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December 2009

Ten Economics Paragraphs: December 14, 2009

Worth reading:

  1. Tom Barnett: Chinese turbines, Texas wind farm: "This is just the beginning": U.S. NEWS: "Chinese-Made Turbines Will Fill Texas Wind Farm," by Rebecca Smith, Wall Street Journal, 30 October 2009. 'This is becoming a political storm of sorts, as Chuck Schumer is pressuring Energy Secretary Steven Chu to disallow any stimulus money to be used to buy Chinese turbines. China's Export-Import Bank is providing $1.5B in financing for the West Texas project. The U.S. was the global center for such turbine production in the 1980s, but then it shifted to Europe. Now it sits with China. A Chinese executive says, "This is just the beginning."' I think he's right...

  2. Pro-Growth Liberal: Free Trade as a Stimulus Proposal – Little Bang: The Washington Post asks - How much bang would he get for the borrowed bucks? – in reference to the President’s latest stimulus proposals. This is an odd place to suggest that freer trade with Colombia and South Korea could represent “truly fresh thinking about job creation”. As Paul Krugman notes: "if you liberalize trade countries will export more. But they will also import more. If you’re worried about C+I+G+X-M, it’s a wash, because X and M rise equally … Even if the proposed trade deals with Korea and Colombia were remotely big enough to bear mentioning in the context of the crisis — which they aren’t — they wouldn’t be job creation measures." Using this source, one can see that our exports to these two nations during 2008 were only $46 billion, while our imports from these two nations were $61 billion. Let’s say the “equally” part of what Krugman wrote isn’t quite right and that free trade increases our exports by 20 percent (some $9 billion) while imports rise by only $10 billion (some $6 billion). With GDP in excess of $14 trillion, even our generous estimate of this WaPo policy proposal has it adding a mere 0.02 percent to aggregate demand. Not exactly a big bang! Do the folks at the Washington Post know how to look up trade information?...

  3. Nate Silver: Greg Mankiw, Stimulus Critic: So Wrong He's Actually Right: So, to summarize: Mankiw is wrong that the stimulus consists mostly of Keynesian-type investments. So far, it has been closer to the tax cut end of the spectrum. But he's also wrong that the stimulus is not working. By the benchmark that he implicitly endorses -- GDP -- it's done very well. Mankiw is so wrong, in other words, that he may actually be right: the stimulus looks a lot like one he might have designed, and it's helping the economy...

  4. Tony Judt: What Is Living and What Is Dead in Social Democracy?: Americans would like things to be better. According to public opinion surveys in recent years, everyone would like their child to have improved life chances at birth. They would prefer it if their wife or daughter had the same odds of surviving maternity as women in other advanced countries. They would appreciate full medical coverage at lower cost, longer life expectancy, better public services, and less crime. When told that these things are available in Austria, Scandinavia, or the Netherlands, but that they come with higher taxes and an "interventionary" state, many of those same Americans respond: "But that is socialism! We do not want the state interfering in our affairs. And above all, we do not wish to pay more taxes."... [M]y concern tonight is the following: Why is it that here in the United States we have such difficulty even imagining a different sort of society from the one whose dysfunctions and inequalities trouble us so? We appear to have lost the capacity to question the present, much less offer alternatives to it. Why is it so beyond us to conceive of a different set of arrangements to our common advantage? Our shortcoming—forgive the academic jargon—is discursive. We simply do not know how to talk about these things. To understand why this should be the case, some history is in order: as Keynes once observed, "A study of the history of opinion is a necessary preliminary to the emancipation of the mind." For the purposes of mental emancipation this evening, I propose that we take a minute to study the history of a prejudice: the universal contemporary resort to "economism," the invocation of economics in all discussions of public affairs...

  5. Paul Samuelson: Proof that Perfectly Anticipated Prices Fluctuate Randomly: One should not read too much into the established theorem. It does not prove that actual competitive markets work well. It does not say that speculation is a good thing or that randomness of price changes would be a good thing. It does not prove that anyone who makes money in speculation is ipso facto deserving of the gain or even that he has accomplished something good for society or for anyone but himself. All or none of these may be true, but that would require a different investigation. I have not discussed here where the basic probability distributions are supposed to come from. In whose minds are they ex ante? Is there any ex post validation of them? Are they supposed to belong to the market as a whole? And what does that mean? Are they supposed to belong to the "representative individual" and who is he? Are they some defensible or necessitious compromise of divergent expectation patterns? Do price quotations soehow produce a Pareto-optimal configuration of ex ante subjectivie probabilities? This paper has not attempted to pronounce on these interesting questions...

  6. Joe Gagnon: The World Needs Further Monetary Ease, Not an Early Exit: Without additional stimulus, unemployment rates are likely to remain above equilibrium levels for many years at great cost to the world economy in terms of lost income and personal hardship. Moreover, with inflation rates already below desired levels, excess unemployment threatens to cause an unwelcome fall in prices that would further damp recovery and retard the necessary process of deleveraging. In light of high and rising levels of public debt, additional monetary stimulus is preferable to additional fiscal stimulus. Indeed, monetary stimulus reduces the ratio of public debt to GDP by reducing interest expenses, increasing GDP, expand- ing tax revenues, and enabling an earlier start to fiscal consolidation...

  7. Paul Samuelson: Economics: Even if the authorities should succeed in forcing down short-term interest rates, they may find it impossible to convince investors that long-term rates will stay low. If by superhuman efforts, they do get interest rates down on high-grade gilt-edged government and private securities, the interest rates charged on more risky new investments financed by mortgage or commercial loans or stock-market flotations may remain sticky. In other words, an expansionary monetary policy may not lower effective interest rates very much but may simply spend itself in making everybody more liquid.... In terms of the quantity theory of money, we may say that the velocity of circulation of money does not remain constant. “You can lead a horse to water, but you can’t make him drink.” You can force money on the system in exchange for government bonds, its close money substitute; but you can’t make the money circulate against new goods and new jobs. You can get some interest rates down, but not all to the same degree. You can tempt businessmen with cheap rates of borrowing, but you can’t make them borrow and spend on new investment goods.

  8. Paul Krugman: Gauti Eggertsson is in the process of presenting a new paper on fiscal policy; the paper is here. In his presentation — though not in the paper — he offers great phrase: the “paradox of toil.” According to his paper, when you’re in the liquidity trap, certain kinds of tax cuts have perverse effects. Cutting taxes on capital income, for example, encourages more saving — which is a bad thing, because we’re suffering from the paradox of thrift. In fact, reduced taxes on capital income actually end up reducing investment. So what’s the paradox of toil? If you cut taxes on labor income, this expands labor supply — which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employment. All of this only applies in a situation of zero interest rates, which wouldn’t be interesting except that that’s the situation we’re in. The general point is that we’re really through the looking glass, in a world in which lots of things have perverse effects — and basing your policy ideas on intuition from “normal” times can lead you very much astray...

  9. STUPIDEST THING I HAVE READ TODAY: Michael Cannon of the (Surprise! Surprise!) Cato Institute

  10. FROM THE ARCHIVES: Brad DeLong (March 8, 2008): Does Michael Walzer Really Believe the American Revolution Was Illegitimate?: I knew that Nino Scalia thinks the American Revolution was illegitimate, sinful and blasphemous, first cousin to Satan's War Against Heaven. But can it be true that Michael Walzer agrees with him? Say it ain't so. But let me turn the mike over to Russell Arben Fox, who cites: 'In Medias Res: Thoughts on Kosovo, Mill, and Walzer: [In] Jeremy Waldron's review of Walzer's thought that I mentioned above... [Waldron] writes that "political community is the heart of Walzer's writing," and that he believes "communal integrity has a nonrelative claim upon us"; we morally and prudentially ought to, in short, allow all (or almost all) self-identifying communities the space to work out (and deepen, and thereby perhaps through an education in democracy extend) their own identities and claims. What others may see as a clear-cut issue of humanitarian justice (a state oppressing its ethnic minorities, a violence-prone secession movement gaining power), Walzer sees--at least in many cases--as more of the "traditional philosophical dislike for politics." Waldron adds: "Even in the absence of democracy, Walzer wants to hang on to the principle of self-determination. A political community 'is self-determining even if its citizens struggle and fail to establish free institutions, but it has been deprived of self-determination if such institutions are established by an intrusive neighbor'. The compromises that people make, the sacrifices they forgo, may trouble a philosopher.... But 'I don't believe', says Walzer, 'that the opposition of philosophers is a sufficient ground for military invasion'..."' The point, of course, is that the victory of the West Atlantic Anglospheric secessionists in their 1775-1783 struggle to depart from the unitary Anglospheric United Kingdom was the work of... THAT INTRUSIVE NEIGHBOR THE FRENCH!!!! Does Walzer really want to commit himself to the slogan: "LAFAYETTE, GO HOME!!"?


Health Care Reform Watch: Senator Joe Lieberman Humiliates Himself Yet Again...

Wow! Just wow!

Greg Sargent FTW, who writes:

VIDEO: Watch Lieberman Endorse Medicare Buy-In Three Months Ago: Here’s some video of Joe Lieberman only three months ago.... Lieberman discussed the Medicare buy-in a meeting with the Connecticut Post in September, according to an article in the paper at the time, as TPM noted today. But the article only paraphrased Lieberman. I asked the paper to send over the video, and it’s worth watching, because it gives you Lieberman’s actual quotes... at odds with the Lieberman camp’s claim today.... Lieberman appeared to go further than the current Senate deal, which would expand Medicare to those aged 55-64, saying he supported the idea of expanding it to people aged 50 and over. Lieberman referenced his proposal along these lines during the 2006 campaign, and added:

My proposals were to basically expand the existing successful public health insurance programs Medicare and Medicaid.... When it came to Medicare I was very focused on a group — post 50, maybe more like post 55. People who have retired early, or unfortunately have been laid off early, who lose their health insurance and they’re too young to qualify for Medicare. What I was proposing was that they have an option to buy into Medicare early and again on the premise that that would be less expensive than the enormous cost. If you’re 55 or 60 and you’re without health insurance and you go in to try to buy it, because you’re older … you’re rated as a risk so you pay a lot of money...

