Grasping Reality on TypePad, by Brad DeLong

Paul Krugman writes: "the labor market has gotten a lot worse over the past year, not just in the last few months."

This graph is U6: "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers..."

Paul goes on:

Labor market deterioration - Paul Krugman: I've argued on many occasions that the official unemployment rate has been a poor guide to the reality of the labor market in recent years...

I've never understood the enthusiasm some people I talk to fairly regularly have for Cass Sunstein. Jeremy Waldron seems to share my puzzlement:

Jeremy Waldron: A lot of Sunstein's recent work has had this quality: scolding us for our self-righteousness.... In Worst-Case Scenarios, the scolding tone becomes more unpleasant when Sunstein confronts the critics of the US refusal to ratify the Kyoto Protocol, aimed at reducing carbon emissions. Many of the critics, he says, come from countries where the likely effects of climate change will be very grave and where the costs of subscribing to the Kyoto carbon caps are quite low... in the United States: the costs... of lowering the very significant level of carbon emissions is unacceptably high, and the bad effects of climate change will not be felt in the US so much as in other parts of the world. So Sunstein devotes a long second chapter to a defence of the American position. He acknowledges that it's a self-interested calculation: only costs, benefits and catastrophes for Americans are considered. Sunstein understands that this sort of calculation may be morally inappropriate:

...The emission of greenhouse gases could even be viewed as a kind of tort, producing damage for which emitters, and those who gained from their actions, ought to pay. For example, energy and gasoline prices in the United States have been far lower than they would have been if those prices had included an amount attributable to the increased risks from climate change -- risks that threaten to impose devastating harm on people in other countries.

One would have thought that this dimension of worst-case analysis is all-important, and that Sunstein is just the person to explore systematically the difference that attention to the moral aspects of the distribution of costs and harms would make to the modes of analysis that he considers.... He concedes that Americans may have a special obligation to mitigate the harm they have caused. He points out several times, however, that poor people suffer too as a result of over-regulation. And he is reluctant to abandon a method of measuring losses by how much people would pay to avoid them, even though it is hopelessly flawed by the fact that poor people would pay less simply because they have less.... Sunstein asks:

Why should people be forced to pay an amount for regulation that exceeds their willingness to pay? People are making their own judgments about how much to spend to avoid various risks -- and those judgments should be respected.... To be sure, we might believe that a measure of redistribution is appropriate.... But... regulation need not, and often does not, amount to a subsidy to those who benefit.... When the government eliminates carcinogenic substances from the water supply, water companies do not bear the cost; it is passed on to consumers in the form of higher water bills.

Sunstein knows that matters are not as straightforward as this, and that the distributive issues that occasionally trouble him indicate deeper and more structural difficulties with the kinds of analysis he favours. Mostly he just observes that these questions are all very complicated and that he prefers to "return to simpler matters", i.e. rational choice calculations uncontaminated by distributive complexities....

[T]here is a considerable opportunity-cost to the rest of us in his failure to devote more sustained attention to issues of rich and poor, advantaged and disadvantaged. Justice is out of fashion among rational choice theorists, and it is a pity that Worst-Case Scenarios does not fly in the face of fashion in a more determined way. It would have been a better book had it spent more time on the issues of distributive and corrective justice that attend the prevention of catastrophic harm.

W. Arthur Lewis (1978), Evolution of the International Economic Order (Princeton: Princeton University Press).

Perenially out of print, and perhaps the finest work of economic history ever.

http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_A.pdf http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_B.pdf

This looks like--well, they called it a zuppa but I would call it a porridge--from the North Beach Restaurant this evening:

Recipe: Farro Soup with Beans.

Jacob writew:

Jacob T. Levy: I'm going to live forever, part XXVI: Caffeine's health benefits, continued:

Daily caffeine 'protects brain' Coffee may cut the risk of dementia by blocking the damage cholesterol can inflict on the body, research suggests. The drink has already been linked to a lower risk of Alzheimer's Disease, and a study by a US team for the Journal of Neuroinflammation may explain why. A vital barrier between the brain and the main blood supply of rabbits fed a fat-rich diet was protected in those given a caffeine supplement. UK experts said it was the "best evidence yet" of coffee's benefits.

I, too, have been told by people that Michael Barone was once a political analyst. I, too, cannot remember anything written by him worth its photons. Why oh why can't we have a better press corps?

This episode of the U.S. News and World Report Death Spiral Watch outsourced to Matthew Yglesias and his commenters:

Matthew Yglesias: It seems quite plausible to conjecture that a majority of academics in America are for Barack Obama, but does Michael Barone really expect people to believe that academics comprise the bulk of Obama's supporters? If that's right, then how does Barone explain Obama's lead in the polls? Unless I'm mistaken, academics are a pretty small slice of the overall American demographic pie.

It's all pretty bizarre. Everyone tells me that once upon a time Barone was a valuable source of information about American politics....

Comments (60)

For a Republican, "academic" refers... to... anyone who enjoys and/or admires thinking. If you read Barone, this seems to be what he's referring to, in context, perhaps because "intellectual elites" have either lost their sting or is too transparently a reference to "the jews." Ultimately, Barone is using "academic" not as a reference to a specific profession but rather as an "attitude." So he can simultaneously argue that "hardly anyone supports Obama, just academics!" while also giving himself enough weasel room to deny that obviously stupid claim when called on it. Posted by Tyro | April 4, 2008 12:06 PM....

SoCalJustice, I think Barone is being even more dishonest than you give him credit for. Tyro's pretty close to it -- I think he really wants to use class terms, namely "professional elite" and "(white) working class" but this (a) would involve repeating the standard description of the contest between Obama and Clinton, making his incredibly long-winded piece more obviously pointless, and (b) would amount to an admission that economic class plays a role in American politics, which the Right really hates to admit. He makes his argument even worse by talking about "academic and state capital enclaves" and grouping together "academics and public employees (and of course many, perhaps most, academics in the United States are public employees)". Most public employees, however, are not "academics" or even necessarily holders of BAs or advanced degrees. Lots of "Jacksonians" work in the public sector, and he can't explain that huge problem in his analysis by introducing the magic of the state capitals as some kind of epicycle. Posted by Pesto | April 4, 2008 12:24 PM....

"Obviously, Obama's supporters are just academics. Well, and black people. And all those people who live in 'flyover country'. But in my predominantly white and affluent neighborhood in a coastal city, it seems to be a lot of academics." By the way, there is a pretty obvious reason why Clinton does well among white Democratic voters in the Appalachians and the South. Barone is right it doesn't have much to do with Obama's race per se, but it also doesn't have much to do with Clinton herself being a "Jacksonian" figure (which is kinda ridiculous if you think about it for more than a second or two). Nope, it because those voters really like Bill Clinton, and they view their vote for Hillary as a de facto vote for Bill. Which is fine, but it also has absolutely no implications for what will happen among those voters when it is McCain versus Obama, rather than the Clintons versus Obama. All of which is leading me to reexamine something I have been saying for a while. I used to complain that people in the media couldn't be bothered to look at a map, which would instantly tell them that there was something wrong with their overly simplistic demographic descriptions of the Obama and Clinton coalitions. But if the next step after looking at a map is to start describing Hillary as a "Jacksonian" figure, maybe we are better off with them sticking to the demographics, misleading as those may be. Posted by DTM | April 4, 2008 12:25 PM....

