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July 2006

Worth Reading, 20060713

Worth reading, 20060713:

John Quiggin: "Mumbai terror attacks: Yet another terror attack, with 200 killed. All such crimes, whether committed by terrorist gangs or national governments, should be condemned without reservation. The idea that causes such as national independence, religion or political ideology justify the murder of ordinary people going about their daily business is utterly pernicious, as is the view that similar killings (whether directly intended or inevitable ‘collateral damage’) are justified in retaliation for such crimes..."

Informed Comment: "The Beginning of a New War? Will it Spill over on Iraq? All hell broke loose on Wednesday in the Mideast, with a Hizbullah attack on the Israeli army and Israeli reprisals, and the Israeli dropping of a 500 pound bomb on Gaza. I roundly condemn Hizbullah's criminal and stupid attack on Israel and escalation of a crisis that is already harming ordinary Palestinians on a massive scale. Likewise, the Beirut airport is not in south Lebanon and for the Israelis to bomb it and neighborhoods in south Beirut is a disproportionate use of force..."

Blood & Treasure: once more into the breach: "I was wondering idly what the actual military term was for Israel’s two front rampage in Gaza and Lebanon might be, when I saw this: 'Israel's army chief of staff, General Dan Halutz, said his military would target infrastructure and "turn back the clock in Lebanon by 20 years" if the soldiers were not freed.' Ah, that’s it. It’s a chevauchee: 'Rather than besieging a castle or conquering land, soldiers on a Chevauchée aimed to create as much destruction, carnage and chaos as possible to both break the morale of enemy peasants and deny their rulers income and resources...' in order to pressure the opposition into giving them what they want. Broadly speaking, it’s what Henry V was up to in France as depicted by Shakespeare. It’s a bit harder to romantcise these days, though..."

Asymmetrical Information: Addendum to previous post: "Addendum to previous post: Is anyone else tired of this Greg Mankiw fellow consistently writing multiple daily posts of astonishing awesomeness? Frankly, we don't need that kind of stuff around here. It's a classic story of how some tycoon with an unfair share of assets--in this case intelligence, writing flair, and Harvard professorships--uses his power to muscle out the little guy. Frankly, Marginal Revolution and EconLog were already two excellent economics blogs too many, as far as I'm concerned. We certainly didn't need more academic types muscling in on mom-and-pop operations, threatening to put us out of business. It's a good thing I write for free, isn't it? Because otherwise, I don't think I could afford to keep it up in the face of all this unfair competition. Where's the antitrust department when you need them?..."

Asymmetrical Information: Deficits as far as the eye can see . . .: "As an econ blogger, I presumably have a responsibility to comment on the deficit. This [from the Economist] about sums up my opinion..."

The Valve - A Literary Organ | Essentialism run riot: "I recently ran across a collection of Essentialist Explanations that is glossed thus: This page comprises a list of 794 'essentialist explanations' of the form 'Language X is essentially language Y under conditions Z'..."

Lois Romano: Beyond the Poll Numbers, Voter Doubts About Clinton: "Clinton's assets are formidable: an unrivaled ability to generate publicity and money, and approval ratings that are notably strong, given her polarizing reputation and the controversies she has weathered over 15 years in the national eye. In recent public opinion polls, she handily leads potential Democratic rivals. Beneath these positives, however, there is evidence of unease.... Follow-up interviews with skeptical Democrats and independents who participated in the Post-ABC News poll suggest that many view her as an inscrutable public figure who gets high marks for her ability and intellect but who nonetheless gives them pause because they find it difficult to relate to her on a personal level.... [S]upporters say the powerful scrutiny she faces means that, far more than the typical politician, she has little room for public error or spontaneity, since even casual comments often draw national headlines. In addition, some political analysts believe that politicians who are women must work harder to be perceived as strong and serious..."

Marginal Revolution: Trudie's advice to would-be economists


The Horse's Mouth: "TIMES FORGETS THAT SOME ECONOMISTS ARE FOR A MINIMUM WAGE INCREASE. In today's Times piece about Democratic plans to make a minimum wage increase an issue in the midterm elections, reporter Edmund Andrews writes that many economists oppose an increase and lets a conservative economist argue the case against a boost -- but forgets to mention that many economists are for an increase, too..."

SSRN-Is the Market Mad? Evidence from Mad Money by Joseph Engelberg, Caroline Sasseville, Jared Williams

Confessions of a Community College Dean: Reward or Fix?: "We’re doing budget dances again. With steadily dwindling resources, now we have to make choices between rewarding programs that have achieved growth, and fixing programs that have sprung leaks in recent years. It’s pretty much either/or; we don’t have the money to do both.... If we take the ‘money sends messages’ approach and use what little we have to reward the areas that have grown, we will continue to bleed out in the other areas. If we shore up the holes, we will be punishing success. Neither is good....I suspect that, over the long term, the answer will be to abandon the idea of the 'comprehensive' community college, in favor of a statewide system of community colleges with different strengths. (Boutique majors could be hosted at particular campuses, with online sections open to students across the entire state.) But that’s the kind of strategic decision best made deliberately, with forethought, broad discussion, and statewide buy-in. It’s not the kind of thing to decide on the fly, unilaterally, at one college.... And we can’t base long-term strategic decisions on who happens to decide to retire next semester..."

Econbrowser: Out of sample prediction of the euro, pound and CAD: "As some of you will know, my main area of research is in empirical exchange rate modeling (see Meese and Chinn (1995) and Cheung et al. (2005)). In a recently completed a paper to be presented at conference at the HKIMR, Ron Alquist and I have conducted another exercise.... At most horizons, the interest rate parity model does as well as the random walk.... The sticky price monetary model outperforms the random walk in 4-quarter ahead forecasts during 1987q2-2004q4 for the pound, but significantly worse for the Canadian dollar.... We find favorable support for the use of the measure of external imbalance, particularly when we estimate the cointegrating vector over the longer sample. In the second subsample, it outperforms the random walk at short horizons for the Canadian dollar and the pound at 5 and 10 % level significance level. The results are less favorable at long horizons and not particularly positive for the euro..."


A Monetary Policymaker's Passage to India (2006-16, 07/07/2006): "Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a "fact-finding" trip to the region..."

Tom Watson: MySpace is YourSpace: "Typepad is like the ancient Buick Skylark I used to drive. Sometimes it flies, that killer 350 smacking down shiny Camaros out on Central Avenue. And sometimes it just answers with a cold, empty 'click, click, click' when you turn the key. Today was the dead battery Typepad, so while I sat there unable to post, it got me thinking about these internets of ours. Specifically about social networks, actually - those hotter-than-Hades social-bookmarking, social-tagging, and social-er-hooking-up sites that are sucking up more and more user time online, and more and more ink in the press. First off, I'm not hooked. Yeah, I use tags...sometimes. When I forget, I forget. Mostly I use 'em to keep track of stuff for myself, whether on Technorati or Flickr or my own blog. I don't use them to meet other taggers. Same thing with Delicious (when I can figure it out). The only other reason I use tags is the somewhat hypocritical notion that they'll deliver a larger audience. Both selfish reasons, unrelated to a wider sense of online community - for that, I rely on comments, both on my blog and the many other sites I track on a regular basis. Comments are social networking, to me..."

Brendan Nyhan: Bush vs. his economists III

Information Technology and the Location of Corporate Headquarters

Mark Thoma writes:

Economist's View: Information Technology and the Location of Corporate Headquarters: This is an example of what Paul Krugman discussed in his column "The New York Paradox" where agglomeration economies, the benefits from the clustering of related firms, create an incentive for firms to locate in New York's financial center. However, up until recently, the high cost of locating an entire headquarters operation in New York... innovations in information technology... allowing many of the support personnel to work in lower cost areas in other parts of the world and communicate electronically with upper management.

This article on the movement of biotech headquarters to the U.S. to be located near sources of financing... shows that the phenomena is general - New York is not the only destination - there are agglomerations of biotech firms in places like Cambridge, Massachusetts and Carlsbad, California....

Europe's biotech 'immigrants' to America, by Andrew Pollack, Commentary The New York Times/IHT: When the Scottish government injected $9 million into the biotechnology company Cyclacel last October, the country's enterprise minister explained that "there could not be a more important company for Scotland's future." So how did Cyclacel show its gratitude just two months later? By moving its headquarters to Short Hills, New Jersey, and merging with a publicly traded American company.

Cyclacel executives say there was no slight intended to the government and the company's 65 research scientists, who continue to work in Dundee, Scotland, and Cambridge, England. "The issue was one of access to the capital markets of the United States," said Spiro Rombotis, Cyclacel's chief executive. Only American investors, he said, could provide the tens of millions of dollars needed to carry the company's cancer drugs through clinical trials.

Cyclacel is not alone among European biotechnology companies that consider their science second to none, while conceding the superiority of U.S. financial markets. A number of European players from countries including Denmark, France and Germany have come to the United States for greater access to the world's largest investment pool for life sciences....

The German company Micromet now has a Nasdaq listing and a U.S. headquarters, after reverse-merging with Cancervax, of Carlsbad, California. Most of its operations are still back in the home country....

Oxxon Therapeutics, a British company, moved its headquarters to Boston but then moved back to England. "It's extremely difficult to manage small operations on both sides of the Atlantic," said Craig Smith, Oxxon's chairman....

There has long been a school of thought that argued that manufacturing moved to resource and transport hubs, and then that design and engineering moved to manufacturing, and then finance and management moved to design and engineering--and thus that this century's finance and management hubs are the resource and transport hubs of two centuries ago.

It seems that now we are seeing a different process: design, engineering, and management moving to be within hand-holding distance of midtown Manhattan or of Sandhill Road.

Why Oh Why Are We Ruled by These Morons?

Impeach George W. Bush. Impeach him now.

History News Network: Rick Shenkman: Bush's Blinders: At one of the most important moments of his presidency--his meeting with Saudi Crown Prince Abdullah at the Crawford ranch in the spring of 2005--the president failed to address any of the points the Saudis had indicated beforehand they wanted to discuss. Shrewd bargaining? Not according to Ron Suskind's new book (which I heartily recommend): The One Percent Doctrine. Bush didn't address the Saudi's agenda because he hadn't been told about it. The Saudi wish list had gone to Cheney not Bush.

As Suskind puts it, this was a major blunder. This was arguably in the age of terrorism one of the most important meetings Bush was to have.

Simple oversight? Suskind's story is that Cheney is driving our foreign policy. This story is just one of many examples he uses to make the case. I should mention what the Saudis wanteed. They wanteed some sign that the administration would act as more of a neutral broker in the Middle East Palestinian/Israeli conflict. Bush gave them nadda.

You know, it would be so nice to hava a real president.

Another Reason Joe Lieberman Should Not Stay a Senator

Some of Lieberman's spear-carriers get nastier:

New York Observer: Mr. Lieberman’s supporters have come to suggest that much of the burgeoning liberal opposition to his candidacy is motivated by anti-Israel and anti-Semitic sentiment.... Dan Gerstein, a political consultant and informal advisor to the Lieberman campaign... says he has detected what he calls a “growing strain of anti-Semitism on the far left,” which he believes is in part fueling the strident opposition to Mr. Lieberman....

