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January 2008

Text of FOMC Statement Announcing Rate Cut

The FOMC speaks:

Text of FOMC statement announcing rate cut - MarketWatch: The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

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; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin. In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.

Ben Bernanke Is Earning His Pay

I remember yelling two years ago at some hapless Harvard Crimson reporter who referred to the Fed Chair job as a cushy sinecure:

Rex Nutting demonstrates that he is able to write very well very quickly:

Fed cuts rates 75 basis points in emergency move - MarketWatch: WASHINGTON (MarketWatch) -- Hoping to halt a market meltdown and prevent a recession, the Federal Reserve lowered its overnight lending rate by three quarters of a percentage point to 3.50% on Tuesday in a rare move between formal meetings.

The 75 basis-point surprise cut came after global financial markets sold off in dramatic fashion on Monday on fears that bad bets in credit markets could spread further and drive the U.S. economy into recession. See full story on London markets.

"The committee took this action in view of a weakening economic outlook and increasing downside risks to growth," the Federal Open Market Committee said in a statement. The Fed also lowered its discount rate by 75 basis points to 4%. It was the largest cut in the federal funds rate since 1982, after the FOMC had driven rates to 20% to kill inflation.

U.S. stocks opened with huge losses. The Dow Jones Industrial Average was down more than 450 points, or more than 3%. Treasurys rallied. "This move is not an instant fix," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. "The economy is still staring recession in the face, but at least the Fed now gets it." With the move coming just eight days before the next scheduled meeting, "there can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," wrote Joshua Shapiro, economist for MFR Inc. Some traders said the Fed's move sniffed of panic. "I think that there's an element of thinking that, if the Fed is so worried that it is cutting rates, then that is feeding into fears that the U.S. economy is in really bad shape," said David Page, a strategist at Investec Securities in London.

After a conference call Monday evening among the 10 voting members of the Federal Open Market Committee, the FOMC released a statement early Tuesday saying downside risks to growth remain. One member of the committee, William Poole, president of the St. Louis Fed, voted against the move. One other, Fed Gov. Frederic Mishkin, was absent. "While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households," the FOMC said. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets." "Appreciable downside risks to growth remain," the statement said. "The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks." The statement barely mentioned inflation, only saying that the FOMC expects inflation to moderate and will monitor inflation carefully...

Another Round of Whack-a-Mole Begins

Yes, another semester has poked its head out of its burrow, and must be dealt with:

Economics 210a: Introduction to Economic History: de Vries and DeLong: U.C. Berkeley: Spring 2008:

DRAFT Handout for January 30: Modes of Production

Pre-Class Memo Topic for January 30: Was it in fact the case--as UCLA's Jared Diamond maintains--that the invention of agriculture was the worst mistake in the history of the human race? What can we say about the causes of the fact that in some human societies technological and organizational progress appears relatively slow and in others relatively fast? And is there a relationship between these two questions?

Submit your 450-word, two page memo on this topic and post the text as a comment to this webpage by the start of the relevant class: noon on Wednesday January 30.


Pre-Class Notes:

In addition to the four readings for January 30--Diamond, Finley, Temin, and Baumol--let me give you three other short things to read to orient yourselves for the class:

(1) Exchange and its vicissitudes as fundamental to human psychology and society? Adam Smith: Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.... When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilised society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons....

[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love....

[I]t is this same trucking disposition which originally gives occasion to the division of labour. In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or movable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house-carpenter.... [T]he certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business.

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men... is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education... and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance. But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted. All must have had the same duties to perform, and the same work to do, and there could have been no such difference of employment as could alone give occasion to any great difference of talents.... By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd's dog....

Among men... the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men's talents he has occasion for...

(2) Different technologies as producers of different societies which give rise to different types of economies? Karl Marx:

Preface to A Contribution to the Critique of Political Economy: In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material productive forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.

At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or — what is but a legal expression for the same thing — with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed. In considering such transformations a distinction should always be made between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, aesthetic or philosophic — in short, ideological forms in which men become conscious of this conflict and fight it out....

In broad outlines Asiatic, ancient, feudal, and modern bourgeois modes of production can be designated as progressive epochs in the economic formation of society...

(3) Living standards and the pace of economic progress: Brad DeLong:


Longest-Run Economic Growth - Google Docs

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A Good Sermon for Martin Luther King Day...

A good sermon by my sister-in-law's law school classmate:

Barack Obama: The Scripture tells us that when Joshua and the Israelites arrived at the gates of Jericho, they could not enter. The walls of the city were too steep for any one person to climb; too strong to be taken down with brute force. And so they sat for days, unable to pass on through.

But God had a plan for his people. He told them to stand together and march together around the city, and on the seventh day he told them that when they heard the sound of the ram’s horn, they should speak with one voice. And at the chosen hour, when the horn sounded and a chorus of voices cried out together, the mighty walls of Jericho came tumbling down.

There are many lessons to take from this passage, just as there are many lessons to take from this day, just as there are many memories that fill the space of this church. As I was thinking about which ones we need to remember at this hour, my mind went back to the very beginning of the modern Civil Rights Era.

Because before Memphis and the mountaintop; before the bridge in Selma and the march on Washington; before Birmingham and the beatings; the fire hoses and the loss of those four little girls; before there was King the icon and his magnificent dream, there was King the young preacher and a people who found themselves suffering under the yolk of oppression.

And on the eve of the bus boycotts in Montgomery, at a time when many were still doubtful about the possibilities of change, a time when those in the black community mistrusted themselves, and at times mistrusted each other, King inspired with words not of anger, but of an urgency that still speaks to us today:

“Unity is the great need of the hour” is what King said. Unity is how we shall overcome.

What Dr. King understood is that if just one person chose to walk instead of ride the bus, those walls of oppression would not be moved. But maybe if a few more walked, the foundation might start to shake. If a few more women were willing to do what Rosa Parks had done, maybe the cracks would start to show. If teenagers took freedom rides from North to South, maybe a few bricks would come loose. Maybe if white folks marched because they had come to understand that their freedom too was at stake in the impending battle, the wall would begin to sway. And if enough Americans were awakened to the injustice; if they joined together, North and South, rich and poor, Christian and Jew, then perhaps that wall would come tumbling down, and justice would flow like water, and righteousness like a mighty stream.

Unity is the great need of the hour – the great need of this hour. Not because it sounds pleasant or because it makes us feel good, but because it’s the only way we can overcome the essential deficit that exists in this country.

I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans.

I’m talking about a moral deficit. I’m talking about an empathy deficit. I’m taking about an inability to recognize ourselves in one another; to understand that we are our brother’s keeper; we are our sister’s keeper; that, in the words of Dr. King, we are all tied together in a single garment of destiny.

We have an empathy deficit when we’re still sending our children down corridors of shame – schools in the forgotten corners of America where the color of your skin still affects the content of your education.

We have a deficit when CEOs are making more in ten minutes than some workers make in ten months; when families lose their homes so that lenders make a profit; when mothers can’t afford a doctor when their children get sick.

We have a deficit in this country when there is Scooter Libby justice for some and Jena justice for others; when our children see nooses hanging from a schoolyard tree today, in the present, in the twenty-first century.

We have a deficit when homeless veterans sleep on the streets of our cities; when innocents are slaughtered in the deserts of Darfur; when young Americans serve tour after tour of duty in a war that should’ve never been authorized and never been waged.

And we have a deficit when it takes a breach in our levees to reveal a breach in our compassion; when it takes a terrible storm to reveal the hungry that God calls on us to feed; the sick He calls on us to care for; the least of these He commands that we treat as our own.

So we have a deficit to close. We have walls – barriers to justice and equality – that must come down. And to do this, we know that unity is the great need of this hour.

Unfortunately, all too often when we talk about unity in this country, we’ve come to believe that it can be purchased on the cheap. We’ve come to believe that racial reconciliation can come easily – that it’s just a matter of a few ignorant people trapped in the prejudices of the past, and that if the demagogues and those who exploit our racial divisions will simply go away, then all our problems would be solved.

All too often, we seek to ignore the profound institutional barriers that stand in the way of ensuring opportunity for all children, or decent jobs for all people, or health care for those who are sick. We long for unity, but are unwilling to pay the price.

But of course, true unity cannot be so easily won. It starts with a change in attitudes – a broadening of our minds, and a broadening of our hearts.

It’s not easy to stand in somebody else’s shoes. It’s not easy to see past our differences. We’ve all encountered this in our own lives. But what makes it even more difficult is that we have a politics in this country that seeks to drive us apart – that puts up walls between us.

We are told that those who differ from us on a few things are different from us on all things; that our problems are the fault of those who don’t think like us or look like us or come from where we do. The welfare queen is taking our tax money. The immigrant is taking our jobs. The believer condemns the non-believer as immoral, and the non-believer chides the believer as intolerant.

For most of this country’s history, we in the African American community have been at the receiving end of man’s inhumanity to man. And all of us understand intimately the insidious role that race still sometimes plays – on the job, in the schools, in our health care system and in our criminal justice system.

And yet, if we are honest with ourselves, we must admit that none of our hands are entirely clean. If we’re honest with ourselves, we’ll acknowledge that our own community has not always been true to King’s vision of a beloved community.

We have scorned our gay brothers and sisters instead of embracing them. The scourge of anti-Semitism has, at times, revealed itself in our community. For too long, some of us have seen immigrants as competitors for jobs instead of companions in the fight for opportunity.

Every day, our politics fuels and exploits this kind of division across all races and regions; across gender and party. It is played out on television. It is sensationalized by the media. And last week, it even crept into the campaign for President, with charges and counter-charges that served to obscure the issues instead of illuminating the critical choices we face as a nation.

