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Mike Mandel Removes the Imputations from Consumer Spending

Mike writes:

The Consumer Spending Mirage: [A] broad decline in consumer spending, which so far has been masked by a quirk in the government's statistics. Combine that with a rapidly unraveling job market, high energy prices, and the continuing credit crunch, and you have the recipe for a drop in consumer stocks.... Right now it's looking like the recession started in November, 2007. That's when private-sector employment peaked, according to the latest job report from the Bureau of Labor Statistics. Since then, the private sector has shed 300,000 jobs, with the cuts concentrated in construction, manufacturing, retail trade, and temp services.

Despite those job losses, government statistics show that consumer spending, although slowing, is at an all-time high when adjusted for inflation.... But a closer look at the numbers shows that the consumer spending boom may already have come to an end.... What the government calls "personal consumption" is actually a grab bag... includes about $1.8 trillion in outlays by Medicare, Medicaid, and private health insurance providers... "imputed" categories... $1.1 trillion for "rent" that homeowners theoretically pay to themselves to live in their own homes, and $240 billion for "services furnished without payment by financial intermediaries"--in other words, the value of services like no-fee checking accounts.

it turns out that the rest of personal spending has actually fallen since November, adjusted for inflation. The decline is pretty much across the board.... Nevada gambling revenues are down by 4% over the past year.... Purchases of jewelry and watches are off 3.9% since November...

Jack Balkin on John Yoo

He writes:

Balkinization: My own conclusion is that Yoo and Bybee did violate their professional obligations to the President as constitutional actor, and to the country as a whole. The reason is a combination of their outrageous theory of presidential dictatorship and their all too eager assistance in what appears to be a conspiracy to commit war crimes. But I do not pretend that the question is at all an easy one.

Scott Horton on the Culpability of John Yoo and Chris Edley

Scott writes:

Balkinization: well into his memorandum, Dean Edley rolls embarrassingly off the tracks.

Having worked in the White House under two presidents, I am exceptionally sensitive to the complex, ineffable boundary between policymaking and law-declaring. . . [N]o argument about what he did or didn't facilitate, or about his special obligations as an attorney, makes his conduct morally equivalent to that of his nominal clients, Secretary Rumsfeld, et al., or comparable to the conduct of interrogators distant in time, rank and place. Yes, it does matter that Yoo was an adviser, but President Bush and his national security appointees were the deciders.

Dean Edley concludes that... Yoo's ethical and legal culpability cannot be compared with that of the "deciders," that is, those who actually fix and implement policy. This is astonishingly fallacious.... Dean Edley jumps to this conclusion through a number of implicit factual conclusions. Of course, the full record of this sad tale is not yet established. Much remains purposefully obscured by the perpetrators. But... Edley's understanding of the facts is dead wrong.

In theory, the Office of Legal Counsel issues its best analysis of a legal issue for the benefit of its client, which is to say in the first instance the Attorney General, then the President. Edley assumes that Yoo was approached, as he has stated repeatedly, and asked to advise as to the full legal range of authority of the president with respect to intelligence interrogations.

That description can't be squared with the facts. A broad array of highly coercive techniques had already been implemented in rules of engagement issued to special operations teams long before Yoo was approached. Yoo was fully aware of this fact. He was commissioned to craft memoranda, twice, for purposes of a "cramdown." Lawyers and senior figures within both the CIA and DOD had objected to the new techniques very pointedly, noting that they violated criminal statutes and that both policy makers and personnel using them could be subject to prosecution.

In response to this "legal uprising," David Addington and Alberto Gonzales decided to task John Yoo to prepare memoranda... to protect the policymakers who had authorized torture techniques from future criminal liability... to wield the Attorney General's opinion powers to silence lawyers who had correctly evaluated the legal framework. Both of these purposes were wrongful, and inconsistent with the proper use of the Attorney General's opinion power. Criminal investigators may well conclude that this act joined John Yoo in a joint criminal enterprise with the persons who devised and pushed implementation of the torture policies.

Indeed, this is not entirely a speculative matter. We will shortly learn in the mass media that some prosecutors have already reached that conclusion and that the preparation of a criminal case is underway.

I base my conclusions about the facts behind the Yoo memoranda largely on my own investigation including not only the public record, but interviews with a number of figures who dealt with Yoo in the course of delivery of his torture opinions. Only yesterday, I learned from one prominent figure that he had seen repeated drafts of the March 2003 Yoo opinion, had cautioned Yoo on serious errors in judgment and interpretation in the memo, and had strongly urged modification of the memo at least to reflect the contrary viewpoint, even if only to distinguish it. Yoo insisted that he wanted it to be "clean." He declined to make any of the changes requested.

Similarly, Yoo was warned repeatedly that his views could not be squared with the overwhelming majority viewpoint in the community of law of war scholarship, and that the risk of criminal prosecution of those implementing his policies was severe. In response, Yoo stated that he was crafting his opinion consciously as a bulwark against future prosecution....

Dean Edley says he is convinced that John Yoo "continues to believe his legal reasoning was sound." I have no way of knowing the subjective state of mind of John Yoo, but the history of his dealings in connection with the issuance of the opinions suggests just the opposite. It suggests that he believed that an OLC opinion had a talismanic power and could be used as a tool to accomplish whatever ends he sought. That is very far from a sincerely grounded good faith belief in mistaken legal concepts.

So the facts establish that the torture policies were settled upon and had in fact been implemented. The principal authors were facing severe blow back from career lawyers inside the government. And John Yoo was carted in to use the powers of OLC to silence lawyers protesting the illegality of what was done. I believe that an objective examination of the facts will show that this is precisely how John Yoo understood his role. In essence, he was not an independent legal advisor. He had become a facilitator, an implementor of the torture policies. His role had shifted from passive advisor to actor, pushing a process forward....

Dean Edley asks what appears to be a rhetorical question:

Did the writing of the memoranda, and his related conduct, violate a criminal or comparable statute?

The answer to that question is "yes." The liability of an attorney dispensing advice with respect to the treatment of persons under detention in wartime is subject to a special rule. It cannot be viewed in the same manner as advice given in a complex commercial dispute, for instance... United States v. Altstoetter.... Following on the guidelines established by Justice Robert H. Jackson, the U.S. chief prosecutor, Telford Taylor, and his deputy, Charles M. La Follette, established clear principles of accountability for lawyers dispensing legal advice in circumstances virtually identical to those faced by John Yoo.... Each of these criteria is satisfied with respect to Yoo's advice under the torture memoranda. They explicitly address persons under detention. It was reasonably foreseeable that persons would suffer serious physical or mental harm or death as a result of the application of the techniques (in fact there have been more than 108 deaths in detention, a significant portion of them tied to torture). And the analysis was false, a point acknowledged ultimately by the OLC itself. Accordingly, a solid basis exists under the standard articulated by the United States under which John Yoo may be charged and brought to trial. In his defense Yoo will certainly rest almost entirely on notions of immunity crafted in derogation of non-derogable international law. These arguments will work with courts in the ideological thrall of the Bush Administration, but not elsewhere.

However, my point here is not to make the prosecutor's case against Yoo. It is to show that what he did raises not merely ethics issues, but actual criminal culpability. Edley's failure to appreciate that is very troubling. Yoo is protected by the political umbrella of the Bush Administration for the moment.... So Professor Yoo will want to think twice before boarding a jet for one of those stays on Lake Como of which he is so fond.

A final aspect of Dean Edley's memorandum troubles me. He is appropriately concerned about freedom of expression for his faculty. But he should be much more concerned about the message that all of this sends to his students. Lawyers who act on the public stage can have an enormous impact on their society and the world around them. They can make great sums of money. They can be a force for social good. And they can also be vessels of horrendous injustice and oppression. Indeed they can foment and advance a criminal design. Does Dean Edley really imagine that their work is subject to no principle of accountability because they are mere drones dispensing legal analysis? Does he believe that they are free to follow their careers like legal pipefitters, dispensing the advice that their clients want to hear--and if it goes astray, well then, the problem is all the client's? Does he want a generation of Berkeley grads to think that writing up CYA memos for political friends is an honorable and proper thing--or at least something you can get away with, suffering no negative repercussions? This is exactly what some of the more unfortunate and ill-considered language in his memo suggests.

Much of the nobility of this profession lies in the duty of a lawyer to exercise independent professional judgment and to warn a client from an enterprise which is not merely foolish but at times actually immoral and criminal. Elihu Root famously termed this the lawyer's first calling. When confronted with a trying circumstance, John Yoo not only failed to give proper warning -- He became an active part of an enterprise bent on overriding the most fundamental legal and ethical prohibitions. Perhaps a criminal enterprise. And that is and will likely be seen by future generations as a far more troublesome matter than Dean Edley recognizes.

Edley owes it to his institution and to the students it is training to accept the full ethical and legal challenges that the case of John Yoo raises, and to treat them earnestly. His decisions are not wrong. But the words he chose to express them do little credit to the students and faculty at Boalt Hall.

Tyler Cowen Is a More Diligent Man than I Am

He has read his copy of Heads in the Sand. He thinks that Matt Yglesias should be forced to spend a month working for the UN:

Marginal Revolution: Heads in the Sand: HThat's by Matt Yglesias (son of Rafael Yglesias) and the subtitle is How the Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats. Anyone who reads books on foreign policy should buy this book. Most of all it is a critique of recent practice and a defense of liberal internationalism. He calls for negotiating with Iran, not digging in deeper in Iraq, and more generally accepting multilateral frameworks for the use of American military power.

I agree with the policy recommendations though I would package them differently. I view liberal internationalism as a kind of noble lie which will in any case be superseded by American exceptionalism, most of all because of differing European and American experiences in WWII and differing degrees of religiosity. Rightly or wrongly, Americans are more likely to see menaces abroad and of course America is the only country that can even try to do much about them. Of course we've shown we're not up to the job, noting that Afghanistan (a just war, I might add, and do note it commanded international support for a while but that turned out not to matter) is probably going even worse than Iraq by standards of long-run viability. If our interventions are counterproductive, then constraints on those interventions are beneficial, and in that regard we can embrace internationalism for practical reasons.

But I can't have a high opinion of internationalism per se, perhaps because I've spent too much time actually working in multilateral institutions. The incentive is to negotiate at the margin, and eke out a somewhat better deal for one's nation and carry victories to diplomatic superiors back home, rather than to actually solve the international problem in cooperative fashion. If there is any good solution to be had, the large number of negotiating parties usually requires America to play von Stackelberg leader (remember Yugoslavia?), noting that our ability to do this has broken down for reasons that go beyond the failures of Bush. The EU now precommits to a greater role in global decisions and many more countries are wealthy and have global interests. Media spin means that no one wants to take too many sacrifices.

I think once a Democrat assumes the Presidency it will become clear just how much the old order has broken down, probably forever. European diplomats were cynical in the first place and don't forget that the Security Council still has two members whose influence is more or less pure poison. I can't imagine what liberal internationalism means, for instance, when it comes to allocating the thawing bits of the Arctic and the associated oil wealth. What will happen if/when the Russians simply try to grab more than international conventions allow them?

Note, by the way, that Saddam and Chirac really were gift-giving friends; that's not just a right-wing fantasy. At some level American voters understand much of this, albeit in excessively provincial terms, and they simply won't, in the electoral sense, allow the Democrats to inhabit the old space of internationalism.

In game-theoretic terms I would say the key question is what is the "threat point" America adopts when it offers to join international coalitions. Whatever Matt's answer might be (his book is not written in that sort of lingo) that is now the key question, noting that whatever threat point you specify you have to be willing to live with. One paradox is that the more internationalist your default threat point is, the less effective a country actually will be in leading an international coalition.

In short, I'm all for talk of liberal internationalism as long as we don't take it too seriously on its own terms. My prediction is that, doctrinally, Matt will eventually end up somewhere else, even though his practical advice is very sound and very well articulated and doesn't much need to be changed. I hereby sentence him to one full month spent working at the United Nations.

