Grasping Reality on TypePad, by Brad DeLong

For no sane reason anybody can think of, Marty Peretz attacks George Soros:

The Spine: I've got a short essay about George Soros, only a faux intellectual, self-corrupted as both an American and a Jew. OK, maybe the point is that he isn't a Jew. So to what extent does he think of himself as an American, he who is so vexed by tribalism and so animated by greed?...

Glenn Greenwald writes on the meaning of Marty Peretz:

Unclaimed Territory - by Glenn Greenwald: The Meaning of Marty Peretz: UPDATE: From former TNR writer Spencer Ackerman, responding to Chait:

Jon. You know very, very well Marty, um, isn't really fond of the Arabs. For instance, he likes to flirt with descriptions of Arabs as subhuman. Everyone who works at TNR knows Marty is a racist. Don't make me tell stories. You shouldn't really be contesting this point with Matt. And, if you insist on it, you certainly shouldn't write about how someone else "wants to pretend he doesn't know that's the case."

This is the point. It is common knowledge that Peretz is an anti-Arab bigot. One barely needs to make the case because he makes it himself in almost everything he writes (I only documented it this extensively because Chait was denying it and because if an accusation of bigotry is made, it should be accompanied by proof -- something, incidentally, which Peretz and other casual purveyors of that accusation rarely provide)). Yet this well-known fact doesn't seem to generate many ripples. Peretz's magazine is deemed more or less acceptable and, in most mainstream circles, so is Peretz. The fact that such a well-known bigot can be so accepted in so many places obviously has meaning.... Admiration for Peretz's views of Arabs and Muslims, and a desire for more unrestrained and indiscriminate slaughter in the Middle East, are not unreleated, to put it mildly. That is why tolerance for Peretz is so significant...

Well, I'll tell a--relatively innocuous--story:

I've only seen Marty Peretz up close for any length of time once, at... I think it was the 25th anniversary dinner for Harvard's Social Studies major... in 1990 or so. He and I were at the same table. He dominated the conversation.

He argued that the Israeli government's biggest mistake had been to intervene to prevent Syria and the PLO from overthrowing King Hussein and the government of Jordan at the start of the 1970s. If Yasir Arafat had become president of Trans-Jordanian Palestine, he said, then Israel and Palestine would have been two normal countries with a border dispute. And the border dispute would eventually have been settled as all border disputes are settled, by a combination of border-line adjustments and transfers of populations. I understood this to be a complete buy-in of Likud's annexationist fantasies: that pushing Palestinian Arabs across the Jordan was the way things ought to work, and would eventually work if only the Israeli government was far-sighted enough to plan for it and to grab whatever opportunities history would throw up.

It seemed to me at the time--it seems to me now--that such buy-in to Likud's annexationist fantasies was likely to substantially raise the chance of utter disaster--raise the chance that Tel Aviv becomes a radioactive abattoir (along with Damascus, Baghdad, and Tehran) sometime in the next fifty years. Ariel Sharon decided to put a settlement on every West Bank hilltop where it would have been nice to have a firebase in 1948, thus making Israel not more but less secure. Every day that Israeli settlers sit on the West Bank in Sharon's wanna-be firebases weakens Israel's long-run strategic position. And a mass expulsion of the Palestinian Arab population from the West Bank would be a total strategic disaster for Israel. Yet that is the future that Peretz hoped--and probably still hopes--to see.

The true friends of Israel are trying to loosen not tighten the knot of war. All the cheerleaders for Likud annexationist fantasies--and those who carry water for them and defend them--are not Israel's trues friends.

SECOND UPDATE: John Dickerson writes again:

Brad your posts continue to be innacurate: This is what I said:

2. It would be improper for me to talk to Gregory about this as surely you must know that people who might be called to testify shouldn't talk about their testimony.

And yet this is what you turned it into:

UPDATE: John Dickerson writes to say that at this stage Fitzgerald and company would be very unhappy if he said anything about David Gregory...

And another thing: You can feel free to post that I also answered your question 1. long before you ever posed it in the piece I wrote a year ago but which you didn't bother to go look for before making your claims.

UPDATE: John Dickerson writes to say that at this stage Fitzgerald and company would be very unhappy if he said anything about David Gregory...

Under oath at the Scooter Libby trial, former White House press secretary Ari Fleischer has testified that he told reporters John Dickerson and David Gregory that Ambassador Joe Wilson's wife worked for the CIA. This poses a problem for John Dickerson, already on record as saying that Ari Fleischer told him no such thing.

How does Dickerson handle his problem? By dodging and weaving. He doesn't want to accuse Ari Fleischer of perjury:

My surprise role at the Libby trial. - By John Dickerson: [H]e's never lied to me.... [H]e never outright lied, and I don't see how it would be in his interest here...

Or does he:

More likely, he admitted to prosecutors more than he may have actually done because better to err on the side of assuming he disclosed too much than assuming he gave over too little...

And he creates a little wiggle room for himself:

Could I have forgotten that Ari told me? I don't think so...

Now if I were Dickerson--and if Ari Fleischer's recollection was wrong--I would have done two things immediately after Fleischer's testimony:

1. I would have pulled out my notes from the summer of 2003 and said: "Look. Here are my notes from that trip. If Ari remembers things correctly, then what Ari says he told me would be in my notes. It isn't."
2. I would have called David Gregory and said: "You were there. Please back me up."

Dickerson does neither of these things.

Where are John Dickerson's notes from the trip? And Tom Maguire asks the big question:

JustOneMinute: David Gregory, Where Are You?: John Dickerson has posted a vigorous denial at Slate. David Gregory, however, is strangely silent (he gave David Corn an "I can't help you, sorry" when his name was first bandied about in the opening statements.) Interesting....

[M]ight Gregory have a different tale from Dickerson?... I think the public would love to hear from David Gregory.

It doesn't help Dickerson that he is already laboring under the burden of his past declarations that he would rather mislead readers than break promises to sources.

For Project Syndicate http://www.projectsyndicate.org/. What kinds of inequality and how much we should worry about it depends on the counterfactual:

How much should we worry about inequality--on the global level, on the societal level, on the personal level? Answering that question requires that we first answer another question: "Compared to what?" What is the counterfactual, what is the alternative situation against which we are going to judge the degree of inequality that we see? Florida is a much more materially unequal society than Cuba. But the right way to look at the situation--if Florida and Cuba are our alternatives--is not to say that Florida has too much inequality, but that Cuba has much much too much poverty.

On the global level, it is hard for me to make the argument that inequality as one of the world's major political-economic problems. It is hard for me at least to envision changes in economic policies or in political arrangements over the past fifty years which would have transferred any significant portion of the wealth of today's rich nations of the global North to today's poor nations of the global South. I can easily envision changes that would have impoverished nations now in the rich North: Communist victories in the post-World War II elections in Italy and France would have done the job for those countries. I can easily envision changes that would have enriched nations now in the poorer South: the promotion of Deng Xiaoping to the post of China's paramount leader in 1956 rather than 1976 would certainly have done the job for China. But alternatives that would have made the South richer at the price of reducing the wealth of the North? I find those much harder to imagine, without a wholesale revolution in human psychology

On the personal level, it is also hard for me at least to make the argument that a great deal of political-economic worry should be spent on the problem that some people are richer than others. Some have worked harder; some have applied their intelligence more skillfully; some have been better people; some have been worse people; many more have just been lucky enough to be in the right place at the right time. But are there alternative political-economic arrangements that could make individuals' relative wealth closely correspond to their relative moral or other merit? I don't see what they might be. The addressable problems are those of poverty and social insurance, of safety net, not of inequality.

But on the level of individual societies, on the level of nations, I believe that inequality does loom as a serious political-economic problem. In the United States, the average earnings premium received by those with four-year college degrees over those with no college has gone from 30% to 90% over the past three decades. This is a matter of supply and demand: the skill requirements of the American economy have outstripped the educational system's ability to educate and train, skills acquired through formal education have become more relatively scarce as a factor of production, the education earnings premium has risen, and the income and wealth distribution has pulled apart. Ceci Rouse and Orley Ashenfelter of Princeton University report that they find no signs that those who receive little education do so because education does not pay off for them: if anything, the returns to an extra year of schooling appear greater for those who get little education than for those who get a lot. Odds are that a greater effort to raise the average level of education in America would have both made the country richer and produced a much more even distribution of income and wealth by making educated workers more abundant and less-skilled workers harder to find and thus worth more on the market.

Again in the United States, corporate CEOs and their peers and near-peers make ten times as much today relative to the patterns of a generation ago. They do not do this because a CEO's work effort level and negotiation and management skills are in relative terms ten times as valuable to a corporation today as they were to a corporation of a generation ago. They have risen because of a reduction in the ability of other corporate stakeholders to constrain the freedom of top managers and high financiers to direct the value added in their direction.

Similar patterns are found in other countries across the globe. Within each country, odds are that the increase in inequality that we have seen in the past generation is predominantly a result of failures of social investment and changes in regulations and expectations, and has not been accompanied by any acceleration in the overall rate of economic growth. For the most part, it looks like these changes in economy and society have not resulted in more wealth but in an upward redistribution of wealth: a successful right-wing class war. The easiest counterfactuals to imagine are those in which greater public investments in education and greater moral, legal, and cultural constraints on the freedom of action of those at the top produce an equal or greater amount of total wealth and income with a lower degree of inequality.

This kind of inequality should be a source of concern. Bill Gates, Paul Allen, Steve Ballmer, and the other hundred-millionaires of Microsoft are brilliant, hard-working, entrepreneurial, and justly wealthy. But only the first 5% of their wealth can have any justification as part of an economic reward system to enourage entrepreneurship and enterprise. And the last 95% of their wealth? It would create much more happiness and opportunity if divided evenly among the citizens of the United States or the world than if they were to consume any portion of it.

Moreover, an unequal society cannot help but be an unjust society. The very first thing that any society's wealthy try to buy with their wealth is a head start for their children. And the wealthier they are, the bigger the head start. Any society that justifies itself on a hope of equality of opportunity cannot help but be undermined by too great a degree of inequality of result.

In the United States, the problem of inequality has two dimensions: insufficient effort to educate, and insufficient control by other stakeholders' of the ability of the top 50,000 or so earners' discretion. In other countries the problem of inequality has these two but also other dimensions as well. In all it is something we should worry about, because we can see in our minds' eyes alternatives that would make for better, healthier, happier, and equally well-off societies.

I have read books published by major publishers that have less meat in them than a single blog post by John Holbo.

Here are two:

John & Belle Have A Blog: Dead Right: A fortnight ago Josh Marshall recommended... David Frum’s Dead Right (1994). That David Frum? Off to library went I.... I can see why Marshall finds Frum’s book... interesting. Its thesis is clearly stated in the final chapter’s final paragraph:

Conservatives suffer a very different political problem from liberals these days. Avowed liberals have a difficult time winning power in this country; avowed conservatives do not. You no longer get far in public life by preaching that the poor are poor because someone else is not poor, or that criminals can be rehabilitated, or that American troops should get their orders from the United Nations. There’s no liberal Rush Limbaugh. But exercising power -- that is a very different business. When conservatism’s glittering generalities, “you are overtaxed,” turn into legislative specifics, “you must pay more to send your kid to the state university,” we run into as much trouble in midsession as the liberals do at election time. Twelve years of twisting and struggling to escape this snare have just entangled us ever more deeply in it, until we have arrived at the unhappy destination this book describes. Is there a way out? Only one: conservative intellectuals should learn to care a little less about the electoral prospects of the Republican Party, indulge less in policy cleverness and ethnic demagoguery, and do what intellectuals of all descriptions are obliged to do: practice honesty, and pay the price. (p. 205)

Frum’s conception of liberals as unhappy until there’s a paroled murderer and UN bluehelmet on every corner -- is subject to doubt. But we pass over in silence; the man, to his credit, does not mince words about the faults of his party.... My compass is evidently twitchy and unreliable. Wouldn’t advise anyone else to use it. But I do find the following piece of simple woodcraft has its rugged employments: figure out which side of the trees the NRO is growing on. Then head dead-straight in the opposite direction until you hit civilization....

Let’s start at the very beginning....

Social conservatism is potentially more popular than economic conservatism. But severed from economic conservatism, social conservatism too easily degenerates into mere posturing. The force driving the social trends that offend conservatives, from family breakup to unassimilated immigration, is the welfare function of modern government. Attempting to solve these social problems while government continues to exacerbate them is like coping with a sewer main explosition by bolting all the manhole covers to the pavement. Overweening government may not be the sole cause of America’s maladies. But without overweening government, none would rage as fiercely as it now does. The nearly 1$ trillion the federal government spends each year on social services and income maintenance – and the additional hundreds of billions spent by the states – is a colossal lure tempting citizens to reckless. Remove those alluring heaps of money, and the risks of personal misconduct would again deter almost everyone, as they did before 1933 and even 1965.

It’s a bit-- um, ripe -- to analogize immigrants and single-parent families directly to sewage. Nevertheless, this can still be read as more or less pure economic libertarianism (with just a layer of slime on top.)... It turns out economic inefficiency isn’t what ‘offends’ conservatives after all, at least not Frum.

The great, overwhelming fact of a capitalist economy is risk. Everyone is at constant risk of the loss of his job, or of the destruction of his business by a competitor, or of the crash of his investment portfolio. Risk makes people circumspect. It disciplines them and teaches them self-control. Without a safety net, people won’t try to vault across the big top. Social security, student loans, and other government programs make it far less catastrophic than it used to be for middle-class people to dissolve their families. Without welfare and food stamps, poor people would cling harder to working-class respectability than they do not.