[L]iberal bloggers say that the anti-Semitism charge is just a feint to draw attention away from the broad and increasingly well-disciplined opposition to Mr. Lieberman among the party’s grassroots. “There is a suspicion that the blogs are not challenging Lieberman for the reasons they say they are,” said Ezra Klein, a writing fellow at The American Prospect who has been critical of Mr. Lieberman. “That it is indicative of some larger and more pernicious influence. It’s a little bit harder to say that these are a bunch of liberals who have gotten organized and don’t like Joe Lieberman.”

Ezra Klein responds:

TAPPED: AM I AN ANTI-SEMITE? Possibly. I am, after all, quoted in a New York Observer article hinting that there's more to blogger opposition of Joe Lieberman than meets the eye -- namely, a deep seated revulsion towards Zionism (death to the infidels remix). Not to kvetch over this, but that's a meshugina interpretation of the primary. When Jason Horowitz called to ask me about anti-Semitism's influence in the blogosphere, my first response was similar: Say my name, real slowly, and then ask again. To posit that the land of Glenn Greenwald, Ezra Klein, Matthew Yglesias, Max Sawicky, and Lindsay Beyerstein carries some grudge against Jews is a bit rich. And that doesn't even approach the veneration for Paul Wellstone or the support for Russ Feingold.

What my quote was actually saying, before it got chopped off, was that it's a pleasant fantasy for certain self-righteous elements of the party to recast this battle as a brave war for religious tolerance rather than an ideological and tribal confrontation over one man's repeated abandonment of progressivism. To brush off the stones and arrows flung by the bigots, after all, is both easy and heroic -- it's more of the Great Man myth peddled by the same folks who got us into Iraq because simply chasing down some isolated terrorists wasn't grandly historical enough for them. To face up to a war gone wrong, the inherent hollowness of reflexive "centrism," the psychological oddities of a Democrat who seeks all his praise amongst Republicans, and the simple truth that this blogger insurgency has found a powerful resonance within the Connecticut electorate would require a much more honest and searing reassessment on the part of Lieberman's backers. Better, rather, to pull out the kill card and shut down the conversation through fatuous accusations of anti-Semitism...

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

Our financial press:

SSRN-Is the Market Mad? Evidence from Mad Money by Joseph Engelberg, Caroline Sasseville, Jared Williams: We document market inefficiency in the in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average cumulative abnormal overnight return for the smallest quartile of recommended stocks is 5.19%, and these returns completely disappear within 12 trading days. We also find that trading volume, buy-sell imbalance, and short sales volume are all significantly higher than normal on the day following Cramer's recommendations. These findings allow us to test hypotheses about the behavior of different types of traders. Finally, our GMM estimates of the components of the bid-ask spread suggest that market makers are aware of Cramer's recommendations and anticipate the order flow imbalance following Cramer's recommendations.

Suggested Citation: Engelberg, Joseph, Sasseville, Caroline and Williams, Jared, "Is the Market Mad? Evidence from Mad Money" (March 15, 2006). Available at SSRN:

Marginal Revolution: Advice to Would-Be Economists

Career advice:

Marginal Revolution: Trudie's advice to would-be economists: One loyal MR reader, Lee Beck, writes:

My idea is that economics can bridge the gap between my love of math (like real-analysis) and my love of political philosophy (like that of your man Hayek). Sadly, this hasn't worked out so far. I thought my micro and macro courses last year were bores. This confused me so much that I took my obsession with Richard Posner to be a sign that I should go into law instead of economics. Is that crazy? How can I know whether being an economics professor is for me? What if I worked through Debreu's Theory of Value next semester and liked it. Would that be proof? What's the hard stuff that I should love before entering the field?...

Trudie responds:

It is not foolish to want to become an economist, but it is foolish to be attracted by this blog. Yes we have serious posts about the option value of gold. But graduate study in economics will not sample "Markets in Everything" (remember the Whizzinator?), not consider whether teenage Thomas Jefferson would have a crush on Veronica Mars, nor will it ask "Why Don't People Have More Sex?". Liking this blog, on average, is a sign that you have broad interests and thus are ill-suited for graduate study in economics. There is also, dare I say it, a chance that you are simply a silly goose with time to kill. On the other hand, Greg Mankiw is now reading Jacqueline Passey, so anything is possible. Welcome, Bizarro Universe.

Two core groups of people are well-suited to be economists:

  1. You math GRE score is over 800, you are totally focused, you love working long hours on your own, and you have good enough letters of recommendation to get into a Top Six or perhaps Top Ten graduate school. Note that white Americans from this category have been partially preempted by competition from foreigners.
  2. You could be happy as an academic without much of a research career. Working at a teaching school is a rewarding life, albeit a poor one relative to your investment in human capital....
  3. You do not fit either #1 or #2. Yet you have climbed out of the cracks rather than falling into them. You do something different, and still have managed to make your way doing research, albeit of a different kind. You will always feel like an outsider in the profession and perhaps you will be underrewarded. But you will have a great deal of fun and in the long run perhaps a great deal of influence.

Sadly, the chance of achieving #3 is fairly low. You need some luck and perhaps one or two special skills other than math....

Greg Mankiw is a classic #1. Brad DeLong started off as a #1, although he has been evolving into a #3. Maybe he was a #3 in hiding all along. I've been a #3, although with a dose of #1 from having gone to Harvard. Alex is a classic #3....

Should you become a legal academic? You will have a greater chance to work with ideas and concepts. A greater chance to write books and also to read them. You are more likely to strut, wear three-piece suits, and speak in stentorian tones. If I were starting out today, perhaps I would take that route, although I would fail at the strut and the suits....

And by the way, buy her roses, ask her to marry you, and live happily ever after. The rest probably won't matter so much..

More Evidence that We Do Not Live in a Good World...

In a good world, Robert Reich's evisceration of SEC Commissioner Paul Atkins would already have led Atkins to resign, donate all his possessions to the poor, and take up a life of anonymous service to others. Alas! We do not live in a good world. Atkins stubbornly and shamelessly holds onto his job.

Let's turn the microphone over to Reich:

Robert Reich's Blog: SEC Commissioner Paul Atkins Wins the Prize: [N]ow comes SEC Commissioner Paul Atkins, who argues that companies who manipulate the timing of their executive options are not guilty of violating securities laws because such maneuvers are actually good for shareholders. According to Atkins' logic, back-dating executive stock options... create[s] a windfall for executives. But precisely because of this windfall, companies are able to compensate their executives more cheaply. They can issue fewer stock options or provide lower salaries. So by timing stock options this way, companies end up saving money, and investors pocket the savings.

Get it? I've heard a lot of arguments over the years to justify almost anything. But let me tell you, this is a doozie. It's a little like arguing that home insurers benefit if people back-date their home insurance policies to take effect before their houses burn down because then they'll have the money to renew their policies.

Bob. The arguments are not "a little like." They are a lot alike--in fact, they are identical.

Reich continues:

What's particularly weird about this logic is it completely ignores the purpose of executive stock options in the first place. They're supposed better align executive incentives with the interests of investors -- inducing executives to work harder to raise share prices. But stock options have this effect only if executives don't know what their option will be worth in the future. If they can go back in time and pick a date when the share price was especially low relative to what it is now or will surely be when a positive quarterly earnings report is issued, the incentive disappears because the future is no longer the future. It's the past. If the incentive that's supposed to be in a stock option disappears, shareholders are worse off. More stock has been issued, which dilutes the value of their own shares. And they get nothing in return. Anyone who believes companies will reduce executive compensation by the inflated value of a stock option has not been paying much attention to what's happened to executive compensation in recent years.

Congratulations, Commissioner Atkins.

Things Worth Reading (20060712)

As of July 12, 2006:

Alterman: Robert Novak, traitor - Altercation - "The upshot here appears to be that Novak lied to everyone in order to betray his country on behalf of Rove and company. First he revealed the name of an active CIA officer, blowing any and all operations with which she has ever been involved, costing the country millions, and possibly endangering lives despite the specific request from the agency that he not do so.... "Harlow, the former CIA spokesman... warned Novak, in the strongest terms he was permitted to use without revealing classified information, that Wilson's wife had not authorized the mission and that if he did write about it, her name should not be revealed. Harlow... called Novak back to repeat that the story Novak had related to him was wrong and that Plame's name should not be used...." Next, [Novak] played Joan of Arc by insisting he would never reveal the names of his sources to Mr. Fitzgerald while simultaneously doing just that. Why in the world is The Washington Post continuing to stand by this scoundrel? Is it all because he’s a member of the club and insiders protect their own? It worked for Kim Philby and I’m beginning to think it’s working here too."

Andrew Tobias on the benefits of competition, Medicare, and drug prices: Yes, competition and bargaining are good things. Extending PhRMA's monopolies is not a good idea.

Brad Delong on the Bush administration's latest round of deficit spin games: In which I correctl predict that the press corps will fall for it once again.

Digby on the Problem with Joe Lieberman, and with Joe Lieberman Weekly: Digby is a national treasure.

SSRN-Secret Compensation by Iman Anabtawi: There's a question about whether businesses should honestly report the options they grant?

Paul Blustein: Smaller Budget Deficit Projected: Tax Cuts Credited; Long-Term Outlook Still Seen as Bleak Paul Blustein: White House Lowers '06 Deficit Estimate: Paul Blustein is best-of-breed among Washington Post reporters. He should be doing a better job.

Daniel Gross: More Irony Please: Daniel sees irony in a place where it's only there because he puts it in there himself.

Barry Ritholz: The Big Picture: Jobs Report Redux: "David Rosenberg has an even more sharp tongued riposte: 'The argument that the household survey "better captures the 'entrepreneurial spirit' of America" is a hoax of gargantuan variety'.... [P]lenty of people legitimately work at home. But anytime I ever knew anyone who was 'looking for work', they invariably described themselves as 'self-employed/independent contractors / freelancers'."

Barry Ritholz: The Big Picture: Making Insider Trading Legal: "I'm still digging out from what I missed while on vacation, but this obscure speech from SEC Commissioner Paul Atkins last week could not go unreported on. Jesse Eisinger rightly calls out this absurdity by a man who's job is ostensibly protecting investors."

NYO - Off the Record: The Wall Street Journal news reporters appear annoyed at the failure of the news editors to protect them from their own editorial page.

Khalilzad Is Unhappy: "U.S. Ambassador to Iraq Says Highly-Touted Baghdad Security Crackdown is Not Succeeding.... President Bush trumpeted a major joint US-Iraqi effort to improve security in Baghdad.... 'Q: Hello, Mr. Ambassador. So the security crackdown in Baghdad has been going on a couple of weeks -- what's your assessment of how well is it going? Is it succeeding?' 'AMB. KHALILZAD: It has not produced the results I expected so far. The plan is being reviewed, and adjustments will be made. No, it has not performed to the level that was expected'...

Worse than Selim the Sot: 'Justice Department Lawyer To Congress: "The President Is Always Right.".... Steven Bradbury, head of the Justice Department's office of legal counsel..'

