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June 2005

Charlie Stross's Extremely Well-Received Novel "Accelerando!"

Is here Accelerando!

This free ebook edition is made available by kind consent of my publishers, Ace and Orbit, under a Creative Commons license with certain restrictions attached. In particular, you may not create derivative works or use the work for commercial gain. (We hope that if you enjoy the ebook you'll consider buying a copy of one of the paper editions, but this is the only reminder you'll get. I'm not into shareware with nag screens ...)

Formats: The book is available for reading in HTML, with minimal markup (to make it easier for web clipping utilities to digest it). In addition, zip archives are provided for download in a variety of formats. The primary formats are RTF and conformant HTML 4.0. For direct reading on PDAs and smartphones, a Plucker database is provided. Finally, there are (deprecated) plain text and Palm DOC versions %u2013 these lack typographic markup.

To save my bandwidth and your time, please use BitTorrent in preference to HTTP (web) for downloading, if you know how. (And please consider keeping your BT feed running as a seed for a while afterwards.) Also, please consider grabbing a zip archive of your preferred file format rather than reading the uncompressed HTML version directly off my server. Thanks...

Variable Interest Rate Mortgages

David Leonhardt and Motoko Rich write:

The Trillion-Dollar Bet - New York Times: This year, only about $80 billion, or 1 percent, of mortgage debt will switch to an adjustable rate based largely on prevailing interest rates, according to an analysis by Deutsche Bank in New York. Next year, some $300 billion of mortgage debt will be similarly adjusted. But in 2007, the portion will soar, with $1 trillion of the nation's mortgage debt - or about 12 percent of it - switching to adjustable payments, according to the analysis. The 2007 adjustments will almost certainly be the largest such turnover that has ever occurred....

'I'm not sure that people are being counseled on really how big of a risk they are taking,' said Amy Crews Cutts, deputy chief economist at Freddie Mac, the mortgage company. Consider a typical $300,000 interest-only mortgage with fixed payments for the first five years. The homeowner would start by paying about $1,250 a month. If interest rates rise modestly over the next few years, as many forecasters expect, the payment will jump to almost $2,100 in 2010, according to Stephen Barrett, the owner of Redmond Financial, a mortgage business near Seattle....

This year's fashionable model, known as an 'option ARM,' allows borrowers to make payments with monthly rates starting as low as 1.25 percent for the first five years of the loan; the average rate on a 30-year, fixed-rate loan is about 5.6 percent. During the first quarter of 2005, 40 percent of mortgages over $360,000 issued to people with good credit were option ARM's, said David Liu, a mortgage strategy analyst with UBS in New York. Very few borrowers used option ARM's before 2003.... All of these loans come with the risk of a spike in payments sometime in the future. In particular, borrowers who have taken out an interest-only loan will see a jump in payments simply because they will start to owe principal after the interest-only period lapses. If rates rise, the payments will go even higher. Borrowers whose incomes have not risen enough or who have not planned for the higher payments could find themselves shocked....

Grownup Republican Watch

Matthew Yglesias writes:

TPMCafe || Off The Hook: It isn't written into the fabric of the universe that congressional Republicans need to operate as White House stooges and block all oversight of the executive branch. There's such a thing as doing the right thing, and the fact that zero members of the GOP on the Hill are doing it is worthy of notice.In the Senate, especially, it would only take a handfull of the people who pride themselves on their reputation for high-minded statesmanship and independence to actually demonstrate high-minded statesmanship and independence to make a world of difference...

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

Rising Hegemon comments:

Rising Hegemon: Meanwhile...: Another busy backtracker at the Intersection of Freedom Marching Street & Rose Colored Sky Avenue is Rich Lowry. On May 8, 2005, Rich, as I never tire of pointing out had this cover story published: "We're Winning: How the U.S. Learned the Art of Counterinsurgency in Iraq."

Well today, a little bit of oops and excuse making.... "The other problem is that conditions have taken a downturn over the last couple of months. The insurgency and the fight against it is about adjustments--and the fact is that the insurgents have adjusted to our adjustments that had culminated in the success of the elections and the immediate aftermath."

I've finally woken up to the fact that National Review is composed of very scarce raisins in the middle of a large pile of Luskin-quality ****.

Senator Durbin on Guantanamo

He says:

TalkLeft: Sen. Durbin's Guantanamo Statement: If I read this to you and did not tell you that it was an FBI agent describing what Americans had done to prisoners in their control, you would most certainly believe this must have been done by Nazis, Soviets in their gulags, or some mad regime -- Pol Pot or others -- that had no concern for human beings. Sadly, that is not the case. This was the action of Americans in the treatment of their prisoners....

I almost hesitate to put them in the record, and yet they have to be added to this debate. Let me read to you what one FBI agent saw. And I quote from his report: "On a couple of occasions, I entered interview rooms to find a detainee chained hand and foot in a fetal position to the floor, with no chair, food or water. Most times they urinated or defecated on themselves, and had been left there for 18-24 hours or more. On one occasion, the air conditioning had been turned down so far and the temperature was so cold in the room, that the barefooted detainee was shaking with cold.... On another occasion, the [air conditioner] had been turned off, making the temperature in the unventilated room well over 100 degrees. The detainee was almost unconscious on the floor, with a pile of hair next to him. He had apparently been literally pulling his hair out throughout the night. On another occasion, not only was the temperature unbearably hot, but extremely loud rap music was being played in the room, and had been since the day before, with the detainee chained hand and foot in the fetal position on the tile floor."

Dan Tarullo and Dan Restrepo on CAFTA

I believe their views are trustworthy:

Dominican Republic-Central America Free Trade Agreement-Center for American Progress:
To: Interested Parties
From: Daniel Tarullo, Professor of Law, Georgetown University and Dan Restrepo, Director of Congressional Affairs, CAP

[T]the Administration is now trying to deflect attention from the economic shortcomings of DR-CAFTA by arguing that its rejection would be a foreign policy setback for the United States.... [H]aving ignored the needs of U.S. workers and failing to engage in bipartisan consultation on trade policies for four years, the Administration has no one but itself to blame.... Opposition to DR-CAFTA need not, and should not, signal opposition to trade agreements generally. Both the foreign policy and economic interests of the United States are well served by trade liberalization....

[L]ike most recent trade agreements, DR-CAFTA affects much more than "trade" - it reaches far beyond import policies into domestic economic and social policy, by imposing, for example, obligations to provide certain forms of intellectual property protection.... Judged against the standards of a smart trade policy, DR-CAFTA is badly flawed....

The other six countries in DR-CAFTA will see some benefits in this agreement, likely in the form of an improved investment climate.... [T]he rule of origin in the textile provisions is sufficiently restrictive that it may impede the ability of industries in the DR-CAFTA countries to remain competitive.... The refusal of the Administration to include enforceable labor standards in the agreement, despite the well-documented absence of basic international labor protections in some of the DR-CAFTA countries, is a missed opportunity.... Respecting the environment and securing progress on development are essential to rebuilding public confidence and congressional support for trade agreements. Regrettably, the Administration is not dedicating the long-term resource and financial commitments necessary to realize the environmental goals of the agreement. The Administration's insistence on a provision that forbids DR-CAFTA countries from using test data submitted by one pharmaceutical company to approve a similar drug of another pharmaceutical company could increase the cost of much-needed drugs in the region....

[T]rade policy does not exist in isolation from other economic policies.... The sluggish job and wage growth of the last four years have created an unfavorable situation for displaced workers.... Existing safety net programs such as extended unemployment insurance and trade adjustment assistance (TAA) already fall far short of needed support. Yet... the Administration has tightened the eligibility requirements....

Most presidents since the end of World War II have tried to pursue a bipartisan trade policy. The current Administration has broken radically with this tradition.... On DR-CAFTA, as with each previous trade agreement, the Administration has failed to engage in bipartisan consultation.... Members of Congress who want to support trade expansion through smart policies have grown increasingly frustrated.... [T]his trade agreement, and the policies surrounding it, fall so far short of a much-needed smart trade policy.

Grading AP Exams

Robert Farley of Lawyers, Guns, and Money reports:

Lawyers, Guns and Money: Fort Collins Blogging: DJW and I are currently in Fort Collins, Colorado reading AP exams. What does this entail, you may ask? AP exams are developed by the College Board and given to thousands of high school seniors at the end of each school year. Successful completion of the exams often means college credit, although the requirements differ by institution. Like any tests, AP exams must be graded. In June, close to 600 high school and college teachers converge on Fort Collins to grade the many thousands of US Government and Comparative Government exams that come in. The cadre is divided roughly evenly between high school and college teachers in order to give a diverse set of viewpoints on the exams, to give each group a stake in the success of the project, and to ensure both sides that the exams will be evaluated fairly and competently

We grade. And we grade. And we grade. For seven straight days, from 8am to 5pm, we grade. Usually the first day is spent on training, because while we are each supposed to bring a level of expertise to our field, we are absolutely not allowed to grade according to our personal knowledge and tendencies. Rather, there is the rubric. The rubric specifies that certain points are to be given to specific responses. The rubric is law.

Do not question the rubric. Do not challenge the rubric. Do not defame the rubric.Do not disparage the rubric. Do not poke the rubric. Do not taunt the rubric. The rubric is our holy writ, and is developed before the graders arrive.

The above may sound draconian, but it is absolutely necessary to the success of the project. We are grading questions about politics, and knowledgeable people disagree about the effect of the third parties in American politics or the impact of the Algerian War on French domestic politics, for example. Without a defined set of acceptable answers, chaos would ensue, and the Republic would be endangered. Thus, the rubric. So, we grade. And they feed us. We eat. And we grade. And we eat. We eat breakfast, then grade for two hours. Then they provide us with a tasty snack. We grade for two hourse, then go to lunch. We grade for two hours, then receive another tasty snack. We grade for two hours, then go to dinner. After that, many of us drink beer. It is a simple life.

The best exams, the ones that lighten our day, are those of the students who just don't care. Some students get to take the exams for free. Many of these haven't the faintest about the topic at hand. A subset of these spend their 100 minute period writing about their lives. Writing for people you'll never meet seems to be liberating. I've read bitter tirades directed against the entire male gender. I've read multiple loss-of-virginity accounts. I've read about drug use, crushes, future plans, baseball, football, cats, parents and whatever else you can imagine seventeen year olds caring about. All of these get zero points, but I always read them with great care. We get paid a decent salary, and as I mentioned the work isn't terribly difficult. Fort Collins is a nice place to visit, and Colorado State has a good campus. There is a fair amount of free time, and I've been able to finish some of my own academic work. Tomorrow, we get to go to Rocky Mountain National Park for a few hours. With luck, I'll be able to post some photos.

Optimal Decision-Making Strategies for Sergeant Schultz

What should you do when all you can say is: "I know nothing. Nothing!"?

