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May 2009

Two Strikingly Different Columns from Jay Newton-Small of TIme

Column 1: The Republicans lied, and the press got it wrong:

Pelosi's Probably Right: House Speaker Nancy Pelosi has had a tough week.... But... it increasingly looks like she was right. Porter Goss was careful to parse his words in the conditional future tense when talking about what, exactly, he and Pelosi were briefed on in September 2002:

Today, I am slack-jawed to read that members claim to have not understood that the techniques on which they were briefed were to actually be employed; or that specific techniques such as "waterboarding" were never mentioned...

And Senator Richard Shelby also carefully avoided saying he'd been briefed on EITs that had already been used, saying only that he'd been told about the techniques. And “purported” isn't exactly a strong word – it's a synonym of suggested or claimed. From his statement: 

As Vice Chairman of the Senate Select Committee on Intelligence in 2002, Senator Shelby was briefed by the CIA on the Agency's interrogation program and the existence of Enhanced Interrogation Techniques (EITs). To his recollection, not only did the CIA briefers provide what was purported to be a full account of the techniques, they also described the need for these techniques and the value of the information being obtained from terrorists during questioning...

Bob Graham, who was theoretically in the room with Shelby, says he has no recollection of the meeting at all – this from a man who famously details his every waking minute. Perhaps the most astonishing response has been from the CIA Director Leon Panetta, who basically said: Don't trust our records. Which begs the question: what other issues have they kept questionable records on?

But all of this has been lost in the GOP sturm und drang, led, by – of all people – Pete Hoekstra and Newt Gingrich.... [I]t increasing looks like there's nothing wrong with her memory.

Column 2: It's Pelosi's fault that the press got it wrong:

Nancy Pelosi['s]... tough week... [is] of it her own making.... Pelosi needs a serious lesson in public relations...

And, of course, the two columns are interwoven.

Classic blaming-the-victim. Absolutely classic. It's Pelosi's fault that the press could not be bothered to fact-check Republican lies.

Firedoglake » Including every mumbled “and” & “the”

From Attaturk:

Firedoglake » Including every mumbled “and” & “the”: Well, here's something everyone could have anticipated, but as usual, other than bloggers it seems only Warren Strobel and John Landay of McClatchy reported:

Former Vice President Dick Cheney's defense Thursday of the Bush administration's policies for interrogating suspected terrorists contained omissions, exaggerations and misstatements.

Well, this column is apparently going to be as long as a Leon Uris novel, but here is a selection.... Oh, you damn dirty hippies -- being all right and not serious like Dick Cheney. Because David Broder and his ilk know serious, and only serious can be appreciated. Especially in the form of needlessly dead soldiers and civilians in a third-world country (no pictures though).

Anthropology vs. Journalism: Jared Diamond Edition

Jared Diamond appears to have done a bad thing in publishing the real names of his source for his account of vengeance and war in Papua New Guinea. His source--and others also named in Diamond's New Yorker story--are pissed off, and perhaps now in some extra physical danger.

Michael Balter in Science reports. I think Balter's article is incomplete, and that it views Diamond's critics through rose-colored glasses--if you read Balter you don't get an accurate view of how much like a loon Rhonda Shearer and company sound ("‘We Never Make Mistakes’: Jared Diamond & David Remnick echo Stalinist police defending New Yorker article...") or how unconvincing Mako Kuwimb is ("Paragraph 1: 'In 1992... his beloved paternal uncle Soll was killed in a war.... In the New Guinea Higllands... an uncle's death represents a much heavier blow.... Soll had been very good to Daniel, who recalled him as a tall and handsome man, destined to become a leader. Soll's death demanded vengeance.' The very first words, 'In 1992', is wrong. It was in 1993. Soll was not tall. Soll was not destined to become a leader...).

Michael Balter:

'Vengeance' Bites Back At Jared Diamond: Diamond stands by his story, arguing that it was based on detailed notes that he took during a 2006 interview with Wemp as well as earlier conversations the two men had in 2001 when Wemp served as his driver in PNG. "The complaint has no merit at all," Diamond told Science in an interview in his office at the University of California, Los Angeles, where he is a professor of geography. Diamond adds that he still considers Wemp's original account to be the most reliable source for what happened. David Remnick, editor of The New Yorker, also defends the magazine's story: "It appears that The New Yorker and Jared Diamond are the subject of an unfair and, frankly, mystifying barrage of accusations."... Pauline Wiessner... thinks Diamond was naïve if he accepted Wemp's stories at face value, because young men in PNG often exaggerate their tribal warfare exploits or make them up entirely. "I could have told him immediately that it was a tall tale, an embellished story. I hear lots of them but don't publish them because they are not true."

Three worlds collide in this case. First is the world of science, specifically anthropology.... Next is the craft of journalism, with its own set of ethics and practices aimed at reaching the general public. Finally, there is Papua New Guinea.... Diamond... has worked in all three domains.... Although Diamond's frequent merging of these worlds has brought him both success and some criticism, this time it may have landed him in legal trouble. When Diamond's article appeared in The New Yorker, it drew the attention of [Rhonda] Shearer, a fierce media critic....

Shearer already had contacts in PNG from an earlier investigation during which she chased down rumors that a Komodo dragon was running amok in the country. (It turned out to be a hoax.) She asked her contacts to try to find Wemp. One, biologist Michael Kigl... found Wemp in his Highlands village in July 2008 and tape recorded an interview with him. According to Shearer and the 10,000-word report, Wemp denied organizing the revenge warfare... expressed surprise at The New Yorker article... claimed that Diamond had never told him about it. (Wemp's attorneys in New York City and PNG declined to make him available for an interview for this story, saying that their clients preferred to tell their stories in court and not in the press.)... At least one other Papua New Guinean supports the account of Shearer's team. "Diamond's article is a confused story that names real places and persons but mixes up false, wrong, and defamatory allegations that bring into disrepute the good name of the named clans and their members," said Mako Kuwimb, a member of Wemp's Handa clan.... Diamond, Kuwimb says, "converted a simple, casual conversation [with Wemp] into an article that looks and sounds like an anthropological piece" but "never followed [anthropological] procedures and protocols." On 21 April of this year, Kuwimb sent The New Yorker's publisher, Lisa Hughes, a detailed, 30-page refutation of the Diamond article. Among Diamond's biggest errors, Kuwimb told Hughes, were his statements that the war he described had begun with the "pig in the garden" episode and had lasted 3 years. Kuwimb contends that the war was sparked by a gambling dispute and lasted only a few months....

[A]nthropologists have their own concerns... many think that the "Annals of Anthropology" banner was misleading.... Cultural anthropologist Alex Golub... who says The New Yorker fact checker spoke with him for about 10 minutes... "This affects our discipline's brand management," he wrote on an anthropology blog he participates in called Savage Minds. "It's important for people to know that if they meet an anthropologist, they are not going to be written up in The New Yorker without being told about it." Savage Minds has now teamed up with to produce a series of invited essays on the case.... Wiessner thinks Diamond should have refrained from naming even the tribes involved. "That was a very big mistake," she says....

Diamond and Remnick insist that such anthropological criticisms are irrelevant, because Diamond was working as a journalist for a popular magazine.... Diamond says he did not find out about the "Annals of Anthropology" line until shortly before publication and now regrets it.... Says Diamond... "In journalism, you do name names so that people can check out what you write." Remnick agrees: "Journalistic practice differs from scientific practice in a number of ways," he says, "and this seems to be one of them. Using real names is the default practice in journalism." In 2001, Diamond says, Wemp drove him and Australia-based ornithologist David Bishop around the oil fields of Highland PNG.... [H]is article was based on detailed notes he took of the stories that Wemp told him.... Diamond says Wemp told them stories about the Highlands war that had supposedly begun when a man from Mandingo's clan, the Ombal, found that a pig had ruined his garden and blamed a Handa man for the damage. The ensuing warfare eventually killed Soll, whom Diamond says Wemp identified as his uncle, and it fell to Wemp to take responsibility for organizing a war for retribution.... Diamond says... [he] did nothing with the story until another trip to PNG in May 2006.... [H]e told Wemp explicitly that the story would go into the book. But he was unable to find Wemp again in 2007 when he decided to excerpt one of the book's chapters for The New Yorker; Wemp had left his job without leaving contact information....

In 2006, "I said to Daniel, ‘Would you be willing to tell the whole story in one piece and I will take notes?’" Diamond says. He pulled out a large, red notebook and took "sentence by sentence" shorthand notes of the conversation, Diamond says, adding that Wemp spelled out the names of the warriors and other individuals who would later be named in The New Yorker piece. (Both Diamond and Shearer agree that Bishop was present during some of the May 2006 conversation; reached by telephone, Bishop declined to comment.) The Shearer account agrees that Diamond took notes in shorthand in a red notebook but differs markedly about what Wemp said. Diamond says that although Wemp clearly understood that he would be named in the book, he did not try to get permission from Mandingo and the others: "I trusted Daniel's judgment about what was appropriate to discuss." Diamond says he did double-check Wemp's story with some younger members of his tribe, who confirmed that some of the people Wemp named had been involved in a tribal war. Diamond also told Science that he heard conflicting accounts about how serious Mandingo's injuries were and that Mandingo now may have recovered from his wounds....

[Rhonda] Shearer... scored her first victory: In a 12 September 2008 letter to a London attorney, The New Yorker general counsel Lynn Oberlander agreed, "as a sign of good will," that the magazine would remove Diamond's article from the freely accessible part of its Web site.... Remnick nevertheless defends the magazine's efforts to verify Diamond's story.... "we had Jared Diamond's meticulous, detailed notes from the 2006 interview with Daniel Wemp... and we consulted with people with expertise in the Southern Highlands, who confirmed that Daniel Wemp's description of the revenge battle was consistent with known practice." Remnick also insists that in the August 2008 conversation between Wemp and the fact checker—which was tape recorded by mutual consent—Wemp raised only relatively minor factual objections to Diamond's account and asserted that the stories were basically true. In Diamond's view, the case is really about scientists coming under fire for popular writing....