Lieberman['s]... tone is clearly positive and approving... yet another sign, as if you needed one, that Lieberman’s current opposition to the Senate proposal doesn’t appear to have any roots in a genuine policy disagreement.


Accurately But Embarrassingly Quoted...

Lindsey Wilson writes:

Please look over your comment and make revisions (or let me know if everything is okay). The transcript wasn’t in good shape this time so we had to guess on some of the comments; therefore, please review your remarks carefully.

Bradford DeLong argued that the New Keynesian model is built on foundations of sand. The only intelligent way to view it is as an attempted exercise in mental consistency, a way to try to organize certain beliefs while leaving aside the reasons for those beliefs. Most of the time the fiscal multiplier is taken to be very low because the labor supply elasticity is low and markups are not strongly countercyclical, and almost all of the rest of the time the fiscal multiplier is very low because the Federal Reserve has a strong view about what nominal spending will be and acts to offset whatever fiscal policy initiatives Congress attempts. DeLong argued that there are times—namely, when the federal funds rate is essentially zero, and the effects of standard open-market operations on relative prices are unclear because cash and Treasury securities look like nearly perfect substitutes—when a combination of quantitative easing and banking recapitalization on the demand side of the credit channel, and of government asset purchases and guaranty policies on the supply side, together with fiscal expansion, have a role to play that they normally do not. It is hard, however, to justify any particular numbers that attempt to answer how much each of these supplements to normal monetary policy tools should be contributing.

It's accurate. It's embarrassing, however. This was definitely not me at my most coherent...


Paul Samuelson (May 15, 1915 – December 13, 2009)

Paul Krugman brings us P.A. Samuelson (May 15, 1915 – December 13, 2009):

He died yesterday. But there is a sense in which he is still very much alive.

Paul Krugman quotes:

Samuelson, Friedman, and monetary policy: [H]re’s Paul Samuelson, from pages 353-4 of his 1948 textbook:

Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle. Purely monetary factors are considered to be as much symptoms as causes, albeit symptoms with aggravating effects that should not be completely neglected.

By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot compel. For in the middle of a deep depression just when we want Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not put these funds to work but will simply hold reserves. Result: no 5 for 1, “no nothing,” simply a substitution on the bank’s balance sheet of idle cash for old government bonds. If banks and the public are quite indifferent between gilt-edged bonds — whose yields are already very low — and idle cash, then the Reserve authorities may not even succeed in bidding up the price of old government bonds; or what is the same thing, in bidding down the interest rate.

Even if the authorities should succeed in forcing down short-term interest rates, they may find it impossible to convince investors that long-term rates will stay low. If by superhuman efforts, they do get interest rates down on high-grade gilt-edged government and private securities, the interest rates charged on more risky new investments financed by mortgage or commercial loans or stock-market flotations may remain sticky. In other words, an expansionary monetary policy may not lower effective interest rates very much but may simply spend itself in making everybody more liquid...

[...]

In terms of the quantity theory of money, we may say that the velocity of circulation of money does not remain constant. “You can lead a horse to water, but you can’t make him drink.” You can force money on the system in exchange for government bonds, its close money substitute; but you can’t make the money circulate against new goods and new jobs. You can get some interest rates down, but not all to the same degree. You can tempt businessmen with cheap rates of borrowing, but you can’t make them borrow and spend on new investment goods...

And comments:

Paul Samuelson was a great economic theorist. But he was also an acute observer of the real world, to such an extent that many of the things he said in his 1948 textbook ring truer than what many, perhaps most economists believed on the eve of the current crisis. This is especially true with regard to monetary policy. By the 1980s, I think it’s fair to say that the vast majority of economists had been convinced by Milton Friedman’s assertion that aggressive monetary policy could have prevented the Great Depression. Some of us started to have doubts after contemplating Japan’s troubles in the 1990s; but as late as 2002 Ben Bernanke declared, on behalf of the Federal Reserve, “You’re right. We did it. But thanks to you, we won’t do it again.” But here’s Paul Samuelson...


links for 2009-12-14

  • "Perhaps the greatest misconception about Barack Obama is that he is some sort of anti-establishment revolutionary. Rather, every stage of his political career has been marked by an eagerness to accommodate himself to existing institutions rather than tear them down or replace them." ~Ryan Lizza. After reading his ridiculous Rolling Stone article on Obama’s “sell-out” to Wall Street, I am persuaded that Matt Taibbi should be forced to write these two Ryan Lizza sentences a few thousand times by hand until he has absorbed their message. The problem is not Taibbi’s reporting on the administration’s actions and personnel, but with the overall interpretation he gives to the facts. No one believed that Obama was “standing up to Wall Street” when Tim Geithner and Larry Summers were appointed to top economic Cabinet and advisory posts, and everything that has happened since then is consistent with the modern Democratic Party’s accommodation with Wall Street that has been steadily intensify...
  • David Kennedy of Stanford opens his review of Paul Krugman's "Conscience of a Liberal" with a claim that AEA founding president Francis Amasa Walker defined an economist as a faithful believer in laissez-faire, “not... the test of economic orthodoxy, merely.... [But] used to decide whether a man were an economist at all.” Why am I not surprised that Francis Amasa Walker actually said something very different? Francis Walker did not say that belief in laissez-faire determined "whether a man were an economist at all." What Francis Walker said in "The Recent Progress of Political Economy in the United States" was: (a) the better part of economists had never imposed such a test, (b) the worse part of economists in the United States who posed as "guardians of the true [laissez-faire] faith" had lost their influence, and (c) the subject was much the better for it...
  • A string of stronger-than-expected economic reports provoked several analysts to revise up their projections for fourth quarter gross domestic product.  The reports show that businesses are rebuilding inventories at a faster pace than many economists thought, consumer spending has been firmer than expected and the U.S. trade deficit narrowed. GDP expanded at a 2.8% annual rate in the third quarter. Now it looks like it’s going at a fast pace in the fourth quarter. If it’s sustained, that could help to bring down the unemployment rate...
  • It is hardly the role of the Fed to be deciding that it knows better than the market what the price of every asset should be. Nevertheless, I think it is necessary for the Fed at least to be forming an opinion about what's driving asset prices as one input into the Fed's decision making. Booming U.S. real estate prices were accurately signaling that there was a problem with both the interest rate target and financial supervision, and it's desperately important to ensure that this same mistake is never repeated. Of course, it's easy enough to say what should have been done in 2004. but the real challenge is figuring out what to do in 2010. Are commodity prices experiencing a bubble right now?... [O]ther economic objectives take precedence at the moment, and it is too early to start raising rates yet. But it is not too early to remember that there are limits to how much you can help the U.S. economy by keeping interest rates low.
  • Oh, my. Paul Samuelson has died. He had a long, good life; yet he will be sorely missed. It’s hard to convey the full extent of Samuelson’s greatness. Most economists would love to have written even one seminal paper — a paper that fundamentally changes the way people think about some issue. Samuelson wrote dozens: from international trade to finance to growth theory to speculation to well, just about everything, underlying much of what we know is a key Samuelson paper that set the agenda for generations of scholars. And he was a wonderfully down-to-earth human being besides. For a number of years I shared an office suite with him and Bob Solow; he always had time to talk
  • WASHINGTON – A White House economic adviser says it would be "suicide" for the government to focus exclusively on the deficit when the economy is sorely in need of jobs. Christina Romer says money freed up from the repayment of financial bailout funds gives the government the leeway to boost try to employment while seeking to control the deficit over the longer term. She says "no one is talking about raising taxes" during a recession to pay for the proposed new stimulus plan. Romer, who heads the White House Council of Economic Advisers, was asked Sunday on NBC's "Meet the Press" whether the recession was over, She said it might be over in official terms, but that it's not truly over until unemployment goes back down to normal levels, in the range of 5 percent.
  • So, after hours of research, I can dismiss [climate denier] Mr Eschenbach. But what am I supposed to do the next time I wake up and someone whose name I don't know has produced another plausible-seeming account of bias in the climate-change science? Am I supposed to invest another couple of hours in it? Do I have to waste the time of the readers of this blog with yet another long post on the subject?... Well, here's my solution to this problem: this is why we have peer review. Average guys with websites can do a lot of amazing things. One thing they cannot do is reveal statistical manipulation in climate-change studies that require a PhD in a related field to understand. So for the time being, my response to any and all further "smoking gun" claims begins with: show me the peer-reviewed journal article demonstrating the error here. Otherwise, you're a crank and this is not a story...
  • Sullivan didn't suggest that this suicide bomber and his world-view were absurd, but that they were evil--not the same thing at all. The DinA writer appears to believe that if some course of action can be described as "rational" (in a sense that appears to mean it's coherent and goal-directed), then ipso facto it can't be considered "evil". But that's silly. Let's suppose that I make a living by murdering people for their money. Or let's suppose that I make a practice of systematically murdering people on the basis of a coherent and internally consistent world-view, backed up by appropriate authorities, which tells me that they are agents of a Martian conspiracy. Or let's suppose that I systematically capture, torture, and murder random individuals just because doing so gives me satisfaction.... In any of these three cases, the DinA writer could describe me as being, in his terms, "a very rational actor". Well, so what?
  • If a cyborg can remove its digital eye and leave it on a shelf as a surveillance device, and I think we all agree that it can, then your cellphone qualifies as part of your body. In fact, one of the benefits of being a cyborg is that you can remove and upgrade parts easily. So don't give me that "It's not attached to me" argument. You're already a cyborg. Deal with it...

Ten Economics Paragraphs: December 13, 2009

Worth reading:

  1. Jonathan Leake on the Younger Dryas: Climate change catastrophe took just month: Six months is all it took to flip Europe’s climate from warm and sunny into the last ice age, researchers have found. They have discovered that the northern hemisphere was plunged into a big freeze 12,800 years ago by a sudden slowdown of the Gulf Stream that allowed ice to spread hundreds of miles southwards from the Arctic. Previous research had suggested the change might have taken place over a longer period — perhaps about 10 years. The new description, reminiscent of the Hollywood blockbuster The Day After Tomorrow, emerged from one of the most painstaking studies of past climate changes yet attempted...

