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November 2009

The Paranoid Style in the Republican Party...

Josh Micah Marshall:

The Paranoid Style: There are many ways in which the political moment (hyper-polarizing) and the technological moment (Twitter, instant news cycles) creates a self-perpetuating arms race of hyperbole. On the other hand, some of these new publishing and communications systems do allow us to get a view into where the head of a big chunk of the country is at.

To that end, we've got the story of the Colorado state senator who represents the hyper-conservative Colorado Springs compared Obama to the al Qaeda terrorists who took over Flight 93 on 9/11 and real patriotic Republican Americans to the passengers who had to retake control of the plane.

On the one hand, this is textbook feverish, eliminationist incitement. On the other hand, I think back to how paranoid and in the thrall of their own victimization these folks were a few years ago when they ran the entire country. So I'm not sure we should be surprised that they go totally crazy when they're largely shut out of power in the country at the national level.

links for 2009-11-10

How Much of It Was Reagan's Fault?

Paul Krugman taunts the innumerate right some more:

Reagan mythbusting, productivity edition: Just to be clear: when I show that growth by every measure has been slower since 1980 than before, I’m not claiming that this shows that Reagan/finance caused the slowdown. The upper hand, in this case, is actually on the other foot: it’s the Reagan/finance enthusiasts who use the alleged fact of faster growth to make their case, so I’m just showing that it never happened. What’s funny — almost touching, really — is the way the enthusiasts respond to each refutation by claiming that there must be another number which justifies their triumphalism. Real GDP grew faster! No? OK, real GDP per capita grew faster! No? Well, productivity grew faster! Actually, no....

But there’s more to the story. Postwar productivity growth had three eras: a period of rapid growth from the late 40s to the early 70s, then a big slowdown that lasted until the mid 90s, then an acceleration that continues to this day.... [T]he Reaganauts... in addition to doing a disappearing act on the growth during the postwar generation... have retroactively attributed the post-95 productivity surge to Reagan. Because, you see, a surge that began midway through Bill Clinton’s administration was obviously caused by Reagan’s 1981 tax cut.Oh, and never mind the almost universal prediction on the right that the 1993 tax increase would lead to economic disaster.

Why did productivity stagnate for 20 years, then revive? The truth is that it probably had very little to do with anyone’s economic policies; the best guess is that businesses spent two decades figuring out what to do with information technology, then found the answer: big box stores! But that’s a subject for another post.

Run an extra 4% of GDP deficit and--if you push the social marginal product of investment up to 15% via taxes, labor rents, and spillovers--you can say that Reaganomics costs you 0.6% per year in economic growth, which over 15 years leaves you with a country 9% poorer than it would otherwise have been.

If you want to supercharge it, you can then say that the infotech revolution required that everybody have invested a certain amount in high-tech in order for Intel and company to learn-by-doing, and get bigger numbers.

And you can super-supercharge it by pointing to income and wealth inequality as well--where Reagan does leave a bunch of fingerprints--and take median wages rather than productivity as your principal outcome variable.

Take these together, and add the appropriate grains of salt, and I am happy saying that Reagan and George W. Bush cost the average worker somewhere between 5 and 10% of his or her wages as of 1994 or so. And that is pretty good...

Hoisted from the Archives: More Dilemmas of Teaching Political Economy Here at Berkeley

PEIS--Notes on Reform...: Archive Entry From Brad DeLong's Webjournal: Consider PEIS 101, Modern Theories of Political Economy. As I see it, the course has three objectives:

  • To teach students that the classical theoretical traditions in social theory or political economy--chiefly those of Adam Smith, John Stuart Mill, and Alexis de Tocqueville, but also those of Marx and Weber--still have life and power.
  • To teach students the main other, more modern, currents of theory and analysis derived from or constructed in reaction to the classical theoretical traditions.
  • To survey what is going on in the world today.

Now any one of these three objectives would be enough for a full semester course. Trying to cram all three of these missions into one single semester-long course is asking for trouble. The problem is that we already have a substantial number of requirements for the major, cannot realistically add more, and could not pay for people to teach anything more even if we did add requirements. So we are trying to do too much in a small number of courses. But we don't have the budget or the resources to offer more. And don't get me started on the state of our anemic undergraduate thesis program.

And there's more. You see, I regard the best interdisciplinary work in "political economy" as resulting from the more-or-less equal mixture of political science, history, and economics, with dabs of sociology and anthropology thrown in. We have no trouble--even in our anemic, underfunded state--finding people to teach the political science, the history, the sociology and anthropology. We can find people to teach the economic theory--albeit with difficulty. But we have difficulty finding people to teach the applied economics part of the mix, which is a problem because the courses in the Economics Department we send people to are inevitably already oversubscribed.

Felix Salmon Catches a Self-Denying Prophecy About the Future of Media

He writes:

Felix Salmon: Sky News is using YouTube to host their entire “News Corp will block Google” interview with Murdoch...

I keep on thinking that there is something powerful and important to be written about Google's success and the elective affinity between non-rival commodities and advertising. In order to charge people who buy things money, you have to make the commodity excludable. As long as the commodity is rival--as long as only one person can use it at a time--setting up technological or legal barriers that also make it excludable adds significantly to its value. You can be secure in your enjoyment in a way that you could not possibly be if the commodity were rival and yet non-excludable.

A bicycle with a lock is thus much more valuable than a bicycle without.

But once commodities become non-rival, making them excludable by legal or technological processes reduces their use value--as I am reminded every time something goes wrong with the FT's automatic authentication system and it claims that I do not have a subscription.

Thus advertising is bound to be a second-best way of obtaining a revenue stream for rival commodities, and similarly likely to be a first-best way of obtaining a revenue stream for non-rival commodities.

The coming of a decent micropayments infrastructure may change this--iTunes, for example. But my father reminds me that dividing the number of songs purchased on iTunes by the number of iPods produces a number like 30...

I Must Be Doing Something Right! (Attempted Tail Gunner Brad Smackdown Watch)

Aha! Juan Non-Volokh accuses me of Climate Change McCarthyism. I am one of those who:

selectively edit their comment threads...

The first reaction to Juan came 32 minutes later by "bailey":

Wow. We’re really defining McCarthyism down these days, aren’t we?

Indeed we are.

I should admit defeat and slink away. There is no way I will ever be able to top "bailey."

I will, however, say just one thing: I must confess that I am surprised to see a contributing editor to National Review--that hotbed of bigotry where even in the twenty-first century no Jews need apply to run the place--trying to use "McCarthyism" as a slur. I had thought that to work at National Review you had to like Tail Gunner Joe, and like him a lot. After all:

There is one thing that the American people know about Senator McCarthy; he, like them, is unequivocally anti-Communist. About the spokesman for American liberalism, they feel they know no such thing.

In Celebration of a DMCA Takedown Notice: I Link to Elizabeth Kolbert on “SuperFreakonomics”

Well, this is new. My first ever DMCA takedown notice--from HarperCollins, publisher of Levitt and Dubner's Superfreakonomics. While other publishers these days are happy to have sample chapters of their authors' works read and distributed on the internet, not so with HarperCollins.

One thing I can do in response is--tit-for-tat--to remove my praise of and link to E.M. Halliday's Understanding Thomas Jefferson: there are other better (albeit longer) Jefferson biographies published by firms that have not sent me DMCA notices: read them instead.

I urge everybody--authors and readers alike--to just say no to HarperCollins in the future.

A second thing I can do is to link to Elizabeth Kolbert's review of Superfreaknomics in the New Yorker:

“SuperFreakonomics” and climate change: Then, almost overnight, the crisis passed.... By 1912, autos in New York outnumbered horses, and in 1917 the city’s last horse-drawn streetcar made its final run. All the anxieties about a metropolis inundated by ordure had been misplaced.