[T]he tribes of PNG do practice revenge warfare, says Wiessner.... In Enga, more than 300 tribal wars have taken the lives of nearly 4000 people since 1991.... Wiessner... is worried about the outcome of the case if it results in a large monetary award: She fears that the money could eventually go to buy weapons that would make the wars even more deadly. "When these wars first started, they were fought with bows and arrows, but now they have M-16s," she says.... Wiessner faults Diamond for apparently taking Wemp's stories at face value... believes Wemp himself violated clan ethics by telling them in the first place. "For him to have given the names of tribes and implicate[d] other people than himself," as Diamond reported, "that was wrong," she says...

Andrew Samwick on Republicans and Taxes

Andrew writes:

Libertarians and Taxes: From David Boaz of the Cato Institute, who visited Dartmouth yesterday:

Too many advocates of small government still have this lingering attachment to the Republican party,” Boaz said. “It’s like being a battered wife — how long do you wait to leave?

Perhaps the more interesting part of the analogy is, Where do you go when you leave?  Typically, it is not to another partner, but to a period in which you are not in a relationship until you can recover from what just happened and make the changes that are needed so it never happens again. Are the Libertarians doing that?  I'm not so sure.  Consider more of what Boaz said: Boaz described the recent Republican tea parties in protest of tax day as “the revival of a freedom movement.” He also referenced a recent advertisement run by the Cato Institute in several major U.S. newspapers, including The New York Times. The advertisement discussed perceived flaws in the economic stimulus package. “Someday, this ad is going to be remembered as the revival of the free market movement,” Boaz said.

At moments like this, we go back to Milton Friedman's adage, "To spend is to tax."  I cannot really come up with a better word than juvenile for the tea parties -- don't protest the taxes unless you can identify the specific cuts in expenditures that you would make to bring the budget into balance.  If you think taxes are bad, then you should think deficits are worse, because they raise the taxes of people who were not represented in the decisions to spend the money. That's the real lesson from the Revolutionary War period that should be drawn.  And the danger for the Libertarians is that if they don't put the reduction in expenditures ahead of the reduction in taxes on their agenda, they are destined for another abusive relationship down the road.  This title of an Economix post [by David Leonhardt] had it right, "Where Were the Medicare Tea Parties?" 

Cheney vs. the Asteroid

Bruce Reed of "Sadly, No!" has the story:

Sadly, No! » Dick vs. the Asteroid: Peter “The Mustache of Enhanced Interrogation” Kirsanow tells us all how super cool Dick Cheney’s torture defense was yesterday:

Cheney: Adult Peter Kirsanow: A serious, important speech. Politicians and the media seem unduly impressed by favorability polls, often drawing unwarranted conclusions from them. Since Cheney has relatively high unfavorables, it’s assumed that the public dismisses his statements. It would be interesting to see the results of a more finely calibrated poll, one that compares how well-respected, competent, and effective the subject is perceived to be relative to similarly situated individuals. As a friend succinctly puts it, “When that big asteroid finally heads toward Earth, who’s the person you’d most want to be in charge?” I suspect Cheney would score at or near the top....

Here at Sadly, No! Research Laboratories, we recently detonated a hydrogen bomb near a massive pocket of electromagnetic energy, thus creating a parallel timeline.... Read on, if you dare, to see how this counterfactual history played itself out...

[A] small asteroid crashed into a rural area of Wyoming, killing 2,000 people in a small town and leaving a massive crater 60 miles wide in the ground. President Richard Cheney, who was just awakening from a nap in his underground White House lair, was informed of the crash by Chief of Staff Alberto Gonzales, who the day before had handed him a memo from NASA with the headline “Asteroid hurtling toward the United States.” “That damned space rock has just assaulted my home state!” Cheney snarled. “Nobody could have predicted this would happen!” Cheney called a press conference later in the day and urged Americans to show strength and resolve in the face of this unprecedented assault on the Heartland. “Asteroids are evil rocks,” said the president. “We do not negotiate with evil rocks; we defeat them.”...

An enraged Cheney was determined to never let another asteroid crash into the United States again and had decided to use any means necessary in order to achieve that end. Cheney reasoned that it was not enough to merely respond to asteroids after they crashed. For America to be truly secure, the government needed to attack asteroids long before they reached orbit. To this end, he decided that the United States needed to set an example to other asteroids in the galaxy by launching a preemptive strike on the large asteroid that was menacingly hovering over the Earth: namely, the moon. In order to build his case for war against the moon, Cheney worked to strong-arm NASA into proclaiming that the moon could come unhinged from its orbit to the Earth at any moment and that the military needed to destroy the sinister heavenly body in order to safeguard the homeland. When NASA officials balked at his request, Cheney hired George C. Deutsch, a disgraced former NASA press aide, to go through the agency and make lists of all scientists who displayed signs of disloyalty. Once the list had been completed, the scientists were then rendered to Cheney’s underground White House lair for interrogation. The following transcript was taken from a video of an interrogation session under the White House...

[An unknown NASA scientist is tied down to a waterboard in President Cheney's underground lair. Cheney and NASA Grand Inquisitor George C. Deutsch enter the chamber to start the interrogation.]

DEUTSCH: My liege! I have brought forth the Unbeliever to receive your judgment!

CHENEY: Fine work, my young apprentice. And what are his crimes?

DEUTSCH: My liege! He refused to sign a loyalty oath proclaiming that our solar system has been scientifically proven to have been created by an Intelligent Designer!

CHENEY: Bah! The heretic will rue the day he defied my will! Tell me, heretic, do you not regret your lack of faith?

[Cheney pours water over the scientist's head, causing him to gasp and writhe in pain.]

SCIENTIST: GLAAAAAAAAARBB!!! ACK! Please, yes! I repent! Just stop it with the water!

CHENEY: You are wise to confess, heretic! You may achieve penance for your actions by doing one simple task: signing your name to this official policy document that proclaims the moon to be a mortal danger to the security of the United States that must be eliminated!

SCIENTIST: Buh, buh, but sir? You’re talking about destroying the moon? Thu, thu, that would be extremely unwise because…

[Cheney pours more water on the scientist.]

SCIENTIST: GLARRRRRRB!!! OK, OK, I’ll sign it! I’ll sign it, I’ll sign it!

CHENEY: That’s good. Now here’s the pen. Let’s…

[A knock at the door interrupts Cheney. Deutsch opens the door and a hunched-over Alberto Gonzales shuffles in carry a basket of dead rabbits.]

GONZALES: Master, I have brought you your daily basket of fresh uncooked bunny rabbits to devour!

CHENEY: That is excellent, Alberto! Bring them to me!...

After obtaining all the necessary intelligence from NASA officials, Cheney went on the Sunday morning talk shows and began to build his case for war. In addition to the signed statements of top NASA officials attesting to the moon’s nefarious intentions, Cheney produced an alleged picture of terrorist mastermind Mohammed Atta walking on the moon just days before the asteroid struck Wyoming. Cheney called this the smoking gun that proved that the moon posed a threat too grave to ignore.

Although McClatchy later reported that the supposed picture of Atta that Cheney showed on Meet the Press was actually a photograph of Neil Armstrong, the media in general did not question the premises of the president’s claims. The British tabloids in particular ran wild with the claim that the moon could crash into Earth a mere 45 minutes after being knocked out of its orbit. On May 21, 2010, Cheney went on national television and said that he was giving the moon 48 hours to surrender before he would launch a nuclear strike to destroy it. Senate Democrats, alarmed that the president would declare war on the moon without their consultation, tried to draft a nonbinding resolution telling the president that they might be displeased if he were to launch his preemptive lunar assault. The measure was scuttled, however, when Senate Majority Leader Harry Reid said that they wouldn’t have the 95 votes necessary to overcome a filibuster.

Two days after his ultimatum to the moon was met with eerie silence, Cheney ordered to sinister rock destroyed...

Ed Andrews, Patty Barreiro, and Serial Bankruptcy: Megan McArdle: Smart Young Blogger or All-Knowing Being?

Felix Salmon says: McMegan FTW!!!!

Megan McArdle reports from the Montgomery County Courthouse:

The Road to Bankruptcy: At the end of his book's harrowing account of mortgage mistakes and credit card crises,  Edmund Andrews writes:  "While our misadventure had certainly been more extreme than those of many other Americans, our situation was not all that unusual."  And indeed the book reads like the story of an American Everyman, easily sucked in to the alluring world of easy credit as he struggled to blend a new family.  The terrifying implication is that it could happen to you--to anyone who leads with their heart and not their head. But... the story has been tidied up a little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice.  The second time was while they were married, a detail that didn't make it into either the book or the excerpt....

Andrews' desire to shield his wife is understandable--hell, laudable.  No decent person wants to parade their spouse's financial trouble in front of the world.  But this is material information that changes the tenor of his story. Serial bankruptcy... doesn't just happen to anyone, particularly anyone with a six figure salary. In September 1998, California bankruptcy court records indicate that Patty and her first husband declared bankruptcy... family income of $174,000 in 1996, $87,000 in 1997, and $126,000 in the first nine months of 1998... the couple owed about $30,000 on 8 credit cards, over $200,000 in back taxes, and almost $15,000 in private school tuition, as well as substantial car and mortgage payments. In 2007, nearly as soon as she was eligible, Patty Barreiro filed again in Montgomery Country. When called for comment yesterday, Andrews was unavailable.... The bankruptcy code requires filers to wait 8 years after a previous Chapter 7 discharge.  Barely four months after she became eligible, Patty Barreiro filed again.  And the filing shows some suggestion of strategic debt management. Ms. Barreiro filed separately from Andrews, and had to amend the filing to include Andrews' income after a complaint from a creditor.... She filed when her income was at rock bottom, consisting only of unemployment; the timing may have just excluded having to declare $5,000 in freelance editing income Andrews mentions in the book. And she shed what appear to be jointly incurred debts, such as a Comcast account....

Serial bankruptcies can, of course, happen to anyone with enough bad luck.  But they usually don't.  And when they do, they usually hit people with marginal incomes that leave no margin for error in the budget.  Most people, even in LA, are able to build a sustainable budget out of an income in the low six figures. Moreover, pesky bad luck isn't really the picture painted by either filing.  Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.

Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt.  Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story.  Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit....

