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August 2006

Government Policy and Income Inequality Yet Again Again

Paul Krugman emails:

I think it's really important to realize that we have only a modest amount of direct evidence that technological change is driving increased income inequality. That is, while there have been a few studies showing some connection between increased use of IT and changes in the wage structure, very little of the conventional wisdom that technology is the culpritis based on those studies.

So why is technology given the credit? Basically because it's the residual category - and as Bob Solow said about the role of technology in growth, the residual is the measure of our ignorance. We estimate the effects ofthe stuff whose effects we know how to measure - taxes and globalization, mainly - and then attribute the rest to technology.

The point is that it's all too possible that we're attributing to technology rising inequality that may be largely due to hard-to-quantify political and institutional change.

There are several reasons to think that politics plays a big role. One is the broad correlation between the political climate and trends in inequality, which I pointed out in the Times. (By the way, Larry Bartels in Princeton's politics department shows that there's a strong correlation between party control of the White House and inequality trends even in the short run; see It's kind of a mysterious result, but worth pursuing.)

Another piece of evidence is the wide difference in inequality trends between the US and to a lesser extent the UK, on one side, and everyone else.

Yet another piece of evidence, which I think is very suggestive, is the discontinuous nature of the Great Compression. If you go back to the original Goldin and Margo paper,, they found that there was a drastic reduction in wage inequality over the course of just 5 or 6 years in the 40s, which then stuck for another 30 years. In the paper, they struggle to reconcile this with a supply-and-demand framework, but it sure looks like a change in norms which had sustained effects on market outcomes.

So what are the mechanisms? Unions are probably top of the list; I believe that there's a qualitative difference between wage bargaining in an economy with 11 percent of workers unionized, which is what we had in the early 30s, and one with 35 percent unionization, which is what emerged from World War II. That's discontinuous change, partly driven by a change in political regime. And the process went in reverse under Reagan.

An overall climate of public scrutiny may matter too, especially at the top of the scale.

And don't forget that some taxes affect the pre-personal-tax distribution of income. Taxes on corporate profits went from a minor inconvenience before FDR, to a major source of revenue under Eisenhower, and back again.

The bottom line is that the view thatrising inequality reflectforces beyond the reach of politicians may sound sensible, but it's actually a supposition based on very little evidence, and there's a lot of evidence on the other side.

Government Policy and Income Inequality Yet Again

Andrew Samwick thinks about mechanisms through which "conservative" economic policy might lead to a significantly more unequal pre-tax income distribution:

Vox Baby: Show Me the... Mechanism: Krugman argues that the dominant political ideology is the main cause of changes in inequality. I want him to show a mechanism.... Others in Brad's recap have speculated about such mechanisms. There are a few different groups of them. Here's my quick take on them:

1) Weaker bargaining positions for labor, exacerbated by government policy.... Interesting idea. I think it's plausible.... [W]e've got to insist on a better comparison before assessing their importance.

2) Tax policy leading to higher pre-tax incomes disproportionately at the high end.... I don't think this is a valid explanation of some fundamental economic shift. It is a criticism of using reported income, rather than accrued income, to compare income distributions at different points in time.

3) Tax policy leading to higher pre-tax incomes disproportionately at the high end.... This one comes from Matthew Yglesias.... When you have a very progressive rate structure, an employer can get a lot more bang for his buck by directing his employment budget at middle-income people.... I think that's fascinating. I hadn't fully appreciated that a progressive tax system might be used to give lower-income workers a leg up in competing for the marginal unit of production. It remains an empirical question as to how important this might be.... I would have thought the effect to be small, compared to things like increasing global competition in product markets.

4) Lax enforcement of laws that should prevent the rich from stealing from others: This group is basically organized around the notion that CEOs and other top corporate officers have seen their pay grow tremendously over this period, and some of that, the theory goes, must be due to illicit activities. Hard to argue that none of it is ill-gotten, though I am not in the camp that suggests it is very high...

A Warning: Jet Blue

Think, people. Think very hard before you sign up for JetBlue's nonstops from Boston to the West Coast. It turns out that their planes do not have enough fuel to get to the West Coast when the headwinds are strong.

Thus a six hour flight that would be turned into a six and a half hour flight by strong headwinds is instead turned into an eight hour flight by an involuntary refueling stop in Salt Lake City.

And then--because whoever runs Oakland operations for JetBlue does not have an arrangement with Southwest to use some of its open gates--the fact that we were late kept us on the tarmac for 45 minutes waiting for a JetBlue plane departing Oakland to push back from its gates. Flight attendants responded to questions from our seat neighbors about what was going on by telling them that they should call JetBlue on their cell phones: that the flight attendants knew nothing and weren't going to take any steps to find out.

And then--presumably because JetBlue hadn't sprung for overtime for baggage handlers--it took forty five minutes after we docked at the gate for the first piece of the plane's luggage to arrive on the carousel.

So it was your standard late-plane experience: you talk to the spouse, talk to the kids, march up and down the aisle, sit in sullen silence, watch Hellboy read the truly excellent Hour of the Octopus by Joel Rosenberg--a fantasy detective story set in a version of feudal Japan--talk to your neighbors, and finally stagger out of the airport four hours after you were supposed to arrive.

JetBlue won't tell me how often this unscheduled-refueling-in-Salt-Lake-City happens, or why their Oakland operation doesn't seem to have a plan for when it does.

Think carefully, people. Think carefully.

Looking Back at the Greenspan Years

Dean Baker writes on how Alan Greenspan should have done more to try to warn people about the stock market bubble of the late 1990s:

Beat the Press: Alan Greenspan and the Stock Bubble: The biggest sin that the Greenspan sainthood proponents must sweep under the rug is his failure to do anything about the stock market bubble.... Greenspan recognized the bubble at the time, as he has acknowledged in the post-crash years. He said that it was his view that it was better to deal with the fallout from the crash rather than addressing the bubble head-on.... I did not know a single person in 1998-2000 who was putting money in the stock market believing that it would get roughly the same return as government bonds. Surveys provided zero evidence to support the view that expected returns on stocks had fallen, if anything, they had risen based on the experience of the recent past. In short, it was very simple to recognize the bubble and anyone who did not -- well you had some serious bad judgment....

The S&P 500 index peaked at more than 1500 in March of 2000. Six and a half years later it sits at 1266. This means that, adjusting for inflation, the market is more than 30 percent lower today than it was at its peak six and a half years ago.... As to the harm, how about the 2001 recession? I would add that the economy is not out of the woods from the stock crash yet, because Greenspan seized on the housing bubble as the only available tool to rescue the economy from the wreckage from the bursting of the stock bubble....

The other big response to the "no harm" argument is the pension crisis. The country's DB plans are in crisis today largely because they made no contributions to their funds throughout the bubble years.... Arguably, this was a failure of regulation.... But our central banker presumably noted the mismanagement of trillions of dollars of pension assets and looked the other way....

I am big fan of talk -- Greenspan should have used his Congressional testimonies and other public forums to carefully explain how people can know that the stock market was in a bubble. Note, I don't mean whispered comments about the market possibly being over-valued. I mean very clear charts that explain where stock returns come from (dividends and capital gains) and that at PEs that eventually exceeded 30, it was necessary to believe either that PEs will continue rising forever to absolutely crazy levels or that stockholders would be content with 3 percent real returns.... If the Fed chair makes a clear and solid case, every money manager in the country would have to address it.... Any portfolio manager who said that they did not pay attention to Greenspan would be fired, and possibly sued for negligence....

The other tool Greenspan had to tackle the bubble was raising interest rates. I am not a fan of this, because it would slow the economy and throw people out of work, but it would have been better than letting the bubble grow unchecked. (This is my view today on the housing bubble.)

Of Dean Baker's last point, let me quote John Maynard Keynes: "It is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier." And worse to provoke unemployment than to disappoint the avid investor in high-tech IPOs. The high-employment boom of the late 1990s had many virtues, and I cannot see how raising interest rates then enough to push down stock prices (and in the process cause unemployment) would have given us a better world.

Of Dean Baker's second point--the pension point--I think that it is a very good point.

Of Dean Baker's first point--the 2001 recession--I don't see its force. Less boom and less bubble would have given us smoother growth, but in all probability lower cumulative output. I am, instead, grateful that the 2001 recession was so small and was proceeded by such a long period of high employment and investment.

But I do share Dean's wish that Alan Greenspan had been more dour and gloomy about the stock market in the late 1990s. How much more dour and gloomy? That is the tough question. And does his failure to be more dour and gloomy lead me to reassess my judgment of Greenspan? No, not very much. He was luckier than anyone would have imagined beforehand, but he was also, overall, a much better central banker than I would have been in his place.

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

Media Matters writes:

Media Matters - Wash. Post edited Bush's comments on Iraq,: During an August 21 press conference, President Bush faced a question regarding whether he is -- as The New York Times recently reported -- "frustrated" by news from Iraq and the lack of gratitude among the Iraqi people. Bush responded, "Frustrated? Sometimes I'm frustrated. Rarely surprised. Sometimes I'm happy. You know, this is -- but war is not a time of joy. These aren't joyous times. These are challenging times."

In an August 21 article on the press conference, Washington Post staff writer Daniela Deane included this answer, but removed from the middle of the quote Bush's admission, "Sometimes I'm happy." Deane offered readers no indication that she had edited the quote.

The Rise in U.S. Inequality: What the Labor-Side Real Professionals Say

Greg Mankiw wrote: "Policy choices such as tax rates and minimum wages have not been the main causes of increasing inequality. At least that is the consensus, as I understand it, of the professional labor economists who study the issue."

That overstates it a bit, I think. The real professional labor economists argue. And my perspective--here in Berkeley under the intellectual hegemony of the terrifyingly brilliant David Card--is that the real professionals are arguing fiercely.

Here are some of their recent contributions:

Unionization and Wage Inequality: A Comparative Study of the U.S, the U.K., and Canada: David Card, Thomas Lemieux, W. Craig Riddell: This paper presents a comparative analysis of the link between unionization and wage inequality in the U.S., the U.K., and Canada. Our main motivation is to see whether unionization can account for differences and trends in wage inequality in industrialized countries. We focus on the U.S., the U.K., and Canada because the institutional arrangements governing unionization and collective bargaining are relatively similar in these three countries. The three countries also share large non-union sectors that can be used as a comparison group for the union sector. Using comparable micro data for the last two decades, we find that unions have remarkably similar qualitative impacts in all three countries. In particular, unions tend to systematically reduce wage inequality among men, but have little impact on wage inequality for women. We conclude that unionization helps explain a sizable share of cross-country differences in male wage inequality among the three countries. We also conclude that de-unionization explains a substantial part of the growth in male wage inequality in the U.K. and the U.S. since the early 1980s.

Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles: David Card, John E. DiNardo: The rise in wage inequality in the U.S. labor market during the 1980s is usually attributed to skill-biased technical change (SBTC), associated with the development of personal computers and related information technologies. We review the evidence in favor of this hypothesis, focusing on the implications of SBTC for economy-wide trends in wage inequality, and for the evolution of wage differentials between various groups. A fundamental problem for the SBTC hypothesis is that wage inequality stabilized in the 1990s, despite continuing advances in computer technology. SBTC also fails to explain the closing of the gender gap, the stability of the racial wage gap, and the dramatic rise in education-related wage gaps for younger versus older workers. We conclude that the SBTC hypothesis is not very helpful in understanding the myriad shifts in the structure of wages that have occurred over the past three decades.

The Polarization of the U.S. Labor Market: David H. Autor, Lawrence F. Katz, Melissa S. Kearney: This paper analyzes a marked change in the evolution of the U.S. wage structure over the past fifteen years: divergent trends in upper-tail (90/50) and lower-tail (50/10) wage inequality. We document that wage inequality in the top half of distribution has displayed an unchecked and rather smooth secular rise for the last 25 years (since 1980). Wage inequality in the bottom half of the distribution also grew rapidly from 1979 to 1987, but it has ceased growing (and for some measures actually narrowed) since the late 1980s. Furthermore we find that occupational employment growth shifted from monotonically increasing in wages (education) in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middles of the wage (education) distribution in the 1990s. We characterize these patterns as the “polarization” of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work. We show how a model of computerization in which computers most strongly complement the non-routine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs can help explain the observed polarization of the U.S. labor market.

Rising Wage Inequality: The Role of Composition and Prices: David H. Autor, Lawrence F. Katz, Melissa S. Kearney: During the early 1980s, earnings inequality in the U.S. labor market rose relatively uniformly throughout the wage distribution. But this uniformity gave way to a significant divergence starting in 1987, with upper-tail (90/50) inequality rising steadily and lower tail (50/10) inequality either flattening or compressing for the next 16 years (1987 to 2003). This paper applies and extends a quantile decomposition technique proposed by Machado and Mata (2005) to evaluate the role of changing labor force composition (in terms of education and experience) and changing labor market prices to the expansion and subsequent divergence of upper- and lower-tail inequality over the last three decades We show that the extended Machado-Mata quantile decomposition corrects shortcomings of the original Juhn-Murphy-Pierce (1993) full distribution accounting method and nests the kernel reweighting approach proposed by DiNardo, Fortin and Lemieux (1996). Our analysis reveals that shifts in labor force composition have positively impacted earnings inequality during the 1990s. But these compositional shifts have primarily operated on the lower half of the earnings distribution by muting a contemporaneous, countervailing lower-tail price compression. The steady rise of upper tail inequality since the late 1970s appears almost entirely explained by ongoing between-group price changes (particularly increasing wage differentials by education) and residual price changes.

Trends in U.S. Wage Inequality: Re-Assessing the Revisionists: David H. Autor, Lawrence F. Katz, Melissa S. Kearney: A large literature documents a substantial rise in U.S. wage inequality and educational wage differentials over the past several decades and finds that these trends can be primarily accounted for by shifts in the supply of and demand for skills reinforced by the erosion of labor market institutions affecting the wages of low- and middle-wage workers. Drawing on an additional decade of data, a number of recent contributions reject this consensus to conclude that (1) the rise in wage inequality was an “episodic” event of the first-half of the 1980s rather than a “secular” phenomenon, (2) this rise was largely caused by a falling minimum wage rather than by supply and demand factors; and (3) rising residual wage inequality since the mid-1980s is explained by confounding effects of labor force composition rather than true increases in inequality within detailed demographic groups. We reexamine these claims using detailed data from the Current Population Survey and find only limited support. Although the growth of overall inequality in the U.S. slowed in the 1990s, upper tail inequality rose almost as rapidly during the 1990s as during the 1980s. A decomposition applied to the CPS data reveals large and persistent rise in within-group earnings inequality over the past several decades, controlling for changes in labor force composition. While changes in the minimum wage can potentially account for much of the movement in lower tail earnings inequality, strong time series correlations of the evolution of the real minimum wage and upper tail wage inequality raise questions concerning the causal interpretation of such relationships. We also find that changes in the college/high school wage premium appear to be well captured by standard models emphasizing rapid secular growth in the relative demand for skills and fluctuations in the rate of growth of the relative supply of college workers - though these models do not accurately predict the slowdown in the growth of the college/high-school gap during the 1990s. We conclude that these patterns are not adequately explained by either a ‘unicausal’ skill-biased technical change explanation or a revisionist hypothesis focused primarily on minimum wages and mechanical labor force compositional effects. We speculate that these puzzles can be partially reconciled by a modified version of the skill-biased technical change hypothesis that generates a polarization of skill demands.

