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December 2010

Upon What Meat Hath Our Financial Sector Fed to Grow so Great?

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Mike Konczal:

Cowen and others on Leverage, Financial Market Regulation « Rortybomb: [Paul Volcker said in 2007:]

I had another comment I was going to make. You won’t be able to resolve it for me but I’ll raise it anyway. It strikes me that when one looks at the banking system, never before in our lifetime has the industry been under so much competitive pressure with declining market share in many areas and a feeling of intense strain, yet at the same time, the industry never has been so profitable with so much apparent strength. How do I reconcile those two observations?...

I’d recommending splitting the argument into three questions:

  1. Why is the financial sector so big?
  2. Why is the financial sector so profitable? and
  3. Why is the financial sector so risky?....

Greta R. Krippner argued convincingly that the increase in the financial share of the economy isn’t the result of the modern corporation splitting off internal financial work.... Being short on volatility isn’t sufficient for these [three] problems, and may not even be necessary....

The quote at the top is from this paper by James Crotty, which finds “If Financial Market Competition is so Intense, Why are Financial Firm Profits so High?”, which finds the reasons [to be]:

rapid growth in the demand for financial products and services in the past quarter century; rising concentration in most major financial industries that makes what Schumpeter called “corespective” competition and the exercise of market power possible (thus raising the possibility that competition is not universally as intense as Volcker assumed); increased risk-taking among all the major financial market actors that has raised average profit rates; and rapid financial innovation in over-the-counter derivatives that allows giant banks to create and trade complex products with high profit margins....

[L]everage is one key, but thinking of leverage in two dimensions – how much and how “sticky” it is, how not subject to panic it is – is another. As Wallace Turbeville wrote:

Bank runs by depositors have become a thing of the past because of the FDIC. The problem is not that the deposits are callable loans. It is that the derivative-embedded credit between banks and industrial companies are actually complexes of callable loans. Bank customers withdraw deposited funds when they become insecure. With trading, counterparties demand collateralization of all out-of-the-money risk when insecurity sets in. That’s what happened to Lehman and AIG, and Enron before them, as well as some lesser known institutions. A bank run now happens at the trading level…Jimmy Stewart will no longer have to plead with his bank’s depositors. It will be someone like Jamie Dimon pleading with fellow bankers and corporate CEO’s.

As Steve Cohen and I are trying to write:

Over the past thirty years we performed a kind of cosmetic surgery on our economy. First is what was sold as liposuction but turned out to be muscle removal: the move from roughly balanced trade to a permanent, structural trade deficit of 5% of GDP has left us with what would otherwise have been workers and firms producing an extra 5% of GDP in manufacturing missing. This is more than a Pentagon: call it an Octagon.

The obverse of that fall is the rise of a peculiar piece of the service sector: the growth of finance, insurance, and real estate transactions (i.e., the paper shuffling and the exchanging, not the construction). It was supposed to be the high-productivity sector of the future. It has turned out to be the equivalent of a peacock's tail--damnably awkward and reducing your mobility and survival characteristics, but fascinating to the peahen, for a while at least.

Moving our economy into FIRE did not create lots of new high-paying middle-class jobs for the modern equivalent of past generations' engineers, technicians, and skilled blue-collar craft and assembly workers. Instead, we appear to have more-or-less doubled the profit margins and the pay of our financiers. The legions of bank clerks and back office workers did not see rapid pay increases nor achieve high incomes. It all went to the top.

Over 2004-6 fully 30% of corporate profits were in finance--a share that was double what it had been back in the 1960s. And the many of the most lucrative parts of finance were not structured as corporations: the growing fortunes of the partners in our investment firms come on top of that 30%.

When you think of it, for finance to collect 30% of corporate profits is terrifying. Finance collects savings from households and lends to younger Americans so that they can buy their houses. But mortgage finance is supposed to be a low-margin low-risk business, with the government providing a backstop. The interest payments on mortgages are supposed to flow through with very small subtractions to the interest earned on the savings accounts of other American households: they are not supposed to be profits.

Finance again collects savings from all over the world, underwrites the securities that corporations issue, makes them liquid, and so gives non-financial operating corporations their capital base. But it is the operating companies that make the profits. Finance is supposed to simply aggregate and slice the profits in various ways.

It is supposed to take a small commission as it serves as intermediary between the companies that make the money and the households that saved the capital by packaging the money flows to households in safe, convenient, and liquid forms--and keeping an eye on the managers of operating compnies as well

But how did this provision of safety, convenience, and liquidity--which turned out, of course, to be none of the three in the fall of 2008--ever come to be valued at 30% of the total?

And it is not all finance. Our newly redrawn map of the U.S. economy shows another leading sector besides finance. The administration of our ill-designed health care system now costs us about 4% of GDP over and above the costs of administering health care in other comparable countries.

Do not get us wrong: we do not hate service industries. But most service industries produce something of value in return for their profits. Health care administration simply produces denials of coverage. Finance as currently construed simply produces portfolios for individuals that involve them bearing extraordinarily large and idiosyncratic risks that they had no idea they were bearing. There are two ways to make money in health care: (i) by providing people with valuable treatments that they are willing to pay for, and (ii) by collecting insurance premiums and finding some excuse not to pay them out when people get sick. There are two ways to make money in finance: (i) to find people who are willing to bear risks that they understand, selling them risks that offer attractive risk-return tradeoffs, and collecting a commission; and (ii) by selling people risks that they don't understand. It looks to us very much as though our modern health-care administration and financial sectors are good at the second but not the first.


Dealing with Balance-Sheet Recessions

Mark Thoma:

Targeting the Balance Sheet Recession: When a balance sheet recession hits, one of the keys to a quick recovery is to use the federal government’s balance sheet as a means of offsetting the deterioration in the private sector’s financial position. But we shouldn’t just focus on banks. Household balance sheet problems are every bit as severe, and in total every bit as systemically important as the balance sheet problems of banks. We’ll recover faster from balance sheet recessions if we pay attention to all private sector balance sheets instead of focusing mainly on the problems of banks.

The perception that the government bailed out undeserving wealthy bankers while leaving households to fend for themselves is a big part of the backlash against the policies put into place to help with the recession. That perception is correct, for the most part, and it will stand in the way of repeating this policy the next time there is a financial collapse. When the next balance sheet recession hits, and another one will hit no matter how hard we try to avoid it, we need to do a better job of helping households. Not only is this good economics – we will recover faster with this policy – the politics of helping households are far superior to those associated with bailing out banks.


Originate-and-Don't-Distribute at Merrill Lynch

Jake Bernstein and Jesse Eisinger:

The ‘Subsidy’: How Merrill Lynch Traders Helped Blow Up Their Own Firm: Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank's own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating. Bank executives came up with a fix... a new group within Merrill, which took on the bank's money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them....

Within Merrill Lynch, some traders called it a "million for a billion" -- meaning a million dollars in bonus money for every billion taken on in Merrill mortgage securities. Others referred to it as "the subsidy." One former executive called it bribery. The group was being compensated for how much it took, not whether it made money. The group, created in 2006, accepted tens of billions of dollars of Merrill's Triple A-rated mortgage-backed assets, with disastrous results. The value of the securities fell to pennies on the dollar.... What became of the bankers who created this arrangement and the traders who took the now-toxic assets? They walked away with millions. Some still hold senior positions at prominent financial firms....

Banks like Merrill bought pools of mortgages and bundled them into securities, eventually making them into CDOs. Merrill paid upfront for the mortgages, but this outlay was quickly repaid as the bank made the securities and sold them to investors.... Executives producing the securities were not allowed to buy much of their own product... decisions to hold a Merrill-created security for the long term were made by independent traders who determined, in essence, that the Merrill product was as good or better than what was available in the market....

A month before the group was created, Merrill Lynch owned $7.2 billion of the seemingly safe investments, according to an internal risk management report. By the time the CDO losses started mounting in July 2007, that figure had skyrocketed to $32.2 billion.... The origins of Merrill's crisis came at the beginning of 2006, when the bank's biggest customer for the supposedly safe assets -- the giant insurer AIG -- decided to stop buying the assets, known as "super-senior," after becoming worried that perhaps they weren't so safe after all.... By the middle of 2006, the Merrill traders who bought mortgage securities were often clashing with the powerful division, run by Harin De Silva and Ken Margolis, which created and sold the CDOs. At least three traders began to refuse to buy CDO pieces created by De Silva and Margolis' division, according to several former Merrill employees....

In late September, Merrill created a $1.5 billion CDO called Octans, named after a constellation in the southern sky. It had been built at the behest of a hedge fund, Magnetar, and filled will some of the riskier mortgage-backed securities and CDOs.... In an incident reported by the Wall Street Journal ($) in April 2008, a Merrill trader looked over the contents of Octans and refused to buy the super-senior, believing that he should not be buying what no one else wanted. The trader was sidelined and eventually fired.... The difficulty in finding buyers should have been a warning signal: If the market won't buy a product, maybe the bank should stop making it.

Instead, a Merrill executive, Dale Lattanzio, called a meeting, attended by among others the heads of the CDO sales group -- Margolis and De Silva -- and a trader, Ranodeb Roy. According to a person who attended the meeting, they discussed creating a special group under Roy to accept super-senior slices. (Lattanzio didn't respond to requests for comment.)... Roy had reservations about purchasing the super-senior pieces. In August 2006, he sent a memo to Lattanzio warning that Merrill's CDO business was flawed. He wrote that holding super-senior positions disregarded the "systemic risk" involved. When younger traders complained to him, Roy agreed it was unwise to retain the position. But he also told these traders that it was good for one's career to try to get along with people at Merrill, according to a former employee.... Roy and his team needed to be paid....

The agreement, according to a former executive with direct knowledge of it, generally worked like this: Each time Merrill's CDO salesmen created a deal, they shared part of the fee they generated with the special group that had been created to "buy" some of the CDO. A billion-dollar CDO generated about $7 million in fees for Merrill's CDO sales group. The new group that bought the CDO would usually be credited with a profit between $2 million and $3 million -- despite the fact that the trade often lost money.... [I]t is not typical, or desirable, to pay a group to do something against their financial interests or those of the bank....

Eventually, Merrill would write down about $26 billion worth of CDOs, including most of the assets that Ranodeb Roy and his team had taken from De Silva and Margolis...


Hoisted from Comments: The Difference Between "Impossible" and "inconvenient": Why Oh Why Can't We Have a Better Press Corps?)

Hoisted from Comments: Neal on the execrable Karen Hube:

Department of Awful Statistics: Down and Out on $250,000 a Year (Why Oh Why Can't We Have a Better Press Corps?): Neal... [quoted Karen Hube:]

But when both parents are working, it is impossible for them to maintain the home, care for the kids and dress for their professional jobs without a big outlay... [spending $32K/year on childcare and summer camps, clothes and dry cleaning, and eating-out and bringing-in.]

The necessary substitution?

"inconvenient" for "impossible".

Money buys convenience.

Low income equates to everything being more difficult. Its a hard place to get out of.

Indeed. The median two-job family does not have $32K/year in free disposable income after shelter and food at home to spend on everything else put together.


David Leonhardt: When $250,000 Equals $315,000 in the Tax Debate

David:

When $250,000 Equals $315,000 in the Tax Debate: We’ve heard from several readers who wanted to know how much money households with $250,000 a year in adjusted gross income — that is, those who would have been affected by the Democrats’ original proposal on the Bush tax cuts — actually make. The answer seems to be about $315,000 a year.

Some background: President Obama and other Democrats originally proposed the expiration of the Bush tax cuts on income above $250,000 a year. With the Republicans taking over the House, the Democrats retreated from that proposal and agreed to extend all the Bush tax cuts for two years. But Democrats say they still want to see these high-end cuts expire in 2012.

There are two aspects of the high-end cuts that often get lost in the public discussion. The first is households with more than $250,000 a year in adjusted gross income would still get a tax cut — on their first $250,000 of such income. On average, this tax cut would equal about $6,500 a year, regardless of whether a household had $250,000 in adjusted gross income or $1 million (or much more) in adjusted gross income. If all the Bush tax cuts are extended, by contrast, households making at least $1 million a year would receive an average annual tax cut of $104,000.

The second issue is that earning $250,000 in adjustable gross income is different from earning $250,000 in total income. High-income households tend to take a significant number of deductions. At our request, Roberton Williams at the Tax Policy Center analyzed the total income of households with $240,000 to $260,000 a year in adjusted gross income. On average, they made $315,000 in adjusted gross income, including $32,000 in capital gains and dividends.

So when you hear talk about taxes on people makes at least $250,000 a year, it really tends to means taxes on income above $315,000 a year.


The Winter Solstice, 2010

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And so the Shortest Day came and the year died.
And everywhere down the centuries of the snow-white world
Came people singing, dancing,
To drive the dark away.

They lighted candles in the winter trees;
They hung their homes with evergreen;
They burned beseeching fires all night long
To keep the year alive.

And when the new year's sunshine blazed awake,
They shouted, reveling.
Through all the frosty ages you can hear them
Echoing behind us - listen!

All the long echoes, sing the same delight,
This Shortest Day,
As promise wakens in the sleeping land:
They carol, feast, give thanks,
And dearly love their friends,
And hope for peace.

And now so do we, here, now,
This year and every year.   WELCOME YULE!


Department of Awful Statistics: Down and Out on $250,000 a Year (Why Oh Why Can't We Have a Better Press Corps?)

Karen Hube of the Fiscal Times strikes.

A family making $250K/year is not superrich. But that doesn't make a family earning $250K/year "not rich."

