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February 2009

Can I Pleez Haz Upgradz to Do Visual Signal Processing in Wetware?

The people at the Optemetry School wanted to look in my eyes, so they widened my pupils by paralyzing my pupil-contracting muscles--which also paralyzed my lens-contracting muscles because they are right next door.

Due to compatibility with the architectural specification for Quadruped 1.0, a great deal of visual signal processing is done in hardware: muscles that push and pull the shape of the lens to focus the image on the back of the retina. There is plenty of signal processing power in the visual cortex to do visual signal processing: people whose lenses have been removed can and do still read.

But, alas, I do not have the upgrade. I cannot do the visual signal processing in wetware. Which makes the problem of how I am going to read my lecture notes in 30 minutes a very interesting one...

Am I a Crank?

I never in my worst nightmares imagined that I was going to grow up to be the kind of professor who writes letters to the chancellor demanding that my colleagues be fired.

How have we come to this?!

Scott Shane: [The Justice OPR report on] three former officials of the Office of Legal Counsel... John Yoo... Jay S. Bybee... and Steven G. Bradbury.... The Office of Professional Responsibility can refer cases for criminal investigation, but legal experts say a more likely possibility is a referral to bar associations for potential disciplinary action.

You Heard the Lady!

LizardBreath writes:

Unfogged: Comment on Pretend I'm not pregnant.: (Actually, could people nag me about going to the gym over the next week or so? I'm not going to make it in today, because I'm not feeling well, but I've been running a fair amount for a couple of months, and then only ran once last week -- I'm hoping to nip this slacking off period in the bud, rather than having it turn into another six months until I break a sweat.) Posted by: LizardBreath | Link to this comment | 02-16-09 10:54 AM


Now all of you do your part...

Gregory Clark Is Chairman of the Department of Economics at the University of California at Davis

Greg Clark writes:

Dismal scientists: how the crash is reshaping economics: The current recession has revealed the weaknesses in the structures of modern capitalism. But it also revealed as useless the mathematical contortions of academic economics.... The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1.  What is the multiplier from government spending?  Does government spending crowd out private spending?  How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner. The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s. There has essentially been no advance in our knowledge in 80 years.

It has seen people like Brad DeLong accuse distinguished macro-economists like Eugene Fama and John Cochrane of the University of Chicago of at least one "elementary, freshman mistake."

Well, Greg? Don't be shy. Be brave! Tell us: Is Fama right? Does the NIPA savings-investment identity guarantee that the stimulus cannot work because of 100% crowding out? Or has he made an elementary, freshman mistake?

Greg goes on:

Bizarrely, suddenly everyone is interested in economics, but most academic economists are ill-equipped to address these issues. Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing the Obama's stimulus plan.  As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus -- thinking that would be a timely and lively session.  But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw's blog -- I really am not equipped to debate this with anyone"...

George F. Will as Crank Conspiracy Theorist...

More from the Washington Post crashed-and-burned watch. Mark Kleiman:

Global-warming denialism as a conspiracy theory: One largely unremarked aspect of global-warming denialism (as exemplified by George Will and demolished by Mike [below] and Zachary Roth at TPM) is that it amounts to a conspiracy theory. All of the world's actual climate scientists, and everyone in an a allied field capable of understanding their models, would have to be co-conspirators in the plot, with only a rag-tag group of economists, meteorologists, petroleum geologists, astrologers, and political pundits capable of seeing, and willing to say, that the emperor has no clothes.

Most of the glibertarians, cultural conservatives, and gadget-heads who constitute the useful idiots around the core oil-and-coal-company global-warming denialist constituency would be horrified to imagine themselves playing the role of 9/11 Truthers, or RFK Jr. pumping the thimerosal/autism link, or Thabo Mbeki claiming that AIDS isn't caused by HIV. But all four "movements" are alike in depending on compete mistrust of actual scientific experts. (Holocaust denialism is similar in that respect, but different in being almost entirely insincere: the Holocaust deniers seem to be saying, "Hitler didn't kill all those Jews, and I'm glad he did.")

One possible reason that global-warming denialism is more prevalent in the U.S. than elsewhere is that more Americans than Europeans are Biblical literalists. That involves believing that all biologists and paleontologists are either massively incompetent or deliberately trying to mislead the public about the central facts of their disciplines. [The alternative theory, held by some, is that the entire fossil record is a trick by Satan, intended to deceive those whose faith isn't firm.] I haven't seen any data on the overlap between global-warming denialism and creationism, but thinking about Sarah Palin and her fans you'd have to guess at a strong correlation between the two beliefs.

Global-warming denialism is a special case, of course: the policy implications of the facts about climate change threaten some very large economic interests and some dearly-held political beliefs. So global-warming-denialist brochures are printed on glossy paper. Other than that, though, it's fairly standard-grade fringe pseudoscience, not much different from the folks who write endless papers full of gibberish proving that Einstein was wrong.

And yet the Washington Post continues to make op-ed space available for flat-earth climatology.

There's legitimate dispute about what to do about global warming, how much to do, and how fast to do it. And there's uncertainty in the models. (Though that uncertainty, the deniers seem to forget, means that the models might be too modest, as well as too alarmist, in their warnings.) But denialism doesn't promote that serious debate: it merely introduces fake uncertainty, which makes it harder to see all the real uncertainty.

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

Mark does get one thing wrong: the fossil record is not a trick by Satan, it is a trick by God.

Stimulus in the House

Bruce Bartlett criticizes the internet's second-worst Goldberg:

Stimulus in the House - Bruce Bartlett - The Corner on National Review Online: The problem with Jonah’s argument is that congressional Republicans were never really willing to concede the principle that stimulus was needed.  Their tax plan was just a rehash of old hash that was never plausibly linked to the particular economic problems we have today.  I disagree about the payroll tax for various reasons, but at least it would have been focused on the reality of the situation, rather than just being a pointless political exercise.  I believe that reinstitution of the Investment Tax Credit would have been the best Republican alternative. I made the argument here, but got no takers.

An even better approach, in my opinion, would have been to focus on the details of the stimulus plan and argue that its provisions were not very stimulative—even under Keynesian assumptions.  A lot of the money will be wasted without offering any meaningful stimulus.  A strong case could be made that waiting a few weeks while a better plan was devised wouldn’t have hurt and might have helped deliver more effective stimulus.  But for Republicans to make that argument they would have had to concede that the basic principle of fiscal stimulus was sound.

In the end, Republicans preferred to reject the principle of stimulus, thus taking themselves out of the game.  I think that was a mistake, both politically and substantively.

The most interesting question, I think, is why they all decided to adopt the "Treasury View"--the belief that stimulus would be ineffective. It shows an astonishing lack of contact with reality.

Clive Crook Seems to Have It Slightly Off...

The thoughtful and intelligent Clive Crook writes:

Obama’s lonely quest for consensus: For all its flaws, the stimulus bill that Congress passed last week and President Barack Obama will sign on Tuesday is better than no bill, and better than further delay. Action is already months late, held up by the election and the protracted White House transition...

Action is already months late, but not because of the election and the White House transition. The deal of an immediate stimulus--60% spending, 40% tax cuts, all focused on bang-for-buck--was there to be made the first Wednesday in November, and was offered. The Republicans decided... to oppose it. Action is delayed, yes, but not delayed by the institutional calendar--delayed by the Republican Party.

Why the Republican Party has taken this line is not a question Crook investigates. As best as I can tell, there are three roughly equally important reasons:

  • Some Republicans agree that stimulus is a good idea but are scared of primary challenges from the right if they vote for it.
  • Some Republicans agree that stimulus is a good idea but remember that solid opposition to Clinton no matter what the issue was the path to electoral victory in 1994, and hope to repeat that.
  • Some Republicans think that stimulus is a bad idea--largely because they haven't figured out which of their experts are trying to teach them how the world works and which are trying to provide them with ideological air cover for positions taken for other reasons.

Crook doesn't run through these reasons--passing up a chance to educate his readership. And he demands the impossible of Barack Obama:

The public sees the administration as both failing in its effort to win bipartisan support and losing control of the process... there is little cause to celebrate.... Mr Obama is right about the need for consensus.... The government as a whole must lead public opinion. Before the worst happens, it must convince voters that powerful fiscal stimulus is needed. Before the worst happens, it must tell voters why many more hundreds of billions of taxpayer dollars will be needed to stabilise the financial system.... [T]he whole burden [is] on the president...

While admitting that it is impossible--because of the Republicans:

[T]he Republicans’ objections were inept. To argue that any and all spending increases were wrong was absurd. A judicious blend of spending and tax cuts makes sense for many reasons, especially in so large a plan.... [T]he Republicans[']... complaints signalled no willingness to compromise.... [T]heir misguided fixation on the size of the overall package, an effort to reclaim the mantle of fiscal conservatism, led them to oppose an appropriately large stimulus regardless of the mix. Having adopted that position, they had nothing of interest to say...

As long as Republicans continue to think that stonewall opposition to Obama does not cost them anything, they will continue. And as long as observers like Clive Crook make the failure of bipartisanship Barack Obama's responsibility and not the responsibility of the Republicans, they will continue to think that it does not cost them anything.

Scott Horton Keeps Us Up-to-Date on Some of the Bush Administration's Crimes

Yoo for the Defense:

Yoo for the Defense—By Scott Horton (Harper's Magazine): Obama, Yoo says, has put the safety of Americans on the line: his torture ban will “seriously handicap our intelligence agencies from preventing future terrorist attacks.” Never mind, of course, that no evidence has been advanced of a single instance in which the use of torture produced intelligence that prevented a future terrorist attack, while detailed and specific evidence has now been put forward that torture produced bad intelligence used to justify the invasion of Iraq. Those are irritating details that detract from a nice narrative. So what’s all this about? Is Yoo suffering from withdrawal pangs coming off an addiction to torture?... I’ve followed John Yoo and his writings with some care for a while now, and I think I finally understand what this is about. Namely, a pending probe by the Justice Department’s Office of Professional Responsibility (OPR) is looking at serious ethical issues surrounding the issuance of Yoo’s legal opinions.

But the OPR probe is far from Yoo’s only or even most pressing worry. The likelihood that he will face a criminal probe and then possibly prosecution is growing. Susan J. Crawford, the Cheney protege tapped as the senior Bush Administration official to oversee the Guantánamo military commissions, publicly admitted in an interview with Bob Woodward, that at least one of the detainees had been tortured through the application of an interrogation regime that had been approved by the White House. In their exit interviews, both President Bush and Vice President Cheney were emphatic that in authorizing torture, they relied on the advice of their lawyers, meaning John Yoo. But in the ultimate act of ingratitude, Bush left office without issuing the anticipated blanket pardons to his torture team. NATO allies and United Nations officials are reminding the new Obama Administration that it has a solemn obligation under article 4 of the Convention Against Torture to begin a criminal investigation....

Yoo cannot be oblivious to all of this. And indeed, his column in the Wall Street Journal and his presentations elsewhere tell us exactly what the defense will be. At its core is the argument that, no matter how mistaken, John Yoo acted in good faith when he issued the torture memoranda. He truly, sincerely believes the analysis.... That’s why from April 2004 forward, Yoo has been unwavering in his adherence to the views put forth in those memos.... [W]e see in his current column and other recent statements tale-tell signs that suggest this defense is dishonest....

Immediately after reading Yoo’s memos it struck me that they were the product of reverse-engineering. The way they drifted through issues, the bizarre choice of precedent, the curious misreading of the Constitution in which the clause granting to Congress the authority to address questions surrounding detainees simply disappears--and the equally tendentious and absurd readings of international conventions and precedents--could be explained if you imagined that Yoo had been approached and told to craft a memorandum that legalized practices already in place. If that were the case, those asking for the memo were looking for a get-out-of-jail-free pass from the Department of Justice, and Yoo’s memos were supposed to provide it. Viewed in this light, what Yoo crafted makes perfect sense; otherwise they strike me as impossible to explain....

[I]f Yoo did craft the memos for the explicit purpose of covering the torture project with impunity and pushing it forward by overriding the judgment of serious lawyers at the Pentagon and CIA, then Yoo made himself a part of the torture conspiracy; that he was an accessory after the fact goes without saying.... Considering that Yoo has been excoriated by his academic colleagues for the sloppiness of his reasoning and for his mischaracterization of the authorities he cites, why does he persist? The only explanation I can put forth is that he needs to preserve his good-faith defense–that he may be wrong, but his error is held in good faith....

Does John Yoo recognize that he has blood on his hands? Certainly not. Maybe he sleeps as comfortably as George W. Bush. Or maybe his consuming interest right now is in protecting himself from prison time. And he’ll have to do a much more convincing job if he wants to succeed at that.

Former Gitmo Guard Tells All:

Former Gitmo Guard Tells All—By Scott Horton (Harper's Magazine): Army Private Brandon Neely served as a prison guard at Guantánamo.... Neely decided to step forward and tell his story. “The stuff I did and the stuff I saw was just wrong,” he told the Associated Press. Neely describes the arrival of detainees in full sensory-deprivation garb, he details their sexual abuse by medical personnel, torture by other medical personnel, brutal beatings out of frustration, fear, and retribution, the first hunger strike and its causes, torturous shackling, positional torture, interference with religious practices and beliefs, verbal abuse, restriction of recreation, the behavior of mentally ill detainees, an isolation regime that was put in place for child-detainees, and his conversations with prisoners David Hicks and Rhuhel Ahmed. It makes for fascinating reading....

Neely and other guards had been trained to the U.S. military’s traditional application of the Geneva Convention rules. They were put under great pressure to get rough with the prisoners and to violate the standards they learned.... Neely discusses at some length the notion of IRF (initial reaction force), a technique devised to brutalize or physically beat a detainee under the pretense that he required being physically subdued.... Neely’s testimony makes clear that IRF was understood by everyone, including the prison guards who applied it, as a subterfuge for beating and mistreating prisoners—and that it had nothing to do with the need to preserve discipline and order in the prison.

