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October 2005

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

Duncan Black writes:

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

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

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

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

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

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

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


Good News From Iraq

a high Sunni turnout is very nice to see:

Polls Close in Iraq : This time, with a few exceptions, insurgent threats to kill voters did not materialize, allowing scores of people to vote on a proposed constitution that would increase the role of Islam in the government and formalize Iraq's democracy. Turnout was described as exceptionally high in Sunni Arab regions that had largely boycotted January's election.... [I]n Salah Aldin, an overwhelmingly Sunni province north of Baghdad, by 11:30 a.m., more than 33,000 had already voted in the town of Baiji, 22,000 in Awaj, 17,000 in Tikrit and 20,000 in Samarra. Voting in Samarra was so heavy that polling places ran out of ballots in the early afternoon, officials said, and more were brought in under U.S. support...


Judith Miller's Testimony

Judith Miller "speaks":

http://www.nytimes.com/2005/10/16/national/16miller.html?pagewanted=print [I]n an interview with me on June 23, Vice President Dick Cheney's chief of staff, I. Lewis Libby, discussed Mr. Wilson's activities and placed blame for intelligence failures on the C.I.A. In later conversations with me, on July 8 and July 12, Mr. Libby, who is Mr. Cheney's top aide, played down the importance of Mr. Wilson's mission and questioned his performance.

My notes indicate that well before Mr. Wilson published his critique, Mr. Libby told me that Mr. Wilson's wife may have worked on unconventional weapons at the C.I.A.

My notes do not show that Mr. Libby identified Mr. Wilson's wife by name. Nor do they show that he described Valerie Wilson as a covert agent or "operative," as the conservative columnist Robert D. Novak first described her in a syndicated column published on July 14, 2003. (Mr. Novak used her maiden name, Valerie Plame.)

This is what I told a federal grand jury and the special counsel investigating whether administration officials committed a crime by leaking Ms. Plame's identity and the nature of her job to reporters.

During my testimony on Sept. 30 and Oct. 12, the special counsel, Patrick J. Fitzgerald, asked me whether Mr. Libby had shared classified information with me during our several encounters before Mr. Novak's article...

The answer appears to be, "Yes": that Mr. Wilson's wife worked for the CIA was classified secret, and Libby revealed it.

If Libby could, the best tack for him to take would be if his act of malfeasance was unintentional--if he could truthfully claim that he had forgotten that he had read about Valerie Plame Wilson's identity in a paragraph marked "(S)" for secret. But that line of defense goes down much better in August of 2003 than in October of 2005. And the line taken by Libby's neoconservative friends like William Kristol very strongly suggests that Libby knew that Valerie Plame Wilson's job was a secret. For they write:

Criminalizing Conservatives: [C]lassified information is leaked by many different players in any given policy fight in the government.... Is the identity of Valerie Plame the most consequential leak of the last four years? Are Rove and Libby bigger leakers than, say, the CIA's George Tenet or Richard Armitage at the State Department? Do no employees of the Central Intelligence Agency (almost universally anti-Bush and anti-conservative) ever leak anything? If so, have they been indicted, or investigated by a special prosecutor? Any prosecutor?

If Cheney and Bush had been taking care that the laws be faithfully executed, they would have told Libby to turn himself in more than two years ago. They didn't.

Impeach George W. Bush. Impeach Richard Cheney.


Short-Termism

A money manager writes:

Fundamentally, the problem is one of institutional market structure. In theory, asset managers should short an overvalued asset and go long an undervalued asset.... In practice, the difficulty with shorting on the basis of macro-economic imbalances is that... you are faced with... investors who demand immediate relative returns. Even a patient investor base will balk at several consecutive years of relative underperformance.... Since macroeconomic imbalances can persist for quite some time, this poses a conflict.... I believe that housing is undoubtedly in a bubble and that the credit extension associated with this bubble will lead to a very bad situation, had I been consistently short the mortgage finance stocks for the past several years, I would not have a viable business.... [T]he current structure of the investment universe is an institutional impediment to rational price formation in asset markets...


Who Is This "We"?

Nathan Newman finds himself in a "Who is this 'we' you speak of, kemosabe?" moment, as he argues against preserving relatively low-density urban neighborhoods at all costs:

http://www.tpmcafe.com/story/2005/7/27/84844/8066: I have a private obsession... with the failure of progressives to make affordable housing more of a priority, or worse, progressives becoming the active opponents of it. Housing is rarely treated as a workers' issue, yet labor builds it, workers staffs security and maintenance and landscaping, and whether housing is affordable decides where working families can afford to live. The current debates in New York City over recently proposed megadevelopments on the Manhattan West Side and Brooklyn's Atlantic Yards highlight this progressive division over housing issues.  At House of Labor http://www.nathannewman.org/comments/2005/6/30/11650/4971/1#1, commentators declared labor outside the progressive coalition because they favor these developments.  And at my personal blog http://www.nathannewman.org/log/archives/003190.shtml, reaction was vociferous when I criticized the opposition to the Brooklyn development.

But while I understand the nostalgia for Brooklyn's low-rise housing and it is lovely for those who can continue to live there, the reality is that blocking higher density there condemns others to homelessness and the rest to increasingly long commutes... more people will be driven out into the suburbs to create more strip malls, SUVs, environmental degradation, and Republicans. These are the facts of Brooklyn's Atlantic Yards proposal... 4500 units of housing, with up to 1500 additional ones to be built. 2250 of the units will be dedicated for low- and moderate- income families in an innovative agreement with the community group, ACORN. Where only 334 people have housing currently, at least 9810 people will have housing with the new development.... And the project sits on the third most important transit hub in New York City, where nine subway lines and the Long Island Railroad converge -- exactly the kind of spot where high density housing should be. Which is why opposition to high density housing at this site is even more perverse....

Every single fewer unit in Brooklyn, Manhattan or other easy commute into jobs in the City means more people forced out to long commutes on suburban trains or worse in cars... more people soaking up resources in suburban sprawl instead of using the nine subway lines that are right near the Atlantic Yards. Just this weekend, I was at a New Jersey suburban barbecue filled with refugees from Brooklyn who could no longer afford to raise their families there.

To look at development only from the immediate concerns of local residents-- whether Brooklyn or San Francisco or any other progressive area where urban density is fought in the name of "community" -- is to commit the worse sin of thinking only locally and ignoring global effects.... [Moreover,] progressives discount the importance of creating more luxury housing, which is also part of the Atlantic Yards development. If new luxury housing isn't available, the wealthy will buy up old housing, gut it and renovate it, decreasing the availability of housing.... [T]he gentrified gut renovation that is sweeping New York City may leave the quaint building facades in place, but it's has the same effect as the mass evictions of older urban renewal.... [P]rogressives should be in the forefront of arguing for higher density urban housing for both economic justice for the working families who need housing and need jobs, and as an alternative to the enivronmental sinkhole that are our suburbs.

He is, of course, right. The price of keeping Brooklyn looking like it does today is more sprawl in New Jersey. The price of not replacing Berkeley's bungalows with row houses is more development in California's Central Valley.


Apple Disappoints Yet Again

Two stories on how Apple disappoints the stock market:

Apple's big gains not big enough - Yahoo! News: By Therese Poletti, Mercury News: Apple Computer on Tuesday reported that profit in the latest quarter quadrupled, buoyed by strong sales of Macintosh computers and ``staggering'' demand for its newest iPod -- but that wasn't good enough for Wall Street.

Shares of the Cupertino company fell more than 10 percent in after-hours trading, after the company's revenues and earnings for its fiscal fourth quarter did not wildly exceed analysts' expectations. The stock slumped $5.41, or 10.5 percent, to $46.18 a share....

If you look at the stock price, it's obviously been a darling,'' said Shaw Wu, an analyst with American Technology Research. Expectations were very high. . . . Apple had to report a flawless quarter. It wasn't flawless.''

And Crazy Apple Rumors:

Apple Disappoints Wall Street Yet Again.: Apple reported record revenue and earnings today for its fiscal fourth quarter ending September 30th. Mac sales soared by 48 percent and iPod sales grew by 220 percent year over year. Despite the astounding results, Apple again disappointed Wall Street analysts who had high expectations for iPod sales.

"Sadly, Apple did not sell nine billion kajillion iPods as I predicted they would," said Javier Perone, an analyst at Deutsche Bank.... "Sadly, Apple has underperformed again."

Among the other predictions Wall Street analysts had for Apple's fourth quarter:

The iPod "halo effect" would go into overdrive, with each iPod purchase resulting in the purchase of 17 Macs and, for some reason, another iPod, creating a recursive purchasing cycle.

Steve Jobs would find a tree that produces magical apples which he would eat, turning himself into a golden god, 100 feet tall and with power over all the elements.


A Conspiracy so Immense...

William Kristol says that it is mad dog John Ashcroft, who appointed special prosecutor Patrick Fitzgerald, who is the head of a left-wing radical conspiracy to destroy the Bush-Cheney administration.

PREVIEW: Criminalizing Conservatives : White House deputy chief of staff Karl Rove and vice presidential chief of staff Scooter Libby have been under investigation by a special federal prosecutor, Patrick Fitzgerald.... It now seems clear that Rove and Libby are the main targets of the prosecutor, and that both are in imminent danger of indictment.... Since 2001, they have been among the most prominent promoters of the conservative agenda of the Bush administration. For over four years, they have helped two strong conservatives, George W. Bush and Dick Cheney, successfully advance an agenda for change in America....

In today's Washington, as has been true for decades, classified information is leaked by many different players in any given policy fight in the government.... Are Rove and Libby bigger leakers than, say, the CIA's George Tenet or Richard Armitage at the State Department? Do no employees of the Central Intelligence Agency (almost universally anti-Bush and anti-conservative) ever leak anything? If so, have they been indicted, or investigated by a special prosecutor? Any prosecutor?....

Why are conservative Republicans, who control the executive and legislative branches of government for the first time in living memory, so vulnerable to the phenomenon of criminalization? Is it simple payback for the impeachment of Bill Clinton? Or is it a reflection of some deep malady at the heart of American politics? If criminalization is seen to loom ahead for every conservative who begins successfully to act out his or her beliefs in government or politics, is the project of conservative reform sustainable?

We don't pretend to have all the answers, or a solid answer even to one of these questions. But it's a reasonable bet that the fall of 2005 will be remembered as a time when it became clear that a comprehensive strategy of criminalization had been implemented to inflict defeat on conservatives who seek to govern as conservatives. And it is clear that thinking through a response to this challenge is a task conservatives can no longer postpone.

Thinking through this challenge?

Perhaps the scariest thing is that William Kristol thinks the readers of his Weekly Standard are so unbalanced as to buy this.


The U.S. Dollar Tipping Point Approaching?