I'm reading Michael Schwarz's very interesting "Decision Making under Extreme Uncertainty", with its fascinating result that "invariance restrictions alone are sufficient to pin down the agent’s choices in some decision problems":

Suppose an agent... has no information relevant for estimating the variable. In this case her actions in decision problems where payoff is contingent on different dimensional variables are the same, i.e., in this case the name of a variable is merely an uninformative label. (Effectively, provided that an agent has never heard of either tugric or dugric her strategy for selecting a guess from an interval [1,4] is the same regardless if she is guessing the value of a ”tugric” or the length of a “dugric”.) This imposes a sever restriction on an agent’s choices. For instance, if an agent is asked to “guess” exchange rate between currencies A and B conditional on the rate being between a and b, a “guess” of (a + b)/2 is not “reasonable” because, if this decision problem is reformulated in terms of exchange rate between B and A the range becomes 1/b to 1/a and the “guess” in the mirror decision problem (1/b+1/a)/2 is not a reciprocal of the guess in the original problem. A remarkable property of invariant decision problems is that a strategy in the “image game” must be reciprocal of the strategy in the original game.

Surprisingly, in an information vacuum the invariance consideration along are sufficient to uniquely pin done the strategy of an agent in some decision problems. We showed that if the payoff relevant range in an invariant decision problem is given by [a, b], then an agent’s strategy in such a decision problem is approximated by the geometric mean given by √ab. Combining the results of this section with expected utility axioms one can show that the prior of an agent in an information vacuum corresponds to the Jeffreys’ prior 1/x...

I find myself wondering if there isn't a connection between Schwarz's idea of "invariance" and the "Grass Is Greener" Switching-Envelopes Problem, but I'm not smart enough to see clearly why I have a hunch that there is a connection.

Mysteries of the iPod

From Boing Boing:

Boing Boing: 21 iTunes sold per iPod -- where's the rest of the music come from?: Andru... sez, 'Very interesting look at the number of songs sold on iTunes versus the number of iPods sold. It does the math and shows what it would look like if you split all purchased songs onto every iPod sold, and how small of a percentage iTunes music is.'

APRIL 28, 2004 - Today is the one year anniversary of the iTunes Music Store. As of April 15, Apple had sold roughly 60 million iTunes and 3 million iPods (sources below). That's about 21 songs per iPod. For perspective, the smallest iPods hold 1,000 songs, and some hold 10,000 songs. So, when people fill up those iPods, where does all the music come from?

Moving the Goal Posts and Artificial Intelligence

From Mind Hacks:

Mind Hacks: Minsky slams modern AI: [Marvin Minsky makes] a throwaway comment about the 'moving goal posts' problem in the perception of artificial intelligence, that belies much of the problem with how AI is perceived.

It is illustrated by the success of chess computers. In the 60s, it was said that computers will never beat people at chess, because that requires intelligence and computers aren't capable of intelligent thought.

When computers regularly started winning matches in the 80s, it was claimed that playing chess wasn't a test of real intelligence because computers could do it.

As there is no widely accepted definition for intelligence, this is often an example of the No true Scotsman fallacy.

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

Arthur Silber channels what Thomas Friedman really thinks:

: Tommy Friedman: I am the only person in the entire world who will talk honestly and intelligently about the disaster in Iraq. Conservatives are brainless Bush cheerleaders. Liberals are really traitors, and want Bush to lose. And no one else in the entire United States sees what I see.

We never had enough soldiers. I like soldiers, and ours are trying to do an impossible job. But those Iraqi insurgents seem much more motivated than our people. Maybe it's because they're defending their own country. I don't understand that part too well. Then there's the Iraqi political class. What a terrible disappointment all those people are--well, except for the Kurds. The Kurds are great. But wha's wrong with all the rest of them? Such an awful disappointment to me. They don't seem to understand what's in their own best interest nearly as well as I do. They must be confused because they live there.

I don't actually know if a self-sustaining and united Iraq is even possible. But this is still winnable! That only seems like it might be a contradiction to smaller minds than mine, which is all of yours. But to win, we need to double our troops! And we need to kill a lot more people.

Where are twice the number of troops going to come from? That's not my job. My job is to tell everyone what to do. It's someone else's job to figure out how to do it. Of course I%u2019m not volunteering my services for anything, and I'm not going to encourage anyone I know to volunteer either. Do you think I'm crazy? People are getting killed every day over there!

Besides, there isn't anyone else at all to explain this to you. I'm unique and irreplaceable. No one else offers my wisdom, or even comes close. You should thank God for me. I know I do, every single day.

Mark Thoma and Barry Ritholtz on Interest Rates

They write, in an Econoblog: - Where Will Rates Go From Here? Experts Consider the Fed's Path: Mark Thoma, of the University of Oregon, and Barry Ritholtz, of Maxim Group, consider the possibilities....

Mark Thoma: I look at unit labor costs, core PPI, core CPI, inflationary expectations, productivity, output and employment relative to potential, housing markets, and energy costs and ignore the inevitable month-to-month blips, I see trends that indicate rising inflation. Thus, heading off potentially destabilizing inflation and keeping inflationary expectations anchored requires continued tightening at the measured pace established by the Fed....

Barry Ritholtz: Inflation targeting is a nice idea in theory, but... the Fed has been much more active, undertaking a far broader set of policy initiatives.... many of the Fed's action... can be viewed as the central bank careening from one Fed-created problem... to the next... inflation fighters and deflation vigilantes, bubble enablers and now bubble deflaters... tax policy... deficits that policy created... money-supply junkies... the "conundrum" of the yield curve or the "irrational exuberance" of investors... Social Security privatization.... The Fed's authority has led them into battles where they have little influence and less authority, and where they end up doing far more harm than good...

Mark: Those in the "old school"... are not in favor of explicit inflation targeting... because it reduces the Fed's flexibility....

Barry: The chairman's job is extremely difficult, and that -- regardless of what he does -- some wonk somewhere will label him incompetent. That said, calling the Fed's actions a "mistake" is quite an understatement.... The Fed has... tried to moderate the impact of normal market cycles.... But... the longer we wait to pay the bill, the worse it ultimately will be.... While I am not convinced that the housing market is a bubble -- yet -- the negative impacts of too much easy money will be increasingly unstable structural imbalances...

Mark: James Hamilton... makes the case that in the past the Fed has lowered interest rates past the time when it's appropriate on downside, and increased rates for too long on the upside.... This is a delicate balancing act for the Fed.... I'm not convinced that evidence of weakness in output growth or in price pressures have subsided enough to justify a change in the current path of measured increases in the federal-funds rate.

Barry: Mark, I see your expectations for two more hikes .. And as long as we are making predictions, I will raise you a new series of rate cuts (yes, cuts), beginning mid-2006. Why? 'Cause the Fed will... careen from one "situation" of their own creation to another.... [N]early half of the private sector jobs created since the Recession ended in 2001 have been in housing and related industries. That makes them a direct product of the ultra-low rates we've had, thanks to the Fed overshoot to the downside...

Asbestos: Hold on a Minute...

TAPPED sends us to:

On The Hill - Moving Ideas: Asbestos Bill Saves Companies Billions by Denying Victims Justice Posted: 06/14/05: Sen. Arlen Specter (R-PA) is spearheading legislation that would set up an asbestos federal trust fund. The bill, which recently passed out of committee, would: limit the liability of companies who knowingly poisoned their workers; cut benefits to asbestos victims; deny some victims compensation altogether; and pre-empt state laws that provide for speedy trials for terminally ill plaintiffs.

Asbestos claims 9,907 lives per year in America and the death toll seems to be on the rise. Asbestos disease has been documented since the early 1900s, but because the asbestos industry did not disclose the hazards of the material, workers unknowingly used asbestos without protection for decades. Now, even though the dangers of asbestos are well known, it has yet to be banned in this country.

The so-called Fairness in Asbestos Injury Resolution (FAIR) Act, S. 852, establishes a $140 billion trust fund that asbestos victims would have to apply to in order to receive compensation. Victims whose cases have not already been settled would lose their right to sue in court and would have to wait nine months to apply for compensation through the trust fund. The bill also pre-empts state laws and practices that provide for speedy trials for terminally ill plaintiffs. Under the FAIR Act, hundreds would die waiting for court decisions.

To qualify for compensation, the FAIR Act sets up convoluted criteria that are not recognized by the American Lung Association or the American Thoracic Society. Such non-medical criteria, meant to disenfranchise thousands of victims, are necessary to the solvency of the trust fund. If only people dying of the deadly asbestos cancer, mesothelioma, were all paid the current average damages of $2.2 million, the trust fund would be left with no money to pay the tens of thousands of victims dying of other asbestos-related diseases. Furthermore, the bill sets a deadline of 2033 for applicants, leaving the estimated tens of thousands of victims who will be diagnosed after that year with no compensation and no right to sue.

The estimated savings to the asbestos industry is $20.3 billion. A company's annual payment into the trust fund would be capped at $27.5 million per year, totaling $378.5 million in current dollars for the 30 year life of the fund. By comparison, Dow Chemical estimates that its future liability only through the year 2019 will be between $1.6 billion and $2.2 billion. Honeywell projects its liability at $2.75 billion through the year 2018.

Asbestos victims deserve their day in court and just compensation for their suffering. Take action today to ensure asbestos victims are protected, not the companies that poisoned them.

Wait a minute.

Total compensation fund value to be paid to asbestos victims: $140 billion. Savings to the asbestos industry: $20 billion. That means that in the absence of a deal total payments to asbestos victims would be about $115 billion and total payments to trial lawyers would be $45 billion. And the trust fund will, if not incompetently administered, get more of the money to the seriously sick and less to those who simply signed up early with aggressive lawyers.

If Moving Ideas wants to oppose Specter's proposed asbestos bill, it needs to do a *much* better job than this of following the money. I'm willing to be persuaded that Specter's settlement is a bad idea. But claims that asbestos victims deserve "their day in court" are not encouraging. Lawyers want asbestos victims to have "their day in court." Asbestos victims need medical care and survivors' benefits.

UPDATE: From Gypsum Today:

Asbestos legislation that has split the business community limped forward... winning approval from the Senate Judiciary Committee.... The bill, which passed 13-5, would create a $140 billion industry-funded trust from which to pay work-related asbestos injury claims... lung diseases, including a particularly virulent form of lung cancer, mesothelioma.... Insurers... [called] it "wholly unacceptable," in the words of the American Insurance Association.... Mike Baroody, chair of the Asbestos Alliance... said the committee's vote is "very good news for asbestos victims, defendant companies and our nation's economy." But small- to mid-sized companies continue to argue that they are being asked to pay more than their fair share into the trust fund. Particularly opposed are smaller companies that bought enough insurance to meet potential asbestos claims. The legislation would strip them of their insurance, but still require them to make payments into the trust fund.

U.S. asbestos stocks, which had traded up all day, fell on news that the committee had passed the bill....

Sen. John Cornyn, R-Texas, said he voted for the bill Thursday to keep it moving, but "as it is currently written I couldn't support it" on a vote for passage from the Senate floor. Sens. Sam Brownback, R-Kans., Jon Kyl, R-Ariz., and Tom Coburn, R-Okla., said they felt the same.... [B]ill co-sponsor Sen. Patrick Leahy, D-Vt., said "this is a far, far better bill, with a far, far better chance of passing."

