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January 2011

The Most Emailed 'New York Times' Article Ever | The Awl

David Parker:

THE WAY WE NOW: It’s a week before the biggest day of her life, and Anna Williams is multitasking. While waiting to hear back from the Ivy League colleges she’s hoping to attend, the seventeen-year-old senior at one of Manhattan’s most exclusive private schools is doing research for a paper about organic farming in the West Bank, whipping up a batch of vegan brownies, and, like an increasing number of American teenagers, teaching her dog to use an iPad.

For the last two weeks, Anna has been spending more time than usual with José de Sousa Saramago, the Portuguese water dog she named after her favorite writer. (If José Saramago bears an uncanny resemblance to Bo Obama, the First Pet, it’s no coincidence: the two dogs are brothers. Anna’s father was an early fundraiser for Barack Obama; José Saramago was a gift from the President.)

Anna takes José Saramago’s paw in her hands and whispers in his ear. He taps the iPad and the web browser opens. José Saramago gives a little yelp.

“It’s entirely conceivable that a dog could learn simple computer functions,” says Dr. Walker Brown, the director of the Center for Canine Cognition, a research facility in Maryland. “Word processing, e-mailing, even surfing the web: for many dogs, the future is already here”...

Yet Another Reason Why Friends Don't Let Friends Support the Republican Party


Hullabaloo: Wow. I thought these people were out of touch, but this really takes the cake:

Yesterday, the Department of Health and Human Services released a new report showing that up to 129 million Americans have a pre-existing condition.... Republicans have questioned the results of the report by arguing that many Americans with pre-existing conditions already have insurance coverage, but during this afternoon’s floor debate in the House, Rep. Phil Gingrey (R-GA) took the argument one step further, belittling the ailments:

GINGREY: One hundred and twenty nine million people with pre-existing conditions! They would all have to have hang nails and fever blisters to have pre-existing conditions and if you believe those statistics, I’ve got a beach to sell you in Pennsylvania.

These pampered princes with their federal cadillac plan have absolutely no idea what it's like to try to deal with the private health insurance market. I was denied health insurance from three different companies because I had been treated for gingivitis in the previous five years. I kid you not. It took me appealing all the way to the top, with proof that the condition had been reversed, before a fourth would take me.

Not a hangnail or a fever blister, but close. They will use any excuse to exclude you, particularly if you are over a certain age. Gingrey is a privileged ass.

Austin Frakt Is Extremely Unhappy with Those Who Claim the Affordable Care Act Is a Budget-Buster

Looking at the world, it is increasingly clear that there is no hope for responsible governance in America until the Republican Party as currently constituted vanishes from the earth.

Austin Frakt:

Fuzzy math | The Incidental Economist: There have been a lot of charges and counter-charges of fuzzy math out there.... As important as defending the CBO is (and it is), it just isn’t that interesting to me. I don’t like to fight or repeat myself.

Actually, I mostly find the CBO scoring argument sad. There really is no hope for progress of any kind if we can’t even agree to abide by the budget scoring of a non-partisan office. If you don’t think that office is operating in good faith or don’t like the rules by which it operates, then that’s where the debate should be. Tell me some other way to score bills that everyone will agree to and abide by. Better, tell it to your colleagues across the aisle. Figure out the rules. AND THEN STICK BY THEM AND STOP WHINING WHEN THE BALL BOUNCES THE OTHER WAY!!!

I am not impressed with selective second guessing of the work produced by an office so established. I don’t want to hear it from Republicans. I don’t want to hear it from Democrats. I don’t want to hear it from the Tea Party. If my own mother said such things I’d have some firm words with her (respectfully, kindly, but firm). And I love my mother!

Like Jon Cohn, I may sound upset. I am, but only because I care. I don’t want to be upset by one party or the other. I don’t enjoy it. I don’t get a rush. It’s not why I pay attention to politics. I would love nothing better than to see everyone settle down and get to work–good faith, honest, hard work–addressing the problems of this nation, including health care coverage, cost, and quality. I don’t expect we’ll agree on solutions or even what the problems are. But I damn well expect we’ll honor the outcomes of the process we’ve agreed to follow. If we can’t do that, we don’t have a government. We have a bunch of children. I don’t put my children in charge of anything nearly as important as the nation’s health care system. Nor should you.

One more thing, Cohn wrote, “This relentless effort to discredit the Affordable Care Act’s budgeting has been the equivalent of a full employment for folks like Austin, Ezra, and me. For that, I guess, I’m grateful.”

I’m not. It may keep me preoccupied, but I don’t get paid for this. I do it because I care. I want people to understand. I want to be part of the solution. I do love this country, almost as much as my own mother. For country and mom, I pledge not to bash the CBO or to second guess their estimates. Care to join me?

And Jon Chait is if anything even more unhappy:

Charles Krauthammer Laughs At Arithmetic: Charles Krauthammer writes:

Suppose someone - say, the president of United States - proposed the following: We are drowning in debt. More than $14 trillion right now. I've got a great idea for deficit reduction. It will yield a savings of $230 billion over the next 10 years: We increase spending by $540 billion while we increase taxes by $770 billion. He'd be laughed out of town.

Uh... why? As I noted the other day, "Conservatives think the notion that a piece of legislation can spend some money to cover the uninsured, while simultaneously cutting spending and raising taxes by some greater sum,  so that the overall bill reduces the deficit, is conceptually absurd." It would literally be impossible to craft a bill that provided for universal coverage and also reduced the deficit and have Republicans accept its accounting as valid.

Krauthammer holds this belief so strongly that he presents a straightforward arithmetic property -- $770 billion in revenues minus $540 billion in spending equals $230 billion in lower deficits -- as not just wrong but hilariously wrong: Why, they're increasing spending while increases taxes more, while claiming this will reduce the deficit! The morans!

Indeed, Krauthammer deems the "$770 billion > $540 billion" scoring method so self-evidently silly he doesn't even bother to refute it. The paragraph I quoted is all the refutation he deems necessary.

Now, increasing spending by $540 billion and increasing taxes by $770 billion is a ridiculous way to reduce the size of government. But, despite Republican efforts to conflate the two, the size of government is not the same thing as the debt, as even Milton Friedman recognized.

So Krauthammer, convinced that $540 billion is clearly larger than $770 billion, proceeds to recycle some familiar Republican talking points attempting to cast doubt on the CBO score. His shining example is the endlessly repeated saw that the law combines six years of benefits with ten years of revenue in order to appear revenue-neutral:

Most glaringly, the entitlement it creates - government-subsidized health insurance for 32 million Americans - doesn't kick in until 2014. That was deliberately designed so any projection for this decade would cover only six years of expenditures - while that same 10-year projection would capture 10 years of revenue. With 10 years of money inflow vs. six years of outflow, the result is a positive - i.e., deficit-reducing - number. Surprise.

That would be bad if true. But it's not.... The benefits phase in slowly as do the revenues. Krauthammer's six years of benefits/ten years of revenue canard would mean that, once fully phased in, the costs dramatically exceed the revenue. That isn't the case. The law's effect deficit-reduction effect increases over the last ten years.

Health care analysts have pointed this out over and over. Yet conservatives like Krauthammer keep repeating these debunked claims. Either Krauthammer lives so deep within the right's misinformation feedback loop that he has never heard any refutation of his false claims, or else he simply doesn't care what's true.

Anyway, Krauthammer frames his entire column as a plea for concern with the deficit. If this were truly his concern, as Austin Frakt points out, why don't Republicans propose to repeal just the coverage expansions in the PPACA, and keep all the cost savings? Or even just some of them? if they refuse to violate their religious opposition to tax hikes, they could just keep in place the Medicare cuts and repeal the coverage expansions. that would undeniably shrink the deficit, and the size of government. But they won't even consider that. The bad faith at work here is just staggering.

The Microfoundations of Condensed Matter Physics Was a Doomed Research Program Until the 1920s

Cosma Shalizi:

Must Macroeconomic Theories Have Microfoundations?: Macroeconomic theories which do not derive such phenomena from microscopic interactions are thus incomplete, and intellectually unsatisfying.... So: the true and complete theory of macroeconomics must emerge from the true and complete theory of microeconomics.... [But if] a good macro-level theory cannot be founded on our current micro-level theory, this could be due to:

  • (a) defects or weaknesses in our techniques for calculating aggregate consequences of micro-level interactions;
  • (b) specifying the wrong sort of initial/boundary conditions, or interaction structures, in the microscopic models;
  • (c) errors in our understanding of micro-level interactions and dynamics;
  • (d) errors in our formulation of the macro-level theory.

There will certainly be some situations where (d) is right.... But it is hard for me to see why (d) should always be the preferred option in economics... it seems mere prejudice that it should always be macro which adjusts....

[C]irca 1900 classical mechanics and electromagnetism were extremely well-confirmed theories, in much better shape that microeconomics is. Nonetheless, any attempt to explain condensed matter physics on that basis, starting from molecular interactions, was doomed...

See "ultraviolet catastrophe."

A Message from Former Senator Bill Frist (R-TN)

Bill Frist on the Affordable Care Act:

Bill Frist: Health Care Is 'Law Of The Land,' GOP Should Drop Repeal And Build On It: It is not the bill that [Republicans] would have written. It is not the bill that I would have drafted. But it is the law of the land and it is the platform, the fundamental platform, upon which all future efforts to make that system better, for that patient, for that family, will be based. And that is a fact. I know the discussion of Washington is repeal and I'm sure we will come back to that discussion.... [The bill] has many strong elements. AAnd those elements, whatever happens, need to be preserved, need to be cuddled, need to be snuggled, need to be promoted and need to be implemented. But how do you do it? How do you do a lot of what is in this law?

An Anemic and Unhealthy Union Movement

Here is one that the Republicans have won over the past fifty years.

The BlS reports:

Union Members Summary: In 2010, the union membership rate--the percent of wage and salary workers who were members of a union--was 11.9 percent, down from 12.3 percent a year earlier, the U.S. Bureau of Labor Statistics reported today. The number of wage and salary workers be- longing to unions declined by 612,000 to 14.7 million. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 per- cent....

The union membership rate for public sector workers (36.2 percent) was substantially higher than the rate for private sector workers (6.9 percent).... In 2010, 7.6 million public sector employees belonged to a union, compared with 7.1 million union workers in the private sector.

A union movement that is predominantly a public-employees movement is not, I think, sustainable in America.

How Large Would Our Construction Industry Be If We Were at Full Employment Right Now?

TheMoneyIllusion » America’s housing shortage.png

Quite large, I think. Scott Sumner agrees, and presents the argument:

TheMoneyIllusion » America’s housing shortage: Housing construction normally seems to fluctuate between one and two million units. Let’s take 1.5 million as roughly the trend rate which keeps up with population. Yes, it’s true that we exceeded that number every single year from 2002 to 2006, and the total excess production was about 1.87 million units. That’s a lot. But over the next four years there was a shortfall of about 2.6 million units. So why do we seem to have a hugely excessive number of homes, if we are actually 730,000 short?....

The year 2008 was the first year below a million since my records began in 1978 (and probably much earlier.)  That’s clearly below any reasonable estimate of normal absorption.  Then in 2009 and 2010 we were down close to a half million units, a mind-boggling low rate of construction.  Vacancies should be plunging under any reasonable estimate of market absorption.  But guess what: over the past three years there has been no decline in housing vacancies... vacancies have leveled off since March 2008 at just under 19 million units, up from 16 million in early 2006.

Given ultra-low construction and US population growth of about 3 million/year, there is only one explanation for that pattern.  Astoundingly low demand for housing.  Do young people actually enjoy living with their parents, or might America be experiencing an aggregate demand shortfall? 

Another reason we need more NGDP.

This was spurred by a Chicago alumni magazine article that made the following claim:

Economic recovery will be slow, [Erik] Hurst says, because the massive misallocation of resources that the housing boom created cannot be quickly remedied. During the ten years after 1997, he said, 40 percent more housing was constructed in the United States than in any decade on record. Today 2.3 percent of single-family homes are vacant, an increase of more than 64 percent since 2005.

The housing oversupply, in turn, has contributed significantly to high unemployment. As the construction industry boomed, much of the American workforce shifted to housing-related industries, on both the construction and banking sides. Now, of 3 million open jobs in the United States, only 65,000 are in housing-related fields, Hurst said. Thus, many unemployed workers are qualified for jobs that are no longer available—jobs, he predicts, that won’t come back.

This is completely inaccurate.... [H]ousing construction in 1998-2007 was only 8.4% above the levels of 1978-87.  And it was much lower in per capita terms.  The 2.3 million single family homes that are vacant are probably little changed from a few years ago, whereas the number should be plunging with low construction. There is no reason construction jobs shouldn’t come back, unless we shoot ourselves in the foot....

If all you knew was the housing construction data from the noughties, you’d expect another 1.5 million homes a year to be built in the teens, just like other decades.  I’m not saying that will happen. Indeed I think it won’t happen. But if it doesn’t there will only be two possible explanations; a crackdown on immigration or a prolonged NGDP deficiency (perhaps combined with supply-side problems with the labor market.)  It won’t be because we built too many houses in the 2000s.  We didn’t.

The Question of What Americans Want Fiscal Policy to Be Has Been Answered...

When you ask Americans if they want to cut projected growth in Medicare, Social Security, and Medicaid spending in order to avoid tax increases, they say "no." When you ask Americans if they want to cut defense and foreign aid spending to avoid tax increases, they say "yes." When you ask Americans if they want to cut spending to avoid tax increases, they say "yes"--but that is because they are confused about how much of the government budget is defense and foreign aid as opposed to Medicare, Medicaid, and Seocial Security.

Thus I think that Doug Elmendorf is wrong when he says and David Leonhardt is wrong when he endorses the claim that:

The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.

You can create the appearance of such a disconnect, but only if you ask questions while working carefully to avoid telling the voters just what their taxes are going to be spent on.

David Leonhardt:

The Deficit We Want: It’s a comforting story, to be sure. It holds the promise of a painless solution, because it suggests that the country’s huge looming deficits are not really our fault. Instead, they seem to stem from weak-willed politicians, wasteful government programs that do not benefit us and tax avoidance by people we have never met. In truth, the coming deficits are a result, above all, of the fact that most Americans are scheduled to receive far more in Medicare benefits than they have paid in Medicare taxes. Conservative and liberal economists agree on this point. After Medicare on the list of big, growing budget items come Social Security and the military. The three programs are roughly as popular as tax increases are unpopular – which is precisely why solving the deficit problem will be so difficult.

The new Times/CBS News poll highlights the problem... when given a straight-up choice between broad spending cuts and tax increases, Americans say they would prefer to reduce the deficit mostly through less spending.... [but] would people rather eliminate Medicare’s shortfall through reduced Medicare benefits or higher taxes? The percentages then switch, becoming nearly a mirror image of what they had been. Some 64 percent of respondents preferred tax increases, while 24 percent chose Medicare cuts. The same is true of Social Security: 63 percent for higher taxes, 25 percent for reduced benefits.

Herein lies the political problem. We want to cut spending. We just don’t want to cut the benefits that the spending pays for. “The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans,” Doug Elmendorf, the director of the Congressional Budget Office, has said, “and the tax revenues that people are willing to send to the government to finance those services.”...

The crucial question today is, simply: Would you rather have your taxes increased or your Medicare and Social Security benefits reduced? “All of the above” is a reasonable answer. “None of the above” is not.