[I]t's still true that she and Andrews were able to dig themselves in a lot deeper because of fantastically easy credit from a variety of fantastically stupid bankers, most of whom now seem to have gone fantastically bankrupt. But while the willing lenders amplified the problem, given Ms. Barreiro's history, it seems unlikely they were at the root of it. It's hard to see them as victims either of those bankers, or a mass mania. Andrews married a woman with a lengthy history of debt and spending problems.  Serial bankrupts were getting into trouble long before there was a credit bubble, indeed long before there were credit cards or 30-year self-amortizing mortgages...

I disagree with Megan. If a road leads to the edge of a precipice and someone falls off, it is not terribly constructive to say: "Well! They were unsteady on their feet!" Instead, you build a guardrail. We are jumped-up East African Plains Apes whose key cognitive talents are figuring out which food is ripe, determining whether it is safe to leap to the next branch, keeping track of who is sleeping with whom so we don't proposition the wrong person and get beaten up, and guarding our children from violent death--we don't have the smarts to avoid serial bankruptcy. Which is why we should nudge ourselves into social systems in which serial bankruptcy is a very difficult thing to accomplish.

The financial companies of America bet that Patty Berreiro's financial judgment was so bad that they could extract enough in sky-high interest from her on her debts before she went bankrupt to make it a winning proposition to them although not to her. People whose business model rests on subtracting value from their customers need to be regulated out of existence.

And, of course, there are the shareholders who did not guard their own interests as well because they too were jumped-up East African Plains Apes. You can hear a certain glee in Ed Andrews' observation that two of his three mortgage lenders are now bankrupt.

Laura Rowley:

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More: In a 'New York Times' story headlined “My Personal Credit Crisis”, economics reporter Edmund Andrews, 48, lays bare his finances and admits to a headlong dive into the subprime debacle. In the piece, excerpted from a forthcoming book, he describes buying a home he couldn’t afford with his second wife, Patty, falling ever deeper in debt, and cashing out his equity to finance a lifestyle that cost $3,000 a month more than they were earning. It ends with Andrews defaulting on the mortgage and, eight months later, still waiting for the bank to begin foreclosure proceedings.

Andrews’ story is riddled with classic personal-finance errors thought to be the province of the uneducated, underemployed, and ill-fated. Andrews was none of these; he earned $120,000 a year and didn’t suffer a disability or job loss. He explains his folly this way: "The money was there, and I was in love…I just thought I could beat the odds." But -- at least in hindsight -- the colossal improbability of beating the odds leaps off the written page. This is magical thinking at its finest, from a guy whose job is to write about the facts all day long. Multiplied by tens of millions of homeowners, it brought the U.S. economy to its knees.

Here are just a few lessons from his story:

  1. Price your passions. Andrews divorced his first wife after 21 years of marriage and was responsible for $4,000 a month in alimony and child-support payments. This left him with $2,777 a month in take-home pay to support his new wife and her children.... [P]eople who stayed married accumulated 93 percent more wealth than single or divorced people.... In the book 'Spend ‘Til the End', authors Lawrence Kotlikoff and Scott Burns urge readers to “price their passions”...

  2. Budget for the worst-case scenario. After the $2,500 mortgage payment, Andrews had $277 a month left for necessities, and hoped that Patty’s salary would make up the difference: “I was banking on Patty to earn enough money to keep us afloat.” Five months after moving into their home, Andrews was shocked to find just $196 left in his checking account. He writes, “How could I have glossed over the fact that we were spending about $3,000 more than we were earning, month after month?”...

  3. Avoid the two-income trap. Counting on a second salary to make ends meet in the first place was an enormous gamble. Andrews writes, “Patty had spent much of the previous two decades as a stay-at-home mother in Los Angeles. Her last full-time job as an editor at a political research company was back in the early 1980s”...

  4. Know what you can afford. A mortgage, property taxes, and insurance should total no more than 29 percent of gross income -- and those expenses, plus other long-term debts, should be no more than 36 percent of gross income...

  5. Call your bank and ask them to cut you off in the event you attempt a debit or ATM transaction and the account has insufficient funds. As Andrews’ finances spiraled out of control, he repeatedly overshot his checking account. “Every time I overdrew my checking account by even a few dollars, the bank would tap my Mastercard for $100, helpfully deposit the cash in my account, and charge me $10 for the privilege,” Andrew writes. He recounts a $5 overdraft for school supplies. Assuming he deposited money two weeks later to repay the overdraft, his annual APR on the $10 overdraft “loan” would be 5,200 percent. (Here’s the calculator.)

  6. Have a serious conversation about money with your intended before you tie the knot...

links for 2009-05-22

May 21, 1939: What Is on George Orwell's Mind?

Let's enter the Wayback Machine, Sherman:

THE ORWELL PRIZE: Today & yesterday fine, but it is still not any too warm. Roses here are in full bud & almost out. Greenfly very bad. Lupins almost out. London Pride (kind of large saxifrage) is out. The gardener here says that the number of varieties of rose is much exaggerated, as old varieties which have dropped out of fashion & been almost forgotten are revived under a new name. Saw yesterday a swift & a turtle dove, the first I have seen this year, owing to illness. Hawthorn is well out, especially the pink. Hay looks pretty good.

At the Zoo on 19.5.39. Much interest in the manatee, which I had only vaguely heard of before. An animal about the size of a large seal, with broad tail behind & two flippers of some kind in front. The head is doglike, with small eyes, the surface of the body seems like that of an elephant, but is slimy from being in the water. Movement very sluggish. The peculiar feature is the mouth, which is fringed with large hairs & acts with a kind of sucking movement to draw food in. The creature is very tame & lets itself be touched. It appears that this is the only vegetarian water-mammal. Could not be sure whether it inhabits fresh or salt water or both.

The elephant refuses radishes, which both deer & monkeys eat readily. Marmoset refuses spring onions, which most monkeys eat. Note that some S. American monkeys can almost hang by the tail alone, ie. by the tail & one hand or foot. Mouflon, the N. African kind, have bred very freely in the Zoo & look in better condition than those in Marrakech. Two families of lion cubs at present, & evidently attempts are being made to cross a lion & a tiger.

Republican National Committee Attacks Obama For Opposing Slavery

From Media Matters:

Barack Obama, September 6, 2001: A September 6, 2001 program called "Slavery and the Constitution" on WBEZ Chicago.... Obama explained that the "fundamental flaw" [in the Constitution] was [that] "Africans at the time were not considered as part of the polity that was of concern to the framers." In addition, the framers did not " as a moral problem involving persons of moral worth."

And today, the Republican National Committee:

RNC: as he prepares to deliver remarks in hall that holds the constitution, flashback obama: "constitution flawed" #RNC [Twitter, 5/21/09]

I understand that Barry Goldwater turned the Republican Party into a party that thought the most important piece of individual freedom was the right to keep Black people out of restaurants and schools, and that Richard Nixon turned the Republican Party into the party of people who just don't like Black people, but this is ridiculous.

links for 2009-05-21

This Is Getting Damned Annoying: Will I Ever Be Allowed to Disagree with Paul Krugman Again About Anything? (Niall Ferguson Edition)

There have been two annoying things about the past decade. The first is that I feel like I have been living in a Ken Macleod novel--and one of the more dystopic ones too, at least up until January 21, 2009 (I am glad he has stopped: Ken: please don't get cranky again). The second is that the best way to understand the world is through these two rules:

  1. Paul Krugman's analysis is correct.
  2. If you think that Paul Krugman's analysis is incorrect, see rule number 1.

Most recently, I thought that Paul Krugman must be being too harsh on Niall Ferguson. Ferguson could not really have forgotten so much economics as to believe that when interest rates are zero deficit spending is inherently contractionary, could he? But Paul said he did:

Liquidity preference, loanable funds, and Niall Ferguson (wonkish) - Paul Krugman Blog - Joe Nocera... fails to mention... the most depressing aspect... further confirmation that we’re living in a Dark Age of macroeconomics, in which hard-won knowledge has simply been forgotten. What’s the evidence? Niall Ferguson “explaining” that fiscal expansion will actually be contractionary, because it will drive up interest rates. At least that’s what I think he said....

[I]t might be useful to re-explain why [in] our current predicament... fiscal deficits won’t drive up interest rates unless they also expand the economy.... I imagine Niall Ferguson was thinking... of... the “loanable funds” model.... Keynes pointed out was that this picture is incomplete if... the economy is not at full employment.... [S]upply and demand for [loanable] funds... tells you what the interest rate would be conditional on the level of GDP... defines a relationship between the interest rate and GDP....

So what determines the level of GDP, and hence also ties down the interest rate?... [A]dd “liquidity preference”, the supply and demand for money. In the modern world... the central bank adjusts the money supply so as to [try to] achieve a target interest rate.... [But r]ight now the interest rate that the Fed chooses is essentially zero [and cannot go any lower], but that’s not enough to achieve full employment... the interest rate the Fed would like to have is negative... the Fed’s own economists estimate the desired Fed funds rate at -5 percent....

So what does government borrowing do? It gives some of those excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending... until the excess supply of savings has been sopped up... [and the interest rate consistent with full employment rises above zero].

Now, there are real problems with large-scale government borrowing — mainly, the effect on the government debt burden. I don’t want to minimize those problems; some countries, such as Ireland, are being forced into fiscal contraction even in the face of severe recession. But the fact remains that our current problem is, in effect, a problem of excess worldwide savings, looking for someplace to go.

And Krugman reiterated his judgment:

China and the liquidity trap - Paul Krugman Blog - By the way, I’ve had a chance to see the transcript of the PEN/ NY Review event, and I don’t think I was misrepresenting Niall Ferguson’s position...

Sure enough, now that I have taken a look at the transcript, I have to once again agree that Paul Krugman's analysis is correct. This is annoying. This is damned annoying. In fact, this is beyond annoying:

Niall Ferguson: Now we are in the therapy phase, and what therapy ar we using? Well, it is very interesting because we are using two quite contradictory courses of therapy. One is the prescription of Dr. Friedman, Milton Friedman, that is, that is being administered by the Federal Reserve: massive injections of liquidity to avert the kind of banking crisis that caused the Great Depression of the 1930s. I am fine with that. That is the right thing to do. But thre is qnother course of therapy that is simultaneously being administered, which is the therapy prescribed by Dr. Keynes, John Maynard Keynes, and that therapy involves the running of massive fiscal deficits in excess of 12 percent of gross domestic product this year and the issuance therefore of vast quantities of freshly-minted bonds.