The bill would provide a substantial break from potential legal liabilities to former U.S. asbestos manufacturers and producers and their successors businesses. Top beneficiaries include former asbestos manufacturers USG, W.R. Grace, Armstrong, Babcock & Wilcox, NARCO, Owens Corning and Pittsburgh Corning.... Tier II companies include, Dow Chemical Co. (DOW), General Electric Co. (GE), Ford Motor Co. (F), General Motors Corp. (GM), Georgia-Pacific Corp. (GP), Honeywell International Inc. (HON), Pfizer Inc. (PFE) and Viacom Inc. (VIAB), the report said.

For claimants, the bill would provide rapid payments to those near death.... Workers with less exigent injuries would... avoid the expense and uncertainty of... the legal system, but could have to wait for years....

Most Democrats on the committee opposed the bill, arguing that it provided too little relief for asbestos victims and could even strand some victims with no relief at all. Asbestos-related claims filed by more than 730,000 people in the U.S.... Another estimated 400,000 asbestos claims are pending and still more are likely over the next several decades.

The United Auto Workers and Asbestos Workers Union back the bill, but the AFL-CIO has so far refused to endorse it.

Likewise, consumer groups and trial attorneys have joined forces in opposing the measure....

So out of his committee Spector appears to have five other Republicans and three Democrats on board. Five Democrats on the committee are opposed. And four right-wing Republicans say they will vote against final passage, but are willing to let the bill out of committee.

It smells to me like a situation in which both the left and the right would rather have an issue than a bill...

Social Security Once Again: A Debate

Powerpoints for tonight's Social Security Debate:

John Shoven (Stanford), Brad DeLong (Berkeley), Jim Wilcox (Berkeley).

7:00 PM
AP Giannini Auditorium
555 California St.
San Francisco, CA.

Shoven and Wilcox are both very thoughtful, and always fun. I must say I'm not sure how much we'll disagree on...

Open-Source Economics

Mark Thoma is trying an interesting experiment. It would be very nice if it works:

Economist's View: Open-Source Models in Economics: "From Wikipedia, which seemed appropriate for this post, a definition and an English lesson: "Open source denotes that the origins of a product are publicly accessible in part or in whole. When used as an adjective, the term is hyphenated: 'Apache is open-source software.' When used as a noun, there is no hyphen: 'Netscape released its Navigator source code as open source.'" Will the same model work in economics? On the sidebar of this site there is a section entitled "Open-Source" models (I added the hyphen this evening). There are four models there, one by Mark Thoma (me), one by Alex Tabarrok, and two from Brad DeLong. The models are on a variety of topics, in different stages of development, and have both classroom and research orientations...

How to Explain China's Success?

Brad Setser sees:

Brad Setser's Web Log: How to explain China's success?: four potential explanations for China's growth.

1) State intervention in the economy (or certain forms of state intervention at certain stages in the development process) is less of an impediment that is often argued.... Joe Stiglitz argues that China's success demonstrates the limits of 'Washington Consensus' politics.... Foreign businessmen operating in China generally don't object to massive government intervention to keep the RMB from rising.... I don't hear real estate developers here in the US complaining about the intervention by foreign governments in US credit markets... that is contributing to low interest rates and the real estate boom.... In China, state intervention often seems to help at least certain types of business at the expense of Chinese labor, and other interests inside China.

2) China's markets are far more flexible than they seem. Internal migration is controlled in theory but not in practice, so China has its own 'undocumented' internal migrants, migrants who cannot generally work in the state sector and thus are available for private employment. In addition to the formal banking system, informal networks help growing private firms obtain credit.

3) High savings rates and high investment rates can overcome a multitude of other sins.... China is defined above all by very high rates of domestic savings and domestic investment (something it shares with other Asian 'tiger' economies)....

4) High savings, high investment rates and undervalued exchange rate can overcome other sins. The undervalued exchange rate creates an incentive for domestic firms to test themselves in foreign markets... foreign firms to use the country as a base for production to serve their home markets. In the process they bring access to key distribution networks, and needed technology and know-how. An undervalued exchange rate that keeps local labor 'cheap' on a global scale is in effect the bribe the country pays to attract foreign expertise.

Personally, I suspect high savings rates and high investment rates are the most important factors. Avoiding major currency overvaluations is also important -- though I am not sure China's current undervaluation (explanation 4) is as necessary as many argue.... [Is] China's current model is sustainable. My strong sense is that the answer is no. 30% y/y export growth implies that China's exports would more than double every three years.... China now has become big enough that it needs to contribute to global (consumption) demand, not just global supply. How and when that transition will come, however, remains a huge question.

Republican House Member Randy Cunningham Takes Bribe, Pockets $700,000

Paul Kedrosky reports:

Infectious Greed: Best/Worst Real Estate Broker in California: Rep. Randy Cunningham apparently has the best real estate broker in California. He sold his Del Mar, California, house in November of 2003 for a tidy $1,675,000. A month later, however, the person who bought the house from Cunningham put the house back on the market, but it took eight months to sell the house, and the price fell $700,000. It seems the buyer's agent was the worst broker in California. Too bad.

Then again, there are some puzzles here. The man who bought the house from Cunningham was Mitchell Wade, a defense contractor doing business as MZM, Inc. Wade's company had received millions of dollars in defense business, and Cunningham sits on the House Intelligence Committee. These are things that make you go 'Hmmmm.'

Is is possible that Del Mar's beachside prices fell precipitously during the biggest real estate boom ever in southern California? As the figure here shows, no, it's not likely at all. So we're left with believing that either the buyer & seller had the most bizarre yin/yang experience in real estate history, or there is more to this than meets the eye.

Why hasn't Cunningham been indicted, and expelled from the House of Representatives yet?

The Economic Sociology of Asset Market Efficiency

Brayden King asks:

Pub Sociology: A sociology of market efficiency: According to orthodox views of market efficiency, smart money should be able to correct for the irrationality of bad investors, bringing prices back to fundamentals even when the majority of investors over- or undervalue certain stocks. This is the role of arbitrage. Yet, we often see that markets still produce inefficient outcomes. Why?... Our sociological intuition tells us that market structure - the social relations between actors, practices, and meaning - ought to mediate the extent to which markets operate more or less efficiently. This is one of the most important insights that economic sociology has to offer, I think (and one of the primary conclusions in my dissertation). We should be able to show that the structure of relations in a market has a real impact on the efficiency of market pricing and choice.

Ezra Zuckerman, who I think is one of the brightest and most interesting scholars in the field, has a lot to say about this. In his 2004 piece* on structural coherence and market valuation, he argues the very this very point:

I challenge the assumption made by the [efficient market hypothesis] that the social structural environment typical of financial markets always has the necessary features to support the highly sophisticated social learning necessary for incorrect models to valuation to be driven from the market...

*Zuckerman, Ezra. 2004. “Structural Incoherence and Stock Market Activity.” American Sociological Review 69: 405-32.

Well, it is explicit in DeLong, Shleifer, Summers, and Waldmann (1990), "Noise Trader Risk in Financial Markets," Journal of Political Economy, that as a matter of economic theory rational, sophisticated investors are not guaranteed to earn higher expected returns on their portfolios than are noise traders if rational investors have short horizons, and if noise traders on average concentrate their long positions in the assets about which their opinions irrationally fluctuate.

It is implicit in DSSW (1990) that as a matter of economic theory incorrect models of valuation are not only not driven from the market but exist happily in it and can come to dominate it if:

  1. Rational investors have short horizons.
  2. Rational investors are risk averse.
  3. Noise traders on average concentrate their long positions in the assets about which their opinions irrationally fluctuate.
  4. Noise traders' misperceptions are correlated across noise traders.
  5. New entrants into the market look back at recent realized returns to decide what valuation strategies to adopt.
  6. There is enough fundamental risk to curb rational investors' willingness to take large positions against noise traders.

Perhaps it is time to make this explicit as well: here's a memo.

And I am still waiting for my copy of Braydon King's dissertation...

The Wall Street Journal Editorial Page Is More of a Joke than Ever (Why Oh Why Can't We Have a Better Press Corps? Department)

kevin Drum reports:

The Washington Monthly: SUPPLY SIDE BUFFOONERY.... [I]t's Stephen Moore's maiden outing as a member of the WSJ editorial board. A friend emailed to tell me that 'knowing how much you enjoy shooting fish in a barrel,' I should take a look. He was right! Moore's sermon today is about the wonders of supply side economics:

In the 1980s, President Ronald Reagan chopped the highest personal income tax rate from the confiscatory 70% rate that he inherited when he entered office to 28% when he left office and the resulting economic burst caused federal tax receipts to almost precisely double: from $517 billion to $1,032 billion.

Tax revenue doubled!... [But f]irst, we should adjust for inflation.... In 1980 dollars, $1,032 billion is actually $670 billion.... [P]opulation increased... tax revenue was $2,283 per person in 1980 and $2,694 per person in 1990. That's not double. It's an increase of 18%... a lot of that is due to consistent tax increases throughout the 1980s (details here).... [W]e can play this game with any decade.... Adjusting for inflation and population growth... [70S] 70s produced an increase... OF 25%. The Clinton 90s produced... 40%.... Reagan produced the slowest growth in... any decade since World War II. That's a real supply side triumph.

Welcome to the Journal, Steve. You guys deserve each other

Eric Umansky Is Also Unhappy with David Sanger

He writes:

Iraq's Training Daze By Eric Umansky: That brings us to No. 1. A day after the Post broke word of another prewar British memo, the NYT hops onboard. Presumably not content to simply repeat the WP's angle--'MEMO: U.S. LACKED FULL POSTWAR IRAQ PLAN'--the Times gets creative: 'PREWAR BRITISH MEMO SAYS WAR DECISION WASN'T MADE.' That headline hangs on a single clause of a single sentence in the 2,300-word memo:

Although no political decisions have been taken, US military planners have drafted options for the US Government to undertake an invasion of Iraq.

As it happens, the memo was first obtained by the Rupert Murdoch-owned Sunday Times (U.K.). Its headline: 'MINISTERS WERE TOLD OF NEED FOR GULF WAR 'EXCUSE.'

It's not just the headline: it's the entire lead: "A memorandum written by Prime Minister Tony Blair's cabinet office in late July 2002 explicitly states that the Bush administration had made 'no political decisions' to invade Iraq..."

David Sanger of the New York Times Takes a Dive (Why Oh Why Can't We Have a Better Press Corps? Department)

David Sanger leads his article in this morning's New York Times with:

Prewar British Memo Says War Decision Wasn't Made - New York Times: A memorandum written by Prime Minister Tony Blair's cabinet office in late July 2002 explicitly states that the Bush administration had made 'no political decisions' to invade Iraq...

Nico of ThinkProgress points out that Sanger has "misread" his document:

Sanger presumes that "political decisions" refers to the actual decision to go to war.... [H]e concludes that the memo shows the Bush administration hadn't [then] decided whether or not to invade Iraq. This is both sloppy journalism, and factually incorrect.... "[P]olitical" [as] used in the memo... [has] a very different sense... the shaping of public opinion and the construction of a legal edifice that would justify Britain's participation in the U.S. attack....

