Grasping Reality on TypePad, by Brad DeLong

I merely walked on the moon with Neil Armstrong.

Over at Matthew Yglesias's:

Matthew Yglesias (December 21, 2007) - Figuratively Speaking (Domestic Policy): Figuratively Speaking 21 Dec 2007 12:56 pm:

In 2007, Mitt Romney "figuratively" watched his father march with Martin Luther King, but back in 1978 he was saying "My father and I marched with Martin Luther King Jr. through the streets of Detroit." In reality, Mitt Romney never marched with King, and he never saw his father march with King because his father never marched with King either....

Comments (28)....

LaFollette Progressive | December 21, 2007 1:16 PM: Oddly, Al Gore really did take the initiative in creating the internet, and yet this didn't seem to matter....

Roddy McCorley | December 21, 2007 1:14 PM: Hey, I carpooled with Pope John Paul II....

From his eyrie well within the radius of total destruction of anything aimed at the White House, Richard Green writes:

Richard's Real Estate and Urban Economics Blog: Neckties: Personally, I love neckties. In general, men are allowed to wear four colors--black, gray, blue and brown--and black and gray aren't really colors, and I don't like brown. Ties allow men to wear something red, or yellow, or purple, or green, or even pink. For this reason alone I hope they never go away--Obama notwithstanding.

All I can say is that he has not seen my doctoral gown...

• Shannon Brownlee: Overtreated
• Martin Wolf: The dangers of living in a zero-sum world economy
• FT.com / Lex: Korea’s new president
• South Park Cafe

Kevin O'Rourke and Ronald Findlay's excellent Power and Plenty: Trade, War, and the World Economy in the Second Millennium has been staring at me from the top of my bookshelf for a full month. Now Ravi Bhandari of St. Mary's says that he is more than halfway through it--and he is recovering from mono.

Robert Waldmann watches Washington Post staff writer Michael S. Rosenwald be foolish:

Robert's Stochastic thoughts: This is an interesting article on an important topic, but it has one gross flaw. Michael Rosenwald discusses the economics of firms providing workers incentives to lose weight:

Tangerine, based in Boston, designs weight-loss programs that employ economic incentives. The company is modeled on recent economic research showing that paying people to lose weight causes their pounds to fall off faster. Eric Finkelstein, an economist with RTI International who has spoken with Tangerine executives, recently conducted a study in which people were paid either $7 or $14 per percentage point of body weight they lost.

After three months, people with no incentives lost about two pounds. The $7 group lost about three pounds. The $14 group: five pounds. Members of the more expensive group were also five times more likely than members of the no-money group to lose 5 percent of their body weight. One person netted $140. Were they more excited about losing weight or about the money? "I think they were most excited by the $140," Finkelstein said.

[snip]

An average of 140 employees at Wesley Willows participate in the program, which started eight months ago. They get $3 per percentage point of weight lost. Together, they have lost 806 pounds. Holmgaard said the company has spent $11,500 on the Tangerine program, including rewards. The company's health-care costs have tumbled more than $146,000. "Certainly paying them gets their attention," Holmgaard said.

Sounds great. This is important news. However Rosenwald has some trouble deciding if he is interested in health or the new morality in which the wages of sin are fat. He writes:

My insurance company requires no co-payments for generic drugs, so I can theoretically mask the problem for free. And it just became cheaper for millions of Americans to get low-cost generics through Wal-Mart, which is charging $4 for a 30-day supply of drugs that treat common ailments such as high blood pressure.

"If you reduce the cost of maintaining unhealthy behaviors or lifestyles, what incentive do you have to change?" said Ross DeVol, a Milken Institute economist who studies health care issues.

So taking pills is masking the problem? Rosenwald says this, because taking pills is easy and therefore not virtuous. It is also true that obesity causes problems which can not be treated with pills, but he's decided that taking a pill a day is not a healthy behavior because ... ? Well for no reason. His use of "mask" for a approach which resolves a very serious but invisible problem and leaves him as visibly fat as ever is bizarre.

He goes on:

I chose the drugs and am thusly always on the prowl for beef. So, apparently, are millions of other Americans. Seventy-five percent of the nation's $1.4 trillion in annual medical costs can be blamed on chronic diseases, many of which are lifestyle induced, according to the Centers for Disease Control and Prevention. The effect of blood pressure and cholesterol medicine is startling: A study in the Journal of the American Medical Association showed that earlier this decade, obese people had a 21 percent lower prevalence of high cholesterol and an 18 percent lower prevalence of high blood pressure than obese people did in the early 1960s. We seem to be healthier fat people, but we're not cheap for the health-care system -- or our employers.

This is getting weird. The pills don't cause the chronic diseases. They prevent them. The major cost to the USA is not paying for statins and high blood pressure medications, but paying for, among other things, the consequences of high blood pressure and cholesterol. Furthermore the social cost of the pills is very low. Most of the cost is a transfer to pharmaceutical companies which can be cut by congress anytime it wants to (that is when hell freezes over).

I think that an incentive program which paid people to lower their blood cholesterol and blood pressure and control their blood glucose would be even more profitable than one that paid them to lower their weight. It would be paying them to take a pill a day. People don't need much money to do that (writes the guy who hasn't taken his statin for 2 weeks). The best program would pay for for improvements in weight, blood pressure and blood cholesterol.

The idea that pills for blood pressure, blood glucose and blood cholesterol are part of the problem not part of the solution is based on puritanism not biology or economics.

MY doctors tell me: eat your oatmeal. Nobody developed myositis or myopathy or (horrors) rhabdomyolysis and myoglobinuria from eating their oatmeal.

Tyler opposes even semi-formal clothes:

Marginal Revolution: Bargain in your pajamas, or blog in suit and tie: [If] dressing up actually... make[s] people more productive... would not at least a few of us blog in suit and tie?

In short, I don't have a theory of corporate dress that fits the major data points.  My best guess is that signaling by dress is often an efficient means of sorting -- Jamie Cutthroat really does want the promotion more than I do -- and thus the employer does not want to ban it...

Well, Tyler, I hate to bring this up, but right now...

Admittedly, the jacket is mostly to keep warm--see David Friedman, "A Paradox of Rational Heating". The tie--well, it (a) saves you from having to carry around a napkin, and (b) expresses one's solidarity with the Croatian irregulars who are defending Christian Europe against the Ottoman Turkish Janissary Menace.

• Gideon Rachman on John Bolton: Striking title, shame about the content
• Gideon Rachman: Jacob Zuma and the ANC
• Publius: Jayson Blair Kaus
• Plutarch: Huckabee’s weight loss scam summary
• Bellman equation

200 proof snark, in the Financial Times. Gideon starts out by noting that "diplomat" Bolton rejects pacta sunt servanda, and goes on from there. The high point is Gideon's noting that Bolton calls his book Surrender Is Not an Option, and observes that "[w]it came to Vietnam, surrender was not an option for Bolton because he never got close enough to the enemy to make it feasible..."

Here's Gideon:

FT.com / Home UK / UK - Striking title, shame about the content: In a chapter on arms control, [Bolton] writes that he saw international "treaties as essentially only political documents, and the whole debate over what was 'legally binding' in 'international law' as just another theological issue"... a statement full of interesting implications... for anyone who might... negotiate a treaty with Bolton.... At one point, he does acknowledge that he took steps to avoid being drafted to fight in Vietnam. He writes: "I made the cold calculation that I wasn't going to waste time on a futile struggle," adding: "Looking back, I am not terribly proud of this calculation." The whole episode is dealt with in a paragraph.... [It] would be interesting to hear a little more on this subject, from a man who has given his book the bellicose title Surrender is Not an Option. When it came to Vietnam, surrender was not an option for Bolton because he never got close enough to the enemy to make it feasible.

Bolton is a strikingly stilted writer, which makes his book rather lifeless.... [H]e got on very badly with the UK delegation to the UN.... The fact that Bolton found it so hard to get on with one of America's closest allies suggests that he was not ideally cut out for the role of diplomat.... [T]his is a disappointing work. Bolton writes badly, cannot tell a story, and has no interesting new ideas. Other than that, highly recommended.

• Coleman Fung Risk Management Research Center home
• Greg Ip, Mark Whitehouse, and Aaron Lucchetti: U.S. Mortgage Crisis Rivals S&L Meltdown
• Ben Arnoldy: In pockets of foreclosure, housing woes spread block by block
• Martin Wolf: Why the credit squeeze is a turning point for the world
• Niko Karvounis: Mike Huckabee's Fair Tax Fallacies
• Ezra Klein: Health Care in the Golden State
• Brad Setser: Yes, Virginia, the world’s central banks are financing most of the US current account deficit (my rebuttal to Richard Iley)
• Felix Salmon: Illiquidity and Insolvency in the Commercial Real Estate Market
• Stephen Roach: You Can Almost Hear It Pop
• Jim Hamilton: Monetary policy using the asset side of the Fed's balance sheet
• Sadly, No!: Joseph McCarthy: Man of the Left

Economics 113 Final Exam

Identifications: do all; identify and explain their significance in American economic history (1/3 of exam):

1. The Cold War
2. Keynesian economics
3. Social Security
4. The productivity speedup of the 1990s
5. The Phillips Curve
6. Teachers, nurses, waitresses, secretaries…
7. National Labor Relations Act (NLRA) and National Labor Relations Board (NLRB)
8. Henry Ford
9. Hacienda
10. GATT (General Agreement on Tariffs and Trade)/WTO
11. Mississippi-Missouri-Ohio River System
12. Canal Building Boom
13. Fugitive Slave Law
14. Sharecropping
15. OPEC (Organization of Petroleum Exporting Countries)
16. Chinese exclusion act
17. The Great Compression (of the income distribution)
18. Alexander Hamilton
19. The Stock Market Crash of 1929
20. Paul Volcker

Short Answers: do 6 of 9 (1/3 or exam):

1. The past third of a century has seen, first, a significant slowdown in productivity growth (leading to a great deal of worry about whether there are indeed rapidly-approaching “limits to growth”) and then a significant speed-up in growth (leading to a great deal of exuberance, irrational and otherwise, at the end of the 1990s). Briefly discuss the causes of both the productivity slowdown starting in the 1970s and the productivity speedup starting in the 1990s.

2. Why would an international trade economist like David Ricardo have thought that the United States would and should become a very large almost entirely agrarian civilization--a giant Canada? It was clear by 1900 that David Ricardo was wrong? Why was he wrong?

3. How was land distributed by the federal government to farmers moving westward in the nineteenth century? What impact did this system of land distribution have on the economy?