It's a four-sided cage match between technology, globalization, sociology, and public policy.

Hoisted from Comments: Planetize the Moon!

At LowLife writes:

I have no idea why they seem to be bending over backwards to prevent the moon from becoming a planet. As it's bigger than Pluto why would it's sharing an orbit with the Earth disqualify it?

I had always wanted to live in a solar system with a binary planet. Please help make my dream come true!

Of course, Ganymede is a lot bigger than Luna... but IIRC, Ganymede's orbit is at times concave to the sun, while Luna's is always convex to the sun...

Why Doesn't Michelle Cottle Run the New Republic?

A good piece, head-and-shoulders above the run-of-the-mill that we see in _We-Love-Ann-Coulter Weekly_ these days:

Why George Allen isn't an authentic good ole boy: I find Allen personally objectionable for much the same reason I do George W. Bush. Having spent much of my youth in East Tennessee, I am all too familiar with both the charms and the downsides of good ole boys and even hard-core rednecks. And what never ceases to amaze me is how pretenders like Bush (eternally aiming for good ole boy status) and Allen (with even grander pretensions of redneckdom) always seem to latch on to the less admirable aspects of the breed. Allen's enduring obsession with the Confederacy and slavery would be morally questionable coming from someone reared in Greenville, Mississippi, listening to romanticized accounts of how his great-great-grandpappy took one in the gut at the Battle of Vicksburg. From a well-to-do kid raised by non-Southern parents in the suburbs of Chicago and Los Angeles, it's downright revolting.

Less overtly offensive but equally obnoxious is Bush's I-never-put-much-stock-in-book-learnin' shtick: Doesn't follow the news. Doesn't pay attention to so-called experts and other pointy-headed types. Doesn't bother himself with policy details. Goes with his gut. Blah blah blah....

It's one thing for some redneck raised around all that racist, ignorance-is-bliss nonsense to buy into it. It's quite another for some privileged twit from the West Coast to fall so in love with the cartoon image of Johnny Reb that he starts collecting Confederate memorabilia and dipping Copenhagen just to feel macho.... Bush and Allen... just want to play the role without any of the hard luck.... A phony good ole boy is an unlikable oxymoron. If politics were just, the Georges' hick affectations would have long-ago rendered both men about as popular as vegetarians at a pig roast. As things stand, I have to content myself with seeing W.'s abysmal job performance sink his poll numbers--sorry you blew off 41's Iraq advice yet, 43?--and watching as Allen struggles to wipe the macaca off his face.

Hoist by Their Own Petard?

Greg Sargent is smart, and says interesting things:

The Horse's Mouth: As pollster Andrew Kohut explains to the paper, there's a very interesting dynamic at play right now which is swamping the GOP's hopes for recovery. The GOP is a victim of its own success: Because the party has been successful at conflating Iraq and the war on terror, Kohut says, its efforts to talk about terrorism now are failing because they're getting overshadowed by the public's far more pressing concerns about the Iraq war. So the more Republicans talk about "terror," the more people are reminded of the disaster they've created for us in Iraq.

In a way, it's like the political equivalent of quicksand: The more the Republicans thrash around to extricate themselves from this morass, the deeper into it they sink.

--Greg Sargent

Finance I (Remedial) (Why Oh Why Can't We Have a Better Press Corps?)

A special Barrons edition.

Tyler Cowen did a bad thing in recommending Econospinning, by Gene Epstein:

Marginal Revolution: Econospinning: Imagine lengthy polemics against the use of numbers in the work of Paul Krugman (most of all), the Op-Ed page of The Wall Street Journal, Brad DeLong, Steve Levitt, and Barbara Ehrenreich, among others. Except the vehicle isn't the blogosphere, it is a book! This one is guaranteed to ruffle feathers...

I open the book at random and get page 143. The heading halfway down the page is "The Employment Report and the Bond Market." The text is:

...there is evidence that the employment report misinforms the bond market.... Once the [nonfarm payroll] number is announced at 8:30 AM [on the first Friday of each month], bond prices can react accordingly. But do they react the right way? The recent run-up in short term interest rates does not inspire confidence.

From June 30, 2004, to March 28, 2006, the Federal Reserve hiked the interest rate... 15 times in a row. The yield on the two-year Treasury note rose in response, from 2.64% on July 2, 2004... to 4.89% by April 2, 2006.... 22 employment reports [were] released over this period. How much credit can they be given for alerting the bond market to this 225 basis point rise in the two-year interest rate? No credit can be given at all....

[On] the 22 trading days on which these employment reports were released... the yield rose 11 times, fell in 9, and was flat the other two times...

Idiot. Fool. Must... calm down. Must... adjust medication doses. Must... remain calm. Must... explain things simply and clearly. Ah. I can feel the neurotransmitter balances change. That's better.


Gene Epstein, Economics Editor of Barrons, believes that the monthly "employment report misinforms the bond market" because during the period from mid-2004 to mid-2006 that the Federal Reserve was in a tightening cycle[1]--and thus that bond yields were rising--bond yields did not exhibit substantial jumps in the immediate aftermath of the release of the monthly employment report. Instead, about half the time bond yields jumped. About half the time bond yields fell.

But suppose that bond yields had jumped, regularly, on the day the employment report was released. What then? Then there would have been a lot of free money to be made: sell bonds the day before the employment report is released, buy them back after the release, and so make your fortune.

That kind of thing doesn't happen. Financial markets may not get asset prices right all the time, but they are very good at eliminating easy opportunities to make lots of money via simple trading strategies. Systematic, arbitragible moves in asset prices in one direction only (or predominantly) in response to the monthly flow of economic data simply do not happen, whether or not the statistic released is informative and useful.

The monthly employment reports from 2004 to 2006 did not provide signals that short- and medium-term bond yields were on a rising trend--everyone trading knew that. The monthly employment reports provided signals as to whether employment was rising faster than previously expected--in which case bond yields would rise because that meant the Federal Reserve would be likely to raise the federal funds rate faster than previously expected--or slower than previously expected--in which case bond yields would fall because that meant the Federal Reserve would be likely to raise the federal funds rate slower than previously expected.

You don't have to be a fundamentalist believer in efficient markets to know the following proposition:

About half the time the monthly employment report will be stronger than expected, and bond yields will rise; about half the time the monthly employment report will be weaker than expected, and bond yields will fall.

But it appears that you do have to be a lot smarter than and know more about Wall Street than the Economics Editor of Barrons.

Driving Forces Behind Rising Income Inequality: Tracking the Internet Debate

To a good neoclassical economist, the statement that the relative price of a factor of production--like the labor of the elite top 1% of America's wage and salary distribution--has risen is the same thing as the statement that the relative productivity of that factor of production has risen. But we need to distinguish between these statements in order to make sense of the ongoing argument between Andrew Samwick on the one hand and Paul Krugman and Mark Thoma on the other.

In a nutshell: Is the statement that there is a higher return to education today merely an assertion that the rich today earn more in relative terms than their counterparts in the past? Or is it also a statement that the rich today are more productive in relative terms than their counterparts in the past?

Andrew Samwick takes the first definition, and concludes that rising inequality is the result of a higher return to education. By his lights, he is clearly correct.

Paul Krugman and Mark Thoma take the second definition and conclude that that rising inequality is not primarily the result of a higher return to education but instead primarily the result of socio-political factors that have raised the relative price of what the rich and well-educated do. And they too have a strong case. Piketty and Saez's latest numbers estimate that top 13,000 American households have multiplied their relative real incomes nearly fivefold since the 1970s. Then they received some 0.6% of national income. Now they receive nearly 2.8% of national income--an average of $25 million each, compared to roughly $5 million each had the relative income distribution remained at its 1970s levels. What are the CEOs, CFOs, COOs, elite Hollywood entertainers, investment bankers, and the very highest levels of professionals doing differently now in their work lives that makes them, in relative terms, worth five times as much as their predecessors of a generation and a half ago?

Andrew Samwick writes:

Vox Baby: Paul Krugman on Inequality: Paul Krugman, a highly educated man, leaves himself out of his own column today in "Wages, Wealth, and Politics." The excerpt:

But [Treasury Secretary Paulson]... [argued] that rising inequality is mainly a story about rising wages for the highly educated. And he argued that nothing can be done about this trend, that “it is simply an economic reality, and it is neither fair nor useful to blame any political party.” History suggests otherwise...

[Samwick writes:] I'll even agree with [Krugman] about his (later) discussions of where Republican Eisenhower and Democrat Clinton fit in their respective eras. I'll even forgive him the seemingly obvious point that in the "New Gilded Age," the income gains do seem to be at the high end, refuting his critique of Paulson's first point (under the very reasonable assumption that the top 1 percent is on average "highly educated.")

What always puzzles me about Paul Krugman and his claims about inequality is why he doesn't seem to realize how silly he sounds... he is part of that top 1 percent... between his income from his university, his speaking engagements, his books, his columns, and his investments. Now, does Paul Krugman think that he was just a tool of the "New Gilded Age" politicos? Does he owe his income gains to the people he despises, those nasty Republicans and that ridiculously centrist Clinton? I'd like to know. I suspect that if you asked him why his income grew to the point where he's in the top 1 percent, he would give some long answer, the shorter version of which is that he's "highly educated" and he's not lazy.... [T]his explanation is... accurate. Krugman's about as highly educated as you can get. He's got plenty of skills and occasionally (though not here) a good argument. People like what he does and he gets paid for it. Good for him. But good for Secretary Paulson as well, since Paul Krugman's own experience supports both parts of Paulson's assertion.

Mark Thoma fires up his Paul Krugman emulation program and produces an answer that's very good. According to Mark, what Paul might say is:

I'm sure that I earn a lot more than James Tobin did (I use him as an example because of how modest his lifestyle was), but it's not because I'm a better economist; it's the system that has changed. And what I'm talking about is the system, not whether individuals have earned their places in it. Why is that so hard to understand?

Which leads Andrew Samwick to respond:

Vox Baby: Krugman on Paulson's Speech: Some readers, including Mark Thoma at Economist's View, misconstrued it as suggesting that if Krugman is in the top 1 percent, then he is being dishonest if he advocates policies that would reduce the income of the top 1 percent.... I am not calling Krugman dishonest. I am saying that his own experience should suggest to him how silly his argument is. Krugman begins by criticizing Treasury Secretary Paulson for "falsely implying that rising inequality is mainly a story about rising wages for the highly educated."... In order for Krugman to validate that criticism, he has to show us that "rising inequality is mainly a story about... something else." His choice for that something else is a thesis that "it matters a lot which political party, or more accurately, which political ideology rules Washington." So he's got to show us how the political ideology ruling Washington over the last 25 years has generated the following outcomes.... Here is what he says about that 25-year period:

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what's good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.... [I]t seems likely that government policies have played a big role in America's growing economic polarization -- not just easily measured policies like tax rates for the rich and the level of the minimum wage, but things like the shift in Labor Department policy from protection of worker rights to tacit support for union-busting....

He mentions the level of the minimum wage and the tacit support for union-busting. Let's just grant him that those are relevant for the 1 percent decline in real wages in manufacturing. But what is the mechanism for ideology driving outcomes in the top 1 percent?... [H]e cites no evidence to link the policies of the ruling political ideology to the income gains for the top 1 percent....

In the race between these two arguments, Paulson is way out in front of Krugman.... Krugman is a perfect example of someone whose real income is high because the returns to being educated are higher, not because the dominant political ideology has conspired to increase his earnings capacity in some pernicious way.... [T]o support Krugman's thesis rather than Paulson's, Mark would have to tell us how the dominant political ideology, rather than simply a higher return to education, has changed that system. That's the part where Krugman needs some real ghost-writing help.

For Samwick, the key thing is that people today are willing to pay Paul Krugman much more for what he does than they were willing to pay Jim Tobin for what he did--therefore Paul is richer because "the [income] returns to being educated are higher." For Paul, the key thing is that Jim Tobin was a better economist--was more productive--therefore Paul's riches cannot be the result of a higher productivity return to being educated.

Mark Thoma writes further:

Economist's View: The Debate over Inequality: Factors like top marginal income tax rates and social norms are connected to the political environment.... A lot of the change is driven.... [F]actors such as the New Deal's very large tax increases on the wealthy, both directly on income and indirectly on corporate profits are an important factor connected to the political environment at the time. It's an open question how much of the change in inequality that might explain by itself.

Unions are also worth taking seriously, with union membership nearly tripling to about a third of the workforce from the mid 1930s to the mid 1940s. This would affect all wages, not just those in sectors where unions are prevalent. The decline of unionization after the 70s is also a factor to consider, and there's a strong case to be made that this was made possible by a political environment that allowed union busting to occur. In any case, I don't think this is a settled question and I hope to follow up with more later...

Greg Mankiw says:

Greg Mankiw's Blog: Samwick on Krugman: I agree with Andrew that Paul is on shaky ground when trying to explain rising income inequality by politics (as opposed to technology, demography, and so on). Policy choices such as tax rates and minimum wages have not been the main causes of increasing inequality. At least that is the consensus, as I understand it, of the professional labor economists who study the issue...

Matthew Yglesias writes:

The Influence of Politics | TPMCafe: By Matthew Yglesias: Paul Krugman writes that politics matters for the income distribution, citing the long-term trends in inequality and their close correlation with long-term political trends. Brad DeLong says he thinks this is wrong, political changes can and do have a large impact on after-tax income distribution but the trends show up strongly in pre-tax income. "I can't see the mechanism by which changes in government policies bring about such huge swings in pre-tax income distribution."

I note for the edification of readers that one thing I've learned since arriving in DC is that a difference of opinion on this subject is a major divide within the progressive economic policy community. Most mainstream economists -- including most liberals -- agree with DeLong. Politics and policy affect the secondary distribution (after tax and transfer) and what happens with the primary distribution is just out there. Leftier economists tend to say this is mistaken.

I would side with Krugman on this. The trend data is too striking to be ignored. If you have a phenomenon and are having trouble identifying the cause, the thing to do is to try harder to identify the cause, not assert that the phenomenon isn't happening. But what is the cause? I can think of some plausible stories.

One thing to say is that tax policy impacts pre-tax distribution. When the top income tax rate was very high -- 70 percent or above -- this not only meant that rich people paid a lot in taxes, it also meant that there were a broad range of circumstances where it didn't necessarily make much sense to offer well-compensated people even more compensation. When you have a very progressive rate structure, an employer can get a lot more bang for his buck by directing his employment budget at middle-income people than at rich people. As you flatten the tax structure, this becomes less-and-less the case.

