Previous month:
January 2010
Next month:
March 2010

February 2010

Ten Pieces Worth Reading, Mostly Economics: February 22, 2010

1) Mark Thoma: "We Need Jobs, not Deficit Cuts":

Every day that goes by with unemployment higher than it needs to be means that people are struggling needlessly. People need jobs. And not at some point in the future when Congress gets around to it (if they ever do), this can't wait another day. It should have been done months and months ago. Congress ought to have the same urgency in dealing with the unemployment problem as it had when banks were in trouble. Collectively the unemployed are too big to remain jobless, and the millions of individual struggles among the unemployed shouldn't be tolerated. But Congress doesn't seem to be in much of a hurry to do anything about it, or give any sign that it much cares.

2) Paul Krugman: How Did Economists Get It So Wrong?:

“We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.” So wrote John Maynard Keynes in an essay titled “The Great Slump of 1930,” in which he tried to explain the catastrophe then overtaking the world. And the world’s possibilities of wealth did indeed run to waste for a long time; it took World War II to bring the Great Depression to a definitive end. Why was Keynes’s diagnosis of the Great Depression as a “colossal muddle” so compelling at first? And why did economics, circa 1975, divide into opposing camps over the value of Keynes’s views?

I like to explain the essence of Keynesian economics with a true story that also serves as a parable, a small-scale version of the messes that can afflict entire economies. Consider the travails of the Capitol Hill Baby-Sitting Co-op.... Don’t dismiss it as silly and trivial: economists have used small-scale examples to shed light on big questions ever since Adam Smith saw the roots of economic progress in a pin factory, and they’re right to do so. The question is whether this particular example, in which a recession is a problem of inadequate demand — there isn’t enough demand for baby-sitting to provide jobs for everyone who wants one — gets at the essence of what happens in a recession. Forty years ago most economists would have agreed with this interpretation. But since then macroeconomics has divided into two great factions: “saltwater” economists (mainly in coastal U.S. universities), who have a more or less Keynesian vision of what recessions are all about; and “freshwater” economists (mainly at inland schools), who consider that vision nonsense.

Freshwater economists are, essentially, neoclassical purists. They believe that all worthwhile economic analysis starts from the premise that people are rational and markets work, a premise violated by the story of the baby-sitting co-op. As they see it, a general lack of sufficient demand isn’t possible, because prices always move to match supply with demand.... But don’t recessions look like periods in which there just isn’t enough demand to employ everyone willing to work? Appearances can be deceiving, say the freshwater theorists. Sound economics, in their view, says that overall failures of demand can’t happen — and that means that they don’t. Keynesian economics has been “proved false,” Cochrane, of the University of Chicago, says. Yet recessions do happen. Why? In the 1970s the leading freshwater macroeconomist, the Nobel laureate Robert Lucas, argued that recessions were caused by temporary confusion: workers and companies had trouble distinguishing overall changes in the level of prices because of inflation or deflation from changes in their own particular business situation. And Lucas warned that any attempt to fight the business cycle would be counterproductive: activist policies, he argued, would just add to the confusion. By the 1980s, however, even this severely limited acceptance of the idea that recessions are bad things had been rejected by many freshwater economists. Instead, the new leaders of the movement, especially Edward Prescott... argued that price fluctuations and changes in demand actually had nothing to do with the business cycle. Rather, the business cycle reflects fluctuations in the rate of technological progress, which are amplified by the rational response of workers, who voluntarily work more when the environment is favorable and less when it’s unfavorable. Unemployment is a deliberate decision by workers to take time off. Put baldly like that, this theory sounds foolish — was the Great Depression really the Great Vacation? And to be honest, I think it really is silly....

Meanwhile, saltwater economists balked. Where the freshwater economists were purists, saltwater economists were pragmatists. While economists like N. Gregory Mankiw at Harvard, Olivier Blanchard at M.I.T. and David Romer at the University of California, Berkeley, acknowledged that it was hard to reconcile a Keynesian demand-side view of recessions with neoclassical theory, they found the evidence that recessions are, in fact, demand-driven too compelling to reject. So they were willing to deviate from the assumption of perfect markets or perfect rationality, or both, adding enough imperfections to accommodate a more or less Keynesian view of recessions. And in the saltwater view, active policy to fight recessions remained desirable. But the self-described New Keynesian economists weren’t immune to the charms of rational individuals and perfect markets. They tried to keep their deviations from neoclassical orthodoxy as limited as possible. This meant that there was no room in the prevailing models for such things as bubbles and banking-system collapse. The fact that such things continued to happen in the real world — there was a terrible financial and macroeconomic crisis in much of Asia in 1997-8 and a depression-level slump in Argentina in 2002 — wasn’t reflected in the mainstream of New Keynesian thinking...

3) Peter Goodman: The New Poor - Despite Signs of Recovery, Long-Term Unemployment Rises:

Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.... Here in Southern California, Jean Eisen has been without work since she lost her job selling beauty salon equipment more than two years ago. In the several months she has endured with neither a paycheck nor an unemployment check, she has relied on local food banks for her groceries. She has learned to live without the prescription medications she is supposed to take for high blood pressure and cholesterol. She has become effusively religious — an unexpected turn for this onetime standup comic with X-rated material — finding in Christianity her only form of health insurance. “I pray for healing,” says Ms. Eisen, 57. “When you’ve got nothing, you’ve got to go with what you know.”

Warm, outgoing and prone to the positive, Ms. Eisen has worked much of her life. Now, she is one of 6.3 million Americans who have been unemployed for six months or longer, the largest number since the government began keeping track in 1948. That is more than double the toll in the next-worst period, in the early 1980s.... Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380. “We’re looking at the very real possibility of being homeless,” she said.

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different...

4) Rob Valleta and Aisling Cleary: FRBSF Economic Letter: Sectoral Reallocation and Unemployment (2008-32, 10/17/2008):

This Economic Letter examines the evidence for this “sectoral reallocation” interpretation of the current downturn. After describing the specifics of the argument, we turn to two primary sources of empirical evidence regarding its extent: the Beveridge curve, which depicts the relationship between vacancies and unemployment, hence the effectiveness of the job matching process; and direct evidence on the degree of sectoral reallocation of employment. Recent changes in the unemployment/vacancy plot are consistent with a modest decline in the efficiency of the job matching process, which may be associated with sectoral imbalances. However, these movements are consistent with cyclical as well as secular changes. More critically, direct measurement of the degree of sectoral dispersion in employment growth suggests that its extent has been limited thus far, providing little support for the claim of a higher NAIRU.

5) Michael Pettengill on Heritage's Brian Riedl:

Quite by change I stumbled on this posted on the Heritage site written by guess who! "The obsessive focus on budget deficits is misguided. The debt ratio, a superior measure of government’s debt burden, is as dependent on economic growth as federal borrowing. The past decade has shown that a growing economy can absorb modestly increasing debt levels."

Clearly conservative "economists" engage in faith based relativist economic theories. When conservatives run up huge deficits and drastically increase the debt burden, deficits and debt don't matter. But when "liberals" are in power, that is the time to drastically cut the deficit and reduce the debt burden no matter what the pain.

But then, how else can conservatives hope to win political power so they can shovel pork to their corporate supporters...

6) DELONG SELF SMACKDOWN OF THE DAY: DeLong (March 2000): Marking My Beliefs to Market:

The three on which I was wrong are--to me at least--more interesting.... That the rapid growth of the Japanese economy would continue.

After the crash of the Japanese stock and real estate markets at the end of the 1980s, I was still very optimistic about the medium-run growth prospects of the Japanese economy. I looked at the enormous gap between world best-practice and Japanese productivity outside of export industry. I looked at Japan's extraordinarily high level of domestic investment, and thought about how true it was that new capital goods embodied new and more productive technologies. I looked at the extent to which Japan was developing a comparative advantage in the most innovative and high technology components of manufacturing. And I thought that the end of Japan's "bubble economy" would produce a short and perhaps sharp recession, but would then be followed by a rapid recovery and a renewal of rapid Japanese productivity growth.

I was wrong.

The 1990s saw no motion toward eroding the extraordinary internal productivity gaps between export industry and the rest of the economy that characterize Japan's dual economy. Domestic investment remained high, but did not seem to generate visible improvements in technology and productivity. And those parst of high-tech in which Japan had a strong comparative advantage--memory chips, LCD screens, and so forth--turned out not to be the key capital goods of the information age but more like the rubber insulation you wrapped around your wires--a necessary but hardly high-value component. The dominant view is still that Japan's key troubles are financial and structural: that a failure to liquidate and nationalize institutions that were underwater as of 1992 destroyed the financial system's ability to do its job, and that even strongly stimulative fiscal policy and real interest rates near zero could not bring about permanent recovery in the absence of complete financial markiet restructuring. I don't know enough about Japan to be able to judge this dominant view, however...

7) GRAPH OF THE DAY: Monthly Global Mean Surface Temperature Anomalies

Data @ NASA GISS: GISS Surface Temperature Analysis: Graphs

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Adam Serwer: American Takfiris: The Arc of the Universe Is Long...:

The theological justification for al Qaeda's wholesale slaughter of civilians was provided by Sayyid Imam al-Sharif, also known as Dr. Fadl, one of the founding fathers of al Qaeda. Because the murder of innocents is forbidden in Islam and the murder of Muslims in particular, Ayman al-Zawahiri and Osama bin Laden required some sort of theological framework for justifying terrorism. This was provided by al-Sharif, who essentially argued in his book, "The Compendium of the Pursuit of Divine Knowledge," that apostates could be murdered, and that approach, takfir (which has come to be known as takfirism) allowed al Qaeda to, for all intents and purposes, kill anyone they wanted without violating the laws of Islam by declaring them to be apostates. In other words, Dr. Fadl helped provided a theological justification for something that everyone involved knew was wrong.

The legal memos justifying torture aren't very different in terms of reasoning--it's clear that John Yoo and his cohorts in the Office of Legal Counsel saw their job not as binding the president to the rule of law, but to declare legal any tactic that the executive branch believed necessary to fight terrorism. They worked backwards from this conclusion, and ethics officials at the Department of Justice, we now know, decided that they they had violated professional standards in doing so.... The torture memos--indeed, all of the pro-torture arguments rest on a similar intellectual themes to the takfiris. Suspected terrorists are "illegal enemy combatants", outside the framework of laws that would otherwise guide us. Just as the takfiris justify the killing of even self-identified Muslims by excommunicating them as "infidels", torture apologists argue that even American citizens like Jose Padilla who are accused of being terrorists become legal "apostates" without any rights the president is bound to respect. This are extraordinary circumstances, this is an extraordinary war--and so, the Bush administration turned to Yoo, a man who believes the president is bound by no laws during wartime: he can murder a village of innocent civilian non-combatants just as surely as he can crush the testicles of a child or deploy the military against residents of the United States. The architects of torture are the intellectual mirror image of their declared enemies, depending on the perceived inhumanity of their foes to justify monstrous actions....

From his cell in an Egyptian prison, al-Sharif denounced his former colleagues in al Qaeda, declaring that the killing of innocents was wrong. He essentially renounced his earlier work providing the theological basis for politically motivated murder and destruction, declaring, "There is no such thing in Islam as ends justifying the means," now arguing that the murder of innocents, Muslim or otherwise, was sinful. Whatever theological cover al-Sharif's original arguments provided were meaningless against the body count of mostly Muslim innocents amassed by al-Qaeda in their war against the "West", which by the numbers has been a war against fellow Muslims. In combination with the furious efforts of moderate Muslims and even committed Islamists like al-Sharif, al Qaeda and its methods have been largely discredited, to the point where, as Fareed Zakaria writes, we don't fear "a broad political movement but a handful of fanatics scattered across the globe." 

I confess to being bothered that we haven't seen a similarly backlash against the architects of torture here--part of the reason we haven't, is because even though innocents were tortured, we still see them as fundamentally alien.... [M]en like John Yoo and Jay Bybee have yet to be held responsible for the crimes they enabled.... The Justice Department's David Margolis overruled the original conclusions of the Department's ethics lawyers that Yoo and Bybee had... committed "professional misconduct."... Margolis... instead concludes that they had excercised "flawed legal reasoning" that could be forgiven in part because of the context in which the memos were written, months after the 9/11 attacks....

The American conscience is often slow to action, but not because it cannot recognize evil--but because our view of ourselves as a people guided by justice is so important to who we are that when confronted with proof of our own shortcomings, we recoil in shame and precious vanity. Eventually, with the big stuff, we usually find our way.... And while those who stained America's honor with war crimes have escaped accountability for now, these American takfiris will eventually be judged by history with a clarity we cannot muster today.

The arc of the universe is long... you know, all that stuff.

9) STUPIDEST THING I HAVE READ TODAY: I refuse to read anything stupid on the Sabbath Day. Read this instead: Arnold Schwarzenegger Calls Out GOP On Stimulus Hypocrisy:

SCHWARZENEGGER: I find it interesting that you have a lot of the Republicans running around pushing back on the stimulus money and saying this doesn’t create any new jobs. Then they go out and they do the photo ops and they’re posing with the big check and they say, “Isn’t this great?”... Anyone that says it hasn’t created a job, they should talk to the 150,000 people that have been getting jobs in California.... In the private sector and from the public sector. … So I’m happy that we got this money. I’m happy that we have put 150,000 people to work and there will be more people that are put to work because of it.

10) HOISTED FROM THE ARCHIVES: DeLong (July 2009): A Wise Latina Justice Might Indeed in Some Cases Make Better Decisions than an Old White Man:

And this then led me to Justice Oliver Wendell Holmes in Buck v. Bell (1927):

Carrie Buck is a feeble-minded white woman who was committed to the State Colony.... She is the daughter of a feeble-minded mother... and the mother of an illegitimate feeble-minded child.... An Act of Virginia, approved March 20, 1924, recites that the health of the patient and the welfare of society may be promoted in certain cases by the sterilization of mental defectives.... The attack is not upon the procedure [i.e., due process] but upon the substantive law.... We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, in order to prevent our being swamped with incompetence. It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. Jacobson. v. Massachusetts, 197 U. S. 11. Three generations of imbeciles are enough.

Just as buff young men can be drafted and compelled to give their lives for the health of the state (or is it the volk?) in war, so feeble-minded women can be drafted and compelled to give their fertility for the improvement of the genome.

Let me say that this is a case where I suspect that a wise Latina justice might have been more able to consider the proper equities than Justice Holmes was.

Will 2010 Be the Hottest Year in Recorded History?

Hoisted from Comments: Jeffrey Davis:

Jeffrey Davis on Global Warming: Re: "The current lack of warming us forecasted to last until at least 2020 leaving us with no warming for at least1/4 of a century." Well, no. This year looks to be the warmest on record. It could change but even with a relatively weak El Nino, temps [so far] are above 1998....

Monthly Global Mean Surface Temperature Anomalies

Data @ NASA GISS: GISS Surface Temperature Analysis: Graphs

Ten Things Worth Reading, More than Half Economics: February 21, 2010

1) Robert Allen: The Industrial Revolution in Miniature: The Spinning Jenny in Britain, France, and India:

This paper uses the adoption and invention of the spinning jenny as a test case to understand why the industrial revolution occurred in Britain in the eighteenth century rather than in France or India. It is shown that wages were much higher relative to capital prices in Britain than in other countries. Calculation of the profitability of adopting the spinning jenny shows that it was profitable in Britain but not in France or in India. Since the jenny was profitable to use only in Britain, it was only in Britain that it was worth incurring the costs necessary to develop it. That is why the jenny was invented in Britain but not elsewhere. Irrespective of the quality of their institutions or the progressiveness of their cultures, neither the French nor the Indians would have found it profitable to mechanize cotton production in the eighteenth century.

2) Steve Benen on Greg Mankiw:

A WEAK DEFENSE.... [Greg Mankiw writes:] "Let me offer an analogy. Many Democratic congressmen opposed the Bush tax cuts. That was based, I presume, on their honest assessment of the policy. But once these tax cuts were passed, I bet these congressmen paid lower taxes. I bet they did not offer to hand the Treasury the extra taxes they would have owed at the previous tax rates. Would it make sense for the GOP to suggest that these Democrats were disingenuous or hypocritical? I don't think so. Many times, we as individuals benefit from policies we opposed. There is nothing wrong about that."

