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July 2008

FNMA: A History Lesson

John M. Berry: Fannie, Freddie Have Worn Out Their Independence:

July 16 (Bloomberg) -- It's time to put an end to the charade that no one ever believed. Fannie Mae and Freddie Mac would be dead without the announced backing of the federal government for the securities they issue to guarantee home mortgages. That's a strong argument for dropping these public-private partnerships, in which management and shareholders have taken the public for a ride. Treasury Secretary Henry Paulson's plan to shore up the companies includes no direct protection for stockholders, and their share prices plunged more yesterday. Fannie Mae closed at $7.07, down 82 percent this year, while Freddie Mac fell to $5.26, off 85 percent for the year....

The two companies own or guarantee more than half the $12 trillion of home mortgages in the U.S., so there was never any reason to think the government wouldn't step in to keep them operating.... However, instead of just finding ways to keep them going, Paulson should have proposed a government takeover -- with a payment to shareholders based on, say, July 11 share prices of $10.25 for Fannie and $7.75 for Freddie.

Over the years, both Fannie and Freddie have made very large profits precisely because they were able to raise money by selling securities regarded by most investors as carrying a government guarantee. As we have seen this week, the investors were right.... [T]he implicit subsidy has been enormous.... [CBO] estimated that in 2003 the annual value of the subsidy to the housing government-sponsored enterprises -- these GSEs include Fannie, Freddie and the Federal Home Loan Banks -- at $23 billion. Only about half that got passed on to homeowners in the form of lower interest rates on mortgages, the CBO said.... Fannie and Freddie persuaded members of Congress to let them issue ever-more debt.... Federal Reserve Chairman Alan Greenspan expressed concern about Fannie and Freddie in congressional testimony in February 2004 because... they had not chosen to manage risk by holding more capital....

[T]hat is the source of today's crisis for Fannie and Freddie: Investors believe the companies have large unrecognized losses.... As much as anything, the crisis represents a political failure. Congress wasn't willing to see the two companies reined in. So it's time to end the public-private partnership with its built-in conflict of interest.... Let's make them fully public entities whose role is to support the securitization of home mortgages...

The privatization--such as it was--of the FNMA was accomplished in 1968, I believe for three reasons:

  1. Getting FNMA debt off the federal government's books allowed Johnson to postpone moving a bill raising the limit on the allowable national debt through congress.
  2. Providing mortgage insurance seemed to the then-Budget Bureau to be much closer to an "insurance" function that was properly private than a "central banking" systemic risk-control function taht was proprly public.
  3. Nobody in 1968 imagined how good FNMA would turn out to be on Capitol Hill in using congressional power to draw the teeth from regulation, and how effective FNMA would be in persuading Wall Street that it had much more of a government guarantee than your standard large financial institution.

Truth be told, I am having a hard time understanding why FNMA and FHLMC equity has dropped so much. The power to borrow money at essentially the Treasury rate and use it to make mortgages is awesomely valuable. FNMA and FHLMC shareholders own that power--unless the Fed and the Treasury force it into a Bear Stearns- or LTCM-like fire sale. That is, I think, what the market fears.

New York Times Death Spiral Watch (Adam Nagourney and Megan Thee Edition)

The Obama campaign is righteously p.o.'ed at Adam Nagourney and Megan Thee.

Ta-Nehisi Coates draws a broader lesson:

Ta-Nehisi Coates: New York Times Uncovers A Shocker--Blacks and Whites Disagree: Sorry, but this article is pretty stupid and well critiqued by the Obama campaign. The older I get the more I think that journalism--daily journalism, especially--is simply incapable of dealing with something as nuanced as the black-white relations in this country. They just aren't capable, nor despite their claims of objectivity, are they unbiased. Take it from a journalist--good journalism needs conflict. No conflict, no story. But while the artisan searches for the natural conflict inherent in life itself, the hack has some polling firm call a bunch of people, and then writes a headline overstating the results.

And here is what the Obama campaign has to say about Adam Nagourney's ability to read:

Obama Campaign Criticizes New York Times Story On Poll: The NYT story about their poll ignores multiple and significant pieces of data that actually indicate a trend much different from that which the story suggests....

Some straightforward points from their data that are omitted from the story...

  1. More white voters say Obama cares about people like them, than say the same thing about McCain by 31 to 23
  2. On the essential issue in this campaign - bringing about change in Washington - Among white voters, Obama is seen as the change agent by 52% to 30%
  3. Obama's 31% favorable rating among white voters is virtually identical to McCain's, which is at 34%.
  4. By a 2 to 1 margin over McCain, white voters are more likely to say that Obama would improve America's image in the world
  5. "Racial dissension" around Mrs. Obama's 24% favorable rating among whites is an extremely odd description given that Mrs. McCain's favorable rating among white voters is 20%.
  6. Enthusiasm for Obama's candidacy is roughly 2.5 times higher among white voters than is enthusiasm for McCain's...

I must admit that my breath is stopped by the idea of saying anything about Black-white opinion differences based on a poll with only 300 Blacks in it. That is bizarre statistical malpractice of a high order.


From <>:

Poll Finds Obama’s Run Isn’t Closing Divide on Race: Americans are sharply divided by race heading into the first election in which an African-American will be a major-party presidential nominee, with blacks and whites holding vastly different views of Senator Barack Obama, the state of race relations and how black Americans are treated by society.... More than 80 percent of black voters said they had a favorable opinion of Mr. Obama; about 30 percent of white voters said they had a favorable opinion of him...

It's at this point that Nagourny and Thee should have said that about 35 percent of White voters--and 5 percent of Black voters, 15 people--have a favorable view of John McCain. And it is at this point that Nagourney and Thee should have said that 19 percent of white voters ar enthusiastic about the candidacy of Barack Obama, and 8 percent of white voters are enthusiastic about the candidacy of John McCain.

They go on:

Nearly 60 percent of black respondents said race relations were generally bad, compared with 34 percent of whites...

And it's at this point that Nagourney and Thee should have said that 60% of Blacks and 80% of whites think that race relations in their community are good.

Four in 10 blacks say that there has been no progress in recent years in eliminating racial discrimination; fewer than 2 in 10 whites say the same thing...

Nagourney and Thee say that 40% of Blacks and 20% of whites say that there has been "no progress." That's not what the question asked. The question reads: "Some people say that since the 1960s there has been a lot of real progress in getting rid of racial discrimination against blacks. Others say that there hasn’t been much real progress." If you think that there has been some--but not much--real progress in getting rid of discrimination but a lot of progress in reducing discrimination, then you say "no."

I could go on. But what would be the point?

Why Does Mark Halperin Still Have a Job?

Outsourced to JMM:

Talking Points Memo | Halperin's World: Here I think is an example of news judgment within the DC bell jar. As I noted below, the 'news' today, as in things that have happened today and are newsworthy, is the fact that John McCain has dropped his position on Afghanistan and embraced the one Obama has been pushing for the last year. (As a secondary matter, we can note that McCain doesn't have the troops for his new position because they're tied down in Iraq. But let's not expect too much.)

And look at the headline at Mark Halperin's The Page: "Obama Acknowledges "Shift in Emphasis" on Issues."

And here's Halperin's gloss on McCain's new Afghanistan strategy: McCain "highlights the success of the surge (and Obama's opposition to it), says the troop increase strategies used in Iraq should also be applied to Afghanistan."

It's almost comical. It doesn't fit the script so it didn't happen.

Late Update: Okay, it's 7:27 PM. And Halperin now has a headline noting that McCain is "supposedly adopting Obama's position on troops in Afghanistan"... prompted by an email the Obama campaign sent out to reporters at 6:41 PM.... Did I mention it's only "supposedly"?

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

Let Us Now Speak Ill of the Economist of London

I would not have thought that a British publication could write an obituary for Jesse Helms that omits Helms's claim that British Prime Minister Margaret Thatcher was a communist dupe helping the Russians conquer Central America.

Nevertheless, the London Economist does.

The lead to the London Economist's obituary for Jesse Helms is very bad:

Jesse Helms | SUPPORTERS put the best face they could on him. A real Southern gentleman.... A kind-hearted soul, who had adopted a boy with cerebral palsy, who bought ice-cream for his congressional pages and was delightful at dinner.... A true patriot, who saw America as God’s country and the world’s hope.... An anti-communist to make all others fade.... A doughty lover of liberty, who believed government should be small, laws unobtrusive, and men left alone to take responsibility for their own lives and their own decisions...

It does not get much better:

Jesse Helms | Mr Helms still carried in his head the mores of old Monroe, North Carolina... hot, quiet streets... cotton fields, flowers on the steps of the Confederate monument, Negroes stepping into the gutter to let whites pass. No mingling... uppityness punished, with a horsewhipping if need be.... [H]e railed against the welfare-scrounging poor, socialists and draft-resisters, as well as blacks... firm against government payments for the disabled, free school lunches and anything that encouraged bums in their “bum-ism”...

The Economist might have said that Jesse Helms's "small government frugality" did not extend to opposition to textile quotas or tobacco or peanut subsidies. It might have said that it was not a "horsewhipping" but a lynching that so many of Jesse Helms's constituents rightly feared. It might have said that what it calls "the mores of old Monroe" were never the mores of everybody in old Monroe--and that Jesse Helms was more a creator and user of them than a victim shaped by them.

The Economist might have wondered in what sense somebody who opposes equal rights for the non-white, non-male, non-heterosexual can be correctly termed a "lover of liberty." The Economist might have wondered in what sense somebody who dislikes so many of his own constituents and the entire populations of New York, Boston, San Francisco, and Los Angeles can be called a "true American patriot."

The Economist might have inquired how many African-Americans agreed with their toad-eating white fellow citizens that Jesse Helms was "delightful at dinner."

Of course, the Economist does none of these things.

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

Ta-Nehisi Coates on the New Yorker's Obama Cover

He writess:

Ta-Nehisi Coates: Maybe white folks shouldn't draw pictures of Michelle Obama...: UPDATE: So David Remnick went ahead and talked to Huffpo about the cover and why he chose to run it:

What I think it does is hold up a mirror to the prejudice and dark imaginings about Barack Obama's — both Obamas' — past, and their politics. I can't speak for anyone else's interpretations, all I can say is that it combines a number of images that have been propagated, not by everyone on the right but by some, about Obama's supposed "lack of patriotism" or his being "soft on terrorism" or the idiotic notion that somehow Michelle Obama is the second coming of the Weathermen or most violent Black Panthers. That somehow all this is going to come to the Oval Office.

The idea that we would publish a cover saying these things literally, I think, is just not in the vocabulary of what we do and who we are...

I think this basically true, except that, again, satire doesn't just reflect it actually exaggerates.... Sadly, that picture exaggerates nothing--that's exactly what a slice of Americans believe about Barack Obama.... Later in the interview Remnick compares this to Colbert's lampooning of the Right. Um, no. Again, Colbert is so exaggerated that only an alien could think that he was actually a right-winger.... I get the intent of the picture, but I think it just fails.... 13 percent of people actually believe that Obama's a Muslim.... Much worse though is the Michelle Obama attempt. No less than Christopher Hitchens--who exists well within the world of NYer readers--has argued that Michelle really is a Stokely Carmichael disciple who pushed Barack into Trinity--this despite the fact that Barack joined Trinity, like, five years before he knew Michelle. "The Whitey Tape" was the work of Hillary supporters, not the right-wing smear machine. At this moment there are Hillary-supporters, over at No Quarter, clamoring for Obama's passport. At the very least, the Michelle Obama caricature exists--not just among right-wing nuts--but amongst the thuggish Neandrathal wing of the Democratic party.

My point is that that this cover actually does reflect--not exagerate, not satirize--the views of a sizeable portion of Americans. That image is exactly what Fox News thinks of Barack and Michelle. Compare that, again, to Colbert. No real conservative actually thinks bears are the greatest threat to America. But that's not the point. Steven Colbert's threatdown/bear riff exagerates the right-wing stance on the enviornment. That's why it works as satire.

Welcome Willem Buiter and Mohamed El-Erian to the Banana Republic Club!

Yves Smith:

naked capitalism: Welcome Willem Buiter and Mohamed El-Erian to the Banana Republic Club!: The time has come to announce the formation of the Banana Republic Club. Membership is open, with the sole requirement being that nominees correctly discern behaviors in advanced economies that resemble those of corrupt developing countries.... Members are eligible to receive a Carmen Miranda hat, although they are not required to wear it.... Today we have two well regarded economists pick up the same theme, so it seemed time to commemorate this trend.... Since the US of A is likely to get a disproportionate number of citations, some readers may consider comparing America to, say, Argentina, to be disloyal. We refer them to Frederick Douglass:

A true patriot is a lover of his country who rebukes and does not excuse its sins

Put it another way, if someone is obese, we think we are doing them a favor to tell them that throwing out the scale and getting a fun house skinny mirror is no solution. Now to the nominees. Willem Buiter adopts a take-no-prisoners stance in his post, "The rescue of Fannie and Freddie by Hankie and Feddie." Buiter has been a frequent and highly vocal critic of the Fed's response.... But the rescue (if one can call it that, since little concrete has happened) of Fannie and Freddie elicits a new level of scorn:

The bail-out of Fannie Mae and Freddie Mac by the combined forces of the US Treasury and the Federal Reserve Board is the ugliest exercise of its kind I have ever observed outside early transition economies and mature banana republics....

The Treasury has taken another big step on the road to Utter Fiscal Obfuscation. It is doing everything it can to disguise the fact that it is entering in commitments that create potentially massive contingent liabilities for the US tax payer. Even if the purpose served by this increase in contingent liabilities is worth the cost, the manner in which it is done is designed to avoid fiscal accountability. This is as welcome to the Executive as it is to the Congress.

