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October 2007

Paul Krugman: Income and Voting

Thisis indeed a very strange idea::

Income and voting - Paul Krugman - Op-Ed Columnist - New York Times Blog: And one more before the day’s round of media stuff begins. Another weirdly persistent myth is that rich people vote Democratic, while working stiffs vote Republican. Here’s Tucker Carlson:

OK, but here’s the fact that nobody ever, ever mentions — Democrats win rich people. Over 100,000 in income, you are likely more than not to vote for Democrats. People never point that out. Rich people vote liberal. I don’t know what that’s all about

Actually, people mention this alleged fact all the time — but the truth is just the opposite. From the 2006 exit polls:

VOTE BY INCOME TOTAL Democrat Republican
Less Than $100,000 (78%) 55% 43%
$100,000 or More (22%) 47% 52%

And the fact that people with higher incomes are more likely to vote Republican has been consistently true since 1972. The interesting question is why so many pundits know for a fact something that simply ain’t so.

Ethnic Balancing and the Rise of the Wingnut Republicans Continued

Paul Krugman writes:

Paul Krugman - Op-Ed Columnist - New York Times Blog: So, people ask why, in The Conscience of a Liberal, I downplay the role of issues other than race in swinging the political balance in favor of the GOP. The answer, basically, is the math: once you take the great southern switch into account, there isn’t much left to explain.

In some correspondence with Larry Bartels, whose “What’s the matter with “What’s the matter with Kansas?”" is must reading for anyone trying to understand modern American political, economy, the issue of how the Democrats lost white males came up. Larry points out that you really need to separate out the South. Here’s what he had to say:

Unless you have a peculiar nostalgia for the racially coercive Democratic monopoly of the Jim Crow era, it makes sense to focus on the rest of the country. There, the Democratic share of the two-party presidential vote among white men was 40% in 1952 and 39% in 2004.

White men didn’t turn against the Democrats; Southern white men turned against the Democrats. End of story.

Ethnic Ticket Balancing and the Rise of the Wingnut Republicans

In my email inbox there are a surprisingly large number of messages stating that the central thesis of Paul Krugman's The Conscience of a Liberal is wrong: that the rise of the wingnut Republicans is not due to the fact that the four horsemen of the Republican Apocalypse--William "'Ballot Security' Means African-Americans Don't Vote" Rehnquist, Barry "You Hunt Where the Ducks Are" Goldwater, Richard "Southern Strategy" Nixon, and Strom "Lynching Cases Should Be Tried Before Local Juries Who Will Understand" Thurmond--and their allies decided to make the Republican Party the party for people who don't like African-Americans, and so lost its soul and consigned it too Hell. The rise of the Republican Party, they maintain, is due to things like the Democrats "prioritization of identity politics."

Let's unpack this. For at least the past century "identity politics" has been "prioritized" in American cities. Back in the old days a party running candidates in Boston would "balance" its ticket ethnically: an Irish-American and an Italian-American at the top. In New York, an Irishman, an Italian, and a Jew. It is no accident that the mayor of New York was a guy named Fiorello LaGuardia. It was no accident that the junior senator from Massachusetts was named John Fitzgerald Kennedy. Identity politics was prioritized--by both parties--up the wazoo. Not a problem.

When does the "identity politics" become a problem? It becomes a problem when ethnic balancing leads to the presence of an African-American at the top of the ticket. Blaming the rise of Republican wingnuts on the fact that Democrats start nominating African-Americans for office is not an alternative to the thesis of The Conscience of a Liberal, but a confirmation of it.

Now you might argue that Democratic politicians ought to have reacted to this situation differently. They should have told their African-American voters, workers, and politicians: "This country is still too racist for conventional ethnic-balancing to work now that the 1964 Civil Rights has gotten you the vote. You have to wait another generation to see African-American faces at the top of the ticket, and in the meanwhile vote for white politicians who have your interests at heart and realize the debt that the Democratic Party is running up by making you wait by the door for yet another span of years." Perhaps that would have been the wiser course. Perhaps not. But it was a course the urban Democratic Party was unable to follow.

Seems to me that to say that Democrats are responsible for the rise of wingnut Republicans because they were unable to follow this make-African-Americans-wait-by-the-door-for-another-generation--well, this is the equivalent of blaming the victim of a drive-by for leaving bloodstains on the seats.


Please. Then impeach Bush. Impeach Cheney too:

A tale of two decisions (or, how the FBI gets you to confess) (PsychSound by Steve Bergstein): The next day, the Court of Appeals reissued the Higazy opinion. With a redaction. The court simply omitted from the revised decision facts about how the FBI agent extracted the false confession from Higazy. For some reason, this information is classified. Just as the opinion gets interesting, when we are about to learn how an FBI agent named Templeton squeezed the "truth" out of Higazy, the opinion reads at page 7: "This opinion has been redacted because portions of the record are under seal. For the purposes of the summary judgment motion, Templeton did not contest that Higazy's statements were coerced."

So the opinion, while interesting, is much less interesting because now we don't know how the FBI extracts false confessions from people. Looking at things from another angle, we don't know how the FBI gets suspected terrorists to tell the truth. Except that we do know this, because the... horse is out of the barn, and the classified portion of the opinion is embedded in the Internet... we can see the part of the ruling that the Court redacted:

Higazy alleges that during the polygraph, Templeton told him that he should cooperate, and explained that if Higazy did not cooperate, the FBI would make his brother “live in scrutiny” and would “make sure that Egyptian security gives [his] family hell.” Templeton later admitted that he knew how the Egyptian security forces operated: “that they had a security service, that their laws are different than ours, that they are probably allowed to do things in that country where they don’t advise people of their rights, they don’t – yeah, probably about torture, sure.”

Higazy later said, "I knew that I couldn't prove my innocence, and I knew that my family was in danger." He explained that "[t]he only thing that went through my head was oh, my God, I am screwed and my family's in danger. If I say this device is mine, I'm screwed and my family is going to be safe. If I say this device is not mine, I’m screwed and my family’s in danger. And Agent Templeton made it quite clear that cooperate had to mean saying something else other than this device is not mine.”

Higazy explained why he feared for his family:

The Egyptian government has very little tolerance for anybody who is —they’re suspicious of being a terrorist. To give you an idea, Saddam’s security force—as they later on were called his henchmen—a lot of them learned their methods and techniques in Egypt; torture, rape, some stuff would be even too sick to . . . . My father is 67. My mother is 61. I have a brother who developed arthritis at 19. He still has it today. When the word ‘torture’ comes at least for my brother, I mean, all they have to do is really just press on one of these knuckles. I couldn’t imagine them doing anything to my sister.

And Higazy added:

[L]et’s just say a lot of people in Egypt would stay away from a family that they know or they believe or even rumored to have anything to do with terrorists and by the same token, some people who actually could be —might try to get to them and somebody might actually make a connection. I wasn’t going to risk that. I wasn’t going to risk that, so I thought to myself what could I say that he would believe. What could I say that’s convincing? And I said okay.

That's how they do it, folks. If a foreign national is suspected of terrorist activity, the FBI will threaten to have a brutal foreign government punish his family. And punishment in a place like Egypt is not like punishment here. Punishment here consists of solitary confinement and a very long prison term. Punishment over there is torture.

links for 2007-10-22

A Gathering of the Clans...

Economic historians, historians of economic thought, practitioners of political economy, and others are painting themselves blue with woad and practicing with staves after reading Stanford's David Kennedy's trashing of Paul Krugman.

Here is Gavin Kennedy:

Adam Smith's Lost Legacy: I treat what David Kennedy has written as they stand. That he quotes Francis Amasa Walker (1840 – 1897!) for his criterion of what constitutes and economist in 2007 suggests he is seriously out of touch, and that he associates Adam Smith with laissez faire supports this conclusion. Adam Smith was not the author of what passes today as ‘classical doctrines’ (an impossibly broad tent covering Malthus, Ricardo and Marx, from among which I would snatch Adam Smith).

The sentence including, “Adam Smith, whose fabled “invisible hand”, gives the game away. David Kennedy, a professor of American history, refers to the ‘fable’ of the invisible hand, but it wasn’t a fable of Adam Smith’s making; for Smith it was merely a handy metaphor when explaining why opening a domestic market to foreign goods for consumption would lead to higher domestic investment, partly by the foreign products competing with domestic products and partly by the risk avoidance of local merchants preferring to invest their capital locally. As the arithmetical whole is the sum of its parts, if local merchants invest locally instead of abroad, domestic capital formation will be higher than otherwise.