4. Was pre-Civil War American slavery profitable? Was it efficient?

5. What, in your view, were the most important causes of the Great Depression? Why haven't they--or equally destructive factors and events--been repeated?

6. Briefly summarize the role played by tariffs and quotas in American economic history.

7. What was the Marshall Plan? Was it important?

8. What were the major components of the New Deal? What were the major components of the Great Society?

9. Why is the United States less of a social democratic country than the countries of northwest Europe? Is this divergence a good thing or a bad thing?

Essays: do one (1/3 of exam):

1. Sketch the economic role of African-Americans in the United States from colonial times to today. What were the major factors and processes that kept African-Americans relatively poor over the past three centuries? To what extent are these processes still operating today? And, in your view, how much longer is the shadow cast by past discrimination likely to last?

2. Why are business cycles these days smaller than they were in the late nineteenth century or during the Great Depression?

3. What reasons are there to think that the role of the federal government will grow further in the next half century? What reasons are there to think that the growth of the federal government in the past 80 years has carried it beyond its sustainable size, and that its size will decline in the next half century?

4. Outline the economic role played by immigration to America since 1492.

Matthew Yglesias comments:

Anti-Intellectualism Goes Mainstream: David Frum looks at the rise of the Republican Fringe and says the conservative movement needs to engage in some self-criticism -- the anti-intellectualism and suspicion of expertise they've encouraged have allowed Mike Huckabee and Ron Paul to break through despite having quack economic policy ideas. In response Ross points out that Rudy Giuliani has a quack economic policy idea at the center of his campaign, too "I know that reducing taxes produces more revenue. The Democrats don't know that. They don't believe that." And yet Frum somehow can't find the strength to criticize him.

And in some ways, I'd note that it's even worse than yet. Mitt Romney, presumably under Greg Mankiw's influence, has always carefully refrained from saying he thinks cutting taxes increases revenue. But he still swears allegiance to the Gospel of Neverending Tax Cuts. And more to the point, he won't criticize his rivals for their adherence to a crackpot notion because he thinks that would be a losing issue for him. The rot goes all the way up and down the structure.

And I do not see how it can be salvaged. Time for the Republican Party to go the way of the Whigs.

Why oh why can't we have a better press corps? David Kurtz writes:

Talking Points Memo: NYT covers blogger's nasty attack on author of WaPo's Obama Muslim piece--but devotes only one sentence to actual criticism of piece.

And it is all true. Here's all that Maria Aspan has to say about Perry Bacon's concern-troll hit piece o Obama:

At Web Site for Journalists, Criticism of a Campaign Article Becomes a Melee - New York Times: A usual round of media self-criticism turned into a schoolyard brawl last week, as editors, reporters and bloggers traded insults over a front-page article in The Washington Post, all at the very online water cooler where they usually get their news about the industry.

The Post article, which ran on Nov. 29, was about rumors of Barack Obama’s ties to the Muslim world. The piece drew widespread criticism: the Columbia Journalism Review said the article “may be the single worst campaign ’08 piece to appear in any American newspaper so far this election cycle.”

The Post’s ombudsman, Deborah Howell, devoted a column on Dec. 9 to the backlash against it, concluding that “the rumors were old” and that “convincing evidence of their falsity wasn’t included in the story.”

Then things got really ugly...

If the critics were right--if Len Downie and the rest of the Post management did indeed encourage 27-year-old Perry Bacon to write a concern-troll hit-piece on Barack Obama--then things were already ugly. If the critics were wrong, then things were already ugly in the other direction. The most important thing readers need to learn is in which direction things were ugly. But Maria Aspan doesn't think that informing readers about the underlying substance is her job.

Hoisted from Comments: Glory Liu writes:

Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: Thanks for the refreshments! I definitely met my sugar quota for the rest of the month. In terms of the sugar spike/crash, I definitely didn't have that problem because I also had a clif bar for "dinner" which optimizes your glycemic response withs low-release carbohydrates, which is always good right before exam time.

The exam wasn't terrible at all; it was exactly what could be expected. The only bad part was that my entire right hand and forearm was sore for the next day from writing so furiously for three hours nonstop.

Gotta build up those lower right arm muscles...

It reads:

Norman Angell was, like, SOOOOOOOO wrong!

I do not think that this essay paragraph is an accurate precis of Friedrich Hayek (1945), "The Use of Knowledge in Society," American Economic Review:

On the flip side, we have Hayek, who believed in collectivization. He believed that to help with the economic gap, the government should hand out rations and resources. This process, he claimed, would be expedited by the price mechanism, which would openly share all information so as to increae productivity and reduce waste. In other words, he wanted a communist regime to battle poverty and social and economic disparity...

The rest of the essay is very good, however. I'm giving it an A nevertheless.

And you might, I suppose, argue that the main point of TUoKiS is that libertarian capitalism is a much more effective and just Free Society of Associated Producers than any other possibility...

May I say that Saturday night from 5-8 PM is an absolutely insane and absurd time to have a final exam, and that the Chancellor of the Berkeley Campus, the President of the University of California, and the Chairman of the Board of Regents should be required to show up personally to apologize and to wait upon the students while this monstrosity goes forward?

The students in VLSB 2060 are still further annoyed by the magnitude and the sprawl of the readings I assigned them in Political Economy 101, "Modern" Theories of Political Economy. But this is, after all, Berkeley--not Stanford.

Here is the exam:

PART I: SHORT ANSWERS: Do 7 of 8. 1 hour--one-third of exam--10 min. per question:

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 war between great powers had become a thing of the past?
2. The dominant social-democratic consensus when Milton Friedman wrote was that the logic and working of the market needed to be curbed by an active, powerful, energetic government aggressively regulating in the public interest. What does Milton Friedman think is wrong with this? What does he think is wrong with the conventional "conservative" point of view?
3. What does Karl Polanyi mean when he calls the commodities of land, labor, and finance "fictitious"?
4. Does Paul Krugman believe the West should feel threatened by the fact that Asian countries have achieved "miraculous" growth under a different political ideology? Why or why not?
5. What does Benedict Anderson mean by "imagined" when he calls nations "imagined communities"? What does Benedict Anderson think that "print capitalism" did in creating his imagined communities?
6. What was the main point of each of the following three articles: i.) Stephen Holmes on the meaning of liberalism; ii.) Francis Fukuyama on the "end of history"; iii.) Benjamin Barber on "Jihad vs. McWorld"?
7. What does Robert Reich mean by "symbolic analyst"? What does he want symbolic analysts to invest in and why?
8. What are the differences between Dani Rodrik's and Joe Stiglitz's approaches to understanding economic development policy?

PART II: LONG ESSAYS: Do 2 of 3. 2 hours--two-thirds of exam--1 hr. per question:

1. In what ways are thinkers like Milton Friedman and thinkers like James Scott close intellectual allies? In what ways are they mortal intellectual enemies? How have the pieces of twentieth century history that they have lived through and focus on led them to their respective conclusions? How does the thought of each differ from the ideological labels traditionally applied to them?

2. One way to understand almost all of the thinkers read in this course is that they are all trying in various ways to escape from the box history placed us in when history turned out not to follow the "pre-WWI classical liberal" path of steadily increasing prosperity, democratization, globalization, and peace. Take at least six of the thinkers read in this course and put them in their proper place in this perspective: What things in twentieth-century history made them reject or try to fix classical liberalism? How did they think that humanity should get out of the traps and problems that history was presenting?

C. A large number of the thinkers we have read are explicitly concerned not just with what is but with what ought to be--not just with the technocratic "what works" but with the moral questions of "what kind of people we are" and "who are we responsible toward." Consider John Maynard Keynes, Karl Polanyi, Milton Friedman, and Joe Stiglitz. How are each of their arguments and points of view "moral" rather than "technocratic"? Does the moral element strengthen or weaken the cases they make, in your opinion?

REFRESHMENTS:

Butterscotch-Doped Rice Krispie Treats
Chocolate Brownies
Chocolate Spider Chow Mein Candies
Chocolate-Covered Almonds
Oranges
Hansen's Black Cherry Soda
Hansen's Ginger Ale
Peach Iced Tea
Diet Pepsi
Spring Water

And after Dani Rodrik had taken the time to write out a model sample answer for I.8, I could not leave it off the actual exam, could I?

May I say that Saturday night from 5-8 PM is an absolutely insane and absurd time to have a final exam, and that the Chancellor of the Berkeley Campus, the President of the University of California, and the Chairman of the Board of Regents should be required to show up personally to apologize and to wait upon the students while this monstrosity goes forward?

The students in VLSB 2060 are still further annoyed by the magnitude and the sprawl of the readings I assigned them in Political Economy 101, "Modern" Theories of Political Economy. But this is, after all, Berkeley--not Stanford.

Here is the exam:

PART I: SHORT ANSWERS: Do 7 of 8. 1 hour--one-third of exam--10 min. per question:

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 war between great powers had become a thing of the past?
2. The dominant social-democratic consensus when Milton Friedman wrote was that the logic and working of the market needed to be curbed by an active, powerful, energetic government aggressively regulating in the public interest. What does Milton Friedman think is wrong with this? What does he think is wrong with the conventional "conservative" point of view?
3. What does Karl Polanyi mean when he calls the commodities of land, labor, and finance "fictitious"?
4. Does Paul Krugman believe the West should feel threatened by the fact that Asian countries have achieved "miraculous" growth under a different political ideology? Why or why not?
5. What does Benedict Anderson mean by "imagined" when he calls nations "imagined communities"? What does Benedict Anderson think that "print capitalism" did in creating his imagined communities?
6. What was the main point of each of the following three articles: i.) Stephen Holmes on the meaning of liberalism; ii.) Francis Fukuyama on the "end of history"; iii.) Benjamin Barber on "Jihad vs. McWorld"?
7. What does Robert Reich mean by "symbolic analyst"? What does he want symbolic analysts to invest in and why?
8. What are the differences between Dani Rodrik's and Joe Stiglitz's approaches to understanding economic development policy?

PART II: LONG ESSAYS: Do 2 of 3. 2 hours--two-thirds of exam--1 hr. per question:

1. In what ways are thinkers like Milton Friedman and thinkers like James Scott close intellectual allies? In what ways are they mortal intellectual enemies? How have the pieces of twentieth century history that they have lived through and focus on led them to their respective conclusions? How does the thought of each differ from the ideological labels traditionally applied to them?