There is a clear contradiction between these two policies, and we are trying to have it both ways. You cannot be a Keynesian and a monetarist simultaneously, at least I cannot see how you can, because if the aim of the monetarist policy is to keep interest rates down to keep liquidity high, the effect of the Keynesian policy must be to drive interest rates up.... [T]here is going to be... a very painful tug-of-war between our monetary policy and our fiscal policy...

A real monetarist--like Milton Friedman's teacher Jacob Viner, say--would argue (in fact, did argue during the Great Depression) that when the interest rate is near zero monetary expansion and deficit spending do not offset but reinforce each other, for essentially the reasons set out by Krugman. As Paul said in rebuttal to Ferguson: "There is... no contradiction between the Federal Reserve's actions and... fiscal stimulus. It is very much necessary to do both..."

Normally the banking system buys bonds from corporations which then spend the money investing in plant and equipment. Right now that process has broken down, and until the banking system gets fixed the second-best is to have the government step into the role. As Krugman writes:

By buying a lot of private securities, the Federal Reserve is... playing the role the private banking system is no longer playing properly... debt-financed spending on infrastructure by the Obama administraiton is filling the hole left by the collapse in business investment....

Conclusion? Once again:

There is not an excess demand for savings that is going to drive up interest rates...

Niall Ferguson does indeed know a lot less than economists knew in the 1920s. Back then when R.G. Hawtrey was laying out the Treasury View he claimed that fiscal policy was ineffective--and was wrong. Niall Ferguson's belief that fiscal policy is destructive shows that he has not even got that far.

UPDATE: As a "friend" points out, Ferguson spent considerable time trying to bait Krugman into losing his cool:

  • As d2 points out, the references to "Dr. Keynes" appear for some reason to work like a red flag to a bull on status-conscious Englishmen--for Keynes never got a Ph.D.--but it doesn't work on Dr. Krugman.
  • "I rather fear that, at the risk of provoking the man sitting on the other side of me, that it says 1936 on the bottle of Dr. Keynes’ medicine..."
  • "[I]if you listened carefully to what Paul Krumgan said, he actually agreed with me [laughter]..."
  • "So, I hate to teach arithmetic to a Nobel laureate, it doesn’t quite add up..."
  • Madrick: "Let’s let Paul speak..." Krugman: "Oh, Dear..." Ferguson: "Oh Dear indeed..." Krugman: "Let’s talk national income accounting offstage..."
  • *

Republicans, the Stupid Party; it's Much Worse than I Thought (Niall Ferguson Edition)

Not only Republican intellectuals not pushing back against the RNC's self-abusive claim that the Democratic Party "is dedicated to restructuring American society along socialist ideals," thy hace written down the talking point and are running with it. A friend directs me to Andrew Purcell's report:

Niall Ferguson v Paul Krugman: Krugman was lost for words. “Boy,” he shook his head, “Oh dear.” He took issue with Ferguson’s sums and with neoconservative economics as a who.... On the core subject of deficit spending, Ferguson could not find a single ally.... [I]n one last defiant gesture, revelling in his role as pantomime villain, reached for the ultimate conservative put-down: “If you wanna try the Soviet model, fine...”

Krugman and Soros groaned loudly. The audience booed. Moderator Jeff Madrick interrupted once, then twice, talking over Ferguson’s objections. “We’re doing you a good turn by not extending this ten minutes,” he suggested...

Barack Obama is a Keynesian (and not enough of one, at that), not a Marxist. John Maynard Keynes is not Karl Marx. The last time any bunch of people argued what Niall Ferguson does it was the honchos of National Review in the 1950s, who denied the possibility of any third-way alternative at all to either laissez-faire or Soviet Russia, who lauded Francisco Franco as Europe's greatest twentieth-century politician, who thought there was a serious chance that George C. Marshall was part of the conspiracy so immense that had handed China and was working to hand America over to Josef Stalin, and believed that white southerners had the right and duty to deny African-Americans the vote by "such measures as are necessary to prevail."

Is this the company that Niall Ferguson really wants to be in? Apparently so.

And what did John Maynard Keynes think of the Soviet Union? This, from his A Short View of Russia:

Leninism is a combination of two things which Europeans have kept for some centuries in different compartment of the soul--religion and business. We are shocked because the religion is new, and conemputous because the business... is highly inefficient. Like other new religions, Leninism derives its power not from the multitude but from a small minority of enthusiastic converts, whose zeal and intolerance make each one the equal in strength of a hundred indifferentists. Like other new religions it is led by those who can combine teh new spirit, perhaps sincerely, with seeing a good deal more than their followers, politicians with at leat an average dose of political cynicism who can smile as well as frown, volatile exporimentalists.... Like other new religions it actively persecutes without justice or pity.... But to say that Leninism is the faith of a persecuting and propagating minority of fanatics led by hypocrites is, after all, to say no more nor less than that it is a religion and not merely a party, and that Lenin a Mahomet not a Bismarck...

I sympathize with those who seek for something good in Soviet Russia. But when we come to the actual thing what is one to say? For me... Red Russia holds too much which is detestable.... How can I admire a policy which finds a characteristic expression in spending millions to suborn spies in every family and group at home?... How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete text-book [Marx] which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above bourgeois and the intelligentsia who, whatever their faults, are the quality in life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values...

On the eonomic side I cannot perceive that Russian communism has made any contribution to our economic problems of intellectual interest or scientific value.... [W]e have everything to lose by the methods of violent change. In Western industrial conditions the tactics of Red Revolution would throw the entire population into a pit of poverty and death...

Yet the elation, when that is felt, is very great. Here--one feels at moments--in spite of poverty, stupidity, and oppression, is the laboratory of life. Here the chemicals are being mixed in new combinations, and stink and explode. Something--there is just a chance--might come out.... Russia will never matter seriously to the rest of us unless it be as a moral force. So, now the deeds are done and there is no going back, I should like to give Russia her chance; to help and not to hinder. For how much rather, even after allowing for everything, if I were a Russian would I contribute my quota of activity to Soviet Russia than to Tsarist Russia! I could not subscribe to the new official faith any more than to the old. I should detest the actions of the new tyrants not less than those of the old. But I should feel that my eyes were turned towards and no longer away from the possibilities of things; that out of the cruelty and stupidity of Old Russia nothing could ever emerge, but beneath the cruelty and stupidity of New Russia some speck of the ideal may lie hid.

Republicans: The Really Stupid Party

Well, by the Holy Name of the One Who Was, Is, and Will Be, the Republican National Committee went and did it:

Jimmy Orr at the Christian Science Monitor: Resolved, that we the members of the Republican National Committee recognize that the Democratic Party is dedicated to restructuring American society along socialist ideals....

Since Obama is not a socialist--a Keynesian, and less of a Keynesian than many of us would wish--this is the equivalent for a political party of defecating in its own pants: something that two-year-olds do because they haven't quite got the "you can control your own anal sphincter muscle" business down, something three-year-olds do when mad because it gets your parents' attention and makes them upset, and something four-year-olds and up realize hurts them more than anyone else.

Most disturbing is the absence of Republican push back from politicians and intellectuals. If the Democratic National Committee were to pass a resolution stating "Resolved, that we the members of the Democratic National Committee recognize that the Republican Party is dedicated to restructuring American society along fascist ideals," Democratic office-holders, candidates, and intellectuals would be out there in angry mobs, denouncing the DNC as having done something stupid and false, something damaging to the party and destructive for America. And I would be out there with them, denouncing the DNC in terms that make my views on Hillary Rodham Clinton and Ira Magaziner's stewardship of health care reform in 1993-1994 look like weak toast, or milk tea.

But from the Republican side of the aisle? The office holders? The candidates? The ex-cabinet members and ex-assistant secretaries? The intellectuals? Not a peep of complaint.

I hope it's just stunned silence...

If anyone runs across any Republican with even the slightest amount of guts on this issue, please drop a pointer to them in the comments...

John Roberts, Wingnut

Jeff Toobin:

Annals of Law: No More Mr. Nice Guy: Reporting & Essays: The New Yorker: Roberts’s hard-edged performance at oral argument offers more than just a rhetorical contrast to the rendering of himself that he presented at his confirmation hearing. “Judges are like umpires,” Roberts said at the time. “Umpires don’t make the rules. They apply them. The role of an umpire and a judge is critical. They make sure everybody plays by the rules. But it is a limited role. Nobody ever went to a ballgame to see the umpire.” His jurisprudence as Chief Justice, Roberts said, would be characterized by “modesty and humility.” After four years on the Court, however, Roberts’s record is not that of a humble moderate but, rather, that of a doctrinaire conservative. The kind of humility that Roberts favors reflects a view that the Court should almost always defer to the existing power relationships in society. In every major case since he became the nation’s seventeenth Chief Justice, Roberts has sided with the prosecution over the defendant, the state over the condemned, the executive branch over the legislative, and the corporate defendant over the individual plaintiff. Even more than Scalia, who has embodied judicial conservatism during a generation of service on the Supreme Court, Roberts has served the interests, and reflected the values, of the contemporary Republican Party...

U.S. and Western European Unemployment: Now Equally Bad

The CEPR comes through:

John Schmitt, Hye Jin Rho, and Shawn Fremstad: U.S. Unemployment Now As High as Europe: From the early 1990s through the peak of the last business cycle, relatively low U.S. unemployment rates seemed to make the United States a model for the rest of the world’s economies. The Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), and other international organizations all praised the U.S. unemployment performance and urged the rest of the world’s rich countries to emulate the “flexibility” of the U.S. model...