[T]he other four references to "political" in the document.... [P]age 1, the author speaks of the desire to "engage the US on the need to set military plans within a realistic political strategy," which includes "creating the conditions necessary to justify government military action, which might include an ultimatum for the return of UN weapons inspectors to Iraq."... [P]age 1: "The US Government... as yet... lacks a political framework. In particular, little thought has been given to creating the political conditions for military action, or the aftermath and how to shape it."... [P]age 3: "An international coalition is necessary to provide a military platform and desirable for political purposes."

All of these uses suggest that "political decisions" had little or nothing to do with the actual decision to go to war.... Now... read again the paragraph from which Sanger quotes... (and remember, he didn't even include this sentence -- just the phrase 'no political decisions'): "Although no political decisions have been taken, US military planners have drafted options for the US Government to undertake an invasion of Iraq."

Frankly, this sounds like another way of saying: the U.S. has decided to go to war, is planning military strategies to do it, but has not figured out a way to sell it to the people or justify it legally.

Continue reading "David Sanger of the New York Times Takes a Dive (Why Oh Why Can't We Have a Better Press Corps? Department)" »


Kevin Drum writes:

The Washington Monthly: JUDGING THE ECONOMY.... Max Sawicky enters the fever swamp of mainstream economics and produces the following anecdote:

An econ professor I know likes to tell a story of his days as a Fed employee. At some kind of meeting new numbers were reported, to the effect that real wages had declined in a recent period. He recalls that a cheer went up among those present.

Business reporters do the same thing. Whether this is because they're equally clueless or because they're just following the crowd, I couldn't say.

There's a broad basket of economic indicators that we'd all like to see going in the right direction. We all want high GDP growth, low unemployment, a rising stock market, low inflation, etc. etc. But if you put a gun to my head and told me I could judge the health of an economy by only one statistic, my choice would be median income. If it's going up in real terms, the odds are good that the economy is in fine fettle. If it's stagnant or dropping, trouble is brewing. After all, what's the point of all the other stuff if 80% of the country isn't getting any benefit from it?

If I had been among those cheering when disappointing real wage growth was announced, it would have been because of the following chain of reasoning:

  1. Real wages are still lagging behind productivity.
  2. That means unemployment is still above the natural rate.
  3. That means the Federal Reserve can pursue policies to expand employment without worrying about accelerating overall inflation.
  4. It can cut interest rates.
  5. And so allow employment to expand rapidly.

When real wages start rising faster than trend productivity growth, it's a sign that inflationary pressures are or are about to start building. It's a sign that--as long as the Fed wishes to maintain its credibility as the guardian of effective price stability--it isn't going to be able to let employment grow rapidly for much longer.

So if I were to cheer at receiving news of disappointing real wage performance, it would be because I thought it told me that the natural rate of unemployment was lower than I had thought, and that the economy had more room to boom than I had thought.

Of course, bond traders don't think that far: they cheer at falling real wages and rising unemployment because the Fed's response to them is to cut interest rates and so elevate bond prices, and they are long bonds.

Investor Behavior for Beginners

Barry Ritholtz writes:

Apprenticed Investor: Know Thyself: Statistical evidence suggests a high probability that you underperformed the broader market last year, and most investors will likely underperform again this year. But it's not just retail investors. The pros are barely any better. In fact, four out of five investors will do worse than the S&P 500 this year.

The problem, it seems, is a design flaw.

Indeed, many classic investor errors -- overtrading, groupthink, panic selling, marrying positions (i.e., refusing to sell), chasing stocks, rationalizing, freezing up -- are mostly due to our genetic makeup. Humans have evolved to survive in a harsh, competitive landscape. To do well in the capital markets, on the other hand, requires a skill set that is very often the antithesis of those innate survival instincts.... [W]hen it comes to investing, humans just ain't built for it....

Humans have a tendency to see order in randomness. We find patterns where none exist. While that trait might have helped a baby recognize its parents (thereby improving the odds for its survival), seeing patterns where none exist is counter-productive when it comes to investing. We also selectively perceive data, hoping to find something that confirms our prior views. We ignore data that contradicts those prior views. We even reinterpret old evidence so it is more in sync with our perspective. Then, we only selectively remember those things that support our case. Last, we overuse Heuristics, which is defined as simple, efficient rules of thumb that have been proposed to explain how people make decisions, come to judgments and solve problems, typically when facing complex problems or incomplete information (call them mental short cuts). These short cuts often generate "systematic errors" or blind spots in our analytical reasoning....

The vast majority of human history has been spent learning to survive, not analyze P/E ratios. Learning to fight nature won't be easy. To outperform, you sometimes must go against the crowd, despite the appeal and seeming safety in numbers. You must be humble and willing to admit error; meaning you'll have to overcome your ego's predisposition to avoid embarrassment, so as to maintain status amongst your tribe (and thereby enhance survival probabilities).

Most investors are overconfident to a fault. Don't believe me? Consider the following anecdote: A man was terrified to fly, yet thought nothing of roaring down the street -- sans helmet, no less -- on his Harley. That reveals a high degree of confidence in his own skills vs. a highly trained pilot's. That's some risk-analysis engine you got there, bub. That blind faith in our own abilities... is hardly beneficial when to comes to picking stocks. And that's before we even get to the "flight or fight" response. Our natural instinct during periods of volatility is to stop the pain, not to endure it with patience. The natural reactions to discomfort or threat -- coupled with a natural inability to be patient -- doesn't serve us well in the market. During market bottoms, most of the herd is selling. To buy during periods of intense selling means leaving the safety of the crowd, standing out, risking humiliation.

We simply were not designed for that.

This overconfidence leads to the optimistic yet misguided belief that most of us can beat the market. We must believe we can outperform the major indices. Otherwise, the rational thing to do would be to simply buy a major index and forget about it.... Most investors -- the 80% who underperform -- would probably be better off going the index route. If you're still interested in trying to outperform -- despite all we discussed today -- then I admire your gumption....

Stock, Housing, and Bond Market Bubbles

Greg Ip writes about the housing bubble. In my view, the housing bubble is secondary--it is the bond market conundrum (the continuance of very low long-term interest rates) that is central. Housing prices, after all, are not *that* out of line if current long-term interest rates were likely to continue. I don't think that long-term interest rates at current rates are likely to continue. There will have to be "adjustments" in many markets other than the housing market. How to finesse them is an interesting and unanswered question: a "research topic."

Let me turn the microphone over to Greg Ip: - In Treating U.S. After Bubble, Fed Helped Create New Threats: By many yardsticks, the Federal Reserve's response to the bursting of the stock and tech-spending bubbles in 2000 has been a remarkable success. The 2001 recession was mild and economic growth since has been brisk. Employment is up and inflation remains within the Fed's hallowed zone of price stability.

But five years after the stock market's peak, the economy faces other threatening imbalances: a potential housing bubble, rock-bottom personal saving rates and a gargantuan trade deficit. And the Fed's post-bubble prescription bears some responsibility for all three. Fed officials acknowledge as much but say the alternatives were worse.

By slashing short-term interest rates to 45-year lows, the Fed encouraged Americans to borrow more, gave them little reward for saving and helped ignite a surge in housing prices.... All that spending contributed to a growing U.S. economy, a steady increase in imports and... a mountain of foreign debt. This is pleasant for Americans as long as it lasts. But Fed officials, international financial watchdogs and private economists say it can't.... After treating a bubble, how does the Fed manage the side effects of its medicine?...

[A] minority of economists warn of a more damaging scenario. Some say the Fed has simply replaced the stock-market bubble with one in housing, which could burst.... Accused by some of fostering excess, Fed officials responded that the alternative was worse: a deeper recession and the risk of deflation -- a period of generally falling prices, which can worsen a downturn by making it harder for workers and companies to repay debts....

"If I were a biologist I'd call this a perfect example of symbiosis," former Fed Chairman Paul Volcker mused in a February speech at Stanford University. "Contented American consumers matched against delighted foreign producers. Happy borrowers matched against willing lenders. The difficulty is, the seemingly comfortable pattern can't go on indefinitely." Almost every economist agrees. The debate is over how, not whether, the global economy rebalances: Will it be smooth, through some combination of declining dollar and accelerating foreign demand? Or will it be chaotic, with a dollar collapse, much higher U.S. interest rates and perhaps a global recession? Mr. Volcker thinks a crisis is likely. Investor confidence could fade "at some point," he said, with "damaging volatility in both exchange markets and interest rates."...

Fed staff research shows that in the past, when a big, rich country has a large current account deficit, it usually narrows without crisis.... That benign scenario has yet to unfold. Business investment is growing but by less than the Fed had expected....

The Iraqi Civil War Approaches...

Eric Umansky writes:

Eric Umansky: Ugly in Iraq: This from Today's Papers:

A former member of the Wolf Brigade, an elite Iraqi commando unit, entered the brigade headquarters in eastern Baghdad and detonated explosives strapped to his body, killing three soldiers and one other person.

Here how the Times described the Brigade in a recent Q&A:

The most feared and effective commando unit in Iraq, experts say. Formed last October by a former three-star Shiite general and SCIRI member who goes by the nom de guerre Abu Walid, the Wolf Brigade is composed of roughly 2,000 fighters, mostly young, poor Shiites from Sadr City. Members of the group reportedly earn as much as 700,000 Iraqi dinars, or $400, per month, a large sum in Iraqi terms. They dress in garb--olive uniform and red beret--redolent of Saddam Hussein's elite guard; their logo is a menacing-looking wolf.

Meanwhile, it looks like Iraqi government forces can get some things done, such as moving sectarian violence moving toward a boil. From the NYT:

Also in the morning, the police found the bodies of three Iraqi civilians in Baghdad, the Interior Ministry said. The men, who belonged to the Sunni-dominated Dulaim tribe in rebellious western Iraq, had been handcuffed and blindfolded, and there were signs of torture on their bodies, a ministry official said. The victims were Saadi Khalaf, an Oil Ministry employee; Muhammad Khalaf, a reporter for Al Majd, a newspaper; and Esam Fadhil, their cousin. The three men were taken from their homes in southern Baghdad on Friday night, reportedly by men wearing police uniforms and riding in Interior Ministry vehicles, the official said. Their kidnappers told people in those houses that they were intelligence officers with the Interior Ministry, the official added.

Wolfowitz Math: $208 Billion < $30 Billion

Unqualified Offerings writes:

: "Walter Pincus of the Post, writing about the memo prepared in advance of the famous July 2002 Downing Street meeting, gets droll:

Testimony by then-Deputy Secretary of Defense Paul D. Wolfowitz, one of the chief architects of Iraq policy, before a House subcommittee on Feb. 28, 2003, just weeks before the invasion, illustrated the optimistic view the administration had of postwar Iraq. He said containment of Hussein the previous 12 years had cost %u201Cslightly over $30 billion,%u201D adding, %u201CI can%u2019t imagine anyone here wanting to spend another $30 billion to be there for another 12 years.%u201D As of May, the Congressional Research Service estimated that Congress has approved $208 billion for the war in Iraq since 2003.