Paul Kedrosky reads John Berry, who is reading the work of Pierre-Olivier Gourinchas (four doors down the hall to the west) and Helene Rey:

Infectious Greed: The U.S. Dollar Tipping Point : Bloomberg columnist John Berry is the dean of currency commentators, so when he has something strong to say, people notice (whether they agree or disagree). Berry has been downbeat about the U.S. dollar for some time, but in his current column his skepticism gets fused with an August NBER paper (“From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege”) to make the argument that U.S. investment income has reached a dangerous tipping point:

all the advantages that accrue to the U.S. as the provider of the central currency in the global monetary system can't forever offset the impact of the country consuming more than it produces. What if a "tipping point" has been reached?

Gourinchas and Rey say their analysis "does not imply that the current situation can be maintained indefinitely."

"Foreign lenders could decide to stop financing the U.S. external deficit and run away from the dollar, either in favor of another currency such as the euro, or just as dramatically, require a risk premium on U.S. liquid assets whose safety could not be guaranteed any longer.

"In either case, the repercussions could be quite severe, with a decline in the value of the dollar, higher domestic interest rates and yields, and a global recession," they caution.

"In a world where the U.S. can supply the international currency at will, and invest it in illiquid assets, it still faces a confidence risk," they say.

Should confidence be lost, the value of the dollar could plunge, and a world financial crisis could ensue. At that point, even the U.S. could be forced to stop living beyond its means.


The Intangible Economy: Place matters - Marc Andreessen

Why there are still computer jobs in high-priced Silicon Valley:

The Intangible Economy: Place matters - Marc Andreessen : Ponder this quote from Marc Andreessen, the man who invented the Web browser that allows all of us to work wherever we want. (From Business Week interview - Andreessen: Innovation Is Humming) (Note: Zend is an Israeli company whose Board Andreessen just joined.)

Q: You mentioned Zend's decision to relocate its headquarters to Silicon Valley. What do you think of Silicon Valley's stature in the tech world? Why is it still important to be here?

A: Overall, it's the combination. There's a critical mass of investors -- way more than anywhere else, which does matter. [There are] sales people, executives, accountants, lawyers, bankers, and you're in the flow of what's actually going on. [Being in tech and not being in Silicon Valley] is like trying to be in the movie business not in LA or trying to be in national politics and not be in D.C. You just don't know what's going on half the time. You get outside the valley and you're not aware of next six startups that just got funded. That actually matters.

Even in the most connected areas, face-to-face and being there -- inside the critical mass -- still matters.


Questions of Character - New York Times

Paul Krugman says "I told you so," and tells us why we don't have a better press corps:

Questions of Character - New York Times : George W. Bush, I once wrote, "values loyalty above expertise" and may have "a preference for advisers whose personal fortunes are almost entirely bound up with his own." And he likes to surround himself with "obsequious courtiers." Lots of people are saying things like that these days. But those quotes are from a column published on Nov. 19, 2000.

I don't believe that I'm any better than the average person at judging other people's character. I got it right because I said those things in the context of a discussion of Mr. Bush's choice of economic advisers, a subject in which I do have some expertise. But many people in the news media do claim, at least implicitly, to be experts at discerning character - and their judgments play a large... role.... The 2000 election would have ended in a chad-proof victory for Al Gore if many reporters hadn't taken a dislike to Mr. Gore, while portraying Mr. Bush as an honest, likable guy. The 2004 election was largely decided by the image of Mr. Bush as a strong, effective leader.

So it's important to ask why those judgments are often so wrong.... [W]hat happened to the commanding figure of yore, the heroic leader in the war on terror? The answer, of course, is that the commanding figure never existed: Mr. Bush is the same man he always was. All the character flaws that are now fodder for late-night humor were fully visible, for those willing to see them, during the 2000 campaign. And President Bush the great leader is far from the only fictional character, bearing no resemblance to the real man, created by media images.

Read the speeches Howard Dean gave before the Iraq war, and compare them with Colin Powell's pro-war presentation to the U.N. Knowing what we know now, it's clear that one man was judicious and realistic, while the other was spinning crazy conspiracy theories. But somehow their labels got switched in the way they were presented to the public by the news media.

Why does this happen? A large part of the answer is that the news business places great weight on "up close and personal" interviews.... [But] most people - myself included - are pretty bad at using personal impressions to judge character.... [C]overage... [is] shaped by what reporters feel they can safely say, rather than what they actually think or know. Now that Mr. Bush's approval ratings are in the 30's, we're hearing about his coldness and bad temper, about how aides are afraid to tell him bad news. Does anyone think that journalists have only just discovered these personal characteristics?

Let's be frank: the Bush administration has made brilliant use of journalistic careerism. Those who wrote puff pieces about Mr. Bush and those around him have been rewarded with career-boosting access. Those who raised questions about his character found themselves under personal attack.... So what's the answer?.... [W]e really need is political journalism based less on perceptions of personalities and more on actual facts. Schadenfreude aside, we should not be happy that stories about Mr. Bush's boldness have given way to stories analyzing his facial tics. Think, instead, about how different the world would be today if, during the 2000 campaign, reporting had focused on the candidates' fiscal policies instead of their wardrobes.


One of the Big Questions, Well Set Up

Greg Clark sets up the problem: http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-12.pdf

I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminishing expenses the cotton and other raw materials for their manufactures. But when you have once introduced machinery into the locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication.... The railway-system will therefore become, in India, truly the forerunner of modern industry (Marx (1853)).

As we saw, it is not clear when the great turning point in human history, the Industrial Revolution, actually arrived. Arguments can be made for dating this to the Middle Ages.... But certainly by 1860 there was a steady expansion of the production possibilities year by year through the development of new production knowledge in the most advanced economies. We also saw that modern economic growth stemmed ultimately from an increase in knowledge, rather than from physical capital accumulation, or from the exploitation of natural resources. This, it would seem, should have ensured the rapid spread of the Industrial Revolution across the world. For while developing new knowledge was an arduous task, copying innovations was much easier. In particular the new technologies of the classic Industrial Revolution were not particularly sophisticated. Thus they were quickly transmitted to other European countries....

As can be seen even, though the railway in its modern form was not fully developed until the Liverpool-Manchester line of 1830, adoption of railways was rapid in many countries. By 1840 ten countries had established rail lines of their own. India had completed a railway by 1853 even though it was one of the world’s poorest countries. Thus the lag in diffusion of technology is modest even in the early nineteenth century. Similarly if we look at the earlier Watt steam engine we again see modest lags.

In the course of the late eighteenth and nineteenth century there were a series of technological, organizational and political developments that seemed to imply the integration of all countries into a new industrialized world... railways, steamships, the telegraph, the mechanized factory... specialized machine building firms... whose business was the export of technology... political changes....

The world before 1800 was one in which information and people traveled at astonishingly slow speeds. We have a nice example of the speed of information flow for the later Roman Empire.... When the emperor changed in Rome there was thus a period when legal documents Egypt had, incorrectly, the name of the previous emperor. The length of this period indicates how long it took information to get to Egypt.... In the Roman Empire, along a major trade route, information flowed at an average speed of 0.7 miles per hour.... Even by 1800 information flows were not much faster. The London Times did not print news of Nelson’s triumph at the Battle of the Nile on August 1, 1798 until October 2, 62 days later. That is an average speed of travel of the news of 1.5 miles per hour....

In the course of the nineteenth century both the speed and the costs of land transportation, even in the poorest countries, were revolutionized by the spread of railways.... Ocean transport was similarly revolutionized in this period by the development of faster more cost-effective ocean steamships... the screw propeller, iron hulls, compound engines, and surface condensers.... [S]ubmarine cables.... In the 1840s before the telegraph it took 5 to 8 months for a letter to go from Britain to India.... By 1865 India was linked to Britain by a telegraph system partly over land which could transmit messages in 24 hours.

These changes together made the world a much smaller place in the late nineteenth century.... In 1907, for example, it cost ₤0.4 to carry a ton of cotton goods by rail the 30 miles from Manchester to Liverpool, but only ₤1.5 to ship those goods the 7,250 miles from Liverpool to Bombay.... [Real] shipping costs to the East were only 2% the level of 1794 by 1906....

So why wasn't the whole world developed by 1914? That's one of the very big questions.


Daniel Gross on Greenspan's Successor

I think Daniel Gross misjudges Glenn Hubbard.

Daniel writes:

Greenspan's Successor - Who will fill the Fed chairman's shoes? By Daniel Gross : [T]he candidate Bush names now will be in charge when the Republican fiscal policy of the past five years starts to unwind. Remember, virtually all the tax cuts passed in recent years were designed to be temporary. The dividend and capital-gains tax cuts expire in 2008. The marginal-income-tax rate reductions expire at the end of 2010. At the same time, Bush and Congress have expanded government massively--a new prescription-drug entitlement in Medicare, pork-laden transportation bills, hundreds of billions of dollars spent in Iraq and Afghanistan--while doing nothing to deal with approaching debacles in Medicare and Social Security. Meanwhile, the Alternative Minimum Tax ensnares increasingly larger numbers of Americans each year.

As Democrats and Republicans in Congress seek to sort out these messes, they'll look to the Federal Reserve chairman for succor. So, the biggest danger for Bush is not that the next Fed chairman will be lax when it comes to fighting inflation. It's that he will use his Congressional testimony or his public speeches to speak honestly about the implications of the fiscal policy, to note that the pledges to reduce deficits and make tax cuts permanent are mutually exclusive, or to argue that the stock market can't magically cure Social Security's long-term imbalance.

Thus considered, it behooves Bush to choose the candidate least likely to speak out. Someone who, when push comes to shove, will go with partisan instincts over academic leanings and whose willingness to speak truth to power goes only so far. From this perspective, many of the potential appointees are problematic, given Bush's Manichean worldview. Ferguson was appointed by Clinton. Kohn is reportedly a Democrat. Bernanke doesn't have much of a public record when it comes to deficits, and he's a latecomer to the Bush White House. Feldstein? He's been a big supporter of Bush policies in recent years, as his writings show. But he wrote in the Financial Times in 2003 that "persistent budget deficits crowd out investment and thus reduce long-term growth." What's more, he has a troubling history of being willing to criticize his fellow Republicans over deficits, as he did in the 1980s. And none of these guys has any professional skin in the game--they were all spectators to the fiscal train wreck.

If you're Bush, you need someone who has a first-rate economic mind but the soul of a political hack. You need someone who was intimately involved in the selling of the fiscal policy in the first place and who will go to great lengths to defend it. You need someone who can argue in a textbook that deficits influence interest rates and then argue as a White House adviser that they don't%u2014and still maintain an academic reputation. You need someone who campaigned hard for you in 2004. In other words, you need the guy Chris Suellentrop dubbed a "first-rate economist, tax-cut champion, presidential Yes Man." President Bush, you need Glenn Hubbard.

Bush recently pledged that his Fed appointee would rise above politics. "It's this independence of the Fed that gives people%u2014not only here in America but the world--confidence," said Bush. But the Supreme Court is supposed to be an independent branch of government. And Bush didn't think twice about putting his personal lawyer there to protect his policies and look after his legacy. Bush and Hubbard aren't particularly close. There are no anecdotes of Hubbard clearing brush in Crawford or writing mash notes. But if the guy who did Bush's taxes in the 1980s wasn't available for the Fed, Glenn Hubbard may be the next best choice.