This story—call it the Parable of Horseshit—has been told many times, with varying aims. The latest iteration is offered by Steven D. Levitt and Stephen J. Dubner, in their new book, “SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance”.... Levitt and Dubner tell the horseshit story as a prelude to discussing climate change: “Just as equine activity once threatened to stomp out civilization, there is now a fear that human activity will do the same.” As usual, they say, the anxiety is unwarranted. First, the global-warming threat has been exaggerated; there is uncertainty about how, exactly, the earth will respond to rising CO2 levels, and uncertainty has “a nasty way of making us conjure up the very worst possibilities.” Second, solutions are bound to present themselves: “Technological fixes are often far simpler, and therefore cheaper, than the doomsayers could have imagined.”

Levitt and Dubner have in mind a very particular kind of “technological fix.” Wind turbines, solar cells, biofuels—these are all, in their view, more trouble than they’re worth. Such technologies are aimed at reducing CO2 emissions, which is the wrong goal, they say. Cutting back is difficult and, finally, annoying. Who really wants to use less oil? This sounds, the pair write, “like wearing sackcloth.” Wouldn’t it be simpler just to reëngineer the planet?... “Once you eliminate the moralism and the angst, the task of reversing global warming boils down to a straightforward engineering problem,” Levitt and Dubner write....

Neither Levitt, an economist, nor Dubner, a journalist, has any training in climate science—or, for that matter, in science of any kind. It’s their contention that they don’t need it. The whole conceit behind “SuperFreakonomics” and, before that, “Freakonomics,” which sold some four million copies, is that a dispassionate, statistically minded thinker can find patterns and answers in the data that those who are emotionally invested in the material will have missed.... Levitt and Dubner claim to have solved the mystery of why crime, after soaring in the nineteen-eighties, dropped in the nineteen-nineties.... They also have proved—at least to their own satisfaction—that names like Ansley and Philippa will be popular for girls in the coming decade, that reading to your kids doesn’t matter, and that drunks should be encouraged to drive rather than walk.

Given their emphasis on cold, hard numbers, it’s noteworthy that Levitt and Dubner ignore what are, by now, whole libraries’ worth of data on global warming. Indeed, just about everything they have to say on the topic is, factually speaking, wrong. Among the many matters they misrepresent are: the significance of carbon emissions as a climate-forcing agent, the mechanics of climate modelling, the temperature record of the past decade, and the climate history of the past several hundred thousand years. Raymond T. Pierrehumbert is a climatologist who, like Levitt, teaches at the University of Chicago. In a particularly scathing critique, he composed an open letter to Levitt, which he posted on the blog RealClimate....

But what’s most troubling about “SuperFreakonomics” is... [t]hough climate change is a grave problem, Levitt and Dubner treat it mainly as an opportunity to show how clever they are.... Among the many likely consequences of shooting SO2 above the clouds would be new regional weather patterns (after major volcanic eruptions, Asia and Africa have a nasty tendency to experience drought).... There are eminent scientists—among them the Nobel Prize-winning chemist Paul Crutzen—who argue that geoengineering should be seriously studied, but only with the understanding that it represents a risky, last-ditch attempt to avert catastrophe. “By far the preferred way” to confront climate change, Crutzen has written, “is to lower the emissions of greenhouse gases.”...

To be skeptical of climate models and credulous about things like carbon-eating trees and cloudmaking machinery and hoses that shoot sulfur into the sky is to replace a faith in science with a belief in science fiction. This is the turn that “SuperFreakonomics” takes, even as its authors repeatedly extoll their hard-headedness. All of which goes to show that, while some forms of horseshit are no longer a problem, others will always be with us.

A Macro Policy Catechism

From my perspective, deciding whether to tighten or ease is easy. It involves asking and answering a few questions:

Q: What is the current forecast for unemployment? A: It is that unemployment will stay around 10% for a year or more, and then slowly decline.

Q: Is that the path that we want unemployment to be on? A: No. We wish that unemployment would fall more rapidly.

Q: What should we do to make unemployment fall more rapidly. A: We should stimulate the economy through one of three tools--monetary expansion, support for the banking system, or larger short-term fiscal deficits--depending on which would work.

Q: Would monetary expansion work? A: Almost surely not. With short-term Treasury rates at zero, monetary expansion is all tapped out.

Q: Would further support for the banking system work? A: Quite possibly--but at the cause of greatly reinforcing incentives for moral hazard in the future, and voters appear really unhappy with the idea of giving Lloyd Blankfein more of the public's money to play with.

Q: Would larger fiscal deficits work? A: Almost surely yes.

Q: But wouldn't they greatly increase the national debt and exceed America's debt capacity? A: No. You know that the debt capacity of a country is about to be exceeded when the term structure of interest rates slopes upward very steeply--when interest rates on government debt are high and expected to keep rising. There is no sign of that right now.

But Greg Ip doesn't agree. He writes:

THE American government reported on Thursday October 29th that gross domestic product rose at an annualised rate of 3.5% in the third quarter compared with the second. This was the first increase since the second quarter of 2008. It backs up other evidence that the recession ended in the third quarter or just before, though the official decision, by the National Bureau of Economic Research, a group of academic economists, is still some way off. Robert Gordon, a member of this group, is confident that the recession, which began in December 2007, ended in June. But at 18 months that would still make it the longest since 1933....A lot of third-quarter growth was the result of temporary government stimulus. Consumer spending grew by 3.4%, the best since early 2007, largely because people were buying new cars in July and August with federal “cash for clunkers”. Sales have since fallen back. Residential construction leapt by 23.4%, the first advance since the end of 2005, helped by an $8,000 tax credit for buyers of new homes. But new-home sales dipped by 3.6% in September, as the deadline to qualify for the credit passed....

Calls for a new round of stimulus look premature. Temporary effects aside, growth in the third quarter reflects the dynamics of a genuine recovery. Exports and equipment investment both rose. Companies ran down inventories at a slower pace, a contributor to growth that should continue for at least two more quarters. Construction is so low that, even with sales so depressed, the inventory of unsold new homes has hit a 27-year low. This suggests that construction should expand further. And Mr Gordon notes that employment is still falling because, following the pattern of recent recessions, firms have slashed costs deeply so that productivity has grown even as sales have fallen. Profits seem to have turned around already and Mr Gordon predicts employment will follow by the first quarter of 2010.

More stimulus now would add to an already dangerously high deficit. There may be greater need for it in a year’s time, when the inventory boost will be waning and this year’s $787 billion stimulus plan is about to expire. Even then, more stimulus should be considered only if a deficit-reduction plan is in place. In the meantime, monetary policy can assume the burden of safeguarding growth.

The markets expect the Federal Reserve to start raising interest rates by May, and there is speculation that at its policy meeting on November 3rd and 4th it will water down its current commitment to near-zero rates for “an extended period”. Given downward pressure on inflation, the Fed could instead stay on hold all next year, providing a safety cushion for the economy and taking some pressure off the battered federal budget.

Berkeley Political Economy Major Overview Document DRAFT

Political Economy Major Rationale:

The phrase "political economy" has at least four meanings:

  • the heir of Enlightenment moral philosophy, in the same sense that today's proper sciences are the heirs of Enlightenment natural philosophy.
  • the rubble left of the Marxist, Marxisant, and Marxizoid project of social analysis and utopian transformation after history bombed it until the rubble bounced throughout the twentieth century.
  • public choice--the largely right-wing application of the assumptions of methodological individualism and anomic psychological self-interest to the social sciences.
  • things that have too much politics to be economics, too much history to be politics, too much sociology to be history, and too much economics to be sociology.