Mercury Rising: Augusto Pinochet got $26M peddling cocaine: "Augusto Pinochet's $26m (£14m) fortune was amassed through cocaine sales to Europe and the US, the general's former top aide for intelligence has alleged. In testimony sent to Chilean Judge Claudio Pavez, Manuel Contreras alleges that Pinochet and his son Marco Antonio organised a massive production and distribution network, selling cocaine to Europe and the US in the mid-1980s. According to Contreras, once Pinochet's ally and now a bitter enemy, Pinochet ordered the army to build a clandestine cocaine laboratory in Talagante, a rural town 24 miles from Santiago... to produce... 'black cocaine' capable of being smuggled past drug agents in the US and Europe." / Comment & analysis / Comment - Edwin Truman - Time is running out to rebuild the Fund: "The IMF has shaped a prosperous global economy and stable international financial system for more than 60 years. It is in eclipse. Time is running out to reform the Fund. At your first IMF annual meetings in Singapore in September, you face this big challenge. If you and your colleagues fail to address it, the adverse consequences for global economic and financial stability could be enormous. The Singapore meetings should produce concrete progress on a three-part package: meaningful governance reform, significant steps in policing the policies of the systemically important countries and a strengthened IMF role in crisis lending."

Kotlikoff: Is the United States Bankrupt?

The Washington Monthly: 'Riverbend gives us a clue in her description of the sectarian massacre that unfolded last Sunday in a Baghdad neighborhood.... [T]he reason for the nonresponse is probably pretty obvious: the Shia-controlled Interior Ministry had no interest in stopping the massacre and the U.S. military wasn't capable of stopping it. They "sat by" because there was nothing they could do to prevent the fighting and no one wanted to be caught in the middle of a full-blown (though neighborhood-sized) civil war when it finally broke out. Despite everything, I'd be in favor of staying in Iraq if anyone could provide a plan for success that seemed even minimally credible. But no one has. That leaves only one sensible option.'

Signs of a Forthcoming Labor Market Slowdown?

Barry Ritholz is not happy:

The Big Picture: Chart of the Week: Leading Indicators Point To Employment Slowdown: Has the US labor market has had its day? “Analytically, this expectation is based on a deceleration in GDP growth primarily caused by the end of the housing boom. It has been the main driver behind the increase in jobs for years. But more important is the fact that corporate profit growth should have peaked: input costs have soared, but pricing power did not. Therefore, companies are becoming less keen to hire,” according to HVB Group.

Source: HVB Group

HVB Group further notes: “This is already reflected in some forward-looking employment indicators. Hiring plans are tending south as is the CEO confidence survey. This implies that CEOs will reduce new hires or even slash some of their headcount further. But the most striking warning signals are the help wanted index as well as temporary employment.”

Harold Meyerson Is Shrill

Harold Meyerson gets medieval on Joe Lieberman:

Lieberman's Real Problem: I am about to become a traitor to my class. Among my estimable colleagues in the Washington commentariat, the idea that Connecticut Sen. Joe Lieberman is facing a serious challenge from a fellow Democrat over Lieberman's support for the Iraq war seems to evoke incredulity and exasperation.... My colleagues also finger those crazy lefty bloggers as the culprits behind the drive to purge Lieberman from Democratic ranks.... No great mystery enshrouds the challenge to Lieberman, nor is the campaign of his challenger, Ned Lamont, a jihad of crazed nit-pickers. Lieberman has simply and rightly been caught up in the fundamental dynamics of Politics 2006, in which Democrats are doing their damnedest to unseat all the president's enablers.... Lieberman's broader politics are at odds with those of his fellow Northeastern Democrats.... He is being opposed because he leads causes many of them find repugnant.

As early as December 2001 Lieberman signed a letter to President Bush asking him to make Saddam Hussein's Iraq our next stop in the war against terrorism.... And just last week Lieberman characterized the progress of the war as "a lot better" than it was a year ago, adding, "They're on the way to building a free and independent Iraq." So, why the surprise if Connecticut voters.... conclude that they cannot trust his judgment on the single most important issue of the day? That's... opting for a senator who pays more attention to the war on the ground than to the war in his head....

Connecticut's three Republican House members are scrambling for their political lives for fundamentally the same reasons that Lieberman is.... The issue here... [is] that his positions -- not just on foreign policy but on trade, Social Security and other key issues -- are... out of sync with those of Democrats in his part of the country. To expect his region's voters to dump the area's moderate Republicans but back Lieberman is to expect that they will adopt a double standard in this year's elections.

Lieberman's ultimate problem isn't fanatical bloggers.... His problem, dear colleagues, is Connecticut.

Raising the Retirement Age?

A little evidence on the potential for raising the retirement age:

Greg Mankiw's Blog: Is later retirement a plausible option?: A report by Alicia Munnell, Steven Sass, and Mauricio Soto of Boston College tells us about employer attitudes towards older workers. Their bottom line:

On balance, the survey paints a reasonably optimistic picture. The overwhelming majority of employers said older workers were at least as attractive as younger employees. It will not always be easy for older workers to extend their careers. But the survey suggests that the potential exists. Pushing back the average retirement age, from 63 to 65 or even 67, is thus an important and "reasonable" option for addressing the nation's retirement income challenge.

Of course, those who can't easily keep working through their sixties--and so would be hardest hit by any nationwide increase in expectations of the retirement age--are the poorest. This is a regressive fix.

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

Why I think there won't be a New York Times in two generations:

Pharyngula: Noted without comment: Jodi Rudoren née Wilgoren, whose views on journalistic responsibility to accuracy an truth were encapsulated in this comment,

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

has been promoted at the New York Times.

Ah, but what determines who journalists pick as their "subjects"? They don't just fall from the sky now, do they...

Newspaper vs. Birdcage Liner

For useful and accurate information, buy and read the news pages of the Wall Street Journal: a newspaper:

David Wessel: Washington Wire: Do Tax Cuts Pay for Themselves? Not if you read the fine print in the new White House midsession review of budget trends. "While difficult to estimate precisely," Treasury long-run analyses of the effects of President Bush's tax cuts "may ultimately" raise total national output of goods and services by 0.7%. So is that enough to pay for the tax cuts, even after allowing them to work their economic magic over the next 10 years? The Center for Budget Policies and Priorities.... "A 0.7 percent increase in the economic output that the Congressional Budget Office has projected for 2016 would represent an additional $146 billion [in gross domestic product].... If new revenues equaled as much as 20% of the additional output, the increase in revenues resulting from making the tax cuts permanent (assuming Treasury's best-case assumptions) would be $29 billion."

That's a lot of money. But how does it compare to the size of the president' tax cuts? The congressional Joint Committee on Taxation, using conventional analyses, says making the president's tax cuts permanent would reduce federal revenues in 2016 by $314 billion. That is more than 10 times what the Treasury analysis suggests tax cuts would generate by prompting more hours of work, more savings and investment and more efficient use of resources.

For birdcage liner, buy the New York Times:

Jeremy Peters: Bush Cheers High Tax Revenues - New York Times: Surprisingly high tax revenues will help the federal government reduce its budget deficit faster than planned, President Bush said toda.... [T]he government is likely to finish its fiscal year on Sept. 30 with a deficit of $296 billion, about $127 billion less than initially forecast. The projected deficit decline helps Mr. Bush make a case that the tax cuts his administration pushed through Congress in 2001 and 2003 should be made permanent.... Bush said the latest budget figures were evidence that his administration's program of tax cuts was behind the country's prosperity. "Together, these tax cuts left nearly $1.1 trillion in the hands of American workers and families and small business owners," he said. "They used this money to help fuel an economic resurgence." But Democrats and independent budget analysts say that government revenues are now only barely above their level of six years ago, before the economy went into a brief recession. They say that this year's tax receipts appear to be a surge only because the last five years were so weak...

Or buy the Washington Post:

William Branigin and Paul Blustein: Budget Deficit Estimate Drops to $296B: Bush hailed a report today from the Office of Management and Budget showing that this year's budget deficit "will actually come in at about $296 billion," compared to what he said was the White House's "original projection" of $423 billion. The midyear revision is attributable in large part to a recent surge in tax revenue."That's what happens when you implement pro-growth economic policies," Bush said, pointing to tax cuts that he said have left nearly $1.1 trillion in the hands of workers and business owners. "We're way ahead of cutting the federal deficit in half by 2009. As a matter of fact... we're now a full year ahead of schedule. Our policies are working."Bush cautioned, however, that "we cannot depend on just a growing economy... to keep cutting the deficit." He called on Congress to help cut "wasteful spending" and to tackle what he said was "unsustainable growth in spending for entitlement programs," such as Social Security, Medicare and Medicaid.Congressional Democrats blasted Bush's speech, saying that the deficit remains too large and charging that the administration put out a gloomy early forecast in order to claim better-than-expected results later on.Other administration critics contend that the favorable news about the money rolling into the Treasury stems largely from shifts in the economy -- including fatter corporate profits, executive bonuses and stock market gains -- that reflect growing inequality...

Fish, Barrel, Gun

Alicublog makes fun of James Lileks:


Am I the only person who loved the first "Pirates of the Caribbean," yet fears the sequel will feel like six hours of rubber hoses to the kidney? Hollywood ruins everything, it seems...

The first Pirates, as we all know, was not made by Hollywood, but by ordinary citizens like you 'n' me who banged open the doors of Universal Studios with an airline beverage cart.

I could keep this up all day, and maybe I will.

Definitely one for the Orwell File. The "Hollywood Is Bad!" ideological filter is so strong that Lileks's ossified brain cannot contemplate the idea that "Pirates of the Caribbean: The Curse of the Black Pearl" was a product of... HOLLYWOOD!

And Now Jason Furman Reports from the Gamma Quadrant

Hopefully we will be able to retrieve him unharmed:

The official [OMB] scoring shows the [Bush] tax cuts added $200 billion to the deficit this year (not counting the higher debt service on the [extra debt caused by the] tax cuts in previous years). The academic "dynamic scoring" debate is whether the tax cuts raised this year's deficit by $180 billion (if they contributed to growth) or $210 billion (if they reduced growth).

And the Fox News debate is in outer space.

Fortunately the [Bush] administration is on our side. They estimate that the tax cuts add AS MUCH AS 0.7 percent to national income over the long run. That's consistent with paying for AS MUCH AS 10 percent of themselves. And that's with their unrealistic financing assumptions...

0.7% of national income is about $85 billion. At a 25% marginal tax share for the federal government for the economy as a whole, that's an extra $21 billion of revenue.

The "static academic" estimate is that the Bush tax cuts added $200 billion to the deficit this year. The "dynamic Bush" estimate is that they added $180 billion to the deficit this year.

Why Oh Why Are We Ruled by These Morons?

Jason Furman writes:

The administration's first official foray into dynamic scoring isn't very promising. The [budget] M[id ]S[ession ]R[eview] ( includes a box on a "dynamic analysis" of the tax cuts. It argues that they have made major contributions to job growth and GDP in recent years. The small print explains that these results are based on the assumption that the folks at the Federal Reserve are asleep at the wheel: "These results assume interest rates followed the same path as they did historically from 2001 forward."

