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March 2009

Washington Post Crashed-and-Burned Watch (Foreign Policy Edition)

Fareed Zakaria:

Why Washington Worries: As George W. Bush's term came to a close, he had few defenders left in the world of foreign policy. Mainstream commentators almost unanimously agreed the Bush years had been marked by arrogance and incompetence.... Even Richard Perle, the neoconservative guru, acknowledged recently that "Bush mostly failed to implement an effective foreign and defense policy."...

[T]he Obama administration has... made some striking moves in foreign policy... initial, small steps but all in the right direction--deserving of praise, one might think. But no, the Washington establishment is... dismayed....

The conservative backlash has been almost comical in its fury.... Charles Krauthammer.... [The] normally intelligent... Leslie Gelb... "Power Rules," says that Hillary's comments about China's human-rights record were correct, but shouldn't have been said publicly. Peter Bergen of CNN says that "doing deals with the Taliban today could further destabilize Afghanistan." "It's change for change's sake," Gelb writes ruefully. Ah, if we just kept in place all those Bush-era policies that were working so well.... The Washington Post... worr[ied] that Obama might be capitulating to Russian power. His sin was to point out in a letter to the Russian president that were Moscow to help in blunting the threat of missile attacks from Tehran, the United States would not feel as pressed to position missile defense systems in Poland and the Czech Republic—since those defenses were meant to protect against Iranian missiles. This is elementary logic....

The problem with American foreign policy goes beyond George Bush. It includes a Washington establishment that has gotten comfortable with the exercise of American hegemony and treats compromise as treason and negotiations as appeasement.... This is not foreign policy; it's imperial policy. And it isn't likely to work in today's world.

Memo Question for March 18: The Atlantic Economy

Mar 18: Weekly memo question: The economies settled from northwestern Europe--the United States, Canada, Australia, New Zealand--were all resource rich. So why did they industrialize early? Why didn't they simply become gigantic Denmarks, shipping agricultural and other resource-based products to the European industral powers in return for manufactures?

Yet More Dow 36000 Blogging...

A correspondent writes:

James "Dow 36000" Glassman justposted a comment on Facebook saying that he agreed completely with Bill Gross as expressed in this article, in which Gross says people should own no stocks whatsoever:

Bill Gross of PIMCO has it exactly right in the Washington Post this morning.

This looks like a very strongbuy-sign for stocks.

Over at the Economist...

I see that Andrew Atkeson has been listening too much to his colleague Lee Ohanian when he should have been rereading his Friedman and Schwartz. And that he has not asked Lee the five key questions that he should have asked: (i) why move the goalposts so far by comparing the New Deal period to 1930-1932 rather than late 1932? (ii) why focus so heavily on hours per adult to the exclusion of other labor market indicators? (iii) why if the NRA was so bad did employment grow so rapidly during the short time it was in effect? (iv) if strong union power was responsible for high unemployment in 1937-1939, why wasn't stronger union power responsible for even higher unemployment in the 1950s and 1960s? (v) why pay no attention at all to Friedman and Schwartz's judgment of the causes of renewed depression in the late 1930s.

If Atkeson had asked those five questions, I think he would have written a very different comment.

So I have a response:

In my view, Andrew Atkeson makes a very bad mistake when he cites Cole and Ohanian's Wall Street Journal op-ed as an authority for the claim that the New Deal did more harm than good.

Cole and Ohanian write thqt under "the New Deal... there was even less work on average... than before FDR took office." It turns out that by "before Roosevelt took office" Ohanian and Cole mean not the months before Roosevelt took office in late 1932 and early 1933 but, instead, an average of 1930-1932. 1929 was a boom year of extremely high un employment. 1930 was an average year. 1931 was a bad year. But it was only after the financial crises of late 1931, say Milton Friedman and Anna Schwartz, that the cratering of the system of financial intermediation and the sudden rise in the reserve-deposit and currency-deposit ratios turned the downturn into the Great Depression. To compare the New Deaql to the average of 1930-1932 is not just to move the goalposts--it is to pick up the goalposts and run as fast as you can out of the stadium. Cole and Ohanian work very hard to try to convince their readers that things got worse after Roosevelt took office. But, as they know well, they didn't: things got better--they just did not get enough better to get employment back to normal until the huge burst of federal deficit spending that was World War II.

And Cole and Ohanian cherry-pick their statistics. Do they tell their readers that unemployment was 22.9% in 1932 and down to 11.3% in 1939? No. They tell their readers that "hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933" without telling them that in 1949 hours worked per adult were 18% and in 1959 17% below their 1929 level. The 1929-1950 period saw the last sharp decline in the American workweek--a decline that does not mean that the economy was depressed and performing poorly in 1959 or 1949 (or 1939) relative to 1929, but instead that Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure.

Cole and Ohanian do even worse when they try to account for the fact that the Great Depression was not followed by a vigorous recovery. They blame the New Deal, primarily my least favorite government program of all time, the National Recovery Administration. But the years during which the NRA was in effect saw the unemployment rate go from 22.9% down to 14.4%--hardly what you would expect to see if the NRA were doing massive additional macroeconomic damage to the economy. And the NRA comes to an end before the middle of 1935 when it is ruled unconstitutional. So for the period after 1935 Cole and Ohanian blame the National Labor Relations Act and the increase in union power that it enabled. They ignore that fact that unions were far stronger in the late 1940s and 1950s than they were in the late 1930s. And they ignore Milton Friedman and Anna Schwartz's conclusion that the economy became more depressed in the late 1930s than it had been in 1935-1936 because of an extraordinary contractionary mistake of monetary policy: that in early 1937 the Federal Reserve doubled required reserves out of fear of future inflation, and the economy fell off a cliff as a result.

Now there is somewhat more than a grain of truth in the claim that much of the New Deal, especially its structural interventions in the economy, was ineffective and counterproductive--John Maynard Keynes told Roosevelt so in a letter of February 1, 1938. And Keynes went on to argue that the reason the U.S. recovery had stalled out in 1937-1938 was that Roosevelt's policies were not Keynesian enough--that "the present [renewed] slump could have been predicted with absolute certainty" by anybody knowing the year before how Roosevelt was going to try to reduce deficit spending and tighten money. But that the New Deal was not Keynesian enough does not mean that we should be even less Keynesian now than we are being. And the argument that Milton Friedman, Anna Schwartz, and John Maynard Keynes were all wrong when they blamed the renewed 1938 downturn on contractionary macroeconomic policies--well that is an argument that Atkeson is a very brave man indeed to make.

Okay! Okay! Uncle! Uncle!

I recant. Ross Douthat is a really lousy choice for New York Times op-ed columnist.

Here we have Belle Sawhill and Adam Thomas, serious people writing serious things to inform the public:

Keep Politics Away from the Promise of Family Planning: Democrats have, however, already compromised on one important front. When the bill came to the floor of the House for debate, the Rules Committee stripped a provision from it that would have given states the option to expand a Medicaid-funded program subsidizing family planning services for low-income women.... Republicans portrayed this provision as an example of wasteful spending.... They also argued – incorrectly – that the program subsidizes abortion.... [O]n its own merits, the family planning provision is good public policy. Not only would it reduce abortions – which is the exact opposite of what its opponents have argued – but it would also save the government money by reducing unplanned and out-of-wedlock childbearing. In fact, it promises to produce greater long-term returns than many of the programs that will ultimately be retained in the final stimulus package.... [I]n states that have already been granted income-eligibility waivers, this policy led to a significant reduction in the number of sexually-active women who have unprotected sex... a similar expansion in contraceptive services in the remaining states would reduce the annual number of children born out of wedlock by more than 25,000, would reduce the number of pregnancies to unmarried teenagers each year by 19,000, and would reduce the annual number of abortions to unmarried women by nearly 12,000. These effects are substantial, and they have important social implications...

And here is what Ross Douthat does with this:

How Do You Solve a Problem Like Abortion?: Consider, for instance, the idea that the government should dramatically expand eligibility for free contraception through Medicaid.... [A]s of 2004, there were 2.8 million pregnancies among unmarried women in the United States, and roughly 1 million abortions.... [T]his program, according to its supporters might reduce the national abortion rate by somewhere between 1 and 2 percent... in a country of millions upon millions, where countless trends shift the number of pregnancies and abortions around from year to year, it's perilously close to statistical noise...

The New York Times could do a lot better--it might, for example, only employ columnists who know what "statistical noise" means.

And it might employ a columnist who can calculate that if extending free contraception services to 1/12 of women of childbearing age reduces abortions among the unmarried by 12000, that is not a 2% but a 20% reduction.

Uncertainty in Climate Science Is Not Our Friend

From the Economist: SCIENCE and politics are inextricably linked. At a scientific conference on climate change held this week in Copenhagen, four environmental experts announced that sea levels appear to be rising almost twice as rapidly as had been forecast by the United Nations just two years ago. The warning is aimed at politicians who will meet in the same city in December to discuss the same subject and, perhaps, to thrash out an international agreement to counter it.

The reason for the rapid change in the predicted rise in sea levels is a rapid increase in the information available. In 2007, when the Intergovernmental Panel on Climate Change convened by the UN made its prediction that sea levels would rise by between 18cm and 59cm by 2100, a lack of knowledge about how the polar ice caps were behaving was behind much of the uncertainty. Since then they have been closely monitored, and the results are disturbing. Both the Greenland and the Antarctic caps have been melting at an accelerating rate. It is this melting ice that is raising sea levels much faster than had been expected. Indeed, scientists now reckon that sea levels will rise by between 50cm and 100cm by 2100, unless action is taken to curb climate change.

Konrad Steffen of the University of Colorado, Boulder, leads one study of the Greenland ice sheet. He told the conference that this sheet is melting not only because it is warmer but also because water seeping through its crevices is breaking it up. This effect had been neglected in the earlier report.