2. One way to understand almost all of the thinkers read in this course is that they are all trying in various ways to escape from the box history placed us in when history turned out not to follow the "pre-WWI classical liberal" path of steadily increasing prosperity, democratization, globalization, and peace. Take at least six of the thinkers read in this course and put them in their proper place in this perspective: What things in twentieth-century history made them reject or try to fix classical liberalism? How did they think that humanity should get out of the traps and problems that history was presenting?

C. A large number of the thinkers we have read are explicitly concerned not just with what is but with what ought to be--not just with the technocratic "what works" but with the moral questions of "what kind of people we are" and "who are we responsible toward." Consider John Maynard Keynes, Karl Polanyi, Milton Friedman, and Joe Stiglitz. How are each of their arguments and points of view "moral" rather than "technocratic"? Does the moral element strengthen or weaken the cases they make, in your opinion?

REFRESHMENTS:

Identifications: do all (1/3 of exam):

1. The Cold War against the Soviet Union.
2. The Federal Reserve
3. Keynesian economics
4. Medicare and Medicaid
5. Social Security
6. GATT (General Agreement on Tariffs and Trade)/WTO
7. Productivity slowdown
8. Phillips Curve
9. Gilded Age
10. Teachers, nurses, waitresses, secretaries…
11. Mass production
12. Freely-available land
13. 1492
14. National Labor Relations Act (NLRA) and National Labor Relations Board (NLRB)
15. Henry Ford
16. Gold Standard
17. Encomienda
18. Navigation Acts
19. Cotton Gin
20. Glorious Revolution (in Britain)
21. Mississippi-Missouri-Ohio River System
22. American System of Manufactures
23. Canal Building Boom
24. Middle Passage

Short Answers: do 4 of 6 (1/3 or exam):

1. The past third of a century has seen, first, a significant slowdown in productivity growth (leading to a great deal of worry about whether there are indeed rapidly-approaching “limits to growth”) and then a significant speed-up in growth (leading to a great deal of exuberance, irrational and otherwise, at the end of the 1990s). Briefly discuss the causes of both the productivity slowdown starting in the 1970s and the productivity speedup starting in the 1990s.

2. Why did the European settler population in what was to become the United States grow so fast in the two centuries after 1600? Why were there so few indigenous inhabitants to resist the occupation of the land that was to become the United States by European settlers?

3. Why would an international trade economist like David Ricardo have thought that the United States would and should become a very large almost entirely agrarian civilization--a giant Canada? It was clear by 1900 that David Ricardo was wrong? Why was he wrong?

4. The story of the United States is one of extraordinary economic growth—the United States today is still, by a substantial margin, the most productive economy in the world. Which factor would you assess as most important of all in driving U.S. economic success? Why?

5. Why did Alexander Hamilton (and others) believe that America's national debt could, under the right circumstances, be a national blessing?

6. In your view, is U.S. economic policymaking today still shaped by the memory of the Great Depression and a fear of another such, or has the memory died away so far that it is no longer a serious consideration?

Essays: do one (1/3 of exam):

1. Outline the major changes in the economic role of women in America in the twentieth century. Draw up a balance sheet: in your estimation, which changes have been broadly good? Which changes have been broadly bad?

2. Why was the Great Depression the only great depression that the U.S. has suffered? What are the chances that the U.S. will suffer another economic catastrophe like the Great Depression in the next half century?

3. Sketch the economic role of African-Americans in the United States from colonial times to today. What were the major factors and processes that kept African-Americans relatively poor over the past three centuries? To what extent are these processes still operating today? And, in your view, how much longer is the shadow cast by past discrimination likely to last?

4. The federal government today plays an enormous role in the economy. Outline what that role is, and how it has grown since independence. Assess what pieces of the federal government's role in the economy are positive and what pieces are negative.

Scott Aaronson writes:

Shtetl-Optimized: I am, of course, gratified that this sordid southern-hemisphere tale of sex, plagiarism, quantum mechanics, and printers could be resolved to everyone’s satisfaction, without the need for a courtroom battle...

It is not clear to me what the Fed expects banks to do with the $40 billion that it will lend fore one month next Tuesday and Thursday. Does it expect them to rollover loans they would otherwise refuse to renew? I understand how lowering the Fed Funds rate works. I understand how forcing banks to increase their capital would work. I understand how making long-term loans to banks that won't come due until after this slow-moving crisis is resolved would work.

I don't understand how $40 billion of one-month loans are supposed to work.

But maybe I am just being unusually (or usually) slow today...

James Hamilton writes:

Econbrowser: Term auction facility: Will a new, improved discount window solve our problems? [U]nquestionably the Fed does see the strains in the money market as a significant risk. Evidently there are those who entertain the hope that the Fed could find two separate tools to achieve two separate ends. The first tool--the traditional instrument of monetary policy--is to adjust the total quantity of reserves available to the banking system so as to achieve a particular target value for the fed funds rate, the rate at which one bank lends to another overnight. When one describes a traditional monetary policy action as "providing liquidity," this is what we are discussing.

But there appears to be a widespread belief that the Fed needs a second tool... to achieve a second policy objective... eliminate the gridlock... from huge holdings of assets that no one seems willing to buy.... The basic idea is that the Fed will specify a certain maximum amount that it would like banks to borrow. It intends... to lend up to $20 billion for a 28-day term on Monday, and lend up to an additional $20 billion for a 35-day period on December 20. Potential borrowers will bid an interest rate to receive this loan, with I presume each $20 billion going to the highest bidders. Banks must also provide collateral for these loans.

The objective is clearly not just to get $40 billion more in reserves into the banking system next week--an open market operation could accomplish that just fine. The objective must be to get the reserves into the hands of those particular banks that want them most. Of course, those same banks could be getting them right now through the discount window, but choose not to, perhaps because of the stigma, or perhaps because of the financial penalty charged for discount borrowing.... The other thing the facility accomplishes is allow the Fed to accept lower-quality collateral from borrowers than its rules require for open market operations conducted through repurchase agreements. If there is an effect of the facility, I would think that this would be the mechanism....

I hope that Bernanke has also pondered.... [that T]here certainly is plenty of historical precedent for financial crises you can't inflate your way out of--southeast Asia in 1997 comes to mind as one recent example...

The only reason southeast Asia couldn't inflate its way out of 1997 was that it's banking system had lots of debts denominated in dollars. If that debt had been denominated in local currencies, inflating your way out of it would have worked fine.

From the I'm-No-Longer-Allowed-to-Call-It-Manchester Guardian:

Correction Of The Day: We misspelled the word misspelled twice, as mispelled, in the Corrections and Clarifications column on September 26, page 30.

He says:

You'll recall that some years back I set out to write a principles text. I've finally done it. In addition, I think this is the first book for the mainstream intro econ course that is available as a free download.

The publisher, Freeload Press, will earn revenue by selling advertising on the website where the book is distributed. Also, when you download chapters (as PDF files), the first couple of pages might be advertisements. There is a short registration form, but downloads are free. If someone wants an advertising-free, black-and-white paper copy, it's available for $30 at the website ($20 for a micro or a macro split). There will soon be a workbook up on the website to accompany the text, and a test bank is already available for instructors. The website for Freeload Press is http://www.freeloadpress.com.

Is an advertising supported approach a sustainable business model for a textbook company?

Steve Randy Waldmann on the Federal Reserve's TAF:

Interfluidity :: TAF is a really, really big deal: [W]hen I woke up the the Federal Reserve's press release about the TAF, my jaw dropped. It was one of those moments when the world shook.... If you think (as I believe most Fed policymakers do) that the goal of monetary policy in reacting to the current financial crisis is to make it go away, this plan is brilliant.

Under traditional discount window borrowing, the best the Fed could do is offer funds at a "penalty" or "premium" and hope that banks borrow, despite a longstanding market perception that direct borrowing from the Fed is a sign of weakness. Now, the Fed has turned the tables.... The scale of this program is immense.... "No more pussyfooting around. You will borrow, and not $1 or $2 billion, but $40B, now!"... The Fed's press release claims, of course, that loans will only be available to "sound" banks, and that they will be "fully collateralized". But no one who can get the same deal from private markets will use this facility. The need for the program arises because private markets are skeptical about the soundness of counterparties and the quality of the assets they have to offer as collateral....

To lend 40B cash fast, the Fed may well have to offer the money at near the Federal Funds rate, because the particpation of very creditworthy banks will be required to get rid of the dough. But less creditworthy banks will be participating as well, and, in a single-price auction, these banks will enjoy the low interest rates effectively set by large-bank bidding. So, it is likely that the TAF rate will be very close to the expected Federal Funds rate, but that noncreditworthy borrowers pledging iffy collateral will gain the capacity to borrow at that rate. The effective discount window "penalty" will drop to about zero, even though the formal discount premium will stay at 50 bps...

Matthew Yglesias writes:

Jim Glassman, America's New Salesman: One point people have tried to make over the past few years is that the Bush administration needs to stop thinking of public diplomacy as simply a need to put a better sales pitch on the same American policies. Our pitch is actually fine and people understand what we're saying -- they just don't like it.

Relatedly, someone told me earlier today that Jim "Dow 36,000" Glassman was replacing Karen Hughes. I laughed at this pretty funny out-of-left-field joke. Obviously, the same George W. Bush who thinks public diplomacy is just about salesmanship wouldn't give the job to one of the least credible salespeople on the planet. Funny stuff. And imaginative! But no, this is really happening.

Time to hoist from the archives!

http://www.j-bradford-delong.net/movable_type/2005_archives/000025.html [Kevin Hassett and James Glassman,] the authors of Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market, pretend, once again, that their book did not say what it said:

TCS: Tech Central Station - DOW 36,000: Five years ago, economist Kevin Hassett and I wrote a book called Dow 36,000.* Maybe you have heard of it. The book made the bestseller lists and won accolades from, among others, the current chairman of the president's Council of Economic Advisors. For some, however, the book became an object of derision because -- just in case you haven't noticed -- the Dow hasn't actually risen to 36,000 yet.... Dow 36,000 was not a prognostication. Sure, the Dow will hit 36,000 and probably, eventually, 360,000. But I don't know exactly when, and I don't believe investing is a game of forecasting what's going to happen tomorrow or next year...

However, those of us unlucky enough to own Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market can go to our bookshelves, pull it down, and read that "the Dow should rise to 36000 immediately"--i.e., in October, 1999. But Hassett and Glassman say, they are going to be cautious and conservative. They are not going to forecast that the Dow will rise to 36000 tomorrow, but instead they "believe the rise will take some time, perhaps three to five years..." (p. 18).