The MSR also presents long-run results (national income up 0.7 percent) but doesn't explain the financing assumption. I doubt this is robust: JCT (e.g., and CBO modeling show that the sign of the long-run growth effect is dependent on the financing assumption and that, in most delayed financing scenarios, the sign is negative.

I've always thought the biggest hurdle to adopting dynamic scoring is that you can play games with the monetary and fiscal policy reaction functions. This new analysis does nothing to reassure me.

And We Are Live at Salon...

Complaining about the White House's spin on the deficit: | Deficit games: There has been good news about economic growth and tax revenue this year, but not $120 billion worth. By highballing early estimates of the deficit, and claiming that lower deficits than their own previous forecasts show that tax cuts pay for themselves, the Bush administration can keep the big-spending and the low-taxes and the balanced-budget Republicans all inside their shrinking tent for just a little longer. That explains why they've summoned the cameras and microphones this afternoon.

But if you are actually interested in what is good for the country, and what the effects of tax cuts on the economy are, you will learn nothing from this press event. Remember: "political effectiveness was the priority, not the accounting deficiencies of government."...

One paragraph in the draft that I wish Salon had kept:

Gregory Mankiw--chosen by George W. Bush to chair his Council of Economic Advisers and be his chief economic adviser in 2003-2004--and his coauthor Matthew Weinzierl provide us with their answers to this question in "Dynamic Scoring: A Back-of-the-Envelope Guide". Mankiw and Weinzierl say that, initially, you have to cut spending by almost the entire amount of the tax cut. But if you do so, they say, you find that the economy does grow faster with lower taxes: people work more, people hide less income, and more is saved and invested. In that long run that economists love so much, you only have to cut spending by five dollars out of every six in order to finance a cut in taxes on labor, and you only have to cut spending by one dollar out of every two in order to finance a cut in taxes on capital. This is... in accord with the consensus of professional economists: tax cuts that do not unbalance the budget do increase economic growth, but not to the extent that you don't need to cut spending at all...

Continue reading "And We Are Live at Salon..." »

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

Ummm... No. Real wages for low-paid workers aren't rising at all. It's not the well-paid benefit "most." It's that only the well-paid are, as a group, benefitting at all:

Well-Paid Benefit Most As Economy Flourishes: Well-Paid Benefit Most As Economy Flourishes: Trend Is Pronounced In Washington AreaBy Neil Irwin and Cecilia Kang: Washington Post Staff Writers Monday, July 10, 2006; A01: Wages are rising more than twice as fast for highly paid workers in the Washington area as they are for low-paid workers, an analysis of federal data by The Washington Post shows.

That means the spoils of the region's economic expansion are going disproportionately to workers who are already well-paid, widening a gap between rich and poor in a place where it is already wider than in most of the country.

Businesspeople cite shifts in the world economy that give educated workers leverage to negotiate for higher wages but make low-paid workers replaceable -- a disparity that is especially pronounced in a service economy like Washington's.

The region's economy is strong and businesses are expanding, hiring more software engineers, financial analysts, salespeople and other skilled workers, thus bidding up their pay. But companies are simultaneously finding ways to automate clerical tasks, move call centers to cheaper places and handle business online, weakening demand for less-skilled workers.

Consider Focuspoint Inc., a company in Manassas that sells recorded messages for companies to play when callers are on hold. Three years ago, two order clerks frantically juggled calls and faxes from several hundred clients placing orders. Now the company has 1,700 clients and is expanding its sales and other high-level staff but still has just those two clerks -- who now sit quietly overseeing Internet orders.

"Three years ago, we would have had to hire more people to handle all our new clients," said Joe Martin, a vice president. "Now, we rely on new technology to pick up that work."

Such innovations help explain why, from 2003 to 2005, the average wage for people in the lowest pay bracket, with salaries around $20,000, rose only 5.4 percent in the Washington region -- not enough to keep up with rising prices. For the jobs that pay around $60,000, salaries rose 12.4 percent, well ahead of the 6.8 percent inflation in that period.

Gretchen Morgenson Gets Medieval on the Business Roundtable

Daniel Gross reports:

Daniel Gross: July 09, 2006 - July 15, 2006 Archives: ROUNDLY SPANKED: Gretchen Morgenson fillets the Business Roundtable's remarkably dishonest "study" on executive compensation....

THE Business Roundtable published an 11-year analysis of pay practices at 350 of the nation's largest companies last week, aiming, it said, to set the record straight on executive compensation. Care to guess what this lobbying organization representing 160 chief executives of top United States companies concluded? That pay dispensed to those in the corner office is entirely justified by growth in the shareholder returns at the companies they run.

Using the roundtable's figures, chief executives' compensation -- up only 9.6 percent annually from 1995 to 2005 -- has not even kept pace with total stockholder returns of 9.9 percent at the companies the executives stewarded during the same period.

"We wanted to try and promulgate a consistent set of facts because a lot of what we have seen in the media on executive pay we felt was misleading," said Thomas J. Lehner, the roundtable's director of public policy, in an interview last week....

But wait. A closer look at the roundtable's data shows that it omitted a tidy pile of pay from its calculation. The study's figure for "total" executive compensation is anything but that....

For starters, the total pay figures exclude dividends paid to executives on their restricted stockholdings -- not an inconsequential figure, in many cases.

The total shareholder return to which the roundtable compares executive pay does, however, include dividends. Apples and oranges.

The roundtable study also excludes what executives have made by cashing in stock options and restricted stock over the 11 years -- enormous numbers, in many cases. Instead, the study counts only the value of the options and restricted stock received by the 350 executives on the dates the awards were made. Hide and seek. . .

That the roundtable doesn't consider options and restricted shares to be real money is reminiscent of Silicon Valley executives arguing that options shouldn't be accounted for as an employee cost because their precise value was hard to calculate. Cute, but not credible.

Pension benefits, deferred compensation and money received in severance packages -- serious lucre all -- are also missing from the roundtable's calculation. Finally, the study's total pay figure includes only the targeted value of all other performance-based cash or stock awards granted executives, in addition to the options and restricted stock already considered. These values, of course, can be much lower than what companies actually dispense....

Frederic W. Cook, the founding director of a compensation consulting firm based in New York, who is considered to be an authority on executive pay, produced the roundtable's study. He used numbers provided by Mercer Human Resource Consulting, a unit of Marsh & McLennan.

Asked why he excluded dividends on restricted shares from his analysis, Mr. Cook conceded that it did make for an apples-and-oranges comparison. But they were excluded, he said, because not all companies pay them, and because those that do, don't disclose them. He offered a similar rationale about his exclusion of pension, severance and deferred compensation amounts from his analysis: such figures are not found in proxies, he said, so he couldn't include them.

As for using a target instead of an actual value on performance-based awards, Mr. Cook said: "We certainly weren't trying to make the number higher or lower because if the typical plan is three years, the target has a little bit of stretch in it, like a bonus: sometimes it earns more and sometimes less."

Why exclude the mountains of cash generated by executives' stock option exercises over the 11 years? "It's flawed to look at realized gains because they most often represent years of grants," Mr. Cook said. "We felt the critics of executive comp were falling into the trap of using the big gain numbers, which could represent grants earned over multiple years."...

Given all these omissions, how can Mr. Cook contend that total C.E.O. pay has lagged behind shareholder returns? "I felt it was a fair correlation, based upon the S.E.C. requirements as they now exist," he said.

This is not the first time that Mr. Cook has trotted out these numbers as evidence that executive pay today is both fair and fitting. They were also the basis for his testimony last May before a House Financial Services Committee hearing on executive compensation. "The media has been flooded with a multitude of distorted, misleading and oftentimes erroneous statistics to portray U.S. C.E.O.'s and board governance in a negative light," Mr. Cook said in his testimony. The roundtable recycled those exact, thunderous words in its study last week.

Keven Drum Praises Roger Lowenstein on Immigration

He writes:

The Washington Monthly: THE IMMIGRATION EQUATION....I'd like to join a legion of other bloggers in recommending "The Immigration Equation," Roger Lowenstein's piece in the New York Times Magazine yesterday about the economics of immigration. In fact, based on his previous pieces in the magazine, I think I'd be safe in recommending practically everything he writes for them sight unseen.

The nickel version of Lowenstein's investigation is that, yes, basic economics suggests that importing millions of unskilled Mexican immigrants ought to reduce the wages of unskilled native-born Americans and make it harder for them to find jobs. And yet, mysteriously, it doesn't seem to. At most, it appears to lower wages for unskilled workers only a tiny amount, and it might not lower them at all.

Why? There are theories, but as near as I can tell nobody really seems to know. Nonetheless, the evidence for a significant effect is pretty thin. If you want to argue against immigration from Mexico, you're probably better off doing it on cultural and assimilationist grounds than in trying to torture the economic data to justify your position.

In any case, Lowenstein does a great job explaining both sides of the argument. If you want to understand what the economic debate is about, it's well worth reading.

Worse than the Court of Selim the Sot

More disturbing thuds and screams from the Topkapi Palace:

President Bush Meets with Ambassador to Iraq Zal Khalilzad:

THE PRESIDENT: ...But, Mr. Ambassador, you represent our country with a lot of class and dignity. And so, thank you. You may want to say a few comments.

AMBASSADOR KHALILZAD: Thank you, Mr. President. I came today to also wish the President a happy birthday. Happy birthday, Mr. President. And it's an honor to serve the United States in Iraq. Under your leadership, we're working very hard to make sure Iraq succeeds because Iraq is the defining challenge of our time. And what happens in Iraq will shape the future of the Middle East, and the future of the Middle East will shape the future of the world.

So it's an honor to see you again. And happy birthday, Mr. President.

THE PRESIDENT: Thank you, sir. Thank you all.

Daniel Froomkin has more:

Meet the New Media Strategy: A Visit From the Ambassador: Deb Riechmann writes for the Associated Press about the Oval Office visit by Zalmay Khalilzad, the U.S. ambassador to Baghdad.

Bush expressed concern Thursday that some of Iraq's neighbors might be working against the fledging Iraqi government. 'We, of course, are concerned that some in the neighborhood may want to derail the progress of a free Iraq,' Bush said. 'And that is troubling and something that we'll work on.'...

As a recent cable from Khalizad himself outlined, Iraq is plagued with all sorts of problems, including that conditions for women are becoming more and more abusive, there is no electrical power most of the day, and Iraqi security forces -- a group that is supposed to take charge as Americans step down -- are feared, not trusted.

Khalizad didn't get into any of that in public. Instead, over the course of his 35-second remarks, the ambassador wished Bush a happy birthday three times.

Pool reporter Pamela Hess, the United Press International Pentagon correspondent, wrote to the White House press corps: "No questions were taken, which was very sad for me because if you'd spent 5 months in Iraq, you'd have a few questions too." She added: "I lagged behind a little because I wanted to ask Dan Bartlett who some of the people were in the room and then POTUS himself yelled out 'LETSGOLETSGOLETSGO' not in a nice cheerleading way but in a 'get out of my Oval' way, and it startled me, so I didn't check what time it ended.

What Can You Do with Bayonets?