Two immediate thoughts come to mind:

  • Donald Rumsfeld and Saddam Hussein were considerably more than gift-giving friends once.
  • Governments are interested in winning zero-sum power games. People are--or rather ought to be--interested in not dying in wars and in being able to buy cheap stuff made abroad and visit interesting places. Liberal internationalism is possible to the extent that governments fear their people, and people understand their own interests.

Now I Have an Irresistible Desire to Go Read "Time Considered as a Helix of Semi-Precious Stones"...

Gary Farber sends us to Samuel Delany, who reads:

Samuel R. Delany: About Five Thousand Seven Hundred and Fifty Words: Now let's atomize the correction process itself. A story begins:


What is the image thrown on your mind? Whatever it is, it is going to be changed many, many times before the tale is over. My own, unmodified, rather whimsical The is a grey­ish ellipsoid about four feet high that balances on the floor perhaps a yard away. Yours is no doubt different. But it is there, has a specific size, shape, color, and bears a particular relation to you. My a for example, differs from my the in that it is about the same shape and color—a bit paler, per­haps — but it is either much farther away, or much smaller and nearer. In either case, I am going to be either much less, or much more, interested in it than I am in The. Now we come to the second word in the story and the first correction:

The red

My four-foot ellipsoid just changed color. It is still about the same distance away. It has become more interest­ing. In fact, even at this point I feel vaguely that the in­creased interest may be outside the leeway I allowed for The. I feel a strain here that would be absent if the first two words had been A red … My eye goes on to the third word while my mind prepares for the second correction:

The red sun

My original The has now been replaced by a luminous disk. The color has lightened considerably. The disk is above me. An indistinct landscape has formed about me. And I am even more aware, now that the object has been placed at such a distance, of the tension between my own interest level in red sun and the ordinary attention I accord a the: for the in­tensity of interest is all that is left with me of the original image.

Less clearly, in terms of future corrections, is a feeling that in this landscape it is either dawn, sunset, or, if it is another time, smog of some sort must be hazing the air (… red sun …); but I hold all for the next correction:

The red sun is

A sudden sense of intimacy. I am being asked to pay even greater attention, in a way that was would not demand, as was in the form of the traditional historical narrative. but is…? There is a speaker here! That focus in attention I felt between the first two words is not my attention, but the at­tention of the speaker. It resolves into a tone of voice: “The red sun is …” And I listen to this voice, in the midst of this still vague landscape, registering its concerns for the red sun. Between the and red information was generated that between sun and is resolved into a meaningful correction in my vision.

This is my first aesthetic pleasure from the tale—a small one, as we have only progressed four words into the story. Never­theless, it becomes one drop in the total enjoyment to come from the telling. Watching and listening to my speaker, I proceed to the next corrections:

The red sun is high,

Noon and slightly overcast; this is merely a confirma­tion of something previously suspected, nowhere near as major a correction as the one before. It allows a slight sense of warmth into the landscape, and the light has been fixed at a specific point. I attempt to visualize that landscape more clearly, but no object, including the speaker, has been cleared enough to resolve. The comma tells me that a thought group is complete. In the pause it occurs to me that the redness of the sun may not be a clue to smog at all, but merely the speaker falling into literary-ism; for at best, the redness is a projection of his consciousness, which as yet I don't under­stand. And for a moment I notice that from where I'm stand­ing the sun indeed appears its customary, blind-white gold. Next correction

The red sun is high, the

In this strange landscape (lit by its somewhat untrust­worthily described sun) the speaker has turned his attention to another grey, four-foot ellipsoid, equidistant from himself and me. Again, it is too indistinct to take highlighting. But there have been two corrections with not much tension, and the reality of the speaker himself is beginning to slip. What will this become?

The red sun is high, the blue

The ellipsoid has changed hue. But the repetition in the syntatic arrangement of the description momentarily threatens to dissolve all reality, landscape, speaker, and sun, into a mannered listing of bucolica. The whole scene dims. And the final correction?

The red sun is high, the blue low.

Look! We are world and worlds away. The first sun is huge; and how accurate the description of its color turns out to have been. The repetition that predicted mannerism how fixes both big and little sun to the sky. The landscape crawls with long red shadows and stubby blue ones, joined by pur­ple triangles. Look at the speaker himself. Can you see him? You have seen his doubled shadow …

Though it ordinarily takes only a quarter of a second and is largely unconscious, this is the process.

When the corrections as we move from word to word produce a muddy picture, when unclear bits of information do not resolve to even greater clarity as we progress, we call the writer a poor stylist. As the story goes on, and the pic­tures become more complicated as they develop through time, if even greater anomalies appear as we continue correcting, we say he can't plot. But it is the same quality error com­mitted on a grosser level, even though a reader must be a third on three-quarters of the way through the book to spot one, while the first may glare out from the opening sentence.

In any commercial field of writing, like s-f, the argument of writers and editors who feel content can be opposed to style runs, at its most articular:

“Basically we are writing adventure fiction. We are writ­ing it very fast. We do not have time to be concerned about any but the grosser errors. More importantly, you are talking about subtleties too refined for the vast majority of our readers who are basically neither literary nor sophisticated.”

The internal contradictions here could make a book. Let me outline two.

The basis of any adventure novel, s-f or otherwise, what gives it its entertainment value—escape value if you will—what sets it apart from the psychological novel, what names it an adventure, is the intensity with which the real actions of the story impinge on the protagonist's conscious­ness. The simplest way to generate that sense of adventure is to increase the intensity with which the real actions im­pinge on the reader's. And fictional intensity is almost en­tirely the province of those refinements of which I have been speaking.

The story of an infant's first toddle across the kitchen floor will be an adventure if the writer can generate the infantile wonder at new muscles, new efforts, obstacles, and detours. I would like to read such a story.

We have all read, many too many times, the heroic attempts of John Smith to save the lives of seven orphans in the face of fire, flood, and avalanche.

I am sure it was an adventure of Smith.

For the reader it was dull as dull could be.

"The Doors of His Face, the Lamps of His Mouth" by Roger Zelazny has been described as “…all speed and adventure…” by Theodore Sturgeon, and indeed it is one of the most exciting adventure tales s-f has produced. Let me change one word in every grammatical unit of every sentence, replacing it with a word that “…means more or less the same thing …” and i can diminish the excite­ment by half and expunge every trace of wit. Let me change one word and add one word, and I can make it so dull as to be practically unreadable. Yet a paragraph by paragraph synopsis of the “content” will be the same.

An experience I find painful (though it happens with increasing frequency) occurs when I must listen to a literate person who has just become enchanted by some hacked-out space-boiler begin to rhapsodise about the way the blunt, imprecise, leaden language reflects the hairy-chested hero's alienation from reality. He usually goes on to explain how th “…s-f content…” itself reflects our whole society's divorce from the real. The experience is painful because he is right as far as he goes. Badly-written adventure fic­tion is our true anti-literature. Its protagonists are our real anti-heroes. They move through un-real worlds amidst all sorts of noise and manage to preceive nothing meaningful or meaningfully.

Author's intention or no, that is what badly written s-f is about. But anyone who reads or writes s-f seriously knows that its particular excellence is in another area altogether: in all the brouhaha clinging about these unreal worlds, chords are sounded in total sympathy with the real.

“ … You are talking about subtleties too refined for the vast majority of our readers who are basically neither literary nor sophisticated.”

This part of the argument always throws me back to an incident from the summer I taught a remedial English class at my Neighborhood Community Center. The voluntary nature of the class automatically restricted enrollment to people who wanted to learn; still, I had sixteen and seventeen-year-olds who had never had any formal education in either Span­ish or English continually joining my lessons. Regardless, after a student had been in the class six months, I would throw him a full five hundred and fifty page novel to read: Dmitri Merezhkovsky's The Romance of Leonardo da Vinci. The book is full of Renaissance history, as well as sword play, magic, and dissertation on art and science. It is an ex­tremely literary novel with several levels of interpretation. It was a favorite of Sigmund Freud (Rilke, in a letter, found it loathesome) and inspired him to write his own Leonardo da Vinci: A Study in Psychosexuality. My students loved it, and with it, lost a good deal of their fear of Literature and Long Books.

Shortly before I had to leave the class, Leonardo ap­peared in paperback, translated by Hubert Trench. Till then it had only been available in a Modern Library edition translated by Bernard Gilbert Gurney. To save my last two students a trip to the Barnes and Nobel basement, as well as a dollar fifty, I suggested they buy the paperback. Two days later one had struggled through forty pages and the other had given up after ten. Both through the book dull, had no idea what it was about, and begged me for something shorter and more exciting.

Bewildered, I bought a copy of the Trench translation myself that afternoon. I do not have either book at hand as I write, so I'm sure a comparison with the actual texts will prove me an exaggerator. But I recall one description of a little house in Florence:

Gurney: “Grey smoke rose and curled from the slate chimney.”

Trench: “Billows of smoke, grey and gloomy, ele­vated and contorted up from the slates of the chimney.”

By the same process that differentiated the four ex­amples of putting books on a desk, these two sentences do not refer to the same smoke, chimney, house, time of day; nor do any of the other houses within sight remain the same; nor do any possible inhabitants. One sentence has nine words, the other fifteen. But atomize both as a series of corrected images and you will find the mental energy expended on the latter is greater by a factor of six or seven! And over seven­eights of it leaves that uncomfortable feeling of loose-end­edness, unutilized and unresolved. Sadly, it is the less skilled, less sophisticated reader who is most injured by bad writing. Bad prose requires more of your mental energy to correct your image word to word, and the corrections them­selves are less rewarding. That is what makes it bad. The sophisticated, literary reader may give the words the benefit of the doubt and question whether a seeming clumsiness is more fruitfully interpreted as an intentional ambiguity...

Alice Rivlin Defends the Bernanke Fed

She writes:

The Fed’s Money Well Spent - New York Times: [T[he supposed conflict between Wall Street and Main Street is a false one — Main Street runs on credit and cannot prosper if the financial system is in shambles and credit dries up.... [T]he supposed Fat Cat “bailout” was a disaster for Bear Stearns stockholders, and that the idea of a “moral hazard” risk — that other investment banks will be tempted to emulate Bear Stearns — is preposterous. Never mind that if markets head back up and the collateral can be sold at a profit, taxpayers may lose nothing. In the end, the Fed’s action was not aimed at rescuing those who made bad decisions out of greed or stupidity, but at protecting the rest of the country — and indeed the world — from the possibly devastating consequences of a financial meltdown.

Nevertheless, the outrage is both understandable and useful. Public money has been put at risk to calm a storm on Wall Street while ordinary people are losing their homes. The public is crying, “What about us?” and politicians are listening, as they should.... To be sure, many homeowners were shortsighted and greedy.. borrowed too much and got caught when the music stopped. Like the Bear Stearns shareholders, they should take losses. But putting them out of their homes does not merely harm them and their children, it endangers whole neighborhoods and drags down the assets of their more prudent neighbors.

Congress and the Bush administration should move quickly... to ease the renegotiation of mortgages and keep homeowners who are able to pay the new charges in their homes. Public money will have to be put at risk, but it is worth it. The deals should be structured so that the taxpayer shares in the gains if markets recover and the properties or mortgages are later sold at a profit.

When the immediate crisis is past, however, we must turn to the difficult task of reducing the chances of a replay. It will not be easy to design regulations that do more good than harm, but at the very least all financial institutions that stand to benefit from Federal Reserve help in a crisis must be subject to regulatory scrutiny to make sure they are managing their risk prudently. There must be higher capital requirements and limits on excessive leverage. If the rules are reasonable, we should not weep if a few high fliers choose to move their operations to other countries.... [W]e must take on the even harder job of sorting through the explosion of financial instruments that have proliferated in the boom and deciding which belong in our kit of tools and which should be relegated to the waste heap. If they genuinely spread risk and help move capital into more productive uses, they should stay. But some exotic derivatives seem mainly to reflect the efforts of traders to outsmart each other. Their opaqueness may entail more systemic risk than social value.