Matt, you keep asking rational questions about the merits of the arguments made by irrational people. At some point, you should only have one question: Why do these people have jobs? Posted by WinSmith | April 4, 2008 12:34 PM....

Barone is misrepresenting the data. He describes Forth Bend County and Grimes county in Texas as having fast growing black populations. that isnT' the case. Fort Bend is a fast growing exurb with a large concentration of upscale Asians, whites, etc, and a older balck suburb of Missouri City. Grimes counti is where Texas A&M is located. Barone is just making things up. Posted by TexAss Watcher | April 4, 2008 1:04 PM....

Wow, the entire mountain West and north central of the United States is populated by Blacks and academics? Posted by Bill | April 4, 2008 1:19 PM....

Barone really is being ridiculous. Take his "analysis" of Utah: Out west, Obama won big in Utah, where folk hardy enough to be Democratic are apparently pretty liberal and upscale and voted 57 percent to 39 percent for Obama. But this was a kind of enclave victory, too. Over half the votes, 58 percent, were cast in Salt Lake County, though only 40 percent of the state's population lives there. The upscale neighborhood around the University of Utah, just a few miles east of the Mormon Church's headquarters, is a hotbed of liberalism—well, at least as much of a hotbed as you can find in Utah. He won 66 percent to 36 percent in Utah County with a light turnout, which shows that there are at least some liberal faculty members at Brigham Young University. It's kind of ridiculous to say that it's an enclave victory because a county with 40 percent of the population cast 58 percent of the votes, because it's pretty likely that the majority of the Democrats are in Salt Lake County. And it's double super ridiculous to write off all of Salt Lake County as an enclave because of the neighborhood around the U, which is a very small part of the county. But where Barone reduces himself to absurdity is in the first and the last sentences. What's his evidence that BYU has liberal faculty members? That Obama won Utah County. What's his evidence that Utah Democrats are liberal and upscale, something that would be news to Jim Matheson (Utah's conservative Dem congressman)? That Obama won Utah. This is pure circular argument -- he's defining Obama's supporters as upscale liberal academics (in the Utah County case, quite literally so), even though he has no evidence for this. Posted by Matt Weiner | April 4, 2008 2:05 PM....

Everyone tells me that once upon a time Barone was a valuable source of information about American politics. It's true, I swear. Back in the 1980s, he used to have a clue. I don't know what happened to him. I was living in fairly small towns during 1988-98 (mostly pre-Web years) where the papers didn't print his stuff. He changed dramatically during that period. Posted by low-tech cyclist | April 4, 2008 2:34 PM

Matt W., Spot on in tackling Barone's ridiculous Utah "reasoning." Another poorly argued element of that? Barone argues, "Out west, Obama won big in Utah, where folk hardy enough to be Democratic are apparently pretty liberal and upscale..." But this doesn't really jive when one looks at the ideological breakdown in Utah and compares it against other states, even states that Obama lost. Utah's ideological breakdown, according to exit polling, was 52/39/10 (Liberal/Moderate/Conservative). But this is virtually indistinguishable from Georgia (47/41/12), Virginia (50/38/12), Rhode Island (49/40/11), New Jersey (51/41/9), and Connecticut (55/37/8). It's much LESS liberal than Clinton states Massachusetts (59/34/7) and New York (57/33/9). The whole article is just atrocious from an evidence standpoint, but I guess that isn't really required much these days. Posted by jbryan | April 4, 2008 2:51 PM....

I used to rely heavily on Michael Barone when I covered politics. Now, reading him is an out-of-body experience. I can only imagine that he has suffered a Clintonesque descent from self-importance to self-delusion. Posted by phillygirl | April 4, 2008 7:07 PM

"That appeals enormously to voters in the academia and public-employee enclaves of America, who want to deny honor to our warriors and arrogate it to themselves..." It is, of course, long past impossible to read this without thinking of Glenn Greenwald's rogues gallery of the fat, flabby, out-of-shape, ugly Kagans et. al. I'm a middle-aged guy with bad rotator cuffs, but I make it to the gym once a week and I think I could whoop-ass on these Keyboard Kommandos myself as long as I could avoid getting sat on. What sort of "warrior" has Barone been? The right age for Vietnam, but another wuss with other priorities. Posted by Andrew J. Lazarus | April 4, 2008 7:11 PM...

Hoisted from Comments: Charley Carp writes:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal: Another vote for taking action. Prof. Yoo willfully mistated the law -- with respect to both Quirin (see n. 13) and Youngstown, at the least -- for the purpose of allowing criminals engaging in criminal conduct to claim reliance on advice of counsel. He's a mob lawyer, not fit to be considered scholar or gentleman.

A proper statement of the holding of Quirin on the point made would have shown that his entire analysis was contrary to the authority upon which he was basing it.

Obviously, Prof. Yoo might think (contrary to the views expressed by Justice Alito and Chief Jutice Roberts at their confirmation hearings) Youngstown wrongly decided. At an absolute minimum, though, he's obligated to say so and explain coherently when advising a client as to what the law provides.

This is, I think, a serious breach of legal ethics: It is a violation of the Code of Professional Responsibility to lie to your clients by omitting key Supreme Court cases from your memos. It does raise the question of whether John Yoo is incompetent at his university duties: budding lawyers need to learn what their professional ethical responsibilities are, and someone who does not understand them cannot teach them.

Employment Situation Summary: -80,000 in March according to the establishment survey.

I will be very interested to see how labor productivity holds up during this recession-like period. Will this see labor hoarding or labor shedding?

And, of course, the thing to stress is not that a recession has come but that the policies of the Bushies have done so much to make the previous expansion weaker and fighting this recessionary period harder than it had to be.

• Kevin Drum: Basra Postmortem
• Felix Salmon: Should the Fed Buy Securities Outright?
• Hale Stewart: It Sure Looks Like We're In a Recession
• DeLong: Fragment of an Unfinished Ms.: After the Bubble
• Michael Cohen: Professor John Yoo

Thursday's new jobless claims number was a substantial shock to everyone's expectations. If you didn't think recession was on the way before, you need to think again.

Via Barry Ritholtz's The Big Picture

A dividend process with independent shocks both to the current level of dividends d_t and to the expected long-run rate of growth of dividends g_t:

Why this dividend process? Because if we then have an required expected rate of return r and a value function V(r_t,g_t, then the one-period arbitrage condition:

leads us to the highly-tractable Gordon equation:

Thus we can have big swings in the desired capital stock and thus bigger swings in the desired rate of change of investment without having to have massive shocks to the current level of technology: we can have depressions without requiring--as is usual in real business-cycle models--massive technological amnesia.

Hoisted from Archives:

Fragment of an Unfinished Ms.: Part II of an unfinished paper, "After the Bubble." The paper currently lacks Parts I, III, IV, V, and VI:

II. Aggressively Expansionary Monetary Policy and Macroeconomic Vulnerabilities:

Let us begin with a passage from Mussa (2004), "Global Economic Prospects: Bright for 2004 but with Questions Thereafter" (Washington: Institute for International Economics: April 1), in which Michael Mussa writes about global financial imbalances:

Michael Mussa: ... 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.... 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.