The impact of the melting ice has been measured by John Church of the Centre for Australian Weather and Climate Research. He told the conference that satellite and ground-based systems showed that sea levels have been rising more rapidly since 1993 than they were earlier in the 20th century. He is concerned that more climate change could cause a further acceleration in this rate.

Stefan Rahmstorf of the Potsdam Institute for Climate Impact Research has examined data stretching over 125 years that link increases in sea temperatures to rises in sea levels. He told the conference that, based on past experience, “I expect that sea-level rise will accelerate as the planet gets hotter.” He was supported in this view by the fourth expert, Eric Rignot of the University of California, Irvine, who called for the world’s leaders to slash the emission of carbon dioxide and other greenhouse gases.

Advance negotiations on the UN Climate Change Conference are due to begin in Bonn in just over a fortnight’s time. The scientists hope that their startling warnings will change the outcome of that pre-meeting meeting. With much still to argue over, they hope that a clear scientific lead will both help to narrow the room for disagreement and also galvanise the desire to get a treaty agreed.

We Need a Hegemon Who Won't Drive Us Crazy...

There is a Rodrik Roundtable over at

Dani Rodrik writes:

[T]he most fundamental objection to global regulation... [is that f]inancial regulation entails trade-offs along many dimensions. The more you value financial stability, the more you have to sacrifice financial innovation.... Different nations will want to sit on different points along their “efficient frontiers”. There is nothing wrong with France, say, wanting to purchase more financial stability.... Nor with Brazil giving its state-owned development bank special regulatory treatment, if the country wishes, so that it can fill in for missing long-term credit markets. In short, global financial regulation is neither feasible, nor prudent, nor desirable. What finance needs instead are some sensible traffic rules that will allow nations (and in some cases regions) to implement their own regulations while preventing adverse spillovers.... Similarly, a new financial order can be constructed on the back of a minimal set of international guidelines. The new arrangements would certainly involve an improved IMF with better representation and increased resources. It might also require an international financial charter with limited aims, focused on financial transparency, consultation among national regulators, and limits on jurisdictions (such as offshore centres) that export financial instability. But the responsibility for regulating leverage, setting capital standards, and supervising financial markets would rest squarely at the national level...

This seems to me to be dangerously wrongheaded. Let me try to explain why:

Go back to 1825, when the Bank of England first explicitly takes on its monetary policy mission in an attempt to stem the systemic impact of the banking crisis of 1825. Before 1825 or so a sudden shock that makes investors seek to hold portfolios of shorter duration and less risk does not have a great impact on values: the economy responds by unloading the trade goods from the ships about to sale for Hudson’s Bay or Batavia or Madras and selling them on the domestic market instead, and the fall in demand for long-duration and risky assets is met by deleveraging the real economy without much impact on values. But by 1825 the capital stock of the economy now has large components that cannot be deleveraged: plantations, canals, factories, and soon railroads. So a crisis shock to the demand for duration and risk now has a big depressing effect on asset prices—and that in its turn has a feedback effect further decreasing demand for duration and risk. And so it is in and after 1825 that we see the origin of central banking: the judgment by First Lord of the Treasury Lord Liverpool that the prices of risky and long-duration assets are too important to be left to the free play of market forces: that it is important for the government to support them, at least in crisis, to prevent mass unemployment by making sure that the firms that should be expanding and hiring workers can get finance to do so on terms that make it profitable for them to expand.

From this perspective monetary policy is and always has been about supporting asset prices at a level that allows firms that ought to be expanding to obtain finance and expand profitably. And ever since 1825 the central bank has done this by, whenever it needs to, taking long-duration and risky assets into its own portfolio--and thus off of the stock that must be held by the private sector whose risk tolerance has collapsed. Given that there are going to be sudden shocks to risk and duration tolerance on the part of global investors, we need a global institution to provide support for asset prices in an emergency: a global lender of last resort.

That lender of last resort needs two things if it is to function. First, it needs to be able to "print money"--to have its own liabilities be and be perceived to be the safest assets in the world so that when it borrows it calms markets by giving them more of the high-quality short-duration low-risk paper for which they suddenly have such a great craving. Second, it needs to know what it is buying--to have sufficient regulatory oversight and control over global finance to be able to limit the growth of potentially toxic assets beforehand and then to understand what prices it should offer when it does decide that it is time to support the market.

As my old teacher Charlie Kindleberger taught me (or, rather, taught Barry Eichengreen, who in turn taught me), when the global financial system has had a hegemonic lender-of-last-resort with the power and the will to exercise this function, things have gone relatively well. And when the possible candidates for the role have lacked either the power or the will, things have gone relatively badly.

Back in the 1997-1998 crisis the U.S. Federal Reserve and Treasury acting alongside the IMF had the power and the will. Right now the U.S. Federal Reserve and the Treasury in cooperation with the IMF and the ECB have the power (but they may not have the will). In the future the world is likely to become a more complicated place without a single hegemonic and dominant public financial institution. To my mind, this creates grave dangers for the next quarter century. But Dani does not see them.

Meanwhile, Over at the Economist...

Patrick Lane writes:

Economist Debates: Keynesian principles: One of our floor speakers, UnarmingMermaid, is quite right. Taking the motion at face value, there is no debate at all. Brad DeLong and Luigi Zingales agree: as a matter of plain fact, we are not all Keynesians now. The dispute is about whether we—or rather, economists and policymakers—should be. For Mr DeLong, the answer is an unequivocal yes. The seizing up of the banking system means that finance is no longer flowing to businesses. That means that increasing numbers of people are being left idle and without a wage. Unnecessarily so: the government, unlike businesses, can borrow cheaply, and should use its borrowing and spending capacity to put people back to work. Mr Zingales points out that economists usually require evidence of market failure before recommending that governments step in. He sees no compelling reason, in theory or practice, for a government spending splurge. That does not mean that the government should do nothing. But it should concentrate instead on fixing a failure in the housing market and on dealing with the banks...

I cannot help but think that Luigi Zingales is at least six months out of date...

There are three important things going on:

  1. A mortgage finance crisis, costing the world about $2 trillion in mortgages that will not be repaid (which is, however, offset by the fact that those who are about to default on their mortgages have received about $1 trillion in privately provided housing subsidies that they never paid for). This crisis was caused to some degree by overly lax regulation, to a greater degree by failures of financial corporate governance, and to the greatest degree by irrational exuberance. We should clean up after this crisis and think hard about how to regulate markets so things like it don't occur in the future.

  2. A shadow banking system crisis turned into a full banking system crisis, costing the world about $30 trillion in lost wealth (most of which, however, will reappear when risk tolerances return to normal levels or will accrue in long-run return bonanzas to patient capital that buys assets and current fire-sale prices and holds them to maturity). This crisis was triggered by the mortgage finance crisis and by excessive leverage and inadquate risk controls (but not, as I see it, by gross additional failures of corporate governance). We need to deal with this crisis by fixing the banking system--but we should not expect to see much additional private sector lending for business expansion to come out of the financial sector for the next two years even if we do successfully fix this crisis today.

  3. An aggregate demand crisis as businesses that ought to be expanding find that they cannot obtain financing on terms that make expansion profitable, and hence cut back on their spending and hiring--and the workers they do not hire cut back on their spending in turn. This crisis has already hit a net of 7 million workers in the United States, 8 million in western Europe, and perhaps 30 million additional worldwide. We need to deal with this crisis as well by ramping up government spending to cushion the enormous rising tide of joblessness.

The important thing to note about these three crises is that they are three different things. They require different cures--and curing one does not do much to help or hurt efforts to cure either of the others.

Luigi Zingales appears to live in a world in which (1) and (2) have happened but (3) has not. That is the world we lived in last July. That is not the world we live in now. Hence what he hazs to say is of very limited relevance to our present predicament.

Why Time Series Econometrics Has Always Confused Me...

Menzie Chinn says:

Here is a very long run (1867-2008) extension of... this post.


Figure 1: Log real U.S. GDP, 1867-2000, in billions 2000$. Source: GDP from Johnston and Williamson, and author's calculations.

The Elliott-Rothenberg-Stock (1996) DF-GLS tests statistic (assuming constant and linear trend, lag length equal 1, selected using Schwartz Bayesian information criterion), is -3.3258. The 5%(1%) critical values are -2.988 and -3.5296. Hence, we reject the unit root null at the 5% msl.

I never know what to do with statements like this...

Elliott-Rothenberg-Stock begin:

Path Finder

Suppose v(t) is actually:

v(t) = ε(t) - (1-θ)ε(t-1)

so that u(t) is actually:

(1-L)u(t) = (1-(1-θ)L)ε(t)
(1-L)(1-(1-θ)L)-1u(t) = ε(t)
(1-L)(1+(1-θ)L+(1-θ)2L2+(1-θ)3L3+...)u(t) = ε(t)
(1-θL-θ(1-θ)L2-θ(1-θ)2L3+...)u(t) = ε(t)

Then for θ arbitrarily close to zero, u(t) is arbitrarily close to ε(t) in the observed finite sample, and yet u(t) definitely has a unit root.

So how can one run a test to reject a unit root null with any power at all?

The answer, of course, is in the statement of the hypothesis: that v(t) has a pth-order AR representation and hence that u(t) has a p+1st-order AR representation. That automatically rules out the MA(1) process for v(t) that I chose above. But I am never presented with any reason why we should begin our analysis by ruling out such processes. I mean, yes, if we model log real GDP as the sum of a trending deterministic component and a low-order AR process, then we can be confident that the largest root of the AR process is not on but instead well inside the unit circle. But why is that a question that we would like answered?

(The natural answer--that it was the hardest question that Elliott, Rothenberg, and Stock could solve; and that I certainly was not in my prime and am not now smart enough to debug the comment lines in their quadratic hill-climbing routines--has force.)