The folks who devise these exotica are talented enough to create something useful. We would all be better off if they were productively employed in the “real” economy...

Chris Edley on John Yoo, and a Question in Response...

Berkeley law dean Chris Edley writes on John Yoo "as dean, but speaking only for himself" here.

I am not satisfied:

Dear Chris--

I note your statement in re John Yoo that:

I believe the crucial questions in view of our university mission are these: Was there clear professional misconduct--that is, some breach of the professional ethics applicable to a government attorney--material to Professor Yoo’s academic position? Did the writing of the memoranda, and his related conduct, violate a criminal or comparable statute? Absent very substantial evidence on these questions, no university worthy of distinction should even contemplate dismissing a faculty member. That standard has not been met..."

I don't yet have an informed view in re John Yoo--I am not a lawyer. I suspect that when I have an informed and settled view it will be the Ernst Kantorowicz view: that once somebody is a member of the university their judgment is not to be constrained in any way whatsoever on any question that could possibly be considered "political."

But I do know lawyers expert in human rights who say that in their judgment John's memo of March 14, 2003 suggests a fact pattern that, if developed and filled out in ways that we can reasonably project, make him part of a conspiracy to commit crimes against what Thomas Jefferson would call Nature and Nature's God.

And I do know lawyers expert in constitutional law--including some Boalt professors--who say that in their judgment the failure of John's memo to make any attempt to distinguish the situation he was analyzing from the situation in Youngstown takes the memo out of the realm of possible good-faith argument and into that of being a serious breach of professional ethics--misconduct that rises to a level equivalent to that of falsifying evidence in a scholarly work.

I cannot help but think that it is time for some appropriate arm of the university that is expert enough to have an informed view to consider the matter, and to advise me and the rest of the faculty (a) why John's memo of March 14, 2003 does not, despite appearances, rise to the level of participating in a conspiracy to torture goatherds from Afghanistan who have been sold to the military by clan enemies falsely claiming they are members of Al Qaeda; and (b) why John's memo of March 14, 2003, does not, despite appearances, constitute a breach of the duty of a lawyer to his clients (in this case, the majors and colonels of the U.S. army who did the torturing) of a level equivalent to that of the falsification of evidence in a scholarly work--or to say (c) that in spite of substantial evidence of participation in a conspiracy to torture innocent goatherds and to deceive the majors and colonels who were his clients and acted in reliance on his advice, the Kantorowicz freedom-of-academic-speech position still applies.

I would like to know.

There is, I think, only a choice of poisons here no matter which way Berkeley moves. But I would like smarter and more informed people than me to publicly say what they think the least damaging poison for us all is.



Brad DeLong

Some Bursting Bubble References...

Reading about bursting bubbles:

Michael Mussa's Take on Global Imbalances as of Early 2004

He wrote:

Paper: Global Economic Prospects: Bright for 2004 but with Questions Thereafter: More generally, while global economic prospects look quite bright through 2004, there are important imbalances in the global economy that raise concerns for the longer term. It is useful to reflect briefly on these concerns before turning to a region-by-region assessment of near-term prospects.

Policy interest rates are exceptionally low in most industrial countries: zero in Japan and Switzerland, 1 percent in the United States, 2 percent in the euro area, and at or near historic lows in the United Kingdom and Canada. Inflation rates also are generally very low in the industrial countries, but, even taking this into account, short-term real interest rates are very low. (Realized short-term real rates went negative during some periods of rapidly rising inflation in the 1970s, but this was an anomaly that is not comparable to the present situation of low anticipated real interest rates.)

The very low level of policy interest rates is an imbalance (relative to normal conditions) that reflects exceptionally easy monetary policies to combat economic weakness. This policy imbalance poses an important challenge for the future conduct of monetary policy. Situations of low policy interest rates and low inflation tend to be associated with unusual inertia in the processes of general price inflation, which makes traditional indicators of rising inflationary pressures less reliable as measures of the need to begin to tighten monetary conditions. Also, these situations tend to be associated with high valuations of equities, real estate, and long-term bonds, which can become fertile ground for large, unsustainable increases in asset prices. In this situation, if monetary policy is tightened too much too soon (perhaps because of worries about unsustainable increases in asset prices), the result can be an unnecessary asset market crunch and economic slowdown, and monetary policy may have relatively little room to ease in order to counteract this outcome.

On the other hand, if monetary policy remains too easy for too long (perhaps because subdued general price inflation gives no clear signal of the need for monetary tightening), then large asset price anomalies may develop before corrective action is taken. The monetary authority would then confront the grim choice of trying to keep an unsustainable asset price bubble alive or trying to combat the collapse of such a bubble without a great deal of room for monetary easing.

A further concern related to the general monetary policy imbalance in the industrial countries is its effect on emerging market economies. Interest rate spreads for emerging market borrowers have contracted substantially and flows of new credit have increased. The boom in emerging market credit has not yet reached the frenzy of the first half of 1997, but it is headed in that direction. Another major series of emerging market financial crises (such as 1997-99) does not seem likely in the near term in view of the very low level of industrial country interest rates and the favorable global economic environment for emerging market countries. By 2005 or 2006, however, either upward movements in industrial country interest rates or deterioration of market perceptions of the economic and financial stability of some emerging market countries could trigger another round of crises.

Another important policy imbalance of global significance is the medium- and long-term fiscal imbalance of most industrial countries. Ratios of government debt to GDP are high in several countries, most notably Japan and Italy. Fiscal deficits are large in Japan and the United States and above the desired ceiling of 3 percent of GDP in Germany and France. Most important, industrial countries generally face enormous fiscal challenges from financing social benefits for aging populations that will materialize during the next two to three decades. These problems imply that, even in the near term, expansionary fiscal policy cannot prudently be used as a significant means for stimulating more rapid growth of aggregate demand in the industrial countries. To the extent that such stimulus may be needed, monetary policy is the prudent tool. But, as just noted, monetary policy does not at present have much remaining capacity to play this role and may not regain this capacity any time soon.

The other key global imbalance is the massive US current account (and net export) deficit and the corresponding surplus of the rest of the world. While it is plausible to suppose that the United States can continue to attract voluntary net capital inflows sufficient to finance a current account deficit of 2 to 2½ percent of its GDP, continuing deficits of 5 percent of US GDP are not plausible. The global adjustment necessary to reduce the US current account deficit by roughly half involves three essential elements.

First, in order to shift world demand toward US goods and services and away from those of the rest of the world by $250 billion to $300 billion, the real effective foreign exchange value of the US dollar needs to decline from its peak in 2000/01 by roughly 30 percent. Substantial downward corrections of the US dollar against the euro, sterling, and the Canadian and Australian dollars, and lesser correction against the Japanese yen, have now delivered somewhat less than half of the total required correction. Some further depreciation of the US dollar against these (aforementioned) currencies, particularly the Japanese yen, is needed over the next couple of years. However, the key remaining challenge for exchange rate adjustments is securing appreciations in the exchange rates of key emerging market currencies, especially in Asia. The exchange rate of the Chinese yuan has rightly received much recent attention in this regard (and Nicholas Lardy will comment further on this issue). But the issue is much broader. For most of emerging Asia, there has been little or no currency appreciation against the US dollar since 2000/01 (implying effective depreciation of the trade weighted exchange rate), and most of these countries have recently been intervening massively to resist market pressures for appreciation. These policies need to change to allow a broader downward correction of the value of the US dollar.

Second, for the US current account deficit to decline, domestic demand in the United States must grow more slowly, by a corresponding amount, than US output (real GDP). (This is the reverse of the pattern of recent years, when the excess of domestic demand growth over real GDP growth has accounted for the large deterioration in the US current account.) Getting this to happen in the United States, while also keeping US output close to potential, poses some difficulties. If domestic demand growth falls below potential output growth, the improvement in US net exports must step in to keep total demand for US output growing in line with potential. Otherwise, margins of slack will increase in the US economy. On the other hand, if output (and, hence, income) growth matches potential (with the level of output near potential), then there must be something to depress the growth of US domestic demand below the growth of US income. Otherwise, if US net exports are improving (due to the effects of a weaker US dollar and stronger demand growth abroad), then there would be undesirable overheating of the US economy. The necessary depressing force on US demand growth could come from a progressive tightening of US monetary policy. But this would depress domestic demand growth primarily by slowing private investment, thereby slowing the longer-term growth rate of the US economy. The preferable policy solution would be for the reversal of the fiscal expansion of 2001/04 to provide the desired negative impetus to domestic demand.

Third, for the rest of the world, the counterpart of US adjustment must be that domestic demand grows more rapidly than output. The amount of this difference corresponds to the deterioration of the current account in the rest of the world, which must match the improvement in the US current account. (Since the US economy accounts for about one-quarter of world output at market exchange rates, an improvement in US net exports equal to 3 percent of US GDP requires a worsening of net exports in the rest of the world of about 1 percent of GDP.) In recent years, however, the rest of the world has had difficulty generating sufficient demand growth to keep output growing at potential—and has relied on a net contribution of demand from the growing US net export deficit. Thus, securing a boost to demand growth in the rest of the world over the next couple of years poses a challenge, particularly so because, as previously noted, fiscal policy is generally not available to provide much demand stimulus, and monetary policies (at least in industrial countries) are already quite easy. At a minimum, it would appear desirable to keep monetary policies easy to support demand growth, but not so easy as to frustrate the exchange rate adjustments that are also a necessary factor in correcting global payments imbalances...

This Morning, Out on the Trail...

This Morning, Out on the Trail...

We count 42 women, 25 men.

Maybe the men are all out playing competitive sports.

Or maybe the female-male life expectancy gap--which has been falling due to reduced male smoking and better treatment of cardiac cases--has kissed its minimum.

We get back to the trailhead and find a 60-year old man and his dog sitting in their trunk and smoking a cigar...

Brad DeLong [email protected] 925 708 0467

"Economists set themselves too easy, too useless a task when in
tempestuous seasons they say only that when the storm is long-past the
sea will be flat again"

Some Observations on the Blackjack Movie "21," Mostly from the Fourteen-Year-Old's Math Class

In random order:

  • The Monty Hall Problem is much too elementary to be a plausible
    subject for a proper MIT nonlinear dynamics class.
  • They should have changed their hand-signals and their voice codes
    each time They went to Las Vegas--communications security is important.
  • The women and the Asian-American on the team had the hard cognitive
    task: keeping the card count accurately while giving no sign that they
    were doing so.
  • All the male lead had to do was bet when the odds were favorable.
  • But the movie did not show who was doing the cognitively-hard work.
  • A movie about math should not have the camera spend more time
    looking at strippers than at blackboards.

I don't know about you, but I am certainly impressed by these

Then again, these are the fourteen-year-olds who are in precalc...

New York Times Death Spiral Watch

This is just so embarrassingly bad. On so many levels:

David Brooks: The Great Forgetting: They say the 21st century is going to be the Asian Century, but, of course, it’s going to be the Bad Memory Century. Already, you go to dinner parties and the middle-aged high achievers talk more about how bad their memories are than about real estate. Already, the information acceleration syndrome means that more data is coursing through everybody’s brains, but less of it actually sticks. It’s become like a badge of a frenetic, stressful life — to have forgotten what you did last Saturday night, and through all of junior high.

In the era of an aging population, memory is the new sex.

Society is now riven between the memory haves and the memory have-nots. On the one side are these colossal Proustian memory bullies who get 1,800 pages of recollection out of a mere cookie-bite. They traipse around broadcasting their conspicuous displays of recall as if quoting Auden were the Hummer of conversational one-upmanship. On the other side are those of us suffering the normal effects of time, living in the hippocampically challenged community that is one step away from leaving the stove on all day.