At an income level of $250K/year in America today, a family owes about $65/year in all taxes--federal, state, and local; income, sales, property, and social insurance. Subtract off $1.5K/year for a gold-plated dog and $8.5K/year in "necessary" eating-out and bringing-in and you are down to $175K/year. Take off another $75K/year in savings (paydown of real mortgage principal and student loans, 401(k)s, and a college fund) and you are down to living on $25K/year per capita in consumption expenditures.

Only rich families in America today live in detached houses with spare bedrooms in high-tax high-cost areas (and get the services and amenities those buy), spend $36K/year on mortgage payments, $4K/year on clothes and dry cleaning, $8.5K/year on eating-out and bringing-in, $3K/year on gifts and holidays, $20K/year on daycare, babysitting, and summer camps--and still save $75K/year. That is what rich families in America do: that is how they spend their money. The fact that after they have spent their money and paid their taxes there is only $75K/year left for savings is not a sign that they are not rich.

Karen Hube:

Down and Out on $250,000 a Year - TheFiscalTimes.com: [H]ow flush is a family of four with a $250,000 income?... It’s not exactly easy street... they end up in the red.... After covering taxes and only essential expenses for housing, groceries, child care, clothing, transportation... in common additional expenses for a working couple with two children – music lessons, day camp costs, and after school sports, entertainment, cleaning services, gifts, and a annual week-long vacation – the Joneses get deep in the red in Huntington to the tune of $23,178....

Some of the expenses incurred by couples like the Joneses may seem lavish – such as $5,000 on a housecleaner, a $1,200 annual dry cleaning tab and $4,000 on kids’ activities. But when both parents are working, it is impossible for them to maintain the home, care for the kids and dress for their professional jobs without a big outlay....

For folks like the Joneses who live in high tax, high cost areas, who save for retirement and college, pay for child care to enable two incomes, and pay higher prices for housing in top school districts ─ $250,000 does not a rich family make.

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


Department of Awful Statistics

Poor, poor DougJ:

Department of Awful Statistics: Why Ask Y? - Megan McArdle:

DougJBalloon 16 hours ago: I see you're revisiting the brilliance of your arguments for the Iraq War on twitter. Any interest in correcting some of the order of magnitude errors?

McMegan 15 hours ago: Do I have any interest further interest in debating whether the direct cost to the taxpayer is going to be $2 trillion? An argument that is going to devolve--since there is at this point vanishingly little possibility that it will grow to $2 trillion--into the other side trying to argue that things which aren't direct costs to the taxpayer are in fact direct costs to the taxpayer, or complaining that it's not fair to just look at direct costs to the taxpayer, or claiming that it's innumerate of me to compare stocks to stocks and flows to flows? Surprisingly, not really. But Merry Christmas!

DougJBalloon 15 hours ago: How about putting a strike through the 0.1% at least?

McMegan 15 hours ago: You're not factoring in growth. The correct equation is not 20 * $11tt, which is what my interlocutor--and I presume, you--are doing. That's not even right by some weird arguable metric; it's just wrong unless you presume that GDP is actually going to shrink farther and then stay there until 2023. I was using the CBO's standard growth rate of 3%, which I freely predict was in error for the past few years, because I didn't see this huge crash coming, but no way of knowing how big an error until 20203. However, not an order of magnitude as you claim. At the peak of spending, the cost of Iraq was maybe 1% of GDP, and spending has now fallen sharply; how could you think that it was going to be that high over a 20-year period, when we are supposed to have withdrawn for half of it?

DougJBalloon 15 hours ago: You wrote this in 2003. Let's estimate the 2003 GDP as 11 trillion, let's estimate 4 percent growth (that's on the high side but I am a very generous person). Then over 20 years, the total GDP would be 327 trillion dollars. That estimate is probably on the high side, by the way. You wrote "But it is not going to run us several trillion dollars (though even if it did, that would work out to less than 0.1% of GDP over the next 20 years.)" Let's take "several trillion". I would say that several means at least 3 and probably 4. I'm not talking about how much the actual Iraq War costs -- though that would be a pretty good estimate in fact -- I am talking about your use of the phrase "several trillion". If I take 3 trillion and divide by 327 trillion, I get slightly less than 1%. If I take 4 trillion (really the kindest interpretation of "several trillion" I can think of) and divide by 327 trillion, I get over 1%. You meant 1%, not 0.1%. Are you really so quantitatively inept that you cannot see this, even after I brought it up again? Are you really so nuts that you're going to bs me about rates of GDP growth and not just divide 3 by 300? God help us all.

McMegan 14 hours ago: Sigh. Okay, so we are now not discussing the actual cost of the war, but the hypothetical cost of the war as represented by the term "several trillion", which to me means any sum over $2 trillion, but YMMV. As I recall--it was, of course, eight years ago--I ran nominal figures out to 2023 with interest to account for the borrowing that we were doing. You could probably quibble with my methodology if I could remember it. It's certainly possible there was an error in my calculations, though it was a spreadsheet so not all that likely. Probably a lot easier to have had this conversation if you had raised the issue eight years ago, but at the time your coblogger was still egging on my less sane moments, IIRC. At any rate, if I have time tomorrow, I'll try to figure out what I did, and see if I still want to defend it.

DougJBalloon 12 hours ago: Hypothetical??? It was your hypothesis. You are utterly and completely insane. God have mercy on David Bradley's soul for what he has unleashed on an unsuspecting public. Bring on the apocalypse.

DougJ: We feel your pain::

DougJ: This set down: Now, look. I know that not all of you are accountants or economists or mathematicians or engineers. But let’s suppose I said to you that in 2003 the United States GDP was around 11 trillion and that is was expected to grow at an average rate of 4% or less over the next 20 years. You could get out a spreadsheet and come up with a reasonable upper bound of $327 trillion for the total GDP over those 20 years, right? Many of you could probably even do the rough estimate in your head that on average over those 20 years, it couldn’t be more than $20 trillion a year so that the total would be $400 trillion or less.

Suppose someone said to you that:

The (Iraq) war will certainly cost more than the $60b and change that the President is asking for. But it is not going to run us several trillion dollars (though even if it did, that would work out to less than 0.1% of GDP over the next 20 years.)

You’d register that “several trillion” means something like 3-4 trillion or more and say “nope, you mean 1% not 0.1%”, right? And if you yourself had made the 0.1% estimate and someone told you, nope, you’re wrong, it’s 1% and then explained to you in painstaking detail why several trillion is about 1%, not 0.1%, of $327 trillion, you would understand, right?

Because you know how to follow a link and operate a f---ing calculator right?

Don’t be afraid to say that no, you couldn’t do any of this, that you can’t follow what it means to divide 4 by 400 and you have no fucking idea why 3-4 trillion is 1%, not 0.1%, of 400 trillion. Because if you can’t perform these simple calculations, then you too can be the Business and Economics Editor of the Atlantic, you too can earn close to 200K a year, and appear on shows like NPR’s Marketplace.

I realize this is my second post on this not-very-important topic. I’ve talked about this enough and I’ll shut up now.


The Huffington Post Thinks That the Washington Post Has a Federal False Claims Act Problem

Chris Kirkham:

At Kaplan University, 'Guerilla Registration' Leaves Students Deep In Debt: Arlen Castillo had just begun an online associate's degree program at Kaplan University when a family emergency forced a change of plans. Her mother in Florida learned she needed extensive surgery that entailed months of recuperation. Only two weeks into her first term, Castillo promptly withdrew to lend her mother support.

As Castillo recalls, a Kaplan academic advisor told her she could simply fill out a withdrawal form and incur no additional expenses beyond the registration fees she had already paid. But a year and a half later, in 2006, collections agents began hounding her, she says, demanding that she pay some $10,000 in supposedly overdue tuition charges. Despite having attended only two online sessions, Castillo had remained officially enrolled at Kaplan for nearly a year after her withdrawal.

Far from an aberration, Castillo's experience typifies the results of a practice known informally inside Kaplan as "guerilla registration": academic advisors have long enrolled students in classes they never take, without their consent.... Managers at Kaplan--the highly profitable educational arm of the Washington Post Co.-- have for years pressured academic advisors to use this method to boost enrollment numbers, the former employees said, offering accounts consistent with dozens of complaints filed by former students with the Florida Attorney General's Office and reviewed by The Huffington Post. Guerilla registration has been part of a concerted effort by the university to keep students enrolled as long as possible in order to harvest more of the federal financial aid dollars that make up nearly all of the company's higher education revenues, according to former Kaplan academic advisor Sheldon Cobbler, who described the practice in detail.

Most advisors had access to a company database that allowed them to view students' e-mail correspondence without their knowledge, said Cobbler, who worked at Kaplan's Fort Lauderdale, Fla., corporate office from 2007 through July of this year. The advisors routinely searched through students' e-mails to look up their user names and passwords for Kaplan's enrollment system, and then they used that information to sign in using multiple student identities, enrolling them in classes they never intended to join, he said. "The company didn't want students to withdraw," Cobbler said. "They wanted them to stay in class by any means." Kaplan denied claims that it has engaged in so-called guerilla registration, branding as "false" and a "complete mischaracterization" allegations that it has signed students up for classes without their knowledge. "No one in this company has ever been asked, advised or permitted to be an impostor in terms of e-mail messages or student accounts," said Kaplan spokesman Mark Harrad. "That's just not acceptable."

Kaplan declined requests for interviews with senior company executives...


Money and Marbles

Jim Hamilton:

Econbrowser: Velocity of money: I wanted to follow up on Menzie's recent observations about what's been happening to the supply and demand for money. These discussions are sometimes conducted in terms of the following equation:

MV = PY.

Here M is a measure of the money supply, V its velocity, and nominal GDP is written as the product of the overall price level (P) with real GDP (Y). We have direct measurements on nominal GDP. And once we agree on a definition of the money supply (no trivial matter), we have a number for M. But where do we come up with data on this concept of the velocity of money, V?... [W]e don't.... [W]e measure the velocity of money from

V = PY/M....

[D]ifferent people come up with different answers for how we should measure the money supply. One measure is M1... currency held by the public and checkable deposits... the monetary base... currency held by both banks and the public plus deposits banks hold in their accounts with the Federal Reserve.... You get the idea-- use your favorite M to get your favorite V.

Arnold Kling, for example, proposed that we might use for M the quantity of marbles. Which perhaps sounds a little silly.... [Y]ou could still go ahead and use the equation above to define the velocity of marbles. But what you'd find is that when marbles go up, the marble velocity goes down, and it makes no difference for output or inflation.

OK, so let's look at the velocity of M1. It turns out to look a lot like you'd expect the velocity of marbles to behave-- when M1 goes up, the velocity of M1 goes down by an almost exactly offsetting amount.... So maybe we'd be better off using the monetary base as our value for "M"? I don't think so....

Obviously the interest in an equation like MV = PY comes not from using it as a definition of V for some arbitrary choice of M. Instead there must be some kind of behavioral idea, such as that there is some desired value of M1, or monetary base, or marbles, that people want to hold. Suppose it was the case that to a first approximation, this desired quantity was essentially proportional to nominal GDP. If that were true, we would see the graphs of V above behaving roughly as constants instead of simply tracking the inverse of whatever happens to M.

Now, I think it is true that, in normal times, nominal GDP is one of the most important determinants of the demand for M1 or the monetary base.... But conditions at the moment are far from normal.... The demand for reserves has increased by a trillion dollars since 2008. The demand for currency held by the public has not. The supply of reserves could therefore increase a trillion dollars without causing inflation. The quantity of currency held by the public could not. Now, the time will come when banks do see something better to do with these reserves, at which point the Fed will need to take appropriate measures in response, namely a combination of raising the interest rate paid on reserves and selling off some of the assets the Fed has been accumulating....

But someone who insists that inflation (P) must go up just because the monetary base (M) has risen may have lost their marbles.


The Year Kenny Loggins Ruined Christmas

Hyperbole and a Half:

The Year Kenny Loggins Ruined Christmas: The year I learned that Christmas did not, in fact, originate as a celebration of my amazing ability to temporarily transform into a "good" child for a few weeks was the year my grandparents took me to see their church's nativity play.... From my grandparents' flowery explanation and frequent use of the word "miracle," I went in expecting to be blown away by the production. Unfortunately... the story just seemed to center around everyone being really impressed with Jesus and there wasn't much suspense and not a single battle scene. I could see that the story had potential, but I was deeply disappointed by the whole experience.

By the time my grandparents dropped me off at home, I had convinced myself that I needed to take matters into my own hands and reinvent the birth of Christ so that it conformed to my expectations.... I walked through my front door with purpose and gathered my family members in the living room to tell them about my vision. I was going to rewrite the birth of Jesus Christ and I was going to make it POP. My mom, always wanting to nurture my creative side, agreed on behalf of everyone that we should go forward with the production. I would be playing the part of Mary and my dad would be Joseph. My aunt and my grandma would play the wise men. My mom would be filming...

[...]

For a moment, it seemed as though my outburst had succeeded in bringing my family back into a more serious mindset. But after a few moments of tense silence, my aunt quietly squeaked:

Kenny Loggins wouldn't beat the baby Jesus...

It was over. Any hope I had ever had of getting my family members to act out their parts with integrity was shattered. They laughed and laughed until I thought they were going to asphyxiate on their own wretched spittle.

My mom eventually realized that it was her maternal duty to step in and discipline me when I did things like strike the baby Jesus repeatedly with a blunt object, so she tried to pull herself together and send me to my room:

GO TO YOUR ROOM!

You aren't supposed to hit things with sticks.

Especially not Jesus.

Or...

KEENNNYYY LOGGINNNSSS...


Things You Can Learn on the Internet: Earl Grey Tea

Wikipedia:

In one case study, a patient who consumed 4 litres of Earl Grey tea per day reported muscle cramps, which were attributed to the function of the bergapten in bergamot oil as a potassium channel blocker. The symptoms subsided upon reducing his consumption of Earl Grey tea to 1 litre per day...