The thing that makes capitalism good, apparently, is not that it generates wealth more efficiently than other known economic engines. No, the thing that makes capitalism good is that, by forcing people to live precarious lives, it causes them to live in fear of losing everything and therefore to adopt – as fearful people will -- a cowed and subservient posture: in a word, they behave ‘conservatively’. Of course, crouching to protect themselves and their loved ones from the eternal lash of risk precisely won’t preserve these workers from risk. But the point isn’t to induce a society-wide conformist crouch by way of making the workers safe and happy. The point is to induce a society-wide conformist crouch. Period. A solid foundaton is hereby laid for a desirable social order.

Let’s call this position (what would be an evocative name?) ‘dark satanic millian liberalism’: the ethico-political theory that says laissez faire capitalism is good if and only if under capitalism the masses are forced to work in environments that break their will to want to ‘jump across the big top’, i.e. behave in a self-assertive, celebratorily individualist manner. Ergo, a dark satanic millian liberal will tend to oppose capitalism to the degree that, say, Virginia Postrel turns out to be right about capitalism ushering in a bright new age of individual liberty, in which people try new things for the sheer joy of realizing themselves, etc., etc....

Example:

Contemporary conservatives still value that old American character.... [T]here have been hundreds of such changes -- never mind since the Donner party’s day, just since 1945.... All of these changes have had the same effect: the emancipation of the individual appetite from restrictions imposed on it by limited resources, or religious dread, or community disapproval, or the risk of disease or personal catastophe. (p. 202-3)

Words fail me; links not much better. The Donner party? Where did all these people go? Into each other, to a dismaying extent. A passage from one of those moving, stoical diary entries:

...Mrs. Murphy said here yesterday that [she] thought she would commence on Milt and eat him. I don't think she has done so yet, [but] it is distresing. The Donno[r]s told the California folks that they [would] commence to eat the dead people 4 days ago, if they did not succeed in finding their cattle then under ten or twelve feet of snow & did not know the spot or near it, I suppose they have [cannibalized] ...ere this time.

The stoical endurance of the Donner party in the face of almost unimaginable suffering is indeed moving. The perseverance of the survivors is a lasting testament to the endurance of the human spirit. (On the other hand, the deaths of all who stoically refused to cannibalize their fellows might be deemed an equal, perhaps a greater testament.) But it is by no means obvious – some further demonstration would seem in order -- that lawmakers and formulators of public policy should therefore make concerted efforts to emulate the Donner’s dire circumstances. What will the bumper-stickers say? “It’s the economy, stupid! We need to bury it under ten to twelve feet of snow so that we will be forced to cannibalize the dead and generally be objects of moral edification to future generations.” I think we are beginning to see why Frum feels that his philosophy may be a loser come election time. I think the Donner party -- who, be it noted, set out seeking economic prosperity in the West, not snow and starvation -- would not vote Republican on the strength of William Bennett’s comfortable edification at the spectacle of their abject misery....

At this point let me step back and make quite clear: I don’t actually think Frum... is actually advocating the intentional infliction of dire economic hardship and suffering -- let alone cannibalism -- on the American people for the sake of hardening them up, stiffening the national spine. I think if there were some Americans caught in the snowy mountains these days, he’d advocating sending in the helicopters and so forth....

Luckily, we have conservatives holding the line against moral arrogance with their (Frum’s own words) “sweeping moral claims” and deep convictions about how everything is interrelated -- kente cloths, handicapped access, not enough British history in school, foreign policy -- and only they hold the secret key of knowledge. It’s. All. Connected. (You may not be able to see it. But that's just because you are benighted.)

'It is not new,' Whittaker Chambers observed of this creed in another seminal conservative book, Witness. 'It is, in fact, man’s second oldest faith. Its promise was whispered in the first days of the Creation under the Tree of the Knowledge of Good and Evil: ‘Ye shall be as gods.'”... In short, conservatism, properly conceived, is not a philosophy whose practical implications are in the material interests of the middle-class.... Frum actually thinks that conservatism means forcing the poor and middle-class to sacrifice government programs whose existence is, or may be, in their economic interest. And why? Near as I can figure, for the sake of making over the poor and middle-class into more agreeable objects of aesthetic contemplation for (wealthy) conservatives, whose tastes run to: Donner party-like look-alike doughty leatherstocking hard-bitten frontier-type workers (respectful hats in hand.) And the word for this aesthetic transformation is: making people free....

I've got no problem with economic libertarianism. At any rate, I can reason with such folk. But Frum is a cultural and a social conservative. What's his philosophy? I’ve had enough of this. I’m stopping. The funny thing about this book is: it isn’t nearly as bad I just made it sound.... The middle chapters -- full of history and policy detail, so forth -- are quite cogent. Just the main chapters have problems. Frum has written a book about the need for a reflective, conservative philosophy. And: that’s the one thing he hasn’t got. He just has no clue why he is a conservative, or why being one might be a good idea -- or even what ‘conservatism’ ought to mean. Whenever he starts trying to talk about that stuff, his mind just goes blank and he fantasizes about... the Donner party.

Those folks at the NRO are often weird.

1 draft 12/29/2006: FORM FOLLOWS THE FUNCTION OF THE LITTLE MAGAZINE - John Holbo: Blogging does a lot of things well that academic publishing flat-out needs to do a lot better. Like circulation. Maybe you remember Stephen Greenblatt’s 2002 MLA Presidential Address. And I had another piece by Peter Brooks lined up.... Brooks laments that critical culture seems moribund in part because review culture has atrophied; no more ‘mediating organs’—like Partisan Review. So no hope of contact with the public sphere; this takes a lot of wind out of the sails.

Greenblatt says we can’t all be Lionel Trilling or Edmund Wilson, and the problem goes deeper. We aren’t even reading each other. Never mind that the ivory tower can’t contact the public sphere. The ivory tower can’t even contact the ivory tower any more. If I write a scholarly book about literary criticism, how can I get anyone to read it?

Now, this is NOT a problem for blogs. In my own case: Crooked Timber-—8,000 visits a day; and The Valve-—5,000. Academic publishing not only should, but frankly needs to, tap that energy. But how?...

James Madison said standing armies were the greatest threat to liberty—-were standing invitations to tyranny, you see. It sounds strange, but a standing army of literary critics—-that would be us; the MLA-—are a threat to intellectual liberty, in that we are a standing invitation to the tyranny of the monograph. Or, if not that, something like it. Our number is, crudely, a function of the volume of undergrad papers that need grading; our number is not a function of any independent sense of a critical project or set of projects requiring approximately this many hands. We must produce work of ‘scholarly value’ yet our number is corrosive of our sense of it, which ends up having its level settled somewhat arbitrarily—-an uncertain equilibrium point between pedagogic need and economic constraint. Not that we wouldn’t all be happy to read a great book. I hope we know ‘scholarly value’ when we see it. But in the aggregate, 30,000 members of the MLA worth, we don’t know it. This volume of production is—-to repeat—-a function of a demand for teaching credentials, not for scholar-authors. Scholarly overpopulation AND overproduction, with respect to intellectual demand, is deeply rooted in our institution.

I don’t think we need to beat ourselves up about it. It’s good that kids get college educations. So here we are. But we need to acknowledge the shape of the problem. All the money you could hope to throw at it wouldn’t buy a better conversation. For that you need serious, industrial strength mediating forms, specifically engineered to compensate for inevitable overproduction. You need to prevent the library from turning into some sort of disposal site for run-off from the industrial manufacture of professional humanists. If I may say so: before the web, there was no hope. Paper not strong enough. The good news is: we’ve got web.

So: if we stage the end of the Gutenberg era as some sort of Buecherdaemmerung, we squander a fantastic opportunity. Gestures of doomed idealism are only noble if idealism is doomed. We’ve got good work to do....

What will happen is that, in a perennially tight market, candidates will be obliged to generate the greatest possible impression of productivity.... The forms of academic publishing follow two functions.... You publish to share ideas, contribute to knowledge, take part in conversation. And you publish to fill your CV. These functions don’t HAVE to pull apart. But when they do, which function should form follow? Obviously intellectual....

[V]anity publishing is arranging for publication of your work in a form that is self-deceptive or self-outwitting, in that it effectively aims not at shaping the opinion of others, but at shaping the apparent shape of the opinion of others. Your book is hardbound, promising solid influence. Handsome artifact. Makes a sound if you rap it with your knuckle. (But only 200 copies sold.)...

Then there’s cost. But really I’ve made the point already: high-minded indifference to profit no proof of intellectual honor. A system for haphazardly sprinkling 200 libraries with copies of your book, at great cost, is intellectually inefficient. In an age in which it is possible to distribute a book as a PDF for free, you might be better off vanity publishing the true old-fashioned way; just plain self-publishing.... But now it isn’t peer- reviewed and all that. Well yes, we’ve lost quite a lot, haven’t we?...

What we need now is a taskforce for evaluating scholarship NOT for promotion and tenure. We ought to get clear about what the system would look like, ideally, the better to beat back inevitably deforming, institutional demands.... Trilling, “The Function of the Little “Magazine”. My point was that blogs can be wonderful Little Magazines....

First, I want to be a public intellectual. I want one foot in the ivory tower, the other in the public sphere. And I don’t just want to wear two hats. I want the two roles to be mutually informing.... Second, even specialists can affirm the spirit of that quote from Trilling... you don’t write an idiotic paper just because you expect your audience to be a bunch of idiots. The publishing system ought not to compel you to deform your writing.... Finally, Trilling’s essay was written on the occasion of the 10th anniversary of the founding of Partisan Review. After 10 years they had 6,000 subscribers. Slightly more than the Valve, slightly fewer than Crooked Timber. God, we bloggers are lucky....

A simple normative principle. Every scholarly book published in the humanities should be widely read, discussed and reviewed. Because any scholarly book incapable of rousing a modest measure of sustained, considerate, intelligent discussion shouldn't have been published as a book. Turning the point around: in the information age, any book worth the time and expense of publishing, that fails to be read, discussed and reviewed—-has been catastrophically failed by the mediating function of the academic culture in which it was so unfortunate as to be born....

We need three kinds of things....

First, new media, made possible by new technology. New publication forms. If anyone complains that this mucks up the credentialing process, tar them as vanity publishers....

Second, new mediation, made possible by new media. Not every book event is brilliant, but the form is just fantastic. Every author wants one. And should get one. Keep battering those institutional benchmarks until they reward this stuff in proportion to its vital importance to the conversation.

Third... [t]he loss of peer-review and other mediating functions of academic publishing as we know is pretty intolerable, even in exchange for great circulation. But now: suppose we ‘event’ this author. What do we have now:? Post-publication peer review. Of a highly rigorous sort—-and transparent-—although it’s highly unconventional, admittedly.

Do you see what I just did? Give me my book event—-and I invent not just one new kind of book but two. This one, which we’ve got. And a more utopian one, which admittedly we don’t got: a post-publication peer-reviewed book, potentially.

Am I advocating self-publishing? No. I am advocating experiments on... micro-publishing. I can’t do everything, but I can do many things ‘good enough’. What I am counting on, in part, is that efficient new media allow for efficient new mediation. Through better distribution you get to the point of enabling distributed, at least partially post-publication quality control.

At this point I go on talking for another half hour about power laws, 80/20 (20% of books are sure to get 80% of the attention); the long tail, and how my ideas are, in effect, plans for maximizing the circulation of all that stuff under the thin end. But we really don’t have the time. (And I am very sorry the severe brevity of my presentation makes me sound like I don’t see all the obstacles in the path of what I have proposed. Of course I do.)

Stan Collender is very happy with the Congressional Budget Office and with Heritage's Brian Riedl:

BUDGET BATTLES: Thank God For CBO: The Congressional Budget Office proved again last week why it is such a critically important part of the federal budget debate. CBO's most recent economic and budget outlook report [PDF] did what the agency is required to do by calculating the deficit using the unrealistic estimates mandated by law. CBO then went a giant step further by making it clear that these calculations may not tell the real story.

CBO didn't just say the budget baseline was misleading; it also provided substantial additional information that made it possible to see what the true federal budget outlook is far more likely to be. This significantly altered the upcoming budget debate. OMB Director Rob Portman used the official baseline to say the new CBO numbers were "good news."... [T]he CBO alternative baseline paints a very different picture than the official numbers. The official baseline requires that CBO make no political judgments: it has to assume that existing law will not be changed, even when it very likely will....

By contrast, the CBO alternative baseline takes political reality into account by assuming that expiring tax cuts will be extended, the AMT problem will be fixed, domestic appropriations will grow by 4 percent a year, and Iraq and Afghanistan spending will be at the midpoint between a slow and fast drawdown. The difference between the two calculations is substantial each of the next five years but most pronounced in FY12. There will be a $170 billion surplus in FY12 according to the required-by-law baseline. Under the more realistic calculation, however, there is more likely to be a $367 billion deficit....

The best example of how much the alternative baseline changes the budget outlook was provided by the Heritage Foundation, which produced an excellent analysis of the numbers the same day CBO released its report. Instead of lawmakers thinking they have $170 billion to play with in FY12, Heritage's Brian M. Riedle said that balancing the budget without tax increases will require that federal spending not increase by more than $294 billion from FY07 levels in the next five years. Riedle also noted, however, that under current law Social Security, Medicare and Medicaid alone are projected to increase by $367 billion during that period....