This divide produces moments of social combat. Some vaguely familiar person will come up to you in the supermarket. “Stan, it’s so nice to see you!” The smug memory dropper can smell your nominal aphasia and is going to keep first-naming you until you are crushed into submission.

Your response here is critical. You want to open up with an effusive burst of insincere emotional warmth: “Hey!” You’re practically exploding with feigned ecstasy. “Wonderful to see you too! How is everything?” All the while, you are frantically whirring through your memory banks trying to anchor this person in some time and context.

A decent human being would sense your distress and give you some lagniappe of information — a mention of the church picnic you both attended, the parents’ association at school, the fact that the two of you were formerly married. But the Proustian bully will give you nothing. “I’m good. And you?” It’s like trying to get an arms control concession out of Leonid Brezhnev.

Your only strategy is evasive vagueness, conversational rope-a-dope until you can figure out who this person is. You start talking in the tone of over-generalized blandness that suggests you have recently emerged from a coma.

Sensing your pain, your enemy pours it on mercilessly. “And how is Mary, and little Steven and Rob?” People who needlessly display their knowledge of your kids’ names are the lowest scum of the earth.

You’re in agony now, praying for an episode of spontaneous combustion. But still she drives the blade in deeper, “That was some party the other night wasn’t it?”

You lose vision. What party? Did you see this person at a party? By now, articulation is impossible. You are a puddle of gurgling noises and awkward silences. After the longest of these pauses, she goes for the coup de grâce: “You have no idea who I am, do you?”

You can’t tell the truth. That would be an admission of social defeat. The only possible response is: “Of course, I know who you are. You’re the hooker who hangs around on 14th Street most Saturday nights.”

The dawning of the Bad Memory Century will have vast consequences for the social fabric and the international balance of power. International relations experts will notice that great powers can be defined by their national forgetting styles. Americans forget their sins. Russians forget their weaknesses. The French forget that they’ve forgotten God. And, in the Middle East, they forget everything but their resentments.

There will be new social movements and causes. The supermarket parking lots will be filled with cranky criminal gangs composed of middle-aged shoppers looking for their cars. As it becomes clear that a constant stream of blog posts and e-mails decimates the capacity for recall, people will be confronted with the modern Sophie’s choice — your BlackBerry or your mind.

Neural environmentalists will emerge from the slow foods movement, urging people to accept memory loss as a way to reduce their mental footprint. Meanwhile, mnemonic gurus will emerge offering to sell neural Viagra, but the only old memories the pills really bring back will involve trigonometry.

As in most great historical transformations, the members of the highly educated upper-middle class will express their suffering most loudly. It is especially painful when narcissists suffer memory loss because they are losing parts of the person they love most. First they lose the subjects they’ve only been pretending to understand — chaos theory, monetary policy, Don Delillo — and pretty soon their conversation is reduced to the core stories of self-heroism.

Their affection for themselves will endure through this Bad Memory Century, but their failure to retrieve will produce one of the epoch’s most notable features: shorter memoirs.

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

On Jared Bernstein's Book "Crunch"

I've been trying and failing to post this on TPM Cafe for a couple of days, so let me at least put it up here:

Let me join Alan Viard in beating up on Jared Bernstein for the undefined term "merit" in his first basic principle:

TPMCafe | Talking Points Memo | Let's Talk "Crunch": Economic outcomes are generally thought to be fair, in the sense that market forces dole out rewards to those who merit them. But that’s not always the case. Power, whether it’s based on political clout, wealth, class, race, or gender, is also a key determinant of who gets what.

"Merit" can, I think, mean three things:

  1. Marginal productivity--the amount by which, given who you are where you are with the resources you happen to own, total collective product would be reduced if you and your resources were to suddenly vanish from the scene.
  2. Optimal incentives--because we want people to take local actions that advance our global goals, we have set up a system that provides people in the right place at the right time with the right skills with incentives that give them a better life--or at least more stuff--if they take actions that we regard as adding to the total pie.
  3. From each according to his or her ability--what each would be able to add to the collective pie if he or she had and is the resources to fully realize his or her potential to the extent that that freedom for the one is compatible with that freedom for others.
  4. To each according to his or her need--what each of us needs, understanding "need" to include not just bare necessities but also conveniences and luxuries, to the extent that provision of what we need to one is compatible with the provision of what they need to others.

These four definitions of "merit" are very different and have very different implications. By definition #4, an individual with Down syndrome merits a great deal of support and resources. By definitions #1, #2, and #3, such an individual merits zero.

Jared doesn't hold with definition #1 or definition #2--that's the work that the "clout, wealth, class, race, or gender" phrase is doing in the latter part of his definition, to shift us down at least to definition #3. Alan, by contrast, wants to use "merit" as meaning what it means in definition #2--in large part, I think, because the world is not as rich as we would like it to be, and getting incentives right to make the pie bigger seems to him a way more conducive to enhancing social welfare and hence more meritorious than highlighting the gaps between what we each can do and thus get and what we each would get if we had been allowed to develop our ability or get others to recognize our need.

Jared wants to take the word "merit" and use it for definition #3 or #4; Alan wants to take the word "merit" and use it for definition #2 (or #1?). American history and culture is, I think, on Alan's side--though I wish it were otherwise.

The Old New Husbandry...

George Grantham (2007), "In Search of the Agricultural Revolution"

The outstanding agricultural performances of fourteenth-century Europe resulted not from massive deployment of hand labour on tiny plots but from the application of both labour and animals cultivating large fields. In this respect the "agricultural revolution" of the thirteenth century was more an economic than a technological phenomenon. At the early fourteenth-century peak, regions isolated by geography or unable to support dense population because of the poverty of their soil remained almost totally self-sufficient, attached to the rest of Europe only by the occasional passage of travellers and peddlers; others organized in local economies centred on rural market towns had more contact with other regions, but continued to produce almost entirely in response to local opportunity. However, a small, but most dynamic section developed between 1100 and 1300 in the context of a geographical extension in the market for a selected list of manufactured commodities. In the north it concentrated in Flanders and the adjacent districts of northern France, Hainault, and southeast England; another set of centres emerged in northern Italy and Catalonia. The economies of these regions tended to be highly specialized, especially in the north, where they were almost exclusively based on manufacturing woollen cloth for distant markets. If the rapid growth of manufacturing centers provided the critical impetus to agricultural improvement, it also left farmers highly vulnerable to monetary, and especially to political shocks affecting the urban textile economy. The history of agriculture in the period of medieval economic growth, then, is inseparable from the history of urbanization....

Classical economists from Cantillon to Mill held that inelastic agricultural supply was a logical implication of a static agricultural technology and a fixed supply of land. The belief in a steady state characterized by a ‘subsistence’ standard of living rested the belief that diminishing returns would inevitably shut down economic expansion. Yet we have seen that as a technological proposition, that pessimism was unwarranted. Did the great economists miss the ‘agricultural revolution’, or did they underestimate the capacity of traditional husbandry to respond to growing demand for foodstuffs?

The swings in agricultural output and productivity from the early middle ages to the industrial revolution occurred within a the confines of an agricultural technology that emerged at the end of the iron age. New plant introductions, notably a few crucially important species of leguminous fodder plants long present in Europe but rarely exploited economically, alimented the stock of exploitable genetic material, and craftsmen modified carts, ploughs, and harrows to provide an increasing range of adaptations to the physical and economic environment, but until advent of maize, potatoes, squashes and beans in the sixteenth century, products of the the American agricultural civilization of the hoe, European agricultural technology remained much as it had always been, biologically determined by the requirements of the bread cereals, and the exigencies of mechanical cultivation. Traditional technology was capable of achieving high levels of productivity and performance, but it could not indefinitely sustain productivity growth. It is now time to investigate the nature of both the limitations and the responsiveness of agricultural supply in the age of traditional husbandry.

April 11: Econ 101b: International Finance and "Global Imbalances": Introduction

April 11: International Finance and "Global Imbalances": Introduction

Notes: Lecture Audio


Some Background Notes for Susan Rasky's "Fiscal Choices" Project:

Some Background Notes for Susan Rasky's "Fiscal Choices" Project:

  • 2008 dollars
  • $80K GDP per worker today
  • $50K average full-time salary

What year? 2050...

  • $190K GDP per worker
  • $110K average full-time salary

2050 Spending per Worker:

  • $20K Medicare and Medicaid
  • $11K Social Security
  • $11K other federal government
  • $12K state and local government
  • $15K other health

2050 Baseline GDP Shares:

  • Social Security: 6.1%
  • Medicare and Medicaid: 10.6%

Clive Crook on the End of American Exceptionalism

I think that "American exceptionalism" really came to an end on two dates now long ago: March 4, 1933 (the inauguration of FDR) and June 5, 1947 (George Marshall's "Marshall Plan" speech). Ronald Reagan tried to widen the trans-Atlantic difference (or said he did) but failed (or, rather, his directors and cameramen soon decided that any serious effort to do so was a political loser).

Clive Crook more-or-less agrees:

The End of the American Exception: That the United States stands apart... goes back to Tocqueville.... America is to Europe as private enterprise is to the public good, as selfish individualism is to social partnership, as "compensation" is to work-life balance. Modern America has limited government, weak unions, high-powered incentives, capitalism red in tooth and claw. Post-war Europe has tax-and-spend, transport strikes, six-week vacations, and the welfare state....

Living in the U.S. for several years after decades as a restless Brit, I continue to be struck by two things. First, this idea of rival economic paradigms appeals to both audiences.... [But] in economic matters, America is far more like Europe, and Europe more like America, than either cares to admit. Moreover, the differences continue to shrink, and the pace of convergence seems about to accelerate.... Universal health care, if it happens, will be an enormous change in its own right, of course, but also one with further implications. It is going to push taxes up....

"Europe" is a gross simplification, so think about Britain--which continental Europe regards as a mid-Atlantic offshoot of the United States--and, say, the Netherlands. U.S. taxes are 27 percent of national income, British taxes are 37 percent, and the Netherlands' are 39 percent....

Roughly speaking, Britain and the Netherlands spend about 10 percentage points more of their national incomes on taxpayer-financed social spending. But if you allow for the higher taxes that Europeans pay on their benefits, and for cash-like tax reliefs that the United States freely uses to advance social goals, the difference shrinks by nearly half. This, to repeat, is before the Democrats have done their health reform....

Worker protections are weaker in America than in Western Europe, where employers are far less free to fire at will; and the floor that the minimum wage puts under incomes is lower here than there. But think about product-safety regulation, or environmental regulation. Think about the FDA. In many areas, America regulates its businesses at least as tightly as Europe.

In the 1980s, the Reagan administration did make a serious attempt to deregulate parts of the economy. Particular industries, notably banking and the airlines, were transformed.... But these were exceptions to an ongoing trend of regulatory accretion....

Could the lines even cross? Could America ever become more European than Europe?.... Elements, at least, of the programs outlined by Barack Obama and Hillary Clinton during their nomination contest are significantly to the left of where Britain's Labour Party, post-Thatcher, post-Blair, now stands. (Think about that.)... For good or ill, the era of the American economic exception is coming to an end.

I Have the Best Job in the World...

I walk into Brewed Awakening at 9 AM on a Thursday morning eager to procrastinate, and find that I can get myself lectured by Bob Reich on McCain's fund-raising strategy, and then by Emily Oster on the connection between increased exports and the spread of AIDS in Africa and then on people's willingness to be tested for Huntington's chorea, and then by Stefano dellaVigne and Ulrike Malmendier about how meta-analysis protocols presume that all of author-generated risk in research studies is idiosyncratic and none is systematic...

It really doesn't get any better than this.

If only I were prepared for the guest lecture I signed up to give at 11 AM...

Democratic "Electability"

It's probably too late for me to ever learn whether it is spelled "electability" or "electibility": the neuronal grooves are too deep.