However, they acknowledge that they might be wrong: the rise might come much quicker. As they go on to say later on the book, the fact that Glassman and Hassett "conservatively" don't expect the rise of the Dow to 36000 to occur for three to five years--i.e., until 2002 or 2004--does not mean that investors should delay. Investors should "seize the opportunity now [i.e., in 1999] to profit from the rise in the Dow to 36000 (p. 125)."

On pages 18 and 19 of the book they go so far as to sneer at one of their American Enterprise Institute colleagues--someone who told them back in 1998 what Glassman is saying now. For when one AEI colleague heard their title, he gave a cynical laugh and said, "As long as you don't say when [the Dow will reach 36000], I suppose it is all right." Glassman and Hassett's response was: "we aren't laughing. The case is compelling.... 36000 is a fair value for the Dow today... stocks should rise to such heights very quickly. As you read on, you will... learn to invest in ways that take advantage of a remarkable time in financial history..."

Glassman's investment advice today is good. He is right when he writes that "stocks are a far better place than bonds and cash to put the vast majority of your money for the long run." But his flat-out claim that this "was the unequivocal message of [Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market]" is flat-out false. That "stocks are a far better place than bonds and cash to put the vast majority of your money for the long run" was the unequivocal message of Jeremy Siegel's Stocks for the Long-Term. Glassman and Hassett may wish that they had written the book that Seigel wrote, but they didn't.

Moreover, we haven't even gotten into the fact that Glassman and Hassett got their math wrong. As the Economist's Clive Crook told them in May 1998, the 36000 number was "wrong, plain wrong.... Your reasons for believing that the Dow should be at 36,000 are wrong in the same way that it's wrong to say two plus two equals five.... Using your own method, provided only that you put the right variable into the formula, the market is about fairly valued."

Note how they don't dare mention the subtitle of their own book--it would make the falsity of the claim that "Dow 36000 was not a prognostication" too obvious.

It would be an elementary point to say that somebody who cannot tell the truth about his own book shouldn't be held out as the public face of American diplomacy by any administration. But this point eludes Condi Rice and the rest of the Bushies.

UPDATE: In fact, this point eludes the usually-reliable James Fallows, who after writing:

James K. Glassman: face of America: I have known and liked Jim Glassman for a very, very long time.... He is a lively, funny, and creative guy, and there are lots of jobs for which I would happily sign him up.

But as the head of America's public-diplomacy efforts?... America's idea is still powerful and attractive, and America still has the opportunity to present a compelling and authentic face to the world.... I have met... many true-blue patriotic Americans who have spent their careers learning how... America could best engage [foreign countries]. Jim Glassman, despite being a great guy, is not one of these...

Reverses field:

Further on JK Glassman and public diplomacy: This hasn't happened in a while, but after taking a few hours to to think it over, I've changed my mind.... The idea of America, in its authentic version, should be attractive and inspiring to people around the world.... If the world doesn't feel that way right now, it's largely though not entirely our own fault.... I'm still exasperated at the damage done to my country's reputation and name, and I have very low expectations of what Karen Hughes's successor... will be able to accomplish... the current president and vice president will still be in office. But it is possible that the verve, energy, and ingenuity Jim Glassman has shown through his career could be just the traits the person in that situation needs... let's see what he can do in this next year.

I'm going to be cynical, and note that Fallows did not follow the advice of Dow 36000--did not say "let's see what [Glassman] can do"--did not borrow as much as he could and invest everything in the stock market in October 1999 to take advantage of the "coming rise of the stock market" to Dow 36000 that Glassman was saying would happen in 3 to 5 years. Risks worth running with America's global diplomatic effort are not risks worth running with one's own financial portfolio.

:-)

I was saying that James K. Glassman--author of Dow 36000 and now Undersecretary of State-Designate--was the worst of the mendacious wackos of the financial right in the late 1990s. "No, no, no," somebody said. "George Gilder was the worst." Others agreed.

They are right. Hoisted from the Archives:

Why Oh Why Can't We Have a Better Press Corps? Part CCCCLXXVI: Archive Entry From Brad DeLong's Webjournal: George Gilder, Katie Hafner of the New York Times writes, "however, is no wacko, and his invectives are anything but random. Through the years, he has been building his own version of a socioeconomic unified field theory, integrating politics, sex, economics and technology, with a dose of religion thrown in."

Is this supposed to be ironic?

Alas, probably not. She appears to be telling it what she thinks is straight. Here's her take on the backstory:

The Revolution Is Coming, Eventually: ...Investors who believed in Mr. Gilder's wildly optimistic predictions about the telecommunications revolution... spent the last few years watching their portfolios unravel.... Now, slowly but surely, portions of the telecom industry are recovering. Shares of the companies Mr. Gilder recommends in The Gilder Technology Report - a more diverse mix than it used to be - have outperformed the Nasdaq by a healthy margin for the past year, and his adherents are cheering up. And Mr. Gilder is gradually regaining the credibility that nearly vaporized before his eyes three years ago.... In early 2000, Mr. Gilder presided over a small but lucrative empire that consisted of his newsletter, the Gilder Technology Report, and its various spinoffs - with names like Digital Power Reporter, Dynamic Silicon and the Supply Side Investor - half a dozen annual conferences and a staff of 55.

At the time, Mr. Gilder's net worth, around $7 million, was modest by dot-com standards, but Merrill Lynch and Hambrecht & Co. were vying to take his company, Gilder Publishing, public, valuing it at $150 million to $200 million. His newsletters had 110,000 subscribers.

Then, as quickly as the riches and the promise of more riches came, they vanished. People canceled their subscriptions by the tens of thousands; only the original newsletter survives today, with just 8,500 subscribers. Since the tech bubble burst, all but five staff members have been laid off. A former business partner holds a lien on Mr. Gilder's house. And in a cruel twist of fate, Mr. Gilder, an outspoken critic of the nation's tax structure, finds himself at the mercy of the Internal Revenue Service, as he awaits the agency's final decision on the terms of his tax bill....

[W]hen he opens his mouth to rail against "idiot" American economists, corporate lobbyists and the perniciousness of taxes ("the power to tax is the power to destroy") and government regulation, the mild manner evaporates and Mr. Gilder might be mistaken for a glassy-eyed nut case on the University of California at Berkeley's Sproul Plaza shouting random invectives at passers-by. Mr. Gilder, however, is no wacko, and his invectives are anything but random. Through the years, he has been building his own version of a socioeconomic unified field theory, integrating politics, sex, economics and technology...

Today George Gilder claims that he saw the dot-com crash coming. He offers three different explanations for why his newsletter was still very, very bullish on telecommunications company stock values in late 1999 and 2000--and thus why people who took his advice found themselves "mad and hurt and aggrieved and pained and broke.... These people didn't lose 50 percent or 80 percent of their money. They lost 98 percent of their money."

First, Gilder says that it was not his business to forecast a correction or a crash: "Mr. Gilder was and still is a regular presence in the Telecosm Lounge, the electronic bulletin board for his newsletter subscribers. He told people on the board many things as the stocks went up, and then as stocks fell. But the one thing he never told them was to sell. 'I was in this really ridiculous position,' he said, 'because I explicitly didn't do timing.'" But it's not "market timing" to warn your subscribers that you think your "prime picks" are overvalued...

Second, Gilder says that it's his subscribers' fault for believing that Gilder's prime picks were likely to go up in value: "Mr. Gilder said, it was 'obvious to anyone with eyes to see' that the stocks would undergo a massive correction. 'I never said it,' he said. 'I'd hint at it on the board, but I never said it.' Many of the companies - including Global Crossing, Global Star, Metromedia Fiber, WorldCom (which now is known as MCI) and Corning - are now either reduced to wisps of their former selves or gone entirely." But the entire point of running a newsletter that gives prime stock-market picks is that your judgment is supposed to be better than what is "obvious"...

Third, Gilder says--in an interview for Wired--that he didn't want to warn his newsletter subscribers that his favorite telecom stocks were overvalued because he was afraid that if he did warn them then they would be angry at him:

Wired: "I knew that it was going to crash, I really did," Gilder says, looking out a window on to Main Street. Since 1996, he has published the Gilder Technology Report, a monthly newsletter that in its heyday was arguably the most influential tout sheet on Wall Street. He glances my way and notices my arched eyebrows. I had plowed through several years' worth of issues, and while I read page after page of praise for a lengthy list of seemingly promising telecommunications companies, I saw nary a hint of warning in anticipation of the Nasdaq's March 2000 tumble and the financial tumult that followed. He adds quickly, "I told people in early 2000 they should sell half their shares in these companies." Then he says, in a tone of self-rebuke: "I didn't say it often. I didn't put it in a newsletter."

He made the recommendation to sell, he admits, only within the limited confines of the Telecosm Lounge, his online salon for newsletter subscribers. He fumbles for words, starting one sentence, then another, before growing uncharacteristically silent and staring off into the distance....

"If I had said, 'Hey, this is a top, you should all sell,' it would've been a cataclysmic event," he says. "I'd think about telling people that they should sell half their holdings, and each time I'd conclude that my subscribers would be enraged. I also wondered what I'd precipitate if I did it." Fully 50 percent of his readers had signed up for the report at what Gilder now calls the "hysterical peak" of the market. "Half of my subscribers would have been eternally grateful [for a warning], but the other half -†the new ones - would've been enraged because they had just come in," he says.

"It was quite terrifying. I really didn't know what to do."

A normal person would have worried much more about how mad his subscribers would be if he kept telling them bullish things--did not tell them to sell--than if he told them to sell.

But whichever explanation you buy--that all the people who thought he was in the stock-picking business because he published a newsletter that picked stocks were mistaken, that it was the fault of those who took his newsletter's advice because they were blind idiots not to see that telecoms were overvalued, or that he couldn't bear to disappoint his subscribers by telling them that the party was over and telecom stocks overvalued--one question remains:

Why would any New York Times reporter write that such a guy is "gradually regaining... credibility"?

• Peter Orszag: It's *Not* Social Security, It's Health Care Costs
• Dani Rodrik: Joe and I

It is not clear to me that banks need more reserves as much as they need more capital. If I were Ben Bernanke I would be saying that the Fed will extend extra reserves only if the banks also increase their capital.

There has to be some price at which Buffett and Munger and company want to own a big chunk of Bank of America.

Link: Fed Teams With Central Banks on Credit: Financial News - Yahoo! Finance.

The last macro lunch...

