources For the Future. D.C. Dispatch | 2002.10.08 | Rauch: On June 18, 1963, an economist named Allen V. Kneese took his seat before the House Government Operations Subcommittee on Natural Resources and Power. He was there to talk about America's water-quality...

I'm pleased that Fed Governor Ben Bernanke agrees with me: a central bank should not enthusiastically try to pop bubbles at the risk of shooting the economy in the head: WSJ.com - Fed Governor Says Bank Was Right to Allow Bubble: If the Federal Reserve had tried to curb stock prices during the late 1990s, it could have plunged the economy into a depression, repeating the mistakes of 1929, a Federal Reserve governor said. A central bank can rein in...

The Economist thinks that Harvey Pitt is in the process of demonstrating that he is unfit for his job... Economist.com ...Until recently, Harvey Pitt, chairman of the Securities and Exchange Commission (SEC), had backed John Biggs, the head of TIAA-CREF, the teachers' pension fund, to be chairman of the new oversight board. After Paul Volcker, a former Federal Reserve chairman, turned down the job in early September, Mr Pitt went to New York with Harvey Goldschmid, another SEC commissioner, and...

Interview: PROCEED WITH CAUTION James Fallows argues that before getting ourselves into a war with Iraq, we must think long and hard about its possible consequences. Atlantic Unbound | October 10, 2002 http://www.theatlantic.com/unbound/interviews/int2002-10-10.htm On Monday night in his speech to the nation, President Bush laid out his case against Saddam Hussein, in the process nudging Congress toward authorizing the use of military force in Iraq. Only at the end of his speech did Bush allude to the burden the United...

Every time I run across a passage like: A virtual fence goes up around schools in Zambia when an education "user fee" is introduced on the advice of the World Bank, putting classes out of the reach of millions of people. A fence goes up around the family farm in Canada when government policies turn small-scale agriculture into a luxury item, unaffordable in a landscape of tumbling commodity prices and factory farms.... And there is a fence that goes up...

The Economist scolds the world's investors for suffering from irrational pessimism: Economist.com: SOME six years ago, Alan Greenspan, the chairman of America’s Federal Reserve, accused investors of “irrational exuberance” in propelling the stockmarket to unjustified heights. Now the same investors are asking whether the same markets are suffering from irrational gloom. While investors have plenty to be glum about—insipid company profits, slowing economic growth, a rising risk of defaults among bonds and loans, and even the prospect of war—it has...

The American economy's march to the edge of deflation continues... WSJ.com -- Reports from Briefing.com * PPI came in 0.1% at both the headline and the core. Key Factors * Big jump in crude prices compare to weak gasoline price rise. * The new vehicle models provide a lift to the core -- through quality gains more than actual sticker prices. * Continued downward pressure on capital goods prices (-1% yoy). * -0.4% annual decline in the core is the...

It's not that any of Wessel's disaster scenarios are likely. But I didn't use to think that they were possible. Now--and this is his main thesis--they definitely are possible: WSJ.com - Capital: It is hard to be optimistic about the prospects for the economy. The list of things that could go wrong grows daily. Unwelcome developments once deemed "impossible" are now seen as merely "unlikely." Right now, the U.S. economy is doing surprisingly well when you consider what has been...

Paul Krugman is not surprised that attempts are being made to turn the financial watchdogs set up last summer into toothless wonders: Fool Me Once: ...Cynics questioned the sincerity of these sudden conversions. They warned that it would be business as usual after the midterm election. But the cynics were wrong: the bad guys didn't even wait for the election. As soon as the public was distracted by the threatened war with Iraq, they began backsliding in earnest. Not surprisingly,...

... but we are not as far as we were a year ago. From the Economist: Economist.com: ...Banks typically do very well in good times, and very badly in bad times. With the world economy looking shaky, signs are growing that the quality of their loan books is falling. In America in 2002, business loans held by domestic banks that were deemed to be in trouble grew by a third over the previous year, regulators said this week. And junk...

I've always found him to be really, really smart... The New Yorker: Years from now, when historians try to explain the world of the early twenty-first century, they might mention the Parsley crisis. It took place in July, when the government of Morocco sent twelve soldiers to a tiny island called Leila, a few hundred feet off its coast, in the Strait of Gibraltar, and planted its flag there. The island is uninhabited, except for some goats, and all that...

Technology and Opportunity Keynote Talk at the Francisco Partners Fal1 2002 Investors Conference The Inn at Spanish Bay, Pebble Beach, CA Slides J. Bradford DeLong U.C. Berkeley and NBER October 8, 2002 Version 1.1 Last week somebody told me of his thoughts, back in the spring of 2000, when he read Yale Professor Robert Shiller's book, Irrational Exuberance. "A lot of good points here. This guy is broadly right," he remembered thinking to himself. Then he came to the passage...