The continuing corruption of the Fed’s mission through its growing use as a quasi-fiscal agent of the US government is deeply worrying. Admittedly, this latest extension of list of eligible counterparties at the primary discount window is small beer when compared to the creation in March 2008 of the off-balance sheet vehicle/SPV in Delaware which houses $30 bn of Bear Stearns’ most toxic assets, all but the first $ 1billion of which represent a contingent exposure of the Fed. If, as I expect will happen, the range of eligible collateral Fannie and Freddie can offer at the discount window is widened in the future, and if the maturity of the loans available to them at the discount window is extended, this latest enhancement of the Fed’s role as a lender of resort will be a further step on the road to the Fed as quasi-fiscal recapitaliser of first resort.

Since 1997, the Fed has long been the least operationally independent central bank in the industrial world. This latest episode suggests its main current purpose is to be an unaccountable quasi-fiscal agent for the US Treasury. If that is correct, the Fed’s capacity to deliver price stability in the future may have been fatally impaired.

Note that the post discussed alternatives for coping with the Freddie/Fannie crisis at some length. While Buiter enjoys throwing thunderbolts from Olympus, El-Erian, co-president of bond giant Pimco and respected investor and academic who writes from time to time for the Financial Times, typically strives for a cool-headed, analytical tone, and provides sophisticated, nuanced discussions of markets, economic trends, and policies.

However, El-Erian's previous comment at the Financial Times, a mere week ago, by the standards of his dispassionate style, was positively alarmed, although it did contain a bracing "Fortune favors the brave" speech. This week, in "Crisis and coherence: finance remains vulnerable," the concern was even more palpable, the mention of opportunity in risk absent, and the comparison to unseemly third-world behavior a noteworthy departure from his normal anodyne stance:

In a few years, we shall look back at this time as one that redefined the landscape of the US financial system and, by association, the workings of global capital markets. The process is inevitably chaotic as it is driven by “crisis management” reactions.... Yet it is possible to make specific predictions.

The financial system is at a crossroads. At current market prices, the system remains under-capitalised despite some $350bn (€220bn, £176bn) of capital-raising over the past 12 months. More over, given the collapse in their equity prices, a growing number of institutions, including such behemoths as Freddie Mac and Fannie Mae, the mortgage agencies, are essentially unable to raise capital without government help. The longer this situation prevails, the higher the risk the financial system will face difficulties in raising other financing critical to day-to-day operations. This would accelerate forced sales of assets into illiquid markets, leading to another downward leg in an already vicious negative spiral.

This realisation drove the recent emergency policy statements from Washington. It is the second time this year that such dramatic announcements were made on a Sunday – a phenomenon historically reserved for developing countries rather than industrial ones. It reflects the understandable eagerness to minimise forced and disorderly deleveraging in a part of the economy that is deeply interlinked with virtually everything else. The financial system is like the oil in your car. Without the oil, it no longer matters whether you have a solid engine, good brakes or fancy safety features. The car will not function....

Accordingly, look for the official sector to encourage further capital-raising and work even harder to isolate the most vulnerable financial institutions and limit the negative spillover effects...

This is a practical approach aimed at striking that delicate balance between laisser-faire and government control. Yet it has important limitations. It does not work for large institutions such as Freddie and Fannie – thus the need for Sunday’s announcement of contingent equity and debt financing from the authorities. Also it cannot handle a large number of institutions facing difficulties. It is likely that additional steps will be needed, lest these limitations end up transforming the current economic and financial dislocations into something even more sinister.

Over the next few months, look for the Federal Reserve to face additional pressure to strengthen the emergency liquidity windows for systemically important institutions. Look for Congress to be asked to appropriate funds to support Freddie and Fannie more directly. Look for innovative mechanisms to raise additional capital for the financial sector through public-private partnerships. And look for other fiscal stimulus measures to counter the increasingly vicious spiral in housing and, soon, consumer demand.

Many of these steps involve distortions to the efficient functioning of markets over the longer term. Implementation is difficult and, in the absence of strong leadership, may not be timely enough. Yet the cost of doing nothing may be even higher. The key is whether all the ad hoc crisis management steps eventually evolve into a coherent and sustainable policy outcome. The jury is still out on this.

In other words, brace yourself for the officialdom making things up as they go along and hope they go to the trouble of cleaning it up later.

My view? So far, so good. Inflation hasn't exploded. Unemployment hasn't exploded. They continue to walk the tightrope--and that is impressive.

Out of Date Already! Will Fannie and Freddie Get Government Support?

Will Fannie and Freddie Get Government Support?: The chance that American taxpayers will actually lose any money if Ben Bernanke and Henry Paulson decide that Fannie (FNM) and Freddie (FRE) need government support is very low:

  • The interest payments they have coming in are greater than the interest payments they have going out.
  • Their government guarantee is itself a very valuable asset that they have made a lot of money off of in the past and will make more off of in the future.
  • They are not even in liquidity trouble--unless they begin to have problems rolling over their discount notes...
  • As long as it is generally understood that they are too big to fail, they should not even have liquidity problems--absent a depression that bankrupts many currently-solvent homeowners, that is.

Nevertheless, there is now a risk that Fannie and Freddie will need some form of government support in the next month:

  • The situation could require a lot of government-provided liquidity at any moment
  • It might even require more liquidity than the Federal Reserve can provide with its current balance sheet. Either the Fed needs to be given the power to pay interest on reserves immediately--so that it can swap interest-paying reserve deposits for mortgages next week--or this has to become not Fed but Treasury business.

The game the Fed and the Treasury are playing right now is as follows:

  • Keep risky asset prices from collapsing...
  • So that the flow of savings to finance construction and manufacturing expansion continues...
  • So that employment declines in construction and supporting occupations are roughly balanced by employment expansions in export and import-competing manufacturing and supporting occupations...
  • So that the economy does not fall into a depression deeper than that of 1982... *In which case all bets are off.

Supporting Fannie and Freddie may be something Ben Bernanke and Henry Paulson decide we need to do in order to win this keep-the-economy-near full employment game:

  • They are not in the business of rescuing feckless financiers from bankruptcy.
  • If their actions do have the consequence of rescuing some feckless financiers from bankruptcy, that is a side effect of their keeping the financial crisis from spilling over and destroying the jobs of millions of Americans.
  • To have the government step back in order to teach feckless financiers a lesson is simply not worth destroying the jobs of millions of Americans.
  • They are grownups with good judgment and as much experience in this business as anybody.
  • They are backstopped by committee chairs--Chris Dodd and Barney Frank--of equally good judgment.

Bernanke and Paulson have asked for additional regulatory authority:

  • They should get it.
  • Fannie's and Freddie's troubles make it more and more clear that the financial-market deregulation agenda of the late 1990s that Phil Gramm spearheaded was a more serious mistake than almost of any of us realized back at the time...

There are a bunch of options if push comes to shove:

  • Having the government formally guarantee GSE debt.
  • Having the government provide capital to the GSEs.
  • Having the government guarantee GSE preferred.
  • Putting the GSEs into "conservatorship."
  • The moral-hazard worriers in the Treasury will probably favor the last--that option penalizes GSE shareholders in the same way that Bear Stearns and LTCM shareholders and principals were penalized. The cautious will favor the first option, as running the least risk of aggravating uncertainty.

The Grand Strategy of the United States of America

Barack Obama:

Barack Obama: You know, the way we have to approach, I think, this problem of Islamic extremism ... is we have to hunt down those who would resort to violence to move their agenda, their ideology forward. We should be going after al Qaeda and those networks fiercely and effectively. But what we also want to do is to shrink the pool of potential recruits. And that involves engaging the Islamic world rather than vilifying it, and making sure that we understand that not only are those in Islam who would resort to violence a tiny fraction of the Islamic world, but that also, the Islamic world itself is diverse.

And that lumping together Shia extremists with Sunni extremists, assuming that Persian culture is the same as Arab culture, that those kinds of errors in lumping Islam together result in us not only being less effective in hunting down and isolating terrorists, but also in alienating what need to be our long-term allies on a whole host of issues.

Ezra Klein comments:

That last point is particularly important. A few months back, Mitt Romney, who's now on John McCain's short list for the vice presidency, said, "I don’t want to buy into the Democratic pitch, that this is all about one person, Osama bin Laden. Because after we get him, there’s going to be another and another. This is about Shi’a and Sunni. This is about Hezbollah and Hamas and al Qaeda and the Muslim Brotherhood. This is the worldwide jihadist effort to try and cause the collapse of all moderate Islamic governments and replace them with a caliphate."

The Egyptian Brotherhood isn't a terrorist group. al Qaeda, a Sunni terrorist group, hates Iran and is rivals with Hezbollah, a Shi'ite extremist sect. This statement, in other words, made no sense. It was a war against Arabs, and maybe some Persians. not a limited conflict against al Qaeda. As Obama says, one of the clear distinctions between the Left's approach to terrorism and the Right's approach to terrorism is that the Left wants to limit the scope of the conflict, while the Right wants to expand it. So though it was only al Qaeda who attacked us on 9/11, Romney and Giuliani and McCain and plenty of their colleagues want to zoom out from al Qaeda to terrorism, and from terrorism to Islamic extremism. Rather than this being an effort to hunt down al Qaeda, it becomes a war to hunt down al Qaeda, destroy Hezbollah, eradicate Hamas, overthrow Saddam Hussein, change the regime in Tehran, crush the Muslim Brotherhood, and confront Syria, and whatever else Bill Kristol thought of while eating his Cheerios that week. It is an incredibly dangerous and incoherent approach. And it marks a genuine difference between Obama and McCain.

Where Should Barack Obama Be Campaigning?

The story--whether it is true or not I do not know--is that in 1988 Michael Dukakis said that he wanted to go campaign in Western Massachusetts in September, at the Massachusetts State Fair in Springfield. A nd his campaign manager Susan Estrich--anxious to tell the candidate what he wantd to hear and not what he needed to hear--said that that was a wonderful idea.

It wasn't. There are state fairs everywhere. There are additional votes to be gained by visiting places personally. And some of those votes count more than others.

Which votes count the most? It's not the votes in states that the polls say are evenly divided that count the most. It's the votes in those states that will be evenly divided if the election turns out to be close that count the most. John McCain spent n weekend campaigning in Arizona. But if Arizona is close--if John McCain actually needs to spend time in Arizona to shore up the votes there--then John McCain is probably already and also behind in Florida, Ohio, Nevada, Missouri, Arkansas, Colorado, Virginia, Tennessee, Louisiana, and other states with a total of 375 electoral votes. For John McCain to carry Arizona and thus collect 163 rather than 153 electoral votes is simply not very important.

Which states will be close if the election is close? Take the average difference in the two-party vote in the 2000 and 2004 elections. Correct for the fact that in this election our African-American citizens are likely, for the first time, to turn out in proportion to their numbers--and to turn out for Barack Obama--by adding 1/10 of the African-American share of the population to the average two-party difference. Normalize, so that all of these state-level numbers together add up to zero.

We then have three groups of states:

I. States Which Barack Obama Is Likely to Win by More than 4% in a Close Election:

20080715_swing_political - Google Docs

From D.C. to Wisconsin, adding up to 248 electoral votes.

II. States Which Barack Obama Is Likely to Lose by More than 4% in a Close Election:

20080715_swing_political - Google Docs

From Utah to Arizona, adding up to 172 electoral votes.

*III. The States in the Middle:

20080715_swing_political - Google Docs

New Hampshire, Iowa, New Mexico, Florida, Ohio, Nevada, Missouri, Arkansas, Colorado, Virginia, and Tennessee--with 118 electoral votes.

Some of these states--Florida, for example--may be harder for Barack Obama to win than this very rough cut at the numbers would predict.

But if I were running the Obama campaign, I would not bother to send the candidate to California or Washington or Pennsylvania or Oregon--if those states are close enough for personal campaigning to make the a difference, the election is already lost. And I would also not bother to send the candidate to Arizona, West Virginia, Georgia, Mississippi, Indiana, Texas, or Kansas--if those states are close enough for personal campaigning to matter, the election is already won.

There Will Always Be an England (Dog's Breakfast Department)

Nicholas Roe in the Torygraph:

Animal friendly restaurants: a dog's dinner - Telegraph: The venue for our unusual date is The Tempest restaurant in Christchurch, Dorset.... So off I go on my blind date, me and a sweet little 18-week-old pup called Muffin: part spaniel, part bichon frisé.... [R]estaurateur Alison Ferhi.... "We recently decided to welcome the whole family," she explains, "and it occurred to me that the whole family includes the dog. We have a child's menu so why not have one for dogs as well?"

Why not, indeed. And here are Muffin's choices as she finally lopes back to my side: chicken pieces with rice, vegetables and reduced-stock gravy, garnished with dog biscuits, £5; tuna chunks served with all the above, £5; or, for the discerning dog with ethical tastes, a vegetarian option at £3: rice, cheese and cream sauce, vegetables and cheese nuggets.

Muffin and I both opt for chicken from our separate menus - we are getting on like a house on fire now - though what follows is something of a dog's dinner, inasmuch as I try forcing Muffin up on to a chair so we can photograph her while eating my own chicken sfiria one-handed… and it is a challenge. She wolfs her food far too quickly then hurtles around the room sniffing chair legs, so Muffin's kind owner, the lovely Allyson Currie, has to step in and help...

Economist Death Spiral Watch

Methinks Greg Ip has made a big mistake, and should return to the WSJ news pages pronto. The Economist's Free Exchange weblog has decided that it is entitled not just to its own opinions, but to its own facts.