Second, there is a good deal of discussion of displays of contempt for Islam by the camp authorities.... Third, the Nelly account shows that health professionals are right in the thick of the torture and abuse of the prisoners—suggesting a systematic collapse of professional ethics driven by the Pentagon itself. He describes body searches undertaken for no legitimate security purpose, simply to sexually invade and humiliate the prisoners. This was a standardized Bush Administration tactic–the importance of which became apparent to me when I participated in some Capitol Hill negotiations with White House representatives relating to legislation creating criminal law accountability for contractors. The Bush White House vehemently objected to provisions of the law dealing with rape by instrumentality. When House negotiators pressed to know why, they were met first with silence and then an embarrassed acknowledgement that a key part of the Bush program included invasion of the bodies of prisoners in a way that might be deemed rape by instrumentality under existing federal and state criminal statutes. While these techniques have long been known, the role of health care professionals in implementing them is shocking.

Neely’s account demonstrates once more how much the Bush team kept secret and how little we still know about their comprehensive program of official cruelty and torture.

Michael Isikoff: Yoo Disbarment Proceedings Now Visible on the Horizon

Ah. Here it is. Michael Isikoff:

Torture Report Could Be Trouble For Bush Lawyers: An internal Justice Department report on the conduct of senior lawyers who approved waterboarding and other harsh interrogation tactics is causing anxiety among former Bush administration officials. H. Marshall Jarrett, chief of the department's ethics watchdog unit, the Office of Professional Responsibility (OPR), confirmed last year he was investigating whether the legal advice in crucial interrogation memos "was consistent with the professional standards that apply to Department of Justice attorneys." According to two knowledgeable sources who asked not to be identified discussing sensitive matters, a draft of the report was submitted in the final weeks of the Bush administration. It sharply criticized the legal work of two former top officials—Jay Bybee and John Yoo—as well as that of Steven Bradbury, who was chief of the Office of Legal Counsel (OLC) at the time the report was submitted, the sources said. (Bybee, Yoo and Bradbury did not respond to multiple requests for comment.)

But then–Attorney General Michael Mukasey and his deputy, Mark Filip, strongly objected to the draft, according to the sources. Filip wanted the report to include responses from all three principals, said one of the sources, a former top Bush administration lawyer. (Mukasey could not be reached; his former chief of staff did not respond to requests for comment. Filip also did not return a phone message.) OPR is now seeking to include the responses before a final version is presented to Attorney General Eric Holder Jr. "The matter is under review," said Justice spokesman Matthew Miller.

If Holder accepts the OPR findings, the report could be forwarded to state bar associations for possible disciplinary action. But some former Bush officials are furious about the OPR's initial findings and question the premise of the probe. "OPR is not competent to judge [the opinions by Justice attorneys]. They're not constitutional scholars," said the former Bush lawyer. Mukasey, in speeches before he left, decried the second-guessing of Justice lawyers who, acting under "almost unimaginable pressure" after 9/11, offered "their best judgment of what the law required."

But the OPR probe began after Jack Goldsmith, a Bush appointee who took over OLC in 2003, protested the legal arguments made in the memos. Goldsmith resigned the following year after withdrawing the memos, and later wrote that he was "astonished" by the "deeply flawed" and "sloppily reasoned" legal analysis in the memos by Yoo and Bybee, including their assertion (challenged by many scholars) that the president could unilaterally disregard a law passed by Congress banning torture.

OPR investigators focused on whether the memo's authors deliberately slanted their legal advice to provide the White House with the conclusions it wanted, according to three former Bush lawyers who asked not to be identified discussing an ongoing probe. One of the lawyers said he was stunned to discover how much material the investigators had gathered, including internal e-mails and multiple drafts that allowed OPR to reconstruct how the memos were crafted. In a departure from the norm, Jarrett also told members of the Senate Judiciary Committee last year he would inform them of his findings and would "consider" releasing a public version. If he does, it could be the most revealing public glimpse yet at how some of the major decisions of Bush-era counterterrorism policy were made.

Defenders of the "Treasury View", Part CXIV: David Harvey Speaks! And Claims to Know More About Keynesian Economics than Joan Robinson

Some guy once said that Hegel said somewhere that the World-Spirit leads all things to happen, as it were, twice--but that Hegel forgot to add that the first time it happens is tragedy, the second time farce.

When Rudolf Hilferding endorsed the "Treasury View" and vetoed Wladimir Woytinsky's plans for the German Socialist Party to propose a deficit spending-based "New Deal" in 1931 that was tragedy.

When David Harvey adopts the "Treasury View" and gives it as a reason that the Obama fiscal boost cannot work, that is farce.

Mr. Harvey, you will remember, claims like the other devotees of the "Treasury View" that the Obama fiscal boost plan cannot work if financed through domestic savings because government deficits then crowd out domestically-financed investment to such an extent that they do not boost employment or production, and further claims that the Obama fiscal boost cannot be financed via foreign sources:

David Harvey: In the United States... Keynesian solution[s are]... doomed at the start.... [T]he United States... starts from a position of chronic indebtedness... [that] poses an economic limitation upon the size of the extra deficit that can now be incurred.... [T]he funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend...

I, you will remember, suggested that Mr. Harvey read (and understand) Hicks's "Mr. Keynes and the Classics." He reacted very badly to my plea, calling it "the usual technocratic hubris deployed by economists when they have nothing to say..." Harvey went on: "I don’t see why I should go back to... Hicks rather than Joan Robinson," and "I don't see why... [DeLong] presumes... neoclassical economics is a God-given truth beyond contestation..."

Harvey doesn't want to study John Hicks. Fine. He would rather go study Joan Robinson. Fine. Let him go study Joan Robinson. Let him go study Joan Robinson by all means, for Robinson had no doubt that the "Treasury View" that Harvey espouses was an erroneous humbug of finance:

Amit Bhaduri: [A]gainst the Treasury view, Richard Kahn had argued in... 1931... that an increase in the fiscal deficit... generated... a larger output and employment in the economy, such that private savings at this larger output exceeds private investment by an amount exactly equal to the fiscal deficit.... [I]n a demand constrained system a larger fiscal deficit causes neither any inflation nor any "crowding out."... To perpetuate poverty and unemployment in this situation in deference to an absurd and erroneous theory (which Joan Robinson had called the "humbug of finance") is totally unacceptable...

Indeed, Joan Robinson had true and now very timely things to say about objectively-reactionary Marxist theologians--like David Harvey--who say that Keynesian policies must not work because if they did work they would delay the Revolution.

What Joan Robinson wrote then of Paul Baran (on page 95 of her Economic Philosophy) is true now of David Harvey:

[Keynesian success provides] the strongest argument against socialist critics. "You used to complain... with... justification, that a capitalist system that permits heavy and chronic unemployment is indefensible. Now we offer you capitalism with a high and stable level of employment."... Marxist critics have understood that Keynes' theory leads to conclusions which from their point of view are reactionary. They therefore deny the logic of [Keynes's] analysis... [make] alliance with the protagonists of the humbug of finance.... Professor Baran... bring[s] in the quantity theory to show that [Keynesian fiscal polices] cannot work because government expenditure causes inflation. This is another example of confusion between logic and ideology. Because Keynes has shown a way for the capitalist system to remove its most obvious defect, he is a reactionary and therefore his theory is false. But if [Keynes's] theory were false it would be quite harmless.... [It is that] the diagnosis was correct, the treatment... work[s], and the life of the patient is being prolonged [that is so] disconcerting [to the Marxist] would-be heirs...

Here's Harvey, hoisted from comments:

Grasping Reality with Both Hands: Department of "Huh?": In Praise of Neoclassical Economics: The real mystery here is the arrogance of the economists in the face of a catastrophic situation. I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.

The charge that I have neither read nor understood DeLong’s canonical writings is the usual technocratic hubris deployed by economists when they have nothing to say. I might as well reply that DeLong has neither read nor understood his Marx (I have a remedial course on line) and in any case I don’t see why I should go back to Friedman rather than to Galbraith, Hicks rather than Joan Robinson and why it is that he presumes that Dobb, Sweezy, Glyn, Itoh and Morishima have nothing to say of relevance to our current difficulties because neoclassical economics is a God-given truth beyond contestation?

I did once upon a time make the mistake of studying Sraffa somewhat carefully. His sophisticated mathematical proof (as yet never refuted, in spite of the best efforts of people like Peter Newman) that all of neoclassical theory is based on a tautology I found all too persuasive. Why bother with a theory that proves what it assumes to be true? At the heart of the controversy lies the question of how to value capital assets independently of market prices and since our contemporary difficulties rest on the problem of how to value paper claims to capital assets held by banks in the absence of a market, I would have thought some re-visitation of the so-called “capital controversy” of the 1970s is in order. At the time I concluded (possibly erroneously) that Joan Robinson had the better of the argument against Samuelson but that the Cambridge (Mass) neoclassicals then merely decided to ignore the problem and go on with their theorizing as if nothing had happened. But now look at the mess!

Of course, when theory is not invoked then a bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries is thrown into the hopper as proof of my economic ignorance. I did tacitly address the problem of what happens down the road if the Chinese and other Asian countries turn inwards and find better things to do with their money than lend to the United States. A run on the dollar would indeed imply some of the dire consequences that DeLong outlines and the question then arises as to the likelihood of that.

The United States has the power of seigneurage over the world’s reserve currency and is using that power up to the hilt right now and the rest of the world has little choice except to go along. The last time the US did this in the late 1960s, to fund a war and to deal with domestic unrest, this led to collapse of the Bretton Woods system and the grand stagflation of the 1970s. I am not saying this history will be repeated but I do want to emphasize that short-run moves have longer-term consequences (well before that long term in which “we are all dead” as Keynes famously remarked).

What I was concerned about, a topic which DeLong totally ignores, is the likely uneven geographical impacts and responses to the crisis conditions and the degree to which this accelerates the scenario depicted in the NIC report. The export oriented development model that has dominated in East Asia is in deep trouble. Exports are falling dramatically and unemployment rates are soaring in South Korea, Taiwan, Indonesia and China and the likelihood of massive movements of class struggle (a category that neoclassicals will have nothing to do with but which has been demonstrably and empirically of huge historical importance even in the United States) is very much on the cards. Maoist movements are rife in India, the unrest throughout Latin America is promoting all manner of political adjustments and reports of widespread unrest in China are proliferating.

If the Chinese and other East Asian powers find themselves forced to abandon the Export-Industrialization model (which is now failing catastrophically) and to go to something like an Import-Substitution strategy (which was by no means as unsuccessful as it is usually depicted when practiced in the 1960s in Latin America) and a development of their internal markets (almost certainly coupled with internal repression of dissidence), then they will not have the money to lend to the US. The track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).

My main point about the current US stimulus package is that it is too small to do the job (I am surely not alone in saying that) and that it is poorly targeted towards tax cuts rather than real stimuli for political and ideological reasons. The distinction between white elephants and real stimuli is also important and unless coupled with a real strategy (e.g. a radical transformation in urbanization patterns and ways of life) the stimuli will merely cover deferred maintenance on infrastructures rather than point to anything new. The result is a policy blockage that prevents the US from taking advantage of what may be a brief window of continued financial hegemony to bring its own economy around. I am not the only one to say our situation is all too reminiscent of Japan in the 1990s. But in our case we cannot afford a lost decade precisely because the rest of the world is bound to adjust rapidly in ways that are unlikely to be advantageous to the United States. An internal Keynesian project is far more feasible in China but this then entails a radical re-orientation of the Chinese economy towards the rest of the world.

To this must be added that a turn to protectionism is politically very much on the cards. Even some economists now recognize that the Ricardian doctrine of comparative advantage does not work and that gains from free trade are inevitably asymmetrical. Theoretically and politically the attempt of states to protect themselves at the expense of others becomes more likely. The break up of global capitalism into competing and warring factions is entirely possible and while the horrible history of the 1930s won’t necessarily be repeated either, we should at least be cognizant of the dangers. I may not be an expert neoclassical economist but I am a first rate student of geopolitics and geoeconomics, fields of study totally foreign, apparently to DeLong.

These are dangerous times and I would have thought the definition of fair and unbiased to which DeLong subscribes might go somewhat further than that given by Bill O’Reilly. What is needed is generous critique, the taking of whatever is positive in competing accounts and a real struggle to come to terms with ways we might better proceed. It will be hard enough to save capitalism from the capitalists but the real tragedy here is that the real message from DeLong’s commentary is that we need also to save capitalism from the economists.

Republican Prophecies

David Waldman has gone through the garbage pile:

Congress Matters: What files? The insane pack-rat files, of course. I have with me a hard copy of a collection of Republican quotes predicting doom and disaster in the wake of the 1993 Clinton economic stimulus plan, and much of the rhetoric is eerily similar to today's. Of course, that should come as no surprise, since the point of the compilation was in fact to point out that the 1993 rhetoric -- particularly on health care, which was still a live proposition at that time -- was itself eerily similar to Republican doom and disaster rhetoric during the debate on the original Social Security and Medicare legislation.

I figure this is what I've been saving this crazy thing for, after all these years. So I'm just going to type them all up here for your enjoyment. And I sincerely hope that they retain their entertainment value forever, and in particular that we all get to laugh -- not nervous tittering, but really have a carefree laugh -- at this exercise very, very soon. Some of these quotes are better ammunition than others. I think the blunt predictions of utter disaster from the Republicans in 1993 are pretty damning for the most part.... [T]he quotes on Social Security, insisting that it would be the end of a free America. Except Reagan's of course. He went there....

On the 1993 deficit reduction package:

Rep. Robert Michel (R-IL), Los Angeles Times, 5/28/93: They will rmember who let loose this deadly virus into our economic bloodstream.

Rep. Newt Gingrich (R-GA), GOP Press Conference, House TV Gallery, 8/5/93: I believe this will lead to a recession next year. This is the Democrat machine's recession, and each one of them will be held personally accountable.

Rep. John Kasich (R-OH), 8/5/93: Do you know what? This is your package. We will come back here next year and try to help you when this puts the economy in the gutter...

Rep. John Kasich (R-OH), CNN, 7/28/93: This plan will not work. If it was to work, then I'd have to become a Democrat...

Rep. Robert Dornan (R-CA), 8/5/93: The problem with our economy is that there is too little employment and too little growth. This plan will do nothing to improv that condition and will actually make it worse.

Rep. Christopher Cox (R-CA), 5/27/93: This is really the Dr. Kevorkian plan for our economy.

Rep. Thomas Ewing (R-IL), 8/5/93: ...This bill is a disaster waiting to happen.

Rep. Jim Ramstad (R-MN), 3/17/93: ...will stifle economic growth, destroy jobs, reduce revenues, and increase the deficit.