  2. Jim Hamilton: Should the Fed be the nation's bubble fighter?: It is hardly the role of the Fed to be deciding that it knows better than the market what the price of every asset should be. Nevertheless, I think it is necessary for the Fed at least to be forming an opinion about what's driving asset prices as one input into the Fed's decision making. Booming U.S. real estate prices were accurately signaling that there was a problem with both the interest rate target and financial supervision, and it's desperately important to ensure that this same mistake is never repeated. Of course, it's easy enough to say what should have been done in 2004. but the real challenge is figuring out what to do in 2010. Are commodity prices experiencing a bubble right now?... [O]ther economic objectives take precedence at the moment, and it is too early to start raising rates yet. But it is not too early to remember that there are limits to how much you can help the U.S. economy by keeping interest rates low...

  3. Paul Krugman: Paul Samuelson, R.I.P.: Oh, my. Paul Samuelson has died. He had a long, good life; yet he will be sorely missed. It’s hard to convey the full extent of Samuelson’s greatness. Most economists would love to have written even one seminal paper — a paper that fundamentally changes the way people think about some issue. Samuelson wrote dozens: from international trade to finance to growth theory to speculation to well, just about everything, underlying much of what we know is a key Samuelson paper that set the agenda for generations of scholars. And he was a wonderfully down-to-earth human being besides. For a number of years I shared an office suite with him and Bob Solow; he always had time to talk...

  4. Christie Romer: Obama economic adviser pitches job stimulus: WASHINGTON – A White House economic adviser says it would be "suicide" for the government to focus exclusively on the deficit when the economy is sorely in need of jobs. Christina Romer says money freed up from the repayment of financial bailout funds gives the government the leeway to boost try to employment while seeking to control the deficit over the longer term. She says "no one is talking about raising taxes" during a recession to pay for the proposed new stimulus plan. Romer, who heads the White House Council of Economic Advisers, was asked Sunday on NBC's "Meet the Press" whether the recession was over, She said it might be over in official terms, but that it's not truly over until unemployment goes back down to normal levels, in the range of 5 percent...

  5. Iris J. Lav, Nicholas Johnson and Elizabeth McNichol: Additional Federal Fiscal Relief Needed to Help States Address Recession’s Impact: Without It, States’ Steps to Balance Their Budgets Could Cost Economy 900,000 Jobs Next Year: States — which continue to face huge budget shortfalls that they must close — are taking steps now to plan their budgets for state fiscal year 2011, which starts on July 1, 2010 in most states. Governors will send their budget proposals to their legislatures between next month and February 2010 in almost all states. The legislatures will have to pass budgets as early as March or April in some states and by the end of June in almost all states. If states do not know they will receive additional federal fiscal relief, they will begin implementing new budget cuts and tax increases by this summer, at the latest. Presuming they will get no more fiscal relief, states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year. [1] Mark Zandi, Chief Economist of Moody’s Economy.com, recently warned that these state budgetary actions “will be a serious drag on the economy at just the wrong time.” For economic and other reasons, federal policymakers should provide some additional fiscal relief, so that such relief is extended or phased down after 2010 rather than ending abruptly. That would constitute one of the most effective uses of additional federal dollars to boost the weak economy and preserve or create jobs.

  6. Dean Baker on Brady Dennis of the Washington Post: The Post Flacks for the Financial Industry #43,875: Thirty Democratic members of the House voted against the creation of a consumer financial products protection agency. The Post told readers that these members were "moderate," and that "like-minded" Democrats in the Senate hold far more power. How does the Post know that the these members voted against a consumer protection agency because they are "moderate," and that their compatriots in the Senate are actually "like-minded" as opposed to both being under the influence of the financial industry? The Post would have as much justification in righting 30 Democrats in the House with strong ties to the financial industry voted against the bill and then warning readers that Senators with close industry ties have much more power in the Senate. It may not be possible to determine with certainty that these members of Congress cast their votes in ways that serve their political backers, it surely is not possible to determine the opposite, as the Post implies...

  7. Jon Hilsenrath: Economists Revising Up Fourth Quarter Growth Projections: A string of stronger-than-expected economic reports provoked several analysts to revise up their projections for fourth quarter gross domestic product.  The reports show that businesses are rebuilding inventories at a faster pace than many economists thought, consumer spending has been firmer than expected and the U.S. trade deficit narrowed. GDP expanded at a 2.8% annual rate in the third quarter. Now it looks like it’s going at a fast pace in the fourth quarter. If it’s sustained, that could help to bring down the unemployment rate. Here’s a sampling of revisions we’ve picked up so far for the Q4 growth rate: RBS Securities: 5.0% from 3.7%. J.P. Morgan 4.5% from 3.5%. T. Rowe Price:3.8% from 2.7%. Macroeconomic Advisers: 4.2% from 3.8%. Nomura Securities: 3.3% from 3.2%. Aladdin Capital: 3-3.5% from 2.8%. Action Economics: 2.8% from 2.3%...

  8. Tony Barber and George Parker: EU leaders urge IMF to consider Tobin tax: European Union leaders urged the International Monetary Fund on Friday to consider a global tax on financial transactions in spite of opposition from the US and doubts at the IMF itself. In a communiqué issued after a two-day summit, the EU’s 27 national leaders stopped short of making a formal appeal for the introduction of a so-called “Tobin tax” but made clear they regarded it as a potentially useful revenue-raising instrument. In a separate initiative, Mr Brown and Nicolas Sarkozy, France’s president, suggested that revenues from the Tobin tax could be devoted to the world’s fight against climate change, especially in developing countries. They suggested that funding could come from “a global financial transactions tax and the reduction of aviation and maritime emissions and the auctioning of national emissions permits.” However British officials later argued the main point of a financial transactions tax would be provide insurance for the global taxpayer against a future banking crisis. European support for the Tobin tax, named after the late US economist James Tobin, has grown since the world’s financial system plunged into crisis 15 months ago, forcing governments in the US and Europe to rescue and recapitalise banks to the tune of hundreds of billions of dollars. But Tim Geithner, the US Treasury secretary, said last month at a meeting of the world’s 20 main advanced and emerging economies that the US was unwilling to back a tax on daily financial market activity. Opposition was also voiced by Dominique Strauss-Kahn, the IMF managing director, who said the Tobin tax was “a very old idea that is not really possible today”. The EU statement drew attention to “the importance of renewing the economic and social contract between financial institutions and the society they serve”...

  9. STUPIDEST THING I HAVE READ TODAY: Stephen Bainbridge: The Demise of Newspapers: A Market Failure? I Don't Think So: I'm puzzled. What exactly is the market failure here? Welfare economics classically recognizes four basic sources of market failures: producer monopoly; externalities; the good to be produced is a public good; and informational asymmetry between producer and consumer... [As an exercise, readers are urged to tell Professor Bainbridge why there is necessarily a market failure involved in the production of commodities--like both breaking news and in-depth investigative journalism--that are non-excludible. For extra credit, your explanation should cite Sanford J. Grossman and Joseph E. Stiglitz (1980), "On the Impossibiility of Informationally-Efficient Markets." This isn't rocket science, people. This isn't even cutting edge.]

  10. FROM THE ARCHIVES: Brad DeLong (August 1, 2002): Glassman and Hassett's Dow 36000 Once Again: I see that James Glassman and Kevin Hassett are writing in the Wall Street Journal today, lying about what their Dow 36000 book says. There are two different Dow 36000 books that they could have written. The first would say four things: (i) It looks like stocks held for a very long periods--30 years or more--are no riskier than bonds. (ii) If you valued stocks on the same cash-flow principles as you valued bonds, the Dow would be valued at 36000 (if you get your math wrong.) (iii) As long as you are planning on holding stocks for a very long time--more than 30 years--the overwhelming bulk of your returns from holding stocks come from the cash flows you receive, and the fact that stocks have not historically been valued on the same cash-flow principles as bonds will not greatly diminish your return. (iv) Thus if you have a long time horizon--can afford to let your investments ride for more than 30 years--you should realize that buying-and-holding a diversified market portfolio of stocks will be superior to a bond-based portfolio as long as stocks are cheaper than the Dow would be at 36000. The second book would say: THE DOW SHOULD BE WORTH 36000 NOW!! THE DOW WILL BE WORTH 36000 SOON!! IF YOU DON'T BUY STOCKS NOW, YOU ARE MISSING THE ALMOST-CERTAIN OPPORTUNITY TO TRIPLE YOUR MONEY OVER THE NEXT SEVERAL YEARS!! Which book did they write?.... Which book are they now pretending that they wrote? I leave that as an exercise to the reader...


Winston Churchill Liveblogs World War II: December 13, 1939

December 13, 1939:

From the beginning of the war Commodore Harwood's special care and duty had been to cover British shipping off the River Plate and Rio de Janeiro. Hc was convinced that sooner or later the Spee would come towards the Plate, where the richest prizes were offered to her. He had carefully thought out the tactics which he would adopt in an encounter. Together, his 8-inch cruisers Cumberland and Exeter, and his 6-inch cruisers Ajax and Achilles, could not only catch but kill.

However, the needs of fuel and refit made it unlikely that all four would be present "on the day". If they were not the issue was disputable. On hearing that the Doric Star had been sunk on December 2, Harwood guessed right. Although she was over 3,000 miles away he assumed that the Spee would come towards the Plate. He estimated with luck and wisdom that she might arrive by the 13th. He ordered all his available forces to concentrate there on December 12. Alas, the Cumberland was refitting at the Falkfands; but on the morning of the 13th Exeter, Ajax, and Achilles were in company at the centre of the shipping routes °lithe mouth of the river. Sure enough, at 6.14 a.m smoke was sighted to the cast. The longed-for collision had come.

Harwood, in the Ajax, disposing his forces so as to attack the pocket-battleship from widely-divergent quarters and thus confuse hcr fire, advanced at the utmost speed of his small squadron. Captain Langsdorff thought at the first glance that he had only to deal with one light cruiser and two destroyers, and he too went full speed ahead; but a few moments later he reccignised the quality of his opponents, and knew that a mortal action impended.

The two forces were now closing at nearly fifty miles an hour. Langsdorff had but a minute to make up his mind. His right course would have been to turn away immediately so as to keep his assailants as long as possible under the superior range and weight of his 11-inch guns. to which the British could not at first have replied. He would thus have gained for his undisturbed firing the difference between adding speeds and subtracting them. He might well have crippled one of his foes before any could fire at him. He decided, on the contrary, to hold on his course and make for the Exeter. The action therefore began almost simultaneously on both sides.