For 18th-century readers of Wealth Of Nations (Book IV.ii.9: p456), who were not economists – more likely to be legislators and people who influence them – he summed this process after clearly explaining it by using a common 17th-18th-century literary metaphor of the invisible hand (see Shakespeare’s ‘Macbeth’, Defoe’s ‘Moll Flanders’ or ‘Colonel Jack’, or Voltaire’s Oedipe: 'Tremble, unfortunate King, an invisible hand suspends above your head’; and ‘an invisible hand pushed away my presents’, etc.,).

The fable of the invisible hand has passed through the string of tenuous development.... Its origins are located in the environs of 51st Street, Chicago, and which has been propagated all over American academe, via its graduates and the media, until the fable is now regarded as the reality.... I would expect an historian to know this, or at least to be interested in it...

Here is Mark Thoma:

Economist's View: New York Times Review of "The Conscience of a Liberal": where's a decent reviewer when we need him? As Krugman notes in his response, David Kennedy is wrong about the history of prohibition, and the other "error" is a pretty trivial slip of writing 1964 instead of 1965. If those are the best examples of Krugman's errors Kennedy (as an historian himself) can come up with, then you have to conclude that Krugman is on pretty solid ground with the historical story he tells.

The review also ignores a lot of evidence from political scientist Larry Bartels on values voting that supports Krugman's position.... The values voting conclusions aren't things Krugman simply asserts - as you might conclude from the review - Krugman reviews solid evidence before coming to this conclusion.... [Kennedy] does not tell us about nor bother to try to rebut the careful, detailed discussion of right-wing institutions and their common funding sources that comes before this statement. Krugman's statement is a summary of this evidence, and to focus on the summary statement rather than than the evidence that supports it is not much of a rebuttal.

It's too bad that Kennedy chose to argue that, in essence, "Democrats have problems too" -- as though that somehow excuses Republicans for issues like racial politics -- rather than dealing with the evidence Krugman presents concerning the political and economic changes that produced the New Gilded Age...


Angry Bear: The NY Times review of The Conscience of a Liberal starts off with a brief resume of its author – Paul Krugman. This is followed by a really stupid statement: "And yet maybe Krugman is not really an economist..." Who is Mr. Kennedy thinking of when he says “most modern economists”? The know-nothing nitwits over at the National Review? They religiously believe in laissez faire. This is followed by attacks not only on the book but also the author...

Alex Tabarrok:

Marginal Revolution: Krugman Badly Reviewed: It will not surprise readers to know that I'd enjoy a good smash of Paul Krugman's book Conscience of a Liberal but historian David Kennedy's negative review in the NYtimes is more trash than smash.  First, there is a bizarre attempt to argue that Krugman is not an economist because he is not laissez-faire!... At this point I was willing to forgive. Unfortunately, the rest of Kennedy's review has very little meat.  If the best that historian Kennedy can say against Krugman's "factually shaky" history is that "Kansas, whatever its other crimes and misdemeanors, is not customarily regarded as the birthplace of Prohibition; the Voting Rights Act passed in 1965, not 1964." then maybe Krugman is on to something.  (For the record, the first point is arguable the second point is a trivial error.)

Worse yet, Kennedy agrees with Krugman when Krugman is wrong.... I don't understand the divisions within the liberal fold which explain Kennedy's review (he is no right-winger) but I know something is up when Tyler says "The Conscience of a Liberal is um... not that polemic.  It's not that shrill."  While liberal Kennedy says "Like the rants of Rush Limbaugh or the films of Michael Moore, Krugman’s shrill polemic may hearten the faithful, but it will do little to persuade the unconvinced or to advance the national discussion of the important issues it addresses."

My ultimate response to Kennedy's review?  I bought the book.

If David Kennedy had any arrows, I would suggest that he start practicing the longbow...

The Real America!

Judith Warner lit the fuse, but Nicholas Beaudrot started it:

Ezra Klein: "How Could Clinton Win? Nobody I Know Voted For Her.": Via DeLong and Franke-Ruta (that's just the order their posts popped up in my RSS reader), the NYT's Judith Warner wonders if maybe, just maybe, the hyper-educated urban cosmopolitan upper-middle class journalists have a Pauline Kael problem [sic] when it comes to assessing the public's impressions of Hillary Clinton. The Village has inculcated the right-wing myth that Real America out there in the heartland (even though there are more World of Warcraft players than farmers) hates Clinton and will never vote for her, backed up by her weak performance in the 2000 Senate election. But this just doesn't pass the smell test.... I will say that... I didn't expect she would be able to improve her favorable figures this much this quickly; I thought she would have to do more than just show up on midday talk show circuit to improve her favorables, and that the Democratic primary electorate would not be particularly eager to nominate a candidate whose record and rhetoric has all the hallmarks of a centrist. But hey, I'm part of the hyper-educated urban cosmopolitan upper-middle class...

And Paul Krugman carried it forward:

The real America - Paul Krugman - Op-Ed Columnist - New York Times Blog: The real America I once wrote a piece about George W. Bush’s claim that he goes to Crawford to be with “real Americans.” As I asked at the time,

And what are those of us who live in New Jersey — chopped liver?

But here’s a statistic, via Nicholas Beaudrot, that really puts it in perspective: In today’s America, there are more World of Warcraft players than farmers.

Which carries us via Making Light and BoingBoing to Kung Fu Monkey:

Kung Fu Monkey: Farm Fetish: [T]his CNN piece (from over at Atrios) is the sort of thing that... gives me a headache. They send a reporter to literally Middle America, and surprise, discover that they don't much care for them Hollywood movies. Suuuurrr-prise! But one chunk of this report, to me, is symptomatic of a larger issue that grinds my molars.

ANDERSON: We stopped by the Lebanon [Kansas -- ed.] hotspot, Ladow's Market, where one local told us Hollywood just can't relate to a farming way of life.

UNIDENTIFIED MALE: They've never been back in here to know what it's like to actually have to make a living doing this.

You know what, Unidentified Male? You're right. I don't know what it's like to have to make a living farming. NOBODY DOES. For chrissake, only 17% of Americans live in rural settings anymore. Only 2 million of those people work on farms or ranches (USDA figures). Hell, only ten percent of the average farm family's income even comes from farming.... [W]hy in the name of John Deere's Blood-Soaked Wood-Chipper Gears, every time I hear a news report on what "real Americans" think do I wind up watching some farmer in their fifties and sixties bitch as they survey the blasted plains landscape behind them, and not only that, somehow their cultural observations are assumed to have more relevance than anyone else's?... [H]ow did we get to a point where this report may as well have started: "Hi there, Carol, we're about to talk to people twenty years older than the average American living a lifestyle less than one in five average Americans live ... to find out what the average American thinks" and somehow nobody blinks an eye?

There are four times as many Americans living in urban than rural areas. There are four times as many people sucking back coffee in New York city alone than make a living farming. According to the Burea of Labor, there are just as many people employed in Architecture and Engineering as farming, hell, 3 million people working in Computer and Mathematical jobs. But when one of these "What does America think about culture" pieces comes on, do I ever see a mid-30's software engineer onscreen.... Four million people in the US play World of Warcraft. And yet, do I ever hear:

ANDERSON: We stopped by the gates of Ogrimmar in Durotar, on the east coast of Kalimdor, where one local told us Hollywood just can't relate to the level-grinding life.

UNIDENTIFIED ORC: They've never been back here, questing Razormane or Drygulch Ravine, y'know ... or farming for Peacebloom and Silverleaf. They're out of touch.

No. No I do not.... The rural life, specifically, the agricultural industry, is a massive, important part of our nation's economic well-being.... For some people the rural life is an incredibly rewarding way of life. They should be very proud of the fact they have held on to this great tradition of commerce and, one might argue service....

But that life is not holy, it does not bless one with special insight into the intent of the Framers of the goddam Consitution or what America "should" be like.... Pardon me for enjoying my goddam latte.... I am just, I guess, well and truly tired of being told what "Middle America" wants, when Middle America is my age and lives in a goddam city, just like I have for my entire life.

The End of the Clinton-Era Productivity Growth Boom?

Source: Congressional Budget Office

John Schmitt and Dean Baker fear that the Clinton-era productivity growth boom is at an end. I think it is possible, but unlikely, and way too early to start panicking. Note the word "arguably" in their first sentence and the phrase "is sustained" in their second:

Comment is free: The real economic crisis: [A]rguably an even more fundamental problem facing the US economy: the sharp deceleration in productivity growth since the middle of 2004.... [I]f sustained... the deceleration in US productivity growth since the second half of 2004 is striking by historical standards. Between 1947 and 1973, the golden age of postwar capitalism, productivity growth averaged about 2.8% per year in the United States. At that pace, the output of the average worker was set to double about every 25 years, allowing roughly comparable increases in national living standards. From 1973 through 1995, however, productivity growth took a nosedive, with the average rate dropping to just 1.4%. At this lower rate, average worker output would take about 50 years to double, implying far slower progress in living standards.