I still suspect that the U.S. unemployment recovery will be more rapid than the European--too many linguistic and bureaucratic barriers to effective mobility to the growth poles of the continent, et cetera. But swe will see:

CEPR - U.S. Unemployment Now As High as Europe

Initial Take on Lecture Topics: Econ 115: Twentieth Century Economic History: Fall 2009: U.C. Berkeley

Economics 115: Fall 2009: TTh 12:30-2, F295 Haas

Th Aug 27: I: Overview (II: Growth; III; Fluctuations; IV: Distribution; V: Systems and Politics)

T Sep 1: VI: Slow Income Growth and the Absolute Poverty of the North Atlantic, 1800-1870

Th Sep 3: VII: No Income Growth and the Dire Absolute Poverty of the Globe, 1800-1870

T Sep 8: VIII: The Invention of Invention: Modern Economic Growth Comes to the North Atlantic, 1870-1914

Th Sep 10: IX: The Iron-Hulled Ocean-Going Steamship: One Economic World, Indivisible, 1870-1914

T Sep 15: X: Democracy, 1870-1914

Th Sep 17: XI: Empire, 1870-1914

T Sep 22: FIRST EXAM (pre-WWI/police the reading/instructor reality check)

Th Sep 24: XII: The Knot of War: 1914-1920 and After

T Sep 29: XIII: Trying to Keep Believing in Progress, 1920-1929

Th Oct 1: XIV: The Business Cycle and the Great Depression, 1825-1940

T Oct 6: XV: Nazis, Bolsheviks, Fascists, Socialists, and Social Democrats, 1870-1933

Th Oct 8: XVI: Dealing with the Imperial West, 1914-1950

T Oct 13: XVII: Total War and Cold Peace, 1933-1955

Th Oct 15: XVIII: Social Democracy in One (North Atlantic) Region, 1920-1975

T Oct 20: SECOND EXAM (1914-1950)

Th Oct 22: XIX: From Colonialism to Neocolonialism: Import Substitution, State Building, and Divergence, 1940-1980

T Oct 27: XX: Stalin, Mao, and Their Heirs 1926-1990

Th Oct 29: XXI: Japan and the Stubborn Boundaries of the "First World", 1870-1990

T Nov 3: XXII: 1980: At the Peak of the Great Divergence: One World Unequal and Very Divisible

Th Nov 5: XXIII: Social Democracy Exhausted: 1970-1995

T Nov 10: XXIV: Neocolonialism and Neoliberalism Triumphant, 1980-2000

Th Nov 12: XXV: Decommunization, 1975-2010

T Nov 17: XXVI: China (and India) Stand Up, 1975-2010

Th Nov 19: XXVII: True Wealth Is Informational and Biological, 1940-2020

T Nov 24: XXVIII: The First True Global Division of Labor, 1970-2010

Th Nov 26: NO CLASS

T Dec 1: XXIX: Things Falling Apart? 2000-2010

Th Dec 3: XXX: The Return of Malthus, 1970-2200

T Dec 8: THIRD EXAM (1950-2010)

F Dec 18: FINAL EXAM 12:30-3:30pm

William Galston Needs a Consulting Statistician Badly

On May 18, 2009, the Gallup Poll--aggregating all of its 2009 data--wrote about the collapse of Republicanism in the United States:

Jeffrey Jones: GOP Losses Span Nearly All Demographic Groups: The decline in Republican Party affiliation among Americans in recent years is well documented, but a Gallup analysis now shows that this movement away from the GOP has occurred among nearly every major demographic subgroup. Since the first year of George W. Bush's presidency in 2001, the Republican Party has maintained its support only among frequent churchgoers, with conservatives and senior citizens showing minimal decline. So far in 2009, aggregated Gallup Poll data show the divide on leaned party identification is 53% Democratic and 39% Republican -- a marked change from 2001, when the parties were evenly matched, according to an average of all of that year's Gallup Polls. That represents a loss of five points for the Republicans and a gain of eight points for the Democrats. The parties were also evenly matched on basic party identification in 2001...

On May 15, 2009, the Gallup Poll released its early May poll which appears to have been unlucky: to by pure chance have drawn an unrepresentative sample of Americans:

Charles Franklin: New Gallup has PID Tied. Yep, It's an Outlier.: The latest Gallup (5/7-10/09) poll has party identification tied at 32-32 and caused an immediate howl of "outlier!" in the comments at  In this case, the howl is justified. Compared to all recent Gallup polls (so we compare apples to apples) this latest stands out quite a bit from the rest.... This latest poll is circled for easy reference.... The difference of the two [parties] is therefore... zero compared to a trend estimate of -9.3. The Dem value is just inside the 95% confidence interval while the Rep value is outside the CI, as is the difference.

Path Finder

Despite the high probability that the poll drew an bad sample, Gallup nevertheless committed statistical malpractice by trumpeting and flogging the answers to the poll's abortion question:

The Shifting Cultural Mainstream: The abortion story is even more dramatic. The headline of a Gallup survey out May 15 read "More Americans ‘Pro-Life' than ‘Pro-Choice' for First Time." Those considering themselves pro-choice fell from 50 percent last year to 42 percent today, while the pro-life contingent increased its share from 44 to 51 percent. As recently as two years ago, twice as many Americans thought that abortion should be legal under all circumstances as believed that it should be banned altogether. Today, these groups are tied. Changes this large and sudden would be hard to believe were they not supported by two other high-quality surveys. According to Pew, Americans who believe that abortion should be legal under all or most circumstances has fallen from 54 percent last August to only 46 percent today...

And William Galston jumps the shark:

Here again, as for gun rights, the breadth of the gains for the pro-life position is striking--all income and education groups, independents more the Republicans, mainline Protestants more than evangelicals. While liberal identifiers have remained rock-solid in their pro-choice stance, pro-life support has grown by ten percentage points among conservatives during the past two years, and by 15 points among moderates. The age breakdown yields the greatest surprise: Only 47 percent of 18 to 29 year-olds think that abortion should be legal under all or most circumstances versus 48 percent who take the opposite position. Indeed, they are no more likely to support abortion rights than are their boomer parents, and less likely than Gen-Xers ages 30 to 49.  The same young people who are blazing the trail of cultural change on gay issues seem to be flashing a "go slow" signal on abortion.

It's impossible to say for sure what has sparked these shifts. But the only really big change since last year is the election of Barack Obama in tandem with expanded Democratic majorities in both the House and Senate. When the Republicans were riding high, the electorate punished them for losing their balance and going too far. It's not unreasonable to conjecture that voters are sending a similar message today: We elected you to fix the economy and restore our standing abroad--not to disrupt the status quo on social issues.

Despite the country's focus on the economic crisis, these developments on the social issues front are fraught with political significance. For one, they suggest that the recent string of legislative victories for gun rights groups reflects more than inside-the-Beltway lobbying prowess. For another, they explain President Obama's abrupt about face on the Freedom of Choice Act, which would restrict the states' ability to restrict abortions. During the campaign, he told Planned Parenthood activists that the first thing he'd do as president would be to sign the Freedom of Choice Act. In his most recent press conference, by contrast, he indicated that it was not a high priority. 

No one expects Obama's Supreme Court nominee to be pro-life. And I don't mean to suggest that the social issues are the only--or even the most important--consideration the president must weigh as he makes his selection. But if he wishes to  take the edge off what could be a shrill confirmation debate and honor his pledge to bring a divided country back together, he will think twice before nominating someone with a long record of support for positions far outside the current cultural mainstream, which is less a consensus than a hard-won balance of opposing views.

Washington Post Crashed, Burned, and Smoking Watch: Charles Krauthammer

From Ben Smith of the Politico:

Charles Krauthammer: "I didn't understand what he was up to until he just unveiled it openly, boldly, unapologetically and very clearly within two weeks of his inauguration," Krauthammer told POLITICO in an interview in his corner office off Dupont Circle. "That's what was so stunning..."

And a "friend" emails:

If Krauthammer was too lazy to read Obama's proposals or listen to any of the campaign speeches, how "sophisticated" can he really be?

Beg the Internet...

Google is beginning to fail to scale: there are now so many things on the internet and my memory for unique key words is so foggy that I can no longer find things I know exist.

So I say, "Help!"

For example:

From: Brad DeLong
Subject: Economists' Loss of Public Authority as a Result of the Stagflation of the 1970s...
To: Paul R Krugman

Somewhere you have a very nice paragraph about how economists used to have authority in general because people believed we had witchcraft that could produce full employment and price stability, and that we lost that authority in the 1970s. Do you by any chance remember where? I would like to quote it...

From: Paul R. Krugman
Subject: Economists' Loss of Public Authority as a Result of the Stagflation of the 1970s...
To: Brad DeLong

Gah. I don't remember where I said it. But I do remember that I made an analogy with high-energy physics, which got lavish funding for decades on the strength of the atom bomb; Keynesian macro was similarly treated on the basis of public belief that economists really had something to offer...

Just Before the Berkeley Graduate Core Macro Exam, 8 AM, May 19, Evans 9

Just Before the Berkeley Graduate Core Macro Exam, 8 AM, May 19, Evans 9

Economics 202b Final: May 19, 2009, 9 Evans, 8-11 AM

Part I: Answer “true”, “false”, or “uncertain”. Then explain your answer. Your explanation determines your grade.

  1. The New Keynesian Phillips Curve generates the very persistent inflation that is observed in the data while alternative Phillips curves don’t.

  2. In sticky price models, monetary shocks are more or less equivalent to countercyclical markup shocks in real business cycle models.

  3. The Taylor principle for interest policy rules suggests that the rational expectations equilibrium in the basic New Keynesian model is determinate and unique if the policymaker lowers the real interest rate in response to an inflationary shock.

  4. Procyclical productivity proves that supply shocks are the major source of business cycles.

Part II: According to Bernanke and Gertler, whenever financial intermediaries have very low levels of capital savers will not lend to them and they will be unable to finance investment projects; the moral hazard that they will invest their creditors’ money in negative NPV projects with a large upper tail is simply too great. U.S. banks today have very low levels of capital. What are the pluses and minuses of recapitalizing the banks through:

  1. Overpaying for bank assets through a government asset-purchase program.

  2. Full nationalization of the banks followed by sufficient injection of government money to allow the banks to continue operations until reprivatized.

  3. Full nationalization of the bans followed by shutting them down while a new, privately-funded banking system grows up alongside the old, failed banks.

  4. Government loans or preferred stock that are forgiven if the bank is in the end liquidated.

Part III: Recall our simplest possible epidemiological model of irrational bubbles—a unit interval [0, 1] of investors who can either own risky or safe assets. Safe assets pay a fixed and certain net rate of return r each period. Risky assets have a price p, and each period pay a serially-uncorrelated stochastic payout— δ with probability π and 0 with probability 1-π. The supply of risky asset is thus that the price of equities p is equal to the fraction p of agents who own stocks. At the start of each period t a value for the payout and a price pt for risky assets is cried out by a Walrasian auctioneer. Investors then calculate the past period’s rates of return. p(1-p) agents talk to others who are following a different portfolio strategy and wonder whether they should switch. A fraction of those agents who talk to others equal to the difference in just-past realized returns times a parameter λ in fact switch to the better-performing last-period strategy.