We are, however, live at Salon on the topic: | No, Hillary Clinton shouldn't be winning: Hillary Rodham Clinton has won fewer votes this spring in contested primaries than Barack Obama. She has persuaded fewer of her supporters to turn out for caucuses. She has won fewer pledged delegates. Yet Sean Wilentz writes that she "should be winning." And in response I say: "Huh?"

It turns out that when Sean Wilentz says that Hillary Clinton "should be winning" the race for the Democratic presidential nomination, what he means is that if all the Democratic caucuses and primaries had been winner-take-all, then "Clinton would now have 1,743 pledged delegates to Obama's 1,257."

Sean Wilentz is a Yankees fan. I am a Red Sox fan. Perhaps Sean Wilentz could write that the American League championship should go to the team with the most hits instead of the most wins, which would have made the Yankees rather than the Red Sox the real champions last year. After all, isn't the real point of baseball to hit the ball and get on base? That's why it's called baseball, and not run-ball or win-ball, right?... "If my grandmother had wheels, she would be a bus" is rarely a persuasive line of reasoning. If the rules for winning delegates and the nomination had been different, the candidates would have run different campaigns and put their resources into different places and different proportions....

The best... "electability" argument for Hillary Clinton was made by Josh Marshall of Talking Points Memo in a commentary on posts by bloggers David Sirota and Brendan Nyhan. Marshall wrote that he believes that states with a midsize African-American population are especially difficult for Obama to win:

[R]acially polarized voting increases with the size of the black population in a given state. That leaves Obama winning a lot of states with few blacks. But once the black population gets into the high single digits, racialized voting kicks in and Obama then can't get enough of the white population to win. Only when blacks approach 20% of the population does the black population get large enough to make up for and often overcome the increased white resistance to voting for Obama ...

Only a quarter of the nation lives in states where... "racialized voting kicks in" but where the African-American population is not large enough "to make up for and often overcome the increased white resistance to voting for Obama." But 96 out of the 153 swing electoral votes belong to five key states... where the black population is not big enough for an increased black turnout to offset the white vote... Michigan and Florida (14 percent); Missouri and Ohio (11 percent); and Pennsylvania (10 percent). The argument that Wilentz should have made is that this spring's primary results show that white reluctance to vote for an African-American candidate could be a real and important factor this November -- and potentially key in these five states, all of them crucial to Democratic hopes....

Is this argument true?... As best as I can tell, no. As Nyhan pointed out, there is no visible tendency for Obama to fare worse than Clinton as the African-American portion of the population increases... [and] there is no sign that states with demographic compositions like the key five -- Pennsylvania, Ohio, Florida, Michigan and Missouri -- are necessarily hard terrain for Democratic politicians. Consider this graph, which is constructed to show the correlation between percentage of black population and the Democratic vote....

With the exception of Washington, D.C. -- that blue dot way off in the upper-right corner... the linear relationship between African-American population share and Democratic vote share is flat....

Thus my judgment is that the argument that superdelegates should support Hillary Clinton because Barack Obama is not very "electable" falls to the ground.... I think that Wilentz agrees with me. He... spends little time engaging the real-world issue of electability.... Which Democratic candidate, Obama or Clinton, has a better chance of carrying Michigan, Pennsylvania, Minnesota, Oregon, Wisconsin, New Hampshire, Iowa, New Mexico, Florida, Ohio, Nevada, Missouri and Colorado against John McCain in November?

Richard Green on Real Rents

Richard Green writes:

Richard's Real Estate and Urban Economics Blog: Paul Krugman and Brad Delong have an argument about Rents: Krugman argues that house prices are fundamentally still too high, because CPI real rents have been flat. Delong says he is not sure what to make of CPI Rents. As I noted in a previous post, Ralph Turley, who knows more about these things than most all of us, argues that CPI rents are in fact measured incorrectly.

In a paper I did with Cutts and Chang (for which I must get around to doing the final revision), we performed hedonic regressions showing that quality adjusted rents during the 1990s in many cities did rise more rapidly than the CPI suggested. And when I look at rent to price ratios for comparable properties (i.e., condos and apartments) in, say, Los Angeles, the financial argument for owning seems pretty reasonable right now. Again, because we don't know how people are forming their expectations at the moment, it is difficult to say when a bottom is coming. But I do think equilibrium house prices are higher than Krugman thinks.

Notes for April 9: Econ 210a: "Settler" Industrialization, 1700-1914

Memo Question for April 9: The economies settled from northwestern Europe--the United States, Canada, Australia, New Zealand--were all resource rich. So why did they industrialize? Why didn't they simply become gigantic Denmarks, shipping agricultural and other resource-based products to the European industral powers in return for manufactures?

This week we have four readings:

They all four bear on the question of settler industrialization--and thus on the question of why the heart of the world economy today is not somewhere near Amsterdam but somewhere between Los Angeles and New York. You would think that the center of innovative industry would remain near its original heartlands--that agglomeration economies in R&D and economic activity would keep Manchester the heart of the world economy. But that is not what happened:

The nineteenth-century periphery industrialized and grew rich--but only a part of the nineteenth-century periphery, and not just the English-speaking British-institutions nineteenth-century periphery--Japan, Barbados, Jamaica, British Guyana, Mississippi...

Paul Krugman on Evsey Domar:

Paul Krugman: [Domar] came up with a simple yet powerful insight: there's no point in enslaving or enserfing a man unless the wage you would have to pay him if he was free is substantially above the cost of feeding, housing, and clothing him. Imagine a pre-industrial society where population is pressing on limited land supplies, and the marginal product of labor... is barely at subsistence. In that case, why bother establishing property rights in human beings? It costs no more to hire a free worker than to feed an indentured laborer. Indeed, by 1300 - with Europe very much a Malthusian society - serfdom had withered away from lack of interest. But now suppose that for some reason land becomes abundant, and labor scarce. Then competition among landowners will tend to push up wages of free workers, and the ruling class will try, if it can, to pin peasants down and prevent them from bargaining for a higher standard of living. In Russia, it was all about gunpowder: suddenly steppe nomads were no longer so formidable, and the rich lands of the Ukraine were open for settlement. Serfdom was an effort to keep peasants from taking advantage of this situation. (And if I've got it right, those who were venturesome enough to run away and set up outside the system became Cossacks.)

Meanwhile, the New World opened in the west. Sure enough, the colonizing powers tried various forms of indentured servitude - making serfs of the Indians in Spanish territories, bringing over indentured servants in Virginia. But eventually they hit on a better solution, from their point of view: importing slaves from Africa...

Brad DeLong on Evsey Domar:

Brad DeLong: Domar's contribution is truly one of the most effective and powerful pieces of synthetic social science I have ever read. It isn't perfect. He has more predecessors than he realizes (Marx, for example, especially Marx's observations on the Swan River Colony in Australia, and the whole section on primitive accumulation and the creation of agrarian capitalism in Britain). And Domar misses one big cause of serfdom and slavery. During the formation of the Roman Empire, in Poland at the end of the Middle Ages, and in the Caribbean islands during the early modern period, slavery and serfdom did not emerge because a high land-labor ratio meant that the ruling elite could not afford to bid for labor in a free labor market. Slavery and serfdom emerged, instead, because high demand for staple products (grain, sugar, tobacco...) greatly lowered the gap between the productivity of free and the productivity of bound workers. Staple production is easier for gang-bosses to monitor than more diversified farming. Staple production also has lower skill requirements for workers. When demand for staple products is very high--to feed the proletariat of imperial Rome, to feed the growing cities of late-Medieval Flanders, or to supply the cheap luxuries demanded by early modern England--slavery or serfdom can emerge even without an extraordinarily high land/labor ratio....

[And there are the] two big questions:

  • First, why didn't the Western European nobility re-enserf the peasantry after the Black Death and the resulting big rise in the land/labor ratio? Domar wrestles with this question unsuccessfully in his paper. But I have to say that it is still largely a mystery.

  • Second, why hasn't bound labor reemerged in the modern world? Elites in developing countries can no longer be confident in their ability to earn hefty incomes by employing workers and paying them much less than their average product: an elite monopoly of land ownership is no longer worth much. So why haven't they responded to the potential erosion of their collective economic edge by turning to politics and force to bind workers. One answer is that, to some extent, they have: Consider that modern states are surprisingly effective as tax-collection machines, and in large chunks of the world the elite's power and (relative) prosperity is rooted in its "new class" control over the flow of resources from the state. Consider, also, the Communist Party of Vietnam--what is it but a gang labor boss for unfree labor deployed to produce shoes for Nike?

Very good questions, a very good paper, and I cannot feel but that my 210a class would have gone better [that] year had I kept Domar on the reading list, canned the "labor scarcity and interchangeable parts" part of the course, and spent not half a class on American slavery but a whole class on Unfree Labor in Historical Perspective.

Engerman and Sokoloff: Why did Latin America stay poor?





Peter Temin, "Labor Scarcity":



  • A = F(L,R); K--capital, R--resources, A--agricultural goods
  • M = G(K,L); L--labor, M--manufactures
  • capital is made up of manufactured goods...
  • f--price of food, w--wage, r--real interest rate, m--price of manufactures and capital

  • M = g(K/L)L

  • r = {m(g'(K/L))}/m
  • K/L = g'-1(r)

Goldin and Sokoloff:


ref: W Arthur Lewis

April 9 Lecture: Econ 101b: Arguments Against Lender-of-Last Resort Operations

Lecture Audio

Arguments Against Standard Central Bank Lender-of-Last Resort Operations:

  • Since at least 1844, central banks have been trying to avoid great depressions by acting as lenders-of-last-resort in times of financial crisis
    • Stage I: provide liquidity (at a penalty rate)
    • Stage II: lower interest rates on safe assets (via open market operations)
    • Stage III: direct market support of some kind

The critics say...

  • This is immoral

    • We have a system in which the Princes of Wall Street earn great fortunes by virtue of their analytical skills, entrepreneurial vision, and willingness to take and bear risks
    • The lender-of-last-resort function provides them with a safety net, and so turns them from economic heroes into villains
    • Response I: There are no Randites in a panic...
    • Response II: Exactly: if it's good to have a safety net for rich financiers, it's better to have a safety net for the middle class and the poor as well--and a progressive income tax to fund it...
  • This is unfair

    • Rich, feckless financiers who ought to be punished escape with their wealth to their yachts
    • Thriftless, feckless, imprudent borrowers who ought to have known better escape loss--and live more lavishly than the thrifty and prudent who played by the rules
    • Response: Markets aren't fair--the lucky prosper, and this is a form of luck. Markets are about productivity and efficiency, politics is about justice--see above re progressive income tax, etc.
  • This won't work in the long run

    • I: Moral Hazard:
      • Financiers in the future, knowing that the central bank has always shown up in the past, will be even more imprudent and feckless
      • Thus the rescue doesn't cure the current financial crisis so much as create future ones
      • Response I: Yes, this is a danger to guard against--but the risks we want to guard against are those of running the real economy into an iceberg, not an unfair rearranging of the chairs on the pool deck
      • Response II: The principals of Bear Stearns lost the bulk of their wealth; the principals of LTCM lost their fortunes as well; how much additional moral hazard is created by LoLR?
    • II: Adverse Selection
      • You need big depressions and their losses to clean the the ranks of the entrepreneurs...
    • III. Overinvestment
      • The financial crisis is a reflection of a real disequilibrium--of an overinvestment. Boosting the prices of financial assets simply generates more overinvestment--and a bigger problem, because the bigger amount of overinvestment then has to be worked off...

This is a very old argument indeed: Karl Marx and Friedrich Engels made it.

It is, I think, a matter of time and scale: we want investment spending to decline as rapidly as workers can be redeployed to other potential leading sectors--but no faster. The bubble needs to "deflate," not "pop"...