Rep. Phil Crane (R-IL), 3/18/93: ...a recipe for economic and fiscal disaster.

Rep. John Kasich (R-OH), CNN, 7/28/93: ...We have a stagnant economy and there is nothing down the road that makes it look like we're going to have the kind of economic growth that puts people to work.

Rep. Dick Armey (R-TX), CNN, 8/2/93: The impact on job creation is going to be devastating, and the American young people in particular will suffer a fairly substantial deferment of their lives because there simply won't be jobs for the next two to three years to go around to our young graduates across the country.

Rep. John Kasich (R-OH), 5/27/93: ...your economic program is a job killer.

Rep. Dick Armey (R-TX), 8/5/93: The economy will sputter along. Dreams will be put off and all this for the hollow promise of deficit reduction and magical theories of lower interest rates. Like so many of the President's past promises, deficit reduction will be another cruel hoax.

Rep. Wally Herger (R-CA), 8/4/93: The simple fact is that the Clinton plan will not lower interest rates. It will not lower inflation. It will not create jobs. And it will no lower the deficit. The Clinton tax plan will spur inflation, lose jobs, increase the deficit, and hurt our economic growth.

Rep. Deborah Pryce (R-OH), 5/27/93: The votes we will take today will not be soon forgotten by the American voter. [They] will lead to more taxes, higher inflation, and slower economic growth.

Rep. John Kasich (R-OH), GOP News Conference, Senate Gallery, 8/3/93: Come next year... we're going to find out whether we have higher deficits, we're going to find out whether we have a slower economy, we're going to find out what's going to happen to interest rates, and it's our bet that this is a job killer.

Rep. Dick Armey (R-TX), CNN, 8/2/93: Clearly this is a job killer in the short run. The revenues forecast for this budget will not materialize; the costs of this budget will be greater than what is forecast. The deficit will be worse, and it is not a good omen for the American economy.

Rep. Jim Bunning (R-KY), 8/5/93: It will not cut the deficit. It will not create jobs. And it will not cut spending.

Rep. Dick Armey, CNN, 2/18/93: I will tell you, this program will not give you deficit reduction. It will be a disaster for the performance of the economy.

Rep. Clifford Stearns (R-FL), 3/17/93: ...It will be the kind of impact that this country can't absorb. It will slow economic growth, contribute to the massive federal deficit....

Rep. Joel Hefley (R-CO), 8/4/93: ...It will raise your taxes, increase the deficit, and kill over one million jobs.

On Medicare:

Ronald Reagan: "One of the traditional methods of imposing statism or socialism has been by way of medicine." He urged his listeners to write to Congress opposing Medicare and warned, "If you don't do this, one of these days you and I are going to spend our sunset years telling our children and our children's children what it was like in American when men were free."

On Social Security:

Rep. John Taber (R-NY), 4/19/35: Never in the history of the world has any measure been brought here so insidiously designed as to prevent business recovery, to enslave workers and to prevent any possibility of the employers providing work for the people.

Rep. Daniel Reed (R-NY), 1935: The lash of the dictator will be felt and 25 million free American citizens will for the first time submit themselves to a fingerprint test.

Rep. James W. Wadsworth (R-NY), 1935: This bill opens the door and invites the entrance into the political field of a power so vast, so powerful as to threaten the integrity of our institutions and to pull the pillars of the temple down upon the heads of our descendants.

On the "Treasury View"

Until I began looking, I had not recognized the extent to which the Republican Party is enslaved to the British 1920s "Treasury View"--that no matter how high unemployment is, government deficits cannot boost production because a dollar spent by the government or rebates in reduced taxes must be financed by borrowing and this taking a dollar away from private- sector spending.

As best as I can see this meme has four origins:

  1. Economists who know better but think of makes a fine talking point.

  2. Economists who don't want to displease their political masters and so say that belief in the "Treasury View" is not an analytical error but rather a "judgment call."[1]

  3. Trained incapacity: economists who have been taught the NIPA savings-investment identity but don't realize that it is an accounting framework rather than a behavioral relationship.[2]

  4. More interesting: a pre-theoretical intuition that because we buy things for cash and because "idle" cash balances are costly our economy must work like a cash-in-advance economy with no unspent balances.

To identify the implicit assumption is enough to dispell it. But the power it holds over peoole who have all seen income-expenditure and AS-AD in college is testimony to an enormous failure of economic education...

[1] Yes, Greg Mankiw, I am looking at you.

[2] Eugene Fama, for example.

The Bush Administration: An Oral History of the Bush White House. The threat of 9/11 ignored. The threat of Iraq hyped and manipulated. Guantánamo and Abu Ghraib. Hurricane Katrina. The shredding of civil liberties. The rise of Iran. Global warming

An excerpt:

Cullen Murphy and Todd Purdum: I remember feeling like I was looking at people who had won a reality-game ticket to head up the White House. There was this remarkable combination of hubris, excitement, and staggering ignorance.

Department of "Huh?": In Praise of Neoclassical Economics

Why neoclassical economics is an absolutely wonderful thing: Exhibit 1: David Harvey:

Reading Marx’s Capital with David Harvey: Why the U.S. Stimulus Package is Bound To Fail: A Financial Katrina - Remarks on the Crisis: Much is to be gained by viewing the contemporary crisis as a surface eruption generated out of deep tectonic shifts in the spatio-temporal disposition of capitalist development. The tectonic plates are now accelerating their motion and the likelihood of more frequent and more violent crises of the sort that have been occurring since 1980 or so will almost certainly increase. The manner, form, spatiality and time of these surface disruptions are almost impossible to predict, but that they will occur with greater frequency and depth is almost certain. The events of 2008 have therefore to be situated in the context of a deeper pattern. Since these stresses are internal to the capitalist dynamic (which does not preclude some seemingly external disruptive event like a catastrophic pandemic also occurring), then what better argument could there be, as Marx once put it, “for capitalism to be gone and to make way for some alternative and more rational mode of production.”

I begin with this conclusion since I still find it vital to emphasize, if not dramatize, as I have sought to do over and over again in my writings over the years, that failure to understand the geographical dynamics of capitalism or to treat the geographical dimension as in some sense merely contingent or epiphenomenal, is to both lose the plot on how to understand capitalist uneven geographical development and to miss out on possibilities for constructing radical alternatives. But this poses an acute difficulty for analysis since we are constantly faced with trying to distill universal principles regarding the role of the production of spaces, places and environments in capitalism’s dynamics, out of a sea of often volatile geographical particularities. So how, then, can we integrate geographical understandings into our theories of evolutionary change? Let us look more carefully at the tectonic shifts.

In November 2008, shortly after the election of a new President, the National Intelligence Council of the United States issued its delphic estimates on what the world would be like in 2025. Perhaps for the first time, a quasi-official body in the United States predicted that by 2025 the United States, while still a powerful if not the most powerful single player in world affairs, would no longer be dominant. The world would be multi-polar and less centered and the power of non-state actors would increase. The report conceded that US hegemony had been fading on and off for some time but that its economic, political and even military dominance was now systematically waning. Above all (and it is important to note that the report was prepared before the implosion of the US and British financial systems), “the unprecedented shift in relative wealth and economic power roughly from West to East now under way will continue.”

This “unprecedented shift” has reversed the long- standing drain of wealth from East, Southeast and South Asia to Europe and North America that had been occurring since the eighteenth century (a drain that even Adam Smith had noted with regret in The Wealth of Nations but which accelerated relentlessly throughout the nineteenth century). The rise of Japan in the 1960s followed by South Korea, Taiwan, Singapore and Hong Kong in the 1970s and then the rapid growth of China after 1980 later accompanied by industrialization spurts in Indonesia, India, Vietnam, Thailand and Malaysia during the 1990s, has altered the center of gravity of capitalist development, although it has not done so smoothly (the East and South-East Asian financial crisis of 1997-8 saw wealth flow briefly but strongly back towards Wall Street and the European and Japanese banks). Economic hegemony seems to be moving towards some constellation of powers in East Asia and if crises, as we earlier argued, are moments of radical reconfigurations in capitalist development, then the fact that the United States is having to deficit finance its way out of its financial difficulties on such a huge scale and that the deficits are largely being covered by those countries with saved surpluses – Japan, China, South Korea, Taiwan and the Gulf states – suggests this may be the moment for such a shift to be consolidated.

Shifts of this sort have occurred before in the long history of capitalism. In Giovanni Arrighi’s thorough account in The Long Twentieth Century, we see hegemony shifting from the city states of Genoa and Venice in the sixteenth century to Amsterdam and the Low Countries in the seventeenth before concentrating in Britain from the late eighteenth century until the United States eventually took control after 1945. There are a number of features to these transitions that Arrighi emphasizes and which are relevant to our analysis. Each shift, Arrighi notes, occurred in the wake of a strong phase of financialization (he cites with approval Braudel’s maxim that financialization announces the autumn of some hegemonic configuration). But each shift also entailed a radical change of scale, from the small city states at the origin to the continent-wide economy of the United States in the latter half of the twentieth century. This change of scale makes sense given the capitalist rule of endless accumulation and compound growth of at least three per cent for ever. But hegemonic shifts, Arrighi argues, are not determined in advance. They depend upon the emergence of some power economically able and politically and militarily willing to take on the role of global hegemon (with its costs as well as its advantages). The reluctance of the United States to assume that role before World War II meant an interregnum of multi-polar tensions that could not halt the drift into war (Britain was no longer in a position to assert its prior hegemonic role). Much also depends on how the past hegemon behaves as it faces up to the diminution of its former role. It can pass peaceably or belligerently into history. From this perspective the fact that the United States still holds overwhelming military power (particularly from 30,000 feet up) in a context of its declining economic and financial power and increasingly shaky cultural and moral authority, creates worrying scenarios for any future transition. Furthermore, it is not obvious that the main candidate to displace the United States, China, has the capacity or the will to assert some hegemonic role, for while its population is certainly huge enough to meet the requirements of changing scale, neither its economy nor its political authority (or even its political will) point to any easy accession to the role of global hegemon. Given the nationalist divisions that exist, the idea that some association of East Asian Powers might do the job also appears unlikely as does the possibility for a fragmented and fractious European Union or the so-called BRIC powers (Brazil, Russia, India and China) to stay on a common path for long. For this reason, the prediction that we are headed into another interregnum of multi-polar and conflictual interests and potential global instability appears plausible.

But the tectonic shift away from United States dominance and hegemony that has been under way for some time is becoming much clearer. The thesis of both excessive financialization and “debt as a principal predictor of leading world powers’ debilitation” has found popular voice in the writings of Kevin Phillips. Attempts now under way to re-build US dominance through reforms in the architecture of both the national and the global state-finance nexus appear not to be working while the exclusions imposed on much of the rest of the world in seeking to re-shape that architecture are almost certain to provoke strong oppositions if not overt economic conflicts.

But tectonic shifts of this sort do not come about as if by magic. While the historical geography of a shifting hegemony as Arrighi describes it has a clear pattern and while it is also clear from the historical record that periods of financialization precede such shifts, Arrighi does not provide any deep analysis of the processes that produce such shifts in the first place. To be sure, he cites “endless accumulation” and therefore the growth syndrome (the three per cent compound growth rule) as critical to explaining the shifts. This implies that hegemony moves from smaller (i.e. Venice) to larger (e.g. the United States) political entities over time. And it also stands to reason that hegemony has to lie with that political entity within which much of the surplus is produced (or to which much of the surplus flows in the form of tribute or imperialist extractions). With total global output standing at $45 trillion as of 2005, the US share of $15 trillion made it, as it were, the dominant and controlling share-holder in global capitalism able to dictate (as it typically does in its role as the chief shareholder in the international institutions such as a the World Bank and the IMF) global policies. The NCIS report in part based its prediction on loss of dominance but maintenance of a strong position on the falling share of global output in the US relative to the rest of the world in general and China in particular.

But as Arrighi points out, the politics of such a shift are by no means certain. The United States bid for global hegemony under Woodrow Wilson during and immediately after World War I was thwarted by a domestic political preference in the United State for isolationism (hence the collapse of the League of Nations) and it was only after World War II (which the US population was against entering until Pearl Harbor occurred) that the US embraced its role as global hegemon through a bi-partisan foreign policy anchored by the Bretton Woods Agreements on how the post-War international order would be organized (in the face of the Cold War and the spreading threat to capitalism of international communism). That the United States had long been developing into a state that in principle could play the role of global hegemon is evident from relatively early days. It possessed relevant doctrines, such as “Manifest Destiny” (continental wide geographical expansion which eventually spilled over into the Pacific and Caribbean before going global without territorial acquisitions) or the Monroe Doctrine which warned European Powers to leave the Americas alone (the doctrine was actually formulated by the British Foreign Secretary Canning in the 1820s but adopted by the US as its own almost immediately). The United States possessed the necessary dynamism to account for a growing share of global output and was quintessentially committed to some version of what can best be called “cornered market” or “monopoly” capitalism backed by an ideology of rugged individualism. So there is a sense in which the US was, throughout much of its history, preparing itself to take on the role of global hegemon. The only surprise was that it took so long to do so and that it was the Second rather than the First World War that led it finally to take up the role leaving the inter-war years as years of multipolarity and chaotic competing imperial ambitions of the sort that the NCIS report fears will be the situation in 2025.

The tectonic shifts now under way are deeply influenced, however, by the radical geographical unevenness in the economic and political possibilities of responding to the current crisis. Let me illustrate how this unevenness is now working by way of a tangible example. As the depression that began in 2007 deepened, the argument was made by many that a full-fledged Keynesian solution was required to extract global capitalism from the mess it was in. To this end various stimulus packages and bank stabilization measures were proposed and to some degree taken up in different countries in different ways in the hope that these would resolve the difficulties. The variety of solutions on offer varied immensely depending upon the economic circumstances and the prevailing forms of political opinion (pitting, for example, Germany against Britain and France in the European Union). Consider, however, the different economic political possibilities in the United States and China and the potential consequences for both shifting hegemony and for the manner in which the crisis might be resolved.

In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers that are almost impossible to overcome. A Keynesian solution would require massive and prolonged deficit financing if it were to succeed. It has been correctly argued that Roosevelt’s attempt to return to a balanced budget in 1937-8 plunged the United States back into depression and that it was, therefore, World War II that saved the situation and not Roosevelt’s too timid approach to deficit financing in the New Deal. So even if the institutional reforms as well as the push towards a more egalitarian policy did lay the foundations for the Post World War II recovery, the New Deal in itself actually failed to resolve the crisis in the United States.