Argentina's Collapse J. Bradford DeLong Berkeley and NBER The Argentinean government made a big push in the 1990s. It tried hard to implement 80 percent of the neoliberal reform program. It opened up its economy to world trade and international capital flows. It sought to guarantee a sound-money, low-inflation monetary policy. It strove to improve the functioning of its legal system, so that decisions handed down would accord with the law and create confidence that contracts would be enforced--whether or...

The Financial Times's Martin Wolf says that Greenspan's reputation hangs in the balance: FT.com Home US: ...Mr Greenspan has put forward a clear view of what central banks should do about asset prices: nothing during the bubble but a great deal after it collapses. US experience will test this proposition to destruction. If the recovery is strong and sustained, the Fed and contemporary central bank orthodoxy will be vindicated. If not, as I believe more likely, simply targeting prices of...

James Grimmelmann (LawMeme: Legal Bricolage for a Technological Age - Law School in a Nutshell, Part 1) tries to explain how legal briefs work in America so that non-lawyers will have a fighting chance of figuring out what is going on. Unfortunately, Grimmelmann uses analogies from computer programming, which will be as opaque to normal people as legalese: ...Future lawyers spend three years in law school learning how to read and write legalese, but what serious geek has that kind...

UCLA's Mark Kleiman rants about how OMB Mitch Daniels is mismaking fiscal policy: pennywise and poundfoolish on the one hand, trying to fund an 11-figure war out of cuts of (useful) 7-figure programs on the other. Useful while covering chapter 14 on public finance in order to focus people's attention on the fact that public programs are more than just numbers in the NIPA.

Lance Knobel points to scientists' fears that global warming's first big effect on climate may be to disrupt the Gulf Stream: Can Global Warming Trigger a 'Little ice Age': A perspective on potential climate changes presented by Dr. Robert B. Gagosian, President and Director of Woods Hole Oceanographic Institution: Over the past two decades, we have heard about greenhouse gases and the idea that our planet is gradually warming. I’d like to throw a curveball into that thinking—specifically the “gradually...

A look at the futures market for Federal Funds--the short-term overnight asset whose interest rate the Federal Reserve actually targets--shows that the market (or at least the marginal investor in that part of the market that speculates in Federal Funds futures on the Chicago Board of Trade) expects there to be one and a half more 0.25 percentage-point interest rate cuts over the next four and a half months. Useful if one is discussing expectations and the term structure of interest rates in chapter 6 or chapter 10, and if one is discussing stabilization policy in chapter 13.

The Economist is--rightfully--disgusted at how the industrial countries behaved at this past week's IMF-World Bank meetings in Washington. Trade has to be a two-way street, and--contrary to what Secretaries of Commerce and Special Trade Representatives tend to say--Americans benefit as much or more from the reduction to barriers to imports into America as they do from the reduction to barriers hobbling America's exports. The Economist's judgment of what went on--namely, nothing--at this year's meetings seems fair. A piece useful while covering chapter 5 on the worldwide pattern of economic growth.

John M. Irons links (ArgMax Blog: Solow on Globalization) to an interview given by Robert M. Solow on pretty much everything. It's very well worth reading: every topic is good. Let me pick a bone, however, with the interview's discussion of "globalization". Solow says some very smart things: I think this is one of those cases in which focusing on growth is the wrong way to look at it. After all, what is the most you would expect international trade...

I Cannot Stand It Paul O'Neill "dismissed a wary communiqué from the Federal Open Market Committee on Tuesday that suggested significant downside risks to the economic recovery as 'bureaucratic'." I understand that many Treasury Secretaries believe that if they say that the outlook is "mixed" people will conclude that they think the outlook is horrible. But I would have thought it would be more important for a Treasury Secretary to avoid conveying the message that he just doesn't understand what...

If You Think the NASDAQ's Decline Is Large... David Hudson forwards a piece on the end of Germany's attempt to create an equivalent of the NASDAQ: Subject: Last one to leave... Not only is recess over, they're shutting down the playground. German stock exchange shuts Germany's high-tech Neuer Markt exchange after 96 percent slide | Thu Sep 26, 7:07 AM ET By DAVID McHUGH, AP Business Writer FRANKFURT, Germany - Germany's stock exchange operator said Thursday it will eliminate its...

Greg Ip and E.S. Browning of the Wall Street Journal sketch out their take on the current attitude of the Federal Reserve. It seems to be that short-term interest rates are already so low that spending has to recover and grow sometime in the future. WSJ.com - Fed Leave Rates Unchanged, But Dissenting Votes Emerge: ...The Fed's widely expected decision to keep its short-term interest rate at the 41-year low of 1.75% left the door open to cuts in the...

What good are modern information-management tools if people won't use them? One of the most frustrating things about being an optimistic "computer revolution" guru is that over and over again I run into people who could use the magnificent information management tools we have at our disposal, have every incentive to use them (so as not to look stupid), and yet do not use them. Today's example: I read Slate and find Eric Umansky bashing the New York Times for...