So let us say that on this day of all days, each of us carries with us the task of changing our hearts and minds. The division, the stereotypes, the scapegoating, the ease with which we blame our plight on others – all of this distracts us from the common challenges we face – war and poverty; injustice and inequality. We can no longer afford to build ourselves up by tearing someone else down. We can no longer afford to traffic in lies or fear or hate. It is the poison that we must purge from our politics; the wall that we must tear down before the hour grows too late.

Because if Dr. King could love his jailor; if he could call on the faithful who once sat where you do to forgive those who set dogs and fire hoses upon them, then surely we can look past what divides us in our time, and bind up our wounds, and erase the empathy deficit that exists in our hearts.

But if changing our hearts and minds is the first critical step, we cannot stop there. It is not enough to bemoan the plight of poor children in this country and remain unwilling to push our elected officials to provide the resources to fix our schools. It is not enough to decry the disparities of health care and yet allow the insurance companies and the drug companies to block much-needed reforms. It is not enough for us to abhor the costs of a misguided war, and yet allow ourselves to be driven by a politics of fear that sees the threat of attack as way to scare up votes instead of a call to come together around a common effort.

The Scripture tells us that we are judged not just by word, but by deed. And if we are to truly bring about the unity that is so crucial in this time, we must find it within ourselves to act on what we know; to understand that living up to this country’s ideals and its possibilities will require great effort and resources; sacrifice and stamina.

And that is what is at stake in the great political debate we are having today. The changes that are needed are not just a matter of tinkering at the edges, and they will not come if politicians simply tell us what we want to hear. All of us will be called upon to make some sacrifice. None of us will be exempt from responsibility. We will have to fight to fix our schools, but we will also have to challenge ourselves to be better parents. We will have to confront the biases in our criminal justice system, but we will also have to acknowledge the deep-seated violence that still resides in our own communities and marshal the will to break its grip.

That is how we will bring about the change we seek. That is how Dr. King led this country through the wilderness. He did it with words – words that he spoke not just to the children of slaves, but the children of slave owners. Words that inspired not just black but also white; not just the Christian but the Jew; not just the Southerner but also the Northerner.

He led with words, but he also led with deeds. He also led by example. He led by marching and going to jail and suffering threats and being away from his family. He led by taking a stand against a war, knowing full well that it would diminish his popularity. He led by challenging our economic structures, understanding that it would cause discomfort. Dr. King understood that unity cannot be won on the cheap; that we would have to earn it through great effort and determination.

That is the unity – the hard-earned unity – that we need right now. It is that effort, and that determination, that can transform blind optimism into hope – the hope to imagine, and work for, and fight for what seemed impossible before.

The stories that give me such hope don’t happen in the spotlight. They don’t happen on the presidential stage. They happen in the quiet corners of our lives. They happen in the moments we least expect. Let me give you an example of one of those stories.

There is a young, 23-year-old white woman named Ashley Baia who organizes for our campaign in Florence, South Carolina. She’s been working to organize a mostly African American community since the beginning of this campaign, and the other day she was at a roundtable discussion where everyone went around telling their story and why they were there.

And Ashley said that when she was nine years old, her mother got cancer. And because she had to miss days of work, she was let go and lost her health care. They had to file for bankruptcy, and that’s when Ashley decided that she had to do something to help her mom.

She knew that food was one of their most expensive costs, and so Ashley convinced her mother that what she really liked and really wanted to eat more than anything else was mustard and relish sandwiches. Because that was the cheapest way to eat.

She did this for a year until her mom got better, and she told everyone at the roundtable that the reason she joined our campaign was so that she could help the millions of other children in the country who want and need to help their parents too.

So Ashley finishes her story and then goes around the room and asks everyone else why they’re supporting the campaign. They all have different stories and reasons. Many bring up a specific issue. And finally they come to this elderly black man who’s been sitting there quietly the entire time. And Ashley asks him why he’s there. And he does not bring up a specific issue. He does not say health care or the economy. He does not say education or the war. He does not say that he was there because of Barack Obama. He simply says to everyone in the room, “I am here because of Ashley.”

By itself, that single moment of recognition between that young white girl and that old black man is not enough. It is not enough to give health care to the sick, or jobs to the jobless, or education to our children.

But it is where we begin. It is why the walls in that room began to crack and shake.

And if they can shake in that room, they can shake in Atlanta.

And if they can shake in Atlanta, they can shake in Georgia.

And if they can shake in Georgia, they can shake all across America. And if enough of our voices join together; we can bring those walls tumbling down. The walls of Jericho can finally come tumbling down. That is our hope – but only if we pray together, and work together, and march together.

Brothers and sisters, we cannot walk alone.

In the struggle for peace and justice, we cannot walk alone.

In the struggle for opportunity and equality, we cannot walk alone

In the struggle to heal this nation and repair this world, we cannot walk alone.

So I ask you to walk with me, and march with me, and join your voice with mine, and together we will sing the song that tears down the walls that divide us, and lift up an America that is truly indivisible, with liberty, and justice, for all. May God bless the memory of the great pastor of this church, and may God bless the United States of America.

Brains! Brains!

From Gordon's Notes:

The puzzle of cetacean brains: When I was a child there was a lot of excitement about dolphin brains and dolphin language. It didn't seem to go anywhere, but the cognitive sciences have been moving onwards. In an era where almost every aspect of thought that seemed purely human has been found to be commonplace, it's time to reexamine the cetacean brain. Scientific American features a brief review of the science. In short, there's no obvious neuro-anatomic reason to suppose that cetaceans should be less "clever" than humans. Indeed, sperm whales ought to be prodigies of thought. So why do they need such massive brains? Those calorie sucking engines require an immense amount of food; sperm whale brains ought to be doing something to justify their costly upkeep.

But what?

Let Me Highly Recommend Skitch...

Paul Krugman writes about Reaganomics:

Reaganomics - Paul Krugman - Op-Ed Columnist - New York Times Blog: Since we are, improbably but importantly, discussing Ronald Reagan again, I thought it might be worth posting a few graphs on the Reagan economic record. First, the unemployment rate. What this figure shows is that “Morning in America” was a one-shot affair — a recovery from a very severe recession...

Reaganomics - Paul Krugman - Op-Ed Columnist - New York Times Blog

But I am more interested in how Skitch allows me to grab and quickly annotate graphics. Highly recommended, pointer courtesy of Daniel Jalkut at Red Sweater Software.

links for 2008-01-19

People Should Not Provoke the Krugman!

But people do. And he is annoyed.

He is annoyed at Reaganite commenters who have been misled by Republican "economists":

Reagan and revenu: Ah - commenter Tom says, in response to my post on taxes and revenues:

Taxes were cut at the beginning of the Reagan administration. Federal tax receipts increased by 50% by the end of the Reagan Administration. Although correlation does not prove causation the tax cut must have accounted for some portion of this increase in federal tax receipts.

I couldn’t have asked for a better example of why it’s important to correct for inflation and population growth, both of which tend to make revenues grow regardless of tax policy.

Actually, federal revenues rose 80 percent in dollar terms from 1980 to 1988. And numbers like that (sometimes they play with the dates) are thrown around by Reagan hagiographers all the time. But real revenues per capita grew only 19 percent over the same period — better than the likely Bush performance, but still nothing exciting. In fact, it’s less than revenue growth in the period 1972-1980 (24 percent) and much less than the amazing 41 percent gain from 1992 to 2000.

Is it really possible that all the triumphant declarations that the Reagan tax cuts led to a revenue boom — declarations that you see in highly respectable places — are based on nothing but a failure to make the most elementary corrections for inflation and population growth? Yes, it is. I know we’re supposed to pretend that we’re having a serious discussion in this country; but the truth is that we aren’t.

He is annoyed by Ben Bernanke's insistance that any recession will be effectively over before we are sure that it has begun:

Not so fast - Paul Krugman - Op-Ed Columnist - New York Times Blog: One assumption in Ben Bernanke’s testimony today was that if a recession happens, it will be over soon, so stimulus has to come fast or not at all. It’s by no means clear that this is right. To be fair, I think it’s right to caution Congress not to do anything now that won’t come in quickly. But both recent history and the nature of our current problem suggest that we may be in for more than a few bad months. It’s true that the 2001 recession was officially very short. But the economy felt weak for much longer than that. Here’s my favorite picture, the employment-population ratio, once again:


[The employment-population ratio] kept falling through the summer of 2003. And the Fed certainly thought the economy was weak, and needed more help; it kept cutting rates long after the recession was officially over, and didn’t start raising them until 2004.


So the last slump de facto lasted about 2 1/2 years. And I don’t see why the same couldn’t happen this time. After all, what’s supposed to take the place of weak housing and consumer spending. Exports, yes — but how much will come, how fast?

Anyway, the point is that the last recession was not, in reality, short — and this one might not be, either.

And he is annoyed by Anna J. Schwartz:

Great Depression blogging: Can’t resist. I see that Anna Schwartz is blaming the Fed for the subprime crisis; I have some sympathy for this view, but not for the reasons she gives. But anyway, the article mentions the whole “did the Fed cause the Great Depression” issue, and explains succinctly why the Friedman-Schwartz claim that it did matters:

“The book was a bombshell,” says British monetarist Tim Congdon. “Until then almost everybody thought the free-market system itself had failed in the 1930s. What Friedman-Schwartz say was that incompetent government bureaucrats at the Fed had caused the Depression.”