Washington Post Crashed-and-Burned Watch ("Bipartisanship Fetish" Department)

From Matthew Yglesias:

Matthew Yglesias: Leave George W. Bush Aloooooone: The country is in a terrible situation in economic, strategic, and budgetary terms and it’s overwhelmingly the fault of the team that was running the show before January 20th. Naturally, the team that’s been running the show since January 20th wants people to understand the baseline conditions against which they should be judged. The Washington Post is mightily displeased. Apparently we’re just supposed to pretend that this all happened by coincidence...

And Steve Benen:

The Washington Monthly: THE BLAME GAME.... The Washington Post has an odd front-page piece today, rebuking President Obama for reminding audiences that the problems he inherited are, well, problems he inherited.... The problem, if I'm reading the article right, isn't that the president is saying anything untrue. Rather, we're dealing with a dynamic in which one president hands off a catastrophe -- several catastrophes, actually -- to a successor, and the successor isn't supposed to talk about it.

Indeed, the Post's Scott Wilson seems to think the president has exceeded political norms by pointing to the almost-comical mess Bush left on Obama's desk. Wilson chides Obama for using "acid" reminders, offering "partisan" defenses, sounding "petty." To highlight his point, Wilson pointed to the president saying recently that "we've inherited a terrible mess." That doesn't sound especially "acid," "partisan," or "petty" to me, but your mileage may vary.

The criticism is misplaced here. The typical presidential speech lately starts by acknowledging a problem, followed by some talk about how the problem was created, followed by a description of what he'd like to do about it. If Obama reminds audiences that the disaster(s) he inherited aren't his fault, and that's all he did -- dwell on the past, fail to present solutions -- it would be a problem. But that's clearly not the case. Bush left Obama to clean up an economic crisis, an abysmal job market, a budget mess, a failing financial industry, a collapsing U.S. auto industry, global warming, an absurd health care system, an equally absurd energy framework, and two costly wars. Reminding Americans of where we've come from and where we're going doesn't seem unreasonable.

The point of articles like these seems to be freeing Bush of accountability and responsibility for his devastating failures. Here's hoping the White House ignores the Post's advice.

The Appeal to "Undecidability" as Last Gasp

Ross Douthat:

The Case For Small Government: I think the argument suffers from a problem that's common to both sides in the debates over the desirability of European-style social democracy - namely, the hope that what's ultimately a philosophical and moral controversy can have a tidy empirical resolution.... [T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived - he's on firm (if obviously arguable) ground. But when he segues into the possibility that the emerging science of human nature will "prove" the limits of welfare-statism, and force liberals to give ground... there's an unwarranted hope that the right facts and figures can settle a debate that ultimately depends on the philosophical assumptions that you bring to it...

Matthew Yglesias calls bullshit:

Matthew Yglesias: Crippling Poverty is Not Service to Family: Left out of here is what the right always loves to leave out of discussions of economic policy choices: interest. If you’re poor in the United States and you live in a neighborhood where poor people can afford to live, you will almost certainly be living in a neighborhood that’s much more dangerous than the neighborhoods in which poor Dutch people live. You’ll also find yourself living in a country that’s much less friendly to the interests of people who can’t afford a car than is the Netherlands. Conversely, if a European executive meets an American executive and feels a twinge of jealousy, it’s not for the American’s greater level of “entrepreneurship” it’s for the fact that the U.S. social model leaves top executives much richer than European executives.... [I]ncome level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of “voluntarism.” It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests.... I don’t think, for example, that America’s high child poverty rate reflects American preference for “service to one’s family” over “ease of life”...

As Milton Friedman put it back in 1953:

The basic objectives, shared, I am sure, by most economics, are political freedom, economic efficiency, and substantial equality of economic power. Thes objectives are not, of course, entirely consistent.... I believe--and at this stage agreement will be far less widespread--that all three objectives can best be realized by relying, as far as possible, on a market mechanism within a "competitive order" to organize the utilization of economic resources...

Friedman's argument against social democracy was that it would not do the job--that you would lose a lot of economic efficiency and some political liberty and in return get no equalization of economic power because the government would redistribute income and wealth the wrong way, and the beneficiaries would be the strong political claimants to governmental largess who would not be those with strong claims to more opportunity.

By the time you have resorted to arguing that "human existence in the shadow of a nanny state doesn't conduce to 'Aristotelian happiness'... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived..." you have lost the argument completely. And I have not even raised the point that Aristotle thought that Aristotelian happiness was possible only if you yourself owned lots of slaves:

Aristotle: There is in some cases a marked distinction between the two classes, rendering it expedient and right for the one to be slaves and the others to be masters.... The master is not called a master because he has science, but because he is of a certain character.... [T]here may be a science for the master and science for the slave. The science of the slave would be such as the man of Syracuse taught who made money by instructing slaves in their ordinary duties.... But all such branches of knowledge are servile. There is likewise a science of the master... not anything great or wonderful; for the master need only know how to order that which the slave must know how to execute. Hence those who are in a position which places them above toil have stewars who attend to their households while they occupy themselves with philosophy or with politics...

To Look Forward, Look Back: Clay Shirky on Elisabeth Eisenstein

Clay Shirky on newspapers

Newspapers and Thinking the Unthinkable « Clay Shirky: Back in 1993, the Knight-Ridder newspaper chain began investigating piracy of Dave Barry’s popular column, which was published by the Miami Herald and syndicated widely. In the course of tracking down the sources of unlicensed distribution, they found many things, including the copying of his column to on usenet; a 2000-person strong mailing list also reading pirated versions; and a teenager in the Midwest who was doing some of the copying himself, because he loved Barry’s work so much he wanted everybody to be able to read it. One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of “When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem.” I think about that conversation a lot these days.

The problem newspapers face isn’t that they didn’t see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several.... In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn’t get much discussion in the nation’s newsrooms, for the obvious reason. The unthinkable scenario unfolded something like this: The ability to share content wouldn’t shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiency, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM’s requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.

Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals..... Inside the papers, the pragmatists were the ones simply pointing out that the real world was looking increasingly like the unthinkable scenario. These people were treated as if they were barking mad.... When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based....

The curious thing about the various plans hatched in the ’90s is that they were, at base, all the same plan: “Here’s how we’re going to preserve the old forms of organization in a world of cheap perfect copies!”... “If the old model is broken, what will work in its place?” To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke. With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem.

Elizabeth Eisenstein’s magisterial treatment of Gutenberg’s invention, The Printing Press as an Agent of Change, opens with a recounting of her research into the early history of the printing press. She was able to find many descriptions of life in the early 1400s, the era before movable type. Literacy was limited, the Catholic Church was the pan-European political force, Mass was in Latin, and the average book was the Bible. She was also able to find endless descriptions of life in the late 1500s, after Gutenberg’s invention had started to spread. Literacy was on the rise, as were books written in contemporary languages, Copernicus had published his epochal work on astronomy, and Martin Luther’s use of the press to reform the Church was upending both religious and political stability. What Eisenstein focused on, though, was how many historians ignored the effects of the press circa 1500. To describe life before or after the spread of print was child’s play; those dates were safely distanced from upheaval. The hard question Eisenstein’s book asks is “How did we get from the world before the printing press to the world after it? What was the revolution itself like?” Chaotic, as it turns out. The Bible was translated into local languages; was this an educational boon or the work of the devil? Erotic novels appeared, prompting the same set of questions. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn’t know what to think. If you can’t trust Aristotle, who can you trust?

During the wrenching transition to print, experiments were only revealed in retrospect to be turning points. Aldus Manutius, the Venetian printer and publisher, invented the smaller octavo volume along with italic type. What seemed like a minor change — take a book and shrink it — was in retrospect a key innovation.... That is what real revolutions are like.... Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing.... And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril....

There are fewer and fewer people who can convincingly tell such a lie.

If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other.... The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn’t because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn’t really have any other vehicle for display ads....

The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They’d never really signed up to fund the Baghdad bureau anyway.

Print media does much of society’s heavy journalistic lifting, from flooding the zone — covering every angle of a huge story — to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren’t newspaper readers.... So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs? I don’t know. Nobody knows. We’re collectively living through 1500, when it’s easier to see what’s broken than what will replace it. The internet turns 40 this fall. Access by the general public is less than half that age. Web use, as a normal part of life for a majority of the developed world, is less than half that age. We just got here....

Journalism has always been subsidized. Sometimes it’s been Wal-Mart and the kid with the bike. Sometimes it’s been Richard Mellon Scaife. Increasingly, it’s you and me, donating our time. The list of models that are obviously working today, like Consumer Reports and NPR, like ProPublica and WikiLeaks, can’t be expanded to cover any general case, but then nothing is going to cover the general case. Society doesn’t need newspapers. What we need is journalism....

When we shift our attention from ’save newspapers’ to ’save society’, the imperative changes from ‘preserve the current institutions’ to ‘do whatever works.’ And what works today isn’t the same as what used to work. We don’t know who the Aldus Manutius of the current age is. It could be Craig Newmark, or Caterina Fake. It could be Martin Nisenholtz, or Emily Bell. It could be some 19 year old kid few of us have heard of.... For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the reporting we need.

New Republic Crashed-and-Burned Watch

Martin Peretz writes:

On Jim Cramer: What I think has happened between Cramer and part of the entertainment industry--which the fact and opinion industry is fast coming to resemble--is that Jim is actually animated by a passion. It is the passion of democratic capitalism. That concern is very different from the concerns of the $10-20 million television comedians who ride around in stretch limousines. Those folk are happy when the people are in trouble. Even Jon Stewart and the makers of his "Daily Show" are happy. Jim Fallows, an always righteous commentator (like his ex-boss Jimmy Carter), has elevated him to Edward R. Murrow who was also over-rated in his time. The folk Cramer has been trying to help all these years with "Mad Money" are basically middle class investors...

Ummm... No.