Matthew Yglesias is a national treasure:

The Green Lantern Theory of Geopolitics | TPMCafe: Up at Cato Unbound you can find Reuel Marc Gerecht's latest argument for bombing Iran. I think I've covered the policy arguments on this score extensively elsewhere, so let me just note something in particular about Gerecht's essay. Like a lot of conservative writing on foreign affairs it puts a huge amount of weight on things like will, resolve, and perceptions of strength and weakness. It's a view of things that reminds me of nothing so much as the Green Lantern comics, which I enjoy a great deal but regard as a poor guide to national security policy.

As you may know, the Green Lantern Corps is a sort of interstellar peacekeeping force set up by the Guardians of Oa to maintain the peace and defend justice. It recruits members from all sorts of different species and equips them with the most powerful weapon in the universe, the power ring.

The ring is a bit goofy. Basically, it lets its bearer generate streams of green energy that can take on all kinds of shapes. The important point is that, when fully charged what the ring can do is limited only by the stipulation that it create green stuff and by the user's combination of will and imagination. Consequently, the main criterion for becoming a Green Lantern is that you need to be a person capable of "overcoming fear" which allows you to unleash the ring's full capacities. It used to be the case that the rings wouldn't function against yellow objects, but this is now understood to be a consequence of the "Parallax fear anomaly" which, along with all the ring's other limits, can be overcome with sufficient willpower.

Suffice it to say that I think all this makes an okay premise for a comic book. But a lot of people seem to think that American military might is like one of these power rings. They seem to think that, roughly speaking, we can accomplish absolutely anything in the world through the application of sufficient military force. The only thing limiting us is a lack of willpower.

What's more, this theory can't be empirically demonstrated to be wrong. Things that you or I might take as demonstrating the limited utility of military power to accomplish certain kinds of things are, instead, taken as evidence of lack of will. Thus we see that problems in Iraq and Afghanistan aren't reasons to avoid new military ventures, but reasons why we must embark upon them: "Add a failure in Iran to a failure in Iraq to a failure in Afghanistan, and we could supercharge Islamic radicalism in a way never before seen. The widespread and lethal impression of American weakness under the Clinton administration, which did so much to energize bin Ladenism in the 1990s, could look like the glory years of American power compared to what the Bush administration may leave in its wake."

I don't even know what else to say about this business. It's just a bizarre way of looking at the world. The wreakage that the Bush administration is leaving in its wake is a direct consequence of this will-o-centric view of the world and Gerecht takes it as a reason to deploy more willpower.

Or, as Talleyrand is supposed to have said, "You can do anything with bayonets except sit on them."

Why Oh Why Are We Ruled by These Morons?

Ivo Daalder writes that the Bush administration today has not a "multilateral" foreign policy, but rather no foreign policy at all. He sees no method at all here:

Has Bush Gone Multilateral? | TPMCafe: A consensus seems to be emerging, at least in the mainstream media, that Bush has given up on the unilateralism of his first term and is now firmly committed to a multilateralist foreign policy.... But how much of this change is real? While there has been a shift in foreign policy during Bush's second term... it's not so much a shift from unilateralism to multilateralism as it is a shift from relying on the use of force to doing nothing.... [U]nilateralism, preemptive force, and regime change... made Bush's foreign policy revolutionary. Abandon the idea of preemptive force, and you're left with nothing more than hoping for change. And hope, as Colin Powell was wont to say, is not much of a strategy.

Instead of force, Bush and Co. now emphasize the importance of "diplomacy."... But what the administration is doing isn't diplomacy.... Rather, what Bush is doing is just talk (or talking about talk)... the constant refrain that just sitting down with North Koreans, or Iranians, or even Iraqi insurgents would be a concession or reward or, worse, legitimize the interlocutor, rather than a means to solving problems.... For Bush, negotiations are the weapon of the weak. The strong don't negotiate with the weak....

With neither force nor diplomacy, Bush is pursuing a foreign policy of empty gestures... trying to kick the proverbial can down the road -- far enough so the next president can deal with it... we're now talking about a trash can rather a soup can...

Impeach George W. Bush. Impeach him now.

Why Oh Why Are We Ruled by These Liars?

Sisyphus does not like Condi Rice--does not like her in a tree, does not like her at the NSC, does not like her by the gate, does not like her at the Department of State, does not like her here or there, does not like her anywhere.

Sisyphus Shrugged - oh dear: oh dear, the Dr. Rice rumors are starting up again. If you've been here for any amount of time, you'll have noticed that I have very little respect for Dr. Rice. She's been lucratively wrong at every step of her career (her academic career was based on getting the Soviet Union completely bassackward in a way that was popular with alumni), she's spectacularly intellectually dishonest (among other things, she claims that she's a lifelong conservative Republican because Jesse Helms and Strom Thurmond and the rest of the dixiecrats wouldn't let her father vote in the fifties - what ever happened to them, anyway?...

Everyone I've talked to who knows anything says that she was the worst National Security Adviser in history: that she decided early that she was going to make sure the president didn't hear things he didn't want to hear. Her strategy of kick-down-and-kiss-up was not good for the country. Not good at all.

Althouse.... The Stupidity Rays... Are Overwhelming...

Must... surf away... from Ann Althouse's website.... The stupidity rays are overwhelming.... They are too strong... I'm weakening fast... AAAUUUGGGHHH!

Ann Althouse writes:

Althouse: "The long-term [budget] prognosis is still very, very bleak, and the administration doesn't have any kind of long-term plan.": That's the Democratic response to this news: "An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the budget deficit this year..."

No, Ann. That's not just the Democratic response. It's the non-insane Republican response too. It's the response of George W. Bush's first two chairs of his Council of Economic Advisers, Glenn Hubbard and Greg Mankiw. It's the response of everyone except you and your narrow and shrinking circle of koolaid-drinking friends:

Greg Mankiw's Blog: Hubbard on the Fiscal Future: Economist Glenn Hubbard (who preceded me as CEA chair and is now back at Columbia) has an op-ed in [the April 17] Wall Street Journal. He reminds us that unless we see significant entitlement reform, taxes are heading [much] higher:

Imagine the nightmare of a tax burden 50% higher -- not so farfetched as it sounds.... The Congressional Budget Office regularly quantifies these shadows of the Ghost of Tax Day Future. Their forecasts are not sanguine. A generation from now, absent any changes, increases in Social Security and Medicare spending alone are projected to consume 10 more percentage points of national GDP than they do today.

There is nothing very new here, but it is good to have Glenn saying it anyway. As George Orwell once said, "We have now sunk to a depth where the restatement of the obvious is the first duty of intelligent men."

I'll excuse you for thinking that there's $100 billion of good news on the fiscal 2006 budget deficit because that's what Edmund Andrews told you. But don't do it again, OK?

I Don't Think That Word Means What You Think It Means

Glenn Reynolds quotes Larry Kudlow, who he has "always found... reliable": - : LARRY KUDLOW:

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

It's news to me.

UPDATE: Reader Daniel Amerman says that Kudlow didn't include inflation, and that if you include inflation, the U.S. economic expansion was "only" 11.4 %. As Amerman says, "11.4% over 11 quarters is quite respectable in real terms, there is no need for misrepresentation and hyperbole."...

Hmm. I've always found Kudlow to be reliable.

Glenn: "Reliable" does not mean "comfortably in accord with my politics." Check your dictionary. Kudlow is comfortably in accord with your politics. Kudlow is not reliable: verify before trusting, always.

And read The Princess Bride.

Today's Hawkish Fed

Tim Duy's Fed Watch

Economist's View: Fed Watch: Still in the Game: The jobs report was mixed.... Yes, the headline reading of 121,000 net new hires in May argues for a pause at the next meeting. But the rest of the report argues for another 25bp. And, given last month's wave of hawkish rhetoric, caution suggests following the latter bet.... Some officials, convinced that economic growth is slowing and that inflation will settle down again soon, would really rather not raise the target this week for the 17th time in a row. Even those officials feel they have no choice because investors, shaken by recent inflation reports, fully expect them to do so....

But to blame the rate hike on investors "shaken by recent inflation reports" misses half the story--the policy half.... And while wages are up 3.9%, CPI headline inflation will post a greater y-o-y increase in June (the May number was 4.2%). In other words, real wages are down. Should we expect the Fed to hike rates when real wages are falling, or whenever they threaten to edge up? Is the goal to hold real wages constant? See Angry Bear for more on this criticism of Fed policy.

The Fed, I suspect, will not cozy up to these arguments.... I want to believe that the Fed will pause as they assess the magnitude of economic slowing. But I have been led down that road before, and am not ready to make that trip again. Instead, I suspect they will read this report as a sign that while the economy is slowing, the pace of activity remains strong enough to heighten inflationary pressures. True, we will get another employment report before the next FOMC meeting, as well as multiple reports on inflation, not to mention Q2 GDP as well as the minutes from the last FOMC meeting. And Fed officials may suddenly back away en masse from last month's inflation worries. But this employment report goes to the hawks.

Electricity in Baghdad

The Carpetbagger Report is puzzled:

Again with the electricity talk?: What's with the fascination among Republican leaders about electricity in Baghdad? Yesterday, during his Chicago press conference, Bush said:

"We occasionally are able to pop in with great success, like Zarqawi or 12 million people voting. But increasing electricity in Baghdad is not the kind of thing that tends to get on the news."

It's a mystery why Bush would want to draw attention to "electricity in Baghdad." It's an even bigger mystery why House Speaker Dennis Hastert and White House Press Secretary Tony Snow have been emphasizing the exact same point recently.

Look, supporters of the war don't have a lot of success stories to choose from; I get that. But this talk about electricity in Baghdad is misguided -- as recently as April, Baghdad residents received an average of four hours of electricity per day, compared to pre-war levels of 16-24 hours per day.

This might help explain why it's "not the kind of thing that tends to get on the news."

It's an interesting question. Does Bush actually think he should be proud of the record on electricity in Baghdad? Or does Bush just know that if he claims to be proud of it, the press will roll over and show its belly once again, and people will think there is something to be proud of?

Interesting question.

The Administration Snookers Edmund Andrews

Last winter, Stan Collender wrote:

BUDGET BATTLES: Wolf! (01/17/2006): The Bush administration held a conference call with reporters last week to say that the 2006 deficit would be $400 billion or more. As the White House hoped, the media dutifully reported that number. But, as it almost certainly did not want, the media also reported that this latest Bush administration budget pronouncement should be treated with doubt, skepticism, and perhaps even outright contempt. The reason is that this president has a well-established history of overstating the deficit early in the year and then taking credit when it turns out to be lower than projected, even if it has done nothing to make that happen...

Today, the usually-reliable Edmund Andrews obligingly falls for the administration's trick:

Surprising Jump in Tax Revenues Is Curbing Deficit - New York Times: By EDMUND L. ANDREWS: WASHINGTON, July 8 -- An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief. On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year. Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year...

Two things are going on: approximately $60 billion of real good news on the revenue side for the 2006 deficit, and an approximately $60 billion highballed overstatement by the White House last winter about what the deficit was likely to be. Yet Edmund Andrews treats all $120 billion as if it were genuine good news--generating a bunch of high fives in the White House press office.

Why does the White House lie all the time, about everything? Because the press corps lets them get away with it.