Mussa is warning that the high asset prices produced by very low interest rates pose dangers that may turn out to be substantial. One way to read Mussa's warning is as a polite--a very polite--criticism of Alan Greenspan's self-praise of his own low interest-rate policy contained in Greenspan (2004), "Risk and Uncertainty in Monetary Policy" (Washington: Federal Reserve Board: January 3):

Alan Greenspan: Perhaps the greatest irony of the past decade is that... success against inflation... contributed to the stock price bubble .... Fed policymakers were confronted with forces that none of us had previously encountered. Aside from the then-recent experience of Japan, only remote historical episodes gave us clues to the appropriate stance for policy under such conditions. The sharp rise in stock prices and their subsequent fall were, thus, an especial challenge to the Federal Reserve. It is far from obvious that bubbles, even if identified early, can be preempted at lower cost than a substantial economic contraction and possible financial destabilization--the very outcomes we would be seeking to avoid.... The notion that a well-timed incremental tightening could have been calibrated to prevent the late 1990s bubble while preserving economic stability is almost surely an illusion.

Instead of trying to contain a putative bubble by drastic actions with largely unpredictable consequences, we chose, as we noted in our mid-1999 congressional testimony, to focus on policies "to mitigate the fallout when it occurs and, hopefully, ease the transition to the next expansion."

During 2001, in the aftermath of the bursting of the bubble and the acts of terrorism in September 2001, the federal funds rate was lowered 4-3/4 percentage points. Subsequently, another 75 basis points were pared, bringing the rate by June 2003 to its current 1 percent, the lowest level in 45 years. We were able to be unusually aggressive in the initial stages of the recession of 2001 because both inflation and inflation expectations were low and stable. We thought we needed to be, and could be, forceful in 2002 and 2003 as well because, with demand weak, inflation risks had become two-sided for the first time in forty years.

There appears to be enough evidence, at least tentatively, to conclude that our strategy of addressing the bubble's consequences rather than the bubble itself has been successful. Despite the stock market plunge, terrorist attacks, corporate scandals, and wars in Afghanistan and Iraq, we experienced an exceptionally mild recession--even milder than that of a decade earlier. As I discuss later, much of the ability of the U.S. economy to absorb these sequences of shocks resulted from notably improved structural flexibility. But highly aggressive monetary ease was doubtless also a significant contributor to stability...

Greenspan is confident that raising interest rates and thus raising the unemployment rate during the bubble of the late 1990s would have been the wrong policy, and that aggressively lowering interest rates after the bubble was the right policy. Lowering interest rates cushioned falls in bond prices. Lowering interest rates made use of bond financing for investment more attractive. Lowering interest rates boosted bond and real estate prices, induced households to refinance, and so provided a powerful spur to consumption spending that largely offset the post-bubble fall in investment spending. In Greenspan's view, the aggressive lowering ofinterest rates was exactly the right thing to do in the aftermath of the bubble to shift spending from investment to consumption and so to keep the economy not far from full employment.

Mussa says: not so fast. Very low interest rates, coupled with assurances from high Federal Reserve officials that interest rates will stay very low for substantial periods of time, produce a situation in which the prices of long-duration assets--long-term bonds, growth stocks, and real estate--climb very high. What goes up may come down, and may come down rapidly. And should some class of asset prices come down rapidly and should it turn out that many debtors in the economy go bankrupt because their assets have lost value, serious financial crisis will result. The price of using exceptionally easy money to keep the collapse of the dot-com bubble from turning into a depression has been the creation of a three-fold vulnerability:

1. If the assets the prices of which collapse when interest rates start to rise are emerging-market debt, then the memories of the 1990s and increasing risk will induce large-scale capital flight from the periphery to the core--an echo of the East Asian financial crises of 1997-1998.
2. If the assets the prices of which threaten collapse when interest rates start to rise are domestic bond and real estate holdings that have been pushed to unsustainable levels by positive-feedback "bubble" buying, then the "monetary authority would... 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" to keep real estate and bond prices from falling far and fast.
3. "If monetary policy is tightened too much too soon" (presumably because of fears of positive-feedback "bubble" buying), the result may be a credit crunch and a recession--with no guarantee that a reversal of the monetary policy tightening will undue the effects of the credit crunch. I do not believe that many economists would say that Mussa's fears about the potential macroeconomic vulnerabilities created by the low interest-rate policy the Federal Reserve has pursued since the end of the dot-com bubble are unreasonable. (Few, however, carry their alarm to the degree that Stephen Roach of Morgan Stanley does.) And Mussa expresses them in a coherent language--one in which sustained rises in asset prices induce positive-feedback trading that "bubbles" prices above fundamentals, one in which what goes up comes down rapidly, one in which large sudden falls in asset prices produce chains of bankruptcy and raise risk and default premia enough to threaten to cause deep recessions. The language has echoes of the great Charles P. Kindleberger's (1978) Manias, Panics, and Crashes (New York: Basic Books), and of earlier writings about the consequences of excessive money-printing: "inflation, revulsion, and discredit."

But what Mussa's assessment of risks lacks is a model. And without a model, we have a hard time assessing his argument. Alan Greenspan frightened away the Evil Depression Fairy in 2000-2002 by promising not that he would let the Evil Fairy marry his daughter but by promising high asset prices--unsustainably high asset prices--for a while. Whether this was a good trade or not depends on the relative values of the risks avoided and the risks accepted. And to evaluate this requires a model of some sort.

References:

Alan Greenspan (2004), "Risk and Uncertainty in Monetary Policy" (Washington: Federal Reserve Board: January 3).

Michael Mussa (2004), "Global Economic Prospects: Bright for 2004 but with Questions Thereafter" (Washington: Institute for International Economics: April 1)

If they had separate weblogs with different color schemes I would confuse them less often. Whatever, Alex Tabarrok is puzzled by two things:

• First, that there are Foul-Weather Austrians--that Sachs, Krugman, Baker, and company even have an Inner Hayek to commune with. Where did they learn this stuff?
• Second, that they appear to regard Foul-Weather Austrianism as a streetcar that they can get off when they choose, long before the end of the line at Goldbug Station.

Tyler--no, it's Alex--writes:

Marginal Revolution: Foul Weather Austrians: I am puzzled by the resurgence of Austrian Business Cycle theory among Sachs, Krugman, Baker and many others who you would not ordinarily associate with the theory. Sachs, for example, writes:

...the US crisis was actually made by the Fed... the Fed turned on the monetary spigots to try to combat an economic slowdown. The Fed pumped money into the US economy and slashed its main interest rate...the Fed held this rate too low for too long.

Monetary expansion generally makes it easier to borrow, and lowers the costs of doing so, throughout the economy. It also tends to weaken the currency and increase inflation. All of this began to happen in the US.

What was distinctive this time was that the new borrowing was concentrated in housing....the Fed, under Greenspan's leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash.

What is puzzling about this is two-fold. First, there is no standard model that I know of (say of the kind normally taught in graduate school) with these kinds of results. Second and even more puzzling is that the foul-weather Austrians don't seem to draw the natural conclusion from their own analysis.