Commodore Harwood's tactics' proved advantageous. The 8-inch salvoes from the Exeter struck the Spee from the earliest stages of the fight. Meanwhile the 6-inch cruisers were also hitting hard and effectively. Soon the Exeter received a hit which, besides knocking out B turret, destroyed all the communications on the bridge, killed or wounded nearly all upon it and put the ship temporarily out of control. By this time however the 6-inch cruisers could no longer be neglected by the enemy, and the Spee shifted her main armament to them, thus giving respite to the Exeter at a critical moment. The German battleship, plastered from three directions, found the British attack too hot, and soon afterwards turned away under a smoke-screen with the intention of making for the River Plate. Langsdorff had better have done this earlier.

After this turn the Spee once more engaged the Exeter, hard hit by the 11-inch shells. All her forward guns were out of action. She was burning fiercely amidships and bad a heavy list. Captain Bell, unscathed by the explosion on the bridge, gathered two or three officers round him in the after control-station, and kept his ship in action with her sole remaining turret, until at 7.30 failure of pressure put this too out of action. He could do no more. At 7.40 the Eveter turned away to effect repairs and took no further part in the fight.

The Ajax and Achilles, already in pursuit, continued the action in the most spirited manner. The Spee turned all her heavy guns upon them. By 7.25 the two after-turrets in the Ajax had been knocked out, and the Addlles had also suffered damage. These two light cruisers were no match for the enemy in gun-power, and, finding that his ammunition was running low, Harwood in the Ajax decided to break off the fight till dark, when he would have better chances of using his lighter armament effectively. and perhaps his torpedoes. He therefore turned away under cover of smoke, and the enemy did not follow. This fierce action had lasted an hour and twenty minutes. During all the rest of the day the Spee made for Montevideo, the British cruisers hanging grimly on her heels, with only occasional interchanges of fire. Shortly after midnight the Spec entered Montevideo. and lay there repairing damage, taking in stores, landing wounded, transhipping personnel to a German merchant ship, and reporting to the Fuehrer. Ajax and Achilles lay outside, determined to dog her to her doom should she venture forth. Meanwhile on the night of the 14th the Cumberland, which had bcen steaming at full speed from the Falklands, took the place of the utterly crippled Exeter. The arrival of this 8-inch-gun cruiser restored to its narrow balance a doubtful situation.

It had been most exciting to follow the drama of this brilliant action from the Admiralty War Room, where I spent a large part of the 13th. Our anxieties did not end with the day. Mr. Chamberlain was at that time in France on a visit to the Army...


Team Nightmare...

May I say that it is a defect in Dragon Dictate for iPhone that it regularly interprets "Tim Geithner" as "team nightmare"?

One of these days one of these is going to go out. Just sayin'...

That is all.


Ten Things on Which Matt Taibbi Really Does Not Know What He Is Talking About

It's hard to know how seriously one is supposed to take a Matt Taibbi who begins:

Obama's Big Sellout: Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing...

Ummm... No. Barack Obama ran as a post-partisan African-American technocrat. His campaign fundraisers were chock-full of people from the left investment banks--you know, those people who spend 3/4 of their time making money and 1/4 of their time working to elect politicians who will tax them at higher rates because you were slaves to Pharoah in the land of Egypt, and for other reasons. The policy advisors on his conference calls during the campaign were the--very good assistant secretaries, undersecretaries, and secretaries from the Clinton administration. Barack Hussein Obama was out in front in support of Paulson's plan (which was remarkably effective in softening the downturn) to shovel government money at the bankers in the fall of 20098.

When an author is apparently as clueless as to what was going on a year ago as Matt Taibbi is, one has to wonder just how seriously one is supposed to take anything he writes. It's a purple rhetorical exercise in overstatement--we hope;

But in case anyone is tempted to take its truthiness as truth, its factoids as facts, let me lay down ten markers. I could lay down 50:

  1. The financial reform bill that just passed the House is not nearly as strong a bill as the Treasury wanted. The reason is not that Obama and Geithner did not push for a stronger bill, but rather that the members of congress balked at a stronger bill.

  2. Citigroup did not receive a $306 billion bailout as the first major act of Obama's presidency. First, where does the $306 billion number come from? The number I associate with Citigroup is $45 billion of TARP money. Certainly Citigroup would be bust and gone if not for government aid extended to it during George W. Bush's presidency--aid that Obama endorsed--but it now looks as though Citigroup will pay everything back: that the government will profit from the aid it extended to Citigroup.

  3. James P. Rubin is not James S. Rubin.

  4. The James Rubin whom Mike Froman brought in to staff the economic policy search was not Bob Rubin's son.

  5. The Obama economic policy inner circle--Tim Geithner, Gene Sperling, Larry Summers, Christie Romer, Peter Orszag--is not "a group of Wall Street bankers." It is only 5% Wall Street banker--only 1/4 of Larry Summers can possibly count as a Wall Street banker.

  6. Mike Froman staffed the economic policy search. Mike Froman--a very smart and capable man--did not lead the economic policy search. He was not some corrupt Svengali who foisted advisors who would whisper evil in the innocent Obama's ear. Obama led the economic policy search.

  7. Austan Goolsbee's absence from the transition staff was not notable. Austan Goolsbee does have a senior subcabinet appointment. And Austan Goolsbee is not a voice on the economic left--this is the man who told the Canadians not to take Barack Obama's claims that he wanted to renegotiate NAFTA seriously. I don't kknow the story of Karen Kornbluh.

  8. Ah. Taibbi says: "the government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets." First of all, $277 + $45 = $322, not $306. But a guarantee is not money at risk and money at risk is not money lost. As I said, it looks like the government is going to make money off of its support of Citi. (Albeit not off its support of AIG.)

  9. Tim Geithner was not hired as Treasury Secretary by Mike Froman. Tim Geithner was hired as Treasury Secretary by Barack Obama.

  10. According to CBO, the ARRA so far is not worth 640,000 extra jobs as of September 2009 but rather 1.1 million plus or minus 500,000--and that number will grow.

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


links for 2009-12-13


Ten Economics Paragraphs: December 12, 2009

Worth reading:

  1. Calculated Risk: Refinancing with Negative Equity: Unfortunately David Streitfeld doesn't provide any further information on Belvedere's loan. If the loan was held by a bank, then it might make sense for the bank to refinance the loan (this lowers the bank's risk of default). However Belvedere's "lender" might be a servicing company and the loan may have been securitized. Then it is impossible to refinance because the current holders of the note would be paid off, and no new lender would make a loan greater than the value of the collateral...

  2. Mark Whitehouse: American Dream 2: Default, Then Rent: Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard. But ever since they quit paying their mortgages and walked away from their homes, they've discovered that giving up on the American dream has its benefits. Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes -- one with a pool for the kids, the other with a golf-course view -- for a fraction of their former monthly payments. "It's just a better life. It really is," says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth...

  3. Fake Steve Jobs: A not-so-brief chat with Randall Stephenson of AT&T: And now here we are. Right here in your own backyard, an American company creates a brilliant phone, and that company hands it to you, and gives you an exclusive deal to carry it — and all you guys can do is complain about how much people want to use it. You, Randall Stephenson, and your lazy stupid company — you are the problem. You are what’s wrong with this country. I stopped, then. There was nothing on the line. Silence. I said, Randall? He goes, Yeah, I’m here. I said, Does any of that make sense? He says, Yeah, but we’re still not going to do it. See, when you run the numbers what you find is that we’re actually better off running a shitty network than making the investment to build a good one. It’s just numbers, Steve. You can’t charge enough to get a return on the investment. Now there was silence again. This time I was the one not talking. There was this weird lump in my throat, this tightness in my chest. I had this vision of the future — a ruined empire, run by number crunchers, squalid and stupid and puffed up with phony patriotism, settling for a long slow decline. “Okay,” I said. “Nice talking to you.” Then I hung up.

  4. Paul Krugman: Jobless Recovery: There was ample warning, even before the severity of the crisis was clear, that the recession was likely to be followed by a prolonged jobless recovery. E.g., here (January 2008): "I still keep reading articles asserting that the last two recessions were brief and shallow. Formally, that’s true. But … in both cases the employment slump went on for a long time after the recession was supposedly over. There’s every reason to think that the same thing will happen this time. There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending..."

  5. Stan Collender: Baucus To Conrad And Gregg On A Budget Commission: Yo Mama: Finance Committee Chairman Max Baucus (D-MT) yesterday delivered this speech on the Senate floor against the budget commission proposed by Senate Budget Committee Chairman Kent Conrad (D-ND) and Budget Committee Ranking Republican Judd Gregg (R-NH).  Although it was couched in the polite language typically used on the Senate floor, this absolutely was the Washington equivalent of "Yo mama"...

  6. Mark Kleiman: "Anyone Telling You Uncertainty About Climate Change Is a Reason for Inaction Is Either a Fool or a Scoundrel": [G]reater uncertainty argues for more caution--more willingness to accept certain current losses to avoid possible large future losses--not less. That’s because it’s easier to adjust to small changes than it is to large ones, so damage is likely to increase more-than-proportionally as the size of the change increases...

  7. Brad DeLong: Is This a Congressional Joke?: I am--in normal times--a deficit hawk. I think the right target for the deficit in normal times is zero, with the added provision that when there are foreseeable future increases in spending shares of GDP we should run a surplus to pay for those foreseeable increases in an actuarially-sound manner. I think this because I know that there will come abnormal times when spending increases are appropriate. And I think that the combination of (a) actuarially-sound provision for future increases in spending shares and (b) nominal balance for the operating budget in normal times will create the headroom for (c) deficit spending in emergencies when it is advisable while (d) maintaining a non-explosive path for the debt as a whole. But when I look at Senators Conrad and Gregg, I don't recognize fellow members of my species. They may be glueing the feathers of deficit hawks onto themeselves, but they are birds of a very different order--doves, turkeys, chickens, whatever, but I hope they are dodos...