Similarly, very high tax rates encourage high income people to engage in more leisure and less work whereas right now we have the somewhat odd situation where highly compensated people tend to work more than do the moderately compensated. All this, I think, makes a big difference. Then the other factor to note is probably unionization which is much more impacted by policy decisions than people often seem to realize.

I opined:

The problem that I have with Paul Krugman's argument here is that the shifts in income inequality seem to me to be too big to be associated with anything the government does or did. Yes, Roosevelt and company were pushing in the right direction. Yes, Reagan, Gingrich, Bush, and company have been pushing in the wrong direction. But what they did and do affects (I think) after-tax income inequality much more than the before-tax income inequality numbers, and the before-tax numbers show the trends remarkably strongly. And I can't see the mechanism by which changes in government policies bring about such huge swings in pre-tax income distribution.

In response, in comments on my weblog, we have:

PaulC: I have no idea if Krugman is right, but it seems clear to me that the effect of government over long periods of time has the potential to be that significant. First off, small effects often have multipliers, particularly in winner take all scenarios. E.g., in an olympic race, the runners are all excellent to begin with, with the actual difference in ability often fractions of a percent. But only a few get medals; they have some chance at fame. The almost-as-goods are forced back to their day jobs. I'm not saying this is a good model for the economy, but it just illustrates how even a small advantage can pay off disproportionately.

Second, if you look at government policy over time and conclude they're not doing much, I wonder what you're using as a baseline. Maybe it's only a radical government that lets inequality get out of hand by doing nothing, while a moderate one would consider it a disaster that needs action. I think there are two premises (counter-premises) that need to be considered. One is the idea that growing inequality is socially disastrous (a normal, natural situation). The other is that private wealth in a growing economy can be tapped up to a limit for public good (is absolutely sacrosanct and should only be touched as sort of a necessary evil for supporting some minimal governmental duties--e.g. defense and law enforcement).

If you look at these premises and ask what a government would do in response to trends over a long period of time, I think it is reasonable to consider that a government with conservative premises would let inequality get out of hand, while one with liberal premises would be able to change the outcome using proportionately small changes assuming multipliers.

Or to recast my previous comment as a metaphor (with unfortunate allusions to the movie Being There, but so be it) suppose I am observing two gardens: one apparently well-maintained and productive, the other overgrown with crabgrass and dandelions. I might conclude that whatever happened isn't the gardener's doing. They both planted roughly the same crops, used the same fertilizers, watered them about as much. The plots were similar in size and received the same amount of sunshine. Whatever happened is the result of some mysterious external factors. When pressed, I might add that in fact the gardener with the better results did something else, spending a little extra time each day pulling out some plants. But they were just little seedlings, barely noticeable. If were to weigh the mass of weeds against those seedlings, it would be clear to any reasonable person that there is simply no way that those small actions could account for the difference between these gardens.

Graydon: The kicker is what kinds of corporate organization are permitted, not tax policy. The relentless push for de-regulation and for restructuring law related to markets has converted a machine intended to secure the general prosperity into a machine to concentrate wealth. (This started around 1970, with the creation of the formal obligation for a corporation to maximize monetary returns to the exclusion of all other considerations.) Organizational patterns and structures matter. Tax policy is not even vaguely important compared to, frex, what banks are allowed to do, and that is often both governmental and policy set by non-legislative means. The general conflation of wealth and virtue isn't any help, but the core problem is that profit is legally regarded as an excuse to do almost anything.

Blissex: «Inequality in America starts with COMPLACENCY at the bottom» Yes, this is something that has struck me quite a bit -- the ''let's bend over'' attitude of american workers. The Economist has commented that this is due to something like 60% of Usians thinking that they will become rich before their retire, even if class mobility is actually quite low.

«polls show 50% would prefer to be in a union -- but there is no inexorable groundswell because there is fundamental understanding of the desparate need.» Perhaps there is some, but then there is terror. Employers apparently rather dislike hiring ex-union workers. In the past unionization battles were sometimes fought with rifles and explosives (both sides) and like in other countries the Army was occasionally brought in to machine gun strikers. Perhaps it could not happen again, but now that there are national databases, and big employers routinely refuse to hire people who don't have a perfect credit history nationally, it is hard to be the one who sets the ball rolling.

«I very undramatically chalk it all up to an accident of culture: we have this belief in the self-reliant individual and no information to tell us otherwise (the great compression and decades of galloping productivity misinformed us otherwise).» I agree that this is a large part of the story; the business interests are marxian to a fault (they tend to believe in most of what Marx said, reserve labor army and all, just see it from the other side :->), and seem to have understood well the gramscian concept of ''cultural hegemony''. But it is also because the unions at some point in the 70s-80s became widely perceived, and correctly, as exploitative and brutal guilds in their own right, and the left as a bunch of dreaming crazies. There is a very nice book on the subject, "The right nation", by Micklethwait and Wooldridge. The left and the union have dug themselves in a deep hole... Almost as deep as the right and the chambers of commerce dug themselves in the 1930s.

«[ ... ] never picked up even a hint that, by now, 25% of workers are earning less than the minimum wage under Lyndon Johnson, $9.50/hour even though average income doubled since that same time -- or that middle and upper middle family income has grown half as fast as average income for over 30 years -- or that the missing growth has almost all gone to the top 1%.» Well, few people talk about these things because they know which side their bread is buttered on, and talking about these things means being classified as a promoter of the politics of envy or of class hatred.

«Not that I blame the top 1% for doing what they are supposed to do in a capitalist economy: bargaining hard for the best deal.» Ah you see class warfare is when the bottom 99% want a bigger slice of the pie, but when it is the 1% doubling theirs that's justly rewarding higher productivity. :-)

«The solution is for someone to alert the bottom to the money they are missing out on and on how easily they could recoup it by modernizing labor organizing legislation and then get out of their way. All so simple if somebody would just tell us.» But that would require going up against vested interests for the sake of a few dozen million poor suckers. :-) To give you an idea of how dire the intellectual and practical situation is, some unions are trying to organize day laborers, but are afraid that their members would complain, which is beyond moronic: «However, Jerry Hunter, former general council for the National Labor Relations Board, said unionized construction workers might balk if their unions recruit illegal immigrants. "Members could start asking themselves, 'Whose interests are you representing?' " Hunter said.»

«Small changes for example in the climate to make hostile and asset stripping takeovers easier» Perhaps I have mentioned this already, but I think Milken and Drexel have had a far greater influence that I thought. When debt fueled hostile takeovers were rare, management had long term careers and their self interests were to pursue corporate empire building. Now that it is easy and cheap to fund with debt a takeover, management self interests are to make as much money as possible as possible in as short time as possible. Their profile has switched from a long term to a short term sharecropper, and now they work the assets they are temporarily leasing a lot harder. Which is not in the interests of shareholders either. But the incentive is there. While Milken was the enabler of the asset stripping fashion, perhaps they were not the ultimate cause; I suspect the increase in takeovers was largely based on reductions in capital gains tax, which also gave an incentive to corporations to stop distributing dividends and gross up the capital value of the company, via ''virtual'' earnings.

Robert Waldmann: I think prevailing ideology has direct effects in addition to affecting public policy. Heartened by the fact that you think you have discovered an intelligent sociologist (who is in fact a physicist) I'd say that social norms are critical, and that firms have to respect their workers perceptions of what is fair. It is no longer fatal to a firm for the top 5 officers to have incomes that you and I consider obscene. Thus such firms are not crippled by the anger of their other employees. More generally I think the ideas that greed is OK and that grabbing lots of money demonstrates intelligence not corruption have become stronger resulting in increased inequality. In a word Akerlof.

And Paul Krugman, in email, promises more:

There's actually a lot more behind this than I could put in the Times; it will ultimately be a chapter in my next book...

Falling value of the minimum wage. Shift in the personnel at the National Labor Relations Board and the role of that shift in the decline of unions. Loosening up on the regime that regulates Wall Street and the consequent shift from the Berle-Means technostructure corporation to the modern takeover game, plus institutional corruption via IPOs and compensation subcommittees of boards of directors. Declining marginal tax rates on the rich making it less unreasonable for your CEO to demand compensation in cash rather than in a fancy executive dining room. Trade. Immigration--which has a powerful effect on the American income distribution even if it does little to shift the income distribution among the native born.

How much bang can these politically-driven changes have? And how much is the politics the result rather than the cause of rising inequality? And what is the role of the factors identified by McCarty, Poole, and Rosenthal's Polarized America in all this?

I'm skeptical--I think it's more likely than not that politics are a reinforcing factor rather than the driving force--the moving crest of the tsunami and the froth on top of that rather than the originating earthquake, which I would see as probably in society and technology--but it's an open question, and now I have another reason to eagerly look forward to Paul Krugman's next book.

UPDATE: Ezra Klein says:

Ezra Klein: Whoi Is To Blame For Inequality?: There's a fun argument rushing through some blogs today sparked by a Paul Krugman column on the government's impact on inequality. Krugman argues that the correlation between conservative and progressive political periods and rising or lowering inequality is too powerful to ignore. "it seems likely," he writes, "that government policies have played a big role in America’s growing economic polarization —- not just easily measured policies like tax rates for the rich and the level of the minimum wage, but things like the shift in Labor Department policy from protection of worker rights to tacit support for union-busting....

Now, the problem Paul and Matt [Yglesias] are having is that nothing the government actually does looks able to generate such wild swings in wealth distribution. That's why Brad won't buy their argument, though he doesn't provide an accounting of what does account for the shifts.

Seems to me we have a causal problem here. Politics, after all, tends to follow societal trends, not the other way around.... [B]ecause we can see which party controlled Congress easier than we can track societal attitudes, we tend to blame the shifts on political changes without knowing exactly why.

That, of course, is not to say that there's nothing the government does. Whether tax rates encourage inequality, they can certainly discourage it, and, for a very long time, did so.... Until the Reagan era, the very richest would see the top fractions of their incomes taxed at rates of 70 (and, at times, 90) percent. That exerted a fierce check on how rich the very richest could get....

[G]overnment is far more effective as a check on inequality than as an accelerant.... What government can do is tax and redistirubte in such a way that growth is shared equally across society. During conservative moments, it doesn't even make an effort to do that, and society is the worse for it.

Time to Declare Victory and Go Home?

Time for the Good Guys to declare victory in the Connecticut senate race, that is.

Six months ago it looked like 2007 would see a senator from Connecticut who would support Donald Rumsfeld and the other creeps, and accuse fellow Democrats who criticized Bush in Iraq of seeking to "undermine the president's credibility," and that "we undermine the president's credibility at our nation's peril."

Now--no matter who wins the Connecticut senate race in November--we will have a shrill critic of George W. Bush and his Iraq policy:

Lieberman calls for Rumsfeld to quit - Yahoo! News: "With all respect to Don Rumsfeld... we would benefit from new leadership to work with our military in Iraq," [Lieberman] said on CBS's "Face the Nation." Lieberman said the Bush administration should have sent more troops into Iraq "to secure the country."

"We had a naive vision that the Iraqis were going to embrace us and then go on and live happily ever after."... Lieberman accused Lamont of distorting his stance on Iraq. "He made me into a cheerleader for George Bush and everything that's happened.... I've been very critical over the years... about the failure to send enough American troops to secure the country, about the absence of adequate plans and preparation to deal with post-Saddam Iraq..."

That is a big victory.

Now don't get me wrong. Ned Lamont would, I think, make a much better senator than Joe Lieberman. Whether you think of Lieberman's ghoulish necrophilia for Terry Schiavo, his say-one-thing-and-do-another "opposition" to the bankruptcy bill and to Alito, his carrying of Bush's water on Social Security, his eagerness to block attempts to make corporate accounts more accurate--there are a lot of reasons besides Iraq to judge that Joe Lieberman is a very, very low quality Democratic senator.

But the Lieberman-Mark-II we are offered today is a vast improvement over the Lieberman-Mark-I of six months ago. That is a big victory. That will remain a victory even if Lamont fails to get his just reward for his political entrepreneurship, and Lieberman eeks out a victory in November.

A Modest Proposal from Charlie Stross...

It will make memorizing the planets easier:

Charlie's Diary: The new solar system: Last week, the International Astronomical Union began work on a rather important counting-angels-on-the-head-of-a-pin exercise: defining precisely which bodies orbiting our sun qualify for the appellation of "planet"....

We all know that the only real planets -- the big ones that accreted from the solar disk right at the beginning -- are Jupiter, Saturn, Nepture and Uranus. They're self-accreting bodies that aren't massive enough to undergo fusion and that formed in orbit around a star. OK? That's a planet.

Naturally you're biased: you live on Earth after all. But I have to tell you, these days we have this theory called the heliocentric model that holds that Earth isn't the centre of the universe. Guess what? Earth isn't a real planet, either. It's just a ball of rocky left-overs that didn't get its fair share of gas when the accretion disk was still swirling. Indeed, the same goes for Mars, Venus, and Mercury. These tiny rocks (Earth, the largest, is barely a thousandth the mass of Jupiter) orbit in the wrong damn place, far to close to their primary star to have any hope of hanging onto a volatile envelope of hydrogen and a bit of helium. In fact, I think it's about time the IAU bit the bullet and admitted that these dwarfish rocky cores are just that, and introduced a new category, "failed planetary nuclei", to define the rocky Earthlike bodies of the inner solar system.

Given that the "Plutonoids" are believed to be mostly condensed gassy stuff, we can (subject to confirmation) then redesignate them as "failed planetary atmosphere fodder". The asteroids and small KBOs can then be allocated to one group or the other, or a fourth, catchment category: "irritating little s---". And the rationalization of the solar system is done.

It'll be so much easier to teach kids the names of the planets when we've pruned them back to four!

Hoisted from Comments: Robert Waldmann on "When Did the Recession of 2001 Begin? Do We Care?"

He writes:

Brad DeLong's Semi-Daily Journal: When Did the Recession of 2001 Begin? Do We Care?: Reminds me of the best abstract in the history of economics:

Paper Title: "Unit Roots in GNP: Do we Know and Should we Care?"

Abstract: No and probably not.

Authors (sue me for forgetting your names) [Larry Christiano and Marty Eichenbaum].

I think we can agree that an economic downturn was inevitable by Jan 20 2001 and indeed by November 2 2000 so it was not George Bush's fault. We can also agree that the concept of "the date a recession began" is a bit metaphysical and debate is silly.

Most importantly, I think that we can all agree that the CEA has no business talking about business cycle timing. The issue is politically important and can't be made mechanical so it is essential that political appointees not be allowed to participate in the debate. This is not because the question is really important and has nothing to do with the integrity of this or that political appointee.

There are many equally useful ways of timing business cycles. There is one way which is much worse than all the others which is to allow politicians to decide dates so as to blame other politicians. Even if Mankiw had good reason to think that the recession began in 2000, out of respect for the valuable principle of non-partisan business cycle timing, he should have kept his mouth shut so long as he was CEA chairman.