If Jim Cramer wants to help middle-class investors, he should begin every show by saying: "If your money is in the more informed half of actively-traded money, you should turn the channel right now: you won't learn anything here. If your money is in the less informed half of actively-traded money, you should turn off the set: find a Vanguard index bond fund and a stock fund, put your money in them by payroll deduction, and don't look at them for five years."

You can describe what Jim Cramer does in many terms. But none of them are that he is "trying to help... middle-class investors."

Washington Post Crashed-and-Burned Watch (Outlook Department)

Barry Ritholtz remembers Donald Luskin:

REVIEW: Quit Doling Out That Bad-Economy Line | The Big Picture: It has been exactly 6 months since the single dumbest newspaper column ever published appeared in The Washington Post. Breathtaking in its ignorance, shocking in its fallibility, astonishing in its author’s perversely misperceived world view, it stands as a monument to sheer cluelessness as an economic discipline.

It wasn’t merely off — its simply hard to find anything market or economic related in it that wasn’t 180 degrees wrong. It is a monument to why economists should never allow their politics to influence their day jobs. I was otherwise occupied when this fetid pile of foolishness was published. Six months later, it reads even more ridiculously than it did on 9/14/08. Let’s take a closer look at this, sentence by sentence, and see if we can find anything of value in it...

So far I have asked six employees of the Washington Post whether they think anyone on the editorial staff actually thought Donald Luskin's article informed the readers of the Post. Nobody has said "yes."

A newspaper that has whole departments that do not care about whether its articles inform its readers doesn't have any reason to exist.

DeLong Smackdown Watch: 3.5 Billion of Asian Descent Don't Like Ross Douthat Either

From The Crimson, April 2, 2001:

Ross Douthat: the College Years: If I really wanted to offend Harvard Asians, I might sit down and write an article in which I was, well, a tad critical of the Asian community. For instance, I might suggest that there was, let’s say, a slight trend toward ethnic self-segregation, or a slight proclivity for the sciences over the humanities among Asian-Americans. And I might, if I were so inclined (not that anyone would be), get downright nasty and suggest that a large chunk of these self-segregated, math-and-science types are self-absorbed, clannish and downright weird...

Plus more lurkers (some of them very prominent in the conservative intellectual movement) attack my approval of Ross Douthat in email.

The Seasonal Cycle: Implications for Keynesian Economics

Robert Waldmann writes:

Pro DeLong Contra Say ~ Angry Bear: [WE]e know for sure that demand shocks cause increased production.... I can make the argument with one word: Christmas.

Exposition after the jump.

Every year there is a shift in consumer demand. Demand is high during the dread Christmas shopping season. In particular demand for big ticket consumer durables is very high in each and every 4th quarter.... [T]his is a predictable demand shift analogous to the stimulus. So what happens to production? Hmmm... somehow macroeconomists have managed to forget. Macro economists generally use deseasonalized data. Seasonal patterns are not explained in most models and so they are removed by a-theoretic methods. Thus the models aren't taken seriously.... Worse, much worse, data are deseasonalized by government statistical agencies, so academic economists can avoid knowing what exactly was done....

So what the hell is going on? Flailing helplessly, I guess that there is typically excess supply of labor and goods and that prices are not marginal cost times a markup but rather average cost times a markup and that production is at a flat point of the average cost curve (this last should be true if there is monopolistic competition). Imperfect competition in product markets is absolutely not enough to explain the pattern. Imperfect competition and small costs of changing prices certainly isn't (they change prices just not in the direction that they should)....

[H]igh consumer demand during the Christmas season doesn't seem to crowd anything out. I'd say that unless and until someone either shows it does crowd soemthing out or explains why the stimulus is different people should stop arguing that government spending crowds out private spending one for one.

Re: Enthusiasm for Ross Douthat: Brad DeLong Smackdown Watch

The lurkers attack me via email and instant messaging.

It appears that my enthusiasm for Ross Douthat as the best choice for the conservative op-ed slot on the New York Times is not repeat not repeat NOT shared by those of the XX genome.

Thus an Anonymous Coward:

There are right-wingers who don't think birth control is a sin. Perhaps one of them belongs in that slot...

Thus Katha Pollitt:

Okay, will someone explain to me how this Lovable Boy Genius can advocate criminalizing abortion after ten weeks? How he can praise the anti-choicers for their readiness to compromise when as we all know not ONE anti-choice org supports birth control? and how come you don't care?...

Thus Lindsay Beyerstein:

I'm puzzled why people are so impressed with Douthat's intellectual honesty: Douthat insists that liberals are practicing eugenics by supporting abortion rights. Why? Because as long as women are allowed to choose for their own reasons, without having to justify them to Ross Douthat or the law, then some women will choose to abort because they are carrying fetuses with severe genetic anomalies. Ergo, pro-choice equals pro-eugenics. Douthat knows perfectly well that pro-choicers aren't gunning for a pseudoscientific human breeding program. His argument reeks of bad faith...

I accept the judgment of the Group of 17, and will report to the reeducation camp tomorrow for reeducation.

(Lack of) Technological Progress in Equitation...

Charles Stross reports from the Lothian and Borders police:

Charlie's Diary: Horses for courses: [O]ne factoid stuck in my head. Lothian and Borders are unusual in that they're one of the police forces that still has horses — eight of them, at present. How much does it cost to maintain eight horses? Answer: around £480,000 a year, making them roughly as expensive as (if not more expensive than) a helicopter unit. Each horse requires a full-time officer, and they need exercise, stabling, and other facilities that run to £30,000 a year per animal — more than the price of a new pursuit car. (And why does Edinburgh's police force still have horses (instead of, say, another chopper)? Because after London this is the city where the Queen is in residence most often, and they're needed for ceremonial duties)...

A one man-year per year to maintain a horse in an urban setting (i.e., without essentially-free pasture, and without the horse's output being a valuable nitrogenous and carboniferous agricultural input, if you know what I mean). That's expensive. And it probably scales back to the dawn of cities...

Felix Salmon Joining Reuters Opinion Start-Up

Jeff Bercovici:

Jeff Bercovici: Felix Salmon has opinions. Lots of them. More than any one person should be allowed to have, probably. On finance, sure, but also on food, architecture, climate change, men's grooming, and, of course, media, to name just a few topics. So if you're a global financial news service and you're looking to seriously beef up your opinion offerings, Felix is a pretty good place to start. Thomson Reuters recognized this and hired him away to work on a new, yet-to-be-christened online opinion hub set to launch at some point this summer. He starts April 1.

"I am sort of their -- I guess you could call it 'headline blogger,'" he says. Beyond doing what he's done here every day for the past two years -- in more than 4,000 individual posts -- he'll also have a role as what he terms an "in-house evangelist," helping to tutor the other 25 journalists on his team in the art of blogging. "I'm going to be the person going, 'Yeah, yeah, yeah, blog, it's great,' and I'm going to be the person saying, 'Of course you can do that, and, no, you don't need me to edit it, and the faster you can put it up the better, and don't worry about being wrong'"...

Ten More Days to Eat Roquefort...

Felix Salmon:

Roquefort Math - Finance Blog - Felix Salmon - Market Movers - We're just ten short days away from R-Day -- the day at which tariffs on imported Roquefort surge to 300%, and the incomparable French sheep's-milk blue becomes, to all intents and purposes, unavailable in the USA.... Isn't repealing this tariff a no-brainer for the food-friendly Obama administration? Why hasn't it been done yet?

Republican Chair Michael Steele Is Pro-Choice!

Josh Marshall writes:

That Should Help His Chances: From Lisa DePaulo's interview with Michael Steele, asking him to explain his pro-life views ...

DePaulo: Are you saying you think women have the right to choose abortion?

Steele: Yeah. I mean, again, I think that's an individual choice.

More generally:

Timebomb, Postdated Three Weeks?: Josh Marshall: Ever since I read Michael Steele's trainwreck interview with GQ that came out yesterday, I've been wondering, he thought this was a good moment to give a let it all hang out interview? Remember, this is the one where he appeared to forget in real time what his position on abortion was, took dangerously sane positions on homosexuality and told interviewer Lisa DePaulo that he was a fan of Frank Sinatra and the 'Pack Rats'. Steele appears to say that he thinks abortion should be the choice of the woman, notwithstanding always saying before -- and even in the same interview -- that he's pro-life. So what was he thinking?

Well, I've talked to the folks at GQ. And they confirmed to me that the portion of the interview about abortion was conducted on February 24th. So a bit more than three weeks ago and just a few days before his ill-fated media critique of Rush Limbaugh on February 28th. So basically, during his last two weeks of self-inflicted destruction this latest doozy has been sitting on Lisa DePaulo's tape recorder or on some GQ editor's desk waiting to, perhaps, inflict the final blow.

Special Bonus Snark: As Eric Kleefeld wrote about Steele's discussion of rap music, Frank and the 'pack rats': "So Steele doesn't just sound like a middle-aged man trying to talk to his kids and failing to sound cool. He's also trying to talk to his parents and failing to sound cool."

Attempted DeLong Smackdown Watch: The Authority of Milton Friedman

Hoisted from Comments: Robert Waldmann admonishes me:

Grasping Reality with Both Hands: DeLong: Rebuttal to Zingales's Reply: I think a better title would be "Miltion Friedman Vs Luigi Zingales." You don't present enough evidence for Friedman's claims to make the post a rebuttal. Your case is based on an appeal to authority. Now another possibility is to write "so you think the current decline in employment is efficient, is not a consequence of market failure? How about you go down to the employment office and share your view with the unemployed?" (that is, argument by intimidation).

I mean do you really need Friedman's help to convince people that markets are not behaving in a Pareto efficient manner right now?

The answer is: "Yes, I do. I need all the help I can get..."