If the Federal Reserve is responsible for what may be a trillion dollar crash surely we should think about getting rid of the Fed? (n.b. I do not take this position.) The true Austrians, like my colleague Alvaro Vargas Llosa, have long taken exactly this position. So why aren't Sachs, Krugman et al. calling for the gold standard, a strict monetary rule, 100% reserve banking, free banking or some other monetary arrangement? Each of these institutions, of course, has its problems but surely after a trillion dollar loss they are worthy of serious consideration.

Nevertheless, I haven't heard any ideas, from those blaming the crash on the Fed and Alan Greenspan, about fundamental monetary reform. (Can Sachs, Krugman et al. really believe that it was Greenspan the man and not the institution that is to blame? That seems naive.)

Instead, the foul weather Austrians seem at most to call for regulatory reform. But that too is peculiar. Put aside the fact that banking is already heavily regulated, have these economists not absorbed the Lucas critique? In short, suppose that whatever regulation these economist want had been put in place in earlier years. Would the crash have been avoided or would the Fed have simply pushed harder to lower interest rates? After all, the Fed lowered rates for a reason and if the regulation reduced the effectiveness of monetary policy in creating a boom well then that just calls for more money.

I, too, am puzzled. I will try to think about this today.

N.B.: Add Mike Mussa to the list of Foul-Weather Austrians: http://www.iie.com/publications/papers/paper.cfm?ResearchID=205

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.... 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...

Hoisted from Comments: Daniel Davies writes:

Daniel Davies: Brad mate, a 1992 article about the structure of the money management industry is pretty dangerously out of date...

How so? People are still confusing two thing with having alpha:

• being overleveraged
• holding portfolios that are massively short implicit out-of-the-money puts

There is indeed little new under the sun...

He writes, apropos of the Kagan family:

Too Many Kagans, Too Little Knowledge: Fresh from his assertion that the Iraq civil war was "over" a week ago, here's Fred--plus added bonus attraction Kimberly--Kagan reinforcing their profoundly warped view of Iraq in the Weekly Standard. There are several truly disingenuous, and flat out misleading, things here:

1. The promulgation of the myth that Maliki's Folly was to clean out "terrorists" rather than a violent election-year ploy to clear out his legitimate Sadrist political opposition.
2. Perpetuation of the myth that effective Iraqi Security Forces actually exist and aren't primarily composed of (a) pro-Maliki and pro-Hakim militias and (b) former Iraqi soldiers more interested in making a living than in fighting. (Add: No acknowledgment that U.S. troops in the field simply do not trust their Iraqi counterparts.)
3. Conflation of the "special groups"--trained and supported by the Iranian Qods force--and the Jaish al-Mahdi, which is the main Sadrist Iraqi nationalist militia. Kagan, a military historian, should check with David Petraeus about the relationship of those two separate forces. Indeed, part of Sadr's cease-fire strategy was allow the U.S. to cleanse Iraq of the "special groups." Sadr's no hero, but if he's a terrorist then so are the majority of Iraqi Shi'ites--i.e. his supporters.
4. No mention at all of the Badr Corps, the pro-Iranian Hakim militia that is Sadr's main enemy in Basra and Maliki's best friend. No mention of the widely held belief that the Iraqi Army units in Basra are riddled with Badr militia members.
5. No acknowledgment of the sheer complexity of the situation--the fact that all Shi'ite militias are receiving support from Iran, the fact that Sadr may be the most popular political figure in Shi'ite Iraq, courtesy of his father's fierce anti-Saddam, anti-Persian nationalism. No acknowledgment that our policy toward the various Shi'ite factions might be more successful if we were as nuanced as the Iranians.
6. It is nice, finally, that Kagan acknowledges there's a lot we don't know about the situation in Iraq. Where was that five years--no, actually, one week--ago?
7. On the day that John Yoo's remarkable torture memo is released, this foolishness is a reminder that none of these people--none of the vicious, mendacious, naive, simplistic, unapologetic, neo-colonialist ideologues who promulgated this disaster--should have even the vaguest claim on the time or tolerance of fair-minded people. Fred Kagan's certainty is an obscenity, his claim to expertise a farce.

Jeannine Aversa of AP:

Jobless Claims Shoot Up to 2-Year High: WASHINGTON (AP) -- The number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years, fresh evidence of the damage to a national economy clobbered by housing, credit and financial crises.

The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29... worse than economists had anticipated. They had predicted claims would be much lower, around 365,000.

A government analyst said some of the big increase in claims may have been related to an early Easter holiday this year, where claims that weren't filed or processed during the holiday week were pushed forward into the following week.

Still, looking at the longer-term trend there was little doubt of the pickup in unemployment filings. A year ago, new claims stood at 319,000.

Meanwhile, the number of people continuing to collect unemployment benefits rose by a sharp 97,000 to 2.94 million for the week ending March 22, the most recent period for which that information is available. That was the highest since July 17, 2004....

For the first time, Federal Reserve Chairman Ben Bernanke acknowledged on Wednesday said the country could be heading toward a recession. Many other economists and the public believe it's already there. Employers cuts jobs in January and February, and economists are predicting more losses when the government releases the March employment report on Friday.

Outsourced to Scott Lemieux:

Lawyers, Guns and Money: The Casey Myth Once Again: Bob Somerby notes Michael Gerson once again repeating the Myth of Bob Casey, blubbering about Casey Sr. being "banned from speaking to the Democratic convention for the heresy of being pro-life" without mentioning that Casey refused to endorse the Democratic ticket. (Not that I think that parties preferring speakers who reflect the party's values, as well as in this case the values of a majority of Americans, is any kind of scandal even if it was true.)

The rest of the column -- about Obama's abortion "extremism" -- is as bad as you'd expect. He dishonestly claims a majority for a near-total ban on abortion. On the authority of Daniel Patrick Moynihan but needless to say making no actual argument on the merits, he attacks Obama for opposing transparently irrational "partial birth" abortion legislation that does nothing to protect fetal life but does threaten the health of women obtaining abortions (something that to Gerson's friends in the "pro-life" movement is apparently a feature, not a bug.) And then there's this:

Having endorsed partial-birth abortion, Obama has little room to maneuver on the broader issue. But he does have some. He could take the wise counsel of evangelical Democrats such as Amy Sullivan and come out strongly for policies that would reduce the number of abortions -- support for pregnant women, abstinence education, the responsible promotion of birth control.

Except of course, that 1)Obama already supports "the responsible promotion of birth control," 2)since "abstinence education" doesn't work it won't reduce abortion rates, and perhaps we should even do more to support parents after they have children, and 3)supporting access to birth control and rational sex-ed wouldn't help to create a greater consensus because Gerson's pathetic attempts to project a non-existent Christian Democratic tradition onto the Republican Party notwithstanding Republican anti-choicers generally oppose these policies, for the obvious reason that support for criminalizing abortion is generally bundled together with reactionary conceptions of sexuality and gender relations...