A Community College Dean Looks at the Macroeconomic Situation, and Panics

Here we have yet another unhappy camper:

Confessions of a Community College Dean: In Which I Get a Little Panicky: I'm not an economist. Readers who actually understand economics are invited to explain why I'm off my rocker on this one.... [T]he U.S. is running nasty and increasing deficits at the government level, the household level, and the international level. We owe more to other countries than we ever have, and much of that debt comes from selling government securities to foreign central banks (esp. in Asia). Household debt is skyrocketing, and the interest rate increases of the last year or two are poised to nab anybody stupid enough to have taken out an adjustable-rate mortgage in the great housing boom of the last five or six years. The national debt grows apace, and has been refinanced over the last few years to progressively shorter-term loans, meaning that higher interest rates will hurt badly and quickly. Think of it as putting the national debt on an ARM, then watching interest rates go up.

Since we import most of our oil, and the price of oil keeps going up, our trade deficit is likely to keep increasing.... Plus we don't manufacture very much, so we don't export very much. We also borrow money for wars of choice, which themselves actually interrupt the flow of oil.... China is keeping its currency artificially low, to keep its exports cheap. Then it lends us the money to buy those exports. It underpays its own workers so that we can have cheap stuff. How long its own workers will stand for that is anybody's guess.... Since there are so many U.S. dollars flowing out of the country, their value is dropping on the world market.... The only way to entice foreigners to keep buying a depreciating currency is to raise interest rates to compensate for the depreciation. Raising interest rates kills the folks with ARMs, increases our national debt payments, and hurts the business climate....

Although productivity has been going up, real wages haven't. I know it's gauche to talk about income distribution, but there's no other way to explain....

So my question to my economics-literate readers: how are we not screwed? (That's the technical term.) If China lets the yuan float, we get inflation. If the Euro starts to displace the dollar as the denomination for international trade, demand for dollars drops and we get higher interest rates, eventually tipping us into a nasty recession.... If somebody manages to blow up a key pipeline or refinery, the sky's the limit.... I'm thinking I must be missing something really basic and wonderful that will reduce these concerns to nothing more than blips on the screen.... Please tell me why I'm wrong. I'll sleep much better if I can dismiss this as the ravings of someone who just needs a vacation.

No. You're not wrong. You're not raving. Nevertheless, the most likely scenario is one in which we come out of all of this OK.

What is this most likely scenario? It is of (a) gradual inflation in China and elsewhere (maybe 5% per year for five years), (b) gradual reductions in the value of the dollar (maybe 5% per year for five years), accompanied by (c) gradual interest rate increases in the U.S. so that the dollar decline never turns into a (d) sudden dollar crash.

If that is the case, then--gradually--U.S. housing prices deflate, construction and consumer spending fall, and imports drop. U.S.-made products become more competitive at home, and so manufacturing production and employment for domestic uses rises. The falling real value of the dollar leads to an export boom, which causes export manufacturing to boom as well. Over five years or so, we see a net of eight million jobs (relative to trend) in construction and consumer services (and supporting occupations) vanish, and eight million jobs (relative to trend) in manufacturing (and supporting occupations) appear. If the expanding sectors expand fast enough, we see a tight labor market that brings real wages back to their normal share of production. And moving an average of 1.6 million jobs a year from sector to sector--the U.S. economy can do that without any sort of uproar.

Of course, people are still likely to be unhappy with the process. Rising interest rates and rising import prices will make people feel poor--something in this process has to reduce Americans' total spending on consumption, investment goods, and government purchases from 107% of income to 100% of income, and whatever it is will crimp spending by making Americans feel poorer. But even so it is a "soft landing."

As I said, that's the most likely scenario. But there are other scenarios--the ones that you fear: stagflation, recession, financial crisis, oil shock, global depression, panic, revulsion, and discredit. The other scenarios become more probable every day.

You see, to achieve a soft landing requires that a huge number of people around the world watch the real value of their dollar-denominated assets melt away slowly for half a decade without ever being impelled to sell off the dollar-denominated positions in their portfolios. It could happen. It happened in the late 1980s, thanks to the Japanese central bank and the collected investors of Japan. It will probably happen again. It requires mammoth irrationality on the part of investors, and an extraordinary eagerness on the part of central banks to eat enormous losses on their dollar reserves. It is not a rational-expectations equilibrium. But it will probably happen.

But if it doesn't happen again--if there comes a day when the world's central banks and investors all decide that it is time to sell their dollar-denominated assets, then... Well, then we get to see how good a central banker Ben Bernanke really is. There is a really bad global equilibrium out there, which the world economy might jump to at any moment.

Two From Kevin Drum

Foreign policy? What foreign policy? I:

The Washington Monthly: THE END OF DEMOCRACY PROMOTION....Marc Lynch, after running down the evidence that the Bush administration has "effectively given up on democracy promotion" in the Arab world, makes the following observation:

On al-Arabiya last week, Hisham Milhem led a discussion on "Bush and democracy in the Arab world."....I was most struck by a remark by Amr Hamzawy. He pointed that the fact that most of the Arab media and political class were now discussing the "retreat" of American commitment to democracy demonstrates that at least at one point they were prepared to entertain the thought that there had been some credibility to that campaign. No longer, Hamzawy argued %u2014 America's turn away from democracy and reform had badly hurt its image and its credibility with this Arab political class....This seemed to be a well-received notion.

But that's really just a single piece of a broader, and even more remarkable turn of events: the Bush administration literally seems to have no foreign policy at all anymore. They have no serious plan for Iraq, no plan for Iran, no plan for North Korea, no plan for democracy promotion, no plan for anything. With the neocons on the outs, Condoleezza Rice at the State Department, and Dick Cheney continuing to drift into an alternate universe at the OVP, the Bush administration seems completely at sea. There's virtually no ideological coherency to their foreign policy that I can discern, and no credible followup on what little coherency is left.

As near as I can tell, George Bush has learned that "There's evil in the world and we're going to stand up to it" isn't really adequate as a foreign policy for a superpower but is unable to figure out anything better to replace it with. So he spins his wheels, waiting for 2009. Unfortunately, the rest of us are left spinning with him.

Foreign policy? What foreign policy? II:

The Washington Monthly: THE ONE PERCENT DOCTRINE.... I've been remiss in not blogging about Ron Suskind's The One Percent Doctrine.... Here's the situation right after 9/11: Al-Qaeda terrorists have just attacked the country; further attacks seem highly likely; our intelligence network is scrambling and nearly blind; we have good reason to believe that Osama bin Laden might be negotiating with Pakistani radicals to obtain a nuclear weapon; and credible reports suggest that al-Qaeda might also be on the road to manufacturing weaponized anthrax. What's needed at that point is firm action, and Suskind suggests that Bush and Cheney did a pretty good job of cracking heads during those scary first months -- especially so considering that those months were actually even scarier than most of us knew at the time.

But then the portrait starts to change. A year after 9/11, Bush and Cheney haven't adjusted their approach even though they know a lot more about the real threat than they did in 2001. Bush is still governing by instinct, Cheney is off in a world of his own, programs put in place during the initial emergency are continuing unabated, and political considerations -- often vicious ones -- are paramount in almost every area. Bush and Cheney are simply unable to adjust to a "long, hard slog," and the war on terror is treading water because there's no genuine, informed leadership from the White House. This arc is what makes reading the book worthwhile. It's not a hit job on Bush and Cheney. It's a portrait of two men....

The second point has to do with the "One Percent Doctrine" itself, the meaning of which is a little different than it seems at first glance. It originates with Dick Cheney, who explained early on that if a terrorist event had even a one percent chance of happening, "we have to treat it as a certainty in terms of our response." This is obviously a justification for taking a hawkish approach to terrorism, but Suskind says there's much more to it than that. After all, the Bush administration has obviously not reacted to every one-percent threat as if it were a certainty.... The single most defining characteristic of George Bush's personality is his belief in his own instinct and his corresponding disdain for serious policy analysis. For Bush, the One Percent Doctrine is tailor made. He is contemptuous of policy discussions, and the OPD is the perfect excuse to ignore them.

There's much more to the book, of course, and it's well worth reading, especially if you want to hear the story of the past five years from the point of view of George Tenet and other senior managers of the CIA.... But bewarned: if you take the threat of Islamic jihadism seriously, Suskind will not make you feel any safer. Quite the contrary...

I Think Joe Nocera Gets Ken Lay Wrong

Joe Nocera's take on Ken Lay and ENRON:

Even at the End, Ken Lay Didn't Get It - New York Times: THE tragedy of the former Enron chairman Kenneth L. Lay, who died yesterday at the age of 64, is... that, right up until the end, he never fully understood what he'd done wrong, or his own considerable culpability in his company's demise.... Andrew S. Fastow['s]... devious partnerships allowed Enron to disguise the truth of its financial condition and then sow the seeds of its destruction.... Jeffrey K. Skilling, too, played a greater role in Enron's collapse, since he was the company's hands-on leader, and set the tone that made greedy behavior and shady accounting standard operating procedure....

Still, it is hard to avoid the judgment that Mr. Lay was culpable for Enron's demise, though not necessarily for the crimes for which he was convicted six weeks ago. Fundamentally, the Enron jury found him guilty of lying about the state of the company from August to December 2001.... And he did lie, without question. It was during that time that Mr. Lay was finally confronted with Enron's mounting difficulties.... To face these problems squarely and publicly would have grievously damaged the company on Wall Street. So instead, Mr. Lay told the world that Enron's future never looked brighter. This was not the usual corporate spin. It was wishful thinking. And it was wrong....

[I]n the end, it was his desire to see things as he wished them to be, not as they really were, that was his fatal flaw. He never really had the judgment a good chairman or chief executive has to have. Here he is in 1987, for instance, confronted with clear evidence that some Enron traders were engaging in fraudulent behavior. He looks the other way because they are generating profits.... Here he is jetting off to India or Brazil or dozens of other places to help seal a deal to build an international power plant -- without the slightest sense of whether the deal makes any economic sense.... [H]e compounds his error by promoting Mr. Skilling to company president, without really thinking about whether his new president is up to the job.

And here he is a few years later -- and this may serve as the ultimate case study in wishful thinking -- urging the Enron board to approve a waiver of Enron's conflict-of-interest rules so that Mr. Fastow can set up his first partnership. Even now, one wonders -- what was he thinking?... [Fastow] was negotiating on each side of a transaction, as Enron sold assets to the partnerships in order to "make its numbers."

Mr. Lay genuinely thought that Mr. Fastow was doing the company a huge favor by taking on the partnerships. Even after the partnerships were exposed, he continued to defend Mr. Fastow's character, though it was clear to most others that the partnerships were inherently corrupt. More wishful thinking...

I think Joe Nocera is wrong. I think that we can be pretty sure what Ken Lay was thinking when he approved Fastow's waivers of the conflict-of-interest rules. Lay was asking Fastow--nudge, nudge; wink, wink--to do things to temporarily hide Enron's losses that would ruin Fastow's reputation and probably send him to jail if they came out. In return, Lay was allowing Fastow to greatly boost his own wealth through self-dealing. The shifting rationales for the waivers make that clear. At one moment, Lay is saying that ENRON has to grant the waivers because only with Fastow at the head of the partnerships will they be able to move fast. At the next moment, Lay is saying that ENRON won't be hurt by the waivers because Fastow's partnerships will get the assets only when they are the high bidders.