The trick here is the word “caused”. Everyone agrees that the Fed failed to do what it should have in an effort to prevent the Depression. But saying that it “caused” the Depression is like saying that FEMA, through its inadequate response, caused the devastation of Katrina. The market system did fail; government’s failure was in not doing enough to rescue the system.

On what basis do I say this?... The monetary base is bank reserves plus currency in circulation. It’s what the Fed controls directly: monetary base only gets created or destroyed through Fed actions. M2 is a broad definition of the money supply, including a wide variety of bank deposits, preferred by Friedman and Schwartz.... M2 plunged in the Depression--and the Fed should have tried to prevent that. But the reason M2 plunged was because of the banking crisis, which led people to prefer cash to bank deposits and led the surviving banks to hold lots of reserves. This reduced the “money multiplier”: the amount of money supported by a dollar of reserves. M2 did not plunge because the Fed sharply reduced monetary base, although there were occasions in later life when Friedman asserted that it did.

The point is that the Fed’s sin was passivity. What the economy really needed was more activism.

All three of these acts of annoyance seem to me to be highly justified.

Are We in a Recession? What Will It Look Like If We Have One?

Slides for the "current macro situation" talk...

The Fed Has Started Cutting Interest Rates:


  • From the 1960s through the 1990s, we had recessions when the Federal Reserve said "uh-oh; inflation"
  • The recession of 2001 was the first in a long, long time not brought on by a steep upward push of the interest rates it controls by the Federal Reserve to curb spending and inflation
  • The potential unpleasantness of 2008 may be the second such

The Construction Sector Is Collapsing:


  • When the dot-com boom collapsed at the start of this decade, the Federal Reserve lowered the interest rates it controls far and fast
  • The hope was to keep employment and production from falling much: if we can't put people to work in high-tech and spend money investing in the internet and allied industries, perhaps low interest rates can spark a construction boom * It worked--really well (perhaps too well)
    • Construction joined as a leading sector of spending and employment by
      • Defense
      • Commerce--side effect of "selling" "political risk insurance" to rich foreigners and to foreign governments
  • Now the construction boom has collapsed--without the Fed hitting the construction sector on the head with a brick
    • Construction not coming back soon: 2 million extra houses...
    • Financial uproar
  • What could take up the slack this time?
    • Exports? And import-competing manufacturing?
    • Medicine?

What Is Happening Right Now?


  • We do not know
  • Standard payroll-employment series tends to go awry when economy changes its phase from employment expansion to employment contraction
  • And the economy does change its phase
  • Household employment survey a better guide at turning points
    • But a lot of noise in household employment survey
  • The problem of the anemic employment recovery of the 2000s
  • The labor market has not changed its phase--yet--as far as we know


  • The fact that we undergo a half-sized business cycle every year what with Christmas, etc., makes reading the tea leaves on these particular months especially... complex...

The Federal Reserve: Stuck Between a Rock and a Hard Place:


  • The Federal Reserve
    • Doesn't want to lose its price-stability credibility by cutting interest rates too far too fast and igniting inflation--both by misjudging domestic demand and because cutting interest rates means a cheaper dollar hence import price inflation
    • Wants, in fact, to raise interest rates--to make feckless over-leveraged financial institutions pay rather than to bail them out
    • But doesn't want to hold the entire economy and the jobs of millions of Americans hostage in order to make sure a few mortgage loan originators and packagers get their just deserts
    • Good luck to Bernanke and company...

Do the Cossacks Work for the Czar?

There is an awful lot in this post by Timothy Burke at Easily Distracted » One-A-Day: John Lewis Gaddis, The Cold War: A New History. But let me, for now, focus on one issue and one issue only. Tim writes:

Easily Distracted » Blog Archive » One-A-Day: John Lewis Gaddis, The Cold War: A New History: [I]n Zimbabwe... there is first a disconnect between what imperial leaders did and what actors on the colonial periphery did, and that the actions of the latter sometimes drove the former, and that decisions made at either (or both) levels often were internally contradictory, improvisational as well as pre-determined, based on fragmentary or patchwork kinds of knowledge, and frequently opaque to the actors themselves....

I’m perpetually skeptical about whether we ever ought to talk about individual intentions in an atomistic way... assign proportionate value to different components of intention, and equally skeptical about whether we can ever atomistically describe the relationship between intention and result. That’s just with one individual, but it’s even more so once we talk about how a decision actually is made by small groups of advisors and is then transmitted to larger institutional networks....

[O]ne of the interesting bits of information to come out of the Iraq War so far has to do with why US intelligence was so off about Hussein’s possession of weapons of mass destruction. People who want to argue that intelligence was purely concocted for political purposes are too simplistic, people who want to reduce it all to the will of Dick Cheney or a few neocons are too simplistic, people who want to make it a sincere mistake are too simplistic. Some of what strikes me as actually involved includes....

[A]ctors inside the Bush Administration made it known that they, even more than their predecessors, would not welcome intelligence which blatantly contradicted beliefs or assumptions that they were inclined to make. No one ever sends an order down that says, “Here’s the casus belli we need, please write it up! kthnx.” This kind of pressure gets exerted when someone like Cheney says in a conversation that includes key advisors and heads of executive departments that intelligence has been “too timid.”... Cheney (or various neocons) could believe that statement as a reaction to some factual understanding of the history of US intelligence... and could not entirely know themselves why they say it, or how that statement is likely to be received or interpreted....

Another thing at play: how the movement of information through institutions is rather like a game of telephone, that there is a kind of drift and transformation which has less to do with intentionality and more to do with processes of translation, reparsing, repackaging and repurposing as information travels from office to office, up and down hierarchies....

I could add more, but it seems to me that this is what a social history of state or institutional action at the top of hierarchies might begin to look like. I wouldn’t want someone like Gaddis to take this sort of thinking on board so far that it messes up narrative and explanatory clarity, but I do think traditional political and diplomatic history sometimes mirrors a flaw of a lot of social science. Some social scientists confuse explanatory models for empirical reality; some political historians confuse explanatory narratives about decision-making for the messy processes that shape intentions and translate intentions into action and event.

I think that Tim Burke is both right and wrong. He is right: courts are the natural habitats of deceitful courtiers who tell the princes exactly what the princes want to hear, the people on the spot who control implementation matter in ways that the people around polished walnut tables in rooms with green silk walls do not, and the movement of information through bureaucracies does resemble a game of telephone with distortions amplified at every link.


Those with sufficient virtu to become princes in this modern age are well aware of all these deficiencies of bureaucracies and courts.

When Lloyd Bentsen became Secretary of the U.S. Treasury, he scattered his--loyal--senate staff throughout the Treasury Department at all levels, and used them as a second, separate, parallel web of communication in order to gauge the distortions that were being introduced into the paper that crossed his desk by the game of bureaucratic telephone. When Kangxi became Emperor of China, he scattered the--loyal--hereditary bondsmen of his Manchu clan throughout the imperial Chinese bureaucracy at all levels, with instructions to write to him regularly through secret channels to tell him what was really going on, as a second, separate, parallel web of communication so that he could gauge who was telling him what he needed to know and who was telling him what they thought he wanted to hear.

It is reasonable to suppose that fifteen or twenty-five year olds raised by hereditary right to posts of especial distinction are bureaucratically unsophisticated--people who don't understand that pieces of information that come up through five layers of the hierarchy have been shaded a little bit at each level. It is reasonable to suppose that twenty-five or thirty-five year olds raised by hereditary right to positions of special ditinction are psychologically unsophisticated--do not understand that if they are pleased by and reward lies, they will ultimately be told nothing but pleasing lies.

But by the time anyone (a) possesses sufficient virtu, (b) is forty-five or fifty-five or sixty-five, and (c) has seen the world, there is no excuse for not understanding that as a czar your cossacks respond to the incentives you set them, that you can change those incentives, and that you are responsible for the behavior that your incentives elicit. By the time you are forty-five or fifty-five or sixty-five, you know very well that when you say that "intelligence has been 'too timid' in the past," what they hear you saying is "don't tell me what you think, tell me what I want to hear." George W. Bush--the feckless and virtu-less hereditary prince--may well not have clued in to the fact that Condi Rice had decided that if she told him what he needed to hear she might get fired, while if she told him what he wanted to hear she would get promoted. But Colin Powell knew damned well what the flow of "intelligence" from George Tenet to him was worth unverified, and knew damned well that taking care not to try to verify it was a way of preserving his own options for the future. And Richard Cheney and Donald Rumsfeld knew damned well--unless they are much farther into their dotage than I believe--that their confidence in Saddam Hussein's WMD program was based not on intelligence but on their judgment that they would have active WMD programs if they were Saddam Hussein.

The frictions and distortions of the bureaucracy and the court exist. They are, however, counterbalanced by the intelligence, the sophistication, and the energy of the principals at the top. If the czar wishes, the cossacks do work for him. And if the czar doesn't want to take the time to make the cossacks work for him--well, that is his decision and what happens is his will just as well.

New York Times Death Spiral Watch

Why oh why can't we have a better press corps? Outsourced to Greg Sargent:

Horses Mouth January 10, 2008 2:00 PM: Dowd's Hillary Hit -- Dateline Jerusalem? It's election eve. Do you know where your favorite prestige columnist is?

Maureen Dowd weighed in with a column yesterday that made a big splash, pissed off lots of people, and became part of the political conversation about Hillary's New Hampshire victory. The column -- called "Can Hillary Cry Her Way Back To White House"? -- was datelined "Derry, N.H."

The column struck some people as taking a holier-than-thou tone to Dowd nemesis Hillary. But you don't know the half of it. The column, apparently, was filed from half a world away -- from Jerusalem.