• James Surowiecki: Going for Broke
• Krishna Guha: Radical action to fight credit crisis discussed
• Full text: FSF options paper
• Warren P. Strobel and Nancy A. Youssef: Paltry results of Iraqi offensive silence U.S. withdrawal talk
• American Civil Liberties Union : Secret Bush Administration Torture Memo Released Today In Response To ACLU Lawsuit
• Yet More DeLong Smackdown Watch: Brad DeLong on Yves Smith on Brad DeLong on Larry Summers on Paul Krugman. Or something. In any case, well worth reading if you want a constructive view of what monetary policy can achieve...
• Economic News Aggregator
• Yves Smith: On De Long's Objections to My Critique of Summers/De Long Thesis
• Spencer Ackerman: Sadr Fighting Marks Surge Limits
• Bernanke Predicts Recession
• Paul Kiel on John Yoo
• Joe Klein: Too Many Kagans, Too Little Knowledge
• Dev Mishra
• Michael Froomkin Sends Us to Wikihistory: The Assassination of Adolf Hitler

“You come to us and tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country.... We will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

William Jennings Bryan: Democratic National Convention, 1896

Yves Smith of http://nakedcapitalism.com makes me want to reread:

Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny (1992), "The Structure and Performance of the Money Management Industry," Brookings Papers on Economic Activity Microeconomics, pp. 339-391.

Where on Jeebus's great internet is it?

Ah. Here it is: http://links.jstor.org/sici?sici=1057-8641%281992%291992%3C339%3ATSAPOT%3E2.0.CO%3B2-N

Kevin Drum looks at these two graphs from Larry Bartels:

and muses:

The Washington Monthly: The top chart shows income growth during non-election years... under Democrats, income growth is strong overall and the poor do a bit better than the well off. Under Republicans, income growth is weak overall and is tilted heavily in favor of the already prosperous.

But now look at the bottom chart... performance during election years.... Republicans produce better overall performance, and they produce especially stupendous performance for the well off. Democrats... produce poor overall performance... disastrous performance for the well off, who actually have negative income growth....

[V]oters aren't necessarily ignoring economic issues in favor of cultural issues... election years... [are] all that voters remember. They really are voting their pocketbooks.

Bartels doesn't essay an explanation for this. Do Republican presidents deliberately try to time economic growth spurts -- and are Democratic presidents too lame to do the same? Is it just luck? Or is the difference somehow inherent in the different ways that Democrats and Republicans approach the economy (with Democrats typically focusing on employment and Republicans on inflation)? At this point, your guess is as good as anyone's...

• The University of California Loyalty Oath: Symposium and Websource
• Neil Irwin: Under the Treasury's Plan, Fed Would Lose a Key Power
• Yves Smith: Quelle Surprise! Selling Fads to Investors Backfires
• Mark Thoma: Resolving the Financial Market Crisis
• Clive Crook: The dumbing of America
• Michael Gordon: Private equity boom was nothing more than a clumsy trick
• Mike Mandel: Why the Paulson Plan is DOA - BusinessWeek

Marty Lederman directs us to http://gulcfac.typepad.com/georgetown_university_law/files/march.14.memo.part1.pdf and http://gulcfac.typepad.com/georgetown_university_law/files/march14.memo.part2.pdf.

And he notes:

The March 2003 Yoo Memo Emerges! (not an April Fool's Joke): The Torture Memo to Top All Torture Memos: Friday, March 13, 2003, Jay Bybee left his office as the Assistant Attorney General for the Office of Legal Counsel. The very next day -- a Saturday -- John Yoo, merely a Deputy AAG in the Office, issued his notorious memo to the Pentagon, on behalf of OLC, which effectively gave the Pentagon the green light to disregard statutory limits on torture, cruelty and maltreatment in the treatment of detainees. This is the version of the 2002 Torture memo, which applied only to the CIA and the torture statute, as applied to the numerous statutes restricting the conduct of the armed forces. It is, in effect, the blueprint that led to Abu Ghraib and the other abuses within the armed forces in 2003 and early 2004.... Think about that: Either Jay Bybee -- who actually signed the August 2002 torture memo concerning the CIA -- did not know of this explosive memorandum, or it was so implausible that Bybee refused to issue it to the Pentagon. And as soon as he was quite literally out the door, John Yoo did not hesitate to issue the opinion on a weekend, presumably bypassing the head of the office (Acting AAG Ed Whelan) and the Attorney General. (I am assured that Ed had no involvement in this matter.)

As I've discussed previously -- see for instance here and here, and as Jane Mayer has reported in great detail, the March 14th Yoo memorandum, and the April 2, 2003 DOD Working Group Report that incorporated its outrageous arguments about justifications for ignoring statutory limits on interrogation, was secretly briefed to Geoffrey Miller before he was assigned to Iraq, and became the source of all the abuse that occurred there in 2003 and early 2004. (In late 2004, new OLC head Jack Goldsmith reviewed the March 2003 memo, was stunned by what he later called the "unusual lack of care and sobriety in [its] legal analysis" -- it "seemed more an exercise of sheer power than reasoned analysis" -- and immediately called the Pentagon to implore them not to rely upon it. Later, the next head of OLC, Dan Levin, wrote the Pentagon to confirm that they rescind any policies that had been based on the Yoo memo. See the whole story here.)...

My first reaction is that I should write to Professor William Drummond, Chair of the Berkeley Division of the University of California Senate, stating that in my opinion it is time for him to convene a committee to examine whether John Yoo's appointment to the University of California faculty should be revoked for moral turpitude.

But I find myself frozen, unable to decide whether I should or should not write to William Drummond. I find myself frozen because I am confronted by the ghost of medieval scholar Ernst Kantorowicz. Ernst Kantorowicz--right-wing authoritarian anti-Democratic anti-communist German nationalist--was asked as a condition of his appointment to the University of California faculty to swear this oath:

Having taken the constitutional oath of the office required by the State of California, I hereby formally acknowledge my acceptance of the position and salary named, and also state that I am not a member of the Communist Party or any other organization which advocates the overthrow of the Government by force or violence, and that I have no commitments in conflict with my responsibilities with respect to impartial scholarship and free pursuit of truth. I understand that the foregoing statement is a condition of my employment and a consideration of payment of my salary.

He refused and protested:

Ernst Kantorowicz: There are three professions which are entitled to wear a gown: the judge, the priest, the scholar. This garment stands for its bearer's maturity of mind, his independence of judgment, and his direct responsibility to his conscience and his god. It signifies the inner sovereignty of those three interrelated professions: they should be the very last to allow themselves to act under duress and yield to pressure. It is a shameful and undignified action, it is an affront and a violation of both human sovereignty and professional dignity that the Regents of this university have dared to bully the bearer of this gown into a situation in which--under the pressure of bewildering economic coercion--he is compelled to give up either his tenure or, together with his freedom of judgment, his human dignity and responsible sovereignty as a scholar...

What should the Berkeley Division of the Senate of the University of California Do?

Dean Baker has a nice rant about the disappearance of reliance on "market forces" now that the Princes of Wall Street are staring disaster in the face without government help:

What Happened to "Free-Market" Conservatives (or Neo-liberals)?: With the housing bubble in full meltdown, our political leaders are busily ignoring all the things they have said about the market over the last quarter century and looking to throw all the money that they can find to sustain the bubble. This would be comical, if it weren't so painful.