I am more enthusiastic about dating business cycles than Robert is. At a very impressionable age--I was nineteen at the time--Marty Feldstein taught me Edmond Malinvaud's (1989) Theory of Unemployment Reconsidered (New York: John Wiley & Sons: 0470268832). Ever since then I have firmly believed that modeling the macroeconomy through a set of linear equations has to be the wrong road: that the economy is a qualitatively different animal when employment is shrinking than when employment is growing and there are still unemployed workers eager to work at prevailing wages, and yet a different animal again when the economy is growing and there is "full employment." I think recession begin and end dates are important things to understand when they are used as markers for the phase transitions the macroeconomy undergoes. (Of course, the NBER's Business Cycle Dating Committee doesn't think about recessions and expansions in these terms--hence someday I want to take over the NBER BCDC and restore it to rationality.)

But Robert is right: recession begin and end dates are stupid things to think about when they are used to assign blame to politicians. Blame Hoover for his inadequate response to the Great Depression. (Blame Roosevelt too, but his response was much less inadequate.) Blame George W. Bush not for the state of the macroeconomy during his tenure, but for his inept policies--and for his attempts to convince the press that everything is fine.

The Primacy of Politics for Income Distribution?

The problem that I have with Paul Krugman's argument here is that the shifts in income inequality seem to me to be too big to be associated with anything the government does or did. Yes, Roosevelt and company were pushing in the right direction. Yes, Reagan, Gingrich, Bush, and company have been pushing in the wrong direction. But what they did and do affects (I think) after-tax income inequality much more than the before-tax income inequality numbers, and the before-tax numbers show the trends remarkably strongly. And I can't see the mechanism by which changes in government policies bring about such huge swings in pre-tax income distribution.

Wages, Wealth and Politics - New York Times: By PAUL KRUGMAN: Recently, Henry Paulson, the Treasury secretary, acknowledged that economic inequality is rising in America. In a break with previous administration pronouncements, he also conceded that this might be cause for concern. But he quickly reverted to form, falsely implying that rising inequality is mainly a story about rising wages for the highly educated. And he argued that nothing can be done about this trend, that "it is simply an economic reality, and it is neither fair nor useful to blame any political party."

History suggests otherwise. I've been studying the long-term history of inequality in the United States. And it's hard to avoid the sense that it matters a lot which political party, or more accurately, which political ideology rules Washington. Since the 1920's there have been four eras of American inequality:

  • The Great Compression, 1929-1947: The birth of middle-class America....
  • The Postwar Boom, 1947-1973: An era of widely shared growth....
  • Stagflation, 1973-1980: Everyone lost ground....
  • The New Gilded Age, 1980-?: Big gains at the very top, stagnation below. Between 1980 and 2004, real wages in manufacturing fell 1 percent, while the real income of the richest 1 percent -- people with incomes of more than $277,000 in 2004 %u2014 rose 135 percent.

What's noticeable is that except during stagflation, when virtually all Americans were hurt by a tenfold increase in oil prices, what happened in each era was what the dominant political tendency of that era wanted to happen. Franklin Roosevelt favored the interests of workers while declaring of plutocrats who considered him a class traitor, "I welcome their hatred." Sure enough, under the New Deal wages surged while the rich lost ground.

What followed was an era of bipartisanship and political moderation; Dwight Eisenhower said of those who wanted to roll back the New Deal, "Their number is negligible, and they are stupid." Sure enough, it was also an era of equable growth.

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what's good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.... Bill Clinton was president for eight years. But for six of those years Congress was controlled by hard-line right-wingers. Moreover, in practice Mr. Clinton governed well to the right of both Eisenhower and Nixon.

Now, this chronology doesn't prove that politics drives changes in inequality. There were certainly other factors at work, including technological change, globalization and immigration.... But it seems likely that government policies have played a big role.... And if that's true, it matters a lot which party is in power -- and more important, which ideology...

Why Oh Why Are We Ruled by This Idiot?

Dan Froomkin watches Tony Snow try to maintain the integrity of the bubble:

Trying to Spin the Truth Away: By Dan Froomkin: Alarmed at a brief dribble of actual un-spun news from inside the White House, spokesman Tony Snow yesterday tried his darndest to discredit it. The dribble emerged courtesy of four scholars invited to talk with President Bush about Iraq on Monday. None of them substantively disagreed with Bush's policies... but they did talk to New York Times reporters afterwards about where the president seemed to be coming from.

As a result, Thom Shanker and Mark Mazzetti wrote in the Times yesterday: "President Bush made clear in a private meeting this week that he was concerned about the lack of progress in Iraq and frustrated that the new Iraqi government -- and the Iraqi people -- had not shown greater public support for the American mission, participants in the meeting said Tuesday. . . ." [T]he president expressed frustration that Iraqis had not come to appreciate the sacrifices the United States had made in Iraq, and was puzzled as to how a recent anti-American rally in support of Hezbollah in Baghdad could draw such a large crowd."

A petulant, dissatisfied president is of course not part of the approved White House narrative on Iraq. As a result, Snow came out swinging at yesterday's press briefing:

I have spoken with the notetaker in the meeting, I was in the meeting, I've talked to others in the meeting and I've talked to all four scholars today, and all, to a person, take exception to a verb or variations of that verb that appear a number of times at the top of the piece, which is that the President is 'frustrated.'... All the participants said that that did not reflect the meeting they attended.

Bush doesn't get frustrated, Snow said. The president believes that

when you're facing a situation, you don't sit around and get frustrated. You figure out how to get the job done. And I've said it many times, and I'll say it because it's true: The president is somebody who's intensely practical about these things and not somebody who sits around and goes, 'Nnnnyoo!'"...

But here's Snow's problem: The New York Times story is entirely believable. Snow may not want to call Bush frustrated -- but it's almost impossible to imagine that the president isn't at least a little displeased that things in Iraq aren't working out exactly how he'd hoped. And furthermore, Bush has -- privately, of course -- made this particular, pouty frustration known before. As columnist Sidney Blumenthal points out in Salon today: "Bush's demand for expressions of gratitude from the Iraqis is not a new one. In his memoir, L. Paul Bremer III, head of the ill-fated Coalition Provisional Authority, records that above all other issues Bush stressed the need for an Iraqi government to declare its thanks."

Peter W. Galbraith has more in his article on Bremer's book for the New York Review of Books: Bremer "had lunch with the President before leaving for Baghdad -- a meeting joined by the Vice President and the national security team -- but no decision seems to have been made on any of the major issues concerning Iraq's future. Instead, Bremer got a blanket grant of authority that he clearly enjoyed exercising. The President's directions seem to have been limited to such slogans as 'we're not going to fail' and 'pace yourself, Jerry.' In Bremer's account, the President was seriously interested in one issue: whether the leaders of the government that followed the CPA would publicly thank the United States. . . .

Bush had only one demand: 'It's important to have someone who's willing to stand up and thank the American people for their sacrifice in liberating Iraq.' According to Bremer, he came back to this single point three times in the same meeting. Similarly, Ghazi al-Yawar, an obscure Sunni Arab businessman, became Bush's candidate for president of Iraq's interim government because, as Bremer reports, Bush had 'been favorably impressed with his open thanks to the Coalition.'

HIstory Unfolding: The Lebanon War

My friend Mike Levitin had an amazing intellectual experience his first semester at Harvard because he found himself in a freshman seminar on the origins of World War I taught by David Kaiser.

Here David Kaiser discusses the war in Lebanon:

HIstory Unfolding: The Lebanon War: Friday, August 18, 2006: Last week I decided not to discuss the newly agreed cease-fire in Lebanon because I really didn’t know what to think about it. Now certain things have become extremely clear. The cease-fire represented an almost complete cave-in on the part of the United States and, as it turns out, an admission that we had no means of reaching our objectives of breaking Hezbollah’s power. During the week both President Bush and Secretary Rice tried to put a positive spin on matters... it is very hard to tell whether they are once again fooling themselves or whether they have something more up their sleeve.

There are two possible explanations of what happened. Either State Department officials got through to their boss, who in turn got through to the White House, that the American position in the Arab world would collapse completely if the fighting continued much longer, or else the Israelis decided that further indecisive conflict with 100 rockets falling in Israel every day would not be worth its cost. And thus, last Friday and Saturday, Americans at the UN agreed to a cease-fire that did not include the return of the captured Israeli soldiers, did not demand Hezbollah’s disarmament, and did not provide for an international force with coercive powers. Things have become much clearer this week, as the Lebanese Army has made clear it has no intention of disarming Hezbollah and France has proposed to send nothing more than a token international force....

Rice began her interview by claiming that the international force was a crucial element of the agreement and claiming that it had the right to defend itself if Hezbollah stood in its way, but she quickly had to backtrack and admit that no one expected the international force physically to disarm Hezbollah. Instead, she postponed the day of reckoning.... In other words, although not enough of the world agreed with the United States to give us what we wanted, give them time, and they will.

The Post op-ed... concluded by addressing a troubling point. “Already, we hear Hezbollah trying to claim victory. But others, in Lebanon and across the region, are asking themselves what Hezbollah's extremism has really achieved: hundreds of thousands of people displaced from their homes. Houses and infrastructure destroyed. Hundreds of innocent lives lost. The blame of the world for causing this war.”

The problem, of course, is that virtually every report out of Lebanon says that that is not how the Lebanese people (much less the rest of the Arab world) see the situation at all. Hezbollah’s stature has grown because it fought the mighty Israeli Army to a standstill, and it will grow further as it takes the lead, with the help of Iranian money, in reconstruction....

The President’s statement, like so many of his statements on Iraq, insists that eventually the population of the Middle East will see things our way. He apparently believes this despite the lack of any evidence that they do, or that his policies are doing anything but making them more anti-American. More serious is his statement that the international force could help seal the Syrian-Lebanese border, which it has no intention, according to published reports, of doing.

Ironically, these statements begin to recognize, in a backhanded fashion, that the United States cannot accomplish all that much in the world without an international consensus behind it. That is why the foreign policy establishment has opposed the thrust of Bush Administration foreign policy from the beginning, and events are proving them right....

What does all this mean for the future? I see two possibilities. In the first, the United States government will continue to mouth the same platitudes for two more years while the situation in Iraq, Lebanon, and very likely elsewhere continues to deteriorate.... [T]he second possibility is that the President and Secretary of State take seriously the implication of their statements (and the President’s accidentally recorded remarks to Tony Blair) that the real problem is not Hezbollah, but Syria and Iran. That is an oversimplification. Hezbollah is an authentic popular movement that has won thousands of hearts and minds by meeting the needs of Shi’ite Muslims in various parts of the world, including in Lebanon. Syria’s presence in Lebanon, which we insisted on ending several years ago, probably kept a lid on Hezbollah—-the kind of subtlety that the present Administration simply cannot grasp. But the crisis has worked to Iran’s benefit, and a new crisis looms over its uranium enrichment program. Perhaps Seymour Hersh, who last week reported that the Administration viewed the Israeli invasion of Lebanon as a dry run for an American attack on Iran, is right, and the Administration regards an attempt to topple Iran from the air as the only real solution to the problems of the Middle East.

In an earlier report Hersh claimed that some Administration figures actually believe that bombing Iran would sour the people on their rulers—-a fantasy parallel to the one trumpeted by the President and Secretary of State last week, that the Lebanese people will realize that it was Hezbollah that brought so much destruction upon them.... [T]he logic of the Administration’s position is driving it inexorably towards another war, and so far, it has been quite consistent about how it sees the problems of the Middle East and what should be done about them—to eliminate those regimes that supposedly stand in the way of the spread of democracy.

A Data Point: Sociologists Smarter than Physicist...

Cosma Shalizi, sociologist, has a truly remarkable intellectual encounter with a... with an I'm-not-sure:

2006 08: On the Superiority of Sociology to String Theory: One of my friends in graduate school had an adviser with a gift for memorable expressions, at least for a theoretical physicist, especially when dismayed by some stupidity. Two of his put-downs which stuck with me were "I could go crazy tomorrow and find an appointment in the sociology department", and "I don't want to criticize you, but this is the way superstring people think".

I was never sure which was supposed to be worse, but now I know. Sociologists have many faults, but they do know better than to try explaining a variable with a constant, while string theorists evidently do not. (Via CapitalistImperialistPig, who has better things to write about.)

The fact that Prof. Motl reasons so badly here that he'd fail my freshman stats class is, of course, infinitely less offensive than fact that he's a bigot (of the "we must squarely face the harsh light of my pseudo-scientific prejudices" variety). But I can't help feeling -- hoping, even -- that the two sorts of idiocy are linked.

It Is Called "Diplomacy"

It is called "diplomacy." Matthew Yglesias explains why Jacques Chirac is a real president:

The Fakeout | TPMCafe: It seems to me that French diplomacy over the past couple of weeks has been fairly brilliant.

The war in Lebanon, as wars so often are, was the result of a serious double miscalculation. First, Hezbollah clearly failed to anticipate how Israel would respond to their cross-border raid. In turn, Israel clearly failed to anticipate how difficult it would be to mount a major anti-Hezbollah operation in Lebanon. And, indeed, the miscalculations were surely interlinked. Hezbollah correctly assessed how difficult it would be for Israel to mount a massive retaliation and therefore banked on Israel not retaliating massively.

The resulting war was a disaster for both sides. Israel really was significantly hurting Hezbollah. But it was doing so at a massive cost to itself in terms of lives lost and money spent. Hezbollah was bound to start running low on rockets and Israel running low on things to bomb. The situation was heading in the direction of grinding, endless guerilla conflict that would have been exceedingly costly and essentially hopeless from the Israeli perspective while also imperiling everything Hezbollah's built itself into in southern Lebanon.

Each side had reason to regret the conflict's existence. Both sides would have been made better off by calling "do over" and returning to the status quo ante. But neither side wanted to back down. Nor would it have been easy for either side to do so since the coalition Hezbollah/Syria/Iran team won't negotiate with the Israel/USA coalition and vice versa.

Enter France.

In essence, through two consecutive bait-and-switches -- first over the wording of a UN resolution, and second over the deployment of French troops to Lebanon -- France managed to get both parties to agree to a return to the status quo ante, which is better for both sides (that's why the tricks worked), but that neither side could admit to wanting. That's a pretty good result, especially considering that Chirac spent essentially none of France's resources achieving it.

Now, yes, it's true that it would be nice for some gigantic crew of foreigners to come into Lebanon, disarm Hezbollah, police the border, and create a giant, happy, stable democracy at peace with its neighbors. But nobody really knows how to pull this off. The internal political balance in Lebanon is extremely delicate. Nobody -- not Israel, not France, not the United States, not even Hezbollah's patrons -- was or is in a position to actually destroy or disarm Hezbollah absent a wider reform of all of Lebanon. The two most recent revisions to the Lebanese domestic scene -- the Taif Accords and the Cedar Revolution -- both deliberately involved wink-wink acceptance of Hezbollah's militia in exchange for Shiites not demanding the level of political power in Beirut that demographic realities would suggest. And -- with good reason -- nobody wants to open up the pandora's box of Lebanese consociationalism for further revisions.