The piece reads as if Dowd was on the scene at Hillary's victory party, interviewing voters reacting to her win. But it turns out Dowd couldn't have been at the party at all -- instead, she'd already jetted half way around the world to cover the President's Middle East trip, I'm told. An eyewitness tells TPM that on Tuesday night he spied Dowd typing away at the reporters' media filing center in Jerusalem's Dan Panorama hotel.

A Times spokesperson tells me there's no dateline issue here at all.... If Dowd was nearly 6,000 miles away from these people on Tuesday night, how did the quotes get into her column? A reporter I know tells me that Dowd's assistant was floating around at the Hillary victory party that night. So it seems almost certain that Dowd's assistant did the reporting for her. But there's no other byline on the piece..... It appears to be standard practice at The Times. Columnists have assistants who do reporting for them but don't get any credit....

Times spokesperson Catherine Mathis confirmed to me that Dowd had gone to Jerusalem.... What about that "Derry, N.H." dateline? Not an issue, Mathis says. Times dateline policy dictates that the reporter spend some time in the place identified, and doesn't require the reporter to be there all the time or file the piece from that location.... [A]nyone reading this piece would assume that Dowd had hoofed it to the victory party to lament Hillary's victory firsthand...

Stan Collender on the Likelihood of No Stimulus Package

Stan writes:

Actually, the column is no longer called “Budget Battles” and it’s no longer published by After more than a decade at NJ, I will now be writing a weekly column for Roll Call called “Fiscal Fitness.” As you might imagine, I’m very excited about this and am really looking forward to reaching Roll Call’s audience. Tomorrow’s “Fiscal Fitness” is below. Enjoy (I hope).

A big loss for the National Journal, IMHO.

Here's the substance:

In the current political environment, the White House and Congress would have trouble agreeing on legislation reaffirming that today is Tuesday, especially if tax and spending changes were included in the bill. So why does anyone think an economic stimulus package, which will be nothing but tax and spending, is a sure thing?... [T]he Bush administration has clearly decided that its legacy is not getting its own policies enacted, but rather preventing Congressional Democrats from enacting their own.... Congressional Democrats have less incentive to compromise with the White House in 2008 than they had in 2007.... Congressional Republicans do not want to make it easy for the Democratic majority to get anything done....

These very poor prospects for a stimulus bill may not be readily apparent at the start of the year. The president will likely announce a specific proposal close to or during his State of the Union Address.... Democrats either will try to match the White House plan by revealing their ow.... Wall Street might cheer because in early February it will look like the stimulus die has been cast. But that look will definitely be deceiving. The Bush plan will likely include tax cuts that are anathema to Democrats and the Democratic plan will include provisions the White House won’t accept... nothing will be enacted.

But the expectation that something could happen might extend a bit longer. A budget resolution can’t be filibustered in the Senate and can’t be vetoed by the president, so it may be the one time all year Democrats have the ability to put their plan on a legislative pedestal for all to see. But as was the case last year after the budget resolution was adopted, that will bring threats of filibusters and vetoes. These should be taken seriously: much of what will be needed to implement the budget resolution’s policies will be subject to a filibuster and everything could be vetoed.

That means the budget resolution could be the high-water mark of the stimulus debate. This will all change if the economy gets so much worse that the White House and Congress can’t afford not to do something...

David Petraeus Shows He Has Learned the Leadership Secrets of William Westmoreland

The Government Accountability Office weighs in:

Iraqi Spending to Rebuild Has Slowed, Report Says: Highly promising figures that the administration cited to demonstrate economic progress in Iraq last fall, when Congress was considering whether to continue financing the war, cannot be substantiated by official Iraqi budget records, the Government Accountability Office reported Tuesday.... [L]ast September the administration said Iraq had greatly accelerated such spending. By July 2007, the administration said, Iraq had spent some 24 percent of $10 billion set aside for reconstruction that year. As Gen. David H. Petraeus, the top American commander in Iraq, and Ryan C. Crocker, the American ambassador to Iraq, prepared in September to report to Congress on the state of the war, the economic figures were a rare sign of progress within Iraq’s often dysfunctional government.

But in its report on Tuesday, the accountability office said official Iraqi Finance Ministry records showed that Iraq had spent only 4.4 percent of the reconstruction budget by August 2007. It also said that the rate of spending had substantially slowed from the previous year. The reason for the difference, said Joseph A. Christoff, the G.A.O.’s director of international affairs and trade, was that few official Iraqi figures for 2007 were available when General Petraeus and Mr. Crocker went to Congress. So the administration, with the help of the Finance Ministry in Baghdad, appears to have relied on a combination of indicators, including real expenditures, ministries’ suggestions of projects they intended to carry out, and contracts that were still under negotiation, Mr. Christoff said. But actual spending does not seem to have lived up to those estimates for spending on reconstruction, a budget item sometimes called capital or investment expenditures, he added. “So it looked like an improvement, but it wasn’t an improvement,” he said....

[A]fter Iraq’s failure to spend its own money on reconstruction was first disclosed in late 2006, Iraqi and American officials repeatedly asserted that the problems would be much less severe the next year, as the new government led by Prime Minister Nuri Kamal al-Maliki found its way.... But the accountability office figures, which Mr. Christoff said were taken directly from Finance Ministry records, show that through August 2007 the Iraqi government had spent less than half the percentage of its investment budget that it had spent in the same period in 2006...

Washington Post Death Spiral Continues

Why oh why can't we have a better press corps? Keith B. Richburg of the Washington Post badly needs to find another, very different line of work.

Outsourced to Dean Baker:

Beat the Press Archive | The American Prospect: The Post ran another of its classic non-informative budget pieces this morning. It told readers that California faces a $4.6 billion shortfall that "could grow to $14 billion deficit by the 2009 fiscal year," that New York faces a $4 billion shortfall and New Jersey faces a $3.5 billion shortfall.

That sounds bad, but is it? Well, without knowing how large these state budgets are, how can any reader know. For the record, a 4.6 billion shortfall in California would be approximately 3.3 percent of its budget, while the ominous $14 billion shortfall would be almost 10 percent. The $4 billion shortfall for New York is just over 5 percent of its budget and the $3.5 billion shortfall for New Jersey is more than 10 percent of its budget. Why couldn't the article give readers this information? It took me about 5 minutes on the web to find it.

The non-information gets worse. The article tells us that New Jersey's governor Jon Corzine is threatening his legislature that if they don't buy his plan for dealing with toll roads, the alternative is to "increase the sales tax by 30 percent, the income tax by 20 percent or the gas tax by 12 cents per gallon." Okay, we all know what a 12 cent per gallon increase in the gas tax means, but how many people out their know New Jersey's current sales tax or income tax rate? I have no idea, and without knowing the current tax rate, there is no way of assessing the impact of a 30 percent increase in the income tax or a 20 percent increase in the sales tax. (Undoubtedly many readers will also be misled into reading these numbers as percentage point increases, hugely over-estimating their impact.)

But the worst item in this piece is a discussion of the ambitious agenda of Massachusetts governor, Deval L. Patrick. The article notes that he wants to increase spending on health care, education and housing and then adds that he is "exploring whether to offer in-state college tuition to the children of illegal immigrants who attend public schools."

Okay, that last line has no place in a budget article. The amount of state money potentially at stake in subsidizing the tuition of the children over illegal immigrants is so trivial that whether the state does it or not will have no noticeable impact on the budget. There are reasons to argue as to whether this is good policy, but Massachusetts will not be facing budget problems because it allows the children of illegal immigrants to pay in-state tuition, and it is outrageous for the Post to publish an article implying that this is the case.

Washington Post Death Spiral Watch

Why oh why can't we have a better press corps? Today we have the Washington Post's Richard Cohen--bad for the Americans. But we have some reactions as well:

Michael Chabon:

Michael Chabon: Hey, Louis Farrakhan and Richard Cohen: You Can't Scare Me: I am certain that Mr. Cohen -- whose work I grew up reading and admiring in my family's hometown newspaper -- would argue that nowhere does he accuse Barack Obama of any sin worse than an ominous silence.... How, Mr. Cohen appears to want to know, can Barack Obama let such perfidy pass without condemnation?

I say "appears to want to know" in part because Mr. Cohen knows perfectly well that Obama has publicly disagreed with his family minister over the subject of Farrakhan.... Mr. Cohen... resorts to employing the time-honored strategies (smear and guilt-by-association) and tactics (a false appearance of reasonableness, assumption of unproven conclusions, selective reference to facts not in evidence) employed by the very demagogues and masters of hate whom he is presumably trying to combat. Why has there been no response from the Obama camp to this deeply troubling message of hate?

Well, as it turns out, there has been a response -- at least two of them -- and Mr. Cohen even quotes them in his column. Since they interfere with his crucial business of frightening himself and the rest of Jewish America (not to mention the quotidian duty of filling one's allotment of column-inches), however, he ignores them. In so doing, Mr. Cohen resorts to a time-honored principle of propagandists of hatred: Every denial is in fact tantamount to a confession....

Mr. Cohen... invokes the broken promise of black-Jewish unity... without appearing to acknowledge that in falsely impugning Barack Obama he is damaging the only politician in America who has any hope of redeeming that promise on a national level, whose very rise to the lofty precincts of "electability" is proof that the promise is redeemed, in little ways, every single day....

[W]ould I welcome a stout denunciation of Farrakhan by Obama? Sure I would. But that same great heritage also boasts of the most staunch and fearless struggle against the forces that seek to divide us, to set us against one another, and it's that side of my heritage that I choose to honor. Let's all choose, Jews and African-Americans, to set fear aside, and work for a return to the days, whose memory Cohen's fear-mongering so grievously tarnishes, when we set aside everything that separated us to join together in the service of our common American good.