From the mid-1990s on, however, official productivity growth again accelerated rapidly, returning to a 2.9% rate reminiscent of the golden age. Quite suddenly, though, in the second half of 2004, productivity growth dropped sharply. From the third quarter of 2004, productivity growth rate, at 1.3% per year, has not even managed to match the 1.4% growth rate of the productivity bust of 1973-1995.

Some productivity optimists argue that the downturn is a blip. But, this is a blip that just turned three years old - fully one-third the length of the nine-year 1996-2004 boom that the optimists champion. Other optimists dismiss recent performance as cyclical - related to the downturn in the US economy.... The productivity numbers are likely even worse than they look. The most important reason is that the official productivity figures don't handle the rapid depreciation of new technology very well...

links for 2007-10-21

Eliminate the Resets on Subprime Hybrid Mortgage Loans

FDIC Chair Sheila Bair wants to convert subprime loans into fixed loans at the initial interest rate:

Fix Rates to Save Loans: [T]he best place to begin is by looking at the poor lending standards and weak consumer protections at the root of the problem — in particular, the troubling loans called 2/28 and 3/27 subprime hybrids. They have starter interest rates of 7 percent or more for the first two or three years, and “resets” that raise rates to as much as 12 percent, causing monthly payments to increase by at least 30 percent.

When housing prices were rising, borrowers could sell or refinance their homes to pay off the loans before reset.... But this year, as prices have dropped, more than $150 billion in these loans have undergone reset, and an additional $300 billion will do so before the end of 2008. Merrill Lynch estimates that if home prices decline by just 5 percent, a quarter of subprime loans may enter default, resulting in losses of almost $150 billion.

A government bailout is not the answer.... What happens to those who are unable to refinance and cannot afford the rate resets?... [S]ervicers sit back and wait for people to default, then foreclose and sell the properties. But in today’s troubled housing market widespread foreclosures will only maximize losses for servicers. Renegotiating terms loan by loan is too costly and time consuming. Servicers have modified only one percent of these mortgages that reset in early 2007.

So subprime servicers should take a more standardized approach: restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but can’t afford the reset payments. Convert these to fixed-rate loans at the starter rate.

This would be no bailout. These borrowers would still be required to make their monthly payments — at rates higher than what prime is today. Billions in savings would be generated by avoiding the administrative, legal, marketing and other costs of foreclosure, which can run to half or more of the loan amount. And avoiding foreclosure would protect neighboring properties and hasten the recovery of markets burdened by an excess supply of houses.

The mortgage crisis is growing, and the mortgage industry has the ability to help solve much of it on its own. Subprime borrowers need a better deal — one that they can afford.

This is surely in the collective interest of all of us save the loan-holders. Is it in the collective interest of the loan-holders as well? I am not sure...

More Evidence That Tyler Cowen Is Correct...

I was arguing that Mitt Romney was likely to be the Republican nominee--that a happy family and five kids and talks about Jesus a lot would be powerful pluses. Tyler Cowen was arguing that theological wars between Mormons and Fundamentalists were a major factor that might sink Romney. Today brings more evidence that Tyler was, as is usually the case, correct. Let's give the mike to Pam Spaulding:

Pandagon: Mitt may have gotten an endorsement from the head of Bob Jones University, and Tony Perkins of the Family Research Council is spinning about the alleged growing support for the former Massachusetts governor, but when it comes down to it, they aren't convincing the hardcore bible beaters. From the Dallas News:

A prominent Dallas minister told his congregation that if they wanted to elect a Christian to the White House, Republican Mitt Romney wasn't qualified. Robert Jeffress, pastor of First Baptist Church of Dallas, encouraged his congregation to elect a Christian. 'Mitt Romney is a Mormon, and don't let anybody tell you otherwise,' he said…"Even though he talks about Jesus as his Lord and savior, he is not a Christian. Mormonism is not Christianity. Mormonism is a cult." Some in the large crowd began to applaud as Dr. Jeffress continued with his remarks.

"What really distresses me is some of my ministerial friends and even leaders in our convention are saying, 'Oh, well, he talks about Jesus, we talk about Jesus. What's the big deal?' " he said. "It is a big deal if anybody names another way to be saved except through Jesus Christ."... "I have conservative friends who are saying, well, he believes in Jesus, we believe in Jesus, let's just hold hands and sing kumbaya," he said. "It doesn't work that way. If a person is supporting Romney, that's fine. But don't confuse him with being a Christian."... "It's a little hypocritical for the last eight years to be talking about how important it is for us to elect a Christian president and then turn around and endorse a non-Christian," he said.

Hmm. I think there's still a bit of a problem out there in fundie land.

David M. Kennedy of Stanford Makes His Play for the Stupidest Man Alive Crown

Stanford's David M. Kennedy reveals that he is a serious contender for the "Stupidest Man Alive" title. Let's roll the tape: the start of his review of Paul Krugman's The Conscience of a Liberal:

Malefactors of Megawealth: Paul Krugman is a justly renowned professor of economics and international affairs at Princeton University. His abundant accolades include the John Bates Clark Medal... a distinction... perhaps even more prestigious than... the Nobel.... [Y]et maybe Krugman is not really an economist — at least not according to the definition offered more than a century ago by Francis Amasa Walker, the first president of the American Economic Association, who wrote that laissez-faire “was... used to decide whether a man were an economist at all.” Most modern economists continue to celebrate Walker’s orthodoxy, and behind it, the classical doctrines of Adam Smith, whose fabled “invisible hand” regularly works wonders of production, distribution, innovation and efficiency, provided it is kept free of the meddlesome “nanny state.”... Krugman [is] the anti-economist...

David Kennedy thus demonstrates that he (a) has never read Adam Smith, and (b) has little acquaintance with modern American economists--who are (like Adam Smith) much more interested in prescribing how the nanny state should meddle to be effective than in protecting the naked market from interference.

Equally bizarre is the end of Kennedy's review:

Like the rants of Rush Limbaugh or the films of Michael Moore, Krugman’s shrill polemic may hearten the faithful, but it will do little to persuade the unconvinced or to advance the national discussion of the important issues it addresses...

David Kennedy thus demonstrates his allegiance to those who have never had substantive arguments to make in reply to Paul Krugman's arguments, and hence have no move to make save the rhetorical one of dismissing him as "shrill." Because, of course, David Kennedy had just before admitted that Krugman is right on the substance:

That assorted wing nuts have pretty much managed to hijack the Republican Party in recent years is scarcely in doubt. That the market is at least occasionally fallible is also not at issue. Nor is it deniable that the New Deal rendered the lives of millions of Americans more secure, and that they have become markedly less so.... Krugman’s chapter on the imperative need for health care reform is the best in this book...

And Paul Krugman replies:

Continuing the tradition: Well, I’ve gotten a dismissive review in the NYT. It’s sort of a tradition. After all, The Great Unraveling received an equally dismissive review from Peter Beinart, in which he portrayed my conclusion that the Bush administration deliberately misled us into war as a crazy conspiracy theory, and contained this immortal pronouncement:

But most Americans do not consider the Bush administration corrupt, and Paul Krugman cannot convincingly prove it is.

I think David Kennedy’s review will hold up about as well as Peter Beinart’s. I presented facts on voting behavior, which point to the centrality of race — he ignores them. I presented polling evidence about the timing and role of the perception that Democrats are weak on national security; he just waves it away.

Oh, and when Kennedy says, to illustrate my alleged factual problems, that

Kansas, whatever its other crimes and misdemeanors, is not customarily regarded as the birthplace of Prohibition

you have to ask who’s got the factual problems. I don’t know what “customarily regarded” means, but Carrie Nation wielded her ax in Kansas - and Kansas was the first state to ban alcohol in its constitution.

Beer with Jason Furman of Brookings

At Jupiter, in Berkeley. Jason Furnan says that Greg Mankiw is:

  1. More intellectually honest than anybody of either party who has been as close to a major campaign and thus as likely to attain high federal office.

  2. Closer to a major campaign than anyone of either party who has been more intellectually honest.

Thus, he says, you can quarrel with his political commitments, but you cannot claim that he has been inefficient.

It is a point, a very good point...

A Better Column from Gail Collins of the New York Times...

She praises Chris Dodd while trashing Chris Matthews, John McCain, Richard Nixon, and Hilary Clinton:

None Dare Call It Child Care: Chris Matthews of MSNBC asked whether this country would ever get back to the days when a young guy could come out of high school, get an industrial job “and provide for a family with a middle-class income and his spouse wouldn’t have to work.” Given the fact that more than two-thirds of American mothers have been working outside the home since the 1980s, Matthews could just as easily have demanded to know when we’ll get back to using manual typewriters and rotary phones....