Political economy here at Berkeley as an undergraduate major is a group of four interlinked intellectual bets:

  • that for undergraduates at least the separation a century ago of the social sciences into walled, warring camps was not a clear win.
  • that there is, nevertheless, great value in the individual social sciences' analytical modes and tools.
  • that there is even greater value in the classical social theory tradition as grappling for the first time how a modern human society--one not composed overwhelmingly of malnourished peasants living and dying early in the small villages in which they were born and one not dominated by louse-riddem thugs with spears and perfumed thugs with styluses--actually worked.
  • that the nineteenth and early twentieth-century social, political, and economic history of the North Atlantic provides an essential set of benchmarks, yardsticks, and comparisons.

To that end we make them take world history (IAS 45); a historical context course on the development of industrial soceties (like Hist. 160); political science (PS 2); economics (Econ 1, IAS 106, IAS 107); statistics (Stat 2); classical social theory (PEIS 100); modern political economy (PEIS 101); two years of foreign language; and five additonal courses--four of which must be related as a "concentration" to help them become semi-experts in some particular topic or issue area.

It is, as such programs often are, massively underfunded. It also, as such programs often do, works very well indeed.

Political Economy Major Requirements:


Before admission, students must:

  • attend a Major Declaration Workshop
  • complete IAS 45 with a grade of C+ or better
  • complete Econ 1 or 2 or C3 with a grade of C+ or better
  • have a major and cumulative GPA of 2.0 or higher
  • not be in their final semester of undergraduate work.

Lower Division Requirements:

  • Economics 1 or 2 or C3 (prerequisite to declare; C+ or better)
  • IAS 45 (prerequisite to declare; C+ or better)
  • Political Science 2
  • Statistics 2, 20 or 21

Foreign Language Requirement:

Proficiency equivalent to four college-level semesters in any single modern language other than English, achieved through coursework (C- grade or higher), AP credit, examination, and/or study abroad. Check with the major for eligible languages.

Upper Division Conceptual Tools Requirement:

  • Microeconomics: IAS 106, Economics 100A, Economics 101A, or UGBA 101A
  • Macroeconomics: IAS 107, Economics 100B, Economics 101b 101B, or UGBA 101B
  • PEIS 100, Classical Theories of Political Economy (must be taken before PEIS 101)
  • PEIS 101, Contemporary Theories of Political Economy

Upper Division Historical Context Requirement:

  • One of PEIS 160, CRP 112, Econ 113, Econ 115, Hist 124a, Hist 124b, Hist 125b, Hist 131b, Hist 158c, Hist 159a, Hist 160, Hist 161, Political Science 122a, UGBA C172,

Upper Division Concentration Requirement:

The Political Economy major’s concentration requirement is an attempt to turn each student’s program into a major rather than a sprawling set of disconnected social science and history courses. The other major requirements ask students to learn a great deal of history and a great deal about the approved models, theories, and intellectual approaches of the different social sciences. The concentration requirement asks students to apply that theoretical and historical knowledge to an issue area in political economy.

The possibilities are wide open.

However, students’ concentrations tend to cluster into three groups: the political economy of "post-industrial" societies, "late industrialization and development," and "globalization" Students may--and are in fact encouraged to--simply pick courses from the recommended course list for one of these three groups in order to assemble their concentrations. Students are also strongly encouraged to take a particular flavor of the PEIS 101 course that is focused on the concentration group they have chosen.

  • Post-Industrial: Anthro 139, CRP 110, 112, 113a, Econ 105, 115, 121, 136, 151, 175, EEP/IAS 175, ERG 100/PP 184, Geog 110, 159a, Hist 118, 158C/159B, Legal 140, 145, 182, PP 101, 103, Poli Sci 122a, 138e, 138g, 144b, Soc 119, 122.

  • Late Development: Anthro 139, CRP 110, 112, 113a, 115, Econ 105, 115, 121, 151, 161, 162, 171, 173, 175, EEP 151, 152, 154, 175/IAS 175, ESPM 165, Geog 110, 112/DS 100, 123, 130, 159a, Hist 171c, IAS 115, Legal 140, 145, 161, PACS 135, PP 101,Poli Sci 128, 138e, 139b, 141c, 143a, 143b, 144b, 148a, 149e, Soc 172, 183, 187.

  • Globalization: Anthro 139, Chicano 159, Econ 105, 115, 121, 151, 181, 182, EEP 152, 154, ESPM 165, 169, Ethnic 135ac 136, Geog 123, 159a, GWS 141, 143, IAS 115, Legal 140. 145, 154, 179, PACS 135, PP 101, Poli Sci 124a, 138e, 138g, Soc 119, 146, 172, UGBA 118, 178.

Students who wish have the freedom to choose and develop their own concentrations: write a convincing two-paragraph explanation of how taking these courses will turn the student into an expert in some question or problem area in political economy--like "dilemmas of medical care cost control and resource allocation around the globe"; "religion and the state in early modern Europe and the contemporary Middle East"; or "the interaction between economic history and the history of economic thought since 1776."

Additional Course:

  • One additional course in the social sciences, ideally PEIS 194: "Capstone" Senior Seminar: Interdisciplinary research seminar in political economy for seniors. Intensive writing on interesting research questions in social science and public policy best approached from an interdisciplinary perspective. To provide seniors not writing honors theses with a "capstone" experience here at Berkeley...


  • Students with minimum GPAs of 3.5 cumulative and 3.6 in the major are eligible to join the honors program. Honors students write a prospectus in the fall IAS H102 honors methodology class, and then a thesis in the spring PEIS H195 seminar.


We also draw your attention to:

  • History 7b: History of the United States since 1865
  • IAS 102/C118: Scope and Methods of Research in International and Area Studies
  • IAS 120: Contemporary Mexico
  • IAS C175: The Economics of Climate Change
  • PEIS 150: Topics in Political Economy
  • PEIS 155: Developments in Approaches to Modern Political Economy
  • PEIS 192: Senior (Non-Honors) Thesis

Minor: European Studies Political Economy

  • PEIS 100, Classical Theories of Political Economy (must be taken before PEIS 101)
  • PEIS 101, Contemporary Theories of Political Economy
  • A concentration in the political economy of Europe approved by the advising staff. For approval, submit a convincing two-paragraph explanation of how taking these courses will turn the student into an expert in some question or problem area in the political economy of Europe--like "dilemmas of medical care cost control and resource allocation in western Europe since WWII"; "religion and the state in early modern Europe and the contemporary Middle East"; or "why did the western European economic growth miracle end in 1973?".

Why don't we have other regional studies political economy minors? As I understand it, purely for historical reasons.

Warning! Godwin's Law Violation Ahead!!

Probably it's just that I have been reading too much about Mussolini's Italy.

But reading Paul Krugman this morning on the Republican Party's "sorcerer's apprentice" act made me think that we are a lot closer to Weimar America than I ever thought I would be...

At this point there are only two moral courses of action open to Republicans:

  1. Abandon the party and try to marginalize it as a whole.
  2. Split the party, and so try to lift the curse of Richard Nixon.


What all this shows is that the G.O.P. has been taken over by the people it used to exploit.

The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?

But while the paranoid style isn’t new, its role within the G.O.P. is.

When Hofstadter wrote, the right wing felt dispossessed because it was rejected by both major parties. That changed with the rise of Ronald Reagan: Republican politicians began to win elections in part by catering to the passions of the angry right.

Until recently, however, that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and “values,” only to announce, as soon as the election was behind him, that his first priority was changing Social Security.

But something snapped last year.

Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they’d get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.

Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York’s special Congressional election.

Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren’t interested in actually governing, they feed the base’s frenzy instead of trying to curb or channel it. So all the old restraints are gone.

In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions...

links for 2009-11-09

links for 2009-11-08

Covering Michelle Bachmann...

To set the stage, let's call on Rachel Weiner of the Huffington Post:

Michele Bachmann Links Swine Flu To Democrats, Gets History Wrong: Minnesota Republican Rep. Michele Bachmann... suggested on Tuesday that President Obama was to blame for the swine flu crisis... implying that swine flu epidemics are a Democratic phenomenon that dates back to President Carter.