I'd say your interest in intellectual history (why have they forgotten Friedman) should not be mixed with your contribution to the debate (Friedman isn't worshipped outside of Chicago where his name is sacred as was the name of Jesus to the crusaders).

I am trying an intellectual judo move here. The Chicago School of economics takes Milton Friedman to be an authority--they are starting a Milton Friedman Institute, for Jeebus's sake. Therefore I am free--wherever Friedman was right--to use him an authority, and to demand to know why they have not spent the time and energy to learn what their authority figure taught.

This is, I believe, a logical and reasonable part of what Michael Walzer calls "internal critique": you give people a choice between abandoning the point of issue and abandoning their broader intellectual framework--and if they abandon their broader intellectual framework then a great deal more is up for grabs: their God has Failed, and they need a new God.

Of course, knowing the Chicago School, the new God they choose will be Huitzilopochtli...

Matthew Yglesias on the Intellectual Bankruptcy of teh Mainstream Media

He writes:

Matthew Yglesias: No, F--- You: Ladies and gentlemen, the nation’s top journalism school:

But the push for modernization has also raised the ire of some professors, particularly those closely tied to Columbia’s crown jewel, RW1. “F--- new media,” the coordinator of the RW1 program, Ari Goldman, said to his RW1 students on their first day of class, according to one student. Goldman, a former Times reporter and sixteen-year veteran RW1 professor, described new-media training as “playing with toys,” according to another student, and characterized the digital movement as “an experimentation in gadgetry.”

This is like saying that writing books is an experiment in playing with printing presses.

The Case Against Obama...

Robert Waldmann watches Clive Crook make the case against Obama, and ends a more solid Obama supporter than before:

Robert's Stochastic thoughts: Clive Crook Says Obama is... French: He alleges that American liberals, like me, should be pleased.

Where has France gone too far, in the view of an American liberal?... Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich

Henry Farrel sums it up perfectly "arguing that American individualism is likely to wilt if exposed to nasty foreign influences smacks more of a kind of capitalist-road José Bové-ism than any serious kind of intellectual analysis." But I [had already written] a long screed before reading [Henry Farrel's] post.

Crook claims I like "the higher taxes, and especially the higher taxes on the rich" in France (and Italy where I pay them) and that this has something to do with Obama. Obama is proposing higher taxes on the rich and lower taxes on everyone else. Now my enthusiasm might not be share[d] by all US liberals, but I think we all support low taxes on the lower middle class and working poor (not low in absolute value--as we like negative taxes). Crook is doing the usual trick of the depraved class warrior (on the side that's actually fighting the class war -- the allies of the rich) of asserting the question must be taxes high or low, not taxes progressive or regressive.

Now Crook (like many liberals) might argue that if you support increased spending, then you must support higher taxes on the non-rich, so the tax cuts for all but the rich are a feint a trick. None of them present calculations supporting their claims. All divide the US into the rich and everyone else--and suggest that if you increase taxes on the rich and the upper middle class (whose material wealth is rich beyond any dream avarice had a few hundred years ago) you must increase taxes on the working poor and the lower middle class. Spreadsheets at dawn. I am prepared to be convinced that the richest 10% don't have enough income that taxing them (us? I don't know or care) will cover anything Obama has in mind with (small) tax cuts for everyone else (and I'll let Crook assume that he has lots of secret spending in mind). I am also prepared to believe that some people at about the 90th percentile will go Galt.

My honest view is that taxes on the working poor and lower lower middle class choke off employment growth and that this, and nothing else, is the cause of poor employment growth here in Italy. The change in GINI (inequality) pre-tax to post tax is similar in the USA and in other industrialized democracies. They have higher taxes, but do not have especially higher taxes on the rich (or does Crook have other numbers ?). Yes higher taxes not especially on the rich imply more social welfare spending and much more equalization due to taxes and transfers, but the claims that Obama wants higher taxes and only especially on the rich and that France has higher taxes especially on the rich are absolutely without any basis in reality and demonstrate ignorance or dishonesty.

So my mind goes back to an actually good essay "The coming end of American Triumphalism" by Brad DeLong Despite the title it was triumphalistic. DeLong claimed that the US had discovered 3 wonderful things. One was the internet (called standards and identified with the antitrust case against ATT), I forget another [editor--that there is more room for expansionary monetary policy to lower unemployment without raising inflation than anyone had believed], and the third was the Earned Income Tax Credit.

Does Clive Crook know what that is? Does he think it is a coincidence that the US has the EITC and a high employment to population ratio? Does he think the increase in the EITC the last time the US went European and imposed "higher taxes especially only on the rich" was followed by a downward shift of the Phillips curve and extraordinarily rapid growth of employment because of another strange coincidence. Does France have a policy like the EITC? Finally, can Crook reconcile his critique of Obama with the making work pay tax cut which, you know, is law?

I'd say that Crook decided that someone had to criticize Obama, since the Republicans certainly aren't up to it. He had no ammunition, so he appeals to arguments which can't be refuted by evidence (claims about culture), the assertion that someone who has cut taxes for 95% of families (and proposes to make them permanent) will increase those taxes for oh about all 95%, pretends that taxes for the rich and non rich must move up and down together, identifies the 90th percentile with the 20th under the name "middle class",and appeals to nationalism and xenophobia.

Clive Crook is very smart. If this is the best case he can make against Obama, my opinion of Obama has improved, and I didn't think that was possible.

I'm Picking Up Economics 202b Next Week...

... and I still have not decided what to do. The subject I have been given is "macroeconomic policy"--but repeating any macroeconomic policy syllabus from any year in the past seems like a really stupid thing to do right now.[1]

So let me send out a list of first week's readings--ancient history and culture--to tide the students over...

Week 1: March 17 & 19: In the Shadow of Milton Friedman

Problem Set Out: Romer 5.1, 5.3, 5.4, 5.9, 5.14, 5.15, due 30 Mar

Obama Is a Centrist!!

Dylan Matthews is incredibly happy because Ruth Marcus writes a Washington Post column that is "absurd on its face":

Moving the 50 Yard Line: Ruth Marcus... central thesis - that Obama is somehow governing with a "moderate tilt" and not as an "unreconstructed liberal" - is pretty absurd on its face. We're barely two months into the new administration, and already a withdrawal from Iraq has been announced, an $800 billion stimulus package has been passed, S-CHIP has been expanded, stem cell restrictions have been lifted, and Guantanamo has been shut down. Say what you will about that, but it's a pretty solidly liberal policy agenda.

But by God, I hope writers like Marcus use their soapboxes to present it as centrist. They win, obviously; they, as paragons of the centrist DC establishment, are able to link themselves with a very popular president. Obama benefits as well, being able to credibly claim that he's forging a middle ground. But in the end, this sort of framing is good for progressivism. If a president whose first budget includes universal health care, a cap & trade system, and a massive increase in federal education spending qualifies as "moderate", then it's safe to say that the national political center is shifting strongly to the left, which can only be a good thing. Who knows, if this line of argument keeps up we might actually be able to have a robust debate as liberal about what kind of social democracy we want America to be, rather than defending the notion of social democracy itself.

Now There Are Two New York Times Columnists Worth Reading Regularly...

The Juicebox Mafia continues its drive to world domination!!

Ross Douthat has gotten the conservative columnist slot at the New York Times, a little bird says.

The bar is low--a ficus would be better than William Safire, John Tierney, or William Kristol was. But this is actually quite a good pick.

UPDATE: Not everybody is happy with Ross Douthat. One comment:

I could see [Ross Douthat] replacing David Brooks, but now everyone who reads the NYT will think that if you oppose socialism you probably want to pin women down and force them to breed...

Circular Firing Squad of Flying Republican Attack Monkeys!

Not Ezra Klein:

EzraKlein Archive | The American Prospect: When the GOP appears set to dump its first African-American leader mere weeks into his tenure in favor of a member of an all-white country club, it's hard for schadenfreude not to turn into genuine pity and concern. Obviously, this was in large part Steele's own doing, but it's fairly tragic that he flamed out the way he did, and that Katon Dawson, of all people, is his natural successor.

And commenter:

I think it's admirable of you to acknowledge the tragedy here. That said, it's not that hard for me to blow right past tragedy, through tragicomedy, and straight to black comedy. Steele has, apparently, complete disdain for where he came from, or he wouldn't have been in the running for the post anyway (nor would he have been chosen). Anyone with half a brain in that position knows you have to be on top of your game to shoot your stupid mouth off the way he has and prevail. He's a loser and not a nice guy. Screw him.

Ben Armbruster:

Think Progress: Katon Dawson, Former Member Of Whites-Only Club, Is Leading Charge For No-Confidence Vote In Steele (Updated): Last week, in a memo to her fellow RNC members yesterday, Dr. Ada Fisher said Steele is “‘eroding confidence’ in the GOP and that members of his transition team should encourage him to step aside.” Now, it appears Steele will face a no-confidence vote and South Carolina GOP leader Katon Dawson — Steele’s former rival for RNC chair — may be leading the charge:

Republican insiders tell Political Wire that a no confidence vote on RNC Chairman Michael Steele is likely to be called after the NY-20 special election on March 31 — regardless of whether Republicans win the seat or not. Katon Dawson, who came in second in the January RNC vote, is said to be quietly organizing a vote and is getting the support of several state party chairmen who want to dump Steele.

The RNC won praise following Steele’s victory for electing its first African-American chairman. Former Bush aide and RNC chair Ed Gillespie said his election “injected a shot of adrenaline into the party” and that Steele can open the GOP “to minorities and white moderates.” But now, in going with Dawson, the GOP appears to be heading back to what it knows and ditching its first African-American chairman for someone who, until recently, was a member of a whites-only country club...

Let Us Rally to Protect the Delicate Flower of Rugged Individualism!

Henry Farrell on the hysterical opposition to Obama.

