Previous month:
February 2008
Next month:
April 2008

March 2008

P. Z. Myers Has a Quibble with the Excellent "Inner Life of a Cell" Video

It has aroused his ire. From P.Z. Myers:

Pharyngula: Buffeted by the winds of chance: why a cell is like a casino: This is what bugs me about the "Inner Life of a Cell" video. They're portraying the behavior of single molecules, and the movie has them dancing a slow waltz, steadily moving through fixed patterns. It should look more like a mosh pit filled with meth addicts; real chemistry doesn't direct single molecules, it shifts overall equilibria so that the random activity of single cells has certain probabilities of throwing them off a thermodynamic cliff into a new state. Those kinesin "feet" [on the motor transporter molecule] should have been pitter-pattering all over the place, occasionally falling into a more stable position that led them in a particular direction -- what was needed was a portrayal of a hyperkinetic ratchet. Anyone who uses a microscope or looks at the activity of small numbers of molecules or studies thermodynamics and reaction equilibria (like, say, a chemist or biochemist) ought to be familiar with the stochastic properties of the world on such a small scale.

The closest example on a macro scale that I can think of is a casino. People go in and out of a casino, and they engage in many small probabilistic events. Some people win big, some lose big, and all states in between are represented... but the house always has its small, advantageous odds in its favor. They don't shake down the crowd deterministically and demand a cut from each, instead what they have done is basically tipped the the reaction equilibrium gently to favor the transfer from one state -- your pocket -- to another state -- their bank. From the aggregate kinetics of a great many transactions with only a tiny edge in one way, they have constructed a powerful and reliable siphon hose to draw off your money. (I suspect that's also one, perhaps unconscious, reason why gambling establishments are fanatical about keeping out people with even a hint of a successful gambling system; it doesn't take much of a shift in the percentages to reverse the flow in their money siphon.)

If you watch single individuals in the casino, rather than the rising total profits for the whole institution, you wouldn't see a smooth and steady drain of money, though. Over long periods of time the trend would appear, but moment-by-moment? No. You'd see a herky-jerky random pattern of wins and losses.

And that's what I would want to see portrayed in my ideal version of an animation of the chemistry inside a cell: not a ballet, a jostling mob on an uneven floor. Show me more noise and chaos.

Lazy Easter Sunday Blogging

The first of the three copies of Rick Perlstein's Before the Storm that I had loaned out comes back: from Tom Kalil, who wants a reputation as the kind of man who returns books...

Sunday Easter afternoon in Tom Kalil and Maryanne McCormack's backyard: 81F...

Meanwhile, in central Maine the judging of the Easter ice sculpture contest begins...

Morning Coffee: Free vs. Fair Trade

March 07, 2008 Free Trade and Fair Trade: SIEPR 2008 Economic Summit Conference

J. Bradford DeLong

The question of "free" versus "fair" trade, has three baskets: an environmental regulation basket, a labor-standards and freedom basket, and a "wages basket."

The first two can, I think, be disposed of quickly. We don't want those able to bribe governments in other countries to poison people or the globe by turning other countries into pollution havens. We don't want environmental standards to be used to freeze the world distribution of wealth and keep people in other countries hungry, illiterate, and barefoot. The difficulties that remain are those of implementation.

Similarly, we want expanding trade to be a force for opportunity rather than for oppression: we like it when expanded trade gives ordinary people a path to a better life; we don't like it when expanded trade gives rich and powerful people in the cloud city of Stratos an incentive to round others up and put them to work in the xenite mines. As then-Principal Deputy IMF Managing Director Stanley Fischer warned the great and good at the 2000 Federal Reserve Bank of Kansas City's Jackson Hole Conference, there is nothing in the ILO's principles that we cannot and very little that we should not be eager to endorse, all of us. The difficulties that remain are, once again, those of implementation.

The question of trade and wages remains: To what extent are rich countries obligated to open their markets to poor countries when the consequence is falling wages for the poor in the rich--bearing in mind that the poor in the rich are often wealthier and have more opporunity than the rich in the poor? To what extent do rich countries do themselves well--serve their national interest--by opening their markets to poor countries even when the consequence is falling wages for the poor in the rich?

Let me make four remarks on this "trade and wages" basket:

First, between 1950 and 1997 trade and wages weren't an issue: our foreign trading partners raised their own relative wage levels at least as fast as globalization enhanced their influence, and there was no net effect of trade on wages--no link from greater openness to the global economy to greater inequality here at home.

Second, at times between 1950 and 1997 trade and wages became a political issue as a way of distracting attention from true problems. The voters of Michigan in 1985 did not want to hear that the problems of Michigan's manufacturing industries were home-grown--in the fecklessness of management and in the Reagan administration's budget deficits that pushed up interest rates which pushed up the value of the dollar and made the goods they made uncompetitive on world markets. They wanted, instead, to hear that the Japanese were doing something clever and illegitimate.

Third: since 1997 or so the link between expanded imports and wage inequality has become real, as our imports now embody a much larger amount of factors competing with our own lesser-skilled than they used to. How large? I don't think we know. Paul Krugman is now writing a paper for the Brookings Institution in which he essentially throws up his hands at the question. But there are two points worth noting: (a) the effects of trade on pre-tax wage inequality are much smaller than the effects over the past generation of changes in the tax system on after-tax income inequality; (b) the effects of trade on inequality of opportunity are much less than the effects of educational inequities on inequality of opportunity.

Fourth, to the extent that we in the United States begin thinking of trade restrictions as a way to fight inequality, we are setting ourselves up for extraordinary trouble late in this century--extraordinary damage to our long-run national security.

Think of it this way: Consider a world that contains one country that is a true superpower. It is preeminent--economically, technologically, politically, culturally, and militarily. But it lies at the east edge of a vast ocean. And across the ocean is another country--a country with more resources in the long-run, a country that looks likely to in the end supplant the current superpower. What should the superpower's long-run national security strategy be?

I think the answer is clear: if possible, the current superpower should embrace its possible successor. It should bind it as closely as possible with ties of blood, commerce, and culture--so that should the emerging superpower come to its full strength, it will to as great an extent possible share the world view of and regard itself as part of the same civilization as its predecessor: Romans to their Greeks.

In 1877, the rising superpower to the west across the ocean was the United States. The preeminent superpower was Britain. Today the preeminent superpower is the United States. The rising superpower to the west across the ocean is China. that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China.

Throughout the twentieth century it has been greatly to Britain's economic benefit that America has regarded it as a trading partner--a source of opportunities--rather than a politico-military-industrial competitor to be isolated and squashed. And in 1917 and again in 1941 it was to Britain's immeasurable benefit--its veruy soul was on the line--that America regarded it as a friend and an ally rather than as a competitor and an enemy. A world run by those whom de Gaulle called les Anglo-Saxons is a much more comfortable world for Britain than the other possibility--the world in which Europe were run by Adolf Hitler's Saxon-Saxons.

There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security, nothing more destructive to America's future prosperity, than for Chinese schoolchildren to be taught in 2047 and 2071 and in the years after 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

And let me stop there.

2008 SIEPR Economic Summit: Critical Issue Sessions and Panelists:

March 7: 4:30-5:45pm: Session II: Is Free Trade Fair Trade? * Moderator: Dixon Doll, SIEPR Board member * Brad DeLong, Professor of Economics, University of California, Berkeley * Alan Taylor, Professor of Economics, University of California, Davis * David Dollar, Country Director, China and Mongolia, World Bank

Frances C. Arrillaga Alumni Center, 326 Galvez St., Stanford Campus

If Our Media Covered Judea in the Year 33...

I laughed when I got this:

I just read the Politico story. Ugh. I'm trying to imagine coverage of other world events:

Just as the followers of Jesus of Nazareth were hoping to put his conviction for treason and ignominious execution behind them, his disappearance from his tomb and periodic appearances to startled citizens threaten to thrust the embattled spiritual leader back into the spotlight.

His followers -- those who would comment at all -- expressed frustration with his latest antics. Some disputed the reliability and even mental stability of the main witness of his possible appearances, Miriam from Magdala. Others were little more optimistic: "The main reaction is 'Why? Why now?’" said one anonymous disciple. "It's just another day off message." Another said: "I'd rather Jesus showed a little more concern for his flock and a little less taste for theatrics." Few of his followers rushed to embrace their Risen Lord. This was true even of the inner circle of twelve disciples, now eleven after the mysterious and unexplained death of Judas the Dagger-Man.

Despite frequent pleas by reporters to address the issue on the record, John, the disciple Jesus loved, declined to comment at all.

Simon -- whom Jesus had earlier in a secretive and undignified ceremony renamed "Rock" and given the "keys to his kingdom" -- could not be reached on the issue of Jesus' alleged resurrection: his voice was drowned out by the repeated crowing of roosters. "Small loss" said an insider close to High Priest Caiaphas. "Why are reporters trying to quote Simon at all? We know he thrice denied in front of witnesses that knew Jesus at all. If Simon is now once again claiming Jesus as his Lord, he is nothing but a flip-flopper. Hardly a rock of faith."

Didymus Thomas was the only official disciple who would go on the record to journalists. He said that he gave the rumors of resurrection no credence at all: "Except I shall see in his hands the print of the nails," he said, "and put my finger into the print of the nails, and thrust my hand into his side, I will not believe."