I find it interesting that it was back in the 1970s that the swine flu broke out then under another Democrat president Jimmy Carter. And I'm not blaming this on President Obama, I just think it's an interesting coincidence...

Unfortunately, Bachmann's facts are a little off. As Glenn Thrush notes, Republican President Gerald Ford, not Carter, led the country during the last outbreak of the virus...

Now comes Ed Luce of the Financial Times, to talk about:

[Michele] Bachmann voices ire at ‘Bail-out Nation’: Michele Bachmann, a rising rightwing star of the Republican party... a second-term congresswoman, who played a prominent role in the “town hall” agitations against Mr Obama’s healthcare reform agenda in August.... “What we are seeing is a real sense of unease among American people and not just Republicans,” Ms Bachmann contended in an interview with the Financial Times. Whether it’s the government bail-out of the banking system, or the White House sacking the chief executive officer of General Motors, or the bail-out of AIG, or the level of debt accumulation, more and more people are joining a coalition that is saying this is unconstitutional and un-American.”...

Ms Bachmann, whose mere name can provoke apoplexy in some liberal quarters... stress[ed] the coalescence of a new movement, united against further federal government involvement in the economy.... “What I can say is that we are agreed on 70 to 80 per cent of the issues and that it is united around a defence of the constitution. The fabric of this big tent is made up of the very parchment of the constitution...”

Clearly this will not do: any story about Michelle Bachmann that aims to inform its readers has to teach its readers--whether by telling, or showing, or both--that the woman is a wingnut.

Ed Luce fails as a journalist because he fails to do this.

But things are even worse. The opening line in his story about Michelle Bachmann:

Reaction against Barack Obama’s 'Bail-out Nation'...

coupled with:

Whether it’s the government bail-out of the banking system, or the White House sacking the chief executive officer of General Motors, or the bail-out of AIG, or the level of debt accumulation, more and more people are joining a coalition that is saying this is unconstitutional and un-American...

positively cries out for the observation that this "coalition" is of Republicans denouncing Republican policies: AIG was bailed out by Paulson and Bernanke with George W. Bush's approval, the TARP was a Republican proposal, the level of debt accumulation is what it is because of the Bush tax cuts, etc., etc., etc...

The Financial Times is one of the few print journalistic institutions which still has a reputation of being as likely to be accurate as an honest bathrobe-clad weblogger with his or her reputation on the line. It would be a shame were it to lose that reputation.

Reed College Public Policy Lecture: Today's Financial Crisis in a Historical Mirror (November 7, 2009)

Audio: Reed Public Policy Lecture (11.07.2009 03-14-36 PM)

Download pdf: 20091107 reed slides.pdf

Posted via email from at Brad DeLong's Scrapbook

Abjuration and Recantation...

Hoisted from Comments: "a" writes:

Another Bad Employment Report - J. Bradford DeLong's Grasping Reality with All Eight Tentacles: "If we find ourselves in a financial-meltdown world where unemployment or inflation kisses 10%--then I will unhappily concede, and say that Greenspanism was a mistake." - BDL, 16 July 2008

So, it was a mistake, right?

Yes, it was a mistake. I hereby deny, abjure, and repent my previous allegiance to the gospel of "Greenspanism." I reject Greenspan, and all his works, and all his empty promises.

I will strive now to walk in the light.

Curiously enough, this from my pre-Greenspanist phase actually looks pretty damn smart today...

J. Bradford DeLong (1999), "Should We Fear Deflation?" Brookings Papers on Economic Activity 1999:1 (Spring), pp. 225-252

Another Bad Employment Report


The Bureau of Labor Statistics reports:

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000).... Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.

Among the major worker groups, the unemployment rates for adult men (10.7 per- cent) and whites (9.5 percent) rose in October. The jobless rates for adult women (8.1 percent), teenagers (27.6 percent), blacks (15.7 percent), and Hispanics (13.1 percent) were little changed over the month. The unemployment rate for Asians was 7.5 percent, not seasonally adjusted.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed over the month at 5.6 million. In October, 35.6 percent of unemployed persons were jobless for 27 weeks or more. (See table A-9.)

The civilian labor force participation rate was little changed over the month at 65.1 percent. The employment-population ratio continued to decline in October, falling to 58.5 percent...

If you had told everyone last election day what would happen, economically, in 2009, what policies would they have adopted then to stem this disaster?

And why aren't we implementing those policies now?

links for 2009-11-06

Truly a Dark Age for Economics in the Midwest...

When last we saw the University of Chicago's Eugene Fama, he was mistakenly claiming that the NIPA savings-investment identity had as its consequence that increases in government spending necessarily could not boost employment and production.

It is hard to characterize the level of this mistake. I would like to say freshman-level, but my freshmen don't make it.

Now comes Eugene Fama again to make the false assertions that: (a) developed-country growth sped up after 1980, and (b) China's boom since the Southern Expedition of Deng Xiaoping is due to modern finance.

Paul Krugman watches the train wreck:

The lost generation - Paul Krugman Blog - Matthew Yglesias catches Eugene Fama making a strange assertion:

Beginning in the early 1980s, the developed world and some big players in the developing world experienced a period of extraordinary growth. It’s reasonable to argue that in facilitating the flow of world savings to productive uses around the world, financial markets and financial institutions played a big role in this growth...

The assertion about developed countries is, of course, entirely wrong. From Angus Maddison’s dataset:

The lost generation - Paul Krugman Blog -

And as Matt points out, the giant success story in the developing world was China, where the driver was the end of Communism — not modern finance. Actually, it’s even more absurd to give finance the credit than Matt realizes: China has not been experiencing net inflows of capital, partly because it has maintained capital controls, effectively insulating itself from the whole finance thing.

So why does Fama believe that something wonderful happened around 1980? Part of it, I suspect, is that in his milieu the politically correct thing is to pretend that nothing good happened until Reagan came along...

Remember, Remember the Fifth of November...

Richard Byrne:

Reading the Plot Forward: December 9, 2005: An interdisciplinary seminar at the Folger Institute examines terrorism — historical and contemporary — on the 400th anniversary of the Gunpowder Plot

When scholars gathered in the basement of the Folger Shakespeare Library on November 4 for a workshop examining the Gunpowder Plot, many of them were alert to the ironies of the occasion.

Earlier that same day, the Folger had hosted the Prince of Wales and his wife, Camilla. That the heir to the British throne was perusing the library's collection as scholars prepared to talk about a foiled plot to blow up King James I and his entire government in London 400 years ago was not lost on anyone. Nor did it escape notice that more than 40 scholars were packed tightly in a basement conference room, much like the 36 barrels of gunpowder placed in a cellar under the House of Lords by the Gunpowder conspirators and discovered there on the eve of the opening of Parliament on November 5, 1605.

The workshop was organized by Chris R. Kyle, an associate professor of history at Syracuse University, as part of a continuing series of such events hosted by the Folger Institute, a center for humanities research sponsored by the Folger Shakespeare Library and a consortium of 40 universities.

Eminent scholars specializing in the Elizabethan and Jacobean period, including David Cressy, a professor of history at Ohio State University at Columbus, and Ian W. Archer, a fellow in modern history at Keble College, University of Oxford, gave detailed talks on the history of the plot's commemoration and on what London was like in 1605. Historians and literary scholars batted around questions about the era's political and religious discord and about how the Gunpowder Plot may have affected the staging of William Shakespeare's Macbeth.

But Mr. Kyle and Kathleen Lynch, executive director of the Folger Institute, had bigger ambitions. The organizers asked presenters to offer brief informal papers to spur discussion and brainstorming across disciplines about new approaches to the texts being studied.