In a two-hour debate that focused on job-related issues, the Republican presidential candidates managed to mention the Smoot-Hawley tariff and trade relations with Peru but not a word about child care for America’s working parents. John McCain... focus[ed] on the fact that “50,000 Americans now make their living off eBay,” that the tax code is “eminently unfair” and that Congress wastes too much money studying of the DNA of Montana bears....

[C]hild car... was one of the very first issues to be swift-boated by social conservatives... vetoed by Richard Nixon... members were flooded with mail accusing them of being anti-family communists....

[I]t is absolutely nuts that it isn’t a topic of discussion — or even election-year pandering.... The only candidate who talks about child care all the time is Chris Dodd....

This is Hillary Clinton’s Women’s Week. On Tuesday... a grab-bag of Clintonian mini-ideas... expand family leave. Yesterday, she was... speaking out for a bill on child care workers that has little chance of passage and would make almost no difference.... Clinton... wasn’t prepared to get any closer to the problems of working parents than a plan to help them stay home from work...

Substantively, a good column. Rhetorically, it rubs me the wrong way. Senator Smoot had a silly-sounding name: that doesn't mean that international trade regulation is a silly issue. Peru is a mountainous country far away filled with poor, darkish-skinned people who don't speak English. That doesn't mean Peru is of small importance. Hillary Rodham Clinton would be a good president (albeit not as good as Dodd) for childcare issues--she belongs classified with the good guys like Chris Dodd rather than to be rhetorically lumped with the malefactors like Matthews, McCain, and Nixon.

A 700-word column doesn't make an argument. Instead, it makes three kinds of assertions:

  1. It asserts the main point of the column--that we Americans should think more and do more about childcare issues.
  2. It asserts that the world works in the way assumed by the background against which the main point is painted--that talking about Peru is stupid because Peru is of small importance, and that talking about international trade is silly because Smoot sounds silly.
  3. It asserts that some people are good guys (Dodd) and other people are bad guys (pundits, Republicans, Hillary Rodham Clinton).

Point 1 is good, point 2 is bad, point 3 is mixed. Am I wrong to demand that people do better?

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

Greg Clark Dares Me... blog from our dinner with Tyler Cowen and company in Davis. At Tucos, in Davis. Podcast of discussion of Greg's book, A Farewell to Alms, to follow.

Tyler is now demonstrating his iPhone to the multitudes...

Felix Salmon on Money-Laundering


Felix Salmon: Citi-KKR: The Ouroboros is Go: Yes, folks, it's on: it's not just fantasy, but moving towards reality. Citigroup has a bunch of loans to KKR that it can't get off its books. So KKR is going to buy those loans, using $8 billion borrowed from -- wait for it -- Citigroup. You can't make this stuff up.

What is presumably going on is that Citigroup is replacing loans to undercapitalized KKR vehicles with loans to the presumably well-capitalized KKR itself. Why this replacement is a good deal for both parties is not clear to me.

Right-Wing Message Discipline

McMegan writes:

Megan McArdle (October 16, 2007) - I take it all back: A conservative publication, which I will not name, just spiked a book review because I said that the Laffer Curve didn't apply at American levels of taxation, even while otherwise expressing my vast displeasure with the (liberal) economic notions of the book I was reviewing. This isn't me looking for an alternative explanation for the spiking of a bad review: the literary editor accepted it, edited it, and then three hours later told me it couldn't be published because it violated their editorial line on taxation.

I suppose I ought to have known, but I didn't. Go ahead liberals, pile on: you told me so...

McMegan won't name names. She regards herself as still under some form of right-wing message discipline. So we are left in ignorance as to which conservative publications (a) want to serve as platforms to present the views of smart (albeit conservative) people, and which (b) regard their primary mission as telling lies to advance the power interests of Republican politicians.

I'm going to assign all conservative publications to (b) in the absence of anything to the contrary. Anybody have any conservative publications they want to whitelist--to move from (b) to (a)?

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

UPDATE: McMegan concludes:

The Laffer Curve and the supply siders pushing it seem to be the teacher's unions of the right.

Funny how I have never heard of a liberal publication spiking a piece because it was insufficiently friendly to teachers' unions or trial lawyers or AARP. Don't I remember seeing a lot of things in liberal publications about how school systems are overbureaucratized, in large part because of the unions?

It is true that I have seen a lot of right-wing hyenas but haven't seen many liberals attack teachers for being overpaid and underworked. Liberals are more likely to take a line like this:

Pay Teachers More Money: Without improving the average quality of our teachers, there is little hope of improving the system... teacher quality has declined over time... ironically... [because of] reduced discrimination against women. Fifty years ago, talented, educated women had few options other than teaching, and the schools were filled with highly qualified and able teachers. Today, college-educated women have moved into other occupations....

This is no surprise. Teachers are not paid very well, and many talented potential teachers have other options.... Why are teachers so important? Since most education in this country takes place in classrooms where there are many children, disruption by one child imposes penalties on other children in the class. The evidence suggests that child behavior is very sensitive to teacher quality....

[S]chools are failing badly for some subgroups... education has been demonstrated conclusively to be very important both for a country's economic growth and for raising the wages of individual citizens. Each year of schooling is associated with about a 10 percent increase in subsequent annual earnings....

[T]he reality is that the public school system will be with us for years to come, and it is important to make that system stronger.... To improve our schools in the 21st century, it is first necessary to attract more high-quality teachers...

That's the liberal line--that teachers need more money. But that line is not just a liberal line. It is a reality-based line. The quote is from Eddie Lazear, Hoover Institution Senior Fellow and Chair of President Bush's Council of Economic Advisers. (Eddie is also strongly, strongly in favor of vouchers, educational competition, and parental voting-with-the-feet--things that liberals tend to be more skeptical of.)

What an Awful Day!

Usually October in Berkeley is high summer. Because it is no longer super-100 in the central valley, rising central valley air no longer pulls the cold sea air off the Pacific bringing the fog, so it is bright and sunny--in fact the summeriest of all months in Berkeley.

Not today: 50F and drizzling. The graduate students from the Mediterranean are all horrified.

One might as well be in Cambridge--either Cambridge.

links for 2007-10-17

Our Furnace Crashed Last Weekend...

Don't laugh.

"Why not simply reboot it?" you ask.

It appears--I'm not sure I fully understand it--that we had a power outage last weekend that fried the ROM that the furnace boots off of.

This means that--until "Ralph" arrives tomorrow to save the day--that because we are having a cold snap it is 58F degrees here in the family room, which means that the nineteenth-century English professor clothes--the wool pants, the long-sleeved broadcloth shirts with the button-down collars, the heavy tweed jackets, et cetera--actually, finally make some sense.

But I'm going into the kitchen, where it is 64F right now.

Yet more evidence that the Singularity already happened. I have no idea how I would explain this to ancestors like Priscilla Mullins...

An Historical Document: Chapters of Erie

From Charles Adams:

Chapters of Erie: The history of the Erie Railway has been a checkered one. Chartered in 1832, and organized in 1833.... Its financial troubles had, however, as yet only begun, for in 1859 it could not meet the interest on its mortgages, and passed into the hands of a receiver. In 1861 an arrangement of interests was effected, and a new company was organized. The next year the old New York & Erie Railroad Company disappeared under a foreclosure of the fifth mortgage, and the present Erie Railway Company rose from its ashes. Meanwhile the original estimate of three millions had developed into an actual outlay of fifty millions; the 470 miles of track opened in 1842 had expanded into 773 miles in 1868; and the revenue, which the projectors had "confidently" estimated, at something less than two millions in 1833, amounted to over five millions when the road passed into the hands of a receiver in 1859, and in 1865 reached the enormous sum of sixteen millions and a half. The road was, in truth, a magnificent enterprise, worthy to connect the great lakes with the great seaport of America. Scaling lofty mountain ranges, running through fertile valleys and by the banks of broad rivers, connecting the Hudson, the Susquehanna, the St. Lawrence, and the Ohio, it stood forth a monument at once of engineering skill and of commercial enterprise.

The series of events in the Erie history which culminated in the struggle about to be narrated may be said to have had its origin some seventeen or eighteen years before, when Mr. Daniel Drew first made his appearance in the Board of Directors, where he remained down to the year 1868, generally holding also the office of treasurer of the corporation. Mr. Drew is what is known as a self-made man. Born in the year 1797, as a boy he drove cattle down from his native town of Carmel, in Putnam County, to the market of New York City, and, subsequently, was for years proprietor of the Bull s Head Tavern. Like his contemporary, and ally or opponent, as the case might be, Cornelius Vanderbilt, he built up his fortunes in the steamboat interest, and subsequently extended his operations over the rapidly developing railroad system. Shrewd, unscrupulous, and very illiterate, a strange combination of superstition and faithlessness, of daring and timidity, often good-natured and sometimes generous, he ever regarded his fiduciary position of director in a railroad as a means of manipulating its stock for his own advantage.