Remember all the steel workers and autoworkers who lost their jobs due to trade agreements that were supposed to advance economic efficiency over the last quarter century? How about the workers in the airline, trucking, and telecommunications industry who lost jobs due to deregulation, which was also supposed to increase economic efficiency?

Well, it's a new day. Nothing these people (or their economists) said matters anymore. It housing bubble support time!

For years, economic policy was supposed to be guided by market principles. If our autoworkers couldn't compete with their counterparts in Mexico or China, who got paid $1 an hour, then it would be inefficient to have trade protection that would keep them employed here. The same applied to regulations that might keep high paying jobs in key sectors of the economy. Educated people all knew that interfering with the market was harmful to the economy, and if we ever forgot this basic truth, the Washington Post regularly ran sanctimonious editorials to remind us.

Well, it's a new day. The housing bubble is melting down and Congress and the Fed are throwing money everywhere. After all, this isn't about auto workers and truckers, it's about Wall Street banks, and the politicians are pulling out all the stops to come to the rescue. In addition to the money that the Fed is throwing at the banks through subsidized loans at its discount window, it is also granting free insurance to the investment banks -- a gift that is potentially worth hundreds of billions of dollars.

Now Congress is jumping into the act. Remember way back in the fall when they couldn't find $7 billion to expand the State Children's Health Insurance Program? Well, now Congress can finds hundreds of billions of dollars to support a housing bubble. It's a worthy goal. After all, the Wall Street crew might lose their shirts if the housing bubble continues to meltdown.

Congress will not be able to support the housing bubble indefinitely, but they might be able to do it long enough to allow the big boys to cash out and pass more of their bad loans onto the taxpayers and other suckers.

The political support for this bailout package may make it unstoppable, but if it does go through, we should be clear that there are new rules. In the post bailout world, anyone who makes claims about forcing workers or the poor to take pay cuts or do without benefits in the name of economic efficiency is simply a fool or liar.

Anyone who cared about economic efficiency would be yelling at the top of their lungs against this bailout. Anyone who can throw untold hundreds of billions of taxpayer dollars at the rich to save their hides, has no concerns about economic efficiency, they just want to help the rich. In such a world, the rest of us have the right to demand the same sort of handouts from the government. And those who stand in the way are simply lackeys of the rich and powerful, who pretend to care about principles of economics.

It looks like the seventeen-year-old's live college options are going to be Reed, Johns Hopkins, and (if he gets in off the wait list) Wesleyan. Any non-obvious information relevant to his decision would be welcome...

Fafblog! is back to save the universe. We demand a new era of Fafno-Gibletsian rule over the cosmos! None will be able to stand in our way!

Larry Summers's believes (and I agree) that we can likely resolve the financial crisis by (a) using regulatory authority to induce banks and not-banks to recapitalize (thus raising their demand for risky assets) and (b) having the government fund its own or GSE's purchase of mortgages or having the government guarantee mortgages (thus reducing the supply to the private market of risky assets):

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and so returning us to a good near-full-employment financial-markiet equilibrium.

Yves Smith disagrees, and in an attempted refutation raises what I call Objection (3): "It can't work, it won't work--at least not in the long run":

naked capitalism: Lessons from Japan Versus Wishful US Prescriptions (Summers/De Long Edition): Let's say that, in the end, the banks will have to get a public injection of funds. What might be some implications? First is that all these measures to shore up markets are a very indirect, inefficient, and therefore costly was to try to finesse the real problem, that a lot of institutions are or shortly will be insolvent. That says we should quit propping up the mortgage market... deal with the damage to families frontally rather than by trying to prop up home prices... the government has no reason to be shy about nationalizing institutions, and that means wiping out the equity holders before any funds are injected. Yet people like Summers seem remarkably loath to even voice that idea, as if it were somehow anticapitalist. Huh? What is anti-capitalist is privatizing gains and socializing losses....

De Long blithely ignores the conclusion that Krugman reached, and by implication, so does Summers. What about "bubble" don't you understand? That high priced equilibrium was not stable, it was created by unsustainable leverage. Per Herbert Stein, "That which is unsustainable will not be sustained." It is neither good economics nor good policy to try to keep an asset bubble aloft....

Note that [Summers] acknowledges that the government cannot keep asset prices from declining to their fundamental value but does not consider the implications. Even more bizarrely, he dances around the role of Freddie and Fannie, on the one hand arguing that they should be lenders of the "first, last, and every resort" (um, that means they are serving a public purpose) yet will not address the need to nationalize them. What gives? Similarly, he makes a motherhood statement that if banks get help from the government they should anticipate that that costs arecattached. But this is a charged area where details are far more helpful than platitudes...

Yves Smith is standing on the shoulders--well, not so much standing on the shoulders as walking in the footprints--or giants, specifically Karl Marx and Friedrich Engels, who wrote in 1850:

Reviews from Neue Rheinische Zeitung Revue: The years 1843-5 were years of industrial and commercial prosperity.... As is always the case, prosperity very rapidly encouraged speculation... [which] occurs... when overproduction is already in full swing... provides overproduction with temporary market outlets... precipitating the outbreak of the crisis and increasing its force.... When the Bank of England keeps its interest rates down in times of prosperity... capitalists with investments in loan capital thus see their income reduced by a third... 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...

And, they say, the economy's problems cannot be cured by mere government financial manipulation:

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...

That's Smith's argument: that Larry Summers and I neglect the implications of the fact that "the government cannot keep asset prices from declining to their fundamental value." How sound is it?

The fundamental value of any risky asset--housing, say--depends on (a) per-period value or profit, (b) the time profile of safe interest rates, (c) the quantity of risky assets that the private financial sector must bear, (d) the amount of risk associated with each tranche of risky assets, and (e) the risk-bearing capacity of the private market. All of things are things that can be high or low--and that the government can affect:

• A competent government that keeps the economy near full employment boosts future profits and values; an incompetent government that fails to stem an economic collapse into depression diminishes them.
• Similarly, a competent government that keeps asset prices from being pushed into fire-sale territory by irrational pessimistic panic diminishes the amount of risk associated with each tranche of risky assets.
• The Federal Reserve controls the time profile of safe interest rates. No argument.
• The government can buy up or guarantee risky assets, thus diminishing the quantity that the private market must hold--unless you adopt some hyper-Barrovian pose and are willing to maintain that Bernanke-Paulson puts are not net wealth.
• The risk-bearing capacity of the private market can be extended via financial regulation that diminishes the chance that a relatively uninformed investor is being victimized by someone with inside information, and widens the pool of investors willing to bear risk.

What, then, is this "fundamental value" to which asset prices must decline if government policy can have effects--profound effects on nearly each of the factors on which fundamental value depends?

The Marx-Engels-Hayek-Smith line of argument does attempt a parry. It says that the root problem is overproduction--that we have too many houses. Attempts to change fundamentals will mean that those who build more houses will continue to earn more profits, and so we will have more and more and more houses, and we will have an even greater overproduction crisis some time in the future. So we must make sure that housing prices are so low that nobody builds another house for a long time to come, and that is the only way to minimize the misery coming out of the collapse of the housing bubble.