The rest of the article is stuff you already knew, just more official-like.

Payoffs From Globalization

Gary Clyde Hufbauer and Paul L.E. Grieco say:

The Payoff From Globalization: There is no question that trade liberalization creates winners and losers. Affected citizens and companies have every right to plead their case. But Congress should consider how freer trade affects the nation as a whole. Since World War II the United States has led the international quest to liberalize world trade and investment. With leadership from the White House, Congress has slashed the simple average tariff rate from 40 percent in 1946 to 4 percent today, and other industrial nations have done much the same. After a half-century of steady liberalization it is fair to ask, what do Americans have to show?

As it turns out, quite a lot. Using four different methods, we estimate that the combination of shrinking distances -- thanks to container ships, telecommunications and other new technologies -- and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household.... Americans do not receive this money as a check marked "payoff from globalization." Instead, the payoff is hidden within familiar channels: fatter paychecks, lower prices and better product choices....

First, we... correlate the expansion of international trade with economic growth... the increase in U.S. income sparked by more intense trade equates to 13.2 percent of GDP.... [S]econd... we calculate how lower tariffs stimulate U.S. productivity through competitive forces and bring greater product choices... 8.6 percent of GDP. Third, we draw on a computable general equilibrium model... 7.3 percent more in GDP.... Finally, we calculate the productivity benefits arising from use of imported components... 9.6 percent of GDP....

[O]ur estimates of future policy liberalization alone (excluding likely benefits from better communications and transportation) indicate that a move from today's commercial environment to global free trade and investment could produce an additional $500 billion in U.S. income annually, or roughly $5,000 per household each year... services, agriculture, transportation and trade with developing countries.... Despite the huge payoff to the United States, maintaining political support for trade liberalization has never been easy. Poli Sci 101 gives the explanation: Large gains are widely dispersed, and much smaller private losses are highly concentrated... 225,000 trade-related job losses per year... some are unemployed for an extended period. Even workers who are re-employed may face significant pay cuts... lifetime costs... $240,000 per affected worker. This is a huge loss on a personal level, but only about 5 percent of the annual national gains.... [S]trident opposition to CAFTA from sugar barons....

The federal government spends less than $2 billion per year helping trade-dislocated workers. Over the past decade, the Organization of Economic Cooperation and Development estimates that U.S. government policy has boosted domestic farm incomes by an average $40 billion per year.... Given the enormous dividends from international trade, more should be done for workers forced to bear the burden of economic adjustment...

A Big Hole in Michael Kinsley's Knowledge Base

Michael Kinsley appears never to have learned that high officials of foreign governments use the word "Washington" as a shorthand for "The U.S. government." For them, "Washington" does not mean "freelance chatterboxes."

How has he managed to avoid learning this?

Kevin Drum comments:

The Washington Monthly: I've read Michael Kinsley's latest column on the subject.... [H]ere is the wording of the original DSM:

C [the head of MI6] reported on his recent talks in Washington. There was a perceptible shift in attitude. Military action was now seen as inevitable.

....The Defence Secretary said that the US had already begun 'spikes of activity' to put pressure on the regime. No decisions had been taken, but he thought the most likely timing in US minds for military action to begin was January, with the timeline beginning 30 days before the US Congressional elections.

....The Foreign Secretary said he would discuss this with Colin Powell this week. It seemed clear that Bush had made up his mind to take military action, even if the timing was not yet decided.

Got that? The head of MI6, the defense secretary, and the foreign secretary all reported that military action was a foregone conclusion.

Here's how Kinsley reports this:

The key passage summarizes 'recent talks in Washington' by the head of British foreign intelligence (identified, John le Carre-style, as 'C'). C reported that 'military action was now seen as inevitable.'

....But even on its face, the memo is not proof that Bush had decided on war. It states that war is 'now seen as inevitable' by 'Washington.' That is, people other than Bush had concluded, based on observation, that he was determined to go to war. There is no claim of even fourth-hand knowledge that he had actually declared this intention. Even if 'Washington' meant administration decision-makers, rather than the usual freelance chatterboxes, C was only saying that these people believed that war was how events would play out.

So: three high level officials from our closest military partner came to Washington for high level talks. All three came to identical conclusions. What's more, the balance of the DSM is a discussion of military plans and legal justifications that assumes military action as a given. The only question mark is the exact date.

Yet Kinsley treats this as if these guys were just some bloggers who were shooting the breeze about the DC rumor mill. Is he serious?

The Gadflyer Is as Annoyed as I Am at Toner and Rosenbaum

Jonathan Weileer writes:

The Gadflyer: Fly Trap: One of the most frustrating aspects of the debate about social security is how often treatments of the issue demonstrate what seems like willful ignorance of the intensive ways in which the issues involved have already been addressed. So it goes in Sunday's New York Times, where Robin Toner and David Rosenbaum make the shocking discovery that expected increases in life expectancy need to be addressed in securing the finances of the program over the next seventy five years. They write: 'Americans turning 65 this year can expect to live, on average, until they are 83, four and a half years longer than the typical 65-year-old could expect in 1940. And government actuaries predict that American life spans will just keep growing. This demographic trend - by 2040, the average 65-year-old will live to about 85 - has major financial implications for Social Security and major political implications for the lawmakers now trying to overhaul the system.'

Incredibly, in an article which is entirely devoted to the impact of life expectancy increases on social security's finances, the authors do not, one single time, mention the fact that the Social Security Trustees (and the Congressional Budget Office) factor life expectancy increases into their assessment of the program's long-term well-being. Now, there is a debate about whether the trustees have over- or under-estimated the increase in life expectancy going forward. Robert Pear, for example, in an article written last December, marshalled evidence suggesting that the trustees have under-estimated the likely increase.

However, he provided room for experts who disagree with that assertion.... [T]here is not a single mention of that debate in the Toner/Rosenbaum piece or even, as I mentioned, an acknowledgment that the trustees have already accounted for life expectancy increases in their projections. Instead, the Toner/Rosenbaum article comprises a litany of quotes from Republicans about the dire realities facing the program, presumably counter-balanced by quotes from a representative of AARP and a democratic representative from North Dakota on why it's inappropriate to raise the age limit for drawing benefits, and from a democratic pollster about why age is a dicey political issue...

Why Oh Why Can't We Have a Better Press Corps? (Life Expectancy and Social Security Edition)

Roughly, if you take the Congressional Budget Office's forecasts, to close the expected 75-year Social Security deficit requires one of (a) raising the share of payroll subject to Social Security taxes from 85% to 95%, (b) raising the Social Security tax rate from 12.4% to 13.6% on its current tax base, (c) cutting benefits by a tenth, (d) raising the retirement age at which you can start collecting Social Security by 18 months, or (e) some combination of things. (Of course, this would be expected to leave the system in considerable deficit after 2080.)

Today Robin Toner and David Rosenbaum have a front page New York Times article about rising life expectancy and Social Security. Yet they manage to convey only four pieces of information: (i) people are living longer, (ii) that means that Social Security has to pay out more money to them over their lifetimes, (iii) Social Security's payouts could be reduced by raising the retirement age, but (iv) raising the retirement age is politically unpopular.

No useful numbers at all--not even a clue about the *size* of the increase in the Social Security retirement age that Republican committee chairs are contemplating.

No placing of the "longevity issue" in the context of the other factors affecting Social Security finances--the population growth issue, the population aging issue, the productivity growth issue, the income distribution issue, et cetera. No hint in the article that if you don't raise retirement ages, you are committed thereby to either (a) hoping that economic growth will speed up by a lot, or (b) tax increases or some other form of benefit cuts.

Why oh why can't we have a better press corps?

In Overhaul of Social Security, Age Is the Elephant in the Room - New York Times by ROBIN TONER and DAVID E. ROSENBAUM: WASHINGTON, June 11 - Americans turning 65 this year can expect to live, on average, until they are 83, four and a half years longer than the typical 65-year-old could expect in 1940... by 2040, the average 65-year-old will live to about 85.... Policy experts... have told Congress... adjusting benefits, raising the retirement age, increasing taxes or creating new incentives to work longer.... Senator Charles E. Grassley, Republican of Iowa, the chairman of the Finance Committee, says the retirement age will be addressed in the solvency plan.... 'We've got to deal with reality,' said Senator Trent Lott, Republican of Mississippi.

But the politics are treacherous.... The most direct way to deal with the financial strain of greater longevity is simply to raise the retirement age.... But... in a New York Times/CBS News Poll earlier this year, nearly 8 out of 10 respondents said they would oppose raising the age when people are eligible for Social Security benefits. Political strategists say this issue is viewed very differently by policy experts, who may see nothing wrong with working longer, and average Americans, with jobs that may be uninteresting, stressful or physically demanding, who are often eager to retire and doubtful of their employment prospects in their mid-to-late 60's....

'In Washington, the focus is on the demographic reality that people live longer, and most of the people who are having this conversation wouldn't mind working well into their 70's and 80's,' said Geoff Garin, a Democratic pollster.... Glen Bolger, a Republican pollster, agreed: 'Forty might be the new 30, but they don't necessarily believe that 70 is the new 65.'

Lawmakers in both parties have acknowledged that many people not only want to but also need to retire at 62 or 65. Representative Bill Thomas, Republican of California, the chairman of the Ways and Means Committee, recently reflected, 'I know my father, in terms of his plumbing activities, was pretty - the phrase, I guess, would be pretty used up by the time he was 65.' Representative Earl Pomeroy, Democrat of North Dakota, a committee member, said, 'I represent a lot of people doing some pretty hard labor out there on those farms.'... protections for low-income workers in physically taxing fields.... Workers can take earlier retirement at 62, as most do, but their benefit checks are reduced as a result - 20 percent or more every month for the rest of their lives, depending on how early they retire....

C. Eugene Steuerle, a senior fellow at the Urban Institute and a former official in the Reagan administration, notes that Americans already retire, on average, for close to one-third of their adult lives, and argues that Social Security 'has morphed into a middle-age retirement system.'... Edward M. Gramlich, a governor of the Federal Reserve Board and an authority on Social Security, says that if the architects of Social Security 'had known about the explosion in life expectancy, they would have put in some adjustment in the retirement age.'...

For individuals... indexing for longevity, would be little different from a direct increase in the retirement age or a specified reduction in benefits, said Douglas Holtz-Eakin, director of the Congressional Budget Office. But for the system, Mr. Holtz-Eakin said, it would make a big difference because the changes would be automatic.... It might also be politically attractive because politicians would be relieved of the responsibility of periodically voting to raise the retirement age or to cut benefits.... [O]ver 75 years and longer, he said, it would have an important effect...

The Honor of Marse Robert

Somebody needs to stand up for Robert E. Lee. After having him win the Battle of Gettysburg decisively, William Forstchen and Newt Gingrich have him lose the entire Army of Northern Virginia--the entire army--to U.S. Grant before the end of 1863.