Spillovers from US monetary policy:

• expenditure switching
• expenditure shifting
• fixed exchange rate effects

• US monetary policy leadership effects

• Christiani, Eichenbaum, and Evans (1996)

• Bernanke and Mihov (1998)
• Romer and Romer (2004)
• Eichenbaum and Evans (1996)
• Clarida and Gali (1994)
• Kim (2001)
• Faust and Rogers (2003)
• Bowdler and Bluedorn (2006)
• Canova (2005)

Dani Rodrik at http://rodrik.typepad.com/dani_rodriks_weblog/2007/12/joe-and-i.html answers the review session question I could not answer: What are the differences between Joe Stiglitz's and Dani Rodrik's thoughts on development?

PE 101 students, I advise you to take note...

Dani Rodrik's weblog: Joe and I: Brad DeLong reports that a student of his wants to know the difference, if any, between Joe Stiglitz's views on development and mine. Frankly, I had not thought about this quite in this way before, so the question set me thinking. I know that I have shaken my head many times at things that Joe has said or written, so I know there are differences. But what are they?

Leaving issues of rhetoric aside (which I am afraid are often important), here are a few points for future students who want to see the product differentiation a bit more clearly.

1. Joe sees the world economic system as grossly unfair to poor nations, and this unfairness as a severe constraint on their development. This has never been a big part of my own thinking, partly because I don't see things in quite the same black-and-white terms, and also more importantly because I do not believe the constraints lie in the external rules. I see the main constraints as being internal--domestic politics and policies. Consequently, our take on issues like Doha is quite different. Joe sees a one-sided set of commitments on the part of rich countries to open up their markets in agriculture and other goods as being very important. I see very little benefits from Doha for the poor countries under the best of scenarios.

2. Joe sees international organizations (in particularly the IMF) as being the driver of policy in many developing countries, with uniformly negative consequences. I think that to the extent that this is true, it is more because poor-country leaders choose to rely on their advice excessively than it is because these institutions have the power and ability to impose their will on the world.  Much of the bad economic policy in these countries has been self-imposed, and I don't think the fault should be placed at the doorstep of multilateral institutions. The truth is that developing country leaders have too often abdicated their own responsibilities. 

3. On the substance of development policy, I think Joe's approach is holistic and comprehensive, whereas mine is selective and sequential. As far as I am aware he has not articulated a vision of how developing nations should choose among competing priorities, whereas a lot of my recent work focuses on that specifically. He thinks of growth, development, and social policies as all one thing--whereas I think of them as distinct in terms of policy needs.

4. On macroeconomic policy, Joe has an instinctively dove-ish position on inflation, believing that central banks can always loosen up at the margin with little cost to overall macro stability. I think many circumstances demand a more hawkish position on monetary policy and inflation-especially when fiscal policy is not cooperative.

There. That should be enough to fill up an essay question.  

From Mark Thoma:

Economist's View: The FOMC Cuts the Federal Funds Rate to 4.25%: No real surprise - the Fed lowered the federal funds rate by a quarter point - but the details are more interesting.

*The Fed believes that growth is slowing and that strains on financial markets have increased recently. *There is still some inflation risk, but it is not emphasized as much as in previous statements. *There was one dissent, with Boston president Eric Rosengren preferring a more aggressive half point cut (the vote was 9-1, there are two open positions on the Committee). *The Fed dropped its balanced risk statement and now says it will act as necessary. *Only seven banks requested a quarter point decrease in the discount rate. Assuming that Boston requested a half point cut, that leaves four banks (Dallas, Kansas City, Minneapolis, and San Francisco) who either requested no cut, or a half point cut (or perhaps some other action, though that's unlikely). My guess is three requested no cut (Dallas, Kansas City, and Minneapolis), and one a half point cut (San Francisco), but there's no way to know for sure until the minutes are released. [Update: The WSJ's Economics blog sees it the same way.]

Here's the Press Release:

Press Release Release Date: December 11, 2007 For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

At the final review class, the most interesting question asked me was:

What is the difference between Joseph Stiglitz's Dani Rodrik's approaches to economic development policy and the proper structuring of economic institutions?

D---ed if I know the answer to that. Maybe one of them does.

Section reviews:

• Peacock/Durham W 1:30-4 Barrows 20
• Chaubey W 11-1 Wheeler 100

Final exam: S 5-8 2060 VLSB

At the final exam we will give you three of the essay questions below--and ask you to write on two of them. That will be two-thirds of the three-hour exam. The remaining one-third of the exam will be eight short answers, no choice.

PE 101 FINAL EXAM ESSAY QUESTIONS:

1. Consider all the thinkers we have read who have written about the relationship between political economy and war (i.e., Schumpeter, Hobson, Angell--but also Keynes--at the start of the course--and also people like Barber and Stern near the end). Whose analyses of the roots and functions of war and imperialism do you think are likely to be closest to being true in the twenty-first century? Why? Whose analyses do you think are most closely shaped by and bound to the historical context in which they lived, and thus are not likely to be accurate descriptions of the future?

2. In what ways are thinkers like Milton Friedman (in Capitalism and Freedom) and thinkers like James Scott (in Seeing Like a State) close intellectual allies? In what ways are they mortal intellectual enemies? How have the pieces of twentieth century history that they have lived through and focus on led them to their respective conclusions?

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

4. One way to understand almost all of the thinkers read in this course is that they are all trying in various ways to escape from the box history placed us in when history turned out not to follow the "pre-WWI classical liberal" path of steadily increasing prosperity, democratization, globalization, and peace. Take at least six of the thinkers read in this course and put them in their proper place in this perspective: What things in twentieth-century history made them reject or try to fix classical liberalism? How did they think that humanity should get out of the traps and problems that history was presenting?

5. James Scott argues in Seeing Like a State that attempts at state-led development is likely to lead to a disaster. Others we have read--for example, Milton Friedman--agree. James Fallows believes that state led development in East Asia has been a smashing success. Others we have read--for example, Joseph Stiglitz--are similarly optimistic about the positive role that the government can play in economic development? How would you reconcile these two points of view? What aspects of twentieth century history is each of these two perspectives keying off of?

6. Two of the people who we read--Milovan Djilas and George Orwell--make no pretense of being social scientists. Milovan Djilas is a soldier, a politician, and an apparatchik. George Orwell is a literary intellectual and a moralist. What--if anything--makes their excursions into political economy more penetrating and illuminating than the works of those who are social scientists by profession? Or was assigning them in this course simply a mistake?

7. A large number of the thinkers we have read are explicitly concerned not just with what is but with what ought to be--not just with the technocratic "what works" but with the moral questions of "what kind of people we are" and "who are we responsible toward." Consider John Maynard Keynes, Karl Polanyi, Milton Friedman, and Joe Stiglitz. How are each of their arguments and points of view "moral" rather than "technocratic"? Does the moral element strengthen or weaken the cases they make, in your opinion?

8. One way to understand Karl Polanyi's argument in his The Great Transformation is that the market system is efficient but not equitable: it produces enormous wealth, but does not treat people "fairly." What other thinkers that we have read in this course either make or reject that part of Polanyi's argument? What pieces of twentieth-century history that they saw led them to their positions?

Ezra Klein loves the Amazon Kindle ebook reader:

My Shiny New eBrain | The American Prospect: There is much to be said for the book: its pleasing concreteness, its physicality, the crackle of its pages, its portability -- all have evolved over centuries to create an exquisitely designed entertainment device and information transmission system....

[T]he book does have a weakness... our minds... are sieves, with the holes and hooks seemingly randomly distributed. Few are immune to the frustration of glancing at our bookshelf and realizing that a tome we read a year ago has disappeared... the information and key arguments so fully lost it's as if they never were....

[M]any of us have developed ad hoc mitigation strategies. Notes... a complex but tightly defined set of symbols and underlines meant to signal the import of useful passages, a psychedelic rainbow of highlighted sentences, multicolored sticky notes jutting out from every sixth page, key arguments written down in a central set of notebooks somewhere, anything to more effectively keep hold....

The Kindle promises to take us much further. Annotations, highlighted passages, and random notes can be centrally stored, searched, and automatically attached to the book. The text itself becomes searchable, offering up its secrets in response to a well-chosen keyword.... This central repository of all we have thought or noticed or felt while reading promises to give us access to what physical books have always sought: A more perfect version of our own brains.

On some level, this is what Google does now. But the mind offered isn't ours, it's the hive's. You have access to part of my brain through my blog, access to a bit of Bob Kuttner's through The American Prospect's archives, access to an insane person's through lolcats.....

Devices like the Kindle... pledge to archive our personal intellectual histories.... They will not replace paper. More than likely, nothing will. But they will... relieve [paper] from it what it is worst at -- transmitting large amounts of information to imperfect receivers.

And as the information-transmitting task falls to a medium better suited to it, documents seeking to broadly inform will change as well. Authors will update books as new information becomes available, primary sources will be linked throughout the text, communities of readers will be linked together so the text stands next to an enlivening and enriching discussion of its arguments rather than alone in your hands, readers will vote on the bits that are most important and they will be highlighted or marked as you travel through the text.... Our computers and electronic readers will honor our books in a way we could not: by remembering them.

I think that the public web can today do everything that Ezra Klein hopes that some descendant of the Kindle can do someday--and more. If I want to search a more perfect version of my own brain, I Google--and I include something like "site:j-bradford-delong.net" and "site:delong.typepad.com" in my search string. Voila. But I can also search Robert Kuttner's brain. And I could search Ezra Klein's brain if he would settle on a stable URL.

Plus I get more. Google not only gives me access to my own external brain pack. It gives me an army of link-creating gnomish research assistants who index and comment on what is in my external brain pack. A clear win-win.

In what one very prominent economist once called "the only real newspaper," the Financial Times:

FT.com / Columnists / Clive Crook - The trouble with the Paulson plan: “This is a private sector effort, involving no government money,” Hank Paulson, US Treasury secretary, said last week, announcing the deal he had just brokered among representatives of mortgage-security investors and mortgage-service companies to freeze interest-rate resets on some loans. He emphasised that the compact was voluntary. “The industry standards announced today do not change the nature of responsibilities in the servicing industry – servicers will continue to modify loans when it is in the best interests of investors.” In short, he said, it is a “market-based approach”.

Give the man some credit for using that term without laughing. Is there a housing-finance market on the planet that is more pervasively manipulated and distorted by government....