[T]he officially required baseline has been increasingly discredited as Congress and the White House have found ways to game it. For example, passing a popular tax cut with a set expiration date allows you to show both a limited cost because the cuts are assumed not to continue and higher revenues after the cuts are assumed to expire. The fact that the tax cut is highly likely to be extended is irrelevant; the law requires that the projections be based on what was actually enacted. It's also partially due to the tremendous erosion in OMB's credibility that has occurred in recent years. CBO's estimates simply look more credible because OMB's have become increasingly questionable...

It is interesting to remember that the same collapse of OMB's credibility happened during the Reagan and Bush I administrations. It's no accident that OMB loses credibility under budget directors like Rob Portman, Josh Bolten, and Mitch Daniels. No accident at all.

Dan Froomkin changes the name of his column to "White House Watch." It is an old and honorable name: that is what the New Republic called John Osborne's column back when it was a real magazine. And Dan Froomkin is a worthy heir to John Osborne:

Dan Froomkin - How This White House Operates - washingtonpost.com: From the first time the White House was asked about allegations that senior officials had exposed a CIA agent's identity as part of a plot to discredit an administration critic, the answer was consistent. As spokesman Scott McClellan put it as early as July 22, 2003: "That is not the way this President or this White House operates." But in the course of the Scooter Libby trial, one thing has become quite clear: That is precisely the way this White House operates. Faced with accusations that they had marched the country to war on evidence they knew was suspect, White House aides evidently responded with little if any restraint in attempting to discredit their critics.

That lack of restraint, now exposed for all to see, is likely to leave a bad taste in the public's mouth. But generally speaking, it has served Bush and his aides well. The White House's ferocity -- compounded by an easily distracted press corps and a Republican-controlled Congress not the least bit interested in oversight -- successfully kept crucial information about the administration's use and abuse of prewar intelligence out of the public sphere through the 2004 election and, arguably, to this day.

White House Watch As of today, this column's name is changing from "White House Briefing" to "White House Watch." I am delighted with the new name -- in fact, it's what I originally proposed this column be called when it launched three years ago. My editors at washingtonpost.com feel that the new name better conveys the column's mission -- that is, to take a critical look at the White House and its media coverage. They also feel that renaming the column will head off any confusion that some users might have about its relationship to " Capitol Briefing," a new blog that just launched in washingtonpost.com's revamped Politics section. That blog will apparently not contain the same sort of opinionated analysis that I bring to my column. Nothing else is changing: Not my approach to the column, not the support of my editors, nothing...

If we are to use the rational-actor model to understand American government policy since 2000, then we conclude that George W. Bush, Richard Cheney, Paul Wolfowitz, and the entire staff of the American Enterprise Institute and the Weekly Standard are deep-cover Iranian agents--part of a conspiracy so immense to attempt to bring the Shia Mahdi back down to earth.

Josdhua Micah Marshall reflects on an article by Anthony Shadid:

Talking Points Memo: by Joshua Micah Marshall January 30, 2007 12:02 AM: Complimenting Anthony Shadid's work is almost redundant.... In the US at present we tend to think of the 'Iran' issue in terms of Iranian influence (or 'infiltration' -- take your pick) on Shia militias and political factions within Iraq. But we need to pull back the frame of reference and see that before 2001 Iran was bordered on the east and west by hostile or at least unfriendly countries -- Afghanistan and Iraq. Iran almost went to war with the Taliban government in the 1990s, Shadid notes.

Over the last five years we've overthrown both governments and... created a power vacuum.... Read Shadid's narrative of events and you see that if the US government were in the pay of Iranian agents they would have been hard-pressed to find a series of actions and policies better crafted to increase Iranian prestige and power in the region and decrease ours.... As a Saudi writer told Shadid: "The United States is the first to be blamed for the rise of Iranian influence in the Middle East. There is one thing important about the ascendance of Iran here. It does not reflect a real change in Iranian capabilities, economic or political. It's more a reflection of the failures on the part of the U.S. and its Arab allies in the region."...

[H]ere we come back to the recurring theme of the Bush presidency: the president's perverse effort to be the beneficiary of his own incompetence and policy disasters.... Iran's power is waxing. And we're supposed to rely on the approach of the White House, the guys who created the terrible situation in the first place, to solve the consequences of their latest screw up. It's like a perpetual motion machine of calamity and self-justification.... "Don't tell me about how stupid I was to get us into this situation. Now that I've created a disaster this big, what's your policy to deal with it?" Sort of takes your breath away....

[W]e're in this eerie afterburn of our four long years of disaster. The public has rendered its verdict. Every thinking person has rendered their verdict. But the administration is still going on more or less as though nothing's happened. Serious thinking in Washington of The Note variety is still on a sort of mental autopilot. The story's over. All the real arguments are settled. But as of yet the car is still in drive rather than reverse.

Like the line says, first do no harm. And for the United States as a country, right now, that means doing everything constitutionally, legally and politically possible to limit the president's and even more Vice President Cheney's free hand to shape and execute American foreign policy. Sift it all out and it's that simple. Stop them from doing any more damage. All the rest is commentary and elaboration.

Impeach George W. Bush. Impeach Richard Cheney. Do it now.

Thabo Mbeki and all the others who have sponsored Robert Mugabe's tenure as dictator of Zimbabwe should tremble in terror when they contemplate the prospect of standing before the Throne. Here's Hilzoy:

Obsidian Wings: Zimbabwe Melts Down: [B]ear in mind that all of these stories are from this month, and most are from the last ten days. It would be bad enough if all this had happened over a span of, say, a decade. But this is ten days. The main problem is hyperinflation.... Zimbabwe's hyperinflation, which saw levels persist stubbornly above 1,000 percent in 2006.... As a result of the skyrocketing cost of living, more or less everyone seems to be on strike. Today, for instance, the NYT has a story on Zimbabwe's doctors' strike.... Junior doctors at state hospitals now earn... less than $50 [a month].... The rural health workers who staff the public health system have gone on strike as well.... Drugs for HIV have become unaffordable. And now, to top it all off, cholera has struck Harare, probably because of the problems with the water supply.... University lecturers are already on strike, and teachers are about to join them.

Earlier this month an article in South Africa's Mail & Guardian had the charming headline: "Striking Power Workers Switch Off Harare". The one group of government employees that Robert Mugabe truly can't do without is not too happy either:

Government employees in the security sector, including police and soldiers, who get an average of about US$280 a month, are also reported to be unhappy. They are not allowed to go on strike, but top security officials have warned that if the government does not raise their salaries and improve conditions of service, their personnel may end up joining opposition forces to remove the ruling ZANU-PF party from power. The state-owned Standard newspaper reported on Sunday that many soldiers had left the Zimbabwe National Army over poor pay to take up posts as security guards or restaurant waiters in neighbouring South Africa and Botswana."...

And some workers in low-paying jobs can't afford to go to work:

"Jacqueline Munyaka (35) of Harare resigned from formal employment as a merchandiser in December. She told The Standard: "It was no longer making sense for me to travel to the city centre every day because transport alone would take up over three quarters of my salary then. I would have to scrounge for money for rentals, school fees and food from friends every month."...

Meanwhile, other catastrophes loom. Yesterday brought this news:

The Zimbabwe Electricity Authority (ZESA) has admitted to a nation already suffering sweeping and extended power cuts that it is broke, and things will get worse. (...) In some parts of Zimbabwe people have been without electricity for three months. The power utility's inability to keep users supplied is being caused by the unavailability of foreign currency to replace and repair outdated equipment; ZESA said it required US$30 million to repair equipment that had become inoperative.

Zimbabwe's economy has been in freefall in recent years, with the formal economy shrinking by 65 percent, agricultural production down by 50 percent, unemployment touching 80 percent and inflation running at 1,281 percent, the highest in the world, causing a slew of shortages, including food, fuel, medicines and foreign currency. (...)

With power no longer guaranteed, urban Zimbabweans are now using firewood as their main source of energy for cooking or heating, stripping the surrounding countryside and farms of their trees.

And:

Zimbabwe's biggest sewage plant has broken down, sending tonnes of raw effluent into a major river and polluting the water supply of the capital, Harare, city authorities said on Monday. Harare's Firle sewage plant has been down since last week and requires at least Z$20-billion to fix, a huge burden for a country already in the grip of its worst economic crisis in decades.

Officials from the national water authority said half of the raw sewage from Harare -- a city of about 1,5-million -- was now discharged into a river that flows into the capital's main water reservoir, the state-owned Herald newspaper reported.."...

And then, of course, there's the looming famine:

Zimbabwe is facing a food deficit of hundreds of thousands of tonnes - a third of its requirements - an international monitoring agency warns. The Famine Early Warning System says the cereal balance sheet projects a shortfall in maize - the staple food - of some 850,000 tonnes. By December only 152,600 tonnes had been delivered, meaning widespread hunger looks set to continue.

The monitors say Zimbabwe's lack of foreign currency is a key problem.

It might be even worse, since agricultural workers are leaving Zimbabwe's farms because of low pay. No wonder even the wealthy have taken up urban farming....

[T]he Mugabe government, whose thuggish and idiotic policies are responsible for all this, is making it worse. The government has threatened the media, announced its intention to seize more white-owned farms, arrested thousands of people who are illegally panning for gold out of economic desperation, and threatened to carry out another round of its brutal slum clearances, in which poor people with nowhere else to go are forced from their homes, which are then bulldozed.

Think about it: this is about ten days' worth of bad news in Zimbabwe. At some point, something has to give.

Greg Sargent writes:

Horses Mouth January 30, 2007 12:35 PM: BUSH CLAIMS THAT HIS SAYING "DEMOCRAT" MAJORITY WAS AN "OVERSIGHT" -- EVEN THOUGH HE'S DONE IT AGAIN AND AGAIN IN THE PAST. This is kind of funny. Via Political Wire, President Bush claimed in an interview with National Public Radio's Juan Williams yesterday that his use of the term "Democrat majority" in the State of the Union speech was a mistake:

PRESIDENT BUSH: ...Yeah. Well, that was an oversight then. I mean, I'm not trying to needle. Look, I went into the hall saying we can work together and I was very sincere about it. I didn't even know I did it.

Really? If so, it's an "oversight" that Bush has committed an awful lot of times in the past.... November 8, 2006... it is clear the Democrat Party had a good night... November 5, 2006... the Democrat party has adopted a clear strategy of opposition and obstruction... October 30, 2006... the top Democrat leader... October 20, 2006... people in the Democrat Party... October 19, 2006... the Democrat Party... November 7, 2005... the Democrat Party. The Democrat Party...

It wasn't hard to find these past Bush quotes. All it entailed was going to the White House's Web site and plugging the phrase "Democrat party" into the search box. If you do that, you get this rundown. Nothing to it. Yet the Washington Post, which devoted a stand-alone story to this latest explanation by the President, apparently didn't take this elementary step...

But why not share this kind of info with readers? I just don't get it. What's the problem? It's easy and fun. Readers are grateful, too. And the White House wouldn't mind -- after all, the info is right there on its Web site.

Incidentally, anyone who wants to know why "Democrat" as an adjective is taken as a slur should read Hendrik Hertzerg's useful primer in The New Yorker.

Let me be blunt: Greg Sargent doesn't understand the mindset of Washington Post reporter Michael Abramowitz or NPR interviewer Juan Williams. Informing their readers and listeners is not their objective: sucking up to the powerful and aiding in their media-transmitted presentation of self is their objective. News and information are best gained through weblogs run by honest patriots, not through journamalists like Michael Abramowitz and Juan Williams.

The New York Times Book Review was, I think, in sad shape before Sam Tannenhaus took it over. But now it is worse. Let me turn the mike over to Patrick Nielsen Hayden::

Making Light: Why they call it an "establishment": The New York Times Book Review is an organ of the received-wisdom prejudices of upper-middle-class Americans. The New York Review of Books is more typically confrontational and--unashamedly--intellectual. You can inhale entire issues of the New York Times Book Review without having a single preconception ruffled. This isn%u2019t remotely true of the New York Review of Books.

Here's the comparison that wraps it all up. Both publications recently ran reviews of Norman Mailer's new novel, The Castle in the Forest.

To write their review, the New York Review of Books commissioned J. M. Coetzee, winner of the Nobel Prize for Literature.

To write theirs, on the other hand, the New York Times Book Review commissioned disgraced former New Republic blogger and sockpuppet wielder Lee Siegel, the man who had to be administered smelling salts after being exposed to the awful language of the bloggers in whom he'd discerned the novel new characteristic that he dubbed "blogofascism."

Why is this guy still getting work, much less high-profile work like this? Answer: establishments take care of their own.

Healing Iraq writes:

Healing Iraq: The official U.S. and Iraqi story about what happened in Najaf today, which was swallowed and propagated by news wires (and apparently also the New York Times), is complete nonsense.

First of all, they can't even decide whether they were fighting Sunni insurgents or a"violent Shi%u2019ite cult."... [T]he U.S. and Iraqi descriptions don't match... contain gross inconsistencies:

Najaf's governor, As'ad Abu Gilel, who is a member of the pro-Iranian SCIRI, said they were Sunni insurgents, including Pakistani and Afghan fighters, plotting to stage an attack against Shia pilgrims commemorating the holy month of Muharram in Najaf, and to possibly attack the Shi'ite clerical leadership that is based in the old city, around the shrine of Imam Ali.

Then he turned around and said they were local [Shia] loyalists to ousted dictator Saddam Hussein, probably referring to the Sh'ite tribe of Bani Hassan around Kufa, which facilitated the assault by Saddam's Republican Guard against rebels in the 1991 Intifada. (The Bani Hassan tribe is despised by major Shi'ite political parties, and residents of Najaf scornfully refer to their town of Al-Abbasiya, across the Euphrates from Kufa, as Al-Ouja, which is the hometown of Saddam Hussein near Tikrit. Many members of Bani Hassan also supported Sadrists in their 2004 uprising.)