For years he had been the leading bear of Wall Street, and his favorite haunts were the secret recesses of Erie. As treasurer of that corporation, he had, in its frequently recurring hours of need, advanced it sums which it could not have obtained elsewhere, and the obtaining of which was a necessity. He had been at once a good friend of the road and the worst enemy it had as yet known. His management of his favorite stock had been cunning and recondite, and his ways inscrutable. Those who sought to follow him, and those who sought to oppose him, alike found food for sad reflection; until at last he won for himself the expressive sobriquet of the Speculative Director. Sometimes, though rarely, he suffered greatly in the complications of Wall Street; more frequently he inflicted severe damage upon others. On the whole, however, his for tunes had greatly prospered, and the outbreak of the Erie war found him the actual possessor of some millions, and the reputed possessor of many more.

In the spring of 1866 Mr. Drew's manipulations of Erie culminated in an operation which was at the time regarded as a masterpiece -- subsequent experience has, however, so improved upon it that it is now looked upon as an ordinary and inartistic piece of what is called "railroad financiering," a class of operations formerly known by a more opprobrious name. The stock of the road was then selling at about 95, and the corporation was, as usual, in debt, and in pressing need of money. As usual, also, it resorted to its treasurer. Mr. Drew stood ready to make the desired advances upon security. Some twenty-eight thousand shares of its own authorized stock, which had never been issued, were at the time in the hands of the company, which also claimed, under the statutes of New York, the right of raising money by the issue of bonds, convertible, at the option of the holder, into stock.

The twenty-eight thousand unissued shares, and bonds for three millions of dollars, convertible into stock, were placed by the company in the hands of its treasurer, as security for a cash loan of $3,500,000. The negotiation had been quietly effected, and Mr. Drew s campaign now opened. Once more he was short of Erie. While Erie was buoyant, while it steadily approximated to par, while speculation was rampant, and that outside public, the delight arid the prey of Wall Street, was gradually drawn in by the fascination of amassing wealth without labor, quietly and stealthily, through his agents and brokers, the grave, desponding operator was daily concluding his contracts for the future delivery of stock at current prices. At last the hour had come. Erie was rising, Erie was scarce, the great bear had many contracts to fulfil, and where was he to find the stock 1 His victims were not kept long in suspense. Mr. Treasurer Drew laid his hands upon his collateral. In an instant the bonds for three millions were converted into an equivalent amount of capital stock, and fifty-eight thousand shares, dumped, as it were, by the cart-load in Broad Street, made Erie as plenty as even Drew could desire. Before the astonished bulls could rally their faculties, the quotations had fallen from 95 to 50, and they realized that they were hopelessly entrapped.

The whole transaction, of course, was in no respect more creditable than any result, supposed to be one of chance or skill, which, in fact, is made to depend upon the sorting of a pack of cards, the dosing of a race-horse, or the selling out of his powers by a "walkist." But the gambler, the patron of the turf, or the pedestrian represents, as a rule, himself alone, and his character is generally so well understood as to be a warning to all the world. The case of the treasurer of a great corporation is different. He occupies a fiduciary position. He is a trustee, a guardian. Vast interests are confided to his care; every shareholder of the corporation is his ward; if it is a railroad, the community itself is his cestuique trust. But passing events, accumulating more thickly with every year, have thoroughly corrupted the public morals on this subject. A directorship in certain great corporations has come to be regarded as a situation in which to make a fortune, the possession of which is no longer dishonorable. The method of accumulation is both simple and safe. It consists in giving contracts as a trustee to one s self as an individual, or in speculating in the property of one s cestui que trust, or in using the funds confided to one's charge, as treasurer or otherwise, to gamble with the real owners of those funds for their own property, and that with cards packed in advance. The wards themselves expect their guardians to throw the dice against them for their own property, and are surprised, as well as gratified, if the dice are not loaded. These proceedings, too, are looked upon as hardly reprehensible, yet they strike at the very foundation of existing society. The theory of representation, whether in politics or in business, is of the essence of modern development. Our whole system rests upon the sanctity of the fiduciary relations. Whoever betrays them, a director of a railroad no less than a member of Congress or the trustee of an orphans asylum, is the common enemy of every man, woman, and child who lives under representative government. The unscrupulous director is far less entitled to mercy than the ordinary gambler, combining as he does the character of the traitor with the acts of the thief...

Starting to Think About Next Semester's Teaching...

Ah: we exist:

UCB Online Schedule of Classes: Search Results: 15-OCT-07, Spring 2008


22579 P 101B 001 LEC TuTh 330-5P 9 EVANS Economic Theory--Macro 4 DELONG, J B 20 SO, JR, SR & BY CATEGORY
22582 S 101B 101 DIS MW 9-10A 61 EVANS Economic Theory--Macro
22585 S 101B 102 DIS WF 11-12P 61 EVANS Economic Theory--Macro
This is a go-faster do-more course--intended for people who would be bored in Economics 100b. (And, I think, not nearly enough people take it.) Proposed schedule:

T Jan 22: INTRODUCTION: The Problems of Macroeconomics: The Federal Reserve in August 2007 [Background reading: Macroeconomics, chs. 1-3]

Th Jan 24: THE LONG RUN: ECONOMIC GROWTH: Solow Model: Capital and Equilibrium. [Reading: Macroeconomics, ch. 4] Reading: Introduction to the Theory of Economic Growth

T Jan 29: THE LONG RUN: ECONOMIC GROWTH: Solow Model: Dynamics and Feedback. Reading: How Fast Does the Economy Head Toward Its Balanced-Growth Path Reading: Two Additional Notes

Th Jan 31: THE LONG RUN: ECONOMIC GROWTH: Application: How Much of Today's World Can We Explain with the Solow growth model? [Reading: Macroeconomics, ch. 5] Problem Set 1 due. Solow Growth Models Scenario Spreadsheet

T Feb 5: THE LONG RUN: ECONOMIC GROWTH: Varieties: Technology, Organization, and Political Economy. Reading: Optimal Innovation

Th Feb 7: THE LONG RUN: ECONOMIC GROWTH: Varieties: From Malthus to Modernity: Understanding the Industrial Revolution. Problem Set 2 due. Reading: Explorations in the Theory of Economic Growth

T Feb 12: FIRST MIDTERM EXAM (Professorial Reality Check Exam).

Th Feb 14: THE MEDIUM RUN: Flexible-Price Models: Components of Aggregate Demand. [Reading: Macroeconomics, ch. 6]

T Feb 19: THE MEDIUM RUN: Flexible-Price Models: Full-Employment Equilibrium. [Reading: Macroeconomics, ch. 7] Reading: Using the Flexible Price Level

Th Feb 21: THE MEDIUM RUN: Flexible-Price Models: Application: Government Budgets, Investment Booms, and the International Side. Problem Set 3 due.

T Feb 26: THE MEDIUM RUN: The Monetary Side: The Quantity Theory of Money, Inflation, and Expectations [Reading: Macroeconomics, ch. 8]

Th Feb 28: THE SHORT RUN: Sticky Prices and Aggregate Demand. [Reading: Macroeconomics, ch. 9] Problem Set 4 due.

T Mar 4: THE SHORT RUN: The IS Curve and Employment [Reading: Macroeconomics, ch. 10]

Th Mar 6: THE SHORT RUN: Sticky-Prices Application: Stabilization Policy since WWII

T Mar 11: THE SHORT RUN: The Phillips Curve and Inflation. [Reading: Macroeconomics, ch. 12]. Problem Set 5 due.

Th Mar 13: CONCLUSION: Tying Up the Short-Run and the Medium Run. Reading: Inflation, Unemployment, and Stabilization Policy

T Mar 18: SECOND MIDTERM EXAM (Core Theory Exam)

Th Mar 20: APPLICATIONS: Should Conservatives Be Central Bankers? Reading: Central Bank Consistency and Credibility: The Analytics

T Apr 1: APPLICATIONS: Is There a Political Business Cycle?

Th Apr 3: APPLICATIONS: Productivity Speed-Ups and Slow-Downs. Problem Set 6 due. Reading: Growth Accounting Reading: Modeling the High-Tech Computer Revolution of the 1990s

T Apr 8: APPLICATIONS: "Fixing" Social Security

Th Apr 10: APPLICATIONS: U.S. Long-Run Budget Balance. Reading: The "Golden Rule" and National Savings

T Apr 15: APPLICATIONS: European Youth and Structural Unemployment. Problem Set 7 due.