"We want to intervene in people's research projects at a point when it matters," said Ms. Lynch. "We didn't want to hear polished papers."

And then there was the ambition to have the workshop push past history and into the present. The event was provocatively titled "Early Modern Terrorism?," and in an introductory e-mail message to participants, Mr. Kyle noted that "without delving into the minefield of drawing direct and ahistorical parallels between the notion of early modern terrorism, the actuality of the Plot, and the world in which we inhabit, we are presented with an opportunity to discuss the impact of religious violence on society, its reaction to this event, and what happened/happens next."

It is those discussions that pique the interests of a broader public fixated on issues such as terrorism, torture, and religious violence. But scholars often fear that making such connections sacrifices academic rigor.

So if the plotters of 400 years ago who piled gunpowder in a basement failed, would Mr. Kyle and Ms. Lynch's plot to widen the scholarly discussion into combustible contemporaneity succeed?...



Productivity increased 9.5 percent in the nonfarm business sector during the third quarter of 2009 as unit labor costs fell 5.2 percent (seasonally adjusted annual rates). In manufacturing, productivity increased 13.6 percent while unit labor costs fell 7.1 percent...

Back in the 1930s there was a Polish Marxist economist, Michel Kalecki, who argued that recessions were functional for the ruling class and for capitalism because they created excess supply of labor, forced workers to work harder to keep their jobs, and so produced a rise in the rate of relative surplus-value.

For thirty years, ever since I got into this business, I have been mocking Michel Kalecki. I have been pointing out that recessions see a much sharper fall in profits than in wages. I have been saying that the pace of work slows in recessions--that employers are more concerned with keeping valuable employees in their value chains than using a temporary high level of unemployment to squeeze greater work effort out of their workers.

I don't think that I can mock Michel Kalecki any more, ever again.

Washington Post Company Crashed-and-Burned-and-Smoking Watch

Why oh why can't we have a better press corps? Shut it down right now. If it were going to educate and inform the public, API would not be doing it, would they?

Zachary Roth:

Newsweek And Oil Lobby Team Up To Host Climate Change Event With Lawmakers: Newsweek magazine is teaming up with an oil-industry lobbying group to host an event on climate-change and energy issues involving lawmakers, just as the Senate gets set to take up legislation on the subject.

The panel discussion, entitled "Climate and Energy Policy: Moving?," will feature Jack Gerard, CEO of the American Petroleum Institute, and, as moderator, Newsweek columnist Howard Fineman, according to an email invitation sent by a Newsweek business staffer and obtained by TPMmuckraker.

"Newsweek is pleased to be co-hosting this panel discussion with API," says the email, which adds that "notable members of the United States House of Representatives and the United States Senate" have been invited. The event is scheduled to be held December 1 in a Senate meeting room...

Grave moral fault attaches to everyone who enables the Washington Post company, including people who buy test prep services from Stanley Kaplan.

Just say no.

Prepare for the Pretty Bad...

The world we are now in--the one in which there is a 50-50 chance that the unemployment rate will still be roughly 10% fifteen months from now (and would be in the 11-12% range but for the ARRA) was a 15th percentile world 11 months ago.

What is today's 15th percentile forecast for what the world will look like in a year?

And what are we doing now to prepare for that world--should it come to pass?

What Would Have Happened If World Governments Had Washed Their Hands of the Financial Crisis?

For Project Syndicate:

Slouching Toward Sanity: In America today – and in the rest of the world – economic-policy centrists are being squeezed.

The Economic Policy Institute reports a poll showing that Americans overwhelmingly believe that the economic policies of the past year have greatly enriched the bankers of Midtown Manhattan and London’s Canary Wharf (they really aren’t concentrated on Wall Street or in the City of London anymore). In America, the Republican congressional caucus is just saying no:

  • no to short-term deficit spending to put people to work,
  • no to supporting the banking system,
  • and no to increased government oversight or ownership of financial entities.

And the banks themselves are back to business-as-usual: anxious to block any financial-sector reform and trusting congressmen eager for campaign contributions to delay and disrupt the legislative process.

I do not claim that policy in recent years has been anything close to ideal.

If I had been running things 13 months ago, the United States Treasury and Federal Reserve would have let Lehman and AIG fail – but would have taken the obligations of those entities for cash at face value provided that the obligations also came with sufficient equity warrants to give the government a proper share of the upside. That would have preserved the functioning of the system. That would have punished--severely--the banking and shadow-banking systems’ equity holders who had not performed sufficent due diligence. That would have kept any bankers today from claiming that their risk management practices were adequate and did not need reform.

If I had been running things 19 months ago, I would have nationalized Fannie Mae and Freddie Mac. For the duration of the crisis shifted monetary and financial policy from targeting the Federal Funds rate to targeting the price of mortgages. Ever since 1825, the purpose of monetary policy in a crisis has been to support asset prices to prevent the financial markets from sending to the real economy the price signal that it is time for mass unemployment. Nationalizing Fannie and Freddie, and using them to peg the price of mortgages, would have been the cleanest and easiest way to accomplish that.

Nevertheless, policy over the past two and a half years has been good.

A fundamental shock bigger than the one in 1929-1930 hit a financial system that was much more vulnerable to shocks than was the case back then. Despite this, unemployment will peak at around 10%, rather than at 24%, as it did in the US during the Great Depression. Nonfarm unemployment will peak at 10.5%, rather than at 30%. Nor will we in the end have a lost decade of economic stagnation, as Japan did in the 1990’s.

Admittedly, this comparison bar is low.

But our policymakers have cleared it. They might have well not have.

Thus it is worth stepping back and asking: What would the economy look like today if policymakers had acceded to the populist demand of no support to the bankers? What would the economy look like today if Congressional Republican opposition to the Troubled Asset Relief Program (TARP) program had won the day? What would the economy have looked like today had Senators Nelson, Snowe, and company done to Obama's discretionary deficit-spending plan what their predecessors did to Clinton's in 1993 and blocked it?

The only point of reference is the Great Depression itself. That is the only time in more than a century when (a) a financial crisis caused a widespread, lengthy, and prolonged reinforcing chain of bank failures, and (b) the government by and large washed its hands--neither intervened on a large scale itself nor passed the baton to a consortium of private banks (usually, in the U.S., headed by Morgan) to support the system as a whole.

It is now 19 months after Bear Stearns failed and was taken over by JP MorganChase, with the assistance of up to $30 billion of Federal Reserve money on March 16, 2008. Industrial production now stands 14% below its peak in 2007.

By contrast, 19 months after the Bank of United States, with 450,000 depositors, failed on December 11, 1930 – the first major bank collapse in New York since the Knickerbocker Trust failure during the panic and depression of 1907 – industrial production, according to the Federal Reserve index, was 54% below its 1929 peak.

Opponents of recent economic policy rebel against the hypothesis that an absence of government intervention and support could produce an economic decline of that magnitude today. After all, modern economies are stable and stubborn things. Market systems are resilient webs that offer the best possible incentives to people to make deals and use resources productively. A 54% fall in industrial production between its 2007 peak and today is inconceivable – isn’t it?

If so, then the unavoidable conclusion must be that things would not have been so bad if the government had refused to implement an expansionary fiscal policy, recapitalize banks, nationalize troubled institutions, and buy financial assets in non-standard ways.

The problem, though, is that all the theoretical arguments that depressions as deep as the Great Depression simply do not happen to modern market economies – well they applied just as well to the 1930s as they do to today.

But the Great Depression did happen. And it could have happened again. All that had to happen then was for the logic of the financial crisis to roll through to its conclusion, in the absence of extraordinary government intervention to stem it.

The Financial Times Needs to Exercise Some Quality Control...