This is no doubt the official Republican line. Indeed, Rep. Aaron Schock (R-Ill.) made the identical argument, with the exact same analogy, on "Meet the Press" over the weekend. But the response is deeply flawed. The hypocrisy charge may sting, but it's also entirely legitimate. It's not complicated -- Republicans have claimed, forcefully and repeatedly, that the stimulus effort was a mistake. The recovery spending couldn't generate economic growth and was simply incapable of creating jobs. The entire endeavor, the GOP said, was a wasteful boondoggle, and they're proud to have voted against it. Republicans rejected the very idea on ideological and policy grounds.... [T]he key to the hypocrisy charge is appreciating what else these same Republicans have said. When it comes to their states/districts/constituents, the identical GOP lawmakers have said the stimulus can generate economic growth, can create jobs, and can make an important and positive difference. In some cases, Republicans have even taken credit for stimulus projects they opposed -- projects that wouldn't even exist if they had their way.... Mankiw's analogy to the Bush tax cuts... doesn't stand up well.... The only way this would make sense is if Democrats opposed and voted against Bush's policy in D.C., and then went back to their states/districts to take credit for the tax cuts and boast about how effective they were. The fact that the hypocrisy charge seems to make Republicans nervous is itself encouraging. That the GOP has not yet come up with a coherent response should encourage Dems to keep it up.

3) Matthew Yglesias: Hank Paulson on Cantor:

I’m struck by how little attention has been given to the tough hits dished out by Bush administration Treasury Secretary Hank Pauslon to various prominent congressional Republicans, including golden boy Eric Cantor. Newsweek summary:

Meetings with Senate Republicans were “a complete waste of time for us, when time was more precious than anything” (page 275). Ideas that Republicans do add are “unformed,” like Virginia Rep. Eric Cantor’s plan to replace TARP with an insurance program. In a rare moment of sarcasm, Paulson goes off on the minority Whip: “I got a better idea. I’m going to go with Eric Cantor’s insurance program. That’s the idea to save the day” (page 285).

Politico, reflecting its usual shallowness, remarks:

But Republicans may have the last laugh: TARP is, arguably, the most unpopular federal program in recent memory — and voters seem poised to punish Democrats for passing it, even if Republicans like Cantor eventually signed off.

Well hardy-har-har. Some of us, though, are less interesting in the timing of who laughs when than in the formulation of national policy. The fact that Cantor had an approach to a severe economic crisis that attracted nothing but derision from his same-party Secretary of the Treasury seems noteworthy to me. The national press has, however, done an absolutely horrible job of putting conservative TARP-bashing in appropriate context as a program deemed necessary by all the leading officials in a very conservative administration to avert a Depression. If this stuff is just hypocrisy, that’s bad and noteworthy. But Paulson’s message seems to be that it’s not just hypocrisy, but rather genuinely frightening cluelessness.

4) Peter Slevin: Republicans look to gain traction with Hispanic voters:

The U.S. Hispanic population is expected to increase by nearly 200 percent by 2050, with non-Hispanic whites comprising about half the nation's population, down from 69.4 percent in 2000. From 1988 to 2008, the number of eligible Hispanic voters rose 21 percent -- from 16.1 million to 19.5 million. "The numbers don't lie," said Whit Ayres, a GOP consultant. "If Republicans don't do better among Hispanics, we're not going to be talking about how to get Florida back in the Republican column, we're going to be talking about how not to lose Texas."... "That's the word that got back to folks on the street: 'They don't want us,' " said Republican National Committee Chairman Michael S. Steele, who is looking for ways to tamp down fiery anti-immigration language.... Bonilla, now a consultant dividing his time between Texas and Washington, said he has urged Republican leaders in Congress "not to forget" Hispanics: "Sometimes I'm concerned that there's not more action. They're absolutely in agreement, but once the next day begins, they're distracted by bailouts and health care and cap-and-trade."...

Beyond the immigration issue, Hispanics were alienated by the Republican push for English-only policies and stringent law enforcement while opposing paths to legal residency and citizenship. Bonilla said it was a moment when "all of this came crashing backward. Hispanics would get me on the phone and say, 'What's going on? Don't you like us anymore?' " he recalled. Steele said the vitriol on immigration "harkens back, quite frankly, to the Southern strategy that the Republicans embraced in the 1960s, causing black Republicans to abandon the party." He wants to avoid a repeat with Hispanics....

The clock, Gillespie said, is ticking. He said Bush received 54 percent of the non-Hispanic white vote in 2000 and finished in a dead heat with Al Gore. Sen. John McCain (R-Ariz.) got 55 percent of that vote in 2008 and lost the election by seven percentage points. "If the current voting percentages among white, black, Asian and Hispanic stay the same," Gillespie said, "the Republican nominee will lose by 14 points in 2020. We have to be more competitive."

5) Matthew Yglesias: The Spending Tug:

I’ve previously mentioned Kinder & Kam’s US Against Them: Ethnocentric Foundations of American Opinion but it helps shed some light on this issue. They use National Election Survey data and show that if you restrict your attention to white Americans then ethnocentric views (both in terms of positive views of whites and negative views of non-whites) is correlated with hostility to means-tested welfare programs. The relationship remains statistically significant even when you control for partisanship and for self-described political beliefs regarding egalitarianism and limited government. But if you look at views on social insurance programs—Social Security and Medicare—you get the reverse result. Ethnocentrism is associated with support for increases in Social Security and Medicare spending, again even when you control for partisanship and self-described political beliefs regarding egalitarianism and limited government. And what seems to matter here isn’t dislike for non-whites, but positive solidaristic feelings about other white people.

Which is just to say that in a rarified “I work at a think tank” kind of way, beliefs about entitlement spending ought to roughly line up with beliefs about means-tested welfare and it all ought to be driven by abstract beliefs about small government and egalitarianism. In the real world, however, there are significant other factors driving opinion that push views about these categories of spending in different directions.

6) DELONG SMACKDOWN OF THE DAY: Stan Collender (Reconciliation Bill Version):

FYI.... Reconciliation can’t be used to increase the deficit. The Democrats passed a rule when this Congress began that says it can only be used to decrease the deficit.


Blog_Road_Recovery.jpg 566ճ69 pixels

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: George Packer: The Top of Our Game:

David Broder had a devastatingly unremarkable assessment of Sarah Palin in the Post the other day. Her speech at the Tea Party convention in Nashville “showed off a public figure at the top of her game—a politician who knows who she is and how to sell herself.”... Broder wasn’t analyzing Palin’s positions or accusations, or the truth or falsehood of her claims, or even the nature of the emotions that she appeals to. He was reviewing a performance and giving it the thumbs up, using the familiar terminology of political journalism. This has been so characteristic of the coverage of politics for so long that it doesn’t seem in the least bit odd.... It would be strange if the Times’s coverage of the financial crisis, which has been stellar, focussed entirely on things like Richard Fuld’s handling of his P.R. problems while Lehman was going down. And it would be strange if the paper’s coverage of Afghanistan, which has also been stellar, focussed entirely on things like Hamid Karzai’s use of traditional Pashtun rhetoric in his effort to ride the wave of public anger at the Americans. Imagine Karzai’s recent inaugural address as covered by a Washington journalist:

Speaking at the presidential palace in Kabul, Mr. Karzai showed himself to be at the top of his game. He skillfully co-opted his Pashtun base while making a powerful appeal to the technocrats who have lately been disappointed in him, and at the same time he reassured the Afghan public that his patience with civilian casualties is wearing thin. A palace insider, who asked for anonymity in order to be able to speak candidly, said, ‘If Karzai can continue to signal the West that he is concerned about corruption without alienating his warlord allies, he will likely be able to defuse the perception of a weak leader and regain his image as a unifying figure who can play the role of both modernizer and nationalist.’ Still, the palace insider acknowledged, tensions remain within Mr. Karzai’s own inner circle. At one point during the swearing-in ceremony, observers noted that Mohammad Hanif Atmar, his interior minister, seemed to ignore the greeting of Amrullah Saleh, the intelligence chief. The two have been rumored to be at odds ever since last year’s controversial election. A palace spokesman, speaking on background, denied that the incident had any significance. ‘The sun was in Hanif’s eyes—that’s it,’ the spokesman said.

A war or an economic collapse has a reality apart from perceptions, which imposes a pressure on reporters to find it. But for some reason, American political coverage is exempt.... [A]s an exercise in accountability, political journalists should ask themselves from time to time: Would I write this about a war, or a depression? In the same vein, a government official once told me that the best way to cover Washington is as a foreign capital—as Baghdad, or Kabul.

9) STUPIDEST THING I HAVE READ TODAY: *The Odious Stuart Taylor, Jr., as observed by Matthew Yglesias:

Stuart Taylor, Jr’s attack on race-conscious congressional districting would be easier to take seriously if he evinced any real sympathy for the idea that it’s good to have some non-white folks in the congress...

10) HOISTED FROM THE ARCHIVES: DeLong (2002): A Trillionfold Fall in the Price of Computation: Archive Entry From Brad DeLong's Webjournal:

William Nordhaus (2002), "The Progress of Computing" (New Haven: Yale University xerox), heroically ventures where angels fear to tread and constructs estimates of the falling price of computation: trillionfold in the past 60 years: 35 percent per year compounded continuously. A halving time of 2 years:

A Trillionfold Fall in the Price of Computation: Archive Entry From Brad DeLong's Webjournal

links for 2010-02-21

"Economist" Russ Roberts: Liar Gullible

UPDATE: Russ Roberts writes that it's not his fault--that he wasn't lying to his readers--but that it's the Daily Mail's fault: the Daily Mail was lying to him:

Finally, Brad DeLong calls me a liar: Brad doesn’t like this post.... I had read (and linked to) this article from the Daily Mail.... "Professor Jones also conceded the possibility that the world was warmer in medieval times than now – suggesting global warming may not be a man-made phenomenon. And he said that for the past 15 years there has been no ‘statistically significant’ warming." How would you interpret that last sentence?.... Had I read the BBC version, I also would have known that Jones thinks there is a warming trend rather than merely a trend that is not statistically significant. I should have said that Jones admits that “for the past 15 years there has been no ‘statistically significant’ warming.” My mistake. Dear readers, I did not mean to trick you. (I refrain from mentioning that Brad knew that I had linked to the Daily Mail story rather than the BBC version. I’ll just assume he made an honest mistake.)

Well, I would interpret "that last sentence," being that it was from the Daily Mail, as needing to be carefully checked and handled with tongs.

It's not an accident that the BBC version and reality conflict with the Daily Mail.

To get your information about the world from the Daily Mail is first of all to lie to yourself:

Daily Mail - Wikipedia, the free encyclopedia: Libel lawsuits:

  • On 27 April 2007, film star Hugh Grant accepted damages over claims made about his relationships with his former girlfriends in three separate tabloid articles published in the Daily Mail and The Mail on Sunday on 18, 21 and 24 February. His lawyer stated that all of the articles' "allegations and factual assertions are false." Grant said, in a written statement, that he took the action because: "I was tired of the Daily Mail and Mail on Sunday papers publishing almost entirely fictional articles about my private life for their own financial gain. I'm also hoping that this statement in court might remind people that the so-called 'close friends' or 'close sources' on which these stories claim to be based almost never exist." World football governing body, FIFA, also filed a lawsuit against the Daily Mail due to comments made by sportswriter >* Andrew Jennings against the organisation and its president Sepp Blatter.
  • The Daily Mail falsely reported that former child star Mark Lester assaulted his ex-wife and had allowed his son to share a bedroom with Michael Jackson. In 2008 substantial damages along with legal costs were awarded to Mark Lester after he launched a libel case against the paper.

Other libel awards against the Daily Mail (and Mail on Sunday) include:

  • November 2009 - Actress Kate Winslet awarded £25,000 in damages after an article in the Daily Mail titled "Should Kate Winslet win an Oscar for the world's most irritating actress?" accuses her of lying about her exercise regime.
  • 2009 - September — Metropolitan police commander Ali Dizaei accepts 'substantial' damages after a story falsely accusing him of being a bigamist.
  • 2009 - May — Labour MP Tom Watson accepts 'substantial undisclosed damages' over untrue allegations he 'was not only copied into emails between former Downing Street press adviser Damian McBride and activist Derek Draper but "encouraged" them.'
  • 2009 - May — three women whose stories had appeared in an article about women who'd adopted children, suggesting they did so for 'selfish' reasons, were awarded £10,000 each in damages.
  • 2009 - January - £30,000 award to Dr Austen Ivereigh, who had worked for Cardinal Cormac Murphy-O'Connor, accused of hypocrisy over abortion.
  • 2007 - May — Actress Keira Knightley awarded £3,000 for an article in which it was falsely claimed she was anorexic.
  • 2006 - May - £100,000 damages for Elton John, falsely accused of rude and dictatorial behaviour
  • 2006 - April — Undisclosed damages paid to actress Sharon Stone following a story falsely claiming she'd left her child in a car unattended while she ate at a nearby restaurant.
  • 2006 - March — A formal apology and substantial damages awarded to businessman Sheldon Adelson, in a case estimated to have cost £4m.
  • 2004 - April — Actor Rowan Atkinson was paid 'substantial' damages after story falsely stating he was on the verge of a mental breakdown.
  • 2003- October — Actress Diana Rigg awarded £30,000 in damages over story which 'wrongly portrayed her as an embittered woman who held British men in low regard'
  • 2003 - August — Actress Nicole Kidman awarded 'substantial' damages after false story accused her of having an affair with actor Jude Law
  • 2001 - February — Businessman Alan Sugar was awarded £100,000 in damages following story which falsly accused him of 'being "miserly" in his stewardship of Tottenham Hotspur Football Club.'

He doesn't even try very hard...

Russ Roberts:

Cafe Hayek: Thomas Friedman writes in the New York Times: "Of the festivals of nonsense that periodically overtake American politics, surely the silliest is the argument that because Washington is having a particularly snowy winter it proves that climate change is a hoax and, therefore, we need not bother with all this girly-man stuff like renewable energy, solar panels and carbon taxes. Just drill, baby, drill..."

He’s right in principle. One observation doesn’t make a trend. Of course Phil Jones has said recently that there’s no trend for the last 15 years. But never mind...

What Phil Jones said was:

BBC News - Q&A: Professor Phil Jones:

BBC: Do you agree that from 1995 to the present there has been no statistically-significant global warming?

Phil Jones: Yes, but only just. I also calculated the trend for the period 1995 to 2009. This trend (0.12C per decade) is positive, but not significant at the 95% significance level. The positive trend is quite close to the significance level. Achieving statistical significance in scientific terms is much more likely for longer periods, and much less likely for shorter periods...

Russ Roberts knows as well as I do--as well as anybody who has taken even one semester of statistics does--that "no trend" does not mean the same thing as "no statistically significant trend," that you are unlikely to find statistical significance when you restrict your attention to a short period because your statistical tests then lack power, and that everyone literate in statistics asked for their point estimate of the warming trend since 1975 would say that it is almost as much as the overall trend since 1860: 0.012C per year as compared to 0.015C per year.

Russ Roberts knows all this. But he hopes to trick some of his readers by hiding it.

Lyingest economist alive...

Another Showing of Yoo Intentionally Making Arguments That He Knew Were Wrong or False

Smintheus: David Margolis... argues that “a finding of misconduct depends on application of a known, unambiguous obligation or standard to the attorney’s conduct. I am unpersuaded that OPR has identified such a standard.”.... The memos generated by Yoo and Bybee are rife with gross inaccuracies and demonstrable falsehoods. Is it not a known and unambiguously accepted standard that attorneys are obligated to be honest and scrupulous in their representations of law and jurisprudence? At a minimum?

To cite but one example... John Yoo falsified what the UN Convention against Torture says in his memo from April 28, 2003. In that memo, Yoo claimed that[:]

the [Torture] Convention permits the use of [cruel, inhuman, or degrading treatment or punishment] in exigent circumstances, such as a national emergency or war.

Yoo’s memo added no qualifications, no evidence, no citation, and no argument to justify that statement. The statement is absolutely false.... Yoo lied in order to provide the Bush administration with a back-door justification (“national emergency”) for torture where none exists legally...

And: » Another Bush administration legal fiction: Article 2 of the [UN] Convention [against Torture] states explicitly that there are no circumstances that may be used to justify torture:

No exceptional circumstances whatsoever, whether a state of war or a threat of war, internal political instability or any other public emergency, may be invoked as a justification of torture.