Will Wilkinson Says That the Executive of the Modern State Is But a Committee for Managing the Affairs of the Ruling Class...

Didn't somebody else say that, sometime?

Will:

The prevalence of corporatism: Jon Chait's regulatory-capture denialism | The Economist: I should clarify that I did not mean to be pointing out a huge hole in the logic of liberal redistribution. Rather, I was pointing out a problem for the classical progressive idea of the regulatory state as a check on concentrated economic power. In any case, I must say I'm dazzled by the audacity of Mr Chait's claim that the "private capture of public functions" is rare. My reading of the economic and political history of the United States is that regulation is very, very, very often turned into (or originally fashioned) as a weapon of business power.... Mr Chait's regulatory-capture denialism is especially notable when the matter at hand is the Washington-Wall Street nexus, as the case for a significant degree of corporate control over financial regulation is extremely compelling. Indeed, that this revolving door is so well-trafficked constitutes perhaps the most impressive piece of evidence that financial regulators are too bound up socially, professionally, and ideologically with their regulatees to offer impartial oversight in the public interest.... [F]inancial markets are not the only ones largely regulated in the interests of dominant firms.... The federal government's role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace...


Daniel Klein and Carlotta Stern Make Their Bid for This Year's Stupidest Economist Alive Crown

It is really too bad the contest has already been won.

Somebody who wishes me ill sends me to some proof-texting from Daniel Klein and Carlotta Stern:

Daniel Klein and Charlotta Stern: Is There a Free-Market Economist in the House? The Policy Views of American Economic Association Members

Abstract: People often suppose or imply that free-market economists constitute a significant portion of all economists. We surveyed American Economic Association members and asked their views on 18 specific forms of government activism. We find that about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters.... Even the average Republican AEA member is “middle-of-the-road,” not free-market....

Political economists are in general quite suspicious of governmental intervention. They see in it inconveniences of all kinds--a diminution of individual liberty, energy, prudence, and experience, which constitute the most precious resources of any society. Hence, it often happens that they oppose this intervention... -- Frédéric Bastiat ([1848])

In 1848, Bastiat’s statements were probably true. Nowadays they are not. Here we present evidence from a survey of American Economic Association (AEA) members showing that a large majority of economists are either generally favorable to or mixed on government intervention, and hence cannot be regarded as supporters of free-market principles. Based on our finding, we suggest that about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters...

Would Daniel Klein and Carlotta classify Frederic Bastiat as a "free market economist"? The answer is "no."

Let's turn the microphone over to Frederic Bastiat:

(1) There is an article in the Constitution which states: "Society assists and encourages the development of labor.... through the establishment by the state, the departments, and the municipalities, of appropriate public works to employ idle hands..." As a temporary measure in a time of crisis, during a severe winter, this intervention on the part of the taxpayer could have good effects... as insurance. It adds nothing to the number of jobs nor to total wages, but it takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times...

(2) For a nation, security is the greatest of blessings. If, to acquire it, a hundred thousand men must be mobilized, and a hundred million francs spent, I have nothing to say. It is an enjoyment bought at the price of a sacrifice...

(3) It is quite true that often, nearly always if you will, the government official renders an equivalent service to James Goodfellow. In this case there is... only an exchange... my argument is not in any way concerned with useful functions. I say this: If you wish to create a government office, prove its usefulness.... When James Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even...

(4) [L]ast year I was on the Finance Committee. Each time that one of our colleagues spoke of fixing at a moderate figure the salaries of the President of the Republic, of cabinet ministers, and of ambassadors, he would be told: "For the good of the service, we must surround certain offices with an aura of prestige and dignity. That is the way to attract to them men of merit.... A certain amount of ostentation in the ministerial and diplomatic salons is part of the machinery of constitutional governments, etc., etc..." Whether or not such arguments can be controverted, they certainly deserve serious scrutiny. They are based on the public interest, rightly or wrongly estimated; and, personally, I can make more of a case for them than many of our Catos, moved by a narrow spirit of niggardliness or jealousy...

(5) Should the state subsidize the arts?... [A]rts broaden, elevate, and poetize the soul of a nation; that they draw it away from material preoccupations, giving it a feeling for the beautiful, and thus react favorably on its manners, its customs, its morals, and even on its industry. One can ask where music would be in France without the Théâtre-Italien and the Conservatory; dramatic art without the Théâtre-Français... ask whether, without the centralization and consequently the subsidizing of the fine arts, there would have developed that exquisite taste which is the noble endowment of French labor and sends its products out over the whole world.... To these reasons and many others, whose power I do not contest, one can oppose many no less cogent. There is... a question of distributive justice. Do the rights of the legislator go so far as to allow him to dip into the wages of the artisan in order to supplement the profits of the artist?... I confess that I am one of those who think that the choice... should come from below, not from above, from the citizens, not from the legislator.... Returning to the fine arts, one can, I repeat, allege weighty reasons for and against the system of subsidization... in... this essay, I have no need either to set forth these reasons or to decide between them.... When it is a question of taxes [and subsidies], gentlemen, prove their usefulness by reasons with some foundation, but not with that lamentable assertion: "Public spending keeps the working class alive"...

(6) When a public expenditure is proposed, it must be examined on its own merits... a presumption of economic benefit is never appropriate for expenditures made by way of taxation. Why?... In the first place, justice always suffers from it somewhat. Since James Goodfellow has sweated to earn his hundred-sou piece... he is irritated... that the tax intervenes to take this satisfaction away from him and give it to someone else.... [I]t is up to those who levy the tax to give some good reasons for it.... If the state says to him: "I shall take a hundred sous from you to pay the policemen who relieve you of the necessity for guarding your own security, to pave the street you traverse every day, to pay the magistrate who sees to it that your property and your liberty are respected, to feed the soldier who defends our frontiers," James Goodfellow will pay without saying a word...

(7) Another species of spoilation is commercial fraud, a term which seems to me too limited... [when restricted to] the tradesman who changes his weights and measures... the physician who receives a fee for evil counsel, the lawyer who promotes litigation, etc.

So Frederic Bastiat is in favor of:

  1. Stimulative expansionary fiscal policy to fight depressions,
  2. large public expenditures for national security,
  3. government provision of services that government can provide as cheaply and effectively as the private sector,
  4. high salaries for public officials to attract workers of talent and energy and also to boost the prestige and dignity of the government,
  5. subsidies for the arts to the extent that purlic subsidies properly elevate taste and aesthetic values,
  6. public provision of police, justice, defense, transportation, and other infrastructure,
  7. public regulations of professional practice a la the FDA in order to avoid "spoilation" by doctors and pharmaceutical companies that receive "a fee for evil counsel."

Let us be very clear: The key for Frederic Bastiat is whether Jacques Bonhomme receives good value for the government expenditures financed by his taxes. Bastiat does not care whether or not Jacques Bonhomme is "coerced" when he is taxed to pay for public schools, public roads, public theatres, government-run courts, government-paid police officers, government armies. He cares about whether the goods and services that the government provides are valuable ones. The key is whether Jacques Bonhomme receives good value for his private purchases--if not, if the physician or pharmaceutical company provides "evil counsel," then the government has the same duty to intervene via regulation as it does when confronted with fraud in weights and measures.

Klein and Stern say:

Many economists [falsely] maintain that they are essentially free-market supporters but recognize that externalities, asymmetric information, diminishing marginal utility of wealth, etc. call for exceptions.... A “natural rights” libertarian who has no economic understanding is nonetheless a supporter of free-market principles.... At the heart of such principles are private property rights and the freedom of contract.... When a survey respondent does not oppose such coercive government action, it is... a clear case of not supporting free-market principles.... [G]overnment ownership and production of schooling... government programs that draw on taxation and distort or crowd out private enterprise... to not oppose such government programs is to not support free-market principles.... The distinction between voluntary and coercive action is... the basis upon which we call certain cases “the free market” and certain policies “government intervention.” A clear understanding of the distinction is crucial to economics as a scientific enterprise...

We have gone beyond ideology into absurdity.

A definition of "free-market supporter" that excludes Frederic Bastiat from the set is not useful.


She Is Called a "Rabbi," David...

Ioz writes:

Who Is IOZ?: Eli! Eli!: Washington D.C. is some kinda weird place.... David Brooks['s]... wide-eyed astonishment at the most basic principles of Jewish thought is actually incredible. Has no one ever taken this guy to shul before?.... A commenter notes, and la wiki confirms, that Brooks is, in fact a Jew. Well, Jew-ish. At this point, I really don't know what to say. This is like a Catholic expressing surprise at the trinity.

Let me second Ioz. It is remarkable--as if somebody got a Ph.D. in physics and then said with wonderment: "You know, you can make light go around corners if you force it through a narrow enough hole!" There is a strong sense of somebody having spent their life simply missing the point of something they were supposed to have understood before puberty...

David Brooks:

The Arduous Community: For the past few years, there has been a strange motif running through my social life. I’d go out with some writers, and they’d start gushing about someone named Erica Brown. “She has an inner light,” one of them once said. I’d be out with my wife and some of her friends, and they, too, would be raving about Erica Brown. “If she taught a course in making toast, I’d take it,” somebody remarked. This Brown woman was leading Torah study groups and teaching adult education classes in Jewish though.... I invited her to coffee, and it all became clear. Brown has what many people are looking for these days. In the first place, she has conviction. For her, Judaism isn’t a punch line or a source of neuroticism; it’s a path to self-confident and superior living. She didn’t seem hostile to the things that make up most coffee-table chatter — status, celebrity, policy, pop culture — she just didn’t show much interest. As one of her students e-mailed me: “Erica embodies Judaism’s stand against idol worship. It is actually true that she worships nothing other than God, which is particularly unusual in Washington.”

Then there is the matter of how she speaks. Somehow (and I’m not going to be able to capture this adequately), she combines extreme empathy with extreme tough-mindedness. In her classes and groups, she tries to create arduous countercultural communities. “We live in a relativistic culture,” she told me. Many people have no firm categories to organize their thinking. They find it hard to give a straight yes or no answer to tough moral questions. When they go in search of answers, they generally find people who offer them comfort and ways to ease their anxiety. Brown tries to do the opposite. Jewish learning, she says, isn’t about achieving tranquility. It’s about the struggle. “I try to make people uncomfortable.”

Brown will sometimes gather her students — who are accomplished adults — and tell them to turn off their cellphones in unison before class. She will have a Late Seat — a chair placed directly next to her for a student who didn’t manage to make it to class on time. She writes about the fear adults bring into the classroom: the fear of looking stupid; the fear of confessing how little they know about their religion; the fear teachers have of being unmasked in front of students. With prodding and love, she tries to exploit those fears and turn them into moments of insufficiency and learning.

Her classes are dialogues structured by ancient texts. She may begin with a topic: “When Jews Do Bad Things” or “Boredom Is So Interesting.” She will present a biblical text or a Talmudic teaching, and mix it with modern quotations. She may ask students to write down some initial reflections, then try to foment a fierce discussion. Brown seems to poke people with concepts that sit uncomfortably with the modern mind-set — submission and sin. She writes about disorienting situations: vengeance, scandal, group shame. During our coffee, she criticized the way some observers bury moral teaching under legal casuistry and the way some moderns try to explain away the unfashionable things the Torah clearly says. She pushes the highly successful. No, serving the poor for a few days a year isn’t enough. Yes, it is necessary to expose a friend’s adultery because his marriage is more important than your friendship.

All of this sounds hard, but Brown thinks as much about her students as her subject matter. “You can’t be Jewish alone” she told me. So learning is a way to create communities and relationships. I concluded that Brown’s impact stems from her ability to undermine the egos of the successful at the same time that she lovingly helps them build better lives. She offers a path out of the tyranny of the perpetually open mind by presenting authoritative traditions and teachings. Most educational institutions emphasize individual advancement. Brown nurtures the community and the group.

It’s interesting that her work happens in the world of adult education. Americans obsess about K-12 education. The country has plenty of religious institutions. But adult education is an orphan, an amorphous space in-between. This is a shame, but it also gives Brown the space to develop her method. This nation is probably full of people who’d be great adult educators, but there are few avenues to bring those teachers into contact with mature and hungry minds. Now you hear about such people by word of mouth.


Liveblogging World War II: December 21, 1940

Eleanor Roosevelt:

December 21, 1940: A short time ago, I talked to a French woman and an American woman who have lately been in Lisbon. They led me to think along the following lines.

There was a time when this country of ours felt strong enough in its devotion to democracy to accept political refugees, just as they accepted the immigration of large groups of people for the economic development of the country. Gradually, as the need for labor has decreased, we have looked over more carefully the people whom we wished to accept, for one reason or another, as future citizens and workers in our nation.

We have not shut ourselves off from accepting all new blood. We know there are people it is worth our while to acquire as citizens of the future, because of their value from the economic standpoint as well as the racial. In the case of people who come to our shores, not for economic reasons but because their ideas, intellectual or political, have clashed with those of the rulers of the country in which they lived, it has also become more complicated.

For one reason, democracy has become more complicated, fewer people understand it. Fewer people really know what they want democracy to mean in their nation. Until we clarify our own minds again, so that there is no question of what the majority of our people want, it is well not to complicate matters by bringing in too many conflicting elements.

However, just as new blood is important from the racial and economic standpoint, new blood is important from the intellectual and political standpoint. We have today a very great opportunity. People who have been known and recognized in the world as great scientists, educators, writers and sociologists are all seeking new homes. It will be short-sighted indeed on our part, if we do not continue the policy which has worked so well in the past— to enrich our own land by inviting into our midst these people who have a contribution to make to civilization.