  1. Which of the following equations gives the dynamics of the number of risky-asset investors and the price of risky assets: 202b final.pdf (page 3 of 6)

  2. How does this model behave when the current price p is close to 1?

  3. How does this model behave when p is close to πδ/r?

  4. What are the advantages and disadvantages of a model like this as we try to think about bubbles?

Part IV: The quantity theory of money says that: MV = PY. Suppose that we take velocity V to be V(i), an increasing function of the short-term nominal interest rate on Treasury securities.

  1. What are the arguments for taking V(i) to be a function with a small derivative—a nearly vertical line when plotted on the standard graph—even when i is close to zero?

  2. What are the arguments for taking V’(i) to be very large—for V to be nearly horizontal—when i is close to zero?

  3. What are the arguments for thinking that expansionary monetary policy—increases in M—might be ineffective at raising output and employment in depression when i is close to zero? What else do you have to assume about the determination of the interest rate i and other factors in order to make those arguments?

  4. What are the arguments for thinking that expansionary monetary policy—increases in M—might be very effective at raising output and employment even when i is close to zero? What else do you have to assume to make those arguments?

Part V: George Akerlof and Robert Shiller wrote last year:

The economics of the textbooks seeks to minimise as much as possible departures from pure economic motivation and from rationality. There is a good reason for doing so - and each of us has spent a good portion of his life writing in this tradition. The economics of Adam Smith is well understood. Explanations in terms of small deviations from Smith’s ideal system are thus clear, because they are posed within a framework that is already very well understood. But that does not mean that these small deviations from Smith’s system describe how the economy actually works Our book marks a break with this tradition. In our view, economic theory should be derived not from the minimal deviations from the system of Adam Smith but rather from the deviations that actually do occur and can be observed…

And Australian economist John Quiggin explicates:

The central theme of new Keynesianism was the need to respond to the demand, from monetarist and new classical critics, for the provision of a microeconomic foundation for Keynesian macroeconomics. As Akerlof and Shiller note above, the research task was seen as one of identifying minimal deviations from the standard microeconomic assumptions which yield Keynesian macroeconomic conclusions…. Akerlof’s ‘menu costs’ arguments, showing that under imperfect competition small deviations from rationality generate significant (in welfare terms) price stickiness, are an ideal example of this kind of work. New Keynesian macroeconomics has been tested by the current global financial and macroeconomic crisis and has, broadly speaking, been found wanting. The analysis of those Keynesians who warned of impending crisis combined an ‘old Keynesian’ analysis of mounting economic imbalances with a Minskyan focus on financial instability.... [T]he policy response… has been informed mainly by old-fashioned ‘hydraulic’ Keynesianism, relying on massive economic stimulus to boost demand, combined with large-scale intervention in the financial system. The opponents of Keynesianism have retreated even further into the past, reviving the anti-Keynesian arguments of the 1930s and arguing at length over policy responses to the Great Depression. There is of course, still a need to explain why wages do not adjust rapidly to clear labour markets in the face of an external financial shock. But, in an environment where the workings of sophisticated financial markets display collective irrationality on a massive scale, there is much less reason to be concerned about the fact that such an explanation must involve deviations from rationality, and seeking to minimize those deviations…

Ever since Samuelson, Solow, Tobin, Patinkin, Friedman, and company established the “neoclassical synthesis,” the game of macroeconomic theory has focused on taking a full-employment equilibrium benchmark and then analyzing, one at a time, the consequences of each potential macroeconomically-significant market failure for the behavior of the macroeconomy. Now Akerlof and Shiller say that it is time to dynamite that intellectual game and start another. Do you agree? Or do you think that the “neoclassical synthesis” is still a progressive research program?

links for 2009-05-19

Bush Administration Officials Let Off the Hook Because They Were Only Giving Orders...

Eric Martin:

Obsidian Wings: Quote of the Day: Satan's Editors edition:

We’ve got what amounts to a reverse Nuremberg defense, where Bush administration officials are let off the hook because they were only giving orders.  I’m not sure that’s such a great idea.

The Editors wins round two of The Internet.  That is, until his plagiarism of Maureen Dowd surfaces, and the blogger ethics panel strips him of his blogofascist credentials.

Very nice line...

David Cho Is Unfair to Tim Geithner: The Senate Is the Problem

David Cho writes:

At Geithner's Treasury, Key Decisions on Hold: [H]itches that have slowed a host of important policy actions in the four months since Timothy F. Geithner became Treasury secretary... bogged down because critical decisions about how to do so aren't being made... unresolved issues are piling up in part because of vacancies... ad-hoc management, which is dominated by a small band of Geithner's counselors who coordinate rescue initiatives but lack formal authority... involvement by the White House in Treasury affairs has further muddied the picture....

Geithner said in interviews that some of the department's internal difficulties result from the intense pressure on officials to develop a raft of rescue initiatives in a very short time. "We were just putting enormous pressure on these people to put in place and execute this comprehensive set of programs," Geithner said. "In a crisis, the most important thing is to show the capacity for credible initiative that is actually going to fix the problem. That's why we are trying to do so much so early." He added, "It could get tough at times . . . but I think they are doing a great job in that context, and they are working 24 hours a day to put out A-plus policy."

Still, some lawmakers and government officials said Geithner needs to be a stronger manager. "No one knows how to get decisions made," said a senior government official familiar with the Treasury's inner workings. "Major decisions can happen very fast at the top, and then after that there are tons of detail and nuances that have to get worked out without clear chains of command. Either the seats are unfilled... or you have to answer to a half a dozen counselors running around..."

Let us be clear: until the Senate confirms an Assistant Secretary, there is no Assistant Secretary to make decisions. Decisions have to go up to the Secretary--in which case he has to ask one of his six roving counselors what they think the lay of the land is. And these six counselors cannot by the nature of their job have portfolios--you would need fifteen of them, and if there were fifteen of them the Senate would be extremely jealous because they would effectively be assistant secretaries.

The problem is not Tim. The problem is not Larry. The problem is not the NEC or the White House. The problem is the Senate.

The Return of Hyman Minsky

Paul Krugman writes:

The night they reread Minsky: Brad DeLong offers a neat little model of speculative fluctuations in asset prices, based on the idea that investors gradually switch strategies based on what seems to work for other people: if people buying stocks seem to be doing well, more people move into stocks, driving up prices and making stocks look even more attractive. It’s very close to Shiller’s notion of bubbles as natural Ponzi schemes. And Brad’s version is very much what I was saying in this piece written in 1999 — one I had a lot of fun writing.

What’s missing, as Brad himself points out, is the asymmetry of booms and crashes. What he doesn’t say is that what we really need is a model that can produce a Minsky moment — the point at which margin calls force deleveraging.

I’ll be giving the Robbins Lectures at the LSE next month. The title of this post is also the title of my third lecture. I hope I actually have a model by then

Paul is talking about my April 21, 2009 Economics 202b lecture on bubbles:

Let us begin with a very long quote from Chrles Kindleberger, who in turn begins with Hyman Minsky....

[Kindleberger] is, I think, right. And here I have a problem. For it is pretty clear to me that the conventional model of bubbles is not terribly illuminating as a model of this process. The conventional model of bubbles starts with the assumption of a constant required rate of return r. It continues with a one-period equilibrium condition for the price of an asset paying a dividend dt. If there is even one rational, utility-maximizing agent in the economy, than for that agent...

Download now or preview on posterous

Posted via email from at Brad DeLong's Scrapbook

Why John Roberts Should Not Be on the Supreme Court

A "friend" emails:

Roberts started his mischief early. This from a talk I gave on the history of HIV prevention and harm reduction:

In September 1985, President Reagan made his first prepared comments on AIDS. Responding to unfounded fears, health authorities proposed to include the following in his speech: 'As far as our best scientists have been able to determine, AIDS virus is not spread through casual or routine contact.' These words were never spoken. A young White House aide redacted them.

This story is telling, not because the young aide, now Chief Justice of the United States, got it so wrong. It’s telling because the consensus of medical and public health experts was so casually over- ruled by a young lawyer who knew nothing about AIDS. Public policy is not only about making the right call. It is also about creating organizational capacity so that judicious analysis is performed and then gains a proper hearing.

Republicans: bad for America, bad for the world.

links for 2009-05-18

Plagiarize! Let No One Else's Work Evade Your Eyes! New York Times Crashed-and-Burned Watch

You want my guess as to what happened with Maureen Dowd? Last Friday night Maureen Dowd was running out of steam on her column. So she went and grabbed a paragraph from Josh Marshall: this one:

More and more the timeline is raising the question of why, if the torture was to prevent terrorist attacks, it seemed to happen mainly during the period when we were looking for what was essentially political information to justify the invasion of Iraq...

She pasted it at the bottom of her unfinished draft. She began editing it to make it her own "writing". She replaced "we were" with "the Bush crowd," producing:

More and more the timeline is raising the question of why, if the torture was to prevent terrorist attacks, it seemed to happen mainly during the period when we were the Bush crowd was looking for what was essentially political information to justify the invasion of Iraq...

Then something called her away. Later she came back to the column. But she had forgotten that she had not yet made enough changes to make it her own "writing." So she double-spaced. She typed out a final paragraph. And she sent the column off. That was how it was printed in Sunday morning's New York Times as Maureen Dowd's work.

Thejoshuablog noticed the plagiarism. The online version of Maureen Dowd's column has been changed. Dowd's substitution of "the Bush crowd" for "we were" has been reversed. An introductory phrase, "Josh Marshall said in his blog:" has been added. Google cannot find any other time that Maureen Dowd has ever used the expression "said in his blog" in any column. As of this writing, no note or explanation is attached to the column in its location at

As of this moment, Maureen Dowd claims:

I didn't read [Josh Marshall's] blog last week, and didn't have any idea he had made that point until you informed me just now. i was talking to a friend of mine Friday about what I was writing who suggested I make this point, expressing it in a cogent -- and I assumed spontaneous -- way and I wanted to weave the idea into my column. but, clearly, my friend must have read josh marshall without mentioning that to me. we're fixing it on the web, to give josh credit, and will include a note, as well as a formal correction tomorrow...