He first quotes Roger Cohen:

Let Us Rally to Protect the Delicate Flower of Rugged Individualism!: Two recent versions of the same argument. First, the simplified 800 word version, from Roger Cohen.

To paraphrase Mauriac, I love France, but I don’t want there to be two of them, least of all if one is in the United States. … I think President Obama’s counter-revolution goes in the right direction. … Still, the $3.6 trillion Obama budget made me a little queasy. There is a touch of France in its “étatisme” — the state as all-embracing solution rather than problem — and there’s more than a touch of France in the bash-the-rich righteousness.... Americans, at least in their imaginations, have always lived at the new frontier; French frontiers have not shifted much in centuries. Churn is the American way. … If America loses sight of these truths, it will cease to be itself...

And then Clive Crook:

I was hoping that Brooks would press Shields to say what exactly it is about France he objects to, what makes him recoil at the parallel. Where has France gone too far, in the view of an American liberal?... Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich.... Perhaps some liberals privately long to make the United States over in the image of France, but the great majority, I imagine, are more interested in taking the things they regard as best in the European economic model—all the things I just listed—and combining those “socially enlightened” policies with the traditional economic virtues of the United States.... Color me skeptical. Culture shapes institutions and vice versa.... This unusually severe economic crisis has called American capitalism into question, highlighting its weaknesses and making it easier to forget its strengths.... Change the system and, with time, you will change the culture. How much you will change it is debatable, and so is whether change of that kind would be good, bad, or indifferent for the country’s economic and political prospects. But it would be an error to assume that the policy transformation that some liberals long for—and which Obama, if his budget is any guide, appears to be aiming for—would leave America’s unusual cultural traits unaffected....

[T]he American exception is alive and well, and that it is more than likely the secret of this country’s awesome success.... It would be a shame to see America revert to the Western European norm.... [H]is plan to enlarge government is married to an uncompromising assault on economic inequality. And if all of this is not enough to remind you of Europe, Obama has also expressed strong support for the Employee Free Choice Act, arguing that bigger and stronger unions are a vital part of sharing prosperity more widely.... The policies that Obama is proposing have all been tried elsewhere. Ideas that look bold and new in this country are old hat across the Atlantic. And we know something about how well they work.

And Henry Farrell puts his finger on it:

There is something very, very strange in my eyes about this kind of argument. On the one hand. a notion of a healthy American culture of can-do entrepreneurialism, which has survived for centuries and caused America to prosper. On the other, the claim that the combination of broader-if-not-quite-universal healthcare, a slightly easier time for unions, and a return to the relatively mild form of progressive taxation we saw in the 1990s would very probably lead to the destruction of said robust culture. Something here Does Not Compute....

The Obama proposals are not particularly radical departures from existing practice in the US. They are certainly nothing like traditional European social democracy. Even David Brooks effectively acknowledges this, when he says that they are potentially problematic in combination rather than individually. They aren’t going to set the US on a different national trajectory, let alone make it ‘French’ or ‘European.’ Some of us might like to see this happen, but it isn’t going to, even given the ideological trauma that the US is undergoing. And arguing that American individualism is likely to wilt if exposed to nasty foreign influences smacks more of a kind of capitalist-road José Bové-ism than any serious kind of intellectual analysis.

Dani Rodrik on the Sorry State of (Macro)economics

Dani is puzzled:

Dani Rodrik's weblog: The sorry state of (macro)economics: The failures of contemporary macro theory remind me of the time we were interviewing a highly touted graduate student on the academic job market (I believe he was from the University of Minnesota, but I am not totally sure).  We asked him how he would teach macro to public policy students at the Kennedy School.  He thought for a while, and said: "I guess I would do it all using the overlapping-generations model, and since this is an introductory course, I wouldn't bring money in at all."  Enough said.

The good news is that the problem, in my view, is confined largely to macroeconomics.  The rest of economics is in good shape, even if, as I argue here, economists haven't done a good a job of putting to use what they know (or should know, from their own models). The bad news is the world could really use some practical, relevant macroeconomic theory at the moment.  Brad DeLong and Paul Krugman are doing a superb job of reminding us of the continued relevance of Keynesian thinking.  But they are hampered by the absence of micro-founded models that plausibly deliver the Keynesian remedies they advocate.  The economics profession doesn't take an argument seriously until the argument can be laid out with a well-specified model that respects accepted standards of modeling--an attitude that Krugman himself has vociferously defended in another context.  Maybe the problem is with those standards of modeling, but other fields within economics have been much more willing to adapt themselves to behavioral thinking, or the fact of missing markets, or the role of market failures.   

So what is wrong with macroeconomists?

I must say that the rot is confined to domestic macroeconomists--the international macro side of the profession still seems to me to be relatively healthy...

Ed Glaeser vs. The Lorax


Ezra Klein thinks this is going to end badly: very badly:

You know, I'm all for dispelling the notions that suburbia is eco-friendly and that urbanization is necessarily environmentally deleterious. That said, I somehow doubt that taking on beloved children's book characters is the best way of going about it. Can't we find pro-Seuss ways of arguing for urbanism? Isn't there some way to refashion Whoville as an ideal New Urbanist community, given how reliant on pedestrians and light on carbon it is? Come on, Glaeser, work with us here. Transitioning from a suburb-enabling infrastructure system was always going to be politically difficult, and alienating the Lorax fans isn't going to help.

Posted via web from at Brad DeLong's Scrapbook

Radical Skepticism

Sean Carroll presents the ultimate "who are you going to believe--me or your lying eyes? argument:

Boltzmann’s Universe | Cosmic Variance | Discover Magazine: Take for granted that we are exactly who we are — in other words, that the macrostate of the universe is exactly what it appears to be, with all the stars and galaxies etc. By the “macrostate of the universe,” we mean everything we can observe about it, but not the precise position and momentum of every atom and photon. Now, you might be tempted to think that you reliably know something about the past history of our local universe — your first kiss, the French Revolution, the formation of the cosmic microwave background, etc. But you don’t really know those things — you reconstruct them from your records and memories right here and now, using some basic rules of thumb and your belief in certain laws of physics.

The point is that, within this hypothetical thermal equilibrium universe from which we are purportedly a fluctuation, there are many fluctuations that reach exactly this macrostate — one with a hundred billion galaxies, a Solar System just like ours, and a person just like you with exactly the memories you have. And in the hugely overwhelming majority of them, all of your memories and reconstructions of the past are false. In almost every fluctuation that creates universes like the ones we see, both the past and the future have a higher entropy than the present — downward fluctuations in entropy are unlikely, and the larger the fluctuation the more unlikely it is, so the vast majority of fluctuations to any particular low-entropy configuration never go lower than that.

Therefore, this hypothesis — that our universe, complete with all of our records and memories, is a thermal fluctuation around a thermal equilibrium state — makes a very strong prediction: that our past is nothing like what we reconstruct it to be, but rather that all of our memories and records are simply statistical flukes created by an unlikely conspiracy of random motions. In this view, the photograph you see before you used to be yellow and wrinkled, and before that was just a dispersed collection of dust, before miraculously forming itself out of the chaos.

Note that this scenario makes no assumptions about our typicality — it assumes, to the contrary, that we are exactly who we (presently) perceive ourselves to be, no more and no less. But in this scenario, we have absolutely no right to trust any of our memories or reconstructions of the past; they are all just a mirage. And the assumptions that we make to derive that conclusion are exactly the assumptions we really do make to do conventional statistical mechanics!

Boltzmann taught us long ago that it’s possible for heat to flow from cold objects to hot ones, or for cream to spontaneously segregate itself away from a surrounding cup of coffee — it’s just very unlikely. But when we say “unlikely” we have in mind some measure on the space of possibilities. And it’s exactly that assumed measure that would lead us to conclude, in this crazy fluctuation-world, that all of our notions of the past are chimeric...

The Intellectual Bankruptcy of the Modern Chicago School, Part LXXIV

I swear, Milton Friedman is spinning in his grave...

The debate over at the website of The Economist is even more horrifying than I thought it would be, as Luigi Zingales simply does not appear to have thought any of the issues through at all. I think that his views are what Steve Sheffrin calls the product of knee-jerk pre-theoretical Austrianism--but it is very hard to tell.

For example, Luigi Zingales:

With zero personal saving and a large budget deficit the Bush administration has run one of the most aggressive Keynesian policies in history. Not only has adherence to Keynes's principles not averted the current economic disaster, it has greatly contributed to causing it. The Keynesian desire to manage aggregate demand, ignoring the long-run costs, pushed Alan Greenspan and Ben Bernanke to keep interest rates extremely low in 2002, fuelling excessive consumption by the household sector and excessive risk-taking by the financial sector. Most importantly, it has been the Keynesian training of our policy-makers that has led them to ignore the role that incentives play in economic decisions. The main difference between Keynes and modern economics is the focus on incentives. Keynes studied the relation between macroeconomic aggregates, without any consideration for the underlying incentives that lead to the formation of these aggregates.... The current crisis is not a demand crisis, it is a trust crisis. Bad corporate governance coupled with bad government policies has destroyed the financial sector, scaring investors and freezing lending. It is as if a nuclear bomb had destroyed all roads in America and we claimed that to alleviate the economic impact of such an event we should invest in banks. It is possible that eventually the effect will trickle down. But if the problem is the roads, you want to rebuild roads, not subsidise the financial sector. And if the problem is the financial sector, you want to fix this and not build roads.

As you all know by now, I have four problems with this:

The first problem, of course, is Zingales's characterization of Bush administration economic policy as "Keynesian." John Maynard Keynes would certainly not The essence of Keynesian policies is not running big budget deficits--Keynesians call for big budget surpluses in boom years. The essence of Keynesian policies is using monetary policy and the government deficit as balance wheels to try to keep the flow of total nominal spending stable. And, yes, it does surprise me that Luigi Zingales does not seem to know what Keynesianism is.