Glenn Hubbard is as worried about the long-run fiscal health of the American government as... as... as I am. And the next Fed Chair will have a much harder time maintaining effective price stability if large deficits continue. Hubbard, Ferguson, Kohn, Bernanke, and Feldstein are all very good and very serious people--and they all equally understand the importance of making sure that the High Politicians know that inflation will return unless there is effective budget balance.


Clark's Economic History of the World

Greg Clark is writing a short book. It looks excellent--although he does, I think, place much too much stress on increasing prudence as the driver of the Industrial Revolution:

The Conquest of Nature: A Brief Economic History of the World, 10,000 BC-2000 AD :

  1. Introduction
  2. The Logic of the Malthusian Economy
  3. Living Standards
  4. Fertility
  5. Mortality
  6. Technological Change in the Malthusian Era
  7. Economic Change before 1800
  8. Explaining Modern Growth
  9. The Problem of the Industrial Revolution
  10. The Industrial Revolution in England
  11. The Social Consequences of the Industrial Revolution
  12. The Great Divergence – World Economic Growth since 1800
  13. The Proximate Sources of Divergence
  14. Explaining Divergence

A Reason Why It Would Be Nice Right Now to Have a *Real* President

David Wessel sketches likely tax increases:

WSJ.com - Capital : Politicians Must Decide How to Raise Taxes. October 13, 2005; Page A2: The time has come to stop wondering if taxes are going up and instead to ask how and for whom. It is true that if the government held the line on spending, it wouldn't need much more revenue. But there are no signs that Congress or the president will do such belt-tightening -- or that the public would tolerate it.... It is true that money-saving changes to Social Security and health programs are inevitable with the approaching retirement of the baby-boom generation. "But," as the business-led Committee for Economic Development put it recently, "even quite severe expenditure restraints are unlikely to prevent a rapid rise in budget deficits under current and prospective tax policies.... Additional tax revenue will be an inescapable component of any responsible long-term fiscal policy."

As President Bush's Council of Economic Advisers [i.e., Glenn Hubbard] put it in 2003: "Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity."...

The issue isn't Mr. Bush's determination to avoid tax increases.... The tax-cut flame is already flickering. The permanent repeal of the estate tax has been shelved, at least for now. The Senate is flirting with allowing the pesky alternative minimum tax to hit more of those with incomes between $100,000 and $250,000.

And it isn't clear Republicans can, as they'd hoped, vote this fall to extend the Bush tax cuts. Doing nothing would return capital-gains and dividend-tax rates to pre-Bush levels at the end of 2008 and return income-tax rates to pre-Bush levels at the end of 2010, pushing the top rate to 39.6% from today's 35%.... So set aside the should-we-or-shouldn't-we debate, and accept the forecast that tax increases are coming. Then listen to the talk from the president's Advisory Panel on Tax Reform, because it foreshadows the coming debate. If... then popular exemptions and deductions are likely to be gutted.

Proposals to limit tax breaks for health care and housing are on the tax-overhaul panel's agenda because they appear to encourage economically unwise excesses -- for some of the best-paid Americans. The tax-overhaul panel talked this week of recommending limiting the deduction for mortgage interest to the interest on mortgages of about $300,000, down from the $1 million limit in current law. Given Americans' affection for their homes, that seems politically difficult. But there is a lot of money there: A $500,000 limit would raise $17 billion over five years, the Joint Committee on Taxation figures. Taxing workers for employer-paid health insurance premiums that exceed the national average ($8,640 for family coverage in 2004) would raise $195 billon over five years, the JCT estimates.

The federal tax deduction for state and local taxes also is endangered if Congress starts to look for ways to preserve current tax rates, or limit the increase in tax rates. Just limiting the deduction to those taxpayers whose state and local tax bills exceed 2% of their income would raise nearly $50 billion over five years....

Economists' fascination with a value-added tax is still exceeded by politicians' wariness, but the VAT won't go away. The obvious vulnerability of the U.S. economy to energy prices and growing concern about climate change are reviving interest in energy or carbon taxes. If we are worried, and not everyone is, about the widening gap between incomes of best-off and worst-off Americans, then spending and taxes are part of the response. Political differences are sharpest here....

We have time. So far, the bond market hasn't choked on federal deficits. So far, foreigners are willing to lend whatever the U.S. needs. But it's time for the politicians and technicians to begin crafting the coming tax increases so they do the least harm to the economy.

The last sentence is not quite correct. It's not the tax increases that will do big harm to the economy, it's the lack of tax increases--what sustained large deficits will do to the economy. And the tax increases Wessel mentions are not nearly enough to do the job.


Econ 210a Fall2005/Spring 2006: Course Requirements

Class meetings will consist of a mixture of lecture and discussion. When the course goes well, it is primarily discussion; when the course goes badly, it is primarily lecture. Because discussion will focus on the issues raised, resolved, and left unanswered by the assigned readings, readings should be completed before class. An informed contribution to the discussion will count--perhaps heavily--toward a student's grade.

A research paper is also required. This paper should go beyond summarizing or synthesizing some subliterature of economic history: students should use the tools of economic theory and empirical analysis to pose and answer an historical question. The paper should have historical substance; this is not a requirement in applied economics or econometrics that can be satisfied by relabeling the variables in theoretical models taught elsewhere in the program or by mechanically applying modern statistical techniques to old data. More on the paper guidelines can be found below.

There will also be a--cumulative, open book--final exam at the end of the course. The exam and the paper will carry equal weight, with class participation serving as a tie-breaker.


Econ 210a Fall2005/Spring 2006: Course Paper Guidelines

<p>The paper required for Economics 210a is a research paper. That is, it should provide new information or evidence on a topic in economic history. It should not merely summarize an existing literature in the field. The writing and submission process requires that you meet two benchmarks: submit approximately ten pages' worth of a literature review and a statement of your hypotheses by Friday, December 9, 2005; and submit roughly 25 pages' worth of final paper will be due on the last day before spring vacation.</p>

<p><em>Topic</em></p>

<p>The paper may cover almost any topic in economic history. You are certainly not limited to the material covered in 210a. You may, for example, work on time periods or countries of particular interest to you. The only requirement is that the topic must genuinely involve the past. Comparisons of past and current events are certainly fine, but studies of developments solely after 1973 are not.</p>

<p><em>Evidence</em></p>

<p>As the readings on the syllabus make clear, historical evidence comes in a wide range of form and styles. It is often empirical, but not always. Sometimes the key evidence is just a list of goods traded or what policymakers said they were trying to accomplish. With empirical evidence, tables and graphs of important variables are often enough to make a compelling argument.</p>

<p>The key requirement is that you present some historical evidence. That is, you must have some data or narrative evidence from the past. A theoretical model can certainly be a part of a good history paper, but it needs to be grounded in historical fact. You would need to justify the assumptions and format of the model with detailed analysis of the institutions and economic variables of the time. (This is what would make the paper suitable for an economic history course as opposed to a course in economic theory.) Similarly, statistical and econometric analysis can be part of a good history paper, but the analysis again needs to be grounded in historical fact. It would have to explain how the methods are suited to the nature of the data &mdash; that is, to the time from which they come and to the way they were generated. (This is what would make the paper suitable for an economic history course, as opposed to a course in applied econometrics.)</p>

<p><em>Suggested Length</em></p>

<p>Good papers do come in a wide variety of sizes. However, for this assignment aim at a length of ten pages or so for the literature review, and more for the final paper. A final paper less than 20 pages tends to make your instructors suspicious, while a final paper more than 30 pages tends to make your instructors cranky.</p>

<p><em>Successful Paper Topics from Previous Years</em></p>

<p>Coming up with a promising paper topic is arguably the most useful part of this whole exercise. Your entire graduate career (indeed, for most of you, your entire career) will center around identifying interesting questions to be answered. For this reason, we will not give you a list of topics (though we often toss them out in the course of class discussion). Instead, we will describe the type of topics that have been successful in the past and suggest ways of finding similarly successful topics.</p>

<ol>
<li><em>A comment on an interesting paper:</em> Perhaps the easiest type of paper to write is a comment on an existing paper. Such comments often turn out to be more important than the original work. Think about flaws in some paper that you read. Is there selection bias? Has the author left out a potentially crucial variable? One year a student noticed a footnote in a paper by on the reading list that said one observation had been left out of the figure because it was so large relative to the others. This same extreme observation was included in the empirical analysis. The student got the data and showed that his results depended crucially on this one observation.</li>
<li><em>A comparison of past events with present events:</em> Few economic events have no historical antecedents. If there is a modern development you are interested in, you could look for its historical roots or counterparts. For example, so much has been written about the rise of the Internet and the revolution in communication in the 1990s. How do these developments compare to the rise of the telegraph and the telephone? The rise of TV and radio? Were there similar changes in investment in the 1890s as in the 1990s? One year a student looked at how the U.S. experience with free banking in the mid-19th century compared to some of the developments in European currency relationships in the 1990s.</li>
<li><em>Analysis of an interesting source:</em> While it is not a good idea to let data availability drive your topic, it is perfectly reasonable to let serendipity play a role. Have you come across an unusual source in the library or during your undergraduate years? Is there an interesting question that this source could be used to answer? One year a student came across the catalogs for the 1851 World&rsquo;s Fair. She had the idea that these descriptions of what each country exhibited could be used as a measure of innovation. She wrote a paper looking at the industrial composition of innovation across countries. Another student was looking through newspapers from San Francisco in the 1870s. He found many classified ads that read something like: "Wanted &mdash; man to work in store and loan store $1000." This student wondered why companies would tie employment and loans. He wrote a paper investigating whether ads such as these were a sign of credit market imperfections or a way of ensuring worker loyalty and honesty.</li>
<li><em>A new test of an old debate:</em> A very successful way to write papers follows the example of Peter Temin&rsquo;s article on British trade during the Industrial Revolution found on this course's reading list. Take some interesting debate in economic history and come up with a clever, alternative way of testing it. Usually, such a test involves using a new type of data. For example, if everyone has been using quantities, think about a way to use prices. An example of this type of paper involves the debate over how business cycles have changed over time. One researcher suggested that instead of fighting over very imperfect estimates of real GDP, one could look at stock prices as an indicator of the volatility of the macroeconomy.</li>
<li><em>A natural experiment:</em> Just as one should be on the lookout for interesting sources, one should also be thinking about interesting events. History is full of natural experiments--some weird tax is passed, a war is fought, a new regulation is imposed. Often such experiments can be used to answer crucial questions in economics--for example, what the changing speed with which liberty ships were built during World War II tells us about the size of learning-by-doing effects.</li>
</ol>

<p>There are few economic historians. There is lots of economic history. Paper topics lie thick on the ground.</p>


Econ 210a Fall2005/Spring 2006: Course Purpose

<p>Economics 210a is required of Ph.D. students in Economics, and is taken in the first year of the graduate program. Graduate students in other degree programs may enroll subject to the availability of space and with the instructors' approval. The course is designed to introduce a selection of themes from the contemporary economic history literature. While themes are presented chronologically, the purpose of the course is not to present a narrative account of world economic history. Instead, emphasis is placed on the uses of economic theory and quantitative methods in history and on the insights that a knowledge of history can give to the practicing economist.</p>

 


Econ 210a Fall 2005/Spring 2006: Course Syllabus (First Half)

SYLLABUS: Economics 210a: Fall-Winter 2005-2006: (First Half)

University of California at Berkeley

Barry Eichengreen (Evans 603, W 2-4, 2-0926, eichengr@econ.berkeley.edu

Brad DeLong (Evans 601, W 11-12, 2-3, 3-4027, delong@econ.berkeley.edu


Before the Course Begins: Introduction: The Past Is Another Country

Robert M. Solow (1985), "Economic History and Economics," American Economic Review Papers and Proceedings 75:2 (May), pp. 328-331 http://links.jstor.org/sici?sici=0002-8282%28198505%2975%3A2%3C328%3AEHAE%3E2.0.CO%3B2-2.