It writes:

Free exchange: I HAVE noticed a trend to paint every economic policy of Jon McCain, and conservative economics generally, as hopelessly misguided.... Granted, Mr McCain continues to support the ludicrous gas tax holiday. But, if we deemed every politician's entire economic policy as bunk because of a handful of bad ideas, we would rule out every candidate. Also, Mr McCain may never live down admitting he does not know much about economics, but how many politicians do?...

There seems to be a temptation lately to label anyone who even dares mention supply-side economics, without immediately deeming it the silliest idea born to a napkin, an economic heretic. That's unfortunate. True, with the exception of very high marginal tax rates, a tax cut will generally not pay for itself...

Perhaps we should stop reading there. In spite of attempts by others (Bruce Bartlett, Marty Feldstein) to reclaim the term, ever since David Stockman's winter 1981 budget testimony "supply-side tax cut" has meant a tax cut that will move us toward budget balance without requiring any offsetting reductions in spending. But let us read on:

But there exists ample empirical evidence that cutting income taxes does increase growth.... Writing off supply-side economics as a blatant fallacy is as much of a 1990s relic as wearing a goatee...

And we should probably stop there. There is empirical evidence that cutting income taxes and cutting spending at the same time increases medium-run growth. There is no evidence that cutting income taxes and leaving spending the same increases medium run growth. But let us rad on:

Each candidate has some of good and bad economic policies. Mr McCain does champion free trade and fiscal responsibility...

And let's pull the plug there, and stop reading. Whatever John McCain's economic policies are, he is not a "champion of fiscal responsibility"--perhaps he used to be, but he has flipped. John McCain's proposals take a budget that is projected to be in rough balance in 2013 according to the CBO baseline and transform it into a $700B deficit. Those plans are not those of a "champion of fiscal responsibility"--and the only people who would say they are are ones who are deliberately auditioning to be the star in a Clown Show.

There are two theories for why the Economist--since it lacks bylines, we have to speak of it as a single entity--wants to star in a Clown Show these days:

  1. They are simply bonkers...
  2. They think that if they do not pretend to be bonkers, then rich Americans won't subscribe in sufficient numbers and they will have to shut down.

I used to think (2), but this makes me think (1). What extra subscriptions can you gain by saying that John McCain is a "champion of fiscal responsibility"?

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

Why Oh Why Can't We Have Better Republican Candidates?

Douglas Holtz-Eakin's McCain Budget Plan:

Even the thoroughly-in-the-tank Washington Post editorial page of Fred Hiatt cannot swallow this, and barfs it up:

McCain Math: The Congressional Budget Office projects a deficit of $443 billion in 2013 if President Bush's tax cuts are extended... and the alternative minimum tax is... patched.... McCain is proposing far more tax cuts... says on the campaign trail that he would repeal, rather than merely adjust, the alternative minimum tax, slash the corporate tax rate, now 35 percent, to 25 percent, and double the exemption for dependents.

It [now] turns out that none of that would be fully implemented by the end of the first McCain term. The nonpartisan Tax Policy Center estimates the extra cost of the scaled-back plan at $47 billion in 2013, bringing the deficit to a daunting $490 billion. Sen. Barack Obama's campaign claims it would be far higher, somewhere between $650 billion and $750 billion.

The McCain campaign says it will fill the hole with spending cuts... earmarks... a one-year freeze on discretionary spending other than for defense and veterans; and "reserve all savings from victory in the Iraq and Afghanistan operations" to use toward deficit reduction. These claimed savings are illusory. The campaign assumes $150 billion in savings by cutting in half deployments to Iraq and Afghanistan. But the Congressional Budget Office says that even reducing troops to 30,000, far beyond Mr. McCain's estimate, would save just $55 billion in 2013 beyond the costs that the CBO projects as part of its deficit calculation. The campaign assumes an additional $160 billion in cuts to the Pentagon procurement budget and other discretionary spending. But eliminating every procurement program that the CBO has identified as a potential budget target would save perhaps $30 billion in 2013.

In any event, Mr. McCain has called for billions more in new spending: increasing the size of the military, launching a new energy independence project, fully funding the No Child Left Behind law. Where's the savings? Mr. McCain says that he would limit overall growth in discretionary spending to 2.4 percent annually. History suggests that this would not be easily achievable: Discretionary spending has grown an average of 6.9 percent over the past seven years.

Mr. McCain's campaign says that he would rein in the growth of entitlement spending, saving another $160 billion, but it does not explain how. His campaign cites "excessive agricultural and ethanol subsidies," but eliminating all farm subsidies would trim less than $15 billion in 2013. Mr. McCain's opposition to the pending Medicare bill does not offer comfort on his willingness to deal with entitlements. He's willing to reverse $13 billion in scheduled cuts to doctors but opposes paying for it by reducing overpayments to the private Medicare plans. These overpayments -- the plans cost, on average, 13 percent more -- are just about the lowest-hanging fruit in tackling Medicare. In fact, Mr. McCain's chief economic adviser, Douglas Holtz-Eakin, told USA Today in May that the plans should have to "compete on a level playing field" with traditional Medicare. Mr. McCain sells American voters short -- and he does himself a disservice -- with his implausible claim...

Has the Washington Post climbed out of the tank and started doing its job? Alas, not completely. You see, the Washington Post does not get it right when it says: "The nonpartisan Tax Policy Center estimates the extra cost of the scaled-back plan at $47 billion in 2013, bringing the deficit to a daunting $490 billion. Sen. Barack Obama's campaign claims it would be far higher, somewhere between $650 billion and $750 billion."

I don't know whether the Post:

  1. Has not checked with TPC and the Obama campaign to understand the difference between the two numbers.
  2. Checked but did not understand the answer.
  3. Checked, understood the answer, but doesn't want to tell its readers where the difference comes from.

But it's claim that here we have two substantially differing estimates of the projected McCain 2013 deficit, one non-partisan and one partisan from the other side, is simply wrong. TPC is reporting the cost of what Doug Holtz-Eakin said a couple of months ago was the McCain plan. The Obama Campaign is reporting the cost of what John McCain says today is the McCain plan.

Tax Policy Center's $490 billion estimate does not include any estimate of the effect of McCain's proposal to allow taxpayers to figure their taxes under a different high-exemption tax system and then to choose whatever system is best for them. "The plan lacks sufficient details to model," says the TPC, but it "judge[s] the notion of a revenue-neutral and optional alternative tax system as implausible." The TPC does not include the revenue cost of McCain's gas-tax holidays. The TPC's $490 billion deficit estimate does not include the costs of increasing the army by 90,000 soldiers, or keeping defense spending at 4% of GDP, or fully funding No Child Left Behind, or the Lexington energy independence program. The Post knows that McCain is for all these--it notes them two paragraphs after it quotes the TPC's $490 billion number. But it has not checked or does not understand or wishes for its readers not to understand that the difference between what it says is TPC $490 and Obama Campaign $700 dos not reflect the Obama Campaign's highballing of costs, but rather (a) a large gap between what Doug Holtz-Eakin told the TPC McCain's tax policies were and what McCain says his tax policies are, plus (b) a very large gap between the spending policies assumed by the TPC and the spending promises made by McCain on the stump.

But even the in-the-tank Post won't swallow the medicine the Republicans are feeding them on this.

UPDATE: The Post did check with TPC. They were told that the TPC $490B 2013 projected deficit number starts from the CBO baseline and considers only the McCain tax policies as presented to TPC--that it does not include either the difference between what Holtz-Eakin said and what McCain says his tax policies are, or the difference between the CBO spending baseline and the spending expansions that McCain has promised.

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

Publicize Fannie Mae

Tanta of Calculated Risk agrees with the Laura d'Andrea Tyson line on the GSES:

Calculated Risk: Krugman on the GSEs: Because credit risk is now the front and center concern in everyone's minds, here in this bust of the bubble, I think it's very difficult for people to grasp the primary liquidity function of the GSEs. They have always been about recycling lending capital and taking long-term fixed interest rate risk off depository (and eventually non-depository) lenders much more than about merely absorbing credit risk. This goes against the grain of much current media over-simplification of "securitization" of mortgage loans that sees laying off credit risk as the main or even the only point of selling loans. The GSEs do take on the credit guarantee obligation of the securities they issue, but nobody sells loans to the GSEs just to offload credit risk--in fact, more than a few lenders work hard to negotiate contracts with the GSEs that leave quite a substantial part of the credit risk with the original lender: recourse agreements, indemnifications, servicing options that put a lot of the cost of default on the seller/servicer, not the GSE. They have historically done this because the credit risk of GSE-eligible loans has always been modest, but the benefits of getting 30-year fixed interest rate loans off your balance sheet has been substantial....

Fannie Mae didn't start out as a "GSE," it started out as a government agency. It can go back to being a government agency if the government needs to further the economic goals of liquidity in the home mortgage market--and maybe it can go back to doing business with Podunk National, rather than lavishing its capital on mega-lenders who aren't going to be subject to regional liquidity crunches. All this uproar over "nationalizing" the GSEs seems to me the part that is really overblown. If they can't raise enough capital as shareholder-owned entities to prevent the necessity of periodic bailouts, then let's end the experiment with "GSEs" and make them agencies of the government. Any "rescue" that doesn't wipe out the shareholders is simply making a bad thing worse.

The irony of the "subprime" situation, it seems to me, is that we probably all would have been better off if the GSEs had gotten into it in a big way. If the GSEs had been able to create a market in "vanilla" subprime--fixed rates, no prepayment penalties, careful documentation requirements, competitive pricing--and forced their seller/servicers into a "subprime box," the subprime loan market would have been a lot better off. The "pseudo-Maes and Macs" have never really been very good at providing the kind of market discipline within their purview that the real Mae and Mac have. But we wanted "innovation" and "choice" and "flexibility," not domesticated subprime and "alt" financing with low margins, uniform loan terms, and front and side airbags...

The Law Is Strange

From Sudeep Reddy:

Real Time Economics : An Old Law for a New Step at the Fed: The Federal Reserve Act’s Section 13(13), created in 1933 and amended in the late 1960s, allows the Fed to lend to any individual, partnership or corporation with collateral backed by U.S. government securities or securities issued by federal agencies. Fannie Mae and Freddie Mac debt is generally included in that latter category of safe holdings, even though it’s not directly guaranteed by the U.S. government...

Of course, the reason the Fed is contemplating this is that right now Fannie Mae and Freddie Mac debt is not regarded as "safe"--even though it is in normal times.

New Yorker Death Spiral Watch

UPDATES: Rich Yeselson of Change to Win writes, in email:

[H]ere's the problem... the satirical thrust of the drawing is entirely dependent upon the viewer being hip to the fact that this, well, The New Yorker's cover. There is nothing, per se, about the drawing itself that cuts against the grain of a completely literalist interpretation of its depiction of the Obama's as terrorist. Anyone so prone to such an interpretation will see here a visual representation of their views. As art, the work is completely overdetermined by its cultural context.... So: That's bad satire. And, so, yeah--I blame the New Yorker for publishing bad satire.... Do they have the "right"? Well, of course.... But the art s-----, and the political consequences may not be good, so I have the right to say I'm not happy with their editorial decision....

It's a simple point. You should be able to get the joke without knowing it's a New Yorker cover, or reading an inteview from the Editor in Chief. If you can't, then it's not good visual satire. And it's an easy point to test: If you put the same drawing on the cover of a far right magazine, your response would be pretty damn different, wouldn't it? You might even be appalled. That's what I mean--it is indeed entirely dependent on its cultural context. That means it bad satire, lousy art. The editorial decision, therefore, was also a lousy one...

Tom Toles Cartoons - (

Why oh why can't we have a better press corps? Kevin Drum on the New Yorker cover:

The Washington Monthly: [A] few minutes thought convinced me [that the cover] was gutless. If artist Barry Blitt had some real cojones, he would have drawn the same cover but shown it as a gigantic word bubble coming out of John McCain's mouth — implying, you see, that this is how McCain wants the world to view Obama. But he didn't. Because that would have been unfair. And McCain would have complained about it. And for some reason, the risk that a failed satire would unfairly defame McCain is somehow seen as worse than the risk that a failed satire would unfairly defame Obama.

So: gutless. And whatever else you can say about it, good satire is never gutless.

And Ta-Nehisi Coates writes:

Ta-Nehisi Coates: Maybe white folks shouldn't draw pictures of Michelle Obama...: At this very moment, me and Kenyatta are debating New Yorker cover. She's a little more pissed than me.... [T]he problem is that it's very hard to satirize the rumors around Michelle and Barack. Satire needs overstatement. But the cover doesn't actually overstate... it's the sort of image you'd expect to see at one of the nuttier websites or publications, and so... it doesn't work very well [as satire]...

Which means it works fine as a concession to right-wing wingnuttery.

Coates goes on:

I think "offensive" is bit much, but I can see that we do have the makings of a problem... I've come up with a compromise. White people--step away from the sepia-toned crayons. Black people--recognize that incompetence and epic fail may be the only things more common than bigotry...

Here's the cover:

Loading 201CTa-Nehisi Coates: Maybe white folks shouldn't draw pictures of Michelle Obama...201D

Fannie and Freddie: Action This Week

Brendan Murray and Dawn Kopecki: Treasury Secretary Henry Paulson... speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the [GSEs].... The Federal Reserve separately authorized the firms to borrow directly from the central bank.... Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt.... Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in the firms, and to increase their lines of credit with the department from $2.25 billion each. The temporary authority may be for 18 months....

Freddie Mac is scheduled to sell $3 billion in short-term notes tomorrow.... Preferred securities tumbled in Asian trading as investors questioned if Freddie and Fannie will be able to continue to pay dividends.... Senator Charles Schumer, a Democrat from New York who chairs the Joint Economic Committee of Congress, praised Paulson's plan, saying it "is surgical and carefully thought out and will maximize confidence in Fannie and Freddie while minimizing potential costs to U.S. taxpayers."...