Worst American Ever Contest: The Nomination of Lawrence Keitt

Dave Noon tells us that:

Happy Secession Day! : Lawyers, Guns & Money: Jamie Malanowski offers one of the great wedding-crasher stories in US history, featuring one of the least remembered Worst Americans Ever.

There was one party, however, that would not be postponed, that of the wedding of John Bouligny, the popular congressman from Louisiana and one of the very few officials from the deep South who opposed secession, to Mary Parker, daughter of Washington’s wealthiest grocer. The bride’s father had produced a magnificent spectacle, filling his large home with roses and lilies and illuminated fountains. The president came, joined by his niece Harriet Lane, and was the first to kiss the bride. It was a happy event in a beautiful setting, reminiscent of so many other happy events and beautiful settings the president had enjoyed in his younger days as a diplomat in Russia and Great Britain. But soon the mood was broken by a commotion instigated by the entrance of Lawrence Keitt, the brash, bombastic, recently resigned congressman of South Carolina. Jumping, bellowing, waving a piece of paper over his head, he shouted “Thank God!’’ again and again. Finally he elaborated. “South Carolina has seceded! Here’s the telegram! I feel like a boy let out of school.’’

And Dave continues:

Lawrence Keitt ranked among the finer B-list Slave Power deacons of his era. When Preston Brooks was clubbing Charles Sumner half to death in early May 1856, it was a liquor-fortified Keitt who — wielding a pistol or a cane of his own, depending on the account — helped prevent anyone from intervening on behalf of the Massachusetts Senator.  After being censured by the House for his role in the assault, Keitt resigned and immediately stood for re-election; two years after being returned to his seat, he initiated a brawl on the House floor when he attacked Pennsylvania congressman Galusha Grow, a former free-soil Democrat who had joined the Republican party at roughly the same moment that Keitt was abetting the attack on Sumner.  When the party of Grow and Sumner elected Abraham Lincoln in November 1860s, Keitt joined the congressional fire-eaters and abandoned his office for the second time in five years.  His wife Susanna — also a piece of work — justified her husband’s (and her state’s) disunionism by characterizing the “Black Republicans” as “a motley throng of Sans culottes and Dames de Halles, Infidels and freelovers, interspersed by Bloomer women, fugitive slaves, and amalgamationists.”

Keitt went on to organize the 20th South Carolina Infantry Regiment, which eventually joined Lee at Cold Harbor in late May 1864.  On May 31, Keitt wrote to Susanna, to whom he expressed a wish that she could “see the confidence of our troops,” whom he believed were being “led by the hand of providence.”  Several days later, fused with and placed in charge of another South Carolina unit, Keitt led an ill-advised cavalry charge across an open field near Beulah Church; his men were easily shredded by Union fire while the 1st New York Dragoons brass band serenaded them with renditions of “Yankee Doodle” and “Hail Columbia,” with a round of “Dixie” adding to the humiliation.  Keitt himself, badly wounded, was retrieved from the field and hauled on a litter to a crowded farmhouse, where doctors administered whiskey and morphine until he died the next morning.


Things Could Be Worse than Our Senate...

It is hard to believe, but they could be:

In Convention, Saturday July 14, 1787:

Mr. L. MARTIN: called for the question on the whole report, including the parts relating to the origination of money bills, and the equality of votes in the 2d. branch.

Mr. GERRY: wished before the question should be put, that the attention of the House might be turned to the dangers apprehended from Western States. He was for admitting them on liberal terms, but not for putting ourselves into their hands. They will if they acquire power like all men, abuse it. They will oppress commerce, and drain our wealth into the Western Country. To guard agst. these consequences, he thought it necessary to limit the number of new States to be admitted into the Union, in such a manner, that they should never be able to outnumber the Atlantic States. He accordingly moved "that in order to secure the liberties of the States already confederated, the number of Representatives in the 1st. branch, of the States which shall hereafter be established, shall never exceed in number, the Representatives from such of the States as shall accede to this confederation.

Mr. KING: seconded the motion.

Mr. SHERMAN: thought there was no probability that the number of future States would exceed that of the Existing States. If the event should ever happen, it was too remote to be taken into consideration at this time. Besides We are providing for our posterity, for our children & our grand Children, who would be as likely to be citizens of new Western States, as of the old States. On this consideration alone, we ought to make no such discrimination as was proposed by the motion.

Mr. GERRY: If some of our children should remove, others will stay behind, and he thought it incumbent on us to provide for their interests. There was a rage for emigration from the Eastern States to the Western Country, and he did not wish those remaining behind to be at the mercy of the Emigrants. Besides foreigners are resorting to that country, and it is uncertain what turn things may take there.

On the question for agreeing to the Motion of Mr. Gerry, it passed in the negative.

Mas. ay.
Cont. ay.
N.J. no.
Pa. divd.
Del ay.
Md. ay.
Va. no.
N.C. no.
S.C. no.
Geo.no.

The vote was 4-5-1. The motion to guarantee the original thirteen states a permanent majority in the House of Representatives failed by one vote.


Felix Salmon on This Year's Winners--Wallison, Holtz-Eaken, Hennessy, and Thomas--of Stupidest Economists Alive

Felix Salmon:

Beef of the day: [Wallison] is silly: if Wallison had smoking-gun documents proving Frannie’s culpability in the crisis, I’m pretty sure we’d've seen them by now. Nocera and his co-author, Bethany McLean, have done a lot of digging into Frannie, and for the time being I’ll trust Nocera that such documents simply don’t exist.

But Wallison isn’t giving up, and has responded today with a blog post entitled “Joe Nocera’s Hypocritical Attack.” He adduces no hypocrisy in what Nocera writes. But he does repeat that he has a super-secret stash of documents which will back up his case:

The primer that I and three of my Republican colleagues signed sought to outline the major issues that we thought the Commission should address. It was not a reply to or a dissent from the report of the Democratic majority, which is still a work in progress. It was issued on December 15 because that was the date on which, under the law that established the Commission, its report was supposed to be issued, and the primer was released in recognition of this statutory deadline.... In our conversation as he was writing this article, he told me that his reporting “has shown that Fannie Mae and Freddie Mac simply followed Wall Street” into buying subprime and other risky loans. I told him this was wrong—that as part of the Commission’s work I have seen internal documents from Fannie and Freddie that show this particular mantra of the left to be a myth. For a reporter, that would have been a signal to hold his fire—a warning that there were facts out there of which he was unaware. I was telling him he should wait and see what I might write in connection with the Commission’s report.

This isn’t even internally consistent. If Wallison wanted to release his report in time for the December 15 deadline, why wait until January, long after that deadline passes, to reveal these facts? More to the point, Nocera has researched the financial crisis in detail—to the point of publishing an entire book about it—and has a job, as a newspaper columnist, where he’s meant to publish his opinions on the causes of the crisis. There’s no way that he should hold off on doing so just because a Republican hack like Wallison hints that he might have new information.

Indeed, Wallison’s language here shows just how weak his smoking gun is likely to prove: note that he talks about “what I might write in connection with the Commission’s report.” The word “might” is weaselly enough; the word “I” is the biggest giveaway, however — since if there really were compelling new information here, “we” would surely be writing it up in the main body of the report, instead of shoving it off into a Wallison-penned addendum.

Still, it’ll be interesting to keep an eye on Wallison’s blog after the FCIC report is published. Maybe then he’ll come clean, and point out exactly what information he thinks will change Nocera’s mind.


Delong Smackdown Watch: Health Care/Jason Kuznicki Edition

Jason writes:

Economic Commands are Different from Political Commands or Taxes: I don’t disagree in the least the Congress is permitted to regulate the health insurance industry. I think it should regulate that industry, that our Constitution permits it, and that Congress even has quite a bit of discretion about which regulations it may constitutionally adopt. What I do disagree with is the claim that health insurance regulation may include a direct command by Congress to individuals to buy a product or service from private providers. This crosses a line that hasn’t been crossed before. Other examples of direct commands to individuals all stem from far more explicit provisions of the Constitution, as for example with the military draft or compliance with the census.

The latter two are also distinguishable from the command to buy health insurance in another way. Both military service and the census are necessary to the functioning of the government.... They are political commands, made necessary by the fact that we have a government of a particular type and wish to keep it....

Commands set dangerous precedents, in ways that prohibitions do not.... [T]here are plenty of restrictions on the government written into the Constitution, but none of them are written from the understanding that the government otherwise has the plenary power to command us directly. The Constitution doesn’t contain restrictions on the power to command citizens — because that’s not a power Congress was supposed to have at all...

Two points:

First: May I say that I don't find a "command" to pay for the medical care I will receive by buying health insurance rather than trying to free-ride and get somebody else to pay for my treatment to be an infringement on my liberty at all, but rather part of the necessary scheme of regulation needed for the market to function well--like the government's "command" that I use honest scales. I am much more worried about the military draft in time of peace: it is not clear to me how congress's power to "raise and support armies" gets generalized to the power to command what Milton Friedman used to call "an army of slaves" absent the most dire and immediate military necessity, which we in this country have never seen since the days of Valley Forge.[1]

I am more worried about the census than I am about the health care individual mandate/tax.

Second: It is not a question of me "favoring" mercantilism. It is a question of whether the Constitution was in its origins a "mercantilist" document--whether Congress's power to regulate interstate commerce was originally thought to be a narrow or a broad one. (This is, I should add, a separate question from what a constitutional provision means to us now: the answer to that question requires that we understand why we have not amended it--and it is clear to me that if we had maintained a narrow reading of the commerce clause power we would have amended it in the 1930s.)

Me? I find my great-great uncle Abbott's argument in the 1931 American Economic Review that classical liberalism and laissez faire as we know it did not emerge and does not predate Nassau Senior and the anti-Corn Law League of the 1820s to be conclusive. And I also find Jefferson's "Embargo Act" in time of peace conclusive evidence as well that Congress's interstate economic regulation power was thought to be very broad.

And do note that the text of the Fifth Amendment strongly suggests that somebody thought that Congress's raw commerce clause power extended to eminent domain without compensation...


[1] Indeed, even Thomas Hobbes thought that his Leviathan's just powers did not extend to a military draft:

[A] man that is commanded as a soldier to fight against his enemy... may nevertheless in many cases refuse, without injustice; as when he substituteth a sufficient soldier in his place: for in this case he deserteth not the service of the Commonwealth. And there is allowance to be made for natural timorousness, not only to women... but also to men of feminine courage. When armies fight, there is on one side, or both, a running away; yet when they do it not out of treachery, but fear, they are not esteemed to do it unjustly, but dishonorably. For the same reason, to avoid battle is not injustice, but cowardice...

except in the case of the most dire necessity:

when the defence of the Commonwealth requireth at once the help of all that are able to bear arms, every one is obliged; because otherwise the institution of the Commonwealth... was in vain...


Why Oh Why Can't We Have a Better Press Corps? Steve Kroft of 60 Minutes Does Not Know How To Do His Job Department

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

A correspondent emails:

Kroft says the states have spent a half trillion more than they took in since the recession began.... [T]he National Income and Product Accounts (Table 3.3) have a line for 'net lending or borrowing (-).' From 2007Q4 to 2010Q3 the total is $344 billion, not $500 billion. Over the same period there is over a trillion in gross investment for state and local governments, much of which ought to be financed by borrowing. The NIPA entry for the gap between revenues and operating expenses sums to minus $49 billion. Kroft is off by a factor of ten.

Kroft acknowledges the recession caused revenues to tank but says this "exposed" bad spending practices and habits. When it comes to putting a number on the disfavored spending, Kroft throws around unfunded liabilities--references to "gold-plated" benefits for retirement, but no numbers. The health benefits of state and local government retirees are entirely "unfunded" and much larger than the pension bill--but the GAO recently found that S&L retirees' health costs over the next fifty years are projected to rise by only 2% of state revenues. But saying that would not soon good on teevee.

Kroft focuses on Meredith Whitney, who claims the state and local municipal-bond market will be the next blow-up. She predicts 50-100 "big defaults" within the next 12 months. Kroft should revisit this prediction when 2011 winds to a close. Little defaults--defaults on debt by local governments on project bonds backed by dedicated revenue streams that the government is not obliged to supplement--do not count, as such are not rare even in boom times...


The South Has Risen!

Ta-Nehisi Coates sends us to The State, of South Carolina. Kudos to The State:

Secessionists were clear about their cause: slavery: ONE HUNDRED fifty years after our state seceded from the United States, precipitating the secession of our sister states and, ultimately, the Civil War, there is heated disagreement over just what that secession and war were about. Those who insist that it was fought over slavery and those who insist that it was all about our state preserving its rights as a state, with slavery but one of many factors (if that), can agree on only one thing: The other side is rewriting history.

But for the men who declared on Dec. 20, 1860, that “the union now subsisting between South Carolina and other States, under the name of ‘The United States of America,’ is hereby dissolved,” there was no ambiguity. As the members of South Carolina’s secession convention made perfectly clear in the “Declaration of the Immediate Causes Which Induce and Justify the Secession of South Carolina from the Federal Union,” they were indeed leaving the union in order to preserve the sovereign rights of our state, but they had only one right in mind: the right to own slaves.

The language of the S.C. Declaration is so straightforward, so unambiguous that it is difficult to comprehend that there ever could have been any disagreement over what drove South Carolina to secede. So before any more breath is wasted in arguing about just what our state will be commemorating on Monday, we are reprinting the Declaration on this page. We would urge anyone who doubts that our state seceded in order to preserve slavery — or, for that matter, anyone who has come to accept the fiction that slavery was merely one of several cumulative causes — to read this document.