The second problem, of course, is the characterization of Bernanke and Greenspan as "Keynesians" actively managing aggregate demand in 2002. They would say that they were, rather, monetarists--and Greenspan would especially protest extremely strongly that he was no Keynesian but rather a Randite. They would say that they were trying to keep a stable environment for private decision making by following Milton Friedman's monetarist instruction to keep the nominal money stock growing smoothly in order to keep nominal spending growing smoothly. And, indeed, they did pretty well at that task:

Path Finder

You can argue that Greenspan and Bernanke should have slammed on the monetary growth breaks in 2002 and 2003. But it is hard to see why. Why would one would have wished to sharply slow the rate of growth of nominal monetary aggregates back then? Inflation was not increasing, and neither equity nor housing prices in 2002 appeared to be at irrationally exuberant levels.

You have to think that Zingales simply does not know what he is talking about--does not remember what the situation in 2002 was, and did not bother to go back and look at the data.

The third problem, of course, is Zingales's claim that "Keynesian[s]... ignore the role that incentives play in economic decisions." To which one can only say, "Huh?" Keynes's analysis of liquidity preference was among the very first successful discussions of incentives to hold money, and thus of the demand for money, in economics.

And, fourth, I cannot help but be very disappointed at Luigi Zingales's claim that the "current crisis is not a demand crisis, it is a trust crisis..... It is as if a nuclear bomb had destroyed all roads in America and we claimed that to alleviate the economic impact of such an event we should invest in banks... if the problem is the roads, you want to rebuild roads, not subsidise the financial sector. And if the problem is the financial sector, you want to fix this and not build roads..." This appears to me to miss the point entirely. The banking system is broken. That is crisis 1. The breakdown of the banking system has produced a collapse in private spending that is sending unemployment into the sky. That is crisis 2. The question is: Should the government boost its spending to fill the gap and keep the unemployment rate from spiking quite so high? The answer is: Yes. But Zingales misses all this.

Thus, as best as I can tell, Luigi Zingales's argument comes in four steps:

  1. Our problem is in the banking system.
  2. Keynesian deficit spending will not fix the banking system.
  3. Keynesians say that even though Keynesian deficit spending will not fix the banking system, it will keep unemployment from rising much higher while we do other things to fix the banking system.
  4. The weakness of this Keynesian argument is--LOOK!! THERE IS HALLEY'S COMET!!!!

So it is kind of hard to figure out how to respond.

The current crisis started as a trust crisis, but has now generated a demand crisis as well--and the fact that we need to fix the first does not mean that we should do nothing to fix the second.

We Are Live at The Week with "The Risks of More Stimulus"

The risks of more stimulus - THE WEEK:

My favorite line from “Jaws” comes from police chief Martin Brody who, upon seeing the enormous great white shark, declares: “You are going to need a bigger boat.” We are now seeing the shape of this economic downturn—and it seems we are going to need a bigger stimulus. Of course, we might get lucky. Maybe the next four months will be a time of unreserved good fortune, and we will then conclude that what we have done to stabilize the North American and world economies is appropriate.

But more likely not. Even mixed news would mean that four months from now we are going to want another round of government spending boosts and tax cuts to try to keep a lid on unemployment. And if the next four months present a string of bad news—well, let’s not go there right now.

As we prepare to buy a bigger stimulus boat to grapple with this Jaws recession—whose bite just pushed the unemployment rate up to 8.1 percent in February—it’s important to know why it may be necessary. In my last column, I wrote about how a government fiscal boost—just like any private boost to spending from the business world—would spur the economy. The strange, right-wing talking point that posits that a government fiscal boost would not spur the economy because . . . because . . . well, it's not clear why—is badly mistaken at best, disingenuous at worst.

But there are legitimate reasons to fear that a fiscal boost would work—but not well. And there are legitimate reasons to fear that undertaking a fiscal boost now will have significant costs later. These fears fall into four categories.

The first is the risk of bottleneck inflation. In this scenario, the fiscal boost increases spending as intended. But businesses, responding to increased demand for their products, hire more workers to boost production. They succeed in this only by offering higher wages— so high that they have to increase their prices—and by snatching scarce commodities out of the supply chain by paying more for them —requiring still more price rises. If such inflation produces general expectations that prices will continue to rise, then we find ourselves back where we were in the 1970s, with businesses focused on changes in the overall price level rather than on executing their business plans for goods and services.

The second legitimate fear is that capital flight and exchange-depreciation-driven inflation will take root. If the stimulus package causes foreign holders of domestic bonds to believe there will be inflation, they will sell their U.S. Treasuries, pushing down the value of the dollar. As the dollar falls, the dollar prices of imported goods and services will rise—and we are off to the inflation races again.

The third risk is that government borrowing may—not will, not must, but may—push up interest rates. This makes it expensive for businesses to expand, thereby discouraging private investment and leaving us with a low productivity-growth recovery, one that is dragged down by too little private investment and too much government spending.

The fourth risk is that the long-term costs of the stimulus will be too large because those from whom we borrow the money to finance the government’s spending will only continue to lend to us at high interest rates.

All of these are legitimate fears when a government undertakes a deficit-spending plan. We had bottleneck and wage inflation in the late 1960s and the oil-shocked 1970s. In France, capital flight and exchange-depreciation-driven inflation resulted from President Francois Mitterand’s 1981 attempt to produce Keynesian full employment. I carried spears for Lloyd Bentsen and his Treasury Department subordinates Roger Altman and Lawrence Summers in 1993 when they argued that federal deficits were threatening to crowd out private investment by generating rising interest rates. And the fear that deficit spending will produce an unsustainable debt burden precedes Adam Smith’s warnings to George III about the costs of debt-financed wars.

In each of these scenarios, however, we can see the storm clouds approach in the form of rising prices. If the stimulus is going to be ineffective because it generates bottleneck inflation, we can see the price of high-demand goods and services spike. If the stimulus is going to fail because of capital-flight-driven inflation, we can see the value of the dollar collapse as foreign-exchange speculators incite capital flight (then we can observe import prices spike, putting upward pressure on prices elsewhere in the economy). If the stimulus is going to fail by crowding out private investment, we first see medium-term corporate interest rates—those most relevant to financing plant expansion—spike. And if stimulus is going to impose a crushing debt repayment burden, we see long-term Treasury bond interest rates spike.

Right now, we see none of those things. If any soon materialize, however, even non-economists will be able to spot the telltale sign. Just look for stimulus advocates—me included—backpedaling as fast as we can.

Will Wilkinson Comments on the Debate Over at the Economist

Over at, Will Wilkinson writes:

Brad DeLong and Luigi Zingales debate it at DeLong’s opening statement too effectively arrays a huge amount of intellectual firepower against him. If he could persuasively cut this team of giants down to size, it would be a killer opening. But his response to the challenge he erects seems to amount to the contention that this squad of bona fide geniuses are really benighted halfwits guilty of an elementary error. That’s pretty hard to swallow...

Exactly so.

I have learned more about asset prices from John Cochrane than anybody else. And yet--I seem to have fallen into some bizarro alternate world in which they are making an elementary mistake that Charlie Kindleberger, Peter Temin, and Barry Eichengreen taught me back in 1980 had not been taken seriously in 50 years.

You know. It is, like, like that Star Trek episode? Where there is a transporter malfunction? And they beam back to the Enterprise but the Enterprise is, like, different because the Federation is, like, evil? And Spock has a beard?

It is like that. Exactly.

It is terrifying.

Circular Firing Squad of Flying Republican Attack Monkeys: Senator Calls for Biological Warfare Against John McCain, and Arizona

Satyam Khanna reports:

Sen. Bennett Lashes Out At Sen. McCain: ‘We Ought To’ Infest Arizona With ‘Mormon Crickets’: Recently, Sen. John McCain (R-AZ) has tweeted a series of top 10 lists of “porkiest projects” in the omnibus spending bill, criticizing “beaver management” and even funding for school construction. Last month, one of his tweets was an earmark in the omnibus spending bill for “mormon crickets”

Sen. John McCain: #6. $1 million for mormon cricket control in Utah - is that the species of cricket or a game played by the brits?

The line has since been embraced by the right wing as an example of wasteful spending. Today, the earmark’s sponsor, Sen. Bob Bennett (R-UT) explained his rationale in a tense interview with Fox News’s Megyn Kelly, who accused Bennett of abusing federal funds for pet projects. “Why is it an earmark to begin with?” she pressed. Bennett fired back at Kelly: “Okay, will you calm down for a minute?” The Utah senator then took a shot at McCain:

KELLY: The only debate I’ve heard is John McCain telling you that this is the sixth porkiest earmark he sees in the bill.

BENNETT: Well, that may be because the Mormon crickets only infest Idaho, Utah, and Nevada. Maybe we ought to shoot some of them over the border into Arizona. But they go wherever they go. And again, the authorizing committee that examines these things is fully aware of it...

The sooner the Republican Party collapses, the better for America.

Jonathan Chait on New Deal-Denialism

He misses two important threads.

  1. Had John McCain won last November, very few of the New Deal denialists would be out in public--instead, the Republican legislators and their tame intellectuals would be enthusiastially rallying behind McCain's tax cut-based Keynesian fiscal stimulus package right now.

  2. Amity Shlaes was fired from the Financial Times for lying about the Bush administration's preparedness to deal with Hurricane Katrina. Surely this deserves a mention?

Jonathan Chait:

Wasting Away in Hooverville: A generation ago, the total dismissal of the New Deal remained a marginal sentiment in American politics. Ronald Reagan boasted of having voted for Franklin Roosevelt. Neoconservatives long maintained that American liberalism had gone wrong only in the 1960s. Now, decades after Democrats grew tired of accusing Republicans of emulating Herbert Hoover, Republicans have begun sounding ... well, exactly like Herbert Hoover.... When Republicans announce that the New Deal failed--as they now do, over and over again, without any reproach from their own side--they usually say that the case has been proven by the conservative columnist Amity Shlaes in her book The Forgotten Man.... Whether or not The Forgotten Man actually persuaded conservatives that the New Deal failed, in the time of their political exile, which is also a time of grave economic crisis, it has become the scripture to which they have flocked.