It is true that the Convention does not repeat the Article 2 statement when it later discusses "cruel, inhuman, or degrading treatment". However that discussion (in Article 16) is extremely brief and to the point: that governments should prevent 'cruel etc. treatment' as they do torture and should give its victims the same legal recourse as victims of torture. There is no implication whatsoever in the Convention that "exigent circumstances" permit the use of cruel, inhuman, or degrading treatment.


Article 16

  1. Each State Party shall undertake to prevent in any territory under its jurisdiction other acts of cruel, inhuman or degrading treatment or punishment which do not amount to torture as defined in article 1, when such acts are committed by or at the instigation of or with the consent or acquiescence of a public official or other person acting in an official capacity. In particular, the obligations contained in articles 10, 11, 12 and 13 shall apply with the substitution for references to torture or references to other forms of cruel, inhuman or degrading treatment or punishment.
  2. The provisions of this Convention are without prejudice to the provisions of any other international instrument or national law which prohibit cruel, inhuman or degrading treatment or punishment or which relate to extradition or expulsion.

I See No Method Here at All...

John Yoo:

On June 30 [2002], Yoo asked [NAME REDACTED] by email, “[D]o we know if Boo-boo [Abu Zubaydah] is allergic to certain insects?”

Berkeley Law School Dean Chris Edley:

Chris Edley: I am exceptionally sensitive to the complex, ineffable boundary between policymaking and law-declaring.... As critical as I am of [John Yoo's] analyses, no argument about what he did or didn't facilitate, or about his special obligations as an attorney, makes his conduct morally equivalent to that of his nominal clients, Secretary Rumsfeld, et al., or comparable to the conduct of interrogators distant in time, rank and place...

I think Chris Edley has some explaining to do...

John Yoo Intentionally Made Arguments Not Caring Whether They Were Wrong or False or Not

Jack Balkin of Yale writes:

Balkinization: Justice Department Will Not Punish Yoo and Bybee Because Most Lawyers Are Scum Anyway: In deciding not to refer charges to state bar committees, Margolis... says... Yoo and Bybee exercised poor judgment and let the Justice Department down.... The OPR argued that Yoo and Bybee had "a duty to exercise independent legal judgment and to render thorough, objective, and candid legal advice." This standard, Margolis explained, is much too high... not one that Yoo and Bybee were previously warned was the standard to which they would be held.... Margolis argues that, judging by (among other things) a review of D.C. bar rules, the standard for attorney misconduct is set pretty damn low, and is only violated by lawyers who (here I put it colloquially) are the scum of the earth. Lawyers barely above the scum of the earth are therefore excused. Margolis concludes that Yoo and Bybee exercised poor judgment and made bad legal arguments. But... this by itself does not violate the very low standard set by rules of professional responsibility... [which leave] the legal profession to make entirely stupid, disingenuous and asinine arguments that normal people with functioning moral consciences would not make.... To show misconduct, according to the standard that Margolis finds most relevant, one would have to show that Yoo or Bybee intentionally made arguments that they knew were wrong and false or did so not caring whether they were wrong or false.... Margolis explains... that Yoo... had crazy ideas.... Therefore it is hard to conclude that Yoo deliberately gave advice that he knew was wrong.... Yoo isn't putting people on.... He actually believes that the President is a dictator and that the President doesn't have to obey statutes that make torture a crime...

Yoo certainly says now that he believes that the President is a dictator. From the OPR Report, page 64:

Q: What about ordering a village... to be massacred?... Is that a power that the President could legally...

Yoo: Yeah. Although, let me say this. So, certainly that would fall within the Commander-in-Chief's power over tactical decisions.

Q: To order a village of civilians to be [exterminated]?

Yoo: Sure.

But Jack Balkin needs to go read John Yoo's 2000 Cato Institute paper, "The Imperial President Abroad," in which Yoo states that:

on a series of different international relations matters, such as war, international institutions, and treaties, President Clinton has accelerated disturbing trends in foreign policy that undermine democratic accountability and respect for the rule of law...

What does Yoo mean? He means:

The administration has used troops... not to achieve total victory or to contain the spread of Soviet influence but in order to achieve more limited goals... whose long-term benefits for American security are unclear...

In Kosovo... American troops... serve[d] under... non-American... commanders, such as British General Michael Jackson.... [This] threatens that basic principle of government accountability. International or foreign officials have no obligation to pursue American policy, nor do they take an oath to uphold the Constitution...

According to Yoo in 2000, the President does not have power as commander-in-chief to commit U.S. troops to combat unless the object is either "total victory" or "to contain the spread of Soviet influence."

According to Yoo in 2000, the President does not have the power as commander-in-chief to put U.S. troops under the command of our allies--never mind that Dwight D. Eisenhower--a mere theater commander--with no hesitation placed the U.S. First Army in the Ardennes under the command of British Field Marshal Bernard Law Montgomery; that President Woodrow Wilson put the entire American Expeditionary Force under the command of French Field Marshal Ferdinand Foch; that Continental Army commander George Washington put American troops under the command of Jean-Baptiste Donatien de Vimeur, Comte de Rochambeau, and of Marie-Joseph Paul Yves Roch Gilbert du Motier, Marquis de la Fayette. And let's not talk about the command authority over the Continental Army exercised by Friedrich Wilhelm Ludolf Gerhard Augustin Freiherr von Steuben at Valley Forge.

If Yoo is going to claim that his arguments in 2002 that Republican President George W. Bush is a dictator were made in good faith, he had better have argued in 2000 that Democratic President William J. Clinton was a dictator too.

He did not.

The case that John Yoo intentionally made arguements that he did not care were wrong and false is open-and-shut.

links for 2010-02-20

Ten Things Worth Reading, Mostly Economics: February 20, 2010

1) Jean Eaglesham and Daniel Pimlott: Riposte by 60 economists to calls for cuts:

More than 60 leading economists... creating a dividing line within the profession on the crucial general election issue of how to tackle the UK’s huge public debt. Two letters in Friday’s Financial Times warn of the risks of damaging Britain’s fragile recovery by “reckless” early cuts. They are a riposte to the 20 economists who wrote to The Sunday Times last weekend supporting the Conservative party’s argument that fiscal tightening should start this year. The sharp differences between economists emerged as official data showed the budget deficit surged in January as income tax receipts fell by a fifth, alarming the markets and pushing up yields on government debt. The letters, while not overtly political, reject the Tories’ claim that cuts are needed now to reassure the markets and head off the risk of Britain losing its triple A credit rating.

One letter, organised by Lord Skidelsky, the cross-bench peer, asks instead how “foreign creditors will react if implementing fierce spending cuts tips the economy back into recession”. The other backs the chancellor’s “sensible” plan for tackling the deficit, warning that “with people’s livelihoods at stake, a responsible government should avoid reckless actions”. The signatories to the letters include two Nobel laureates – Joseph Stiglitz and Robert Solow – and five former members of the Bank of England’s monetary policy committee, including Sir Andrew Large and Rachel Lomax, two former deputy governors. Alan Blinder, a former vice-chairman of the Federal Reserve, is a signatory.

Their position was supported almost immediately by another Nobel laureate, Paul Krugman, who wrote on the New York Times website: “The crucial thing to understand is that fiscal contraction of an additional one or two percent of GDP in the near future has essentially no significance for the sustainability of government finances, either in Britain or here”...

2) Uwe Reinhardt: Once More, Health Care Cost Control:

Mr. Franke refers us to Karl Rove’s recent column in The Wall Street Journal.... All of [Rove's] measures would have at best a marginal influence on costs. Business alliances: The idea of allowing small businesses to band together for the purpose of health insurance is not new.... It is hard to see why anyone would seriously deem these alliances superior to the formal insurance exchanges provided in the Senate and House bills, modeled as they are after the already functioning Massachusetts “Connector” and the Federal Employee Health Benefit System through which members of Congress procure their heavily government-subsidized health insurance. Tort reform: There is a good reason to introduce tort reform.... Be that as it may, the nonpartisan Congressional Budget Office recently summarized the available research on the kind of tort reform advocated by Republicans. In a letter to Senator Orrin Hatch, a Republican from Utah, the office concluded that “if a package of proposals such as those described above was enacted, it would reduce total national health care spending by about 0.5 percent (about $11 billion in 2009).” >This does not strike me as a major source of cost control.

Buying health insurance across state lines: Health insurance may be cheaper in State A than in State B for two reasons. First, policies issued in State A may be subject to fewer state regulations. While that can lower the cost of insurance, it also deprives buyers of these complicated contingent contracts of consumer protection. It should give pause to a nation still digging out from its lack of understanding of other financial contracts — mortgages and structured securities. More importantly, however, insurance premiums vary among states because the cost of health care varies among states. An insurer located in Utah that is buying health care in Utah for someone who lives there can offer a much lower premium than the same insurer could afford to offer if forced to purchase health care from the heavily monopolized health system of Boston.... I believe it would be good to allow people to purchase health insurance across state lines, so long as insurers do not play loose with incomprehensible fine print. My conjecture is, however, that it would bring little financial relief to residents living in high-cost states.

Price transparency: Karl Rove would like to “empower patients by making health prices more transparent.” I would favor it, too, as would just about any economist. But price transparency also has long been resisted by the health insurance industry and the providers of health care, both of which view such information as proprietary. It is fair to ask, though, why Republicans did nothing to make that great idea a reality when they controlled the government from 2001 to 2006 or, for that matter, any of the great ideas listed by Mr. Rove. He then was part of the White House team.

3) Charles Francis Adams, Railroads: Their Origin and Problems (1878), pp.89-90:

[I]n 1872, a committee on railroad amalgamation was appointed. . . . [A]fter taking a vast amount of evidence, they proceeded to review the forty years of experience. . . . They showed with grim precision how, during that period, the English railroad legislation had never accomplished anything which it sought to bring about, nor prevented anything that it sought to hinder. The cost to the companies of this useless mass of enactments had been enormous, amounting to some L80,000,000; for these were 3,300 in number and filled whole volumes...

4) John Cole: A Strange attack on Krugman:

From today’s WaPo chat:

Franconia: “...having the courage to tell the hard truths and make hard decisions.” Like dumping ‘defined benefit’ pensions for ‘defined contribution’ pensions to alleviate open-ended risk. BTW, are you still a free lunch “something-for-nothing” Keynesian who loves the Fed and centralized command/control economic planning?

Steven Pearlstein: I’m not a something for nothing free lunch Keynesian—you must be thinking of Prof. Krugman…

Pearlstein goes on to slam the reader who asked the question, comparing him to Joe McCarthy, but why the strange gratuitous slam on Krugman?

5) Gene Healy: Tea Partiers Should Get Serious:

There are those who doubt the new activists' sincerity, asking, in effect, "Where were you when George W. Bush was spending faster than Lyndon Johnson?" It's a fair question. The Tea Partiers insist they're nonpartisan, devoted only to staving off our looming fiscal apocalypse by any means necessary. If so, they can prove their authenticity by backing substantial cuts in entitlements and defense.... Rail against earmarks, foreign aid and "welfare queens" to your heart's content. But all that comes to a rounding error in a $3.7 trillion federal budget, over 75 percent of which consists of defense and entitlements.... Bartlett doubts many of them have the fortitude to embrace what's necessary to solve the budget crisis without raising taxes. Here's their chance to prove him wrong. The Tea Partiers — often thought to be hawks — might further demonstrate their credibility by calling for cuts in the Pentagon's $663 billion bottom line. As my colleague Ben Friedman likes to point out, we don't really have a "defense" budget: "The adjective is wrong."...

[I]t's pretty clear that the GOP isn't serious about reducing spending. House Minority Leader John Boehner, R-Ohio, distanced the party from the road map almost as soon as it was released, leaving reporters with the distinct impression that Ryan had soiled the punchbowl. In the middle of the recent fight against socialized medicine, Republicans fought hard to protect the chunk of our health care system that's already socialized. If there's money to be saved trimming waste from Medicare, "we should spend it on Grandma!" insisted Sen. Lamar Alexander, R-Tenn. GOP leader Michael Steele proposed a "contract with seniors" insulating Medicare from cuts.

But that's no surprise. Politicians live to get re-elected, and they won't change their behavior unless and until voters force them to. What this country desperately needs is a political movement that will pressure them to change their ways. The Tea Partiers could become that movement — if they're serious.

6) DELONG SMACKDOWN OF THE DAY: Maynard Handley (December 21, 2009):

Russ Roberts worth reading and listening to? You've got to be kidding me.

The guy has never in his life met an issue that isn't solved by libertarian thinking. I stopped listening to his podcast a while ago because there was literally no content to it --- every single damn episode, no matter who is being interviewed, turned into a claim that all problems are solved by self-organizationm and that people really are, when you look at things "properly", motivated only by money. It's one thing to view the world through economic lenses, as our host does. It's another to view the world through BAD economic lenses,

  1. to ignore all human history,
  2. to ignore such basic economic facts as the way the 2/3rds game plays out in real life (everyone chooses a number between 1 and 100, winner is the person whose number is closest to 2/3rds of the mean), or games with multiple equilibria,
  3. to ignore network effects and externalities,

etc etc etc

Russ Roberts is, bluntly, a content-free windbag, an academic George Will...


MortgageDelinquencybyPeriod.jpg (image)

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Erik Tarloff: Meg Whitman's Campaign Spots:

Meg Whitman... running for the Republican nomination for governor of California... considerable personal fortune, she shot out of the starting blocks early, inundating the airwaves... spots are entirely content-free, total pablum.... These do, however, possess one bit of fatuousness that is uniquely their own. Echoing every other outsider who has ever sought elective office, she extols her own non-political credentials, and then says, by way of explaining what evils she intends to remedy and in what way her lack of political experience is an asset rather than a liability, "The professional politicians have been fighting in Sacramento for years." What's wrong with this picture?  Where do the words "cognitive dissonance" come into play? Well, the man she is hoping to replace, the current Republican governor, wasn't a professional politician either, was he?  In fact, he used precisely the same pitch when he first sought the office.  Far from being a pol, he was an actor and successful businessman before becoming governor.  He had spent his entire adult life, he assured us, solving practical problems in a practical way, unconstrained by ideology or partisanship.  He wasn't part of that venal Sacramento political culture, no sir; he was exactly what was needed to show those professional politicians a thing or two about how to do the people's business, yes sir.  And his tenure is now widely derided as an abject failure.  A view Meg Whitman's ad implicitly endorses. She isn't, after all, aspiring to replace Pete Wilson or Jerry Brown or Gray Davis or some other battle-scarred political veteran;  if that were the case, the ad might just possess some resonance.  But she's aiming to take the reins from Arnold Schwarzenegger.  In effect, her ad is telling us she can remedy the mess in Sacramento because she brings to the task the purity of her inexperience.  The very claim made by the man who, as the ad itself appears to concede, presided over that self-same mess. Perhaps a little re-tooling is in order.

9) STUPIDEST THING I HAVE READ TODAY: Charles Lane, observed by John Cole:

Bayh-Ford 2012? [Charles Lane:]

Quitting the Senate was a no-lose move for the presidentially ambitious Bayh, since he can now crawl away from the political wreckage for a couple of years, plausibly alleging that he tried to steer the party in a different direction—and then be perfectly positioned to mount a centrist primary challenge to Obama in 2012, depending on circumstances.

Almost like parody. If we’re lucky, Broder will start talking up a Bayh-Bloomberg Unity 12 ticket on Thursday.

10) HOISTED FROM THE ARCHIVES: DeLong (200): Wired Writes About the Crash of George Gilder:

In the 1970s George Gilder claimed that feminism was going to destroy American culture and wreak psychological havoc on American men. He was wrong. In the 1980s George Gilder claimed that the Reagan Revolution was going to ignite an extraordinary wave of economic transformation. He was wrong. At the turn of the 1990s George Gilder claimed that the information technology revolution was going to be a big deal. He was right. In the 1990s George Gilder claimed that the "telecosm" was going to be the biggest deal yet, and make all his clients extraordinarily rich. He was wrong. One for four is not a good record for a prophet. More important, perhaps, Gilder convinced people to bet real money on the "telecosm." And now they're angry and looking for a scapegoat.