What we found most striking in rereading the Declaration was the complete absence of any other causes. After laying out the argument that the states retained a right to secede if the Union did not fulfill its constitutional and contractual obligations, the document cited the one failing of the United States: its refusal to enforce the constitutional provision requiring states to return escaped slaves to their owners. “This stipulation was so material to the compact,” the document declares, “that without it that compact would not have been made.”

There is room for disagreement over whether we can fairly judge the morality of the secessionists by the standards of 2010. There is room to debate whether the men who fought for the Confederacy believed they were simply fighting to defend their state, without regard to why their state needed defending, or to what role slavery played in the social order. There might even be room to debate what motivated other states to leave the Union.

But those are debates that need to be had honestly, based on what really happened 150 years ago.

Pretending that anything other than slavery played a significant role in South Carolina’s secession is not honest, as the secessionists themselves made a point of telling the world with such abundant clarity.


Declaration of the Immediate Causes Which Induce and Justify the Secession of South Carolina from the Federal Union:

December 24, 1959: The people of the State of South Carolina, in Convention assembled, on the 26th day of April, A.D., 1852, declared that the frequent violations of the Constitution of the United States, by the Federal Government, and its encroachments upon the reserved rights of the States, fully justified this State in then withdrawing from the Federal Union; but in deference to the opinions and wishes of the other slaveholding States, she forbore at that time to exercise this right. Since that time, these encroachments have continued to increase, and further forbearance ceases to be a virtue.

And now the State of South Carolina having resumed her separate and equal place among nations, deems it due to herself, to the remaining United States of America, and to the nations of the world, that she should declare the immediate causes which have led to this act.

In the year 1765, that portion of the British Empire embracing Great Britain, undertook to make laws for the government of that portion composed of the thirteen American Colonies. A struggle for the right of self-government ensued, which resulted, on the 4th of July, 1776, in a Declaration, by the Colonies, "that they are, and of right ought to be, FREE AND INDEPENDENT STATES; and that, as free and independent States, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent States may of right do."

They further solemnly declared that whenever any "form of government becomes destructive of the ends for which it was established, it is the right of the people to alter or abolish it, and to institute a new government." Deeming the Government of Great Britain to have become destructive of these ends, they declared that the Colonies "are absolved from all allegiance to the British Crown, and that all political connection between them and the State of Great Britain is, and ought to be, totally dissolved."

In pursuance of this Declaration of Independence, each of the thirteen States proceeded to exercise its separate sovereignty; adopted for itself a Constitution, and appointed officers for the administration of government in all its departments-- Legislative, Executive and Judicial. For purposes of defense, they united their arms and their counsels; and, in 1778, they entered into a League known as the Articles of Confederation, whereby they agreed to entrust the administration of their external relations to a common agent, known as the Congress of the United States, expressly declaring, in the first Article "that each State retains its sovereignty, freedom and independence, and every power, jurisdiction and right which is not, by this Confederation, expressly delegated to the United States in Congress assembled."

Under this Confederation the war of the Revolution was carried on, and on the 3rd of September, 1783, the contest ended, and a definite Treaty was signed by Great Britain, in which she acknowledged the independence of the Colonies in the following terms: "ARTICLE 1-- His Britannic Majesty acknowledges the said United States, viz: New Hampshire, Massachusetts Bay, Rhode Island and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina and Georgia, to be FREE, SOVEREIGN AND INDEPENDENT STATES; that he treats with them as such; and for himself, his heirs and successors, relinquishes all claims to the government, propriety and territorial rights of the same and every part thereof."

Thus were established the two great principles asserted by the Colonies, namely: the right of a State to govern itself; and the right of a people to abolish a Government when it becomes destructive of the ends for which it was instituted. And concurrent with the establishment of these principles, was the fact, that each Colony became and was recognized by the mother Country a FREE, SOVEREIGN AND INDEPENDENT STATE.

In 1787, Deputies were appointed by the States to revise the Articles of Confederation, and on 17th September, 1787, these Deputies recommended for the adoption of the States, the Articles of Union, known as the Constitution of the United States.

The parties to whom this Constitution was submitted, were the several sovereign States; they were to agree or disagree, and when nine of them agreed the compact was to take effect among those concurring; and the General Government, as the common agent, was then invested with their authority.

If only nine of the thirteen States had concurred, the other four would have remained as they then were-- separate, sovereign States, independent of any of the provisions of the Constitution. In fact, two of the States did not accede to the Constitution until long after it had gone into operation among the other eleven; and during that interval, they each exercised the functions of an independent nation.

By this Constitution, certain duties were imposed upon the several States, and the exercise of certain of their powers was restrained, which necessarily implied their continued existence as sovereign States. But to remove all doubt, an amendment was added, which declared that the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States, respectively, or to the people. On the 23d May , 1788, South Carolina, by a Convention of her People, passed an Ordinance assenting to this Constitution, and afterwards altered her own Constitution, to conform herself to the obligations she had undertaken.

Thus was established, by compact between the States, a Government with definite objects and powers, limited to the express words of the grant. This limitation left the whole remaining mass of power subject to the clause reserving it to the States or to the people, and rendered unnecessary any specification of reserved rights.

We hold that the Government thus established is subject to the two great principles asserted in the Declaration of Independence; and we hold further, that the mode of its formation subjects it to a third fundamental principle, namely: the law of compact. We maintain that in every compact between two or more parties, the obligation is mutual; that the failure of one of the contracting parties to perform a material part of the agreement, entirely releases the obligation of the other; and that where no arbiter is provided, each party is remitted to his own judgment to determine the fact of failure, with all its consequences.

In the present case, that fact is established with certainty. We assert that fourteen of the States have deliberately refused, for years past, to fulfill their constitutional obligations, and we refer to their own Statutes for the proof.

The Constitution of the United States, in its fourth Article, provides as follows:

No person held to service or labor in one State, under the laws thereof, escaping into another, shall, in consequence of any law or regulation therein, be discharged from such service or labor, but shall be delivered up, on claim of the party to whom such service or labor may be due.

This stipulation was so material to the compact, that without it that compact would not have been made. The greater number of the contracting parties held slaves, and they had previously evinced their estimate of the value of such a stipulation by making it a condition in the Ordinance for the government of the territory ceded by Virginia, which now composes the States north of the Ohio River.

The same article of the Constitution stipulates also for rendition by the several States of fugitives from justice from the other States.

The General Government, as the common agent, passed laws to carry into effect these stipulations of the States. For many years these laws were executed. But an increasing hostility on the part of the non-slaveholding States to the institution of slavery, has led to a disregard of their obligations, and the laws of the General Government have ceased to effect the objects of the Constitution. The States of Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, Pennsylvania, Illinois, Indiana, Michigan, Wisconsin and Iowa, have enacted laws which either nullify the Acts of Congress or render useless any attempt to execute them. In many of these States the fugitive is discharged from service or labor claimed, and in none of them has the State Government complied with the stipulation made in the Constitution. The State of New Jersey, at an early day, passed a law in conformity with her constitutional obligation; but the current of anti-slavery feeling has led her more recently to enact laws which render inoperative the remedies provided by her own law and by the laws of Congress. In the State of New York even the right of transit for a slave has been denied by her tribunals; and the States of Ohio and Iowa have refused to surrender to justice fugitives charged with murder, and with inciting servile insurrection in the State of Virginia. Thus the constituted compact has been deliberately broken and disregarded by the non-slaveholding States, and the consequence follows that South Carolina is released from her obligation.

The ends for which the Constitution was framed are declared by itself to be "to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity."

These ends it endeavored to accomplish by a Federal Government, in which each State was recognized as an equal, and had separate control over its own institutions. The right of property in slaves was recognized by giving to free persons distinct political rights, by giving them the right to represent, and burthening them with direct taxes for three-fifths of their slaves; by authorizing the importation of slaves for twenty years; and by stipulating for the rendition of fugitives from labor.

We affirm that these ends for which this Government was instituted have been defeated, and the Government itself has been made destructive of them by the action of the non-slaveholding States. Those States have assume the right of deciding upon the propriety of our domestic institutions; and have denied the rights of property established in fifteen of the States and recognized by the Constitution; they have denounced as sinful the institution of slavery; they have permitted open establishment among them of societies, whose avowed object is to disturb the peace and to eloign the property of the citizens of other States. They have encouraged and assisted thousands of our slaves to leave their homes; and those who remain, have been incited by emissaries, books and pictures to servile insurrection.

For twenty-five years this agitation has been steadily increasing, until it has now secured to its aid the power of the common Government. Observing the forms of the Constitution, a sectional party has found within that Article establishing the Executive Department, the means of subverting the Constitution itself. A geographical line has been drawn across the Union, and all the States north of that line have united in the election of a man to the high office of President of the United States, whose opinions and purposes are hostile to slavery. He is to be entrusted with the administration of the common Government, because he has declared that that "Government cannot endure permanently half slave, half free," and that the public mind must rest in the belief that slavery is in the course of ultimate extinction.

This sectional combination for the submersion of the Constitution, has been aided in some of the States by elevating to citizenship, persons who, by the supreme law of the land, are incapable of becoming citizens; and their votes have been used to inaugurate a new policy, hostile to the South, and destructive of its beliefs and safety.

On the 4th day of March next, this party will take possession of the Government. It has announced that the South shall be excluded from the common territory, that the judicial tribunals shall be made sectional, and that a war must be waged against slavery until it shall cease throughout the United States.

The guaranties of the Constitution will then no longer exist; the equal rights of the States will be lost. The slaveholding States will no longer have the power of self-government, or self-protection, and the Federal Government will have become their enemy.

Sectional interest and animosity will deepen the irritation, and all hope of remedy is rendered vain, by the fact that public opinion at the North has invested a great political error with the sanction of more erroneous religious belief.

We, therefore, the People of South Carolina, by our delegates in Convention assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, have solemnly declared that the Union heretofore existing between this State and the other States of North America, is dissolved, and that the State of South Carolina has resumed her position among the nations of the world, as a separate and independent State; with full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent States may of right do.


Paul Krugman Tries to Understand What Happened

Paul:

When Zombies Win: How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?

The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?... [T]he Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics. Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.

It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated... but stayed consistently low.... For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued.... The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official....

Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.... President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages. None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm....

Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.


Hoisted from Comments: Del on George Orwell and England's Lower Upper Middle Class

Del:

George Orwell on Belonging to England's Lower Upper Middle Class in the 1920s: del said...

"The amazing part to me is how someone who couldn't afford to eat a decent restaurant but would have "at most two servants." Something about relative costs has changed a lot since Orwell's day."

Cheap servants were much, much cheaper to employ in those days, and one of the chief sources of the English middle class belief that they were becoming poorer as the twentieth century wore on, was that the growing prosperity of the working class, particularly after WWII when the Attlee government was elected, meant that cheap servants became harder and harder to find.

Nevil Shute can't stop going on about it in Slide Rule, and C S Lewis has a remark in The Magician's Nephew, written in the 50s but set between the wars, that "everyone had lots of servants in those days". (note that both Shute's and Lewis's definition of "everyone" necessarily defines the majority of the country who were themselves the cheap servants as "no one")

Orwell's complaint that his class felt poorer than actual poor people because proles don't know any better is the same nonsense we get today, sadly.

Was it Agatha Christie who said that when she was a child she never imagined that she would be rich enough to own an automobile or poor enough not to have live-in servants?


Worst Economists Alive Winners--Holtz-Eakin, Wallison, Thomas, and Hennessy--Watch

Looks like Peter Wallison is telling more lies:

[Nocera] describes the views in the primer as 'dogma' -- by which he means opinions based on ideology rather than facts. But in our conversation as he was writing this article, he told me that his reporting "has shown that Fannie Mae and Freddie Mac simply followed Wall Street" into buying subprime and other risky loans. I told him this was wrong -- that as part of the Commission's work I have seen internal documents from Fannie and Freddie that show this particular mantra of the left to be a myth...

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When the housing bubble took off--and when mortgage loans and MBSs became really risky--that's when Fannie Mae and Freddie Mac pulled back. The GSEs were dominant players in the market up through the end of 2002: most of the loans made through the end of 2002 are still good. The GSEs were small players by the start of 2004--which is when the mortgages that have turned out to be toxic assets started to come through.

Republicans. They lie. All the time. About everything.


Can't Anybody in Obama's Inner Circle Play This Game?

When people in the White House ask me whether I think Obama's SOTU address should be about tax reform or Social Security reform (i.e., 2/3 Social Security benefit cuts, 1/3 tax increases offered by the administration--and God alone knows what happens after that), I want to say: Why not make the SOTU address about jobs and economic recovery?


Is There a Rule That Right-Wing New York Times Columnists Must Be Ignorant of the History of Their Own Religious Tradition?

First David Brooks appears astonished to meet a rabbi. Now Ross Douthat:

http://www.nytimes.com/2010/12/20/opinion/20douthat.html?_r=1&hp=&pagewanted=print: Christmas is hard for everyone. But it is particularly hard for those who believe in it.... American Christians can feel most embattled. Their piety is overshadowed by materialist ticky-tacky. Their great feast is compromised by Christmukkanzaa.multiculturalism...

Does he really not know the history of his own religion? People have been celebrating the Winter Solstice for many more years than Ross Douthat's Young-Earth Creationist friends claim the earth has existed. For anybody to claim that the Winter Solstice is their great feast and not all of ours--and that non-Christians "compromise" it with their Winter Solstice celebrations--shows a truly remarkable degree of blindness...

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


Hoisted from Comments: George Orwell's Motivations

Apropos of George Orwell on Belonging to England's Lower Upper Middle Class in the 1930s, a correspondent asks:

Isn't it often wondered if Orwell's socialism wasn't at least as related to his feelings of being unable to REALLY be of the ruling and leisure classes as it was to any feelings of social and economic injustice in Britain? And in the colonies also, of course.