When they say that the New Deal "didn't work," conservatives almost always mean New Deal fiscal stimulus.... And then, in turn, they confuse New Deal fiscal stimulus with Keynesian economics.... When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers.... The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.... [T]he essential framework constructed by Keynes--that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse--is no longer in dispute. Even a right-wing Republican economist such as Gregory Mankiw, a former Bush advisor, writes that "if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes."

[E]verywhere you look, conservative pundits and elected officials have embraced the pre-Keynesian nostrums. Citing The Forgotten Man, they insist that efforts to stimulate the economy are not just insufficient but also counter-productive.... It is 1932 again in the Republican Party....

Now here is the extremely strange thing about The Forgotten Man: it does not really argue that the New Deal failed. In fact, Shlaes does not make any actual argument at all, though she does venture some bold claims, which she both fails to substantiate and contradicts elsewhere. Reviewing her book in The New York Times, David Leonhardt noted that Shlaes makes her arguments "mostly by implication." This is putting it kindly. Shlaes introduces the book by asserting her thesis, but she barely even tries to demonstrate it. Instead she chooses to fill nearly four hundred pages with stories that mostly go nowhere. The experience of reading The Forgotten Man is more like talking to an old person who lived through the Depression than it is like reading an actual history of the Depression.... Having been prepared for a revisionist argument against the New Deal, I kept wondering if I had picked up the wrong book.

Many of Shlaes's stories do have an ideological point, but the point is usually made in a novelistic way rather than a scholarly one. She tends to depict the New Dealers as vain, confused, or otherwise unsympathetic. She depicts business owners as heroic and noble. It is a kind of revival of the old de haut en bas sort of social history, except this time the tycoons from whose perspective the events are narrated appear as the underappreciated victims, the giants at the bottom of the heap....

Shlaes begins every chapter with a date (say, December 1936), an unemployment percentage (15.3) and a Dow Jones Industrial Average. The tick-tick-tick of statistics is meant to show that conditions did not improve throughout the course of Roosevelt's presidency. Yet her statistics are highly selective. As those of us who get our economic information from sources other than the CNBC ticker know, the stock market is not a broad representative of living standards. Meanwhile, as the historian Eric Rauchway has pointed out, her unemployment figures exclude those employed by the Works Progress Administration and other workrelief agencies. Shlaes has explained in an op-ed piece that she did this because "to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects." So, if you worked twelve hours per day in a coal mine hoping not to contract black lung or suffer an injury that would render you useless, you were employed. But if you constructed the Lincoln Tunnel, you had an anxiety-inducing make-work job.

In response to this criticism, Shlaes has retreated to the defense that unemployment was still high anyway. "Even if you add in all the work relief jobs, as some economists do," she has contended, "Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice--as a nightmare." But Roosevelt inherited unemployment that was over 20 percent! Sure, the level to which it fell was high by absolute standards, but it is certainly pertinent that he cut that level by more than half. By Shlaes's method of reckoning, Thomas Jefferson rates poorly on the scale of territorial acquisition, because on his watch the United States had less than half the square mileage it has today.

Shlaes's actual critique of the New Deal is not easy to pin down. Defining what she believes depends on whether you are reading the book itself or her incessant stream of spin-off journalism. In one article she adopted the classic right-wing line taken up by Andrew Mellon, Hoover's treasury secretary: "Mellon--unlike the Roosevelt administration--understood that American growth would return if you left the economy alone to right itself." This is the conclusion that most excites Shlaes's conservative admirers....

If your understanding of the New Deal is limited to the simple notion that Roosevelt spent a lot of money and tamed unemployment, then this story might sound like a persuasive piece of evidence for Shlaes. Yet there is a tip-off within the story that ought to give even the uninformed reader pause: the part where the Treasury Secretary promises to balance the budget. That doesn't sound very New Deal-ish, does it? And indeed it is not. The historical fact is that Roosevelt's administration contained warring factions with often wildly differing ideas. FDR came into office promising to slash the federal budget, but he moved in fits and starts toward a Keynesian policy of fiscal stimulus. After the elections of 1936, though, his more conservative advisors prevailed upon him to roll back the budget. Liberals, including Keynes, protested that this would jeopardize the fragile recovery. And events vindicated them: after impressive growth, the economy plunged back into a recession within a depression.

That Roosevelt see-sawed between Keynesianism and budget-balancing has been conventional wisdom among mainstream historians and economists for decades. The MIT economist E. Carey Brown wrote this in 1956. Keynes made the same point in a pleading letter to Roosevelt in 1937. Economists disagree about the extent to which Roosevelt's fiscal expansion helped. Many give more credit to his abandonment of the gold standard--which Shlaes, naturally, also decries. The fact that he retreated from Keynes in 1937 and that this retarded the recovery, though, bears little dispute....

[I]ntellectual coherence is not the purpose of Shlaes's project. The real point is to recreate the political mythology of the period. It does not matter that Shlaes heaps scorn on Roosevelt for doing things that liberals also scorn. Anything that tarnishes his legacy, she seems to think, tarnishes liberalism by association.... If the New Deal failed so miserably, one might wonder why voters continued to endorse it. In Shlaes's telling, Roosevelt's first challenger, Alf Landon, lost in 1936 because he "failed to distinguish himself" from Roosevelt. It is certainly true that Landon hailed from the party's moderate wing and shied away from the root-and-branch condemnation of the New Deal favored by, say, Hoover. But as the campaign wore on, Landon's rhetoric grew increasingly harsh. If Roosevelt returned to office, he warned, "business as we know it is to disappear." Voters who opposed the New Deal may not have had a perfect choice, but they did have a clear one. It also takes quite a bit of ideological credulity to believe, as Shlaes apparently does, that Roosevelt's twenty-point victory represented anything other than massive support for his program. Landon himself later remarked that "I don't think that it would have made any difference what kind of a campaign I made as far as stopping this avalanche is concerned."...

The final unanswered question that must nag at the minds of the true believers is how the Depression managed to develop even before Roosevelt assumed office. After all, his bungling caused the economy to stall for years, yet the Depression was already more than three years old before Roosevelt even took office. Shlaes's answer is to implicate Hoover as a New Deal man himself.... This part of Shlaes's argument has generated enormous enthusiasm on the right. At last the cultural baggage of Roosevelt's predecessor--Hoovervilles, Hoover flags, and the like--has been lifted off the shoulders of conservatism and onto the real culprit, which is liberalism. Senator Kyl proclaimed on the Senate floor last fall that "in the excellent history of the Great Depression by Amity Shlaes, The Forgotten Man, we are reminded that Herbert Hoover was an interventionist, a protectionist, and a strong critic of markets."... There is indeed a revisionist scholarship that recasts Hoover as an energetic quasi-progressive rather than a stubborn reactionary. William Leuchtenburg... settles on a more traditional conclusion. Leuchtenburg shows that Hoover's history of activism consistently left him with the belief in the primacy of voluntarism and the private sector, a faith that left him unsuited to handle a catastrophe like the Depression.... Shlaes's attempt to equate Hoover's disdain for short-sellers and Roosevelt's regulation of the market presumes that there is no important difference between expressing disapproval for something and taking public action against it....

[N]ow we have come to a time when leading Republicans and conservatives--not just cranks, but the leadership of the party and the movement--once again sound exactly like Herbert Hoover. "Prosperity cannot be restored by raids upon the public Treasury," said President Hoover in 1930. "Our plan is rooted in the philosophy that we cannot borrow and spend our way back to prosperity," said House Minority Leader Boehner in 2009. They have come to this point by preferring theology to history, by wiping Hoover's record from their memories and replacing it with something very close to its opposite. It is Hoover, truly, who is the Forgotten Man.

Reopening the Stimulus Debate

Hoisted from Comments: Robert Waldmann writes:

Grasping Reality with Both Hands: DeLong: Reply to Luigi Zingales: Brad 2 heads ups:

  1. you can't write "insolvent (at least temporarily)" you have to write "insolvent (or at least illiquid)." Don't ask me why.

  2. Be careful when you use the word "trust" around Luigi Zingales. Trust me, he has thought a lot about trust. It is different from risk tolerance. Perceived risks have increased. Willingness to bear risk has, for all I know, increased too, but not enough.

There seems to be an Italians in the USA consensus that one can argue against the stimulus by arguing that it isn't, in itself, the optimal policy response. Now to me it makes no possible conceivable sense to say "the stimulus debate is a distraction from the debate we have to have, so, after the bill has been passed and signed, I will reopen the debate to argue that it is a distraction." I mean if the [stimulus] debate is a distraction it's time to "mettere una pietra sopralo."

Time to bury it underneath big rocks? Isn't it also time to put a stake through its heart, cut off its head, and stuff its mouth with garlic?

I Cannot Believe He Did Not Entitle This Post "The Giant Rat of Sumatra"


This may be the only opportunity ever to legitimately entitle a post "The Giant Rat of Sumatra." And now it is gone.

(What's going on? you ask. Belle Waring has bought her husband John Holbo a book by Lionel Fanthorpe.)

Posted via web from at Brad DeLong's Scrapbook

Technological Synergies...

The interaction of the iPhone, Amazon Kindle for the iPhone, and dead time because I am early to a rendezvous with nothing in hand but my cell phone may prove expensive in the long run.

Just saying...

How come I have never before heard of the existence of Steven Brust, Cowboy Feng's Space Bar and Grille?

And is this going to be a tragedy, a love story, a slacker-musician story, or an unlikely-troop-of-misfit-heroes-saves-the-galaxy story?