A U.S. military source confirmed that 250 "insurgents" were killed and several other militants were captured, including a Sudanese. An Iraqi security source, however, as well as the local Iraqi media, identified the militants as members of a Shi'ite splinter group called Al-Mahdiyoun or Ansar Al-Imam Al-Mahdi, which if true means the U.S. military was once again duped into doing the dirty work of SCIRI and other Shi%u2019ite factions -- and, I daresay, Iran....

The Mahdiyoun, or Mahdawiya, as they are called in Iraq, are a very small fringe Shia movement.... Their leader is Sayyid Ahmed Al-Hassan... who declared himself the promised Al-Yemani, who according to Shi'ite lore is the vanguard of the twelfth Imam Al-Mahdi...

Since the arrangements to pay me for reading Sebastian Mallaby have fallen through, I have outsourced wading through the dreck to Ezra Klein and Matt Yglesias. Ezra writes:

Ezra Klein: The CEO President: Matt is, I fear, too kind to Sebastian Mallaby's sleight-of-hand:

Mallaby ends with a kicker. "American business succeeds in the world because it morphs, shape-shifts, learns from its mistakes; it is too paranoid, too anxious to please its customers, to stick with formulas that aren't working," he writes, "The question posed by last week's BBC poll is whether American government can mimic that agility." Well, what a nice center-right I-used-to-work-for-the-Economist way of putting things. Business good and nimble, government clumsy and inept. But of course the problem here isn't that "American government" has proved reckless and stubborn and trashed America's global image. George W. Bush and Dick Cheney, Donald Rumsfeld, Condoleezza Rice, Stephen Hadley, etc. have done these things.... There's not an abstract government problem here, there's a concrete Bush administration problem.

But it's worse than that, of course. George W. Bush ran for president explicitly promising to run government more like a business. He was the "CEO President," remember? He'd led companies, owned baseball teams, understood delegation, and wouldn't waste time in interminable meetings or late-night policy discussions like the undisciplined, un-business-like Clinton. Indeed, we even got weird extensions of the Bush-as-CEO brand, like The Rumsfeld Way : Leadership Wisdom of a Battle-Hardened Maverick.

The CEO President, of course, ran his company, his company's reputation, and his own reputation into the ground. And so those committed to conservatism's Manichean view of the private and public sectors (private good, public bad) are back to blaming government. But when government was run by Clinton, a longtime political executive who sought to run it as a good government, it worked quite well. It was only once we elected a self-described CEO and instinctual privatizer that everything came off the rails. And we elected him largely on the strength of business-glorifying bromides like the one Mallaby offers above.

It is interesting that the best argument for the 1960s Republican claim that American government is evil and corrupt was Richard Nixon. It is interesting that the best argument for today's claim that American government is incompetent is George W. Bush--who is not only incompetent but, I believe, deeply corrupt and evil as well. But there is an easy solution that Mallaby would adopt if he were honest: stop voting for and carrying water for Republicans.

Matt Kahn sends us to Ed Glaeser citing Matt Kahn on the greenness of Manhattan:

The Greenness of Cities - January 30, 2007 - The New York Sun: Henry David Thoreau was no fan of cities. At Walden Pond he became so "suddenly sensible of the sweet and beneficent society in Nature" that "the fancied advantages of human neighborhood" became "insignificant." Thoreau's like-minded heirs, including the urbanist, Lewis Mumford, praised the "parklike setting" of suburbs and denigrated the urban "deterioration of the environment."

Millions of Americans proclaimed their love of nature by moving to leafy suburbs while denigrating New Yorkers for living in the most man-made of places. .... Now we know that the suburban environmentalists had it backwards. Manhattan, not suburbia, is the real friend of the environment. Those alleged nature lovers who live on multiacre estates surrounded by trees and lawn consume vast amounts of space and energy. If the environmental footprint of the average suburban home is a size 15 hiking boot, the environmental footprint of a New York apartment is a stiletto-heeled Jimmy Choo.... New York's biggest environmental contribution lies in the fact that less than one-third of New Yorkers drive to work. Nationwide, more than seven out of eight commuters drive. More than one-third of all the public transportation commuters in America live in the five boroughs. The absence of cars leads Matthew Kahn, in his fascinating book, "Green Cities," to estimate that New York has by a wide margin the least gas usage per capita of all American metropolitan areas. The Department of Energy data confirm that New York State's energy consumption is next to last in the country because of New York City.

Is there any reason beyond civic pride to care that New Yorkers are true friends of the environment? I think so. Environmental benefits are one of the many good reasons that New York should grow. When Manhattan builds up, instead of Las Vegas building out, we are saving gas and protecting land. Every new skyscraper in Manhattan is a strike against global warming. Every new residential high rise means a few less barrels of oil bought from less than friendly nations belonging to the Organization of the Petroleum Exporting Countries...

Fortunately, now that I have a video iPod I can multitask and watch hearing files from CSPAN and other things while out with America's Silliest Dog in the mornings.

Unfortunately, using the iPod this way in the winter before dawn kills my night vision.

Fortunately, our standard routes are fairly smooth and usually paved.

Unfortunately, I didn't see the skunk this morning until we were twenty feet from it.

Fortunately, the skunk was unclear on Karl Schmitt's friend-enemy distinction: it may have thought we were going to feed it, for it looked at us for a good ten seconds before it turned and waddled away.

Unfortunately, America's Silliest Dog has no conception of deterrence theory, and wanted to charge the skunk.

Fortunately, I was not only holding the leash but had it wrapped twice around my wrist.

Unfortunately, America's Silliest Dog is lean and well-muscled and I am not: the muscles connecting my shoulder to my back are now expressing their displeasure with the management.

Some of the more interesting categories from Crooked Timber:

Boneheaded Stupidity (19)... Conspiracy (1)... Et Cetera (232)... Intellects vast and cool and highly sympathetic (11)... Intellects vast and cool and unsympathetic (35)... Intellects vast and warm and sympathetic (45)... Just broke the Water Pitcher (101)... Look Like Flies (48)... Montagu (1)... Obiter Dicta (30)... Pink (1)... Time Sink (13)... wtf? (3)

Spice Islands thyme does not have a shaker top.

An emergency thyme containment and removal team has been called.

The recipe may not survive.

Matthew Yglesias writes about the:

http://www.matthewyglesias.com/archives/2007/01/strange_ethics/: persistent attempts by someone at the Council on Foreign Relations to scrub the Max Boot Wikipedia page of some unflattering information. Boot, of course, is a fellow at CFR and a columnist for The Los Angeles Times. What information? Well, as you can read here on Altercation, what this is about is... [b]efore he was a prestigious military policy writer, Boot was simply a generic rightwing hack at The Wall Street Journal's hack-laden editorial page. While there he, among other things, wrote an editorial attacking public health officials that was edited by tobacco lobbyist Steven MIlloy.

The only reason we know anything about this is that it happens to have come up in tobacco-related litigation. It's possible, in principle, that when Boot was writing rightwing regulatory policy journalism for the Journal he just so happened to let one of his pieces be edited by a lobbyist and that that piece just so happened to have come up in a lawsuit. Much more likely, however, is that he did this on various occasions and there just so happens to have been a lawsuit that uncovered this.

And now Boot, or someone working on his behalf, is trying to keep this incident hushed up.

The cigarette company Philip Morris classified Steve Milloy as one of their "tools to affect legislative decisions." Back in 1994, Milloy's "The Advancement of Sound Science Coalition" was part of Philip Morris's "Operation Whitecoats" which was:

http://en.wikipedia.org/wiki/The_Advancement_of_Sound_Science_Coalition: budgeted for $17 million the year TASSC was created [1993]... of which TASSC was an important part... to make an appearance of controversy about health effects of smoking.... TASSC was proposed by APCO Associates to Philip Morris Tobacco Company in the fall of 1993...

In short, Steve Milloy is the protagonist of the movie "Thank You for Smoking."

The paragraph that Max or someone working in the same building with him is working to scrub is:

[Boot] also collaborated with Steven J. Milloy on an article "Risk Rethought" which was critical of regulations to protect public health. Milloy edited a draft of the article which can be found in the Tobacco Legacy Documents. In the article, Boot wrote, "Of course, the regulators claimed that their rules were necessary to protect the public's health. Anyone who protested was labeled a stooge of Big Business." Milloy was later found to have been on the payroll of Big Tobacco http://www.tnr.com/doc.mhtml?i=20060206&s=thacker020606.

I think the paragraph is a little too easy on Max Boot. At the time, IIRC, it seemed clear to me at least that the overwhelming probability was that Milloy was either insane or on the payroll. In Boot's shoes I, at least, would not have dared both to send my editorial to Steve Milloy to edit and to write that protesters against regulation were falsely "labelled a stooge of Big Business."

Here's Boot's cover note to his fax of his editorial draft to Milloy:

CCI FAX 914-2414-008-785 1 DEC 1994 17:15 EST
From: DOW JONES AND COMPANY TIX 7607690
To: FAX 1-20298338945

To: Steve Milloy
From: Max Boot, Wall Street Journal, 212-416-2566

Steve, I've been working on an editorial about your report. It's not done yet but I thought I'd show you a draft and get your reaction to it. Is it accurate? Did I make any mistakes? Etc. Thanks.

Steve Milloy had three suggested changes. Max Boot accepted all three of them. Here's Max Boot's editorial as published, with Steve Milloy's edits shown as strike throughs and bolds:

Wall Street Journal
REVIEW & OUTLOOK (Editorial)
"Rethinking Risk"
738 words
6 December 1994
A28
English
(Copyright (c) 1994, Dow Jones & Co., Inc.)

When the new Republican Congress convenes in January, one of the top priorities ought to be rolling back what Lamar Alexander calls the "Waxman State" -- the torrent of rules and regulations enacted into law by the likes of Congressman Henry Waxman (D., Hollywood). This is an especially pressing priority in the environmental arena, where Congress and various executive branch agencies have spent years passing onerous rules to deal with negligible or nonexistent risks.

Environmental regulation is the source of much public outrage nowadays. Often the rules are a tangled mess because Congress's underlying legislation was complex in its goals and impossibly vague in how to meet those goals. The real rule-making was left to the bureaucracies, which in turn produced their own Rube Goldbergian complexity. Now comes evidence from a most unlikely source -- the government itself -- to support the contention that environmental spending bears little if any relation to the real risks faced by the public.

The Department of Energy has just released a report titled "Choices in Risk Assessment," prepared by a private consulting firm nonprofit research group. The agency has good reason to study the subject: It could spend $300 billion to $1 trillion over the next 30 years cleaning up waste sites. Does the scientific policy behind those cleanups -- and other federal actions -- stand up to scrutiny?

The report delivers some clear answers: "Most environmental risks are so small or indistinguishable that their existence cannot be proven." Scientific policy is "inherently biased and can be designed to achieve predetermined regulatory outcomes." "Policymakers, the media and the public are unaware of the role of science policy because of a lack of full and fair disclosure."

Consider just one example: the Occupational Safety and Health Administration is now proposing sweeping indoor air-quality regulations that would include a ban on all workplace smoking. But according to "Choices," a major part of this policy -- estimated to cost the private sector $8 billion annually -- is based on a one-page, hand-written chart that has never been published or peer-reviewed.

The "Choices" report praises the government for not banning the fluoridation of water, unleaded gasoline and used oil, for which some evidence of risk exists, but which on balance do far more good than harm. The report asks why similar decisions haven't been reached about other alleged dangers. For example, when the EPA tried to ban asbestos, it took into account only the product's hypothetical cancer risk -- not the many lives that would be lost if nonasbestos brakes are substituted on cars.

There's simply no rhyme or reason behind federal environmental policy. Even the "one chance in a million" standard used by many agencies to define a minimum level of cancer risk turns out to have no scientific basis. Kathryn Kelly, a Seattle environmental consultant, reports in the newsletter EPA Watch that this standard was basically plucked out of a hat by the FDA in the 1970s to regulate animal drug residues. Now it's employed for everything from hazardous waste sites to pesticides -- even though scientists have generally concluded that risks of less than one in a thousand can't even be quantified.

"It's insane that we're spending hundreds of billions of dollars chasing imagined risks," Steve Milloy, author of "Choices," tells us.

The road to sanity starts with more rational risk/cost-benefit analysis. Bills to accomplish that goal were introduced in the last Congress but got nowhere because of opposition from Democratic barons. Now that there are new Kings of the Hill, swift action is expected on this front.

But the new Republican majority should be careful about the language of cost-benefit bills. As "Choices" points out, many risk-analysis ideas have already been implemented via executive order -- to no effect. What's needed is legislation with teeth -- set out clearly what standards bureaucrats should follow, and give companies and local governments the right to sue if regulators get out of line. GOP Sen. Trent Lott, the new Majority Whip, has introduced a draft proposal along these lines, and Rep. Dan Mica (R., Fla.) will probably follow suit.

Passage of their plans would be a first step toward dismantling the crushing cost burden of the Waxman State, which surely played a role in the voters' recent decision to part ways with the Democratic Party. The party's public tastes simply had become too expensive.

The Economist reviews Barry Eichengreen's new book:

Economist.com: A new economic history argues that Europe's institutions must adapt if the continent is to thrive in future: Barry Eichengreen (2007), The European Economy Since 1945: Co-ordinated Capitalism and Beyond (Princeton: Princeton University Press: 0691127107):

THERE are, writes Barry Eichengreen, two popular views of the European economy: it is either a “phoenix” or a “basket case”.... You can perhaps reconcile these two extremes, suggests Mr Eichengreen, if you choose your periods carefully. Compare the end of the last century with the middle of it, “and there is no disputing the phoenix view.” More recently, however, Europe has tended to lag behind America. And that, concludes this sympathetic American observer (a professor at the University of California, Berkeley), gives rise to doubts about the old continent's future economic prowess.

The key to these two facets of the economy lies in Europe's institutions.... Western Europe's rapid post-war growth, he says, stemmed from more than the free play of market forces: cohesive trade unions and employers' associations, often inherited from pre-war times, and growth-minded governments were needed too. Hence the “co-ordinated capitalism” of his subtitle.... Co-ordinated capitalism worked well in those countries that had it. Britain, with its fragmented unions and employers' groups, was a conspicuous exception, and its attempt to mimic French indicative planning in the 1960s was a conspicuous failure. Co-ordination crossed borders too, in the shape of what eventually became the European Union....

Europe's institutions served it less well once it had more or less caught up with America. They were much less good at fostering “intensive growth”—-pushing back the bounds of economic possibility as opposed to merely catching up with them. Even in the 1950s and 1960s, while America put its research and development dollars into aerospace and electronics, Europe went for marginal improvements in chemicals, textiles and machinery—-in Italy, for example, adding numerical controls to existing textile looms....

Mr Eichengreen does his best to sound optimistic.... He sees reform efforts such as the Lisbon agenda, intended to make Europe the world's “most competitive” economy by 2010, as an attempt to overcome institutional inertia....

[N]o single story will fit such a varied continent. Mr Eichengreen has made a decent job of weaving different national shades into his book, while keeping the whole within reasonable bounds. In particular, he does justice to central and eastern Europe in communist times, helped by vivid examples of planning failures and partial reforms—for example, a quarter of all shoes sold in Hungary in 1951 were officially classed as substandard. And he has much to say about communism's collapse and its aftermath, as well as the reintegration of those countries with the west of the continent.... For both Americans who want to understand Europe's successes and failures, and for Europeans who want to know where their continent was right and where it has gone wrong, Mr Eichengreen has provided an excellent summary.

According to Theo Balderston in The World Economy and National Economies in the Interwar Slump, the "international view" is the most important contribution to the literature on the Great Depression in the last 20 years. According to Anna Schwartz, it adds nothing to what was known before. With whom do you agree, and why?

When Milton Friedman passed away on November 16th, 2006 it was widely observed that his "Monetary History" (coauthored with Anna Schwartz) was the single most influential book in the general area of monetary- and macro-economics written in the 20th century. Why has this book been so influential?

Larry Summers:

FT.com / Columnists / Lawrence Summers - America must not surrender its lead in life sciences: If the 20th century was defined by developments in the physical sciences, the 21st century will be defined by developments in the life sciences. Lifespans will rise sharply as cures are found for chronic diseases and healthcare will come to be a larger share of the economy than manufacturing. Life science approaches will lead to everything from further agricultural revolutions to profound changes in energy technology and the development of new materials....

It is natural to ask whether the US will lead in the life sciences in this century as it did in the physical sciences in the last. It is a profoundly important economic question, but one whose implications go far beyond to embrace issues of national security and moral leadership. At present, if one looks at levels of investment or at research output or at the prestige of leading institutions, the US is clearly leading in the life sciences. But past performance is no guarantee of future success. In the first third of the 20th century, Europe and Europeans were the dominant source of discoveries in physics....

If America is to maintain its leadership in life sciences in the 21st century, important steps must be taken. Most abstract but most important, there needs to be respect for the scientific method and its results. In sharp distinction to the situation in other industrial countries, there is an increasing move away from respecting the scientific method in US schools....

Second, funding.... During the past three years, when there has been more possible in the life sciences than there has ever been, when we are on the cusp of achieving important breakthroughs in everything from stem cells to the treatment of cancer, government funding for science research has been cut in real terms. This has been particularly hard on young researchers starting out in their careers....

In today's economy an outstanding graduate of a leading business school earns a substantially higher salary than a potential Nobel prize winner graduating with a PhD in biology. Several years after graduation the differences are even more pronounced. It should not be a surprise that in light of this economic reality more of our talented young people are not headed towards careers in basic research in the life sciences.

Third, we need to control the role of politics in allocating science dollars, which are currently tossed around like so many political footballs.... [I]t is not a step towards a healthier 21st century to allow the views of a vocal minority in effect to cut off funding for embryonic stem cell research -- which is likely to lead to revolutions in the treatment of Parkinson's disease, diabetes and cancer within the next generation.

Finally, we need to support clusters of extraordinary performance. If competition is individualistic, the US is going to have a very difficult time because salary levels adjusted for talent are going to be much lower in other parts of the world. Rather than focus on each individual as an island unto him or herself, the US needs to focus on fostering clusters of innovation %u2013 such as Silicon Valley in information technology, Boston in the life sciences, New York in finance -- where each talented individual derives his or her strength from all that is around. Competing with that on price is much more difficult...

Leo asks:

Absolutely Regular: A neat problem: Communicated to me by co-blogger Steve Miller, which he's too busy to post. Two players, A and B, start out with $a and $b dollars, respectively -- where a and b are natural numbers. They flip a fair coin, and every time it comes up heads, A gives 1 dollar to B; for every tails, B gives 1 dollar to A. The game ends when one of the players has zero dollars (and the other one has a+b). What's the probability that player A wins?

I was able to guess the answer right away (Steve told this to me on the phone), but this is probably more luck than anything else, as these intuitions can often be misleading. In any case, an answer is worthless without a proof, which Steve tells me is not entirely trivial. Furthermore, we don't know what happens if the coin, instead of being fair, has bias p. Anyone out there know?

At the start, player A has $a dollars. Subsequent coin flips do not change the expected value of A's wealth, so A's expected wealth is $a at every point in the future. When the game ends, A has either 0 or $a+b dollars. For her expected wealth to be $a, the probability that she wins--has $a+b dollars--must be equal to a/(a+b).

In order to solve the problem with an unfair coin with p ≠ 1/2, construct the value function. Suppose that player A wanted to sell you her position in the game when she has $x dollars. What would be a fair price for you to pay?

Clearly, if A has $a+b dollars, she has won and the game is over and her position is worth $a+b, so V(a+b) = a+b. And if A has $0 dollars, she has lost and the game is over and her position is is worth $0, so V(0) = 0.

If A has $x dollars this round, then after the next coin flip A will have $x+1 dollars with probability p and $x-1 dollars with probability 1-p. If the value function is to be fair, then:

V(x) = p(V(x+1)) + (1-p)(V(x-1))

or:

[V(x) - V(x-1)] = [(1-p)/p][V(x-1) - V(x-2)]

The two boundary conditions and this difference equation pin down the value function V():

And at the start, with x = a, the probability of player A's winning is:

"But Captain Jack will get you high tonight..." Is it just some strange attachment on my part to 1970s-Suburban-Youth-Long-Island-Angst music? Or is "Captain Jack" by far the best thing in music that Billy Joel ever did?

I fear for John Scalzi's sanity:

The Two Most Awesome Words That Are Awesomely Awesome in Their Awesomeosity: Are you ready for them? Really ready for them? Really really?

Here they are:

Caffeinated Doughnuts.

Has there ever been a better time to be alive then now? A better place to be alive than here? Clearly, the answer would have to be: No.

Dean Baker asks a question:

Beat the Press: Global Warming is Serious: Why Can't the Post Treat It Seriously?

In a front page article on President Bush's changing statements on climate change, the Post tells readers that he will spend $29 billion on "climate science, aid, and incentives." Is there even a single reader of this sentence, apart from those actually working on climate policy, who has any idea what this commitment means?

For beginners, how about telling readers the time frame for this spending? My understanding is that the $29 billion will be spent over ten years (approximately 0.1 percent of projected spending), but I don't have any clear idea of what this money refers to, so I can't say that for certain. It would also be helpful to know to what extent this money involves an additional commitment of resources -- the government has spent money for decades on climate science and various programs that encourage conservation.

In short, reporting this $29 billion in projected spending provides no information whatsover. Couldn't the two experienced reporters who wrote this piece recognize that they were not providing any information to readers? Couldn't their editors?

--Dean Baker

The Washington Post isn't in the business of providing information, Dean. That would be "unbalanced."

Brilliant at Breakfast:

Brilliant at Breakfast : They also received dead fishes in the Capitol Hill interoffice mail: You Never, Ever, Ever, Ever Disrespct Da Family:

A top GOP staffer says more than 70 senators would oppose the surge if their vote matched their comments in private meetings. "The White House is trying to but they really don't know how to handle this," said a senior GOP aide involved in the talks.

White House officials are pleading with GOP senators to oppose any congressional resolution that specifically condemns Bush's effort to escalate the war effort in coming months, congressional sources said Friday morning. In private conversations, the officials are telling senators that the resolution would demoralize U.S. troops and hurt the GOP politically for years to come. Bush allies are arguing that Republicans will damage their individual political interests as well.

Their logic is that there is no anti-war constituency inside the Republican Party, pointing specifically to Sen. Chuck Hagel, R-Neb., a potential presidential candidate who has opposed the surge but not gained much traction with party activists. "That's a flat argument," the senior aide said. "That does not work."

Brink Lindsey says that I should talk to U.C. Davis's Dan Sumner to learn about the long-run collapse of Newt Gingrich's constructive "Freedom to Farm" initiative...

ARE Department Website: Daniel A. Sumner is the Frank H. Buck, Jr., Professor in the Department of Agricultural and Resource Economics at the University of California, Davis and the Director of the University of California, Agricultural Issues Center. He participates in research, teaching, and directs an outreach program related to public issues facing agriculture. He has published broadly in academic journals, books, and industry outlets. His research and writing focuses particularly on the consequences of farm and trade policy on agriculture and the economy.

In 1995, he was honored by the American Agricultural Economics Association for his agricultural policy contributions. In 1996 he and co-authors won the AAEA award for Quality of Research Contribution, and his book series related to national farm policy reform was awarded an Honorable Mention for Quality of Communication.

Prior to beginning his current position in January 1993, Sumner was the Assistant Secretary for Economics at the United States Department of Agriculture where he was involved in policy formulation and analysis on the whole range of topics facing agriculture and rural America -- from food and farm programs to trade, resources, and rural development. In his role as supervisor of Agriculture's economics and statistics agencies, Sumner was also responsible for data collection, outlook and economic research.

From 1978 to 1992 Sumner was a Professor in the Division of Economics and Business at North Carolina State University. He spent much of the period after 1986 on leave for government service in Washington, D.C. During 1987-88 he was a Senior Economist at the President's Council of Economic Advisers and was Deputy Assistant Secretary at the USDA from 1990-92.

Sumner was raised on a fruit farm in Suisun Valley, California and was active in 4-H and FFA activities as a youth. He received a bachelors degree in agricultural management from California Polytechnic State University in San Luis Obispo in 1971, a masters degree from Michigan State in 1973, and a Ph.D. in economics from the University of Chicago in 1978.

A question. When George W. Bush said:

[Although we are adding the value of health insurance contributions by employers to the income subject to personal income and payroll taxes, we are adjusting things so that] amilies with health insurance will pay no income or payroll taxes on [the first] $15,000 of their income. Single Americans with health insurance will pay no income or payroll taxes on [the first] $7,500 of their income...

Did he mean, "But the Alternative Minimum Tax will still apply to all income reported on your W-2, plus the value of health insurance contributions made by your employer, with no adjustment for this new health deduction"?

The Economist's Lexington correspondent is finally shrill! It writes a good article about Condi Rice.

It's at least four years too late for such an article to be useful and informative, however:

Economist.com | Articles by Subject | Lexington: [Condi Rice's] fingerprints are on some of the worst mistakes of the first Bush term. She claimed the White House was unaware of the CIA's doubts about whether Saddam Hussein had tried to buy yellowcake uranium in Niger, for example, despite the fact that her office had received two memos on the subject and a call from the CIA director. But her culpability is deeper than that. When Ms Rice ran the National Security Council (NSC), it was hopelessly dysfunctional....

Ms Rice has also proved a disappointing manager of the State Department....

Ms Rice made her career by impressing powerful establishment figures.... But what happens when your patrons disagree?... [Rice] chose to flatter her current patron.... [She]... started her career... sceptical about nation-building and democratisation. She might have chosen to restrain her boss's Manichaean instincts with a dose of that realism. Instead she went along with him. Being a perfect protégée can get one a long way up the greasy pole...

I pay for the *Economist* in the hope that it can tell me true things about the world that I don't already know, rather than confirm things that I learned from other sources four years ago.

Dana Milbank writes:

Dana Milbank - In Ex-Aide's Testimony, A Spin Through VP's PR - washingtonpost.com: Memo to Tim Russert: Dick Cheney thinks he controls you.

This delicious morsel about the "Meet the Press" host and the vice president... Cathie Martin... on the courtroom computer screens were her notes from 2004 about how Cheney could respond to allegations that the Bush administration had played fast and loose with evidence of Iraq's nuclear ambitions. Option 1: "MTP-VP," she wrote, then listed the pros and cons of a vice presidential appearance on the Sunday show. Under "pro," she wrote: "control message."

"I suggested we put the vice president on 'Meet the Press,' which was a tactic we often used," Martin testified. "It's our best format."

It is unclear whether the first week of the trial will help or hurt Libby or the administration. But the trial has already pulled back the curtain on the White House's PR techniques and confirmed some of the darkest suspicions of the reporters upon whom they are used.