October 19, 2005: Modes of Production

The Agricultural Revolution and Its Consequences:

Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover http://www.agron.iastate.edu/courses/agron342/diamondmistake.html.
Joel Mokyr (1998), "Review of Jared Diamond, Guns, Germs, and Steel" http://www.j-bradford-delong.net/Teaching_Folder/Econ_210b/Mokyr_on_Diamond.html.

The Ancient Economy:

M.I. Finley (1970), "Aristotle and Economic Analysis," Past and Present 47 (May), pp. 3-25 http://links.jstor.org/sici?sici=0031-2746%28197005%290%3A47%3C3%3AAAEA%3E2.0.CO%3B2-J.
M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45 http://links.jstor.org/sici?sici=0013-0117%281965%292%3A18%3A1%3C29%3ATIAEPI%3E2.0.CO%3B2-1.
William Baumol (1990), "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy 98:5(1) (Oct), pp. 893-921 http://links.jstor.org/sici?sici=0022-3808%28199010%2998%3A5%3C893%3AEPUAD%3E2.0.CO%3B2-Z.
J. Bradford DeLong (2003), "Thinking About Aristotle of Stagira and Moses Finley" http://www.j-bradford-delong.net/movable_type/2003_archives/000381.html.
J. Bradford DeLong (1997), "The 'Embedded Economy' Thesis" http://www.j-bradford-delong.net/movable_type/2003_archives/002483.html.


October 26, 2005: Malthusian and Dark Ages

Trade without Law:

Avner Greif (1989), "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," Journal of Economic History 49:4 (December), pp. 857-882 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C857%3ARACIMT%3E2.0.CO%3B2-M.

Surplus:

Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32 http://www.j-bradford-delong.net/movable_type/2003_archives/001447.html.
Alfred Conrad and John Meyer (1958), "The Economics of Slavery in the Ante-Bellum South," Journal of Political Economy 66:1, pp. 95-130 http://links.jstor.org/sici?sici=0022-3808%28195804%2966%3A2%3C95%3ATEOSIT%3E2.0.CO%3B2-R.
Peter H. Lindert (1986), "Unequal English Wealth since 1670," Journal of Political Economy 94:6 (Dec), pp. 1127-1162 http://links.jstor.org/sici?sici=0022-3808%28198612%2994%3A6%3C1127%3AUEWS1%3E2.0.CO%3B2-8.

Malthus:

Gregory Clark (2005), "The Logic of the Malthusian Economy," chapter 2 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-2.pdf.
Gregory Clark (2005), "Living Standards in the Malthusian Era," chapter 3 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-3.pdf.
Richard H. Steckel (1995), "Stature and the Standard of Living," Journal of Economic Literature 33:4 (December), pp. 1903-1940 http://links.jstor.org/sici?sici=0022-0515%28199512%2933%3A4%3C1903%3ASATSOL%3E2.0.CO%3B2-C.
Thomas R. Malthus (1795), "An Essay on the Principle of Population," Book 3 http://www.econlib.org/library/Malthus/malPlong.html.


November 2, 2005: Institutions

Douglass North and Barry Weingast (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49:4 (December), pp. 803-832 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C803%3ACACTEO%3E2.0.CO%3B2-9.
J. Bradford DeLong and Andrei Shleifer (1993), "Princes and Merchants: City Growth Before the Industrial Revolution," Journal of Law and Economics 36:5 (Oct), pp. 671-702 http://www.j-bradford-delong.net/movable_type/archives/000638.html.
Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" (Cambridge: NBER Working Paper no. h0066) http://papers.nber.org/papers/h0066.pdf.
Gregory Clark (2005), "Economic Change in the Malthusian Era," chapter 7 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-7.pdf.
Adam Smith (1776), The Wealth of Nations, Book I and Book V http://www.econlib.org/library/Smith/smWNtoc.html.


November 9, 2005: Economic Revolutions

The Commercial Revolution:

Jan de Vries (1994), "The Industrious Revolution and the Industrial Revolution," Journal of Economic History 54:2 (June), pp. 249-70 http://links.jstor.org/sici?sici=0022-0507%28199406%2954%3A2%3C249%3ATIRATI%3E2.0.CO%3B2-8.
Kevin H. O'Rourke and Jeffrey G. Williamson (2002), "From Malthus to Ohlin: Trade, Growth and Distribution Since 1500" (Cambridge: NBER Working Paper w8955, May) http://papers.nber.org/w8955.
Kevin H. O'Rourke and Jeffrey G. Williamson (2001), "After Columbus: Explaining the Global Trade Boom 1500-1800" (Cambridge: NBER Working Paper w8186, March) http://papers.nber.org/w8186.
David Hume (1752), "Of the Balance of Trade" http://www.econlib.org/library/LFBooks/Hume/hmMPL28.html.
David Ricardo (1815), "An Essay on the Influence of a Low Price of Corn on the Profits of Stock" http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ricardo/profits.txt>

The Industrial Revolution: Why

Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108 (August), pp. 681-716 http://links.jstor.org/sici?sici=0033-5533%28199308%29108%3A3%3C681%3APGATCO%3E2.0.CO%3B2-A.
Gregory Clark, "The Problem of the Industrial Revolution," chapter 9 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-9.pdf


November 16, 2005: The Industrial Revolution: How

Joel Mokyr (1988), "Is There Still Life in the Pessimist Case? Consumption during the Industrial Revolution, 1790-1850," Journal of Economic History 48:1 (March), pp. 69-92 http://links.jstor.org/sici?sici=0022-0507%28198803%2948%3A1%3C69%3AITSLIT%3E2.0.CO%3B2-L.
Peter Temin (1997), "Two Views of the Industrial Revolution," Journal of Economic History 57:1 (March), pp. 63-82 http://links.jstor.org/sici?sici=0022-0507%28199703%2957%3A1%3C63%3ATVOTBI%3E2.0.CO%3B2-U.
C. Knick Harley (1982), "British Industrialization Before 1841: Evidence of Slower Growth During the Industrial Revolution," Journal of Economic History 42:2 (June), pp. 267-289 http://links.jstor.org/sici?sici=0022-0507%28198206%2942%3A2%3C267%3ABIB1EO%3E2.0.CO%3B2-0.
David Landes (1986), "What Do Bosses Really Do?" Journal of Economic History 46:3 (September), pp. 585-623 http://links.jstor.org/sici?sici=0022-0507%28198609%2946%3A3%3C585%3AWDBRD%3E2.0.CO%3B2-N.
Jeffrey G. Williamson (1984), "Why Was British Growth So Slow During the Industrial Revolution?" Journal of Economic History 443. (September), pp. 687-712 http://links.jstor.org/sici?sici=0022-0507%28198409%2944%3A3%3C687%3AWWBGSS%3E2.0.CO%3B2-N.


November 30, 2005: Consequences of Industrial Revolution

George Boyer (1998), "The Historical Background of the Communist Manifesto," Journal of Economic Perspectives 12:4 (Autumn), pp. 151-174 http://links.jstor.org/sici?sici=0895-3309%28199823%2912%3A4%3C151%3ATHBOTC%3E2.0.CO%3B2-4.
Nicholas Crafts (1998), "Forging Ahead and Falling behind: The Rise and Relative Decline of the First Industrial Nation," Journal of Economic Perspectives 12:2 (Spring), pp. 193-210 http://links.jstor.org/sici?sici=0895-3309%28199821%2912%3A2%3C193%3AFAAFBT%3E2.0.CO%3B2-S.
Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp.
Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/.
Karl Marx (1849), "Wage Labor and Capital" http://www.marxists.org/archive/marx/works/download/Marx_Wage_Labour_and_Capital.pdf
Karl Marx (1867), "The Working Day," chapter 10 of Capital, vol. I http://www.marxists.org/archive/marx/works/1867-c1/ch10.htm.


December 7, 2005: Fortune's Favorites: The Great Divergence

Gregory Clark (2005), "The Great Divergence" and "Anatomy of Divergence," chapters 12 and 13 from The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-12.pdf http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-13.pdf.
Richard Easterlin (1981), "Why Isn't the Whole World Developed?" Journal of Economic History 41:1 (March), pp. 1-19.http://links.jstor.org/sici?sici=0022-0507%28198103%2941%3A1%3C1%3AWITWWD%3E2.0.CO%3B2-Y.
Angus Maddison (1983), "A Comparison of Levels of GDP Per Capita in Developed and Developing Countries, 1700-1980," Journal of Economic History 43:1 (March), pp. 27-41 http://links.jstor.org/sici?sici=0022-0507%28198303%2943%3A1%3C27%3AACOLOG%3E2.0.CO%3B2-3.
Gavin Wright (1990), "The Origins of American Industrial Success, 1879-1940," American Economic Review 80 (1990), pp. 651-668 http://links.jstor.org/sici?sici=0002-8282%28199009%2980%3A4%3C651%3ATOOAIS%3E2.0.CO%3B2-7.
Mark Elvin (1984), "Why China Failed to Create an Endogenous Industrial Capitalism: A Critique of Max Weber's Explanation," Theory and Society 13:3 (May), pp. 379-91 http://links.jstor.org/sici?sici=0304-2421%28198405%2913%3A3%3C379%3AWCFTCA%3E2.0.CO%3B2-7.


Department of Self-Parody

Slate's Jack Shafer sneers at press corps fascination with Apple's iPod:

The Apple Polishers - Explaining the press corps' crush on Steve Jobs and company. By Jack Shafer : I don't hate Apple. I don't even hate Apple-lovers. I do, however, possess deep odium for the legions of Apple polishers in the press corps who salute every shiny gadget the company parades through downtown Cupertino as if they were members of the Supreme Soviet viewing the latest ICBMs at the May Day parade...

Immediately before Shafer's text, however, is this bold-faced message from Slate:

Download the iPod-ready audio version of this story here, or sign up to get all of Slate's free daily podcasts.

If the fact that Slate is doing "podcasts" of its stories for the iPod is important enough to note a mention *before* the story text speaks... or rather podcasts... volumes. The fact that Shafer doesn't think about how his text will read when it comes immediately after an official YES! WE TOO ARE ON THE iPOD BANDWAGON!! is... amusing.