The problem for the United States in 2008-9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2 billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred. (This was not a serious problem for Roosevelt who began with a roughly balanced budget). There is also a geo-political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy. This problem is exacerbated by ideological reluctance on the part of both political parties to embrace the huge amounts of deficit spending that will be required, ironically in part because the previous Republican administration worked on Dick Cheney’s principle that “Reagan taught us that deficits don’t matter.” As Paul Krugman, the leading public advocate for a Keynesian solution, for one has argued, the $800 billion reluctantly voted on by Congress in 2009, while better than nothing, is nowhere near enough. It may take something of the order to $2 trillion to do the job and that is indeed excessive debt relative to where the US deficit now stands. The only possible economic option, would be to replace the weak Keynesianism of excessive military expenditures by the much stronger Keynesianism of social programs. Cutting the US defense budget in half (bringing it more in line with that of Europe in relation to proportion of GDP) might technically help but it would be, of course, political suicide, given the posture of the Republican Party as well as many Democrats, for anyone who proposed it...

Ronald Reagan might say: under such a huge pile of *(@^ there must be an argument somewhere. I really have my doubts.

After ten extremely dense paragraphs of--what can I call it? I can't call what David Harvey does pointless intellectual masturbation because what David Harvey does does not feel good at all--we finally come to the suggestion of a shadow of an argument:

The problem for the United States... is... chronic indebtedness to the rest of the world... [which] poses an economic limitation upon the size of the extra deficit.... [T]he funding of any extra deficit is contingent upon the willingness of other powers... to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy...

And we can see that here we have an internationalized version of Fama's Fallacy. If we forced Harvey to actually construct on argument here, he might be able to: he might say that deficit financing means that the U.S. government borrow from somewhere, that Americans don't have the savings to finance deficit spending, and that foreigners' willingness to buy U.S. Treasury bonds is tapped out because of massive borrowing earlier in this decade. And it is at this point that we draw on neoclassical economics to save us--specifically, John Hicks (1937), "Mr. Keynes and the Classics," the fons et origo of the neoclassical synthesis. Hicks's IS curve gives us a menu of combinations of levels of production and interest rates at which private investment spending and public deficit spending are financed out of the flow of savings. When the level of production is higher, private savings are higher--and thus the combination of private investent and deficit that can be financed is bigger. When the level of production is lower, private savings are lower--and thus the combination of private investment and deficit that can be financed is lower. Any level of deficit can be financed if the interest rate is such that the deficit plus the private investment spending equals the savings that come out of the incomes generated by the corresponding level of output.

The question is thus not can government deficit spending be financed--for it can--the question is at what interest rate will financial markets finance that deficit spending. That then tells us what level of economic activity it will support. Harvey cannot say that the debt overhang means that the U.S. government cannot borrow. He must be saying that the debt overhang means that the U.S. government can only borrow at a very high interest rate that will crowd out private investment and household wealth-supported consumption spending and leave the level of production unaffected or little affected.[1]

It could happen. Crowding-out is real. Is it likely to happen? Well, if it were going to happen we would have seen the interest rates on U.S. long-term government bonds spiking upwards to scarily-high levels as the stimulus bill moves through the congress and its chances of final passage grow. Did we? No. High long-term interest rates on U.S. Treasury bonds are simply not a concern right now:

Path Finder

The point is general. People who say that the stimulus won't work are relying--whether they know it or not--on one of two channels. Either they believe that resources are in short enough supply that increased nominal spending will not increase real spending because it will be eaten up by inflation, or they believe that financial markets are such that the increased supply of bonds produced by deficit spending will push bond prices down and interest rates up enough to crowd out exports and investment spending roughly dollar-for-dollar. Both of these claims are empirical claims. And both of them are completely without support in the present conjuncture.

If we forced Harvey to turn his... um... into an argument we would see that the argument he would be making does not hold together. But, of course, we cannot say that Harvey's argument does not hold together because he does not make one. He doesn't understand Keynes, probably never read Hicks, does not understand Friedman, and I'm sure has never heard of Patinkin or Tobin or Modigliani. Yet somehow he thinks he has standing to make judgments as to the likely success of Keynesian policy moves.

It is a great mystery.

[1] Actually, Harvey can--and does--say any damned foolish thing he pleases. The proper form of the argument is: "if we assume that Harvey intends to make any sense, he must be attempting to say..."

The Financial Times Says: "Daniel Davies Told Us So!"

Lina Saigol:

Warning by bank 10 years ago was ignored: The Bank of England issued a stark warning to the City of London more than a decade ago that big bonuses encouraged traders to take excessive risks – but no action was taken. The Bank’s financial stability review published in March 1997 warned that large, variable bonuses that depended on some measure of performance could become a one-way bet for traders. Dealers won if they generated profits for the business but did not have to pay back their bonuses if they lost money.

“The highest bonuses usually go to ‘stars’, who may feel compelled to justify their status by taking greater risks in the hope of making higher and higher profits,” Daniel Davies, a senior economist at the Bank wrote. “Employees’ contracts almost always involve limited liability; they may share profits from favourable trading outcomes but it is difficult or impossible to make them compensate their employers for losses,” he added. That same year, Howard Davies, then the Bank’s deputy governor, threatened to set more stringent capital requirements for banks that paid big bonuses.

The City’s high-octane performance culture was being blamed for catastrophes, including the £860m of losses run up by Nick Leeson, the futures trader who sank Barings in 1995. Daniel Davies recommended that banks consider introducing deferred bonus schemes, where bonuses would be allocated for a trading period but not paid until some time later. “This gives firms the opportunity to pay negative bonuses by removing money from the deferred bonus if performance deteriorates,” the economist wrote.

The Bank wanted bonus schemes to put greater emphasis on traders’ long-term performance. But City institutions defended their pay practices and said that attempts to regulate would be counter-productive.

In general, I think, the Financial Times--and a fortiori any other newspaper--could improve its quality by simply running a daily box containing archive entries from Daniel Davies's weblog, like:

Why You Should Invest in Private Equity: Daniel Davies gives the big important argument for investing in private equity:

Dear investors,

If you believe that you have the self-discipline to "buy and hold" a portfolio of "mid cap value stocks" for ten years, despite the fact that during that time many of them will deliver heartbreakingly awful newsflow and earnings, then go for it.


The private equity industry.

PS: The evidence of the entire history of investing is that you don't.

Hypocrisy as a virtue:

[T]he question of "hypocrisy" bears a bit more explanation because it does appear to go to the heart of a lot of people's emotional politics. Think about it this way. In my post below, I suggested that the difference between the progressivity of the tax systems students suggested for income versus for their own grades "might serve as a useful index of the hypocrisy of leftist students". When I use the word "hypocrisy" here, what do we actually mean? Well, the combination of the following two qualities:

  1. A moral belief that (some loosely defined concept of) equality is (an actual or instrumental) good.
  2. A personal desire to accumulate more, even at the expense of others.

The first is simply a baseline definition of what it means to have left wing politics. The second ... well put it this way, Buddhist monks spend twenty years living ascetically and meditating for hours at a time before they presume to believe that they have conquered all selfish desires. If you're talking about "leftist hypocrisy", you're just talking about "leftists who have not been able to transcend history, biology and socialisation in order to develop an unparticularised love for all sentient things". In other words, you're just talking about "leftists who happen to be humans".

Contrast with rightwing politics. As I've posted earlier, the single most sensible thing said in political philosophy in the twentieth century was JK Galbraith's aphorism that the quest of conservative thought throughout the ages has been "the search for a higher moral justification for selfishness". Some rightwingers are not hypocrites because they admit that their basic moral principle is "what I have, I keep". Some rightwingers are hypocrites because they pretend that "what I have, I keep" is always and everywhere the best way to express a general unparticularised love for all sentient things. Then there are the tricky cases where the rightwingers happen to be on the right side because we haven't yet discovered a better form of social organisation than private property for solving several important classes of optimisation problem. But at base, the test of someone's politics is simple; if their political aim is to advance all of humanity, they're on our side, while if they have an overriding constraint that the current owners of property must always be satisfied first, they're playing for the opposition. Hypocrisy doesn't really enter into the equation with rightwing politics; you don't (or shouldn't) get any extra points for being sincere about being selfish.

So where does that leave our students? Well, they're young. They're most likely insecure. They don't actually have a lot, and it's hardly surprising that they're a bit precious about what they have (a close runner for the most sensible thing said in political philosophy in the twentieth century was Michael Oakeshott's remark that "a conservative is a man with something to lose", and the genius of this remark is its ambiguity). One shouldn't blame them for not being Boddhisattvas.

In general, one of the biggest problems with the psychological politics of left and right is the need that people feel to think of themselves as not just having made what looks like on balance the best decision given the things they regard as important, but as morally good people themselves. People in general seem to be horribly uncomfortable with the idea that, by the standards they use to judge political situations, they themselves don't come out as moral heroes. At base, this is a fairly childish and decidedly illiberal attitude; childish because it demands a sort of moral perfection which everyone intellectually knows can't exist outside fairy stories (unless you count the way that parents appear to their children) and illiberal because it suggests that you're only prepared to have normal social interactions with people who pass your own personal moral examination (a rather prominent political philosopher has told me to my face on a couple of occasions that he regards me as morally beyond the pale because of the job I do; I've nonetheless been made to feel very welcome at his house).

So anyway, hypocrisy in people is not a vice, particularly when the alternative is to be sincerely horrible. In political parties, it's much worse; people who presume to take control of the state's monopoly on the use of ppowerhave to be held to a much higher standard of honesty, because they are explicitly asking for us to trust them on matters important to our lives. A double standard? Perhaps. But I just told you that I don't care about hypocrisy. Perhaps I should have termed my imaginary measure above an "index of political self-righteousness". On which score, it seems fairly clear, the political science professor himself would outscore most of his students.

D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else:

Hullo there Paul Krugman readers. Yes, I did say "Good ideas do not need lots of lies told about them in order to gain public acceptance", and as a general maxim I wholeheartedly recommend it. I don't necessarily, however, either endorse or whatever-the-opposite-of-endorse the specific use of that maxim in the context of Prof. Krugman's post about the Paulson bailout plan; I don't actually have a fully formed view about that plan. I do, however, wholeheartedly endorse "Development, Geography and Economic Theory", which I think is a terribly underrated economics book, and am at this moment rather starstruck at having one of my essays admired by the nearest modern equivalent to my hero JK Galbraith...

The D-Squared Digest One Minute MBA - Avoiding Projects Pursued By Morons 101:

Literally people have been asking me: "How is it that you were so amazingly prescient about Iraq? Why is it that you were right about everything at precisely the same moment when we were wrong?" No honestly, they have. I'd love to show you the emails I've received, there were dozens of them, honest. Honest. Anyway, I note that "errors of prewar planning" is now pretty much a mainstream stylised fact, so I suspect that it might make some small contribution to the commonweal if I were to explain how it was that I was able to spot so early that this dog wasn't going to hunt. I will struggle manfully with the savage burden of boasting, self-aggrandisement and ego-stroking that this will necessarily involve. It's been done before, although admittedly by a madman in the process of dying of syphilis of the brain. Sorry, where was I?

Anyway, the secret to every analysis I've ever done of contemporary politics has been, more or less, my expensive business school education (I would write a book entitled "Everything I Know I Learned At A Very Expensive University", but I doubt it would sell). About half of what they say about business schools and their graduates is probably true, and they do often feel like the most collossal waste of time and money, but they occasionally teach you the odd thing which is very useful indeed. Here's a few of the ones I learned which I considered relevant to judging the advisability of the Second Iraq War.

Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.

Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic.

Application to Iraq. The general principle that good ideas are not usually associated with lying like a rug1 about their true nature seems to have been pretty well confirmed. In particular, however, this principle sheds light on the now quite popular claim that "WMDs were only part of the story; the real priority was to liberate the Iraqis, which is something that every decent person would support".

Fibbers' forecasts are worthless. Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make innacurate projections about the possible outcomes of that project, but about the futility of attempts to "shade" downward a fundamentally dishonest set of predictions. If you have doubts about the integrity of a forecaster, you can't use their forecasts at all. Not even as a "starting point". By the way, I would just love to get hold of a few of the quantitative numbers from documents prepared to support the war and give them a quick run through Benford's Law.

Application to Iraq This was how I decided that it was worth staking a bit of credibility on the strong claim that absolutely no material WMD capacity would be found, rather than "some" or "some but not enough to justify a war" or even "some derisory but not immaterial capacity, like a few mobile biological weapons labs". My reasoning was that Powell, Bush, Straw, etc, were clearly making false claims and therefore ought to be discounted completely, and that there were actually very few people who knew a bit about Iraq but were not fatally compromised in this manner who were making the WMD claim. Meanwhile, there were people like Scott Ritter and Andrew Wilkie who, whatever other faults they might or might not have had, did not appear to have told any provable lies on this subject and were therefore not compromised.

The Vital Importance of Audit. Emphasised over and over again. Brealey and Myers has a section on this, in which they remind callow students that like backing-up one's computer files, this is a lesson that everyone seems to have to learn the hard way. Basically, it's been shown time and again and again; companies which do not audit completed projects in order to see how accurate the original projections were, tend to get exactly the forecasts and projects that they deserve. Companies which have a culture where there are no consequences for making dishonest forecasts, get the projects they deserve. Companies which allocate blank cheques to management teams with a proven record of failure and mendacity, get what they deserve.

I hope I don't have to spell out the implications of this one for Iraq. Krugman has gone on and on about this, seemingly with some small effect these days. The raspberry road that led to Abu Ghraib was paved with bland assumptions that people who had repeatedly proved their untrustworthiness, could be trusted. There is much made by people who long for the days of their fourth form debating society about the fallacy of "argumentum ad hominem". There is, as I have mentioned in the past, no fancy Latin term for the fallacy of "giving known liars the benefit of the doubt", but it is in my view a much greater source of avoidable error in the world. Audit is meant to protect us from this, which is why audit is so important.

And so the lesson ends. Next week, perhaps, a few reflections on why it is that people don't support the neoconservative project to bring democracy to the Middle East (a trailer for those who can't wait; the title is going to be something like "If You Tell Lies A Lot, You Tend To Get A Reputation As A Liar"). Mind how you go.

I find myself with a few spare minutes and make the mistake of reading Thomas Friedman again...:

I find myself with a few spare minutes and make the mistake of reading Thomas Friedman again. His conclusion after a long, dull and witless ramble about the introduction of "democracy" to Iraq (just what the Gulf region needs, more puppet states) reads "If [it is] done right, the Middle East will never be the same. If done wrong, the world will never be the same". There's not much you can say to that except "shut up you silly man". But it does inspire in me the desire for a competition; can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics:

  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
  3. It wasn't in some important way completely &*%$@# up during the execution.

It's just that I literally can't think what possible evidence Friedman might be going on in his tacit assumption that the introduction of democracy to Iraq (if it is attempted at all) will be executed well rather than badly. Worst piece of counterfactual speculation by Friedman since the day he pondered the question "If I grew a moustache well, I would look distinguished and stylish; if I grew one badly, I'd look like a pillock".

Reputations are made of...:

[T]he concept of “military strategy” he is talking about here comes directly from Thomas Schelling. The idea is that the war is costing huge amounts of money and lives with no real prospect of success and a distinct danger that it is making things much worse. However, to do the logical thing would send the signal to our enemies that we will give up if fought to a pointless bloody standstill.Therefore, for strategic reasons, we must redouble our efforts, in order to send the signal to our enemies that we will fight implacably and mindlessly in any battle we happen to get into, forever, in order to dissuade them from attacking us in the first place. It’s got the kind of combination of “counter-intuitive” thinking and political conveniencethat always appeals to the armchair Machiavelli, as well as to the kind of person who thinks it’s witty to describe things as “Economics 101”(Airmiles has been all over this one for ages, naturally). What’s it like as a piece of game-theoretic reasoning?

Lousy. It is certainly true that one of the benefits of doing something stupid is that it saves you from having to spend money on maintaining your reputation as an idiot. However, is the reputation of an idiot really worth having?

It turns out that it can be proved by theorem that the answer is no. If the game of being a belligerent idiot with no sensible regard for one’s own welfare was worth the candle, in the sense of conferring benefits which outweighed the cost of gaining it, then everyone would want to get that reputation, whether they were genuinely an idiot or not. But if everyone wanted that reputation,then everyone would know that simply acting like an idiot didn’t mean that you were one, in which case it would be impossible to establish a reputation as an idiot in the first place. The point here is that it’s one of the more important things in game theory that a signal has to be a costly signal to be credible; like membership of the Modern Languages Association, a reputation in deterrence theory is something that is worth having, but not worth getting. People who use the word “signal” in this context (usually on the basis of a poorly understood or second-hand reading of Schelling) don’t always seem to realise that they are explicitly admitting that the costs of being in Iraq are greater than the benefits.

Because of this, in my opinion it is very difficult for a democracy to establish this kind of credibility. The reason is that although leaders are often idiots, democratic polities rarely are. It is very hard for a democratically elected leader to credibly commit to a policy of stupidity, because everyone else knows that it is highly likely that the electorate will not support it. I hasten to add that to take this obvious fact and turn it into a Dolchstosslegende, or to bemoan the lack of national vigour in the manner of Victor Davis Hanson is to get the analysis back to front. It is a good thing about democracies that they don’t in general do stupid things, and the fact that an argument from “credibility” and “deterrence” can be constructed to make the case that it is a weakness (even “a fatal weakness”) of democracies that they are insufficiently inclined to pointless military dead-endism is just another example of the Davies-Folk Theorem. Here’s the same point made by someone else if you like it dressed up in numbers and 2×2 boxes.

Furthermore, even if we were to accept this bogus argument, it is worth remembering that it is of rather general application. As the marketers will tell you, delivery has to be consistent with the brand; you can’t tell people to ignore part of your message. If it were true that by sticking it out past the bitter end,we were signalling that we were bitter-enders, then what othermessages might we have been sending out over the last few years? In particular, what message does our behaviour since 2003 convey on such important topics as: whether or not we want to fight a war against theIslamic ummah? Or whether the best way to protect yourself against us invading you is to get nuclear weapons? Or whether we are reliable allies? Whether our public statements to the United Nations can be trusted? When you start thinking in these terms, you start really worrying about the reputation that we are actually getting.

"Tricky Cases Where the Rightwingers Happen to Be Right" Department:

[T]he single most sensible thing said in political philosophy in the twentieth century was JK Galbraith's aphorism that the quest of conservative thought throughout the ages has been "the search for a higher moral justification for selfishness". Some rightwingers are not hypocrites because they admit that their basic moral principle is "what I have, I keep". Some rightwingers are hypocrites because they pretend that "what I have, I keep" is always and everywhere the best way to express a general unparticularised love for all sentient things. Then there are the tricky cases where the rightwingers happen to be on the right side because we haven't yet discovered a better form of social organisation than private property for solving several important classes of optimisation problems...

No Riff-Raff:

Entering into the Brad DeLong Eat The Rich Controversy, I offer this observation: If it is not the case "that the rich are spiteful--that they enjoy the envy of the poor", then why is the word "exclusive" so popular in the marketing material for hotels, nightclubs, holiday resorts and residential property developments.

"Exclusive" is probably these days an advertising man's synonym for "nice", but it also has a clear and specific literal meaning. It means that the hotel, nightclub, resort etc is providing a bundled service; partly, the provision of a normal hotel or nightclub, and partly the service of excluding a segment of the population from that service. One pays extra to go to a health club whose swimming pool is not polluted by the greasy, hairy polloi.

The reason that this service is valuable is that those who consume it get utility from a) dividing society into two groups, rich and poor, b) creating institutions which physically and socially segregate these two groups and c) them being in the "rich" group. Nobody would apply for membership of Bouji's or the Bucks if it was just a matter of waiting your turn and paying your fee. This would completely defeat the point of the exercise and destroy the value proposition. The point is that in order to attract a better class of customer, you have to keep the riff-raff out. Basil Fawlty understood this; why doesn't the blogosphere?

Is there a general skill of “management”?: Synopsis: yes.

I promised this post in comments to Chris’s on Blackburn’s myths below, where I took my life in my hands and disagreed with John. I think that actually, there probably is “a general skill called management which works in any and all domains”, and, just to raise the tariff and secure gold medal position for myself in the Steven Landsburg Memorial Mindless Contrariolympiad, I’ll also defend the proposition that this skill is pretty closely related to what they teach on MBA courses. But first a couple of remarks on Blackburn’s own “Myth of Management“.

In his very definition, Blackburn pretty much gives it away; he says that “[the myth of management] claims that people can be managed like warehouses and airports”. What does this even mean? How do you manage a warehouse or an airport if it’s impossible to manage people? If he had said “like machines” or even “like factories”, then it might have been comprehensible, but a warehouse which doesn’t have any people working in it is just a shed full of stuff and doesn’t require any management because no deliveries or shipments are being made. And an airport without people is just a warehouse for planes. Warehousing and transport are two very labour-intensive industries.

There are two possibilities here. One is merely that Blackburn is a snob – that writing as a professor of philosophy in the THES, he felt entitled to assume his audience would know that “people” meant “middle class people”, and would agree with the implicit assertion that “people” of this sort were capable of independent thought and could not be tied down, man, unlike the meat robots who packed their books for Amazon or swiped their tickets at Heathrow. But to assume this would be wildly uncharitable. The other, and I think more likely, explanation, is that Blackburn has no idea whatsoever about what managing a warehouse or an airport would entail, and no real interest in finding out.

There is a clear analogy here to CP Snow’s famous point about “Two Cultures”;

A good many times I have been present at gatherings of people who, by the standards of the traditional culture, are thought highly educated and who have with considerable gusto been expressing their incredulity of scientists. Once or twice I have been provoked and have asked the company how many of them could describe the Second Law of Thermodynamics. The response was cold: it was also negative. Yet I was asking something which is the scientific equivalent of: Have you read a work of Shakespeare’s?

I now believe that if I had asked an even simpler question—such as, What do you mean by mass, or acceleration, which is the scientific equivalent of saying, Can you read?—not more than one in ten of the highly educated would have felt that I was speaking the same language. So the great edifice of modern physics goes up, and the majority of the cleverest people in the western world have about as much insight into it as their neolithic ancestors would have had

What I mean, of course, is that if a middle manager were to mention over the dinner table that one of his proudest boasts was that he had never engaged in abstract thought in the last twenty years, had consistently managed to avoid doing so throughout his career, and that indeed whenever he was asked to provide an informed opinion on a general or abstract subject, he typically did it intentionally badly in order to make sure he was never asked again, then we would presumably agree that we were dealing with an unusually awful species of pig-ignorant chucklehead.

And yet of course, for both of CP Snow’s intellectual cultures, the parallel view of administration and management is so commonplace as to be a cliche. The abhorrence of academics of management is notorious (the abominable fashion in which so many academic institutions are actually managed even more so). Conversely, the practical men of engineering have developed an entire culture of their own based round the assumption that everything in the world is done by small groups of engineers who spontaneously organise themselves into work units, with occasional interference and distraction caused by “marketroids” who perform no function at all. Very rare indeed is a figure like Fred Brooks who actually applies scientific principles to the analysis of the organisation of computer programmers, and when he does arise, he’s honoured but largely ignored; real engineers write code, they don’t do admin.

This of course has fairly severe real-world consequences. As anyone who followed the link to my comment in the first paragraph will know, the kernel of my argument for the existence of a general skill of management is that it is pretty obvious that there is a general deficit or “negative skill” of mismanagement, which equally obviously appears to work in roughly the same way in a variety of fields, and that therefore an opening stab at a definition of the general skill of management would be that it’s the absence of this deficit. Someone like Larry Summers had a particular form of this deficit in spades. It was widely known, throughout the economics profession and beyond, that Summers was not good at handling people. The job of President of Harvard is a management job, the vast majority of which involves being good at handling people. Nevertheless, Summers was given the job by fellow academics who respected his intellect, energy and ideas and who either rationalised to themselves or never even considered the fact that they were giving an important job to somebody who very clearly didn’t have the necessary skills for it.

Then a year later, he had crashed and burned in the job, because he was no good at handling people. Nobody learned a damn thing from this debacle, of course; in general, lots of institutions are surprisingly resistant to the idea that talent in management ought to be a criterion for awarding management jobs, and the reason is that they don’t believe in a general skill of management, despite universally recognising (and often admitting to possessing) a generally applicable skill of disorganisedness.

The general skill of management has two basic components – administration and leadership.

The first is the ability to keep track of and prioritise detail. Some people are naturally better at this than others, but natural ability doesn’t actually make much of a difference in terms of one’s possession of the skill of management. The reason for this is that more or less any management task bigger than a single in-tray (and there are plenty of us, including me, who are flat out keeping control of one of those) is going to exhaust a normal human being’s memory and attention span. In order to cope with this, people through the ages have come up with a number of technologies to extend the human ability to administrate, such as alphabetical filing systems, double-entry accounts, activity reports and so on; the majority of the structures in Fred Brooks’ book fall into this category too. The majority of the skill of organisation is having the mastery of these tools and the self-discipline to use them consistently. The first is what they teach you in business schools; the second sounds more like an innate ability, but I would guess that it too can be taught.

The second is basically a species of emotional intelligence; some people are better applied psychologists than others. I must say I didn’t get much out of the “leadership” course I went on, but I wouldn’t necessarily say that there is nothing about motivating and managing people that can be taught; at the very least there’s an obvious body of applied economics which could be brought to bear to make sure that you don’t create incentives which are fundamentally inimical to yourself. So in summary, I think that there is a pretty identifiable set of skills, which can be grouped together into a category at least as coherent as most of the other things that we regard as subjects and which can be defensibly identified as the general skill of management ability.

Of course, the fact that there’s a general skill of management doesn’t mean that everything can be managed, any more than the fact that there’s a general attribute of strength means that everything can be lifted. Organisations have a lot more to them than the simple will of the people managing them and some organisations can be (or become) so pathological that there’s no managing them – either they’re too lacking in the necessary infrastructure to administer, or they’re so riven with interpersonal conflicts or perverse incentives that they can’t be led, or both.

Nor does it necessarily mean that there is a caste of individuals who can be dropped into managerial roles in any organisation and immediately start managing successfully; any organisation above trivial size is going to have a lot of idiosyncratic information (explicit and tacit) which is relevant to its management, and learning this is a difficult or even impossible task. On the other hand, it does suggest that if you have a management problem, there is some sense in asking someone who’s really good at management if they have some advice about it, which is the basis of the consultancy industry (a rather large global industry, which certainly might owe its existence purely to the desire of a self-perpetuating elite to look after their own and act as scapegoats for unpopular decisions; on the other hand, a lot of people think university education is just a racket providing certificates of entry to the middle class, and they’re wrong too).

What it does mean is that the fundamental attribution error is not always an error in this context. As in military matters, where the different abilities of generals often really do make an important difference, it really can be the case that one company succeeds and another fails because of the abilities of the person at the top. There really is a right way and a wrong way to run a warehouse.

Beyond the area of his expertise:

dsquared 04.28.08 at 8:37 am

The myth that there exists a general skill called management which works in any and all domains has been repeatedly refuted.

I don’t agree with this and should probably write a post on the subject. (The kernel of my argument is that there definitely exists a deficit or negative skill called “disorganisation” which works in any and all domains).

Venue Change:

It is a strange fact about organisations that although we can put men on the moon and grow human ears on the backs of mice, there is no force on earth that can stop people from double-booking rooms. One of the most unrealistic things about Star Wars is that Darth Vader never swept into a conference room ready to do something dramatic and evil, only to find a bunch of IT people with sandwiches having their monthly planning meeting.

What do we owe?:

On the front page of the Times today, it appears that the UK is attempting to wriggle out of its commitments to Iraqi employees of the British Army, even as we’re preparing to leave Basra. Part of me wants to believe that this is a matter of bureaucratic callousness rather than anything else, but as Brad DeLong says, the Cossacks work for the Czar – if people in David Milliband’s department are trying to wriggle out of a commitment that David Milliband made, then they’re doing it because he told them to, or because he doesn’t care whether they do it or not.

The last time we had a discussion of this on Crooked Timber, it turned pretty ugly pretty quickly, but I’m prepared to have another go. The general obligations of a country which is carrying out a morally unjustified war of aggression[1] to the locals of the country it is invading are set out pretty clearly in the relevant Geneva Conventions, but what special obligations exist to local employees?

Personally I think this is pretty cut and dried. On grounds of fairness, the invading power should not discriminate between its employees on grounds of nationality, so they have a duty to give local employees the same kind of protection against harm that they would one of their own citizens. On prudential grounds, it is fairly obvious that any country has a long-term interest in establishing a reputation for protecting its employees. I am not convinced by any of the arguments against, most of which seem to involve fairly empty assertions about whether people might have been accessories to war crimes, combined with a strange insouciance about whether these alleged offences should be prosecuted in a proper court, or enforced ad hoc by death squads.

If anyone wants to argue either side of the case, go ahead. If you end up being convinced by my view, then perhaps you’d care to express this opinion to the British government. As far as I can tell, the most effective means to doing this (by far – the difference to the next best alternative is orders of magnitude) is by writing a letter or email to your MP. Dan Hardie has got a lot of anecdotal evidence that these letters have made a big difference so far in preventing this issue from being swept under the rug. (Update: You could ask your MP to sign Early Day Motion 401, tabled by Lynne Featherstone MP, please).

Simple answers etc etc:

In the course of an article arguing that a large vote for Obama is not a vote for his policies (and, equally curiously, that the total and utter failure of conservative policies is not in and of itself a reason to try something else), Gerard Baker, who is to Thomas Friedman as Ricky Valance was to Richie Valens, says:

What, in these circumstances, would a scientific model predict as the winning margin for the Democratic presidential candidate: 10, 15, 20 percentage points? In fact, as of yesterday, Mr Obama seemed to have a solid but by no means overwhelming advantage of between 5 and 6 percentage points.

In fact, the Ray Fair model, with default values, predicts four points.

It is actually quite easy to look these things up you know.

And the chorus:

arbitrista 10.31.08 at 2:48 pm: I’ve always liked the Abramowitz model better.

Steve LaBonne 10.31.08 at 3:12 pm: See, it’s against the “journalist” trade rules to actually look stuff up, but now maybe he can report “Daniel Davies claimed…”

Michael Drake 10.31.08 at 3:36 pm: Easier though to ask tendentious rhetorical questions.

Daniel 10.31.08 at 3:38 pm: That was the easy gotcha, but what really did astound me is that Baker seems to argue: the only reason that Obama is popular is that conservative policies have been a dreadful failure, thus he is not really popular, thus his (presumed non-conservative) policies are not really supported by the American population, thus if elected, he only has a mandate to carry out a policy agenda which is not only ex hypothesi disastrous, but (also ex hypothesi) extremely unpopular. I do wonder – what could the American people actually do, if they wanted to convince Gerard Baker that they don’t want conservative policies? Clearly, simply saying that they don’t like them in opinion polls doesn’t work, and nor does voting for the candidate who promises to get rid of them. Do you think that boycotting Murdoch owned newspapers and sending a letter to News Corporation demanding that Gerard Baker be horsewhipped until he gets the message might work? Isn’t it at least worth a try.

J Thomas 10.31.08 at 3:55 pm: How could we get explanations about how stupid Baker’s points are, out to many of the people who read Baker and don’t think about it enough to see through it? They’re the appropriate target audience for criticism of his reasoning, right?

MQ 10.31.08 at 3:58 pm: yeah, the Abramowitz model predicting a 10 point Democratic win seems much more correct. On the other hand, I think a major reason Obama isn’t up by 10 is that McCain is running hard away from Bush. And a 10 point Dem win on election day isn’t out of the question.

See, it’s against the “journalist” trade rules to actually look stuff up

right…no facts please, I’m a reporter!

Preachy Preach 10.31.08 at 4:12 pm: I thought you had a ‘no-US elections’ rule…

Matthew 10.31.08 at 4:14 pm: On the other hand it’s better than Melanie Phillips, who has convinced herself that the Americans are voting for marxism and capitulation to the enemy.

Lex 10.31.08 at 4:24 pm: No, Mel P is better, because reading her is more fun. Question for those in a predictive mood – can the insanity of the wingnut commentariat grow any greater, without posing a serious danger to the stability of the body politic itself [e.g. by provoking poor saps to actually try to kill elected officials…]? Or can it achieve a steady-state derangement, where those of us with critical faculties just have to accept that our interlocutors across the proverbial aisle are not functioning on the same plane of reality, and yet life goes on? Yes, wingnuttery has a long and ignoble history back to McCarthy and beyond, but is the intensity of circulation it achieves with modern technology propelling us to disaster, or is it all somehow survivable, no matter how bad it gets?

Righteous Bubba 10.31.08 at 4:47 pm:

On the other hand it’s better than Melanie Phillips, who has convinced herself that the Americans are voting for marxism and capitulation to the enemy.

Encourage it. It’s self-marginalization.

nick s 11.01.08 at 6:28 pm: I’ve seen the ‘so, why isn’t Obama leading in the polls by 20 points?’ line from a number of right-wing sources, without a retroactive apology for treating, say, GW Bush’s 2004 victory as an overwhelming popular mandate. Gerard Baker may well be too dense to appreciate that a 53-47 popular vote spread generally makes the electoral college map look like this. I do wonder – what could the American people actually do, if they wanted to convince Gerard Baker that they don’t want conservative policies? Move en masse to Canada France Norway.

Fat Hominid:

There’s a paper to be written at some point on the economics of fad diets (I suspect that it already exists and that there’s a 90% chance it’s dreadful). I personally believe that they’re potentially a rich source for the self-organising systems literature and a good case study of how irrational and somewhat self-destructive beliefs spread through proselytisation (a subject which one might think of quite important general interest in these troubled times). My sketch model of something like the Atkins Diet or cabbage soup detox or whatever would go as follows, on the assumption that the spread of these trends through the population is based on about 10% fundamentals and 90% bubble.

The idea being that nearly everyone’s digestive system is different; when one stops to think about it, this is unbelievably, blindingly obvious from simple casual empiricism. Different foods agree and disagree with different people, depending on flukes of genetics, medical history, intestinal flora and whatever else. There is also a space of fad diets which can, to a first approximation, be modelled as more or less spanning the possible combinations of foods – there are literally hundreds of the bloody things out there. For this reason, every now and then, someone is going to come across a fad diet which really really really works, for them, because it happens to not include whatever food is giving them their current digestive troubles.

Someone like that is very likely to become an evangelist for their preferred fad diet; after all, they have first-hand empirical evidence that it really really really works. And sudden relief from digestive discomfort, or very rapid weight loss, is an experience the emotional impact and profundity of which should not be underestimated[1]; it’s the sort of thing which is often mistaken for a religious experience. A particularly passionate advocate for a fad diet can often persuade a couple of dozen acquaintances to try it out, with the obvious potential for a chain reaction if one of them happens to have a similar digestion. I’m sure Kieran could draw you a graph.

Of course, the vast majority of people on fad diets are getting no real benefit from them, other than from the incidental factor that most of them are basically calorie controlled (either by design or, per Atkins Diet, de facto by simply being such inconvenient and unpleasant ways to eat). Thinking about these sorts of things and their spread through the community gets you onto the subject quite quickly of Charles Mackay and Extraordinary Popular Delusions, which is why it’s a bit of a disappointment to me to see that a sharp cookie like Nassim Nicholas Taleb[2] appears to have fallen hook line and sinker for a fad diet.

There ain’t no “just war”, there’s just war:

One of the inevitable consequences of any Middle Eastern conflict is the collateral damage caused by the unprovoked and disproportionate attacks which tend to be launched by Michael Walzer on his own credibility.... I kid, I kid, of course. I have no real problem with the way he shapes the argumentation around the policy; Walzer has built up a huge amount of social capital in the political philosophy world, he can’t take it with him and if he wants to spend it this way, fair enough.

What irks me though, is that throughout the piece, Walzer asks important questions in a manner which is meant to suggest that he is the first to raise them, when for the most part they are extremely cut and dried points of international humanitarian law... he doesn’t quite realise that... the publication of “Just and Unjust Wars” was not the most important thing in the subject area to happen in 1977; that was the year that the Protocols to the Geneva Convention were agreed. And the really striking thing is that the Protocols (particularly Protocol 1, Article 57) actually answer most of the questions Walzer asks, and do so for the most part in a much clearer, more intellectually rigorous and more morally acceptable way than anything he says himself, after thirty years’ reflection on a theory he largely invented.

For example, Walzer correctly states that the concept of “proportionality” in just war theory is all over the place and is much more often used as an excuse for unacceptable violence than as a proscription on it. Score one for the Geneva architecture, which doesn’t use such a fuzzy concept at all. Under Protocol 1, Article 57, a commander has three duties (explained very clearly in “Constraints on the Waging of War: An Introduction to International Humanitarian Law” by Frits Kalshoven and Liesbeth Zegveld):

  1. to do everything feasible to verify that the chosen target is a military objective
  2. to take all feasible precautions in the choices of means and methods to avoid, or in any event minimise harm to civilians and damage to civilian objects
  3. to refrain from carrying out an attack if may be reasonably be expected to cause such harm or damage in a quantity which would be excessive relative to the concrete and definite military advantage anticipated.

So, under international law, for example, “minimising civilian casualties” is a basic primary requirement – it’s something you always have to do, not something you get extra brownie points for and certainly not something you can trade off against a slightly dodgy choice of target. Furthermore, “minimised” casualties could still be “excessive” relative to the concrete and definite military advantage anticipated. And international law’s clear on other topics that appear to vex Walzer too about the kind of objective that can be set against the civilian casualties; it has to be “concrete” (no messing around with intangibles like “avoiding the rocketing of New York”), “definite” (as in, with a clear chain of causation to the enemy’s ability to wage war) and “military” (no bombing objectives in order to gain political advantage).

International law’s also very clear on the subject of “negative reciprocity” – the question of whether one side’s failure to play fair releases the other side from its obligations. The answer is it doesn’t....

There’s obvious harm done in the real world by the fact that the doyen of just war theory is blowing squid ink around the relevant international humanitarian law – it makes it much easier for all sorts of people to use bad arguments to provide political cover for illegal actions – and I would be very interested in knowing whether he’s doing it on purpose or out of a lack of knowledge. “Just and Unjust Wars”... cites the Geneva Convention precisely twice (once in the preface and once on a point about uniforms not related to noncombatants). The Protocols aren’t mentioned at all....

I find that really quite freakish. Surely Walzer must have been aware that the Protocols were being negotiated, while he was writing his book? Is academic political philosophy really that disconnected from the real world? It really isn’t that difficult to get oneself involved in a debate of this sort, if one’s got any sort of professional standing and surely a professor of ethics would be able to. What am I missing here?... [W]hen Walzer sternly admonishes:

Asking the hard questions and worrying about the right answers—these are the moral obligations of commentators and critics, who are supposed to enlighten us about the moral obligations of soldiers. There hasn’t been much enlightenment these last days.

then he really needs to pull the stick out of his $%^. The Geneva Conventions were for the most part drawn up by lawyers and soldiers, and it really is unseemly for Walzer to go about patting himself on the back (and high-fiving his mates over “the triumph of just war theory”, odds bodkins) for being the only person morally serious enough to think about these ever so difficult questions, while reinventing the wheel, badly.

Matthew Yglesias Unclear on the Concept...

He writes:

Matthew Yglesias: The Trouble With Propaganda TV: I think the problem is more fundamental than that. I mean, who wants to watch a propaganda channel?...

Ummm... Matt. Have you ever watched Fox News?

As Rupert Murdoch is reported to have said back upon its launch: There are lots of right-wing people in America who want their world view confirmed, not challenged, by their television. And this creates a market opportunity.

Two Weeks Late and $150 Billion Short

Lori Montgomery of the Washington Post writes a story that would have been useful two weeks ago::

Trim to Stimulus Carves Into Goals For Job Creation: For months, President Obama has been selling his economic stimulus package as a jobs bill that would spare the nation from a frightening spike in unemployment.... [C]ongressional negotiators have since trimmed billions of dollars from the package to satisfy Senate Republicans, diminishing its potential for job creation along with its overall cost.... [A]nalysts are slashing their estimates of its ability to counteract a deepening recession, with several prominent economists now saying the package will save or create fewer than 2.5 million jobs by the end of next year.

At $789 billion, the final package "is just not going to pack the same jobs punch" as some earlier versions, which cost as much as $100 billion more, said Mark Zandi, chief economist of Moody's, whose analyses have been cited by White House officials as well as congressional Democrats. Zandi estimates the measure will create only about 2.2 million jobs by the end of 2010, leaving unemployment hovering around 10 percent and probably forcing lawmakers to undertake another stimulus plan.

The White House has officially pared its own projection to 3.5 million jobs in recognition of the bill's smaller size. But Christina Romer, who leads Obama's Council of Economic Advisers, said the administration remains convinced that the package of tax cuts and spending initiatives has sufficient power to boost the sagging economy toward recovery by year's end...

It would have been right and proper and informative for Montgomery to have informed her readers that Mark Zandi was an advisor to John McCain as well.

Evil Republican Senators Watch

Tom Levenson:

If Mitch McConnell (or, say, Judd Gregg) were a Mensch...: ...pigs would fly, I know, but if McConnell had any sense of decency he would do the following:

Vote for the stimulus package in the Senate.

Why? So that his colleague, Sherrod Brown, would not have to leave his mother’s wake (say that again, in all caps:  HIS MOTHER’S WAKE) in Ohio, fly to DC, cast his vote, and then fly back to Ohio in time for his mother’s funeral (say that again, in all caps:  HIS MOTHER’S FUNERAL) tomorrow.

I mean, there is no doubt that the bill will pass.  There is no question that Brown’s vote will be the needed 60th to ensure passage.  The only other option, the only other vote to provide the margin of those who voted at the last, procedural hurdle is Ted Kennedy, and he’s dealing with brain cancer (caps again:  BRAIN CANCER), so it falls to Brown, trying to bury his mother, or some one Republican with a sense of decency sufficiently developed to switch his or her vote in Brown’s stead.

And what gravels me is that there would be no political price to be paid for such a switch — in fact, it would have only benefits for the brave senator to do so, and for his or her party.  It could be made clear that this is purely  a gesture, not of bipartisanship, but of sympathy and support for a co-worker dealing with a terribly rough time.