Dana gets two things wrong in these four paragraphs. First, Cheney doesn't "think" he controls Russert: Cheney does control Russert. Cheney's press aide Cathie Martin is correct when she says that Russert will not push Cheney or attempt to closely question him.

Second, the trial does not confirm "some of the darkest suspicions of the reporters." The reporters have no suspicions about how they are used by the Republican leadership. They have been active coconspirators here. The trial confirms some of the darkest suspicions about the reporters.

These two weasel-words by Milbank--"thinks" instead of "does" and "of" instead of "about"--are markers of the extent to which the Washington press corps is still, after everything, in the tank for and shading its reporting in favor of the Bush administration.

Milbank goes on, calling things "[newly] confirmed... suspicions" that he has known--and I have known--to be facts since at least mid-2001:

Relatively junior White House aides run roughshod over members of the president's Cabinet. Bush aides charged with speaking to the public and the media are kept out of the loop on some of the most important issues. And bad news is dumped before the weekend for the sole purpose of burying it.... She walked the jurors through how the White House coddles friendly writers and freezes out others....

[Martin] proposed "leak to Sanger-Pincus-newsmags. Sit down and give to him." This meant that the "no-leak" White House would give the story to the New York Times' David Sanger, The Washington Post's Walter Pincus, or Time or Newsweek...

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

Lance Knobel writes:

: I went to an interesting unconference on talent today at Electronic Arts. I was involved in a discussion on "the big pipe": the need to reform the US education system so the country can have the talent necessary to thrive in the coming decades. One point we agreed on was the need for companies both to understand and lobby about the importance of education.

An executive from Starbucks made the excellent point that CEOs have a limited bandwidth for issues. For many, healthcare looms far larger than education. After all, she said, Starbucks spends more annually on employee healthcare than on purchasing coffee

Dymaxion World enters the Star Trek canon discussion:

Dymaxion World: Nerd moment: For my money, Star Trek VI is by far the best movie the series has produced, ever. Aside from being by far the superior script and directing of all the movies, I'm not sure how you can possibly top the multi-layered Cold War references. Most especially Christopher Plummer as a Klingon channeling Adlai Stevenson yelling to Kirk, "Don't wait for the translation, answer me now!"You could put that movie on every Sunday on Space, and I'd watch it every Sunday.

Honorable mention: Chekov in Star Trek IV, asking in faux-Russian accent "where are the nuclear wessels" to passersby in Reagan-drenched America. Yes...

I prefer this exchange from Star Trek VI: "We believe in alienable human rights!" "Inalienable.* I wish you could hear yourselves. Human rights. The Federation is a homo sapiens only club..."

I must disagree, however, with his claim that Star Trek VI: The Undiscovered Country is the best. There are two better Star Trek movies:

• Forbidden Planet

• Galaxy Quest

The Weekly Not-Me: Back in 1972, my middle school Social Studies teacher Peter Cohen introduced me to the concept of the weekly political magazine. Ever since then, I have wanted to own one. Now I realize that, with the coming of the web, I can--in an RSS-fueled, rotisserie league sense, that is.

Presenting:

Egregious Moderation: For people who want one online source for punchy liberal political analysis and evisceration; especially evisceration.

I'll form it out of a batting order of twelve (which I will change from time to time), plus occasional guest stars: the twelve people who I would most wish to have on a weekly political magazine's staff, plus the most interesting outside pieces that I would wish to have solicited.

And if you are looking for a real magazine/website meeting a real payroll? I think the American Prospect http://www.prospect.org/ is currently the best, with the New York Review of Books http://nybooks.com/ a close second...

This Morning's Additions to the Pile:

• Daniel Altman (2007), Connected: 24 Hours in the Global Economy (New York: Farrar Straus and Giroux: 0374135320): http://amazon.com/exec/obidos/asin/0374135320/braddelong00.
• Charles Francis Adams (1878), Railroads: Their Origins and Problems (New York: Cosimo Books: 1596054638): http://amazon.com/exec/obidos/asin/1596054638/braddelong00.
  • Cosimo Books: http://cosimobooks.com/.
• Charles Stross (2007) Missile Gap (Subterranean Books): http://amazon.com/exec/obidos/asin/1596060581/braddelong00.
• David Edgerton (2006), The Shock of the Old: Technology and Global History since 1900 http://www.amazon.com/exec/obidos/asin/0195322835/braddelong00.
• Paul Starr (2007), Freedom's Power: The True Force of Liberalism http://www.amazon.com/exec/obidos/ASIN/046508186X/braddelong00.

And next Monday I have to be three places at lunch: a seminar by Jesse Fried on "CEO Pay without Performance" at the Labor Relations Institute; lunch with the job candidate Emi Nakamura; and lunch with the economic history seminar speaker Greg Clark...

And I am told that I really need to read another CBO report from 2004 before I start opining about health care program administration...

Cloning. Multiple cloning of myself followed by rapid forced-growth and education by subliminal tape. That is the only possible answer.

Long-Run Health Care Cost Drivers: One of our best graduate students here at Berkeley--Marit Rehavi--just came by with a truly depressing thought. No matter which subtribe of economists you think is correct in the intellectual health-care wars, the world is moving in directions that make the favored policies of both factions less likely to work in the future.

On health care issues, you see, economists divide into two subtribes depending on whether they think the big problem with America's health system today is adverse selection or moral hazard--two terms from the insurance industry.

Those economists on the left tend to think that the real big problem with American health care is adverse selection: Those who know they are healthy and likely to stay that way skimp on purchasing insurance. Insurance companies work like dogs to avoid selling insurance to people who are expensively sick or likely to get expensively sick. As a result, a huge amount of people's work-time and information technology processing power are wasted on the negative-sum game of trying to pass the hot potato of paying for the care of the sick to somebody else. The more people separate themselves or are separated into smaller and smaller pools with calculably different exposures to risk, the worse this problem gets. The way to solve it is to shove people into pools as big as possible. Ultimately, this line of thought goes, single-payer national health insurance is the best option, for the administrative and bureaucratic inefficiencies introduced are vastly outweighed by the reduction in the gaming the system that goes on under our current plan where profits are made by those insurance companies that are best able to avoid covering the sick.

Those economists on the right tend to think that the real big problem with American health care is moral hazard: that patients soak up scarce and valuable doctor and nurse time even when there is no benefit to the visit, and that doctors use up vast resources conducting tests and procedures that do patients very little good. And, this side argues, patients do this because their copays don't penalize them enough for wasting health professionals' time and doctors do this because their bottom lines don't suffer when they carry out barely effective, expensive, and inappropriate procedures. Sometimes economists on this side say these market failures are all the government's fault: the subsidy the government provides for low-deductible and first-dollar insurance. Sometimes economists on this side say that these market failures arise because of human irrationality: we half-intelligent jumped-up East African Plains Apes have a psychological propensity to overvalue certainty and thus to pay much more for first-dollar and low-deductible health insurance than we should.

The prescription of the right-wing subtribe of economists is to create hard incentives: regulate the insurance market so that the only policies allowable are high-deductible and fixed-reimbursement polices that make doctors feel in their purses the costs of the procedures they recommend, and that make patients feel in their purses the costs of the health professionals' time that they pointlessly soak up. Let insurance companies segment their market so that patients who make unhealthy lifestyle choices--who smoke, who get fat, who drink enough to pickle their livers, who give themselves diabetes by drinking Pepsi--feel the costs of those lifestyle choices in their insurance premiums. If the right-wing diagnosis is correct, this prescription would do a lot of good, because the gains from curbing moral hazard would be much bigger than the side-effects: dry mouth and additional adverse selection. But if the right-wing economists are wrong, this prescription is destructive. It means that those who have already drawn the big black X in life's lottery--those likely to die early and painfully of some dread disease--find their bad luck amplified by the workings of the health insurance market: not only do they die early and painfully, they die poor leaving their children poor as well.

The prescription of the left-wing subtribe of economists is nearly the opposite: it is to soften incentives as a side effect of eliminating opportunities for moral hazard by recognizing that the market for health care financing simply does not work very well, and cannot be made to work very well. If the left-wing diagnosis is correct, the prescription would do a lot of good. Nobody likes going to the doctor or undergoing invasive and usually painful costly medical procedures. The gain by eliminating adverse selection would be much bigger than the side-effects: frequent urination and a small amount of additional moral hazard. But if the left-wing economists are wrong, this prescription is destructive. Health care spending growth will accelerate as the few curbs on doing-everything-for-everybody drop away, and eventually a single-payer government with a budget constraint steps in to ration health care and to ration it badly and destructively, providing the wrong care to the wrong people.

Given these sharp disagreements between very smart, public-spirited, and hard-working economist like Uwe Reinhardt and Jon Gruber on the left hand and Kate Baicker and Mark McClellan on the other, one might despair. One would be further tempted to despair when one remembers that these issues will not be settled by locking Uwe, John, Kate, and Mark in a room until they reach agreement but by 535 legislators who are best described as a ping-pong ball, with the pharmaceutical and the doctor lobbies as the paddles.

And now Marit Rehavi comes by with an additional reason to despair. For according to her reading, as America ages and as American society changes an increasing share of the increase in health care costs is going to be driven not by increases in adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care, but by expensive chronic diseases and risk factors driven by long-term lifestyle choices. Nationalizing the health insurance sector won't diminish the costs in 2050 of treating the lung cancer that the twenty year-old staring smoking today will develop. Increasing copays won't reduce the costs of treating the diabetes that the five year-old today with a two-coke and three-twinkie-a-day habit will develop in 2045.

Neither prescription will be very effective as a remedy to cost drivers like these. Our irresistible force is our belief that health care should not be rationed by price. Our immovable object is the unwillingness of American taxpayers to be turned into an IV drip bag for the health sector that the health sector itself controls. What happens when these meet is a crisis, which cannot be averted no matter whether we adopt the right-wing prescription, adopt the left-wing prescription, or muddle through.

Is there a magic bullet to reduce these chronic-diseases-of-aging-life-style-driven sources of secularly rising health care costs? I can see only one chance: the nanny state. Lectures every half hour, on every TV channel, by the surgeon general and the assembled celebrities of America, telling us to: lose weight, exercise more, don't smoke, don't drink to excess, watch your fats, watch your sugars, eat your vegetables, et cetera--remember that you are an East African Plains Ape that did not evolve to live in a world where fats and carbohydrates were abundant and smoke damaging to your lungs was laced with nicotine.

Another reason to like Barack Obama:

Horses Mouth January 24, 2007 12:41 PM: OBAMA TAKES ON FOX NEWS. If this is a sign of how Barack Obama intends to deal with the right-wing media during his Presidential campaign, then I'm all for it.... The Senator's office has just emailed out... the following:

In the past week, many of you have read a now thoroughly-debunked story by Insight Magazine, owned by the Washington Times, which cites unnamed sources close to a political campaign that claim Senator Obama was enrolled for "at least four years" in an Indonesian "Madrassa"... "espousing Wahhabism," a form of radical Islam.

Insight Magazine published these allegations without a single named source, and without doing any independent reporting to confirm or deny the allegations. Fox News quickly parroted the charges.... All of the claims about Senator Obama raised in the Insight Magazine piece were thoroughly debunked by CNN.... If Doocy or the staff at Fox and Friends had taken [time] to check their facts, or simply made a call to his office, they would have learned that Senator Obama was not educated in a Madrassa, was not raised as a Muslim, and was not raised by his father -- an atheist Obama met once in his life before he died.

Later in the day, Fox News host John Gibson again discussed the Insight Magazine story without any attempt to independently confirm the charges....

These malicious, irresponsible charges are precisely the kind of politics the American people have grown tired of, and that Senator Obama is trying to change by focusing on bringing people together to solve our common problems.

This is exactly the right thing to do: Take these guys on very aggressively, and above all, single out by name the people who are lying about you. Wrap their lies around their necks.

Steven Kyle on Tyler Cowen on inequality:

Angry Bear: Tyler Cowen Makes Two Mistakes: Tyler Cowen says that rising inequality in the US isn's as bad as we think it is and also that insofar as it does exist we shouldn't worry about it. He makes two mistakes:

1. He says that because much of measured inequality in incomes can be traced to differences in education, it isnt a result of policy or of basic unfairness in the system. This would be true if there were a level playing field in terms of education in the first place. However, there very obviously isnt.... Bottom line %u2013 If the deck is stacked against poor people in terms of educational opportunity then we can't say that tracing income inequality to education shows that "the contemporary American economy isn't rigged in favor of the rich," to use Tyler Cowen's terminology.

2. Cowen goes on to say: "The broader philosophical question is why we should worry about inequality -- of any kind -- much at all. Life is not a race against fellow human beings, and we should discourage people from treating it as such. Many of the rich have made the mistake of viewing their lives as a game of relative status. So why should economists promote this same zero-sum worldview? Yes, there are corporate scandals, but it remains the case that most American wealth today is produced rather than taken from other people. What matters most is how well people are doing in absolute terms."

To this, I can only say that it takes a white middle aged economics professor with tenure to come up with a statement like that.... [I]n the real world [inequality] makes people distrustful of the system and causes them to lose faith in the fairness of society. General belief in the social contract is a long term asset to us all and one we should be very worried about losing. Only a very narrow view of the world could conclude otherwise...

Amanda Marcotte confesses: American Thai food is really a way for adults to eat peanut butter without shame:

Food, fear, meandering commentary at Pandagon: I make an awesome Pad Thai. I don't make it with peanut oil. I use... peanut butter. If you use peanut oil like you're supposed to, for some reason it doesn't taste as peanut-y as it should.... Most people like the way I make it, but mentioning this in a public forum brings upon me the cringe of shame....