The resulting situation -- which is the same as the pre-war situation -- is totally unsatisfactory and sub-optimal for all kinds of reasons. But it's the best resolution anyone really knows how to arrange for a very complicated situation that could (and, in the past, has) swiftly degenerated into horrifying bloodshed and anarchy.

More Republican Budgeting

Angry Bear watches the Republican fiscal policy clown show:

Angry Bear: Federal Default Regarding Medicare Checks: It seems that The Centers for Medicare & Medicaid Services have been ordered to delay certain payments until the next fiscal year begins:

The Centers for Medicare & Medicaid Services (CMS) has been instructed by the United States Congress in the Deficit Reduction Act (DRA) of 2005, to place a brief hold on Medicare payments for ALL claims (e.g., initial claims, adjustment claims, and Medicare Secondary Payer (MSP) claims) for the last 9 days of the Federal fiscal year, i.e., September 22, 2006 through September 30, 2006. Noridian Administrative Services (NAS) will release the held payments on Monday, October 2, 2006 including all payments that normally would be scheduled for release on that date.

Ford Sets Steep Cuts to Vehicle Production


Ford Sets Steep Cuts to Vehicle Production - New York Times: By MICHELINE MAYNARD: The Ford Motor Company said today that it would cut vehicle production by 21 percent in the fourth quarter, its steepest cut in more than two decades, because sales of its most important products, light trucks, are faltering.

Ford said it was abandoning its goal, reiterated as recently as April, of selling 900,000 pickup trucks a year in the United States. That could mean that the reign of Ford's F-series pickup truck as the best-selling vehicle in America could be coming to an end after nearly a quarter-century.

The company said the production cuts were necessary because high gasoline prices were eroding sales of light trucks and sport-utility vehicles, which account for two-thirds of Ford's sales, and that it could no longer hope for fuel prices to fall again.... "We know this decision will have a dramatic impact on our employees, as well as our suppliers," Mr. Ford wrote in the message. "This is, however, the right call for our customers, our dealers and our long-term future."

Ford Motor executives are trying to develop an expanded version of the North American turnaround plan that the company announced in January. The plan, called the Way Forward, called for the company to close 14 plants and eliminate 30,000 jobs by 2012 to streamline its operations and cut costs. Ford is now looking at deeper cuts, on a swifter timetable than the original plan. It is expected to announce the additional steps in September. General Motors is undergoing a similar effort to trim costs and turn around its North American vehicle business; it has said it will close all or part of a dozen factories and eliminate tens of thousands of jobs.

Ford's announcement today that it would cut fourth-quarter production by 168,000 vehicles will have an immediate impact on its bottom line. Auto companies count vehicles as sold when they are shipped from the factory to the dealer, not when they are ultimately purchased by the consumer. Under this system, cutting production directly reduces the manufacturer's potential for revenue and profits.

Ummm. No. A small correction. Ford's announcement today does not have "an immediate impact on its bottom line." It has an immediate impact on what Ford reports its bottom line to be--but not on the bottom line itself.

Yes, It Is Finally Time for "Snakes on a Plane"!

Flashboy writes:

Flashboy: Review: Snakes on a MOTHER------- PLANE : One of the greatest moments in the history of Newsnight Review (or The Late Review, as it was then) was when Tom Paulin somehow managed to find deep meaning in Speed. Somewhere around Sandra Bullock's line about "what did we do to this guy - did we attack his country?", Paulin convinced himself that it was actually an insightful look at individual alienation in a fracturing world, or something.

This would not have happened with Snakes On A Plane.

Snakes On A Plane tries to do nothing other than to mine every possible nugget of fun from that old, old story - what happens when a crime lord tries to kill a key witness by putting a load of (SPOILER) snakes on a plane. There is no social realism. There is no analysis of political agency or the innate prejudice that lurks beneath the facade of civilisation. The snakes are not symbols for anything, except for how awesome snakes are.

It is, thank f---, not Crash.

It knows what it is. It is a snakes on a plane movie. The director knows what it is, the cast know what it is, and Samuel L Jackson (throwing himself into it, super serious, like there's an Oscar for Best Reptile Antagonist) sure as hell knows what it is. The studio, of course, didn't know what it was for quite a long time, but finally they just threw their hands up and went with the flow.

It has the best snake/toilet scene I have ever witnessed....

It's funny, really funny; sometimes with an overt, campy winkiness, other times just through sheer, joyful oversnaking. And it's also a proper gory eat 'em up, with several guaranteed frights and plenty of gruesome herpetological face-twatting....

The non-Jackson cast are also enjoyable, manfully refusing to act like they're in Airplane! when many of them really actually are playing characters from Airplane!. It has Julianna Margulies from ER. It has Nancy from Peep Show as a vacuous bimbette with a dog. It has Champ Kind from Ron Burgundy playing the co-pilot, and playing him as Champ Kind from Ron Burgundy. Whammy!

Criticisms? Sure. Duh. The tone flaps about a bit, as I said.... But really, it hardly matters. It's an unashamed and unafraid out-and-out creature-feature, a righteous chunk of OTT snakesploitation that puts the snakes right where you want them. On a motherf------ plane. It's not quite at the level of a classic like Tremors - but with any luck, the sequel can improve on that. Snakes on a Plain: Snakes v Graboids. You know it would work.

Hippos on a Helicopter
Penguins in a Porsche
Yaks on a Yacht
Tyrannosaurs on a Train
Beetles on a Bus
Cougars on a Catamaran...

When Did the Recession of 2001 Begin? Do We Care?

Greg Mankiw writes:

Greg Mankiw's Blog: Business Cycle Dating: Back in 2004, Michael Mandel of Businessweek gave me grief for saying that the 2001 recession began in late 2000, rather than at the official NBER date of March 2001. My view (and the view of the nonpartisan CEA staff) was that the data were substantially revised after the NBER committee made their call, and the March 2001 date no longer seemed right in light of the revised data. Mandel's view was that I was a Republican stooge.

Recently, a friend emailed me a paper on dating business cycles by the prominent time-series econometrician Jim Hamilton and coauthor Marcelle Chauvet. If you look at their Table 6 (page 53), you can find their estimated date for the start of the recession: September 2000.... I am happy to welcome Jim Hamilton into the Republican stooge club.

Menzie Chinn comments:

Econbrowser: The 2001 recession revisited: In a recent post, Greg Mankiw cites Hamilton and Chauvet in support of his view that a good argument could be made that the recession of 2001 actually began in 2000.... As some readers may recall, the 2004 Economic Report of the President contained this box, which states:

The National Bureau of Economic Research (NBER) uses a variety of economic data to determine the dates of business-cycle peaks and troughs.... [T]he four data series that the NBER used to determine the timing of the recession have been revised.... Real personal income less transfers... peaked in October 2000. Nonfarm payroll employment... peaked in February 2001. Industrial production['s] peak came even earlier, in June 2000. Manufacturing and trade sales... the most recent data show a peak in June 2000.... [M]onthly GDP reached a high point in February 2001....

The median date of the peak for the five series discussed here is October 2000....

First let me make the observation that while Mankiw prefers the multivariate Markov Switching results in Table 6 of Hamilton-Chauvet, it is by no means the only set of estimates in the paper. Table 8, using the recursive estimation methodology indicates a March 2001 recession date....

I refer first to what the NBER Business Cycle Committee states are the variables of importance....

Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity.... The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process....

So, while I think reasonable people can disagree on the starting point, for me, a revisiting of the data tells me the recession of 2001 took place in... 2001.

When Neoconservatives Attack / Home UK / UK - The intellectuals have taken over the asylum: By Jurek Martin: I began to realise that the American neo-conservative movement had become truly unhinged when a columnist I normally respect equated an ideologue I do not with Winston Churchill. The writer was David Brooks in the New York Times and his Churchillian doppelgänger was William Kristol, who sees existential threats to America everywhere and now believes bombing Iran is perfectly all right.... If Kristol was Churchill, he wrote, George Will, the prim columnist who now doubts regions of the world can be transformed on an American whim, had to be Burke....

The arrogance that makes these comparisons possible is actually quite disturbing.... It is not clear to me that Kristol, living in his salon bubble and TV studios, has ever seen the world other than as he thinks it should be.... Others of his ilk, Robert Kagan, Charles Krauthammer et al, and those not of the neo-con persuasion, like the sainted Thomas Friedman, have also taken refuge in blaming incompetent execution by the Bush administration rather than questioning the advice they so freely gave it. But their predictions deserve to be thrown back at them; such as that democracy in Iraq would cause countries like Syria to fall like “ripe fruit from low hanging branches” into the democratic camp and that the “Arab street” would soon be singing “The Star Spangled Banner”. Neither has actually happened. Nor have umpteen “historic moments” in Iraq turned it into the freely forecast democratic land of milk and honey. Afghanistan is not going very well, either.

I have some knowledge of intellectuals because I am married to the genuine article. She sees things – concepts, ideas, policies etc – long before I do and can. But she remains rooted in the real world. And she is eternally ready to admit that she might have got something wrong. I do think authentic intellectuals have an important advisory role to play in government but, as a general rule, should not be allowed within a country mile of actual policymaking, especially in matters of war and peace....

Meanwhile, I think I will emulate Churchill in the only way I can – with a fat cigar and a large slug of brandy. Then I’ll read a James Lee Burke. They may not be intellectual but they can hurt only my lungs, liver and mind.

Jacob Weisberg Is the New Andrew Sullivan (This Is So Not a Compliment Department)

Remember Andrew Sullivan back in his salad days, busily prostituting himself to George W. Bush as a member in good standing of the circular firing squad of flying attack monkeys?

Bush will not do a Clinton. This will not be a surgical strike. It will not be a gesture.... [T]he neglect of the military under Bill Clinton... must now not merely be ended but reversed.... Bush has already assembled the ideal team for such a task: Powell for the diplomatic dance, Rumsfeld for the deep reforms he will now have the opportunity to enact, Cheney as his most trusted aide in what has become a war cabinet. The middle part of the country - the great red zone that voted for Bush - is clearly ready for war. The decadent left in its enclaves on the coasts is not dead - and may well mount a fifth column...

Well, today the new Jacob Weisberg turns out to be nothing but the old Andrew Sullivan:

Why Lamont's victory spells Democratic disaster. By Jacob Weisberg: Lieberman's opponents are not entirely wrong about the war. The invasion of Iraq was, in ways that have since become hard to dispute, a terrible mistake. There were no weapons of mass destruction to be dismantled, we had no plan for occupying the country, and our troops remain there only to prevent the civil war we unleashed from turning into a bigger and more horrific civil war. Just about everyone now agrees that the sooner we find a way to withdraw, the better for us and for the Iraqis. The problem for the Democrats is that the anti-Lieberman insurgents go far beyond simply opposing Bush's faulty rationale for the war, his dishonest argumentation for it, and his incompetent execution of it. Many of them appear not to take the wider, global battle against Islamic fanaticism seriously. They see Iraq purely as a symptom of a cynical and politicized right-wing response to Sept. 11, as opposed to a tragic misstep in a bigger conflict. Substantively, this view indicates a fundamental misapprehension of the problem of terrorism. Politically, it points the way to perpetual Democratic defeat...

Not only do I not know of many, I do not know of a single anti-Lieberman insurgent of note within the Democratic Party who does not take the global battle against terror and mass-murder by religious fanatics deadly seriously. I know of no anti-Lieberman insurgent of note within the Democratic Party who appears not to take the global battle against terror and mass-murder by religious fanatics deadly seriously.

Jason Furman on Dynamic Scoring and the High Cost of the Bush Tax Cuts

Jason Furman on the high cost of tax cuts:

More proof that tax cuts aren't free. By Jason Furman: There has long been a conflict between responsible conservative economists who make carefully hedged claims about the relatively modest economic effects of tax cuts and Laffer curve lovers, who think that tax cuts always spur enormous gains. And lately, emboldened by the large jump in tax revenues in 2005 and 2006 (and conveniently overlooking the nearly unprecedented three consecutive years of declining tax revenues that preceded it), Laffer disciples have widened their separation from mainstream economists into a chasm.

On one side of the divide is the supply-sider in chief, who recently abandoned six years of somewhat more cautious statements on the subject to proclaim that tax cuts really do raise revenues:

Some in Washington think the choice is between cutting taxes and cutting the deficit. This week's numbers show that this is a false choice. The economic growth fueled by tax relief has helped send tax revenues soaring.

On the other side are the intellectually rigorous, professional economists who sit across the street from the White House at the Treasury Department, who were tasked with carrying out Cheney's "dynamic analysis" of President Bush's proposal to make the tax cuts permanent. "An important feature of this model is that a permanent reduction in taxes, as compared to baseline, would lead to an unsustainable accumulation of debt," they write.

In place of a false choice of tax cuts magically paying for themselves and not costing anything, the Treasury offered a very real and painful one: The tax cuts need to be paid for by "either cutting future government spending or raising future taxes." And even if you take the path of cutting government programs--which is not the path the country is on today--Treasury found only minuscule economic effects from the tax cuts: a mere 0.7 percent increase in the size of the economy after many years... averaged over 20 years... instead of limping along at a mere 3 percent growth rate, the economy would charge ahead at a 3.04 percent growth rate.

Notably missing from the Treasury report was the variable of greatest public interest: revenues. Although Treasury's model almost certainly estimated the degree to which the added growth helped pay for the tax cuts, officials there appear to have chosen not to report the number. But some simple arithmetic can fill in this gap: About one in every five dollars of national output is collected by the federal government in taxes. If that same ratio applies to the output added by the economic effects of the tax cuts, then the added revenues produced by the increased economic growth would be enough to offset less than one-tenth of the official "static" estimate of the tax cuts' cost.

Furthermore, all these barely perceptible benefits rest on the assumption that starting in 2017, the tax cuts would be fully paid for with cuts of unprecedented depth in federal programs--totaling about a 50 percent reduction in all domestic spending other than entitlements like Social Security and Medicare. If such cuts were not made--and not even President Bush has proposed making them--then the resulting deficits, debt, and eventual tax increases would eliminate even these modest economic benefits.

If we believe that spending cuts of this magnitude are unrealistic, then the Treasury economists have another important finding: The sooner we get rid of the tax cuts, the better it will be for the economy. Specifically, they found that national output would be 0.9 percent higher in the long run if we let them expire in 2010 rather than allowing them to continue along, forcing us to face even bigger tax increases in the future to make up for all of the added deficits and debt.

The Treasury report probably won't change the minds of supply-siders, coming as it does on top of 25 years of similar findings by economists. But it should help convert Democrats into true believers in dynamic analysis.

Why Oh Why Are We Ruled by This Clown?

Josh Micah Marshall watches the clown show that is the Bush administration:

Talking Points Memo: by Joshua Micah Marshall: August 13, 2006 - August 19, 2006 Archives: Puzzled (from the NYT) ...