No way. No how. Even though he did order Pickett's Charge, Marse Robert was a *very* good general. Unless outnumbered more than five-to-one (as Lee was at Appomattox), it takes a John Bell Hood or a John Pemberton or a Simon Buckner to lose an entire army under Civil War conditions.

Never Call Retreat: Lee and Grant: The Final Victory (New York: Thomas Dunne: 0312342985).

But we should never forget what the power elite of the South was fighting for. Here it is in their own words:

The Address of George Williamson, Commissioner of Louisiana, to the Texas Secession Convention.

Why Oh Why Are We Ruled by These Liars? (And We Could Use a Better Press Corps...)

The Downing Street Memo acquires more steam:

Ministers were told of need for Gulf war "excuse" - Britain - Times Online: Michael Smith: MINISTERS were warned in July 2002 that Britain was committed to taking part in an American-led invasion of Iraq and they had no choice but to find a way of making it legal. The warning, in a leaked Cabinet Office briefing paper, said Tony Blair had already agreed to back military action to get rid of Saddam Hussein at a summit at the Texas ranch of President George W Bush three months earlier... since regime change was illegal it was “necessary to create the conditions” which would make it legal. This was required because, even if ministers decided Britain should not take part in an invasion, the American military would be using British bases....

The paper was circulated to those present at the meeting, among whom were Blair, Geoff Hoon, then defence secretary, Jack Straw, the foreign secretary, and Sir Richard Dearlove, then chief of MI6.... The document said the only way the allies could justify military action was to place Saddam Hussein in a position where he ignored or rejected a United Nations ultimatum.... But it warned this would be difficult. “It is just possible that an ultimatum could be cast in terms which Saddam would reject,” the document says....

The suggestions that the allies use the UN to justify war contradicts claims by Blair and Bush, repeated during their Washington summit last week.... There has been a growing storm of protest in America, created by last month’s publication of the minutes in The Sunday Times. A host of citizens, including many internet bloggers, have demanded to know why the Downing Street memo (often shortened to “the DSM” on websites) has been largely ignored by the US mainstream media. The White House has declined to respond to a letter from 89 Democratic congressmen asking if it was true — as Dearlove told the July meeting — that “the intelligence and facts were being fixed around the policy” in Washington.

The Downing Street memo burst into the mainstream American media only last week after it was raised at a joint Bush-Blair press conference....

The complaints of media self-censorship have been backed up by the ombudsmen of The Washington Post, The New York Times and National Public Radio, who have questioned the lack of attention the minutes have received from their organisations.


One of the most effective rhetorical moments I can see in my mind's eye--although, alas, I have forgotten the context--is that of Treasury Secretary Lloyd Bentsen icily glaring across the conference table at somebody and saying: "I am old enough to know the difference between 'grassroots' and 'astroturf'."

This morning Teresa Nielsen Hayden tells us to go read Rational Grounds:

Making Light: More astroturf: In "Deceiving Us Has Become an Industrial Process," the weblog Rational Grounds has far exceeded the old post of mine he quotes, Common Fraud, in examining how pervasive corporate-sponsored fake grassroots organizations have become:

Josh Marshall is currently beating the drum against Koch Industries... reading his comments I was bowled over by the number of astroturf groups involved in this little network. You've got Social Security for All, who are actually Americans for Prosperity, who are actually the Independent Women's Forum.... Citizens for a Sound Economy (now merged with Empower America to become Freedom Works)... they also had a hand... lobbying for the tobacco companies going back to 1994.... The bizarre advocacy network the government has worked up for No Child Left Behind is probably more famous... Armstrong Williams and the illegal fake-news blocks the Bush administration put out.... The Medicare and Armstrong parts of this saga are run through a PR and marketing firm named Ketchum.... Democracy, Data & Communications... oodles of DDC fronts.... All those stories about wacky lawsuits and outrageous settlements? Lies.... I have to wonder - how many of my opinions about my world are bought and paid for?

Answer: a lot of them, unless you've gone through and cleaned out every compartment. I don't want to give myself undue credit for precocity, but I started noticing there was something funny going on when I was a kid reading my grandparents' copies of Readers Digest. That was where I first heard about juries making ridiculous awards in personal-injury cases. It made interesting reading, but after a while it occurred to me that I never saw articles about reasonable and justifiable personal injury awards. Surely there had to be some? Likewise articles in which the IRS wasn't a monster, and labor unions had some good reason to exist, and politicians weren't all windbags, layabouts, and snake oil salesmen.

I doubt we'll ever know the whole history of astroturf. I suspect it goes back further and spreads wider than most sane people have ever imagined.

George W. Bush Is an Unpopular President

Could it be because he's incompetent?

Daniel Froomkin writes:

The Increasingly Unpopular President: "the just-out Associated Press/Ipsos poll, Bush's job approval ratings and the public's confidence in the direction he's taking the nation are both at their lowest levels ever. A whopping 55 percent of those polled actually disapprove of the job he's doing, compared to 43 percent who approve.... This week's Washington Post/ABC News poll finds that 51 percent of respondents said they had an unfavorable impression of the president.... And the more you dig into the results, the worse it gets. Will Lester writes for the Associated Press: 'While Bush has gotten generally low scores for his handling of domestic issues for many months, most Americans have been supportive of his foreign policy. Not any more. 'In fact, as with The Post's poll, the AP poll shows there is no longer a single area in which the public approves of the job Bush is doing. On the economy, the approve/disapprove split in the AP poll is 43/54; on health care, education and the environment, 40/57; on foreign policy issues and the war on terrorism, 45/52; on the situation in Iraq, 41/56; and on Social Security, 37/59.

When is it time to start referring to Bush as an unpopular president? When his approval ratings are solidly below 50 percent for at least three months? Check. When his approval ratings on his signature issues are in the red? Check. When a clear majority of Americans say he is ignoring the public's concerns and instead has become distracted by issues that most people say they care little about? Check.

And a Reality CheckHere's how Bush described his plan for Iraq, at his joint press availability with Prime Minister Tony Blair on Tuesday: 'We'll support Iraqis as they take the lead in providing their own security. Our strategy is clear: We're training Iraqi forces so they can take the fight to the enemy, so they can defend their country. And then our troops will come home with the honor they have earned.' Anthony Shadid and Steve Fainaru write from Baiji, in northern Iraq, with a chilling and gripping tale about the U.S. military's attempt to train the Iraqi army's Charlie Company. They put it bluntly: 'The reconstruction of Iraq's security forces is the prerequisite for an American withdrawal from Iraq. But as the Bush administration extols the continuing progress of the new Iraqi army, the project in Baiji, a desolate oil town at a strategic crossroads in northern Iraq, demonstrates the immense challenges of building an army from scratch in the middle of a bloody insurgency.' Here's what one of the training officers -- Lt. Kenrick Cato, 34, of Long Island, N.Y., who sold his share in a database firm to join the military full time after the Sept. 11, 2001, attacks -- tells Shadid and Fainaru:

'I know the party line. You know, the Department of Defense, the U.S. Army, five-star generals, four-star generals, President Bush, Donald Rumsfeld: The Iraqis will be ready in whatever time period. . . . But from the ground, I can say with certainty they won't be ready before I leave. And I know I'll be back in Iraq, probably in three or four years. And I don't think they'll be ready then.'

Time to Level with the Public? Carl P. Leubsdorf writes in the Dallas Morning News: 'A top congressional Democratic supporter of U.S. action in Iraq said Thursday that President Bush should make a nationally televised speech and 'level with the American people' about the long road ahead there. 'Faced with declining public support, Mr. Bush needs to tell Americans 'it's going to take a lot more time . . . at least through the end of 2006,' and explain what still has to be done there, Sen. Joe Biden told reporters after returning from his fifth visit to Iraq.' The Delaware senator, senior Democrat on the Foreign Relations Committee, said he gave his suggestion Tuesday to Stephen Hadley, Mr. Bush's national security adviser, after finding 'a total disconnect' between the situation in Iraq and optimistic statements by Mr. Bush and his top aides. . . .

Notes: URAP Project 1: Fall 2005: Noise Traders

URAP Project: Toward a Taxonomy of Noise Trader-Generated Financial Market Failure

Time to start setting out potential projects for undergraduate research assistants for the forthcoming fall...

Here's one possibility: one that requires somebody with good algebra and simulation skills:

Start from: J. Bradford DeLong, Andrei Shleifer, Lawrence Summers, and Robert Waldmann (1990), "Noise Trader Risk in Financial Markets, Journal of Political Economy 98, 703-738.

The idea is to use the model of DSSW (1990), related models, and simulations, to try to make progress on the circumstances under which we would expect to see financial markets perform well and badly as social capital allocation mechanisms that feed prices to the rest of the economy.

The first question to be approached would be the effect of increasing fundamental uncertainty on the ability of a financial market to "weed out" peole who trade on bad information. The market, after all, aggregates information--and it cannot give reliable price signals if the information that it aggregates is bad, can it? Implicit in DSSW is the prediction that increasing fundamental uncertainty can destroy a financial market's abiity to weed out or even keep a lid on bad information. But how robust is this prediction? And what other predictions are there?

This URAP project would jump off from DSSW (1990), a twenty-page background memo that sketches out the connection between the ability of a DSSW-type financial market to keep a lid on noise trading and the amount of fundamental risk, and an old Excel spreadsheet used to do a little algebra and simulations.

The State of the Labor Market

PGL at Angry Bear writes that he is:

Angry Bear: updat[ing] my chart on why I put less stock in the unemployment rate than the population ratio. Notice, however, that the employment-to-population ratio did rise a bit last month as the Household Survey showed a much larger employment increase than the Establishment Survey (which was also picked up by one of the National Review%u2019s pseudoeconomists who only think they know more economics than Paul Krugman). Note also that this ratio is still far below the levels enjoyed five years ago. While I can understand the FED%u2019s reasoning for tight money five years ago (although why George W. Bush and Lawrence Lindsey were proposing fiscal stimulus back then puzzled me), I%u2019m in the camp of those who would argue against tight money now as the labor market still appears weak to me.

Matthew Yglesias *Is* the Media Lobby

He argues that TV is good--or at least not bad--for you. His chances of persuading me and my wife to let our children watch more TV is about as great as his chances of persuading us to let them play "Grand Theft Auto."

There is one annoying thing about Yglesias's post. I am going to have to go read the study it refers to before I can figure out what the study's claim that "although kids reporting the lowest grades also tend to report the highest levels of media exposure . . . this relationship is not statistically significant" means. "This relationship is not statistically significant" can mean one of two things:

  1. It's not important.
  2. We don't have enough data.

When in the future I am pleased to be among the first to welcome our new statistically-sophisticated overlords, anyone who writes the phrase "not statistically significant" without immediately adding "(it's not important)" or ("we don't have enough data") will be sent to the agonizer.