I have never been able to make this "overproduction" argument maske sense. If the government provides a subsidy--like a mortgage insurance subsidy--then we will indeed have more of whatever the government subsidizes, but there is no reason to think that this is in any way a big problem or an unsustainable situation. It may well be a waste of the government's money to provide the subsidy: taxpayers might rather endure a housing crash and a depression than be forking out extra taxes to pay mortgage guarantees. That's an empirical and a cost-benefit issue.

Smith's problem, to my mind, is that he appeals to slogans:

What about "bubble" don't you understand? That high priced equilibrium was not stable, it was created by unsustainable leverage. Per Herbert Stein, "That which is unsustainable will not be sustained." It is neither good economics nor good policy to try to keep an asset bubble aloft....

without ever specifying what the costs and benefits of alternative policy paths are. John Maynard Keynes would say that a policy aimed at maintaining full employment via monetary policies that support asset prices and fiscal policies that directly stimulate demand can work, and do work, and that opposition to them is ultimately based not o pragmatic practicalities but on the memory of too many Anglican preachers denouncing the Mammon of Unrighteousness:

While some part of the investment which was going on in the world at large was doubtless ill judged and unfruitful, there can, I think, be no doubt that the world was enormously enriched by the constructions of the quinquennium from 1925 to 1929; its wealth increased in these five years by as much as in any other ten or twenty years of its history....

Doubtless, as was inevitable in a period of such rapid changes, the rate of growth of some individual commodities [over 1924-1929] could not always be in just the appropriate relation to that of others. But... [a] few more quinquennia of equal activity might, indeed, have brought us near to the economic Eldorado where all our reasonable economic needs would be satisfied.... It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924-1929] should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it; a nemesis on man's speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again.

I do not take this view. I find the explanation of [depressions, i.e.] the current business losses, of the reduction in output, and of the unemployment which necessarily ensues on this not in the high level of investment which was proceeding up to the spring of 1929, but in the subsequent cessation of this investment. I see no hope of a recovery except in a revival of the high level of investment. And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity...

I'm with Keynes.

Until recently, Henry Paulson was one of the few Bush appointees of whom it could be said that his service in the Bush administration was "without distinction." That itself was an accomplishment: very few of his fellows could say the same of their tenure.

Now it looks as though Paulson is losing that distinction--that he has decided to support Bush's blocking for ideological reasons of reasonable steps to deal with the mortgage crisis.

Kevin Drum reads Peter Gosselin and comments:

The Washington Monthly: PAULSON'S PLAN....Peter Gosselin reports on the Bush administration's response to the credit crisis:

Treasury Secretary Henry M. Paulson Jr.'s blueprint for regulatory reform, officially unveiled Monday, sets the stage for a confrontation with Congress by offering no relief for troubled homeowners and in many instances advocating less, not more, federal supervision of the nation's financial system.

Paulson proposed the broadest restructuring of federal regulatory institutions in 75 years with a call to merge agencies and redraw lines of authority that in some cases go back to the Great Depression. But the plan would put off for years any attempt to create new regulations for the streamlined system to enforce.

As a result, even if the new structure were eventually adopted, it would do little to prevent a repeat of the current crisis or something similar, the Treasury secretary acknowledged.

No surprise there. After all, Paulson created his plan a year ago, well before the current crisis exploded last summer. Far from being a way to rein in banking industry excesses, it was originally a conservative wish list designed to "streamline" the federal bureaucracy and lighten the regulatory burden on Wall Street, which was, um, slowing down the growth of sophisticated new financial instruments that %u2014 that, er, were needed to keep the American financial industry in its place as the leader of the world.

As it turned out, the regulatory burden on sophisticated new financial instruments wasn't quite the problem that needed to be solved, but Paulson didn't let that stop him. He just kept his pet proposals in place, slapped a fresh speech together, and called it a "sweeping" new vision. Then he looked surprised when no one was buying it.

Streamlining the regulatory bureaucracy is probably a good idea. There's certainly no need to fetishize the jury-rigged alphabet soup of New Deal agencies that we rely on today. But just for once, would it kill the Bush administration to address an actual problem, instead of merely using it as an excuse to jam some long-wished-for piece of money-con flim-flam through Congress?

This is disappointing. I was assured that Paulson wouldn't fall into this trap, and was better than this.

Robert Waldmann quotes Paul Krugman:

Robert Waldmann: Paul Krugman, "Hiding Behind the Invisible Hand":

Consider the press conference held on June 3, 2003 -- just about the time subprime lending was starting to go wild -- to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.... The lack of oversight, in short, was no oversight: it was part of the plan.

And Robert Waldmann finds a picture:

From the FDIC bulletin.... I know the image is low quality, but it took me a while to find it. For one thing, not only did the American Banker's Association eagerly lobby for the deregulation which seriously threatens American Banking, but their magazine -- community banker -- had an article on the great event which claimed to be illustrated and was missing the digital photograph. No wonder they are going bankrupt.

Ezra Klein gives the Clinton campaign a very important strategy lesson, worth more than all the money they have ever paid to their consultants and strategeryists. You see, the Clinton campaign thinks that it is playing a game of Calvinball. But actually it is participating in a popularity contest judged by the superdelegates:

Ezra Klein: The Clinton team is playing as if this will be decided on points. But in fact, it will be decided by judges, some of them empires, some of them representatives of the crowd, some of them big donors to the stadium. And those judges are terrified of pissing off their loyal fan base. The strategy here should be making the loyal fan base like you, not trying to pummel the other team....

[I]f Clinton is to have any chance, any chance at all, African-American voters need to feel comfortable with her ascension. If they don't, and if Obama is rendered unelectable, than the convention will sooner choose a third candidate (Edwards, Gore, etc) than elevate Clinton.... Clinton... could have scored some points with this group by forcefully defending Obama on Wright. But every time she takes a shot at one of these racially-charged controversies, she makes her own nomination less likely. She may score a point, but she turns off more fans, and thus renders more judges unable to vote for her.

Deniel Davies observes that 27,000,000 x 0.24 / 10 = 648000:

D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else: 27,000,000 x 0.24 / 10 = 648000

One of those fifth anniversary surveys, asks a number of questions, but look at Q20. Apparently, 24% of Iraqis answered "yes" to the question "Have you personally experienced the murder of a member of your family or relative since the invasion in 2003?". If we were to assume that no families in Iraq had more than one member murdered, for this response to be consistent with an overall violent death count of 150,000, the average size of an Iraqi family would have to be 35.

Mind you, the poll is dodgy - 10% of Iraqis claim to have personally seen a car bomb or suicide attack in the last month, but this is clearly impossible because the surge is working.

Matthew Yglesias:

Matthew Yglesias (March 31, 2008) - The Horror (Foreign Policy): There was a time when I never could have imagined I'd be reading stuff like this about my own country:

At the age of 19, Murat Kurnaz vanished into America's shadow prison system in the war on terror. He was from Germany, traveling in Pakistan, and was picked up three months after 9/11. But there seemed to be ample evidence that Kurnaz was an innocent man with no connection to terrorism. The FBI thought so, U.S. intelligence thought so, and German intelligence agreed. But once he was picked up, Kurnaz found himself in a prison system that required no evidence and answered to no one...

Read the whole thing; I don't really have the heart to make a witty remark.