If Maureen Dowd really means "talked" to her friend, then she has friends who have a near-perfect memory for what they have read, friends who moreover recite paragraphs without telling her where they read them, she herself has a near-perfect memory for what she hears, and she herself feels no compunction about taking paragraphs others have said to her and writing them down word-for-word as her own work. If Maureen Dowd means, instead, that he and her friend were emailing, then the story becomes somewhat less remarkable. All we have then is friends who cut-and-paste from Josh Marshall and then pass off what they have cut-and-pasted as their own work, and a Maureen Dowd who cuts-and-pastes from her friends and then passes off what she has cut-and-pasted as her own work.

Notice that Maureen Dowd is not thinking too fast.

Either way to interpret her email looks, I believe, much less creditable to Maureen Dowd than if she had simply said the equally false but irrefutable: "Yes, I read it. I thought Josh Marshall's paragraph was brilliant. I copied it so I could refer back to it later. But later on when I came back to it I looked at it, forgot where it came from, thought I had tossed it off, and thought: 'Gee! I really do have brilliant insights, don't I!' I am very sorry." That is a single mental lapse. Her story strongly suggests instead a deeply corrupt, unethical, and persistent pattern of stealing paragraphs from "friends" to pass off as your own work.

At this moment, Josh Marshall says:

I really don’t have any comment...

And thejoshuablog says:

Honestly, I’d rather not [comment]. I’m pretty sure I can’t add anything that isn’t already clear cut. Obviously, I don’t know what happened, but I am interested in hearing what Dowd’s explanation is though – considering how big a role she played in Joe Biden’s plagiarism problem in 1988...

Get Me Rewrite! (NYT Crashed-and-Burned and Smoking Watch)

Maureen Dowd Plaigarizes from Josh Marshall?

Can this be right? Dowd's column today reads:

More and more the timeline is raising the question of why, if the torture was to prevent terrorist attacks, it seemed to happen mainly during the period when the Bush crowd was looking for what was essentially political information to justify the invasion of Iraq.

Josh Marshall's post last week read:

More and more the timeline is raising the question of why, if the torture was to prevent terrorist attacks, it seemed to happen mainly during the period when we were looking for what was essentially political information to justify the invasion of Iraq.

Clark Hoyt to the white courtesy phone, please...

The Publishing System Evolves

Bruce Bartlett emails:

I was rather astonished to discover that my next book is already available for preorder.... I only just finished reviewing the copy edits a few days ago...

Needless to say, it is a book of astonishing brilliance. If you have the slightest interest, preorder today. It’s actually pretty important to have as many preorders as possible.

By now it is assumed that all authors are blanketing their contact list with appeals to preorder their books, and so authors who don't do so are presumed to be both (a) friendless and (b) uninteresting--even if they are only shy.

The next stage is to offer $5 kickbacks for preorders...

MV = Y, P = Y/Q, S = I

Paul Krugman writes:

Forgotten snark - Paul Krugman Blog - Brad DeLong catches a footnote in a decade-old paper by Olivier Blanchard:

Paul Krugman recently wondered how many macroeconomists still believe in the IS-LM model. The answer is probably that most do, but many of them probably do not know it well enough to tell.

I actually have no memory of saying that. But I was worrying about the state of macro a decade ago. Here’s a short piece I wrote back then. Even then, it was obvious that the Great Forgetting was underway; only economists of a certain age knew how to think about what remain the essential insights of macro.

It is remarkable: if you ask, every macroeconomist says they believe in the quantity theory of money: MV = PY. Yet remarkably few can come up with a theory of the determinants of V--they seem to know less than Fisher and Wicksell, for whom discoursing on the determinants of monetary velocity V was not a problem.

Krugman a decade ago:

From <>:

There's something about macro: young economists, trained to regard IS-LM and all that with contempt if they even know what it is, find themselves turning to it after a few years in Washington or New York... if Hicks hadn't invented IS-LM in 1937, we would end up inventing it all over again.... Afficionados know that much of what we now think of as Keynesian economics actually comes from John Hicks, whose 1937 article "Mr. Keynes and the classics" introduced the IS-LM model, a concise statement of an argument that may or may not have been what Keynes meant to say, but has certainly ended up defining what the world thinks he said. But how did Hicks come up with that concise statement? To answer that question we need only look at... Value and Capital....

Value and Capital may be thought of as an extended answer to the question, "How do we think coherently about the interrelationships among markets?... How does the whole system fit together?"... [I]t helps to think about the simplest case in which something more than supply and demand curves becomes necessary: a three good economy. Let us simply call the goods X, Y, and Z - and let Z be the "numeraire", the good in terms of which prices are measured.

Now equilibrium in a three-good model can be represented by drawing curves that indicate combinations of prices for which each of the three markets is in equilibrium.... [Plot] the prices of X and Y, both in terms of Z... on the axes.... Although there are three curves, Walras' Law (if all markets but one are in equilibrium, that market is in equilibrium too) tells us that they have a common intersection, which defines equilibrium prices for the economy as a whole.... This diagram is simply standard, uncontroversial [general equilibrium] microeconomics. What does it have to do with macro?...

[T]hinking coherently about macro-type issues, such as the interest rate and the price level... require[s] consideration of the supply and demand for goods, so that it could be used to discuss the price level; the supply and demand for bonds, so that it could be used to discuss the interest rate; and, of course, the supply and demand for money. What, then, could be more natural than to think of goods in general, bonds, and money as if they were the three goods.... Put the price of goods - aka the general price level - on [the horizontal] axis, and the [inverse of the] price of bonds... on the other [vertical axis]... [and] we have... Patinkin's flexible-price version of IS-LM.

If you try to read pre-Keynesian monetary theory, or for that matter talk about such matters either with modern laymen or with modern graduate students who haven't seen this... you quickly realize that this seemingly trivial formulation is actually a powerful tool for clarifying thought, precisely because it is a general-equilibrium framework.... Here are some of the things it suddenly makes clear:

  1. What determines interest rates? Before Keynes-Hicks... there has seemed to be a conflict between the idea that the interest rate adjusts to make savings and investment equal [in financial markets, "loanable funds"], and that it is determined by the choice between bonds and money[, "liquidity preference"]. Which is it? The answer, of course--but it is only "of course" once you've approached the issue the right way--is both: we're talking general equilibrium here, and the interest rate and price level are jointly determined in both markets.

  2. How can an investment boom cause inflation (and an investment slump cause deflation)? Before Keynes this was a subject of vast confusion, with all sorts of murky stuff about "lengthening periods of production", "forced saving", and so on. But once you are thinking three-good general equilibrium, it becomes a simple matter. When investment (or consumer) demand is high... [people] are... trying to shift from bonds to goods.... both the bond-market and goods-market equilibrium schedules... shift; and the result is both inflation and a rise in the interest rate.

  3. How can we distinguish between monetary and fiscal policy? Well, in a fiscal expansion the government sells bonds and buys goods.... In a monetary expansion it buys bonds and "sells" newly printed money, shifting the bonds and money (but not goods) schedules....

Of course, this is all still a theory of "money, interest, and prices" (Patinkin's title), not "employment, interest, and money" (Keynes'). To make the transition we must introduce some kind of price-stickiness, so that incipient deflation is at least partly translated into output decline.... But the basic form of the analysis still comes from the idea of a three-good general-equilibrium model in which the three goods are "goods in general", bonds, and money....

But step back from the controversies, and put yourself in the position of someone who must reach a judgement about the likely impact of a change in monetary policy, or an investment slump, or a fiscal expansion. It would be cumbersome to try, every time, to write out an intertemporal-maximization framework, with microfoundations for money and price behavior, and try to map that into the limited data available.... [T]hat is why old-fashioned macro, which is basically about that model, remains so useful a tool for practical policy analysis.

Paul Krugman Blogs from an Undisclosed Location Somewhere in China

He writes:

A brief moment of sanity: OK, I’ve got a small break in my trip. Right now I’m in … actually, given what the past week has been like, I’m not going to say, since I really really don’t want reporters calling. I hope that when China develops a bit further, it will revise its notion of how long a speech plus discussion should last. 2 1/2 hours, twice a day, plus meetings with umpteen business and government officials, kind of wears you down. And yes, as some commentators noticed, the posters did read “Great prophet in China.” Embarrassing.

A bit of macro in my next post. Then I really do have to grade term papers.

Snark of the Day

Matthew Yglesias:

Matthew Yglesias: Feckless Bloggers Evaluate Sonia Sotomayor By Reading Her Opinions: Tom Goldstein at SCOTUSBlog reminds us why we need real journalists instead of amateur bloggers:

Judge Sonia Sotomayor is an obviously serious candidate to serve on the Supreme Court. We have been struck by how the amount of commentary about Judge Sotomayor has ignored the most accessible and valuable source of information: her opinions as an appellate judge. Last year, I directed a project in which a team of Akin Gump summer associates extensively reviewed Judge Sotomayor’s opinions. Amy Howe subsequently revised and expanded their work, with contributions by me. Here, we summarize what we regard as Judge Sotomayor’s principal opinions in civil cases. Our only goal is to identify and summarize the opinions, not evaluate them.

What follows is some kind of nutjob effort to summarize her opinions in the most important civil litigation she’s been involved with. The whole exercise is absurd. Why would you waste your time on some silly blog when you could read Jeffrey Rosen peddling anonymous gossip in a professional magazine like The New Republic? After all, by not wasting time doing research on people’s work, Rosen’s able to do stuff like presciently observe that John Roberts is a “principled . . . defender[] of judicial restraint” for whom liberals ought to express gratitude.

HTML Footnotes:

Michael Froomkin sens us to:

Joho the Blog » Footnoter: I frequently write in HTML, but find footnotes (endnotes, actually) a pain. I don’t like having to interrupt my flow to jump to the end of the document to plunk in a footnote, and I hate having to decide on a number not knowing if I might decide to insert a footnote ahead of the one I just inserted. So, primarily because I enjoy writing utilities for myself, I spent far more hours writing a tool that will make it easier for me than the tool itself will save.