When Ned Phelps wrote:

A fruitless clash of economic opposites: In the theory wars, which are as much wars over policy choices, two very bad kinds of theories are driving out good theories. Keynesian economics, which had been nearly forgotten inside the macro field, has found new voices from outside. They take the position that fiscal “stimulus” of all kinds is effective against slumps of all causes...

An editor should have asked: "Who are you talking about who takes the position that fiscal 'stimulus' of all kinds is effective against slumps of all causes?" And then should have killed the column.

Paul Krugman:

On not listening: OK, no point in reading any further.

Nobody, and I mean nobody, holds that alleged position. The position held by Keynesians — by the way, if Keynesian economics has been “nearly forgotten inside the macro field”, someone should tell Greg Mankiw that he’s an unperson — is that fiscal stimulus is necessary only under certain special conditions. Namely, when you’re up against the zero lower bound, and conventional monetary policy is useless, fiscal stimulus may be your best option.

And we are at the zero lower bound right now, for the first time in 70 years. That’s why fiscal stimulus is on the agenda — not because Keynesians believe that deficit spending is always and everywhere the best policy.

But this complete misrepresentation by Phelps — it doesn’t even rise to the level of caricature, since it bears no resemblance to what people like me are saying — is characteristic. For the most part, the opponents of stimulus just don’t listen; they have this image of the idiot Keynesian so fixed in their minds that they can’t be bothered to pay any attention to the actual arguments.

You might have thought that the worst economic crisis since the 30s, a crisis that should not have happened according to non-Keynesian models, would prompt at least a little intellectual curiosity. But no.

links for 2009-11-03

Dictatorships and Double Standards: Jeet Heer Has a Ludwig Von Mises Quote...

An example of classical liberalism's elective affinity with authoritarian politics?


It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error...

So now I have to add Ludwig Von Mises, Liberalism to the pile...

UPDATE: Yes, Ludwig von Mises does indeed do it: he does claim that the reason Mussolini's thugs murdered Giacomo Matteotti was that they were driven to do it out of horror at the crimes committed by the Russian Bolsheviks. It's an old line: they are the monsters, and it's only because they are the monsters that they force us into a situation in which we must act monstrously:

Ludwig von Mises, Liberalism, 1.10: The Argument of Fascism: Only when the Marxist Social Democrats had gained the upper hand and taken power in the belief that the age of liberalism and capitalism had passed forever did the last concessions disappear that [social democracy] had still been thought necessary to make to the liberal ideology. The parties of the Third International consider any means as permissible.... The frank espousal of a policy of annihilating opponents and the murders committed in the pursuance of it have given rise to an opposition movement.... The militaristic and nationalistic enemies of the Third International felt themselves cheated by liberalism. Liberalism, they thought, stayed their hand when they desired to strike a blow against the revolutionary parties while it was still possible to do so....

The fundamental idea of these movements—which, from the name of the most grandiose and tightly disciplined among them, the Italian, may, in general, be designated as Fascist—consists in the proposal to make use of the same unscrupulous methods in the struggle against the Third International as the latter employs against its opponents. The Third International seeks to exterminate its adversaries and their ideas in the same way that the hygienist strives to exterminate a pestilential bacillus.... The Fascists, at least in principle, profess the same intentions.... Only under the fresh impression of the murders and atrocities perpetrated by the supporters of the Soviets were Germans and Italians able to block out the remembrance of the traditional restraints of justice and morality and find the impulse to bloody counteraction. The deeds of the Fascists and of other parties corresponding to them were emotional reflex actions evoked by indignation at the deeds of the Bolsheviks and Communists. As soon as the first flush of anger had passed, their policy took a more moderate course and will probably become even more so with the passage of time....

Now it cannot be denied that the only way one can offer effective resistance to violent assaults is by violence. Against the weapons of the Bolsheviks, weapons must be used in reprisal, and it would be a mistake to display weakness before murderers. No liberal has ever called this into question.... The great danger threatening domestic policy from the side of Fascism lies in its complete faith in the decisive power of violence.... What happens, however, when one's opponent... acts just as violently? The result must be a battle, a civil war. The ultimate victor to emerge from such conflicts will be the faction strongest in number.... The decisive question, therefore, always remains: How does one obtain a majority for one's own party? This, however, is a purely intellectual matter. It is a victory that can be won only with the weapons of the intellect, never by force. The suppression of all opposition by sheer violence is a most unsuitable way to win adherents to one's cause. Resort to naked force—that is, without justification in terms of intellectual arguments accepted by public opinion—merely gains new friends for those whom one is thereby trying to combat. In a battle between force and an idea, the latter always prevails. Fascism can triumph today because universal indignation at the infamies committed by the socialists and communists has obtained for it the sympathies of wide circles. But when the fresh impression of the crimes of the Bolsheviks has paled, the socialist program will once again exercise its power of attraction on the masses.... There is... only one idea that can be effectively opposed to socialism, viz., that of liberalism....

It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.

The kindest thing that can possibly be said, I think, is that Ludwig von Mises here demonstrates as little clue to what fascism is all about as he elsewhere demonstrates he understands about capitalism, social democracy, or--indeed-liberalsim.

We Are Hiding in Our Burrows Right Now...

Andrew Samwick is shrill:

A Question for Peggy Noonan: When Did Our Callous Childhood Begin: A friend pointed me to this column by Peggy Noonan in last week's WSJ, "We're Governed by Callous Children." I think she is right in her main point about a disheartened leadership class in business and a mindless leadership class in government. 

But she makes the same mistake that other Republican commentators make when they criticize our current leadership.  Specifically, she does not come out forthrightly to identify the one characteristic that separates adults from children: children don't have to balance their budgets, but adults do.  As much as she may admire Reagan, it was his administration that began our 30-year fascination with outsized deficits.  (The deficit mentality nearly went away with Clinton but came back with a vengeance with his successor.)

We will not get out of our current predicament until we face up to the reality that we cannot continue to spend more than we earn (or in the government's case, tax), and that the limits on spending ought to come naturally precisely because we observe not just the benefits but the costs in real time. 

I think that what has people disheartened is that there is almost no one in Washington -- not even an identifiable faction of one of the two main parties -- who is willing to act on this fact.  So people expect the so-called solutions to make the underlying problems worse.  To suggest that callousness or mindlessness (her words) are features of only the current administration and Congressional leadership is ridiculous.

Hey, this is America.  If you don't like the current leaders, we can always get some new ones.  Is it too early to start the "Bruce Bartlett in 2012" campaign?

Let me assure Andrew that the Rubin wing of the Democratic Party is still out there. My view is that making a noise right now is highly counterproductive--that for the next two years or so we need bigger government deficits, not smaller ones.

But watch for us to come out of our burrows when the unemployment rate falls below 7.5%...

Can Berkeley Support a Political Economy Major?

If we are going to keep making the intellectual bets that we have been making--which is an open question--the withdrawal of the history department from the 19th century economic, social, and political history of the North Atlantic and the increasing tendency of political science to circle its wagons around its own majors will call for changes: specifically, for us to teach more of our own courses in house.

For example, one possible way to organize things:

ECON 1. PRINCIPLES OF ECONOMICS. (One course required.)

IAS 45. INTRODUCTION TO WORLD HISTORY. (One course required.)

PEIS 100: CLASSICAL THEORIES OF POLITICAL ECONOMY. Marsilius of Padua to Keynes. (One course required.)

PEIS 101A-D: MODERN THEORIES OF POLITICAL ECONOMY. Keynes to today. (One course required.)

PS 2: INTRODUCTION TO COMPARATIVE POLITICS. (One course required, or bypass.)

STAT 2: INTRODUCTION TO STATISTICS. (One course required, or bypass.)

IAS 106: MICROECONOMIC THEORY AND ANALYSIS. (One course required, or bypass.)

IAS 107: MACROECONOMIC THEORY AND ANALYSIS. (One course required, or bypass.)