Andrew Sullivan:

The Daily Dish | By Andrew Sullivan: The more I think about it, the more disgraceful that column was. Pure identity politics paranoia. A Jewish columnist sees a black man running for president and the first thing he asks himself is: where is this guy on Farrakhan? And Obama has to disprove his connections, even though there is not even a smidgen of evidence connecting the two, and even, as Greg Sargent points out, Obama's own spokesman explicitly disowned any support for Farrakhan in the same column. If Obama has to disown a man he has never had anything to do with and a man whose toxic racist politics Obama has consistently and continuously opposed with all his might, then every black candidate is forced to jump through Cohen's petty little racist litmus test. They're all guilty of anti-Semitism until proved innocent. And Cohen's transparent disavowals of such an insinuation make it worse not better. We are learning a lot through this primary process - especially about some powerful white liberals and race. What we're learning isn't pretty.

Ari Kelman:

Richard Cohen: Bad for the Jews « The Edge of the American West: In Richard Cohen’s op-ed for the Post today, he plays a very nasty game of guilt by association. Because Barack Obama belongs to the ostensibly controversial Trinity United Church of Christ, in Chicago, and because the minister there, Reverand Jeremiah Wright, in the pages of an in-house magazine he publishes, “heaped praise on” Louis Farakkhan, calling him a man who “truly epitomized greatness,” Obama must disavow, um, wait, who exactly? Minister Farrakhan? Reverend Wright? It’s not entirely clear from Cohen’s article.

What is clear, though, is that the there’s an effort underway to paint Barack Obama as bad for the Jews. If you’re Jewish, and perhaps even if you’re not, you’ve likely received a piece of hateful spam informing you that Obama is Muslim, or half Muslim, or 3/5 Muslim — just for counting purposes, of course — or some other ill-founded crap. You know that he was also educated at a madrassa, don’t you? Well, don’t you? He’s radical. And a terrorist... someone who should know better, someone like Richard Cohen, writes a vile article that deals, if only indirectly, in similar themes.

It may be that Obama’s candidacy will prompt a moment of reckoning for the mainstream of the American Jewish community, which is far more progressive than the reactionaries, racists, and fear-mongerers who often speak for it.... I don’t think you have to support Barack Obama to be a good Jew. Or a loyal Jew. Or anything else Jewish.... But I do think that the time has come that you might have to oppose Richard Cohen. And all of the people like him...

Matthew Yglesias:

Matthew Yglesias: Obama and Farrakhan Not Really Sitting in a Tree: It seems to me that a lot of the reaction to Richard Cohen's column about how Barack Obama's minister's daughter likes Louis Farrakhan is pretty overstated. I feel like someone like Jeff Weintraub who's taking this issue seriously is being an idiot, but Cohen's just being a mildly cynical columnist who doesn't want Obama to win the election.

M.J. Rosenberg:

Playing With Fire: Smearing Obama Among Jews | TPMCafe: According to the informative analysis and poll by Shmuel Rosner in Ha'aretz, the right-wing of the Jewish community does not like Obama and strongly favors Giuliani and Clinton because of their hardline stances on Israel.... I don't think any campaign is behind this round of swiftboating because it bears all the markings of the Jewish far right, the camp that cheered Rabin's assassination. Nevertheless, the smears will have an effect.... It's pretty ugly and today columnist Richard Cohen is taking it mainstream. Check out his column in the Washington Post. He shares the story of Obama's Farrakhan-admiring minister and sounds the alarms to Jews everywhere. He demands Obama repudiate the pastor.

Greg Sargent:

Election Central | Talking Points Memo | Obama Responds To Richard Cohen Column About His Church And Farrakhan: I asked the Obama campaign if they were going to respond to today's highly questionable column by WaPo's Richard Cohen raising questions about the fact that his church and its minister launched Trumpet Newsmagazine, which hailed Lous Farrakhan as a great man. Here's Obama's response, sent over by the campaign:

I decry racism and anti-Semitism in every form and strongly condemn the anti-Semitic statements made by Minister Farrakhan. I assume that Trumpet Magazine made its own decision to honor Farrakhan based on his efforts to rehabilitate ex-offenders, but it is not a decision with which I agree.

One point about Cohen's column. When he writes...

It's important to state right off that nothing in Obama's record suggests he harbors anti-Semitic views or agrees with Wright when it comes to Farrakhan.

...Cohen is of course raising questions in people's minds as to whether Obama does believes this stuff, which is exactly what the original smears are supposed to do. It's surprising that Cohen dragged his paper down to this level, particularly in light of the big controversy over WaPo's piece front-paging the Obama Muslim smears without declaring them false.

On second thought, maybe it isn't surprising at all.

Henry Farrell:

Crooked Timber » » Six degrees of Louis Farrakhan: Farrakhan is undoubtedly a nasty piece of work, [but] why is it Obama in particular who needs to condemn him? That Obama’s pastor has praised him doesn’t really cut it as a rationale – church leaders and spiritual mentors can believe and say a lot of bizarre shit that you don’t yourself subscribe to.... Billy Graham, who made some unambiguously anti-Semitic remarks to Richard Nixon which ended up on tape, appears to have been a major figure in Hillary Clinton’s spiritual life (see also this speech made by Bill Clinton at the inauguration of Graham’s library last year)... a direct influence on the Clintons rather than an influence-on-an-influence. I don’t recall Richard Cohen, or anyone else, muttering that there was no evidence that Hillary and Bill Clinton were anti-Semites, but that they needed to voice their outrage or else.... There’s something else going on here.... Barack Obama is being asked to condemn Louis Farrakhan not because there’s some bogus two-degrees-of-separation thing going on, but because Barack Obama is black, and because black politicians are supposed to condemn Louis Farrakhan before they can be trusted. This... implicit double standard, under which black politicians have a higher hurdle to jump.... [T]his is a bad, wrongheaded, and even dangerous article. Richard Cohen shouldn’t have written it, and the Washington Post shouldn’t have printed it.

links for 2008-01-16

Jared Bernstein and Larry Mishel on the Desirability of a Fiscal Economic Stimulus

Their "jobless recovery" point is a very good one:

Better Late than Never | TPMCafe: Allow us to quickly offer one more wrinkle—a really important one—to the ongoing debate about economic stimulus: we all want a quick, timely package to offset what, with each new data release, looks like a recession. But even if the process takes awhile, a stimulus package will still be very much worth pursuing.

There have been many statements in the press contradicting this point, i.e., asserting that unless we can get a stimulus package into the economy quickly.... The reason this statement is wrong is because it is based exclusively on gross domestic product, as if mitigating the fall in overall growth is the sole focus of an anti-recession package. In fact, our efforts should also target insufficient job growth, rising unemployment, and the resulting wage and income losses for many families.... This insight is critical, because in both of the last two recessions—1990-91 and 2001—job market problems far outlasted the GDP contraction.... The 1990-91 recession officially ended in March 1991, but unemployment kept rising for another fifteen months, until June 1992. That was also the birth of the jobless recovery, as employment growth stagnated over this same period. But that was nothing compared to the jobless recovery following the 2001 recession: between the official trough (recession end-date) and August 2003, we lost another 1.1 million jobs (in addition to the 1.7 million lost over the recession)....

[W]ill the pattern of the last two recessions show up in the next one? That’s unknowable, and we’ll keep our statistical eyes peeled for precisely this type of GDP up, jobs/incomes-down dynamic in coming quarters. At this point, many forecasters are calling for a relatively mild recession, but again, that’s ‘mild’ judged purely in GDP terms. Goldman Sachs analysts forecast unemployment climbing through 2009, hitting 6.5 percent by the last quarter. According to our calculations, based on the historical relationship between unemployment and middle-class incomes, an increase in joblessness of that magnitude would lower the real incomes of such families by $2,400 over 2008 and 2009.

So when it comes to an effective stimulus package, we want it early, but we’ll take it late.

Menzie Chinn on Fiscal Stimulus Issues

Menzie quotes Alan Auerbach downstairs:

Econbrowser: The Implications of a Textbook Analysis of Macro Stabilization via Discretionary Fiscal Policy: From Reuters:

If Bush and Congress are to act at all, they will have to move quickly to have any impact, says Alan Auerbach, an economics professor at the University of California, Berkeley, who has done research on the effects of fiscal stimulus. "Timing is extremely important," he says. "Recessions typically last less than a year, so unless you can be pretty quick, it's not worth doing."

And writes:

This quote highlights the key aspects of the textbook analysis of discretionary fiscal policy... the inside lag -- the time between recognition of a problem and action -- for monetary policy is short and the outside lag -- the time between action and the impact of the policy -- is long, while the reverse is true for discretionary monetary fiscal policy... discretionary fiscal policy requires legislative and executive branch concurrence and action, which might be prolonged in nature. In contrast, spending, and associated multiplier effects of spending, can usually be effected fairly rapidly.... This is why I think it makes a lot more sense to focus on re-calibrating automatic fiscal stabilizers already built into the system, rather than chunky, discretionary, changes to spending or taxes. Of course, this is not a unique view. For an enumeration of criteria (similar to those laid out by Elmendorf and Furman's primer), and a comprehensive set of proposals, see the Center for Budget and Policy Priority's analysis (by Chad Stone and Kris Cox)....

Evaluating Specific Stimulus Proposals: The following measures rank highly according to the criteria for good stimulus: Strengthened unemployment insurance.... State fiscal relief.... Uniform tax refunds.... Temporary increase in food stamp payments. Many low-income consumers are not tax filers and do not receive unemployment insurance. Hence, they would not qualify for a tax rebate or for extended UI benefits. Yet they experience particular hardship when the job market is weak and when states cut back on services. A temporary increase in food stamp benefit levels would provide helpful support to poor households and would almost certainly be spent very quickly. Dollar-for-dollar, this is one of the most effective forms of stimulus available.

One reason to favor temporary modifications to automatic stabilizers, as opposed to permanent changes in the tax code, is that the current full-employment budget balance is probably around negative one percentage point of GDP, and we are facing an expanding deficit in the future.... I also find some irony that the Administration that loudly professed fiscal restraint as a reason to kill off SCHIP expansion is now willing to consider all sorts of budget deficit increasing provisions (business incentives, extending tax reductions that make the tax code more regressive) that will enrich those at higher income levels. But that is a tale of ideology, rather than economics.

Economic Stimulus Plans: Why I Like Barack Obama's Slightly More

Paul Krugman praises John Edwards's and Hillary Rodham Clinton's proposed stimulus packages, and criticizes Barack Obama's. I think Paul has got this one wrong.

Bear in mind that I don't yet believe that the case for a fiscal stimulus is strong--although I may well change my mind in a month or two. Congress and the president have a role to play in stimulus only if monetary policy has shot its bolt--which it has not--or if unemployment is rising rapidly and it is important to get cash quickly into the hands of people who will spend it and so keep the rise in unemployment from being as large. We are not there yet--at least I don't think so--but we may be there in three months.

And from this perspective the Barack Obama plan looks pretty good to me: it cuts a lot of identical $250 checks to people many of whom would spend it, and so boost employment. The checks could be in people's hands by April.

By contrast, the John Edwards and Hillary Rodham Clinton plans--well, a $30 billion housing crisis fund... anti-urban blight programs... helping local housing authorities... mortgage moratoriums... heating assistance... $5 billion in energy credits to encourage purchases of low emission vehicles and efficient appliances... funds to train and put to work people making public buildings more energy efficient...

These are all worthy. But this is not a bill that can be passed quickly--the housing provisions, at least, are one of those things where the devil is in the details of the drafting and where quick, clean passage and implementation is almost impossible. The proposal is not Obama's: we are going to stimulate demand by cutting a lot of identical checks via a refundable tax credit--a thing that the government can do well and quickly. And this, I think, matters a lot. A stimulus bill is likely to become a lobbyist-pleasing Christmas tree, ineffective and destructive. Obama's plan seems to me to have the best chance of avoiding that fate--if he could sign Pelosi and Reid up to move a clean, focused bill.

John Edwards and Hillary Rodham Clinton might respond that these stimulus packages are political rather than policy documents--acts of campaigning rather than acts of governance--and they are right, up to a point.

New York Times Death Spiral Watch

In this morning's "humor" category, Robert Waldmann points out that David Brooks manages to get two of three names wrong in one sentence:

Robert's Stochastic thoughts: Two errors in One Sentence in the New York Times: Jonathan Zasloff notes

David Brooks [snip] comes up with this doozy:

All the habits of verbal thuggery that have long been used against critics of affirmative action, like Ward Churchill and Thomas Sowell, and critics of the radical feminism, like Christina Hoff Summers, are now being turned inward by the Democratic front-runners.

Ward Churchill? No, he's the nutcase University of Colorado professor who suggested that the victims of 9/11 were fascists. Brooks means to talk about Ward Connerly, the African-American businessman who sponsored Prop 209, California's anti-affirmative action initiative.

He neglects to mention that the critic of radical feminism is named Christina Hoff Sommers, as is shown by googling Christina Hoff Summers (that is of Germanic not Anglo Saxon ethnicity).

That's two errors in one sentence. No wonder the New York Times is our journal of record.

As Lady Bracknell does not say, "To get one name wrong in a sentence, Mr. Worthing, may be regarded as a misfortune; to get two names wrong looks like carelessness." Nobody on the New York Times editorial staff reads the thing for mindos. That tells us something: Why oh why can't we have a better press corps?

Speaking of Ward Connerly, and to add a little more levity to the morning, here is Ward Connerly's "God bless the Ku Klux Klan!" video:

Stimulus Packages: Edwards, Clinton, Obama

I think Paul Krugman has got this one wrong. He writes:

Responding to Recession - New York Times: John Edwards... driving his party’s policy agenda... has done it again on economic stimulus: last month, before the economic consensus turned as negative as it now has, he proposed a stimulus package including aid to unemployed workers, aid to cash-strapped state and local governments, public investment in alternative energy, and other measures. Last week Hillary Clinton offered a broadly similar but somewhat larger proposal. (It also includes aid to families having trouble paying heating bills, which seems like a clever way to put cash in the hands of people likely to spend it.) The Edwards and Clinton proposals both contain provisions for bigger stimulus if the economy worsens....

The Obama campaign’s initial response to the latest wave of bad economic news was, I’m sorry to say, disreputable: Mr. Obama’s top economic adviser claimed that the long-term tax-cut plan the candidate announced months ago is just what we need to keep the slump from “morphing into a drastic decline in consumer spending.” Hmm: claiming that the candidate is all-seeing, and that a tax cut originally proposed for other reasons is also a recession-fighting measure — doesn’t that sound familiar?

Bear in mind that I don't yet believe that the case for a fiscal stimulus is strong--although I may change my mind in a month or two, depending on how the data flow looks. The principal organization for successful stabilization policy is the Federal Reserve. Congress and the president have a role to play only in two situations: first, if monetary policy has shot its bolt and cannot do anything more--and we are far from that point--and second, if the Federal Reserve has been caught flat-footed in the wrong policy position, unemployment is rising rapidly, and it is important to get cash quickly into the hands of people who will spend it and so keep the rise in unemployment from being as large. We are not there yet--at least I don't think so--but we may be there in three months.

From this perspective Obama's plan looks pretty good:

Obama stimulus package emphasizes quick cash in hand: a $250 tax credit to 150 million workers to offset the payroll tax paid on the first $8,100 of earnings. He urged a further $250 tax credit per worker if employment declines three months in a row. He also would give a one-time, $250 payment to Social Security recipients who would not benefit from the tax credit, followed by another $250 payment if employment declines three months straight. The immediate relief would cost $45 billion, plus another $45 billion if the economy weakened...

The plan is clean: there is no place for lobbyists to hang ornaments on it--which means that quick passage is possible. The first $45 billion of checks could be cut and sent out with this April's tax refunds. It meets Elmendorf and Furman's requirements that a fiscal stimulus be timely and temporary. It does not do so well on "targeted"--it doesn't do a great job at making sure the money gets to people who will spend it and thus boost aggregate demand--but this is at least partly offset by its simplicity, which is indeed essential if we are going to get the timely and the temporary right.

John Edwards's and Hillary Rodham Clinton's plans look, to me, likely to be less effective. Consider Hillary Rodham Clinton's:

Talking Points Memo | Clinton offers economic stimulus plan: a $30 billion housing crisis fund to help states and localities deal with the fallout of foreclosures... ease the effects of vacant properties with anti-blight programs and helping local housing authorities buy and rent out vacant properties. Setting a 90-day moratorium on subprime mortgages of at least five years, or until housing lenders have converted mortgages into loans families can afford. The proposal also would increase the portfolio caps at Fannie Mae and Freddie Mac. Providing $25 billion in emergency energy assistance for families facing rising heating bills.... Providing $10 billion to extend unemployment insurance for those struggling to find work while supporting families. Providing $5 billion in energy efficiency by doing such things as giving tax credits to encourage purchases of low emission vehicles and efficient appliances windows and other clean technologies. She also proposes funds to train and put to work people making public buildings more energy efficient...

These are all worthy causes--things that the government should be spending more money on. But this is not a bill that can be passed quickly--the housing provisions, at least, are one of those things where the devil is in the details of the drafting and where quick, clean passage and implementation is almost impossible. Funds to train and put to work people making public buildings more energy efficient--well, those aren't timely. The proposal is not Obama's: we are going to stimulate demand by cutting a lot of identical checks via a refundable tax credit--a thing that the government can do well and quickly. And this, I think, matters a lot. As Stan Collender wrote last Thursday:

Christmas 2008 May Be Coming Early For Lobbyists | Capital Gains and Games: A tax lobbyist friend told me yesterday that he's gone into the economic stimulus business. In response to my inquiring look that begged for more information, he said that I'd be surprised how many industries and professions have tax reductions that they want in any economic stimulus package that is considered this year and are looking to him to come up with arguments that confirm they will, indeed, be stimulative. In other words, even though it hasn't yet been introduced, the economic stimulus that has become all the rage in Washington these days has already become a Christmas tree with everyone and anyone who has something they want to do trying to reframe that proposal in terms of its positive impact on the economy. In case anyone hasn't noticed, this includes the White House, with the president all but saying that the reason the economy may be slowing is because of uncertainty about whether the tax cuts enacted during his administration will be extended when they expire in 2010. None of this is suprising. Even though its chances of being enacted are small, an economic stimulus bill may be the only thing that actually moves through the legislative process this year. In lobbyist parlance: it may be the only train leaving the station in 2008. But no matter how good the messaging, loading up the bill with a variety of provisions is one of the things most likely to lead to its demise. It will be too big, too political, too expensive, and take far too long to debate and pass.

The best way to keep a stimulus bill from becoming a lobbyist-pleasing ineffective and destructive Christmas tree in which a lot of the money goes to people who won't spend it and a lot more to people who shouldn't get it is to keep the legislative vehicle simple and clean. Boosting employment in the short term by cutting a lot of identical checks by April if we need to is something congress and the IRS can do. And Obama's plan seems to me to have the best chance of doing that--if he can sign Pelosi and Reid up to move a clean, focused bill.

John Edwards and Hillary Rodham Clinton and their staffs--they don't seem to have grasped that governance is best when you ask congress to do things that are within its competence, and ask the administrative branch to do things that are within its competence. They might respond that these stimulus packages are political rather than policy documents--acts of campaigning rather than acts of governance--and they are right, up to a point.

New York Times Death Spiral Watch

New York Times ombudsman Clark Hoyt wins the prize as the worst and most craven ombudsman around--even worse than the Washington Post's Deborah Howell.

Outsourced to Spencer Ackerman:

toohotfortnr: How was I to know she was with the Russians, too?: Clark Hoyt finds Bill Kristol worthy of the New York Times op-ed page. First Hoyt pretends that the objection to Kristol is about him being an Iraq hawk rather than, say, Kristol's role as a GOP apparatchik. Then he and opinion editor Andrew Rosenthal really humiliate themselves.

On Fox News Sunday on June 25, 2006, Kristol said, “I think the attorney general has an absolute obligation to consider prosecution” of The New York Times for publishing an article that revealed a classified government program to sift the international banking transactions of thousands of Americans in a search for terrorists. ... Kristol refused to talk with me about this issue, or an earlier statement that The Times was “irredeemable,” or the reaction to his appointment — an odd stance for someone who presumably will want others to talk to him for his column.

Rosenthal said Kristol’s comment about prosecution bothered him. It was, Rosenthal said, “a heavy accusation that put him in a category other than a journalist.” But he said that Op-Ed columnists are not necessarily traditional journalists, and he did not think that “holding one opinion” should be the basis for selecting or rejecting a columnist.

Truly a liberal fascist is one who won't take his own side in a putsch.

Diseases Are Infectious!

Ezra Klein observes:

EzraKlein Archive | The American Prospect: MIKE HUCKABEE'S PLAN TO GIVE US ALL FLUS: Via Matt comes this exchange between Mike Huckabee adviser Jim Pinkerton and David Corn in which Pinkerton trots out an argument we're likely to see a lot of in the coming year, which is, Democrats are gonna give health care to immigrants!

Ugly stuff. As it happens, it's hard for me to imagine any Democrat proposing a health care plan that covers illegal immigrants, not because doing so would be bad policy from a public health perspective, but because they would be demagogued by Jim Pinkerton. So, instead, we'll continue to eat food handled by ill immigrants, ride buses with sick children, take change from sniffling cashiers, and generally cut off our stuffed noses to spite our angry faces. It's charming stuff. Meanwhile, it's a useful insight into the assumed contours of contemporary politics that Pinkerton thinks the fact that Huckabee won't give health care to illegal immigrants is more electorally powerful than the fact that he also won't give health care to Americans.

Yet another sign of the feckless corruption of centrist politics is that Jim Pinkerton's name is one of the two that "centrists" typically bring up as a "reasonable" conservative (the other is Ramesh Ponnuru).

Matthew Yglesias Dons the Scarf, the Goggles, the Hat, and Takes Up Position as Paul Krugman's Wingman

Matthew Yglesias directs highly effective suppression fire two seats to the right at the Atlantic Monthly:

Matthew Yglesias: The Goods: McMegan points to John Henke's compendium of quotes by Paul Krugman which is supposed to illustrate Megan's earlier contention that "Paul Krugman has predicted eight of the last none recessions under the Bush administration." If this is the best Henke's got, then he really doesn't have the goods. Henke has nine quotations. Three of them are recent enough that they seem to me to be predicting the economic slowdown that is now widely believed to be underway (see, e.g., Ben Bernanke and other Republicans who obviously aren't grinding anti-Bush axes).

Krugman's May 2005 prediction that we were nearing the end of a speculative bubble in the housing market, similarly, looks really good in retrospect -- prices were about flat throughout 2006, and are now headed downward. Again, in April 2005 Krugman said "rising inflation in an economy still well short of full employment - has already arrived" and, indeed, it had; the inflation rate was rising and the employment-population ration remained quite a bit lower than it had been in the late 1990s. With five out of nine correct forecasts, this Krugman guy is looking pretty smart.

Similarly, Henke wants to mock the April 2004 observation that "An oil-driven recession does not look at all far-fetched" but it would be worth reading the actual column to see what Krugman's talking about:

Could an oil shock actually lead to 1970's-style stagflation — a combination of inflation and rising unemployment? Well, there are several comfort factors, reasons we're less vulnerable now than a generation ago. Despite the rise of the S.U.V., the U.S. consumes only about half as much oil per dollar of real G.D.P. as it did in 1973. Also, in the 1970's the economy was already primed for inflation: given the prevalence of cost-of-living adjustments in labor contracts and the experience of past inflation, oil price increases rapidly fed into a wage-price spiral. That's less likely to happen today.

Still, if there is a major supply disruption, the world will have to get by with less oil, and the only way that can happen in the short run is if there is a world economic slowdown. An oil-driven recession does not look at all far-fetched.

In context, that's a not-especially-alarmist warning that I think looks fine in retrospect. The others look a bit better for Henke. But Krugman's track record looks pretty good, even in the context of a series of quotes cherry-picked to make him look bad.

I find the endless array of complaints people pretend to have with Krugman's work fascinating. Krugman is an effective and high-profile advocate for progressive politics. Lots of people want progressive politics to fail. Therefore, they don't like Krugman's columns. That's not so hard to say! But nobody seems willing to say it. Instead, you get a lot of bizarre tut-tutting as if I were to fret that Charles Krauthammer should really write more serious psychology columns or something.

Tyler Cowen Learns Four New Things

Tyler Cowen is the Shiva Nataraja of economists--eight arms at least, and always unwilling to say that issues are settled for certain for there is always an "on the other hand." He says he has learned four new and surprising things:

So We Thought. But Then Again: Here are a few of the things we learned in the last 12 months:

REVISING THE CHINESE ECONOMY Many of the prices in China had not been accurately measured since the late 1980s; in 2007, new data indicated that food, rent and other items had become a lot more expensive than had been accounted for in official measurements. Higher prices, of course, mean lower Chinese real wages and a smaller size for the Chinese real economy.... China has 300 million workers — about the size of the entire United States population — earning less than a dollar a day....

IT’S NOT JUST THE LENDERS There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications.... Many of the frauds were simple rather than ingenious.... Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation....

IN MUSIC, HARDWARE RULES In 2007, album sales fell 15.3 percent.... Even if sales of 10 singles are counted as one album, sales were still down 9.5 percent. Economists... thought that greater exposure to music and the ease of online access might lead people to buy more. But in 2007 the outcome became clear: people tend to buy their favorite song from an album, online, rather than buy the whole album.... When it comes to piracy, illegal file-sharing on computer networks is not the main problem; instead, computer users, especially teenagers, burn CDs for one another. The music companies don’t have a good business model for making money from this...

LETHAL COLD FRONTS Spells of extreme cold kill over 27,000 Americans each year.... [D]ays with an average temperature below 30 degrees... have more significant and longer-lasting effects on human mortality.... Extreme cold brings cardiovascular stress.... Heat waves tend to kill people who were already weakened and would have died soon anyway; cold periods bring additional people to the verge of death.... 8 to 15 percent of the increase in American life expectancy over the last 30 years comes from people moving to warmer climates, according to research done by two economics professors, Olivier Deschenes at the University of California, Santa Barbara, and Enrico Moretti, at the University of California, Berkeley....

Many major debates of economics remain unsettled.... Knowledge is a wonderful thing, but sometimes simply knowing what we don’t know is a form of understanding. So beware the one-armed economist; sometimes a good economist could use two or even three arms or more.

I think only three of these are new and surprising--"it's not just the lenders" seems to me to be mischaracterized, and not to carry the implications Tyler wishes us to drawn from it.

New York Times Death Spiral Watch

Why oh why can't we have a better press corps? Outsourced to Yves Smith:

naked capitalism: Ben Stein and the Slapstick Approach to Economics: Today, Ben Stein... [says] the central bank, like the celluloid comics, keep hitting the wrong person on the head. According to Stein, the Fed is unduly preoccupied with inflation and it should instead engage in "highly stimulative measures." Aside: I'd be careful about accusing the Fed of acting like the Three Stooges. Sounds like projection to me. As I have said before, there is typically so much wrong in a Stein column that I could write a near-thesis dissecting it.... So I'll limit myself....

First, Stein cavils that the Fed is "behind the curve." Yet it was Stein himself who said on October 21 in "The Gloomsayers Should Look Up": "The economy is basically in fine shape. Not perfect, but darned good. Almost all mortgages are not in default. Almost all workers in the labor force who care to work are not unemployed. The largest percentage ever of American household units, what were called “families” in the old days, own their own homes.... Newspapers (which often sell on fear, not on fact) talk frequently about a mortgage freeze. However, for all but the least qualified buyers, mortgage money is plentiful, and in fact the potential borrower is bombarded with offers. Hotels and airplanes are full. Casinos in Las Vegas are jam-packed. There is still a long waiting list for Bentleys in Beverly Hills...."

This was a mere three weeks before the December FOMC meeting. I don't watch CNBC, so I can't be certain, but I sincerely doubt Stein recanted before the Fed's last rate action.