The Economist Endorses Don Kohn

The Economist endorses Don Kohn for Federal Reserve Chair. It would be a good choice. Given who George W. Bush is, however, we're more likely to get don Rumsfeld:

The Federal Reserve | A hard act to follow | Economist.com : [W]e believe the best choice would be Don Kohn, a governor on the Federal Reserve Board, who is not affiliated to any party. Mr Kohn has another big advantage. As a staff member before being promoted to governor in 2002 on Mr Greenspan's recommendation, Mr Kohn has been attending the Fed's policy-making meetings for almost 24 years, even longer than Mr Greenspan. His vast experience of monetary-policy decisions and financial crises would be invaluable in troubled times. He is highly regarded by economists in the Fed and on Wall Street, and having worked with Mr Greenspan for so long, his thinking on interest-rate policy and financial markets is also close to the chairman's. He would offer continuity and a safe pair of hands....

Whether central banks should respond to asset-price bubbles is one of the hottest debates in monetary policy. The Fed's failure to curb bubbles, while aggressively easing policy when they burst, is partly to blame for America's imbalances, which could give the next Fed chairman a lot of grief. Mr Kohn's experience within the Fed makes him the best man to cope with this. Mr Greenspan could help him immeasurably and enhance his own legacy by going much further, and explicitly supporting the view of many other central banks that sometimes policymakers should act to restrain asset-price booms. When you are the world's greatest central banker, after all, you should be able to admit the odd mistake.


Chronosynclastic Infundibulum

It now appears that "Sex and the City" (minus the naughty bits) is available 24/7 on "normal" TV networks--i.e., not premium cable. But they don't show the episodes in order. And since multiple networks are showing episodes not in order, the sense of temporal rootedness is absent. It's as if Sarah Jessica Parker were a character in a Kurt Vonnegut novel who had passed through the chronosynclastic infundibulum, so that she (subjectively) experiences the different days of her life in random order. It's peculiar.

More distressing, perhaps, is that each "thirty minute" episode appears to contain only 21 minutes of actual show--including credits. That's 18 minutes an hour devoted to ads and previews.

When did this happen? Back in the days when quatloos were quatloos, one could count on an hour-long episode like "The Gamesters of Triskelion" containing at least fifty-two minutes of genuine programmy goodness. Or so I remember...


Economics 210a 2005-2006: First Half Syllabus [DRAFT]

SYLLABUS: Economics 210a: Fall-Winter 2005-2006: (First Half)

University of California at Berkeley

Barry Eichengreen (Evans 603, W 2-4, 2-0926, eichengr@econ.berkeley.edu

Brad DeLong (Evans 601, W 11-12, 2-3, 3-4027, delong@econ.berkeley.edu


Before the Course Begins: Introduction: The Past Is Another Country

Robert M. Solow (1985), "Economic History and Economics," American Economic Review Papers and Proceedings 75:2 (May), pp. 328-331 http://links.jstor.org/sici?sici=0002-8282%28198505%2975%3A2%3C328%3AEHAE%3E2.0.CO%3B2-2.


October 19, 2005: Modes of Production

The Agricultural Revolution and Its Consequences:

Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover http://www.agron.iastate.edu/courses/agron342/diamondmistake.html.
Joel Mokyr (1998), "Review of Jared Diamond, Guns, Germs, and Steel" http://www.j-bradford-delong.net/Teaching_Folder/Econ_210b/Mokyr_on_Diamond.html.

The Ancient Economy:

M.I. Finley (1970), "Aristotle and Economic Analysis," Past and Present 47 (May), pp. 3-25 http://links.jstor.org/sici?sici=0031-2746%28197005%290%3A47%3C3%3AAAEA%3E2.0.CO%3B2-J.
M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45 http://links.jstor.org/sici?sici=0013-0117%281965%292%3A18%3A1%3C29%3ATIAEPI%3E2.0.CO%3B2-1.
William Baumol (1990), "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy 98:5(1) (Oct), pp. 893-921 http://links.jstor.org/sici?sici=0022-3808%28199010%2998%3A5%3C893%3AEPUAD%3E2.0.CO%3B2-Z.
J. Bradford DeLong (2003), "Thinking About Aristotle of Stagira and Moses Finley" http://www.j-bradford-delong.net/movable_type/2003_archives/000381.html.
J. Bradford DeLong (1997), "The 'Embedded Economy' Thesis" http://www.j-bradford-delong.net/movable_type/2003_archives/002483.html.


October 26, 2005: Malthusian and Dark Ages

Trade without Law:

Avner Greif (1989), "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," Journal of Economic History 49:4 (December), pp. 857-882 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C857%3ARACIMT%3E2.0.CO%3B2-M.

Surplus:

Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32 http://www.j-bradford-delong.net/movable_type/2003_archives/001447.html.
Alfred Conrad and John Meyer (1958), "The Economics of Slavery in the Ante-Bellum South," Journal of Political Economy 66:1, pp. 95-130 http://links.jstor.org/sici?sici=0022-3808%28195804%2966%3A2%3C95%3ATEOSIT%3E2.0.CO%3B2-R.
Peter H. Lindert (1986), "Unequal English Wealth since 1670," Journal of Political Economy 94:6 (Dec), pp. 1127-1162 http://links.jstor.org/sici?sici=0022-3808%28198612%2994%3A6%3C1127%3AUEWS1%3E2.0.CO%3B2-8.

Malthus:

Gregory Clark (2005), "The Logic of the Malthusian Economy," chapter 2 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-2.pdf.
Gregory Clark (2005), "Living Standards in the Malthusian Era," chapter 3 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-3.pdf.
Richard H. Steckel (1995), "Stature and the Standard of Living," Journal of Economic Literature 33:4 (December), pp. 1903-1940 http://links.jstor.org/sici?sici=0022-0515%28199512%2933%3A4%3C1903%3ASATSOL%3E2.0.CO%3B2-C.
Thomas R. Malthus (1795), "An Essay on the Principle of Population," Book 3 http://www.econlib.org/library/Malthus/malPlong.html.


November 2, 2005: Institutions

Douglass North and Barry Weingast (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49:4 (December), pp. 803-832 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C803%3ACACTEO%3E2.0.CO%3B2-9.
J. Bradford DeLong and Andrei Shleifer (1993), "Princes and Merchants: City Growth Before the Industrial Revolution," Journal of Law and Economics 36:5 (Oct), pp. 671-702 http://www.j-bradford-delong.net/movable_type/archives/000638.html.
Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" (Cambridge: NBER Working Paper no. h0066) http://papers.nber.org/papers/h0066.pdf.
Gregory Clark (2005), "Economic Change in the Malthusian Era," chapter 7 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-7.pdf.
Adam Smith (1776), The Wealth of Nations, Book I and Book V http://www.econlib.org/library/Smith/smWNtoc.html.


November 9, 2005: Economic Revolutions

The Commercial Revolution:

Jan de Vries (1994), "The Industrious Revolution and the Industrial Revolution," Journal of Economic History 54:2 (June), pp. 249-70 http://links.jstor.org/sici?sici=0022-0507%28199406%2954%3A2%3C249%3ATIRATI%3E2.0.CO%3B2-8.
Kevin H. O'Rourke and Jeffrey G. Williamson (2002), "From Malthus to Ohlin: Trade, Growth and Distribution Since 1500" (Cambridge: NBER Working Paper w8955, May) http://papers.nber.org/w8955.
Kevin H. O'Rourke and Jeffrey G. Williamson (2001), "After Columbus: Explaining the Global Trade Boom 1500-1800" (Cambridge: NBER Working Paper w8186, March) http://papers.nber.org/w8186.
David Hume (1752), "Of the Balance of Trade" http://www.econlib.org/library/LFBooks/Hume/hmMPL28.html.
David Ricardo (1815), "An Essay on the Influence of a Low Price of Corn on the Profits of Stock" http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ricardo/profits.txt>

The Industrial Revolution: Why

Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108 (August), pp. 681-716 http://links.jstor.org/sici?sici=0033-5533%28199308%29108%3A3%3C681%3APGATCO%3E2.0.CO%3B2-A.
Gregory Clark, "The Problem of the Industrial Revolution," chapter 9 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-9.pdf


November 16, 2005: The Industrial Revolution: How

Joel Mokyr (1988), "Is There Still Life in the Pessimist Case? Consumption during the Industrial Revolution, 1790-1850," Journal of Economic History 48:1 (March), pp. 69-92 http://links.jstor.org/sici?sici=0022-0507%28198803%2948%3A1%3C69%3AITSLIT%3E2.0.CO%3B2-L.
Peter Temin (1997), "Two Views of the Industrial Revolution," Journal of Economic History 57:1 (March), pp. 63-82 http://links.jstor.org/sici?sici=0022-0507%28199703%2957%3A1%3C63%3ATVOTBI%3E2.0.CO%3B2-U.
C. Knick Harley (1982), "British Industrialization Before 1841: Evidence of Slower Growth During the Industrial Revolution," Journal of Economic History 42:2 (June), pp. 267-289 http://links.jstor.org/sici?sici=0022-0507%28198206%2942%3A2%3C267%3ABIB1EO%3E2.0.CO%3B2-0.
David Landes (1986), "What Do Bosses Really Do?" Journal of Economic History 46:3 (September), pp. 585-623 http://links.jstor.org/sici?sici=0022-0507%28198609%2946%3A3%3C585%3AWDBRD%3E2.0.CO%3B2-N.
Jeffrey G. Williamson (1984), "Why Was British Growth So Slow During the Industrial Revolution?" Journal of Economic History 443. (September), pp. 687-712 http://links.jstor.org/sici?sici=0022-0507%28198409%2944%3A3%3C687%3AWWBGSS%3E2.0.CO%3B2-N.


November 30, 2005: Consequences of Industrial Revolution

George Boyer (1998), "The Historical Background of the Communist Manifesto," Journal of Economic Perspectives 12:4 (Autumn), pp. 151-174 http://links.jstor.org/sici?sici=0895-3309%28199823%2912%3A4%3C151%3ATHBOTC%3E2.0.CO%3B2-4.
Nicholas Crafts (1998), "Forging Ahead and Falling behind: The Rise and Relative Decline of the First Industrial Nation," Journal of Economic Perspectives 12:2 (Spring), pp. 193-210 http://links.jstor.org/sici?sici=0895-3309%28199821%2912%3A2%3C193%3AFAAFBT%3E2.0.CO%3B2-S.
Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp.
Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/.
Karl Marx (1849), "Wage Labor and Capital" http://www.marxists.org/archive/marx/works/download/Marx_Wage_Labour_and_Capital.pdf
Karl Marx (1867), "The Working Day," chapter 10 of Capital, vol. I http://www.marxists.org/archive/marx/works/1867-c1/ch10.htm.


December 7, 2005: Fortune's Favorites: The Great Divergence

Gregory Clark (2005), "The Great Divergence" and "Anatomy of Divergence," chapters 12 and 13 from The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-12.pdf http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-13.pdf.
Richard Easterlin (1981), "Why Isn't the Whole World Developed?" Journal of Economic History 41:1 (March), pp. 1-19.http://links.jstor.org/sici?sici=0022-0507%28198103%2941%3A1%3C1%3AWITWWD%3E2.0.CO%3B2-Y.
Angus Maddison (1983), "A Comparison of Levels of GDP Per Capita in Developed and Developing Countries, 1700-1980," Journal of Economic History 43:1 (March), pp. 27-41 http://links.jstor.org/sici?sici=0022-0507%28198303%2943%3A1%3C27%3AACOLOG%3E2.0.CO%3B2-3.
Gavin Wright (1990), "The Origins of American Industrial Success, 1879-1940," American Economic Review 80 (1990), pp. 651-668 http://links.jstor.org/sici?sici=0002-8282%28199009%2980%3A4%3C651%3ATOOAIS%3E2.0.CO%3B2-7.
Mark Elvin (1984), "Why China Failed to Create an Endogenous Industrial Capitalism: A Critique of Max Weber's Explanation," Theory and Society 13:3 (May), pp. 379-91 http://links.jstor.org/sici?sici=0304-2421%28198405%2913%3A3%3C379%3AWCFTCA%3E2.0.CO%3B2-7.


Lecture: October 10: The Phillips Curve, Expectations, and Monetary Policy

  • The Phillips curve, expectations, and monetary policy

    • Aggregate supply and the Phillip curve
      • Unemployment
        • Unemployment and Okun's Law
        • (Y - Y)/Y = 2.5(u* - u)
        • Where Y* is potential output and u* is the "natural" rate of unemployment
        • Costs of high unemployment
      • Aggregate supply
        • The modern Phillips curve: π = πe - B(u - u*) + S
        • Where: π is the inflation rate, πe is expected inflation, u* is the natural rate of unemployment, and S is a supply-shock term.
        • What is expected inflation? We will deal with that later...
        • When unemployment is at its natural rate u*, inflation is at its expected value πe, and vice versa
    • Monetary policy, aggregate demand, and inflation
      • Think of the Federal Reserve choosing three numbers--a "normal" level of unemployment, a target level of inflation, and a degree of aggressiveness in response to deviations of inflation from the target--as follows:
      • The Federal Reserve chooses a value of the interest rate r
        • (A gross shortcut, but let's make it)
      • When the Federal Reserve's choice of the interest rate r is at its normal value, then we go to the IS curve:
        • Y = A0/[1-MPE] - (Ir + Xeer)/[1-MPE]
          • Where A0 = C0 + I0 + G + XfYf + Xee0 + Xeerrf
        • And find that Y is at some value Y0, and thus that the unemployment rate is at value u0--what the Federal Reserve thinks is the "normal" value of the unemployment rate
          • This should be, but may not be, the natural rate of unemployment u*
      • When inflation is higher than the Federal Reserve's desired target value πT, the Federal Reserve gets nervous and pushes interest rates up--pushing investment and exports down, pushing output down, and pushing unemployment up above u0
      • When inflation is higher than the Federal Reserve's desired target value πT, the Federal Reserve gets nervous and pushes interest rates down--pushing investment and exports up, pushing output up, and pushing unemployment down below u0
      • We model this with John Taylor's Monetary Policy Reaction Function (MPFRDF):
        • u = u0 + o(π - πT)
    • Equilibrium
      • We have:
        • u = u0 + o(π - πT)
        • π = πe - B(u - u*) + S
      • And thus:
        • π = πe/(1+Bo) + πT/(1+Bo) - B(u0 - u*)/(1+Bo) + S/(1+Bo)
      • Give us a rule for understanding how inflation expectations are formed, and we will be done.
  • Inflation expectations

    • Three kinds:
      • Static
      • Adaptive
      • Rational
    • Static inflation expectations
      • Will exist only if fluctuations in inflation are small
      • Produces an economy that moves back and forth along a stable downward-sloping Phillips curve
        • π = πe/(1+Bo) + (Bo)πT/(1+Bo) - B(u0 - u*)/(1+Bo) + S/(1+Bo)
        • u = u0 + o(π - πT)
      • With static expectations, only the sticky-price model is relevant
      • The U.S. in the 1950s and 1960s
    • Rational inflation expectations
      • Will exist in a sophisticated economy if the variation in government policy and in inflation is large
      • Produces an economy with a vertical Phillips curve (except for supply shocks): unemployment = u* plus supply-shock terms; changes in government policy and in the economic environment affect the rate of inflation only
      • π = πT - (u0 - u*)/o + S/(Bo)
      • Mitterand 1981
      • Only the flexible price model is relevant
    • Adaptive inflation expectations
      • Exponential convergence
        • t - (πT - (u0 - u*)/o)] = (1/(1+Bo))[πt-1 - (πT - (u0 - u*)/o)]
  • The natural rate of unemployment

    • Natural rate vs. NAIRU
    • Demography
    • Institutions
    • Productivity growth
    • Past unemployment rates

Lecture: October 7: Optional: The Money Market and the LM Curve

  • Optional: The money market and the LM curve
    • The money market and the money stock
      • Wealth, bonds, and the demand for money
      • Money supply
      • Money supply and money demand
        • Liquidity preference and the quantity theory of money: what's the relation? 8 Bond prices and interest rates
    • The LM curve
      • Interest rates and the LM curve
      • Drawing the LM curve
      • When is the LM curve relevant
        • When central banks are passive--or target money stocks
        • When the supply of money is given--as under a gold standard
    • The IS-LM framework
      • IS-LM equilibrium
      • IS shocks
      • LM shocks
      • Classifying disturbances
  • Optional: Aggregate supply and aggregate demand
    • The price level and aggregate demand
    • The price level and aggregate supply
    • Prices: stuck? sticky? flexible?
    • The AS-AD diagram
      • Understanding demand and supply shocks

Lecture: October 5: The IS Curve

October 5: Investment, Net Exports, and the Real Interest Rate: The IS Curve

Last time we started with our behavioral relationships:

C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)

And we made the key sticky-price assumptions:

r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity

And we derived:

Output as a function of autonomous spending A:

A = I + G + X + C0
Y = A/(1-(Cy(1-t) - IMy))

The multiplier: 1/(1-(Cy(1-t) - IMy))

Now let's go one step further...

Investigating the dependence of autonomous spending on the real interest rate r, and thus of output on the real interest rate r...

  • Interest Rates and Planned Expenditure

    • The importance of investment spending
    • The interest rate is not set in the loanable funds market in the sticky-price model
    • The interest rate is set by a combination of
      • Demand and supply for liquidity--money, and
      • The term structure of interest rates
    • Hence no presumption that fluctuations in investment--whether driven by "animal spirits" or movements in interest rates--are stable or stabilizing
    • Why investment depends on the real interest rate
      • The long-term, risky, real interest rate
    • Exports and autonomous spending
      • The exchange rate depends on the interest rate
      • Exports depend on the exchange rate
      • Hence exports are another interest-sensitive component of autonomous spending
    • The stock market as an indicator of investment
  • The IS Curve

    • Autonomous spending and the interest rate
    • From the interest rate to investment to planned expenditure
    • The slope and position of the IS curve
      • (Inverse) Slope: (1-MPE)/(Ir + Xeer)
      • Position: A0/((1-MPE)
  • Equilibrium

    • Moving the economy to the IS curve
    • Interest rates adjust immediately
    • Inventories: output and demand levels adjust more slowly
    • Shifting the Is curve
      • Example: a change in government purchases
    • Moving along the IS curve
      • A change in monetary policy: open market operations
      • Difficulties in monetary management
  • Using the IS curve to understand the U.S. economy

    • The 1960s: Federal Reserve keeps interest rates stable; Great Society and Vietnam War shift the IS curve outward
    • The late 1970s: The Volcker disinflation--raising real interest rates
    • The early 1980s: The Reagan deficits
    • The late 1980s: easing monetary policy as inflation dangers recede
    • The 1990s: initial sharp inward shift of IS curve; subsequent "new economy" boom
    • The 2000s: inward shift of IS curve coupled with substantial reduction in real interest rates...

Lecture: October 3: Sticky-Price Unemployment Business-Cycle Model

October 3: Sticky-Price Unemployment Business-Cycle Model

We now consider a time span too short for wages and prices to adjust to guarantee "full employment"...

So output Y is not necessarily equal to full-employment potential-output Y*...

We need a new equilibrium condition. Here it is: businesses adjust employment and production to keep their inventories stable--to match aggregate demand...

Other than this change of equilibrium condition, the model remains pretty much the same--but it behaves very differently.

We still have our behavioral relationships:

C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)

But there are two differences:

r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity

  • Sticky prices
    • Consequences of sticky prices
      • Flexible-price logic: prices adjust
      • Sticky-price logic: quantities adjust
      • Expectations and sticky-price logic
        • If expectations are fulfilled, then there will never be cases when price stickiness matters: it's only price stickiness plus surprising changes to economic policy or the economic environment that causes deviations from the full-employment model of chapters 6 and 7 *Why are prices sticky?
      • Menu costs
      • Lack of information--confusion of real and nominal magnitudes
      • Sociology: the social consequences of wage cuts
      • Simple "money illusion"
  • Income and expenditure
    • Building up total planned expenditure
      • Consumption function
      • Investment spending
      • Government purchases
      • Net exports: exports minus imports
    • Autonomous spending A
    • The marginal propensity to expend on domestic goods: Cy(1-t) - IMy
    • Sticky-price equilibrium: Y = A/(1-(Cy(1-t) - IMy))
    • The multiplier: 1/(1-(Cy(1-t) - IMy))
      • The multiplier used to be much more important than it is today...
  • The process of inventory adjustment

Harriet Miers Will Give Absolute Power to Hillary Clinton!

This is Andrew Card's defense of Harriet Miers?

War and Piece: : Don't miss Harold Meyerson's account of Andrew Card's talk on Harriet Miers and Article II of the Constitution last night at the Hudson Institute:

...Among the various defenses of Miers advanced in recent days, Card's achieved new heights of peculiarity. Before a crowd that was dense with conservative intellectuals, Robert Bork among them, Card defended the nomination as a breakthrough for women. Miers, he said, "was breaking glass ceilings before most people realized glass ceilings were even there."... He testified to Miers' intellectualism by reminding listeners that Miers had majored in math ("something Herman Kahn would have liked") and has counseled the president on any number of challenges -- "and by the way, that includes constitutional challenges."

At which point Card himself turned constitutional scholar. As White House chief-of-staff, he found the most intriguing article, he said, to be Article II, which established the presidency and the executive branch. Miers, he continued, understood Article II as well, and would defend it "when challenged by those given the power to challenge it by Article I [i.e., the Congress] and Article III [i.e., the courts]."

Thus ended Card's constitutional disquisition -- not a moment too soon, as he had managed to conflate Miers' duties as White House counsel with what he seemed to be saying was her judicial philosophy on executive power. He could not have meant to imply that Miers would see her first duty on the bench as defending Bush against all enemies, legislative and judicial, but that's what he managed to convey. At minimum, he suggested that Miers would be the staunchest proponent of executive power over that of the other two branches that the Court had seen in a very long time... Wonder if everybody got the message.

Stupidest administration ever.


Bush's Plan for Rescuing His Administration

Sisyphus Shrugged finds this on the net:

Sisyphus Shrugged - damn. : I think this is harsh!:

In response to increasing criticism.... President Bush is expected to appoint someone to run the U.S. as soon as Friday."During these tumultuous times, America is in need of a bold, resolute person who can get the job done," said Bush during a press conference Monday. "My fellow Americans, I assure you that I will appoint just such a person with all due haste." The Cabinet-level position, to be known as Secretary of the Nation, was established by an executive order Sept. 2.... "This nation needs a strong, compassionate leader," Bush said. "In response to these concerns, I'm making this a top priority. I will name a good, qualified person as soon as possible."

Among the new secretary's duties are preserving, protecting, and defending the Constitution of the United States, commanding the U.S. armed forces, appointing judges and ambassadors, and vetoing congressional legislation. The secretary will also be tasked with overseeing all foreign and domestic affairs, including those relating to the economy, natural disasters, national infrastructure, homeland security, poverty, and the wars in Iraq and Afghanistan...


The Minuteman Ownz the Plame Story

The MinuteMan ( JustOneMinute... Riding With The Virtual Mongol Horde 24/7... Would You Believe, 2/5?.) OWNZ the Mirror of Wildernesses Plame story. This is not to say that he understands it. But neither do I.

The dominant strategy still seems to have been for a couple of White Houses staffers to have gone to Andy Card in July 2003 and say, "We didn't know she was covert when we were talking to Novak. We screwed up. Fire us. We'll work on the campaign, and you can bring us back in 2005."

Why they did not follow that strategy I cannot say.


A Few Short Readings in the History of Economic Thought

Too many of our entering graduate students know too little about the history of economic thought. So I am going to see if I can do a little painless supercharging to my graduate history of economic thought reading list for the second quarter. I think I have settled on:

Thomas R. Malthus (1795), "An Essay on the Principle of Population," Book 3 http://www.econlib.org/library/Malthus/malPlong.html

Adam Smith (1776), The Wealth of Nations, Book I and Book V http://www.econlib.org/library/Smith/smWNtoc.html

David Hume (1752), "Of the Balance of Trade" http://www.econlib.org/library/LFBooks/Hume/hmMPL28.html

Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/

Karl Marx (1849), "Wage Labor and Capital" http://www.marxists.org/archive/marx/works/download/Marx_Wage_Labour_and_Capital.pdf

Karl Marx (1867), "The Working Day," chapter 10 of Capital, vol. I http://www.marxists.org/archive/marx/works/1867-c1/ch10.htm

But additions and alternatives would be welcome... And kudos to econlib.org, and to marxists.org...


Adam Smith's Little Finger

Adam Smith Lives! has a correct interpretation of Adam Smith's "the little finger and the earthquake" discussion, and Steven Pinker has an incorrect one:

Adam Smith Lives!: Smith's little finger example -- how selfish are we? : Though mine may still be a minority view of the earthquake passage, I'd like to revisit it. First, here is an example of an interpretation that runs counter to mine. In The Blank State, Steven Pinker quotes the passage from TMS, ending with the famous sentence: "If he were to lose his little finger tomorrow, he would not sleep tonight; but provided he never saw them, he would snore with the most profound security over the ruin of a hundred million of his brethren." (Pinker, p. 288). Pinker concludes that Smith's view is one in which our "moral sentiments" "overlie a deeper bedrock of selfishness." Nothing to do about it; we're hard-wired to be selfish and we keep our fingers.

If Smith had stopped there, this would all be fine. But he doesn't. In fact, Smith goes on to make the opposite case. While our first impulses are "sordid and selfish", we're compelled to overcome our initial sentiments, our high opinion of ourselves and disregard for others, and to sacrifice our interests to theirs. We're led, not by sentiment or benevolence but by "reason, principle, conscience", to give up the finger.

This is, in fact, what Smith's Theory of Moral Sentiments is about: how the feeble sparks of our "natural" tendencies to benevolence are fanned into roaring flames by our ability to reason, by our ability to imagine and put ourselves in the place of others, and by our education.


Economics 210a, Fall 2005

And I am picking up another class to teach...

Economics 210a, Fall 2005 : Economics 210a is required of Ph.D. students in Economics. It is recommended that students enroll in the first year of the graduate program. Graduate students in other degree programs may enroll subject to the availability of space and with the instructors' approval. The course is designed to introduce a selection of themes from the contemporary economic history literature. While themes are presented chronologically, the purpose of the course is not to present a narrative account of world economic history. Instead, emphasis is placed on the uses of economic theory and quantitative methods in history and on the insights that a knowledge of history can give to the practicing economist.


A Change...

We all remember (or at least some of us remember) how from 2000 to 2003 Kevin Hassett of the American Enterprise Institute was perhaps the most committed and aggressive non-administration-employed defender of the economic policies of George W. Bush who walked the earth.

There has been quite a change:

Kevin Hassett: "compassionate conservatism"... fatuous slogan... George W. Bush has outspent Lyndon B. Johnson.... During President Bush's first five years in office total real discretionary spending went up by 36.5 percent. That amount will only increase since these numbers don't take into account any spending related to Hurricane Katrina and several other supplemental spending bills related to the wars in Iraq and Afghanistan.... Looking forward, the story is much worse.... Rather than attack this cancerous growth, Republicans have fed it, doling out prescription drugs to seniors, hurricane relief and bridges-to-nowhere with equal glee.... [F]ive years into Bush's presidency, [fiscal] conservatives are still waiting for Wimpy to pay them on Tuesday for a hamburger today... spend-and-borrow faux conservatives... more dangerous than the former [statists of the past], and may take longer to defeat... dissatisfaction with our government's commitment... runs very deep.... It is quite general, and quite intense.... [Bush-supporting] Republicans have a very serious fight on their hands.

Kevin Hassett now ranks a 2.3 on the Krugman shrillness scale. We are pleased to welcome him into the ranks of the Ancient, Hermetic, and Occult Order of the Shrill--made up of those who have been driven into shrill unholy madness by the mendacity, malevolence, incompetence, and stupidity of George W. Bush and his administration and whose shrill screeds of Bush-hatred echo beneath the dead, uncaring stars--with the rank of Greater Shoggoth.

Ia!! Ia!! Ph'nglui mglw'nafh Kevin Hassett R'lyeh wagn'nagl fhtagn! Ia!! Ia!!!


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

The New York Times's John Tierney begins this morning's column with a lie:

Where Cronies Dwell - New York Times: Journalists and legal scholars have been decrying "cronyism" and calling for "mainstream" values when picking a Supreme Court justice...

As Tierney knows full well--but hopes his readers, or enough of his readers, don't--those who have been decrying Harriet Miers's nomination as that of a "crony" are doing so because they fear she has "mainstream" values, not because they fear she does not.

Gail Collins, your credibility has just taken another big hit: you shouldn't have columnists who open their pieces with big lies.


MaxSpeaks About Delphi Auto Parts

Max Sawicky on Delphi:

MaxSpeak, You Listen!: DECLARING WAR ON RETIREES: The public does not usually turn to the CEOs of bankrupt companies for wisdom, but Steve Miller, the CEO of Delphi, hopes to change this pattern. Mr. Miller warned that Delphi's bankruptcy is a foretaste of "inter-generational warfare" as the interests of the current generation of workers is pitted against the interests of retirees.

Since the punditry will no doubt applaud Mr. Miller's courage, let's get some facts on the table. Delphi did make generous commitments to earlier retirees. Of course it also paid substantial sums to shareholders in the form of dividends and also paid rich salaries to its top executives. In principle, Delphi's current workers could go to war against either Delphi shareholders or its higher paid managers to keep their current paychecks. They could require them to repay some of the dividends or fat salaries earned over the last two decades. But, Mr. Miller and his colleagues have set up institutional structures that leave the incomes of these groups beyond the reach of Delphi's workers.

In this way, Mr. Miller can tell the current generation of workers that the only place to get their paychecks is by taking back the benefits that retirees have already worked for. Were the benefits too generous? Believers in a free market don't ask such questions -- the benefits were part of a contract and would be honored by any honest libertarian. However, the law is structured so that many retiree benefits can be retaken (most importantly health care coverage) even as the past salaries of the executives that drove Delphi to bankruptcy remain beyond reach.

It is also important to note that much of the "inter-generational war" is attributable to the fact that the United States has by far the most inefficient health care system in the world. We pay more than twice as much per person for health care, yet rank last among rich countries in life expectancy. If the U.S. health care system were as efficient as the Japanese, Canadian, or even the French system, Delphi might not even be filing for bankruptcy. Unfortunately, the people who hold power in this country won't let health care reform be discussed. They would rather tell young workers to beat up on their parents and grandparents.

At the corporate-structure level, the big problem is that retirees (like workers, stockholders, and bondholders) have claims on corporate cash flows. Workers' claims at a company like Delphi are secured by the fact that if they don't show up, nothing gets made and there are no cash flows: Delphi's jobs are very highly-skilled indeed, and replacing any significant chunk of the workforce with people off the street is not a realistic option. Stockholders' claims are secured by the fact that they vote for the executives of the company--and can throw out the executives if they don't like what the executives do. Bondholders' claims are secured by their ability to throw the company into bankruptcy if they are not satisfied and by bankruptcy judges' mandate to protect their interests.

Retirees have claims on cash flows but no institutional mechanisms to secure their power if things go south--save for the fact that the PBGC will step in and cover some of their pension costs.

This is a big problem.


The Auto Parts Business

Steve Miller--after a long and stellar career helping to take companies that few thought could survive to sustainable profitability--talks about what he tried to do with Delphi: Full text of remarks by Steve Miller, chief executive of Delphi, to the Financial Times, Monday, October 10:

Delphi, and its predecessor companies that became part of General Motors, have over a century of tradition as the world's leading source of advancing automotive technology.

At its birth at the spin-off in 1999, General Motors had created the world's largest auto supplier, with the incredible blessing of most of the sophisticated technologies that make up an automobile, but with the curse of uncompetitive labour contracts. By agreement , Delphi was saddled with OEM wages and benefits, yet expected to compete with other suppliers, often organised by the same unions, paying less than half the OEM levels for their workforces.

Even today, Delphi represents perhaps the finest amalgamation of automotive technologies and component manufacturing capabilities in the world. Fully half the revenue base is in profitable, growing, and technically sophisticated products on a global footprint.

The spin-off of Delphi was the right concept for GM. No automaker can compete long-term paying punitive wage and benefit costs for the labour involved in the parts content of the finished automobile. And the growing sophistication of today's motor vehicles is simply beyond the scope of a single organisation to manage.

The basic idea was for Delphi to outrun the problem of its inherited labour cost burden by diversifying its customer base and global footprint. Overall, it did an excellent job. In the most recent quarter, GM was down to 49 per cent of total revenue, compared to over 80 per cent at inception.