Th Apr 17: APPLICATIONS: U.S. Income Distribution

T Apr 22: APPLICATIONS: Understanding the Stock Market Equity Return Premium. On Robert Barro's (2005) "Rare Events and the Equity Premium" and T.A. Rietz's (1988) "The Equity Risk Premium: A Solution"; The Gordon Equation, Earnings Yields, and Stock Returns; Equity Premium Handout; "Bubbles" Handout

Th Apr 24: APPLICATIONS: China's Exchange Rate. Problem Set 8 due.

T Apr 29: APPLICATIONS: Looking Back at the Great Depression

Th May 1: APPLICATIONS: Manias, Panics, and Crises. Reading: The International Financial Crises of the 1990s

T May 6: APPLICATIONS: The Current Macroeconomic Situation. Reading: Simple Analytics for a Hard Dollar Landing


T May 22: FINAL EXAM 12:30-3:30

Tim Duy Thinks the Federal Reserve Will Hold Interest Rates Steady

He writes:

Economist's View: Fed Watch: Set to Hold Steady: [W]ithout additional evidence that that the housing downturn is contributing to excess weakness in other parts of the economy, the Fed can take a pass in October. Is their any chance the Fed will start to think about reversing the September move? Not very likely.... [T]he Fed will not change course with the financial markets on edge. Yes, I know that moderate growth coupled with a variety of warning signs on inflation make the case for a reversal, but the Fed simply could [not] care less.... This is Fedspeak for “sell the Dollar, we don’t care.”... The Fed will be watching for official inflation, core PCE inflation. They are not ready to respond to the falling Dollar or rising commodity prices; I believe they are more complacent on inflation than the obligatory “inflation risks” clause would lead you to believe, and perhaps rightly so... to date, inflation by their measures is not a problem, and while the steepening yield curve points to some worries among market participants, it does not suggest that inflation has gotten away from the Fed.

For my part, the global economic landscape continues to leave me a bit unsettled. Commodities have resumed their upward surge, with oil now above $86 and gold exceeding $760. The Baltic Dry Freight Index is rapidly moving to new highs. The Chinese stock market is going stratospheric. The IMF has written off the Dollar, although the G7 will most likely say something Dollar supportive this weekend. And, probably worst of all, I see a strong chance that all of these trends will build through the 2008 Olympics – all at the same time that credit market concerns keep the Fed in neutral with an easing bias.

For now, however, all is good. Be happy.

In short, solid incoming data erased fears of imminent economic destruction, as well as my expectation for a rate cut this month (watch the data turn against me again).... [I]f the current pace of data is maintained, the Fed will be content to sit tight at 4.75%.

Practice Final Exam for Modern Political Economy, PE 101, Fall 2007

I have never taught this course before here at Berkeley

It seems only fair to give the students some idea of what is coming on Saturday December 15: 5-8 PM. For what they are about to receive, may the Lord of the Stars make them truly thankful:

PE 101: Modern Political Economy: Fall 2007: Mock Final Exam

Part 1--Short Answers (1 to 2 paragraphs); do all (50%) of exam:

  1. What facts about the way the world appeared to be working before 1914 made it reasonable for Norman Angell to hope that full-scale wear between great powers was a thing of the past?

  2. Why does George Orwell refuse to be either a classical liberal defender of the British status quo, a traditional conservative, a communist, or a fascist?

  3. Given his historical situation in Britain between the world wars, does it seem to you reasonable or unreasonable that John Maynard Keynes hoped that clever governmental management by smart people would make classical liberal dreams true in practice even though they were not true in theory?

  4. Why does Milton Friedman reject the dominant Polanyian social-democratic consensus of his time--that the logic and working of the market needed to be curbed by an active, powerful, energetic government aggressively regulating in the public interest?

  5. What regions of the world have seen notable economic development successes in the years since WWII? What regions have seen notable economic development failures?

  6. To what extent are modern neoliberals the intellectual children of Norman Angell, John Maynard Keynes, Karl Polanyi, and/or Milton Friedman?

Part 2--Essays; do 2 (50%) of exam:

  1. Looking forward to the twenty-first century, who do you think is likely to win the intellectual cage match between Angell, Schumpeter, Hobson, and Stern? Whose analysis of the roots and functions of cross-border violence and domination is likely to be closest to being true?

  2. In what ways are Milton Friedman and James Scott BFFs? In what ways are they eternal enemies?

  3. What are the most notable differences between Keynes's and Polanyi's analyses of the problems of Europe between the world wars?

  4. What, in your view, should the grand international relations strategy of the United States be in the twenty-first century? What should it do--in economics and in politics? What changes should it try to bring about in other countries, and what tools should it use to try to bring them about?

Restricted Stock, Not Stock Options

As a hedge fund manager once said to me, "Stock options don't make CEOs long their company's fortunes, they make CEOs long the volatility of their company's fortunes." If you are interested in incentive compatibility, you make CEOs put up their personal wealth and give them restricted stock.

Paul Krugman writes:

Their own private S&Ls: Floyd Norris had an interesting piece on Friday on the effects of paying executives largely in stock options; it confirms suspicions I’ve had in the past. Floyd doesn’t put it this way, but the research he describes basically says that big options grants give CEOs the same incentives that deregulation plus deposit insurance gave S&Ls in the 1980s....

[I]magine a CEO with a huge option package, but one that’s well out of the money — that is, it’s worthless if the stock price stays where it is or goes down, but might be worth a huge amount if the stock goes up a lot. Well, he’s in the same position as an S&L owner. It’s in his interest to make very risky plays, that might drive up the stock price but probably won’t. After all, it’s heads he wins, tails the stockholders lose. And a bit of fraud to pump up the stock price, just long enough to cash in, would make sense too.

Sure enough, that’s exactly what happened. In the early days of the explosion in CEO paychecks, Michael Jensen and Kevin Murphy famously claimed that it was all part of giving executives an incentive to be entrepreneurial:

On average, corporate America pays its most important leaders like bureaucrats. Is it any wonder then that so many CEOs act like bureaucrats rather than the value-maximizing entrepreneurs companies need to enhance their standing in world markets?

So we started paying CEOs like S&L owners instead - and they started acting like riverboat gamblers.

How Sad!

Students sitting on the floor in the corridors of Berkeley's Valley Life Sciences Building, huddled next to the few power outlets in order to feed their laptops electrons. (The power cords won't reach to the little in-corridor seating there is.)

Even sadder: professors sitting on the floor in the corridors of Berkeley's Valley Life Sciences Building, huddled next to the few power outlets in order to feed their laptops electrons.

Paul Krugman on Gore Derangement Syndrome

A very nice column from Paul Krugman:

Gore Derangement Syndrome: On the day after Al Gore shared the Nobel Peace Prize, The Wall Street Journal’s editors couldn’t even bring themselves to mention Mr. Gore’s name. Instead, they devoted their editorial to a long list of people they thought deserved the prize more. And at National Review Online, Iain Murray suggested that the prize should have been shared with “that well-known peace campaigner Osama bin Laden, who implicitly endorsed Gore’s stance.” You see, bin Laden once said something about climate change — therefore, anyone who talks about climate change is a friend of the terrorists.

What is it about Mr. Gore that drives right-wingers insane?

Partly it’s a reaction to what happened in 2000, when the American people chose Mr. Gore but his opponent somehow ended up in the White House. Both the personality cult the right tried to build around President Bush and the often hysterical denigration of Mr. Gore were, I believe, largely motivated by the desire to expunge the stain of illegitimacy from the Bush administration. And now that Mr. Bush has proved himself utterly the wrong man for the job — to be, in fact, the best president Al Qaeda’s recruiters could have hoped for — the symptoms of Gore derangement syndrome have grown even more extreme.

The worst thing about Mr. Gore, from the conservative point of view, is that he keeps being right. In 1992, George H. W. Bush mocked him as the “ozone man,” but three years later the scientists who discovered the threat to the ozone layer won the Nobel Prize in Chemistry. In 2002 he warned that if we invaded Iraq, “the resulting chaos could easily pose a far greater danger to the United States than we presently face from Saddam.” And so it has proved.

But Gore hatred is more than personal. When National Review decided to name its anti-environmental blog Planet Gore, it was trying to discredit the message as well as the messenger. For the truth Mr. Gore has been telling about how human activities are changing the climate isn’t just inconvenient. For conservatives, it’s deeply threatening....

The solution to... conflicts between self-interest and the common good is to provide individuals with an incentive to do the right thing... a reason to cut back on greenhouse gas emissions.... [D]ealing with climate change not only requires new taxes or their equivalent; it also requires international negotiations in which the United States will have to give as well as get.

Everything I’ve just said should be uncontroversial — but imagine the reception a Republican candidate for president would receive if he acknowledged these truths at the next debate. Today, being a good Republican means believing that taxes should always be cut, never raised. It also means believing that we should bomb and bully foreigners, not negotiate with them.

So if science says that we have a big problem that can’t be solved with tax cuts or bombs — well, the science must be rejected, and the scientists must be slimed.... Investor’s Business Daily recently declared that the prominence of James Hansen, the NASA researcher who first made climate change a national issue two decades ago, is actually due to the nefarious schemes of — who else? — George Soros. Which brings us to the biggest reason the right hates Mr. Gore: in his case the smear campaign has failed. He’s taken everything they could throw at him, and emerged more respected, and more credible, than ever. And it drives them crazy.

Alex Tabarrok on the Economics Nobel Prize

He writes:

Marginal Revolution: Mechanism Design for Grandma: Ok, Grandma may still have some difficulty but in honor of today's Nobelists, Hurwicz, Maskin and Myerson let's give it a go.  Suppose that you are selling a rare painting for which you want to raise the maximum revenue.  There are two potential buyers, Tyler, who values the painting at $100,000, and Alex who values it at $20,000.  The problem would be simple if you knew this information - you would then set the price at $99,999 and Tyler would buy maximizing your revenue.  But how much Tyler and Alex value the painting is their own private information.  How then should sell the painting?

One possibility that springs quickly to mind is an auction.  In a standard English open-cry auction Alex and Tyler will bid for the painting and the bids will keep rising until Alex is forced to drop out at $20,001.  Thus the auction earns you $20,001.  Not bad, but is this the maximum revenue possible?...

You want to design the mechanism to achieve a certain outcome.  The mechanism can be as complicated as you want but it must satisfy certain conditions.  First, the bidders must participate voluntarily....  At the end of the day the bidders must expect to be at least as well off as if they did not play the mechanism game.... Second, there is an incentive compatability constraint. You don't know how much Alex and Tyler truly value the painting so suppose that Tyler mimics whatever Alex does - Tyler can do this since he values the painting at least as much as Alex does.  It follows that whatever outcome the mechanism assigns to Alex, Tyler must get at least as much.  This is a significant constraint because it means that if you want Tyler to do something different than Alex, and you do, you want Tyler to bid more, then you must give Tyler something in return. Thus, even in the optimal mechanism you, the seller, are not going to get everything. Tyler is going to walk away with some surplus....

Maskin and Myerson proved something very useful about mechanisms with these types of constraints.  It turns out that if you follow the constraints then you can restrict attention to mechanisms in which Tyler and Alex always tell the truth about their values, this is called the revelation principle....

In the case of auctions the direct mechanism is well known, a second price auction.  In a second price auction the high bidder wins but pays the second highest-bid.  In this auction it makes sense for every bidder to bid his true value....

The basic set-up of agents with private information submitting "bids" which are then fed into a mechanism resulting in outcomes is very general.  How to raise taxes, regulate a monopolist, fund a public good (here's my own contribution to mechanism design), allocate organs, assign interns to hospitals, split common costs, allocate electricity across a grid - all can be thought of as mechanism design problems.   The tools that Hurwicz, Maskin and Myerson developed and their methods of paying attention to participation and incentive compatability constraints and using the revelation principle helps us to design, at least in principle, the best solutions to all of these problems.

Felix Salmon on Information Aggregation

He writes:

Blogonomics: Paying for Content - M]ost bloggers are not journalists, and have no desire to be journalists. And that as a result, the quality of public discourse, certainly in the finance and economics space, has improved immeasurably. I defy Mark to find a single journalist in the next month who will write as lucidly and as comprehensively about this year's Nobel Prize winners in economics as Tyler and Alex over at Marginal Revolution did in the space of a couple of hours. There aren't any newspaper or magazine journalists who are better on international capital flows than Brad Setser, or the housing market than Capital Risk, or urbanism than Streetsblog – the list is almost endless. If you have a quick look at my econoblogsphere, you'll find that journalists are definitely in the minority – and that's a very good thing indeed.

These bloggers aren't in it for the money. Every once in a while a blog like Marginal Revolution will really take off, and start bringing in non-negligible amounts of cash for its founders. But Tyler Cowen and Alex Tabarrok are both tenured professors, and they didn't found the blog for the money. If you look at Mark Thoma's hugely successful Economists' View blog, you'll see that it carries no advertising whatsoever....

For all that blogs are becoming increasingly mainstream, the number of people who get a regular and predictable paycheck for blogging is still tiny. That number will rise, but it will never come close to the number of people who get a regular and predictable paycheck for old-fashioned reporting. In most of the blogosphere, the incentives and the rewards for generating content are very, very different from what is found in old-media companies.

Joel Kovel Is an Idiot

For some incomprehensible reason the Rootless Cosmopolitan weblog publishes Joel Kovel, "author of Overcoming Zionism, is a SUNY professor of psychiatry and a Green Party activist who ran against Hillary Clinton for the Senate":

Joel Kovel: [T]he Nobel Peace Prize given to Al Gore... [and] that awarded to Henry Kissinger... nonetheless belongs in the same category, as a prize given by the establishment to itself in proof that The System Works.... Gore proposes moral uplift and technological fixes to bring down the carbon load on the atmosphere, and in so doing, deliberately ignores the real causes of climate change in the workings of our capitalist industrial system and the society it serves. There is of course no mystery as to why he would do so: Al Gore is and has been a proven and well-rewarded servant of that system; indeed, as Vice President of the United States from 1993 to 2001 he presided over the greatest increase of carbon emissions in the history of the world and did absolutely nothing effective to check them...

The BTU tax he proposed in 1993 wold have been an effective way to check carbon increases. I don't remember seeing Joel Kovel up on Capitol Hill lobbying and educating in 1993. The global-negotiation process he tried to start with Kyoto would have been effective, and may still be.

It takes a lot of nerve for a Green Party candidate to complain about Al Gore. A lot of nerve.

Objects in Your Calendar Are Closer than They Appear Department

I really shouldn't agree to do things like this until I have something written down to serve as a skeleton of what I am going to say:

Davis Humanities Institute: The Center for History, Society, and Culture: Forum on Gregory Clark’s A Farewell to Alms with Gregory Clark, Tyler Cowen and Brad DeLong. Event Date:

Date: Thursday, October 18th, 2007
Time: 4:30-6:00 PM
Location: Andrews Conference Room, SSH 2203

What am I going to say?

links for 2007-10-15

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

Ah: Jackson Diehl, Autumn Brewington, Jo-Ann Armao, Robert Asher, Jonathan Capehart, Lee Hockstader, Charles Lane, Ruth Marcus, Eva Rodriguez. Remember those names. In years to come, they will all claim: "No. I wasn't on the Washington Post editorial board in 2007! I held an honorable job--I was working for an insurance company, denying chemotherapy coverage to cancer victims!"

All reporters in America now-a-bed
Shall think themselves blessed that they were not there,
And lucky to still hold their ovaries dear
Unlike those upon the Post editorial board

Here is Glenn Greenwald:

The Beltway Establishment's contempt for the rule of law: The Washington Post's Editorial Page, in the establishment-defending form of Fred Hiatt, today became but the latest Beltway appendage to urge the enactment of a special law providing amnesty to our nation's poor, put-upon, lawbreaking telecoms:

There is one major area of disagreement between the administration and House Democrats where we think the administration has the better of the argument: the question of whether telecommunications companies that provided information to the government without court orders should be given retroactive immunity from being sued. House Democrats are understandably reluctant to grant that wholesale protection without understanding exactly what conduct they are shielding, and the administration has balked at providing such information. But the telecommunications providers seem to us to have been acting as patriotic corporate citizens in a difficult and uncharted environment.

Let's leave to the side Hiatt's inane claim that these telecoms, in actively enabling the Bush administration to spy on their customers in violation of the law, were motivated by the pure and upstanding desire to be "patriotic corporate citizens" -- rather than, say, the desire to obtain extremely lucrative government contracts.... Leave to the side the fact that actual "patriotism" would have led these telecoms to adhere to the surveillance and privacy laws enacted.... Further leave to the side that these telecoms did not merely allow warrantless surveillance on their customers in the hectic and "confused" days or weeks after 9/11, but for years. Further leave to the side the fact that, as Hiatt's own newspaper just reported yesterday, the desire for warrantless eavesdropping capabilities seemed to be on the Bush agenda well before 9/11. And finally ignore the fact that Hiatt is defending the telecom's good faith even though, as he implicitly acknowledges, he has no idea what they actually did...

Jonathan Rauch Attempts to Explain What He Got Wrong

Tom Schaller sends us to a mea culpa from Jonathan Rauch:

Right Vote. Wrong President: National Journal, October 13, 2007: Five years ago, Congress and President Bush made the most consequential and, as now seems more likely than not, unfortunate decision of this country's still young century. On October 16, 2002, Bush signed a resolution authorizing the U.S. invasion of Iraq. Should war supporters apologize?...