More generally, the participants said, the president expressed frustration that Iraqis had not come to appreciate the sacrifices the United States had made in Iraq, and was puzzled as to how a recent anti-American rally in support of Hezbollah in Baghdad could draw such a large crowd. "I do think he was frustrated about why 10,000 Shiites would go into the streets and demonstrate against the United States," said another person who attended.

It's like we just need to be in lock down. How little [additional] damage can we get by with in the next two and a half years?

Impeach George W. Bush. Impeach him now.

Physiological Consequences of Economic Growth

Physiological consequences of economic growth:

So Big and Healthy Grandpa Wouldn't Even Know You - New York Times: By GINA KOLATA: Valentin Keller enlisted in an all-German unit of the Union Army in Hamilton, Ohio, in 1862. He was 26, a small, slender man, 5 feet 4 inches tall, who had just become a naturalized citizen. He listed his occupation as tailor. A year later, Keller was honorably discharged, sick and broken. He had a lung ailment and was so crippled from arthritis in his hips that he could barely walk. His pension record tells of his suffering. “His rheumatism is so that he is unable to walk without the aid of crutches and then only with great pain,” it says. His lungs and his joints never got better, and Keller never worked again.

He died at age 41 of “dropsy,” which probably meant that he had congestive heart failure, a condition not associated with his time in the Army. His 39-year-old wife, Otilia, died a month before him of what her death certificate said was “exhaustion.”

People of Valentin Keller’s era, like those before and after them, expected to develop chronic diseases by their 40’s or 50’s. Keller’s descendants had lung problems, they had heart problems, they had liver problems. They died in their 50’s or 60’s. Now, though, life has changed. The family’s baby boomers are reaching middle age and beyond and are doing fine. “I feel good,” says Keller’s great-great-great-grandson Craig Keller. At 45, Mr. Keller says he has no health problems, nor does his 45-year-old wife, Sandy. The Keller family illustrates what may prove to be one of the most striking shifts in human existence — a change from small, relatively weak and sickly people to humans who are so big and robust that their ancestors seem almost unrecognizable.

New research from around the world has begun to reveal a picture of humans today that is so different from what it was in the past that scientists say they are startled.... The biggest surprise emerging from the new studies is that many chronic ailments like heart disease, lung disease and arthritis are occurring an average of 10 to 25 years later than they used to.... Human bodies are simply not breaking down the way they did before.... The proposed reasons are as unexpected as the changes themselves. Improved medical care is only part of the explanation; studies suggest that the effects seem to have been set in motion by events early in life, even in the womb, that show up in middle and old age....

In 1900, 13 percent of people who were 65 could expect to see 85. Now, nearly half of 65-year-olds can expect to live that long.... American men, for example, are nearly 3 inches taller than they were 100 years ago and about 50 pounds heavier.... Today’s middle-aged people are the first generation to grow up with childhood vaccines and with antibiotics. Early life for them was much better than it was for their parents, whose early life, in turn, was much better than it was for their parents....

Scientists used to say that the reason people are living so long these days is that medicine is keeping them alive.... But... Fogel... 50,000 Union Army veterans... focused on common diseases that are diagnosed in pretty much the same way now as they were in the last century. So they looked at ailments like arthritis, back pain and various kinds of heart disease that can be detected by listening to the heart.... Fogel and his colleagues looked at health throughout life.... [A]lmost everyone of the Civil War generation was plagued by life-sapping illnesses, suffering for decades.... [T]he Union Army was not very picky. “Incontinence of urine alone is not grounds for dismissal,” said Dora Costa, an M.I.T. economist who works with Dr. Fogel, quoting from the regulations. A man who was blind in his right eye was disqualified from serving because that was his musket eye. But, Dr. Costa said, “blindness in the left eye was O.K.”....

Dr. Almond.... The flu pandemic arrived in the United States in October 1918 and was gone by January 1919, afflicting a third of the pregnant women in the United States. What happened to their children? Dr. Almond asked. He compared two populations: those whose mothers were pregnant during the flu epidemic and those whose mothers were pregnant shortly before or shortly after the epidemic.... [C]hildren of women who were pregnant during the influenza epidemic had more illness, especially diabetes, for which the incidence was 20 percent higher by age 61. They also got less education — they were 15 percent less likely to graduate from high school. The men’s incomes were 5 percent to 7 percent lower, and the families were more likely to receive public assistance.

The effects, Dr. Almond said, occurred in whites and nonwhites, in rich and poor, in men and women. He convinced himself, he said, that there was something to the Barker hypothesis...

Reading Around: 20060816

Worth reading: Daniel Davies and others reflect on his previous "not this war now" position on Iraq; Tom Friedman is shtrill; George Bush demonstrates his total ignorance of geography; the very strange John Lott further embarrasses himself; and a Republican calls an America of Indian descent a "macaque."

  1. Crooked Timber » » Anti Which War When?

    Anti Which War When? Posted by Daniel: Marc Mulholland makes a very good point and one that has to be frank left me stumped. Regarding the “Anti (this) War (now)” position, which I had hitherto believed was my own view on the Iraq War, the question i...

  2. Crooked Timber » » Anti Which War When?

    19—it is important to see why the war was the only one on offer, however. Why was Rumsfeld so enamored of the “lean” troop idea? I think this connects to the general politics of war in America. War that requires mass mobilization—such as the Vi...

  3. Roger That § Unqualified Offerings

    Roger That: Crooked Timber commenter Roger has a ne’er so well express’d moment as part of the discussion of Daniel Davies’ reconsideration of his “Anti-This War Now” position regarding Iraq. (He’s edging closer to Jim Henley’s Anti-Most W

  4. Economist's View: "We Are On a Losing Trajectory in Iraq"

    "We Are On a Losing Trajectory in Iraq" Thomas Friedman has some questions for Dick Cheney: Big Talk, Little Will. by Thomas L. Friedman, Commentary, NY Times: The defeat of Senator Joe Lieberman by the upstart antiwar Democrat Ned Lamont has sparke...


    (Via Juan Cole) Link: QUESTION: How can the international force, or the United States if necessary, prevent Iran from resupplying Hezbollah? BUSH: The first step is -- and part of the mand...

  6. The Shootout | Articles | Chicago magazine

    The Shootout A former U. of C. colleague has sued Steven D. Levitt, coauthor of Freakonomics, for defamation in a case growing out of research on gun-control laws. by James L. Meriner. Levitt (above) is being sued by Lo

  7. Of Monkeys and Senators | TPMCafe

    Of Monkeys and Senators: By Matthew Yglesias | bio: For the record yes, obviously George Allen was trying to use a racial slur against S.R. Sidarth. The reason you might not think it was a slur is that the slur in question was terribly obscure. It's obscu...

Why Oh Why Can't We Have a Better Press Corps? (Wall Street Journal Editorial Page Edition)

Jim Hamilton reminds us why, as Roger Altman has said, the Wall Street Journal sells for twice as much when its editorial page is ripped out of it:

Econbrowser: Good and not-so-good reasons to disagree with Bernanke: Some of the reasons people have given for why the Fed should keep raising interest rates make sense to me, and some don't. I have to say that the line of reasoning from the Wall Street Journal takes the cake:

The Fed's Open Market Committee decided not to raise interest rates again -- not because inflation is contained but because it says the economy is slowing. Uh, oh. Here we go again, back to the era of the Phillips curve, the economic theory that postulates a trade-off between inflation and unemployment. We thought Paul Volcker and Alan Greenspan had buried that notion years ago. But apparently it lives on like Arthur Burns's ghost in the attic of the Fed, ready to inhabit a new Chairman who has inherited an inflation and is afraid that breaking it will send the economy into recession.

To me, there is a basic question here that can be settled without appeal to ideology or consultation with ghosts. Surely the relevant question for an objective observer is the following: if the unemployment rate goes up or the rate of growth of real GDP slows down, should that cause a rational person to anticipate a lower rate of inflation than you would have predicted in the absence of those changes?

Harvard Professor James Stock and Princeton Professor Mark Watson, two of the nation's most careful and respected economic researchers, conducted a very thorough investigation of how well different models succeeded for purposes of forecasting inflation in an article published in the Journal of Monetary Economics in 1999. They compared Phillips-Curve specifications based on measures of the level of real activity such as the unemployment rate or the growth rate of industrial production with alternatives that included 19 different interest rate measures, 12 different measures of the money supply, 21 different price or wage indexes, and a number of other variables. Here was their conclusion:

The major conclusion of this study is that the Phillips curve, interpreted broadly as a relation between current real economic activity and future inflation, produced the most reliable and accurate short-run forecasts of US price inflation across all of the models that we considered over the 1970-1996 period. This conclusion will come as no surprise to applied macroeconomic forecasters in business and government, where the Phillips curve plays a central role in short-run economic forecasting. The conclusion is also consistent with the recent academic literature on short-run economic forecasting...

Joshua Micah Marshall on the Weather in November

Joshua Micah Marshall thinks this November election will be a very big deal: Lieberman Lost the Old-fashioned Way -- Page 1: Many pundits ... are either being disingenuous or are caught in a time warp. Democrats are actually fairly united on the Iraq War in their opposition.... And though many senators are not as full-throated in their opposition as the base... you don't see... challenges... against other senators who aren't ready to bring the troops home....

Lieberman... seemed almost militantly indifferent to the disaster [in] Iraq... his passion about the war seemed reserved exclusively for those who questioned it rather than those who... botched the enterprise. His continual embrace of President Bush... was an insult to Democrats... Bush has governed as one of the most destructive Presidents in modern American history. It's almost as though Lieberman has gone out of his way to provoke and offend Democrats on every point possible.... Is it any wonder the guy got whacked in a party primary?...

[T]he Lieberman train wreck is also part of the unfolding story of the 2006 election cycle... gulf... between Washington and the country.... Lieberman... let himself live in the bubble of D.C. conventional wisdom.... [H]e was part of the delusion and denial that has sustained our enterprise in Iraq for the last three years.... A-List D.C. pundits were writing columns portraying Lieberman's possible defeat as some sort of cataclysmic event... as though voters choosing new representation were on a par with abolishing the constitution or condoning political violence. But those breathless plaints only showed how disconnected they are... the President's approval rating seldom gets out of the 30s. Congress is unpopular. Incumbents are unpopular. Voters prefer Democrats over Republicans by a margin of about 15%. When a once-popular, three-term senator gets bounced in a primary battle with a political unknown, it's a very big deal. Those numbers all add up to a political upheaval this November. The folks in D.C. see the numbers. But they haven't gotten their heads around what they mean. Joe was out of touch. And Washington D.C. is too.

They didn't see the Joe train wreck coming and they're not ready for what's coming next either.

British Right-Wing Thatcher Acolyte Max Hastings Is Shrill!

From Newshog:

NewsHog: "He who has one enemy will meet him everywhere": Max Hastings is a veteran British journalist who writes for the rightwing Daily Mail (that's Brit rightwing - a lot saner than the US rabid version) but also contributes a provocative op-ed column for the Guardian. Hastings is a colourful character and about as Tory as the come. That's why I was pleasantly surprised by his Guardian column today. It's comprehensive roasting of Bush's rhetoric of "either for us or against us" and belief in a worldwide Islamist conspiracy. You have to read it all, but here's a whet for your appetite:

George Bush sometimes sounds more like the Mahdi, preaching jihad against infidels, than the leader of a western democracy. In his regular radio address to the American people on Saturday he linked the British alleged aircraft plotters with Hizbullah in Lebanon, and these in turn with the insurgents in Iraq and Afghanistan.

All, said the president of the world's most powerful nation, share a "totalitarian ideology", and a desire to "establish a safe haven from which to attack free nations". Bush's remarks put me in mind of a proverb attributed to Ali ibn Abu Talib: "He who has a thousand friends has not a friend to spare, and he who has one enemy will meet him everywhere."

In the United States a disturbingly large minority of people - polls suggest around 40% - remain willing to accept Bush's assertions that Americans and their allies, which chiefly means the British, are faced with a single global conspiracy by Islamic fundamentalists to destroy our societies.

In less credulous Britain one could nowadays fit into an old-fashioned telephone box those who believe anything Bush or Tony Blair says about foreign policy. Many of us are consumed with frustration. We know that we face a real threat from Muslim fundamentalists, and that we are unlikely to begin to defeat this until we see it for what it is: something infinitely more complex, diffuse and nuanced than the US president wishes to suppose.

And more, as he cuts to the quick of the neocon's amateurish "framing" in pursuit of power rather than actual success in the "long war":

The madness of Bush's policy is that he has made a wilful choice to amalgamate the grossly irrational, totalitarian and homicidal objectives of al-Qaida with the just claims of Palestinians and grievances of Iraqis. His remarks on Saturday invite Muslims who sympathise with Hamas or reject Iraq's occupation or merely aspire to grow opium in Afghanistan to make common cause with Bin Laden.

If the United States insists upon regarding all Muslim opponents of its foreign policies as a homogeneous enemy then that is what they become. The Muslim radicals' "single narrative" portrays the entire course of history as a Christian and Jewish plot against Islam.

It is widely agreed among western governments and intelligence agencies that, in order to defeat the pernicious spread of such nonsense, a convincing counter-narrative is needed. Yet it becomes a trifle difficult to compose this when the US president promulgates his own single narrative, almost as ridiculous as that of al-Qaida.

And finally, the coup-de-grace on the whole failed neocon adventure and on the leaders who have championed it to the world - Bush and Blair:

Tony Blair - "waist deep in the big muddy", as Pete Seeger used to sing about Lyndon Johnson in the Vietnam era - clings to a messianic conviction that he must continue to endorse American statements and policies to maintain his restraining influence on George Bush. This invites speculation about what the president might do if Tony was not at his elbow. Seize Mecca?The west faces a threat from violent Muslim fundamentalists that would have existed even if a Lincoln had been presiding at the White House. As a citizen, I am willing to be resolute in the face of terrorism, which must be defeated. I become much less happy about the prospect of immolation, however, when Bush and Blair translate what should be an ironclad case for civilised values into an agenda of their own which I want no part of.

It would be a wonderfully erudite and convincing argument if a peacenik liberal had written it. That the author was a champion of old-style conservatism as editor of the Daily Telegraph for so many years, and a friend and confidante of Maggie Thatcher, is just.... how can I put this... sublime.

Tom Ridge Is One of Us

Former Bush cabinet secretary Tom Ridge is shrill:

Ridge says Cheney wrong about Lamont victory: [Responding to Cheney's claim that Lamont's victory would encourage "al Qaeda types"], former Homeland Security Secretary Tom Ridge bridled at his former colleague's remark: "That may be the way the vice president sees it," he said, "but I don%u2019t see it that way, and I don't think most Americans see it that way."