  8. Mark Thoma: Why it May Take Almost Seven Years for Unemployment to Reach Five Percent: The average rate of decline in the unemployment rate over the last three recessions is .061 percent Using this figure, and starting from an unemployment rate of 10 percent — the rate that exists today — how long would it take for the unemployment rate to get to 5 percent? Answer: (10-5)/.061 = 81.8 months, or almost 7 years. (Getting to 6% would take 65.5 months, or just short of 5 and a half years.)

  9. Ed Hugh: The Velocity Of Modern Financial Crises: Jean-Claude Trichet, European Central Bank president, noted when speaking in Cambridge last Thurdsay that the speed at which financial disruption can spread had “accelerated tremendously over the past few decades”. While debt crises in the 1980s occurred over years, the effects of the Lehman collapse “spread around the world in the course of half-days”. As Ralph Atkins pointed out, the Greek government is but the latest to learn that in the modern world you can be catapulted from relative obscurity to global prominence in a matter of hours. Everyone can be famous for five minutes, as Andy Warhol said, but this kind of fame most of us could well live without...

  10. Brad DeLong (October 10, 2008): The wrong financial crisis: All of us from Lawrence Summers to John Taylor were expecting a very different financial crisis. We were expecting the ‘Balance of Financial Terror’ between Asia and America to collapse and produce chaos. We are not having that financial crisis. Instead we are having a very different financial crisis. Catastrophic failures of risk management throughout the entire banking sector caused a relatively minor collapse in housing prices to freeze up global finance to a degree that has not been seen since the Great Depression. The first good thing about this situation is that it does not call for different central banks and Treasuries to do different things, but rather for them all to do the same thing in unison without fouling each other’s oars. That should be relatively easy to arrange. What we need right now are: (a) Coordinated fiscal expansions across the globe. (b) If the world economy is not now in something close enough to a liquidity trap to make no difference, it soon will be: coordinated monetary expansions across the globe. (c) A bank is any organisation that borrows or accepts investments short and lends long; the durations of its assets and liabilities are deliberately mismatched; when the entire banking sector is insolvent at current market prices, anything that reduces interest rates all along the yield curve helps reduce the magnitude of the insolvency: coordinated banking sector recapitalisations across the globe. (d) Since at least 1844 there has been broad consensus that the short-term price of safe liquidity is too important to be left to the market; now there is growing consensus that the price of risk is too important to be left to the market as well. For the government to operate on the price of risk through Operations-Twist on a Galactic scale is infeasible. That means that the aggregate degree of capitalisation of the banking system must become the object of policy choice. Call it socialism in one sector. What we need in the longer term are: (e) Global rules to make outsized compensation incentive-compatible. The Princes of Midtown Manhattan and Canary Wharf need to know that their fortunes will be lost if their institutions blow up within a decade of their handing over operational control – only in this way can you make them truly long in the fortunes of their firms and of the global economy rather than simply long in volatility. (f) More progressive global tax systems...


"Anyone Telling You Uncertainty About Climate Change Is a Reason for Inaction Is Either a Fool or a Scoundrel"

There is one set of circumstances in which uncertainty is a reason for inaction: (a) the measures you would take would be expensive, (b) the measures you would take will be irreversible, and (c) you will get a lot of new information soon to help you judge the situation better.

That set of circumstances does not apply here.

Mark Kleiman:

Precaution, uncertainty, insurance, and morality: [G]reater uncertainty argues for more caution--more willingness to accept certain current losses to avoid possible large future losses--not less. That’s because it’s easier to adjust to small changes than it is to large ones, so damage is likely to increase more-than-proportionally as the size of the change increases. Assume some climate model predicts that... temperature would rise 3° C by 2100. If the model were very accurate and precise, that might be 3°± 1°. If the mechanisms involved remain obscure and the data unclear--as is the case today – that might be 3°± 5°.... Given how bad a 3° increase would likely be, if we knew for sure that would be the outcome in the face of inaction there would be a strong agument for making big and expensive policy changes to prevent it from happening. And if we knew that for sure, it would be very hard politically to argue against doing something about the problem. By contrast, 3°± 5° means that proponents of inaction get to say “We’re not even sure there’s any problem at all.” That makes the political case for action much weaker. But it makes the logical case for action much stronger....

[A]n 8° C average temperature increase... rendering much of the tropics virtually uninhabitable and, quite plausibly, hitting various triggers for positive-feedback effects such as the melting of the polar ice caps, which would reduce the amount of solar energy reflected back into space, and the melting of the Siberian permafrost, which would release a huge amount of methane, a potent greenhouse gas.  (Most systems are more stable in the face of small changes than they are in the face of large changes.)  Thus a primary increase of 8° might really mean an increase even larger than that: an increase that might not be reversible even if greenhouse-gas emissions were then sharply curtailed. That would be the kind of disaster to which some version of the precautionary principle reasonably applies....

Ordinarily, it is the proponents of action who bear the burden of persuasion.  But in this case political inaction means, in effect, licensing a massive gamble.... [N]one of the arguments for the freedom of economic activity appl[y]... there is simply no “invisible hand” mechanism that directs private action in such a situation in the direction of the public interest.

The willingness of some politicians and pundits to bet the planet on the claim that climate scientists are talking through their hats, which involves the larger claim that they have managed to assemble an enormous conspiracy to perpetrate a hoax, calls either their intelligence or their morals into serious question.  And that goes for the journalists and media moguls who treat their ravings as if they represented simply one side in a reasonable argument.

If anyone tries to tell you that uncertainty about climate change is a reason for inaction, he’s either a fool or a scoundrel. Probably a bit of both.


What Could Be More Cowardly that to Surrender Your Theory in the Face of Facts?

I thought there was something very, very wrong with George Mason's Charles Rowley when he began trashing Avner Greif for no reason.

Now Henry Farrell and company watch the wreckage...


UPDATE: A correspondent tells me that there is now a Godwin's Law violation there--something about how John McCain's ideology is the same as that of the Nazis. I'm not going to look...


links for 2009-12-12


Oh Dear...

What House Majority Leader Steny Hoyer should be saying:

Because of the uniquely high unemployment rate, the benefits to government spending are much greater than usual--not only does it deliver needed services and build necessary infrastructure, but it puts people who otherwise would be jobless and broke to work. Because of the uniquely good terms on which the government can borrow, the costs of bringing government spending forward into the next three years from the distant future are much smaller than usual. But a commitment to spend more by the government over the next three years must not be allowed to destabilize expectations of the long-run fiscal soundness of the American government--that could produce an economic disaster.

Hence our commitment to create jobs by spending more in the next three years shall and must be accompanied by putting in place the institutions and procedures--automatic triggers on both the spending and tax side--to close the deficit and keep the debt from exploding should congress prove unable to do its job through the normal legislative procedures.

Thus next year the focus will be on jobs and fiscal responsibility...

What House Majority Leader Steny Hoyer is saying:

Coming Up In 2010: All About The Deficit: Top aides on both ends of Pennsylvania Avenue say 2010 will be the year of fiscal responsibility, even if President Obama has to battle with progressive Democrats to make cuts they won't like. "Next year the focus will be jobs and fiscal responsibility," House Majority Leader Steny Hoyer told TPMDC in a briefing with two reporters Thursday. Hoyer (D-MD) said one reason Democrats are having a tough time one year before the Congressional midterm elections is that voters are concerned about the nation's fiscal health, and they also want to see the unemployment rate shrink. He said he knows there may seem to be disconnect with those two things in short term, but in long term they make sense. "The American public are right, we have to do both," Hoyer said.

Deficit reduction over the long term will be the White House's primary focus next year, and Chief of Staff Rahm Emanuel said at the Wall Street Journal's CEO Council conference last month it will be a "key component" of the president's State of the Union address. "It is foremost on his mind and the mind of the economic team," Emanuel said.

Office of Management and Budget spokesman Ken Baer told TPMDC it will be a top priority. "As part of the FY2011 Budget process we are exploring a range of options to put the country back on a fiscally sustainable path," Baer said.

These strike me as very different things.

It is certainly true that you can enact bad economic policies and win both the applause of the Washington press corps and reelection--look at Ronald W. Reagan and George W. Bush. The race is not always to the swift or the battle always to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; nor does good economic news always come to the enactors of good economic policies. Time and chance happen to them all.

But if you want the odds on your side, enact policies that make sense--not policies that leave you stammering to reporters about how you know " there may seem to be disconnect with those two things in short term," but "in the long term they make sense" even though I cannot explain how...


A Nice Follow-Up Piece from Noam Scheiber on the White House's Thinking...

He writes, among other things:

Is The Administration's Economic Thinking Incoherent?: Brad DeLong parses my piece today on the administration's struggle to create jobs while still minding the deficit and pronounces himself "increasingly bewildered about administration thinking."...

Now, obviously, not every member of the administration and every Democrat on the Hill signed onto the [relatively-optimistic late-summer] consensus I describe. But, based on several conversations with people in the administration and on the Hill, I'd say it was the prevailing view. It was the September jobs report (which came out in early October) that really jarred people....

I quote a senior administration official who says that, “The reality is that it’s not too hard to find a Wall Street analyst that says a second stimulus basically cancels itself out almost immediately because of the impact at this stage on government financing costs.”... I happen to agree with DeLong that such a canceling-out is unlikely. But, in fairness to the administration official, my sense is... [he meant] just that it's a risk the administration wants to minimize when it spends money on job creation, not a reason not to spend money on job creation....

If I understand him correctly, DeLong is essentially saying that... it can either be the case that more stimulus now will be ineffective because people will assume we'll run bigger deficits in the future, which raises long-term interest rates. Or it can be the case that more stimulus now will be ineffective because people will assume we'll run smaller deficits in the future [because of higher taxes], and will simply save [to pay the taxes] rather than spend the money. But it can't be the case people will assume we'll run both larger and smaller deficits in the future....

DeLong has put his finger on a relatively important feature of administration thinking on these questions, which is that it's (understandably) a bit all over the place. Some officials think an imminent rise in long-term rates is a potential problem; others think low rates of consumption of additional stimulus is a potential problem; some think both could be problems (under different scenarios); some neither; of the people who think both, different people attach different weights to the different scenarios, etc., etc. I guess the bottom line is that there isn't really a coherent Administration Position here...

And this is the puzzle. Yes, uncertainty is enormous. And any one policy might not work. But that any one individul policy initiative might not work is not an argument for not trying anything--unless you are happy if things develop according to the current-policy forecast and we see an unemployment rate between 9% and 11% for the next year and a half at least.