Only those people who embrace the idea of being evil and think that evil is cool have any business voting for the Republican Party ever again. Ever. Again.

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

Duncan Black writes:

Eschaton: Stars Of Their Own Heroic Epic: Years later, it's hard to comprehend the depths of the narcissism of people like [Paul] Berman who obviously see events in the world as nothing more than referendums on their own awesomeness. He and his fellow travelers spent years berating dirty fucking hippies like me for daring to suggest that maybe war in Iraq was not some awesome idea, but instead, you know, bad. And now he wants to claim he opposed it?

This a deeply broken person.

He is reacting to Spencer Ackerman, who drops his jaw in amazement:

From <>:

toohotfortnr: public witness ain't seeing too much: Paul Berman did a BloggingHeads with Heather Hulburt in which the arch liberal-Iraq-hawk strongly suggests that he didn't support the war. You be the judge. Relevant section is about 2:30 in.

On the Iraq war, I myself wrote a piece in The New Republic on March -- which came out in the March 3, 2003 issue saying George Bush was leading us over a cliff. And that his notion of how to deploy power was lacking in liberal principle and that his use of power was going to turn out to be no power at all. In short it was going to be a disaster. I published this before the war. I made that prediction before the war. It's true that afterward I haven't made a career of running around saying I told you so, but if you look it up, the major article ... yeah, I was in favor of getting rid of Saddam but Bush's way of going about it was quite bad, and I pronounced myself, I used the word 'terrified,' of what would come of it.

TNR's messed-up web archives have erased Paul's article.... But it doesn't say what Paul says it says.... Leave aside his odious arrogance. (He told me so?) Paul says his piece recognized Bush's strategic foolishness and illiberalism. He's right. The trouble is he recognized it as a caveat to his enthusiasm to the war, not as an impediment. In other words, Berman wanted a war for liberalism, recognized that it wouldn't be one, and backed it anyway. That -- to say the least -- implicates his judgment.

In order to whitewash this, he pretends his caveat was his argument. He did this before, in the New York Review of Books, where he quoted his caveat and said it rose "rising to what I like to picture as a crescendo." Well, it wasn't a crescendo. It would only have been a crescendo if it stopped him from backing the war. Instead he took the opposite approach. Fine. But own up to it, don't pretend that wasn't your judgment.

Update: Oh God. Toward the end of the clip, Paul says:

Then there's the intellectual debate. The intellectual debate should always tell the truth. It should never be modest. It should always be grandiose.

Please, please, please, step back from the cliff...

And to Matthew Yglesias:

Matthew Yglesias (November 12, 2007) - Did Paul Berman Tell Us So? (Foreign Policy): In the midst of an argument with Ian Buruma, liberal hawk extraordinaire Paul Berman tries to convince us that he actually called Iraq correctly, and has merely been magnanimous in not pointing that out:

I approved on principle the overthrow of Saddam. I never did approve of Bush's way of going about it. In the run-up to the war, I became, on practical grounds, ever more fearful that, in his blindness to liberal principles, Bush was leading us over a cliff. [...] It is true and it is a matter of satisfaction to me that, in the years since then, I have not made a career of saying "I told you so."

Here's what Berman was actually writing in February 2003:

In my own judgment, Fischer and his fellow thinkers in Europe and even in the United States are making a mistake in failing to press for a harder line against Iraq--a harder line that might bring about Saddam's collapse more or less peacefully or, if need be, not peacefully. It should be obvious that, in the Arab world, fascist and Nazi-like movements--political tendencies that call for random mass murder in the name of paranoid and apocalyptic ideas--have gotten completely out of hand. In the last 20 years, Baathist and Islamist movements--the two branches of what ought to be regarded as Muslim fascism--have killed millions of people and might well kill many more, and not just in the Muslim countries, as we have reason to know. A war against Muslim fascism ought to be seen as a continuation of the long struggle against Nazism and fascism in Europe--a continuation of the same decent and necessary cause that people like Fischer have always wanted to support, even if they have not always known how to do so in a sensible way.

He was worried about Bush's failure to embrace liberalism, but it wasn't a worry that this meant the war would go badly, it was a worry that Bush wasn't being as rhetorically persuasive as he should have been:

Maybe Fischer is not convinced because the Bush administration has presented a series of side arguments about weapons, U.N. resolutions, and dark terrorist conspiracies and has failed to present the main argument, which is the single huge argument that has always sustained the Western alliance. This argument is the one about totalitarianism. It is the argument that says: The totalitarians are dangerous to themselves and to us, and we had better fight them. Fight wisely, of course, which the New Left notoriously managed not to do long ago, but fight. Why can't Bush make that argument? I won't speculate. But he could change. He gave up drinking long ago. Let him give up his arrogance, small-mindedness, and aversion to large and idealistic ideas today. It might help.

And here he was in January 2004 when many people still thought the war was going well:

What was the reason for the war in Iraq? Sept. 11 was the reason. At least to my mind it was. Sept. 11 showed that totalitarianism in its modern Muslim version was not going to stop at slaughtering millions of Muslims, and hundreds of Israelis, and attacking the Indian government, and blowing up American embassies. The totalitarian manias were rising, and the United States itself was now in danger. A lot of people wanted to respond, as any mayor would do, by rounding up a single Bad Guy, Osama.

But Sept. 11 did not come from a single Bad Guy--it was a product of the larger totalitarian wave, and the only proper response was to comprehend the size and depth of that larger wave, and find ways to begin rolling it back, militarily and otherwise%u2014mostly otherwise. To roll it back for our own sake, and everyone else's sake, Muslims' especially. Iraq, with its somewhat antique variation of the Muslim totalitarian idea, was merely a place to begin, after Afghanistan, with its more modern variation.

In short, Berman was wrong. The reason he hasn't made a career of telling us "I told you so" is that, in this instance at least, he didn't tell us so. But now he's trying to tell us that he did tell us so. But all he told us was that had Bush employed more Berman-style rhetoric then maybe more of Berman's friends would, like Berman, have wrongly deciding that an invasion of Iraq was a good idea.

Paul Berman may or may not be the stupidest man alive^TM. But he surely is the most mendacious man alive.

For the record, I was in favor of the war on Iraq in the winter of 2003. I reasoned:

• Condi Rice is not-stupid and not-malevolent, and is for the war.
• Colin Powell is not-stupd and not-malevolent, and is for the war.
• This means that even though the public intelligence is bs, that there must be solid evidence of an advanced nuclear program in Iraq and of a willingness to give serious weapons to terrorist groups--otherwise attacking Iraq while we have real enemies like Osama bin Laden running loose would be really stupid.
• And although Bush is really stupid, not everyone in the administration is.

Wrong on all counts. I am very sorry.

I may be the stupidest man alive.

S.M. Stirling tells me that I must buy this book:

Night Shade Books: Williams, Walter Jon - Implied Spaces: Implied Spaces pioneers a new genre of SF--the 'Sword & Singularity' novel. Williams combines fantasy tropes believably with nanotech, bleeding-edge infotech speculation, classic smashing-planets space opera and intriguingly human, or possibly post-human characters along with a fast-moving plot and a quirky sense of humor in a melange that's cosmological, theological, ontological, comic, and thoroughly entertaining.