Hoisted from Comments: Billmon Calls for Fire and Sword

Apropos of "Robert Waldmann Politely Says He Thinks I Have Got the Carrot/Stick Balance Wrong....", Billmon of the Whiskey Bar at announces that he isn't interested in using carrots and sticks on the Washington Post, he is interested in using fire and sword:

Tom Ricks: "I asked one officer, 'Why are you talking to me about these things?' And he looked down at his hands, and he said, 'Because I have the blood of American troops on my hands.'"

Ricks, and his newspaper, do too -- only they won't admit it.

"The Brad and Billmon approach has been to remind the reformed of their past misdeads. This does not creat useful incentives"

Speaking only for myself, I'm not out to create incentives. I'm out to expose these people for the fools and shills they really are. And the fact that Ricks has now written a book admitting his 2003 and early 2004 reporting was almost completely wrong definitely is hardly proof to the contrary. Sixty percent of the American people already KNOW the war is a fiasco, and you don't get brownie points for wanting to be on the side that's winning.

I don't want to reform Ricks and the Post. I want to discredit them, to the extent that a puny blogger can. If I could I would destroy them --fire the entire staff, break up the presses and sell them for scrap. It would be putting them to much better use.

Like the New York Times, the Post is now simply a house organ of the War Party (lady's auxiliary.) Why would I want to "incentivize" that?

Now, now, the Washington Post still has a few reporters who are good as individuals. The New York Times still has many reporters who are good as individuals. And Gail Collins--in an impressive ceremony at the Dog Days Fetid-Pond Summer Fete at Miskatonic University--was recently inducted into the Ancient and Hermetic Order of the Shrill.

There is always hope:

  1. We pray daily for the conversion to shrillness, fairness, and reality based-ness of Michael Barone, whose latest is to say that the Democrats are not Jews but are every bit as bad as the anti-semites used to say that Jews were: "the Connecticut primary reveals that the center of gravity in the Democratic Party has moved from the lunch-bucket working class... to the secular transnational professional class".
  2. We pray daily for the conversion to shrillness, fairness, and reality based-ness of Joe Lieberman, whose latest is to play the race card by saying that America's big problem is that Maxine Waters--begging as she does for crumbs for the people she represents, among the poorest and living in the most troubled neighborhoods in America--is too powerful: "I am committed to this campaign, to a different kind of politics, to bringing the Democratic Party back from Ned Lamont, Maxine Waters to the mainstream".
  3. We pray daily for the conversion to shrillness, fairness, and reality based-ness of Fred Hiatt, who endorses Joe Lieberman as "by far, the better choice for the people of Connecticut... the best outcome for the state, the country, and, yes, even the Democratic Party.". Why does Hiatt think this? You may well ask. Because... because... "we recognize the widespread anger over the conduct of the war and wish Mr. Lieberman had done a better job... of articulating his position"--no, that's not it. Because... we wish "he had run a more organized, more tightly disciplined campaign"--no, that's not it. Becasuse... because "Mr. Bush has governed too often in a partisan way [and so] many Democratic voters concluded that anyone who reached across the aisle in an effort to cooperate must be a sap"--no, that's not it. Because... "Mr. Lieberman's brand of centrism and bipartisanship is a needed salve for a divided country"--that must be it!

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

Greg Sargent is shrill and unbalanced:

The Horse's Mouth: MEDIA LETS TONY SNOW'S LIES ABOUT DEMS GO UNCHALLENGED. For the sake of argument, let's stipulate that one of the most basic tasks of journalists is to provide readers or viewers with the basic information they need to evaluate the truth or falsehood of what their public officials are saying. Can we agree on that?

OK, then. With that in mind, it needs to be said that today's coverage of White House press secretary Tony Snow's remarks amid the aftermath of Ned Lamont's victory constitutes an extraordinary across-the-board abdication of journalistic duty.

During yesterday's press briefing, Snow said this:

I know a lot of people have tried to make this a referendum on the President; I would flip it. I think instead it's a defining moment for the Democratic Party, whose national leaders now have made it clear that if you disagree with the extreme left in their party they're going to come after you.

This is not only a lie; it's an easily demonstrable lie. Most of the Democratic Party's key leadership figures backed Joe Lieberman, not Lamont. This is a matter of public record. It's a point which can be made in half a sentence. And it's a point that should have been in every single news account which carried Snow's remarks.

So was it? Nope. Far from it, in fact. Did the Los Angeles Times piece quoting Snow's lies carry this simple rebuttal? No, it didn't. Neither did Time magazine's big wrap-up of how the GOP is allegedly going to reap enormous gains from Lamont's victory. Nor did the Associated Press's account. The AP story was carried by CBS and likely by newspapers across the country. In short, anyone with the misfortune of getting his or her news from the above news orgs -- or from the perhaps scores of papers carrying the AP account -- was almost certainly deprived of the most basic info required to evaluate the White House's calculated remarks on the biggest story of the day.

As best as I can determine, the only reporter who took the elementary step of rebutting Snow's lies was Adam Nagourney of the New York Times. After quoting Snow, Nagourney wrote this:

In fact, the vast majority of Democratic Party leaders supported Mr. Lieberman in the primary, and did not endorse Mr. Lamont until after the results were in.

For God's sake, was that really so difficult? Don't the editors and reporters who failed to include that one sentence take any professional pride at all in their work anymore?

Hoisted from Comments: Conflicts of Interest in American Finance

Chistofay writes

Decent fund managers. That sounds like a list that can be counted on one hand, does anyone take up that dare?

While I'm a capitalist and a pro-capitalist at that, I might be too cynical to attempt making a list. I would not include the home-town heavy Fidelity as I've read too much on how Fidelity might have traded its fiduciary/independent responsibility to lunch at the table with Fortune 500 upper management to be declared decent. Fidelity does not vote "fiduciary" but "management-support". It gets the big 401 K (K-strikeout for the mid class) management contracts by wink-wink nudge-nudge won't vote againist management quid pro quo.

One of the many projects so far on the back burner that I don't know when or if I will ever get to it is to try to roughly quantify these major conflicts-of-interest in American finance:

  • You give us your company's investment banking business, and we'll put you personally on the list of those offered underpriced shares in IPOs.
  • You give us your 401(k) business, and we'll vote the shares of those who have invested in our mutual funds for the incumbent management.
  • You give me a cushy directorship, and I'll vote for whatever compensation you want as CEO

There are others. But how big a deal are all of them, taken together?

The New York Times Is Not Shrill Enough!

The New York Times. They always blame the Democrats first:

A Timetable Isn't an Exit Strategy - New York Times: As America's military experience in Iraq grows ever more nightmarish, it is becoming clear that President Bush's strategy comes down to this: Keep holding to a failing course for the next 29 months and leave it to the next administration to clean up the mess. That abdication of responsibility cannot be allowed to continue at the expense of American lives, military readiness and international influence. With the Republican majority in Congress moving in perpetual lock step behind the White House...

You would think that would be the beginning of an editorial about how voters nationwide should dump the feckless Republicans from Congress. Sadly, no! The editorial goes on:

the job of pressing the issue has been dumped in the laps of the Democrats. Unfortunately, they have their own version of reality avoidance. It involves pretending that the nightmare can be ended by adopting a timetable for a phased withdrawal of American troops.... The Democratic timetable spins a different fantasy: that if the Iraqis are told that American troops will be leaving in stages, at specific dates, their government will rise to the occasion and create its own security forces to maintain order.... Democrats are embracing the withdrawal option because it sounds good on the surface and allows them to avoid a more far-reaching discussion that might expose their party's own foreign policy divisions. Most of all, they want an election-year position that maximizes the president's weakness without exposing their candidates to criticism. But they are doing nothing to help the public understand the grim options we face...

What does the New York Times suggest that Democrats do to "help the public understand the grim options we face"? What is the New York Times doing to "help the public understand the grim options we face"? Wouldn't an editorial laying out those grim options and demanding action from Senate Republcians be a much more fruitful use of its space than yet another exercise in blaming the Democrats first?

Perhaps a clue to the peculiar mental universe that the New York Times inhabits can be gained by looking at this from Washington Post reporter Tom Ricks, where he says that he could not write the stories that needed to be written in the runup to the attack on Iraq because:

Congress didn't hold hearings in which credible information was presented that said, no, the administration's case is wrong.... Congress is kind of the engine of Washington, the engine of government. And if Congress is asleep at the wheel, if war seems inevitable, at some point your editors say, why do you keep writing about doubts about this war, when it's going to happen?... You've written a lot of stories about the doubts about the war. Give us more stories about the war plan...

I think the same thing is going on here with the New York Times editorial board. They no longer think--did they ever think?--that their principal reason for being was to inform their readers. They think, instead, that their principal reason for being is to be stenographers: to transcribe what the powers that be are saying.

Dean Baker on the *Washington Post*

Via Angry Bear:

Angry Bear: Dean Baker continues to beat up on the Washington Post coverage of fiscal policy matters:

Yet again the Post reports on the threat posed by "entitlement" spending, referring to Social Security, Medicare, and Medicaid. To quickly repeat myself, this is dishonest. There are modest and manageable increases in projected Social Security spending due to the aging of the population. There are unmanageable projected increases in Medicare and Medicaid expenditures due to a projected explosion in health care costs. If the projected explosion in health care costs proves accurate, then it will devastate the economy, and cause serious budget problems. Honest people respond to these projections by examining ways to prevent the explosion in health care costs. Less honest people talk about the need to cut entitlement spending, including Social Security...

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

Via Daniel Gross, who writes:

Daniel Gross: August 06, 2006 - August 12, 2006 Archives: CRAM DOWN NATION, VOL XX, PART 28: Michael Abramowitz reports in the Washington Post on the Bush administration's plans to cut entitlements. I have to say, it's very difficult to understand why someone like Henry Paulson would have such a passion for cutting highly successful social insurance programs...

In our last episode, we saw Michael Abramowitz of the Washington Post finding himself physically incapable of writing that the occupation of Iraq has been a fiasco or incompetent or a mistake or ill-advised or even a disappointment--that he could only say that it had not gone as "smoothly" as "some" had "predicted."

Todaqy, we see Michael Abramowitz shilling for the Bush administration by failing to do his job--failing to place the numbers he tells his readers in context that would show how small, relative to the budget, Bush proposals are:

President Remains Eager to Cut Entitlement Spending: the administration has been working lately to curb the cost of the government's main health insurance programs. Bush's budget for the fiscal year that starts in October proposed slowing spending on entitlements by $65 billion in the next five years, including a $36 billion reduction in Medicare...

A simple "the federal government will spend $15 trillion over the next five years. The proposed cuts amount to four-thousandths of projected federal spending--$40 per American per year, in the context of a federal budget that spends $9,000 per person per year.

Michael Abramowitz doesn't report the context so that his readers can easily assess how significant Bush administration proposals are because (a) he is really stupid, or (b) he is in the tank and wants to do what he can to make the Bush administration look less awful?

We report, you decide.

The Medicare Drug Benefit is Working According to Plan

The Medicare drug Pharmaceutical company benefit is working according to plan. Few things these days annoy me more than claims that Bush's Medicare drug benefit was "what the Democrats wanted to do."

Via Mark Thoma:

Economist's View: The Medicare Drug Benefit is Working According to Plan: No surprise here. The Medicare prescription drug plan is providing large benefits to the group targeted by the legislation - health insurance companies. It's unsurprising because the insurance companies played a large role in writing the new rules. However the other intended beneficiaries, legislators hoping to win votes, may not fare as well. And many seniors, especially the poor who are most in need of help, have seen their drug costs go up:

Inside Job How Humana and other insurance companies rigged the Medicare prescription drug plan, by Barbara T. Dreyfuss, American Prospect: Last week saw the news that Humana, one of the country's largest health insurance companies, experienced much better second-quarter earnings than had been expected. The announcement amounted to confirmation that the Medicare drug benefit is working exactly as planned -- not for the people enrolled in it, but for the insurers who drafted it.

Humana's profits jumped 10 percent, much better than Wall Street had anticipated, helped by a surge in seniors enrolling in Humana's Medicare drug and HMO plans.... Humana has also doubled its Medicare HMO membership in the past year...

Simply put, the Medicare drug program has been good news for Humana. But for seniors who had hoped that the Medicare drug plan, which began in January, would relieve them of worries about drug costs, things are not so rosy. About one- fifth of seniors in the Medicare program, concentrated especially among the poor who had been on Medicaid, report that they now pay more for their medicines than they had before. Since insurers can decide which drugs they cover and which they won't, many seniors are finding that new medicines they need are not paid for by their plan. And millions of enrollees are now approaching the level of total drug expenses that will provoke a cutoff from any further Medicare help with costs -- the now-infamous "donut hole"...

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

It's as if the Washington Post wants to destroy every shred of credibility in reporting and analysis that it ever had.

Henry Farrell writes:

Crooked Timber: Credibility problems: Matt Yglesias announces the institution of Krauthammer Friday

Charles Krauthammer's columns are published on Fridays. Thus, I hereby proclaim a new recurring feature--the second Friday of every month, we'll revisit the man's January 18, 2006 column, "The Iran Charade, Part II" in which he confidently proclaimed--contrary to the judgment of every relevant intelligence agency--that "Iran is probably just months away" from a nuclear bomb.

But even better to my mind, was Krauthammer's confident judgement on Iraq WMDs back in April 2003.

Hans Blix had five months to find weapons. He found nothing. W've had five weeks. Come back to me in five months. If we haven't found any, we will have a credibility problem.



Tenth SS Panzer Division "Frundsberg"

Guenter Grass says that he was just following orders. Guenter Grass says: "For me... the Waffen-SS [in which I served] was nothing frightful but rather an elite unit that they sent where things were hot and which, as people said about it, had the heaviest losses."

While it is certainly true that most members of the Waffen-SS did not directly commit war crimes, it is also true that members of the Waffen-SS who were asked to do so appear to have done so enthusiastically.

You know, I got considerable flack for writing that there was something sinister and fascist-smelling about Guenter Grass's declaration that the elected representatives of the people in the Bundestag did not, even though they had been elected by the people to represent them, represent the people--but were instead servants of "the banks and multinational corporations." But there is something sinister and fascist-smelling about repeating today this classic fascist talking point about the cretinism of parliaments.

And there is something more than sinister and more than fascist-smelling about the ability of an ex-member of Heinrich Himmler's Waffen-SS to write 2,191 words about the Nazi Third Reich without using the word "Jew."

As Dr. Phil says: if you have nothing to hide, you hide nothing.

BBC NEWS | Entertainment | Guenter Grass was in Waffen-SS: Nobel Prize-winning German writer Guenter Grass, author of the great anti-Nazi novel The Tin Drum, has admitted serving in the Waffen-SS. He told a German newspaper he had been recruited at the age of 17 into an SS tank division and served in Dresden. Previously it was only known he had served as a soldier and was wounded and taken prisoner by US forces.

Speaking before the publication of his war memoirs, he said his silence over the years had "weighed" upon him. "My silence over all these years is one of the reasons I wrote this book [Peeling Onions]," he told the Frankfurter Allgemeine Zeitung in an interview. "It had to come out, finally."