If there any politicians who can get us to accept this reality, they haven’t done so yet.

Hoisted from Comments: Thinking About Aristotle of Stagira and Moses Finley

Scott Martens writes:

Hoisted from the Archives: Thinking About Aristotle of Stagira and Moses Finley: You have to see this in the light of the rest of Aristotle. Consider his notion of science -- under the label "episteme" -- what he considers the highest form of human knowledge:

The nature of Scientific Knowledge (employing the term in its exact sense and disregarding its analogous uses) may be made clear as follows. We all conceive that a thing which we know scientifically cannot vary; when a thing that can vary is beyond the range of our observation, we do not know whether it exists or not. An object of Scientific Knowledge, therefore, exists of necessity. It is therefore eternal, for everything existing of absolute necessity is eternal; and what is eternal does not come into existence or perish.

His idea of science is totally non-empirical. It consists solely of principles of logic and mathematics, and not even all of those. The dirty business of thinking about things that actually are is relegated at best to second class human knowledge: tekhne, or perhaps phronesis or sophia -- art of making things and strategies for doing things, or sometimes simply good ideas; and at worst to mere doxa or to enthymemes - hardly more than rank prejudice and rules of thumb. He does not deem it appropriate for a seeker of truth to dwell much on the dirty business of real stuff.

This attitude comes through just as strongly from Plato and his whole theology of Forms. It's a major player in Hellenic thought. It figures strongly in Christianity as the rejection of "worldly things." You can see it in the Physiocrats who saw industry and commerce as parasitic on agriculture and government. It has parallels in China with its historical love-hate relationship with trade and commerce.

There ain't much more worldly than the pursuit of survival through labour and wealth through trade.

Department of "Huh?!" (Long Run Fiscal Outlook §9001 of the Affordable Care Act Department)

People who disagree with the CBO score of the ACA rarely, rarely say why they disagree with the CBO score.

For example, Clive Crook:

Is Health Care Reform Fiscal Reform?: The [Affordable Care Act] might reduce the deficit, and restrain health costs more broadly too, if it really did spur innovations of the kind described in Atal Gawande's latest fine piece for the New Yorker--and if these ideas were widely taken up, and if every other good thing the act envisages comes to pass. My own guess is that it will take improbably zealous execution, constant vigilance, and further legislation too for this rosy scenario to come true, and I rate the chances of all that working out pretty low. Also bear in mind, since the plan will be amended in Congress and revised administratively every which way, and since the counterfactual of no ACA will be unavailable, we might never know whether ACA in the form just passed would have been deficit-reducing or deficit-increasing. It's guesswork now, and probably always will be. As I say, my own guess would be deficit-increasing--and, if taxpayers are unlucky, very much so...

Journal of Accountancy:

Tax Provisions in the Health Care Act: New IRC § 4980I imposes an excise tax on insurers if the aggregate value of employer-sponsored health insurance coverage for an employee (including, for purposes of the provision, any former employee, surviving spouse and any other primary insured individual) exceeds a threshold amount. The tax is equal to 40% of the aggregate value that exceeds the threshold amount. For 2018, the threshold amount is $10,200 for individual coverage and $27,500 for family coverage, multiplied by the health cost adjustment percentage (as defined in the act) and increased by the age and gender adjusted excess premium amount (as defined in the act). The provision is effective for tax years beginning after Dec. 31, 2017...


(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code of 1986, as amended by section 1513, is amended by adding at the end the following:


(a) IMPOSITION OF TAX.—If— ‘‘(1) an employee is covered under any applicable employer-sponsored coverage of an employer at any time during a taxable period, and

(2) there is any excess benefit with respect to the coverage, there is hereby imposed a tax equal to 40 percent of the excess benefit....

(C) APPLICABLE DOLLAR LIMIT.—Except as provided in subparagraph (D)—(i) 2013.—In the case of 2013, the dollar limit under this subparagraph is—(I) in the case of an employee with self-only coverage, $8,500, and (II) in the case of an employee with coverage other than self-only coverage, $23,000....(iii) SUBSEQUENT YEARS.—In the case of any calendar year after 2013, each of the dollar amounts under clauses (i) and (ii) shall be increased... by an amount equal to the product of—(I) such amount as so in effect, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for such year... increased by 1 percentage point...

To translate this back into English: It imposes is a 40% tax on the high-cost component of the value of any health insurance plan, with the threshold of "high cost" growing by the rate of CPI inflation plus 1% per year thereafter.

Either health-care costs do not grow faster than GDP in the future, or they do.

If health-care costs do not grow faster than GDP in the future, then we don't have a long-run fiscal deficit problem at all.

If health-care costs do grow faster than GDP in the future, then family insurance costs will rapidly breach the $23K-in-2013-plus-inflation-plus-1%-per-year, and we will be imposing a 40% tax on a larger and larger proportion of health insurance payments. That tax will raise a lot of revenue in the 2020s, remarkable amounts of revenue in the 2030s, and unbelievably large amounts of revenue in the 2040s and the 2050s. And these revenue increases overwhelm the extra spending to cover the 30-plus million uninsured that the bill will cover.

Future congress may well repeal or suspend the operation of or cut back on Section 9001.

But if and when they do, it is their actions that increase the long-run deficit--not the ACA.

To say that the ACA might bust the budget--rather than that future congresses may amend the ACA to bust the budget--is simply wrong.

This isn't rocket science, people. §9001 is not a secret, people.

Context: CBO to Rep. Paul Ryan, March 19, 2010:

You also asked about the effects on the federal budget beyond the 2010–2019 period of enacting the reconciliation proposal (the amendment to H.R. 4872) and the Senate-passed health bill (H.R. 3590) if several provisions were altered, either now or at some point in the future. In particular, you asked about the effects if:

  • the [§9001] excise tax on insurance plans with relatively high premiums—which would take effect in 2018 and for which the thresholds would be indexed at a lower rate beginning in 2020—was never implemented;

  • the annual indexing provisions for premium subsidies offered through the insurance exchanges continued in the same way after 2018 as before—in contrast with the arrangements under the reconciliation proposal, which would slow the growth of subsidies after 2019;

  • the adjustment to payment rates for physicians under Medicare contained in H.R. 3961 and described above was included; and

  • the Independent Payment Advisory Board—which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program’s spending, and whose recommendations would go into effect automatically unless blocked by subsequent legislative action—was never implemented.

A detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful over a longer horizon because the uncertainties involved are simply too great. Among other factors, a wide range of changes could occur—in people’s health, in the sources and extent of their insurance coverage, and in the delivery of medical care (such as advances in medical research, technological developments, and changes in physicians’ practice patterns) —that are likely to be significant but are very difficult to predict, both under current law and under any proposal.

CBO has therefore developed a rough outlook for the decade following the 10- year budget window. Under the analytic approach described in the agency’s previous letters, the combined effect of enacting H.R. 3590 and the reconciliation proposal would be to reduce federal budget deficits over the decade beyond 2019 relative to those projected under current law—with a total effect during that decade in a broad range around one-half percent of gross domestic product (GDP). If the changes described above were made to the legislation, CBO would expect that federal budget deficits during the decade beyond 2019 would increase relative to those projected under current law—with a total effect during that decade in a broad range around one-quarter percent of GDP.

Yosuke Matsuoka Liveblogs World War II: January 21, 1941

The Foreign Minister of Japan speaks:

ADDRESS DELIVERED BEFORE THE 76TH SESSION OF THE IMPERIAL DIET: The Three Power Pact stipulates that Germany and Italy recognize and respect the leadership of Japan in the establishment of a new order in greater East Asia. It is our avowed purpose to bring all the peoples in greater East Asia to revert to their innate and proper aspect, promoting conciliation and co-operation among them, and thereby setting the example of universal concord. The Pact also provides that Japan recognizes and respects the leadership of Germany and Italy in their similar endeavours in Europe. Far from antagonizing any country, the Pact is the embodiment of a peaceful....

Of the nations in greater East Asia, Manchoukuo has special and inseparable relations with this country. As you are aware, during the ten years which have already elapsed since her emergence as an independent nation, her national foundations have become strong and secure while her international position has been greatly enhanced, her teeming millions ever enjoying an increasing measure of prosperity. In June, last year, the Emperor of Manchoukuo paid a visit to Japan to offer his felicitations personally to our Imperial House on the auspicious occasion of the 2,600th anniversary of the foundation of our Empire. This is a Source of genuine congratulation for the peoples of Japan and Manchoukuo....

Inasmuch as an early settlement of the China Affair is desirable in the interests of the creation of this sphere of common prosperity throughout greater East Asia, the present Government ever since its formation, has urged the Chiang Kai-shek regime to reconsider and reverse its attitude, with a view of bringing about its amalgamation with the Nanking Government, but it remains still struggling against Japan. The Chiang regime, however, is riddled with internal disruption and friction which are rapidly growing acute, while the masses under its control are suffering from high prices, a dearth of commodities and other severe tribulations.... [T]he Chinese communist troops have greatly gained in influence, with the result that they are steadily encroaching upon the sphere of influence of the Chungking armies....

Great Britain recently granted the Chiang regime a ten million pound sterling loan, while about the same time the United States, too, offered a loan of one hundred million dollars. The latter country is now endeavouring to extend assistance to Great Britain on a large scale by mobilizing her entire resources, while the Burma route is being seriously and successively damaged by appropriate measures taken by our loyal and gallant air forces. It seems highly problematical, therefore, what assistance Great Britain and the United States can actually afford the Chiang regime. In the light of such an international situation, the Japanese Government, in pursuance of their fixed policy, recognized the National Government at Nanking and on November 30 of last year concluded with the latter the Sino-Japanese Basic Treaty. This treaty embodies the three basic principles of good neighbourliness, economic co-operation and joint defence against communist activities. It stipulates that both Japan and China respect each other's sovereignty and territorial integrity, and undertake close economic co-operation on the basis of equality and reciprocity, and that Japanese forces be stationed in certain specified areas in Mengchiang and North China....

Let me now make a brief survey of our relations with the Netherlands East Indies, French Indo-China, and Thailand, which lie within the above-mentioned sphere of common prosperity. The Netherlands East Indies and French Indo-China, if only for geographical reasons, should be in intimate and inseparable relationship with our country. Therefore, the situation which has hitherto thwarted the development of this natural relationship must be thoroughly remedied, and relations of good neighbourliness secured for the promotion of mutual prosperity....

I should like to refer to the relations between our country and Thailand. It may be recalled that at the General Assembly of the League of Nations dealing with the Manchurian Affair, in 1933, the Thai delegate did not leave the Assembly hall but remained in his seat, and boldly announced his abstention from voting. This is still fresh in the memory of our people.

In June, last year, a Treaty of Amity and Neutrality was concluded by Japan with Thailand. With the exchange of ratifications, completed on December 23 at Bangkok, the bonds of friendship between the two countries have been drawn still closer....

An exchange of diplomatic representatives has taken place between Japan and Australia. We expect that the two countries will make contributions toward the promotion of the peace of the Pacific by further advancing their friendly relations through cordial co-operation and the elimination of unnecessary misunderstandings....

In establishing a sphere of common prosperity in greater East Asia, and ensuring the peace of the Orient, it is not desirable that the present diplomatic relations between Japan and the Soviet Union should be left as they are. The utmost efforts are being made, therefore, to remove mutual misunderstandings and, if possible, to bring about a fundamental and far-reaching adjustment of diplomatic relations. We are pursuing negotiations at this moment upon such questions as the frontier demarcation between Manchoukuo and Outer Mongolia, the fisheries and the Japanese concessions in North Saghalien....

I should like to refer to our relations with the United States. The United States has evinced no adequate understanding of the fact that the establishment of a sphere of common prosperity throughout greater East Asia is truly a matter of vital concern to Japan. She apparently entertains an idea that her own first line of national defence lies along the mid-Atlantic to the East, but westward not only along the eastern Pacific-but even as far as China and the South Seas. If the United States assumes such an attitude, it would be, to say the least, a very one-sided contention on her part, to cast reflections on our superiority in the Western Pacific, by suggesting that it betokens ambitious designs. I, for one, believe that such a position assumed on the part of the United States would not be calculated to contribute toward the promotion of world peace. Speaking frankly, I should extremely regret such an attitude of the United States for the sake of Japanese-American friendship, for the sake of peace in the Pacific and, also, for the sake of the peace of the world in general. It is my earnest hope that a great nation exerting the influence that the United States does will realize her responsibility for the maintenance of peace, will reflect deeply on her attitude with truly God-fearing piety, will courageously liquidate past circumstances and bend her utmost efforts to allay the impending crisis of civilization....

With an unbroken line of Emperors reigning since its foundation, our Empire constitutes a unique family-State unparalleled in the world for unity and solidarity, which grow stronger with every national emergency. It is reassuring, moreover, to observe that the Japanese Empire is endowed with most favourable geographical conditions, powerful enough to influence the course of world politics. Establishment of the new world order, the goal of the Three Power Pact, if only time be given, will surely be accomplished. There is no room for doubt that it will be crowned with brilliant success. If the Japanese people are fully and firmly prepared for this task, the future of our Empire will indeed be great and glorious.

In concluding my address, I respectfully pay my tribute to the spirits of those loyal and valiant officers and men, our countrymen, who have fallen in action, and at the same time, I tender my warm thanks to the armed forces of our nation for enduring so many hardships and privations, devoting to them my most sincere wishes for every success in the field.

The Labour Party Regains Sanity on Economic Policy

George Parker: Balls appointed shadow chancellor: Ed Miliband has been forced to share control over Labour economic policy with his leadership rival Ed Balls, after the resignation on Thursday evening of shadow chancellor Alan Johnson for “personal and family reasons”.

Mr Miliband was determined to keep Mr Balls’ hands off economic policy when he became Labour leader last September, promoting the self-proclaimed economic novice Mr Johnson to the post instead.

When Mr Johnson told Mr Miliband of his intention to resign on Monday, the Labour leader pleaded with him to stay in the job. Amid Westminster speculation that his marriage is in trouble, Mr Johnson said it was impossible for him to continue. Mr Miliband’s aides said the resignation had nothing to do with Mr Johnson’s numerous slip-ups during his short time as Labour’s economics spokesman. “We were very happy with his performance,” said one.

The Labour leader was left with little choice but to appoint Mr Balls in recognition that the combative former cabinet minister is arguably the party’s most effective opposition politician and sharpest economic mind.

Mr Miliband’s aides say he did not offer the job to his brother David, who has been waiting in the wilderness. The only other obvious candidate was Yvette Cooper, another economist, who is married to Mr Balls.

On a night of high drama at Westminster, Mr Miliband put on a brave face: “Ed Balls is an outstanding economist and is hugely qualified to take our economic message to the country.”

The smoothly executed reshuffle also saw Ms Cooper replace her husband in the home affairs brief, with Douglas Alexander succeeding her as shadow foreign secretary.

Mr Balls’ elevation is a huge gamble for Mr Miliband, who will have to share economic policymaking with a man certain in his opinions and intimately associated with Gordon Brown’s 13-year stewardship of the British economy. “It beggars belief that Ed Balls has been appointed as shadow chancellor – the man responsible for the economic mess we inherited,” said Michael Fallon, deputy Conservative chairman.

George Osborne, chancellor, was said to be delighted, but has previously told colleagues Mr Balls would be a tough opponent: “He will be down my throat 24 hours a day.”