Senior debt of both companies trades as if they were rated A3 instead of Aaa by Moody's Investors Service, according to data from the rankings firm's credit strategy group...

Paul Krugman on Fannie and Freddie

The way Laura Tyson puts it, a mortgage packager and guarantor is almost surely a good thing--but the GSEs should never have been privatized in the first place. Organizations with great government privilege are government responsibility--and there is no way in which they should ever have been let loose from oversight and made responsible to their private shareholders alone.

Paul Krugman:

Fannie, Freddie and You: And now we’ve reached the next stage of our seemingly never-ending financial crisis. This time Fannie Mae and Freddie Mac are in the headlines.... How worried should we be?...

Fannie and Freddie probably will need a government rescue. But since it’s already clear that that rescue will take place, their problems won’t take down the economy. Furthermore, while Fannie and Freddie are problematic... they aren’t responsible for the mess we’re in....

Fannie Mae — the Federal National Mortgage Association — was created in the 1930s to facilitate homeownership by buying mortgages from banks.... The case against Fannie and Freddie begins with their peculiar status: although they’re private companies with stockholders and profits... [with] privileges... [especially] the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue... profits are privatized but losses are socialized.....

Such one-way bets can encourage the taking of bad risks, because the downside is someone else’s problem.... But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago.... [W]hatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated... the Fannie-Freddie experience shows that regulation works.

In that case, however, how did they end up in trouble?... [T]he sheer scale of the housing bubble... a rising rate of delinquency even on loans that meet Fannie-Freddie guidelines... [and they] haven’t been required to put up enough capital.... And yes, there is a real political scandal here: there have been repeated warnings that Fannie’s and Freddie’s thin capitalization posed risks to taxpayers, but the companies’ management bought off the political process, systematically hiring influential figures from both parties....

[L]et's be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole.

They cannot be allowed to collapse because we want to keep the economy near full employment, which means that construction-sector employment can't be allowed to fall faster than tradeable manufacturing-sector employment can rise. But they could be put into "conservatorship." And there is no reason that their stockholders need to emerge from this with any money at all.

Henry Paulson on Fannie Mae and Freddie Mac Worldwide

Treasury Secretary Henry Paulson:

Sunday Evening: Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed. Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer.

Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.

BBC Reality TV?

Unreality TV, Andrew, Unreality TV!

Andrew Samwick:

A News Program or Reality TV? | Capital Gains and Games: I agree with Stan -- this post by Brad DeLong about his appearance opposite Grover Norquist on a BBC "news" program is a classic.  If Norquist is the BBC's idea of a right-of-center expert on the challenges facing Fannie Mae and Freddie Mac and the implications of those challenges for federal policy, then the BBC does not qualify as a news organization.  And as a result I care as much for its continued existence as I do any other reality TV program, which is not much at all.

This Is Moving Very Rapidly Indeed

Iain Dey and Dominic Rushe:

US Treasury rescue for Fannie Mae and Freddie Mac - Times Online: US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms. The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world. Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market. The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.

The potential rescue comes as investors are braced for more bad news from the financial sector. Citigroup is expected to reveal further writedowns of at least $8 billion with its second-quarter results, and Merrill Lynch is forecast to reveal writedowns of some $4 billion. Both banks are expected to post sizeable losses for the second quarter, and reveal plans to sell off billions of pounds worth of assets. A number of US regulators and politicians have been attempting to restore confidence in the two mortgage agencies. Paulson and President George Bush stepped in to give vocal support to the two firms on Friday. “Freddie Mac and Fannie Mae are very important institutions,” said Bush, adding that he had spoken with Paulson who had “assured me that he and Ben Bernanke [the Federal Reserve chairman] will be working this issue very hard”.

Paulson killed off speculation that the government would renationalise the two agencies, a move that would have pitched the US public accounts into a new state of crisis. However, Paulson pledged to support the two companies “in their current form”. He is said to have been concerned about the prospect of a rescue plan benefiting shareholders. The capital injection would also see both lenders granted permission to use the Federal Reserve’s discount window - a short-term emergency funding source...

Partisan Economic Patterns

Philippa Dunne and Doug Henwood:

The Liscio Report: Presidential economics: Do parties matter?: this is a good time to look at the partisan patterns in some major economic and financial indicators. The differences are significant, and worth thinking about for anyone with dollars at stake after January 20, 2009:

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

These partisan patterns are immensely strong. Yet, as Paul Krugman points out, it is very hard to point to any concrete policy steps taken by administrations that are strong and directed enough to produce them. Yet there they are.

Richard Milhous Nixon

I have decided that Rick Perlstein's Nixonland is an even better book about Richard Nixon and the Nixonland we live in than Garry Wills's Nixon Agonistes:

One of Richard Nixon’s biographers, reflecting upon the image [of his father repeatedly throwing him into the irrigation ditch], speculated the kid “might well have felt that his father was trying to drown him like an unwanted puppy.” For most farmers, that ditch helped bring a decent crop. Not Frank Nixon, who was filled with the kind of self-destructive abstemiousness that is sometimes labeled pride. “I won’t buy fertilizer until I raise enough lemons to pay for it,” he said, though in Yorba Linda’s “loaf-sugar” soil—it tended to clump—you couldn’t grow lemons without fertilizer. Frank and his family went bust.

California wasn’t supposed to be like this. Frank had come from Indiana after a life spent collecting humiliating jobs: farmhand (upon dropping out of school in the sixth grade); streetcar motorman (his feet got frostbitten in the unheated cab); glassworker; potter; housepainter; sheep rancher; telephone-pole climber; oxcart driver; oil-field roustabout.

When Dick was ten, the family moved to the Quaker outpost of Whittier, home to his mother Hannah’s people. They never really approved of Frank. That didn’t keep the patriarch from affecting a peacocklike sense of superiority. To the point of tedium, he would remind people that he had once met William McKinley—as if that, and not the family he was raising, was his life’s great accomplishment. Eventually Richard Nixon’s loquacious father didn’t do too poorly with his store. He built it in a former church, which was appropriate enough, for in this family, to toil was a sacrament. Frank, who did the store’s butchering, took pride in changing his bloodstained shirts no more than once a week. Richard Nixon would ever transit between feelings of pride and feelings of shame toward his dirty-necked, lusty spitfire of a father, between apologizing for him and boasting about him, between desperately reaching for success to honor him and desperately reaching for success to repudiate him....

At Whittier, a fine Quaker college of regional reputation unknown anywhere else, he embarked upon what might have been his most humiliating job of all: learning to be a backslapping hail-fellow-well-met. (“I had the impression he would even practice his inflection when he said ‘hello,’” a reporter later observed.) The seventeen-year-old blossomed when he realized himself no longer alone in his outsiderdom: the student body was run, socially, by a circle of swells who called themselves the Franklins, and the remainder of the student body, a historian noted, “seemed resigned to its exclusion.” So this most unfraternal of youth organized the remnant into a fraternity of his own. Franklins were well-rounded, graceful, moved smoothly, talked slickly. Nixon’s new club, the Orthogonians, was for the strivers, those not to the manner born, the commuter students like him. He persuaded his fellows that reveling in one’s unpolish was a nobility of its own.

Franklins were never photographed save in black tie. Orthogonians wore shirtsleeves. “Beans, brains, and brawn” was their motto. He told them orthogonian—basically, “at right angles”—meant “upright,” “straight shooter.” Also, their enemies might have added, all elbows. The Orthogonians’ base was among Whittier’s athletes. On the surface, jocks seem natural Franklins, the Big Men on Campus. But Nixon always had a gift for looking under social surfaces to see and exploit the subterranean truths that roiled underneath. It was an eminently Nixonian insight: that on every sports team there are only a couple of stars, and that if you want to win the loyalty of the team for yourself, the surest, if least glamorous, strategy is to concentrate on the nonspectacular—silent—majority. The ones who labor quietly, sometimes resentfully, in the quarterback’s shadow....

The circle could be made to expand, Richard Nixon might have realized even then. Though via a paradox: the greater their power, the more they felt oppressed. When the people who felt like losers united around their shared psychological sense of grievance, their enemies felt somehow more overwhelming, not less; even if the Franklins weren’t always really so powerful at all, Franklin “power” often being merely a self-perpetuating effect of an Orthogonian sense of victimization. Martyrs who were not really martyrs, oppressors who were not really oppressors: a class politics for the white middle class. The keynote of the new, Nixonian politics…though we are getting ahead of ourselves. For first we must send Richard Nixon to law school, where he was a monk....

It was, to be sure, an unglamorous way to play [poker]. The fun in gambling lies in risking the chance. Which was how people who had not mastered the endurance of the dirty job—most people—played. Which may be one of the reasons Nixon was so successful against them. Sometimes Nixon played pots as high as the price of a new car. Waiting, waiting, waiting; enduring not so much the losses as the long stretches of nonwinning; because you’ve only really ever finally lost when you’ve given up the game. At any rate he won enough money at poker to fund the greater part of his first congressional race. He knew a whole lot about winning by then.  

There is one more thing to say before we launch Richard Nixon on his public career. Nixon has been the subject of more psychobiographies than any other politician. His career vindicates one of that maligned genre’s most trustworthy findings: the recipe for a successfully driven politician should include a doting mother to convince the son he can accomplish anything, and an emotionally distant father to convince the son that no accomplishment can ever be enough. We have seen something of the father. Now, something of the mother. Nixon called Hannah Nixon a saint. People remembered her as soft-spoken and pious. But Nixon’s best psychobiographer, Fawn M. Brodie, sees evidence of “repressed anger” in Hannah Nixon’s makeup. History dotes upon her honesty. But that, too, doesn’t quite cover it.

For even while instructing her sons that lying was the most unpardonable sin, on one subject she lied often, especially later in life: on the subject of her second son. To understand this we must explain the death of his brothers. It is another psychobiographical theme in the lives of successful men: the deaths of siblings. The first one to die was the youngest, Arthur, who came down with what might have been tubercular meningitis. Twelve-year-old Richard was given reason to believe that a concussion from a schoolyard rock thrown to Arthur’s head that Richard had been unable to prevent had been a contributing factor. Older brothers are supposed to protect younger ones. Richard was convulsed by his failure, and the loss. Then, the second brother. Richard hadn’t been the favorite son. The golden boy, the one on whom great hopes were pinned, was the oldest, Harold—handsome, well-rounded, graceful: the first Franklin Richard knew. Harold became even more the center of the family universe when he came down with tuberculosis.

After Hannah set up a second household for him to recuperate in the hot, dry air of Prescott, Arizona, Richard was left behind with two other brothers under the care of their slave-master father. It was the middle of the Depression. The family almost went bankrupt. Richard was sent to Arizona to help nurse the boarders Hannah brought in to help keep the family afloat.

The work was endless, dirty, unrewarding, sepulchral. When Harold died, Hannah once told Ladies’ Home Journal, Richard “sank into a deep, impenetrable silence.... From that time on it seemed that he was trying to be three sons in one, striving even harder than before to make up to his father and me for our loss.” Hannah would come to recast Richard in her mind as an impregnable figure of destiny, bringer of miracles. When he became famous, she began to report that Richard had been born the day of an eclipse (he wasn’t), that his ragged and forlorn family had sold land upon which oil was found immediately afterward (they hadn’t). The exaggerations she got away with drove home for her son the lesson that a lie unexposed does no harm, that a soul viewed as a saint can also lie. And her swooning (though she withheld praise in his presence) drove home a lesson the politician was predisposed to internalize: that he was a figure of destiny, impregnable. Which could only heighten the pain of the losses he had pledged himself to endure when they came. Which made him want to win even more; though the pleasure of those victories was dulled to the vanishing point by survivor’s guilt; even as any victory could not be enough to please his internalized father anyway. This was an ego finely tuned to believe that it was nothing unless it was everything: one for which winning wasn’t everything, it was the only thing—but which even victory could never fully satisfy...

For the first time, I think I understand how Nixon could win so much and yet wind up such a loser: his entire strategy was to win by making himself the oppressed loser and the spokesman for all the other oppressed losers--which meant that the more he won, the more he saw himself as and became a loser, until in the end he lost absolutely everything.

And made the Republican Party the world's biggest loser as well.

McCain: Phil Gramm and Fred Malek

McCain Throws Phil Gramm Off the Train/Under the Bus/Over the Side:

Think Progress: Holtz-Eakin: Phil Gramm Is No Longer ‘Giving Advice To Senator McCain’» Since Thursday, Sen. John McCain’s (R-AZ) presidential campaign has been in damage control mode, attempting to distance itself from top economic adviser Phil Gramm’s belief that America is “a nation of whiners” that is only going through a “mental recession.” “Sen. Graham and I, as I said, we have a total disagreement on whether Americans are whiners or not,” McCain told reporters yesterday.

Appearing on PBS’s Nightly Business Report last night, McCain’s senior policy adviser, Douglas Holtz-Eakin, claimed that because of the comments, Gramm would no longer be giving McCain advice:

GERSH: Is Senator Gramm still giving advice to Senator McCain?



HOLTZ-EAKIN: At — I haven’t spoken to Senator Gramm since the comments took place, and I’m not expecting to...

But the Infamous Dog-Roasting Jew-Counter Fred Malek Is Still in the Boat/on the Bus/Riding the Caboose:

Follow the Malek - Paul Krugman: It’s just a glancing mention in this Times piece on how Fannie Mae won friends and influenced people:

Fannie’s board once included Frederic V. Malek, a longtime friend of the Bush family and a former business partner of the current President Bush.

There’s a bit more to who Malek is:

  • He was Nixon’s Jew-counter: he counted Jews at the Bureau of Labor Statistics at his boss’s behest — you see, Nixon believed that a “Jewish cabal” was distorting the economic statistics to make him look bad.
  • He was the deputy chairman of the RNC during the elder George Bush’s presidential run in 1988, but resigned when the Jew-counting story came out.
  • A year later, he helped the younger Bush purchase of the Texas Rangers — a supreme case of crony capitalism.
  • And now he’s John McCain’s finance co-chairman.

Phil Gramm would probably make a better Treasury Secretary than any Republican we have seen since George Shultz (the jury is still out on Hank Paulson).

Fred Malek has no qualifications whatsoever, save for total sycophancy and a lack of any moral sense whatsoever.

Tim Lee Reviews Brink Lindsey's "The Age of Abundance"

You know, The American Scene is like the love child of National Review and Partisan Review in their heydays--except, that is, for the fact that The American Scene is really good.

Tim Lee:

Two Ages of Abundance | Culture | Politics | The American Scene: I promised that I’d do a post discussing one of the weaknesses of Brink Lindsay’s The Age of Abundance. In particular, it felt like it was really two separate books that were stitched together in one volume. Both halves were good, but they didn’t cohere....

The first half of the book... up to about 1980, is a rich and colorful discussion of Americans social and cultural evolution. The second half of the book, which focuses on the last quarter-century or so, is more a technical economics discussion, focusing on the effects of globalization, changes in consumption and inequality, etc....

I can think of several possible reasons for this. The most obvious is that Lindsey may simply be writing what he knows... a youngish Baby Boomer....

The shift may also be a consequence of one of the trends Lindsey identifies... the astonishing increase in the diversity of American culture. One could make a plausible case that Nirvana is to the early 1990s what the Beatles were to the mid-1960s. But... it’s not clear that it was in the 1990s, or ever will be again, possible to reach that kind of stratospheric social success. The Beatles’ first appearance on the Ed Sullivan Show drew an estimated 73 million viewers, about half the country....

[I]t might be impossible to write a cultural history of late-20th-century America as coherent as the one Lindsey writes about the cultural trends of the 50s and 60s.... A final possibility is that it’s not yet possible to write a definitive cultural history of the last couple of decades because we don’t have enough perspective to see which trends proved to be really important. The rise of evangelical Christianity began in the 1940s and 1950s, but a writer in 1970 might not have appreciated its significance... the social movements that will shape popular culture in the next couple of decades are almost certainly in our midst today, but we won’t be able to identify them [for a while yet]....

I found the first half more interesting than the second... [which] draws more on the work of libertarian thinkers whose work I’m already familiar with.... [Also,] the best writing is often about good storytelling, and there are a lot more fun stories in the first half.... The whole thing is excellent, though, and I encourage you to check it out.

Paul Mason's Primer on Fannie Mae and Freddie Mac

This is good:

BBC NEWS | NEWSNIGHT | Idle Scrawl: Paul Mason's blog | Fannie Mae: The credit crunch meets the F-word: The panic on Friday about the two US mortgage giants, Fannie Mae and Freddie Mac, is followed by the collapse of California's IndyMac, a regional mortgage lender. Customers at Indy have been told their money (up to a $100k limit) has been transferred to something called "IndyMac Federal Bank". The crucial letter in the acronyms that Freddie and Fannie are short for is F, as now also with Indy: the two giants are Federal institutions, as is - now - the busted Californian bank. Slowly but surely the state - not just in America but here too - is having to bail out the financial system, and I think this could have a big impact, eventually, on politics too....

Fannie Mae was founded in 1938 as the monopoly provider of mortgage loans. It was privatised in 1968, Freddie set up to expand the operation in 1970: they don't issue mortgages - they underwrite them for other institutions. Together they have underwritten $5 trillion of mortgages - half of all US mortgages.

On privatisation they received a bailout guarantee from the government and a direct line of credit from the US treasury; but they were listed companies - their shares traded on the stock exchange and they made a healthy profit. So healthy in fact that pure private capitalist banks had been baying for them to be unshackled from this part-private, half-life existence.

Thus Fannie and Freddie were sustained by one of those necessary fictions that underpin finance capitalism: that this $5 trillion was not really guaranteed by the US government at all. Now that fiction is collapsing (every step of the financial crisis has destroyed a necessary financial fiction) we are confronted with the emergence of something very strange: a state backed financial capitalism.

Consider this: right now the US legislature is about to pass a separate bill allowing the government to underwrite $300bn of mortgages for those whose homes are about to be repossessed; the US Treasury has already doled out in excess of $100bn cheap loans to banks to keep them afloat and "reinvented" a rule allowing it to underwrite the rescue of Bear Stearns by JP Morgan. Now it is faced with at the very least having to shoulder $40bn of Fannie and Freddie's debts (the two companies have insisted they are solvent and their is nothing wrong, but many analysts disagree, as does the market which has wiped 78% off their share value since January). And one option being discussed is to take the whole of Fannie/Freddie's mortgage book into public ownership, Northern Rock style....

All over the word, slowly but surely, the state is becoming exposed to the debts and liabilities of the finance system. We've seen it here with Northern Rock - and with the Bank of England's special liquidity scheme, and with the expanded deposit guarantee. The words "too big to fail" - once uttered as a joke, about a theoretical situation in the dining rooms of the investment banking world - have now been elevated into a philosophy. The strange thing is it's being done on the watch of governments committed to removing the state from the economy. It is being done, in other words, in defiance of the official ideology of governments, regulators, banks, business schools, accountancy firms, TV pundits, Nobel prizewinners and nearly every think tank on earth.

On this basis I will make a prediction. Soon the ideology will move into line with the practice. Soon somebody will argue that a state-backed finance system, with much heavier regulation, is better than the one the world's leaders have been trying to patch together at the G8 summit.

Fannie Mae was born during Franklin Delano Roosevelt's second term, when the New Deal moved from a series of ad-hoc responses to the depression to a more holistic vision of a state-revived and regulated American capitalism. Incidentally FDR also created the Federal Deposit Insurance Corporation, which moved in last night to seize the assets of IndyMac. And the Securities and Exchange Commission which will now surely begin an investigation into how things went wrong. In short, the regulatory architecture of modern US finance was born as the result of a spectacular economic disaster which ruined the lives of millions for a generation.

Roosevelt and his allies did not start out with a coherent vision of what to do in the face of the crisis. They improvised - albeit branding the whole programme with the catch phrase "The New Deal". They closed 4,000 banks, they outlawed the concept of the investment bank as we know it; they outlawed financial speculation. I am not advocating a return to Rooseveltian state captialism - but I do think the evolution of FDR's thought is worth studying. Because what basically happened was that a coalition of interests determined to stop the finance sector from destroying the world economy found a leader prepared to go beyond muddling through and to envision a new kind of market economy where the state's mission was to defend the little guy against the steamroller of unemployment, hunger and speculation...

Washington Post Death Spiral Watch

This is the kind of thing they want us to pay to read?

Hummer, How We Need Thee: Matthew DeBord: When General Motors announced that it would subject its Hummer division to what in the automotive business is known as a "review," you could hear the tree huggers, the unreconstructed hippies, the postmodern Greens, Al Gore's organic peanut gallery, every single customer at the Pasadena Whole Foods and the United Prius Owners of America shove aside their alfalfa sprouts and commence clapping....

[I]t would be a mistake for GM, assisted by the raving grease-monkey CPAs of Citibank, to sell the brand to an upstart carmaker in India or China or to breed it as a hybrid, as some have suggested. GM desperately needs an obnoxious, attention-grabbing brand to keep from turning into a dreary shadow of its former self.... It takes a certain kind of man -- it's almost always the owner of a Y chromosome -- to take a gander at the Hummer, in all its broad, burly, paramilitary gas-guzzling glory, and see himself behind the wheel, striking fear and loathing in the hearts of ecologically sensitive motorists. Oprah does not drive a Hummer. But Arnold Schwarzenegger has been a proud owner. As has Sylvester Stallone....

GM has kept it in the portfolio because it's, well, cool. Just go to an auto show. People love to climb into Hummers and take in the sights from the driver's platform. While they're up there, indulging their visions of Norman Schwarzkopf.... [T]he Hummer is being picked to pieces by bean counters, an ignominious fate for a vehicle that's the street-legal version of the warrior class.....

[H]ere is where its symbolic fortitude is most threatened: For American life to work, the illusion of endless abundance must be maintained.... This is what GM owes us, and what the company owes itself -- a ridiculous machine crammed with emotional content, the sort of contraption that Detroit has always done well.... Here and there, the grandiose legacy of a country in love with freedom of movement must be celebrated, even as we figure out new and more efficient ways to get around. Now, more than ever, we need Hummer, in all its defiant, obnoxious, thoroughly American glory.

Why Oh Why Can't We Have a Better Press Corps? (Young David Broder Chronicles Edition)

From Rick Perlstein's Nixonland, describing Richard Nixon's 1966 barnstorming political tour:

Nixon still pleaded cloth-coated poverty when he wrote old associates:

Dear (Insert Name Here): I am planning to spend five weeks in September and October campaigning in some of the key congressional and Senate races across the country. As usual, I am undertaking this ambitious schedule with only a very part time staff at my disposal. If you could find the time to do some volunteer advance work during that period I would greatly appreciate it.... As usual, we have no funds available for salaries for our advance men.

He hit up the Republican National Committee for a free airplane because, he said, he would be working for the party’s sake, not his own. Fortunately for the other 1968 contenders, RNC chair Ray Bliss, who had a keen ear for bullshit, made him rent one, out of the half million dollars raised by [Maurice] Stans. The crusade began in January with a speech to the white-gloved ladies of the Women’s National Republican Club at the Waldorf-Astoria (how he hated speaking to women’s groups: “I will not go and talk to those shitty ass old ladies!” he once said). The next day, he appeared on the ABC Sunday show Issues and Answers, and the New York Times nicely obliged him by featuring his most important talking point: “I do not expect to be a candidate. I am motivated solely by a desire to strengthen the party so that whomever we nominate in 1968 can win.”

His usual round of Lincoln’s-birthday Republican fund-raising dinners followed, run this year like a miniature presidential campaign: blocks of hotel rooms reserved for the press; mimeographed bullet points slipped under their doors; then on to the next city by Jetstar—the same plane “in which James Bond was transported by the fabulous Pussy Galore in the movie version of Goldfinger,” wrote an agog David Broder of the New York Times...

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

Ta-Nehisi Coates Writes About the Burden His Parents Carried

Lynell George:

Ta-Nehisi Coates writes of father Paul in 'Beautiful Struggle': Black Pride and Black Arts and Black Awareness provided the atmosphere in which Paul Coates -- Vietnam veteran, ex-Black Panther, autodidact and soon-to-be book publisher -- had begun to raise his young family. But... [e]ven Coates' young son Ta-Nehisi... was able to discern discrepancies... that he didn't quite have language for.

If the newspapers Dad left around the house were true, the greater world was obsessed over Challenger and the S&L scandal. But we were another country, fraying at our seams. . . . The statistics were dire and oft recited -- 1 in 21 killed by 1 in 21, more of us in jail than college," writes the younger Coates in his new memoir, "The Beautiful Struggle."

There were those, like Paul Coates and Ta-Nehisi's mother, Cheryl Waters (to whom the book is dedicated), who remained steady at the task, raising their sons (Ta-Nehisi and Menelik), fortifying the foundation, buttressing the support beams of the soul, as America's inner cities seemed to collapse from within. They were at ground zero of gang warfare, wrong-place-wrong-time street violence, the escalating crack cocaine epidemic. The most vulnerable and visible target: young black men.

For Ta-Nehisi Coates, now 32, the book was a way to sketch not just time and place but an intricate support system that came into being, the other side of the story -- intact families, men who got up and went to work, young men who stayed away from drugs, black girls who didn't get pregnant, black kids who devoured books.

"Too often people tell our stories," Coates said on a recent Wednesday morning over breakfast.... "I can remember being in college being so frustrated [with the media]: 'Where is the other side?' " Ta-Nehisi Coates said. "I really wanted the full humanity of black folks to come across. That's one of the things we don't get." And so Coates set out himself to slip behind those late 1980s and early 1990s headlines, the statistics about "endangered" young black men. "A cottage industry sprung up to consider our fate," Coates writes. "At conferences, black boys were assembled. At schools we were herded into auditoriums. At home mothers summoned us to dinner tables and there they delivered the news: Our time was short."

Coates' book is many things: a tribute to his demanding, disciplinarian father... as well as an homage to the complexities of the communities that he grew up in -- in and around Baltimore as well as the metaphoric idea of "black community" itself.... The result: a lyric, hip-hop epic that meticulously evokes the period through its textures and its talismans -- headlines, break beats, back-in-the-day vernacular....

[F]ather and son did not have an easy relationship, but it wasn't without love. His father was a big man with outsize dreams for his son. He had a complicated life -- seven children from four wives -- yet he was always on the scene. Not just in name but as a constant force of accountability in young Ta-Nehisi's life.

That "beautiful struggle" is Ta-Nehisi's journey toward "consciousness," of finding his "deeper self" or "knowledge of self" in a country that had been, from slavery to Jim Crow segregation, bent on negating African Americans' sense of personhood. This "groping for manhood in the dark" was eased some by his father's basement store of literature, which grew to overtake the house, by this man who resuscitated old books by black scholars, historians, thinkers, long out of print. These books would become the backbone of his Black Classic Press....

The concern was about putting not just the discipline, but all of it, in context. "As a father, I wanted to do a job that stood the test of time," Paul Coates later reflected from his home in Baltimore, the city Ta-Nehisi grew up in. "I share the worry of most black fathers and black mothers. I wanted him to grow to manhood, and I didn't want him to end up in jail. I wanted him, and all my children, to make a contribution to their community. I wanted him to be able to stand up as a man. And whatever comes at him, to take it on."...

Now father to his own 8-year-old son, Ta-Nehisi is bent on telling stories that will broaden the view. Contemplating the future, he's still studying the past: "What I came to understand from looking at my dad was the importance of consistency and pressure. It's constant expectation. That should never flag. That should never go away."

Every Time I Try to Crawl Out, They Pull Me Back in!

You know something?

I hate yelling shows.

No, that is not right:


No, that is still not right:


Maybe this will do it:


Called on forty minutes' notice, I trot over to the J-School studio to be a talking head on BBC/Newsnight about Fannie and Freddie. I have my talking points ready:

The chance that American taxpayers will actually lose any money if Ben Bernanke and Henry Paulson decide that Fannie and Freddie need government support is very low:

  • The interest payments they have coming in are greater than the interest payments they have going out.
  • Their government guarantee is itself a very valuable asset that they have made a lot of money off of in the past and will make more off of in the future.
  • They are not even in liquidity trouble--unless they begin to have problems rolling over their discount notes...
  • As long as it is generally understood that they are too big to fail, they should not even have liquidity problems--absent a depression that bankrupts many currently-solvent homeowners, that is.

Nevertheless, there is now a risk that Fannie and Freddie will need some form of government support in the next month:

  • The situation could require a lot of government-provided liquidity at any moment
  • It and might even require more liquidity than the Federal Reserve can provide with its current balance sheet. Either the Fed needs to be given the power to pay interest on reserves immediately--so that it can swap interest-paying reserve deposits for mortgages next week--or this has to become not Fed but Treasury business.

The game the Fed and the Treasury are playing right now is as follows:

  • Keep risky asset prices from collapsing...
  • So that the flow of savings to finance construction and manufacturing expansion continues...
  • So that employment declines in construction and supporting occupations are roughly balanced by employment expansions in export and import-competing manufacturing and supporting occupations...
  • So that the economy does not fall into a depression deeper than that of 1982...
  • In which case all bets are off

Supporting Fannie and Freddie may be something Ben Bernanke and Henry Paulson decide we need to do in order to win this keep-the-economy-near full employment game:

  • They are not in the business of rescuing feckless financiers from bankruptcy.
  • If their actions do have the consequence of rescuing some feckless financiers from bankruptcy, that is a side effect of their keeping the financial crisis from spilling over and destroying the jobs of millions of Americans.
  • To have the government step back in order to teach feckless financiers a lesson is simply not worth destroying the jobs of millions of Americans.
  • They are grownups with good judgment and as much experience in this business as anybody.
  • They are backstopped by committee chairs--Chris Dodd and Barney Frank--of equally good judgment.

Bernanke and Paulson have asked for additional regulatory authority:

  • They should get it.
  • Fannie's and Freddie's troubles make it more and more clear that the financial-market deregulation agenda of the late 1990s that Phil Gramm spearheaded was a more serious mistake than almost of any of us realized back at the time...
  • There are a bunch of options if push comes to shov:
    • Having the government formally guarantee GSE debt.
    • Having the government provide capital to the GSEs.
    • Having the government guarantee GSE preferred.
    • Putting the GSEs into "conservatorship."
  • The moral-hazard worriers in the Treasury will probably favor the last--that option penalizes GSE shareholders in the same way that Bear Stearns and LTCM shareholders and principals were penalized. The cautious will favor the first option, as running the least risk of aggravating uncertainty.

In short, I trot over to the J-School TV studio as part of the sober, sensible, bipartisan consensus, intending to carry water for Ben Bernanke and Hank Paulson.

And what do I find also on BBC/Newsnight when I get there?


  • Barack Obama wants to take your money by raising your taxes and pay it to the Communist Chinese.
  • Oil prices are high today and the economy is in a near recession because of Nancy Pelosi: before Nancy Pelosi became speaker economic growth was fine--and she is responsible for high oil prices too.
  • Economic growth is stalling because congress has not extended the Bush tax cuts. Congress needs to extend the Bush tax cuts, and if it does then that will fix the economy, and if it doesn't then the economy cannot recover.

I am not paid enough to deal with this lying bullshit. I am not paid enough to deal with Grover Norquist and his willful stream of defecation into the global information pool.

It is as Paul Krugman says somewhere: Grover Norquist's M.O.--George W. Bush's M.O.--the entire Republican Party's M.O. these days is (a) find a problem (i.e., financial crisis and threatening recession), (b) find something you want to do for other reasons unrelated to the problem (i.e., extend the Bush tax cuts), (c) claim without explanation that (b) will solve (a), and so (d) profit--because Peter Cardwell of BBC/Newsnight is too busy being the objective journalist referee of the yelling match to do his proper job and say:

Come, come, Mr. Norquist, are you serious? Your claim to believe that Nancy Pelosi's actions are responsible for the rise in oil prices is risible!

OK. Calm down. Adjust my meds...

Mr. Paulson? Ben? Are you there?

I have been carrying water for the two of you for a year now, as you have tried to do your jobs and contain the ongoing slow-motion financial crisis. Lots of us have been carrying water for you. Now you owe us a favor.

Will you please call John McCain Saturday morning. Call him jointly. Tell him that there is serious public business that needs to be done, and that pseudo-ideologues like Grover Norquist are not helping.

Tell him that unless he can control the swine like Grover Norquist and his ilk who work for him, that both of you are going to, Monday morning:

  • announce your support for Barack Obama for president
  • announce your change of affiliation from the Republican to the Democratic Party

You owe it. You owe it to me after that TV appearance. You owe it to all of us in the sober, sensible, bipartisan consensus. You owe it to your country. You owe it to the world.

Why We Are a "Nation of Whiners"...

Republicans had ideological majorities in Congress from 1981 through 2006 (at least). Republicans held the presidency for all except the eight Clinton years. The policies proposed by the executive, enacted by the legislature, and implemented by the courts over the past generation are Republican policies.

And, to Phil Gramm, these policies must have worked. Hence the cognitiv dissonance created by the fact that people appear to be dissatisfied--and the "nation of whiners" quote: it's an attempt to make sense of the fact that the policies must have worked and the fact that the policies do not seem to be popular.

Bill Scher:

Bill Scher: Phil Gramm Is Conservatism - Politics on The Huffington Post: Phil Gramm thinks that the economy is wonderful and those that feel otherwise are mistaken. This is does not make Gramm uniquely callous. It just makes him a conservative... conservatives... insist the economy tastes great, so shut up and eat it....

Larry Kudlow... "The U.S. economy is hitting on all cylinders as 2004 passes into 2005... amidst all this economic good news," a "declinist rant" was being perpetrated by "big-media." 15 months later... "It's always amazing to listen to conventional demand-side economic pundits and mainstream reporters who try as hard as they can to minimize the excellent performance of the American economy ever since lower marginal tax-rate incentives were put into place almost two-and-a-half years ago.... Of course, you can't please the worrywarts."

In December 2005, Fox News' Fred Barnes also pointed a finger at "the media" for marring the pretty picture: "...gas prices have fallen, I think new home sales, maybe it was old home sales, anyway, one of them set a record last month. And, and this 4 percent growth has been going on month after month after month after month. It's really an extraordinary economy. And yet, when you look at the polls you're so fond of, they show that the American people think they're fine, but that the rest of the people in the country are doing poorly economically. Why is that? ... Because, obviously people know how they're doing, but they have to rely on the media to tell them how the rest of the economy is outside their neighborhood. And the media has been entirely negative."...

[J]ust before the 2006 congressional elections, Barnes lamented... "The economy, strong as it is, hasn't produced a feeling of prosperity."...

June 2007... George Will concluded that Democrats had a "Prosperity Problem," based on Will's world of cherry-picked stats: "In the 102 quarters since Ronald Reagan's tax cuts went into effect more than 25 years ago, there have been 96 quarters of growth. Since the Bush tax cuts and the current expansion began, the economy's growth has averaged 3 percent per quarter, and more than 8 million jobs have been created. The deficit as a percentage of gross domestic product is below the post-World War II average. Democrats, economic hypochondriacs all, see economic sickness."...

[I]n January... David Gitlitz could only explain the looming recession on something other than economic reality: "If the U.S. is capable of talking itself into an economic downturn, we may be on the cusp of the first recession in history caused by a bad mood ... it's not difficult to understand why the economic mood of the country is so bad. It's nearly impossible to avoid the media's constant deluge of economic negativism..."

This is conservatism. The dismissal of economic burdens from others making less money than you. The belief that an ideal economy can thrive with a small boat of winners and a giant sinking ship of losers. The insistence that your economic dissatisfaction is illegitimate, and can only be explained by a brainwashing from the media or politicians.

Gramm's only unique remark was expanding the blame beyond "big media" and "the Democrats" to ... everybody. Calling America "a nation of whiners" only made glaring the fundamental elitism of conservatism.

But make no mistake. Gramm is conservatism.

It is precisely his attitude that has shaped conservative economic policies throughout the Bush Era. Massive tax giveaways to those earning more than $250,000. No investment to make education, clean energy and health insurance affordable to all citizens and businesses. No effective oversight of irresponsible corporations plundering the middle-class.

With the Bush Era ending, the choice is ours whether we want to continue being condescended to by conservatism in the coming years, or decide it is time for a progressive vision that puts our government and economy back in our own hands.

The Freddie-Fannie Situation Is Moving Much Faster than I Had Thought It Would...

Stephen Labaton and Steven Weisman:

U.S. Weighs Takeover of Two Mortgage Giants - [S]enior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday. The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis.... Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt. The officials also said that such a step would be ineffective because the markets already widely accept that the government stands behind the companies.

The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation. But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.... Under a 1992 law, Fannie or Freddie could be put into conservatorship if their top regulator found that either one is “critically undercapitalized.” A conservator would have sweeping powers to overhaul them, but would not have the authority to close them....

The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market.... Together the two companies touch more than half of the nation’s $12 trillion in mortgages by either owning them or backing them. They hold more than $1.5 trillion of the mortgages as securities. Others are sold to investors in the form of mortgage-backed bonds....

In the last week alone, Freddie has lost 45 percent of its [equity] value, and Fannie is off 30 percent. Expectations of default at the companies have also risen.... Analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares, which would dilute their value for current shareholders.... Freddie, for instance, is technically insolvent under fair value accounting rules, in which the company puts a market value on assets as if it had to sell them now...

Fair-value matters for private companies because things can happen that might force them to sell their assets now for whatever price they can get. That is not the case for Freddie and Fannie--with their government guarantee. For them the appropriate test is a cash-flow test: are payments coming in in excess of debt amortization payments going out? The answer is yes--so far...

Real Fiscal Responsibility II

EconomistMom writes, putting it very well:

But Really, Fiscal Responsibility Is Easier Under a Benevolent Dictatorship: When it comes to promoting fiscal responsibility and working with Heritage, there’s always been a tension between the Fiscal Wake-Up Tour’s message that everything is on the table (the need to consider both spending restraint and revenue increases to address the long-term fiscal challenge), and the (mandated) resistance of the conservative members of the tour toward tax increases.  So moving to the “least common denominator” in terms of solutions will naturally mean that the group as a whole becomes a bit too silent on tax policy.  (Note:  Nowhere in the Brookings mission does it utter the word “liberal”, suggesting that the Brookings-Heritage partnerships are naturally going to fail to be as balanced as one might wish)...

Precisely: Heritage-Brookings presents itself as balanced, but it isn't. Brookings might be able to present itself as balanced, but it shouldn't present its partnerships with Heritage as balanced.

Only EPI-Heritage or CBPP-Heritage should be allowed to present themselves as balanced.

And this is, in fact, the reason that Henry Aaron, Bob Greenstein, and Bob Solow got worked up about TBOFF: it's that the structure guaranteed a somewhat counterproductive document. Yet somehow this getting-worked-up surprises EconomistMom:

I have been surprised that people have gotten so worked up... attached some sort of malicious intent to the budget process proposal.  I honestly think the process proposal was a lot more a ”fallback” position, the strongest policy recommendation the group as a whole could unanimously agree on.... Obviously substantive reform to the entitlement and tax programs would be better than just budget process reform--the TBOFF (Brookings-Heritage) group would agree.  But getting to specifics is difficult in practice when you have to work across the aisle, and I think that’s the lesson we should take away in comparing the TBOFF paper with the CBPP paper.  If people come to the policy negotiation table with preconditions about what they cannot bring to the table (e.g., Heritage having trouble bringing the Bush tax cuts to the table), then the “bipartisanship” won’t produce anything of substance--just something like TBOFF.

To which my response is that often process determines substance: they cannot be separated in the way EM believes.

Throw Phil Gramm from the Train!

From Jake Tapper:

Political Punch: Defensive McCain Campaign Emails Out Youtube Clip of McCain Bashing Own Economic Adviser: This is how you know a campaign is having a bad day: when it feels the need to email out to reporters a Youtube clip of its own candidate bashing his own top economic adviser. In Belleville, Mich., this afternoon, Sen. John McCain, R-Ariz., distanced himself from comments made by his top economic adviser, former Sen. Phil Gramm, R-Texas, who called the U.S. "sort of" a "nation of whiners" in a kind of "mental recession."...

"I don't agree with Senator Gramm," he said. "I believe that the person here in Michigan that just lost his job isn't suffering from a mental recession. I believe the mother here in Michigan and around America that is trying to get enough money to educate their children isn't whining. America's in great difficulty and we are experiencing enormous economic challenges as well as others. Phil Gramm does not speak for me. I speak for me, so I strongly disagree, go ahead and follow-up."...

A reporter asked if there's any chance that Phil Gramm would be McCain's Secretary of Treasury or play a significant economic policy-making role in a McCain administration. "I think that Senator Gramm would be in serious consideration for Ambassador to Belarus," McCain joked, "although I'm not sure the citizens of Minsk would welcome that"....

Gramm meanwhile told the Washington Post that he meant to say that the nation's leaders were whiners, not its citizens.

"When I said we've become a nation of whiners, I'm talking about our leaders. I'm not talking about our people," Gramm said. "We've got every kind of excuse in the world about oil prices -- we've got speculators, the oil companies to blame -- but too many people don't have a program to get on with a job of producing. If you listen to our leaders, we can't compete against Mexico, for God's sake. If they don't think we can compete against Mexico who can we compete against?"

But otherwise Gramm -- whose wife Wendy Lee Gramm was once on the board of Enron -- stood by his comments to the Washington Times.

"I'm not going to retract any of it. Every word I said was true," Gramm said. "Look, the economy is bad. It is far below what we Americans have a right to expect, but we are not in a recession. We may or may not have one in the future, but based on the data we are not in a recession. But that does not mean all this talk does not have a psychological impact."

It certainly has a psychological impact on the McCain campaign!

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

She considers Mike Allen of Politico and Nedra Pickler of AP:

Does Fiscal Honesty Pay? | The media are starting to paint a contrast between the Obama and McCain economic plans in terms of fiscal responsibility, pointing out that while “McCain promises to balance budget” (the headline of Mike Allen’s Politico article on Monday), “Obama won’t try for McCain’s budget goal” (the headline of Nedra Pickler’s AP analysis filed last night).

While deeper in, both articles express skepticism about Senator McCain’s ability to come through with said pledge... the opening lines and the first few paragraphs of each story--.e., the most noticed parts--lean favorably toward Senator McCain, suggesting the winning... strategy with the press is to make a claim that sounds bold and impressive, even if it... [is] incredible. 

The Cliff Notes take-away as you skim the openings of both stories is of a stark choice:  A McCain Administration that would (make tough choices to) eliminate the budget deficit, versus an Obama Administration that would increase government spending (on “critical investments”). The opening lines of the AP piece seem to almost bully Obama... and then goes on to suggest the stark choice voters face:

So what is more important in tough economic times? For the government to spend more to help hard-hit Americans or to eliminate a deficit that can lead to higher borrowing costs and slow the economy?

I find this contrast a bit misleading and unfair given that in reality, the Obama proposals for new SPENDING and new tax cuts aren’t necessarily more expensive than the McCain proposals for new spending and new TAX CUTS (and at this largely-theoretical point, could be even less expensive).  It’s just that the Obama campaign is acknowledging that it’s a mathematical impossibility to both increase government spending and reduce the deficit, while the McCain campaign is claiming it’s not a mathematical impossibility to both cut taxes and reduce the deficit....

So unfortunately, fiscal honesty doesn’t seem to pay, not with the press at least.  We’ll have to see how it goes over with the voters.

The reason for this, of course, is that neither Mike Allen nor Nedda Pickler believe that they have an obligation to inform their readers. And both Mike Allen and Nedda Pickler believe that their lives will be more unpleasant if they anger John McCain's political staff. Mike Allen's current and former boss John Harris described the process in an article in which he looked at his own coverage of th Republicans:

John Harris, May 6, 2001: Bush Catches a Washington Break: I was on the receiving end the other day of a harangue from Rahm Emanuel... who is not impressed by the news media.... "The Washington press corps has become like little puppy dogs," he said. "[Republicans] scratch them on the tummy and they roll right over."

[Emmanuel's] complaint had a note of self-pity -- How come you never gave us a break? -- that was characteristic of the Clintonites....

The truth is... [Bush] has done things with relative impunity that would have been huge uproars if they had occurred under Clinton.... [T]here is one big reason for Bush's easy ride: There is no well-coordinated corps of aggrieved and methodical people who start each day looking for ways to expose and undermine a new president. There was just such a gang ready for Clinton in 1993. Conservative interest groups, commentators and congressional investigators waged a remorseless campaign that they hoped would make life miserable for Clinton and vault themselves to power. They succeeded....

There are no newsroom deliberations about how "soft" or "mean" to be on a president.... But there's no denying that we give more coverage to stories when someone is shouting.... But Democrats... simply aren't as well organized. And they are not shouting as loudly...

There are, I think, two lines that need to be pursued for the country's and the world's sake:

  • Close down the organizations that will employ ethics-free journamalists like Mike Allen and Nedra Pickler as fast as possible, and replace them with organizations that will employ people who regard informing the public as their principal mission...
  • Meanwhile, make sure that it is less painful for Mike Allen and Nedra Pickler to do their jobs than to kneel before the Republican spinmasters...

Alan Beattie's All-Purpose International Conference Report

Clive Crook sends us to Gideon Rachman who sends us to Alan Beattie who writes the all-purpose international conference report: | Gideon Rachman’s Blog | The G8: How to write about pointless international organisations:

Generic Column on International Institutions

By reporters everywhere

An ineffectual international organisation yesterday issued a stark warning about a situation it has absolutely no power to change, the latest in a series of self-serving interventions by toothless intergovernmental bodies.

“We are seriously concerned about this most serious outbreak of seriousness,” said the head of the institution, either a former minister from a developing country or a mid-level European or American bureaucrat. “This is a wake-up call to the world. They must take on board the vital message that my organisation exists.”

The director of the body, based in one of New York, Washington or an agreeable Western European city, was speaking at its annual conference, at which ministers from around the world gather to wring their hands impotently about the most fashionable issue of the day. The organisation has sought to justify its almost completely fruitless existence by joining its many fellow talking-shops in highlighting whatever crisis has recently gained most coverage in the global media.

“Governments around the world must come together to combat whatever this year’s worrying situation has turned out to be,” the director said. “It is not yet time to panic, but if it goes on much further without my institution gaining some credit for sounding off on the issue, we will be justified in labelling it a crisis.”

The organisation, whose existence the White House barely acknowledges and to which hardly any member government intends to give more money or extra powers, has long been fighting a war of attrition against its own irrelevance. By making a big deal out of the fact that the world’s most salient topical issue will be placed on its agenda and then issuing a largely derivative annual report on the subject, it hopes to convey the entirely erroneous impression that it has any influence whatsoever on the situation.

The intervention follows a resounding call to action in the communiqué of the Group of [number goes here] countries at their recent summit in a remote place no-one had previously heard of. The G[number goes here] meeting was preceded by the familiar interminable and inconclusive discussions about whether the G[number goes here] was sufficiently representative of the international community, or whether it should be expanded into a G[number plus 1, 2 or higher goes here] including China, India or any other scary emerging market country that attendees cared to name.

The story was given further padding by a study from an ambulance-chasing Washington think-tank, which warned that it would continue to convene media conference calls until its quixotic and politically suicidal plan to ameliorate whatever crisis was gathering had been given respectful though substantially undeserved attention.


The sad thing, of course, is that a decade ago things were different: back when the White House believed in international institutions, they actually did things--important things. And even those that did not do things knew that they could have done things--and worried about it.

Denpartment of "Huh?" General Motors Bailout Edition

Why oh why can't we have a better press corps? Why oh why do we watch the New York Times in a death spiral? Why does it publish Roger Lowenstein telling us that:

Extravagant Pensions Are Killing General Motors : [N]one of G.M.’s management miscues was so damaging to its long-term fate as the rich pensions and health care that robbed General Motors... of its cash. General Motors established its pension in the “treaty of Detroit,” the five-year contract that it signed with the United Automobile Workers in 1950 that also provided health insurance and other benefits for the company’s workers....

General Motors got into the dubious habit of steadily increasing worker benefits. In 1961, G.M. was able to get away with a skimpy 2.5 percent increase in wages by also guaranteeing a 12 percent rise in pensions.... By the 1980s... General Motors and the U.A.W. were locked in a mutually destructive embrace. G.M., fearing the short-term consequences of a strike, continued to grant large increases in benefits — creating an intolerable gap between its costs and those of its foreign competitors. Union officials feared to face the rank and file without a big contract.

In the ’90s... General Motors poured tens of billions of dollars into its pension fund — an irretrievable loss of opportunity. What else might G.M. have accomplished with that money?...

G.M. acknowledged in its most recent annual report that from 1993 to 2007 it spent $103 billion “to fund legacy pensions and retiree health care — an average of about $7 billion a year — a dramatic competitive and cash-flow disadvantage.” During those 15 years, G.M. paid only $13 billion or so in shareholder dividends. The company has been sending far more money to its retirees than to its owners...

When GM offered the UAW more lavish benefits, it did so in order to induce the UAW to accept less generous wages. The money that GM paid in the 1990s and 2000s to fund pension and retiree health bnefits was offset by wages that GM did not have to pay in the 1960s, 1970s, and 1980s. Lowenstein appears to want to live in a world in which GM (a) gets a break on its wage costs in the 1960s, 1970s, and 1980s; and can do so (b) without having to pay any money to fund pensions in the 1990s and 2000s.

I don't want to live in Roger Lowenstein's world.

In Which I Offer Unsolicited and Unwelcome Nosy Advice to the Extremely Intelligent and Articulate Ta-Nehisi Coates

Megan McArdle writes:

Megan McArdle: Department of kind of awful statistics: I should probably just shutter the blog and redirect it to Ta-Nehisi Coates, but he keeps coming up with neat stuff. This on black illegitimacy. The stunning statistic that 70% of black babies are born out of wedlock is driven, to be sure, by the fact that many poor black women have a lot of children. But it turns out it is also driven by the fact that married black women have fewer children than married white women.

Ta-Nehisi suggests a reason for this that makes sense to me:

I'm effectively--if not legally--married. Been with the mother of my eight year old son for ten years now. More on this later. (I promise!) But basically when he was born I felt that he was the bond between us. In other words, he literally was the marriage ring. We'd both love to have more kids, but we simply can't afford it. Furthermore, we don't have particularly wealthy parents to fall back on. I think that's the situation a lot of married black folks find themselves in. They simply feel that they can't have more kids.

It's well known that the black middle class has a lot less in the way of assets than whites of similar income levels--hardly surprising, given the legacy of generations of discrimination and poverty. But that also means that things that a lot of white middle class people take for granted--like help with a down-payment on a house when you have your first kid--are less available. Middle class black parents have less in the way of a parental safety net than their white equivalents, so they're less likely to have a second kid.

So even though the statistic is basically correct--as Ta-Nehisi says, "Even if married black parents had kids at the rate that white married parents did (or better yet, Hispanic parents), black babies would still make up a disproportionate share of kids borne out of wedlock"--it's still worth interrogating, because the picture is considerably more complex than is generally implied.

I read this, and I cannot help but be reminded of the low comedy of Genesis 2:18-24:

And the Lord God said, It is not good that the male earth-creature should be alone; I will make him an help meet for him. And out of the ground the Lord God formed every beast of the field, and every fowl of the air; and brought them unto the earth-creature to see what he would call them: and whatsoever the earth-creature called every living creature, that was the name thereof. And the earth-creature gave names to all cattle, and to the fowl of the air, and to every beast of the field; but for the earth-creature there was not found an help meet for him.

And the Lord God caused a deep sleep to fall upon the earth-creature and he slept: and he took one of his ribs, and closed up the flesh instead thereof; And the rib, which the Lord God had taken from the earth-creature, made he a woman, and brought her unto the the earth-creature.

And Adam said, This is now bone of my bones, and flesh of my flesh: she shall be called Woman, because she was taken out of Man. Therefore shall a man leave his father and his mother, and shall cleave unto his wife: and they shall be one flesh...

And respond that:

[H]oly Matrimony... is an honourable estate, instituted of God in the time of man's innocency... which holy estate Christ adorned and beautified with his presence, and first miracle that he wrought, in Cana of Galilee; and is commended of Saint Paul to be honourable among all men: and therefore is not by any to be enterprised, nor taken in hand, unadvisedly, lightly, or wantonly... like brute beasts that have no understanding; but reverently, discreetly, advisedly, soberly, and in the fear of God; duly considering the causes for which Matrimony was ordained:

  1. It was ordained for the procreation of children, to be brought up in the fear and nurture of the Lord, and to the praise of his holy Name...
  2. It was ordained for a remedy against sin, and to avoid fornication; that such persons as have not the gift of continency might marry...
  3. It was ordained for the mutual society, help, and comfort, that the one ought to have of the other, both in prosperity and adversity...

It's none of my business, I know. But I cannot help but think that people should be married and should have weddings, and say: "Propose, Mr. Coates, propose! At the very least it is a great excuse for a party--pot-luck receptions at home are at least as fun as the other kind!..."

New Republic Death Spiral Watch

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

Outsourced to Dan Drezner:

Sweet Jesus, who let Alan Wolfe review economics books?: I’m not Alan Wolfe’s biggest fan.  His public intellectual forays into international relations have not displayed all that much erudition. That’s nothing, however, compared to Wolfe’s TNR review essay of behavioral economics.  Here’s the first paragraph, in which Wolfe wins the 2008 Straw Man award for Blinkered Punditry: 

When I first began hearing about what Bruno S. Frey, professor of economics at the University of Zurich, calls the “revolution” in his discipline, my reaction was one of delight. As far as I was concerned, it could not happen fast enough. Neoclassical economists had insisted upon the primacy of self- interest only in order to model human behavior, but the way rational choice theory developed (at the University of Chicago in particular) suggested that self-interest was not just a fact for these thinkers, but also an ideal: not just how people do act but also how they should act. Their relentless advocacy of market-based public policies was finally ideological–and, by my lights, ideologically wrong. Also the jargon grew impenetrable, and the mathematics ostentatious and obnoxious. When Chicago-style economists started to apply their methods to other social science disciplines, and then to virtually all the perplexities of human life, the charge of academic imperialism could be added. Friedrich August von Hayek and Milton Friedman had always seemed to me to be marginal and somewhat bizarre thinkers, especially when compared to such intellectual titans as John Maynard Keynes and Joseph Schumpeter. The rapid spread of their ideas throughout so much of academia did not bode well for the future.

Lord knows one could use a lot of adjectives to characterize von Hayek and Friedman, and not all of them would be complementary.  “Marginal” and “bizarre” are not ones that immediately come to mind. We can chalk this up to some public intellectuals’ fear of the social sciences (even if they are social scientists) and move on.  Then we get to this paragraph: 

What [Daniel] Kahneman and [Amos] Tversky began and [Richard] Thaler solidified is now frequently called behavioral economics. Its leading figures continue to sparkle. Steven D. Levitt, the co-author of Freakonomics, writes decent prose–or at least is willing to work with a journalist who does; and he, too, teaches at Chicago. The topics that behavioral economists address range far and wide, and often have little to do with the realm of getting and spending. They are interesting, intriguing, and sometimes too cute: raising children, deterring crime, gambling, choosing names. The public-policy implications associated with this way of thinking are anything but predictably right-wing, and in the person of Austan Goolsbee, another economist at Chicago who is also Barack Obama’s chief economic adviser, they now figure prominently in American politics. 

Now I’m no economist, but I have read Freakonomics, and I’m pretty sure Levitt is not a behavioralist.  The overarching theme of Levitt and Dubner’s book is “people respond to incentives.”  That’s pretty consistent with rational choice approaches. Don’t take my word fo it, however — take Steven Levitt’s: 

I am not a huge fan of what people call “behavioral economics,” which is a subfield of economics that expands the standard economic models to incorporate systematic biases in the way humans act. I’ve written about some of my concerns elsewhere, so I won’t reiterate them here. I don’t deny that the insights that emerge from behavioral economics can be important, it just seems that most often they are not — especially when subjected to the discipline of the market.

Whoever assigns and edits Alan Wolfe at The New Republic should really be taken out to the back of the woodshed today.

That would be Franklin Foer, Leon Wieseltier, and Marty Peretz.

Los Angeles Times Death Spiral Watch

From the shrill John Scalzi:

Whatever » Goldberg and Bainbridge: A Compare and Contrast: Folks have been asking me in e-mail if I had any thought about Jonah Goldberg’s recent assertion in the LA Times that Barack Obama’s proposed requirement of public service for teens and college students is not unlike slavery. The answer: No, not really; once the man declared that Mussolini was really a Socialist all his life, despite ample historical evidence to the contrary (Mussolini leaving Italy’s Socialist party, founding the Fascist party as an explicit right-wing refutation of Socialism, ordering the murders of prominent Socialists and then bascially daring anyone to do something about it on the floor of the Italian parliament) I recognized that Jonah Goldberg is kind of like the conservative movement’s special younger brother, the one that drank a pint of lead-based paint at age six, utters sentences where the verbs and nouns don’t quite match up, and gets moody and throws things when you gently try to explain that actually, no, goats did not land on the moon in 1983. In this context, of course Jonah Goldberg would suggest youth public service contributes to a “slave mentality.” It would be surprising if he hadn’t, frankly. It doesn’t mean such an attention-seeking comment merits serious consideration on my part.

(No doubt Mr. Goldberg’s rejoinder to this would be to point out that the book in which he gets lots about fascism wrong has racked up some lovely sales numbers; the obvious rejoinder to this is: well, you know. At this point on its downslope into minority, the conservative movement has a lot of special younger brothers.)

That said, while I don’t want to have to unpack Goldberg’s nonsensery, I would commend to you Stephen Bainbridge’s take on Goldberg’s column, as an example of someone who is a conservative with libertarian leanings, has serious reservations about Obama’s plan, and, heck, even hauls out the “S” word, yet does not descend into paint-quaffing madness. Aside from the quality of Professor Bainbridge’s comments, it’s worth noting the small irony that Goldberg’s platform for his gouting silliness is a newspaper, while Bainbridge’s rather more sensible discussion is hosted on a blog, and yet it’s the electronic medium that gets hammered for hosting bloviating ninnies. Funny about that.

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

New York Times Death Spiral Watch (Sheryl Gay Stolberg Edition)

From Duncan Black:

Eschaton: Surging: Sheryl Gay Stolberg:

The last time Republicans dealt with the passing-of-the-torch question, in 1988, the circumstances were very different. President Ronald Reagan was surging in popularity, and the big fear was that he would overshadow the nominee, the first George Bush, at the convention in New Orleans. So their aides worked out a plan intended to let Mr. Reagan “give oomph to the Bush candidacy,” without stealing the show, said Kenneth W. Duberstein, Mr. Reagan’s chief of staff.

The 1988 GOP convention was held on August 15. Reagan job approval during 1988... Approve/Disapprove... 3/8 51/37... 5/13 50/38... 6/24 48/40... 7/15 54/36... 8/19 53/37...

Teh Rude Pundit: Republican Economists Say: "Please, Sir, May I Have Another?"

The Rude Pundit addresses Gary Becker, James Buchanan, Robert Lucas, Robert Mundell, Vernon Smith, Martin Feldstein, Anne Krueger, John Taylor, Michael Boskin, Glenn Hubbard, Paul MacAvoy, Burton Malkiel, Paul McCracken, William Poole, Harvey Rosen, Beryl Sprinkel, John Taylor, Murray Weidenbaum, Douglas Holtz-Eakin, June O'Neill, James Miller, and Tim Muris).

The Rude Pundit:

The Rude Pundit: In Brief: John McCain Hates/Hearts Economists: Okay, follow this. It's got a fun little pay off:

So John McCain proposes a gas tax holiday and economists almost universally say it's a stupid idea. In June, McCain, being a reasonable man, chooses to mock the economists: "If you want to call it a gimmick, fine. You know the economists? They’re the same ones that didn’t predict this housing crisis we’re now in." Ha-ha. Stupid economists. What do they know?

Now McCain has put forth a great and mighty economic plan. Did it yesterday, less than a month after dissing the poindexters. And his campaign has released a letter from, well, who else? Economists who support it. Oodles of them. Guess they know a lot about economics, eh?

Here's the final step: the Rude Pundit chose one of the names at relatively random. University of Chicago's Gary Becker, who does a blog on, you know, economics, with Richard Posner. And here's that promised pay off: back in December 2007, Becker says, "The vast majority of economists, including me, were surprised by the extent of the subprime mortgage crisis."

So, to conclude: for John McCain, economists who didn't predict the mortgage crisis don't know what they're talking about when it comes to a gas tax holiday, but when it comes to his entire economic plan, they're a-ok. What fun.

Does that qualify as straight talk?

Google News Grows Vaster than Empires, and More Slow...

It sends out its creepers. In my inbox right now:

We here at Google News noticed that you were in the news recently, in some articles about the current presidential election. We would like to invite you to participate in a feature we created, Google News Commentary, that allows you to publish commentaries in Google News alongside the articles in which you appear.

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  • Comments are posted alongside news stories on the U.S. edition of Google News and are highly visible to a wide audience of readers.
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Please note: our guidelines require comments to be in the 'first person,'and any comments you provide to Google News are original, and not replicated content (such as a press release, copy of a blog posting, etc.). In addition, we do not edit comments in any way, even for grammar, spelling, etc. So please send us your comment exactly as you want it published.

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Real Fiscal Responsibility

And we are underway: Henry Aaron, Nancy Altman, Kenneth Apfel, James Blum, J. Bradford DeLong, Peter Diamond, Robert Greenstein, James Horney, Richard Kogan, Jack Lew, Marilyn Moon, Van Doorn Ooms, Uwe Reinhardt, Charles Schultze, Robert Solow, and Paul Van de Water:

  • agree that the nation faces large persistent budget deficits that ultimately risk significant damage to the economy,
  • concur that policymakers should begin now to make the tough choices needed to avert such deficits,
  • But the methods set forth in the Brookings/Heritage/Concord "Taking Back Our Fiscal Future" proposal strike us as misguided.


  • TBOFF subjects Social Security, Medicare, and Medicaid to the threat of automatic cuts while giving a free pass to regressive open-ended tax-loophole and tax-break entitlements.
  • TBOFF thus departs from the "shared sacrifice" approach that characterized the only successful budget deficit reduction efforts--those of 1990 and 1993.
  • TBOFF does not focus adequate attention on the main driver of the forthcoming budget crisis: rising health care costs everywhere, not just in the public programs.
  • Thus TBOFF's attempts to restrain public health care spending growth without taking measures to alter the dynamics of the private health care markets are misguided.
  • Thus TBOFF places a large share of the burden of adjustment on the poorer members of American society: it hits the weak claimants, rather than those who have weak claims on federal spending and on tax expenditures.
  • Moreover, TBOFF's strategy relies on automatic cuts--and congress has never in the past been willing to actually let the automatic cuts written into law take effect.

We believe that rather than spending time trying to design complicated budget procedures of dubious merit and effectiveness, we should focus on concrete legislative steps: policies that raise more revenue, increase economic growth, slow the rate of health care spending systemwide and nationwide, reform Medicare, and bring Social Security expenditures into balance with Social Security resources. Specifically:

  • Slash farm supports.
  • Slash tax loopholes and tax expenditures.
  • Halt Medicare Advantage overpayments to private insurance companies.
  • Adopt the other recommendations of the Medicare Payment Advisory Commission.
  • Increase Medicare premiums for the well-off.
  • Institute vigorous research programs to determine the comparative cost-effectiveness of different treatments and procedures.
  • Institute vigorous research programs to determine the causes of the extraordinary nationwide variation in health-care spending.
  • Use the results of research to devise policies to restrain health care cost growth without seriously compromising quality.
  • Index entitlement benefits by a proper cost-of-living rather than a consumer price index.
  • Index tax brackets by a proper cost-of-living rather than a consumer price index.
  • Adhere to the time-tested and effective pay-as-you-go rules.

And I, at least, also say:

  • Include mandatory private accounts in Social Security as an add-on, not a carve out.
  • Uncap FICA.
  • As the price of oil declines from its current peak, tax back 2/3 of the decline--and spend half the tax revenues in an across-the-board equal-dollar reduction in FICA, and half the tax revenues on infrastructure and climate-relevant research and development.

Great company to be in.

Read this document on Scribd: null

Ezra Klein on the Disloyalty of the Clinton Staffers


Ezra Klein | The American Prospect: Yesterday, Howard Wolfson started as a Fox News political analyst, where he'll join Lanny Davis. Today, Mark Penn announced he's going to “create a bipartisan consulting organization to advise corporations in crisis.” His first hire? Former Bush administration PR flack Karen Hughes.

The most powerful case against Clinton's candidacy was always her political advisers. They were, and are, the sort who sign up with Fox News, and enter into business partnerships with Karen Hughes. And they do all that while they're still associated with Clinton, and when their services might still be needed in the near future.

Clinton's domestic policy instincts often seemed better than Obama's, but her political instincts, as evidenced by the folks she gathered around her, were far worse. It was hard to believe anyone who's internal compass pointed progressive would nevertheless spend millions of dollars asking Mark Penn for advice. The answer, from Clinton supporters, was always that it was about loyalty. These folks had been in the foxhole with Clinton, and she trusted them.

But there's nothing loyal about Penn's decision to partner with Hughes, or Wolfson's decision to rush to Fox -- these moves hurt Clinton. They make her a less likely choice for vice president and ensure there will be yet more ammunition against her if she ends up running in 2012. Similarly, there was nothing loyal about Mark Penn continuing to run his unionbusting PR firm Burson-Marsteller while serving as chief strategist for her campaign. Even Karl Rove had to give up his other jobs before becoming Bush's Svengali.

The political professionals clustered around the Clintons have acted like self-interested operatives, not altruistic loyalists. Their presence has hurt Clinton, their conflicts of interest have hurt Clinton, and their professional decisions and public statements have emphasized all of her political weaknesses and all of the base's fears about her campaign. Frankly, she deserved better.

The performance of Penn, Ickes, Wolfson, and company in February--happily dishing dirt, blaming the others for the failure to wrap up the nomination on Super Tuesday, in the hope of getting brownie points with reporters--was the most staggering and astonishing act of political disloyalty I have yet seen...

Republican Economists Who Aren't Supporting McCain's Economic Plan

Felix Salmon writes:

The Economic Policy of John McCain: The more substantive news, in my view, is the list of 300 economists who claim to "enthusiastically support John McCain's economic plan". Would most of them sign their name to the economic plan of any Republican nominee, no matter how vague it was? Possibly. But there are undoubtedly some very heavy hitters on there, including five Nobel laureates and four former presidents of the American Economic Association. (Gary Becker, for these purposes, counts twice.) An arguments from authority can never be particularly convincing, but in this case it's stronger and more compelling than a promise buried in a position paper. It's one thing to say that McCain has no idea what he's talking about: it's another thing entirely to say that the same thing must go for every economist on the list...

I agree: it is disappointing. But there is good news: a lot of economists who you would expect to have signed on--subcabinet appointees in past Republican administrations, et cetera--have not. One would expect, based on political loyalties and willingness to serve in Republican administrations, to see Greg Mankiw, Paul Wonnacott, Dick Schmalensee, Michael Mussa, Thomas Moore, Gary Seevers, Marina von Neumann Whitman, Kristin J. Forbes, Katherine Baicker, Matthew J. Slaughter, Andrew Samwick, and others on the list. They are not there. That is good news.