So what went wrong? Three things:

One: The spread between OEM labour costs and competitive supplier labour costs has widened sharply over the past decade, driven by globalisation and by rising health care costs.

Two: The sharp decline in GM market share has reduced GM North American production volumes by a million units per year, from 5.5 million to 4.5 million units, in the last three years. The impact on Delphi has been to reduce revenues by several billion dollars a year worth of parts. Given our high fixed costs and inflexible labour costs, the result has been devastating.

Three: The game plan for Delphi included 'flow-backs' to GM of excess workers at Delphi freed up by improved productivity, The theory assumed that GM would have plentiful openings due to retirements of its ageing workforce. But GM's severe production declines have offset its own workforce attrition, and it has had no room to accept excess Delphi workers. Delphi has therefore had to pay 4,000 idled workers in its 'jobs bank' full pay and benefits amounting to about $100 million per quarter.

The resulting financial pressures have forced Delphi to seek Chapter 11 protection while we reorganise. We had hoped to work things out with our unions and with GM, but despite good and constructive discussions, time ran out. Nonetheless, those discussions will continue. The unions are involved, because our labour contracts are simply unaffordable and must be changed. GM is involved, because it is contingently liable, through contractual arrangements dating back to the spin-off, to make up for any denied retirement benefits of the Delphi workforce in the event of our financial distress. The amount of liability is hard to quantify, but even GM admits it could exceed $10bn.

So what happens now?

Actually, very little changes immediately.

I had over the past month been saying that if we ended up going into Chapter 11, we would be well financed, well organised and well planned. I meant it. And we are. This stands in stark contrast to some other bankruptcies, most notably David Stockman's Collins and Aikman, which tumbled into a chaotic bankruptcy that left customers on the hook for over $100 million in penalties to resuscitate production to keep their assembly lines running. That was a disgrace and an embarrassment to the entire supplier community.

Our Chapter 11 process is limited to our US corporate entities, so half our business, which is overseas, is completely unaffected by the filing.

Our Chapter 11 process will not adversely affect our customers, period. We will continue shipments on time, under contractual terms, throughout our restructuring. I pledged that during my previous Chapter 11 experiences as a CEO of automotive suppliers Bethlehem Steel and Federal Mogul, and I delivered. I intend the same outcome at Delphi.

Our suppliers have the assurances that we have the liquidity to pay them on time, in full, for continuing shipments. Payables for goods delivered this past month to US operations will be delayed pending resolution of our Chapter 11 case, but we will have the ability to assist particular suppliers for whom this imposes an undue hardship that might threaten our production schedules.

Our people will continue to receive their current pay and benefits until we are well into the Chapter 11 case. Under the bankruptcy law, we are required to bargain with our unions in good faith, and to provide sufficient information to establish our case for reduced labour costs. This will take a number of months. In most cases, managements and companies arrive at an equitable settlement. If we should fail, however, then we can appeal to the court to allow a rejection of the current labour contract. If granted, the results is a free-for-all, wherein management can impose whatever terms it chooses, but the union is free to strike. Nobody wants to end up there, which is why a settlement is reached in almost all cases.

Our pension plans have been the object of much speculation. We have about a $5bn shortfall in our plan assets to our plan liabilities. Some have suggested that Chapter 11 means termination of the plans. That is simply not true, at least at this point in time.

As background, I have been involved in a leadership position in about 10 corporate restructurings, starting with Chrysler in 1980, and now at Delphi. In about half the cases, we have had to use a Chapter 11 process. In most of those cases, however, the pension plans survived intact. In only one case did the PBGC take over the pension plan, and that was Bethlehem Steel. There, we had 12,000 active workers, in six steel mills, all bleeding red ink, trying to support 130,000 dependents. The math could not work. The PBGC took action to terminate the plans, and I had no way to stop it.

At Delphi, we have made no decision to terminate our pension plans. The big question will be whether we can formulate a plan of reorganisation over the next few months that can generate sufficient capital to support continued efforts to restore funding of the plans. To do so will require the participation of many parties.

First, our unions will have to agree to modifications of our wages and benefits at our continuing operations, such that we have profit margins sufficient to repay the pension plan shortfall out of future years' profits. This will put the unions in the difficult position of perhaps having to make trade-offs between maximising the pay and benefits for active workers versus maximising the chances for saving the pension plans. It is a calculus made infinitely more complex by the GM contingent benefit guarantees.

Second, we will need to reach an understanding with GM as to our future business prospects as a continuing supplier to them. Without GM's business, Delphi would lack a healthy revenue base to support our accumulated pension obligations.

Third, we will probably require some forbearance from the PBGC as to our funding schedule. It is too soon to quantify what our needs might be, and it is a hot topic in Washington these days so we don't even know for sure what the legal requirements are going to be.

Fourth, we would have to convince the other creditors in our bankruptcy case that we should reorganise in a way that holds the PBGC harmless, even though they are an unsecured creditor.

Behind all this financial drama are the lives and livelihoods of thousands of our loyal and dedicated workers. These are honest, hard working human beings who played by the rules and cannot be blamed for pursuing the American dream by taking a job at GM or Delphi. They expected us to live up to our promises, but have been caught by fast changing global economics. They are being severely impacted and disappointed. I don't blame them for being angry. But neither do I fear production disruptions. They are adults, and they understand that industrial action can only hasten plant closures and further jeopardise their pensions.

It is a very difficult job to be the CEO of a company going through this transformation, knowing that my decisions will affect so many. But we are at the mercy of forces beyond our control, and so we must face up to the hard choices ahead of us. I expect continuing heavy criticism for my role here, but I will not shy away from pointing out the harsh, simple realities of our situation.

What will happen to Delphi?

If we do this right, Delphi will remain one of the world's leading global automotive suppliers. Yes, with a smaller US manufacturing footprint. And with a more focused approach to selected product lines where we can be the technology leaders and the category killer. But it will be a jewel of a company, and a technological powerhouse for years to come.

If we do it badly, Delphi may be broken up into small pieces, and America will have lost some of its precious industrial treasures. The impact of a collapse could potentially injure most of the world's automakers, and perhaps fatally wound General Motors. I am absolutely determined not to let that happen.

Broader Context

Let me turn to what I think is the broader context in which the Delphi drama is being played out.

The two overarching themes here are globalisation, and our ageing population.

Globalisation is a fact of life these days. We no longer exist in a national economy, but a global economy. This is a good thing, in that it brings rising standards of living not only to Americans, but to all the world's citizens

But what has been brought into sharp relief is the different value the global market places on knowledge workers versus basic manufacturing workers. I was struck by what I saw when I visited our Delphi operations in Mexico last week. Our average hourly worker makes about $7,000 a year, while the average salaried worker makes about $35,000 a year. A spread of five times! The same spread, or wider, exists in all low-cost countries. The implications for Americans are enormous, and it boils down to this. If you want your kids to enjoy the great American dream, get them a good education. The days when manual unskilled labour can deliver $65 per hour are disappearing.

My recent experiences have been with three industries that are undergoing profound change - as CEO at Bethlehem Steel, as a board member at United Airlines, and as CEO at Delphi. Steel, airlines and autos.

What those three industries have in common is a social contract, worked out over the past half century with strong centralised labour unions, to elevate their workforces with elaborate defined benefit retirement programmes. Back in the days when you worked for one employer till age 65 and then died at age 70, and when health care was unsophisticated and inexpensive, the social contract inherent in defined benefit programmes perhaps made economic sense.

Today, defined benefit programmes are an anachronism, and we are witnessing the slow agonising death of defined benefits as industrial compensation policy. First off, they force people to stay with one employer, and even though we have a much more mobile and flexible population these days. The lack of portability of defined benefits is a real issue. Second, the notion of having all your retirement eggs in one basket - your employer - is a concentration of risk that is simply inadvisable for anyone in today's fast moving economy. Finally, these programmes have a way of threatening the existence of traditional large employers. GM is a junk bond credit these days as it staggers under a burden of $150 billion of combined pension and health care retirement obligations.

People are living longer these days. And medical science is rapidly expanding the capability to spend vast amounts of money keeping you alive for decades. Of course, that is a good thing. But the question is, how can we afford it? As a society, we must we must generate enough wealth in our working years to support our income aspirations and health care needs in our sunset years. It is getting more difficult every year.

In the midst of these trends, the unions in the traditional steel companies and the traditional auto companies bargained for thirty-and-out. The theory was, create more jobs by retiring people sooner. And aren't 30 years in a grimy factory enough? But this means people can start work at age 20, retire at age 50, and expect full pensions and health care til age 90 or so. In other words, enjoy the fruits of your labour for more years than you were at labour. As a society, somebody has to pay. And to the shock of the Big-3 automakers, they've found that customers won't pay when they have choices.

Beyond Delphi, things are going to get messy for the Big-3 in coping with all this. The current labour agreements expire in 2007, and it will be a historical collision point for all these social and economic forces that are at work. GM has already declared it can't wait til then to trim its $80bn of accrued retiree health care obligations. Clearly, they are headed down the same Chapter 11 path as Delphi, unless there is dramatic change in their staggering legacy labour burden.

My worries go beyond the auto industry. What I am describing is also embedded in our debates over Social Security and Medicare. The overwhelming voltage in the political third rail of touching these entitlements will forestall corrective action for years, but the problem will only grow. I fear something like inter-generational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programmes for their grandparents' income and health care concerns.

I didn't come here to suggest answers for all this. I don't have answers. But I just wanted you to view what is happening at Delphi as simply a flash point, a test case, for all the economic and social trends that are on a collision course in our country and around the globe.

I cannot avoid the adverse impact this will have on the many fine people who work at Delphi. But hopefully, I can help soften the blow, and help preserve the magnificent industrial assets that a century of innovation and hard work have brought us.


The Order Grows...

The ranks of the Ancient, Hermetic, and Occult Order of the Shrill--those driven into shrill unholy madness by the mendacity, incompetence, malevolence, and stupidity of George W. Bush and his administration--have swelled so greatly over the past several weeks as to cause all of us who dwell beneath the dead uncaring stars to shudder in horror and dismay.

I must say that I never thought I would see the day when http://corner.nationalreview.com would be the world headquarters of the order. But it has come to pass.


Waiting in Vain

Paul Krugman on energy conservation:

Waiting in Vain :

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


The U.S. Welshes on Its NAFTA Obligations

The U.S. Welshes on Its NAFTA obligations:

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

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

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

The Bush administration: worse than you can imagine.


Jodi Wilgoren of the New York Times: Views on Age of Earth Differ (Why Oh Why Can't We Have a Better Press Corps?)

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

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

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

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

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

Jeebus. As PZ Myers writes:

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

When did journalism come to this deplorable state?

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


Nobel Prizes to Aumann and Schelling

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

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

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

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


Renovate the West Wing?

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

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

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

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

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

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

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

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

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

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

Impeach George W. Bush. Impeach him now.


Macroeconomic Oil Shock in Progress?

Jim Hamilton says: maybe.

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

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

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

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