TPMCafe || Politics, Ideas & Lots Of Caffeine: Kaiser found that 'although kids reporting the lowest grades also tend to report the highest levels of media exposure . . .this relationship is not statistically significant.' This contradicts earlier research, and what's changed is that high-achieving children nowadays consume more media than they used to. It appears that 'as media become more and more integrated into the lives of young people, the differences once located by academic performance are attenuating.'...

James Hamilton from UCSD Joins the Party...

He is incredibly smart and incredibly hard working: we eagerly look forward to lots of refreshments:


June 09, 2005

Oil futures and the future of oil

Commodity traders can have as hard a time as any of us trying to predict oil prices. But it's interesting to see what the current price structure tells us about what traders believe brought about the current high prices and what may be in store for us next.

Continue reading "Oil futures and the future of oil"

Posted by econbrowser at 09:42 PM | Comments (2) | TrackBack (1)

June 08, 2005

Predicting the Fed's next move

Fed-watching can be something of an arcane sport. Will the subtle disappointments in the May employment and automobile sales figures persuade the Fed to hold back on another interest rate hike? And what would someone who's really "in the know" infer from how high Alan Greenspan raised his right eyebrow at his last public appearance? Although playing that game can be fun, it's actually quite easy for anybody to have a very well-informed belief about what we can expect next from the Federal Reserve.

Continue reading "Predicting the Fed's next move"

Posted by econbrowser at 11:09 AM | Comments (2) | TrackBack (1)

June 06, 2005

Economic consequences of the high price of oil

All but one of the U.S. recessions since World War II have been preceded by a dramatic increase in crude petroleum prices. Recent turbulence in energy markets has some analysts speculating that, in the immortal words of Yogi Berra, it could be deja vu all over again. But this oil price shock differs significantly from earlier episodes, leading me to believe that the economy will be able to adapt to the new pricing environment without a major economic slowdown.

Continue reading "Economic consequences of the high price of oil"

Posted by econbrowser at 03:20 PM | Comments (1) | TrackBack (1)

June 04, 2005

Disappointing job statistics?

The May employment figures released by the Bureau of Labor Statistics yesterday sent mixed signals, revealing that U.S. job creation slowed in May even as the unemployment rate edged slightly lower.

Continue reading "Disappointing job statistics?"

Posted by econbrowser at 09:30 PM | Comments (0) | TrackBack (0)

When Threads Leak Into Each Other

In comments, Brian C.B. writes:

Brad DeLong's Semi-Daily Journal: Another Welcome New Recruit to the Order of the Shrill: You know, I think take the dramatic rise in Arkham house prices as a solid sign of a real estate bubble. I mean, $750,000 for a 'starter cottage with 3BR, 2B, carport, and inhabitation by ritually-murderous Native American deities at each new moon' seems a bit much, proximity to shopping and schools notwithstanding...

Free Trade

Max Sawicky writes:

MaxSpeak, You Listen!: POSTCARDS FROM THE EDGE, II: Second in our series on economic notions heretical to mainstream liberal economics.

Free trade is an issue where better-off liberals and writers for publications that cater to them look down their noses at criticism of laissez-faire economics. For some reason, markets that straddle national borders are sacrosanct, while those that do not are fair game for modest regulation, such as the minimum wage, child labor, etc. Trade unionists who agitate for social clauses in trade agreements are called protectionists by people who now say the U.S. should pressure China to revalue its currency. EPI and CEPR are trade-bashing central.

A free trader might argue that effective trade regulation is hard to do and inevitably polluted by politics. We could say the same about free trade, witness the current administration.

Among bloggers, there is a dearth of alternative commentary on this issue. DeLong is fanatically pro-trade liberalization, but at the same time among the most candid in acknowledging the vulnerabilities of his position. (For instance.) General Glut, Globalize This!, and oldman.

Well, free trade is a very important pie-growing mechanism--and, as a way of boosting growth in poor parts of the world, an important step toward a truly human world and a secure world.

Plus there are much better tools for repairing the income distribution than tariffs and quotas. If only we could assemble a political coalition behind any of them...

And effective trade regulation is hard to do and inevitably polluted by politics.

Paul Krugman Denounces the Politics of Greed and Deception

Paul Krugman writes:

Losing Our Country - New York Times: In the 1960's America was a place in which very few people were extremely wealthy, many blue-collar workers earned wages that placed them comfortably in the middle class, and working families could expect steadily rising living standards and a reasonable degree of economic security. But as The Times's series on class in America reminds us, that was another country.... Adjusted for inflation, the income of the median family doubled between 1947 and 1973. But it rose only 22 percent from 1973 to 2003, and much of that gain was the result of wives' entering the paid labor force or working longer hours, not rising wages. Meanwhile, economic security is a thing of the past: year-to-year fluctuations in the incomes of working families are far larger than they were a generation ago. All it takes is a bit of bad luck in employment or health to plunge a family that seems solidly middle-class into poverty.

But the wealthy have done very well indeed. Since 1973 the average income of the top 1 percent of Americans has doubled, and the income of the top 0.1 percent has tripled.... [F]or now let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes... sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power. Since 1980 in particular, U.S. government policies have consistently favored the wealthy at the expense of working families - and under the current administration, that favoritism has become extreme and relentless.... It's not a pretty picture - which is why right-wing partisans try so hard to discredit anyone who tries to explain to the public what's going on.

These partisans rely in part on obfuscation: shaping, slicing and selectively presenting data in an attempt to mislead. For example, it's a plain fact that the Bush tax cuts heavily favor the rich, especially those who derive most of their income from inherited wealth. Yet this year's Economic Report of the President, in a bravura demonstration of how to lie with statistics, claimed that the cuts 'increased the overall progressivity of the federal tax system.' The partisans also rely in part on scare tactics, insisting that any attempt to limit inequality would undermine economic incentives and reduce all of us to shared misery....

Above all, the partisans engage in name-calling. To suggest that sustaining programs like Social Security, which protects working Americans from economic risk, should have priority over tax cuts for the rich is to practice 'class warfare.' To show concern over the growing inequality is to engage in the 'politics of envy.'

But the real reasons to worry about the explosion of inequality since the 1970's have nothing to do with envy. The fact is that working families aren't sharing in the economy's growth, and face growing economic insecurity. And there's good reason to believe that a society in which most people can reasonably be considered middle class is a better society - and more likely to be a functioning democracy - than one in which there are great extremes of wealth and poverty.... [W]e can make a start by calling attention to the politicians who systematically make things worse in catering to their contributors. Never mind that straw man, the politics of envy. Let's try to do something about the politics of greed.

Political Invective

From the Valve:

The Valve - A Literary Organ | Ferocious Goat, or the Decline of Political Invective: Posted by Sean McCann on 06/09/05 at 01:13 PM: Ayjay worries about the declining quality of web calumny and asks us to study the masters.

Just came across this passage today, Eugene Debs on Teddy Roosevelt, January 1918:

This political pet of the plutocrats, this bogus reformer, this shreiking charlatan, this raving mountebank, this crazy-horse of Oyster Bay ranch, this blood and thunder prophet, this opera bouffe ghostdancer, this blatant quack hero, this freak of froth and foam and buncombe, this nauseating moralizer, this dysenteric scold, this chattering midwife and meddler and all-around nuisance has buncoed the people long enough and they at last know him for what he is, at least those of them who have mentality above a shell-fish, and who can tell a jibbering fraud after he has exhibited himself to them daily for a score of years.

I particularly liked "crazy-horse of Oyster Bay ranch." O, for a Debs now.

The Bush Economic Policy Clown Show: The China Ring

David Wessel scratches his head as he contemplates U.S. economic policy toward China: - Capital: How's China to Make Sense of U.S. Signals?: Imagine what it must be like to be a Chinese leader listening to the U.S. government. The Treasury plays the good cop, relying not on threats but reasoned economic argument: Let your currency rise, it tells the Chinese, not for our sake but for yours. Flexibility is your friend, the market your ally. Act like the economic superpower you have become.

The Commerce Department plays the pragmatist: Free trade is a nice slogan, but you Chinese know that slogans aren't policies. What matters is jobs. Either find a way to restrain your exports of clothing and textiles to us, or we will find a way to block them. If you don't like it, sue us in world-trade court. The U.S. trade representative prefers the high ground: Steal our factory jobs if you must, but stop stealing our ideas, the intellectual property that is our best hope of prospering in the global economy.

The Congress, keenly aware of Americans' anxiety about losing jobs, plays the heavy: You Chinese are "cheating," some, though not all, members of Congress shout. If the Bush administration doesn't do something about it soon, we will. How do you say "tariff" in Chinese? Actually, how do you say "cacophony" in Chinese?

Newspaper columnists sometimes take contradictory and uncoordinated government policies, discern the glimmer of a coherent framework and then describe that trenchantly.... I would gladly perform this public service -- if I could. Since I can't, I asked... economic-policy wonks....

Nicholas Lardy.... "The Chinese are probably baffled," he says. "There's no coherent strategy. Every executive-branch agency plus Congress has their own policy," he says. "The Chinese will pick and choose or ignore everything."... Kenneth Rogoff... "The message is very strong. As China grows into a superpower, the U.S. is expecting more from it." But he, too, is puzzled: The U.S. tells China to act like a superpower, and then treats it as a pipsqueak.... Mr. Rogoff agrees... [that the] yuan [should] rise to help bring the Chinese and global economies into better balance. But... the administration isn't offering to do its part... aggressive deficit reduction....

Daniel Tarullo... speculates that Chinese leaders draw one of two conclusions... U.S. policy... marks a shift to... containing China... [or] the Chinese... see all this as pandering to American public opinion....

Chinese leaders and the U.S. public deserve more than divergent talking points from cabinet secretaries...

Well, yes, the U.S. public (and Chinese leaders) deserve more than the Bush Administration Economic Policy Clown Show. But how to get it for them?

The Medium Lobster on Global Warming

It writes:

Fafblog! the whole worlds only source for Fafblog.: There are precious few matters in the world which are black and white - at least, precious few matters which do not involve killing Arabs and banning icky gay people. In between there are a multitude of complex shades of gray, as in the question of global warming. Is the planet heating up, and if so, are we responsible, and if so, how many years should we spend humming loudly over anyone who informs us that we are responsible until we determine that we are not responsible?

Yesterday the New York Times revealed that a former lobbyist for the American Petroleum Institute and current chief of staff for the White House Council on Environmental Quality had made substantial edits to a series of reports on climate change in order to play down links between greenhouse gases and global warming. The usual leftist quarters are fired up again, calling for America to join a veritable science jihad, worshiping at the altar of fact when we've yet to hear what fiction has to say about the situation.

One can't be too careful when deliberating over the shifting and byzantine web of confusion and doubt that is so-called 'climate' 'change.' Whom should we believe: the unruly mob of every reputable climatologist on the planet, or the selfless sages at Exxon-Mobil? Uncertainty abounds, even among higher beings like the Medium Lobster. We must examine all sides of the issue, take input from all corners: from the side of science, and from the side of oil industry whores paid to lie about science. Someday, somehow, between these complex and opposing points of view, we may just find an answer.