Cossacks work for czars. And it is when czars dismantle the checks-and-balances that monitor and supervise cossacks that you can be most certain that the cossacks are working directly for the czars.

Charles Wheelan on Tax Cuts

Charles Wheelan is a shrill critic of the Laffer Curve:

Debunking One of the Worst Ideas in Economics: The Naked Economist - Yahoo! Finance: Charles Wheelan, Ph.D.: In this column, I'm focusing on bad economics. In fact, I'm going to write about what I consider to be the two worst economic ideas... I'll skewer a favorite of the right in this column, and then a favorite of the left in my next piece. The Laffer Curve....

Neither the Reagan nor the George W. Bush tax cuts were "self-financing," as the Laffer disciples like to argue. According to The Economist -- my former employer and no bastion of left-wing thought -- the current Bush Administration's top economist, Gregory Mankiw, estimated that decreasing taxes on labor would generate enough growth to recoup only about 17 cents for each lost dollar; a tax cut on capital is better, paying for more than half of itself. Still, the bottom line from the Bush Administration itself is that tax cuts reduce Uncle Sam's take.

So why does Laffer's sketch on Dick Cheney's cocktail napkin rank near the top of my list of bad economic ideas? Because, when applied to the U.S., it's intellectually dishonest. The Laffer Curve offers the false promise that we can cut taxes without making any sacrifice on the spending side, and that's simply not true. It's the economic equivalent of arguing that you can lose weight by eating more.

Let me be perfectly clear: I'm not arguing that tax cuts are bad. I'm simply pointing out that we can't pretend that tax cuts won't require reductions on the spending side to balance the budget. In fact, you can disregard every other argument in this column and think about one thing: If Laffer were right, lower taxes would never require any spending sacrifice. We could pay a mere one percent of our income in taxes and still fund all of our government spending -- and maybe more! Do you think that's really possible?

This column should give you a hint of why economics is called the dismal science -- it's all about tradeoffs. We're the ones telling you that if you get more of something, you probably have to get less of something else.

Whether it's tax policy or dieting, you can't have your cake and lose weight, too, which is why America currently has huge deficits and a lot of fat people.

Making Globalization Win-Win in the Developing World

Ann Harrison looks at globalization and poverty in the deveoping world:

Ann Harrison: Globalization and Poverty: NBER Working Paper No. 12347 Issued in July 2006:

This essay surveys the evidence on the linkages between globalization and poverty. I focus on two measures of globalization: trade and international capital flows. Past researchers have argued that global economic integration should help the poor since poor countries have a comparative advantage in producing goods that use unskilled labor. The first conclusion of this essay is that such a simple interpretation of general equilibrium trade models is likely to be misleading. Second, the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place. Such complementary policies include investments in human capital and infrastructure, as well as policies to promote credit and technical assistance to farmers, and policies to promote macroeconomic stability. Third, trade and foreign investment reforms have produced benefits for the poor in exporting sectors and sectors that receive foreign investment. Fourth, financial crises are very costly to the poor. Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets.

The Labor Market Weakens a Hair

Not disastrous, but not good news:

Employment Situation Summary: Nonfarm payroll employment rose by 121,000 in June, and the unemployment rate was unchanged at 4.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to trend upward in several service-providing industries and in mining. Average hourly earnings rose by 8 cents in June.

Real wages continue to stagnate.

Pointer Loops

Surfing the internet, I come to Cosma Shalizi writing about the excellent Alan Furst:

Shalizi: Alan Furst, Night Soldiers: Just a simple country boy, sailing down the river for the NKVD.... I think this was his first novel, but can't quite tell, which is to its credit. (See also: earlier remarks on Furst.)

And I think, "Aha! A pointer to chase," and I do so:

Books to Read While the Algae Grow in Your Fur, July 2005: Alan Furst, Dark Star: I have nothing to add to Brad DeLong's remarks. Well, except that Furst reminds me of pre-war Ambler, only with some sex (which is not really an improvement), and a certain difference in tone which I can't help but feel comes from knowing how the war is going to go %u2014 at once a bit more ironic and a bit more complacent.

Well, that was quick.


Here's what I wrote five years ago:

Review of Alan Furst, Dark Star: Alan Furst (1991), Dark Star (New York: Houghton Mifflin: 0006511317).

When I talk to practically any of my undergraduates these days, I have a nearly impossible task to do when I try to convince them that the twentieth century has, after all, ended much better than it might have been. The half-full undergraduates talk of how wonderful and advanced our industrial civilization is, and how human progress to this point was nearly inevitable. The half-empty undergraduates talk about poverty in the developing world, inequality, and injustice, and seem deaf to the idea that the world we live in is much better than the world that we seemed headed for during the second quarter of this century. The Great Depression. Stalin's purges. World War II. Hitler's genocides--they have read about these, but they are not real, and the idea that for decades people thought that the forces headed by Stalin or by Hitler were the wave of the future (or the last chance to stop an even greater evil) does not penetrate below the surface.

So the next time I teach a course on the entire politico-economic history of the twentieth century, I think I may assign Alan Furst's novel Dark Star, for it does a better job than anything else I have read to catch the atmosphere of the days when Josef Stalin seemed to be the lesser of two evils--and it is a very fine novel besides.

This is not my judgement alone. Historian Alan Bullock calls Dark Star "a classic.... Furst brings to life better than most historians the world of fear in which so many human beings felt trapped." Reviewing it for Time, Walter Shapiro sees it as a "classic black-and-white movie that captures the murky allegiances and moral ambiguity of Europe on the brink of war.... Nothing can be like watching Casablanca for the first time, but Furst comes closer than anyone has in years." And a third reviewer calls it "exceptionally fine... Kafka, Dostoevsky, and le Carre..."

Andre Szara is an Old Bolshevik, a hero of the Russian Civil War, a Jew, an intellectual, a long-time foreign correspondent for Pravda--hence he moves about Europe with ease, from Paris to Ostend to Prague to Berlin--and an occasional helper of the Russian espionage services. He is not a happy man in his role of always echoing back to Moscow its latest propaganda line: "Once... he'd persuaded himself that... a sentence singing hymns to the attainment of coal production norms in the Donets Basin was, nonetheless, a sentence, and could be well rendered. It was the writer's responsibility in a progressive society to inform and uplift the toiling masses--word had, in fact, reached him that the number one toiler himself had an eye for his byline..."

Szara, however, has survived by teaching "himself discretion before the apparat had a chance to do the job for him." His pen remained uncooperative and "stubbornly produced commissar wolves guarding flocks of worker sheep or Parisian girls in silk underwear, well, then the great characteristic of paper was the ease with which it burned..." But now in the late 1930s his options and his room for maneuver are closing down. Hitler is in the saddle in Berlin. The English prime minister dismisses the countries of central Europe as faraway places of which the English know little. In Russia, Stalin has decided that the consolidation of his power requires purge upon purge--with Jews and Old Bolsheviks highest on the list. And a sinister NKVD general has decided to use Szara as a tool for his own purposes of exposing pre-revolutionary spies within the Communist Party and of increasing the pitifully small number of Jews fleeing Europe the British allow to settle in Palestine.

So Szara tries to keep from being killed either by his own Russian side, by the German espionage services, or just by accident when Nazis go hunting Jews in the night for sport. Rotten as the Soviet Union is, and tyrannical as Stalin may be, it remains true that Szara's side is the good guy. But what if that great hope sees Hitler not as his adversary but his ally?

And what business does Szara ultimately find himself in? As the sinister NKVD general puts it, there has to be a great lowering of sights. Szara was " all of us... in the paradise business. We got rid of the czar and his pogroms to make a place where Jews, where everyone, could live like human beings and not like slaves or beasts.... And yet... paradise slipped away. Because now we have a new pogrom, run, like so many in history, by a shrewd peasant who understands hatred.... What do I offer my associates? A chance to save a few Jewish lives.... Is it dangerous? Oh yes. Could you die? It's likely. Will your heroism be known to history? Very doubtful. Now, have I successfully persuaded you to throw everything you value in life away and follow this pecuiliar, ugly man over the nearest horizon to some dreadful fate?"

Highly, highly recommended.

Oh! What a Marvelous Thing Is a Competitive Free-Market System without Externalities!

Society Speaks to Jerome K. Jerome:

Epeus' epigone - Kevin Marks weblog: Jerome K Jerome explains emergent value: A preliminary response to Aaron

Diary of a Pilgrimage - Part I: What a wonderful piece of Socialism modern civilisation has become!--not the Socialism of the so-called Socialists--a system modelled apparently upon the methods of the convict prison--a system under which each miserable sinner is to be compelled to labour, like a beast of burden, for no personal benefit to himself, but only for the good of the community--a world where there are to be no men, but only numbers--where there is to be no ambition and no hope and no fear,--but the Socialism of free men, working side by side in the common workshop, each one for the wage to which his skill and energy entitle him; the Socialism of responsible, thinking individuals, not of State-directed automata.

Here was I, in exchange for the result of some of my labour, going to be taken by Society for a treat, to the middle of Europe and back. Railway lines had been laid over the whole 700 or 800 miles to facilitate my progress; bridges had been built, and tunnels made; an army of engineers, and guards, and signal-men, and porters, and clerks were waiting to take charge of me, and to see to my comfort and safety. All I had to do was to tell Society (here represented by a railway booking-clerk) where I wanted to go, and to step into a carriage; all the rest would be done for me. Books and papers had been written and printed; so that if I wished to beguile the journey by reading, I could do so. At various places on the route, thoughtful Society had taken care to be ready for me with all kinds of refreshment (her sandwiches might be a little fresher, but maybe she thinks new bread injurious for me). When I am tired of travelling and want to rest, I find Society waiting for me with dinner and a comfortable bed, with hot and cold water to wash in and towels to wipe upon. Wherever I go, whatever I need, Society, like the enslaved genii of some Eastern tale, is ready and anxious to help me, to serve me, to do my bidding, to give me enjoyment and pleasure. Society will take me to Ober-Ammergau, will provide for all my wants on the way, and, when I am there, will show me the Passion Play, which she has arranged and rehearsed and will play for my instruction; will bring me back any way I like to come, explaining, by means of her guide-books and histories, everything upon the way that she thinks can interest me; will, while I am absent, carry my messages to those I have left behind me in England, and will bring me theirs in return; will look after me and take care of me and protect me like a mother--as no mother ever could.

All that she asks in return is, that I shall do the work she has given me to do. As a man works, so Society deals by him.

To me Society says: 'You sit at your desk and write, that is all I want you to do. You are not good for much, but you can spin out yards of what you and your friends, I suppose, call literature; and some people seem to enjoy reading it. Very well: you sit there and write this literature, or whatever it is, and keep your mind fixed on that. I will see to everything else for you. I will provide you with writing materials, and books of wit and humour, and paste and scissors, and everything else that may be necessary to you in your trade; and I will feed you and clothe you and lodge you, and I will take you about to places that you wish to go to; and I will see that you have plenty of tobacco and all other things practicable that you may desire--provided that you work well. The more work you do, and the better work you do, the better I shall look after you. You write--that is all I want you to do.'