Wired 10.07: The Madness of King George George Gilder listened to the technology, and became guru of the telecosm. The markets listened to his newsletter, and followed him into the Global Crossing abyss. yet he's never stopped believing. By Gary Rivlin: The lunch plates were cleared long ago, and the waitress gazes vacantly out over an otherwise empty dining room. But George Gilder, his legs propped on a nearby chair, seems rooted in place, not quite ready to leave.... "I knew that it was going to crash, I really did," Gilder says, looking out a window on to Main Street. Since 1996, he has published the Gilder Technology Report, a monthly newsletter that in its heyday was arguably the most influential tout sheet on Wall Street.... "I told people in early 2000 they should sell half their shares in these companies.... I didn't say it often. I didn't put it in a newsletter.... "If I had said, 'Hey, this is a top, you should all sell.'... "Half of my subscribers would have been eternally grateful [for a warning], but the other half -†the new ones - would've been enraged because they had just come in."...

Of course, the ironic thing is that as far as the technology is concerned, it is not clear that Gilder is wrong. But what Gilder never told the subscribers to his newsletter is that rapid technological progress does not high profits make. Rapid technological progress coupled with massive barriers to entry mean high profits. But the lesson of the late 1990s is that--unless you are Intel or Microsoft--technological innovation is more likely to increase competition in your market segment than entrench your market position. Why Gilder forgot to tell his subscribers this is unclear to me: he was writing a technology letter to educate his clients, not a stock-picking letter to part a herd of gullible subscribers from their money. Or, rather, he was writing a technology letter, until he and his partners fell into writing a stock-picking letter instead...

Price, Scarcity, and Malthus

Resources can have high prices in two scenarios: if they are valuable because we are running out of them and are scarce and so we are poor, and if they are valuable because we are rich and so are willing to pay a lot for a steady flow.

Which is the case matters.

Alex Tabarrok:

Marginal Revolution: Revisiting Simon-Ehrlich: Paul Kedrosky revisits the famous Simon-Ehrlich bet: "Without getting into it too deeply, here are some things worth knowing. Given the above graph of the five commodities’ prices in inflation-adjusted terms, it will surprise no-one that the bet’s payoff was highly dependent on its start date. Simon famously offered to bet comers on any timeline longer than a year, and on any commodity, but the bet itself was over a decade, from 1980-1990. If you started the bet any year during the 1980s Simon won eight of the ten decadal start years. During the 1990s things changed, however, with Simon the decadal winners in four start years and Ehrlich winning six – 60% of the time. And if we extend the bet into the current decade, taking Simon at his word that he was happy to bet on any period from a year on up (we don’t have enough data to do a full 21st century decade), then Ehrlich won every start-year bet in the 2000s. He looks like he’ll be a perfect Simon/Ehrlich ten-for-ten..." Simon was right but fairly lucky.... [I]t is no law of nature (let alone of rickety old economics) that commodity prices (inflation-adjusted or otherwise) trend inexorably downward..."

If the conclusion is that prices go up as well as down, even over a 10 year period, then there isn't much to complain about in Paul's analysis.  But... [the] bet was... about scarcity, living standards, and whether we were running out of natural resources--remember that at the time Ehrlich was predicting hundreds of millions would die of starvation and even that England would not exist in the year 2000! Prices were just a convenient but imperfect way to mark the bet to market.

The reason prices have risen in the 1990s is not that things are getting worse but that things are getting better--especially in China and India where things have been getting much better....

[T]ake a good which is really fixed in supply, Picasso paintings. Now consider two worlds - in one world the price of a typical Picasso is $50,000; in the other, it's $5 million.  Which world would you guess has a higher standard of living?

Robert Waldmann Smacks Down Jonathan Chait as Soft on Reihan Salam and Soft on the Causes of Reihan Salam...

Robert writes:

Robert's Stochastic thoughts: Jonathan Chait... misquoted Salam in order to make Salam seem more reasonable that he is. Chait wrote "Reihan Salam at National Review objects that Leonhardt is refuting a notion that no serious person actually holds."... Salam didn't say that Leonhardt is refuting a notion that no serious person actually holds. Salan said that Leonhardt is refuting a claim that no person actually holds.... "I don't thing that anyone doubts that ARRA helped perk up growth." Note "anyone" not "any serious person." I fear that Salam may have written that honestly -- that is that he is completely ignorant or insane...

And refers us to Matthew Yglesias:

Straw Manned: Reihan Salam... a pretty common failing among the smarter set of conservative commentators... a tendency to dismiss as straw-man characterizations positions that are in fact the mainstream conservative orthodoxy... the assertion that the American Recovery and Reinvestment Act has had no positive impact... climate change is a made-up conspiracy cooked out of thin air by Al Gore and some UN guys... reducing tax rates is a surefire way to increase revenue. I wish it were the case that these were straw man views, invented by liberals to make the right-wing look bad. But if you listen to what the most powerful conservative politicians and media figure in the land say, these are the things they offer as the basis of conservative policy on macroeconomic stabilization, on climate and energy, and on the long-term fiscal challenge. Is it nuts? Well, yes it is. But there you have it. If you want to find what counts as a fringe position, you can find tea party leader Richard Mack talking about states’ rights to secession.

And to Kevin Drum:

Which Conservatives Matter?: I'm reminded of Megan McArdle's revelation a couple of years ago when she discovered that mainstream conservatives really do have a party line that insists tax cuts always raise revenues. "A conservative publication," she admitted, "just spiked a book review because I said that the Laffer Curve didn't apply at American levels of taxation....I suppose I ought to have known, but I didn't. Go ahead liberals, pile on: you told me so."...

Reihan is implicitly suggesting that liberals ought to be engaging with the best of conservative thinkers, many of whom hold nuanced and moderate positions. And it's true: some of them do. The problem is that in the real world, these nuanced and moderate thinkers have virtually no influence.... Reihan and Megan and others like them may hold more careful views, but the vast bulk of the conservative movement simply doesn't. And that's the reality of the world that liberals have to deal with.

Now, whenever something like this comes up, I wonder if there's something similar on the liberal side of the aisle. Are there hot button issues on which the Kevin Drums and Jon Chaits of the world hold moderate, techno-googoo views, but on which elected politicians and bigfoot TV pundits unanimously insist on extreme, lockstep views? I can't really think of any. Taxes? Healthcare? National security? Immigration? Climate change? Education? Abortion? Gay rights? Labor law? On all of these, either liberal politicians hold a fairly broad variety of leftish views (national security, immigration, education) or else they hold pretty similar views but so does the commentariat (climate change, gay rights). No important issue comes to mind in which the liberal think tank community holds a lively and diverse set of opinions but actual liberal politicians unanimously maintain a death grip on some extreme, base-pleasing position.

But that doesn't mean there isn't one. It just means I can't think of it. So help me out. Can anyone come up with a few good examples?

In my view, there are two problems:

  1. Reasonable conservative thinkers have absolutely no impact on the policy positions or political rhetoric of Republican lawmakers.

  2. Reasonable conservatives shut up rather than say what they think when it is contrary to the Republican party line of the day.

Take Obama's wage subsidy proposal. It's a small-business tax cut to boost employment in a deep recession. It gets relatively good marks from CBO ("the largest effects on employment this year and next would probably arise from increasing aid to the unemployed, reducing employers’ payroll taxes in general, and reducing employers’ payroll taxes for firms that increase their payroll...") and from serious tax analysts like those at the TPC. Its principal defects are its relative complexity (as Larry Lindsey says: "targeted, temporary, incremental, hiring tax credit proposals... tend to be... too clever by half.... There should be a principle somewhere that only one adjective can be applied to any program that can actually work. Targeted, temporary, and incremental make for three..."). But is there any doubt that something similar is now being put forward by President McCain and President Romney right now to fight the depression in those branches of the multiverse in which they live at 1600 Pennsylvania Avenue? And is there any doubt that in those branches of the multiverse Republican economists are falling all over themselves to endorse it enthusiastically?

It would have been very nice if Republican fiscally-conservative economists had joined Alan Greenspan in arguing against the 2001 Bush tax cut as too rash, had written letters opposing the elimination of PAYGO, had formed a solid phalanx against the unfunded Medicare Part D, and were now joining us Dermocratic fiscal conservatives in opposing the extension of any portion of the Bush tax cuts. But they didn't.

And here is where I am inclined to be soft on Reihan Salam. Because his declarations that "ARRA has had no impact and the economy would be in the same shape without any fiscal stimulus program" is "a straw-man argument..." and that "I don't thing that anyone doubts that ARRA helped perk up growth. It is very hard to imagine that spending an enormous sum of money would not..." is a double-headed axe. Reihan wants David Leonhardt to acknowledge the stronger anti-stimulus arguments--that what we have bought we have bought at too dear a long-run price. But Reihan is also trying to marginalize the mendacious and the ignorant: the Veronique de Rugys, the Conn Carrolls, the Brian Reidls, and their ilk. Call their arguments straw-man arguments and those arguments' advocates become straw men.

The problem is that it is not going to work: because Reihan Salam is marginal on the American right he cannot marginalize the right's mainstream, at least not without a lot of help from a lot of people who are still hiding at the bottom of their foxholes and refuse to come out to try to rescue their party.



The Consumer Price Index (CPI) rose 0.2% in January, reflecting increases in the CPI's for food (0.2%) and energy (2.8%), and a decline in core items (-0.1%; all items less food and energy)...

When was the last time the CORE CPI declined?

Ten Pieces Worth Reading, More than Half Economics: February 19, 2010

1) >Matthew Yglesias: ABC Can’t Find Economists Who Think the Stimulus Failed:

A funny thing seems to have happened on the way to a he-said, she-said story for ABC on the stimulus:

“The stimulus worked,” said Stuart Hoffman, chief economist at PNC Bank. Without it, “the unemployment rate would probably be closer to 11 percent” and the economy might not have grown at all last year. Mark Zandi of Moody’s thought the nation would be “still in recession.” “It played a significant role supporting recovery,” said economist Diane Swonk of Mesirow Financial. Not all the economists who responded to our survey agreed the stimulus was necessary. “Throwing a trillion dollars at anything will move it,” said Standard and Poor’s David Wyss, “but the recovery would be beginning and the unemployment rate nearing a peak” without it. “The economy would probably be recovering,” argued Jay Bryson of Wells Fargo, just maybe not “as fast as it is.”

They’ve attempted to frame this as a standard piece of “experts disagree on shape of the earth” shoddy policy journalism, but what you’re actually seeing here is that despite their best efforts they can’t find anyone to endorse the standard Heritage/NRO/GOP view that the stimulus is harming the economy. Hoffman and Zandi deem the stimulus vital. Swonk says it played a “significant role” in bolstering recovery. Wyss is sniffy and derisive, but the essence of his sniffy derision is to say that of course the stimulus helped. And Bryson says the economy recovered faster because of the stimulus. Everyone agrees!

2) Jon Chait: What? Conservatives Agree The Stimulus Helped?:

What? In response to David Leonhardt's outstanding New York Times article on the success of the stimulus, Reihan Salam at National Review objects that Leonhardt is refuting a notion that no serious person actually holds:

If Leonhardt intends to knock down a straw-man argument — ARRA has had no impact and the economy would be in the same shape without any fiscal stimulus program — he succeeds.... I don't thing that anyone doubts that ARRA helped perk up growth...

It's bizarre that Reihan portrays this as as a straw man argument, since it's indisputably a very-widely held opinion among Republicans and conservatives, and I'd argue represents the consensus GOP view. When new party poster boy Scott Brown asserted that the stimulus "didn't create one new job," he was simply parroting a line that has been circulating among his party for a year. Which other conservatives have said this, you ask? Which ones haven't? There's John Boehner ("the stimulus isn’t creating jobs for American workers.") The Washington Times editorial page ("Mr. Obama's policies delayed the recovery.") Andrew Wilson at the American Spectator ("It is a $787 billion shell game -- taking money out of the private sector and putting it to less productive use in the public sector or passing it around as hand-outs to politically favored Democratic Party constituents. In doing so, the "stimulus" has actually destroyed jobs.")

How about some examples closer to home? Here's National Review's Mark Steyn: ("It didn’t just fail to stimulate, it actively deterred stimulation, because it was the first explicit signal to America and the world that the Democrats’ political priorities overrode everything else.") Here's Brian Riedl, also in National Review. ("The stimulus is not failing because it is too small or because too much of it is being saved. It’s failing because Congress can only redistribute existing demand, not create new demand.") With more time I could go on and on. Reihan, a former TNR Reporter-Researcher, is a bright and terrific guy, but he has an unfortunate tendency to imagine that the Republican Party is filled with people who think like he does. It isn't.

3) Paul Krugman: British Fiscal Austerity:

I’ve seen the economists’ letter opposing premature fiscal tightening in Britain, and hear it will be published tomorrow. I fully agree with the writers’ position. The crucial thing to understand is that fiscal contraction of an additional one or two percent of GDP in the near future has essentially no significance for the sustainability of government finances, either in Britain or here. The only reason to do it is to impress markets — to convince them of your willingness to bear pain. And absent structural reform — which is the real need — how much good does that do? So let’s not impose useless punishment, there or here.

4) British Fiscal Austerity II:

5) Mark Thoma for European fiscal federalism:

There are advantages to joining a currency union, but there are also costs. One important cost is that countries within the union cannot pursue individualised monetary policy. For example, if Spain and Greece weren't subject to the constraints that a common currency imposes, they could devalue their currencies to stimulate exports. Importantly, this could be used to offset the economic contraction that would be caused by bringing their deficits under control. But this is not possible under a common currency. The fact that individual countries within the euro area cannot use monetary policy to stabilise their economies means they must rely upon fiscal policy as their main stabilisation tool. However, fiscal policy alone is not as effective at stabilisation as fiscal policy used in combination with monetary policy. Fiscal federalism is one way to improve stability. Fiscal federalism is a broad topic, but here it is refers to resource transfers made by a centralised authority in an attempt to stabilise economic activity.



7) BEST NON-ECONOMICS THING I HAVE READ TODAY: Robert Waldmann: Why Is Gerald Seib So Determined to Miss the Point?:

Seib is, indeed, heroically refusing to see what is under his nose. However, I am uncomfortable with anonymous sources (Republican ligislators say in private). There is no need to look behind the scenes to see that Republicans are determined to obstruct initiatives which they think are substantively good. 7 Republican senators cosponsored a bill to set up the deficit commission in public and then filibustered it in public. Case closed. Also they supported the individual mandate before they opposed it. They would certainly certainly not support health care reform without the mandate. The mandate was AHIPs condition for (publicly) supporting the bill. There is no way Republicans would support a ban on discriminating against people with pre-existing conditions without a mandate. That would be crazy (no problem for them) and opposed by the industry (no way it happens). It is obvious that they are not filibustering only because of policy disagreements. There is no need to quote anonymous sources to know this. It is clear from their public statements and actions.

8) STUPIDEST "ECONOMIST" I HAVE READ TODAY: Brian Reidl, of National Review and Heritage, as observed by Brad DeLong:

Brian Reidl: "Obama’s Faith-Based Economics: The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy. No new demand is created; it’s a zero-sum transfer of existing demand..."

What Brian Riedl doesn't seem to realize is that the only way he can get extra money to spend is by borrowing it or selling his assets. In either case, the person he borrowed it from or sold his assets to no longer has the money to spend--and so by Reidl's "logic" any private-sector decision to spend more (or less!) money doesn't create (or destroy!) demand: "it's [just] a zero-sum transfer of existing demand." According to Reidl's logic, no private decision to spend more or less can ever change the flow of existing demand: spending in the economy must always be a constant. You have only to look at employment in America to understand that the claim that spending in the American economy is always a constant is simply and completely false. According to Reidl's logic, none of these fluctuations in the employment-to-population ratio ever happened. He and his ignorant cohorts just close their eyes, plug their ears, and the more literate and well-read of them say: "Say! Bastiat! Say! Bastiat! Say! Bastiat!"... Reidl's claim would be true if we lived in a pure cash-in-advance economy with a rigid technological velocity constraint--if the only way you could buy things was by paying cash on the barrelhead immediately, if you could only spend your cash once every "market day," and if you were forced on pain of confiscation to spend your cash every "market day." But we don't live in such an economy. We never lived in such an economy. Even Gyges King of Lydia, inventor of coinage, did not live in such an economy.