Paul Krugman has, I think, the best answer:

THE HANGOVER THEORY: Are Recessions the inevitable payback for good times?: A few weeks ago, a journalist devoted a substantial part of a profile of yours truly to my failure to pay due attention to the "Austrian theory" of the business cycle--a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire. Oh well. But the incident set me thinking--not so much about that particular theory as about the general worldview behind it. Call it the overinvestment theory of recessions, or "liquidationism," or just call it the "hangover theory." It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion.

The hangover theory is perversely seductive--not because it offers an easy way out, but because it doesn't. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.... The many variants of the hangover theory all go something like this: In the beginning, an investment boom gets out of hand... all that investment leads to the creation of too much capacity--of factories that cannot find markets, of office buildings that cannot find tenants... reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.

Except for that last bit about the virtues of recessions, this is not a bad story about investment cycles.... But let's ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole?... Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods--implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

Most modern hangover theorists probably don't even realize this is a problem for their story. Nor did those supposedly deep Austrian theorists answer the riddle. The best that von Hayek or Schumpeter could come up with was the vague suggestion that unemployment was a frictional problem created as the economy transferred workers from a bloated investment goods sector back to the production of consumer goods. (Hence their opposition to any attempt to increase demand: This would leave "part of the work of depression undone," since mass unemployment was part of the process of "adapting the structure of production.") But in that case, why doesn't the investment boom--which presumably requires a transfer of workers in the opposite direction--also generate mass unemployment? And anyway, this story bears little resemblance to what actually happens in a recession, when every industry--not just the investment sector--normally contracts.... The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present. Yet the theory has powerful emotional appeal. Usually that appeal is strongest for conservatives.... But moderates and liberals are not immune to the theory's seductive charms--especially when it gives them a chance to lecture others on their failings...

Karl Marx and Friedrich Engels, 1848:

The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground - what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?...

Modern bourgeois society with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells.... It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the entire bourgeois society. In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic 10 that, in all earlier epochs, would have seemed an absurdity - the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce.... The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented...

Karl Marx and Friedrich Engels, 1851:

The years 1843-5 were years of industrial and commercial prosperity, a necessary sequel to the almost uninterrupted industrial depression of 1837-42. As is always the case, prosperity very rapidly encouraged speculation. Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as a consequence of its own previous exuberance but merely as a setback caused by the collapse of speculation....

In the years of prosperity from 1843 to 1845, speculation was concentrated principally in railways, where it was based upon a real demand.... The extension of the English railway system... 1845... the number of bills presented for the formation of railway companies [i.e., IPOs] amounted to 1,035.... The heyday of this speculation was the summer and autumn of 1845. Stock prices rose continuously, and the speculators' profits soon sucked all social classes into the whirlpool. Dukes and earls competed with merchants and manufacturers for the lucrative honour of sitting on the boards of directors of the various companies; members of the House of Commons, the legal profession and the clergy were also represented in large numbers. Anyone who had saved a penny, anyone who had the least credit at his disposal, speculated in railway stocks. The number of railway journals rose from three to twenty. The large daily papers often each earned £14,000 per week from railway advertisements and prospectuses. Not enough engineers could be found, and they were paid enormous salaries. Printers, lithographers, bookbinders, paper-merchants and others, who were mobilized to produce prospectuses, plans, maps, etc; furnishing manufacturers who fitted out the mushrooming offices of the countless railway boards and provisional committees — all were paid splendid sums. On the basis of the actual extension of the English and continental railway system and the speculation which accompanied it, there gradually arose in this period a superstructure of fraud.... Hundreds of companies were promoted without the least chance of success, companies whose promoters themselves never intended any real execution of the schemes, companies whose sole reason for existence was the directors' consumption of the funds deposited and the fraudulent profits obtained from the sale of stocks.

In October 1848 a reaction ensued, soon becoming a total panic.... The railway crisis lasted into the autumn of 1848, prolonged by the successive bankruptcies of less unsound schemes as they were gradually affected by the general pressure and as demands for payment were made. This crisis was also aggravated by developments in other areas of speculation, and in commerce and industry; the prices of the older, better-established stocks were gradually forced down, until in October 1848 they reached their lowest level....

If the new cycle of industrial development which began in 1848 takes the same course as that of 1843-7, the crisis will break out in 1852. As a symptom that the excess speculation which is caused by overproduction, and which precedes each crisis, will not be long in coming, we can quote the fact that the discount rate of the Bank of England has not risen above 3 per cent for two years. But when the Bank of England keeps its interest rates down in times of prosperity, the other money dealers have to reduce their rates even more, just as in times of crisis when the Bank raises the rate considerably, they have to raise their rates above the Bank's. The additional capital which, as we have seen above, is always unloaded onto the bond market in times of prosperity, is enough by itself to force down the interest rate, as a result of the laws of competition; but the interest rate is reduced to a much larger extent by the enormous expansion of credit produced by general prosperity, which lowers the demand for capital. In these periods a government is in a position to reduce the interest rate on its funded debts, and the landowner is able to renew his mortgage on more favourable terms. The capitalists with investments in loan capital thus see their income reduced by a third or more, at a time when the income of all other classes is rising. The longer this situation lasts, the more they will be under pressure to look for more profitable capital investments. Overproduction gives rise to numerous new projects, and the success of a few of them is sufficient to attract a whole mass of capital in the same direction, until gradually the bubble becomes general. But, as we have seen, speculation has at this point of time only two outlets; cotton growing and the new world market routes created by the development of California and Australia. It is evident that this time the scope for speculation will assume far greater dimensions than in any earlier period of prosperity....

Sir Robert Peel... has been apotheosized in the most exaggerated fashion by almost all parties as England's greatest statesman. One thing at least distinguished him from the European 'statesmen' — he was no mere careerist. Beyond this, the statesmanship of this son of the bourgeoisie who rose to be leader of the aristocracy consisted in the view that there is today only one real aristocracy: the bourgeoisie.... Catholic emancipation and the reform of the police, by means of which he increased the bourgeoisie's political power... the Bank Acts of 1818 and 1844, which strengthened the financial aristocracy... the tariff reform of 1842 and the free trade legislation of 1846, with which the aristocracy was nothing short of sacrificed to the industrial bourgeoisie.... His power over the House of Commons was based upon the extraordinary plausibility of his eloquence. If one reads his most famous speeches, one finds that they consist of a massive accumulation of commonplaces, skillfully interspersed with s large amount of statistical data. Almost all the towns in England want to erect a monument to the man who repealed the Corn Laws. A Chartist journal has remarked, referring to the police trained by Peel in 1829: 'What do we want with these monuments to Peel? Every police officer in England and Ireland is a living monument to Peel...

From BobbyK's Paul Krugman Archive:

: THE HANGOVER THEORY: Are Recessions the inevitable payback for good times?

SYNOPSIS: The constantly occuring idea of helpful Recessions is incoherent and faulty

A few weeks ago, a journalist devoted a substantial part of a profile of yours truly to my failure to pay due attention to the "Austrian theory" of the business cycle--a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire. Oh well. But the incident set me thinking--not so much about that particular theory as about the general worldview behind it. Call it the overinvestment theory of recessions, or "liquidationism," or just call it the "hangover theory." It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion.

The hangover theory is perversely seductive--not because it offers an easy way out, but because it doesn't. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.

Powerful as these seductions may be, they must be resisted--for the hangover theory is disastrously wrongheaded. Recessions are not necessary consequences of booms. They can and should be fought, not with austerity but with liberality--with policies that encourage people to spend more, not less. Nor is this merely an academic argument: The hangover theory can do real harm. Liquidationist views played an important role in the spread of the Great Depression--with Austrian theorists such as Friedrich von Hayek and Joseph Schumpeter strenuously arguing, in the very depths of that depression, against any attempt to restore "sham" prosperity by expanding credit and the money supply. And these same views are doing their bit to inhibit recovery in the world's depressed economies at this very moment.

The many variants of the hangover theory all go something like this: In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity--of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.

Except for that last bit about the virtues of recessions, this is not a bad story about investment cycles. Anyone who has watched the ups and downs of, say, Boston's real estate market over the past 20 years can tell you that episodes in which overoptimism and overbuilding are followed by a bleary-eyed morning after are very much a part of real life. But let's ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole? Don't say that it's obvious--although investment cycles clearly are associated with economywide recessions and recoveries in practice, a theory is supposed to explain observed correlations, not just assume them. And in fact the key to the Keynesian revolution in economic thought--a revolution that made hangover theory in general and Austrian theory in particular as obsolete as epicycles--was John Maynard Keynes' realization that the crucial question was not why investment demand sometimes declines, but why such declines cause the whole economy to slump.

Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods--implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

Most modern hangover theorists probably don't even realize this is a problem for their story. Nor did those supposedly deep Austrian theorists answer the riddle. The best that von Hayek or Schumpeter could come up with was the vague suggestion that unemployment was a frictional problem created as the economy transferred workers from a bloated investment goods sector back to the production of consumer goods. (Hence their opposition to any attempt to increase demand: This would leave "part of the work of depression undone," since mass unemployment was part of the process of "adapting the structure of production.") But in that case, why doesn't the investment boom--which presumably requires a transfer of workers in the opposite direction--also generate mass unemployment? And anyway, this story bears little resemblance to what actually happens in a recession, when every industry--not just the investment sector--normally contracts.

As is so often the case in economics (or for that matter in any intellectual endeavor), the explanation of how recessions can happen, though arrived at only after an epic intellectual journey, turns out to be extremely simple. A recession happens when, for whatever reason, a large part of the private sector tries to increase its cash reserves at the same time. Yet, for all its simplicity, the insight that a slump is about an excess demand for money makes nonsense of the whole hangover theory. For if the problem is that collectively people want to hold more money than there is in circulation, why not simply increase the supply of money? You may tell me that it's not that simple, that during the previous boom businessmen made bad investments and banks made bad loans. Well, fine. Junk the bad investments and write off the bad loans. Why should this require that perfectly good productive capacity be left idle?

The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present. Yet the theory has powerful emotional appeal. Usually that appeal is strongest for conservatives, who can't stand the thought that positive action by governments (let alone--horrors!--printing money) can ever be a good idea. Some libertarians extol the Austrian theory, not because they have really thought that theory through, but because they feel the need for some prestigious alternative to the perceived statist implications of Keynesianism. And some people probably are attracted to Austrianism because they imagine that it devalues the intellectual pretensions of economics professors. But moderates and liberals are not immune to the theory's seductive charms--especially when it gives them a chance to lecture others on their failings.

Few Western commentators have resisted the temptation to turn Asia's economic woes into an occasion for moralizing on the region's past sins. How many articles have you read blaming Japan's current malaise on the excesses of the "bubble economy" of the 1980s--even though that bubble burst almost a decade ago? How many editorials have you seen warning that credit expansion in Korea or Malaysia is a terrible idea, because after all it was excessive credit expansion that created the problem in the first place?

And the Asians--the Japanese in particular--take such strictures seriously. One often hears that Japan is adrift because its politicians refuse to make hard choices, to take on vested interests. The truth is that the Japanese have been remarkably willing to make hard choices, such as raising taxes sharply in 1997. Indeed, they are in trouble partly because they insist on making hard choices, when what the economy really needs is to take the easy way out. The Great Depression happened largely because policy-makers imagined that austerity was the way to fight a recession; the not-so-great depression that has enveloped much of Asia has been worsened by the same instinct. Keynes had it right: Often, if not always, "it is ideas, not vested interests, that are dangerous for good or evil."

links for 2008-04-09

DeLong Smackdown Watch: Paul Krugman

Paul Krugman writes:

Permanently high home prices? - Paul Krugman - Op-Ed Columnist - New York Times Blog: Brad DeLong is of the belief that home prices won%u2019t fall back to pre-bubble levels, because "America is filling up" and "we will wind up with higher prices for scarce positional goods--chief among which is location, location, location."