Thus if I were in the administration I would be trying everything:

  • pushing the Fed to buy lots of long-term private bonds by selling some more of its stock of Treasuries...
  • pushing the Fed to engage in additional quantitative easing with still more of its current stock of Treasuries...
  • pushing the Fed to set an explicit inflation rate target--and to set its GDP deflator inflation target at 3% per year...
  • pushing the Fed to declare that if the price level falls below its target it will push to catch it up to where it had hoped to see it...
  • more aid to the states to keep them from turning even more into fifty little Herbert Hoovers...
  • more infrastructure spending...
  • bringing forward in time spending on health care access...
  • bringing forward in time spending on controlling global warming...
  • tax-increase triggers should the deficit be too large in 2015 and beyond to calm fears that America's fiscal policy will be unbalanced in the long run...
  • more banking recapitalization...
  • more taking on of private-sector tail risk by the government...
  • the full (albeit temporary) nationaization of mortgage finance...

And then reinforce whatever seems to be working.

As one notable economist said yesterday, it's as if once the banks passed their stress tests the High Politicians inside the White House decided that it should simply declare victory on macroeconomic policy and go do other things. And nobody at a higher level than the economic team thought of what had been clear to us since April, and assessed either the medium-run economic consequences--a 10% plus peak unemployment rate likely to be followed by a jobless recovery--or the political consequences--it's hard to think that congress in 2011 and 2012 will be supportive of Obama's initiatives if the 2010 election takes place in an environment of a 10% unemployment rate


The Arithmetic of a Jobless Recovery

Macro Advisors has just upped their tracking estimate of seasonally-adjusted fourth-quarter real GDP growth to a 4.2% annual rate. We know that the fourth-quarter labor input growth rate will be about -1.0%. That means another high--5.0%-labor productivity growth rate quarter.

If productivity growth continues at 5% for a while, we would need a real GDP growth annual rate of 7% or more in order to lower the unemployment rate by even on percentage point per year...


links for 2009-12-11


The Real Unemployment Rate...

The real unemployment rate--the share of Americans who say that they are actively looking for work and don't have jobs--has been drifting down since late spring--from 9.7% in June to 9.4% in November. The seasonally-adjusted unemployment rate over that same period has risen from 9.5% to 10.0%, as the actual unemployment rate has drifted down much more slowly than it usually drifts down from June to November as things pile up for the Christmas rush.

Economagic: Economic Chart Dispenser

Starting now the seasonal adjustment factors reverse themselves. American unemployment not seasonally adjusted is going to rise by about one full percentage point between mid November and mid January. It will be harder to find a job in a month than it was a month ago, whatever the seasonally-adjusted figures say.


Is This a Congressional Joke?

Senator Conrad voted for Medicare Part D. Senator Gregg voted for the Bush tax cuts. Of the $36 trillion Auerbach-Orszag present-value fiscal gap through 2080 $11 trillion is due to the Bush tax cuts and $6 trillion is due to Medicare Part D. Eliminate those two fiscal policy mistakes, and our long-run (out to 2080) fiscal problem is half the size.

Isn't the easiest thing--and the most obvious thing, and the most constructive thing--Senators Conrad and Gregg could do in order to help fix the deficit is for them to stop making it worse? Isn't the obvious thing for them to resign, and as they resign to tell Americans that they should never elect senators like them again?

Yet now come Senators Kent Conrad and Judd Gregg dressed up in the feathers of deficit hawks:

Colloquy Between Senate Budget Committee Chairman Kent Conrad and Budget Committee Ranking Member Judd Gregg On the Bipartisan Task Force on Responsible Fiscal Action Act

December 10, 2009

Mr. Conrad: This is the headline from "Newsweek" December 7. In fact, it was a cover story: "How Great Powers Fall. Steep debt, slow growth, high spending kill empires -- and America could be next." If you go to the story -- and, by the way, interestingly enough, this is on December 7, Pearl Harbor day. If you go into the story that's in the magazine, it says -- and I quote -- "This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force ... If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power." All we have to do is look at the facts. This shows the debt of the United States from 2001 projecting to 2019....

I hope people are listening. I hope they're paying attention. I hope our colleagues are. A group of us yesterday introduced legislation to confront this debt threat head-on. There are now 31 cosponsors of that legislation: 18 Republicans, 13 Democrats....

It is going to take a special process, a special commitment of the members here and representatives of the Administration to develop a plan that gets us back on track. And it is going to take a special process to bring that plan to this floor for a vote, up or down. That holds, I believe, the best prospects for success. I believe this is a defining moment for this Chamber, for this Congress, for this Administration....

Mr. Gregg: Mr. President?

The Presiding Officer: The Senator from New Hampshire.

Mr. Gregg: It is an honor to join with the Chairman of the Budget Committee. We've worked together for awhile and have a piece of legislation which accomplishes the goals as they have been outlined by the Senator from North Dakota, and that's good news. And really the outpouring of support here in the Senate -- over 31 co-sponsors in just a very short time -- is a sign they are willing to move in this area, and that's good news. Right now in this country, after the possibility of a terrorist getting a weapon of mass destruction and using it against us somewhere here in the United States, the single biggest threat that we face as a nation is the fact that we're on a course toward fiscal insolvency...

I am--in normal times--a deficit hawk. I think the right target for the deficit in normal times is zero, with the added provision that when there are foreseeable future increases in spending shares of GDP we should run a surplus to pay for those foreseeable increases in an actuarially-sound manner. I think this because I know that there will come abnormal times when spending increases are appropriate. And I think that the combination of (a) actuarially-sound provision for future increases in spending shares and (b) nominal balance for the operating budget in normal times will create the headroom for (c) deficit spending in emergencies when it is advisable while (d) maintaining a non-explosive path for the debt as a whole.

But when I look at Senators Conrad and Gregg, I don't recognize fellow members of my species. They may be glueing the feathers of deficit hawks onto themeselves, but they are birds of a very different order--doves, turkeys, chickens, whatever, but I hope they are dodos.


The Bond Market Is Very Calm Indeed...

Treasury sells $13 bln in 30-year bonds at 4.52%:

http://sub1.economagic.com/em-cgi/daychart.exe/form

http://sub1.economagic.com/em-cgi/daychart.exe/form

Since the middle of 2008 the U.S. Treasury has increased the supply of Treasury bonds held by the public by $2.5 trillion. And it has done this without moving the needle at all on either the real or nominal interest rates it has to pay.

It requires a very strange mind indeed to say at this moment that the price elasticity of demand for U.S. Treasury securities right now is so high that additional fiscal stimulus is self-neutralizing...


Jon Chait FTW!!!!

He writes about the Conrad-Gregg deficit commission:

The Deficit Commission Bill Is Here, And It's Insane: Let me get this straight. You have a commission proposing a package of highly unpopular legislative changes. And, in addition to having to surmount the 60-vote barrier in the Senate, which is nearly insurmountable for major legislation and which was avoided for both of the last two major deficit-reducing bills, it's also going to impose a new supermajority requirement in the House and a 78% threshold in the commission itself? To say that this procedure "is designed to get results" shows a very odd understanding of American political institutions. Conrad and Gregg seem to think that instituting major reforms in the public interest is rare because the threshold for passing legislation is too low. Thus they've designed a process that creates new and higher supermajority requirements, on an issue where getting even 51% to sign on is probably impossible. And if that fails, maybe they'll conclude the process was too easy. Next time they could also require the commission members to create a cold fusion reactor or retrieve a magical ring from inside a volcano.

No, no, Jonathan! You have it wrong! The commission will have to destroy the deficit by throwing themselves and it into the erupting volcano!

gollum1.jpg 1302շ10 pixels


Why Do I Keep Thinking that William's First Name Is "Richard"?

As in my recent link to here: William Easterly (2009), "Why there’s no “GrowthGate:” Frustration vs. Chicanery in Explaining Growth".

I think the answer is that "Easterly" is just a little too close to "Easterlin," and my brain is now full: there is one and only one pattern of neurons that fires when I think about a very smart economist interested in economic growth whose last name begins with "Easter"...


in Which I Am Becoming Increasingly Bewildered About Administration Thinking

Noam Scheiber reports from inside the Obama Administration:

Balancing The Budget: As of late this summer, Democrats in Washington shared a tidy consensus about the economy: The stimulus was working more or less on schedule, and the job market was gradually recovering. That meant the administration could start thinking about how to rein in the country’s yawning budget deficit, if not actually scale it back yet...

To this my first reaction is: "Huh?" On August 16, 2009 many--Barry Bosworth for one--were saying that the stimulus was, as someone in his audience put it, "1. too slow; 2. too small; 3. too much in silly tax cuts out of which the M[arginal ]P[ropensity to ]C[onsume] will be much less than 1." It's not clear to me whether Noam is setting up an overstated rhetorical antithesis here, or whether the political Democrats really were in a bubble about the state of the economy late last summer.

What followed turned that tidy consensus into a pigsty.... “The entire town is more schizophrenic than I’ve ever seen,” says one senior administration official. “Everyone cares about jobs, and everyone cares about fiscal discipline. The weight shifts week by week, unemployment report by unemployment report.”...

[T]here’s no such win-win solution this time... the only way to further stimulate the economy is to spend. “Now is not the time politically or economically to emphasize fiscal austerity,” says Simon Rosenberg, president of NDN, a Washington think tank. “That day will come.” Rosenberg is surely right about the need to punt for the moment on the deficit. But it turns out that this choice is only the beginning of the discussion, not the end... spending more money now could actually raise long-term rates, thereby offsetting its effect. “The reality is that it’s not too hard to find a Wall Street analyst that says a second stimulus basically cancels itself out almost immediately because of the impact at this stage on government financing costs,” says one senior administration official.

To this, my reaction is: I've been looking for such Wall Street analysts, and have had a hard time finding them--except among the goldbugs, the politically-motivated fellow travelers of Donald Luskin, and others of that ilk. I see a lot of people saying that such a scenario might happen--that it is one possibility. I don't see credible people saying that it is the central tendency. And I don't see anybody selling long-term Treasuries on any substantial scale as a way of betting that such a scenario will come to pass.

Does anybody know to whom Noam and this SAO are referring?