Grass, who was born in 1927, is widely admired as a novelist whose books frequently revisit the war years and is also known as an outspoken peace activist.

Few details of the author's service were given other than that he had served in the Waffen SS Frundsberg Panzer Division after failing to get a posting in the submarine service. The SS, which began as a private bodyguard for Nazi leader Adolf Hitler, grew into a force nearly one million strong and both acted as an elite fighting force and ran death camps in which millions of people were murdered. The Waffen-SS was the combat section of the organization and extended to 38 divisions. It was declared part of a criminal organisation at the Nuremberg Nazi trials after the war.

"At the time" he had not felt ashamed to be a member, he said but he added: "Later this feeling of shame burdened me."

"For me... the Waffen-SS was nothing frightful but rather an elite unit that they sent where things were hot and which, as people said about it, had the heaviest losses," he said. "It happened as it did to many of my age. We were in the labour service and all at once, a year later, the call-up notice lay on the table. And only when I got to Dresden did I learn it was the Waffen-SS."

Michael Young on The Party of "God"

Michael Young writes:

Hezbollah's Other War - New York Times: One evening earlier this summer, Lebanon’s most popular satire show, ‘‘Bas Mat Watan,’’ broadcast a sketch showing an ‘‘interview’’ with Sheik Hassan Nasrallah, Hezbollah’s leader and secretary general. ‘‘Nasrallah’’ was asked whether his party would surrender its weapons. He answered that it would, but first several conditions had to be met: there was that woman in Australia, whose land was being encroached upon by Jewish neighbors; then there was the baker in the United States, whose bakery the Jews wanted to take over. The joke was obvious: there were an infinite number of reasons why Hezbollah would never agree to lay down its weapons and become one political party among others.

B>ut it was the rapid reaction to the satiric sketch that sent the more disquieting message. That very night, angry supporters of Hezbollah closed the airport road with burning tires — a warning that they could block at will the main access point in and out of the country — and marched on mainly Sunni, Druse and Christian quarters in Beirut. In a Christian neighborhood, they clashed with the son of a former president and his comrades, and several youths were taken to hospital.

The leaders of Hezbollah defended these actions, explaining that they were the spontaneous emotional response to the mocking of a cleric. It is just as likely that they were a coordinated effort to intimidate critics. In any case, to me the event seemed an essential one, since it symbolized the duality that has defined Lebanon ever since its civil war came to an end in 1990. The duality was once neatly encapsulated by Walid Jumblatt, the leader of Lebanon’s Druse sect, when he asked, Would Lebanon choose to be Hanoi, circa 1970, or Hong Kong? That is, would it seek to become an international symbol of militancy and armed struggle, particularly against Israel, as represented by Hezbollah, or would it opt for the path laid out by Rafik Hariri, Lebanon’s late prime minister and billionaire developer, who sought to transform his country into a business entrepôt for the region, a bastion of liberal capitalism and ecumenical permissiveness?

In seeking to silence critics of their leader, in momentarily shutting down the airport, Hezbollah struck a blow against Lebanon’s tolerant, if always paradoxical, openness. Once again, it seemed, the Lebanese were suffering the consequences of failing to agree on a common destiny. At the time, the consequences seemed bearable. With the outbreak of the current conflict with Israel, they don’t seem bearable at all.

Lebanon today lies ravaged, its inhabitants suffering the consequences of Hezbollah’s hubris and Israel’s terrible, wanton retribution. Since July 12, when party militants abducted two Israeli soldiers and killed three on the Israeli side of the border, Lebanon has been under a virtually complete Israeli blockade. At the time of writing, nearly 1,000 people have been killed, mostly civilians. Predominantly Shiite areas in the south, Beirut’s southern suburbs and the northern Bekaa Valley have been turned into wastelands; Beirut seems empty. Businesses, when they do open, close early; store owners have cleared out their showrooms. The mood is one of ambient disintegration. Tens, if not hundreds, of thousands of refugees have moved into the capital, even as many of its residents have headed for the mountains. The economy, already precarious before the conflict started, lies in shambles, as does public confidence in the country’s future.

As attention focuses on Israel’s air war and troop movements, there has been less emphasis on the social impact of hundreds of thousands of traumatized Shiites moving into mainly non-Shiite areas. A month into the war, there have been laudable acts of cross-sectarian assistance, with Christian, Sunni and Druse organizations and parties helping refugees in schools and other facilities around the country. Yet there are signs of strain. In an effort to avoid conflicts between Shiite refugees and his own Druse supporters, Walid Jumblatt has allowed the refugees to put up Hezbollah flags and photographs of Nasrallah. The longer the fighting continues, however, the more likely it is that altercations will take place. Israel may have hoped to unite the Lebanese people against Hezbollah and force its government to extend its authority throughout the country. But such unity and such authority are hard to see on the horizon. As recriminations over the war spread, the delivery of aid across group lines will become more difficult, frustration will mount and the sectarian and political divide, already exacerbated by anxiety over Hezbollah's actions and intentions, will only grow.

How long it seems (and yet it is only a year) since the Lebanese were celebrating the Cedar Revolution — or what they always more revealingly called the Independence Intifada. Following the killing of Rafik Hariri in February 2005, it seemed that the Lebanese people were coming together to demand the end of Syrian dominance and the resurrection of their nation’s democracy. In that not so distant past, I had high hopes for the development of a liberal, even libertarian, Lebanon; after all, I reasoned, coexistence, freedom and entrepreneurial drive had been the natural state of the country between independence in 1943 and the start of the civil war in 1975 and even beyond.

Maybe I was biased in this regard. My late father was an American, my mother is a Maronite Christian and I spent the first decade of the war living in predominantly Muslim West Beirut, where I came to embrace multiple identities and distrust the exclusivist certitudes of many Lebanese. When I returned to Lebanon in 1992, after several years in the United States, my enduring memories from that earlier time were of a remarkably diverse society that could rebound from its worst calamities, seemingly effortlessly. Many of the clichés were true: a neighborhood firefight might break out between militias in the morning, but by the end of the day people would be repairing their damaged properties. The Lebanese could be infuriatingly anarchic, stupidly selfish, but they were also determined to take initiatives and embrace new departures. This I saw as the essence of the liberal ideal. When the Syrian Army left, I believed, that ideal could at last be fulfilled.

My understanding was a valid one, but in retrospect an incomplete one. The ideals of the Independence Intifada were largely the ideals of an urban middle class — politicians, professionals, journalists and students; mostly Christians and Sunnis but also some Druse — fed up with a vulgar, vampirical Syrian hegemony. But what about that sizable part of Lebanon that had no inclination to see Syria gone?

From the moment of Hariri’s assassination on Feb. 14, 2005, it was clear that the Shiite political parties, particularly Hezbollah, did not share in the national distress surrounding the former prime minister’s death. Certainly, party officials paid their respects to the Hariri family and condemned the crime, but when tens of thousands of Lebanese descended on Martyrs Square in Beirut to bury Hariri, the most obvious question was, Where are the Shiites? Given that Shiites represent perhaps 35 to 40 percent of the Lebanese population, this was no idle question...

The fear, of course, is that what Israel's bombing fit will do is to shift power in Lebanon from the urban, secular groups that look toward Europe to those who look toward Karbala and Tehran. This fear looks to be coming to pass.

Detroit Bets on Rapidly-Falling Oil Prices

Daniel Gross writes:

Daniel Gross: August 06, 2006 - August 12, 2006 Archives: HOT WHEELS: Nick Bunkley writes in the New York Times about Ford and GM's contrarian business strategy.

As gasoline prices surge past $3 a gallon in most of the country and closer to $4 in some cities, sales figures show Americans are snapping up small cars that go easier on fuel and on their wallets. But none of the smallest cars are designed or developed by Detroit companies, which in the face of high gas prices are now highlighting another kind of automobile not usually thought of as energy efficient: the muscle car.

Ford Motor said Wednesday that it planned to build a 325-horsepower version of the Ford Shelby GT. It also plans a big luxury car, the Lincoln MKS, which will become the struggling brand's flagship sedan. The announcement came at an industry conference here sponsored by the Center for Automotive Research. On Thursday, General Motors is expected to confirm that it will resurrect one of its most famous muscle cars, the Chevrolet Camaro, which was a hit at the Detroit auto show in January....

Ford or Chrysler sell no subcompacts in the United States, even though they or their corporate parents sell them in other global markets. By contrast, Toyota, Honda and Nissan have all introduced small cars in the last few months, all of them sold overseas.

"It is a mistake and it's very disappointing," said John Casesa, managing partner of Casesa Strategic Advisers in New York. "I just think it shows that Detroit still has a business model predicated on low energy prices."

The Thoughtful and Reliable Edmund Andrews on the Federal Reserve and a "Soft Landing"

He writes:

Economy Often Defies Soft Landing - New York Times: In the cool and quiet marble corridors of the Federal Reserve, the strategy for taming inflation sounds painless, even soothing: a “soft landing” for the economy after several years of flying high. As the central bank contended on Tuesday, when it decided to pause in its two-year effort to raise interest rates, inflation is “elevated” right now but will begin to decline because economic growth is poised for a modest slowdown. Many economists, though, warn that the soft landing may seem anything but soft, and suggest that the Fed is either too rosy about the looming slowdown or naïve about the difficulty of reaching its goal for inflation.

In practice, the Fed has achieved only one true soft landing — in 1994-95, when, under the leadership of Alan Greenspan, it was able to slow the economy enough to cool spending and ease inflation pressure but not so much as to cause a big jump in unemployment. But even Mr. Greenspan, whose ability to fine-tune policy made him famous, presided over two formal recessions, in 1991 and in 2001. This time, many analysts say that the Fed and its new chairman, Ben S. Bernanke, face considerably tougher challenges. Crude oil, at more than $70 a barrel, is selling at prices that would have been unthinkable in 1995. Productivity growth, which was accelerating in 1995, is slowing these days. The dollar, which was climbing against other major currencies in 1995, is declining against most of them now.

Analysts and other experts say that if Mr. Bernanke is serious about his goals for controlling inflation, at least two million more workers may have to lose their jobs over the next two years. “The economic slowdown has to be much more substantial than anybody in the Federal Reserve or on Wall Street is expecting,” said Robert J. Gordon, a professor of economics at Northwestern University, who has analyzed the trade-off between inflation and unemployment for the last several decades. Mr. Bernanke and other Fed officials say they want to keep core inflation, the main measure of retail prices excluding energy and food, below 2 percent a year. But core inflation is already 2.9 percent and almost certain to climb as the cost of oil pushes up prices for items as diverse as air fares and plastics.

Mr. Gordon said the last few decades had shown a grim but consistent trade-off: to reduce inflation by one percentage point, the unemployment rate has to rise by about two percentage points for a full year. To reduce inflation to the upper limits of what Mr. Bernanke and other Fed officials consider acceptable, more than three million jobs would be lost, a bigger drop than in the recession of 2001. And that is Mr. Gordon’s relatively upbeat hypothesis, which assumes no other shocks to the economy — no additional increases in energy prices, no collapse in the dollar’s value, no collapse in housing. “I think the Fed is facing an absolutely classic case of stagflation,” Mr. Gordon said, “a situation in which they cannot win.”

He is not alone. Many other economists contend that inflation is more entrenched and will be more painful to reverse than the Fed thinks. Others predict that inflation will indeed subside, but only because the economy will weaken much more than the Fed is expecting. The chief forecaster at Decision Economics, Allen Sinai, said unemployment would have to rise to at least 5.5 percent, from 4.8 percent today, putting a million more people out of work, before inflation begins to decline.

The chairman of Roubini Global Economics Monitor, Nouriel Roubini, predicted that the economy would fall into a recession early in 2007 as a result of high energy prices, higher interest rates and a housing collapse. “Either the Fed does not believe its own inflation forecast, which I don’t think is the case,” Mr. Roubini said, “or the slowdown is going to be greater than what they have been saying. They can’t have it both ways.” To be sure, economists differ on how weak the economy already is or how severe inflation pressure is. And skepticism abounds on the chances of achieving a true soft landing.

The very idea of such a thing is only about a decade old. It was conceived by Mr. Greenspan, then the Fed chairman, as a way to attack inflation before it started, by shrewdly using the levers of monetary policy to slow the economy just enough to keep it from overheating. Mr. Greenspan’s greatest success was in the mid-1990’s, when the economy had been expanding for nearly four years. Though inflation was declining and was lower than it is today, the Fed doubled short-term interest rates, to 6 percent from 3 percent, in just over a year. At the time, the result seemed neither soft nor smooth. Several financial institutions, caught by surprise, found themselves in big trouble. The economy slowed for a while, and unemployment edged up. But by 1996, the economy was rapidly growing again and the nation enjoyed several years of booming stock markets, falling unemployment and relatively low inflation.

The success, along with Mr. Greenspan’s growing aura as a wizard of monetary nimbleness, prompted the Fed to step in and help soften the blows of the Asian financial crisis of 1997-98, the stock market collapse of 2000, the recession of 2001 and the surge of unemployment that followed. He failed in preventing the 2001 recession, but the Fed cut interest rates so deeply that this started a boom in housing prices and home refinancing that kept consumers spending even as incomes stagnated and unemployment moved higher.

Laurence H. Meyer, a former Fed governor and now a chief forecaster at Macroeconomic Advisers, said Mr. Bernanke needed to do more than simply duplicate Mr. Greenspan’s one soft landing. Mr. Greenspan was not trying to reduce inflation, but merely to keep it from going up. Mr. Bernanke, by contrast, is trying to reduce it substantially. “Soft landings are much more frequent in forecasts than in real life,” Mr. Meyer said. “With a computer, I can give you a soft landing if you give me 10 or 20 runs. But in real life, you only have one run.”

Uncertainties and disagreement among experts about the economy’s direction are now unusually high. A big uncertainty is whether the nation is near full employment. Many economists contend that the country is essentially at full employment, meaning that additional demand for workers will tend to push up wages. Because wages account for more than three-quarters of total production costs, Fed officials view them as inflationary if they rise significantly faster than productivity. Specialists like Mr. Gordon at Northwestern and Mr. Meyer maintain that the labor market is already very tight and predict that wages will soon start to push up inflation. But others disagree, arguing that wages over the last five years have lagged behind increases in productivity and have barely kept up with inflation. The bigger risk, according to that school of thought, is to make the situation worse by driving up unemployment.

“We have no clue about labor market tightness right now,” said J. Bradford De Long, a professor of economics at the University of California, Berkeley, who argues that workers still have little bargaining power. Depending on one’s perspective, Mr. De Long said, the Fed’s attempt at a soft landing is either a display of cool-headed technocracy or murky witchcraft. Right now, he said, “this is on the witchcraft side.”

The Tiger Clause

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized, unless, of course, there is a tiger in the house, in which case the police and Animal Control can do whatever they want.

Majikthise : Tigers hazardous to 4th Amendment rights: The police can enter your home without a warrant if there's a tiger in it.