The trouble with this argument is that it's an argument for rising rents as well as rising prices -- and if you believe the BLS data, that just hasn%u2019t happened nationally. Below are the Case-Shiller home price index and the BLS index of "rent of primary residence", both adjusted for overall CPI and expressed as indexes with Jan. 1987=100. Bottom line: rents have hardly risen at all in real terms.

Now, maybe the BLS is wrong. But for what it's worth, the data say that essentially all the rise in real home prices came from a rise in the price-rent ratio, which suggests that things will go right back to where they were.

Permanently high home prices? - Paul Krugman - Op-Ed Columnist - New York Times Blog

The "rents" argument applies to the "filling up" part of the argument, but not to the "foreigners want to invest in America and that will keep interest rates low for a long time" argument.

Abd I am less confident in the BLS than Paul is. Don't get me wrong--they do a superb job on a shoestring--and maybe I spend much too much of my time in unusual and unrepresentative places, but I am almost as unhappy with the rental price index as I am with the software price index.


In Re John Yoo...

The consensus of thoughtful lawyers on the matter of John Yoo appears to be that John Yoo's conduct amounts to intellectual malpractice--and rises to a level warranting dismissal from the University of California:

With this many academics talking about this stuff, if there were enough directly applicable precedents to be 'controlling' here, someone would know the story offhand. I could be wrong, but I'd bet a fair amount that the decision of how to apply the faculty code of conduct is up to Boalt Hall, reasoning from first principles, not from precedent.

And at that point, I have a very easy time saying it's the equivalent of scholarly misconduct. Legal work isn't exactly scholarship, but it has its own ethical obligations. And writing a memo like that [of March 14, 2003] (everyone's harping on Youngstown, but that's something whose absence takes the memo out of the realm of possible good-faith argument) is unethical -- if those arguments were made to a court, they would be an unethical attempt to deceive the court into believing there was no contrary precedent. That failure to meet the standards of practice required by the legal profession appears to me to be close enough to a failure to abide by the standards of the scholarly profession that it can be treated as an equivalent level of scholarly misconduct.

Note that I'm not arguing that he's such a bad man that he should be fired, but that the memo establishes that he is such a bad (either implausibly incompetent or much more likely ethical-standards-violating) lawyer that he should be fired as a professor of law....

I think it's a pretty easy case to make... [O]n some level the reason you can fire a professor for scholarly misconduct is to make it clear that if you, e.g., falsify data, you may not teach -- people learning to be scholars shouldn't learn that such falsification is compatible with scholarship. Writing legal arguments that ignore (not find some way to distinguish, but flatly ignore) controlling precedent is very much the same sort of misconduct, and the argument that people learning to be lawyers must be protected from coming to believe that it's an acceptable part of lawyering is closely parallel...

This seems to me to be dispositive. I don't see an answer to this argument.

Kerry Howley on China

She is driven into shrill unholy madness by the stupidity that is the Weekly Standard:

: The whole [Weekly Standard] thing is nonresponsive to Brzezinski's argument, but it's the last sentence that strikes me as weirdly dismissive. In 1978, the majority of rural Chinese were living at subsistence, the way the majority of Burmese live now. A third of the rural population--260 million peopl--lived under the poverty line, meaning that they were not adequately fed or clothed even in a good year.

By 1997, the number of people living under the poverty line had been slashed by 200 million. A Chinese person born in 1960 could expect to live until 41, give or take. Kids born today will, on average, live 30 years longer. No other society has ever undergone such a dramatic transformation in two decades. The fact that we can even talk about restrictions on Chinese Internet access implies a massive improvement in wellbeing.

There is a serious lack of imaginative capacity among pundits who can, in a sentence, brush this kind of thing aside. Bangladeshis vote for their corrupt leaders and legally worship whatever God they wish. In what substantive sense is a kid born in Dhaka (GDP per capita: $2300) better off than a kid born in Beijing ($7700) or Singapore ($31,400)? Free to do what? Almost anywhere, prosperity brings with it the ability to educate your children, to enjoy a modicum of leisure, to leave. What's freedom of exit worth if you can't afford a plane ticket?

I get the sense, reading this kind of analysis, that China hawks have stopped conceptualizing the Chinese as people. They're just political objects defined by a checklist of political freedoms they do and do not have. The ability to educate yourself, to pay a doctor to treat your sick children, to take in a film, to do the things people do -- none of that is on the list. I've written before on how silly it is to act as if Internet access means nothing if political material is blocked, as if all the entertainment and connection communication affords is meaningless unless directed at political change. This is just that same mistake writ large --every Chinese person is an activist whose life is worthless without the right to participate in the political process. It just exposes an incredible ignorance about the way people live.

None of this is to excuse the Chinese government for its many ghastly crimes, or to suggest that it does not continue to stand in the way of prosperity in meaningful ways, or to argue that prosperity is the only good that matters. But you don't need to denigrate the alleviation of hunger to criticize political tyranny. 'd feel a little less put off by all the self-congratulatory China-bashing if the punditocracy's understanding of freedom were less romanticized, less dismissive of the more mundane liberties afforded by a full stomach and regular income.

In 2004, while I was still in Burma, floods in neighboring Bangladesh killed 1000 people and left 10,000 more without any possessions. The Western press treated the whole thing as an unfortunate natural disaster--sad, but no one's fault, really. And yet floods are completely predictable in Bangladesh--there is a reason they call it Monsoon Season--and that kind of devastation is the result of poverty rooted in economic mismanagement. Price controls strike me as just as criminal as religious discrimination, and a country with the good sense to get rid of them doesn't need to hear that preventing starvation is a "poor substitute" for anything.

The Future of Housing Prices

Paul Krugman sends us to Calculated Risk's graph of the Case-Shiller house-price series:

Surprising surprises - Paul Krugman - Op-Ed Columnist - New York Times Blog

and comments:

Barry Ritholtz tells us that the president of the Boston Fed is surprised that housing isn't recovering. This is truly bizarre. Like Calculated Risk, my working assumption throughout the housing boom and bust has been that history, if it doesn't repeat itself, at least rhymes: the rise in housing prices looked a lot like bubbles past, and we should expect the bubble's deflation to follow past patterns too. And that tells us that we should expect a prolonged, grinding decline in home prices, back to more or less their pre-bubble inflation-adjusted levels.

That strikes me as too pessimistic. The rise of Asia and the resulting demand by the rich and by governments for U.S. assets to hedge political risk is likely to keep savings glutting for decades. We aren't buiding more superhighways, there are no major transportation improvements on the horizon, America is filling up, andlso land-value gradients are on the rise. If the income distribution continues to erode, we will wind up with higher prices for scarce positional goods--chief among which is location, location, location.

My guess is that we will ultimately give back half of the doubling...

Washington Post Death Spiral Watch: Prius vs. George F. Will

Why oh why can't we have a better press corps? Cecil Adams reports:

The Straight Dope: Are electric cars really more energy efficient? Do "green" vehicles have a worse impact on the environment than a Hummer?: An HEV uses around 0.48-0.74 kilowatt-hours per mile, while PHEVs in electric mode and BEVs use 0.18-0.46 kWh per mile. By contrast, a conventional car getting 25 MPG uses 1.35 kWh/mile. To put the issue in more familiar terms, a PHEV or BEV offers fuel economy equivalent to as much as 188 miles per gallon.... PHEV and BEV cars... their energy can come from renewable sources... if the energy source is fossil fuel, installing state-of-the-art emission controls on a few big power plants is way easier than installing them on hundreds of millions of motor vehicles. What's more, since many electric plants use natural gas, CO2 emissions from power generation are a modest 1.27 pounds of CO2 per kWh -- 1.9 pounds per productive kWh once we account for losses during battery charging and so on. Compare that to gasoline, which produces the equivalent of 3.9 pounds of CO2 per productive kWh.

What about the Prius and its allegedly grim environmental impact? The cause of the controversy seems to be a report called "Dust to Dust" by Oregon-based CNW Marketing Research. The report claims a Prius has a higher lifetime energy cost than a Hummer, an assertion cited by George Will in 2007 in his syndicated newspaper column. But the report is ludicrous. It evidently was self-published, lists no authors, quotes no technical literature, never explains its methodology, and contains numerous unsupported and often bizarre assertions. (Sample: a Prius will have a life span of only 109,000 miles whereas an H1 will last for 379,000 miles, apparently the basis for the contention that the Hummer%u2019s per-mile costs are lower.) Only a fool or a commentator with an ax to grind would take such nonsense seriously...

Really Scary Austrianism at National Review

I wake up this morning to this, from Paul Krugman:

Rottenness: Treasury secretary Andrew Mellon, according to Herbert Hoover:

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people

Larry Kudlow, via Angry Bear:

Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery...

And here is PGL of Angry Bear:

Angry Bear: The Labor Market Over the Past 15 Months: [The] E[mployment-to-]P[opulation ratio] has declined from 63.4% as of December 2006 to 62.6% last month. In the early part of 2007, the unemployment rate didn't move much as LFP fell from 66.4% to 66%. In other words -- Paul [Krugman] is right in saying that the deterioration in the labor market has been going on for a while.

In fact, it is so bad that even Lawrence Kudlow has to concede the obvious point:

The unemployment rate went up to 5.1 percent. Non-farm payrolls have fallen for three straight months. Private payrolls have fallen four straight months. And the entrepreneurial small-business-oriented household survey is below its November peak, showing a loss of 678,000 jobs. These are relatively mild job losses so far. So one can hope this will be a relatively mild recession. But frankly, no one knows for sure.... Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery.

Yes -- Kudlow thinks recessions are good things as the job you just lost was an "excess." In fact, he is calling for economic policies that would make the recession worse:

[T]he U.S. dollar, which some are now calling the U.S. peso, should be appreciated in order to curb inflation.

Dollar appreciation might have a very modest impact on the inflation rate but it would have a significant impact on net export demand. And given that Mr. Kudlow apparently never learned international macroeconomics, let's remind him that appreciations tend to lower net exports. One would think such idiotic comments would have the editors of the National Review take the curative step of getting rid of village idiots like Mr. Kudlow. Then again -- who would write their pieces on economics if not for their group of village idiots?

Berkeley Economics Skit Party

Chris Blattman writes:

Chris Blattman's Blog: Berkeley rocks out: From the latest Berkeley Econ skit party, I Can't Get No Dissertation: Highlights have to include econometricians Paul Ruud and Jim Powell on guitar, Ted Miguel in the perennial African shirt, and Brad Delong crying into someone's dissertation. If that weren't good enough, who ever thought you could combine economics, killer robots, Brad Delong, and econometricians firing lasers guitars? Apparently, the grad students at Berkeley: I can't believe that I'm trying to convince two of the lead singers--Owen Ozier and Pam Jakiela--to work on a project with me in Uganda. ;)


Electibility is a surprisingly hard thing to analyze. I will take "electibility" to be the question about which candidate has the greatest chance of successfully capturing the electoral votes of the swing states. That is, those states that have been very narrowly divided, or rather that would have been very narrowly divided if the election had been close over the past 25 years or so. listen

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Opera Branches Out: La Boheme

Opera branches out:

The Metropolitan Opera: La Boheme - NCM Event (2008): Fathom presents the excitement of The Metropolitan Opera Saturday Matinees - in HD on the Big Screen! The LIVE broadcast of Puccini's La Bohème will be shown for one day only on Saturday, April 5 at 1:30PM ET / 10:30AM PT in select theatres nationwide. A magnificent cast comes together for Franco Zeffirelli's iconic production of the Puccini favorite. The exciting young conductor Nicola Luisotti presides over a glorious vocal ensemble led by the mesmerizing Angela Gheorghiu, who sings Mimì at the Met for the first time in twelve years, opposite golden-toned tenor Ramón Vargas as her lover, Rodolfo...

This is not Mimi-the-ingenue we have here...