And John Cochrane of the University of Chicago, as observed by Oregon Girl:

Tell this to John Cochrane as well. He was on the News Hour last night and made exactly the same statement. The money to pay for the stimulus had to come from somewhere, implying that there was zero net effect of the stimulus. I expect that of a intellectually vapid think tank, but of an academic economist?

9) DELONG SMACKDOWN OF THE DAY: Felix Salmon: Why Cap-and-Trade Beats a Carbon Tax:

Brad DeLong reckons that the relative merits of carbon taxes and cap-and-trade "roughly offset each other". "To first order cap-and-trade and carbon taxes are the same," he says, but there are second- and third-order differences. Among the second-order differences are these, and you can see how he ends up with the "roughly offset" conclusion: (i) Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value. (ii) Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value. These two considerations do not offset each other. The second risk is high and real; the first risk is low and politically much more unrealistic. Given the hysteria over energy prices in general and gasoline prices in particular, it's easy to imagine how a carbon tax would be set too low. And it's true that no one really knows what the elasticities are in the energy market, which means that an aggressively-low emissions cap could indeed send prices into the stratosphere. But, realistically, what would happen in such an event? Would Congress sit idly by as fuel-oil costs exceeded monthly mortgage payments?

10) HOISTED FROM THE ARCHIVES: DeLong: Why You Should Read John Maynard Keynes (1919), The Economic Consequences of the Peace:

Before this full-bore, fangs-bared assault on the Treaty of Versailles and the politicians who made it, John Maynard Keynes was an aesthete, an intellectual, and a clever sometime-advisor to the British Treasury.

Afterwards, he was a celebrity, and a force to be reckoned with in the making of economic policy.

The anger and despair of this book had been building for some time, as Keynes had watched the slaughter of World War I and then saw the prospects for successful post-war reconstruction slipping away.

links for 2010-02-19

I Surrender...

Ronald Brak:

Downing Smack with Brad Delong.: There is an American, by the name of Brad Delong. He claims to have America's silliest dog. And these Americans, when they say they have America's silliest dog, what they are really claiming is that they have the world's silliest dog. We will not stand for such insolence! The Australian silly dog project shall triumph over all! Hund dummkopt uber alles!

But why, you may ask, shall we triumph? The answer is simple. Australian animals are intrinsically the silliest in the world. Our kangaroos haven't even worked out that first you move one leg and then you move the other leg and walk instead of jumping! Our hedgehogs lay eggs! Our ducks have fur and poison spines! Our bears are midgets with double thumbs that eat gum leaves! We have fish with lungs and fish that climb trees! We have frogs that can estivate non-stop for seven years! Try estivating for a week non-stop and see how you feel. In Australia, every swan is black! Except the white ones!

These Americans have nothing on us! Nothing! Our cats eat vegemite and float around on surf mats in the pool! Our jumbucks fit in tucker bags! And our dogs, they are the silliest of all. And I'm not talking about Banjo Patterson, play fetch with a lit explosive charge sort of silly. I'm talking about deep down silliness that seeps into your dog like liquid into this chalk. The sort of silliness that traps your dog at the end of the street after you pretend to tie its lead to an invisible post. The sort of silliness that makes your dog think that it is a good idea to try to walk on grass clippings floating on top of a pond...

What can I say?

IMG_0076.jpg.scaled1000.jpg 900ձ200 pixels

The Meaning of Life, From Gilgamesh

The Epic of Gilgamesh:

Siduri the Barmaid: If you are that Gilgamesh who seized and killed the Bull of Heaven,
Who killed the watchman of the cedar forest,
Who overthrew Humbaba that lived in the forest,
And killed the lions in the passes of the mountain,
Why are your cheeks so starved and why is your face so drawn?
Why is despair in your heart and your face like the face of one who has made a long journey?
Yes, why is your face burned from heat and cold?
And why do you come here wandering over the pastures in search of the wind?

Gilgamesh: And why should not my cheeks be starved and my face drawn?
Despair is in my heart and my face is the face of one who has made a long journey,
It was burned with heat and with cold.
Why should I not wander over the pastures in search of the wind?
My friend, my younger brother, he who hunted the wild ass of the wilderness and the panther of the plains,
My friend, my younger brother who seized and killed the Bull of Heaven and overthrew Humbaba in the cedar forest,
My friend who was very dear to me and who endured dangers beside me,
Enkidu my brother, whom I laved, the end of mortality has overtaken him.
I wept far him seven days and nights till the worm fastened on him.
Because of my brother I am afraid of death.
Because of my brother I stray through the wilderness and cannot rest.
But now, young woman, maker of wine, since I have seen your face
Do not let me see the face of death which I dread so much.

Siduri the Barmaid: Gilgamesh, where are you hurrying to?
You will never find that life for which you are looking.
When the gods created man they allotted to him death.
But life they retained in their own keeping.
As for you, Gilgamesh, fill your belly with good things;
Day and night, night and day, dance and be merry, feast and rejoice.
Let your clothes be fresh, bathe yourself in water.
Cherish the little child that holds your hand.
And make your wife happy in your embrace.
For this too is the lot of man.

Calling All Republican Economists...

A few words to the effect that John Boehner (R-Idiot) lies his a-- off would be appropriate, and would help make this a better country:

David Weigel: John Boehner’s Interesting Framing of Financial Reform « The Washington Independent: In his booster-ish speech about how a Republican Congress would govern, Rep. John Boehner (R-Ohio) deployed a clever frame to make the financial reform bill passed by the House sound absolutely awful. “Every Republican voted against [the Democrats'] TARP bailout,” said Boehner, “the permanent slush fund for politicians.”

We Write Blurbs...

For John Quiggin (forthcoming), Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton: Princeton University Press).

Abraham van Helsing repelled vampires with garlic and killed them with a wooden stake. John Talbot killed werewolves with his silver walking stick (silver bullets came later).

But neither garlic, wooden stake, silver club, nor silver bullet can help economist John Quiggin--for he must struggle against not werewolves or vampires but rather economic zombies: economic ideas that should have died long ago but, undead and animated by malign political and academic spells, still shamble forward. Privatization as the future of government; income inequality as a benign progressive force; financial markets as unchallengeable oracles; blind faith in central bankers; economics as if the world was populated only by people as logical as Mr. Spock--all five of these ideas should be resting peacefully in their graves.

But they are not.

So John Quiggin puts them there--for good.

If, that is, there is justice in the world; and if no sequel is contemplated...

Ummm... Peter Beinart... The Democrats Would Have Filibustered Bush's Tax Cuts: They Were Pushed Through Via Reconciliation--That's Why They Expire Next Year

A commenter writes, apropos of Peter Beinart's claim that "It's no surprise that Democrats couldn't successfully filibuster George W. Bush's tax cuts":

Those bills went through reconciliation. Which helps undermine some of the false symmetry of the article. How does one write a long form article about gridlock without talking to a single person who can correct this error?

Time for another weblogger ethics panel!!!!

Peter Beinart: American Discontent: The Problem with Washington Politics: Why Washington Is Tied Up in Knots: Time Magazine: How polarized is America today? Not all that polarized by historical standards. In 1856, a South Carolina Congressman beat a Massachusetts Senator half to death with his cane in the Senate chamber — and received dozens of new canes from appreciative fans. In 1905, Idaho miners bombed the house of a former governor who had tried to break their union. In 1965, an anti–Vietnam War activist stationed himself outside the office of the Secretary of Defense and, holding his year-old daughter in his arms, set himself on fire. (She lived; he did not.) By that measure, a Rush Limbaugh rant isn't particularly divisive.... What really defines our political era, as Ronald Brownstein notes in his book The Second Civil War, is not the polarization of Americans but the polarization of American government. In the country at large, the disputes are real but manageable. But in Washington, crossing party lines to resolve them has become excruciatingly rare. The result, unsurprisingly, is that Americans don't like Washington very much....

From health care to energy to the deficit, addressing the U.S.'s big challenges requires vigorous government action. When government doesn't take that action, it loses people's faith. And without public faith, government action is harder still. Call it Washington's vicious circle. Breaking this circle of public mistrust and government failure requires progress on solving big problems, which requires more cooperation between the parties. But before we can begin to break that circle, we need to understand how it developed in the first place....

[I]n the 1960s and '70s... liberal Northern Democrats rallied behind civil rights, abortion rights, environmentalism and a more dovish foreign policy... the Republican Party shifted rightward.... Whereas many members of Congress had once been cross-pressured — forced to balance the demands of a more liberal party and a more conservative region, or vice versa — now party, region and ideology were increasingly aligned....

In the 1980s, discrediting government was not the strategy of the congressional GOP, for two reasons. First, the sorting out hadn't fully sorted itself out yet.... Second, because Republicans occupied the White House, making government look foolish and corrupt risked making the party look foolish and corrupt too.... All that changed when Bill Clinton took office. With the GOP no longer controlling the White House, a new breed of aggressive Republicans — men like Newt Gingrich, Tom DeLay and Trent Lott — hit on a strategy for discrediting Clinton: discredit government.... In the Clinton years, Senate Republicans began a kind of permanent filibuster.... For a while, the remaining GOP moderates cried foul and joined with Democrats to break filibusters on things like campaign finance and voter registration.... In Clinton's first two years in office, the Gingrich Republicans learned that the vicious circle works.... With these acts of legislative sabotage, Republicans tapped into a deep truth about the American people: they hate political squabbling, and they take out their anger on whoever is in charge....

All this, it turns out, was a mere warm-up for the Obama years....

In recent years, Republicans have played this style of politics better than Democrats.... It's no surprise that Democrats couldn't successfully filibuster George W. Bush's tax cuts and Republicans couldn't successfully filibuster Obama's stimulus spending. When you're handing out goodies, it's much harder for opponents to gum up the process....

Is there a way out? In theory, if the Democrats won so overwhelmingly that they controlled nearly 70 seats in the Senate, as they did when Franklin Roosevelt secured passage of Social Security and when Lyndon Johnson got Medicare through, they could simply steamroll the GOP. But... the reality remains that today, and for the foreseeable future, neither party can do big, controversial things without help from the other.

So, what might encourage the two parties to cooperate?

First, more New Hampshires.... New Hampshire, by contrast, is an open primary, which encourages candidates to appeal to voters outside their party.... Second, more Crossfires. In today's highly segmented, partisan news environment, it's hard to create big new media institutions dedicated to objective news reporting. But it might be possible to create new talk shows and blogs in which liberals and conservatives interrogate one another's views — programs like the early (and more substantive) incarnation of CNN's Crossfire.... Third, more Ross Perots.... Imagine if another powerful third-party voice were to emerge today, demanding that both parties take real steps to solve problems like global warming and health care — as opposed to the Tea Partyers, who insist that government just get out of the way...

Crossfires and Ross Perots won't save us. Open primaries might. But the surest road to a better America would be to punish the Republican Party for gridlock: destroy it utterly, so that no politician for a thousand years will think that betraying his oath to serve the country to create pointless gridlock is the road to electoral success.

"Centrists" like Beinart who want a healthy politics need to punish the bad actors, and punish them severely--not enable them.

I Have No Quarrel with Tim Besley Save for that Line About How There Is a Compelling Case to Start "Fiscal Consolidation" in the 2010-11 Fiscal Year

That is all...

Tim Besley emails:

You referred to our letter on a blog that I saw and there seems to be a fair bit of misunderstanding around – as if we are arguing that we are hell bent on choking off recovery. But we explicitly recognize that the timing of measures of measures have to be sensitive to economic developments and the fragility of the recovery. This is a letter about the medium term and is based on the concern that there could be insufficient political will to tackle our structural deficit over a parliament. What we are suggesting is around a further 2.5% of fiscal tightening over five years compared to the government’s stated intentions. But equally importantly, this needs to be backed with proper independent evaluation of fiscal forecasts (our final point) something which we do not have in the UK. As for the near term, there is scope for serious tax reform and reforms to public services which should be carried out at the beginning of a parliament to ensure that the plans look credible and the burden of adjustment is shared fairly. (I am currently on a tax review commission – the Mirrlees review – which is about to report and will make clear just how much scope there is for improving the fairness and efficiency of our tax system and in the near term there should be scope for reforming the system so that consolidation is less painful when it is phased in over three years.)

I hope that this makes clear where we are coming from.

Menzie Chinn on Assessing the ARRA

He writes:

Econbrowser: Assessing the Stimulus, One Year In: A View from the Mainstream: On the one year anniversary of the passage of the ARRA, it seems appropriate to recap, not what the academics say, but what the business sector forecasters say.... Is there a political bias associated with each of the forecasting firms? I haven't heard of there being any. Like all forecasters, there are any number of possible biases in play, but partisan effects I've never heard of. So, I think David Leonhardt is on safe ground when he concludes "Judging Stimulus by Job Data Reveals Success":

...Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody's They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs. ...

This is where many "analysts" (e.g. here) conveniently dismiss these estimates, preferring to focus on the one or two studies (typically from academics) that imply negative effects or near zero effects.... Finally, we have in the Congressional Budget Office an organization committed to providing nonpartisan views regarding the impact of all sorts of government policies....

So, in order to make their case, critics who argue that the stimulus package passed a year ago had no positive impact on GDP need to either (1) explain why the commercial forecasters are incorrect in their assessments, (2) why the CBO is similarly misguided, or (3) why their preferred models are superior to the alternative approaches in this context (demonstrating, along the way, their superior predictive power). Until that occurs, I'll stick with the mainstream....

Additional Reading:

In addition to Leonhardt's story, see also Ezra Klein. For a typical criticism, read Russ Roberts, who mischaracterizes Leonhardt's statements on ultimate employment impacts; after quoting Leonhardt (the same one reproduced above), Russ writes:

That estimate of job creation is embarrassingly imprecise and the 1.6 million number would not be a conservative estimate but rather the high end estimate.

I believe that the "conservative" adjective applied to the ultimate impact at 2.5 million. Russ should've read the February CBO letter, discussed in this post. Taking a look at the 2009Q4 impact, one finds in Table 1 the low end number at 0.8 million, the high end at 2.3 million. The end 2010Q4 impact is low/high 1.2 million/3.6 million.

Can We Please Shut National Review and the Heritage Foundation Down Now?

Stupidest and most intellectually dishonest thanktanks and magazines alive...

Brian Reidl:

Obama’s Faith-Based Economics: The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy.[1] No new demand is created; it’s a zero-sum transfer of existing demand...

What Brian Riedl doesn't seem to realize is that the only way he can get extra money to spend is by borrowing it or selling his assets. In either case, the person he borrowed it from or sold his assets to no longer has the money to spend--and so by Reidl's "logic" any private-sector decision to spend more (or less!) money doesn't create (or destroy!) demand: "it's [just] a zero-sum transfer of existing demand." According to Reidl's logic, no private decision to spend more or less can ever change the flow of existing demand: spending in the economy must always be a constant.

You have only to look at employment in America to understand that the claim that spending in the American economy is always a constant is simply and completely false:

According to Reidl's logic, none of these fluctuations in the employment-to-population ratio ever happened. He and his ignorant cohorts just close their eyes, plug their ears, and the more literate and well-read of them say: "Say! Bastiat! Say! Bastiat! Say! Bastiat!"

If we move from the fantasy-land of ignorant partisan hacks into the real world in which we live, the fact that economic actors get the cash they spend by selling their assets to others, borrowing from others, or taxing others does not mean that every decision to spend creates "no new demand... [is] a zero-sum transfer of existing demand..." Reidl's claim would be true if we lived in a pure cash-in-advance economy with a rigid technological velocity constraint--if the only way you could buy things was by paying cash on the barrelhead immediately, if you could only spend your cash once every "market day," and if you were forced on pain of confiscation to spend your cash every "market day." But we don't live in such an economy. We never lived in such an economy. Even Gyges King of Lydia, inventor of coinage, did not live in such an economy.

And since we don't live in a pure cash-in-advance economy with a rigid technological velocity constraint, everyone's decisions to spend more or less contribute to or subtract from the flow of demand--and the government's decisions to spend more or less are just as good as anyone else's, for it is just another economic actor (albeit a rather large one).

This is a first-day-of-econ-1 mistake...

[1] It can also get it by printing money--but that's not the issue here.

In the Platonic Ideal of a Newspaper, John Berry Covers Federal Reserve and National Debt Issues

From the Fiscal Times:

John Berry: The Debt Limit Debacle: Congress controls this debt ceiling ostensibly to make it harder to run deficits, it has become a political club that the minority party uses to bash the majority, regardless of who or what is at fault... it’s hard to see that the existence of a debt limit does much except give some members of Congress reason to rail about debt and blame someone else for creating it. “Other than drawing attention to the problem, it’s an after-the-fact admission of what has already happened and doesn’t accomplish anything,” said Mickey Levy, chief economist at Bank of America. “Does it lead to better spending and tax policies? The answer is no,” Levy said. “Does it force Congress and the public toward a more meaningful debate on budget policy? Again the answer is no.”

No Republican in either the House or the Senate supported the latest $1.9 trillion debt limit increase — to $14.3 trillion. A typical comment in the House debate came from California Rep. Jerry Lewis, the top Republican on the House Appropriations Committee. “There is one easy way to avoid this kind of colossal national debt: The Democrat majority can stop spending so much taxpayer money,” he said.... While there have been some close votes, Congress has so far not allowed a default, which would make it both more difficult and much more expensive for the government to borrow in the future. It also could undermine the dollar’s preeminent role in the world economy. Nevertheless, many members of Congress routinely play a game of political chicken, excoriating those who vote to increase the limit while ignoring the prospect of a default. In this year’s debate, Republicans blamed spending favored by President Obama and Democrats for the debt. They skipped over the fact that the debt almost doubled, rising from $5.6 trillion to $10.6 trillion, while President George W. Bush was in office. Opponents also generally ignore another important point: Debt can increase even when the budget is balanced, because more than one-third of the total debt is the value of the Treasury securities held by the Social Security, Medicare and other government trust funds....

[T]he debt limit... is an issue on which no one wants to be on record. During the February House debate, Democrats used a parliamentary maneuver so that the chamber voted on a procedural measure instead of the debt bill itself. That provided some cover to Democrats who wanted to support the party and prevent default but did not want to cast the hard vote in favor of the increase. At the end of 2001, the shoe was on the other foot. President Bush’s tax cuts and a mild recession in the wake of the high tech stock market bubble pushed outstanding debt close to the limit, then at $5.95 trillion. The Republican-controlled Congress didn’t act, forcing the Treasury to undertake some fancy bookkeeping—including suspending investment of money paid by government employees into their own retirement funds and postponing securities auctions—to keep from breeching the limit. A few months later, the House finally cleared by one vote a bill to raise the limit. Last year, when the Senate approved a short-term increase, it did so by the same margin: a single vote.


Economists for Wage Subsidies

So Alan Blinder, Larry Katz, and I made a few phone calls and sent out a few emails...


February 18, 2010

The. Hon Nancy Pelosi
Speaker of the House of Representatives
United States Capitol
Washington, DC 20515

The Hon. John Boehner
Minority Leader of the House of Representatives
United States Capitol
Washington, DC 20515

The Hon. Harry Reid
Majority Leader of the Senate
United States Capitol
Washington, DC 20515

The Hon. Mitch McConnell
Minority Leader of the Senate
United States Capitol
Washington, DC 20515

Dear Speaker Pelosi, and Messrs. Boehner, Reid, and McConnell:

A great number of different policy actions--including the American Recovery and Reinvestment Act, the financial rescue, and the extraordinary monetary policy measures taken by the Federal Reserve--have in their sum played an important role in changing the trajectory of the economy from one of terrible decline to one of growth.  But with the latest unemployment rate at 9.7 percent, it is clear that additional emergency policy measures to jump-start job creation are still warranted.

A well-designed temporary and incremental hiring tax credit is a cost-effective way to create jobs, and could work well in the current environment.  At a time when GDP is beginning to rise and demand is starting to return, private firms are likely to respond to such a tax incentive by hiring sooner and more aggressively than they otherwise would have done.  Such a credit could thus help put Americans back to work more quickly than otherwise.  And by targeting firms that are growing, such a tax credit supports the businesses most likely to lead the recovery of employment.

There are many ways to design an effective hiring tax credit, but in general the beneficial effects will be greater the stronger the hiring incentives and the lower the administrative burdens placed on firms.  It is critical that such a tax credit be put into place quickly and that it is publicized widely.  Firms will begin to accelerate hiring only when know they can count on such tax relief.

We judge that a well-designed hiring tax credit is a well-targeted and economically sound strategy for aiding job creation at this phase of the recovery, and so we support a well-designed hiring tax credit.  

In our personal capacities, we are sincerely yours,

Mark Zandi
Justin Wolfers
Laura Tyson
Mark Thoma
Peter Temin

Joseph Stiglitz
Betsey Stevenson
Isabel Sawhill
Dani Rodrik
Robert Reich

Richard Portes
Larry Katz
Barry Eichengreen
Peter Diamond
Brad DeLong

David Cutler
Robert Cumby
Tyler Cowen
Menzie Chinn
Alan Blinder

George Akerlof

Ten Things Worth Reading, More than Half Economics: February 18, 2010

1) Robert Allen: Why was the Industrial Revolution British?:

The growth of British commerce had three important consequences. First... [t]he coal burning house was invented. It then paid to mine coal in Northumberland and ship it down the coast to London. The coal trade began. On the coal fields (in Newcastle, for instance), Britain had the cheapest energy in the world. Energy was more expensive on the European continent and particularly expensive in China.... Second, the growth of cities and manufacturing increased the demand for labour with the result that British wages and living standards were the highest in the world.... Third, the growth of cities and the high wage economy... strong demand for food and particularly meat, butter, and cheese led to the conversion of arable to pasture, convertible husbandry, and the production of fodder crops (beans, clover, turnips), most of which raised soil nitrogen levels and pushed up the yields of wheat and barley.... Success in international trade created Britain’s high wage, cheap energy economy, and it was the spring board for the Industrial Revolution. High wages and cheap energy created a demand for technology that substituted capital and energy for labour. These incentives operated in many industries.... The famous inventions of the Industrial Revolution were responses to the high wages and cheap energy of the British economy. These inventions also substituted capital and energy for labour. The steam engine increased the use of capital and coal to raise output per worker. The cotton mill used machines to raise labour productivity in spinning and weaving. New technologies of iron making substituted cheap coal for expensive charcoal and mechanised production to increase output per worker. These technologies eventually revolutionised the world, but at the outset they were barely profitable in Britain, and their commercial success depended on increasing the use of inputs that were relatively cheap in Britain. In other countries, where wages were lower and energy more expensive, it did not pay to use technology that reduced employment and increased the consumption of fuel.

2) Nick Crafts: :

In 1800 there were about 35,000 and in 1830 about 160,000 steam horsepower... and even in 1870 only about 1.7 million steam horsepower... about 2.5 per cent of the capital stock. Steam power was intensively used in textiles, the iron industry and coal mining but important sectors of the economy including agriculture and the tertiary sector outside of transport were virtually untouched by it. For a very long time water power remained cheaper for most users.... Although Watt's steam engine represented an important advance, from 1800 to about 1840 there was little further advance and the capital costs of steam engines did not fall − there was no equivalent to Moore's Law in operation then. There followed a period of further advance; many steam engines were upgraded to work at higher pressures and the price of steam power to the user had approximately halved by the mid-1850s.... [T]he contribution to TFP growth was fairly modest... steam power's impact on economic growth was modest throughout the industrial revolution and on into the railway age when compared with that of ICT. TFP growth in the computer sector has exceeded that on the railroads by massive amounts, especially recently. But the much greater impact of ICT applies not only to TFP growth but also to capital inputs, and was apparent prior to the post- 1995 growth spurt...

3) Robert Waldmann said...:

[Megan] McArdle is Uranus. I noticed a huge surge of blog posts noting that health insurance is good for people's health. I wondered why people suddenly felt the need to state the well known. Over time, I was very unsurprised to read the word McArdle (I should have guessed). Now I read the further phrase "Atlantic article" and I understand.

I'd say that the article seems to have been well above average for McArdle -- wrong, but wrong in an interesting way, and wrong in a way which might possibly not be due to intellectual dishonesty (note "might" makes right). I am not surprised that there is no mortality discontinuity at 65. The response that mortality responds slowly to health care is obvious. However, I think McArdle's article would have made me think for at least a tenth of a second if I had read it before reading the rebuttals. So definitely well above average for McArdle.

Doesn't he mean: "Megan McArdle is Neptune"?

4) Dean Baker: The Budget Deficit Scare Story and the Great Recession:

The Great Recession has left tens of millions of families facing unemployment, underemployment and the threat of losing their home. However, concerns over the deficit threaten to derail efforts to turn around the economy and spur employment. This report attempts to correct many of the misperceptions about the deficit that have brought the issue to the center of national debate. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the tactics of the deficit hawks distract the public and policy makers from the policies necessary to bring the economy back to full employment.


The Gapminder World 2006, beta

6) *SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY: Can chocolate lower your risk of stroke?:

Eating chocolate may lower your risk of having a stroke, according to an analysis of available research that was released February 11 and will be presented at the American Academy of Neurology's 62nd Annual Meeting in Toronto April 10 to April 17, 2010. Another study found that eating chocolate may lower the risk of death after suffering a stroke.... "More research is needed to determine whether chocolate truly lowers stroke risk, or whether healthier people are simply more likely to eat chocolate than others," said study author Sarah Sahib, BScCA, with McMaster University in Hamilton, Ontario, Canada. Sahib worked alongside Gustavo Saposnik, MD, MSc, where the study was completed at St. Michael's Hospital and the University of Toronto. Chocolate is rich in antioxidants called flavonoids, which may have a protective effect against stroke.... 44,489 people who ate one serving of chocolate per week were 22 percent less likely to have a stroke than people who ate no chocolate.... 1,169 people who ate 50 grams of chocolate once a week were 46 percent less likely to die following a stroke than people who did not eat chocolate.

7) BEST NON-ECONOMICS THING I HAVE READ TODAY: Glen Biegel, former speechwriter of Sarah Palin, on why she ditched him:

8) STUPIDEST PERSON OF THE DAY: Joe Wurzelbacher, as observed by the Blue Texan:

Personification of Patriotic, Pro-America Areas No Longer Supporting Sarah Palin: Yesterday, “Joe” the “Plumber” endorsed the Teabagger candidate for governor in Pennsylvania, and made a startling announcement.

Wurzelbacher touched on several different points during his speech, and many of them were surprising. He said he doesn’t support Sarah Palin anymore. Why? Because she’s backing John McCain’s re-election effort. “John McCain is no public servant,” he told the room, calling the 2008 Republican nominee a career politician.

But what about all that campaigning you did for him, Joe?

Wurzelbacher said, “McCain was trying to use me. I happened to be the face of middle Americans. It was a ploy.”

You’re in good company, Joe — so was the Quitter.


Brad steals a page from my book, quoting "Apocalypse Now" to describe the Bush approach to public policy, but he mangles the lines. Willard says, "They told me that you had gone totally insane, and that your methods were unsound." Kurtz asks: "Are my methods unsound?" And Willard replies: "I don't see any method at all, sir." (They're surrounded by deep-jungle tribespeople, decapitated heads on sticks, all sorts of corpses, etc.) I think that about sums it up.

10) HOISTED FROM THE ARCHIVES: DeLong (2005): DeLong on Tim Burke's Critique of Jared Diamond:

First, explaining the 1550-1850 rape of west Africa by the Atlantic slave trade requires more than "proximity... trade wind[s]... European nautical capacity... lack of harbors plus poor habitability of the west and central African coastline" (plus sugar islands where slave plantation labor can be exploited extremely profitably). It also requires a west Africa that doesn't have its own gunpowder armaments industry, and where small amounts of "advanced" European military technology can upset the balance of power and induce slave raiding-driven chaos for centuries. Second (and this is tentative, for here I am out of my depth), all societies develop internal strife. Whether the strife is resolved by internal civil war and purge or by the breaking-off and migration outward of a portion of the society depends crucially on just who is over the next hill, whether they are friendly, and whether it matters whether they are friendly. Bantu-speakers' technologies of farming meant that they could support much higher population densities in areas they chose to move into. Bantu-speakers' technologies of iron working meant that they had sharper tools and weapons than others in areas they chose to move into. Without these edges, lineage splitoffs would have found migration next to impossible. Third, I think that Tim Burke is right when he writes that "Diamond thinks that post-1500 events are no more than the icing on the cake." Diamond thinks that, given inequalities as they existed in 1500, post-1500 history is unproblematic--the interesting things, for Diamond, are what happened before 1500, so that's what he thinks is worth studying, and that's what he writes about. I think that Diamond is wrong: I think that post-1500 history is not the icing on the cake, and is very problematic. But it would be grossly unfair to focus a critique of Diamond on what he does not write about, rather than on what he does. Fourth, let me agree with Tim Burke that most of the questions I think are most interesting about world history are not ones that Diamond has much purchase on. Europe v. China. South America v. North America. What happened to Islamic civilization after 1000. Diamond has little to say about any of these.

I even think that Diamond massively overstates the ability of his model to hel us understand sub-Saharan Africa's development. Yes, climate is different and a great deal of the Middle Eastern biotechnological toolkit is not directly applicable. But a lot of the biotechnological toolkit is. And the whole rest of the technological toolkit is. And it's not as though east Africa was cut off from news about what was happening in Eurasia: the most important seaport on the central east African coast--the House of Peace--is named not in Swahili but in Arabic: Dar es Salaam. The writers of 1 Kings were especially impressed with what the Indian Ocean trade fleets brought: gold, and silver, and ivory, apes, and peacocks. Why, from 1000 to 1800, weren't the areas around Timbuktu and Dar es Salaam a lot more like the areas around Samarkand and Tashkent (in some centuries they were, weren't they?)? Diamond's model doesn't help us to understand why not. I don't understand why not.

links for 2010-02-18


I am shortly going to run out of archived items for my DeLong Smackdown Watch of the Day. So I would be very grateful for any pointers to high-quality DeLong smackdowns that I have missed.

Thanks in advance,

Brad DeLong

Clintonfest 2010!


ATTENTION: Assignment and photo desks

What: President Bill Clinton, founder of the William J. Clinton Foundation and 42nd President of the United States, will deliver an address, "Global Citizenship: Turning Good Intentions into Positive Action," as a special guest of the Blum Center for Developing Economies at the University of California, Berkeley.

President Clinton drew an overflow crowd when he visited UC Berkeley in 2002 to talk about globalization and the gap between rich and poor.

President Clinton, given the campus's highest honor, the Berkeley Medal, during that 2002 visit, is the ninth U.S. president to visit UC Berkeley. The first was Benjamin Harrison, who arrived by carriage in 1891. Other presidents who visited UC Berkeley include Jimmy Carter in 2007, John F. Kennedy in 1962, Harry S. Truman in 1948, Herbert Hoover in 1926 and 1935, Woodrow Wilson in 1919, William Howard Taft in 1909 and 1915, and Theodore Roosevelt in 1903 and 1911.

When: 3:30 p.m., Wednesday, Feb. 24

Where: Zellerbach Auditorium, on campus near the intersection of Bancroft Way and Telegraph Avenue. A campus map is online at

Tickets: Tickets will be available to the UC Berkeley campus community on Feb. 18, 19 and 20. They will be available online only. Tickets are free to UC Berkeley students. Tickets will not be available to the general public. Campus I.D. must be shown to pick up tickets and to attend the event. To secure tickets, campus members can visit: Zellerbach Auditorium seats approximately 2,000, and the majority of the seats will be reserved for students.

Background: The Blum Center for Developing Economies was established in 2006 to tap the energy and talent of the nation's top public teaching and research university to help the nearly 3 billion people in the world who live on less than $2 a day. The center was launched with a generous gift by Richard C. Blum, a San Francisco financier and philanthropist as well as UC regent. Blum Center innovation teams are working to deliver safe water and sanitation solutions in eight countries; life-saving mobile services throughout Africa and Asia; and new energy technologies that emphasize efficiency while reducing negative environmental impacts. The center's Global Poverty and Practice minor is the fastest growing undergraduate minor on campus, giving students the knowledge and real-world experience to become dynamic participants in the fight against poverty. In addition to choosing from a wide variety of new courses, students participate directly in poverty alleviation efforts in over 25 developing countries.

Department of "Huh?"

The best that can be said of the Republicans of '81 is that they did not understand what they were doing, that as David Stockman said "none of us really underst[ood] what's going on with all these numbers." The best that can be said of the Republicans of '01 and '03--well, nothing good can be said of their casual, cynical, hypocritical, and senseless trashing of the state of the federal budget.

The smart and hard-working Ed Andrews agrees with this. Andrews writes:

Bipartisan partisans: I agree that Bush and the Republican congress bear a huge responsibility  -- the bulk of the responsibility -- for today's deficits...

And he writes of how Republicans sacrifice their commitment to the truth to stay on their partisan message:

Douglas Holtz-Eakin... former CBO director... McCain's top economic adviser during the presidential campaign... pointedly insisted that spending was the main problem and that "we cannot tax our way" out of this. This was a subtle re-framing of what he often said back when he was CBO director: that we couldn't simply "grow our way" out of the long-term budget mess. Back then, Holtz-Eakin  would also say that the surpluses achieved under Clinton had been the result of multiple factors -- economic growth, but also  pay-go rules and tax increases (including the Social Security hikes that were still kicking in tons of extra cash at the time time).... Holtz-Eakin was already echoing Mitch McConnell's support' for a "bipartisan "spending commission.'' In other words: tax increases aren't really on the table.

And he writes that we shouldn't be surprised at Holtz-Eakin's allegiance to the party line:

[W]e shouldn't be surprised: Holtz-Eakin has recently been tapped by prominent GOP types to start a Republican-oriented think tank to help counter Democratic-leaning shops like John Podesta's Center for American Progress...

And he says John Podesta was there too:

I dropped by a forum of the Peterson-Pew Commission on Budget Reform yesterday, the  earnest group of budget mavens that's been pushing  for a bipartisan deficit commission and is itself a dress rehearsal for such a commission.... [John] Podesta was on the stage as well. He was polite too, but he made a point in his opening remarks of blaming the deficits almost entirely on George W. Bush -- the tax cuts, the  two unfunded wars, the unfunded prescription drug program for Medicare...

saying things that Ed Andrews agrees with.

But, somehow, it was wrong for Podesta to say this:

It was pretty much a straight recital of White House talking points.... [I]f a bipartisan group of self-proclaimed budget wonks... is already parroting party lines...

So Republicans are at fault for misleading the American people, and Democrats are at fault for... not misleading the American people?

The Carrying Cost of the ARRA...

I'm told that Republicans are upset that the interest costs of funding the ARRA--the fiscal stimulus program--is $100 million a day...

Well, 30 cents per person per day seems to me a small price to pay for an extra 2 million jobs right now--that's an extra $300 billion a year in GDP, an extra $3 per person per day in more stuff. To pay 30 cents a day and get $3 a day seems to be a very good deal.

But the $100 million figure is itself an artifact of static scoring--if you do the full analysis taking account of the fact that we are in a deep recession with conventional monetary policy spinning its wheels because of the zero nominal bound on interest rates--you get a very different answer.

As I like to say, suppose the government spends an extra $100 billion right now. It gets:

  • A $150 billion boost to real GDP--that's 100% positive gain.
  • That extra income generates $60 billion in additional tax receipts.
  • So we pay for that $100 billion of spending by taking on $40 billion of extra debt.
  • For which the U.S. must pay an average of 2% per year--a net annual cost of $800 million.

So you get $150 billion of extra production (and associated employment) for an interest cost of $2.5 million a day, 40% of the static scoring interest cost.

That means, among other things, that the right dynamic scoring cost of funding the ARRA is more like $40 million a day rather than $100 million--that for our extra 2 million jobs and $300 billion a year in production we re paying 12 cents per person per day.

Nope: No Signs That Britain Has Reached the Edge of Its Debt Capacity and Needs Fiscal Consolidation Either - Markets Data - Bonds & Rates Overview I understand the argument that sharp tax increases and spending contractions are needed in an economy in recession if its government has lost the confidence of the markets and can no longer borrow without triggering expectations of national bankruptcy via inflation. I believe it. That is the constraint on expansionary fiscal policy as an employment- and production-boosting stabilization policy tool.

But such situations are visible in the bond market. And Britain right now is not in such a situation--no more than the United States is.

So I genuinely do not understand what Tim Besley and company think that they are doing. Fiscal 2010-11 begins in a month and a half!

Ilona Billington and Natasha Brereton:

U.K. Jobless Claims Jump: LONDON—British unemployment rose sharply in January after two months of declines, highlighting the fragility of the economic recovery, while average earnings rose at a record-low pace for a third straight month, data showed Wednesday. Minutes from the Bank of England's February Monetary Policy Committee meeting also showed policymakers were unanimous in their decision to suspend the bond-buying program in February, but that for some members it was a close call. The releases keep the possibility of further BoE easing alive, and signal that the central bank will maintain loose policy for some time.

The Office for National Statistics said the widely watched claimant count measure of unemployment increased by 23,500, the biggest rise since July 2009. The jobless rate remained at 5%. The increase, which compared with a revised fall of 9,600 in December, came as a surprise to economists who had forecast a fall of 13,500. The U.K. government warned last month that it expected to see unemployment rise again in the coming months as the economic recovery remains fragile....

The official measure of unemployment, formerly known as the International Labor Organization measure, fell 3,000 in the three months to end-December to total 2.46 million. That meant the unemployment rate stood at 7.8% over the same period, unchanged from the three months to September, the ONS said...

Ten Things Worth Reading, More than Half Economics: February 17, 2010

1) Ryan Avent: Monetary policy: A healthy dose of inflation | The Economist:

Things get really mind-blowing when one reads Mr Blanchard's explanation of why economists used to think that a higher inflation target wasn't necessary:

The danger of a low inflation rate was thought, however, to be small. The formal argument was that, to the extent that central banks could commit to higher nominal money growth and thus higher inflation in the future, they could increase future inflation expectations and thus decrease future anticipated real rates and stimulate activity today.

In other words, it was fine to have low inflation, because if monetary policy ever got wedged up against the zero bound, then the central bank could simply work to raise long-run inflation expectations. But that's just what Mr Bernanke is now refusing to do. This would seem to make the case for a higher target, in good times and bad, much stronger. If it seems likely that skittish central bankers will be reluctant to do what's necessary to raise inflation expectations when they're caught against the zero bound, then it makes sense to do what you can to keep them out of that situation.

2) Barry Eichengreen: Europe’s Trojan Horse:

Spain, with its 20% unemployment rate and exploding budget deficit, sees in Greece an image of its own future. Or, if it doesn’t, the markets do. Portugal and Italy are little better. Like Greece, these countries now face sharp budget cuts. Like Greece, they can’t devalue to encourage exports. Like Greece, they face deep recessions. Like Greece, they will be tempted to ask for help. All of this raises the obvious question: Was the real mistake creating the euro in the first place? Since I was one of the few Americans to advocate a single European currency, you would be justified in asking: Am I having second thoughts?

My answer is no, creating the euro was not a mistake, but it could still be a mistake in the making. The Greek crisis shows that Europe is still only halfway toward creating a viable monetary union.... Completing its monetary union requires Europe to create a proper emergency financing mechanism. Currently, other member states can provide assistance to Greece only by bending the rules.... When Europe’s leaders do help, it makes the public and markets think that they are being dishonest. If it is the Lisbon Treaty that creates these problems, then the Lisbon Treaty should be changed. Moreover, assistance should come not just with conditions, but with temporary control of the national budget by a committee of “special masters” appointed by the European Union. Mere promises by the recipient, history tells us, are not enough. No doubt, countries to which these measures are applied will express outrage. Well, no one is forcing them to take the money. Worried about moral hazard? Here’s your solution. Note also that this would also be a much more effective disciplining mechanism than the defunct Stability and Growth Pact.

You might well ask: how would Californians feel if their state was forced to turn over its budget temporarily to a special master appointed by President Barack Obama’s administration? Actually, they would probably feel okay. The special master would not be a fellow Californian, but he would be a fellow American. People would understand that he was acting in the interest of the state as well as the country. They would also be reassured by the fact that California sends representatives to Washington, D.C., where the special master’s marching orders would be issued...

3) Matthew Yglesias: People Trust The Government When The Economy is Good:

[T]here’s a huge tendency among journalists to underrate the extent to which macroeconomic conditions drive everything in politics.... John Sides reviews the data....


The economy explains about 75% of the variance in trust.... Of course the economy is not the only important factor. But it gets far less attention than it deserves when the hand-wringing begins.... More people will trust the government again when times are good, even if government ain’t. One reason this kind of thing doesn’t get as much attention as it deserves, of course, is that it’s against the professional interests of the political operative class to admit that objective macroeconomic factors are what drives most political outcomes. But this one again highlights how insane it was of Democrats in the White House and on Capitol Hill to ignore Christina Romer when she said the economy needed a $1.2 trillion stimulus and deliver a $700 billion stimulus instead.

We can argue about whether the White House or the Hill was the main locus of the madness, but it was truly mad. More effective macroeconomic stabilization policy would have made Obama more popular and made the public more confident in the ability of the government to govern. That, in turn, almost certainly would have improved the situation facing congressional Democrats. Ironically, it’s the very vulnerable Democrats who were most inclined to trim the stimulus who are now most likely to pay the price for their own short-sightedness.

4) Adam Ozimeck: Canadian Catholics and School Choice:

A new paper by David Card, Martin Dooley, and Abigail Payne looks at Ontario’s unique public school system, which includes secular public schools and Catholic public schools open only to Catholics, to estimate the impacts of school choice and school competition: "For non-Catholics, the Ontario system functions like a typical public system in the U.S. with a single monopoly provider.  For the 40% of children with Catholic backgrounds, however, the system is effectively a voucher program with two competing suppliers.  Although choice is limited to Catholics, the financial incentives to compete for Catholic students potentially impact the quality of schooling for all students.  Our goal is to measure the effects of these incentives using standardized student test score gains between 3rd and 6th grade." They find that a more competitive school market, where a higher percentage of students are Catholic, leads to better performance in both Catholic and secular public schools. They estimate that if school choice was made available to all students, rather than just the Catholic students, overall performance would increase overall 6th graders standardized test scores  by 6-8% of a standard deviation. These results reinforce the idea that the impact of charter schools and voucher programs shouldn’t just compare the performance of students admitted to the programs to those that aren’t, since the main impact may be to increase test scores throughout the entire school system.

5) GRAPH OF THE DAY: Realized Equity Risk Premium:

Equity returns: A new normal | The Economist

6) BEST NON-ECONOMICS THING I HAVE READ TODAY: Buce: Appreciation: Kate Brown's Report from Nowhere:

Kate Brown has written a wonderful book, A Biography of No Place: From Ethnic Boderland to Soviet Heartland , on the shadowy roots of statehood in the void between Poland, Russia, the Ukraine and heaven knows what else, fit to stand on the shelf with Benedict Anderson's Imagined Communities and John Scott's Seeing Like a State, but she seems to have paid the price for it by spending a lot of her youth in disagreeable, not to say muddy, places.... Brown asserts that it was the Soviets who did most to imposes nationalist/ethnic identities in Eastern Europe--ironic, for an ideology so committed to internationalism--and then turned on its progeny when they began to stand on their own feet. Her particular focus is Dovbysh, once Marchlevsk, once burned (i.e., from above, from Moscow) with the peculiar destiny of becoming a center of Polish culture and society.... "In order to reform" she continues, "modernizing societies first take stock.... Jews were relatively easy to count.... Germans too were distinguished by religion and tradition..."

The Polish population, however, was more ambiguous. Although the official statistics listed the population of Poles in the Marchlevsk territory as 70 percent of the total population, less than half of tht number actually spoke Polish; fewer than half of those spoke it well and used it daily.... When asked to state their nationality, many peasants replied simply "Catholic." One peasant said he spoke quite well the "Catholic language." Other peasants said they spoke po-chlopski, "in the peasant way," or "in the simple way" (pro-prostomu) or "the languge of here" (tutai'shi). Investigators went form location to location reporting that no two villages were alike, each place contained a different blend of language, ethnicity and social composition.

This sometimes-comical chasm of bewilderment and incomprehension certainly doesn't excuse, but it may help to explain, the epidemic of paranoia, emanating first from Stalin himself, that turned the Bolshevik regime into an enemy of the people...

7) STUPIDEST DELIBERATIVE BODY EVER: *The United States Senate, as observed by Paul Volcker:

Congress has never been more dysfunctional than it is right now, and its preventing progress on crucial financial reform, lamented Former Fed Chairman Paul Volcker in an interview aired Sunday on CNN’s “Fareed Zakaria GPS.” “Capitol Hill -- the Senate – is dysfunctional. I’m very disturbed by the trend in the government generally and its inability to get together and do things,” said Volcker, who serves as a top outside economic adviser to President Barack Obama. Volcker said he had hopes that financial reform would prove an exception to that trend. “This is a relatively neutral subject politically," he said. "The need is so clear here, and its not an ideological issue – it shouldn’t be anyway…. It’s a practical issue. And I’m disturbed that they can’t get together.”

To illustrate the degree of dysfunction, Volcker pointed to the fact at a time when reforming the financial system is such a priority the Senate still hasn’t confirmed high-level Treasury officials. In contrast, in 1969 he was nominated as undersecretary of treasury by Inauguration Day and confirmed about a week later, Volcker recalled. “We are more than a year after the inauguration and neither the undersecretary for international [affairs] or the undersecretary for domestic finance – you don’t have them. It’s not because people haven’t been put forward. It took them a long time to get them nominated and an impossible amount of time to get them confirmed. … What’s going on here?” Volcker asked. “How can the Treasury effectively function … without the top officials in place that are needed. … What’s the matter with this government that we can’t even get together and get the administration installed.”

8) STUPIDEST THING I HAVE READ TODAY: Harry Reid, as observed by Barbara Krivat:

Senate Majority Leader Harry Reid is already catching heat for saying:

We feel the American people need a message. The message that they need is that we're doing something about jobs.

This comment comes on the heels of news that a bi-partisan jobs bills has fallen through, and Reid is now plowing ahead with a slimmed-down four-point plan. Yes, what Reid said is a bit tone-deaf. The American people don't need a message that Congress is doing something about jobs; they need jobs...

9) DELONG SMACKDOWN WATCH OF THE DAY: Henry Farrell: DeLong, Scott and Hayek: Another, more homely

Brad criticizes Scott’s discussion of the much-cited tasteless tomato arguing that it are an example of market success rather than failure – people bought tasteless tomatoes because they were cheap. This seems to me to have a bit of a flavor of a revealed preferences argument, and also to miss the point. I lived in Florence for three years, a city which has cheap and delicious tomatoes.... I strongly suspect that the deliciousness of the tomatoes had a lot to do with informal relationships between the small shops where you bought the tomatoes, the small companies that delivered them, and the small farms from where they were bought. Certainly, this would be consonant with the research that I and many others have done on the Italian political economy and how it works. Italy protects small businesses and local communities in a lot of ways. This means that it misses out badly on certain economies of scale. It also means that certain kinds of high quality production are possible in Italy that are difficult or impossible to replicate elsewhere – a myriad of small firms cooperating to produce final goods through purely informal means. Hence the success, for example, of Italian sunglasses, shoes, and (the rather unglamorous topic of my own research) packaging machinery. All of these build on forms of informal knowledge that would likely be damaged in a more standard market economy, where collaboration happened (to the extent that it did), within the hierarchy of the firm, or through arms-length contracts. Thus, there are trade-offs. Italian firms in small-firm districts are excellent at gradual innovation and refinement of knowledge – in part because of their reliance on metis. They are not so good at producing profound, industry-changing forms of innovation. They also tend to stick closer to home than their equivalents in other countries (somewhat ironically, they replicate the logic of Avner Greif’s mediaeval Maghribi merchants far more than the behaviour of his Genoese traders).

To return to the more homely example of food, Florence has an excellent restaurant culture, where you can eat out cheaply and incredibly well if you avoid the tourist traps. But it systematically emphasizes local cuisine, along with a few imports from the South (pizza and pasta) and the north (some Bolognese and Milanese dishes). Chinese food in Florence is (or was when I was there) terrible, and Indian food was relatively very expensive and no better than mediocre.... In contrast, most US cities of my experience have a lower overall standard of food, but a much greater variety of restaurants producing different cuisines, sometimes at a quite high standard of quality....

This allows me to come back to the roots of my disagreement with Brad. Brad is a fan of markets, and believes that they contribute in very important ways to human freedom. I agree with him on this. But I think that Brad sometimes underemphasizes the real trade-offs that markets may involve, and overstates his criticisms of people who are concerned with these trade-offs. Sometimes, perhaps often, these trade-offs are relatively slight – as Brad says, many forms of redundant local knowledge can be discarded without compunction. Sometimes, these trade-offs are real, but still worthwhile – while we should acknowledge the costs of markets, we should acknowledge that the benefits of introducing them are higher. And sometimes they are not worth paying – there are areas of social life where marketization has more downsides than advantages. (the question of which areas of social life fall under which category is obviously important, but this post is much too long already)...

10) HOISTED FROM THE ARCHIVES: DeLong (August 2002): Wealth Satiation:

At what level of material wealth does one become, completely, totally, utterly sated? How much stuff--how many things--how much power to buy and control does one have to have before one can say "enough is enough," stop playing the game for increased wealth, and start playing some other, different game? Here is discouraging psychological evidence from publishing magnate and Rolling Stone founder Jann Wenner. It turns out that--at least as far as he is concerned--wealth in nine figures isn't enough yet to make him not care...

Premium Blend: A group weblog from the editors of Corante: What's your number? How much is enough? It may be more than you think: ''I had a fascinating conversation recently with Jann Wenner, the founder of Rolling Stone. Here's a guy who's probably got three or four hundred million dollars--he's got a Gulfstream II and a house here and a house there, and you can't imagine what trappings he could want from the next level. But he's got this gleam in his eye because he's telling me about how he spent the weekend with Paul Allen. He said that Paul Allen didn't have a GII, he had two 757s. They flew over to, like, Nice, and then they got into Paul's helicopter, which took them to Paul's boat, which stays sort of off the coast of southern France. And I could tell that Jann was picturing himself at the next level--the multi-billionaire. And I was fascinated by that because, holy shit, if that's not enough for Jann, why do I think I'm going to be able to get off the conveyor belt?''

links for 2010-02-17

Why Is Gerald Seib So Determined to Miss the Point?

Jamelle Bouie on Gerald Seib:

Misdiagnosis: Gerald Seib’s diagnosis of the Senate — its problems are merely a symptom of our political system’s larger dysfunction — is mostly spot on, with the exception of this bit:

Yet the real issue here isn’t the number of filibusters and cloture votes needed to stop them, but that there is so little common ground between the parties that the tactic is so easily employed. After all, if there is a rough consensus on a matter, spanning the two parties in the center of the ideological spectrum, filibusters are a futile gesture. They are worth mounting only in a highly partisan, highly polarized environment. And that’s precisely the environment the nation—not just the Senate—has right now. This loss of common ground in the center is why filibusters matter.

I’m not sure that this is an accurate reading of the dynamic at hand. Even if senators were able to find broad consensus on legislation, it wouldn’t change the core facts of the situation: voters reward accomplishments and punish failures, with the latter directed at the majority regardless of circumstances. And since we know that the minority has the power to cause failure, the political incentive will always point towards greater obstruction, even if there is substantive agreement on a given issue. Common ground or not, there simply isn’t any reason to cooperate, especially when non-cooperation could yield substantial career benefits (like choice committee assignments and the like). And since chances are slim that public attitudes will massively shift towards some kind of split-the-difference moderation, the only real solution to the problem of gridlock in the Senate is institutional reform (i.e. filibuster repeal).

Seib seems not to be able to see what is right smack in front of his face: there is broad consensus. The stimulus program that Romer, Summers, Orszag, and company designed for Obama was very similar to the stimulus that Holtz-Eakin and Zandi would have designed for McCain. The health care plan pushed by Obama was--nay, was to the right of--the health care plan that Mitt Romney put in place in Massachusetts. Even outside of health care and macro policy there is substantial consensus on what good policy is: Bush economic staffers say that Obama's cap-and-trade proposals are not aggressive enough, and Republican legislators say in private that they would be worth supporting were it not (a)important to deny Obama any victories, and (b) for their need for support from the oil industry; Bush financial regulators say that Obama's financial reform proposals are too timid, and Republican legislators say in private that they would be worth supporting were it not (a) important to deny Obama any victories, and (b) for their need for support from the banking industry.

Yet, somehow, none of this makes it into Seib's "Capitol Journal" column: he, for some reason, doesn't think he can do more than hint at what he knows to be true...

The Commercial Revolution in Late Medieval China

Hsu Hsien-chung (ca. 1550), "Prose-Poem on Cotton Cloth":

Why do you ignore their toil? Why are you touched
Only by the loveliness that is born from toil?...


In the freezing cold they send the shuttle flying,
One up, one down, the warp-threads through the heddles run,
And as the footbar moves they rise and fall in turn.
A thread snaps; and is painfully joined again...


The chill night stretches out
As one foot, then another foot, is done.
The hens are cackling in the morning cold
When the piece is wound off the roller
And they hurry to market...


When a woman leaves for market
She does not look at her hungry husband.
Afraid her cloth's not good enough,
She adorns her face with cream and powder,
Touches men's shoulders to arouse their lust,
And sells herself with pleasant words.
Money she thinks of as a beast its prey;
Merchants she coaxes as she would her father.
Nor is her burden lifted till one buys...

Ezra Klein: Evan Bayh, Minor Deficit Hypocrite

Ezra writes:

An ordinary politician: My impression of Evan Bayh was that he was a major deficit hypocrite. Despite spending all his time talking about the need to reduce spending, he'd voted for all the major spending increases in recent years. When I looked into it, that wasn't true: He voted against the Bush tax cuts, and against the Medicare prescription drug benefit. But he voted for the Iraq and Afghanistan wars, opposed sensible tax increases like President Obama's proposed cap on itemized deductions, and sponsored legislation to spend more than $440 billion exempting rich people's estates from taxation.

So: Evan Bayh's not a major deficit hypocrite. He's a minor deficit hypocrite. But a deficit hypocrite all the same. In his exit speech, he describes himself as "a lonely voice for balancing the budget and restraining spending." Of course, there's no such thing in Washington as a "lonely voice" for a balanced budget. There is a cacophony of such voices, and a dearth of such votes. But votes are the only things able to do the job....

Accusing a politician of deficit hypocrisy isn't a particularly serious slur.... But if Bayh's sins are ordinary, so too was his career. Which is why I was surprised to see my colleague Jonathan Capehart term this a "brain drain." I've talked to Bayh before, and... found him special only in his ability to formulate platitudes on the fly....

Take Bayh's dramatic exit. "I have had a growing conviction that Congress is not operating as it should," he says. "There is too much partisanship and not enough progress -- too much narrow ideology and not enough practical problem-solving." All true enough. You'd expect that he'd then diagnose the problem and explain how he'll help fix it. But nope. Instead, he simply laments it and then says he'd like a job "helping grow a business, helping guide an institution of higher learning or helping run a worthy charitable endeavor."

Respectable goals all, but small ball for a senator who has concluded that the American legislative system is so crippled that he can no longer bear to participate in it. Even in this, his most dramatic hour, Bayh was unable to be more than a perfectly typical politician, seeking praise for raising his voice while doing nothing to solve the problem.

You Don't Name an Arsonist to Co-Run the Fire Department

Not a good move by Barack Obama.

The Financial Times:

Obama to sign order for fiscal commission: President Barack Obama will sign an executive order on Thursday to establish a bipartisan commission charged with tackling the U.S. deficit, a senior administration official said on Tuesday. Obama will name Erskine Bowles, former chief of staff to President Bill Clinton, and former Republican Senator Alan Simpson to serve as co-chairs of the commission, the official said. ”On Thursday, President Obama will sign an executive order establishing the bipartisan National Commission on Fiscal Responsibility and Reform,” the official said. Bowles was White House chief of staff from 1996-1998.... Simpson was a senator from Wyoming from 1979-1997. ”During his career in the Senate, Simpson was often a strong voice for fiscal balance -- for example, voting in favor (of) the bipartisan 1990 deficit-reduction agreement.”

And voting for the big 1981 tax cut--the one where then budget director David Stockman said, of himself and his Republican colleagues, "none of us really understands what's going on with all these numbers"--and against the Clinton-era OBRA-93.

One out of three doesn't make you "often" a strong voice for fiscal balance. It means that you "occasionally" were a voice--and not a particularly strong one, IIRC--for fiscal balance.

One Big Andrew Mellon Watch

Martin Wolf watches Niall Ferguson:

How to walk the fiscal tightrope that lies before us: Niall Ferguson is not given to understatement. So I was not surprised by the claim last week that the US will face a Greek crisis. I promptly dismissed this as hysteria. Like many other high-income countries, the US is indeed walking a fiscal tightrope. But the dangers are excessive looseness in the long run and excessive tightness in the short run. It is a dilemma of which Prof Ferguson seems unaware....

Prof Ferguson is trying to frighten US policymakers out of sustaining or, better still, increasing [short term] fiscal stimulus, even though the true issue is longer-term sustainability. He also accuses opponents of believing in a “Keynesian free lunch”. Not so. The argument is, rather, that the benefits of the higher output today exceed the costs of debt service tomorrow. Prof Ferguson believes instead in a conservative free lunch. This is the view that fiscal tightening today would have little effect on activity. Normally, when monetary policy has room for manoeuvre and the private sector’s borrowing is unconstrained, that is right. But, as Olivier Blanchard, chief economist of the International Monetary Fund, and colleagues note in a recent report: “To the extent that monetary policy, including credit and quantitative easing, had largely reached its limits, policymakers had little choice but to rely on fiscal policy.” The high-income countries that have experienced the biggest jumps in deficits and debts have, inevitably, been Ireland, Spain, the UK and US, as Stephen Cecchetti and colleagues at the Bank for International Settlements pointed out in “The Future of Public Debt”, a paper presented last week at a conference celebrating the 75th birthday of the Reserve Bank of India. These are the countries that had the biggest credit booms and asset bubbles. It is there, as a result, that private-sector spending has been most constrained by the pressure to deleverage.

Jumps in fiscal deficits are the mirror image of retrenchment by battered private sectors. In the US, the financial balance of the private sector (the gap between income and expenditure) shifted from minus 2.1 per cent of GDP in the fourth quarter of 2007 to plus 6.7 per cent in the third quarter of 2009, a swing of 8.8 per cent of GDP (see chart). This massive swing occurred despite the Federal Reserve’s efforts to sustain lending and spending. Similar shifts occurred in other crisis-hit countries. If these governments had decided to balance their budgets, as many conservatives demand, two possible outcomes can be envisaged: the plausible one is that we would now be in the Great Depression redux; the fanciful one is that, despite huge increases in taxation or vast cuts in spending, the private sector would have borrowed and spent as if no crisis at all had happened. In other words, a massive fiscal tightening would actually expand the economy. This is to believe in magic.

The huge increases in fiscal deficits were appropriate to the circumstances. The only way to have avoided them would have been to prevent prior expansions of private credit and debt. But... such deficits cannot continue indefinitely....

[L]ong-run fiscal prospects, largely driven by ageing, are dire....

[W]hat if private deleveraging and fiscal deficits continue in the US and elsewhere for years, as they did in Japan? Then triple A-rated countries, including even the US, might lose all fiscal headroom. This has not yet happened to Japan. It might well not happen to the US. But it could. So, yes, high-income countries face huge fiscal challenges. And yes, the crisis-hit countries start from grossly unsustainable fiscal positions. But the US is not Greece. Moreover, a massive fiscal tightening today would be a grave error. There is a huge risk – in my view, a certainty – that this would tip much of the world back into recession. The private sector must heal. That, not fiscal retrenchment, is the priority.

Evan Bayh Takes Step to Remove Phony Deficit Hawks From Congress

Michael Berube writes:

American Airspace: Evan Bayh lashes out at Congress, gridlock: Washington, DC—In a sign that political paralysis in Congress is taking a toll on its own members, Sen. Evan Bayh (D-Ind.) on Monday unexpectedly announced he would not run for reelection this year, blasting the Senate for its recent failure to address major issues like reducing unemployment and the federal deficit. “After all these years, my passion for service to my fellow citizens is undiminished, but my desire to do so in Congress has waned,” said Bayh, whose decision to step down was all the more surprising because he appeared almost certain to be reelected to a third term in November even though he represents a predominantly Republican state. “There is too much partisanship and not enough progress—too much narrow ideology and not enough practical problem-solving,” Bayh said in a statement. “Even at a time of enormous challenge, the people’s business is not being done. Two weeks ago, the Senate voted down a bipartisan commission to deal with one of the greatest threats facing our nation: our exploding deficits and debt. The measure would have passed, but seven members who had endorsed the idea instead voted ‘no’ for short-term political reasons,” he said. Just last week, a major piece of legislation to create jobs—the public’s top priority—fell apart amid complaints from both the left and right. All of this and much more has led me to believe that there are better ways to serve my fellow citizens, my beloved state and our nation than continued service in Congress.”

Bayh blamed “so-called centrist Democrats” for enabling Republican obstructionism, claiming that they were exploiting Senate filibuster rules to extract concessions that capitulate to capricious Republican demands and water down White House initiatives.  “A handful of ‘Blue Dog’ Democrats in both chambers did all they could to blunt Obama’s agenda, block meaningful health care reform, and reinforce the image of the Democrats as a party unable to govern,” Bayh said.  “The Republicans couldn’t have done it all by themselves—they needed the help of a key group of Democrats who were willing to repeat their talking points and serve as all-purpose concern trolls.  Some of them did it for personal gain, some for sheer pettiness, but it doesn’t matter what their motives were.  What matters is that they have effectively sealed the Democrats’ fate for the foreseeable future.” Bayh refused to name specific members of Congress in the statement, but a senior aide said privately that Bayh was “especially furious” at Senate Democrats who pose publicly as “deficit hawks” but vote repeatedly to lower tax rates on the very rich.  “Evan wants those people out of the Senate altogether,” said the aide, “and he wants them out now.”

John Podesta Weighs in on What the Obama Administration Should Do

Ed Luce reports:

Obama urged to regain 'political narrative': Barack Obama, US president, has lost control of the political narrative and needs to make more use of his cabinet in order to regain it, says John Podesta, the man who headed the president's transition team. "My friends in the White House would agree with this, that they lost the narrative," Mr Podesta said in an interview for View from DC, the Financial Times' video series from Washington. "Clearly that needs not one speech once in a while: it needs, I think, to be constantly reinforced. And not just by the president, but by his entire team . . . He's got a terrific cabinet. Use it. Get out into the country and use it."

Mr Podesta, who was also a chief of staff to Bill Clinton, drew parallels with the former president's difficulties in his first two years, which culminated in the 1994 Republican takeover of Congress following the failure of healthcare reform. When asked whether the failure of this latest attempt at healthcare reform would result in a similar electoral "massacre" for the Democratic party at the mid-term elections in November, he said: "I subscribe to that view." Mr Podesta, whom Mr Obama still regularly consults, founded the Centre for American Progress, Washington's largest liberal think-tank. It was often described as a "government-in-exile" during the years George W. Bush was in the White House.

He said there was still a better than 50:50 chance of getting healthcare reform through.

Were Barack Obama to ask me what he should do, I would tell him to do two things tomorrow morning that would, I think, make this a better country:

  1. Pull Gene Sperling from the Treasury to the White House to be Special Assistant to the President for Economic Policy and Strategy, and put hi in charge of the politico-economic narrative. I'm sure he's doing good things for Tim Geithner over at the Treasury, but I don't think it's Gene's highest and best use.

  2. Recess appoint two Fed governors who think like Ben Bernanke and Janet Yellen--Barry Eichengreen, David Romer, Alicia Munnell, Peter Diamond, Martin Baily, Jeffrey Frankel, there are a huge number of people who would be happy to take a recess appointment as a Fed Governor--to give them some backup on the FOMC.

That would, I think, change the political-media climate in a good direction in three months and change the economy in a good direction in a year.

Dana Perino's Epitaph on the George W. Bush Administration

A nice catch from Kevin Drum:

George Bush's Fact Problem/a>: Former Bush press secretary Dana Perino, responding to a Jonah Goldberg post about press strategies, says: " reminds me of something I used to say at the White House when people would complain that we had a communications problem on this or that. Sometimes that was true, but that was usually because we had a fact problem..."

Surely this deserves a followup. Perino says that when Bush had a problem getting his point of view across, it was "usually" a fact problem. That sounds like a lot of fact problems. I'd really like to hear more about this.