PEIS 155A-D: DEVELOPMENTS IN APPROACHES TO MODERN POLITICAL ECONOMY: A survey of some questions of social science or public policy best examined from an interdisciplinary perspective with an eye toward building students' knowledge of some recently developed analytical tools in political economy. (One course required, or bypass.)

PEIS 160A-D: POLITICAL ECONOMY IN HISTORICAL CONTEXT: An interdisciplinary survey of a chunk of the historical experience of peoples and places who have participated in the ongoing great transformation away from agricultural societies with the coming of the steam engine. (One course required, or bypass.)


PEIS 194A-C: "CAPSTONE" SENIOR SEMINAR: Interdisciplinary research seminar in political economy for seniors. Intensive writing on interesting research questions in social science and public policy best approached from an interdisciplinary perspective. To provide seniors not writing theses with a "capstone" experience here at Berkeley...

And then four social science courses to make up a "concentration" in something--courses that would hopefully include a version of:

PEIS 150A-D: TOPICS IN POLITICAL ECONOMY: An examination of some issues in historical or modern political economy: questions of social science or public policy best addressed from an interdisciplinary perspective.

Plus language requirements...

And They Say That Allan Meltzer Used to Be a Real Economist...

Allan Meltzer should be ashamed of himself.

Here is the late Milton Friedman, arguing that supporting the banking system with extra open-market operations in late 1931-early 1932 after the shock of the British abandonment of the gold standard would have saved an awful lot of jobs--probably all the jobs lost between August 1931 and January 1932:

Suppose the [Federal Reserve] System... had accompanied the measure by purchase of government securities [for cash]... as called for by the "classic" remedy for an internal drain.... [L]et $1 billion be the amount.... What would have been the consequence?... Reserve purchases of $1 billion... would have meant an increase of $1,330 million in high-powered money... would have permitted a multiple expansion of deposits.... Even if... the deposit ratios would have fallen as much as they did--and for the deposit-currency ratio, the fall in so short a time was the largest on record--the result would have been to cut in half the decline in the stock of money.... Only a moderate improvement in the deposit-currency ratio--a decline from 8.95 to 7.10 instead of 6.47--would... have enabled the stock of money to be stable...

Here is Allan Meltzer, arging that the kind of counterfactual analysis Milton Friedman undertakes in The Great Contraction is nonsense: There is no greater recognition of the failure of the stimulus program to create jobs than the efforts to mislead the public into believing the program had saved thousands, or millions, of jobs. One can search economic textbooks forever without finding a concept called “jobs saved.” It doesn’t exist for good reason: how can anyone know that his or her job has been saved? The Administration can make up any number it pleases. The number has no meaning...

If the concept of "jobs saved" does not exist, how come Milton Friedman says that an extra $1 billion of open market operations in late 1931 would have stopped the Great Depression in its tracks.

You can critique models. You can critique parameters. You can critique parameters. You can critique how the calculations are done, but you cannot deny their existence, for the kind of counterfactualcalculations that Milton Friedman does are, of course, the steady diet of what economists and other policy analysts do every day.

So why is Allan Meltzer doing this--saying that Milton Friedman talked nonsense in The Great Contraction? Because it is to the temporary tactical advantage of the Republican Party for him to do so.

Exercise some moral responsibility, Allan.

Shameless partisan hack.

links for 2009-11-02

  • Missed in all the hoopla over the new Politically Incorrect Guide to Science by American Spectator editor Tom Bethell is an interesting fact. There’s no chapter summarizing his past vaunted attacks on Einstein’s Theory of Relativity. Indeed, when I browsed the book recently at B&N I must confess I was almost disappointed when I went through the list of chapters and saw no “Rethinking Relativity”.... [Bethell] writes: "Tom Van Flandern... is an independent thinker... [his] view that a designed artifact resembling a face is visible on Mars and has been photographed by NASA. I do not and never have subscribed to that view, which is unjustified by the evidence..."
  • Now it's an altogether different story.  There is a plethora of books on the Indian Ocean trade of antiquity, and the Periplus is a standard resource for historians.  Something has changed for me, as well.  Now, I'm reading it with Google Earth in front of me, as I turn every page.  The remarkable thing is that I can follow the Periplus like a soaring eagle, from landmark to landmark.  All the names have changed, though some survive in distorted form, in modern languages.  But the author had certainly been to the places he described.  Where he says there's a cliff or a mountain or a reef, there it is, for me to see with my own eyes.  With intense pleasure, I followed the text, while zooming in and out along the whole coast of the Red Sea, East Africa, Arabia, the Persian Gulf, the Makran coast, Sindh, the Rann of Kutch, the Malabar coast, the magical land of Taprobane (Sri Lanka).... Back in 1989, I wouldn't have dared to predict that such god-like powers would be available to me in

Washington Post Crashed-and-Burned-and-Smoking Watch: David Ignatius Edition

Michael Massing washes the train wreck that is the Washington Post:

Black Hawk Up : CJR: David Ignatius’s Helicopter Journalism

What a delight it must be to be a columnist for a major American newspaper. When traveling to distant, war-torn lands, you can enlist America’s top generals to show you around. That’s what David Ignatius of The Washington Post did on Sunday. He was shown around Baghdad by no less a figure than Centcom commander David Petraeus. Or, rather, he was shown it from the air. The two flew over the city in a Black Hawk helicopter. The general pointed out all the signs of recovery below. “See, the houses are occupied again,” he said as they passed over a neighborhood that several years ago had been largely abandoned. He pointed to the schools, police stations, parks, markets, and a traffic jam, which, he said was “good to see.”

It was only after Petraeus and Ignatius landed in the Green Zone that they learned that, while they’d been aloft, two massive bombs had gone off in the heart of the city, killing more than 100 and wounding more than 500. “I guess that tells you something about the difference between life, close up, and what you see from several hundred feet,” Ignatius wrote in his column Monday (“A Resilient Baghdad on a Day of Horror”). Rather than try to examine that life up close, however, Ignatius repaired to the Al-Rashid Hotel in the Green Zone for lunch with two Iraqi friends. (Ignatius does not tell us who they are nor what their background is, but they’re clearly members of the elite.) Despite the bombings, Ignatius observes, his friends are “surprisingly upbeat about the future.” “In every sector, Iraq is coming back to its normal mode,” one says. “There is no way it will slip back,” the other insists.

As night falls, Ignatius joins Petraeus for another helicopter ride, to Camp Victory, near the airport. Though he had just warned us a few paragraphs earlier about the limits of the view from above, he draws more conclusions. “Baghdad can be a cruel place,” the general tells him, but “you have to keep a grip on your hopes.” And, Ignatius writes, “as the Black Hawk skimmed over the city, Baghdad seemed to be teeming again, despite the morning’s events.” “People are back out in the parks,” Petraeus observes, surveying the landscape. “All the lights are on, cars are driving around.”

The view from the ground is left to the Post’s Arabic-speaker Middle East expert, Anthony Shadid, whose report the same day captured the shattering and traumatizing effect the bombings had on local residents:

Sunday’s attack, cutting through snarled traffic during the morning rush hour, was the worst in Baghdad since 2007. With an attack Aug. 19 that killed about 100 people, insurgents have now wrecked an array of pillars of the state’s authority: the Foreign, Finance, Justice, and Municipalities and Public Works ministries, along with the Baghdad provincial headquarters, which are all gathered in a fortified swath of downtown…....

The full extent of the devastation is graphically and gruesomely conveyed in the remarkable photo gallery accompanying Shadid’s article. It provides a stark contrast to Ignatius’s above-it-all account. During the early phase of the Vietnam War, many American columnists went on similar ride-alongs with generals; subsequent events made their rosy accounts seem disconnected from reality. In Ignatius’s case, we don’t have to wait for history.