'But,' I say to Society, 'I don't like work; I don't want to work. Why should I be a slave and work?'

'All right,' answers Society, 'don't work. I'm not forcing you. All I say is, that if you don't work for me, I shall not work for you. No work from you, no dinner from me--no holidays, no tobacco.'

And I decide to be a slave, and work.

Society has no notion of paying all men equally. Her great object is to encourage brain. The man who merely works by his muscles she regards as very little superior to the horse or the ox, and provides for him just a little better. But the moment he begins to use his head, and from the labourer rises to the artisan, she begins to raise his wages.

Of course hers is a very imperfect method of encouraging thought. She is of the world, and takes a worldly standard of cleverness. To the shallow, showy writer, I fear, she generally pays far more than to the deep and brilliant thinker; and clever roguery seems often more to her liking than honest worth. But her scheme is a right and sound one; her aims and intentions are clear; her methods, on the whole, work fairly well; and every year she grows in judgment.

One day she will arrive at perfect wisdom, and will pay each man according to his deserts.

But do not be alarmed. This will not happen in our time.

The Worst Things in Life Are Really Cheap

The mysterious, vowelless Knzn takes on the opposite of the water-diamonds paradox:

Economics and...: This analysis raises the broader question of why good things generally seem to cost more than not-so-good things. I have several answers. First, to a large extent, the premise isn't even true. Most people, most of the time, would rather watch TV than eat tofu, and yet broadcast TV is essentially free (except for the amortized cost of the TV set) whereas tofu has a nontrivial cost. Second, many good things -- for example, the best Belgian chocolate -- are in fact supplied monopolistically.

But the main reason, I think, is this: it's not so much that good things are expensive as that expensive things are good. Gilbert in fact makes this point in his next sentence, but my reasoning is different than his. A basic premise of economics is the idea of diminishing marginal utility: the more you already have of something, the less additional happiness you get from an incremental amount. Things that don't cost much, we already have plenty of, so an additional unit is not that good. Things that cost a lot, we don't have much of, so an additional unit is very good. So, for example, why is going to a professional theatrical production better than going to a movie? Of course there are many who will say that the theatre is an inherently better art form, but for most people, I think, the answer is this: going to a play is better because we don't get to do it as often. In other words, theatre is better than cinema specifically because theatre is more expensive.

To put it another way, if it were expensive and weren't good, who would bother making any of it? We should expect to find things that are expensive and good, things that are cheap and not-very-good, things that are cheap and good, but not things that are expensive and not-good.

Peace for Mesopotamia

Jeff Weintraub reads Juan Cole and wonders what Muqtada al-Sadr's game is:

Jeff Weintraub: What is Muqtada al-Sadr's game?: "Note that Muqtada puts the US on a par with radical [Sunni] Islamists and with Baathists as undeserving of forgiveness or reconciliation."  I've never been quite sure what game Muqtada al-Sadr thinks he's playing by taking positions like these, but whatever it is, it looks risky and potentially self-destructive....

I find that many Americans assume that if a full-scale sectarian civil war breaks out in Arab Iraq, the Shiites are bound to win and slaughter the Sunnis, since the Shiites are a majority and the Sunni Arabs amount to only 15-20% of the population. I suspect this assumption has something to do with a characteristically American illusion that majorities always beat--and often oppress--minorities, whereas often it's the other way around. As a number of people have pointed out, it seems pretty clear that the Ba'athists & jihadis at the core of the Sunni Arab "insurgency" are convinced that if they can detonate full-scale civil war and panic the Americans into running away, they can decapitate the Shiites politically, crush them, and take over the country. (See, for example, here and here and here.) This may or may not turn out to be a disastrous miscalculation on their part--I hope we don't find out--but from their perspective it's not self-evidently crazy.

Muqtada al-Sadr, like the Sunni Arab "insurgents" and their political allies, has been calling for US troops to clear out. But what does he expect to happen next? Does he figure that it's safe to make these noises because there's no danger of the US actually leaving. Or does think that, if it comes to a straight-out fight between his "Mahdi Army" militia and the Sunni Arab "insurgents," he can beat them. I suspect that he probably does believe that ... and I also suspect that he's wrong. If it does come to a full-scale sectarian explosion, it may be that the Sunni Arab "insurgents" will lose in the end.... But my guess is that before that happens, they will be able to rub out Muqtada al-Sadr without much trouble.

As I say, I hope we don't get the chance to find out.

I think it's simple.

If there is no large-scale civil war, then Muqtada al-Sadr is the nationalist-religious candidate--the only major politician from the Party of Ali who did not coquette and collaborate with the foreign-Christian American occupation. That has got to be worth a lot.

If there is a large-scale civil war, Iran enters on the side of the Party of Ali. The Sunnis today have as much chance of winning an Iraqi civil war as the Maronites had of winning the Lebanese civil war of a generation ago.

Harald Harsh-Measures

John Emerson once again on the meaning of Harald's byname, "Hardrada":

Brad DeLong's Semi-Daily Journal: All History Is Byzantine...: "Hardrada" translates as "hard counsel", probably the equivalent of "tough talk" or "harsh intentions" the like. Not Mr. Nice Guy.

Perhaps "harsh measures"? As in what John Yoo says the president has the power to order no matter what laws congress passes or treaties the senate ratifies?

Perhaps the hardest byname to translate well since Odysseus's.

Three Faces of Greg Mankiw

Yet another excellent post from Greg Mankiw. This time it's a three-sided cage match between Greg Mankiw, Greg Mankiw, and Greg Mankiw: Greg the Libertarian, Greg the Utilitarian, and Greg the Moralist:

Greg Mankiw's Blog: Why I hate gambling: My personal philosophy is about 50 percent libertarian, 40 percent utilitarian, and 10 percent moralist. The libertarian and utilitarian usually keep the moralist pretty well contained: they have a 9 to 1 advantage, after all. But reading a recent article in Slate from the wife of a professional gambler let the moralist in me escape...

Greg the Moralist:

My view is that there are three kinds of gamblers, all of which sadden me. First, there is the compulsive gambler. When I was growing up, the husband of one of my mother's coworkers lost all their money in a fit of compulsive gambling. This occurred just as their teenage daughter was getting ready to apply to college. The college savings, as well as all their other savings, were gone. Watching this experience has most likely colored my view of the activity more broadly.

Second, there is the recreational gambler. He spends, say, $20 a week on slot machines or lottery tickets.... [G]iven the availability of books, movies, plays, museums, checkers, chess, etc., it is an unfortunate reflection on a person's imagination when a scratch lottery ticket is the best diversion he can find....

Third, there is the professional gambler.... In some ways, this case is the saddest of all.... It is a shame that someone with so much inherent ability wastes it doing something of such little social value...

Greg the Libertarian:

None of this has much implication for public policy. The libertarian in me says people can waste their lives if they want...

Greg the Utilitarian:

The utilitarian points out that governmental attempts to suppress gambling are likely to be fruitless and would foster a large underground economy...

I'm tempted to jump in and head-butt the libertarian: If you were to ask a compulsive gambler if he really wanted to waste his life, he would probably say no: that the life he wound up with is not the life he really wanted. It is really hard for almost all of us to make good decisions, and 90% of doing well is finding institutions and situations in which the pressures are such as to make good decisions more likely.

On the other hand, Greg the Moralist slightly scares me: I buy the argument for the compulsive gambler and the professional gambler. Somebody good enough at calculating odds and reading situations to make money as a professional gambler should pick a segment that is positive-sum rather than zero-sum for the economy as a whole: he should go to Wall Street and become part of the global capital allocation mechanism.

I would certainly agree that lottery tickets are a very low-quality diversion, and that the computer game Civilization packs at least fifty times the diversion-per-buck of a scratch lottery ticket. (Indeed, I find it so powerful and diverting that I have no copies: There was a time when I had to decide whether to be a Civilization addict or an economics professor.) But I don't want to get onto the moralist's slippery slope any more than Greg Mankiw wants to get onto the regulator's slippery slope.

Greg Mankiw Explains Why Economists Favor Immigration

He does it very very well:

Greg Mankiw's Blog: Why Economists Like Immigration: With members of the House and Senate sparring over immigration reform, it is worth summarizing why most economists are sympathetic with the more welcoming approach of the Senate bill.

The study of economics leaves a person with two strong impulses:

The Libertarian Impulse: Mutually advantageous acts between consenting adults should, absent externalities, be permitted. The ability to engage in such trades is how people in free-market economies achieve prosperity. When the government impedes voluntary exchange, it prevents the invisible hand of the market from working its magic.

The Egalitarian Impulse: The market economy rewards people according to supply and demand, not inherent worth. Markets often fail to provide people the ability to adequately insure themselves against the vicissitudes of life and accidents of birth. We should, therefore, look for ways to help those who end up at the bottom of the economic ladder.

Most economists feel these two impulses to some degree. The difference between right-leaning and left-leaning economists is how strongly they feel each of them. Right-leaning economists have a stronger libertarian impulse, whereas left-leaning economists have a stronger egalitarian impulse.

Although some debates in economics come down to which impulse a person feels more strongly, on immigration the two impulses are reinforcing. The libertarian impulse says, let the American employer hire the Mexican worker, for it is voluntary exchange. The egalitarian impulse takes note that the Mexican immigrant is the poorest person involved in the situation, and he benefits from more relaxed immigration restrictions.

Here is a conjecture: Whenever a policy appeals to both the libertarian impulse and the egalitarian impulse, economists will offer a relatively united view, as they do on the topic of immigration.

I would add a third impulse: the cosmopolitan impulse. Economists tend to think that foreigners are people, and thus that their well-being counts. From the economist's point of view, increasing immigration is a hell of a powerful global economic development policy. The most you can say for restricting immigration is that it is an extremely costly and relatively ineffective domestic anti-poverty policy.

And then, of course, there is George Borjas, who is (a) an economist who is (b) not in favor of immigration from Latin America.


Well, that is a movie that is going to give me nightmares:

Conspiracy: On January 20, 1942, 15 men gathered in a villa on the outskirts of Berlin for a clandestine meeting that would ultimately seal the fate of the European Jewish population. Ninety minutes later, the blueprint for Hitler's Final Solution was in place. Adolf Eichmann prepared 30 top-secret copies of the meeting's minutes. By the fall of the Reich, all had disappeared or been destroyed--except one...

Question: How close is Kenneth Branagh's Heydrich to the real Heydrich? How close is Colin Firth's Stuckart to the real Stuckart?

All History Is Byzantine...

John Emerson writes:

Brad DeLong's Semi-Daily Journal: Who Was the Fourth Wife of Leo the Philosopher?: In a different age the Byzantine chroniclers Benedikz and Blondal failed to mention that when Araltes left the royal guard, he returned home to become King of Norway, only to die in 1066 during his attempt to also become King of England. (Wherever those two mysterious places were, up North somewhere by Thule.)

But Harald Hardraed did get seven feet of English ground.