What does this heart-warming, globally significant, limited and strictly voluntary agreement to serve the interests of investors in mortgage-backed securities actually do? It is concerned with a subset... 1.8m of the mortgages recently granted to subprime borrowers... are due to reset in the next two years.... The complex deal proposes to freeze the resets on some of these loans, and offers help for some borrowers in switching to more affordable (often FHA guaranteed) loans....

The real point of the agreement is to lay out a standard approach to modifications that would have happened piecemeal – a template that can be widely applied... minimise the litigation risk that mortgage servicers would otherwise face in modifying terms without investors’ specific approval....

Barney Frank... points out, the plan bizarrely confines its promised assistance to borrowers with poor credit histories.... Borrowers who struggled to improve their credit scores before taking out their mortgages are going to feel aggrieved. In many cases, the reward for those efforts will be eviction.

An evidently reluctant Mr Paulson took fright at the gathering storm and decided that he had to act. The unavoidable consequence is that the administration now owns the problem.... As the housing slump worsens... the measures... will be deemed... unfair and inadequate. It will be too late then to say: “This is none of our concern.”

From now on, every mortgage foreclosure will be seen as proof of the policy’s failure – and partly the administration’s fault. Merely to address the most obvious anomalies in the new arrangements, more comprehensive and more generous assistance seems likely before long. In other words, the massively distorted and mismanaged US housing-finance market is going to get more so. And taxpayers had better prepare to be mugged.

Dean Baker on Washington Post "reporter" Michael Dobbs's claim that:

[T]ake your pick. Depending on the statistics you use, Mexican economic growth over the last two decades has been either [the Post's claim of] 337 percent, [the IMF's] 125 percent, or [Dean Baker's] 83 percent.

The Post Goes Post-Modern on NAFTA: Mr. Dobbs... seemed to come to the conclusion that there are different ways to measure growth, and you get to pick the one you like best. While I tried to explain that this is not true, I apparently could not convince the Post's fact checker....

[I]f the Post wants to use the methodology from its NAFTA editorial... it should use the same methodology to report GDP growth for other countries. According to the Washington Post methodology, Argentina's economy has grown... 11.6 percent annually. Venezuela... 10.5 percent....

The Post has never used these numbers in discussing growth for other countries. This is not a debatable point. The Post used an inappropriate methodology... it is time that the Post came clean...

Post fact-checker Michael Dobbs demonstrates that he has no clue what a fact-checker is or does:

The Fact Checker Fact Checks The Post - Fact Checker: I have spoken with the principal author of the [Post] editorial, but I am not going to identify that person.... The editorial writer got the information... from a Mexican embassy slide show... by Antonio Ortiz-Mena, a well-known Mexican economist. Slide Six shows an increase in Mexican Gross Domestic Product from $200 billion dollars in 1987 to $875 billion (estimated) in 2007.

The slide does not provide... information about the source of the data... does not say whether the dollars are current or constant.... [T]he data tables of the International Monetary Fund... show that the Mexican economy grew from $148 billion in 1987 to $886 billion in 2007.... If you adjusted these figures for inflation, you might get a result similar to the figures used by The Post.

UPDATE: Actually, as a couple of readers have pointed out, this seems a stretch... the [Mexican] cost of living has increased 79 percent... $148 billion [measured] in 1987[-value dollars] is the equivalent of $265 billion [measured] in 2007[-value dollars, not $200 billion]....

It turns out there are several other ways of looking at the same statistics.... IMF peso figures, adjusted for inflation... works out at a growth rate of around 83 per cent....

To help me adjudicate this dispute, I turned to Paul Blustein, a former international economics reporter for the Post, now with the Brookings Institution, where he is writing a book about international trade. He said he was "sorry to go against my old alma mater," but he came down on the side of the critics. His explanation:

Constant dollars can be a good way of looking at a country's economy, but when there have been huge moves in that country's currency against the dollar, it is better to rely on the local currency. This would have raised a red flag with me. I don't think any economy in the world has quadrupled in twenty years. That would be an amazingly fast rate of growth. I doubt that even the Chinese economy has done that....

[T]he IMF... suggested a third way... PPP... the purchasing power of the average Mexican has risen by around 125 per cent between 1987 and 2007.

So take your pick. Depending on the statistics you use, Mexican economic growth over the last two decades has been either 337 percent, 125 percent, or 83 percent.... This is a case study of how statistics can be used to support virtually any argument....

[T]he Post editorial board should have been much clearer about the source of the statistics, and explain why dollars are the appropriate measure for the growth of a peso-based economy. The claim of a quadrupling in the size of the Mexican economy over two decades is misleading, and should have raised some eyebrows. Two Pinocchios for the Post.

The critics were also sloppy in their use of statistics, but at least they pointed out the source. One Pinocchio for them.

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

• John Holbo: In Defense of Kant

And none too soon. This semester I have had a full-time lecturer-class teaching load for the first time since... since... since... well, for the first time ever.

Ooops. It's not over, I wanted to spend an extra class talking about Joe Stoglitz and Dani Rodrik and their attempt to find space for social democracy in a neoliberal age, didn't I? I have an extra post-end-of-classes PE 101 lecture scheduled for tomorrow at 11, don't I? In 120 Latimer--one of those chemistry buildings where the rooms in the basement have signs that say things like: "to better serve you, please provide 24 hours notice of your liquid helium needs."

• Marmot Mountain Works - Berkeley
  3049 Adeline St. Berkeley, CA 94703 510-849-0735 510-849-3312 (fax) 800-MARMOT9 (627-6689) www.marmotmountain.com
• Dean Baker: The Post Goes Post-Modern on NAFTA
• The Works of George Herbert.
• Ezre Klein: My Shiny New eBrain
• Alberta Barley Commission: Greek Barley Salad

Hoisted: A new comment from "Slocum" was received on the post "Justin Fox on Arthur Laffer and Company" http://delong.typepad.com/sdj/2007/12/justin-fox-on-a.html#comment-92874900

"I KNOW THAT reducing taxes produces more revenues"

There are two ways to read this:

1. That reducing taxes produces not only more revenues but an increase greater than the amount of the tax cut, or
2. That it produces more revenue that would have been expected just based on the new rate and the old GDP because the tax cut increases the GDP -- just not enough to pay for itself.

Nope. People who believe in (2) and are truthtellers say, instead:

Tax cuts grow the economy and so lose less revenue than static revenue estimates predict.

People who believe (2) say "reducing taxes produces more revenues" only when they are trying to con the wingnuts--trying to convince the wingnuts that they are believers in (1).

Slocum is trying to make us believe that the Republican High Politicians are in fact in the business of conning the wingnuts--that we should vote for them because they do not mean what they say. Slocum is saying: "Psst. You are in on the con."

This is itself a con: all the best cons begin that way.

Slocum is not the first to do this: this con was first run on me 28 years ago by a future Republican CEA chair. I have finally learned not to fall for it. But it took me a very long time.

Slocum goes on

The first is only true at rates of taxation well above the current U.S. levels. The second is generally true except at very low levels of taxation (where more tax money spent on public infrastructure would more than pay for itself). But we're in a middle zone where tax cuts both:

1. Help grow the economy, and
2. Reduce the overall government tax revenue (but by less than the > amount of the tax cuts).

Bottom line of this approach -- the government taking a smaller slice of a growing pie. The economy grows while the government shrinks -- for Republican presidential candidates (and primary voters), what's not to love about that?

Personally, I have mixed feelings about tax rates -- I think we look at federal income taxes rates only and think our tax burden is low, but if you add our 17% FICA, 28-33% top federal rate (mostly 28 but a bit of 33), 4% state income tax, 6% state sales tax, and local property taxes that amount to another ~5% of income, we're at over 50% marginal rates now -- probably closer to 60. I'm not a supply sider, but nor am I in favor of increasing marginal tax rates.

• Pogo Stylus
• Marmot: iGlove Multi
• Clive Crook: Curing The Subprime Sickness (12/07/2007)
• FlickrExport

Paul Krugman sends us to WSJ Marketbeat for this graph:

The “TED spread,” or spread between three-month Treasury bills and three-month Eurodollar futures. (Source: Lehman Brothers)

If you think that a collapse of a major bank borrowing short-term in Eurodollars would ultimately mean a 20% haircut for the Eurodollar lender, and are willing to assume risk neutrality, then if I can still do arithmetic this graph tells you that the odds that any given major bank borrowing Eurodollars will collapse tomorrow have gone just from 0.00009% last July to 0.00056% today--from something that you expect to happen once every 1,000,000 days or 3000 years to something you expect to happen once every 200,000 days or once every 500 years.

It's a lot more complicated than that, but those are the rough orders of magnitude...

A nice piece by Justin Fox that informs his readers:

Tax Cuts Don't Boost Revenues: Virtually every economics Ph.D. who has worked in the Bush Administration acknowledges that the tax cuts of the past six years haven't paid for themselves. If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money.... President Bush... Vice President Dick Cheney... John McCain... Rudy Giuliani.... If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration.... The yawning chasm between Republican rhetoric on taxes and even informed conservative opinion is maddening to those of wonkish bent. Pointing it out has become an opinion-column staple. But none of these screeds seem to have altered the political debate. So rather than write yet another, I decided to find out what Arthur Laffer thought....

About the best I could get out of him on the question of whether the Bush tax cuts have paid for themselves was "I don't know." But that's only part of the story....

The idea that high tax rates brought diminishing returns was not controversial or even new--Laffer traces it to 14th century Muslim philosopher Ibn Khaldun.... Laffer is convinced that the reduction of the top tax rate from 70% to 28% during the Reagan years paid for itself--in part by encouraging the rich to stop finagling--and the evidence mostly backs him up. "You find these enormous responses in the upper brackets," Laffer says. "These guys fire their lawyers and accountants and actually pay their taxes. Yay! Isn't that what we want them to do?"

But Reagan's tax cuts for the nonrich were big money losers, and it took the fiscal discipline of Bill Clinton to mop up the resulting red ink. Laffer gushes with praise for Clinton, but he's also a fan of Clinton's successor. "What Clinton did was, he gave Bush the fiscal flexibility to do what was right," Laffer says. In the face of the recession and terrorist attacks of 2001, Bush "needed to stimulate the economy and spend for defense, and Clinton gave him the ability to do that."

In other words, the Bush tax cuts were meant to create big deficits. But Laffer's O.K. with that. "The Laffer Curve should not be the reason you raise or lower taxes," he says. Perhaps not, but it does make for great campaign promises...

And Mark Thoma comments:

Economist's View: "Its not True": I think this is a good sign. Do tax cuts pay for themselves?:

Post: Mr. Giuliani and the Tax Fairy. Editorial "...It's not true..."

Time: Tax Cuts Don't Boost Revenues, by Justin Fox ..."these claims are false..."

Now, will the press make the connection between the willingness to make these claims and character? Those who say this are either making claims they know are false, or have economic advisors who don't know what they are talking about. In any case, whether its the willingness to mislead to promote an idea, or the incompetence in choosing advisors and the unwillingness to consider evidence at odds with their preconceived notions, it's worth noting. My own view is that their economic advisors know what the evidence really says, and the candidates are choosing to ignore what they are told. But a simple question, "Have your economic advisors informed you that there's no basis for that claim, and if so, why are you making it anyway" or something like that, would tell us the answer. It's not as though this is unimportant, the difference between the claim that the most recent tax cuts are self-financing and the actual evidence is hundreds of billions of dollars and it would seem that with so much at stake, we would hear more about those who mislead us about the true cost of the policies they advocate.

Indeed, even the Washington Post editorial page tries to do the right thing in this instance:

Mr. Giuliani and the Tax Fairy: "I KNOW THAT reducing taxes produces more revenues," Republican presidential candidate Rudolph Giuliani declares in a new television ad launched Thursday. "Democrats don't know that. They don't believe it." There's a good reason for that: It's not true. Produces more revenue than what? Than if taxes had not been cut? No -- and no matter how many times Republican politicians caught up in the thrill of supply-side thinking pronounce that tax cuts pay for themselves, they cannot will it to be correct....

President Bush's Treasury Department... found... the positive economic impact would make up for no more than 10 percent of the tax cuts' cost. "I certainly would not claim that tax cuts pay for themselves," Edward P. Lazear, chairman of the president's Council of Economic Advisers, testified.... N. Gregory Mankiw, another former Council of Economic Advisers head in the Bush White House, concluded in 2005 that cuts on capital gains taxes could generate enough extra growth to recoup half the lost revenue in the long run; cutting taxes on wages could recover just 17 percent of the costs.... CBO under Douglas Holtz-Eakin... under the rosiest of scenarios... 22 percent of lost revenue in the first five years and 32 percent in the second five.

Mr. Giuliani isn't the only believer in the tax fairy; numerous Republicans, including the president, have made similarly fanciful claims. But if he were to find himself in the White House and hoping to find that extra revenue he is convinced tax cuts produce, Mr. Giuliani would discover only disappointment under the presidential pillow.

Two things wrong with the Post, however. First, a lot of punches are pulled in the editorial--it's an anti-Giuliani editorial, but it is not a Giuliani-only doctrine: it is one he shares with every other senior Republican including all the other presidential candidates. Punching only Giuliani is... odd, at best.

Second, the right capital gains revenue replacement number to quote from the base case considered by Mankiw-Weinzerl http://www.nber.org/papers/w11000 is not 50% but 33%, and applies only if all the revenue lost through the tax cut is neutralized by accompanying spending cuts: cut capital gains taxes and leave spending unchanged and you will find yourself losing more rather than less than 100% of the static revenue loss in short order. (Moreover, a strictly forward-looking investment tax credit dominates a largely backward-looking capital gains tax cut.)

UPDATE: As I read the evidence, Arthur Laffer is probably right at the top end: reducing the top tax rate from 70% to 50% is probably a revenue gainer and surely not much of a loser. From 50% to 28% is, I think, very different: a big revenue loser.

Apropos of Washington Post reporter Perry Bacon's mendacious, malevolent, and incompetent front-page hatchet job on Barack Obama...

...Deborah Howell demonstrates once again why she is the world's least qualified ombudsman. She says:

• "Perry Bacon Jr. [wrote]... 'Foes Use Obama's Muslim Ties to Fuel Rumors About Him'... [even though] Obama's connections to Islam are slender at best."

• "Perry Bacon Jr. [wrote]... 'Foes Use Obama's Muslim Ties to Fuel Rumors About Him'... [even though] the rumors were old."

• "Perry Bacon Jr. [wrote]... 'Foes Use Obama's Muslim Ties to Fuel Rumors About Him'... [and omitted] convincing evidence of [the rumors'] falsity... [from] the story."

• "[Perry] Bacon[ Jr.]'s story... picked up [and cited] a quote labeling Obama a Muslim from the Snopes.com Web site... but it didn't mention [that] the [Snopes] investigation that found the rumor to be false."

• "To make the story worth Page 1, there needed to be new, credible information." There wasn't.

• [Perry] Bacon[ Jr.]'s story... brought up a discredited Jan. 16 story in Insight magazine... owned by the Rev. Sun Myung Moon.... CNN, ABC-TV and the Associated Press went to the school and reported.... Bacon's story should have noted that information [that the Insight story was false.]" It did not.

Yet what are Deborah Howell's bottom lines? There are three. The first is:

• "[T]there was no deliberate 'smear job', as some readers charged. The story said clearly in the second paragraph that Obama is a member of a United Church of Christ congregation in Chicago."

Contrast with what Perry Bacon, Jr. actually wrote--and what Len Downie and Benjamin Graham thought was worth putting on their page 1:

Foes Use Obama's Muslim Ties to Fuel Rumors About Him - washingtonpost.com: In his speeches and often on the Internet, the part of Sen. Barack Obama's biography that gets the most attention is not his race but his connections to the Muslim world.

Since declaring his candidacy for president in February, Obama, a member of a congregation of the United Church of Christ in Chicago, has had to address assertions that he is a Muslim or that he had received training in Islam in Indonesia, where he lived from ages 6 to 10. While his father was an atheist and his mother did not practice religion, Obama's stepfather did occasionally attend services at a mosque there.

Despite his denials, rumors and e-mails circulating on the Internet continue to allege that Obama (D-Ill.) is a Muslim, a "Muslim plant" in a conspiracy against America, and that, if elected president, he would take the oath of office using a Koran, rather than a Bible, as did Rep. Keith Ellison (D-Minn.), the only Muslim in Congress, when he was sworn in earlier this year...

Whether a story that makes the six misrepresentations that Howell admits to and that opens as Perry Bacon opens it is not a "smear job" is left as an exercise to the reader.

Her second bottom line is:

• "'This was a legitimate subject for journalism explored by one of our most sophisticated political reporters,' said Managing Editor Philip Bennett.... Bill Hamilton, assistant managing editor for politics... [who] edited the story [said]... "I'm sorry it was misunderstood.... [T]he story made clear that Obama was not a Muslim... in this context saying it was a rumor meant it wasn't true, but clearly some people didn't see it the same way. The Post has a responsibility to confront seemingly credible rumors and that was one of the reasons for the story.... Reasonable people can disagree on this'."

Whether "reasonable people can disagree" on whether Perry Bacon Jr.'s story was an honest, competent, and responsible exercise of journalism is also left as an exercise to the reader.

Deborah Howell's third bottom line is:

• "Bill Hamilton, assistant managing editor for politics... [who] edited the story [said].... '[T]he people I have heard from [on this] are not reasonable. What I find especially disheartening is the idea that our motives are simply assumed to have been malicious.' This is the new world mainstream journalists live in, one that will continue to be explored in this column."

Let us go back to the leading paragraph of Deborah Howell's story:

Deborah Howell - Refuting, or Feeding, the Rumor Mill?: Stories about rumors are tricky and easily misconstrued. A Nov. 29 story and headline that explored Barack Obama's "connections to the Muslim world" and rumors that he is Muslim were met with a swift Internet reaction that left some [Washington Post] staffers stunned at its ferocity. Even Post editorial cartoonist Tom Toles was "so upset" that he took the unusual step of taking potshots at the story in an editorial page cartoon...

Deborah Howell mentions three and only three critics of Perry Bacon, Jr., Bill Hamilton, Phillip Bennett, Len Downie, and Benjamin Donald Graham:

• Washington Post editorial cartoonist Tom Toles, in paragraph 1.
• Barack Obama communications director Robert Gibbs, in paragraph 4.
• Letter-writer Gregory Hays of Charlottesville, VA, in paragraph 12 (of 14).

If her story is--as she says it is--about a "swift Internet reaction" that "misconstrued" a story, why doesn't she quote some examples of people on the internet misconstruing? The reasons that she does not are also left as an exercise to the reader.

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

May I just say that mainstream "orthodox" Calvinist Protestantism contains things orders of magnitude more bats--- insane than any of the "special" doctrines of the Book of Mormon?

Paradise Lost 3:

Man shall not quite be lost, but sav'd who will;
Yet not of will in him, but grace in me
Freely vouchsaf'd; once more I will renew
His lapsed powers, though forfeit; and enthrall'd
By sin to foul exorbitant desires;
Upheld by me, yet once more he shall stand
On even ground against his mortal foe;
By me upheld, that he may know how frail
His fallen condition is, and to me owe
All his deliverance, and to none but me.
Some I have chosen of peculiar grace,
Elect above the rest; so is my will:
The rest shall hear me call, and oft be warn'd
Their sinful state, and to appease betimes
The incensed Deity...
But hard be harden'd, blind be blinded more,
That they may stumble on, and deeper fall...

To change topics completely, the coming of the iPod/iPhone has changed how I hear the literary world. I had never been able to get long poems. The Odyssey and the Iliad and Gilgamesh I found gripping to the extent that I could read them in prosy or semi-prosy translation, and occasional stanzas ripped out and presented to me were poewrful and affecting. But all the rest, or the Iliad and Odyssey in verse translations, were annoying and painful. When I read them at my normal pace the syntax was awkward and confusing. When I read them more slowly, the plot and the ideas dragged and came through much much too slowly--almost as painful as watching the uniformed pundits babble on CNN, where at most one thought a minute emerges, and that is usually wrong. And the rhythm and assonance and rhyme--well, I have never heard what I read in my mind's ear, or if I ever did it was forty years ago and that faculty I have lost.

But when you have an iPod/iPhone, you have no excuse not to put the audiotext on it and carry it around with you, and when you attend to it the poetry forces itself upon your brain, and you don't mind nearly as much that the plot and ideas are as from an eyedropper because the words are so glorious, and then you crest the top of Burton Ridge at 7:13 AM on December 8, 2007 while hearing:

Paradise Lost 3:

Satan from hence, now on the lower stair,
That scaled by steps of gold to Heaven-gate,
Looks down with wonder at the sudden view
Of all this world at once. As when a scout,
Through dark and desert ways with peril gone
All night; at last by break of cheerful dawn
Obtains the brow of some high-climbing hill,
Which to his eye discovers unaware
The goodly prospect of some foreign land
First seen, or some renowned metropolis
With glistering spires and pinnacles adorned,
Which now the rising sun gilds with his beams:
Such wonder seised, though after Heaven seen,
The Spirit malign, but much more envy seised,
At sight of all this world beheld so fair...

And you get Paradise Lost in a way that you had never gotten it before.

And America's Silliest Dog^TM, as the rays of the rising sun first strike her eyes, jumps three feet in the air like a nut five times, and then frantically runs in 40-foot circles for four minutes before calming down again. (At least she is obedient enough not to go running over to make friends with Wile E. Coyote who we saw watching us from amidst the cell phone towers 150 yards away.)

And here, courtesy of http://dailycoyote.blogspot.com/, is Mr. Coyote:

One more thing: Milton on his blindness:

Paradise Lost 3:

I sung of Chaos and eternal Night;
Taught by the heavenly Muse to venture down
The dark descent, and up to re-ascend,
Though hard and rare: Thee I revisit safe,
And feel thy sovran vital lamp; but thou
Revisit'st not these eyes, that roll in vain
To find thy piercing ray, and find no dawn....

Seasons return; but not to me returns
Day, or the sweet approach of even or morn,
Or sight of vernal bloom, or summer's rose,
Or flocks, or herds, or human face divine;
But cloud instead, and ever-during dark
Surrounds me, from the cheerful ways of men
Cut off, and for the book of knowledge fair
Presented with a universal blank
Of nature's works to me expung'd and ras'd,
And wisdom at one entrance quite shut out.
So much the rather thou, celestial Light,
Shine inward, and the mind through all her powers
Irradiate; there plant eyes, all mist from thence
Purge and disperse, that I may see and tell
Of things invisible to mortal sight...

Gustave Dore http://www.artsycraftsy.com/dore/dore_satan_falls.jpg:

From Project Gutenberg:

: This is the February 1992 Project Gutenberg release of: Paradise Lost by John Milton. The oldest etext known to Project Gutenberg (ca. 1964-1965). (If you know of any older ones, please let us know.)

This etext was originally created in 1964-1965, according to Dr. Joseph Raben of Queens College, NY, to whom it is attributed by Project Gutenberg. We had heard of this etext for years but it was not until 1991 that we actually managed to track it down to a specific location, and then it took months to convince people to let us have a copy, then more months for them actually to do the copying and get it to us. Then another month to convert to something we could massage with our favorite 486 in DOS. After that is was only a matter of days to get it into this shape you will see below. The original was, of course, in CAPS only, and so were all the other etexts of the 60's and early 70's. Don't let anyone fool you into thinking any etext with both upper and lower case is an original; all those original Project Gutenberg etexts were also in upper case and were translated or rewritten many times to get them into their current condition. They have been worked on by many people throughout the world.

In the course of our searches for Professor Raben and his etext we were never able to determine where copies were or which of a variety of editions he may have used as a source. We did get a little information here and there, but even after we received a copy of the etext we were unwilling to release it without first determining that it was in fact Public Domain and finding Raben to verify this and get his permission. Interested enough, in a totally unrelated action to our searches for him, the professor subscribed to the Project Gutenberg listserver and we happened, by accident, to notice his name. (We don't really look at every subscription request as the computers usually handle them.) The etext was then properly identified, copyright analyzed, and the current edition prepared.

To give you an estimation of the difference in the original and what we have today: the original was probably entered on cards commonly known at the time as "IBM cards" (Do Not Fold, Spindle or Mutilate) and probably took in excess of 100,000 of them. A single card could hold 80 characters (hence 80 characters is an accepted standard for so many computer margins), and the entire original edition we received in all caps was over 800,000 chars in length, including line enumeration, symbols for caps and the punctuation marks, etc., since they were not available keyboard characters at the time (probably the keyboards operated at baud rates of around 113, meaning the typists had to type slowly for the keyboard to keep up).

This is the second version of Paradise Lost released by Project Gutenberg. The first was released as our October, 1991 etext.

• David Wessel: The Great Deleveraging
• David Paul Morris Photography

Paul Krugman points us to a difference between Darth Vader and Dick Cheney:

Back when Hillary Clinton described Dick Cheney as Darth Vader, a number of people pointed out that this was an unfair comparison. For example, Darth Vader once served in the military. Here’s another reason the comparison is invalid...

Darth Vader:

Return of the Jedi: The DEATH STAR COMMANDER, MOFF JERJERROD, a tall, confident technocrat, strides through the assembled troops to the base of the shuttle ramp. The troops snap to attention; many are uneasy about the new arrival. But the Death Star commander stands arrogantly tall.

The exit hatch of the shuttle opens with a WHOOSH, revealing only darkness. Then, heavy FOOTSTEPS AND MECHANICAL BREATHING. From this black void appears DARTH VADER, LORD OF THE SITH. Vader looks over the assemblage as he walks down the ramp.

JERJERROD Lord Vader, this is an unexpected pleasure. We're honored by your presence.

VADER You may dispense with the pleasantries, Commander. I'm here to put you back on schedule.

The commander turns ashen and begins to shake.

JERJERROD I assure you, Lord Vader, my men are working as fast as they can.

VADER Perhaps I can find new ways to motivate them.

JERJERROD I tell you, this station will be operational as planned.

VADER The Emperor does not share your optimistic appraisal of the situation.

JERJERROD But he asks the impossible. I need more men.

VADER Then perhaps you can tell him when he arrives.

JERJERROD (aghast) The Emperor's coming here?

VADER That is correct, Commander. And he is most displeased with your apparent lack of progress.

JERJERROD We shall double our efforts.

VADER I hope so, Commander, for your sake. The Emperor is not as forgiving as I am.

Richard Cheney:

McClatchy | Warren Strobel: WASHINGTON — A State Department project manager banished from Iraq by the U.S. ambassador and under scrutiny by the Justice Department continues to oversee the construction of the much-delayed new American embassy in Baghdad from nearby Kuwait, State Department officials disclosed Thursday. James L. Golden, a contract employee, is still managing the $740 million project, said Undersecretary of State Patrick Kennedy, the department's top management official. "Mr. Golden is still . . . our project manager, and still is working with the contractor, at their base in Kuwait," Kennedy said.

One State Department official with detailed knowledge of the unopened embassy expressed outrage that his superiors haven't replaced Golden. "I find it absolutely amazing that State senior management doesn't seem to think it a trifle odd that two people under investigation . . . are still making all the management decisions under this same contract," the official said in an e-mail. The official asked for anonymity because he feared retaliation by his superiors. Golden and the Baghdad-based embassy construction coordinator, Mary French, have been implicated in a Justice Department criminal investigation into how embassy construction subcontracts were issued, according to current and former U.S. officials and congressional testimony. Neither Golden nor French has been charged with any wrongdoing.

Construction and safety problems have plagued the Baghdad embassy, originally scheduled to open in September. Kennedy and other top department officials have declined to provide a firm date for when it will be ready to house nearly 1,000 U.S. diplomats and staff. Kuwaiti-based First Kuwaiti General Trading and Contracting Co. is constructing the embassy, which will be the largest American embassy in the world once it's completed. Department officials defended the decision to leave Golden in place, saying it was necessary to provide continuity on the project. The department is working to overcome construction flaws that range from questions about the strength of blast walls to a fire-suppression system that failed inspection.

U.S. Ambassador Ryan Crocker banished Golden from Iraq after an incident last May in which a mortar round damaged a wall at the new embassy that was supposed to be blast resistant. Golden, along with First Kuwaiti, attempted to repair the damage before an investigation could be conducted, U.S. officials said...

Dean Baker on job growth in November: 94K on the establishment survey--49K taking account of downward revisions in previous months' numbers.

Unless a lot of new firms were started last month--enough to cover the new firm adjustment factor in the model--payroll employment was flat last month.

He speaks:

FRB: Testimony--Kroszner, Loan modifications and foreclosure prevention--December 6, 2007: We believe that investors and servicers generally want to work with borrowers to avoid foreclosure.  Prudent loss mitigation techniques that avoid foreclosure not only help homeowners, they are usually cost-effective for investors.  Borrowers who have been current in their payments but could default after reset, for instance, may be able to work with their lender or servicer to adjust their payments or otherwise change their loans to make them more manageable.  Working with borrowers before they experience payment problems has other benefits; for instance, late payments will not have affected such borrowers' credit scores, preserving a wider range of options including refinancing.  Such proactive outreach by servicers may mean the difference between loan payment and default, particularly for lower-income families who may have little financial cushion. 

Given the substantial number of resets expected from now through the end of 2008, it is in the interest of the industry to go further than it has historically to join together and explore collaborative, creative efforts to develop prudent loan modification programs and other assistance to help large groups of borrowers systematically.  Such programs can streamline and speed the process of anticipating and addressing delinquent loans, reduce transaction costs, and provide guidance to borrowers and to mortgage counselors.  Many servicers are, in fact, working with counselors who can play a crucial role in helping homeowners, many of whom do not even communicate with their servicers out of fear, embarrassment, or misinformation about their options.  Loan modification programs should be a bottom-up approach designed to balance the needs of all parties, and we are encouraged by the progress being made by the industry in advancing such programs. 

Because systematic approaches to dealing with troubled loans are often likely to lead to better aggregate investor returns than foreclosures, we are encouraged by industry efforts to pursue these approaches.  When servicers modify loans, however, they may face potential litigation risk from investors because of their contractual obligations under the servicing agreements.  One particular source of litigation risk, we understand, may be that different asset classes have conflicting interests.  Therefore, we encourage ongoing industry efforts to agree to standards for addressing these issues.  We are hopeful that the industry can resolve these conflicts on a consensual basis so that they do not preclude servicers from taking actions that are in the overall best interests of consumers and the industry.

More generally, the Board supports efforts by the industry and others to develop reasonable and standardized approaches to dealing with these challenges.  Such approaches, when applied consistently and predictably, can reduce uncertainty and ultimately help the markets function.  Prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower, but there may be instances when such arrangements are not prudent or appropriate.  In trying to help homeowners, we must also be careful to recognize the existing legal rights of investors, avoid actions that may have the unintended consequence of disrupting the orderly functioning of the market, or unnecessarily reducing future access to credit.  Provisions intended to immunize servicers from liability should be crafted to avoid creating moral hazard of parties disregarding their contractual obligations, which would ultimately have negative impacts for markets and consumers.  Sustainable solutions, and not those that simply hide for the short term real repayment challenges, should be our goal...