I reread my columns from the period and promptly found one, from February 2004, in which I described myself as an, er, "advocate of the war."... So let me say for the record: I was wrong. Like most Americans, I have long since come to believe that the Iraq war was a strategic mistake -- with luck. (Without luck, it will be a strategic calamity.) But let me also say what I was wrong about....

Since 2004, it has become clearer that the Bush administration's prewar hype portrayed the intelligence on Saddam's alleged weapons of mass destruction as solider and starker than it really was.... I should have been more skeptical of the WMD hard sell. That was mistake No. 1.

Mistake No. 2 was forgetting the difference between experts and poseurs.... [A] lot of us in the media gave a lot of ink and airtime to pontificators who had never been to Iraq, who had never fought in a war or served in an embassy or worked on a reconstruction team, and who did not know Iraq's language, culture, people, leaders, history, or region. Other than that, they were experts....

Those, however, were small mistakes compared with the fundamental one. It was not, really, a mistake about the war at all. It was a mistake about the president.... Another Bush was president, and the younger one looked as decisive as his father had once seemed dotty. This, after all, was the George W. Bush who had impressively rallied the nation and the world after September 11.

His foreign-policy team looked easily the equal of his father's, or anybody's. Vice President Cheney was the wise man of Washington and the elder Bush's successful Defense secretary. Secretary of State Colin Powell was the magisterial architect of the Gulf War. Defense Secretary Donald Rumsfeld was the man whose plan had worked like a charm in Afghanistan. If Condoleezza Rice, the national security adviser, was not the equal of her 1990 predecessor, Brent Scowcroft, she was no lightweight. Surely if any war Cabinet could inspire confidence, this was it. Wrong again....

Some optimists say that in Army Gen. David Petraeus, Bush has finally found his Gen. Grant. That may or may not be true, but it is beside the point. The problem is that Petraeus has not yet found his President Lincoln....

I have come to say: I do not regret giving the president authority; I regret giving this president authority. I am sorry. I made a mistake five years ago. But not about the vote. About the leader.

The curious thing is that back in the summer of 2001 Jonathan Rauch appeared to have a relatively clear-eyed view of George W. Bush. He lamented the bait-and-switch from the campaign to the first four months:

Social Studies (06/15/2001): President Bush... [in] your 2000 campaign... you pointedly included New Center initiatives for Social Security, Medicare, and education, some of them heisted from the New Democrats. Why you spent your early political capital on a rightward-looking tax cut is beyond me, but it is not too late for you to begin sounding like a New Centrist rather than an old (albeit "compassionate") conservative...

And got downright snarky on the administration's law enforcement policies:

Social Studies (06/01/2001): According to law enforcement officials, a particularly significant event was the arrest, in Roxbury, Mass., of Cedric Grieg, the nation's last drug dealer. "We knew if we locked up enough of the dealers, eventually we had to get them all," a senior Administration official said in a White House briefing that preceded yesterday's Rose Garden event. "It's just basic arithmetic."

One concern, the official noted, is that eventually someone somewhere in the world may resume producing drugs and attempt to slip some into the United States. "We need to be as vigilant as ever," the official said, adding that, as a precaution, the Bush Administration will soon propose a ban on all powdery white substances. "Still," he said, "as long as all the distributors and dealers are in jail, the pipeline will stay plugged."... Attorney General Ashcroft.... "You know, there's a lesson here," he said. "Year after year, the doubters would look at the drug-use numbers staying put and the street prices declining and the revolving prison doors spinning, and they'd say we weren't getting anywhere. And some of us, just shouting into the wind, kept saying that if we could put men on the moon, we could win this thing -- and the American people knew in their heart we could win it, and that's why they stuck with us when we redoubled our efforts. It just shows that sometimes our hearts see better than our eyes"...

And understood the dangers of "compassionate conservatism":

Social Studies (11/03/2000): Too bad about Bush's fuzzy math. Actually, the problem is fuzzy Bush. He is no more willing to talk about hard entitlement choices than Gore is. In fact, Bush is the free-lunch guy. He talks as if the stock market can pay the retirement benefits of two generations at once, which it can't...

You would have thought that Jonathan Rauch would have been first among those asking the question Daniel Davies asked in the fall of 2002:

Daniel Davies's Question: Can anyone... give me one single example of something with the following three characteristics?

  • It is a policy initiative of the current Bush administration
  • It was significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
  • It wasn't in some important way completely f* up during the execution.

A Riddle Inside a Mystery

Greg Sargent of Talking Points Memo sends us to the Wall Street Journal editorial board:

WSJ: Despite their howls about "the children," Democrats and their media partners are happy to milk them for political gain. Unfortunately, that narrative was bolstered this week by some conservative bloggers. After the Schip veto, Democrats chose a 12-year-old boy named Graeme Frost to deliver a two-minute rebuttal. While that was a political stunt, the Washington habit of employing "poster children" is hardly new. But the Internet mob leapt to some dubious conclusions and claimed the Frost kids shouldn't have been on Schip in the first place. As it turns out, they belonged to just the sort of family that a modest Schip is supposed to help.... Everyone concedes it is hard for some lower-income families like the Frosts to find affordable private health coverage. The debate is over what the government should do about it...

What's going on? The WSJ editorial page criticizing the sadistic wingnut right? The WSJ editorial page is the wingnut right: "They," as the late Vince Foster wrote, "lie without consequence."

I think three things are going on here:

First, that there is some payback for right-wing opposition to the Bush immigration bill so beloved of the Wall Street Journal editorial page.

Second, note that the Journal condemns "some conservative [we]bloggers"--not Rush Limbaugh, Michelle Malkin, and Senator McConnell and his staff. Some of it is an attempt to preserve the dead tree franchise.

But my guess is that most of it is something else. Third, I guess that most of it is Rupert Murdoch signalling that the Wall Street Journal editorial page can now be rented: that it won't be the knee-jerk slave of the Republican extreme anymore, and that people who want its support (within reason) should start offering him bids.

Does Greg Mankiw Think the Long-run Budget Constraint is “Cute”?

PGL at Econospeak asks the question. He is shrill and irate at Greg Mankiw, who prints a who-pays-the-taxes graph that (a) omits state and local taxes, (b) omits non-income taxes, and (c) pretends that nobody pays for the federal deficit:

EconoSpeak: Does Greg Mankiw Think the Long-run Budget Constraint is “Cute”?: Greg Mankiw may have been the first to call this Angrybear cute. Why thank you! The point of Greg’s post is that the Federal income tax is quite progressive. My point is that talking about a subset of taxes is a bit disingenuous. Kevin Drum and the conservative Tax Foundation prefer to look at total taxes. My only complaint with their analyzes is that they did not factor in those deferred tax liability from George W. Bush’s fiscal irresponsibility. But then how could [they]? This Administration is not telling us who will pay these deferred taxes. In their view, no one will.

Update: Greg took his graph from Chris Edwards who claimed:

The Bush tax cuts substantially reduced tax rates for people in every income group. Indeed, those at the bottom had the largest relative reductions in their tax rates … I’m for lower taxes for everyone, but I wish people would look at the actual data first before carping about the rich supposedly being specially favored by recent tax cuts.

So much malarkey, so little time. Chris and Greg know the following two things are true: (1) the long-run government budget constraint holds; and (2) Federal spending rose even as a share of GDP since George W. Bush took office. The implications are clear: George W. Bush has raised – not lowered – the tax bite. But Greg pretended he did not get my “cute” point at first. I find this truly amazing. After all – economists have been talking about deferred taxation ever since the 2001 tax deferral was signed into law.

PGL is, of course, completely correct: nobody in the inform-the-public industry has any business producing or reprinting such a graph.


Paul Krugman on the failings of public discourse:

Socialsecuritymedicareandmedicaid: This is largely Dean Baker’s beat, but I’ve also been noticing what he’s noticing: sloppy doomsaying on Social Security seems to be making a comeback. During the great 2005 debate over privatization, I thought people like Dean and myself had managed to get across the points that there is no such program as Socialsecuritymedicareandmedicaid; that Social Security is in pretty good shape, so that projections of huge future spending on Socialsecuritymedicareandmedicaid are mainly about the Medicareandmedicaid part of it; and that in general, what we have is a health care crisis, with the costs of an aging population much smaller and more manageable.

But now casual talk about the need to “fix” Social Security is creeping back into the discourse. Folks, Social Security is in pretty good shape; it’s not clear that there even is a long-run shortfall, and if there is it’s a much less pressing problem than many others. The only reason we hear so much about Social Security is that there are powerful political forces that want to kill it, for ideological reasons.