And, of course, if you do fear adverse bond-market reaction to more shot-term government spending, there is an immediate and natural cure:

On paper, the way to deal with this is to spend now while pledging to cut later on, so as to persuade the bond market the infusion is temporary. “Everyone would of course like to be able to do something substantial on jobs in the short term and lock in tough, fiscally responsible policies in the medium term,” says a second administration official. But actually executing this fiscal maneuver is unspeakably difficult.... “The odds that you could get both done in an election year with ten percent unemployment are mighty low,” says this official. It would be hard enough to rally liberals around the cause of deficit reduction so soon after the deepest recession in 70 years; getting the GOP on board would be hopeless. Already, Republicans have shamelessly highlighted Medicare cuts in order to derail health care reform...

This seems to be simply wrong: Those Democrats concerned with jobs now appear to me to be eager to get more spending now even if they have to pay for it with spending caps and revenue triggers five years and more into the future. And those Democrats who are deficit hawks above all are willing to provide more spending now to sweeten the long-term curve bending. It might not work, but there is a sweet spot that everybody on the Democratic side is willing to vote for.

Then the administration, speaking through Noam, becomes less than coherent:

If the administration were to announce, say, a $200 billion job-creation bill along with a tough deficit-reduction package beginning in three or four years, anticipation of the latter could undercut the former. The reason: People who think their taxes will get raised save more and consume less. And, of course, the whole point of additional stimulus is to goose consumption...

You can either say that you think that bigger deficits now that create expectations of bigger deficits in the future will be ineffective, or (if you are Ricardian about it) that bigger deficits now accompanied by expectations of smaller deficits in the future will be ineffetive, but you cannot say both at the same time.


Incentive Compatibility

A good move by Goldman Sachs.

Sue Chong:

Goldman Sachs management won't get cash bonus: SAN FRANCISCO (MarketWatch) -- Goldman Sachs Group (GS 166.27, -0.18, -0.11%) said Thursday its management committee will be receiving its bonus in the form of "shares at risk" in 2009 instead of cash. The shares at risk cannot be sold for five years and include other restrictions. "Discretionary compensation represents the vast majority of senior management's compensation and is directly tied to the firm's overall performance," Goldman Sachs said in a statement. Shareholders will also have an advisory vote on the compensation package at the financial firm's annual meeting in 2010. The announcement comes after the board approved various changes to the 2009 compensation program.


Paul Krugman on the New Candidate for the Worst Washington Post Editorial Ever

Paul Krugan:

Things free trade doesn’t do: There are a lot of good things you can say about international trade. But it does not, repeat not, do anything to alleviate a shortage of overall demand. Yes, if you liberalize trade countries will export more. But they will also import more. If you’re worried about C+I+G+X-M, it’s a wash, because X and M rise equally. Which makes this WaPo editorial on things Obama should be doing about jobs truly bizarre. Even if the proposed trade deals with Korea and Colombia were remotely big enough to bear mentioning in the context of the crisis — which they aren’t — they wouldn’t be job creation measures. But then, the bit about reducing minimum wages is equally off point, because the level of wages has nothing to do with the overall employment problem.

OK, they don’t like Obama’s policies. But these are ridiculous alternatives.

Shut the Washington Post down. Shut it down now.

And let me say that now that the Sixteen-Year-Old's PSAT scores have come back, it is very clear to us that Princeton Review is a much better test prep company than Stanley Kaplan.


links for 2009-12-10


To Market, To Market...

Humans have, as Adam Smith wrote more than 200 years ago, a natural propensity to "truck, barter, and exchange"--to enter into reciprocal gift- exchange relationships with one another. These reciprocal relationships do three things: (i) they allow us to trade things that we value less or that are less useful to us but more useful to somebody else for things that we value more or find more useful; (ii) they make us view our fellows as friends and partners who are useful aids rather than obstacles to us, and (iii) they allow us to gain status and put others under obligation: I did something very valuable for you, now it is your turn to do something very valuable to me.

Let's move--as economists like to do--into a fictional toy economy with a fictional toy market to try to gain some intuition about these issues. Let's work through a stylized example that I call "Blessed Are the Cheesemongers..."

We have a crossroads. Five days a week, 8 hours a day, every 24 minutes a guy with a highly perishable cheese--a seller--and a guy who likes cheese--a buyer--come by, meet each other, try to bargain, and then leave.


20091209 to market to market i.pdf

Econ 1--To Market, To Market.1.xls



The Opposite of a Pyrrhic Victory Is...

...a Laevinic defeat, according to "Benjamin." Hoisted from Comments:

Another Such Defeat and We Will Be the Winners!: Benjamin said...

a Laevinic defeat would certainly be the correct term, Publius Valerius Laevinus being on the receiving side of Pyrrhus' victory.

However, the Berkeley Classics Department inclines toward a different story.

It focuses not on the 280 BC Battle of Heraclea but rather on the 279 BC Battle of Asculum as the source of the "Pyrrhic victory" and of Pyrrhus's exclamation: "Another such victory and I am lost." The consul and commander at Asculum was Publius Decius Mus P. f. P. f. (yes, "Mus" does mean "mouse").

So now I am wondering whether "Musish defeat" or "mouseish defeat" is more appropriate as the antonym of "Pyrrhic victory."

From Peter Paul Rubens, "Death of Publius Decius Mus":

File:Peter Paul Rubens 107.jpg - Wikimedia Commons


Economics 210a: Introduction to Economic History: Proposed Class Topics (U.C. Berkeley, Spring 2010, Intended for First-Year Graduate Students in Economics)

I. Pre-Industrial Economies

Jan 20: Modes of Production

Jan 27: Malthus and the Demographic Transition

Feb 3: Industrious Revolutions

Feb 10: Trade, Law, and State


II. The Industrial Economic World

Feb 17: Industrial Revolutions

Feb 24: Globalizations

Mar 3: Divergences

Mar 10: WWI and the Great Depression

Mar 17: WWII and the Thirty Glorious Years

Mar 31: The Forward March of Social Democracy Halted?

Apr 7: China Stands Up


III. Macroeconomics in Historical Perspective

Apr 14: Lombard Street, 1825-1914

April 21: The Great Contraction, 1929-1933

Apr 28: The Panic of 2007-2010


IV. Conclusion

May 5: Reflections


Depression Economics: Some Basic Fiscal Arithmetic

This is an exceptional time--a time in which many of the normal rules of the Dismal Science are changed and transformed. It is a time for, as Paul Krugman puts it, not normal economics but rather “depression economics.” The terms on which the U.S. government can borrow now are exceptionally advantageous. And because of high unemployment the benefits of boosting government purchases are exceptionally large.

The result is that the normal benefits and costs of borrow-and-spend policies by the government are overturned for the short run—for as long as the current economic crisis of high unemployment lasts. Yet I find that many people do not understand that and how arguments that hold perfectly well in normal times do not apply today. In normal times a boost to government purchases:

  • Produces a limited increase in production and employment,
  • Is associated with a substantial increase in national debt,
  • Which crowds out productive private investment,
  • And which then must be financed at a sizeable interest rate.

Thus only government spending initiatives that promise a high value for the dollar are worth undertaking. Now, however, things are very different. Let’s run through the arithmetic--first in normal times, and then in a financial crisis-ridden environment like this one.

20091008d epi.pdf



Could We Just Bury the Washington Post Now?

Why oh why can't we have a better press corps? I mean, it hasn't even crashed and burned. It's dead and rotted: a source of smell and disease.

Matthew Yglesias

Matthew Yglesias: Fred Hiatt Wants The Washington Post to Go Out of Business: FWhat other explanation could there be for deciding that he wants to run an op-ed by Sarah Palin about how Obama should “boycott” the Copenhagen conference? And, no, that’s not a link to the op-ed. That’s a link to a post at The Awl excerpting an email about the op-ed that the Post’s PR team sent out. Strangely it doesn’t read “we don’t consider ourselves to be in the business of providing reliable information to our readers.”

By contrast, the Financial Times has an interesting op-ed about what Copenhagen negotiators could learn from the Montreal Protocol that reduced use of CFCs to prevent the opening of a dangerous hole in the ozone layer. Gray, one notes, is an honest-to-God Republican—White House counsel in George HW Bush’s administration, Ambassador to the European Union under George W Bush. But he’s a well-informed person with a background in relevant issues and a desire to present good-faith arguments to the public.

Jeremy Schulman:

Wash. Post publishes falsehood-laden Palin op-ed that is contradicted by scientists, temperature data, and ... the Post itself: The Washington Post has published an op-ed by Sarah Palin.... [W]hat was Jones talking about? The Washington Post has actually explained it on its news pages. In a December 5 Post article, David A. Fahrenthold and Juliet Eilperin reported that Jones "wrote a colleague that he would 'hide' a problem with data from Siberian tree rings with more accurate local air temperature measurements." In other words, four days after two Washington Post science reporters explained that Jones was saying that he replaced problematic tree ring data with "more accurate" data from actual temperature measurements, the Post op-ed page allows Palin to claim that Jones was somehow concealing a decline in temperatures that never actually existed...

Duncan Black:

What's It For?: I can never quite get a handle on just what the Washington Post people - its publishers, Fred Hiatt, etc... - think that it's for? Is it about providing a product people want to buy/advertisers want to advertise in? It is about informing readers, giving them factual information and analysis they want? Are these missions in conflict or do they coincide? And why does it take bloggers to point out how absurd they are? Where are all the journalists who spend their days bitching about bloggers? Don't they care that the product they're defending is basically s---?


In Which Thers Arms Himself for the Climate Wars' Intellectual Battles of Wits...

Ahem:

Thus wroth against the deniers he put on the gift of the god,
Which Hephaistos had wrought for him by his art.
First on his legs he set the fair greaves fitted with silver ankle-pieces,
Next he donned the cuirass about his breast.
Then round his shoulders he slung the bronze sword silver-studded;
lastly he took the great and strong shield,
And its brightness shone afar off as the moon's....
And forth from its stand he drew his father`s spear, heavy and great and strong:
That spear could none other of the Akhaians wield...