Even Count Potemkin No Longer Pretends His Creations Are Villages

National Review says things are not going well in Iraq. Why oh why do they hate America so much?

Steven Vincent on Iraq on National Review Online: Steven Vincent: Basra, Iraq — It’s been a little over a year since I was last in Basra, and at first glance little has changed. The buildings are just as dilapidated, livestock still periodically cross the rubble-strewn streets, and the once beautiful canals remain clotted with trash.... Beneath the surface, though.... I can no longer wander the streets, take a cab, or dine in restaurants for fear of being spotted as a foreigner: Kidnapping, by criminal gangs or terrorists, remains a lucrative business. Instead, for safety’s sake, I’m tied to my hotel, dependent on expensive drivers, unable to go anywhere without Iraqi escort. “You really shouldn’t be here at all,” a British-embassy official warned me....

Gone are the glamorous posters of those Shia icons.... The reason for this apparent diminution of religious fervor is the mainstreaming of Shia political organizations. “After the elections, the Islamic parties seized control of Basra,” Layla explains. “Now they want to appear more respectable.” Indeed, all but six of the 41 seats on the province’s Governing Council are filled by a cluster of Islamic groups, such as Dawa Islamiyya, the Supreme Council for Islamic Revolution in Iraq (SCIRI), and the up-and-coming Fadillah party — affiliated with Moqtada al al-Sadr — which scored a coup when one of its members became the provincial governor.

Another change is the number of abiyas you see around town. As the religious parties flex their muscles, their various sheikhs and imams exert a steady, if unlegislated, pressure on women to cover themselves in hejab.... “This has become an Iranian city,” contends Salaam Wendy, a Basra native who recently returned to his hometown.... The shadow of religious fundamentalism falls across other areas, too. Take, for instance, Basra Province’s “elected” council, the first such body in the long history of the region. I put “elected” in quotes in deference to the cynicism of numerous Iraqis, who claim that the religious parties fixed the balloting.... “Before the elections, the Governing Council was appointed by educated elites who chose capable people,” former Basra governor Hassan Alrashidi griped to me at the meeting. “The elections have brought in people whose main qualifications are their loyalty to the religious parties.” ...

This Basran equanimity even extends to that huge bone of Iraqi contention: foreign troops. True, you can find pro-Sadr graffiti that reads, “WAIT...WAIT...BRITISH JEWISH ARMY AL MAHDI WILL DESTROY,” and numerous residents complain of summary arrests, imprisonment, and physical abuses of civilians by U.K. forces. Generally, though, the Brits — who patrol the city in lightly armored vehicles — are tolerated, and in some quarters, liked.... As for America, the general feeling is gratitude for the removal of Saddam, tempered by disappointment in the slow progress of Iraq’s reconstruction. “America rid of us of one tyrant, only to give us hundreds more in the form of terrorists”.... Still, I’ve encountered some odd pockets of pro-American sentiment....

I spent an afternoon in a mosque in Old Basra, listening to a Sunni sheikh denounce America. The insurgents, he informed me, are patriots.... The U.S. has long hungered to dominate Iraq and steal its oil.... Do the Iraqi people not share some responsibility for these catastrophes? “No,” replied the sheikh. “They are America’s fault. Before America meddled in our affairs, Iraqis were warm, peace loving people.”

Few people here go that far in ascribing blame to the U.S. or its allies. Still, there is a feeing of helplessness, bordering for some on a sense of futility... water is still bad, electricity spotty, gas lines intolerable. “How can this be? We should be rich!” Saad, a former translator for the British army exclaimed to me. “Where is the money going, why is nothing happening?"... Basrans can almost see the arrival a better and more prosperous tomorrow, but for now, that bright future is frustratingly, inexplicably, just beyond their reach.

So we've reached the stage where even Count Potemkin will no longer pretend that his creations were villages.

Thank God I'm Not a Republican!

If I were, I would have to pretend that somebody like this is a respected elder statesman:

Pandagon: There's no time like never, says Jesse Helms: Senator Helms, did you ever backtrack on your anti-integrationist beliefs, now that your memoirs are coming out?

'We will never know how integration might have been achieved in neighborhoods across our land, because the opportunity was snatched away by outside agitators who had their own agendas to advance,' according to the uncorrected proof. 'We certainly do know the price paid by the stirring of hatred, the encouragement of violence, the suspicion and distrust.'

Yes, a bunch of black people had the nerve--the nerve I tell you!--to demand equality during the inconvienent period of history known as Jesse Helms' life. How dare they. How 'having an agenda' and 'not being patient'--civil rights activists apparently should have waited for Helms and every other entitled white a****** on the planet to pass before asking quietly to be treated with dignity as is your right. Granted, that means wait forever, but that's better than making poor Senator Helms vaguely uncomfortable, isn't it?

Grownup Republican Watch: Alan Greenspan

He tells the Joint Economic Committee:

Latest News and Financial Information | "Greenspan calls for pay-go, U.S. budget restraint: Thu Jun 9, 2005 11:01 AM ET: WASHINGTON, June 9 (Reuters) - Federal Reserve Chairman Alan Greenspan on Thursday called for budget restraint, saying the United States will face severe fiscal pressure as the huge post-World War II baby boom generation retires. Greenspan, in comments to the congressional Joint Economic Committee, reiterated his call for the renewal of pay-as-you-go, often called pay-go, provisions that compel lawmakers to show how they will fund any spending initiatives or tax cuts. 'I have argued ... that fiscal policy as it moves into the early part of the next decade is going to run into very severe problems unless we restore pay-go and other means of restraint on the system,' Greenspan said. 'Something very unusual is about to happen to this country in that we're going to get a huge exodus from the labor force and remember that the baby boom generation was followed by the baby bust generation, which means we have fewer workers on average ever increasingly as we move into the next decade and beyond, to produce the goods and services that are required, not only for the workers and their families but for the huge increase in retirees,' Greenspan said.

A Short Dialogue on the Price of the Long Treasury Bond

Alan Greenspan says:

FRB: Speech, Greenspan--Central Bank panel discussion--June 6, 2005 : The pronounced decline in U.S. Treasury long-term interest rates over the past year despite a 200-basis-point increase in our federal funds rate is clearly without recent precedent. The yield on ten-year Treasury notes currently is at about 4 percent, 80 basis points less than its level of a year ago.... The unusual behavior of long-term rates first became apparent almost a year ago.... [W]hat are those forces? Clearly, they are not operating solely in the United States.... A number of hypotheses have been offered as explanations of this remarkable worldwide environment of low long-term interest rates.

One prominent hypothesis is that the markets are signaling economic weakness....

A second hypothesis involves the behavior of pension funds.... But world demographic trends are hardly news, and recent adjustments to funding shortfalls do not seem large enough to be more than a small part of a complete explanation.

The heavy accumulation of U.S. Treasury obligations by foreign monetary authorities is yet another hypothesis.... But, given the depth of the market for long-term Treasury instruments, the Federal Reserve Board staff estimates that the effect of foreign official purchases has been modest....

A final hypothesis takes as its starting point the breakup of the Soviet Union and the integration of China and India into the global trading market.... The enlargement of global markets for goods, services, and finance has contributed importantly to the favorable inflation performance that we are witnessing in so many countries. That improved performance has doubtless contributed to lower inflation-related risk premiums, and the lowering of these premiums is reflected in significant declines in nominal and real long-term rates. Although this explanation contributes to an understanding of the past decade, I do not believe it explains the decline of long-term interest rates over the past year despite rising short-term rates....

[L]ow risk-free long-term rates worldwide seem to be one factor driving investors to reach for higher returns, thereby lowering the compensation for bearing credit risk.... The search for yield is particularly manifest in the massive inflows of funds to private equity firms and hedge funds. These entities have been able to raise significant resources from investors who are apparently seeking above-average risk-adjusted rates of return, which, of course, can be achieved by only a minority of investors.... I have no doubt that many of the new hedge fund entrepreneurs are embracing a strategy of pinpointing temporary market inefficiencies, the exploitation of which is expected to yield above-average rates of return. For the time being, most of the low-hanging fruit of readily available profits has already been picked.... [C]ontinuing efforts to seek above-average returns could create risks for which compensation is inadequate. Significant numbers of trading strategies are already destined to prove disappointing....

Admetos: I'm not sure I understand what Greenspan is saying. What academic model do you think he is relying on?

Thrasymakhos: You think Greenspan relies on economic models? Whoo boy, do you have a lot to learn!

Admetos: What important economic forces does he think are at work?

Thrasymakhos: You're asking me? I'm just a cardboard cut-out--a literary fiction--a stand-in for the author who says cynical things that the author does not quite say in his proper persona.

Glaukon: Greenspan mentions four factors--pessimism, demography, Asian central bank purchases, and global integration--and says that none of them account for the strange behavior of long-term interest rates.

Thrasymakhos: He does.

Glaukon: He then goes on to talk about a fifth factor--hedge funds chasing yields that "seek above-average returns... risks... trading strategies destined to prove disappointing." But he does not say that they are responsible.

Thrasymakhos: He does not.

Glaukon: But he does not say that they are not responsible either. Can we infer from his silence that he believes that they are responsible?

Thrasymakhos: He's named Alan Greenspan, not Leo Strauss.

Glaukon: Nevertheless, it is an interesting idea. How would it work out?

Khrematistikos: Let rT be the interest rate on long-term Treasury bonds, and let r be the interest rate on short-term cash. Consider a hedge fund that believes that bond prices will not move by much in the near future--or that, if bond prices do move, its location in Manhattan and the quick fingers at the keyboards of its traders will let it be one of the first out the door. Let R be the rate of return target of the hedge fund. And let L be the leverage of the hedge fund--the amount of dollars per dollar of capital that it borrows short in order to engage in the carry trade. Am I clear?

Sokrates: Clear as daylight, Khrematistikos.

Khrematistikos: Then the relationship between these variables for this hedge fund is:

R = L(rT - r)

Which tells us that the hedge fund's demand for long-term Treasuries (and its supply of short-term cash) is:

L = R/(rT - r)

Is everybody with me?

Glaukon: We are, Khrematistikos.

Khrematistikos: Now what happens when the Federal Reserve raises short-term interest rates r? That narrows spreads between short- and long-term interest rates, and induces the hedge fund to increase its demand L for long-term Treasuries. That means that increases in short-term rates are associated with increased demand--higher prices--lower interest rates--on long-term bonds. In other words, hedge-fund demand for long-term Treasuries slopes the wrong way: when prices rise, demand does not fall but increases.

Admetos: And?

Thrasymakhos: And when Treasury prices start to fall, hedge-fund demand for securities will fall too. Falling prices do not reduce excess supply but produce an even bigger excess supply.

Admetos: That doesn't sound good.

Thrasymakhos: Indeed, it is not. Big air pockets. Large price declines. Financial panic.

Glaukon: Is this a scenario to worry about?

Thrasymakhos: How would I know? Do I look like New York Federal Reserve President Tim Geithner?

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

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

World Opinion Roundup: Blair and The Downing Street Memo:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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