$20 a ticket x 325,000 tickets is $6M a year:

On Air & OnLine: The Met's experiment of merging film with live performance has created a new art form," said the Los Angeles Times of the groundbreaking series of live, high-definition performance transmissions to movie theaters around the world. The series enjoyed box office success, reaching an estimated audience of more than 325,000 viewers. In 2007-08, the Met offers its second season of international HD transmissions—this time with eight broadcasts, up from last year's six. Don't miss the chance to enjoy thrilling, world-class opera at your neighborhood theater!...

Henry Murger (1851), Bohemians of the Latin Quarter:

Today, as of old, every man who enters on an artistic career, without any other means of livelihood than his art itself, will be forced to walk in the paths of Bohemia. The greater number of our contemporaries who display the noblest blazonry of art have been Bohemians, and amidst their calm and prosperous glory they often recall, perhaps with regret, the time when, climbing the verdant slope of youth, they had no other fortune in the sunshine of their twenty years than courage, which is the virtue of the young, and hope, which is the wealth of the poor. For the uneasy reader, for the timorous citizen, for all those for whom an "i" can never be too plainly dotted in definition, we repeat as an axiom: "Bohemia is a stage in artistic life; it is the preface to the Academy, the Hôtel Dieu, or the Morgue."

We will add that Bohemia only exists and is only possible in Paris.

We will begin with unknown Bohemians, the largest class. It is made up of the great family of poor artists, fatally condemned to the law of incognito, because they cannot or do not know how to obtain a scrap of publicity, to attest their existence in art, and by showing what they are already prove what they may some day become. They are the race of obstinate dreamers for whom art has remained a faith and not a profession; enthusiastic folk of strong convictions, whom the sight of a masterpiece is enough to throw into a fever, and whose loyal heart beats high in presence of all that is beautiful, without asking the name of the master and the school. This Bohemian is recruited from amongst those young fellows of whom it is said that they give great hopes, and from amongst those who realize the hopes given, but who, from carelessness, timidity, or ignorance of practical life, imagine that everything is done that can be when the work is completed, and wait for public admiration and fortune to break in on them by escalade and burglary. They live, so to say, on the outskirts of life, in isolation and inertia. Petrified in art, they accept to the very letter the symbolism of the academical dithyrambic, which places an aureola about the heads of poets, and, persuaded that they are gleaming in their obscurity, wait for others to come and seek them out. We used to know a small school composed of men of this type, so strange, that one finds it hard to believe in their existence; they styled themselves the disciples of art for art's sake. According to these simpletons, art for art's sake consisted of deifying one another, in abstaining from helping chance, who did not even know their address, and in waiting for pedestals to come of their own accord and place themselves under them.

It is, as one sees, the ridiculousness of stoicism. Well, then we again affirm, there exist in the heart of unknown Bohemia, similar beings whose poverty excites a sympathetic pity which common sense obliges you to go back on, for if you quietly remark to them that we live in the nineteenth century, that the five-franc piece is the empress of humanity, and that boots do not drop already blacked from heaven, they turn their backs on you and call you a tradesman.

For the rest, they are logical in their mad heroism, they utter neither cries nor complainings, and passively undergo the obscure and rigorous fate they make for themselves. They die for the most part, decimated by that disease to which science does not dare give its real name, want. If they would, however, many could escape from this fatal denouement which suddenly terminates their life at an age when ordinary life is only beginning. It would suffice for that for them to make a few concessions to the stern laws of necessity; for them to know how to duplicate their being, to have within themselves two natures, the poet ever dreaming on the lofty summits where the choir of inspired voices are warbling, and the man, worker-out of his life, able to knead his daily bread, but this duality which almost always exists among strongly tempered natures, of whom it is one of the distinctive characteristics, is not met with amongst the greater number of these young fellows, whom pride, a bastard pride, has rendered invulnerable to all the advice of reason. Thus they die young, leaving sometimes behind them a work which the world admires later on and which it would no doubt have applauded sooner if it had not remained invisible.

In artistic struggles it is almost the same as in war, the whole of the glory acquired falls to the leaders; the army shares as its reward the few lines in a dispatch. As to the soldiers struck down in battle, they are buried where they fall, and one epitaph serves for twenty thousand dead. So, too, the crowd, which always has its eyes fixed on the rising sun, never lowers its glance towards that underground world where the obscure workers are struggling; their existence finishes unknown and without sometimes even having had the consolation of smiling at an accomplished task, they depart from this life, enwrapped in a shroud of indifference...

Sunday Morning Upper San Leandro Reservoir Kings Canyon Cattle Drive Blogging

Sunday Morning Upper San Leandro Reservoir Kings Canyon Cattle Drive Blogging: We--that is, two monkeys and a Labrador Retriever--just drove 20 head of cattle 6 miles down one side of Kings Canyon and back along the Rocky Ridge trail. I am telling you: these aren't the ancient fearsome aurochs of the Eurasian forests. The only sticky point was when the cattle we were driving met head-on at a narrow place on the trail two quants from Barclay Global Investments and their ancient Golden Retriever coming the other way...


Now is this a good job or a bad job of voice recognition we have here?:

Sunday morning, Upper Family(?) Reserver King Canyon cattle drive(?) logging. We, that is two monkeys and a Labrador Retriever just drove 20 head of cattle 6 miles down the one side of the King Canyon and back along the Rocky Ridge Trail. I am telling you these are no longer the ancient fearsome ora rasion(?) forest. The only sticky pipe was where the cattle we were driving met a head on a narrow pass in the trail to quants(?) from Barkley(?) global investors and agent golden retrieval coming the other way. listen

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Needed: More Aggregate Demand: The Keynesian Cure

J. Bradford DeLong (2008), "The Keynesian Cure," for Project Syndicate: BERKELEY -- It is not yet foredoomed that the world economy will undergo a substantial recession in the next three years or so: we might still escape. But governments should play it safe by starting to take more steps now to cushion, soften, and shorten the period of high unemployment and slow or negative growth that now looks very likely.

It is a fact of nature – human nature, at least – that prudent and appropriate policies now will later seem excessive. At some point, the world economy will begin expanding rapidly again. But it would be most imprudent to assume that the turning point is right now, and that things are as bad as they will get.

Perhaps the best way to look at the situation is to recall that three locomotives have driven the world economy over the past 15 years. The first was heavy investment, centered in the United States, owing to the information technology revolution. The second was investment in buildings, once again centered in the US, driven by the housing boom. The third was manufacturing investment elsewhere in the world – predominantly in Asia – as the US became the world economy’s importer of last resort.

For 15 years, these three locomotives kept the world economy near full employment and growing rapidly. When the high-tech boom ended in 2000, the Federal Reserve orchestrated its replacement by the housing boom, while investment in Asia to supply the US market was chugging along at an increasing pace.

Many today are complaining about Alan Greenspan’s monetary stewardship, which kept these three locomotives stoked: “serial bubble-blower” is the most polite phrase that I have heard. But would the world economy really be better off today under an alternative monetary policy that kept unemployment in America at an average rate of 7% rather than 5%? Would it really be better off today if some $300 billion per year of US demand for the manufactures of Europe, Asia, and Latin America had simply gone missing?

The first locomotive, however, ran out of fuel seven years ago, and there is no clear technology-driven alternative leading sector, like biotechnology, that can inspire similar exuberance, rational or otherwise. The second locomotive began sucking fumes two years ago, and is now coasting to a halt, which means that the third – the US as importer of last resort – is losing speed as well: the weak dollar accompanying the housing finance crash makes it unprofitable to export to the US.

The world economy, as John Maynard Keynes put it 75 years ago, is developing magneto trouble. What it needs is a push – more aggregate demand. In the US, the weak dollar will be a powerful boost to net exports, and thus to aggregate demand. But, from the perspective of the world as a whole, net exports are a zero-sum game. So we will have to rely on other sources of aggregate demand.

The first source is the government. Fiscal prudence is as important as ever over the medium and long term. But for the next three years, governments should lower taxes – especially for the poor, who are most likely to spend – and spend more.

The second source is private investment. The world’s central banks are already cutting interest rates on safe assets, and will cut them more as the proximity and magnitude of the likely global slump becomes clear.

But low interest rates are entirely compatible with stagnation or depression if risk premia remain large – as the world learned in the 1930’s, and as Japan relearned in the 1990’s. The most challenging task for governments is to boost the private sector’s effective risk-bearing capacity so that businesses have access to capital on terms that tempt them to expand.


Jeebus, the seventeen-year-old is good. He guessed the author after only fifteen seconds:

Maximilien Robespierre, Report upon the Principles of Political Morality Which Are to Form the Basis of the Administration of the Interior Concerns of the Republic (Philadelphia, 1794): Citizens! Representatives of the People!:

[W]e now come to develop the principles of political morality which are to govern the interior.... A sudden change in the success of the nation announced to Europe the regeneration which was operated in the national representation. But to this point of time, even now that I address you, it must be allowed that we have been impelled thro' the tempest of a revolution, rather by a love of right and a feeling of the wants of our country, than by an exact theory, and precise rules of conduct, which we had not even leisure to sketch.

It is time to designate clearly the purposes of the revolution and the point which we wish to attain: It is time we should examine ourselves the obstacles which yet are between us and our wishes, and the means most proper to realize them.... What is the end of our revolution? The tranquil enjoyment of liberty and equality; the reign of that eternal justice, the laws of which are graven, not on marble or stone, but in the hearts of men, even in the heart of the slave who has forgotten them, and in that of the tyrant who disowns them.... We wish in our country that morality may be substituted for egotism, probity for false honour, principles for usages, duties for good manners, the empire of reason for the tyranny of fashion, a contempt of vice for a contempt of misfortune, pride for insolence, magnanimity for vanity, the love of glory for the love of money, good people for good company, merit for intrigue, genius for wit, truth for tinsel show, the attractions of happiness for the ennui of sensuality, the grandeur of man for the littleness of the great, a people magnanimous, powerful, happy, for a people amiable, frivolous and miserable; in a word, all the virtues and miracles of a Republic instead of all the vices and absurdities of a Monarchy.

We wish, in a word, to fulfill the intentions of nature and the destiny of man, realize the promises of philosophy, and acquit providence of a long reign of crime and tyranny....

[T]he first rule of your political conduct should be, to let all your measures tend to maintain equality and encourage virtue.... In the system of the French revolution that which is immoral is impolitic, and what tends to corrupt is counter-revolutionary....

It is not necessary to detail the natural consequences of the principle of democracy, it is the principle itself, simple yet copious, which deserves to be developed....

If virtue be the spring of a popular government in times of peace, the spring of that government during a revolution is virtue combined with terror: virtue, without which terror is destructive; terror, without which virtue is impotent. Terror is only justice prompt, severe and inflexible; it is then an emanation of virtue; it is less a distinct principle than a natural consequence of the general principle of democracy, applied to the most pressing wants of the country.

It has been said that terror is the spring of despotic government. Does yours then resemble despotism? Yes, as the steel that glistens in the hands of the heroes of liberty resembles the sword with which the satellites of tyranny are armed. Let the despot govern by terror his debased subjects; he is right as a despot: conquer by terror the enemies of liberty and you will be right as founders of the republic. The government in a revolution is the despotism of liberty against tyranny. Is force only intended to protect crime? Is not the lightning of heaven made to blast vice exalted?...

The protection of government is only due to peaceable citizens; and all citizens in the republic are republicans. The royalists, the conspirators, are strangers, or rather enemies.... To punish the oppressors of humanity is clemency; to forgive them is cruelty.... Let him beware, who, regarding the inevitable errors of civism in the same light, with the premeditated crimes of perfidiousness, or the attempts of conspirators, suffers the dangerous intriguer to escape and pursues the peaceable citizen! Death to the villain who dares abuse the sacred name of liberty or the powerful arms intended for her defence, to carry mourning or death to the patriotic heart...