Orwell really did not like being a colonial administrator In Burma. He concluded that being such a petty tyrant was no life for a proper man.

He was very brave, very talented, very hard working: I think he could have gotten quite rich in either colonial administration or right-wing journalism--if he could have stomached it.

Instead, he became an anti-Stalinist left-wing journalist in 1930s Britain--a career path guaranteed to put you on the edge of bankruptcy...


I Think That Jason Kuznicki Does Not Understand the History...

Jason writes:

What Can’t Congress Do Now?: If the federal government can force you to buy health insurance merely for being alive — on the theory that your inaction, while stubbornly remaining alive, has indirect effects on interstate commerce — then what can’t the federal government force you to do? It’s a question I noted Randy Barnett asking a couple months ago, with some added salience now that a federal judge has ruled the individual mandate unconstitutional. Others have been asking similar questions, including Megan McArdle and Radley Balko. The American left would like very much to find good answers...

It is a simple fact that health care is big commerce today--one out of every six dollars we spend is spent on health care. And it is a simple fact that all commerce these days is interstate commerce--that is the inevitable consequence of the invention of the railroad. This means that congress's enumerated power:

To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; To borrow money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States...

is a plenary power to regulate the health care sector. You are going to be paying somebody something for health care during your life. Congress has the power to regulate when, how, to whom, and how much. That is simply what the Constitution says.

Jason Kuznicki wishes that the Constitution says otherwise: he thinks that a constitutional grant of plenary power to regulate--and thus control--all commercial activity that affects interstate commerce produces a government that is much too powerful. It may well be. That is why there have been repeated attempts to read the Fifth Amendment:

nor shall any person be... deprived of life, liberty, or property, without due process of law...

as a protection of private economic property from government regulation rather than as what it is: a declaration that you cannot be executed, imprisoned, or fined by the government save through proper legal procedures (a declaration that now appears to be a dead letter--but that is a topic for another day).

The fact is that the founders were not classical liberals.

They did not believe in the free market.

They were, most of them and most of the time, mercantilists of one form or another--taking for granted that governments had broad powers to regulate economic commerce for the public benefit.

This was brought home to me once when I was on a panel with Richard Epstein, who began talking about the eighteenth-century classical-liberal foundations of America's constitutional order--as if the theorists of laissez-faire had written in the mid-eighteenth rather than the mid-nineteenth century.

They did not.

And because they did not, most of the founders most of the time took it for granted that of course the government could channel the use you made of your property as it wished.

Indeed, even the nineteenth-century theorists of laissez-faire were not, by our lights, theorists of laissez-faire. Consider Frederic Bastiat, who writes things like:

Let's turn the microphone over to Frederic Bastiat:

(1) There is an article in the Constitution which states: "Society assists and encourages the development of labor.... through the establishment by the state, the departments, and the municipalities, of appropriate public works to employ idle hands..." As a temporary measure in a time of crisis, during a severe winter, this intervention on the part of the taxpayer could have good effects... as insurance. It adds nothing to the number of jobs nor to total wages, but it takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times...

(2) For a nation, security is the greatest of blessings. If, to acquire it, a hundred thousand men must be mobilized, and a hundred million francs spent, I have nothing to say. It is an enjoyment bought at the price of a sacrifice...

(3) It is quite true that often, nearly always if you will, the government official renders an equivalent service to James Goodfellow. In this case there is... only an exchange... my argument is not in any way concerned with useful functions. I say this: If you wish to create a government office, prove its usefulness.... When James Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even...

(4) [L]ast year I was on the Finance Committee. Each time that one of our colleagues spoke of fixing at a moderate figure the salaries of the President of the Republic, of cabinet ministers, and of ambassadors, he would be told: "For the good of the service, we must surround certain offices with an aura of prestige and dignity. That is the way to attract to them men of merit.... A certain amount of ostentation in the ministerial and diplomatic salons is part of the machinery of constitutional governments, etc., etc..." Whether or not such arguments can be controverted, they certainly deserve serious scrutiny. They are based on the public interest, rightly or wrongly estimated; and, personally, I can make more of a case for them than many of our Catos, moved by a narrow spirit of niggardliness or jealousy...

(5) Should the state subsidize the arts?... [A]rts broaden, elevate, and poetize the soul of a nation; that they draw it away from material preoccupations, giving it a feeling for the beautiful, and thus react favorably on its manners, its customs, its morals, and even on its industry. One can ask where music would be in France without the Théâtre-Italien and the Conservatory; dramatic art without the Théâtre-Français... ask whether, without the centralization and consequently the subsidizing of the fine arts, there would have developed that exquisite taste which is the noble endowment of French labor and sends its products out over the whole world.... To these reasons and many others, whose power I do not contest, one can oppose many no less cogent. There is... a question of distributive justice. Do the rights of the legislator go so far as to allow him to dip into the wages of the artisan in order to supplement the profits of the artist?... I confess that I am one of those who think that the choice... should come from below, not from above, from the citizens, not from the legislator.... Returning to the fine arts, one can, I repeat, allege weighty reasons for and against the system of subsidization... in... this essay, I have no need either to set forth these reasons or to decide between them.... When it is a question of taxes [and subsidies], gentlemen, prove their usefulness by reasons with some foundation, but not with that lamentable assertion: "Public spending keeps the working class alive"...

(6) When a public expenditure is proposed, it must be examined on its own merits... a presumption of economic benefit is never appropriate for expenditures made by way of taxation. Why?... In the first place, justice always suffers from it somewhat. Since James Goodfellow has sweated to earn his hundred-sou piece... he is irritated... that the tax intervenes to take this satisfaction away from him and give it to someone else.... [I]t is up to those who levy the tax to give some good reasons for it.... If the state says to him: "I shall take a hundred sous from you to pay the policemen who relieve you of the necessity for guarding your own security, to pave the street you traverse every day, to pay the magistrate who sees to it that your property and your liberty are respected, to feed the soldier who defends our frontiers," James Goodfellow will pay without saying a word...

(7) Another species of spoilation is commercial fraud, a term which seems to me too limited... [when restricted to] the tradesman who changes his weights and measures... [it should also apply to] the physician who receives a fee for evil counsel, the lawyer who promotes litigation, etc...

So Frederic Bastiat is in favor of:

  1. Stimulative expansionary fiscal policy to fight depressions,
  2. large public expenditures for national security,
  3. government provision of services that government can provide as cheaply and effectively as the private sector,
  4. high salaries for public officials to attract workers of talent and energy and also to boost the prestige and dignity of the government,
  5. subsidies for the arts to the extent that public subsidies properly elevate taste and aesthetic values,
  6. public provision of police, justice, defense, transportation, and other infrastructure,
  7. public regulations of professional practice a la the FDA in order to avoid "spoilation" by doctors and pharmaceutical companies that receive "a fee for evil counsel."

Let us be very clear: The key for Frederic Bastiat is whether Jacques Bonhomme receives good value in the government expenditures that are financed by his taxes and for the results of the mandates the governmetn imposes on him.

Bastiat does not care whether or not Jacques Bonhomme is "coerced" when he is taxed to pay for public schools, public roads, public theatres, government-run courts, government-paid police officers, government armies.

He cares about whether the goods and services that the government provides are valuable ones, whether receives good value for his private purchases--and if not whether and how government "coercion" can get him better value.

And a government that has the power to regulate the economy whenever and however doing so will promote the general welfare is indeed a government that can, in economic matters, pretty much command that you do anything. And that is the default position of even the most liberal of eighteenth and nineteenth century thinkers...


Origins of the American Civil War

Prometheus Six sends us to Edward Ball:

Gone With the Myths: ON Dec. 20, 1860, 169 men — politicians and people of property — met in the ballroom of St. Andrew’s Hall in Charleston, S.C. After hours of debate, they issued the 158-word “Ordinance of Secession,” which repealed the consent of South Carolina to the Constitution and declared the state to be an independent country. Four days later, the same group drafted a seven-page “Declaration of the Immediate Causes,” explaining why they had decided to split the Union.

The authors of these papers flattered themselves that they’d conjured up a second American Revolution. Instead, the Secession Convention was the beginning of the Civil War, which killed some 620,000 Americans; an equivalent war today would send home more than six million body bags.

The next five years will include an all-you-can-eat special of national remembrance. Yet even after 150 years full of grief and pride and anger, we greet the sesquicentennial wondering, why did the South secede?

I can testify about the South under oath. I was born and raised there, and 12 men in my family fought for the Confederacy; two of them were killed. And since I was a boy, the answer I’ve heard to this question, from Virginia to Louisiana (from whites, never from blacks), is this: “The War Between the States was about states’ rights. It was not about slavery.”

I’ve heard it from women and from men, from sober people and from people liquored up on anti-Washington talk. The North wouldn’t let us govern ourselves, they say, and Congress laid on tariffs that hurt the South. So we rebelled. Secession and the Civil War, in other words, were about small government, limited federal powers and states’ rights.

But a look through the declaration of causes written by South Carolina and four of the 10 states that followed it out of the Union — which, taken together, paint a kind of self-portrait of the Confederacy — reveals a different story. From Georgia to Texas, each state said the reason it was getting out was that the awful Northern states were threatening to do away with slavery.

South Carolina: “The non-slaveholding states ... have denounced as sinful the institution of slavery” and “have encouraged and assisted thousands of our slaves to leave their homes.”

Mississippi: “Our position is thoroughly identified with the institution of slavery — the greatest material interest of the world. ... There was no choice left us but submission to the mandates of abolition, or a dissolution of the Union.”

Georgia: “A brief history of the rise, progress, and policy of anti-slavery and the political organization into whose hands the administration of the Federal Government has been committed will fully justify the pronounced verdict of the people of Georgia.”

Several states single out a special culprit, Abraham Lincoln, “an obscure and illiterate man” whose “opinions and purposes are hostile to slavery.” Lincoln’s election to the White House meant, for South Carolina, that “the public mind must rest in the belief that slavery is in the course of ultimate extinction.”

In other words, the only state right the Confederate founders were interested in was the rich man’s “right” to own slaves.

It’s peculiar, because “states’ rights” has become a popular refrain in Republican circles lately. Last year Gov. Rick Perry of Texas wondered aloud whether secession was his state’s right in the aftermath of laws out of Congress that he disliked.

In part because of this renewed rhetoric, in the coming remembrances we will likely hear more from folks who cling to the whitewash explanation for secession and the Civil War. But you have only to look at the honest words of the secessionists to see why all those men put on uniforms.


George Orwell on Belonging to England's Lower Upper Middle Class in the 1920s

George Orwell:

George Orwell - The Road to Wigan Pier - Chapter 8: I was born into what you might describe as the lower-upper-middle class. The upper-middle class... the layer of society lying between L2000 and L300 a year: my own family was not far from the bottom.... Before the war you were either a gentleman or not a gentleman, and if you were a gentleman you struggled to behave as such, whatever your income might be.... People in this class owned no land, but they felt that they were landowners in the sight of God and kept up a semi-aristocratic outlook by going into the professions and the fighting services rather than into trade. Small boys used to count the plum stones on their plates and foretell their destiny by chanting, 'Army, Navy, Church, Medicine, Law'.... To belong to this class when you were at the L400 a year level was a queer business, for it meant that your gentility was almost purely theoretical. You lived, so to speak, at two levels simultaneously. Theoretically you knew all about servants and how to tip them, although in practice you had one, at most, two resident servants. Theoretically you knew how to wear your clothes and how to order a dinner, although in practice you could never afford to go to a decent tailor or a decent restaurant. Theoretically you knew how to shoot and ride, although in practice you had no horses to ride and not an inch of ground to shoot over. It was this that explained the attraction of India (more recently Kenya, Nigeria, etc.) for the lower-upper-middle class. The people who went there as soldiers and officials did not go there to make money... they went there because in India, with cheap horses, free shooting, and hordes of black servants, it was so easy to play at being a gentleman.

In the kind of shabby-genteel family that I am talking about there is far more consciousness of poverty than in any working-class family above the level of the dole. Rent and clothes and school-bills are an unending nightmare, and every luxury, even a glass of beer, is an unwarrantable extravagance. Practically the whole family income goes in keeping up appearances.... The real bourgeoisie, those in the L2000 a year class and over, have their money as a thick layer of padding... in so far as they are aware of the Lower Orders at all they are aware of them as employees, servants, and tradesmen. But it is quite different for the poor devils lower down who are struggling to live genteel lives on what are virtually working-class incomes. These last are forced into close and, in a sense, intimate contact with the working class, and I suspect it is from them that the traditional upper-class attitude towards 'common' people is derived.

And what is this attitude? An attitude of sniggering superiority punctuated by bursts of vicious hatred. Look at any number of Punch during the past thirty years. You will find it everywhere taken for granted that a working-class person, as such, is a figure of fun, except at odd moments when he shows signs of being too prosperous, whereupon he ceases to be a figure of fun and becomes a demon. It is no use wasting breath in denouncing this attitude. It is better to consider how it has arisen, and to do that one has got to realize what the working classes look like to those who live among them but have different habits and traditions.... In such circumstances you have got to cling to your gentility because it is the only thing you have; and meanwhile you are hated for your stuck-up-ness and for the accent and manners which stamp you as one of the boss class...


DeLong Smackdown Watch: Nominal GDP Targeting Via Index Futures

Bill Woolsey writes:

Monetary Freedom: Sumner and DeLong on Index Futures Convertibility: Here DeLong begins to go wrong. He adds in 3 percent because he believes that is a proper target for the long run average nominal interest rate. His figure assumes a 3 percent average nominal interest rate between 2007 and 2011. Whether or not that would be desirable, it plays no role in determining what the Fed should be doing during either the 4th quarter of 2011 or the 4th quarter of 2010. He has effectively put NGDP on an 8 percent growth path. Neither $18.155 trillion nor its reciprocal should play any role in the system.