No one would accuse McConnell of betraying his principles (he has some-?-ed.) (shhh–tl) were he to so vote.  He could state very clearly what he was doing and why, (and send some sympathy Brown’s way).  He could be seen, for just a moment, as human being rather than a partisan hack.  Nothing but good could acrue to him here.

And I can’t believe there would be any electoral fall out that would follow what would be clearly understood by all as a classy gesture.  McConnell — or Gregg, or any of a number of Republicans of impeccable (sic) right wing ideological pedigree  — would be able to demonstrate a kind of reasonableness that the rest of their recent actions hide pretty well.

Even better:  they would be praised for the kind of gesture that the GOP has found it impossible to make in response to what polls show is a pretty effective campaign to suggest that they are refusing the proffered hand of a very popular president.

Plus, of course, its just the right thing to do, the sort of care you take for those with whom you work — even the ones with whom you disagree, who you may in fact dislike — just because it makes the world a slightly better place in a way that costs nothing.  Your mama told you to do such things; I and my wife work on my eight year old all the time to get him to internalize the notion that kindness is the default option in his dealings with the world.

Is this so hard to get?  To do?  If you are a Senate Republican, I guess so.

I can’t even get angry about this one.  It’s just sad.  These are damaged people.

Republicans Lie, All the Time, About Everything. Judd Gregg Edition

Judd Gregg last week on the Obama fiscal boost plan:

We need a robust [bill]. I think the one that's pending is in the range we need. I do believe it's a good idea to do it at two levels, which this bill basically does, which is immediate stimulus and long-term initiatives which actually improve our competitiveness and our productivity.

Judd Gregg today:

Republican Sen. Judd Gregg is putting a final exclamation point on his withdrawal as Barack Obama's designee for Commerce Secretary with a promise to vote against the president's economic stimulus package. Gregg's office confirmed the decision Friday.

First Decade This Has Happened since the You-Know-What...

Paul Krugman:

Ownership society watch: between 2004 and 2007 — but estimates, based on stock and housing prices, that all of that gain and more has been wiped out since then. Adjusted for inflation, families are poorer now than they were in 2001. It’s worth pointing out that with this release, yet another pillar of the what-me-worry school of economics has fallen. You may remember that a few years ago there was a lot of talk about how only bubbleheads paid attention to our low, low savings rate, because the truth was that Americans were getting steadily wealthier thanks to rising asset values. Not so much, it turns out.

Required Reading

jodsh Marshall asks:

Talking Points Memo: Has anyone else read this book? Many of you must have. Only Yesterday by Frederick L. Allen. The classic first-draft history of the 1920s prosperity up to the 1929 crash, written from the vantage point of 1931.

It is great. Once in Golconda is better.

Three-Quarters of the Fiscal Boost Program Hits in the First Eighteen Months

Matthew Yglesias:

Matthew Yglesias: The Haul: CBO analysis finally lets us get to the bottom of the much-disputed question of whether or not the recovery package is genuinely fast-acting. For the remainder of FY2009, we’ll have about $185 billion in tax cuts and new spending, and for FY2010, we’ll have about $400 billion in tax cuts and new spending. That adds up to 74 percent of the total cost of the bill, meaning that the congress has essentially hit President Obama’s goal of spending out 75 percent of stimulus funds in the first eighteen months.

Now it would have been really nice if we had had an ex-president and an opposition party patriotic enough to have moved this through the congress and signed it early last November--and gained us three months on the incipient depression.

Republicans Seek a Poorer Nation with Higher Unemployment

Had John McCain won the presidential election last November, a similarly-sized fiscal boost bill--more tax cuts, fewer spending increases, tilted toward the rich rather than toward the poor and middle class--would now be moving through the congress with genuine bipartisan support.

But Barack Obama won the presidency. And so the Republicans decide to try to make America a poorer nation with higher unemployment: 246-183-1 in the House, with not a single Republican representative voting yes:

some good video, george miller fantastic:

Today when this country cries out to help this economy, to help America's families who are unemployed, who are losing income, losing jobs, President Obama stepped forth with the American Recovery Act. The Republicans step forth with saying 'no.' It was reflective when Minority Leader John Boehner's instructions to his colleagues to oppose the bill, even as President Obama was traveling the Hill to meet with them and discuss this bill with them, they decided in advance of that meeting they would say 'no.' Minority Whip Eric Cantor of Virginia has said that 'no' is going to be the Republican strategy on this economic crises. 'No' is going to be their strategy, he said. The Republican national spokesman of late, radio host Rush Limbaugh, added that 'no is the strategy by asserting on the air he wants President Obama to fail. Does he understand if President Obama fails, that the American families lose income, they lose their jobs, and the crises continues? And here we see the repeating of 'no.'"

roll call:






more at:

Torture: John Yoo and Stephen Bradbury Chatter

Straws in the wind: Echelon Intercept #3489DE38A9:

[T]he [Justice Department's] O[office of] P[rofessional] R[esponsibility]... came to "very harsh conclusions" about the professional competence of a number of the [Yoo and Bradbury] memos, making "recommendations for further action" with respect to both John Yoo and Stephen Bradbury. Attorney General Mukasey and Deputy AG Filip were reported to be apoplectic about the report and to have attempted to squelch it. Their concern is... for the defense of reliance on advice of counsel that Mukasey put forward in a series of speeches, and that the OPR reports will make, I understand, something of an absurdity...

The Agenda with Steve Paikin: Rethinking Keynes

Canadian TV:

The Agenda - Broadcast - Rethinking Keynes...

Three Notes:

  • Why don't TV hosts have enough self respect to avoid taking James "Buy Stocks Right Now Because the Dow Is Going to Triple to 36000 by 2003!" Glassman as an authority of any kind?

  • Why don't TV hosts have enough self respect to avoid taking Amity "The Financial Times Fired Me for Lying About Hurricane Katrina!" Shlaes as an authority of any kind?

  • Why can't TV hosts have enough self respect to find some conservatives who don't think taking Keynes quotes out of context is a powerful argument?

One thing I am looking for is a good survey of where the wingnut idea that John Maynard Keynes did not care about the long run came from. It is not true. Even the General Theory Keynes thought of as a book that was at least as concerned with the long run than the short run--the idea that the Keynesian model is about the short run and the classical model about the long run is a post-1947 creation of the MIT- and Yale-based neoclassical synthesis. Keynes throughout his writings worries about Malthusian forces, about the economic possibilities for our grandchildren, about secular stagnation, and about a host of other long-run issues.

The quote from Keynes used--"in the long run we are all dead"--comes from Keynes's Tract on Monetary Reform. There it is the centerpiece of an attack on those monetary economists who suppose that because monetary policy is neutral in the long run they do not have to say anything about what monetary policy does in the short run. They are, he says, avoiding work, and being useless:

Now 'in the long run' this [way of summarizing the quantity theory of money] is probably true.... But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

The source of the claim, as far as I have been able to trace it, is the fifth paragraph of that overrated wingnut Henry Hazlitt's 1946 book Economics in One Lesson:

Paragraph 5: There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom...

Not the absence of Keynes's name from Hazlitt's book. Hazlitt's reason for doing so are:

Economics in One Lesson, Preface to the First Edition.: I have thought it still less advisable to mention particular names.... To do so would have required special justice to each writer criticized, with exact quotations, account taken of the particular emphasis... qualifications he makes... ambiguities... and so on. I hope, therefore, that no one will be too disappointed at the absence of such names as Karl Marx, Thorstein Veblen, Major Douglas, Lord Keynes, Professor Alvin Hansen and others in these pages. The object of this book... economic errors in their most frequent, widespread or influential form.... I hope I shall not be accused of injustice on the ground, therefore, that a fashionable doctrine in the form in which I have presented it is not precisely the doctrine as it has been formulated by Lord Keynes...

To paraphrase, Hazlitt says: if I don't name names I can get away with misleading summaries and sloppy research.

I haven't been able to trace it back any further than Hazlitt.

NPR Crashed-and-Burned Watch (Ellen Weiss Unclear on the Concept Department)

Media Matters:

Media Matters - Is NPR embarrassed to be seen with Juan Williams?: In the wake of Juan Williams' latest outburst on Fox News, NPR has asked him to stop identifying himself as an NPR contributor when he appears on Fox.  NPR's Ombudsman concludes her assessment of the situation:

[I]n the end, NPR must decide -- as it apparently already has -- whether giving its listeners the benefit of Williams' voice is worth the cost of annoying some listeners for his work on Fox.

As a result of this latest flap, NPR's Vice President of News, Ellen Weiss, has asked Williams to ask that Fox remove his NPR identification whenever he is on O'Reilly.

But O'Reilly's identification of Juan Williams is true. Juan Williams is an NPR contributor. It's shameful, it's embarrassing, but it is what it is--and NPR has no right to try to censor Fox.

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

Watching Betsy McCaughey lie about Barack Obama's health care legislation is a little bit like watching Aretha Franklin on stage: It's not as good as you remember, but you have to admit that she's still got it...

Ezra Klein:

Lies, Damned Lies, and Betsy McCaughey: Watching Betsy McCaughey lie about Barack Obama's health care legislation is a little bit like watching Aretha Franklin on stage: It's not as good as you remember, but you have to admit that she's still got it...

UPDATE: It looks like Betsy McCaughey sold her column for $11,000:

Joseph j7uy5 wrote:

In 2004, Betsy McCaughey wrote:

The American health system has shortcomings, including inadequate use of information technology, waste and inefficiency, and a costly medical liability system.

So she was for electronic medical records before she was against them.

And now Igor Volsky writes:

Igor Volsky: Wonk Room: Pay To Play? McCaughey Received $11K In BioTech Stock Days Before Penning Health Scare Op-Ed: Ideology may not be the only factor driving Betsy McCaughey’s propaganda campaign against two health care provisions in the stimulus bill. As Health Care Renewal points out, “not noted in Betsy McCaughey’s op-ed article was that she is currently on the board of directors of Cantel Medical, a device company, and formerly on the board of Genta, a biotechnology company.” In fact, according to a Statement of Changes in Beneficial Ownership Securities from the Securities and Exchange Commission, McCaughey received 750 Shares of stock options just days before writing the Bloomberg op-ed. Then, the total worth of the shares was approximately $11,250:

Why Do I Have to Deal with People Like Dan Mitchell?

If Cato wouldn't employ people like Dan Mitchell, they would be a much better thinktank. Just saying.

A semi-random ten:

December 5, 2008: The Fallacy That Government Creates Jobs: Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can't inject money into the economy without first taking money out of the economy. More specifically, the theory only looks at one-half of the equation — the part where government puts money in the economy's right pocket. But where does the government get that money? It borrows it, which means it comes out of the economy's left pocket. There is no increase in what Keynesians refer to as aggregate demand. Keynesianism doesn't boost national income, it merely redistributes it. The pie is sliced differently, but it's not any bigger...

April 167, 2003: A Better Way to Chastise France: Yes, folks, it finally happened. French President Jacques Chirac swallowed his pride and placed a let's-be-friends-again phone call to President Bush. As well he should have. France's behavior regarding Iraq has been despicable.... Unfortunately, the French people may be just as misguided as their leaders. French vandals recently desecrated the graves of allied soldiers.... The French people certainly have a right to their opinions, even if they conveniently forget that they are able to exercise that right only because of the sacrifices made by American soldiers. But that doesn't mean France shouldn't suffer any consequences. Many Americans, for instance, are boycotting French products or canceling plans to vacation in France. These are fine gestures...

October 7, 2004: An OPEC for Politicians?: At the risk of stating the obvious, the United Nations hasn’t been America’s friend in recent years. It has obstructed the war on terrorism. It has honored corrupt dictatorships with seats on its Human Rights Commission. Its budget is riddled with waste and fraud, and the United States pays the lion’s share of the tab. And it serves as a platform for anti-American rhetoric -- much of it from governments that receive U.S. foreign aid. But this situation may be about to get worse. Led by France and Brazil, the United Nations now wants to impose global taxes. At a recent U.N. summit meeting, politicians from more than 100 nations endorsed a $50 billion global tax to finance even more foreign aid. Not surprisingly, the bureaucrats have many different schemes to fleece the world’s taxpayers. One of the most popular ideas is a tax on financial transactions...

October 14, 2008: Who Are the Villains of the Mortgage Mess?: [T]he Community Reinvestment Act: Politicians imposed numerous regulatory burdens on financial institutions, but "affordable lending" requirements such as those imposed as a result of the Community Reinvestment Act were among the most perverse. In effect, banks were extorted into making loans to people who were not credit worthy. This added to the bubble and expanded systemic risk. It's also worth noting that poor people were victimized by this government policy, because many of them were lured into houses they could not afford. Culprits: President Carter presumably deserves some of the blame because many of these policies were first imposed during his dismal reign, primarily with support from Democrats...

January 24, 2001: The Greatest Threat to Our Economy: What's the greatest threat to our economy?... the Internal Revenue Service. Why? Because the IRS has two new regulations.... The first mistake occurred when the agency implemented "Qualified Intermediary" regulations... require foreign financial institutions that are investing client money in America to reveal the identity of individual investors. The IRS claims this is necessary to prevent American taxpayers from anonymously investing here in order to take advantage of the favorable tax treatment provided to foreign investors.... [I]t is highly unlikely that the IRS will catch any Americans trying to avoid or evade taxes. Not because there aren't any, but because they aren't stupid. If an American has money in an offshore account and is investing in the United States, he easily can avoid the QI regulations by shifting investments to other countries...

March 1, 2001: Tax Cuts Won't Harm Social Security: Foes of President Bush’s tax-cut plan are getting desperate. They haven’t reached the point of claiming that tax cuts cause cancer and road rage, but they’re close. Depending on the day of the week, we’re told that cuts will cause inflation, encourage deficits, help only the rich, or hurt the economy. One of the more imaginative claims is that tax cuts somehow will prevent lawmakers from saving Social Security. President Bush’s 10-year, $1.6 trillion tax cut, we are told, will soak up the surplus and leave no money to reform the government pension program. A clever argument, yes, but with one small problem: It’s not true. According to the independent Congressional Budget Office, the projected surplus over the next 10 years is $5.6 trillion. It doesn’t take a math major to figure out that a $1.6 trillion tax cut is small compared to all the extra tax money that will roll into Washington...

August 21, 2001: A One-World Taxing Authority?: It is bad news when politicians in Washington make us pay taxes, but just imagine how high taxes would climb if unaccountable international bureaucracies had that power. Yet this is a big part of the U.N.'s agenda. Specifically, the report highlights two options. The first is a tax on all international currency transactions, a proposal that would throw a monkey wrench in the world trading system and impose a disproportionate burden on America's efficient financial markets. The second option is an energy tax. This idea would mean higher gas prices, higher electricity prices, and higher heating oil prices...

October 5, 2001: Don't Scapegoat Tax Havens: Contrary to the impression given by John Grisham novels and Hollywood movies, "tax havens" aren't tropical paradises filled with people carrying cash-filled suitcases. That's why lawmakers need to make sure they have the right answers to the following questions before they allow misguided proposals to creep into law under an anti-terrorism banner. What are tax havens? A tax haven is a country with tax rates low enough to attract foreign investors.... Why do some politicians hate tax havens? Because they offer an escape hatch for oppressed taxpayers. French taxpayers bring their money to Switzerland; German taxpayers bring their money to Luxembourg.... [T]ax havens don't help high-tax governments collect tax revenue. They assert, quite correctly, that they're not obligated to put the tax laws of other nations above their own and that high-tax nations don't have a right to tax income earned inside the borders of low-tax countries...

May 2, 2002: Bad Tax Policy: You Can Run?: The worst Supreme Court decision of all time?... Dred Scott... in which the Supreme Court ruled that slaves did not gain freedom by escaping to non-slave states. Instead, they were considered property and had to be returned to their "owners." Some U.S. companies soon may be treated in a similar manner, thanks to legislation being touted by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa...

March 21, 2007: Iceland Comes in From the Cold With Flat Tax Revolution: Listen up, Gordon Brown and George Osborne. Iceland has joined a growing list of nations that have sharply cut their corporate tax rates and adopted flat-rate individual income taxes, with hugely positive consequences on economic performance.... The reduction in the top tax rates was introduced to cut penalties on productive activities.... All these reforms have helped Iceland climb from 26th to ninth in the "Economic Freedom of the World" rankings since 1990.... Tax reform and economic liberalisation have helped Iceland prosper. Let's hope that other industrial nations – and especially Brown and Osborne – will learn from Iceland's success...

There are conservative economists who are intelligent. There also are conservative economists who--like Milton Friedman--understand that the velocity of money is interest-elastic, are not xenophobic and jingoistic, are not in the pockets of the world's money launderers, understand that a reliance on hot money-fueled economic growth creates instability, are not shills for the oil companies, are able to use their fingers and toes to accurately assess the U.S. federal budget, and don't falsely blame the financial crisis on feckless poor Black people who can't pay their mortgages and the government that forced banks to lend to them.

Why Do I Have to Deal with People Like Donald Luskin?

I'm just peacefully minding my own business when Gavin M. of "Sadly, No!" seizes control of my computer and makes me watch his special on The Education Of Donald Luskin.

I must have been very, very bad in a pervious life, is all I have to say...

Biweekly since last July:

  • July 25: Housing, Job Data Signal Recovery, Not Recession. The latest housing and jobs data signal an economic recovery, not a recession...
  • August 8: Think We're in a Recession? Head to Disneyland. A recent trip to Disneyland confirmed my belief that this country is not in a recession...
  • August 22: The Worst Recession Since the Depression? No Way. Nouriel Roubini predicts the worst recession since the Depression. How wrong he is...
  • September 5: GOP's Palin Could Be Savior of Stock Market. Stocks didn't have a snowball's chance in hell until McCain tapped the Alaska governor...
  • September 19: Washington Tries to Clean Up Mess It Created. The lawmakers and bureaucrats who created this mess will take credit for cleaning it up...
  • October 3: Bailout Will Slowly Rebuild Confidence in Markets. It's time for the much-improved government bailout plan to be put into action...
  • October 17: Treasury Bailout Terms Better Than Buffett's. Don Luskin: The government's plan to rescue banks is fair...
  • October 31: Inflation, Not Deflation, Is Looming Threat. Don Luskin: There's only one way to play rising prices: gold...
  • November 14: How to Tell When the Bear Market Is Over. Donald Luskin: There's daylight in sight -- and you have a role to play...
  • November 28: Give Thanks for the Citigroup Bailout. Don Luskin: The government got it right this time...
  • December 5: The Case for Gold Hasn't Lost Its Luster. Donald Luskin: Inevitable return of inflation will drive metal even higher...
  • December 19: Current Recession Is No Great Depression. Donald Luskin: Lessons learned decades ago are paying off today...
  • January 2: When Will This Recession Finally End? Don Luskin: Look around and you'll see that maybe it already has...
  • January 16: Safe Landing a Good Omen for the Economy. Donald Luskin: Why the Bank of America rescue should make you feel bullish...
  • January 30: The Stimulus Placebo Effect. How could anyone think this stimulus plan will help the economy?...
  • February 6: Fixing the Banks Should Be Job No. 1. If the feds don't get the banking system upright, nothing else will matter...

I am very disappointed in you, Gavin M. There are no warning signs surrounding your website. Children might visit it!!

Fifty Little Hoovers

That's what Paul Krugman calls the state governors right now, all under pressure to deal with collapsing tax revenue.

Steve Benen:

The Washington Monthly: IT AIN'T FEARMONGERING IF IT'S TRUE.... Just today, the LA Times has a good report on the unprecedented pressure on state budgets right now -- pressure that will not be alleviated by the federal recovery plan because Sens. Collins & Co. believe state aid isn't stimulative enough. While state shortfalls will lead to painful cuts in practically every state, Nevada is poised to get hit much harder than most.

The Times report noted, for example, that Nevada is "facing the most serious shortfall," and lawmakers will have to cut a striking 38% from its state budget. The impact across the state will be both drastic and unavoidable, most notably in the state's public schools, which will soon face a 15% cut.

It wasn't surprising, then, that Rep. Barney Frank (D-Mass.) criticized Senate "centrists" for cutting $40 billion in state aid from the stimulus package, noting that the aid, which appeared in the House version, was intended to stop states from "laying off cops and firefighters, money to help keep teachers going." Republican Sen. John Ensign of Nevada rejected Frank's comments, labeling the remarks "fearmongering." Indeed, Ensign seemed encouraged by the fact that state budgets, including his own, would have to be slashed, calling the budgets "bloated." He said, "What we should be doing is cutting back."

Got that? As the recession worsens, and government spending is needed to prevent more Americans from losing their jobs, a leading Republican senator whose own state is about to get pummeled, believes it's a good idea to "cut back."

I can think of a variety of ways to respond to this nonsense, but I think Matt Yglesias summed things up nicely:

The idea that it would be good for states to cut back in the midst of the recession is stupid. The idea that the recession won't, absent federal aid, lead to layoffs of state employees such as teachers and firefighters is also stupid. But the idea that it's simultaneously true that the reason we should eschew aid is that states need to cut back and also true that it's fearmongering to warn of layoffs is doubleplus stupid. What does Ensign think cutbacks consist of? States will be reducing vital services. The cutbacks will have the immediate impact of reducing the incomes of laid-off families and beneficiaries of state programs. That will have an additional impact on businesses where the newly laid-off teachers and cops used to work.

And the reduced level of service will have its own bad economic impacts. Cutting back public safety budgets will mean fewer cops on the beat. That means more crime which will further reduce economic activity. State cutbacks to child care subsidies will make it harder for people who lose jobs to find and accept new ones. The cutbacks to mass transit services that are happening across the country will introduce additional rigidity into the labor market and reduce patronage of businesses that people are accustomed to reaching via transit. And in the most severe cases, cutbacks in assistant to the severely impoverished will have a decades-long impact on the well-being of their children.

Sen. John Ensign is entirely comfortable with all of these developments -- those dreaded state budgets are "bloated," after all -- but doesn't want anyone to acknowledge this publicly. Pointing to reality is "fearmongering."

It's not enough for congressional Republicans to stand in the way of sound economic policy during a crisis; they also want to discourage everyone from talking about it.

Brief Notes on the Geithner Financial Rescue Plan

  1. Called the Geithner Plan, not the Obama Plan--distancing of the president from the proposal.

  2. Reinforced by Axelrod leaks to Labaton and Andrews painting Geithner as the Wall Street loving holdover--and this the person to take the blame if things go south.

  3. This is not new money--this is only the second half of the TARP from last fall: $350B.

  4. It is an attempt to leverage the TARP money--via the Fed and the private sector--as much as possible.

  5. As the Fed takes on tail risk and buys up risky assets, the supply of assets the private sector must hold declines and their prices will rise.

  6. As public and private money flows into the banks, their risk tolerance will grow and they will bid up risky asset prices as well.

  7. The net effect might be that fears that banks are insolvent or will become illiquid will ebb.

  8. And the financial crisis and the Bush depression will come to an end.

  9. But Geithner said this is not the end--that if the TARP money is expended and if banks still fail their stress tests, then what...

  10. This plan does not foreclose a resort to the Swedish model, it is instead an attempt to use the TARP money to escape the necessity for adopting the Swedish model.

Will Marshall Says that Calling Things What They Are Is "Shrill"

And Paul Krugman snarks:

The return of shrill: Via Angry Bear, Will Marshall says I deserve a “Pulitzer Prize in hyperbole” for saying that

the dastardly centrists would kill hundreds of thousands of jobs and cut vital health care and food programs, while offering a fat tax break to affluent homeowners

whereas the truth is that... the centrists would kill hundreds of thousands of jobs and cut vital health care and food programs, while offering a fat tax break to affluent homeowners. But shhh! You’re not supposed to say that!

Berkeley Bureaucracy

Justin Lahart of the WSJ:

Job Market for Economists Turns ... Dismal - The dismal economy has claimed yet another victim: jobs for the economists who study it. Columbia University's economics department, for example, isn't making any new hires this year. That's in stark contrast to last year, when Columbia poached eight economics professors from other schools, and hired one economist out of graduate school. The University of North Carolina at Chapel Hill, Amherst College and the University of Minnesota all have suspended their searches for economics professors. And Harvard University has gotten permission to hire just one person -- only after "many rounds of negotiation," according to Harvard economist Lawrence Katz, who is handling recruiting this year. Typically, Harvard hires two or three economics professors out of graduate school...

Calling EVCP George Breslauer: give us in Economics two (or four!) extra junior slots and we could do really, really well on the buy side of this year's job market. Really, really well. And the same applies to every single other department.

I know that from California Hall's perspective cutting back on junior faculty hiring this year is bureaucratically easy, but it is a substantively enormously stupid move for the university.

Why Oh Why Can't We Have a Better Press Corps? (New York Times Buries the Lead Edition)

Steve Labaton and Edmund Andrews have the wrong headline and the wrong lead on their New York Times story yesterday. They wrote:

Geithner Said to Have Prevailed on the Bailout: The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands. In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials...

They should have written:

Axelrod Sets Geithner Up to Take the Fall if Financial Rescue Goes Badly: With the assistance of complaisant reporters at the New York Times who minimized Obama's involvement and decision-making role, David Axelrod set Treasury Secretary Timothy Geithner up as the guy to take the responsibility and the fall should President Obama's new plan to bail out the nation’s banks not be successful...

Don't bury the lead guys! When who leaks to you and what they leak is the story, report that!

The Second Half of the TARP

The Geithner financial rescue plan is not a new policy--it is simply the second half of the $700 billion TARP voted last year.

Matthew Yglesias:

Matthew Yglesias: $350 Billion, Not $2.5 Trillion: $350 billion dollars is a lot of money. And that’s how much the Treasury committed yesterday. Not $2.5 trillion. A headline like “Bailout Plan: $2.5 Trillion and a Strong U.S. Hand” [that the New York Times's Edmund Andrewds and Stephen Labaton write underneath] is pretty misleading. The article text is (as is often the case) better:

Administration officials committed to flood the financial system with as much as $2.5 trillion — $350 billion of that coming from the bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.

We shouldn’t sneer at $350 billion. Eighteen months ago there were lots of social welfare that Barack Obama (or Hillary Clinton or John Edwards or Bill Richardson) could have embraced to endear himself to Democratic Party primary voters except advisers would come back and say “Senator, that’ll cost $350 over ten years—we can’t do it.” But it’s a much smaller number than $2.5 trillion.

The Heathers Don't Like the Fact that Barack Obama Let Sam Stein Ask a Question...

Duncan Black sends us to Ana Marie Cox's twitter feed...

Does Mara Liasson know that Ana Marie Cox works for Air America? With these Mean Girls, it's hard to know one way or another:

Ana Marie Cox on Twitter:

Mara Liasson next to me; on the phone; just said "He called on Huffington Post! I was surprised he didn't call on Air America!" Oh honey. about 20 hours ago from TweetDeck....

Just talked to 6 more people post-Obama town hall; 2 of them are currently unemployed. Another 2 were under the age of 10. BUTGAHTHEPORK. about 21 hours ago from TweetDeck....

Just spoke to 12 people here at Obama town hall. Four of them are currently unemployed. Not a single one mentioned "pork." about 23 hours ago from TweetDeck....

LOTS of grumbling post-press conf about HuffPo getting a q; but accusing O of "filibustering" seems to ignore HuffPo q was smart and tough. 6:30 PM Feb 9th from Tweetie in reply to amclive....

Last question. Whew when Huffpo got one I GOT VERY SCARED. (Tho I did have one. Really.) 5:54 PM Feb 9th from twitterrific....

Worried that working on my laptop during the White House press conference is gauche. 5:16 PM Feb 9th from twitterrific....

Uhm yeah I'm in the second row. Clearly seats assign randomly. 4:40 PM Feb 9th from Tweetie....

Line of journalists waiting to get into presser behind me stretches to Lafayette park. BUT DAVID CORN GOT IN GAH 4:24 PM Feb 9th from Tweetie

Having credential for presser but no hard pass=journalist equivalent of purple pass and I am in the tunnel of doom. 4:11 PM Feb 9th from Tweetie

Livetweeting the presser @amclive; vvvvvvv long line to get in. Some ppl cutting: "If you have a hard pass it's okay." #wonkpickuplines 4:00 PM Feb 9th from Tweetie

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

Duncan comments:

Entitled: If Ana Marie Cox's twitters are to be believed, many in the elite press corps were horrified that Sam Stein was allowed to ask Obama a question. This has nothing to do with whether it was a good or interesting question, but simply about where in the pecking order he's supposed to be...