The reason I bring this up is because I was all excited about this interview in Salon with Barry Glassner about some of the fear and morality issues that have cropped up on food politics and why they skew people's priorities.... I wanted to see what Glassner would say about the search of authenticity in food, because I think in a lot of ways such a search is both doomed and can be intimidating to people who are learning to cook.

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

Markos Moulitsas Zuniga, a member of the board of Working for Us, says:

This is a potent alliance, and one that will have real muscle as we look to target not "conservative" Democrats, but Democrats who are out of step with their districts (a key and important distinction). This is no lame-brained Club for Growth clone -- an operation obsessed with ideological purity without regard to electoral realities...

And Chris Cillizza of the Washington Post says:

They (Better) Work For Us - The Fix: Working For Us... carries the backing of people like Steve Rosenthal, a past political director at the AFL-CIO, Tom Matzzie, the Washington director of Moveon.org and -- most intriguingly -- blogger icon Markos Moulitsas Zuniga, founder of the influential Daily Kos Web site. Working For Us is modeled explicitly on the Club For Growth, an independent organization that over the last several election cycles has transformed itself into an electoral force by endorsing fiscally conservative candidates in contested primaries and then pouring hundreds of thousands of dollars into districts to help those candidates win. (I've written extensively about the Club both in the space and elsewhere)...

Ummm... If a board member says that it's "no lame-brained Club for Growth clone" isn't that worth mentioning?

Mark Thoma directs us to Greg Ip, Kara Scannell, and Deborah Solomon writing on Wall Street's share of world finance:

Economist's View: Capital Markets Regulation: Greg Ip, Kara Scannell, and Deborah Solomon of the Wall Street Journal look into claims that regulations such as Sarbanes-Oxley are reducing the competitiveness of U.S. financial markets. They find reasons to be skeptical:

In Call to Deregulate Business, a Global Twist, by Greg Ip, Kara Scannell, and Deborah Solomon, Wall Street Journal: Prominent figures in the U.S. are warning that the nation's financial markets have been handicapped by post-Enron regulatory overreach. Treasury Secretary Henry Paulson has made addressing the problem a signature political issue. A blue-ribbon committee chaired by former Bush economist Glenn Hubbard has echoed this sentiment, as does a report commissioned by Sen. Charles Schumer of New York and New York City Mayor Michael Bloomberg.... Their solution: a lighter touch in regulating corporate behavior.

Yet this position, which has gone largely unchallenged, downplays a different explanation for why U.S. exchanges are under pressure -- the changing nature of global finance. Stock markets around the world have become better and deeper, encouraging companies to seek IPOs in their home market. Trading across borders has become simpler, cutting the prestige and usefulness of a big-country listing everywhere.... Meanwhile, other countries are stiffening their own rules, bringing them closer to the U.S. model....

Hubbard's Committee on Capital Markets Regulation... spent 148 pages discussing the harm done by U.S. regulatory and legal risks. Among the charges: Suing corporations for fraud is too easy... Civil and criminal prosecutors are overzealous, producing civil enforcement penalties more than 100 times higher in the U.S. than the U.K. in 2004. Auditing standards are unreasonably onerous for small companies....

Hubbard concedes there's "no smoking gun" that proves whether global or U.S.-specific forces are behind the smaller number of foreign companies listing in the U.S. "Both factors are important," he says....

There's little doubt U.S. exchanges are facing increasing competition. They're losing out to overseas exchanges for initial public offerings. Many overseas companies are deciding they don't need an American listing. And in the U.S. itself, many companies have decided they're better off private.

Taken alone, the cost of regulation can't explain what's happening to U.S. financial markets.... "Well-functioning capital markets are central to the success of the economy," says former Treasury Secretary Lawrence Summers, now a Harvard University economist and managing director at a hedge fund. "What fraction of capital markets transactions runs through New York is of much less broad-based significance"...

I'm filling in for Barry Eichengreen: he has the flu.

Jan. 24. The First Age of Globalization [Eichengreen DeLong]

Albert Fishlow (1985), "Lessons from the Past: Capital Markets During the 19th Century and the Interwar Period," International Organization 39, pp. 383-439, http://www.jstor.org/view/00208183/dm980251/98p00792/0
Douglas Irwin (1998), "Did Late Nineteen Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry," NBER Working paper no. 6835 (December), http://www.nber.org/papers/w6835
Arthur Bloomfield (1959), Monetary Policy Under the International Gold Standard, New York: Federal Reserve Bank of New York, selections, on reserve at Haas.
Hugh Rockoff (1983), "Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices," in Michael Bordo and Anna Schwartz (eds), A Retrospective on the Classical Gold Standard, Chicago: University of Chicago Press, pp. 613-651, on reserve at Haas.

Questions:

Textbooks say that the gold standard had internal mechanisms that worked automatically to maintain both price and balance-of-payments stability. On what grounds do Arthur Bloomfield and Hugh Rockoff challenge this textbook view? Are their points convincing?

Thoughts:

• The infant-industry argument. Even John Stuart Mill admitted the power and force of the infant-industry argument. Doug Irwin takes it on. How convincing do you find his argument?

• Are there any truly important differences between late-nineteenth century capital markets and capital markets today. If so, what are the truly important differences?

• The classical gold standard in theory and history

  • Did it work?
  • How did it work in the core?
  • How did it work in the periphery?
  • The "rules of the game"--violated
  • What did central banks do?
    • Stabilized bond prices
    • Mirrored the Bank of England
    • What did the Bank of England do?
      • Avoided gold losses...
      • ???

Andrew Samwick, Paul Krugman, Pecuniary Externalities in Health Prices, and Local Monopoly Power Created by Plans that Let You Choose Your Own Doctor.

Andrew Samwick on pecuniary externalities:

Vox Baby: Pecuniary Externalities: For what it's worth, I think Paul Krugman makes some good points about the problems inherent in using the tax code to encourage or discourage the purchase of health insurance in his column.... However, I found this statement (highlighted in bold) in Krugman's column to be odd:

Mr. Bush.... The tax code, he said, "unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise, and many Americans cannot afford the coverage they need."... No economic analysis I'm aware of says that when Peter chooses a good health plan, he raises Paul's premiums. And look at the condescension. Will all those who think they have "gold plated" health coverage please raise their hands?...

Andrew says:

That is almost the definition of a pecuniary externality. Wikipedia describes it as follows:

A pecuniary externality is an externality which operates through prices rather than through real resource effects. For example, an influx of city-dwellers buying second homes in a rural area can drive up house prices, making it difficult for young people in the area to get onto the property ladder. This is in contrast with real externalities which have a direct resource effect on a third party. For example, pollution from a factory directly harms the environment. Both pecuniary and real externalities can be either positive or negative.

So in the President's defense, there's a very simple argument to be made here. When one person feels inclined, for whatever reason, to purchase more health care services, that puts upward pressure on the price of health care services (if the supply curve is not flat) and thus the cost to everyone else in the market. Normally, we don't pay any attention to this, because that is precisely the mechanism by which a competitive market achieves economic efficiency.

The President is referring to the pecuniary externality generated by a tax distortion in the treatment of health insurance, which interferes with a market achieiving economic efficiency and thus should concern us. It goes as follows. Premiums are fully excludable from income tax, but out-of-pocket expenses are not tax advantaged. That favors health insurance arrangements in which there are low deductibles and high premiums. Such arrangements can lead to higher utilization of health services, since the insured faces no financial cost at the margin once the low deductible has been met. (This is just a standard moral hazard argument.) Krugman... [is] on shaky ground with his "Wow ... no economic analysis ..." comment.

I think Paul Krugman would say that he believes that health care is a constant-returns-to-scale industry, and that the subsidy provided by the tax code-driven increase in demand and spending increases quantities demanded but not prices in the long run. The supply curve, Paul Krugman thinks, is flat in the long run, and so Andrew Samwick's pecuniary externality argument fail.

It's not clear to me that Paul Krugman is wrong. It is also not clear to me that Paul Krugman is right. One of the things patients are buying with more expensive health-care plans is the freedom to choose their own doctors, and that gives the doctors they choose some monopoly power in their bargaining over reimbursement rates with the insurance companies.

I don't have a handle on how big this effect might be, however.

Paul Krugman has it largely right on Bush health care, I think:

Additional Notes on 1/22 Column, "Gold-Plated Indifference." - Krugman - NYT Web Journal: Additional Notes on 1/22 Column, "Gold-Plated Indifference." As is often the case, I couldn't fully explain my views in the space available. So I'd like to explain at a bit more length why I'm so opposed to the direction Bush is going.

Basically, everyone agrees that health care is a messed-up sector. But there are two opposing doctrines about what the problem is.

I believe -- and the evidence, I think, supports this belief -- that the big problem is "adverse selection." An insurance plan offered to everyone at the same rate would be a great deal for relatively sick people, a poor deal for the healthy. So one of two things happens to private insurance. Either plans go into the "adverse selection death spiral," as sick people flock in, driving up rates, driving out more healthy people, and so on. Or insurance companies spend a lot of the money they receive in premiums screening out "high-risk" clients, so that the system has huge overhead and the neediest cases are excluded.

The clean solution to this problem is for the government to provide insurance to everyone. Other rich countries do that. So do we, for older Americans, veterans, and others. Actually, government health insurance is already bigger in America, in dollar terms, than private insurance -- it covers fewer people, but that's because the elderly, who cost more, are handled by the government.

Employment-based insurance is a distant second-best, but better than nothing. Large employers, in particular, can spread risk widely, creating the kind of risk pool that dies from adverse selection in the individual market. And the tax preference for employer-based care, more or less by accident, has helped sustain this imperfect fix....

What conservatives in the "consumer-directed" health movement believe, however, is that the big problem is "moral hazard" -- people consume too much medical care, because someone else pays for it. Now, this isn't entirely wrong. People probably do undergo expensive surgery with questionable effectiveness, and so on, because it's not out of pocket. Curbing that was supposed to be the point of managed care. But managed care didn't deliver, because people -- rightly -- don't trust private H.M.O.'s to make life and death decisions on their behalf....

The whole consumer-directed thing is, in my view, just at attempt to avoid facing up to that failure. Rather than admit that private-sector institutions aren't any good at rationing, conservatives now say that patients should be induced to ration their own care by being forced to pay more out of pocket....

The trouble is that the big money is in stuff like heart operations or other areas where (a) people can't pay out of pocket in any case -- they must have insurance or go untreated -- and (b) people really aren't sufficiently well informed to make the decisions. Yet the whole focus of consumer-directed doctrine is on things like routine visits to doctors' offices and annual dental checkups. It's going where the money isn't -- because the advocates just can't believe that markets aren't always the answer.

Now here's the thing: in the name of consumer-directed health care theory, Bush is proposing changes that would essentially encourage people to move into the individual market -- which wastes a lot of money, and doesn't and can't work for those most in need -- while undermining the employer-based system, which isn't wonderful but is still essential. In particular, healthy high-income people would be encouraged to drop out of employment-based plans, leaving behind a sicker risk pool, driving up rates, and pushing employer-based care in the direction of an adverse selection death spiral. The plan we're supposed to learn about tomorrow doesn't sound big enough to have catastrophic effects, but it's a step in the wrong direction.

UPDATE: A correspondent who used to work in the Bush EOP writes:

Regarding your comments today about Bush's new health plan being a bluff, I completely disagree -- this is something that has been in the works for a long time and has widespread support internally.

The proposal has many limitations, but the White House is very serious about wanting to replace the exclusion with this new standard deduction for health insurance, despite the fact that it could be characterized as a tax increase. The motivation is due to the efficiency properties of the proposal, which people internally believe could help slow the long-run growth rate of health care expenditures (though health economists are highly uncertain about magnitudes of such long-term effects).

The proposal is being mis-cast by many as being a bad way to reduce current uninsurance, but that is not the primary motivation of this policy; any short-run reduction in uninsurance would be welcomed, but the real uninsurance benefit would come over the long-run if health care cost growth really were to be slowed.

I'm sure the substantive policy people developing this don't regard it as a bluff, but instead as the furthest they can push Bush toward reality. But there are other factions within the administration.

For example, Treasury Secretary Paulson doesn't regard his negotiations about Social Security reform as a bluff. Inside the White House, Richard Cheney is doing everything he can to turn them into a bluff.

I think he gets it almost right:

Steven Pearlstein - Bipartisan Cooperation on Health Care Is Dead on Arrival - washingtonpost.com: When it comes to domestic economic policy, Bush the Wounded President is much to be preferred over Bush the Decider. After six years of stubborn inflexibility, President Bush signaled last night in his State of the Union address that he is ready to come to the negotiating table on a range of domestic issues, holding some new and credible ideas that are consistent with his conservative philosophy but open to ideas that aren't.

[I]t is possible it could be a bluff, a desperate and hollow attempt by an unpopular president to demonstrate that he's still relevant to the policy process. But whether it is or not, the right response for Democrats is to call that bluff, treating it as the jumping-off point for a much-delayed dialogue on domestic policy and seeing how his proposals can be transformed into something better....

The president's health plan would, in fact, put a cap on a $200 billion-a-year tax break that now goes disproportionately to those with the most generous and costly employer-provided health insurance plans. It would redirect a small portion of that break to those who have less generous coverage or those who have to buy their own insurance.... Now is this the magic bullet that will solve the health-care crisis? Of course not. Would any real solution also require finding billions of dollars more to subsidize the purchase of health insurance by low-income workers and getting states to reform dysfunctional markets for individual and small group insurance? No doubt about it....

But anyone seriously interested in health reform would welcome the president's proposal as a basis for negotiations, raising public expectations and increasing pressure on the president to embrace more comprehensive reform...

Where I disagree with Steve is that I believe it is overwhelmingly likely that this is, in fact, a bluff. And it is not clear to me why anybody should be in the business of welcoming things that are not "real solutions."

We should certainly welcome real solutions. But otherwise it seems to me that we are still in the standard Bush administration game of Dingbut Kabuki. The administration has made no effort to convince us that this will do more good in terms of redistributing income and increasing access to health insurance than it will do harm in magnifying adverse selection problems.

It's really unfair. In a just world, the journamalistic Washington Post would be sending me checks for reading it.

Today, in the left-hamd ring, we have Ruth Marcus performing the triple Democratic-trashing somersault.

She says that the Bush health proposals are bad:

Ruth Marcus - The Knee-Jerk Opposition - washingtonpost.com: Yes, there are big risks involved, primarily that the already-teetering employer-based system will collapse as healthy individuals use their tax deduction to buy cheaper, private insurance, leaving employers with the older and the sicker. And, yes, it's fair to argue that a more comprehensive approach -- Sen. Ron Wyden (D-Ore.) has proposed one -- is needed...

She says that it would be insane for all of the reality-based not to presuppose that everything Bush proposes is going to be bad:

This sad situation is largely of Bush's own making. He is reaping the poisonous state of affairs that he helped sow for six years. So many of the president's policies have been dishonest and wrongheaded, so much of his politics has been slashingly partisan, Democrats would be crazy if their instinctive reaction to a Bush plan for fill-in-the-blank wasn't intense distrust...

But still she manages to say that the Democrats shouldn't be pointing out that the Bush plan doesn't look like good health policy:

Listening to Democratic reaction to Bush's new health insurance proposal, you get the sense that if Bush picked a plank right out of the Democratic platform -- if he introduced Hillarycare itself -- and stuck it in his State of the Union address, Democrats would churn out press releases denouncing it.... Democrats -- if they care more about addressing health-care needs than scoring political points -- ought to be finding ways to improve and build on the Bush proposal, not condemning and mischaracterizing it. Given that nothing's going to pass without Democratic approval, what's the risk in engaging in the discussion?

Marcus ignores not only that the Bush health proposals are not good policy, but also that the Democrats are engaging in the discussion. As she herself writes, "Sen. Ron Wyden (D-Ore.) has proposed" a more comprehensive plan, and "it's fair to argue" that such a more comprehensive approach "is needed."

And, of course, Ruth Marcus hasn't done her homework. She doesn't understand the Bush proposals. An example: She copies a Republican talking point:

The deduction would... [leave] 80 percent of those with employer-sponsored coverage unaffected.

The deduction would indeed worsen the finances of only 20% of those with employer-sponsored coverage in 2009. But it would worsen the finances of about 50% of those with employer-sponsored coverage in 2019. And 90% of those with employer-sponsored coverage by 2030.

Why oh why can't we have Washington Post writers who do their homework? Or don't write about things when they haven't done their homework?

The Washington Post would have better served its readers if it had simply printed blank space where Ruth Marcus's column is, save for a link to Len Burman, Jason Furman, and Roberton Williams, "The President’s Health Insurance Proposal-—A First Look" (Washington DC: Tax Policy Center) http://www.urban.org/UploadedPDF/411412_firstlook.pdf.

Why Republicans Say "Democrat Party" Rather than "Democratic Party": Because Joe McCarthy Did So. WSJ Washington Wire explains all:

Washington Wire - WSJ.com: From the President, a Two-Letter Jab at the Democrats: President Bush departed from the prepared text of his State of the Union address to... take a jab at Pelosi and the rest of the new Democratic majority of Congress. In the prepared text of the speech, sent out by the White House some 40 minutes before Bush ascended the House rostrum, the president was to say... "I congratulate the Democratic majority." When Bush delivered the line, however, he paid tribute to the "Democrat majority."

Dropping the "ic"... was almost certainly a deliberate move by Bush... the phrase was a particular favorite of former Wisconsin Sen. Joseph McCarthy. A recent Washington Post column filled in the backstory: according to the Columbia Guide to Standard American English, McCarthy "sought by repeatedly calling it the Democrat party to deny it any possible benefit of the suggestion that it might also be democratic"

The phrase lay largely dormant for years, however, until President Bush resuscitated it during last fall's midterm election season and made it a mainstay of his public remarks about the opposition party. It has since been widely adopted by many Republican lawmakers, conservative political activists, and conservative commentators and pundits at media outlets like Fox News.

For all of Bush's talk tonight about crossing party lines to work with the new Democratic Congress, it is the missing two letters that may offer the clearest indication of whether partisan tensions are really like to fade in the waning years of Bush's presidency.

--Yochi J. Dreazen

From some of the professionals: Len Burman, Jason Furman, and Roberton Williams, "The President’s Health Insurance Proposal-—A First Look" (Washington DC: Tax Policy Center) http://www.urban.org/UploadedPDF/411412_firstlook.pdf

In some respects, the plan is very innovative and a step in the right direction.... The president’s plan effectively turns the tax subsidy for health insurance into a kind of voucher.... The proposal will almost certainly encourage some people who currently lack insurance, particularly middle-income families, to get it.... However... the subsidy will be more valuable for high-income people than for those with lower incomes who most need help. In fact, low-income households with no income tax liability would get virtually no help....

[T]he proposal would level the playing field between employer-sponsored insurance and insurance purchased in the individual market. The plan would lead some employers, especially small and medium- sized businesses, to stop offering health insurance to their employees, exacerbating a trend that is already well underway. Even if such employers increase wages by the amount of the firm’s previous contribution, this would fragment risk pooling and insurance, forcing some higher-risk people, especially those with low incomes, into the ranks of the uninsured....

The administration does propose to provide states with incentives to address the problems in the nongroup [individual] market, but those promises may not be backed by adequate funding to deal with the serious challenges facing those in the nongroup market. Moreover, the tax changes would go into effect regardless of whether or when states adopted the complementary changes to the nongroup market....

This brief paper summarizes the proposal based on information that we have available as of noon on January 23, 2007. (It will be updated if new information becomes available.)...

Greg Mankiw writes:

"a step in the right direction": That's how Leonard E. Burman, Jason Furman, and Roberton Williams describe the health care proposal that President Bush will propose in tonight's speech. So, yes, there is hope for bipartisanship.

I would have said that Burman, Furman, and Williams describe it as "in some respects... a step in the right direction." Let's give them the mike again:

The administration estimates that changes in the group and nongroup markets would, on net, reduce the number of uninsured by 5 million. Other models, such as that of MIT economist Jonathan Gruber, have generally assumed that substantially more employers would drop plans; those models would likely show only a small reduction—-or even an increase—-in the number of uninsured. In either case, the total effect masks an adverse change in the composition of the insured as the households that lose insurance tend to be poorer, sicker, or older and thus unable to purchase coverage in the individual market as it is now structured while the households that gain insurance tend to be richer, healthier, and younger.

The success of the proposal will depend critically on whether states come up with effective means of providing insurance for those with low incomes or health problems. The proposal’s details on this score are sketchy, but it appears to make no additional money available to aid pooling in the nongroup market—-it simply redistributes current subsidies....

Burman, Furman, and Williams would support the proposal if it were to be "substantially revised and expanded." The devil, as always in health care, is in the details.

The regional course of trade deficits and surpluses: 1997-2005.

Source: IMF, via Global Economy Matters: Structural Drivers of Global Macroeconomic Imbalances.

The Situation:

Net capital inflow: $600B (from foreign central banks) + $200B (from foreign private wealthy) = $800B a year.

This must balance:

Trade deficit: $800B a year

What happens if the $600B of net capital flowing in from foreign central banks disappears?

• U.S. interest rates go up--supply and demand in the capital market for loanable funds.
• U.S. dollar's value goes down--supply and demand in the market for foreign exchange.
• A less-valuable dollar raises dollar-value exports and lowers dollar-value imports.
• Higher interest rates pull in more capital, which partially offsets the decline in foreign central bank-driven inflow.
• U.S. has to move people from construction and consumer goods to export and import-competing goods. (8M?)
• Foreigners have to move people from export industry into construction and consumer goods. (40M?)

Why can't the current configuration go on forever? Consider China, currently at $250B a year (12% of Chinese GDP) with foreign exchange reserves of $1T (50% of Chinese GDP). In a decade, at the current pace, foreign exchange reserves of $4.5T (110% of future Chinese GDP). Losses on foreign exchange reserve portfolio: to buy dollars at $1=8RMB and then to sell them at $1=16RMB is expensive.

• What happens just before foreign central banks abandon their dollar-purchase programs?
• What happens just before that?
• And just before that?

http://delong.typepad.com/teaching_spring_2006/2007/01/in_condemnation.html

Barry Ritholtz:

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

The problem, it seems, is a design flaw.

Indeed, many classic investor errors -- overtrading, groupthink, panic selling, marrying positions (i.e., refusing to sell), chasing stocks, rationalizing, freezing up -- are mostly due to our genetic makeup. Humans have evolved to survive in a harsh, competitive landscape. To do well in the capital markets, on the other hand, requires a skill set that is very often the antithesis of those innate survival instincts.

Why is that? The problems lay primarily in our large mammalian brains. It is actually better at some things than you may realize, but (unfortunately) much worse at many others you are unaware of. Most people are unaware they even have these (for lack of a better word) "defects." The fact is, when it comes to investing, humans just ain't built for it.... Humans have a tendency to see order in randomness. We find patterns where none exist. While that trait might have helped a baby recognize its parents (thereby improving the odds for its survival), seeing patterns where none exist is counter-productive when it comes to investing.

We also selectively perceive data, hoping to find something that confirms our prior views. We ignore data that contradicts those prior views. We even reinterpret old evidence so it is more in sync with our perspective. Then, we only selectively remember those things that support our case. Last, we overuse Heuristics, which is defined as simple, efficient rules of thumb that have been proposed to explain how people make decisions, come to judgments and solve problems, typically when facing complex problems or incomplete information (call them mental short cuts). These short cuts often generate "systematic errors" or blind spots in our analytical reasoning.

And that's only a partial list of analytical imperfections you have inherited....

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

Most investors -- the 80% who underperform -- would probably be better off going the index route. If you're still interested in trying to outperform -- despite all we discussed today -- then I admire your gumption.

As somebody I was talking to last week said of their friends who went into the hedge fund industry two years ago: "They're very smart, they work like dogs, and they trailed the S&P by 3 percentage points last year."

On Botswana's success:

Global Development: Views from the Center: Can other countries replicate Botswana's past? (Can Botswana?): Posted by Michael Clemens at 03:45 PM: Botswana's president, Festus Mogae, held a private luncheon at CGD on Wednesday. (In a triumph of protocol, the president was allowed to serve himself first from our modest buffet.) After that he gave a well-attended public speech. In both forums, the discussion revolved around three questions. The first looked to Botswana's past, addressing the replicability of Botswana's spectacular rise elsewhere; the other two looked forward, asking whether Botswana can sustain its own miracle.

How did Botswana avoid 'resource curse' and use its diamond revenue to spark sustained growth?The president noted that his predecessor, Seretse Khama, transferred rights to subsoil diamonds away from Khama's own tribe -- the Bangwato -- to the state. Crucially, Khama did this before the diamond revenues began to flood in; it is much easier to redistribute hypothetical income than actual income. President Mogae also mentioned the skill of the team that negotiated with De Beers, plus their prescient decision to reinvest some of their royalty revenue back into De Beers -- thus turning Botswana's diamonds into a triple payday of royalties (50%), corporate taxes, and dividends.

Economists have noted the importance of centuries-old political institutions in shaping the transparent governance that ensures those revenues really do end up in the Treasury. Both this and the president's above point about timing, unfortunately, call into question the simple replicability of a "Botswana model" elsewhere. The president said little to allay such doubts.

How has Botswana begun to turn the corner on the HIV/AIDS epidemic? President Mogae noted that Botswana has led Africa in its embrace of routine opt-out HIV testing. (On September 21st, the United States followed Botswana's lead.) Free condoms are universally available. Observers noted that from very early on Botswana has taken the epidemic seriously -- in stark contrast to its large neighbor to the south -- and currently provides antiretroviral therapy to almost all who need it. Today only 6% of births to HIV-positive Botswana mothers result in an HIV-positive baby.

Why are foreign investors still hesitating to enter Botswana? Botswana is small, semi-arid, and landlocked. Some of the same Taiwanese textile firms that went to Mauritius initially considered Botswana, but were dissuaded by high ground transportation costs to get products out. Recent efforts to privatize Air Botswana have been stymied by investors unwilling to put their money into Botswana and especially into airlines.But there are ways out. Botswana has lower corporate taxes, less bureaucracy, and a better-educated workforce than South Africa, and has publicly assumed much of the HIV treatment burden (so employers won't have to).

It also boasts political stability, accountable democracy, and a very high-quality infrastructure, especially in telecommunications. Several around the lunch table urged the president to leverage these rare advantages by attracting investors, particularly American investors, in the information sector.He agreed this was a priority, and noted his country's efforts to lessen Botswana's isolation by pushing for the SADC free trade zone (.pdf) and by participation in the Eastern and Western Africa Submarine Cable initiatives. Recent trade preferences established under African Growth and Opportunity Act might also help bring investors in.

President Mogae noted that he had to fight for two years to get Botswana included in the original 2000 list of AGOA-eligible countries, over resistance due to the country's high per-capita income. He is currently pushing for Botswana to be made eligible for funding from the Millennium Challenge Account, noting that his country meets all of the MCA selection criteria except income per capita.