Why does DeLong make this error? It is because he understands the proposal as automatically changing the quantity of money when futures are purchased and sold. In DeLong's view, when the Fed buys these contracts, it is providing money now, in the fourth quarter of 2010 and will receives the money back in the fourth quarter of 2011. The Fed is making a type of loan when it buys contracts. It makes sense that the Fed would charge interest on these loans. If the Fed charges 3 percent interest on the loans per year, then it provides dollar deposits (makes a loan of a dollar now) in return for (1+.03) times 1/$17.455 trillion of 4th quarter NGDP to be paid in one year. That is 1/(17.455 trillion/ 1.03) or 1/16.947 trillion of 4th quarter 2011 NGDP. When the Fed sells the contracts, it is borrowing (accepting a deposit) of a dollar in exchange for paying 1/16.947 trillion of 4th quarter 2011 NGDP in one year. It pays 3 percent interest on these deposits, again, adjusted for any deviation of NGDP from target.

DeLong's error was to calculate the interest payment for 4 years compounded, and then multiplying when he should have divided. If the contract was defined based on the borrowers paying the Fed a dollar when the loan comes due, like a T-bill, then multiplication would have been appropriate. The appropriate adjustment, however, is 1.03 times $17.455 trillion, which is $17.979 trillion, not $18,155 trillion. More importantly, because the adjustment for the deviation of NGDP from target would not be known up front, this would be inappropriate. Division is really the only sensible approach...

Touche... I think.

Let me try to explain what we want to do...

Right now, in December 2010, we want to give people an incentive to take actions that expand the money supply if they think that nominal GDP at the end of 2011 is likely to be lower than $17.5 trillion and to contract the money supply if they think that nominal GDP at the end of 2011 is likely to be higher than $17.5 trillion.

So the Federal Reserve announces an open offer to buy and sell: $1 in cash now in exchange for... some fraction of nominal GDP at the end of 2011.

It seemed to me when I wrote that the fraction of nominal GDP should not be 1/17,500,000,000,000 because that gives people an incentive to take action to expand the money supply if they expect nominal GDP in a year to be $17.5 trillion because then the Federal Reserve is lending them money at 0% nominal. So if you want people to borrow from the Fed and so increase the money stock if they expect nominal GDP to be less than $17.5 trillion and lend and so shrink the money stock if they expect nominal GDP to be greater than $17.5 trillion, you need a different number than $17.5 trillion in the denominator.

So I accept the correction to $18.0 trillion. The rest of it I am still unsure about.

I have to think about this a lot more, which means I need to find the time to do so...


How About "RomneyCare"?

Megan McArdle gets up on her high horse:

Questions Asked and Answered: I will stop referring to it as ObamaCare when we stop calling them the Bush tax cuts for the rich.  It is an effective shorthand for a law that is otherwise unwieldy to describe...

"RomneyCare" is just as wieldy a description, and has the advantage of giving credit to the first politician to push the exchanges-plus-big-business-benefits system.


Why Paul Krugman Almost Welcomes the Frankness of Ron Paul

Paul:

Economics and Politics - Paul Krugman Blog - NYTimes.com: Springtime for Hypocrites It has been a great week on the hypocrisy front. A couple of high points:

The hypocrisy of the apparatchiks: Joe Nocera amplifies some of the points I made in my column. The determination of the Republicans on the crisis commission to lay the blame on Fannie and Freddie flies right in the face of the evidence; and Nocera also adds some information on the curious switch of positions taking place. A few years ago the same people now attacking F&F for promoting loans to low-income borrowers were attacking F&F for … not promoting loans to low-income borrowers. Back then they castigated F&F by pointing to the fact that private lenders were making loans where the agencies refused to tread, now they say that it was F&F that lured the private sector into making those very same loans.

Whatever. It must be the government’s fault, because, you know, because.

The hypocrisy of the centrists: Just two weeks ago, the deficit was the great evil, and all the VSPs insisted that we needed fiscal austerity now now now. Then, magically, a big tax cut — increasing federal debt by more than the original Obama stimulus, and substantially raising the probability of making unaffordable tax cuts permanent — was the greatest thing since sliced bread.

Why, it’s almost as if all the concern about the deficit was a front for opposing anything progressives might want, to be dropped as soon as debt was being run up on behalf of conservative goals. But that can’t be true, can it?

In a way, I almost welcome the frankness of someone like Ron Paul, who tells us that there’s no need for any kind of bank regulations. It’s crazy, of course — even Adam Smith called for bank regulations, comparing them to building regulations designed to prevent the spread of fires. But at least the guy’s consistent.


Yet Another Reason Why Nobody Has Any Business Voting for Republican Politicians

Jonathan Cohn:

The GOP's Strange Ideas About Helping the Poor: Rep. Bill Cassidy of Louisiana is not just a Republican. He's also a doctor. And that means he has not one but two reasons to dislike Medicaid. Not only does it cost the government a lot of money. It also serves a lot of its beneficiaries poorly. Cassidy explained in a Dec. 16 column for Politico that Medicaid is the stingiest payer in our health care system.... [P]eople who have Medicaid frequently end up at places like Earl P. Long hospital in Baton Rouge -- a public hospital where, I gather, Cassidy has worked. "The hospital has dedicated and caring doctors, nurses, technicians and support staff," Cassidy writes, "But its physical plant is in disrepair." Four patients to a room, asbestos in the structure, missing doors -- the people of Baton Rouge only go there if they have no other option, according to Cassidy. And that means people with Medicaid....

Cassidy tells us this story because the new health law is expected to increase Medicaid enrollment by about 16 million people. Cassidy thinks this is a terrible idea.... I don't actually disagree with the underlying assessment of Medicaid.... But I have a question for Cassidy, Perry and all the other state officials who oppose expanding Medicaid and, in some cases, support getting rid of it once and for all: What do you propose to do instead? The answer, as far as I can tell, is to do nothing....

Medicaid may not provide great access to care. But it does provide access -- access its recipients very much need.... Janet Currie and Jonathan Gruber found large expansions of Medicaid during the 1980s and early 1990s "significantly increased the utilization of medical care, particularly care delivered in physicians' offices," leading to "significant" reductions in both infant and child mortality....

Could the program be better? Absolutely.... But, by far, the best way to improve Medicaid would be to give it more money per beneficiary -- so that it pays providers something closer to what Medicare and private insurance pay.... Is this what Cassidy, Perry and the other Medicaid critics want to do -- to spend more money on the poor? It doesn't appear so. In general, the people attacking Medicaid want to spend less....

Sure enough, Cassidy's protest against expanding Medicaid includes no proposals for other ways to cover the 15 million people the program will take in under the new health law. And when Perry threatened to withdraw from Medicaid, he wasn't terribly specific about how Texas would provide health care to the roughly 4 million residents now on the program. Of course, we don't need them to tell us what the world would look like without government health care programs for the poor. We need only look at what happened before Medicaid came into existence...


Adolf Hitler Liveblogs World War II: December 18, 1940

Adolf Hitler:

Führer Directive 21: The Fuehrer and Commander-in-Chief of the German Armed Forces SECRET                                      

The Fuehrer's Headquarters 18 December 40 (only through officer) 9 copies, 4th copy Directive Nr. 21

Case Barbarossa

The German Armed Forces must be prepared to crush Soviet Russia in a quick campaign before the end of the war against England (Case Barbarossa).

For this purpose the Army will have to employ all available units with the reservation that the occupied territories will have to be safeguarded against surprise attacks.

For the Eastern campaign the Airforce will have to free such strong forces for the support of the Army that a quick completion of the ground operations may be expected and that damage of the eastern German territories will be avoided as much as possible. This concentration of the main effort in the east is limited by the following reservation: That the entire battle and armament area dominated by us must remain sufficiently protected against enemy air attacks and that the attacks on England and especially the supply for them must not be permitted to break down.

Concentration of the main effort of the Navy remains unequivocally against England also during an Eastern Campaign.

If occasion arises I will order the concentration of troops for action against Soviet Russia eight weeks before the intended beginning of operations.

Preparations requiring more time to start are—if this has not yet been done—to begin presently and are to be completed by 15 May 1941.

Great caution has to be exercised that the intention of an attack will not be recognized....

The mass of the Russian Army in Western Russia is to be destroyed in daring operations by driving forward deep wedges with tanks and the retreat of intact battle-ready troops into the wide spaces of Russia is to be prevented.

In quick pursuit a line is to be reached from where the Russian Airforce will no longer be able to attack German Reich territory. The first goal of operations is the protection from Asiatic Russia from the general line Volga-Archangelsk. In case of necessity, the last industrial area in the Urals left to Russia could be eliminated by the Luftwaffe.

In the course of these operations the Russian Baltic Sea Fleet will quickly erase its bases and will no longer be ready to fight.

Effective intervention by the Russian Airforce is to be prevented through forceful blows at the beginning of the operations...


Modern Celebrity Philanthropical Journalism Watch

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Gordon's Notes:

Gordon's Notes: Jean-Louis Gassée on Cloud 2.0 – post of the month: Gassée has done many things, but he’s best known for having been Apple’s CEO for a time. These days he’s a VC “general partner”. It’s safe to assume he’s rich beyond my paltry dreams of avarice. Why does he bother writing a not-terribly-famous blog? I don’t think it’s for the adword revenue. My best guess is that he’s helping out the blog’s co-author, and that he writes for love. Alas for those who write to live, his free stuff is better than the best of the WSJ. Such is the curse of early 21st century journalism....

[W]hy is it that only cranks like me and outliers like Gassée ever point out where Google fails? It’s a bit hallucinatory. Gmail’s contacts function has been terrible for years.... Google Docs are still very weak.... [T]hings are worse when you look at the channel confusion around Blogger, Google Doc, Buzz and Google Sites. Really, I do love a lot about Google, but they have to give up on the idea that good design is emergent.

Go and read [Gassee's] Cloud 2.0 post.... Don’t forget to marvel at the strange age we live in, where some of the best journalism is done for love...


DeLong Smackdown Watch: Fear the Cloud!!

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Hoisted from Comments: jfaughnan said:

Time to Think About the Stability of Web Services...: Brad,

Google has axed several web services with total data loss. They did in Pages (partial data save), Notebook (total loss), a failed pre-facebook social networking site and a few more.

They've also essentially killed several web services by abandoning development.

The problem with the cloud is much bigger than this. The real answer is SimpleNote -- completely portable data.

See my latest rant with abundant links:

http://notes.kateva.org/2010/12/yahoo-kills-delicious-don-say-you-weren.html

And:

Gordon's Notes: Yahoo kills Delicious - don't say you weren't warned about the Cloud: Not surprising ...

Michael Tsai - Blog - Yahoo Shuts Down Delicious: Delicious was a good service, and I’m sorry to see all the data and metadata that people have entered go away

Some fear Flickr is next - like Digital Railroad. I wrote about Yahoo's likely use of Flickr in 2008.

Don't say I didn't warn you.

I don't put anything "in the Cloud" I can't walk away from. One reason I use Simplenote is that I have completely usable and completely current local copies of all data. If they go away tomorrow I can switch to an alternative in minutes.

Google deserves credit for supporting "data freedom" -- which is the only thing that can make the Cloud tolerable. Most recently the data liberation front gave OS X users an easy way to download entire online albums.  Google has a spotty data history, but I give them credit for their data freedom team.

See also:

  • Dapocalypse now. Grab your data and run. RUN. (AOL xDrive, AOL photos, Google Lively, Yahoo User Profiles, MSN Groups, Digital Railroad)
  • Fear the Cloud: Microsoft Danger was well named (Remember danger?)
  • Should I trust (Simplenote) Simperium?
  • Cloud Lesson #72: The risk of letting Google own your web site
  • Jean-Louis Gassée on Cloud 2.0 – post of the month
  • Fear the Cloud - Blogger's unfixed 5000 post limit (months later they fixed this)
  • Nimbophobia: Why you should fear the cloud - Google's performance problems

The Exodus from Del.icio.us to Pinboard

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Three days ago Maciej Ceglowski was running a small better-del.icio.us bookmarking service (for those who wanted (a) speed, (b) protection against linkrot, and (c) not to be embarrassed by what they had bookmarked) with perhaps 5K users and perhaps 5M bookmarks.

Then disgruntled ex-Yahoo employees leaked that Yahoo was "sunsetting" delicious, and John Gruber wrote:

Daring Fireball: Now’s Probably a Good Time to Link to Pinboard Again: I’ve previously linked to and recommended Pinboard, Maciej Ceglowski’s “antisocial” bookmarking service. It’s not a copy of Delicious, but rather more like a re-imagining of Delicious. If you use Delicious and regret its apparently imminent demise, Pinboard is probably what you want. Delicious-like features and interface (including a clone of its API), and Delicious importing. And, the sooner you sign up for Pinboard, the less you pay.

Selections from Maciej's twitter feed from that moment on:

it's nearly 2011. Why do I still have to ask my computer's permission to unplug an external drive?

@niels_k I understand the technical issue, but it's 2011. We have the technology

@cdoussin welcome aboard!

Apparently delicious is done: http://yfrog.com/f/h3z89p/ This sucks. Yahoo finishes the process of turning gold into lead.

@mlednor we should be able to grow by a factor of ten or so before there would need to be changes. I will pause signups if necessary.

@patbrumfield you should be able to import all your delicious stuff

we'll set up some tools to make migration easier for people from delicious (like being able to find people by their del username)

@zyrcster no, but I'll hack something up to make that possible now that everyone is migrating

if we weren't a paid service we'd be down by now...

@nathansmith mixed feelings, really. Also high stress as I try to manage the traffic

mirroring from twitter and other outside services is going to be off for a few hours so that things stay fast for everyone. Crazy traffic

people balking at the signup fee - please think about why delicious is being shut down

@Panicnfreakout we haven't crashed

RT @kb: Hey, y’all. Happy you’ve found a del alternative, but I’m trying to bookmark shit here. Ease up on the @pinboardIN servers, maybe?

@mormolyke I think I'll pass on taking scaling advice from @twitter :-)

@devrandom send us email if it doesn't complete soon. The poor importer is working like crazy this afternoon

there are worse things than being DDOS'ed by people trying to give you money

Sorry for the delay in imports - we're adding bookmarks as fast as we can consistent with not slowing down the site

we have added just short of one million bookmarks today

@anildash ha, thanks Anil! I will reveal myself to be a Yahoo! skunkworks operative in due time

@balaji_dutt yes sorry about that, we had to revive our poor mail server and it took a while to get outbound mail back up

@KenBavier yes a bunch of background services are disabled so the servers don't crash. Will bring them back up ASAP

@mark_philpot heh, thanks! I'm very proud that we kept the servers up and fast today through what was basically a redirect from Yahoo

I love you guys but I also can't wait for you all to go to sleep

@thanland thanks man! it's been an interesting adventure in systems administration

@kevadamson yeah we're actually Yahoo Bookmarks with a crappy stylesheet as disguise

@kopischke thanks, I really appreciate it. Astonished we stayed up

Import queue is still about eight hours long right now

@gfmorris thanks man! luckily I am well taken care of, and this is a fun way to pull an all-nighter

@martijnvdven it's going to be a few more hours before we start crawling outside services again

@digitalbdesigns my "office" is my desk and I am eating a bleary-eyed bowl of cereal after a luxurious 90 minutes of sleep

Alright, we have got the import queue down to four hours from eight. Continuing to attack it. Thanks to everyone for being so patient!

@JimRoepcke we're not set up yet for this high volume of writes (5 million bookmarks in a day). Otherwise the server is actually doing fine

Good luck today, @zootool - I feel your pain!

Added 6.7 million bookmarks in the last 24 hours. That's more than in the entire preceding year

okay, import has caught up and things are back to normal. Thanks to everyone for their patience, and welcome

The funny thing is, our import is really pretty peppy - just not when ten thousand people try it at once

@zenom_ thanks, I appreciate it. It was a nervous 24 hours over here

@ichilton mysql is perfectly fine for the kind of write traffic we're ever likely to get. The problem was my own bad code around it

@andydavies I'll do a technical post-mortem for curious people in a few days

Now that I've gotten some sleep I feel like I can use sudo again


And the status update:

Welcome! (Pinboard Blog): As you may have seen on Twitter, the last 30 hours or so have been hectic. Our new users brought with them over seven million bookmarks, more than we had collected over the entire lifetime of the service. Traffic to the site was over a hundred times normal for the best part of a day.

My priority during this surge in traffic was to keep the site up and responsive, so that new users could take a look around without locking our grizzled veterans out of their bookmarks. This meant suspending a lot of normal background tasks like search, archiving, and polling outside feeds, so that the database could concentrate on adding bookmarks. It also meant keeping a very long import queue - at times over eight hours long - in order not to bog down the site.

Longtime users of Pinboard know how much pride Peter and I have taken in being the fastest, lightest bookmarking service around. Now that we've digested that big meal of bookmarks, I hope our new users will get to see this side of the site as well. It's amazing how peppy things can get when you're not saving 78 bookmarks per second.

With the traffic calming down, I've been able to start bringing background services back up. Tag clouds should finish generating later tonight; search will be up-to-date in about a half hour, and tomorrow morning we'll start crawling links again for our archival users. I've started the various feed crawlers and users should start seeing items from Twitter, Instapaper, Google Reader, Read It Later and Delicious appear in their feeds within a few hours as well.

In the future we'll have a status page so that users have a clearer idea of what's going on behind the scenes. And we'll make a number of changes to the signup process based on what we noticed yesterday.

If there are any remaining signup issues, bad imports, or plain old bug reports, please email us at support@pinboard.in and we'll do our best to help.

And now I'm going to sleep.

Happy bookmarking!

—maciej on December 18, 2010


Time to Think About the Stability of Web Services...

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Google may come to rule the world because it is the only web services company large enough to be able to commit to keeping all of its web services up and operating for the foreseeable future. That is a powerful competitive advantage.

John Gruber:

Daring Fireball: What’s Next for Delicious?: The actual [del.icio.us] blog is slammed, so here it is from Google’s cache:

Is Delicious being shut down? And should I be worried about my data?

No, we are not shutting down Delicious. While we have determined that there is not a strategic fit at Yahoo!, we believe there is a ideal home for Delicious outside of the company where it can be resourced to the level where it can be competitive.

What is Yahoo! going to do with Delicious?

We’re actively thinking about the future of Delicious and we believe there is a home outside the company that would make more sense for the service and our users. We’re in the process of exploring a variety of options and talking to companies right now. And we’ll share our plans with you as soon as we can.

Note that Yahoo does not dispute that the entire Delicious team has been fired, though.

What kind of sense does this make? We’d like to sell the service, find it a new home, and to help, we’ve fired the entire product team, effective immediately.


James Kwak on the "Obama Renaissance"

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From the Baseline Scenario:

The Obama Renaissance « The Baseline Scenario: President Obama is enjoying something of a political resurgence... among the commentariat. Ezra Klein points out that his approval ratings remain higher than those of his Congressional opposition, as opposed to Clinton in 1994 and Bush in 2006.... Obama is certainly in a decent position politically, and I would bet on him to be reelected comfortably in 2012. First off, his opponents in Congress are deeply irresponsible... and face a huge political problem within their own party: a significant portion of the conservative base really does want lower deficits, yet the only thing the Republican caucus knows how to do is cut taxes.... Obama is likely to face an opponent who has been pulled dangerously close to the lunatic fringe during the primary....

Bai basically parrots the Obama administration’s line: they did the tax cut deal because it was good policy, it would stimulate the economy, and they got a good deal... it’s good governance.... I think the Obama team may actually believe that, because their idea of good policy was centrist to begin with.

Did you notice that their key talking point on the tax cut issue was about not raising middle-class taxes in the middle of a recession? Well, this conveniently overlooks... that the administration wanted to make the "middle-class tax cuts" permanent.... Obama’s preferred policy — killing the tax cuts on the super-rich (over $250,000) and keeping them for the upper-middle class and the moderately rich — is... regressive... increases the pressure to cut Social Security and Medicare....

So no, I don’t think Obama is abandoning his principles for political advantage; I think these are his principles.... I’m upset at him for being wrong on the policy level.... I always thought Obama was a moderate who looked like a progressive.... [A]s Nate Silver said, “what Obama has wound up with is an unpopular, liberal sheen on a relatively centrist agenda.” What’s happening now, if his good run continues, is he is shedding the liberal sheen and getting a centrist sheen on a centrist agenda. And politically, that’s all good for him. Combine that with his obvious political skills, and the future looks bright for him.

Unfortunately, the future does not look very bright for the country. Obama was supposed to be educable--to respond to empirical evidence about how, say, the economy needs more demand right now and not for the government to "tighten its belt," and about how, say, imprisoning and torturing goatherds sold to us by their clan enemies makes us less and not more secure because they all have relatives.

My fear right now is that Obama genuinely does not understand the arithmetic of the budget--that he is willing to endorse the Simpson-Bowles 21% of GDP maximum size of the government because he does not understand that that means the repeal of both his health care reform and of Medicare...


Barkley Rosser on This Year's Winners: "Douglas Holtz-Eakin Falls Into Lunatic Panderin"g

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Barkley:

EconoSpeak: Douglas Holtz-Eakin Falls Into Lunatic Pandering: Once upon a time Douglas Holtz-Eakin was a reasonable professional economist, if of a conservative bent and clearly associated with the Republican Party.... [N]ow Douglas Holtz-Eakin has fallen into lunatic pandering, I can only guess in the hopes of becoming an adviser to Sarah Palin or some other future GOP prez nominee who is equally out to lunch on economic matters. Accounts are given on Mark Thoma at http://economistsview.typepad.com/economistsview/2010/12/words-will-never-hurt-us-or-our-cronies-if-we-dont-allow-them-to-be-used.html a few days ago and today by Paul Krugman at http://www.nytimes.com/2010/12/17/opinion/opinion/17krugman.html?_r=1.

As one of the four GOP members of the financial crisis commission he has joined with the others in voting to refuse to allow the words/phrases "Wall Street" or "shadow banking" or "interconnection" or "deregulation" to appear in its final report.... DH-E and company have absconded to issue their own report that blames it all on Fannie Mae and Freddie Mac, along with the 1977 Community Reinvestment Act. As Krugman points out, the F's did not even get into buying subprime mortgages until 2004 and other countries without them or the CRA have had worse housing bubbles than has the US. This is just fantasyland stuff that is only taken seriously by, well, Fox News and the Tea Party crowd..


Joe Nocera on the Winners of This Year's "Stupidest Economist Alive" Contest--Wallison, Hennessy, Holtz-Eakin, and Thomas

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Nocera:

Republican Financial Crisis Report Repeats Party Dogma - NYTimes.com: [T]he commission’s Republican members having now issued this public, partisan smoke signal, the final product, no matter how rigorous, will be inevitably dismissed as a Democratic document.... To fix a problem, though, it helps to know what the problem is. The F.C.I.C., with all those witnesses and documents, could have really helped here. But the paper released by the commission’s Republicans this week reads as if they couldn’t be bothered. It simply reiterates longstanding Republican dogma that could have been written without a $6 million investigation....

The problem the Republicans want to fix is the two government-sponsored entities, Fannie Mae and Freddie Mac. Without question, Fannie and Freddie need fixing.... [Wallison's] precrisis prognosis of Fannie and Freddie’s ills was wrong in a number of key ways. Like most Fannie and Freddie critics at the time, he believed the risk they posed was interest-rate risk, rather than credit risk.... He also argued that Fannie and Freddie were consistently ignoring their mission to help make affordable housing available to Americans. As he wrote in 2004, “Study after study have shown that Fannie Mae and Freddie Mac, despite full-throated claims about trillion-dollar commitments and the like, have failed to lead the private market in assisting the development and financing of affordable housing.” After the crisis, his tune changed considerably — as did that of many other Republicans, who tended to follow his intellectual lead on this issue. Now, he said, it was government policy aimed at increasing homeown....

The Republican document issued earlier this week did little more than regurgitate this theory of the case. “Subsidizing mortgages through the G.S.E.’s was a particularly expedient way to increase the homeownership rate,” they write at one point. At the same time, they tread lightly over the culpability of other nongovernmental culprits.... The only problem with Mr. Wallison’s theory is that it’s not, as they say, reality-based. Anyone who has looked at the role of Fannie and Freddie will discover they spent most of the housing bubble avoiding subprime loans, because those loans didn’t meet their underwriting standards.... When Fannie and Freddie finally did get into the business, it was very late in the game. But the motivation wasn’t pressure from the government; it was pressure from the marketplace....

What is most troubling is that the Republicans are going to try to create new policy based on Mr. Wallison’s analysis....

I’m all for reforming Fannie and Freddie. Who isn’t? But at this stage of the game, you can’t reform the G.S.E.’s without reforming the private market too. That may not be where the Republicans’ theory of the case takes them. But it happens to be true.


We Really Would Be Better Off without the Republican Party

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Yet another example of why there is something morally wrong with anybody who votes for Republican politicians.

Ezra Klein:

Republicans embrace ObamaCare, call it Ryan-Rivlin: If you're looking for a description of the Ryan/Rivlin Medicare reforms... Ryan-Rivlin plan basically turns Medicare into Obamacare. And in that context, Republicans love the idea behind ObamaCare and think it'll save lots of money.... [T]he current Medicare program is completely dissolved and replaced by a new Medicare program that "would provide a payment – based on what the average annual per-capita expenditure is in 2021 – to purchase health insurance." You'd get the health insurance from a "Medicare Exchange", and "health plans which choose to participate in the Medicare Exchange must agree to offer insurance to all Medicare beneficiaries, thereby preventing cherry picking and ensuring that Medicare’s sickest and highest cost beneficiaries receive coverage." Sound familiar?...

I don't know that accusations of hypocrisy are really worth making in American politics, but consider the way this policy and its rationale interacts with the case against ObamaCare. Right now, Medicare is much cheaper than private insurance. If you think that moving Medicare to a model of private insurance sold on exchanges will make it even cheaper, what you're saying is that an ObamaCare model will not only be cheaper than the current private-insurance system, but cheaper than the even-cheaper Medicare system. If you believe this logic, the Affordable Care Act is a great bill that will save much more money than CBO currently assumes. And yet this is the reform package that's gaining adherents among the group of people who want to repeal the Affordable Care Act and think it a monstrous and unconstitutional piece of legislation with no redeeming features worth mentioning.


Paul Krugman Sends Us to Michael Mandel's Capital Age Chart

Paul Krugman:

Build We Won't - NYTimes.com: It’s been obvious for a while that America, once the nation of heroic infrastructure, has become the place that can’t build stuff — the place whose greatest city continues to rely on a century-old tunnel under the Hudson, and can’t muster the political will to build another. What I didn’t realize is that failure to build applies to small-scale projects too. Michael Mandel says, “If things feel more decrepit and worn-out these days, it’s because they are. And he has a chart:

Build We Won_t - NYTimes.com.jpg

Time for a big long-run public infrastructure initiative...