Thers:

Eschaton: Here are the places I personally go when I want the lowdown on the most current wingnut lies about climate change, particularly, nowadays, to do with the email theft. List not remotely definitive (I'm in the humanities, dammit). Deltoid -- Tim Lambert is worth reading for his own stuff, but the real fun is the comments, where you'll see silly denialist trolling avant la lettre. Tomorrow's bullshit, today! And just as quickly debunked. DeSmogBlog: Don't miss the Crock of the Week. SwiftHack is a good repository. Real Climate, and responses: here, here, here. This Nature editorial. George Will, filleted. And I like Eli's site.


Statistics: Industrial Revolution as a Treatment

Chris Blattman experiments on humanity... well, on some people in Ethiopia...

Marx vs Smith: The randomized evaluation:

The laborer receives means of subsistence in exchange for his labor-power; the capitalist receives, in exchange for his means of subsistence, labor, the productive activity of the laborer, the creative force by which the worker not only replaces what he consumes, but also gives to the accumulated labor a greater value than it previously possessed. The laborer gets from the capitalist a portion of the existing means of subsistence. For what purpose do these means of subsistence serve him? For immediate consumption. But as soon as I consume means of subsistence, they are irrevocably lost to me, unless I employ the time during which these means sustain my life in producing new means of subsistence, in creating by my labor new values in place of the values lost in consumption. But it is just this noble reproductive power that the laborer surrenders to the capitalist in exchange for means of subsistence received. Consequently, he has lost it for himself.

That is Marx’s rather pessimistic view of wage labor. It is from 1891, in Wage Labor and Capital his precursor to Das Kapital. Marxists ever since fear wage labor means earnings are lost, enslavement to capital emerges, and with it a loss in humanity. There are plenty of unsavory factories to worry about in the world. But the Marxist view is difficult to reconcile with the thousands of Africans that line up for the chance at a factory job (when they’re available). A good number of people--maybe most--already farm or have small businesses. Perhaps the lineup simply illustrates the paucity of other options and the ravages of global capitalism.

Another view is that farming and small business are hard work, risky, unrewarding, and unpleasant. Factories give a steady wage and less risk, at possibly monotonous tasks. But at what cost? Ill health? Or the noble reproductive power lost?

I'm in Ethiopia with Stefan Dercon partly to see if we can figure that out. An industrialist will be opening a dozen businesses this year: commercial farms, mines, tool factories, and the like. There will be thousands of applicants for several hundred unskilled jobs. Which unskilled workers they hire is often practically random, so we’re seeing if we can make it perfectly so. The result (if we can make it happen): the effect of wage labor on incomes, health, aspirations, and happiness. Also, if I can figure out what it is, that noble reproductive power.

Here's an alternative view of self-employment versus factory labor. Farmers and micro-entrepreneurs seldom specialize in the activity that brings the highest return. Earnings get invested in new, often less productive activities--maybe some goats, maybe a shop, maybe bricks or charcoal production. This spreads the risk, but lowers average returns. Give a woman a micro-loan or a small grant and she's likely to add a new activity to her portfolio rather than put it in her current, highest return one. All perfectly sensible under the circumstances.

So what happens when one family member suddenly gets a steady, fairly riskless stream of income? Quite possibly the other members start to specialize too. Land gets concentrated in, and worked by, fewer fewer hands. Perhaps they add capital investment to make up for the lost laborer, or hire a neighbor. Productivity in the household rises by a tenth, or a quarter, or maybe more. This is Adam Smith's specialization at work.

That, at least, is the theory. Look for updates on the test. Today I am off to the an herb farm and a plastics factory on the outskirts of Addis.

My only remark is that WLaC comes from 1848, not 1891...


Another Such Defeat and We Will Be the Winners!

Is there a word for the opposite of a Pyrrhic victory?

Robert Waldmann on the health care "compromise":

The Current Health Care Reform Compromise: the public option is replaced by an sub–exchange of private non profit insurers (which is very close to nothing at all), and people from 55 to 65 can buy into Medicare.... Ezra Klein beat me to it.... [T]he compromise is actually better than a level-playing-field public option, assuming that extended Medicare pays Medicare rates.... His key sentences are:

Right now, Medicare's rates are largely hidden, as no one pays the full premiums, and so no one can really compare it to private offerings. But if the premiums become visible, and Medicare's superior bargaining power is capable of offering rates 20 to 30 percent lower than its private competitors can muster, we'll see how long it is before representatives begin getting calls from 50-year-olds who'd like the opportunity to exchange money in return for insurance as good as what 55-year-olds can get...

I agree with Klein that if the public sees what a good deal they can get from the US government, provided it uses its bargaining power with providers, the compromise will not last... people and firms... will demand the option to buy it from the US government. He has, by the way, been arguing this since Edwards proposed a reform with a public option.... The 55 year limit is totally arbitrary and unfair. I don't think that's an easy line to hold once 54 year olds see how much extra they are paying to keep private insurance companies in business. The 65 year minimum... is now so long standing and familiar that tea partiers can sincerely argue that government run health insurance is unacceptable because it isn't good for Medicare. I can't even imagine how people will argue that it was OK to let people over 55 buy in but not to let people under 55 buy in.

65 made sense because it was the "retirement age." But I agree that 55 is not sustainable.

We should compromise like this more often!


May I Say that Stanley Fish Is Certifiably Insane?

This has got to belong in the New York Times crashed-and-burned-and-smoking watch:

Stanely Fish: My assessment of the book has nothing to do with the accuracy of its accounts. Some news agencies have fact-checkers poring over every sentence, which would be to the point if the book were a biography, a genre that is judged by the degree to which the factual claims being made can be verified down to the last assertion. “Going Rogue,” however, is an autobiography, and while autobiographers certainly insist that they are telling the truth, the truth the genre promises is the truth about themselves — the kind of persons they are — and even when they are being mendacious or self-serving (and I don’t mean to imply that Palin is either), they are, necessarily, fleshing out that truth. As I remarked in a previous column, autobiographers cannot lie because anything they say will truthfully serve their project, which, again, is not to portray the facts, but to portray themselves...

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


Prime-Aged Males Aint so Choice Any More

Justin Fox:

Employment-to-population ratio among men 25-54 hit all-time low in November: As of November, 19.4% of American men in their prime working years didn't have jobs.... [T]he current job situation (for men, at least) is much, much worse than in any downturn since the BLS started measuring this stuff in 1948. Either that or there are just a lot more stay-at-home dads, grad students, and men who voluntarily spend their days playing golf or pinochle...

Employment-to-population ratio among men 25-54 hit all-time low in November - The Curious Capitalist - TIME.com

There are a lot more men in school or getting their heads together than there used to be. But the fact that we will touch 80% of 25-54 year old men with jobs in this recession is stunning.


James Fallows Says That the Washington Post Has Bet Its Reputation on a Losing Card

A good piece by Jim Fallows. I do disagree with two of his points: First, I do not think that the Washington Post is "trying their best in difficult conditions."

Fallows:

They could study this in journalism schools: NYT v WaPo on climate emails: I am trying to avoid gratuitous NYT/WaPo comparisons, because like all publications they are trying their best in difficult conditions. I subscribe to both and wish them both well. But their respective front-page stories on the same subject -- two days ago in the Post, and this morning in the NYT -- present a very interesting contrast. Both stories are about the leaked/stolen emails from the University of East Anglia....

The two stories are worth reading in full, and side-by-side.... A very frequent criticism of the mainstream press is that reporters are hesitant to say, "This is true, and that is false." Instead, they usually feel safest in the "critics contend" zone.... Eg, "Critics contend that the health-care reform bill will require the elderly to face 'death panels'; Administration officials disagree."

In this case one big-time paper, the Post, sticks with "critics contend," while the other presents a contrast between "decades of peer-reviewed science" and politically-motivated opposition. Moreover, the NYT presents the controversy as something that might get in the way of deliberations in Copenhagen; while the Post presents it as a scandal in which "wonky" emails may not constitute "proof" that climate change is a "lie or a swindle" but still justify introducing "lie" and "swindle" as possibilities....

[T]he papers are betting their reputations with these articles. The Times, that climate change is simply a matter of science versus ignorance; the Post, that this is best treated as another "-Gate" style flap where it's hard to get to the bottom of the story. While I don't claim to be a climate expert, the overwhelming balance of what I've read convinces me that the Times's approach is right...

Second, I don't think that the Washington Post is betting its reputation: I don't think it has a reputation to bet.

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


links for 2009-12-08

  • According to the standard narrative, the meltdown of Bear Stearns and Lehman Brothers largely wiped out the wealth of their top executives. Many – in the media, academia and the financial sector – have used this account to dismiss the view that pay structures caused excessive risk-taking and that reforming such structures is important. That standard narrative, however, turns out to be incorrect...
  • The Obama administration was preparing to crack down on large greenhouse gas emitters on Monday by ruling that carbon dioxide and five other gases were a danger to human health, showing its determination to tackle climate change as an international summit opened in Copenhagen. The expected ruling from the Environmental Protection Agency will give President Barack Obama new authority when he heads to Copenhagen next week and will undercut much of the international criticism that Washington has been dragging its heels on climate change. But the decision to use regulation rather than legislation to cut carbon emissions will be controversial in the US, and big business and Republicans are already protesting that the decision is heavy-handed. The Environmental Protection Agency is expected on Monday afternoon to declare that greenhouse gases represent a danger to human health, a finding that would allow it to use the Clean Air Act to regulate carbon dioxide emissions from large industrial p
  • The recent Senate Foreign relations report shows there was highly credible evidence from the Delta Force Commander code-named “Dalton Fury” on the ground that bin Laden was in Tora Bora. From on the ground CIA paramilitary commander Gary Bernstein, bin Laden was in Tora Bora. From Henry Crumpton, the CIA counter-terrorism operations chief, bin Laden was in Tora Bora. Even General Franks' own second in command General DeLong stated he believed from available intelligence at the time bin Laden was in Tora Bora. General DeLong stated that when the bombing campaign of Tora Bora started in late November, Secretary Rumsfeld called DeLong every day to ask “did we get him?” Cheney stated on November 29, 2001 and again on Meet the Press on December 9, 2001 that he believed bin Laden to be in the Tora Bora area. Thus, why would General Franks restrict the Tora Bora battle to about 90 Special Forces troops to go after an estimated 1,000 heavily armed and fortified al Qaeda troops and “leave the b