Mr Miliband feared last year that Mr Balls could leave Labour open to accusations of being “deficit deniers” because of his refusal to discuss detailed spending cuts and insistence that growth should be put before deficit cutting. In government Mr Balls opposed a VAT hike to cut the deficit – preferring a rise in national insurance – and in July 2010 he claimed that Labour’s plan to halve the deficit in four years was “a mistake” and not deliverable...

Why Might There Be High Unemployment?

Mark Thoma sends us to Nick Rowe, who has a taxonomy:

Worthwhile Canadian Initiative: Three ZMPs and two Co-ordination failures: "ZMP"... should really stand for "Zero Value Marginal Product". Can an additional worker produce no additional goods of any value? Is that why they are unemployed? Yes, but...

There are three types of ZMP....

ZMP1. No coordination failure: It is possible that some potential workers, perhaps because of severe disabilities, simply cannot produce anything useful, even in a perfectly functioning economy. Even the mythical central planner, who could allocate resources perfectly, wouldn't be able to think of anything useful they could work at, and would leave them idle. They have a Zero Value Marginal Product. There's no coordination failure. The problem simply can't be solved, given existing technology, tastes, and resources. Nobody (I think) is talking about ZMP1.

ZMP2. Coordination failure 1:... The unemployed plumber wants his house re-wired. The unemployed electrician wants his pipes replaced. But the plumber doesn't know that there's an electrician in town; and the electrician doesn't know that there's a plumber in town. Given the current state of knowledge, both workers have Zero Value Marginal Product. Nobody is willing to pay for their labour. They would be willing to pay, if they knew of each other's existence, but they don't. The mythical central planner, who knows everything that anybody knows, would sort this one out immediately. All he has to do is introduce the plumber and the electrician, and both jobs are done.... There's an excess supply of plumbers' and electricians' services, and an excess demand for plumbers' and electricians' services, all at the same time. Both want to sell more of their own labour, and buy more of the other's labour.

ZMP3. Coordination failure 2: The unemployed hairdresser wants her nails done. The unemployed manicurist wants a massage. The unemployed masseuse wants a haircut. The hairdresser knows where the manicurist can be found. The manicurist knows where the masseuse can be found. The masseuse knows where the hairdresser can be found. But all three women are short of money, and won't spend any until after she earns some. Given the unwillingness of each to spend money, each of the three has a Zero Value Marginal Product. Nobody is willing to pay for their labour. This one's a bit trickier for the mythical central planner to solve. Introductions alone won't do the trick. Each woman already knows where to find the service she wants. That's not the problem.

The central planner could simply order them all to provide the desired service, for no cash. That would make all three women better off. But if the central planner is mythical, and can only give mythical orders, that won't work. He could try to get all three women together, and try for a three-way barter deal. But it's hard to cut someone's hair while your customer is giving a massage and you are having a manicure. Who's going to go first, and how will she know the other two won't break the chain?

The easiest solution is for the central planner to print more money and give each of the three women enough so they buy what they want.

ZMP3 is what the rest of us Monetarists and Keynesians (quasi or otherwise) are talking about.

There's an excess supply of each woman's labour. Each one wants to sell her labour and can't. In one sense (in Robert Clower's sense) there's also an excess notional demand for each woman's labour, because each woman would like to buy labour from one of the others. But she would only actually buy it if she could sell her own labour, and she can't. So there's no excess constrained or effective demand for labour.

I think Nick is wrong. I think a great many people are talking about ZVMP1--that, at least, is what I take people like Niall Ferguson and Tyler Cowen and Tom Sargent to be talking about. They think, I think, that our excess unemployed since 2007 are overwhelmingly made up of people whom (i) it costs more to supervise than the value of what they could produce, or (ii) the value of what they could produce is less than the minimum wage, or (iii) the value of what they could produce is less than the UI benefits they are collecting.

There is the question of why people back in 2007 had no trouble employing these 8 million ZVMP1 workers. The answer proposed, I think, is that back then people thought that they had a high marginal product working in construction because people overestimated the value of newly-built houses. I don't think it holds together, but that is what they are saying, I think.

Ezra Klein Examines the Wonk Gap

Mark Thoma sends us to Ezra Klein, who writes:

Ezra Klein - Greg Mankiw's thinking cap: There's an interesting mixture of callousness and accidental truth lurking within Greg Mankiw's satirical proposal to reduce the budget deficit:

The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases.... [G]iving me that $1 billion will reduce the budget deficit by $2 billion. Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Like health-care reform, Greg Mankiw's plan really would reduce the budget deficit. That's been contested, so I'm glad to see Mankiw admit it. But Mankiw's broader point is that... he is analogizing giving Greg Mankiw a billion-dollar check to giving health-care insurance to 32 million people who, in the vast majority of cases, can't get it themselves.

That's easy for him to say, I think, given that Harvard University offers insurance to its employees. They do that because their employees... don't think of insurance as an absurd extravagance or a billion-dollar check from the sky. They think of it as something much more like a necessity, something that their workers wouldn't be willing to go without.... [T]here's a real callousness to this post.

Now for the accidental truth: Mankiw's analytical claim is that it's somehow peculiar to believe a bill reduces the deficit because it raises more money than it spends. After all, the spending doesn't reduce the deficit. His apparent belief that the "revenues and spending cuts" side of legislation has nothing to do with the "new spending or tax cuts" side helps explain why he joined the Bush administration's Council of Economic Advisers in May 2003, the same month that the Bush administration's second set of unpaid-for tax cuts was passing through Congress, and a few months before the Bush administration's completely unpaid-for Medicare Prescription Drug Benefit was signed into law.

That record -- and Mankiw's apparent belief that the subsidizing insurance is akin to an extravagant giveaway to the rich -- offers a telling contrast to the policy thinking Mankiw is criticizing here, which as he admits, actually reduces the deficit, and though he doesn't mention this, does so while mostly ending the days when Americans would find themselves involuntarily uninsured. It's another example of the tendency that the Affordable Care Act's critics have to omit the uninsured from the discussion and develop a new and inconsistent definition of fiscal responsibility when doing so would aid an attack on the bill.

Paul Krugman: The Road to Economic Crisis Is Paved With Euros


The Road to Economic Crisis Is Paved With Euros: the classic argument for flexible exchange rates was made by none other than Milton Friedman.... [T]here are obviously benefits from a currency union. It’s just that there’s a downside, too: by giving up its own currency, a country also gives up economic flexibility. Imagine that you’re a country that... recently saw wages and prices driven up by a housing boom, which then went bust. Now you need to get those costs back down. But getting wages and prices to fall is tough: nobody wants to be the first to take a pay cut.... If you still have your own currency, however, you wouldn’t have to go through the protracted pain of cutting wages: you could just devalue your currency — reduce its value in terms of other currencies — and you would effect a de facto wage cut.

Won’t workers reject de facto wage cuts via devaluation just as much as explicit cuts in their paychecks? Historical experience says no....

Why the difference? Back in 1953, Milton Friedman offered an analogy: daylight saving time. It makes a lot of sense for businesses to open later during the winter months, yet it’s hard for any individual business to change its hours: if you operate from 10 to 6 when everyone else is operating 9 to 5, you’ll be out of sync. By requiring that everyone shift clocks back in the fall and forward in the spring, daylight saving time obviates this coordination problem. Similarly, Friedman argued, adjusting your currency’s value solves the coordination problem when wages and prices are out of line, sidestepping the unwillingness of workers to be the first to take pay cuts.

So while there are benefits of a common currency, there are also important potential advantages to keeping your own currency. And the terms of this trade-off depend on underlying conditions....

Climate, scenery and history aside, the nation of Ireland and the state of Nevada have much in common. Both are small economies of a few million people highly dependent on selling goods and services to their neighbors. (Nevada’s neighbors are other U.S. states, Ireland’s other European nations, but the economic implications are much the same.) Both were boom economies for most of the past decade. Both had huge housing bubbles, which burst painfully. Both are now suffering roughly 14 percent unemployment. And both are members of larger currency unions: Ireland is part of the euro zone, Nevada part of the dollar zone, otherwise known as the United States of America.

But Nevada’s situation is much less desperate than Ireland’s.

First of all, the fiscal side of the crisis is less serious in Nevada... much of the spending Nevada residents depend on comes from federal, not state, programs.... Nevada, unlike Ireland, doesn’t have to worry about the cost of bank bailouts, not because the state has avoided large loan losses but because those losses, for the most part, aren’t Nevada’s problem. Thus Nevada accounts for a disproportionate share of the losses incurred by Fannie Mae and Freddie Mac, the government-sponsored mortgage companies — losses that, like Social Security and Medicare payments, will be covered by Washington, not Carson City. And there’s one more advantage to being a U.S. state: it’s likely that Nevada’s unemployment problem will be greatly alleviated over the next few years by out-migration.... Over all, then, even as both Ireland and Nevada have been especially hard-luck cases within their respective currency zones, Nevada’s medium-term prospects look much better.

What does this have to do with the case for or against the euro? Well, when the single European currency was first proposed, an obvious question was whether it would work as well as the dollar does here in America. And the answer, clearly, was no.... U.S.-based economists had long emphasized the importance of certain preconditions for currency union.... Robert Mundell of Columbia stressed the importance of labor mobility, while Peter Kenen, my colleague at Princeton, emphasized the importance of fiscal integration....

These observations aren’t new: everything I’ve just said was well known by 1992, when the Maastricht Treaty set the euro project in motion. So why did the project proceed? Because the idea of the euro had gripped the imagination of European elites. Except in Britain, where Gordon Brown persuaded Tony Blair not to join, political leaders throughout Europe were caught up in the romance of the project, to such an extent that anyone who expressed skepticism was considered outside the mainstream.

DeLong Smackdown Watch: Things I Used to Believe Edition

Duncan Black:

Eschaton: I certainly didn't believe in #s 1 [that the highly leveraged banks had control over their risks], 3 [that fiscal policy no longer had a legitimate countercyclical role to play], or 5 [that economists had an effective consensus on macroeconomic policy: the government should] intervene strategically in asset markets to stabilize the growth path of nominal GDP], though I probably thought them to be more true than I do now. I didn't believe 2 [that the Federal Reserve had the power and the will to stabilize the growth path of nominal GDP] completely, but close enough. I did believe in 4 [that no advanced country government with as frayed a safety net as America would tolerate 10% unemployment]. Oh well.

Wonkette: WaPo Newsroom Upset Because Black Lady With B---s Hosts WaPo Webcast

Ken Layne:

WaPo Newsroom Upset Because Black Lady With B---s Hosts WaPo Webcast: America’s strangest joke of a newspaper is the Washington Post, an Onion-style bland suburban daily that seems to shrink deeper into itself each morning. With a news section full of utterly random paragraph-sized chunks from yesterday’s and a bizarre op-ed section featuring press releases submitted by the offices of politicians and the confused yammerings of senile embarrassments like Richard Cohen, the paper appears to be nothing less than an elaborate satire of Washington’s dull insularity and tunnel vision. But, according to accountants, it’s actually a very real cash drain on the Kaplan for-profit education scam company that owns the WaPo....

[T]he entire white male staff of the Washington Post cares, a lot, because having this lady with her b---s doing a webcast is somehow going to erode the WaPo brand more than, oh, three decades of boot-licking journalistic mediocrity.... Anyway, people in the WaPo newsroom are so upset about this black lady having b---s and doing a webcast! Please, let’s bring dignity (and shriveled white weiners) back to the WaPo video offerings! Let’s bring back... Mouthpiece Theater.

If You Want to Boost Employment, Push for Policies That Boost Employment!

A correspondent emails me a link to Ezra Klein and asks:

Doesn't Barack Obama know that if his economic advisors had exciting, effective, and politically viable policies to substantially reduce unemployment that did not require getting congress to spend more money, they would have proposed and implemented such policies in January 2009?

Apparently not.

Ezra Klein:

If Obama wants to be bold, he should be bold: [T]he individual who comes off worst in the article is not Larry Summers or Christina Romer or Peter Orszag or Rahm Emanuel. It's President Obama. Baker opens with an anecdote from just before Christmas. Obama... wanted a bold idea to bring down unemployment. But he didn't like anything his advisers were offering up. “You know, guys,” he said, according to someone in the room, “I’ve told you before, I want you to come to me with ideas that excite me.”

But it's not until a few paragraph later that we learn what Obama actually meant: He wanted "ways to juice the economy that are exciting, effective and politically viable." According to one adviser in the meetings, “The president wanted to lower unemployment but didn’t see a way to get more money out of Congress. He grew frustrated because the economic team didn’t have that magic combination.” Another said that Obama “was really frustrated that there weren’t solutions on the cheap.”...

If the president wants to go bold on job creation, he needs to go bold on job creation. The votes may not be there now, but perhaps it's worth mounting a very public effort to get them there. At the State of the Union, say. And if Republicans block the proposals, well, sometimes the best way to show the public where you stand on something is to go down fighting for it. Losing the House doesn't release the Obama administration from the responsibility to get things done, of course. And the White House is acutely aware that when they throw their weight behind a policy, the GOP often turns against that policy. One of the reasons the payroll-tax holiday wasn't part of the administration's pre-election jobs push was so that it would remain acceptable to Republicans when the two sides came together to cut some post-election deals.

But that strategy only applies to policies Republicans are willing to pass. There's plenty of good -- even exciting and effective -- legislation that the GOP won't move unless the public forces them to move it. For those ideas that are outside the current congressional consensus, the right question for it isn't "are there the votes" so much as "is this a good idea?" and "can we convince the people?" One of those questions is for Obama's economic team. But the other is for Obama himself....

[T]he question is whether the legislative pragmatism that defined Obama's administration so far was a smart strategy based on the math of a Democratic majority or the administration's only strategy based on the temperament of Barack Obama. You can have bold and exciting or you can have politically viable. You can't always have both.

There were, indeed, four ways to boost employment, all of which had drawbacks:

  1. Expansionary fiscal policy: convince congress to appropriate more money and borrow-and-spend.
  2. Expansionary monetary policy: staff up the Federal Reserve with governors who believed that large-scale quantitative easing and inflation, price level, and nominal GDP targeting were worth attempting.
  3. Use the TARP and the Treasury's powers to offer bank guarantees to engage in large-scale quantitative easing by the executive branch.
  4. Focus on putting into place long-run policies to balance the federal budget, and hope that their passage induces the confidence fairy to show up.

I think that the Obama administration should have gone all-in on all four of these policy dimensions.

FDR Liveblogs World War II: January 20, 1941

FDR's Third Inaugural Address:

Third Inaugural Address of Franklin D. Roosevelt: On each national day of inauguration since 1789, the people have renewed their sense of dedication to the United States.

In Washington's day the task of the people was to create and weld together a nation.

In Lincoln's day the task of the people was to preserve that Nation from disruption from within.

In this day the task of the people is to save that Nation and its institutions from disruption from without.

To us there has come a time, in the midst of swift happenings, to pause for a moment and take stock--to recall what our place in history has been, and to rediscover what we are and what we may be. If we do not, we risk the real peril of inaction.

Lives of nations are determined not by the count of years, but by the lifetime of the human spirit. The life of a man is three-score years and ten: a little more, a little less. The life of a nation is the fullness of the measure of its will to live.

There are men who doubt this. There are men who believe that democracy, as a form of Government and a frame of life, is limited or measured by a kind of mystical and artificial fate that, for some unexplained reason, tyranny and slavery have become the surging wave of the future--and that freedom is an ebbing tide.

But we Americans know that this is not true.

Eight years ago, when the life of this Republic seemed frozen by a fatalistic terror, we proved that this is not true. We were in the midst of shock--but we acted. We acted quickly, boldly, decisively.

These later years have been living years--fruitful years for the people of this democracy. For they have brought to us greater security and, I hope, a better understanding that life's ideals are to be measured in other than material things.

Most vital to our present and our future is this experience of a democracy which successfully survived crisis at home; put away many evil things; built new structures on enduring lines; and, through it all, maintained the fact of its democracy.

For action has been taken within the three-way framework of the Constitution of the United States. The coordinate branches of the Government continue freely to function. The Bill of Rights remains inviolate. The freedom of elections is wholly maintained. Prophets of the downfall of American democracy have seen their dire predictions come to naught.

Democracy is not dying.

We know it because we have seen it revive--and grow.

We know it cannot die--because it is built on the unhampered initiative of individual men and women joined together in a common enterprise--an enterprise undertaken and carried through by the free expression of a free majority.

We know it because democracy alone, of all forms of government, enlists the full force of men's enlightened will.

We know it because democracy alone has constructed an unlimited civilization capable of infinite progress in the improvement of human life.

We know it because, if we look below the surface, we sense it still spreading on every continent--for it is the most humane, the most advanced, and in the end the most unconquerable of all forms of human society.

A nation, like a person, has a body--a body that must be fed and clothed and housed, invigorated and rested, in a manner that measures up to the objectives of our time.

A nation, like a person, has a mind--a mind that must be kept informed and alert, that must know itself, that understands the hopes and the needs of its neighbors--all the other nations that live within the narrowing circle of the world.

And a nation, like a person, has something deeper, something more permanent, something larger than the sum of all its parts. It is that something which matters most to its future--which calls forth the most sacred guarding of its present.

It is a thing for which we find it difficult--even impossible--to hit upon a single, simple word.

And yet we all understand what it is--the spirit--the faith of America. It is the product of centuries. It was born in the multitudes of those who came from many lands--some of high degree, but mostly plain people, who sought here, early and late, to find freedom more freely.

The democratic aspiration is no mere recent phase in human history. It is human history. It permeated the ancient life of early peoples. It blazed anew in the middle ages. It was written in Magna Charta.

In the Americas its impact has been irresistible. America has been the New World in all tongues, to all peoples, not because this continent was a new-found land, but because all those who came here believed they could create upon this continent a new life--a life that should be new in freedom.

Its vitality was written into our own Mayflower Compact, into the Declaration of Independence, into the Constitution of the United States, into the Gettysburg Address.

Those who first came here to carry out the longings of their spirit, and the millions who followed, and the stock that sprang from them--all have moved forward constantly and consistently toward an ideal which in itself has gained stature and clarity with each generation.

The hopes of the Republic cannot forever tolerate either undeserved poverty or self-serving wealth.

We know that we still have far to go; that we must more greatly build the security and the opportunity and the knowledge of every citizen, in the measure justified by the resources and the capacity of the land.

But it is not enough to achieve these purposes alone. It is not enough to clothe and feed the body of this Nation, and instruct and inform its mind. For there is also the spirit. And of the three, the greatest is the spirit.

Without the body and the mind, as all men know, the Nation could not live.

But if the spirit of America were killed, even though the Nation's body and mind, constricted in an alien world, lived on, the America we know would have perished.

That spirit--that faith--speaks to us in our daily lives in ways often unnoticed, because they seem so obvious. It speaks to us here in the Capital of the Nation. It speaks to us through the processes of governing in the sovereignties of 48 States. It speaks to us in our counties, in our cities, in our towns, and in our villages. It speaks to us from the other nations of the hemisphere, and from those across the seas--the enslaved, as well as the free. Sometimes we fail to hear or heed these voices of freedom because to us the privilege of our freedom is such an old, old story.

The destiny of America was proclaimed in words of prophecy spoken by our first President in his first inaugural in 1789--words almost directed, it would seem, to this year of 1941: "The preservation of the sacred fire of liberty and the destiny of the republican model of government are justly considered ... deeply, ... finally, staked on the experiment intrusted to the hands of the American people."

If we lose that sacred fire--if we let it be smothered with doubt and fear--then we shall reject the destiny which Washington strove so valiantly and so triumphantly to establish. The preservation of the spirit and faith of the Nation does, and will, furnish the highest justification for every sacrifice that we may make in the cause of national defense.

In the face of great perils never before encountered, our strong purpose is to protect and to perpetuate the integrity of democracy.

For this we muster the spirit of America, and the faith of America.

We do not retreat. We are not content to stand still. As Americans, we go forward, in the service of our country, by the will of God.

Econ 210a: Memo Question for January 26, 2011

"The treasure captured outside Europe by undisguised looting, enslavement and murder, floated back to the mother-country and were there turned into capital."

-- Marx, Capital, Vol. 1 Ch. 32.

Do the other assigned readings for January 26 provide any basis for assessing the general truth of this passage from Marx? In what sense did colonial trade in the 1497-1800 period contribute to capital formation in Europe?

January 26. The Commercial Revolution (deVries)

Daron Acemoglu, Simon Johnson, and James Robinson (2005), "The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth," American Economic Review 95, pp. 546-79.

Karl Marx (1867), "The So-called Primitive Capital Accumulation," Capital, Vol. 1, Part VIII, Primitive Accumulation, chapters 26-32.

Jan de Vries, "The Limits to Globalization in the Early Modern World," Economic History Review 63 (2010), pp. 710-33.

Jeffrey Williamson and Kevin O'Rourke (2002), "After Columbus: Explaining the Global Trade Boom 1500-1800," Journal of Economic History 62:2, pp. 417-56.

Ralph Austen and Woodruff Smith (1990), "Private Tooth Decay as Public Economic Virtue: The Slave-Sugar Triangle, Consumerism, and European Industrialization," Social Science History 14:1, pp. 95-115.

Opinions on Shape of Earth Differ

Jay Ackroyd points out that for the New York Times it is no longer defining "balanced" as halfway between the Republicans and the Democrats, but halfway between the Republicans and CBO:

Eschaton: Non-partisan: So now "balance" in the New York Times is between the GOP and the CBO.

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

Republicans Burning Down the Policy Village

Ezra Klein:

Ezra Klein: The Congressional Budget Office... provide[s] politically independent, fairly cautious estimates and explanations of legislation so that when we debate, we can at least work off the same basic set of... educated guesses. They've safeguarded this reputation quite effectively over the years, repeatedly disappointing Republicans and Democrats alike.... Democrats were pretty angry at the CBO in 2009, too, as the scorekeeper refused to give them credit for delivery-system reforms and technological improvements that they -- and many health-care experts -- believed would save the system a lot of money. That meant Democrats had to include blunter, surer financing mechanisms, like Medicare cuts and taxes. They may not have agreed with the CBO's estimate, but they recognized it as a legitimate and credible guess, and responded.

But the Republicans have refused to play by those rules. They have claimed, as Doug Holtz-Eakin, Joseph Antos and James Capretta do in today's Wall Street Journal, that the CBO's work is now the product of "budget gimmicks, deceptive accounting, and implausible assumptions used to create the false impression of fiscal discipline." They have created a separate world for themselves... where there are no accepted estimates except the ones they choose to accept (notably, they regularly mention the CBO results that they think help their case), where there is no neutral arbiter... where policy debate is not really possible.

It doesn't take long for the bad-faith arguments underlying the case against the CBO to present themselves. Holtz-Eakin, Antos and Capretta mockingly wonder how "the ACA magically convert[s] $1 trillion in new spending into painless deficit reduction," knowing full well that the deficit reduction isn't painless at all: It's more than $500 billion in Medicare cuts that Republicans used to slaughter Democrats in the midterm election, and it's a tax on expensive health-care plans that almost drove unions out of the Democratic coalition on the bill.

They say that the Medicare cuts -- which are smaller than the cuts we successfully made to Medicare in the 1990s -- can't possibly be sustainable, but they know full well -- and admit in the op-ed -- that Medicare requires cuts that are many orders of magnitude larger over the coming decades. And notice how this argument, that these cuts are implausible, conflicts with another common conservative argument, that these cuts represented the "low-hanging fruit" that should've been saved for a future deficit-reduction bill.

And then there are the straightforwardly wrong and dishonest arguments that get tossed around: that the costs of fixing a disastrous Medicare reform that Republicans passed in 1997 should be attached to the Democrats' health-care reforms in 2010. That the $115 billion of discretionary spending that is either already in the budget or won't be appropriated without further action from Congress has been unfairly left out of the bill. That the CBO is "double-counting" Medicare savings, when it's doing nothing of the kind (something even Rep. Paul Ryan admits).

You could spend all day knocking these arguments around. Trust me: I've done it. But the point isn't the arguments themselves, but their cumulative effect. If you're a conservative and you consume conservative media, you now live in a world where it's simultaneously preposterous to believe that the health-care law saves money and commonly asserted that it cuts Medicare to the bone and raises taxes all across the country. You live in a world so different from the one that Democrats share with the CBO that no argument is really possible. Democrats say the bill reduces the deficit. Republicans say that the bill explodes the deficit. And when the scorekeeper tries to intervene, Republicans take aim at the scorekeeper...

Back to Disagreeing with Scott Sumner...

Scott Sumner:

TheMoneyIllusion » On or about December 1978, the world’s ideology changed: We all know about dates that historians consider turning points in history; 1914, 1789, etc.  I’d like to add 1978 to the list.  Maybe it’s just because I was a young adult in 1978.  Things seem very important when we are young.  (Do NOT ever talk to a baby-boomer about 60s pop music.)It seems like almost everything that crosses my desk reminds me of 1978.... This quotation from Joan Robinson did not seem insane in 1977. From the Economist:

Before the last Korean war in 1950, the North was home to most of the country’s heavy industry. As late as 1975, its income per head still exceeded the South’s, according to Eui-Gak Hwang of Korea University in Seoul. “Obviously, sooner or later the country must be reunited,” wrote Joan Robinson, a Cambridge economist, in 1977, “by absorbing the South into socialism.”

Within about 5 years a comment like that would have seemed far-fetched, and today it would seem completely loony.  I’m not saying I necessarily would have agreed with her in 1977, but North and South Korea were about equally developed at that time.  North Vietnam had just taking over the South.  No communist country had ever gone non-communist.  And even non-communist countries seemed to be getting more statist every day...

Let me just say that I remember reading that in 1977--and it sounded loony to me back then.

Really existing socialism (a) killed an awful lot of people, (b) erased the possibility of an awful lot of freedoms for an awful lot of people, and (c) could not attain the economic allocative efficiency of the market economies.

There was in 1977 an argument that really-existing socialist economies would wind up with higher levels of measured GDP per capita--precisely because they starved their people of good things they could invest more, create a more capital intensive economy, and that capital intensity would offset allocative efficiency. I remember being taught in Ec 10 by Rick Ericson in 1978 that that argument was a very weak one.

And North Korea added to the defects of really existing socialism those of theocracy and of absolutist heriditary monarchy.

So Scott is wrong: the idea that the absorption of South Korea by North Korea would be a good thing was loony in 1977--albeit not as loony as it was to be by 1982.

Assessing Structural Unemployment

The usually-reliable David Leonhardt gets it wrong, I think, when he writes:

Arguing Over the Jobs Slump: I agree that structural unemployment is a major problem. You can see it in the fact that the unemployment rate for less educated workers has risen much more than for more educated workers...

But unemployment always rises more for less educated workers in recessions and falls by more in booms:

Economagic_ Economic Chart Dispenser.png

More educated workers have bigger and better job-search networks, and the same things that made them more educated also make them make better use of their networks. When the labor market goes south, the consequences are much worse for those for whom the system does not work terribly well in normal times. But that doesn't mean that any significant component of unemployment is "structural."

Unemployment is "structural" when attempts to boost spending boost not employment but rather prices because the products where demand increases are not products that can be made by hiring the currently-unemployed. You see structural unemployment when there are significant groups of businesses and industries that are frantically raising wages in an attempt to attract more qualified workers while wages in the economy as a whole are stagnant.

We don't see any of that.

There is no date currently showing that structural unemployment unamenable to cure by spending stimulus is any significant part of our current problem. (Of course, we will if unemployment stays near 10% for very much longer: cyclical unemployment turns into structural unemployment.)

As Scott Sumner writes:


January 2006 — housing starts = 2.303 million, unemployment = 4.7%

April 2008 — housing starts = 1.008 million, unemployment = 4.9%

October 2009 — housing starts = 527,000, unemployment = 10.1%

[H]ousing starts fall by 1.3 million over 27 months [from 1/2006 to 4/2008], and unemployment hardly changes.  Looks like those construction workers found other jobs, which is what is supposed to happen if the Fed keeps NGDP growing at a slow but steady rate.  Then NGDP plummeted [from 4/2008 to 10/2009], and housing fell another 480,000.... [T]he huge run-up in unemployment did not occur when the big fall in housing construction occurred, but much later, when output in manufacturing and services also plummeted. 

Progressive Taxes to Pay for Sewers Are Immoral...

Paul Krugman:

Stuff Happens: Stuff Happens Joe Romm has some fun with the Texas Attorney General, who declares himself opposed to regulation of CO2 on the grounds that

It is almost the height of insanity of bureaucracy to have the EPA regulating something that is emitted by all living things.

As Joe points out, this argument says that we should adopt an equally laissez-faire attitude toward sewage.

But hey, there was a time when conservatives did, in fact, argue for doing nothing about effluent of any kind. In the years leading up to the Great Stink of 1858, which finally got the British to build a London sewer system, The Economist editorialized against any such foolish notion (pdf):

suffering and evil are nature’s admonitions—they cannot be got rid of.

Or, to put it (almost) in the modern vernacular, stuff happens.

And given the way we’re heading — with politicians arguing that the federal government has no right to ban child labor — don’t be surprised to see the anti-sewer movement making a comeback, and to see elected representatives, even if they know better, holding their noses and going along.

Vatican FAIL

Shawn Pogatchnik:

Vatican letter urged Irish bishops not to report sex-abuse cases to police: A newly revealed 1997 letter from the Vatican warned Ireland's Catholic bishops not to report all suspected child-abuse cases to police.... The letter, obtained by Irish broadcasters RTE and provided to The Associated Press, documents the Vatican's rejection of a 1996 Irish church initiative to begin helping police identify pedophile priests following Ireland's first wave of publicly disclosed lawsuits. The letter undermines persistent Vatican claims, particularly when seeking to defend itself in U.S. lawsuits, that the church in Rome never instructed local bishops to withhold evidence or suspicion of crimes from police...

Dublin, 31 January 1997

Strictly confidential

Your Excellency,

The Congregation for the Clery has attentively studied the complex question of sexual abuse of minors by clerics and the document entitled "Child Sexual Abuse: Framework for a Church Response", published by the Irish Catholic Bishops' Advisory Committee.

The Congregation wishes to emphasize the need for this document to conform to the canonical norms presently in force.

The text, however, contains "procedures and dispositions which appear contrary to canonical discipline and which, if applied, could invalidate the acts of the same Bishops who are attempting to put a stop to these problems. If such procedures were to be followed by the Bishops and there were cases of eventual hierarchical recourse lodged at the Holy See, the results could be highly embarrassing and detrimental to those same Diocesan authorities.

In particular, the situation of 'mandatory reporting' gives rise to serious reservations of both a moral and a canonical nature."

Since the policies on sexual abuse in the English speaking world exhibit many of the same characteristics and procedures, the Congregation is involved in a global study of them. At the appropriate time, with the collaboration of the interested Episcopal Conferences and in dialogue with them, the Congregation will not be remiss in establishing some concrete directives with regard to these Policies.

For these reasons and because the abovementioned text is not an official document of the Episcopal Conference but merely a study ocument, I am directed to inform the individual Bishops of Ireland of the preoccupations of the Congregation in its regard, underlining that in the sad cases of accusations of sexual abuse by clerics, the procedures established by the Code of Canon Law must be meticulously followed under pain of invalidity of the acts involved in the priest so punished were to make hierarchical recourse against his Bishop.

Asking you to kindly let me know of the safe receipt of this letter and with the assurance of my cordial regard, I am

Yours sincerely in Christ,

Luciano Storero
Apostolic Nuncio

Paul Krugman: The Road to Economic Crisis Is Paved With Euros


The Road to Economic Crisis Is Paved With Euros: In Greece the story is straightforward: the government behaved irresponsibly, lied about it and got caught. During the years of easy borrowing, Greece’s conservative government ran up a lot of debt — more than it admitted. When the government changed hands in 2009, the accounting fictions came to light; suddenly it was revealed that Greece had both a much bigger deficit and substantially more debt than anyone had realized. Investors, understandably, took flight.

But Greece is actually an unrepresentative case. Just a few years ago Spain, by far the largest of the crisis economies, was a model European citizen, with a balanced budget and public debt only about half as large, as a percentage of G.D.P., as that of Germany. The same was true for Ireland. So what went wrong?... [A] large direct fiscal hit from the slump... the costs of financial clean-up.... [O]ther nations — in particular, both the United States and Britain — that have been running deficits that, as a percentage of G.D.P., are comparable to the deficits in Spain and Ireland. Yet they haven’t suffered a comparable loss of lender confidence. What is different about the euro countries?

One possible answer is “nothing”: maybe one of these days we’ll wake up and find that the markets are shunning America.... But the real answer is probably... it’s the euro itself that makes Spain and Ireland so vulnerable. For membership in the euro means that these countries have to deflate their way back to competitiveness, with all the pain that implies. The trouble with deflation isn’t just the coordination problem.... Even when countries successfully drive down wages, which is now happening in all the euro-crisis countries, they run into another problem: incomes are falling, but debt is not. As the American economist Irving Fisher pointed out almost 80 years ago, the collision between deflating incomes and unchanged debt can greatly worsen economic downturns....

Some economists, myself included, look at Europe’s woes and have the feeling that we’ve seen this movie before, a decade ago on another continent — specifically, in Argentina.... As I see it, there are four ways the European crisis could play out (and it may play out differently in different countries). Call them toughing it out; debt restructuring; full Argentina; and revived Europeanism.

Toughing it out: Troubled European economies could, conceivably, reassure creditors by showing sufficient willingness to endure pain.... The role models here are the Baltic nations: Estonia, Lithuania and Latvia.... Have these policies been successful?... The Baltic nations have, to some extent, succeeded in reassuring markets.... All of this has, however, come at immense cost.... It says something about the current state of Europe that many officials regard the Baltics as a success story....

Debt restructuring.... I find it hard to see how Greece can avoid a debt restructuring, and Ireland isn’t much better. The real question is whether such restructurings will spread to Spain and — the truly frightening prospect — to Belgium and Italy, which are heavily indebted but have so far managed to avoid a serious crisis of confidence.

Full Argentina: Argentina didn’t simply default on its foreign debt; it also abandoned its link to the dollar, allowing the peso’s value to fall by more than two-thirds. And this devaluation worked: from 2003 onward, Argentina experienced a rapid export-led economic rebound. The European country that has come closest to doing an Argentina is Iceland.... Iceland took advantage of the fact that it had not joined the euro and still had its own currency.... The combination of default and devaluation has helped Iceland limit the damage from its banking disaster. In fact, in terms of employment and output, Iceland has done somewhat better than Ireland and much better than the Baltic nations....

Revived Europeanism: The preceding three scenarios were grim. Is there any hope of an outcome less grim? To the extent that there is, it would have to involve taking further major steps toward that “European federation” Robert Schuman wanted 60 years ago.... [A]s the earlier Ireland-Nevada comparison shows, the United States works as a currency union in large part precisely because it is also a transfer union, in which states that haven’t gone bust support those that have. And it’s hard to see how the euro can work unless Europe finds a way to accomplish something similar. Nobody is yet proposing that Europe move to anything resembling U.S. fiscal integration; the Juncker-Tremonti plan would be at best a small step in that direction. But Europe doesn’t seem ready to take even that modest step....

For now, the plan in Europe is to have everyone tough it out...

IAS 107: 20110118 Lecture: Introduction

Screencast: Lecture 1 January 18:

Slides: 20110118_107_for_upload.pdf


Audio: 20110118 IAS 107 Lecture-_0

IAS 107: Intermediate Macroeconomics:

U.C. Berkeley: Spring 2011:

Schedule and Readings

J. Bradford DeLong: 925 708 0467: W 2-4 Evans 601.

Dariush Zahedi:

Lecture: TuTh 11-12:30 VLSB 2060

Sections: M 2 183 Dwinelle; M 3 251 Dwinelle; W 1 255 Dwinelle; W 4 83 Dwinelle; F 9 106 Wheeler; F 1 247 Dwinelle

REQUIRED MATERIALS: Joe Nocera: All the Devils Are Here. Portfolio ISBN-10: 1591843634.
J.B. DeLong and Martha Olney: Macroeconomics (2nd ed.) McGraw-Hill ISBN-10: 0072877588.
iClicker ISBN-10: 0716779390.
2010 Economic Report of the President




Tu Jan 18: The Four Branches of Macroeconomics (read ch. 1: Introduction to Macroeconomics).
Th Jan 20: Keeping Track of the Macroeconomy (read chs. 2 and 3: Measuring the Macroeconomy and Thinking Like an Economist).

Growth Economics:

Tu Jan 25: Economic Growth Overview (read ch. 4: The Theory of Economic Growth).
Th Jan 27: The Industrial Revolution, the Demographic Transition, and the Coming of Modern Economic Growth (read ch. 5: The Reality of Economic Growth) (problem set 1 due).
Tu Feb 01: The Macroeconomics of Development: Convergence and Divergence Across Nations.
Th Feb 03: Spurring the Rate of Technological and Organizational Progress (problem set 2 due).

Depression Economics:

Tu Feb 08: The Great Recession.
Th Feb 10: The Income-Expenditure Model (read chs. 6 and 9: Building Blocks of the Flexible-Price Model and The Income-Expenditure Framework) (problem set 3 due).
Tu Feb 15: IS, LM, and Interest Rate Spreads (read chs. 10 and 11: Investment, Net Exports, and Interest Rates and Extending the Sticky Price Model).
Th Feb 17: Policies to Fight the Great Recession (problem set 4 due).
Tu Feb 22: The Great Recession Outside the United States.

Inflation Economics:

Th Feb 24: Inflation and the Phillips Curve (read chs. 8 and 12: Money, Prices, and Inflation and The Phillips Curve and Expectations (problem set 5 due).
Tu Mar 01: Expected Inflation and the Natural Rate of Unemployment.
Th Mar 3: Monetary Policy Reactions (read ch. 13: Stabilization Policy) (problem set 5 due).


Tu Mar 08: Pre-Midterm Review.
Th Mar 10: Midterm.

Debt-and-Deficit Economics:

Tu Mar 15: From the Short-Run to the Long-Run.
Th Mar 17: Government Debt Economics: Crowding Out and Crowding In (read chs. 7 and 14: Equilibrium in the Flexible Price Model and The Budget Balance, the National Debt, and Investment) (problem set 6 due).
Tu Mar 29: Four Topics of Macroeconomics Review.

After Mar 29:

Starting Th Mar 31, any one of three things might happen:

  • First, perhaps our schedule will have slipped.
  • Second, we can go back over some in more depth some of the topics: economic growth, catch-up and economic development, depression economics, inflation economics, government debt economics, international finance.
  • Third, we could do something else that seems interesting--the world will be different at the start of April than it looks today...


Th Apr 28: Final Review
Th May 12: 8-11: FINAL EXAM

IAS 107: Reading: Jared Diamond's Provocation: The Invention of Agriculture as a Big Mistake

"The Worst Mistake in the History of the Human Race": By Jared Diamond, UCLA Medical School, Discover Magazine, May 1987, Pages 64-66.

To science we owe dramatic changes in our smug self-image. Astronomy taught us that our earth isn’t the center of the universe but merely one of billions of heavenly bodies. From biology we learned that we weren’t specially created by God but evolved along with millions of other species. Now archaeology is demolishing another sacred belief: that human history over the past million years has been a long tale of progress. In particular, recent discoveries suggest that the adoption of agriculture, supposedly our most decisive step toward a better life, was in many ways a catastrophe from which we have never recovered. With agriculture came the gross social and sexual inequality, the disease and despotism, that curse our existence.

At first, the evidence against this revisionist interpretation will strike twentieth century Americans as irrefutable. We’re better off in almost every respect than people of the Middle Ages, who in turn had it easier than cavemen, who in turn were better off than apes. Just count our advantages. We enjoy the most abundant and varied foods, the best tools and material goods, some of the longest and healthiest lives, in history. Most of us are safe from starvation and predators. We get our energy from oil and machines, not from our sweat. What neo-Luddite among us would trade his life for that of a medieval peasant, a caveman, or an ape?

For most of our history we supported ourselves by hunting and gathering: we hunted wild animals and foraged for wild plants. It’s a life that philosophers have traditionally regarded as nasty, brutish, and short. Since no food is grown and little is stored, there is (in this view) no respite from the struggle that starts anew each day to find wild foods and avoid starving. Our escape from this misery was facilitated only 10,000 years ago, when in different parts of the world people began to domesticate plants and animals. The agricultural revolution spread until today it’s nearly universal and few tribes of hunter-gatherers survive.

From the progressivist perspective on which I was brought up, to ask "Why did almost all our hunter-gatherer ancestors adopt agriculture?" is silly. Of course they adopted it because agriculture is an efficient way to get more food for less work. Planted crops yield far more tons per acre than roots and berries. Just imagine a band of savages, exhausted from searching for nuts or chasing wild animals, suddenly grazing for the first time at a fruit-laden orchard or a pasture full of sheep. How many milliseconds do you think it would take them to appreciate the advantages of agriculture?

The progressivist party line sometimes even goes so far as to credit agriculture with the remarkable flowering of art that has taken place over the past few thousand years. Since crops can be stored, and since it takes less time to pick food from a garden than to find it in the wild, agriculture gave us free time that hunter-gatherers never had. Thus it was agriculture that enabled us to build the Parthenon and compose the B-minor Mass.

While the case for the progressivist view seems overwhelming, it’s hard to prove. How do you show that the lives of people 10,000 years ago got better when they abandoned hunting and gathering for farming? Until recently, archaeologists had to resort to indirect tests, whose results (surprisingly) failed to support the progressivist view. Here’s one example of an indirect test: Are twentieth century hunter-gatherers really worse off than farmers? Scattered throughout the world, several dozen groups of so-called primitive people, like the Kalahari bushmen, continue to support themselves that way. It turns out that these people have plenty of leisure time, sleep a good deal, and work less hard than their farming neighbors. For instance, the average time devoted each week to obtaining food is only 12 to 19 hours for one group of Bushmen, 14 hours or less for the Hadza nomads of Tanzania. One Bushman, when asked why he hadn’t emulated neighboring tribes by adopting agriculture, replied, "Why should we, when there are so many mongongo nuts in the world?"

While farmers concentrate on high-carbohydrate crops like rice and potatoes, the mix of wild plants and animals in the diets of surviving hunter-gatherers provides more protein and a bettter balance of other nutrients. In one study, the Bushmen’s average daily food intake (during a month when food was plentiful) was 2,140 calories and 93 grams of protein, considerably greater than the recommended daily allowance for people of their size. It’s almost inconceivable that Bushmen, who eat 75 or so wild plants, could die of starvation the way hundreds of thousands of Irish farmers and their families did during the potato famine of the 1840s.

So the lives of at least the surviving hunter-gatherers aren’t nasty and brutish, even though farmes have pushed them into some of the world’s worst real estate. But modern hunter-gatherer societies that have rubbed shoulders with farming societies for thousands of years don’t tell us about conditions before the agricultural revolution. The progressivist view is really making a claim about the distant past: that the lives of primitive people improved when they switched from gathering to farming. Archaeologists can date that switch by distinguishing remains of wild plants and animals from those of domesticated ones in prehistoric garbage dumps.

How can one deduce the health of the prehistoric garbage makers, and thereby directly test the progressivist view? That question has become answerable only in recent years, in part through the newly emerging techniques of paleopathology, the study of signs of disease in the remains of ancient peoples.

In some lucky situations, the paleopathologist has almost as much material to study as a pathologist today. For example, archaeologists in the Chilean deserts found well preserved mummies whose medical conditions at time of death could be determined by autopsy (Discover, October). And feces of long-dead Indians who lived in dry caves in Nevada remain sufficiently well preserved to be examined for hookworm and other parasites.

Usually the only human remains available for study are skeletons, but they permit a surprising number of deductions. To begin with, a skeleton reveals its owner’s sex, weight, and approximate age. In the few cases where there are many skeletons, one can construct mortality tables like the ones life insurance companies use to calculate expected life span and risk of death at any given age. Paleopathologists can also calculate growth rates by measuring bones of people of different ages, examine teeth for enamel defects (signs of childhood malnutrition), and recognize scars left on bones by anemia, tuberculosis, leprosy, and other diseases.

One straightforward example of what paleopathologists have learned from skeletons concerns historical changes in height. Skeletons from Greece and Turkey show that the average height of hunger-gatherers toward the end of the ice ages was a generous 5’ 9" for men, 5’ 5" for women. With the adoption of agriculture, height crashed, and by 3000 B. C. had reached a low of only 5’ 3" for men, 5’ for women. By classical times heights were very slowly on the rise again, but modern Greeks and Turks have still not regained the average height of their distant ancestors.

Another example of paleopathology at work is the study of Indian skeletons from burial mounds in the Illinois and Ohio river valleys. At Dickson Mounds, located near the confluence of the Spoon and Illinois rivers, archaeologists have excavated some 800 skeletons that paint a picture of the health changes that occurred when a hunter-gatherer culture gave way to intensive maize farming around A. D. 1150. Studies by George Armelagos and his colleagues then at the University of Massachusetts show these early farmers paid a price for their new-found livelihood. Compared to the hunter-gatherers who preceded them, the farmers had a nearly 50 per cent increase in enamel defects indicative of malnutrition, a fourfold increase in iron-deficiency anemia (evidenced bya bone condition called porotic hyperostosis), a theefold rise in bone lesions reflecting infectious disease in general, and an increase in degenerative conditions of the spine, probably reflecting a lot of hard physical labor. "Life expectancy at birth in the pre-agricultural community was bout twenty-six years," says Armelagos, "but in the post-agricultural community it was nineteen years. So these episodes of nutritional stress and infectious disease were seriously affecting their ability to survive."

The evidence suggests that the Indians at Dickson Mounds, like many other primitive peoples, took up farming not by choice but from necessity in order to feed their constantly growing numbers. "I don’t think most hunger-gatherers farmed until they had to, and when they switched to farming they traded quality for quantity," says Mark Cohen of the State University of New York at Plattsburgh, co-editor with Armelagos, of one of the seminal books in the field, Paleopathology at the Origins of Agriculture. "When I first started making that argument ten years ago, not many people agreed with me. Now it’s become a respectable, albeit controversial, side of the debate."

There are at least three sets of reasons to explain the findings that agriculture was bad for health. First, hunter-gatherers enjoyed a varied diet, while early farmers obtained most of their food from one or a few starchy crops. The farmers gained cheap calories at the cost of poor nutrition. (today just three high-carbohydrate plants–wheat, rice, and corn–provide the bulk of the calories consumed by the human species, yet each one is deficient in certain vitamins or amino acids essential to life.) Second, because of dependence on a limited number of crops, farmers ran the risk of starvation if one crop failed. Finally, the mere fact that agriculture encouraged people to clump together in crowded societies, many of which then carried on trade with other crowded societies, led to the spread of parasites and infectious disease. (Some archaeologists think it was the crowding, rather than agriculture, that promoted disease, but this is a chicken-and-egg argument, because crowding encourages agriculture and vice versa.) Epidemics couldn’t take hold when populations were scattered in small bands that constantly shifted camp. Tuberculosis and diarrheal disease had to await the rise of farming, measles and bubonic plague the appearnce of large cities.

Besides malnutrition, starvation, and epidemic diseases, farming helped bring another curse upon humanity: deep class divisions. Hunter-gatherers have little or no stored food, and no concentrated food sources, like an orchard or a herd of cows: they live off the wild plants and animals they obtain each day. Therefore, there can be no kings, no class of social parasites who grow fat on food seized from others. Only in a farming population could a healthy, non-producing élite set itself above the disease-ridden masses. Skeletons from Greek tombs at Mycenae c. 1500 B. C. suggest that royals enjoyed a better diet than commoners, since the royal skeletons were two or three inches taller and had better teeth (on the average, one instead of six cavities or missing teeth). Among Chilean mummies from c. A. D. 1000, the élite were distinguished not only by ornaments and gold hair clips but also by a fourfold lower rate of bone lesions caused by disease.

Similar contrasts in nutrition and health persist on a global scale today. To people in rich countries like the U. S., it sounds ridiculous to extol the virtues of hunting and gathering. But Americans are an élite, dependent on oil and minerals that must often be iimproted from countries with poorer health and nutrition. If one could choose between being a peasant farmer in Ethiopia or a bushman gatherer in the Kalahari, which do you think would be the better choice?

Farming may have encouraged inequality between the sexes, as well. Freed from the need to transport their babies during a nomadic existence, and under pressure to produce more hands to till the fields, farming women tended to have more frequent pregnancies than their hunter-gatherer counterparts–with consequent drains on their health. Among the Chilean mummies for example, more women than men had bone lesions from infectious disease.

Women in agricultural societies were sometimes made beasts of burden. In New Guinea farming communities today I often see women staggering under loads of vegetables and firewood while the men walk empty-handed. Once while on a field trip there studying birds, I offered to pay some villagers to carry supplies from an airstrip to my mountain camp. The heaviest item was a 110-pound bag of rice, which I lashed to a pole and assigned to a team of four men to shoulder together. When I eventually caught up with the villagers, the men were carrying light loads, while one small woman weighing less than the bag of rice was bent under it, supporting its weight by a cord across her temples.

As for the claim that agriculture encouraged the flowering of art by providing us with leisure time, modern hunter-gatherers have at least as much free time as do farmers. The whole emphasis on leisure time as a critical factor seems to me misguided. Gorillas have had ample free time to build their own Parthenon, had they wanted to. While post-agricultural technological advances did make new art forms possible and preservation of art easier, great paintings and sculptures were already being produced by hunter-gatherers 15,000 years ago, and were still being produced as recently as the last century by such hunter-gatherers as some Eskimos and the Indians of the Pacific Northwest.

Thus with the advent of agriculture and élite became better off, but most people became worse off. Instead of swallowing the progressivist party line that we chose agriculture because it was good for us, we must ask how we got trapped by it despite its pitfalls.

One answer boils down to the adage "Might makes right." Farming could support many more people than hunting, albeit with a poorer quality of life. (Population densities of hunter-gatherers are rarely over on eperson per ten square miles, while farmers average 100 times that.) Partly, this is because a field planted entirely in edible crops lets one feed far more mouths than a forest with scattered edible plants. Partly, too, it’s because nomadic hunter-gatherers have to keep their children spaced at four-year intervals by infanticide and other means, since a mother must carry her toddler until it’s old enough to keep up with the adults. Because farm women don’t have that burden, they can and often do bear a child every two years.

As population densities of hunter-gatherers slowly rose at the end of the ice ages, bands had to choose between feeding more mouths by taking the first steps toward agriculture, or else finding ways to limit growth. Some bands chose the former solution, unable to anticipate the evils of farming, and seduced by the transient abundance they enjoyed until population growth caught up with increased food production. Such bands outbred and then drove off or killed the bands that chose to remain hunter-gatherers, because a hundred malnourished farmers can still outfight one healthy hunter. It’s not that hunter-gatherers abandonded their life style, but that those sensible enough not to abandon it were forced out of all areas except the ones farmers didn’t want.

At this point it’s instructive to recall the common complaint that archaeology is a luxury, concerned with the remote past, and offering no lessons for the present. Archaeologists studying the rise of farming have reconstructed a crucial stage at which we made the worst mistake in human history. Forced to choose between limiting population or trying to increase food production, we chose the latter and ended up with starvation, warfare, and tyranny.

Hunter-gatherers practiced the most successful and longest-lasting life style in human history. In contrast, we’re still struggling with the mess into which agriculture has tumbled us, and it’s unclear whether we can solve it. Suppose that an archaeologist who had visited from outer space were trying to explain human history to his fellow spacelings. He might illustrate the results of his digs by a 24-hour clock on which one hour represents 100,000 years of real past time. If the history of the human race began at midnight, then we would now be almost at the end of our first day. We lived as hunter-gatherers for nearly the whole of that day, from midnight through dawn, noon, and sunset. Finally, at 11:54 p. m. we adopted agriculture. As our second midnight approaches, will the plight of famine-stricken peasants gradually spread to engulf us all? Or will we somehow achieve those seductive blessings that we imagine behind agriculture’s glittering façade, and that have so far eluded us?

IAS 107: Intermediate Macroeconomics: U.C. Berkeley: Spring 2011: Schedule and Readings

J. Bradford DeLong: 925 708 0467: W 2-4 Evans 601.

Dariush Zahedi:

Lecture: TuTh 11-12:30 VLSB 2060

Sections: M 2 183 Dwinelle; M 3 251 Dwinelle; W 1 255 Dwinelle; W 4 83 Dwinelle; F 9 106 Wheeler; F 1 247 Dwinelle

REQUIRED MATERIALS: Joe Nocera: All the Devils Are Here. Portfolio ISBN-10: 1591843634.
J.B. DeLong and Martha Olney: Macroeconomics (2nd ed.) McGraw-Hill ISBN-10: 0072877588.
iClicker ISBN-10: 0716779390.
2010 Economic Report of the President




Tu Jan 18: The Four Branches of Macroeconomics (read ch. 1: Introduction to Macroeconomics).
Th Jan 20: Keeping Track of the Macroeconomy (read chs. 2 and 3: Measuring the Macroeconomy and Thinking Like an Economist).

Growth Economics:

Tu Jan 25: Economic Growth Overview (read ch. 4: The Theory of Economic Growth).
Th Jan 27: The Industrial Revolution, the Demographic Transition, and the Coming of Modern Economic Growth (read ch. 5: The Reality of Economic Growth) (problem set 1 due).
Tu Feb 01: The Macroeconomics of Development: Convergence and Divergence Across Nations.
Th Feb 03: Spurring the Rate of Technological and Organizational Progress (problem set 2 due).

Depression Economics:

Tu Feb 08: The Great Recession.
Th Feb 10: The Income-Expenditure Model (read chs. 6 and 9: Building Blocks of the Flexible-Price Model and The Income-Expenditure Framework) (problem set 3 due).
Tu Feb 15: IS, LM, and Interest Rate Spreads (read chs. 10 and 11: Investment, Net Exports, and Interest Rates and Extending the Sticky Price Model).
Th Feb 17: Policies to Fight the Great Recession (problem set 4 due).
Tu Feb 22: The Great Recession Outside the United States.

Inflation Economics:

Th Feb 24: Inflation and the Phillips Curve (read chs. 8 and 12: Money, Prices, and Inflation and The Phillips Curve and Expectations (problem set 5 due).
Tu Mar 01: Expected Inflation and the Natural Rate of Unemployment.
Th Mar 3: Monetary Policy Reactions (read ch. 13: Stabilization Policy) (problem set 5 due).


Tu Mar 08: Pre-Midterm Review.
Th Mar 10: Midterm.

Debt-and-Deficit Economics:

Tu Mar 15: From the Short-Run to the Long-Run.
Th Mar 17: Government Debt Economics: Crowding Out and Crowding In (read chs. 7 and 14: Equilibrium in the Flexible Price Model and The Budget Balance, the National Debt, and Investment) (problem set 6 due).
Tu Mar 29: Four Topics of Macroeconomics Review.

After Mar 29:

Starting Th Mar 31, any one of three things might happen:

  • First, perhaps our schedule will have slipped.
  • Second, we can go back over some in more depth some of the topics: economic growth, catch-up and economic development, depression economics, inflation economics, government debt economics, international finance.
  • Third, we could do something else that seems interesting--the world will be different at the start of April than it looks today...


Th Apr 28: Final Review
Th May 12: 8-11: FINAL EXAM

IAS 107 Problem Set 1

Due at the start of lecture on Th Jan 27:

20110118 IAS 107 pset1.pdf

As I said, this is a combination listen-to-lecture and data-scavenger-hunt problem set.

Read the assigned chapters in the textbook, look at the inside front and back covers, listen to the lectures, browse the Federal Reserve Economic Data website and browse through the "Job Openings and Labor Turnover" and the "Employment and Population: Household Survey" data, and browse the Gapminder Website, and you will do fine.

Other problem sets will involve model-building and computation.

By the End of This Year, the Great Recession Will Have Cost Us $3 Trillion (and It Will Have Cost the Rest of the World $5 Trillion)

Econbrowser_ Cumulative Output Loss.png

Menzie Chinn writes:

Econbrowser: Cumulative Output Loss: In our forthcoming book, Jeffry Frieden and I tried to tabulate the likely costs of lost output associated with the Great Recession.... I decided to update the calculation.... Fears of overheating, when counterbalanced against the costs of lost output, seem somewhat misplaced in this context....

One last point: it is inappropriate to take the trajectory of potential GDP as being unrelated to demand conditions, especially for persistent deviations from full employment, such as those we have seen in the last two and a half years. Consider that depressed investment, largely due to deficient and uncertain demand (rather than regulatory uncertainty), will eventually lead to a substantially smaller capital stock. Indeed, the argument that substantial long term unemployment will lead to elevated structural unemployment is inconsistent with the view that potential is unaffected by the size of the output gap. That means that the cumulative output loss relative to a counterfactual where output was higher is probably greater (although the extent is hard to determine).

As I am tired of saying, a good macro policy would be one that got nominal spending back to its pre-2008 trend growth path as fast as possible. A good SOTU address would propose policies to do so--and announce that those parts of the policy package that can be carried out by the Treasury are being implemented, and demand that the Federal Reserve and the Congress take immediate steps to implement the rest.

Do I Perhaps Have too Many Electronic Gadgets?

Which of these should I take to Berkeley for the first day of the semester today:

  • iPhone (for communicating).
  • iPad (for taking notes during pointless bureaucratic meeting).
  • Four-year-old laptop with busted screen (to drive the projector in the lecture hall).
  • New laptop (to consult my notes while lecturing).
  • Livescribe Pulsepen (to make backup copy of lecture audio in case Webcast system punks out).

I must say that I am very tempted to take all of them. They only weigh twelve pounds all together...

Christina Romer Says: Obama State of the Union Speech Should Focus on Deficit

I disagree. Focusing on the deficit is setting himself up for failure unless and until there are Republicans who actually care about reducing the deficit--and I don't see that happening until financial markets start to seriously squawk, and they ain't squawking right now.

Christina Romer:

Obama State of the Union Speech Should Focus on Deficit: My hope is that the centerpiece of the speech will be a comprehensive plan for dealing with the long-run budget deficit. I am not talking about two paragraphs lamenting the problem and vowing to fix it. I am looking for pages and pages of concrete proposals that the administration is ready to fight for.... The need for such a bold plan is urgent — both politically and economically. Voters made it clear last November that they were fed up with red ink. President Obama should embrace the reality that his re-election may depend on facing up to the budget problem.

The economic need is also pressing. The extreme deficits of the last few years are largely a consequence of the terrible state of the economy and the actions needed to stem the downturn. But even with a strong recovery, under current policy the deficit is projected to be more than 6 percent of gross domestic product in 2020. By 2035... we will be looking at deficits of at least 15 percent of G.D.P. Such deficits are not sustainable. At some point — likely well before 2035 — investors would revolt and the United States would be unable to borrow. We would become the Argentina of the 21st century.

So what should the president say and do? First, he should make clear that the issue is spending and taxes over the coming decades, not spending in 2011. Republicans in Congress have pledged to cut nonmilitary, non-entitlement spending in 2011 by $100 billion (less if recent reports are correct). Such a step would do nothing to address the fundamental drivers of the budget problem, and would weaken the economy when we are only beginning to recover. Instead, the president should outline major cuts in spending that would go into effect over the next few decades, and that he wants to sign into law in 2011.

Respected analysts across the ideological spectrum agree that rising health care spending is the biggest source of the frightening long-run deficit projections. That is why the president made cost control central to health reform legislation. He should vow not just to veto a repeal of the legislation, but to fight to strengthen its cost-containment mechanisms. One important provision of the law was the creation of the Independent Payment Advisory Board, which must propose reforms if Medicare spending exceeds the target rate of growth. But the legislation exempted some providers and much government health spending from the board’s purview. The president should work to give the board a broader mandate for cost control....

Finally, the president has to be frank about the need for more tax revenue.... The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich. But because there are far more middle-class families than wealthy ones, much of the additional money will have to come from ordinary people. Since any agreement will have to be bipartisan....

AGAIN, the fiscal commission has made sensible proposals... cuts tax expenditures... make the system simpler, fairer and more efficient.... Limiting the exemption of employer-provided health benefits... a tax on polluting energy....

None of these changes should be immediate. With unemployment at 9.4 percent and the economy constrained by lack of demand, it would be heartless and counterproductive to move to fiscal austerity in 2011.... But legislation that gradually and persistently trims the deficit would not harm the economy today. Indeed, it could increase demand by raising confidence and certainty.

The president has a monumental task. It’s extremely hard to build consensus around a deficit reduction plan that will be painful and unpopular with powerful interest groups. The only way to do so is to marshal the good sense and patriotism of the American people. That process should start with the State of the Union.

UPDATE: Matthew Yglesias points out:

Christina Romer’s Clever Op-Ed: [D]rill down into the details of the column... it looks very sly.... [S]he’s... saying that Barack Obama should double-down on the progressive agenda and define the progressive agenda as the key to deficit control. I’m not sure that’s sound political advice, but it’s pretty reasonable policy advice. Then note that in the penultimate graph she returns to the point that “With unemployment at 9.4 percent and the economy constrained by lack of demand, it would be heartless and counterproductive to move to fiscal austerity in 2011.” And indeed it would.

Paul Krugman: Two Speeches and an Editorial

Two Speeches and an Editorial:

President Obama, yesterday:

Rather than pointing fingers or assigning blame, let us use this occasion to expand our moral imaginations, to listen to each other more carefully, to sharpen our instincts for empathy, and remind ourselves of all the ways our hopes and dreams are bound together.

President Obama, May 1, 2009:

I view that quality of empathy, of understanding and identifying with people’s hopes and struggles as an essential ingredient for arriving as just decisions and outcomes.

National Review, May 4, 2009:

Empathy is simply a codeword for an inclination toward liberal activism.

And let me add Grover Norquist, May 26, 2003:

We are trying to change the tones in the state capitals—and turn them toward bitter nastiness and partisanship. Bipartisanship is another name for date rape.

Yet Another Reason Why Friends Really Don't Let Friends Support the Republican Party

Paul Krugman

The War on Logic: My wife and I were thinking of going out for an inexpensive dinner tonight. But John Boehner, the speaker of the House, says that no matter how cheap the meal may seem, it will cost thousands of dollars once you take our monthly mortgage payments into account. Wait a minute, you may say. How can our mortgage payments be a cost of going out to eat, when we’ll have to make the same payments even if we stay home? But Mr. Boehner is adamant: our mortgage is part of the cost of our meal, and to say otherwise is just a budget gimmick.

O.K., the speaker hasn’t actually weighed in on our plans for the evening. But he and his G.O.P. colleagues have lately been making exactly the nonsensical argument I’ve just described — not about tonight’s dinner, but about health care reform. And the nonsense wasn’t a slip of the tongue; it’s the official party position, laid out in charts and figures.

We are, I believe, witnessing something new in American politics. Last year, looking at claims that we can cut taxes, avoid cuts to any popular program and still balance the budget, I observed that Republicans seemed to have lost interest in the war on terror and shifted focus to the war on arithmetic. But now the G.O.P. has moved on to an even bigger project: the war on logic....

Republicans have a small problem: they claim to care about budget deficits, yet the Congressional Budget Office says that repealing last year’s health reform would increase the deficit. So what, other than dismissing the nonpartisan budget office’s verdict as “their opinion” — as Mr. Boehner has — can the G.O.P. do?... First of all, says the analysis, the true cost of reform includes the cost of the “doc fix.”... Well, in 1997 Congress enacted a formula to determine Medicare payments to physicians. The formula was, however, flawed; it would lead to payments so low that doctors would stop accepting Medicare patients. Instead of changing the formula, however, Congress has consistently enacted one-year fixes. And Republicans claim that the estimated cost of future fixes, $208 billion over the next 10 years, should be considered a cost of health care reform. But the same spending would still be necessary if we were to undo reform. So the G.O.P. argument here is exactly like claiming that my mortgage payments, which I’ll have to make no matter what we do tonight, are a cost of going out for dinner.

There’s more like that: the G.O.P. also claims that $115 billion of other health care spending should be charged to health reform....

To be sure, the Republican analysis doesn’t rely entirely on spurious attributions of cost — it also relies on using three-card monte tricks to make money disappear. Health reform, says the budget office, will increase Social Security revenues and reduce Medicare costs. But the G.O.P. analysis says that these sums don’t count....

The key to understanding the G.O.P. analysis of health reform is that the party’s leaders are not, in fact, opposed to reform because they believe it will increase the deficit. Nor are they opposed because they seriously believe that it will be “job-killing” (which it won’t be). They’re against reform because it would cover the uninsured.... [T]he modern G.O.P. has been taken over by an ideology in which the suffering of the unfortunate isn’t a proper concern of government, and alleviating that suffering at taxpayer expense is immoral...

I think he is wrong. I think some people believe that it is immoral for poor people to receive government-funded health care. (For example, consider the line that distributive justice is that people deserve to keep whatever they earn without cheating. That would imply that (a) if you don't earn enough to pay for your health care, and (b) if market failures prevent you from buying insurance ex ante at a reasonable price, and (c) if you cannot convince anyone rich to voluntarily cover your charity care--then (d) tough: it's moral for you to die untreated.)

But rather more, I think, are opposed to implementing the Affordable Care Act--the nationwide RomneyCare plan originally proposed by the Republican Heritage Foundation--because if it is implemented the press will write about it as a victory for Obama and the Democrats.

If only the press had written about the Affordable Care Act as a victory for moderate Republicanism, there would be no more enthusiastic cheerleader for its implementation that John Boehner,

Alex Tabarrok and Paul Krugman vs. Tyler Cowen

Well this is unusual to see. Alex Tabarrok:

Marginal Revolution: ZMP v. Sticky Wages: I find myself in the unusual position of being closer to Paul Krugman (and Scott Sumner, less surprising) than Tyler on the question of Zero Marginal Product workers.... The term ZMP also suggests that the problem is the productivity of the unemployed when the actual problem is with the economy more generally (a version of the fundamental attribution error)....

Even within the categories of workers with the highest unemployment rates (say males without a high school degree) usually a large majority of these workers are employed. Within the same category are the unemployed so different from the employed? I don't think so. One reason employed workers are still fearful is that they see the unemployed and think, "there but for the grace of God, go I." The employed are right to be fearful, being unemployed today has less to do with personal characteristics than a bad economy and bad luck.... Imagine randomly switching an unemployed worker for a measurably similar employed worker but at say a 15% lower wage. Holding morale and other such factors constant, do you think that employers would refuse such a switch? Tyler says yes. I say no. If wages were less sticky the unemployed would be find employment

By the way, the problem of sticky wages is often misunderstood. The big problem is not that the wages of unemployed workers are sticky, the big problem is that the wages of employed workers are sticky. This is why stories of the unemployed being reemployed at far lower wages are entirely compatible with the macroeconomics of sticky wages.

Although I don't like the term ZMP workers, I do think Tyler is pointing to a very important issue: firms used to engage in labor hoarding during a recession and now firms are labor disgorging. As a result, labor productivity has changed from being mildly pro-cyclical to counter-cyclical. Why? I can think of four reasons:

  1. The recession is structural, as Tyler has argued. If firms don't expect to ever hire workers back then they will fire them now.
  2. Firms expect the recession to be long - this is consistent with a Scott Sumner AD view among others
  3. In a balance-sheet recession firms are desperate to reduce debt and they can't borrow to labor hoard.
  4. Labor markets have become more competitive. Firms used to be monopsonists and so they would hold on to workers longer since W

It would be interesting to know why Paul Krugman thinks productivity has become counter-cyclical, but I believe he has yet to address this important topic.

Well, it is a very hard issue. It is hard to understand why. That it is a fact is pretty clear:


It used to be that the times when unemployment was rising were times when economy-wide productivity growth was undershooting expectations. Now the times when unemployment is rising are times in economy-wide productivity is overshooting expectations.

If the stake had not been driven through the heart of real business cyle theory long ago, that would definitely do it...

Martin Luther King, Jr.: April 3, 1968

Thank you very kindly, my friends. As I listened to Ralph Abernathy and his eloquent and generous introduction and then thought about myself, I wondered who he was talking about. It's always good to have your closest friend and associate to say something good about you. And Ralph Abernathy is the best friend that I have in the world. I'm delighted to see each of you here tonight in spite of a storm warning. You reveal that you are determined to go on anyhow.

Something is happening in Memphis; something is happening in our world. And you know, if I were standing at the beginning of time, with the possibility of taking a kind of general and panoramic view of the whole of human history up to now, and the Almighty said to me, "Martin Luther King, which age would you like to live in?" I would take my mental flight by Egypt and I would watch God's children in their magnificent trek from the dark dungeons of Egypt through, or rather across the Red Sea, through the wilderness on toward the promised land. And in spite of its magnificence, I wouldn't stop there.

I would move on by Greece and take my mind to Mount Olympus. And I would see Plato, Aristotle, Socrates, Euripides and Aristophanes assembled around the Parthenon. And I would watch them around the Parthenon as they discussed the great and eternal issues of reality. But I wouldn't stop there.

I would go on, even to the great heyday of the Roman Empire. And I would see developments around there, through various emperors and leaders. But I wouldn't stop there.

I would even come up to the day of the Renaissance, and get a quick picture of all that the Renaissance did for the cultural and aesthetic life of man. But I wouldn't stop there.

I would even go by the way that the man for whom I am named had his habitat. And I would watch Martin Luther as he tacked his ninety-five theses on the door at the church of Wittenberg. But I wouldn't stop there.

I would come on up even to 1863, and watch a vacillating President by the name of Abraham Lincoln finally come to the conclusion that he had to sign the Emancipation Proclamation. But I wouldn't stop there.

I would even come up to the early thirties, and see a man grappling with the problems of the bankruptcy of his nation. And come with an eloquent cry that we have nothing to fear but "fear itself." But I wouldn't stop there.

Strangely enough, I would turn to the Almighty, and say, "If you allow me to live just a few years in the second half of the 20th century, I will be happy."

Now that's a strange statement to make, because the world is all messed up. The nation is sick. Trouble is in the land; confusion all around. That's a strange statement. But I know, somehow, that only when it is dark enough can you see the stars. And I see God working in this period of the twentieth century in a way that men, in some strange way, are responding.

Something is happening in our world. The masses of people are rising up. And wherever they are assembled today, whether they are in Johannesburg, South Africa; Nairobi, Kenya; Accra, Ghana; New York City; Atlanta, Georgia; Jackson, Mississippi; or Memphis, Tennessee -- the cry is always the same: "We want to be free."

And another reason that I'm happy to live in this period is that we have been forced to a point where we are going to have to grapple with the problems that men have been trying to grapple with through history, but the demands didn't force them to do it. Survival demands that we grapple with them. Men, for years now, have been talking about war and peace. But now, no longer can they just talk about it. It is no longer a choice between violence and nonviolence in this world; it's nonviolence or nonexistence. That is where we are today.

And also in the human rights revolution, if something isn't done, and done in a hurry, to bring the colored peoples of the world out of their long years of poverty, their long years of hurt and neglect, the whole world is doomed. Now, I'm just happy that God has allowed me to live in this period to see what is unfolding. And I'm happy that He's allowed me to be in Memphis.

I can remember -- I can remember when Negroes were just going around as Ralph has said, so often, scratching where they didn't itch, and laughing when they were not tickled. But that day is all over. We mean business now, and we are determined to gain our rightful place in God's world.

And that's all this whole thing is about. We aren't engaged in any negative protest and in any negative arguments with anybody. We are saying that we are determined to be men. We are determined to be people. We are saying -- We are saying that we are God's children. And that we are God's children, we don't have to live like we are forced to live.

Now, what does all of this mean in this great period of history? It means that we've got to stay together. We've got to stay together and maintain unity. You know, whenever Pharaoh wanted to prolong the period of slavery in Egypt, he had a favorite, favorite formula for doing it. What was that? He kept the slaves fighting among themselves. But whenever the slaves get together, something happens in Pharaoh's court, and he cannot hold the slaves in slavery. When the slaves get together, that's the beginning of getting out of slavery. Now let us maintain unity.

Secondly, let us keep the issues where they are. The issue is injustice. The issue is the refusal of Memphis to be fair and honest in its dealings with its public servants, who happen to be sanitation workers. Now, we've got to keep attention on that. That's always the problem with a little violence. You know what happened the other day, and the press dealt only with the window-breaking. I read the articles. They very seldom got around to mentioning the fact that one thousand, three hundred sanitation workers are on strike, and that Memphis is not being fair to them, and that Mayor Loeb is in dire need of a doctor. They didn't get around to that.

Now we're going to march again, and we've got to march again, in order to put the issue where it is supposed to be -- and force everybody to see that there are thirteen hundred of God's children here suffering, sometimes going hungry, going through dark and dreary nights wondering how this thing is going to come out. That's the issue. And we've got to say to the nation: We know how it's coming out. For when people get caught up with that which is right and they are willing to sacrifice for it, there is no stopping point short of victory.

We aren't going to let any mace stop us. We are masters in our nonviolent movement in disarming police forces; they don't know what to do. I've seen them so often. I remember in Birmingham, Alabama, when we were in that majestic struggle there, we would move out of the 16th Street Baptist Church day after day; by the hundreds we would move out. And Bull Connor would tell them to send the dogs forth, and they did come; but we just went before the dogs singing, "Ain't gonna let nobody turn me around."

Bull Connor next would say, "Turn the fire hoses on." And as I said to you the other night, Bull Connor didn't know history. He knew a kind of physics that somehow didn't relate to the transphysics that we knew about. And that was the fact that there was a certain kind of fire that no water could put out. And we went before the fire hoses; we had known water. If we were Baptist or some other denominations, we had been immersed. If we were Methodist, and some others, we had been sprinkled, but we knew water. That couldn't stop us.

And we just went on before the dogs and we would look at them; and we'd go on before the water hoses and we would look at it, and we'd just go on singing "Over my head I see freedom in the air." And then we would be thrown in the paddy wagons, and sometimes we were stacked in there like sardines in a can. And they would throw us in, and old Bull would say, "Take 'em off," and they did; and we would just go in the paddy wagon singing, "We Shall Overcome." And every now and then we'd get in jail, and we'd see the jailers looking through the windows being moved by our prayers, and being moved by our words and our songs. And there was a power there which Bull Connor couldn't adjust to; and so we ended up transforming Bull into a steer, and we won our struggle in Birmingham. Now we've got to go on in Memphis just like that. I call upon you to be with us when we go out Monday.

Now about injunctions: We have an injunction and we're going into court tomorrow morning to fight this illegal, unconstitutional injunction. All we say to America is, "Be true to what you said on paper." If I lived in China or even Russia, or any totalitarian country, maybe I could understand some of these illegal injunctions. Maybe I could understand the denial of certain basic First Amendment privileges, because they hadn't committed themselves to that over there. But somewhere I read of the freedom of assembly. Somewhere I read of the freedom of speech. Somewhere I read of the freedom of press. Somewhere I read that the greatness of America is the right to protest for right. And so just as I say, we aren't going to let dogs or water hoses turn us around, we aren't going to let any injunction turn us around. We are going on.

We need all of you. And you know what's beautiful to me is to see all of these ministers of the Gospel. It's a marvelous picture. Who is it that is supposed to articulate the longings and aspirations of the people more than the preacher? Somehow the preacher must have a kind of fire shut up in his bones. And whenever injustice is around he tell it. Somehow the preacher must be an Amos, and saith, "When God speaks who can but prophesy?" Again with Amos, "Let justice roll down like waters and righteousness like a mighty stream." Somehow the preacher must say with Jesus, "The Spirit of the Lord is upon me, because he hath anointed me," and he's anointed me to deal with the problems of the poor."

And I want to commend the preachers, under the leadership of these noble men: James Lawson, one who has been in this struggle for many years; he's been to jail for struggling; he's been kicked out of Vanderbilt University for this struggle, but he's still going on, fighting for the rights of his people. Reverend Ralph Jackson, Billy Kiles; I could just go right on down the list, but time will not permit. But I want to thank all of them. And I want you to thank them, because so often, preachers aren't concerned about anything but themselves. And I'm always happy to see a relevant ministry.

It's all right to talk about "long white robes over yonder," in all of its symbolism. But ultimately people want some suits and dresses and shoes to wear down here! It's all right to talk about "streets flowing with milk and honey," but God has commanded us to be concerned about the slums down here, and his children who can't eat three square meals a day. It's all right to talk about the new Jerusalem, but one day, God's preacher must talk about the new New York, the new Atlanta, the new Philadelphia, the new Los Angeles, the new Memphis, Tennessee. This is what we have to do.

Now the other thing we'll have to do is this: Always anchor our external direct action with the power of economic withdrawal. Now, we are poor people. Individually, we are poor when you compare us with white society in America. We are poor. Never stop and forget that collectively -- that means all of us together -- collectively we are richer than all the nations in the world, with the exception of nine. Did you ever think about that? After you leave the United States, Soviet Russia, Great Britain, West Germany, France, and I could name the others, the American Negro collectively is richer than most nations of the world. We have an annual income of more than thirty billion dollars a year, which is more than all of the exports of the United States, and more than the national budget of Canada. Did you know that? That's power right there, if we know how to pool it.

We don't have to argue with anybody. We don't have to curse and go around acting bad with our words. We don't need any bricks and bottles. We don't need any Molotov cocktails. We just need to go around to these stores, and to these massive industries in our country, and say, "God sent us by here, to say to you that you're not treating his children right. And we've come by here to ask you to make the first item on your agenda fair treatment, where God's children are concerned. Now, if you are not prepared to do that, we do have an agenda that we must follow. And our agenda calls for withdrawing economic support from you."

And so, as a result of this, we are asking you tonight, to go out and tell your neighbors not to buy Coca-Cola in Memphis. Go by and tell them not to buy Sealtest milk. Tell them not to buy -- what is the other bread? -- Wonder Bread. And what is the other bread company, Jesse? Tell them not to buy Hart's bread. As Jesse Jackson has said, up to now, only the garbage men have been feeling pain; now we must kind of redistribute the pain. We are choosing these companies because they haven't been fair in their hiring policies; and we are choosing them because they can begin the process of saying they are going to support the needs and the rights of these men who are on strike. And then they can move on town -- downtown and tell Mayor Loeb to do what is right.

But not only that, we've got to strengthen black institutions. I call upon you to take your money out of the banks downtown and deposit your money in Tri-State Bank. We want a "bank-in" movement in Memphis. Go by the savings and loan association. I'm not asking you something that we don't do ourselves at SCLC. Judge Hooks and others will tell you that we have an account here in the savings and loan association from the Southern Christian Leadership Conference. We are telling you to follow what we are doing. Put your money there. You have six or seven black insurance companies here in the city of Memphis. Take out your insurance there. We want to have an "insurance-in."

Now these are some practical things that we can do. We begin the process of building a greater economic base. And at the same time, we are putting pressure where it really hurts. I ask you to follow through here.

Now, let me say as I move to my conclusion that we've got to give ourselves to this struggle until the end. Nothing would be more tragic than to stop at this point in Memphis. We've got to see it through. And when we have our march, you need to be there. If it means leaving work, if it means leaving school -- be there. Be concerned about your brother. You may not be on strike. But either we go up together, or we go down together.

Let us develop a kind of dangerous unselfishness. One day a man came to Jesus, and he wanted to raise some questions about some vital matters of life. At points he wanted to trick Jesus, and show him that he knew a little more than Jesus knew and throw him off base....

Now that question could have easily ended up in a philosophical and theological debate. But Jesus immediately pulled that question from mid-air, and placed it on a dangerous curve between Jerusalem and Jericho. And he talked about a certain man, who fell among thieves. You remember that a Levite and a priest passed by on the other side. They didn't stop to help him. And finally a man of another race came by. He got down from his beast, decided not to be compassionate by proxy. But he got down with him, administered first aid, and helped the man in need. Jesus ended up saying, this was the good man, this was the great man, because he had the capacity to project the "I" into the "thou," and to be concerned about his brother.

Now you know, we use our imagination a great deal to try to determine why the priest and the Levite didn't stop. At times we say they were busy going to a church meeting, an ecclesiastical gathering, and they had to get on down to Jerusalem so they wouldn't be late for their meeting. At other times we would speculate that there was a religious law that "One who was engaged in religious ceremonials was not to touch a human body twenty-four hours before the ceremony." And every now and then we begin to wonder whether maybe they were not going down to Jerusalem -- or down to Jericho, rather to organize a "Jericho Road Improvement Association." That's a possibility. Maybe they felt that it was better to deal with the problem from the causal root, rather than to get bogged down with an individual effect.

But I'm going to tell you what my imagination tells me. It's possible that those men were afraid. You see, the Jericho road is a dangerous road. I remember when Mrs. King and I were first in Jerusalem. We rented a car and drove from Jerusalem down to Jericho. And as soon as we got on that road, I said to my wife, "I can see why Jesus used this as the setting for his parable." It's a winding, meandering road. It's really conducive for ambushing. You start out in Jerusalem, which is about 1200 miles -- or rather 1200 feet above sea level. And by the time you get down to Jericho, fifteen or twenty minutes later, you're about 2200 feet below sea level. That's a dangerous road. In the days of Jesus it came to be known as the "Bloody Pass." And you know, it's possible that the priest and the Levite looked over that man on the ground and wondered if the robbers were still around. Or it's possible that they felt that the man on the ground was merely faking. And he was acting like he had been robbed and hurt, in order to seize them over there, lure them there for quick and easy seizure. And so the first question that the priest asked -- the first question that the Levite asked was, "If I stop to help this man, what will happen to me?" But then the Good Samaritan came by. And he reversed the question: "If I do not stop to help this man, what will happen to him?"

That's the question before you tonight. Not, "If I stop to help the sanitation workers, what will happen to my job. Not, "If I stop to help the sanitation workers what will happen to all of the hours that I usually spend in my office every day and every week as a pastor?" The question is not, "If I stop to help this man in need, what will happen to me?" The question is, "If I do not stop to help the sanitation workers, what will happen to them?" That's the question.

Let us rise up tonight with a greater readiness. Let us stand with a greater determination. And let us move on in these powerful days, these days of challenge to make America what it ought to be. We have an opportunity to make America a better nation. And I want to thank God, once more, for allowing me to be here with you.

You know, several years ago, I was in New York City autographing the first book that I had written. And while sitting there autographing books, a demented black woman came up. The only question I heard from her was, "Are you Martin Luther King?" And I was looking down writing, and I said, "Yes." And the next minute I felt something beating on my chest. Before I knew it I had been stabbed by this demented woman. I was rushed to Harlem Hospital. It was a dark Saturday afternoon. And that blade had gone through, and the X-rays revealed that the tip of the blade was on the edge of my aorta, the main artery. And once that's punctured, your drowned in your own blood -- that's the end of you.

It came out in the New York Times the next morning, that if I had merely sneezed, I would have died. Well, about four days later, they allowed me, after the operation, after my chest had been opened, and the blade had been taken out, to move around in the wheel chair in the hospital. They allowed me to read some of the mail that came in, and from all over the states and the world, kind letters came in. I read a few, but one of them I will never forget. I had received one from the President and the Vice-President. I've forgotten what those telegrams said. I'd received a visit and a letter from the Governor of New York, but I've forgotten what that letter said. But there was another letter that came from a little girl, a young girl who was a student at the White Plains High School. And I looked at that letter, and I'll never forget it. It said simply,

Dear Dr. King,

I am a ninth-grade student at the White Plains High School."

And she said,

While it should not matter, I would like to mention that I'm a white girl. I read in the paper of your misfortune, and of your suffering. And I read that if you had sneezed, you would have died. And I'm simply writing you to say that I'm so happy that you didn't sneeze.

And I want to say tonight -- I want to say tonight that I too am happy that I didn't sneeze. Because if I had sneezed, I wouldn't have been around here in 1960, when students all over the South started sitting-in at lunch counters. And I knew that as they were sitting in, they were really standing up for the best in the American dream, and taking the whole nation back to those great wells of democracy which were dug deep by the Founding Fathers in the Declaration of Independence and the Constitution.

If I had sneezed, I wouldn't have been around here in 1961, when we decided to take a ride for freedom and ended segregation in inter-state travel.

If I had sneezed, I wouldn't have been around here in 1962, when Negroes in Albany, Georgia, decided to straighten their backs up. And whenever men and women straighten their backs up, they are going somewhere, because a man can't ride your back unless it is bent.

If I had sneezed -- If I had sneezed I wouldn't have been here in 1963, when the black people of Birmingham, Alabama, aroused the conscience of this nation, and brought into being the Civil Rights Bill.

If I had sneezed, I wouldn't have had a chance later that year, in August, to try to tell America about a dream that I had had.

If I had sneezed, I wouldn't have been down in Selma, Alabama, to see the great Movement there.

If I had sneezed, I wouldn't have been in Memphis to see a community rally around those brothers and sisters who are suffering.

I'm so happy that I didn't sneeze.

And they were telling me --. Now, it doesn't matter, now. It really doesn't matter what happens now. I left Atlanta this morning, and as we got started on the plane, there were six of us. The pilot said over the public address system, "We are sorry for the delay, but we have Dr. Martin Luther King on the plane. And to be sure that all of the bags were checked, and to be sure that nothing would be wrong with on the plane, we had to check out everything carefully. And we've had the plane protected and guarded all night."

And then I got into Memphis. And some began to say the threats, or talk about the threats that were out. What would happen to me from some of our sick white brothers?

Well, I don't know what will happen now. We've got some difficult days ahead. But it really doesn't matter with me now, because I've been to the mountaintop.

And I don't mind.

Like anybody, I would like to live a long life. Longevity has its place. But I'm not concerned about that now. I just want to do God's will. And He's allowed me to go up to the mountain. And I've looked over. And I've seen the Promised Land. I may not get there with you. But I want you to know tonight, that we, as a people, will get to the promised land!

And so I'm happy, tonight.

I'm not worried about anything.

I'm not fearing any man!

Mine eyes have seen the glory of the coming of the Lord!!

Parson Malthus Preacheth the Lesson!

T.R. Malthus It is, undoubtedly, a most disheartening reflection that the great obstacle in the way to any extraordinary improvement in society is of a nature that we can never hope to overcome. The perpetual tendency in the race of man to increase beyond the means of subsistence is one of the general laws of animated nature which we can have no reason to expect will change. Yet, discouraging as the contemplation of this difficulty must be to those whose exertions are laudably directed to the improvement of the human species, it is evident that no possible good can arise from any endeavours to slur it over or keep it in the background. On the contrary, the most baleful mischiefs may be expected from the unmanly conduct of not daring to face truth because it is unpleasing. Independently of what relates to this great obstacle, sufficient yet remains to be done for mankind to animate us to the most unremitted exertion. But if we proceed without a thorough knowledge and accurate comprehension of the nature, extent, and magnitude of the difficulties we have to encounter, or if we unwisely direct our efforts towards an object in which we cannot hope for success, we shall not only exhaust our strength in fruitless exertions and remain at as great a distance as ever from the summit of our wishes, but we shall be perpetually crushed by the recoil of this rock of Sisyphus...


It is a perfectly just observation of Mr. Godwin, that, 'There is a principle in human society, by which population is perpetually kept down to the level of the means of subsistence.' The sole question is, what is this principle? is it some obscure and occult cause? Is it some mysterious interference of heaven.... Or is it a cause, open to our researches, within our view, a cause, which has constantly been observed to operate, though with varied force, in every state in which man has been placed? Is it not a degree of misery, the necessary and inevitable result of the laws of nature, which human institutions, so far from aggravating, have tended considerably to mitigate, though they never can remove?.... It seems highly probable, therefore, that an administration of property, not very different from that which prevails in civilized states at present, would be established, as the best, though inadequate, remedy for the evils which were pressing on the society...

Hoisted from the Archives: Thinking About Aristotle of Stagira and Moses Finley

Thinking About Aristotle of Stagira and Moses Finley: Archive Entry From Brad DeLong's Webjournal: I'm never sure whether I should begin my economic history survey courses with Aristotle or not.

As Moses Finley powerfully argues, Aristotle does not care about the economy. The fragments in his Ethics and Politics that economists like Joseph Schumpeter point to are, mostly, concerned with other things than economic analysis. Karl Polanyi thought that Aristotle's naivete was the result of the fact that a mercantile, market, commercial economy was something very new. He was surely wrong: it was not something new, but rather something that Aristotle as a Hellenic aristocrat would have been embarrassed to be caught thinking seriously about.

Aristotle's perspective is so different from ours that it provides a useful mental shock when you consider that Aristotle of Stagira was not an idiot. For two thousand years people--pagan Hellenes, Christian Europeans, and Islamic Arabs, Egyptians, Mesopotamians,and Iranians--called Aristotle of Stagira "the philosopher", as if there could be only one. Think of the way seventeenth, eighteenth, and nineteenth century Britons regarded Newton (or the way we regard Einstein). So we need to take Aristotle seriously.

Think about how a very good mind, thinking very hard, in pre-industrial-revolution economic circumstances, could wind up thinking the thoughts on the economy that Aristotle does. Specifically, why does he...

...believe so strongly that gross inequality--domination and slavery--is natural and inevitable?

...believe that the 'natural art of acquisition'--the getting of the resources necessary to properly run one's household--has a limit: 'a boundary fixed, just as there is in the other arts; for the instruments of any art are never unlimited, either in number or size, and riches may be defined as a number of instruments to be used in a household or in a state...'? (Never mind that Aristotle's "limit" is probably the full-time year-round labor of at least fifty people, at today's OECD wage levels some $3,000,000 a year: in one sense very, very few of us will ever come near to Aristotle's point of satiation; in another sense every single one of us has already gone far beyond Aristotle's limit.)

...believe that shepherds are '...the laziest [of men]... lead an idle life... get their subsistence without trouble from tame animals...'?

...believe that '[t]here are two sorts of wealth-getting... one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another...'?

...believe that of '...the practical part [of wealth-getting] the discussion of such matters is not unworthy of philosophy, but to be engaged in them practically is illiberal and irksome'?

And if you do read it, don't miss Aristotle's story of Thales of Miletos and his corner of the olive-press-rental market on Khios..."

The Shift from Procyclical to Countercyclical Productivity in the American Business Cycle

Between the end of World War II and the late 1980s, times when unemployment rose were times when productivity growth was relatively low--and as the economy came out of the depths of the recession productivity growth would accelerate.

Since 1990, times when unemployment rates have risen have been times when productivity growth is relatively high--and as the economy comes out of the depths of the recession productivity growth tends to drop:




This shift does, I think, pose a big problem for Austrian and other real supply as opposed to demand side theories of the business cycle. In the depths of recent recessions unemployment is not high because labor productivity is low relative to trend. In the depths of recent recessions unemployment is high in spite of the fact that labor productivity is high relative to trend. Were it not for the shortage of demand, firms would want to employ not fewer but rather more workers at the trough than they had employed at the peak.

But because of the shortage of demand the new firms that could employ the unemployed profitably if only demand were normal do not exist. And because of the shortage of demand the firms that will expand and profitably employ the unemployed when demand returns to normal do not yet know who they are.

20110116 8QD unemp and prod.xls