Talking Points for BBC "Today" Segment on the Stock Market September 25, 2002 Of course, what one actually says bears no resemblance to what one is prepared to say... Yes indeed, the American stock market is way, way down. We're very far indeed from Dow 36000 Don't trust the Dow-Jones--it's a bad index, not representative of anything, that preserves its media footprint only because of the power of the Dow-Jones media conglomerate But the tech-heavy more speculative NASDAQ index is...

At its September 24 meeting the Federal Reserve leaves interest rates unchanged. Useful if you are covering chapter 13: stabilization policy, or if you are covering section 10.2: the IS curve.

From the New York Times: Halliburton confiscates part of its workers' pensions. Things like this happen everyday, and are one of the big reasons to like defined-contribution plans more than defined-benefit plans that are vulnerable to shenanigans like this. Premium Archive: ...Kathleen Joy-Kirkendall, a 51-year-old senior product design engineer who, like many of the Dresser-Rand employees, works at a unit in Olean, N.Y., describes just how hard it has been to get information. In August, she got a statement from...

Economists' conventional knee-jerk belief is that it almost never pays a company to withhold output unless it has a durable monopoly. If it withholds output it loses sales. It gets a higher price for what it does sell, true, but its competitors take its market share--and that market share will be expensive to win back. One of the nice things about being at Berkeley is that you can run into people who tell you when you are being an idiot,...

An article from the Economist in the early fall of 2002 about the expansion of higher education. Useful if you are teaching chapter 4: theory of economic growth or chapter 5: reality of economic growth and want to get students thinking about investments in human capital as well as in buildings, machines, and technologies.

A very nice op-ed from Morgan Stanley's Steven Roach, from the New York Times at the end of September 2002. Useful either if you are teaching about the dangers of deflation (which I do when I get to section 16.2 of my Macroeconomics textbook), or if you are covering the business cycle (in sections 1.2 and 1.3).

The New York Times's Tom Friedman writes in defense of globalization. Useful either if one is covering international economic policy in chapter 15: international economic policy and wants to motivate why one wants to have exchange rates and trade at all, or if one is covering chapter 5: the reality of economic growth and wants to make sense of the cross-country cross-era pattern of economic growth.

A strangely unsourced passage purporting to be from some right-wing commentator crossed my desk today: I'm sorry but I pay for those soldiers to fight in a volunteer army. They are servants of people like me who will never fight. Yes, servants of civil masters. And they will do what they are told by people who would never go to war. That's called a democracy. I hate it when the misdeeds of right-wing politicians and the miswords of right-wing ideologues...

A piece on an important wrinkle in our tax system--the alternative minimum tax. A piece that would be useful as enrichment when covering chatper 14: the budget balance, the national debt, and investment.

An "insider" look at current thinking within the Federal Reserve, and why they are not (yet) frightened that their policy tools might lose their power. Useful when teaching chapter 13: stabilization policy.

Materials for a course on the collapse of Enron from the University of Illinois. Not really tied to any part of the macroeconomics curriculum--but useful for enrichment.

Paul Krugman on why a President with a shred of self-respect would have fired Army Secretary Tom White long, long ago: UPDATE October 3: Well, maybe not. Tom White denies writing--or, rather, has no memory of writing--the key email message. And the authenticity of it has been called into sufficient question to make Salon pull the whole entire article. So White may really be just an unobservant dupe rather than an active conspirator. Cronies in Arms September 17, 2002 Cronies...

Jagdish Bhagwati, writing in the Financial Times, tries to make a subtle argument: he is (understandably) against the first-world imposing restrictions on the production of pharmaceuticals in the developing world, but strongly for the first-world imposing restrictions on the export of developing country-pharmaceuticals back to the first world. Jagdish wants--all economists want--the prices of drugs to be (relatively) low in developing and (relatively) high in developed countries. But, politically, that is proving a very hard sell everywhere. FT.com / Comment...

If you want to guarantee that public policy will turn out to be destructive, the first thing you do is make sure that nobody who disagrees with the guys at the top is allowed to have a voice. HHS Seeks Science Advice to Match Bush Views (washingtonpost.com): ...HHS's Pierce said the committee remains balanced overall, and no prospective member of any advisory committee is subjected to political screenings. "It's always a matter of qualifications first and foremost," Pierce said. "There's...

Arnold Kling makes a very smart point about how moderate inflation may well "grease the wheels of the labor market." If you talk to Bill Dickens of Brookings about the micro evidence for strong nominal wage rigidity--that is, people really don't like having their wages cut, so firms don't do it--or if you read Truman Bewley's big book on why firms don't cut wages in recession, you'll think that Arnold's point is even smarter: Archive 27 Great Questions of Economics:...

Alan Blinder, The Quiet Revolution: Central Banking Goes Modern Alan Blinders' Okun Lectures are three separate lectures dealing with three aspects of modern central banking. The first deals with *transparency*: with the extent to which central bankers make their thoughts and their policies known to three separate circles--financial markets, observers of monetary policy, and the broader public. The second deals with the committee structure of central-bank decision-making: is this committee structure a good thing? The third deals with whether central...

The dilemmas of Germany's high current natural rate of unemployment. Worth taking a look at when covering section 12.3: the natural rate of unemployment.

An article about the deregulation of California's electricity market. Doesn't really fit any piece of the macroeconomics curriculum.

Camdessus on Stiglitz http://www.imf.org/external/np/vc/2002/091202.htm Michel Camdessus Responds to Joseph Stiglitz A Commentary By Michel Camdessus, Honorary Governor of the Bank of France Nouvel Observateur Week of Thursday, September 12, 2002 - No. 1975 - Economics In our July 18 issue, the author of Globalization and Its Discontents, a former World Bank Chief Economist, had personally criticized Michel Camdessus, former Managing Director of the International Monetary Fund, in these terms: "In December 1997 in Kuala Lumpur, during a meeting of...

"You know me," said one senior Federal Reserve policymaker of the 1990s, "and on the inflation-unemployment tradeoff I'm dovey-dovey. I'm not prone to undercount the distributional and productivity benefits from low unemployment. I'm not prone to overweight the costs of moderate inflation. Yet there I was, in the Chairman's [Greenspan's] office, beggin him to raise interest rates. The NAIRU [the unemployment rate at which inflation is steady] couldn't have fallen that far. Potential growth couldn't be that fast. But he...

Last week Slate's Daniel Gross tut-tutted that Berkshire-Hathaway's Warren Buffett is lending money to distressed companies at usurious interest rates: these transactions are not in existing shareholders' interest, but they do satisfy managers' desire to postpone bankruptcy in the hope that something, anything might turn up. Daniel argued that Berkshire-Hathaway's resort to this strategy--the exploitation of the conflict-of-interest between managers and shareholders--is a sign that the stock market is still highly overvalued: The New Warren Buffett Way - From value...

Perhaps the stupidest things written about what action should be taken in response to Iraq's flouting of U.N. resolutions on its armaments are Larry Kudlow's cry to invade Iraq to raise the Dow and John Podhoretz's cry to invade Iraq to elect more Republicans to Congress in November. Here Paul Krugman takes on the mostly-whispered claim that a war against Iraq would be "a good thing" for the American economy. Needless to say, policy should rest on whether Saddam Hussein...

Jeffrey Frankel asks a hard question: why, for the past two decades, have the economic policies pursued by Republican administrations been so lousy? Over the past two decades, he points out, Republican administrations have been more protectionist, less eager to promote competition, and fiscally irresponsible. Democratic administrations have been more favorable toward free trade, more eager to let competitive markets work, and strongly oriented toward budget surpluses. What's going on? Frankel's answer appears to be that Republican presidents are--don't laugh--drawn...

"Decoherence" is a word from modern physics. It refers to a situation in which a superposition quantum wave function breaks into separate and mutually exclusive components: either A or B, but not both. Alan Greenspan has been trying to maintain a superposition on fiscal policy, but today it broke down, and became decoherent. He tried to argue both that (a) the Bush tax cut was a good idea, and (b) the Congress really, really needs to strengthen its controls because...

The Economist steps up to the "let's worry about deflation" plate. I agree with them. The Federal Reserve, however, does not seem to: the Federal Reserve appears to believe that the NAIRU--the unemployment rate at which inflation is constant--is somewhere near 5.5 percent (rather than the 4.5 to 5.5 percent I would estimate), and that the rate of growth of potential output--which is the rate at which real GDP has to grow to keep the unemployment rate constant--is only a...

Ken Rogoff on the claim that IMF bailouts take the money of rich-country taxpayers, give it to the unworthy, and so create "moral hazard". (He also covers a host of other issues.) Economist.com: ...It would be hard to overstate the influence of the popular perception that IMF crisis loans are thinly disguised bail-outs, with the tab paid mainly by ordinary taxpayers in the industrialised world. The presumed need to limit such bail-outs, and their adverse long-term incentive effects, is a...

Alan Murray wrestles with the problem of IPO--Initial Public Offering--underpricing. On the one hand, why should the rest of us care if entrepreneurs wish to sell 10 percent of their companies at a half-off discount to the friends and clients of their investment bankers when their firms go public? Entrepreneurs are giving a rather large present to those on the IPO list, but if they did not wish to do so they could always use Hambrecht and Quist and run...

A Platonic Dialogue on Eldred v. Ashcroft Ignoramus Inquisitivus: I have a question. Why did the Supreme Court grant cert. [that is, agree to hear and decide] in Eldred v. Ashcroft [the case arguing that the most recent copyright extension act was unconstitutional because Article 1, Section 8, Clause 8 of the Constitution gives Congress the power to grant copyrights only for limited times, and only to promote the useful arts--and since the extension act was not intended to promote...

I don't agree with Stephen Roach that the Federal Reserve should have made interest rates higher and tried to make unemployment higher in the late 1990s in order to diminish investment spending and collapse the stock market bubble. In my view, the time to deal with any problems created by the bubble's collapse is when the bubble collapses--not before. Relative to a lower-stock prices, lower-investment, one-percentage-point-of-unemployment-higher bubble-popping path for the U.S. economy in the late 1990s, the actual path that...

Think Analytically! I remember one day during the first Clinton Administration when Joe Stiglitz came into the room to chair a meeting, looked around, noticed that--so far--only economists had shown up, and announced that nobody who did not have a Ph.D. in economics would be allowed to speak at the meeting. (Do I need to point out that that Joe was making a joke?) He was. All of us got it. All of us cheered and applauded. We did so...

This week's "Economics Focus" in the Economist joins the pack piling on to Alan Greenspan for not deflating America's stock market bubble earlier: Economist.com: ...There may be no painless way to deflate bubbles. Yet the correct test is not whether a bubble can be deflated without some loss of output. Rather, it is whether the early pricking of a bubble causes less pain than letting it grow only to burst later. The longer a bubble is allowed to inflate, the...

John Irons find and links to the Congressional Budget Office's estimates of the deficit adjusted for the state of the business cycle: ArgMax Blog: The Cyclically Adjusted Deficit: ..."By those measures, roughly one-third of the projected decline in the total surplus between 2000 and 2003 results from "automatic stabilizers" the automatic response of the budget to the business cycle. Most of the remaining two-thirds is attributable to legislative action: primarily EGTRRA [2001 tax cuts], JCWAA, and increases in discretionary spending...

How Stands the Federal Republic? The New German Problem By Brad DeLong As Germany prepares to elect its next Chancellor, the two main candidates, Gerhard Schroeder and Edmund Stoiber, agree on one thing: unemployment must be reduced. Over the past two decades, high unemployment has transformed Europe in general and Germany in particular into a sociological time bomb. What will the unemployed, especially the long-term unemployed with only dim memories of integration into the world of work, do with themselves...

It's hard to know if this is a fair picture of what went on--and of how ignorant the typical large-corporation board member is. But if it is a fair picture, it's really scary. Back to School, but This One Is for Top Corporate Officials September 3, 2002 By ANDREW ROSS SORKIN HICAGO — The class was not faring well. On its accounting exam the average score was 32 percent. The teacher was particularly exasperated that so many students had missed...

Here Morgan Stanley's Eric Chaney gives his take on western Europe's current fiscal policy dilemma. Given that the European economies are on the edge of recession, it makes neither economic nor political sense for them to cut their short-run budget deficits. But neither the "Stability and Growth Pact" nor the discourse about European fiscal policy allows one to try what the Clinton administration wanted to try in 1993--a larger deficit now coupled with lots of planned reduction in the deficit...

Richard Berner from Morgan Stanley gives his take on the conversation at last weekend's Federal Reserve Jackson Hole symposium (sponsored by the Federal Reserve Bank of Kansas City). From my perspective, the strangest and most worrisome thing about his report of the conversation is the "European" belief that interest rates have to stay high to promote the "liquidation" of potentially bankrupt enterprises. This is not a strong current of thought in America (save, perhaps, for the pages of the New...

"Gene Healy's another smart person at Cato," an acquaintance said. "He's making powerful arguments that the Bush Administration must acknowledge Congress's power over war and peace in foreign affairs." So I went to read what Gene Healy had written. I was expecting considerable volume: I had read a short piece by him on the "executive arrogance" of the Clinton years, calling Clinton's foreign policy: ...shameful... brazen... abuse of executive authority... contempt for constitutional limits ... Nixonian... the cluster-bomb humanitarianism of...

Project Syndicate: The New German Problem: J. Bradford DeLong : September 2002 As Germany prepares to elect its next Chancellor, the two main candidates, Gerhard Schroeder and Edmund Stoiber, agree on one thing: unemployment must be reduced. Over the past two decades, high unemployment has transformed Europe in general and Germany in particular into a sociological time bomb. What will the unemployed - especially the long-term unemployed with only dim memories of integration into the world of work - do...

Back in the early 1990s there were a bunch of us who believed that reducing the deficit--returning American fiscal policy to sanity--would lead to a jump in confidence in America's long-run future, to an increase in investment in America, to a high productivity-growth recovery, and to rapid increases in Americans' incomes. We turned out to be right: economic historians will long argue to what degree the 1990s boom was the result of changes in fiscal policy and to what degree...

There is a principal about asset market bubbles: a policymaking authority like the Federal Reserve can never be sure enough that an asset market rise is a bubble in order for it to take steps to pop it. Why? Because if the Federal Reserve can be sure it is a bubble, the "smart money" in the stock market can be sure that it is a bubble too--and if the smart money is sure that it is a bubble, the smart...

John S. Irons notes that the Center on Budget and Policy Priorities has put out a set--a very good set--of one-page analyses making sense of the Congressional Budget Office's updated forecasts. ArgMax Blog: CBO Budget Information: The Center on Budget and Policy Priorities has put together a series of 1-page reports answering questions about the most recent CBO budget release. Why the surplus has disappeared What part was under congressional control Revenue loss vs. spending Debt and interest on the...

Economists have been worried that the Bush Administration will monkey with the tax code in destructive ways in an attempt to provide "investor protection" to show that it is "doing something" for the victims of the NASDAQ crash. Now the Bush Administration is telling critical economists not to worry. Whether their proposals are good tax policy or not doesn't matter, for the administration has no intention of actually passing any laws to change the tax code. They just want the...

I have always been of the school that central banks should watch asset price bubbles with alarm, but should not raise interest rates in order to try to prick them. My guiding principal has thus been: "Sufficient unto the day is the evil thereof." I suppose I have been most affected by the memory of the Great Depression, where the Fed's desire to restrain asset prices generated interest rate increases that played a role (how big a role is still...

There is little news here in this Wall Street Journal summary of the CBO's projections of a return to deficits: if you had been following the numbers, you would have known this five months ago. Perhaps the most interesting thing is the speed with which the late-1990s political consensus--that the U.S. needed to run a budget surplus larger than the Social Security surplus alone--has unraveled. What the effect of the resulting budget deficits will be on investment in America is,...

The Congressional Budget Office updates its Economic and Budget Outlook. I haven't yet had a chance to go through it, however: it's the first week of the semester, and there are too many other heavy claims on my time. The Budget and Economic Outlook: An Update: The budget deficit expected for this year has grown and the surpluses anticipated for the coming decade have diminished under the Congressional Budget Office's (CBO's) new baseline projections. A sharp decline in tax revenues...

I cannot be the only economist who was disappointed by Bjorn Lomborg's column in the New York Times on Monday, August 26. Lomborg makes a number of good points: it is definitely the case that we are pumping enough CO2 and other greenhouse gases into the atmosphere to warm the earth; that many of our environmental problems are the diseases of poverty, early industrialization, and the absence of democracy; that the Kyoto Protocol would be hideously expensive; that it would...

Max Sawicky tries to unspin the unspinnable--to say quickly, concisely, and convincingly that what has caused the deterioration in the long-run fiscal outlook is not the Republican "trifecta" of "war, recession, and national emregency." Instead, the major causes of the deterioration are (i) the gradually phased-in 2001 tax cut, and (ii) a revised economic model that is more cautious about the likely future relationship between real GDP and tax revenues. He's right, of course. And Mitch Daniels is wrong. Weblog...

Max Sawicky provides a list of exercises for those hoping to get into shape to interpret tomorrow's Congressional Budget Office "Budget and Economic Outlook" release. It's a very good list of sources that he has put together: Weblog Entry - 08/26/2002: "BASIC BUDGET LINKS" Learn your acronyms, intimidate your debating adversaries. Congressional Budget Office (CBO), Office of Management and Budget (OMB), OMB Mid-Session Review (released today), OMB Director Mitch Daniels testimony (1.6 trillion laughs), Council of Economic Advisers (CEA), CEA...

All eight of these guys are first-class analysts and economists: smart, non-partisan, willing to tell their political bosses when they are off-base, willing to stay as late as they have to to get the work done, and deeply committed to public service. Their departure is a real loss for the country--for the current and for future administrations. There are still a lot of first-class career staff working at the Treasury, but there are definitely fewer than there were two years...

From the Financial Times: CEA Chair Glenn Hubbard: "If you ask the narrow question, are steel tariffs in the US economic interest, the answer is no." Good to see that Council of Economic Advisers Chair Glenn Hubbard is still in there pitching, still clear on what the difference between good and bad economic policy are. But where are the Trade Representative, the Assistant to the President for Economic Policy, and the Treasury Secretary? If CEA gets no support from anywhere...

America's Date with Deflation? Two years ago, at the peak of the late-1990s boom, the American economy was slightly overheated. As the unemployment rate fell to four percent and below, inflation began to creep upward, rising by between a quarter and half a percentage point each year. By late 2000 it was very clear that America's GDP was one to two percentage points above potential output--above that level at which aggregate demand balanced aggregate supply, at least in the sense...

Last month's revisions to the NIPA produced a three-quarter decline in real GDP in 2001, instead of the preliminary one-quarter decline. Nevertheless, real GDP declined by only 0.6 percent before beginning its bounce-back in the fourth quarter of 2001. But the most interesting series remains the unemployment rate, still trending upward as real GDP grows less rapidly than productivity plus the trend increase in the labor force, and thus the proportion of America's potential workers left idle continues to grow....

Now will someone please explain to me why Apple's and Linux's desktop market shares are so small? On Lisa Rein's Radar: Warning To Windows Media File Collectors: Your Music Will Die With Your Computer: A guy reformatted his hard drive and then found out none of his Windows Media files would work. Turns out that Windows Media Player turns the "copy protection" (copy prevention) on by default when it rips CDs, so when he reformatted his hard drive the player...

Raining frogs, plagues of locusts, cats and dogs living together! I agree with the Wall Street Journal editorial page: WSJ.com - Major Business News: ...we'd like to offer one post-Waco suggestion. To wit, that President Bush convene a more workable forum and think seriously about economic policy. We'd suggest he lock himself in a room with Larry Lindsey from the White House, Glenn Hubbard from the Council of Economic Advisers and John Taylor from the Treasury. Then he could reach...

For quite a while--more than a year now--the majority of economic reporters I know have been telling me that Treasury Secretary Paul O'Neill is really not up to the job. They say he has no clue as to the substance of economic policy. They say his managerial skills are lousy. And they say he is no clue how to look like a Treasury Secretary. I don't care (much) about the third. I care about the second primarily because I have...

For most of the past decade the world has been lectured to by Americans who proclaimed the perfection of the US economy: its focus on competition, loose labor regulation, and a modest social safety net, all of which supposedly delivered dynamism and high growth rates. Continental Europeans were told to follow the US model and liberalize their labor markets, so that businesses that want to hire can do so without losing money and so that unemployed workers who find new...

So I read David Malpass on National Review. He has a list: six key policy actions that Bush can take to boost the stock market: Stop the decline in the value of the dollar. Encourage Japan to stop deflation by adopting a proper monetary policy. Encourage Brazil to adopt a growth-oriented economic policy to avoid default. Pull some of the civil litigation teeth out of the accounting bill. Adopt a pro-free trade rather than a protectionist trade policy. Persuade OPEC...

Paul Krugman gives his view--a reasonable, sensible, and probably correct view--about what the government ought to be doing vis-a-vis the economy: another round of interest rate cuts to try to eliminate any danger of deflationary psychology taking hold, corporate reform, and a fiscal policy twist to stimulate the economy now with higher deficits and restore confidence in the long-run soundness of the government's tax and spending plans with surpluses later. He then points out that this government will adopt such...

Quite a while ago my brother Chris pointed out to me that stock options do not align the interests of executives with those of shareholders. Options, he said, make the top executives want as much volatility in the company's stock price as possible. Now this point is becoming the conventional wisdom. I think this is healthy. Economist.com ...The theory is that the huge amounts of stock options dished out to executives in the 1990s encouraged them to behave badly. Unlike...

Joshua Micah Marshall says go read Chris Caldwell's New York Press column, and then go read it again... Talking Points Memo: by Joshua Micah Marshall I didn't want to do any posts this weekend. But this article by Chris Caldwell in the New York Press merits an exception. It's simply devastating and the most apt statement of the White House's predicament I've yet read. Every word of it practically is worth reading and reading again. There's always an element of...

Sitting outside at a cafe table next to a woman who is talking on her cellphone and becoming increasingly agitated. She is scheduled for surgery next Monday. She disclosed her preexisting condition to her (new) insurance company, showed proof of current coverage under COBRA, and they said, "Fine." Now they say, "We need a HIPAA certificate before we can authorize coverage for this." She cancelled her COBRA Blue Shield coverage as of June 1. But as of July 15 Blue...

"I think you're wrong," said one of the barons of the center-left Washington, DC thinktanks. "Cato's biggest problem isn't that its day-to-day stuff is too carefully crafted to be politically useful to those factions of the Republican Party that it approves of. Cato's biggest problem is that it doesn't have a deep enough analytical bench. In fact, it has only one young full-time truly-heavy intellectual hitter."* "Brink?" "Yes, Brink Lindsey. Very smart. Very knowledgable. Very thoughtful. And--which is very...

The third of the four things that I had hoped to have finished by mid-May is finally put to bed--on July 9. *Sigh*. Nevertheless, I like it a lot: it is a chapter for a book to be edited by Henry Aaron, part of Brookings's Agenda for the Nation series. It's co-written with the brilliant and thoughtful team of Claudia Goldin and Larry Katz. We're supposed to talk about sustaining American economic growth. What do we say? A fast growing...

One of the nicest things to happen to us here in Berkeley's Economics Department this year was our successfully persuading Emmanuel Saez that he wants to move from Harvard to Berkeley. Here Emmanuel looks at the number of people found at the "kinks" in the tax code. If supply-side effects are large, then lots of people who would otherwise work more (and be in the higher bracket) will decide to quit when their forecasted income reaches the point at which...

So I reread Globalization and Its Discontents, and I am more puzzled than ever. I cannot figure out what is going on inside Stiglitz's head. Part of it I think I have figured out. The repeated changes of position--"No! You should not have imposed any conditions on Suharto but lent freely respecting Indonesia's national sovereignty!" "No! You should not have loaned anything to Suharto at all!" "No! You should have loaned to Suharto, and encouraged capital to flow into Indonesia!...

The continued decline in the share of Americans with health insurance coverage places additional stress on our health care financing system. Sometimes those without health insurance get no or get substandard treatment. Sometimes those without health insurance get adequate or excellent-quality catastrophic treatment--but the treatment is paid for by somebody else. Such cost-shifting further increases the cost of insurance, and reduces coverage. The fear is that at some point large chunks of the financing system will enter an adverse-selection death-spiral...

Before Paul Krugman leaves for his vacation, he takes one more shot at George W. Bush. Between the two options Krugman gives us--Bush knew about and benefited from Harken's accounting frauds, and Bush was just a very negligent and disconnected director--I think the second is by far the most probable. Succeeding in Business ...the ploy works as follows: corporate insiders create a front organization that seems independent but is really under their control. This front buys some of the firm's...

Why does the unemployment rate keep rising, if indeed we are in a recovery? First of all, we are not in that much of a recovery--demand and output are not growing that fast. Second, recall that only recently did President Bush agree to extend the duration of unemployment benefits. In the aftermath of any extension of unemployment benefit duration, the unemployment rate tends to rise by half a percentage point or so relatively to what it would have been: people...

The Economist profiles a guy who will actually have quite an important job over the next several years. It's interesting to note that even with all its problems the American regulatory surveillance system over corporate accounts is better than anywhere else. Yet clearly the American system is not good enough. Economist.com | Face value | Called to account | Bob Herz faces the daunting task of restoring confidence in American accounts. "ARE you nuts?" was the response of close friends...

Amey Stone tries to understand how WorldCom could have gotten away for so long with what was really a simple, simple, transparent fraud stream. Certainly the auditors--Arthur Anderson--should have caught it. And why didn't the analysts following WorldCom catch it? They were supposed to have a good sense of what WorldCom's investments plans were. BusinessWeek Online: How Everyone Missed WorldCom | JULY 3, 2002 COMMENTARY By Amey Stone: The accounting fraud was obvious -- only to the few who had...

IMF chief economist Ken Rogoff unloads both barrels in the direction of Joe Stiglitz. The "nut" paragraphs are below. I think that, analytically, Rogoff has the better of the particular point he chooses for his argument. Following what appear to be Stiglitz's prescriptions--lend more with fewer conditions and have the government print more money to keep interest rates low--seems that it would have been overwhelmingly likely, in all the cases I know well, to end in hyperinflation or in a...

Every once in a while you can watch somebody highly intelligent gather the force of his or her argument, set out the background, approach the conclusion, and then--like a horse shying away from a jump--dissolve into a bunch of non-sequiturs and irrelevencies. Such has happened to the Economist's editor, Bill Emmott, as he writes the introduction to this week's survey of America's foreign policy. Emmott points out that the apex of the Bush administration is unimpressive. He points out that...

Paul Krugman puts his finger on what worries me about the disconnect between the administration's actions and the problems facing America.... Paul Krugman: The Reality Thing You can say this about the Bush administration: where others might see problems, it sees opportunities. A slump in the economy was an opportunity to push a tax cut that provided very little stimulus in the short run, but will place huge demands on the budget in 2010. An electricity shortage in California was...

All in all a nasty piece about Bush's economic team. Why do they seem so weak? There are a lot of good people in there. Yet they seem to be having little impact. And then they are blamed for not having much impact. I cannot figure out whether they are nearly powerless because they are ignored, or whether they are ignored because they are nearly powerless. Perhaps the key moment came early--when they failed to draw a line in the...

At the moment short-term real interest rates are negative: the 1.75% per year interest rate that the Federal Reserve has set on overnight federal funds is less than the rate at which consumer prices are rising. This is a very stimulative posture--it tells businesses that they should undertake investments that (in the short term at least) promise any profits at all, no matter how low. Now the Federal Reserve is telling us that there are no interest rate hikes on...

It is a strange business cycle conjuncture that the U.S. is in now. Stock prices appear overvalued, and likely to fall--an extremely unusual thing to happen at the start of the recovery. Business investment seems likely to weaken further. Yet productivity growth appears extraordinarily strong. The most likely forecast thus seems to involve (a) relatively slow growth--less than the growth rate of potential output (which is about 3.5% per year, or perhaps a touch more), coupled with (b) rising unemployment...

Economist.com | Globalisation is a great force for good. But neither governments nor businesses, Clive Crook argues, can be trusted to make the case Far from being the greatest cause of poverty, globalisation is the only feasible cureThese may be extreme positions, but the minority that holds them is not tiny, by any means. Far more important, the anti-globalists have lately drawn tacit support--if nothing else, a reluctance to condemn--from a broad range of public opinion. As a result, they...

Robert B. Barsky and J. Bradford DeLong (1990), "Bull and Bear Markets in the Twentieth Century," Journal of Economic History 50: 2 (June), pp. 1-17....

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1989), "The Size and Incidence of Losses from Noise Trading," Journal of Finance 44: 3 (July), pp. 681-696....