Footnoter lets you embed footnotes in the middle of an HTM document. [[For example, this might be a footnote]] It looks for the designated delimiters, pulls the footnote out, puts it at the end, and leaves a hyperlinked number in its stead. It defaults to the quick-and-dirty HTML that uses <sup> to superscript the number, but the Advanced section lets you instead insert CSS classes for the marker in the text, the marker that precedes the footnote, and for the footnote itself. Some warnings if you decide to try it out. First, It’s fragile. I’ve barely tested it. I’m sure there will be lots of ways it can be broken. (Nested footnotes won’t work.) Second, you would be a damned fool to paste its results over your only copy of the document you’ve been working on. Third, I am a baboonish, flatfooted writer of programs. What I write is the oppoosite of elegant: I prefer the long way of doing it and of writing it, since I can barely follow what I’m doing. Besides, the programs I write are so small and confined that efficiency doesn’t really matter.

If you care to try Footnoter out, with fear in your limbs and forgiveness in your heart, it’s here.

David Leonhard and Bruce Bartlett on Fiscal Policy

David Leonhardt:

Where Were the Medicare Tea Parties?/a>: Bruce Bartlett, the economist and former Reagan administration official, has been pounding the drum to get people to be more realistic about taxes. His case, in short, is that taxes will have to go up to cover the cost of government that Americans want. Referring to this week’s tea parties — the protests against taxes — Mr. Bartlett writes on

[P]protesters... assume that the deficit has increased solely as a result of Barack Obama’s policies. But... the Congressional Budget Office was projecting a deficit of more than $1 trillion this year back in January, before any of Obama’s policies had been enacted, and a cumulative deficit of $4.3 trillion through 2019.... [P]rojected deficits have gotten larger since January. But much of this resulted from deteriorating economic conditions.... [M]any of those that loudly denounced the Obama stimulus package for its impact on the deficit would have cheered the McCain stimulus package even though it would have increased the deficit by about the same amount.

Proof of this proposition is that there were no tea parties during the years when George W. Bush was turning the surpluses of the Clinton years into massive deficits. Indeed, if concerns about deficits are the primary motivation for this week’s tax protests, then these same people should have been holding demonstrations of support for Bill Clinton in 2000 when the federal government ran a budget surplus of 2.4% of the gross domestic product–equivalent to a surplus of $336 billion this year.... [T]he greatest addition to national indebtedness occurred in 2003 when Bush rammed through the Republican Congress a massive expansion of Medicare to provide drug benefits even though the system was already broke...

Why Is Marty Feldstein Worrying About Whether Tax Increases Kill The Recovery?

Conor Clarke worries about Martin Feldstein's fears. I would say that it is an argument from the permanent income hypothesis rather than Ricardian equivalence--RE is that tax-law changes have no effect, while the PIH says that taxes matter not because current taxes affect current income but rather because the the long expected stream of future taxes affects the long expected stream of future income:

Will Tax Increases Kill The Recovery? : Martin Feldstein's Wall Street Journal op-ed... the argument he makes ("Tax Increases Could Kill the Recovery") is one that comes up a lot and I want to say one brief -- if slightly wonkish and tedious -- thing about it. When I read Feldstein's headline I thought, "But none of the tax increases take effect until 2011!" And while Feldstein anticipates that argument, I'm not sure his response makes a lot of sense:

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly.

[But] Feldstein supported a deficit-financed fiscal stimulus... when I went back and checked Feldstein's op-ed on the subject of fiscal stimulus I found that he has this to say....

Under normal circumstances, I would oppose this rise in the budget deficit and the higher level of government spending. When an economy is closer to full employment, government borrowing to finance budget deficits can crowd out private investment that would raise productivity and the standard of living. Budget deficits automatically increase government debt, requiring higher future taxes to pay the interest on that debt. The resulting higher tax rates distort economic incentives and thus weaken future economic performance.... Nevertheless, I support the use of fiscal stimulus in the US, because the current recession is much deeper than and different from previous downturns. Even with successful countercyclical policy, this recession is likely to last longer and be more damaging than any since the depression of the 1930's...

I prefer the Marty Feldstein of three months ago. Which one does Feldstein prefer?

My reading is that Marty has two things in mind:

  • Trying to make sure that the current recovery is not derailed by the possibility that lots of press about coming tax increases causes consumers to cut back even more.
  • Setting up the pins for three years from now, when we turn back to worrying about the long-run deficit, with the aim of starting from as low a level of taxes as possible when we start raising taxes and cutting spending to cut the deficit.

Questions of Fact

The corrupt and mendacious Charles Krauthmmer writes:

Charles Krauthammer : This month, I wrote a column outlining two exceptions to the no-torture rule: the ticking time bomb scenario and its less extreme variant.... The column elicited protest and opposition that were, shall we say, spirited. And occasionally stupid. Dan Froomkin... asserted that "the ticking time bomb scenario only exists in two places: On TV and in the dark fantasies of power-crazed and morally deficient authoritarians."... On Oct. 9, 1994, Israeli Cpl. Nachshon Waxman was kidnapped by Palestinian terrorists. The Israelis captured the driver of the car. He was interrogated with methods so brutal that they violated Israel's existing 1987 interrogation guidelines, which themselves were revoked in 1999 by the Israeli Supreme Court as unconscionably harsh. The Israeli prime minister who ordered this enhanced interrogation (as we now say) explained without apology: "If we'd been so careful to follow the [1987] Landau Commission [guidelines], we would never have found out where Waxman was being held"...

I had thought that Yasir Arafat had told the Israelis where Waxman was being held. Anybody know anything?

And, of course, the most interesting thing is how narrow Krauthammer's defense of Cheney, Bush, Rice, Powell, Rumsfeld, and Tenet is. As I understand things, we imprisoned 15,000 people at black sites around the world, tortured 5,000 of them, and killed 100 under torture--and our principal aim in torturing people was "for the hell of it" while our secondary aim was "to establish a link between Al Qaeda and Saddam Hussein."

A half-competent and half-moral editor would pull Krauthammer's column and replace it with something informing his readers. But Fred Hiatt of the Washington Post is neither half-competent nor half-moral.

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

Why Do Intelligent People Write for the New Republic?

It is a mystery.

James McKinley interviewing Jose Cabranes about Sonia Sotomayor:

Sonia Sotomayor: "She's tough and tenacious as well as smart," said Justice Jose A. Cabranes of the United States Court of Appeals for the Second Circuit, a mentor and former professor of Sotomayor's at Yale Law School. "She is not intimidated or overwhelmed by the eminence or power or prestige of any party, or indeed of the media"...

What Jeffrey Rosen of the New Republic did to that quote from Jose Cabranes:

Jeffrey Rosen: The most consistent concern was that Sotomayor... was “not that smart and kind of a bully on the bench.... She has an inflated opinion of herself, and is domineering during oral arguments, but her questions aren’t penetrating and don’t get to the heart of the issue.” (During one argument, an elderly judicial colleague is said to have leaned over and said, “Will you please stop talking and let them talk?”) The Second Circuit judge Jose Cabranes, who would later become her colleague, put this point more charitably in a 1995 interview with The New York Times: “She is not intimidated or overwhelmed by the eminence or power or prestige of any party, or indeed of the media”...

Moral Courage from Edmund Andrews

Overextended and on the economic beat:

My Personal Credit Crisis: I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me.... Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.

After a one-year bicoastal courtship, Patty was about to move from her home in Los Angeles to Washington. We would need a home.... Silver Spring, Md.... $460,000....

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777.... At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation....

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”... My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. What mattered more than anything, Bob explained, was a person’s credit record.... “Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”...

Patty’s re-entry into the job market was bumpy.... We were spending way more than we were earning.... We had very different ideas about money.... We were lurching from paycheck to paycheck, one big home repair away from disaster. Meanwhile, neither of us was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.... Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card....

Patty had suddenly got the break that seemed to solve our problems. In November 2005, she was hired as a full-time editor at a nonprofit organization with a salary of $60,000 a year.... I felt foolish, ashamed and angry as I confessed to Bob.... “What we’re going to do is a two-step plan,” he announced.... The way Bob figured it, my monthly payment would be down to about $3,200 by the fall... at least $500 a month less than the combined total of what I was paying on everything right then. And mortgage interest, unlike interest on credit-card debt, is entirely tax-deductible.

The whole plan worked exactly as Bob had predicted.... We were still loaded with debt, but we weren’t paying 27 percent interest rates on our credit cards. Patty was earning a solid salary, and I was earning extra money working overtime at The Times.... [O]n Oct. 10, 2006, when Patty lost her job. “Don’t worry,” she said bravely. “This will not be like the first time I was looking for a job. I’ve learned so much since then, and I am going to find another job quickly.” In the meantime, she said, she could collect unemployment for six months. She would also cash out her retirement account, which had about $7,000 in it. By any measure, the loss of Patty’s job was a financial catastrophe. We hadn’t yet gone more than 30 days delinquent on the mortgage, thanks, in part, to $15,000 I had borrowed shamefacedly from my mother after Patty stopped working....

November, four years after buying the house, we finally crossed our personal Rubicon and fell 30 days behind on our mortgage. “The last thing Chase wants is to foreclose on your home,” JPMorgan Chase wrote us. It assured us that it wanted to “help” and was willing to evaluate us for a number of “alternatives.” If we didn’t “resolve” our payment delinquency, it politely warned, “you will lose your home.” I took a certain pride that I outlasted two of my three mortgage lenders. American Home, my original lender, collapsed overnight when the financial markets first froze up in August 2007. Fremont, my second lender, was forced out of the mortgage business by federal regulators. That left me with JPMorgan Chase, one of the few big banks smart enough to sell off most of the subprime loans it financed. It still serviced my loan, but it wasn’t on the hook if I defaulted....

When I first called Chase in October, a representative named Sarah said I didn’t qualify for a loan modification because I wasn’t yet 90 days past due.... I called Chase back in January, when I was 90 days past due. Another representative told me that I would automatically be evaluated for a loan modification. “You should just wait until you hear from one of our negotiators,” he told me politely.... I tried again in late March. “I’m sorry, but our analysts have been backed up,” yet another Chase rep told me, even more politely than the previous one. She said each analyst had about 500 distressed borrowers to deal with, and it had been taking about five weeks for customers to get a direct response. The delays seemed to be getting longer.

I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall...