links for 2010-02-04
Brad DeLong Smackdown Watch-Steve Horwitz Edition--or Is It?

Ten Economics Pieces Worth Reading: February 4, 2010

1) Harold Meyerson: A jobs lesson from the New Dealers:

The current proposals, I was told this past weekend by George Miller, chairman of the House Education and Labor Committee and probably Speaker Nancy Pelosi's most trusted counselor, "are not adequate to the scope of the problem. You still have a big gap between the resources we're offering and where we need to be. Clearly, more has to be done." The $100 billion stimulus President Obama put forth in his budget is almost laughably smaller than last year's $787 billion package, which most economists credit with saving or creating 1.5 million to 2 million jobs.... Late last year, House Democrats passed a stimulus bill authorizing $154 billion in spending on infrastructure, assistance to states and aid to the unemployed. The Senate, which is reportedly planning to unveil proposals this week, is said to be hung up on the cost of legislation. Early indications are that it will be a good deal smaller than the House's.

The common thread within the Obama and congressional proposals is, alas, resignation. Faced with Republicans who won't support any solution but tax cuts, and with increased though mistimed concern over the size of the deficit, the Democrats propose to shrink unemployment only at the margins.... Democratic job proposals fall woefully short. "If you're really going to make a dent in the unemployment numbers, you have to move in the direction of public jobs," says Miller. "We could create a lot of those jobs -- not with a great wage, but a decent wage. We could put people to work in local agencies." Miller is looking at such proposals, but it would probably take a mass movement of labor, community groups and whatever is left of Obama's scattered legions all demanding jobs and economic equity for such a bill to garner even a chance of passage.

Yet it's not as if the government hasn't done this before. In the winter of 1933-34, with unemployment close to 25 percent, FDR aide Harry Hopkins put an astonishing 3 million people on the federal payroll in just 90 days, repairing airports, military bases and schools. This in a nation of just 130 million people -- the equivalent today would be around 7.5 million. Hopkins and Roosevelt faced the same criticisms -- over the size of the deficit and the growth of the federal government -- that Obama and the Democrats face. But the New Dealers persisted throughout the 1930s, reducing unemployment; building roads, airports and bases; and securing the allegiance of voters for decades to come.

2) Representative Paul Ryan: 'Rationing happens today! The question is who will do it?':

The Lasik thing is interesting because it gets to the question of whether health care is a market. When I think of getting Lasik, or buying a television, I can walk out of the store. That’s what gives me as a consumer my power in the market. But if I have chest pains and my doctor prescribes a bypass, how do I walk out of the store?

3) Calculated Risk: Obama Vows to Address Yuan Exchange Rate Issue:

Reuters is quoting President Obama: "One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price. That puts us at a huge competitive disadvantage." Pimco's Paul McCulley listed this as one of the key issues for 2010: "The first issue is the peg between the Chinese yuan and the U.S. dollar, which essentially gives us a one-size-fits-all monetary policy in a very differentiated world..." And Professor Krugman wrote about this on Dec 31, 2009.... And Larry Summers mentioned this at Davos.... Getting the Chinese to revalue (or float) their currency is probably critical to the U.S. achieving Obama's ambitious SOTU goal of doubling U.S. exports in the next five years.

4) Steven Pearlstein: The Amazon-Macmillan book saga heralds publishing's progress:

Amazon's business model was, in fact, the reverse of the one used so successfully by Gillette, selling razors at little or no profit but making it up on high-margin razor blades. In this case, the $9.99 retail price for the books (the blades) was actually less than the $12 to $14 "wholesale" price Amazon paid to publishers. That loss, however, was made up for by the high profit margins on the Kindles (the razors), which sell for $260 to $490. The genius behind the deeply discounted book price is that it seems to have greatly accelerated the inevitable transition from physical books to digital ones, while allowing Amazon to build a commanding lead in the digital space. That has not sat particularly well with book publishers, which continue to get the overwhelming share of their profits from hard-copy sales and don't welcome competition on pricing or the prospect of getting strong-armed by a dominant distributor. But as long as Kindle was the digital reader of choice for nearly 3 million consumers, there wasn't much they could do to challenge Amazon's dominance.

And then Steve Jobs showed up with the iPad. Apple's new $500 tablet computer can do almost everything a Kindle can, and much more. And to the delight of publishers, he was offering not only 25 million new potential customers but also a new business model in which Apple would serve merely as a distribution agent for the publishers, rather than a wholesaler. Under this arrangement, publishers are free to set retail prices as high as $15 per book and pay Apple a flat fee of 30 percent of the price. With a higher price for both the tablet and the books, you wouldn't expect this new model to pose much of a challenge to Amazon's dominance in digital books. But then over the weekend, Macmillan told Amazon that if it didn't agree to the same terms it had hammered out with Apple, Amazon would no longer have access to new books from the publishing house until several months after they were released through bookstores and Apple...

5) Chris Sims: Monetary Policy at the Zero Lower Bound:

In models, it is easy to specify an announced future policy stance and assume the public believes the announcement. In practice, there is inevitably uncertainty about ex- actly how firm are commitments to future policy, even if the future policy is announced in detail.... Central banks in most developed countries have succeeded in convincing the public that they are committed to maintaining low and stable inflation. But this credibility has built up over decades as the central banks have acted to deliver on their commitment. In the presence of a binding ZLB, the result from the models is that the central bank ought to commit to expansionary future policy. A bank that has built up inflation-fighting credibility may find this is a liability if it tries to convince the public that it is temporarily committed to increasing the inflation rate. Announcements about future policy at a time when the short rates that ordinarily are seen as set by the central bank are stuck at zero are partic- ularly subject to doubt, just because they are accompanied by no current action...

6) DRIVEN INSANE BY MICROSOFT: James Fallows: "I Don't Thik I Can Do That, Jim":

[A] lame reference to 2001: A Space Odyssey, in which the creepy-voiced computer, HAL 9000, hears that Keir Dullea / "Dave" is planning to turn it off -- and takes aggressive action.... I think my version of HAL - that is, Outlook -- overheard me saying that I was planning to move messages out of it and into the cloud, via Gmail. Apparently it is taking matters into its own hands!... his is what we call in tech-land a "reproducible error." Same result after reboots, resets, you have it. Entirely inaccessible .PST file. Large-scale data loss! Many hundreds of messages marked "to follow up" or "to answer"! Another reason to move the rest of the data into the cloud, before something screws it up.

7) GRAPH OF THE DAY: Maxim Pinkovskiy and Xavier Sala-i-Martin:

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Adam Serwer on Richar Chen of the Washington Post, Fascist:

Richard Cohen doesn't care about the law; he just wants to feel safe!

There is almost nothing the Obama administration does regarding terrorism that makes me feel safer. Whether it is guaranteeing captured terrorists that they will not be waterboarded, reciting terrorists their rights, or the legally meandering and confusing rule that some terrorists will be tried in military tribunals and some in civilian courts, what is missing is a firm recognition that what comes first is not the message sent to America's critics but the message sent to Americans themselves.

Cohen is in the minority of Americans in terms of his disapproval of the Obama administration's handling of terrorism. Later in the column, Cohen admits that Dick Cheney's "hearty endorsement of ugly interrogation measures" may have "soiled America's image." Never mind that those interrogation methods were originally developed to secure false confessions (not accurate intelligence), or that Cohen seems to have endorsed them quite heartily himself above. This isn't a matter of mere "image" -- I doubt another Muslim parent would come forth as Umar Abdulmutallab's father did, knowing that their child might be tortured at the hands of American authorities just so Cohen can "feel safe."

But hey, we already know Cohen's national security motivations. After the Iraq War, Cohen conceded that his support for the invasion was due to his desire to "go to 'them,' whoever 'they' were, grab them by the neck, and get them before they could get us. One of 'them' was Saddam Hussein." Cohen's tendency to support war as a form of collectivist revenge against "them" makes me skeptical that his reasons for supporting torture are rational, rather than emotional -- not that either would be acceptable.

9) STUPIDEST THING I HAVE READ NOT TODAY: Peggy Noonan. Outsourced to Ed Kilgore: Gulliver Among the Lilliputians:

Reading Peggy Noonan is emotionally difficult for me. For one thing, she was the first of a breed that I find inherently obnoxious: the Celebrity Speechwriter... there's something, well, unseemly, about a ghost that is so all-pervasively visible, and so willing to take credit for the golden words uttered by employers who, after all, were actually elected.... But more importantly, ever since she obtained her own bylines and television gigs, Noonan has steadily "grown" into one of those imperious columnists who express exasperation at the idiocy and small-mindedness of politicians.... [S]he is offering dubious and partisan "advice" to Barack Obama, designed to attack what he is doing while professing sympathy for his challenges. There are no less than three such toxic bits of "advice" in the column in question. First, Noonan mocks President Obama for allowing Congress to push him around, unlike, of course, her first Big Boss, Ronald Reagan:

James Baker, that shrewd and knowing man, never, as Ronald Reagan's chief of staff, allowed his president to muck about with congressmen, including those of his own party. A president has stature and must be held apart from Congress critters. He can meet with them privately, in the Oval Office. There, once, a Republican senator who'd announced opposition to a bill important to the president tried to claim his overall loyalty: "Mr. President, you know I'd jump out of a plane for you if you asked, but—" "Jump," said Reagan. The senator, caught, gave in. That's how you treat them. You don't let them blur your picture and make you more common. You don't let them call the big shots.

Aside from reflecting the eternal Cult of Reagan, these words certainly distort the actual relationship of the 40th president with Congress. Nothing was more central to the Reagan presidency than his initial budget and tax proposals. His budget director, David Stockman, wrote an entire book on how these proposals were mangled into a fiscal abomination by Members of Congress from both parties. It was entitled, revealingly, The Triumph of Politics: Why the Reagan Revolution Failed.

10) HOISTED FROM THE ARCHIVES: DeLong (2003): Nazis and Soviets:

In 1928 the British publisher Methuen published a book entitled Republican Germany: An Economic and Political Survey (by H. Quigley and R.T. Clark). In the introduction the authors wrote that they were fortunate because they had a single, central, powerful theme: the coming-to-maturity of the post-World War I German republic:

The consolidation of the German [Weimar] Republic is in itself a theme of the most absorbing interest; it lends itself to dramatic presentation with the leading characters active at moments with a real dramatic force.... The fifth and probably last act is now being played, and promises something more heartening than a catastrophic ending. There may be scenes of conflict, world-shaking events, accompanied by the possibility and dangers of war, but the real consumation will probably be reached--namely, the recognition of the German Republic as a permanent feature in German history and its economic and political relations, and, with it, the opening of a new era of international prosperity.

Quigley and Clark's--long--book contains three mentions of Adolf Hitler: a passing reference to the "Hitler incident", a half-page narrative of Hitler's unsuccessful 1923 attempt to take over the Bavarian provincial government via a coup, and a classification of Hitler as one of the leaders of:

...secret societies in morality and mentality far more akin to the worst traditions of medievalism than to those of the twentieth century...

Writing in 1928, five years before Hitler was to take power and destroy the German Republic, and Adolf Hitler is simply not a big deal to two people writing a political and economic survey of Germany. Were Quigley and Clark obtuse? Not at all. Hitler was an unimportant part of the political fringe in Germany in 1928. In May 1928 Germany held elections for its legislature, the Reichstag. The Nazis won 2.6% of the vote: they were part of a fringe of small parties with more-or-less impractical and nutty programs that together drew off some twelve percent of the vote from the established parties on the right-left spectrum.