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

Hoisted from the Archives: Burkean Conservatism and the Burden of the Past on White America

Andrew Sullivan Is Wrong Again!!: Archive Entry From Brad DeLong's Webjournal: On this issue the arguments that convince me are not liberal but conservative ones--Burkean ones, to be exact.

A liberal sees society as a result of a social contract implicitly made between all of us alive today: we agree to live by rules and laws that we then have a chance to rethink, remake, and reform. It's important that this social contract be fair to us. From this perspective, the questions "Why should recent Korean immigrants bear any responsibility for repairing the damage left by the marks of slavery and Jim Crow?" and "Why should African-Americans find their own capabilities and potential accomplishments still limited by the marks of slavery and Jim Crow?" are both very good ones. (Somehow Andrew Sullivan only asks the first, and never thinks to ask the second. But thinking about why would take us far afield.)

I begin from a different point, from the observations that we Americans alive today are all the recipients of an extraordinary and unmerited gift, an inheritance of institutions, principles, and organizations that is without peer anywhere on the world today and that is of inestimable value. We aren't independent liberal individuals making a social contract in the rational light of Enlightenment Reason. Instead, we are heirs who have received an enormous inheritance from our predecessors. As Burke wrote, we "claim and assert our liberties as an entailed inheritance derived to us from our forefathers, and to be transmitted to our posterity--as an estate specially belonging to the people." It's not a contract, or if it is a contract it is not one just between those alive today. Again, as Burke puts it, if you are to think of a social contract you have to recognize that it is not "a partnership agreement in a trade of pepper and coffee, calico, or tobacco, or some other such low concern, to be taken up for a little temporary interest, and to be dissolved by the fancy of the parties.... It is a partnership in all science; a partnership in all art; a partnership in every virtue and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

But estates that are inherited come not only with assets, they also come encumbered with debts. If we are to be Americans--if we are to take up the wonderul unmerited gift, accept the marvelous entailed inheritance that is offered to us--we must take up not just the benefits and advantages, but also the debts that America owes from its past actions as well. To do otherwise--to ignore the debts while grabbing the goodies with both hands--is to show that we are not the true heirs of Benjamin Franklin and company. And chief among the debts that America owes from its past actions is the obligation to erase the marks left by slavery and Jim Crow.

Now Andrew Sullivan wants Americans to welsh on the debts and responsibilities that are attached to our marvelous, unmerited inheritance of institutions, principles, and organizations. He wants us to grab the good parts of the inheritance with both hands, and to say that the bad parts are none of our concern--that the slaveholders are dead, the lynchers are dead, and those who fought hard to protect lynchers from the law are dead (although not all of them, and Strom Thurmond only very recently).

Edmund Burke would disagree. He would say, "Are you crazy? There's a history here!" He would reach back to Montesquieu, and say that if the ruling principle of despotism is fear (it collapses if the subjects no longer fear the despot), and if the ruling principle of monarchy is honor (it collapse if the nobles no longer seek to outdo each other in deeds to win honor, nobility, and the favor of the king), so the ruling principle of a republic must be virtue. What is virtue? Well, linguistically, virtue comes from the Latin "virtus": "vir" = man, "tus" = -liness: "virtue" = "manliness" [in a proper modern and gender-indeterminate way, of course]*. Practically, a republic requires virtuous citizens: citizens who will take up their responsibilities and shoulder their share of the obligations neecessary for the common good. People who won't shirk their responsibilities. "If you wish to be part of this great more than two-century partnership that is America," Burke would say, "you need to recognize that your inheritance is an entailed inheritance. First, it comes with an obligation not to waste it--an obligation to in your turn pass down to those not yet born a better nation than the one you live in. Second, it comes with debts attached: past deeds of America that were cruel and criminal, the memory of which is still shameful. Just because the particular members of the great partnership who incurred the debts (the three-fifths clause, the legality of the slave trade, the Missouri Compromise, the Fugitive Slave Act, et cetera) are dead doesn't mean that that the debts aren't still owed by the great partnership."

So Andrew Sullivan is wrong again. On many issues I am an arrogant liberal. But not this one. On this issue, I'm an arrogant conservative.

Not Disraeli's Two Nations, But Two Nations Nevertheless...

And the really scary one controls today's Republican Party: the curse of Richard Nixon (and Barry Goldwater) in action.

Matthew Yglesias writes:

Matthew Yglesias: White Men Are Not Very Progressive: A nice map from dreaminonempty at Open Left illustrates the vote share won among white men in the 2008 presidential election:

Matthew Yglesias » White Men Are Not Very Progressive

I would say that another message is that progressive politics is badly disadvantaged by a situation in which the overwhelming majorities of political leaders and prominent media figures are white men. There are plenty of white men with progressive views, but in general the majority of white men are not progressive and the majority of progressives are not white men. Drawing from the relatively small pool of white male progressives means drawing from a shallow talent pool.

Yet Another Note on Adam Smith's "Invisible Hand": What It Is and What It Is Not

Adam Smith's "invisible hand" argument: the sole occurrence of the phrase "invisible hand" in the Wealth of Nations:

An Inquiry Into the Nature and Causes of The Wealth Of Nations: Every individual['s]... study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.

First, every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry, provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits.... In the home trade, his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts; and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress.... The capital which an Amsterdam merchant employs in carrying corn from Koningsberg to Lisbon.... The uneasiness, however, which he feels at being separated so far from his capital, generally determines him to bring part both of the Koningsberg goods which he destines for the market of Lisbon, and of the Lisbon goods which he destines for that of Koningsberg, to Amsterdam; and though this necessarily subjects him to a double charge of loading and unloading as well as to the payment of some duties and customs, yet, for the sake of having some part of his capital always under his own view and command, he willingly submits to this extraordinary charge; and it is in this manner that every country which has any considerable share of the carrying trade, becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on....

[A] capital employed in the home trade, it has already been shown, necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade.... Upon equal, or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country.

Secondly, every individual who employs his capital in the support of domestic industry, necessarily endeavours so to direct that industry, that its produce may be of the greatest possible value.... As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He... neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it...

Note that Adam Smith's "invisible hand" argument is not the argument economists make today. Adam Smith argues that there are:

  • political failures--uncertainty about how to access and indeed the prevalence of the rule of law in other countries.
  • psychological failures--people are so anxious to have some of their wealth around them where they can touch it that they pay longshoremen to unload and reload goods at Amsterdam rather than drop-shipping them straight from Konigsburg to Lisbon.

And he argues that, as a result, merchants are good patriots--that they deploy their capital to "render the annual revenue of the [national] society as great as he can."

Adam Smith's purpose here in Book IV, Chapter II is to argue against mercantilism, against the idea that you can make your country wealthier by imposing tariffs and other restrictions on imports. The problem with his argument is that mercantilism is correct (unless you are a very small country), at least in the absence of retailiation.

So Smith, ingeniously, argues that the biases toward home production that mercantilist goals would suggest should be incorporated into economic decision-making are already present in the market because of what modern economists would call political failures and psychological failures. Smith does not argue that the market maximizes wealth because there are no external benefits to home production and merchants are rational. Instead, Smith argues that the market maximizes national wealth because merchants' psychological propensities plus the inability of foreign governments to commit to the rule of law together match the external benefits to others in the national community of merchants' committing their capital at home.

Wall Street Journal Crashed-and-Burned-and-Smoking Watch

Outsourced to Stan Collender:

Attention Wall Street Journal: The Wall Street Journal should be so ashamed of this that it should voluntarily print not just a correction but also an apology.  This lead and third graph are reprehensible:

With the federal estate tax disappearing for most people, state death taxes have emerged as a surprise new worry.


That is down from the 17,500 estates that would have faced death taxes under the previous $2 million limit, the Urban-Brookings Tax Policy Center estimates.

As I've said before, an estate tax doesn't tax death any more than the income tax taxed life.