Saul of Tarsus advised Jesus' opponents to cast him as an elitist. He urged rival religious leaders to respond like this:

Jesus should stop condescending to his fellow citizens. We don't need traitors to show us how to, quote, escape the dominion of sin and death, unquote, or to pretend to be superior to the rest of us mere mortals by rising from the dead.

During a brief sketching opportunity in the Antonia Fortress, Procurator of Judea Pontius Pilate assured reporters of his complete loyalty and total subservience to our current Emperor Tiberius Caesar, and showed reporters but would not distribute a legal opinion, from the Rome law firm of Scipio, Cicero, Sulla, and Yoo, stating that arbitrary arrest, scourging, crowning with thorns, and crucifixion of a guiltless God-man were well within the imperium powers of a procurator -- being derived as they were from the proconsular imperium and the maiestas of Caesar Augustus Divi Filius himself. Questions about the applicability of the Helvetic Conventions were rebutted by a spokeman who pointed out that Gaius Julius Caesar, adoptive father of the adoptive father of our current Emperor, had destroyed and enslaved the Helvetii.

Not quoted in the mainstream media accounts were others with more substantive and less spin-centric takes on Easter. Bob Somerby returned from a lenghy desert claiming to have spoken to the Paraclete, who had defended Jesus: "This is bigger than Peter's pew numbers", Somerby said the Paraclete had cooed. It also agreed that the mainstream media had never given Al Gore a fair shake.

Glenn Greenwald climbed Mt. Sinai and claims to have spoken to the Bush:

Jesus made himself of no reputation, and took upon him the form of a servant, and was made in the likeness of men...

Greenwald reported that the Star-Maker had said:

And being found in fashion as a man," YHWH went on, "Jesus humbled himself, and became obedient unto death, even the death of the cross. Wherefore I have highly exalted him, and given him the name which is above every name: That at the name of Jesus every knee should bow, of things in heaven, and things in earth, and things under the earth; And that every tongue should confess that Jesus Christ is Lord, to my glory...

links for 2008-03-23

Robert Reich on Moral Hazard

He writes:

Robert Reich's Blog: Moral Hazard Redux: One day while sitting on a beach last summer I overheard a father tussle with his young son about whether the child was old enough to take out a small sailboat. The father finally relented. "Go ahead, but I'm not gonna save you," he said, picking up his newspaper. A while later, the sailboat tipped over and the child began yelling for help, but father didn't budge. When the kid sounded desperate I put down my book, walked over to the man, and delicately told him his son was in trouble. "That's okay," he said. "That boy's gonna learn a lesson he''ll never forget." I walked down the beach to notify a lifeguard, who promptly went into action.

Letting children bear the consequences of their risky behavior -- what some parents call "tough love" -- is equally applicable adults, and conservatives have made something of a fetish out of it. A few weeks ago, as George W. announced a paltry plan to help out a few of the millions of homeowners who got caught in the sub-prime loan mess, he reiterated the credo: "It's not government's job to bail out ... those who made the decision to buy a home they knew they could not afford."

It's true that people tend to be less cautious when they know they'll be bailed out. Economists call this "moral hazard." But even when they're being reasonably careful, people cannot always assess risks accurately. Many of the mostly poor home buyers who got into trouble did NOT in fact know they couldn't afford the mortgage payments they were signing on to. The banks and mortgage lenders that pulled out all the stops to persuade them to the contrary were in a far better position to know....

When it comes to risky behavior in the market, America has a double standard. We're told that economic risk-taking as the key to entrepreneurial success, but when big entrepreneurs take big risks that fail it's amazing how often they get bailed out. Indeed, the history of modern American business is littered with federal bailouts, loan guarantees, and no-questions-asked reorganizations. Some are well known, such as the Chrylser bailout of 1979, the savings and loan bailout of 1989, and the airline bailout of 2001. Most occur in the relative dark, such as the 1998 bailout of giant hedge fund Long-Term Capital Management (courtesy of former Fed chair Alan Greenspan), the not infrequent bailouts of under-funded corporate pension plans by the government's Pension Benefit Guarantee Corporation, price supports for big agribusinesses facing market downturns, or the current bailout of Wall Street being engineered by Ben Bernanke's Fed....

Some CEOs use bankruptcy as a means of getting out from under pesky labor contracts they might have "known they could not afford" when they agreed to them (Northwest Airlines most recently, for example). Others use it as a cushion against bad bets. Donald ("you're fired!") Trump%u2019s casino empire has gone into bankruptcy twice -- most recently, last November, when it listed $1.3 billion of liabilities and $1.5 million of assets -- with no apparent diminution of the Donald's passion for risky, if not foolish, endeavor. After all, his personal fortune is protected behind a wall of limited liability, and he collects a nice salary from his casinos regardless. But if you're an ordinary person who has fallen on hard times, just try declaring bankruptcy to wipe the slate clean. A new law governing personal bankruptcy makes that route harder than ever. Its sponsors argued -- you guessed it -- moral hazard.

Bush's "ownership society" has proven a cruel farce for poor people who tried to become home owners, and his minuscule response to their plight just another example of how conservatives use moral hazard to push their social-Darwinist morality. The little guys get tough love. The big guys get forgiveness.

John Cole: What I Was Wrong About

John Cole writes:

Balloon Juice: I see that Andrew Sullivan was asked to list what he got wrong about Iraq for the five year anniversary of the invasion, and since I was as big a war booster as anyone, I thought I would list what I got wrong:


And I don't say that to provide people with an easy way to beat up on me, but I do sort of have to face facts. I was wrong about everything.

I was wrong about the Doctrine of Pre-emptive warfare.
I was wrong about Iraq possessing WMD.
I was wrong about Scott Ritter and the inspections.
I was wrong about the UN involvement in weapons inspections.
I was wrong about the containment sanctions.
I was wrong about the broader impact of the war on the Middle East.
I was wrong about this making us more safe.
I was wrong about the number of troops needed to stabilize Iraq.
I was wrong when I stated this administration had a clear plan for the aftermath.
I was wrong about securing the ammunition dumps.
I was wrong about the ease of bringing democracy to the Middle East.
I was wrong about dissolving the Iraqi army.
I was wrong about the looting being unimportant.
I was wrong that Bush/Cheney were competent.
I was wrong that we would be greeted as liberators.
I was wrong to make fun of the anti-war protestors.
I was wrong not to trust the dirty smelly hippies.

I mean, I could go down the list and continue on, but you get the point. I was wrong about EVERY. GOD. DAMNED. THING. It is amazing I could tie my shoes in 2001-2004. If you took all the wrongness I generated, put it together and compacted it and processed it, there would be enough concentrated stupid to fuel three hundred years of Weekly Standard journals. I am not sure how I snapped out of it, but I think Abu Ghraib and the negative impact of the insurgency did sober me up a bit.

War should always be an absolute last resort, not just another option. I will never make the same mistakes again.

Anne-Marie Slaughter vs. Jim Henley on the War in Iraq: "War is a big deal. It isn't normal. It's not something to take up casually"

I score this debate for Henley, 10,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000-0.

Anne-Marie Slaughter:

Stop Gotcha Politics on Iraq: [Tom] Hayden's post and many other commentaries surrounding the fifth anniversary of the invasion are a microcosm of the problem with our Iraq policy as a whole. The debate is still far too much about who was right and who was wrong on the initial invasion and far too little about how, in Obama's formulation, to be as careful getting out of Iraq as we were careless getting in. That does not mean that those of us who were wrong about Iraq -- with whatever nuances, explanations, and justifications we might care to offer -- do not have a great deal to answer for. We do. But it does mean that until we can fix the mess we are in, everyone who cares about what happens both to our troops and to the Iraqi people should force themselves to face up to the hard issues on the ground rather than indulging in the easy game of gotcha.

I'll start by offering a metric for how to assess any candidate -- and any expert's -- plan for Iraq. The test for the best policy should be the one that is most likely to bring the most troops home in the shortest time (to stop American casualties, begin repairing our military, and be able to redeploy badly needed military assets to Afghanistan), while also achieving the most progress on the goals that the administration stated publicly as a justification for invading in the first place: 1) ensuring that the Iraqi government could not develop nuclear or biological weapons of mass destruction (done); 2) weaken terrorist groups seeking to attack us (this goal was based on false premises then, but is highly relevant now); 3) improve the human rights of the Iraqi people; and 4) establish a government in Iraq that could help stabilize and liberalize the Middle East. No policy can possibly achieve all of those goals. But the policy that offers the best chance on all five measures is the policy we should follow, in my view. And applying those measures to concrete policy proposals is the debate we should be having.

Jim Henley:

How I Got It Right: Looking Back at a Time of Justified Opposition to a Mad, Violent Enterprise: So many publications have expressed such overwhelming interest in the perspectives of those of us who opposed the Iraq War... that I have had to permit mutliple publication of this article in most of the nation's elite media venues - collecting, I am almost embarrassed to admit, a separate fee from each. Everyone recognizes that the opinions of those of us who were right about Iraq then are crucial to formulating sane, just policy now. It's a lot of pressure, so please forgive anything glib or short you read herein: between articles, interviews, think-tank panels and presentations before government agencies and policy organs I'm not permitted to mention, I'm a little frazzled.

On the bright side, and I can confirm that my experience has been similar to those of my fellow prophets, being the object of so much attention, being repeatedly quizzed by eager interlocutors on the same basic points, encourages one to distill one's thinking to its essence... the essential question: "What the f--- was so special about me, anyway?" Why did I have the sense to oppose the US conquest of Iraq when so many of our great and good supported it? Sometimes I think the other question is almost more interesting: What the fuck were those other people thinking? Alas, answers to that one are hard to come by, since understandable shame has closed many mouths. So my own side of the story will have to suffice. Why was I right and you, if you were a powerful politician or respected pundit in 2002-2003, wrong? Some guesses follow.

  1. I'm really very bright.... I'm certainly smarter than the President, or Doug Feith, or Joe Klein. I am seventeen times as smart as Senator Joseph Lieberman. I am twenty-five hundred percent brighter than GOP Presidential Candidate John McCain.... Distressingly, there's no practical program for improvement there.... Doug Feith can't go back in time and be born to other people. But... [y]ou didn't have to be all that bright to oppose the Iraq War in advance. Heck, polls suggest that most Americans were dubious about the idea until the war became obviously inevitable. Real enthusiasm was confined to the elite media, the bipartisan defense-policy establishment and a bunch of Republican quasi-intellectuals who had spent ten years casting about for different countries to have a war - any war - with. I mean, for crying out loud, at one point our rulers declared that Saddam Hussein might attack America with remote-controlled model planes....

  2. I wasn't born yesterday. I had heard of the Middle East before September 12, 2001. I knew that many of the loudest advocates for war with Iraq were so-called national-greatness conservatives who spent the 1990s arguing that war was good for the soul.... People without much knowledge on the subject went looking for someone to soothe a very real hurt they felt in September 2001, and the first people they ran into were raving, nationalistic morons with a preexisting agenda, clustered around the Wall Street Journal and the Weekly Standard.

  3. Libertarianism. As a libertarian, I was primed to react skeptically to official pronouncements. "Hayek doesn't stop at the water's edge!"... I could tell the difference between the government and the country. People who couldn't make this distinction could not rationally cope with the idea that American foreign policy was the largest driver of anti-American terrorism because it sounded to them too much like "The American people deserve to be victims of terrorism." I could see the self-interest of the officials pushing for war - how war would benefit their political party, their department within the government, enhance their own status at the expense of rivals. Libertarianism made it clear how absurd the idealistic case was. Supposedly, wise, firm and just American guidance would usher Iraq into a new era of liberalism and comity. But none of that was going to work unless real American officials embedded in American political institutions were unusually selfless and astute, with a lofty and omniscient devotion to Iraqi welfare. And, you know, they weren't going to be that.... I wasn't unduly impressed when even Tom Friedman, or even some Clinton administration hack, assured everyone that the tinpot ruler of a two-bit despotism eight-thousand miles away would and could destroy us if we didn't get him first.... [But y]ou didn't have to be a libertarian to figure out that going to war with Iraq made even less sense than driving home to East Egg drunk off your ass and angry at your spouse. Any number of leftists and garden-variety liberals, and even a handful of conservatives, figured it out....

What all of us had in common is probably a simple recognition: War is a big deal. It isn't normal. It's not something to take up casually. Any war you can describe as "a war of choice" is a crime.... Various hawks occasionally protested that "of course" they didn't enjoy war, but they were almost always lying. Anyone who saw invading foreign lands and ruling other countries by force as extraordinary was forearmed against the lies and delusions of the time...

Paul Krugman Does Not Think the Financial Crisis Is Over

Paul Krugman writes:

Another false non-alarm? March 19: The story of this financial crisis has been one of false non-alarms. Again and again, the Fed has taken action; markets seem to sound the all-clear; everyone breathes a sigh of relief — and then, in short order, panic returns.

Here we go again....

There’s some slightly good news out there. Fannie Mae coupons are down; I suspect that’s not because investors think mortgages are any less risky, but because they’re more confident than before that the feds will, in the end, bail out Fannie Mae if necessary. (I agree.) How much this will help the real economy isn’t clear.

But overall, this really has to be disappointing to the Fed.

Morning Coffee: Time for Action on Finance

Good morning. I'm Brad DeLong. And this is my morning coffee.

Stage I of a financial crisis involves a financial market that could be in a good equilibrium--with lots of capital committed to sane and sound financial intermediaries, a healthy flow of finance from savers to businesses, relatively high asset prices, and relatively low unemployment--or a bad equilibrium--with financial intermediaries near bankrupt or worse and untrusted, little flow of finance from savers to businesses, relatively low asset pices, and relatively high unemployment. It is the task of a central bank to (a) diminish the chances that we will ever get into a stage I financial crisis by providing incentives that motivate by punishing those who overleverage their businesses and induce moral hazard, and (b) to keep us at the good equilibrium by providing liquidity when a financial crisis strikes even if this goes against the requirement that overleverage and moral hazard be punished, not rewarded, in normal times. As long as we are in Stage I, however, a good central bank will provide liquidity--lend cash--at a penalty rate in order to diminish and punish moral hazard

Stage II of a financial crisis sees a financial market in which the good equilibrium has disappeared--but in which the good equilibrium can be brought back into existence by not just providing but flooding the system with liquidity, pushing safe interest rates way down and so pushing asset prices up. In this case, the idea that a good central bank should only lend cash at a penalty rate goes out the window. The stakes are too high. As Don Kohn said, it is not good to hold the jobs of tens of millions hostage in order to make sure a few feckless financiers get their just deserts.

Stage III of a financial crisis is when a central bank runs out of ammunition--when pushing interest rates too the floor and swapping out all of its assets does not restore the good equilibrium. Then you face a threefold choice: depression, inflation, or public intervention. Depression is to be avoided. Inflation--resolving the financial crisis by printing enough money to boost the price level far enough that all of a sudden everyone's incomes and real asset values are high enough to pay off their nominal debts--is generally best avoided too. As John Maynard Keynes wrote more than eighty years ago: "The Individualistic Capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient--perhaps cannot survive--without one."

And this leaves public action. If the good equilibrium has vanished because the supply of risky assets is too large for financial intermediaries to want to hold them given their capital, then the central government has to take action: to boost or to make financial intermediaries boost their capital so that they will demand more risky assets at high prices, and to diminish the supply of risky assets offered on the financial markets by guaranteeing some of them or by buying up some of them itself.

It's time to start thinking. If we don't want to wind up in a deep depression or a big inflation, it is time to think what kind of government action we do want to see, and how quickly we can set in in motion.

My name is Brad DeLong. And this is my morning coffee.

Joe Klein Gives Advice to Hillary Rodham Clinton

Joe Klein writes:

Where's Hillary?: There are multiple answers, all pointing in one direction:

  1. At home in Chappaqua
  2. Out of the headlines, while her husband is, once again, saying stupid things.
  3. Out of the headlines, while her husband's former advisors are saying stupid things.
  4. Out of money....

[T]here still are scenarios by which she can win the nomination. But those scenarios depend on... the hope that Obama will prove to be massively unworthy... that white people will abandon him and young people in Pennsylvania and elsewhere will stay home, that Obama himself will lose his cool, say something stupid (A likely story, given his cool so far!).

That is no way to win a nomination, or a general election. And it is striking to me that the Clinton campaign doesn't seem to be thinking about new, positive ways to make her case... the attractive, fighting, emotionally accessible Clinton has gone into hibernation again--since Texas and Ohio....

[I]f her campaign is to have any chance of success now--and, admittedly, such a chance seems increasingly slim--it will depend on a combination of Obama collapse and a positive Clinton offer to the public... here are a few places to start:

  1. Stop attacking Obama...and, especially, stop comparing Obama unfavorably, in terms of experience, to John McCain. If Obama is going to fall, she can no longer be seen pushing him.
  2. Start attacking Republicans, especially when they attack Obama unfairly, and most especially when John McCain attacks Obama on an issue (Iraq, for example) where she's in essential agreement with Obama. It would be beneath her to take on dismal fools like the pugnacious Sean Hannity, but her campaign surrogates certainly could--if she wants to win back the Democratic Party, she needs to do this.
  3. Speaking of campaign surrogates, stop the daily conference calls. They are so four cycles ago...and I can't think of the last time that Mark Penn, Howard Wolfson or Phil Singer said anything that had a positive impact--or even a positive negative impact--on this campaign.
  4. Fire Mark Penn. He is a pollster, not a strategist. And his polling limits vision. Here's a relevant question: Who was the last pollster to be chief strategist for a presidential campaign? Answer: Bob Teeter, for Bush the Elder in...1992. If she stops reading the polls, she might be be able to...
  5. Give a major, make-or-break speech laying out her vision for the future. It should wrap the economic crisis, the need for energy independence and national security into one big theme. It should signal her willingness to step out from the bite-sized politics of the past, to frame a new era.

None of these things are guarantors of success. In fact, failure remains the most likely scenario. But Hillary Clinton can fail sleazy or she can fail honorably. I know her to be an honorable person. The intermittent sleaziness of her campaign has been unworthy of her... and it is now time, finally, for her to choose how she wants her candidacy to be remembered.

links for 2008-03-22


Sunrise this morning was not 7:12 but rather 7:22 --the sun spends an extra 10 minutes hidden behind the bulk of Mount Diablo after it has supposedly peeked its way over the horizon.

Bad News on Industrial Production

Econbrowser: More bad news

Jim Hamilton:

Econbrowser: More bad news: More confirmation that the slowdown in housing has spilled over to manufacturing... industrial production fell 0.5% between January and February, putting it about back to the level we saw last June....

The discussion is increasingly shifting from "are we in a recession" to "how long will the recession last?" The latter question is one that I'm very hesitant to answer. Historically, the average postwar U.S. recession has lasted 10 months, with the longest being 16 months. However, current developments do not look to me like a typical recession, but instead seem to be something without clear precedent in the last 50 years.

Credit markets at the moment are profoundly insecure. The mortgage securitization model looks broken, and it is not clear what is going to replace it. No one is sure how to evaluate the creditworthiness of a huge volume of assets and the institutions that hold them, or what would be the fallout of further big drops in real estate prices and increases in default rates.

There are those who argue that first we need to avert the immediate crisis, namely preventing widespread financial defaults, before we can turn our eyes to needed regulatory reforms. But it may be that until we can establish adequate equity cushions and more transparent accounting standards for financial institutions, the economy will continue to languish.

In Defense of Jimmy Carter's Power in Foreign Affairs

Ken Houghton attempts a DeLong smackdown:

Marginal Utility: Belatedly, Once more, On Cuba: Catching up on my skimming (in preparation for having a while with time for reading), I find this Adam Clymer op-ed on the Panama Canal:

THIRTY years ago tomorrow, the conservative movement lost a major battle on the way to winning a larger war. On March 16, 1978, the Senate approved — 68 to 32, with just a single vote to spare — the first of two treaties that transferred the Panama Canal to Panama. Conservatives lamented the result, saying it threatened national security and might put the canal in Communist hands.

But losing the canal led to important victories for conservatives. The transfer of the canal to Panama provided the margins for defeat of five Democratic senators in 1978 and 1980, enough to give Ronald Reagan a Republican majority when he took office in 1981. That majority was essential to Mr. Reagan’s legislative successes.

And I am reminded once again of Cuba, and Brad De Long's reply to Jessica (#5) when she noted that "once that die was cast, I don't see where Castro ever had a chance to switch directions without risking not only US invasion, but vindictive and brutal US invasion":

As to when Fidel could have switched to a eurocommunist or social-democratic model without immediately losing his head--well, 1968 with Dubcek, or 1975 with Sadat, or anytime in the Carter administration, certainly.

The man who barely had enough political capital to get rid of an aging, increasingly less valuable resource does not seem likely to have been able to repel the Cuban Mafia's Calls for a Takeover.

I think that distorts the situation. Passing treaties is very hard--67 votes in the Senate. Abandoning embargoes and normalizing relations is easy--all you need is 41 votes in the Senate to sustain a veto. Executive agreements are also much easier than treaties.

Even a week president like Jimmy Carter is very powerful in foreign affairs--except when he is attempting to conclude a formal treaty.

Kudos to Tim Noah

Glenn Greenwald directs us to...

Glenn Greenwald: Atrios notes some commendable observations from Tim Noah, whose mea culpa article is, by far, the most thoughtful in the Slate pile (a distinction easily achieved)...

Tim Noah:

Forget what I got wrong. Why did Mary McGrory and Barack Obama get Iraq right?: Why should you waste your time, at this late date, ingesting the opinions of people who were wrong about Iraq? Wouldn't you benefit more from considering the views of people who were right? Five years after this terrible war began, it remains true that respectable mainstream discussion about its lessons is nearly exclusively confined to people who supported the war, even though that same mainstream acknowledges, for the most part, that the war was a mistake. That's true of Slate's symposium, and it was true of a similar symposium that appeared March 16 on the New York Times' op-ed pages. The people who opposed U.S. entry into the Iraq war, it would appear, are insufficiently "serious" to explain why they were right.

Fortunately, this Lewis Carroll logic hasn't prevailed... in the... Democratic nomination.... Barack Obama, is winning primary votes partly on the strength of his having opposed the Iraq invasion. Another person who ultimately proved right on Iraq is Mary McGrory... Feb. 13 [2003]...:

[E]veryone needs a respite from the encircling apprehension and dread. Beginning with the president, all should take a deep breath and reassess. Colin Powell is working overtime to close the loop on Iraq's ties to al Qaeda. In his masterly U.N. speech he made the case against Saddam Hussein, but not the case for war. He needs a rest. The orange alert has worn everybody out.

McGrory repeated this sentiment in her March 6 column, addressed to readers who'd misconstrued her Powell column. A couple of weeks later, McGrory suffered a stroke, and 13 months later she died. But she leaves behind a lovely anthology, edited by her friend Phil Gailey. It can be read more profitably than this pile of tired mea culpas.

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

Adam Smith on the Liberal Hawks of Slate

From Glenn Greenwald:

Lessons not learned: I'm not sure that applies to all of them, but certainly almost all. There really is no more toxic combination than the ability to urge war and simultaneously be shielded from all costs and consequences. Adam Smith put it perfectly in his 1776 An Inquiry into the Nature And Causes of the Wealth of Nations:

In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory from a longer continuance of the war.

Or, put another way, we must not withdraw from Iraq ever, sayeth the Washington establishment.

Adam Smith sez: Friends don't let friends read Slate.

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

Karl Marx as Moralist-Prophet: Morning Coffee for Good Friday

Good morning. I'm Brad DeLong, and this is my morning coffee.

Having video blogged about Karl Marx the economist on Wednesday, I decided to blog about Marx as political activist and moralist-prophet on Thursday, and only got through the political-activist part before I ran out of time. Which leaves Marx as moralist-prophet for today, Good Friday--which is either very fitting or very unfitting, depending...

As one of the graduate students put it in class on Wednesday, Marx's confidence that history has a direction and that it is a good direction--that it leads to a real utopia, a true New Jerusalem--is based on his belief that we are, as a species, smart enough to allow us to think our problems through and to evolve institutions that allow us to become who we fundamentally are. And who does Marx think that we fundamentally are? He thinks that we are generous, solidaristic, intelligent, and equal members of a free society of associated producers.

Now it is very possible that Marx is wrong about who we are. Perhaps we are jumped-up monkeys with big brains who have an instinct for reciprocity--for tit-for-tat--and for some degree of mutual solidarity and that we can then harness these instinctive drives in order to build a relatively good society based on market exchange if we are smart enough to build good institutions with our big brains. But if we are ultimately such monkeys building a free society of associated producers on the maxim "from each according to his ability, to each according to his need" is foredoomed to failure.

And perhaps we are jumped-up monkeys with big brains of whom at least half--the testosterone-poisoned half--are driven by fear that the male monkeys over the hill might kill us, take our stuff, take our breeding partners, and kill our offspring and that we need to strike first. In which case we had better hope that history does not have a direction, and that if it does have a direction that direction does not mean that we have to become who we are--because I at least would rather that we remain who we are not.

I'm Brad DeLong, this is my morning coffee, and what I see out the window is not the New Jerusalem but rather San Francisco Bay.

Paul Krugman Wonders Whether He Is Dumb. I Say: "NO!!"

He writes:

Fed funds question (seriously wonkish, and possibly dumb too): The target Fed funds rate is now 2.25%. Everyone expects it to be reduced further; Citi economists predict that it will be down to 1% by mid-year. But I have a possibly naive question: can the Fed really cut the Fed funds rate that far?... The Fed actually conducts monetary policy through open-market operations in Treasuries: the FOMC tells the open-market desk to buy or sell Treasuries from banks until the Fed funds rate is close to the target. Normally this puts Treasury interest rates close to the Fed funds rate, since one short-term loan to a very safe customer is a lot like another.

But right now Treasury interest rates are much, much lower than the Fed funds rate -- around half a percent on both 1-month and 3-month bills. Weirdness like negative rates on repos aside (I'm still trying to wrap my mind around that one), basically the Fed can only drive Treasury rates down by about another half-point -- which would still seem to leave Fed funds well above 1%.

How is it possible for the Fed funds rate to be higher than the Treasury rates? Well, one interpretation is that banks don't trust each other.... Fed fund loans, after all, are unsecured. In other words, the Fed funds rate may be more like LIBOR than the Treasury rate -- and it may be being held up by a premium similar to the TED spread.

Am I being really stupid here? Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?

No, this is not stupid. As Clouse and Elmendorf (1997) write: "Because funds-market trading is typically not collateralized, the funds rate can also differ across borrowers according to their perceived riskiness." This has in fact been happening since last August--what the (average) fed funds rate is on any given day depends on who is doing the borrowing.

As Jim Hamilton wrote last August:

Econbrowser: Their objective is defined in terms of a volume-weighted average of all the transactions during the day (referred to as the "effective" fed funds rate), with the target for the effective rate currently declared to be 5.25%. The Fed usually makes at most one such intervention early in the day, and is then content to allow the actual fed funds rate at which banks choose to borrow or lend to each other fluctuate above or below the target. Often at the end of the day, and especially on the last day of the two-week period in which banks have to complete the satisfaction of their required average holdings of reserves, one will see the fed funds rate spike up, if some bank finds itself unexpectedly needing funds at a time when everybody else is finished trading for the day, or fall to practically zero, if some bank unexpectedly finds itself with excess funds that nobody else is interested in borrowing. As William Polley noted, this last week these intraday fluctuations have been particularly dramatic, with one trade last Wednesday (a settlement day) as high as 6% and another on the same day for only 0.25%.

Why does the Fed allow so much intra-day variability in the interest rate it is intending to target? One reason is that the Fed does not want to be in a position of subsidizing individual banks that choose to make unusually risky investments. If a bank knew that, no matter what it did, it could always obtain an unlimited source of funds at a 5.25% rate, the bank would have an incentive to borrow a huge quantity of such funds and use them to make higher yielding, but potentially quite risky, investments.... The Fed intentionally allows different banks, in different circumstances or at different times of the day, to pay a higher or lower rate for fed funds than do other banks, as one way of making sure that banks face immediate consequences of any extra risk-taking....

Of course, there is an inherent tension between the goals of serving as lender of last resort and making sure that banks are disciplined for risky behavior, and this tension is at the heart of the current policy dilemma facing the Fed. To help to achieve these twin objectives, the Fed has a separate tool, the discount window, through which it offers to lend directly to banks, temporarily giving them newly created reserves while holding high-quality assets as collateral for such loans. Again there have to be some institutional checks to prevent excessive risk-taking for banks using this facility. Historically, the Fed achieved this by placing additional limitations and regulatory oversight on banks that borrowed too much or too frequently at the discount window. Partly as a result of these, the discount window acquired a certain stigma...

In the Age of the Cellular Phone...

In the Age of the Cellular Phone...

"He asks if he can hang up now and have us call him back in five minutes."


"He says he is checking into a hotel."

"Where is he?"

"You mean what city? I have no idea."

"This doesn't strike you as odd? That you call people up and talk to them and yet you have no idea, physically, where they are located on the globe?"

"I had never thought of it that way..."

Home Exercise Machine Blogging

We are finally using the last Christmas present--the Waterrower.As is the case with all fitness equipment, it is hugely expensive,grossly overpriced, and frivolous--if we do not use it. It is remarkably, sober, cost effective, and cheap if we do.

The edge of the Waterrower compared to other rowing machines is that you actually row through water--pull blades through a tank.

But there is no chance of catching a crab and getting thwacked by the oar. No smell of the sea or seamist in the air. No chance of a wave sloshing over and leaving you sitting in a puddle and soaked. No cries of seagulls.

I suggest we hire the kids to stand by with a hand mister and a bucket, and that we play whale sounds on the stereo...

Morning Coffee: Time for Action on Finance

Good morning. I'm Brad DeLong. And this is my morning coffee.

Stage I of a financial crisis involves a financial market that could be in a good equilibrium--with lots of capital committed to sane and sound financial intermediaries, a healthy flow of finance from savers to businesses, relatively high asset prices, and relatively low unemployment--or a bad equilibrium--with financial intermediaries near bankrupt or worse and untrusted, little flow of finance from savers to businesses, relatively low asset pices, and relatively high unemployment. It is the task of a central bank to (a) diminish the chances that we will ever get into a stage I financial crisis by providing incentives that motivate by punishing those who overleverage their businesses and induce moral hazard, and (b) to keep us at the good equilibrium by providing liquidity when a financial crisis strikes even if this goes against the requirement that overleverage and moral hazard be punished, not rewarded, in normal times. As long as we are in Stage I, however, a good central bank will provide liquidity--lend cash--at a penalty rate in order to diminish and punish moral hazard

Stage II of a financial crisis sees a financial market in which the good equilibrium has disappeared--but in which the good equilibrium can be brought back into existence by not just providing but flooding the system with liquidity, pushing safe interest rates way down and so pushing asset prices up. In this case, the idea that a good central bank should only lend cash at a penalty rate goes out the window. The stakes are too high. As Don Kohn said, it is not good to hold the jobs of tens of millions hostage in order to make sure a few feckless financiers get their just deserts.

Stage III of a financial crisis is when a central bank runs out of ammunition--when pushing interest rates too the floor and swapping out all of its assets does not restore the good equilibrium. Then you face a threefold choice: depression, inflation, or public intervention. Depression is to be avoided. Inflation--resolving the financial crisis by printing enough money to boost the price level far enough that all of a sudden everyone's incomes and real asset values are high enough to pay off their nominal debts--is generally best avoided too. As John Maynard Keynes wrote more than eighty years ago: "The Individualistic Capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient--perhaps cannot survive--without one."

And this leaves public action. If the good equilibrium has vanished because the supply of risky assets is too large for financial intermediaries to want to hold them given their capital, then the central government has to take action: to boost or to make financial intermediaries boost their capital so that they will demand more risky assets at high prices, and to diminish the supply of risky assets offered on the financial markets by guaranteeing some of them or by buying up some of them itself.

It's time to start thinking. If we don't want to wind up in a deep depression or a big inflation, it is time to think what kind of government action we do want to see, and how quickly we can set in in motion.

My name is Brad DeLong. And this is my morning coffee.

The Liquidity Trap Cometh...

Today's Treasury yield curve:

Screenshot 5 24 13 8 19 PM

And Paul Krugman sends us to the TED spread--the risk and liqudiity premium big banks are demanding over Treasuries for the loans they make to each other. Investment Tools

Think of the TED spread as an indicator of financial fever--with something like 0.3% per year being normal. Think of the short end of the yield curve as an indicator of how powerful the Federal Reserve's standard medicine of swapping Treasury securities for bank reserves is.

Be afraid. Be somewhat afraid.

Evaluating Karl Marx as Political Activist: Morning Coffee for Holy Thursday

Good morning. I am Brad DeLong. And this is my morning coffee--my morning coffee for Holy Thursday.

Yesterday I said that I divided up--that we divide up--Karl Marx into three: Marx the economist, Marx the political activist, and Marx the moralist prophet, and that I might talk about Marx the activist and Marx the prophet some other time. And Holy Thursday appears to be a good time.

Marx the political activist. Marx the political activist had five reasons that he thought it necessary and possible to work to overthrow the current system. First, he believed that because capital is not a complement to but a substitute for labor, and so technological progress and capital accumulation that raise average labor productivity also lower the working-class wage. Hence the market system could not and in the end would be seen to be unable to deliver the good society we all deserve, and so it must and will be overthrown. This seems to me to be simply wrong.

Second, Marx believed that businessmen continually extend the domain of captalism, and competition from poor workers in newly-incorporated peripheral regions puts a lid on the wages of labor. Hence inequality grows in the core, which should and in the end must trigger revolution. This seems to me to be largely wrong as well: it is very possible for the international economy, if properly managed, to balance up and not balance down as far as the level of real wages is concerned.

Third, Marx believed that previous systems of hierarchy and domination maintained control by hypnotizing the poor into believing that the rich in some sense "deserved" their high seats in the temple of civilization. Capitalism, Marx thought, unveils all--replaces masked exploitation by naked exploitation--and without its ideological legitimation, unequal class society cannot survive. This also seems to me to be completely wrong on its own terms--see Antonio Gramsci, passim, also Fox News.

Four, Marx believed that even though the ruling class could appease the working class by sharing the fruits of economic growth, they would not. They were trapped by their own ideological legitimation--they really do believe that it is in some sense "unjust" for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would be overthrown. The Wall Street Journal editorial page works day and night 365 days a year to make Marx's prediction come true. But I think they will fail.

Fifth, Marx believed that factory work--lots of people living in cities living alongside each other working alongside each other--would lead people to develop a sense of their common interest and of class solidarity, hence they would be able to organize, and revolt, and establish a free and just society in a way that they could not back in the old days when the peasants of this village were suspicious of the peasants of the next village. Here I think Marx mistook a passing phase for an enduring trend: active working-class consciousness as a primary source of loyalty and political allegiance was never that strong; nation and ethnos seem to trump class much more often than not.

There is very little in Marx the political activist that is worth paying attention to--in fact, I would say that there is less than nothing once you recognize that his own polemical habits and his failure to prophesy what would happen after the Revolution created the cracks that turned Marx's world-religion into one of the greatest evils humans have ever managed to create.

I'm Brad DeLong, and this is my morning coffee.

Afternoon Coffee: Relevance of Marx

That's Karl Marx, not Groucho, I'm talking about today. I am Brad DeLong, and this is my afternoon coffee...

This week I asked my graduate students to write on the following question: whether--and how--Karl Marx is relevant to a twenty-first century neoclassical economist. They turned it around, and asked me to answer the same question. So here goes...

First, let me say that I am here to talk about Marx the economist. Marx did not divide himself into Marx the moralist-prophet, Marx the political activist, and Marx the economist. But we do. I'll talk about Marx the moralist-prophet and Marx the political activist some other time. But today I am interested only in Marx the economist, who I think is worth studying for five reasons:

First, Marx the economist was among the very first to get the industrial revolution right: to understand what it meant for human possibilities and the human destiny in a sense that people like Adam Smith did not.

Second, Marx the economist got a lot about the economic history of the development of modern capitalism in England right--not everything, but he is still very much worth grappling with as an economic historian of 1500-1850.

Third, fourth, and fifth, Marx made a three-fold critique of the capitalist economy he say developing. He believed, third, that a system that reduced everybody to some form of prostitute working for wages and wages alone--in which people viewed their jobs not as ways to gain honor or professions that they were born into or as ways to serve their fellow-man or expressions of their inmost essence as a species-being but as ways to earn money so that you can begin your real life when the five o'clock whistle blows--that such an economy is an insult, delivering low utility, and also sociologically and psychologically unsustainable in the long run.

Fourth, Marx believed that the capitalist economy was incapable of delivering an acceptable distribution of income for anything but the briefest historical epochs.

Fifth, Marx was among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase or something that could be easily cured, but rather a deep disability of the system--as we are being reminded once again right now, this time with Ben Bernanke in the Hot Seat.

Now we modern neoliberals have parries to these latter three critiques.

On the business cycle, we respond that Keynesianism--or monetarism, if you prefer--gives us the tools to transform the business cycle from a life-threatening economic yellow fever of the society into the occasional night sweats and fevers: that with economic policy quinine we can manage if not banish the disease.

On the distribution of income, we respond that Beveridgism or Myrdahlism--social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery.

On the cash nexus, we modern neoliberals shrug our shoulders and say that we are in favor of a market economy but not of a market society, and that there is no reason why people cannot find jobs they like or insist on differentials that compensate them for jobs they don't. And we go on to say that the demand for and forecast of utopia--that jumped-up monkeys with big brains be perfectly happy--is a demand and forecast that belongs in the Book of Daniel or of the Apocalypse, not something that has any place in a work of political economy relevant to this fallen world.

I am Brad DeLong. And this is my afternoon coffee.

Mike Huckabee on Obama & the Rev. Wright

From LizzyPop:

Daily Kos: HUCKABEE: [Obama] made the point, and I think it's a valid one, that you can't hold the candidate responsible for everything that people around him may say or do. You just can't. Whether it's me, whether it's Obama...anybody else. But he did distance himself from the very vitriolic statements. Now, the second story. It's interesting to me that there are some people on the left who are having to be very uncomfortable with what Louis Wright said, when they all were all over a Jerry Falwell, or anyone on the right who said things that they found very awkward and uncomfortable years ago. Many times those were statements lifted out of the context of a larger sermon. Sermons, after all, are rarely written word for word by pastors like Reverend Wright, who are delivering them extemporaneously, and caught up in the emotion of the moment. There are things that sometimes get said, that if you put them on paper and looked at them in print, you'd say "Well, I didn't mean to say it quite like that."

JOE SCARBOROUGH: But, but, you never came close to saying five days after September 11th, that America deserved what it got. Or that the American government invented AIDS...

HUCKABEE: Not defending his statements.

JOE SCARBOROUGH: Oh, I know you're not. I know you're not. I'm just wondering though, for a lot of people...Would you not guess that there are a lot of Independent voters in Arkansas that vote for Democrats sometimes, and vote for Republicans sometimes, that are sitting here wondering how Barack Obama's spiritual mentor would call the United States the USKKK?

HUCKABEE: I mean, those were outrageous statements, and nobody can defend the content of them.

JOE SCARBOROUGH: But what's the impact on voters in Arkansas? Swing voters.

HUCKABEE: I don't think we know. If this were October, I think it would have a dramatic impact. But it's not October. It's March. And I don't believe that by the time we get to October, this is gonna be the defining issue of the campaign, and the reason that people vote. And one other thing I think we've gotta remember. As easy as it is for those of us who are white, to look back and say "That's a terrible statement!"...I grew up in a very segregated south. And I think that you have to cut some slack -- and I'm gonna be probably the only Conservative in America who's gonna say something like this, but I'm just tellin' you -- we've gotta cut some slack to people who grew up being called names, being told "you have to sit in the balcony when you go to the movie. You have to go to the back door to go into the restaurant. And you can't sit out there with everyone else. There's a separate waiting room in the doctor's office. Here's where you sit on the bus..." And you know what? Sometimes people do have a chip on their shoulder and resentment. And you have to just say, I probably would too. I probably would too. In fact, I may have had more of a chip on my shoulder had it been me.

MIKA: I agree with that. I really do.

JOE SCARBOROUGH: It's the Atticus Finch line about walking a mile in somebody else's shoes. I remember when Ronald Reagan got shot in 1981. There were some black students in my school that started applauding and said they hoped that he died. And you just sat there and of course you were angry at first, and then you walked out and started scratching your head going "boy, there is some deep resentment there."

DeLong Econ 210a Industrial Revolution Slides: March 19: Marx and Urbanization and Industrialization and Marketization

Class Audio

In our last episode...

Greg Clark said that there wasn't really an industrial revolution--there was a large demographic expansion made possible by the fact that Britain's population was out-of-sync with Europe and so it could trade manufactured goods for food...

Economics 210a: Introduction to Economic History: U.C. Berkeley: Spring 2008: The Industrialization and Urbanization of England

And that technological progress in steam in the eighteenth century was no more impressive than progress in printing in the 15th century or ocean shipping in the 16th, and had bigger effects only because of the luck of demand elasticities...

And that Britons in 1860 had living standards barely better than those of Britons in the aftermath of the Bubonic Plague...

Nick Crafts said that there was an industrial revolution, but that it was small beer...

Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142)


Compare to 1.86% per year of real output per worker growth from the computer-communications leading sector of the late 1990s...

Jeffrey Williamson said that there was barely an industrial revolution because Britain tried to industrialize and fight wars...

Jeffrey Williamson, "Why Was British Economic Growth So Slow During the Industrial Revolution?" Journal of Economic History 44, pp.687-712

DeLong Indeed, back in 1776 Adam Smith had warned that Britain's politico-military state's success might well crush its economy, writing about even successful debt-funded wars:

The practice... has gradually enfeebled every state which has adopted it. The Italian republicks... Spain seems to have learned the practice from the Italian republicks, and (its taxes being probably has, in proportion to its natural strength, been still more enfeebled.... France... languishes under an oppressive load.... The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice.... Is it likely that in Great Britain alone a practice, which has brought either weakness or desolation into every other country, should prove altogether innocent?...

Peter Temin said that there was too an industrial revolution, and it was substantial, and broad-based...

Peter Temin, "Two Views of the British Industrial Revolution," Journal of Economic History 57, pp.63-82

But his argument appears to be vulnerable to a fall in the global price of textiles and other leading-sector goods...

And Maxine Berg and Pat Hudson said "wait a minute: people thought there was an industrial revolution..."

Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review new ser. 45, pp.23-50

And there was... although when do we want to date it to?



I'm currently wearing... maybe 3 pounds of cotton, 2 pounds of leather and plastic... 4 pounds of wool...

Now we have Karl Marx and Friedrich Engels, who write in the middle of it and have no doubt that something extraordinary is going on...

Something hopeful...

And yet malevolent...

To which the solution is--well, a new world-religion:

Susan Wolcott and Gregory Clark (1999). "Why Nation's Fail: Managerial Decisions and Performance in Indian Cotton Textiles, 1890-1938." Journal of Economic History, June

Alfred D. Chandler (1992), "Organizational Capabilities and the Economic History of the Industrial Enterprise," Journal of Economic Perspectives 6 (Summer)

Monetary Policy Has Reached Its Limits...

Jim Hamilton on the Fed:

Econbrowser: Another 75: How much ammo is left in that fed funds gun?

Interesting reaction yesterday at the Chicago Board of Trade to the Fed's decision to reduce its target for the fed funds rate by 75 basis points to a new objective of 2.25%. On Monday, the fed funds futures contract had been anticipating an average funds rate of 1.95% for April, consistent for example with a 100 basis point cut yesterday and some weakness prior to another 25 bp cut at the April 29/30 FOMC meeting. However, after yesterday's meeting, the implied April interest rate shot up 20 basis points to 2.15%. The Fed made a big cut, and the market was surprised that it wasn't even bigger.

To put these numbers in perspective, prior to January of this year, the Fed had not made a cut as large as 75 basis points in a single move in the available 25-year history of the series. And yet now we've reached a point where we're surprised when the cut is "only" 75 basis points.

Still, I am glad to see that the Fed recognizes the need for at least this much restraint. I say that not because I am still mechanically thinking about a tradeoff between promoting real GDP growth and containing inflation. I think we are past that now. I could easily imagine this weekend's developments with Bear Stearns as only the initial carnage in what may prove to be a very bloody financial crisis. I accept the view that job 1 is to try to contain that damage.

But suppose you believe that oil over $100 a barrel is a destabilizing influence-- and I do-- and that the Fed's recent decisions on the fed funds rate are the primary reason that oil is over $100-- and I do-- and that further reductions in the Tbill rate have limited capacity to stimulate demand-- and I do. Suppose you also saw a risk that the inflation, financial uncertainty, and slide of the dollar could precipitate a run from the dollar, introducing an international currency crisis dimension to our current headaches.

Well, if you did, then even if you were very, very worried about our current financial problems-- and I am-- you would still want to draw the line somewhere, and acknowledge that there is some point beyond which lowering the fed funds rate further will do more harm than good. When we've got that rate to 2.25%, and people are telling surveyors they are expecting 4.5% inflation, we need to be open to the possibility that we've already reached such a point...

Paul Krugman on the Fed:

Liquidity trap watch: With all the furor over the possibility of a high-speed financial meltdown, it’s been easy to forget that we still have the problem of a weak real economy, and a Fed that is having a hard time getting traction.

And as I’ve pointed out before, we’re quite close to liquidity trap territory: the point at which open-market purchases of Treasury bills, the normal way monetary policy operates, don’t have any effect because the T-bill rate is near zero.

So, today’s morning update: as of 8:49, the one-month T-bill rate is 0.539, the 3-month rate 0.728.

Update: at 2:14, the 3-month rate is 0.591. That’s telling you that the flight to safety continues: rather than take the risk of lending to the private sector, investors are willing to park their money in Treasuries for a very, very low return.

I am not sure these two points of view are consistent--if we are near a liquidity trap, expected open market operations should, after all, have little impact on inflation as well as little impact on real activity. But here we have two very smart people thinking conventional monetary policy needs to be given a rest.

That's not comforting.

McCain: Clueless as... as... Saying that Some Neo-Confederate Group Is Secretly Funneling Money to Louis Farrakhan

Hilzoy is the shrillest woman in the Boswash Megalopolis:

Obsidian Wings: Clueless: I didn't want to let this gem from John McCain pass unremarked:

Sen. John McCain, traveling in the Middle East to promote his foreign policy expertise, misidentified in remarks Tuesday which broad category of Iraqi extremists are allegedly receiving support from Iran.

He said several times that Iran, a predominately Shiite country, was supplying the mostly Sunni militant group, al-Qaeda. In fact, officials have said they believe Iran is helping Shiite extremists in Iraq.

Speaking to reporters in Amman, the Jordanian capital, McCain said he and two Senate colleagues traveling with him continue to be concerned about Iranian operatives "taking al-Qaeda into Iran, training them and sending them back."

Pressed to elaborate, McCain said it was "common knowledge and has been reported in the media that al-Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran, that's well known. And it's unfortunate." A few moments later, Sen. Joseph Lieberman, standing just behind McCain, stepped forward and whispered in the presidential candidate's ear. McCain then said: "I'm sorry, the Iranians are training extremists, not al-Qaeda."

It's important to be clear about exactly how clueless this is. It's like saying that some neo-confederate group is secretly funneling money to Louis Farrakhan, and then having an aide have to whisper: no, no, it's the Aryan Nation; wrong extremists! It's like suggesting that McCain is making a play for Kucinich voters, and having to be told that, no, you really meant Ron Paul: wrong losing candidate! No one who had any understanding at all of Iraq, or for that matter about the Shi'a/Sunni split and which side Iran was on, would get confused about this....

McCain gets to say silly things like this without being challenged. His reputation as a serious thinker on national security can only survive so long as people don't notice things like this....

Today we saw exactly how intelligent and nuanced Obama is. In this series of remarks by McCain (and others; it's not unique), we can see exactly how unprepared he is to win an argument against Obama.

In terms of intellect, grasp of policy details, nuance, and depth of knowledge, McCain is just not in Obama's league -- or, for that matter, Clinton's. When we have a chance to see McCain debate a Democratic nominee, I have every confidence that this fact will become painfully obvious.

Dan Froomkin Watches as the Press "Katrinas" George W. Bush

Dan writes:

Bush's Financial Katrina: As the storm clouds gathered, was President Bush once again asleep at the wheel? Aconsistent theme in today's political and economic coverage is that Bush's failure to recognize the severity of the ongoing financial crisis and act accordingly is reminiscent of his disastrously slow and inept response to Hurricane Katrina.

Maura Reynolds and Janet Hook write in the Los Angeles Times:

In some ways it was a throwaway line, the kind of praise a boss tosses out casually. But as the economy teetered Monday, President Bush's words to Treasury Secretary Henry M. Paulson struck many as discordant and disengaged. 'I want to thank you, Mr. Secretary, for working over the weekend,' Bush said as he met with his economic advisors at the White House. 'You've shown the country and the world that the United States is on top of the situation.'

Actually, many analysts and critics said, by focusing on Paulson's working hours instead of on the fear gripping Main Street and Wall Street, the president seemed to show just the opposite -- that he has failed to grasp the gravity of the country's economic crisis. 'He has no idea what's going on. Even by his standards, he's wrong,' said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who said he had been trying to get the president to pay more attention to the economy for more than a year.

Bush's 'working over the weekend' line also suggested a comparison to another disaster in which he was accused of acting too slowly: Hurricane Katrina. After the storm, the president was ridiculed for praising FEMA Director Michael D. Brown for doing 'a heck of a job' -- even as thousands remained stranded in floodwaters in New Orleans.

It is remarkable: how many weekends in the past twenty years have not seen Hank Paulson at work?

Dan goes on:

Reynolds and Hook write....

Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said he had been trying to get the administration to tighten the rules for mortgage lenders for more than a year -- to little avail.

'They could have done a lot of things over the last year, in my view, to make a difference and refused to do so,' Dodd said. 'They are lagging in terms of their response to all of this. Had steps been taken over the last year, we could have avoided a lot of this.'

Matt Spetalnick writes for Reuters:

Not since Hurricane Katrina devastated New Orleans and other parts of the U.S. Gulf Coast in 2005 has Bush faced so much criticism of a too-little, too-late government response in a national time of need....

Frederick Kempe writes in his Bloomberg opinion column:

The cost of faltering American leadership is growing as quickly as you can say Bear Stearns. . . . International financiers . . . fault George W. Bush for having failed to realize that he has another Katrina on his hands, this time of a financial nature, for which private-sector solutions are useful but not sufficient to keep the levees in place. They believe he has to deploy greater government means to send a message to the financial world that he is drawing a line in the sand. . . . As with the war in Afghanistan, the Iraqi war aftermath, the Hurricane Katrina disaster and current efforts at Mideast peace, investors are concerned that the president is responding too late and with inadequate understanding, resources and creativity....

On the Daily Show, Jon Stewart shows a clip in which CNBC anchor Mark Haines literally throws his hands in the air in disbelief after Bush's positive comments about the economy. Stewart listens to Bush's constant repetition of economic affirmations and concludes that "must be his attempt at a Jedi mind-trick." But, Stewart says: "Here's the thing, Mr. President: In order for the Jedi mind-trick to work -- you have to be a Jedi"...

links for 2008-03-19

We Still Believe in a Place Called Hope!!

James Fallows still believes in a place called Hope. He writes:

James Fallows (March 18, 2008) - Instant reaction to Obama's speech from other side of the world: I didn't mean to stay up so late to see this speech -- have to get up in a few hours for a hinterland trip -- but I am glad I did.

This was as good a job as anyone could have done in these circumstances, and as impressive and intelligent a speech as I have heard in a very long time. People thought that Mitt Romney's speech would be the counterpart to John Kennedy's famous speech about his faith to the Houston ministers in 1960. No. This was.

A reminder of a non-obvious but crucial principle in speechwriting. Make the language simple, clear, vivid, and comprehensible -- of course. But never, never talk down.

Will this defuse the Rev. Wright issue? Who knows what cable news will make of the speech. But it was a great moment, to which Barack Obama rose.

(Update: while considering just staying up until the hinterland trek, I will correct the preceding sentence. It was a moment that Obama made great through the seriousness, intelligence, eloquence, and courage of what he said. I don't recall another speech about race with as little pandering or posturing or shying from awkward points, and as much honest attempt to explain and connect, as this one.)

National Review: Each Generation as Stupid and Malevolent as Their Fathers Before Them...

Matthew Yglesias reads National Review so the rest of us don't have to:

Matthew Yglesias (March 18, 2008) - Through the Looking Glass (Media): It's fascinating how unhinged a lot of the reactions to Obama's speech are over at the Corner. Here's Charlotte Hays just flat-out denying that it makes sense to try to understand things in context:

Obama says that we shouldn't "Ccondemn without understanding the roots" of remarks like those Wright made. Whatever the roots, these remarks are to be condemned. Within what context is it correct for the Rev. Wright to say "God damn America?"

There's some kind of reading comprehension problem here if Hays can't see that Obama's not saying it was correct of Wright to say that. Roger Clegg sees the speech as "politics as usual" which makes me think he must have been watching a very different usual politics from me up until now. K-Lo says "Any hopes anyone had that Barack Obama would be a gift to civil rights in America -- that he would shake hands with Ward Connerly and really be a change -- died today, I think." In the speech John Derbyshire heard, "blame whitey, and raise high the red flag of socialism" was the essence of Obama's message.

Matt seems somewhat surprised. He shouldn't. This was to be expected. This is what the National Review writers learned from their predecessors, at their fathers' knees, imbibed in their mothers' milk--no, those are the wrong metaphors: had inscribed in their brains by chemical-hypno-learning as they grew in their vats in the sinister underground Buckley laboratory. Remember this? National Review on Martin Luther King, Jr., back in 1959:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal: The soberly-dressed "clerky" little man... seemed oddly unsuited to his unmentioned but implicit role of propagandist.... Let me say at once, for the benefit of the wicked, fearful South, that Martin Luther King wil never rouse a rabble; in fact, I doubt very much if he could keep a rabble awake... past its bedtime... lecture... delivered with all the force and fervor of the five-year-old who nightly recites: "Our Father, Who art in New Haven, Harold be Thy name."...

The history of Negro freedom in the United States... according to Dr. King, is actually a history of Supreme Court decisions... in each of these decisions "the Supreme Court gave validity to the prevailing mores of the times." (That's how they decide, you see? They look up the prevailing mores--probably in the Sunday New York Times.)... [V]ictory is inevitable for the Good Guys.... The Negro must... expect suffering and sacrifice, which he must resist without sacrifice, for this kind of resistance will leqve the violent segregationist "glutted with his own barbarity. Forced to stand before the world and his God splattered with the blood and reeking with the stench of his Negro brother, he will call an end to his self-defeating massacre." (I don't think [King had] really examined that one, do you?)... In the words of an editorial from next morning's Yale Daily News, "a bearded white listener rose, then a whole row, and then a standing ovation." Did you ever see a standing ovation rise? It's most interesting! Anyway, I rose and applauded heartily. I was applauding Dr. King for not saying "the truth shall make you free," because actually it took the Supreme Court, in this case, didn't it?... [A] discussion period for undergraduates followed the lecture.... Here was no trace of the sing-song "culluh'd preachuh" chant, the incongruously gaudy phrases.... Martin Luther King... relies almost entirely on force of one kind or another to accomplish integration.... [I]t seems curiously inconsistent to hear him, time after time, suggest power, or force--the force of labor, of legislation, of federal strength--as the solution...

Jes' 'thuziastikally folluwin' in de footsteps, zey iz, ovah theh at National Review...

March 14 Econ 101b Lecture: From the Short Run to the Medium Run

Lecture Audio Stock Market Quotes - Business News - Financial News

Econ101b: Fall 2008: Review for Second Midterm

Lecture Audio

Jim Henley Wants a Better Right-Wing Thinktank

Specifically, he wants a Cato Institute that will inform him rather than mislead him about the business cycle:

: Are we, as a commenter wrote downblog a couple weeks ago (in rough paraphrase), "Like Argentina, a formerly wealthy country that went bankrupt, and we just don't realize it yet?"... Or is it just a matter of wringing out the excess briefly so the economy can come roaring back. And, could Cato's blog hire a non-hack economist to address the subject? No? Never mind then! (Still love you guys, my Cato foreign-policy homies! But your econ staff has not risen to the level of engagement a standard-issue Weekly Standard writer managed vis a vis Iraq in 2005. Alan Reynolds' choosing today of all days to favorably cite an "excellent economist" from Bear Stearns may go down in history as the "We're Winning" of the Recession of 2008.

Just saying! And other than that, it’s eerily quiet over there. You’ve got Tim Lee and Justin Logan and Benjamin Friedman doing their usual great work on civil liberties and foreign policy, but the site’s been a wasteland on money matters...

Hey! Jim! The Alan Reynolds piece that doesn't impress you is actually a pretty good demolition of the idiocies of the WSJ editorial page!

Nouriel Roubini on the Need to Regulate

A century ago we had banks. They created systemic risk. We decided to regulate them in order to limit the systemic risk they could create. That was wise.

Now we have non-banks. They create systemic risk...

Nouriel Roubini:

RGE Monitor: Since the onset of the liquidity and credit crunch last summer this column has been arguing that monetary policy would be impotent to address such a crunch because, in part, of the existence of a non-bank "shadow financial system"... conduits, SIVs, investment banks/broker dealers, money market funds, hedge funds and other non bank financial institutions... highly leveraged and borrow short and in liquid ways and invest or lend long and in illiquid ways... subject not only to credit and market risk but also to rollover or liquidity risk....

Unlike banks this shadow financial system does not have access to the lender of last resort support of the central bank as these are not depository institutions regulated by the central banks. What we are now observing... is a generalized liquidity run on this shadow financial system.

The response of the Fed to this run has been radical... lender of last resort support to non bank financial institutions... $200 bn term facility allows primary dealers... to swap their toxic mortgage backed securities for US Treasuries... Bear Stearns... JPMorgan... now the Fed is allowing primary dealers to access the Fed discount window at the same terms as banks.

This is the most radical change and expansions of Fed powers and functions since the Great Depression: essentially the Fed now can lend unlimited amounts to non bank highly leveraged institutions that it does not regulate.... [I]t is treating this crisis... as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions.... But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages...

Jared Bernstein on Bear Stearns

Jared Bernstein writes:

TPMCafe | Talking Points Memo | Total BS on Wall St.: The story of what%u2019s happening on Wall St. is really pretty straightforward. It%u2019s a classic bank run, this time on the investment bank formerly know as Bear Sterns, which we%u2019ll just call by the apt acronym BS.

Over the past few months, folks who%u2019d lent money to BS started to get worried that BS had made some bad bets with that money, and might not be able to pay them back. So they started calling in their IOUs.

When it started to look like those folks might be right%u2014BS might not be able to meet the %u201Cmargin calls%u201D%u2014the Feds got nervous that the firm could fail, and helped to orchestrate a bail out. Meanwhile, the firm went from being worth billions to being almost worthless in a matter of weeks.

There are many good articles out on this if you want to read up it. Go here, here, and in case you had a little residual love for BS in your heart, go here to get it expunged.

As for my contribution, I offer this primer.

Here%u2019s what happened:

First, some firms that lend money made some big, risky home loans. The loans were risky because they ended up with lots of people who would only be able to pay them if house prices kept rising.

But the lenders weren%u2019t that worried about the quality of loans because they didn%u2019t hold on to them. They securitized them, meaning they packaged them with other loans and sold them to other investors.

Then the bubble burst and prices started to tank.

Then the loans started to go bad, but because they were squirreled away who knows where, no one knew quite what to do. So the part of the economy that provides credit froze up, and without free-flowing credit, our economy can%u2019t expand.

As the losses piled up, well%u2026see the BS story above.

The Federal Reserve and the Treasury are trying to unfreeze the credit markets by injecting %u201Cliquidity%u201D%u2014making a lot more cash available. But it hasn%u2019t worked because investors are too spooked to lend and borrowers don%u2019t want to invest anyway right now, what with the economy heading south with a vengeance.

All of which raises some very big, very good questions: What%u2019s the risk engendered by these bailouts for the rest of us? There%u2019s a good argument to be made for the bailout (see Krugman today) but not if the fat cats get to skate on by unscathed. At the heart of the bailout is the Fed taking on the very smelliest part of the BS portfolio: the mortgatge debt. I%u2019d like to know what we%u2019re getting in return (and Mr. Paulson, the answer: %u201Csmoothly functioning markets%u201D is unacceptable).

And lest we forget, none of this had to happen. Market capitalism, once again, totally overshot, taking a fine idea%u2014providing credit so that folks who aren%u2019t rich can own homes%u2014and slicing and dicing it until no one understood the financial Frankenstein they%u2019d created. The government and the Fed turned a blind eye, which was fine with the %u201Cinnovators.%u201D Now that the monster has turned on them, they%u2019re running back to the gov%u2019t to bail them out.

My friends, we have a lot of cleaning up to do.

Liquidity Trap

Paul Krugman writes:

How close are we to a liquidity trap? - Paul Krugman - Op-Ed Columnist - New York Times Blog: When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don't do anything, because you're just swapping one more or less zero-interest rate asset for another.... Normally it doesn't matter which short-term interest rate you choose.... But right now we are in a situation in which Treasury bills yield considerably less than the Fed funds rate... banks' nervousness about lending to each other, even in the overnight market... Treasuries -- not Fed funds -- are the interest rates to look at.

As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.

Economic- and Financial-Policy Message of the Week: Barney Frank and Chris Dodd's Vehicle

Alright, all you public-spirited economists seeking to have a positive impact on economic policy...

Barney Frank as House chair and Chris Dodd as Senate chair have a legislative vehicle to guarantee mortgages through the FHA.

Alan Blinder says that it's our best bet right now. I trust Alan Blinder's judgment.

So everybody get on message: back Barney Frank and Chris Dodd in what they want to do, and quibble over the details and implementation later.

Two Ways to Read $2 a Bear-Stearns Share

There are two ways to read last night's sale of Bear Stearns to JPMorganChase for $2 a share:

  1. There were no other bidders. Bear Stearns only other option was to file for bankruptcy this morning. And Bear Stearns's executive were convinced that that was not an option--that not playing along meant that everybody everywhere would look with glee on the filing of every criminal fraud charge against them anyone could think of.
  2. Even with the Federal Reserve offering a put on the worst $30 billion of Bear Stearns assets, there is so much garbage in the closet that $2 a share is a fair price.

The market this morning believes in (2). I tend to believe in (1)--especially as JPMorgan is said to have set aside up to $6 billion to deal with litigation when Bear Stearns's shareholders and others claim they got a raw deal...