Second, Stein tells us that the inflation that the monetary authorities are so worried about is really all due to oil, directly and indirectly. He claims that food inflation is the result of ethanol subsidies driving up the price of corn. Guess Stein hasn't looked at any other commodities prices... ethanol is hardly the biggest culprit in agricultural inflation.... And he blithely ignores... the fall of the dollar...

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

Mark Kleiman is embarrassed by Slate:

The Reality-Based Community: Shorter Steven Landsburg: If Mike Huckabee had proposed a completely different tax plan that has one point of similarity with the idiotic, doesn't-add-up, Scientologist-designed "FairTax" plan he actually proposed, then that completely different plan might be a good idea. So it is unfair to criticize him for offering the plan he actually offered.

As a sorta-kinda economist myself, I deeply resent the fact that many Slate readers probably think that Landsburg's stuff represents the way actual economists think, rather than being more finger exercises in vaguely economic reasoning: sometimes amusing, often disgustingly heartless and wrong-headed, never intellectually or morally serious.

Dodging the Question

Anchor: What will Ben Bernanke do in January? What should he do?

20071208_delong_micro.jpg DeLong: I think the FOMC will cut the FF rate by 50 basis points this month. Whether they will, and what they should do--well, Ben Bernanke is smarter than I am and thinks about this 24/7 which I do not. He leads a superb committee. He is backed by the best monetary policy technical economic staff on the world. If I disagree with Ben's FOMC on an issue of monetary policy, I am probably wrong.

Bank of America Is Brave

Well, well. Bank of America to buy Countrywide this morning. That's pretty brave of them.

We wish them luck, and hope that there are no really unpleasant surprises left in the box.

Retailers Had Weak Sales in December

Anne D'Innocenzio of AP:

The Associated Press: Retailers Had Weak Sales in December: NEW YORK (AP) — An already weak holiday shopping season turned out to be even worse than expected for many of the nation's retailers, who reported Thursday they had disappointing sales results for December. The poor performance raised more concerns about consumer spending, and in turn, the health of the economy. The weak results came from across all retail categories, and prompted many stores to lower their fourth-quarter earnings forecasts. Particularly hard hit were apparel sellers including Limited Brands Inc. and AnnTaylor Stores Corp., as well as department stores including Macy's Inc. Among the few bright spots was Wal-Mart Stores Inc., which posted results that exceeded Wall Street expectations, as it benefited from shoppers trading down to cheaper stores amid higher gas prices and a slumping housing market.

"It's weaker than expected," said Jharonne Martis, a retail analyst at Thomson Financial. "There's definitely a consumer spending slowdown." But she added that she's waiting to see how sales fare in January, when stores benefit from consumers redeeming their gift cards. Retailers don't record sales of gift cards until they are redeemed. According to a preliminary sales tally by Thomson Financial, 19 retailers missed December projections, while nine beat forecasts and one met expectations. The tally is based on same-store sales, or sales at stores open at least a year, considered a key indicator of a retailer's health.

A number of chains, including Macy's, saw their sales depressed in December in part by a quirk in the calendar, which pushed the post-Thanksgiving shopping week into November rather than December. Analysts say it is best to look at the combined November-December figures to get a better picture. Still, it was clear that the slowing economy made shoppers frugal during the holiday shopping season. A big worry is the weakening of the job market,which had helped prop up spending for most of 2007. On Friday, the Labor Department's jobs report showed that hiring practically stalled in December, driving the nation's unemployment rate up to a two-year high of 5 percent.

Wal-Mart, the world's largest retailer, posted a 2.4 percent increase in same-store sales, exceeding the 1.8 percent forecast of analysts polled by Thomson Financial. But the discounter said that its fourth-quarter results will be "pressured by higher interest expense" compared to last year. Costco Wholesale Corp. reported a 7 percent increase in same-store sales, better than the 5.6 percent estimate. Macy's posted a 7.9 percent drop in same-store sales, worse than the 6.5 percent decline anticipated. For the November-December period combined, Macy's same-store sales were down 1.1 percent. Upscale department store retailer Nordstrom Inc. reported that same-store sales fell 4 percent, slightly beating expectations for a 4.2 percent decline. Limited posted a 8 percent drop in same-store sales, worse than the 4 percent Wall Street expected. Based on weak sales, it said it is likely that fourth-quarter earnings will fall toward the low-to-midpoint of its previously announced projections. AnnTaylor posted a 9.4 percent decline in same-store sales, much larger than the 1.9 percent drop analysts were expecting. It cut its fourth-quarter earnings estimates...

links for 2008-01-11

James Fallows Is a Full Cult Member

The Cult of Mac has him--and Kenneth Rhee--in its grasp. Resistance is futile:

James Fallows: No political content! #1: Back to the Mac? The message below is from my "friend" -- never met him, but corresponded for years -- Kenneth Rhee of Northern Kentucky University. We made contact long ago via a support forum for the nonpareil info-handling program Zoot. Zoot is Windows-only, so Rhee, like me, has done his main work on PCs.

Recently he made The Change -- after wrestling with a new ThinkPad that came with Windows Vista pre-installed. This week Rhee submitted the following report on the the Zoot forum, plus some passages from a followup email to me:

I switched over to the Mac last year after getting a bit frustrated with Vista (I still run Vista in my Thinkpad on a rare occasion if I want to get "frustrated-little joke here but it seems to happen every time I use it these days).

My experience goes something like this. I wanted to use a few Mac programs and bought a MacBook thinking that I'll probably use it 10-15% of my time. After a month, I noticed that I was using my Mac 85-90% of the time, and having more fun using it rather than getting more frustrated fixing things or waiting for things to happen. So, I switched over completely and bought a new MacBook Pro with Leopard to replace my Thinkpad and haven't looked back.

I also run Fusion with Windows XP in my Mac on those occasions I need 100% compatibility. The irony is Windows XP in my MacBook Pro (2.2G) with 1 G of RAM starts/shuts down and runs much faster than my Thinkpad (2.3G) with 2G of RAM with Vista. In fact, my initial MacBook (2.16G with 2G of RAM) runs circles around my Thinkpad, it's not even funny.

Perhaps if I had gotten my Thinkpad with XP, I might not have completely switched over, but I guess it was a lucky break for me that I didn't.

...Just the other day I had my MacBook Pro packed for a trip, and I had to do something quick at the last minute before we departed, and I turned on my hibernated (not sleep mode) Thinkpad check on one email quickly.

Believe or not it took the Vista laptop 5 minutes to wake up and restore for me to get the work. My MacBook Pro boots cold much faster than this! In the meantime, my wife was waiting for me to come down from my study and getting anxious

I don't want to tip my hand about what future installments of this series might disclose, but: I too have a new ThinkPad with Vista installed. I too find that it takes between three and five-plus minutes for that computer to become usable when coming out of hibernation. And I too have noticed that the new Intel-based Macs can be made to run the Windows programs I really care about, like Zoot. Hmmmmm. Stay tuned.

I could hardly live without Zoot, but it's an acquired taste. A new version is now near the end of its beta cycle. I recommend it, as I have for more than a decade, but if you try the free download, be prepared to spend a little time getting to know the program.

Ben Bernanke: I'm Warming Up the Helicopter!

The Fed Chair's talk today, January 10, 2008:

Ben Bernanke: Fortunately, after a number of years of strong earnings, most financial institutions entered the current episode in good financial condition. Thus, notwithstanding the effects of multi-billion dollar write-downs on the earnings and share prices of some large institutions, the banking system remains sound. Nevertheless, the market strains have been serious, and they continue to pose risks to the broader economy. The Federal Reserve accordingly has taken a number of steps... [along] two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy....

[O]n August 17, the Federal Reserve Board cut the discount rate--the rate at which it lends directly to banks--by 50 basis points, or 1/2 percentage point, and it has since maintained the spread between the federal funds rate and the discount rate at 50 basis points... facilitate the provision of discount window financing for as long as thirty days, renewable at the request of the borrower. Loans through the discount window differ from conventional open market operations... the loans can be made directly to individual banks... against a much wider range of collateral....

However... the discount window has... drawbacks... banks may be reluctant to use the window, fearing that markets will draw adverse inferences about their financial condition.... Second, to maintain the federal funds rate near its target, the Federal Reserve System’s open market desk must take into account the fact that loans through the discount window add reserves... the amounts that banks choose to borrow at the discount window can be difficult to predict, complicating the management of the federal funds rate....

To address the limitations of the discount window, the Federal Reserve recently introduced a term auction facility, or TAF, through which prespecified amounts of discount window credit can be auctioned... to provide a tool that could more effectively address the problems currently affecting the interbank lending market without complicating the administration of reserves and the federal funds rate.... [I]t appears that the TAF may have overcome the two drawbacks of the discount window.... The TAF may thus become a useful permanent addition to the Fed’s toolbox. TAF auctions will continue as long as necessary to address elevated pressures in short-term funding markets....

Although the TAF and other liquidity-related actions appear to have had some positive effects, such measures alone cannot fully address fundamental concerns about credit quality and valuation, nor do these actions relax the balance sheet constraints on financial institutions. Hence, they cannot eliminate the financial restraints affecting the broader economy....

Recently, however, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced.... Adverse economic or financial news has the potential to increase financial strains and to lead to further constraints on the supply of credit to households and businesses.... Thus far, inflation expectations appear to have remained reasonably well anchored.... However, any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank’s policy flexibility....

[W]e have brought the funds rate down by a percentage point from its level just before financial strains emerged. The Federal Reserve took these actions to help offset the restraint imposed by the tightening of credit conditions and the weakening of the housing market. However, in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary... we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks... the Committee must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability.