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February 2011

An Appeciation of Felix Salmon

There is 1000 times as much good stuff to read as any of us could possibly read. So we read a little: things and people that we have found interesting in the past. And when we run into somebody in the hallway, we ask them what they have recently read that was interesting. Weblogs greatly expand the number of people we run into in the hallway: although in this case it is, of course, a virtual hallway.

Which then creates the problem of which of the thousands of doors on your virtual hallway you knock on.

Ever since Felix Salmon started working for Nouriel Roubini, he has been very high on my list of weblogs to read. Why? Because he writes very well. Because he reads an immense amount. Because he is pragmatic and empirical: "this proves my ideology is right!" is not a message he wants to send anyone. And because he reads different things from me and things differently enough from me that I learn a huge amount.

Felix Salmon suits me. Would he suit you? He really ought to. Too many people are either on Team Politics or Team Ideology or Team I-Talk-My-Book. You cannot learn much from them.

Take a look at, recently:

All ten of these are worth reading for me. I would have gotten to about three of them without Felix.

Tim Duy: Commodity Shock


Commodity Shock: How quickly the world can change.  Just a few weeks ago, incoming data suggested room for optimism.... The rapidly evolving situation in the Middle East, however, threatens to unsettle this positive momentum as oil prices surge.  Unfortunately, the suddenly choppy economic waters catch US monetary policymakers off guard, and it shows in recent Fedspeak.  It appears that the Fed is stuck between two narratives, one in which the energy price shock turns inflationary given signs of economic improvement in recent months, and another in which oil undermines a still-nascent recovery.  It is an unfortunate debate to have during this period of uncertainty and this early in the recovery....

I think it is somewhat silly to be discussing an early end to the LSAP as it only adds another layer of uncertainty on what was already an increasingly uncertain environment.  Somewhat pointless as well – the end is fast approaching in any event.   Indeed, I find the debate disappointing, albeit expected.  Policymakers appear to have learned little from their failed exercise in hawkishness this time last year.

What should be our baseline expectation for policy at this juncture?  First, the current LSAP policy concludes as planned, at least in magnitude.  They could choose a more gradual end to the policy, but I am hard pressed to see a change in the ultimate amount given the time horizon (June will come faster than we think).  Indeed, continuing high unemployment alone argues against meaningful alteration of the policy despite signs of economic health.  Second, the oil price shock raises the odds for another round of easing.  Simply put, the recent trajectory of commodity prices threatens to shift the story from a benign signal that the economy is on the mend to something much more dire.  And much more dire generally induces monetary easing, not tightening.

Consider an example I recently used in class.  The question:  What is the impact of a commodity price shock?  To gain some direction, construct a four variable vector autoregression of commodity prices, core PCE prices, real GDP, and the federal funds rate.   For a commodity price measure, I used the PPI measure for Crude Materials for Further Processing.... I estimated the model with 5 quarterly lags over the period 1984:1 to 2010:4.  I then generated impulse response functions.... [A] roughly 8 percentage point increase in commodity prices yields virtually no impact on core inflation, but, after four quarters, drives real GDP growth down .17 percentage points.  Monetary policy responds with a .23 percentage point decrease in the fed funds rates after 7 quarters.  Of course, in the current zero interest rate environment this response would need to be mimicked with a fresh expansion of the quantitative easing (I have yet to find a satisfactory replacement for the federal funds rate to take into account the zero bound.  Topic for future research)....

[W]e are experiencing a significant commodity price shock this quarter.  While certainly a drag on growth, is it yet sufficient to derail the recovery?  The White House thinks no.... “Anything like we have seen so far neither we nor the private sector has forecast that would derail our recovery,” Goolsbee said yesterday at a breakfast with reporters organized by the Christian Science Monitor. I would tend to agree – if commodity price inflation slows sharply at this point.  But the surge of recent weeks has already exceeded my expectations.... The economy can’t withstand another quick run to $140 a barrel, and I suddenly feel that we are at a tipping point to brings such a run into view...

Oil Price Shocks

Macro Advisers:

An increase in oil prices of $10/bbl for one year starting in the first quarter of 2011 would:

  • Reduce GDP growth by about 0.3 percentage point over the first half of the year and by 0.2 percentage point over the entire year.
  • Headline PCE inflation would be about 0.1 percentage point higher over the year, and the unemployment rate would also be about 0.1 percentage point higher.

We will issue a more extensive alternative scenario next week that will incorporate a significantly higher path of oil prices and related financial-market spillovers after the completion of our forecast update...stay tuned.

Pain without Purpose

We are live at Project Syndicate:

BERKELEY – Three times in my life (so far), I have concluded that my understanding of the world was substantially wrong. The first time was after the passage in 1994 of the North America Free Trade Agreement (NAFTA), when the flow of finance to Mexico to build factories to export to the largest consumer market in the world was overwhelmed by the flow of capital headed to the United States in search of a friendlier investment climate. The result was the Mexican peso crisis of later that year (which I, as US Assistant Secretary of the Treasury, had to help contain).

My second epiphany came in the fall and winter of 2008, when it became clear that large banks had no control over either their leverage or their derivatives books, and that the world’s central banks had neither the power nor the will to maintain aggregate demand in the face of a large financial crisis.

The third moment is now. Today, we face a nominal demand shortfall of 8% relative to the pre-recession trend, no signs of gathering inflation, and unemployment rates in the North Atlantic region that are at least three percentage points higher than any credible estimate of the sustainable rate. And yet, even though politicians who fail to safeguard economic growth and high employment tend to lose the next election, leaders in Europe and the US are clamoring to enact policies that would reduce output and employment in the short run.

Am I missing something here?

I had thought that the fundamental issues in macroeconomics were settled in 1829. Back then, even Jean-Baptiste Say no longer believed in Say’s Law of business-cycle frequencies. He knew very well that a financial panic and excessive demand for financial assets could produce deficient demand for currently-produced commodities and for labor, and that while such a short-run breakdown of Say’s Law might be temporary, it was nonetheless highly destructive.

Armed with that insight, the disease of the business cycle should be addressed in one or more of three ways.

  1. Don’t go there in the first place. Avoid whatever it is – whether an external drain under the gold standard or a collapse of long-term wealth as with the collapse of the dot-com bubble or a panicked flight to safety as in 2007-2008 – that creates a shortage of, and excess demand for, financial assets.

  2. If you fail to avoid the problem, then have the government step in and spend on currently produced goods and services in order to keep employment at its normal levels to offset private-sector spending cuts.

  3. If you fail to avoid the problem, then have the government create and provide the financial assets that the private sector wants to hold in order to get the private sector to resume its spending on currently produced goods and services.

There are a great many subtleties to how a government should attempt to pursue each of these policy options. Attempts to carry out one of the three may exclude or interfere with attempts to carry out the others. And, if inflationary expectations become embedded in an economy, it may be impossible for any of the three cures to work. But that is not our situation today.

Likewise, if the perceived creditworthiness of the government is shaken, then intervention from some outside lender of last resort might be essential for either the second or third cure to work. But that, too, is not the situation today in the core economies of the North Atlantic.

Yet, somehow, all three of these cures are now off the table. There is no likelihood of reforms of Wall Street and Canary Wharf aimed at diminishing the likelihood and severity of any future financial panic, and no likelihood of government intervention to restore the normal flow of risky finance through the banking system. Nor is there any political pressure to expand or even extend the anemic government stimulus measures that have been undertaken.

Meanwhile, the European Central Bank is actively looking for ways to shrink the supply of financial assets that it provides to the private sector, and the US Federal Reserve is under pressure to do the same. In both cases, it is claimed that further expansionary asset-provision policies run the risk of igniting inflation.

Yet no likelihood of inflation can be seen when tracking price indexes or financial-market readings of forecast expectations. And no approaching government debt crisis in the core economies can be seen when tracking government interest rates.

Nevertheless, when you listen to the speeches of policymakers on both sides of the Atlantic, you hear presidents and prime ministers say things like: “Just as families and companies have had to be cautious about spending, government must tighten its belt as well.”

And here we reach the limits of my mental horizons as a neoliberal, as a technocrat, and as a mainstream neoclassical economist. Right now, the global economy is suffering a grand mal seizure of slack demand and high unemployment. We know the cures. Yet we seem determined to inflict further suffering on the patient.

Why Oh Why Can't We Have a Better Press Corps? (New York Times Needs to Fire All Sulzbergers Immediately Edition)

Outsourced to Keith Olbermann:

New York Times Punk’d By Anti-Union Plant: Few news stories better spoke to the destruction of union solidarity and the realization that even those public employees collectively bargaining in Wisconsin were going to have to give something back, than the New York Times’ piece a week ago tomorrow titled “Union Bonds In Wisconsin Begin To Fray.” The by-line was shared by no less than Arthur G. Sulzberger, the son of the publisher and official carrier of the Times’ family name. The piece ran prominently on the front page. Sulzberger himself interviewed the main ‘get’ in the piece. Beyond the mere reporting was the symbolism of the Times - even the sainted liberal media Times – throwing in the towel on the inviolability of unions, conceding that an American state could renege with impunity on a good faith contract with anybody, and that maybe the Right is right every once in awhile. Problem is, A.G. Sulzberger’s featured disillusioned unionist interviewee…wasn’t in a union.

JANESVILLE, Wis. — Rich Hahan worked at the General Motors plant here until it closed about two years ago. He moved to Detroit to take another G.M. job while his wife and children stayed here, but then the automaker cut more jobs. So Mr. Hahan, 50, found himself back in Janesville, collecting unemployment for a time, and watching as the city’s industrial base seemed to crumble away. Among the top five employers here are the county, the schools and the city. And that was enough to make Mr. Hahan, a union man from a union town, a supporter of Gov. Scott Walker’s sweeping proposal to cut the benefits and collective-bargaining rights of public workers in Wisconsin, a plan that has set off a firestorm of debate and protests at the state Capitol. He says he still believes in unions, but thinks those in the public sector lead to wasteful spending because of what he sees as lavish benefits and endless negotiations. “Something needs to be done,” he said, “and quickly.”

Compelling, damning, overwhelming words, and from such a source!

Except the source, Rick Hahn, now admits that while he worked in union factories, he was never, you know, in a union per se. So why did the Diogenes of the Times, Mr. Sulzberger, believe he had found his honest union man? Because Hahn “described himself to a reporter as a ‘union guy.’” And yes, Hahan/Hahn’s deception, intentional or accidental (and if you noticed the multiple spelling, yes, Mr. Sulzberger of the Times also got the guy’s name wrong) sat out there in the alleged newspaper of record for four days, during which nobody bothered to correct the sloppy, destructive reporting of the Family Heir. When they finally did, editors buried it inside. ‘Buried it inside’ is newspaper lingo, in case A.G. Sulzberger isn’t familiar with it.

We know about this Times disaster from last Tuesday because the paper finally got around to correcting it in Saturday’s edition. The mistake got page 1A. The correction got a little box “below the fold” (somebody explain that term to Mr. Sulzberger, too) on 2A, which is read about as thoroughly as the drug interaction warnings that come with aspirin:

A front-page article on Tuesday about reaction among private-sector workers in Wisconsin to Gov. Scott Walker’s effort to cut benefits and collective-bargaining rights for unionized public employees referred incorrectly to the work history of one person quoted, and also misspelled his surname. While the man, Rich Hahn (not Hahan) described himself to a reporter as a “union guy,” he now says that he has worked at unionized factories, but was not himself a union member. (The Times contacted Mr. Hahn again to review his background after a United Auto Workers official said the union had no record of his membership.)

This clear picture of a bunch of agendas happily coinciding – ‘Sulzberger! Find me a Wisconsin union guy who agrees with the Governor!’ – and to hell with the facts or the fact-checking or the spelling, with the truth coming to light only from – gasp! – an actual union guy (from the devil UAW itself!), has been reduced to a “PS, the publisher’s kid kinda screwed up on the most important domestic news story of the moment” instead of serving as the springboard for something fair, or even useful – maybe a front-page piece about the disinformation war being waged by Governor Walker and the Koch Brothers and the Tea Party in Wisconsin and whether or not this Hahan/Hahn was part of it, intentionally or inadvertently....

The obvious point about Sulzberger’s story is that, at best, the Times made a terrible mistake rendering fraudulent a featured piece on imperiled American freedom in the middle of an info-war over that freedom by a reporter whose name is synonymous with its power structure and then tried to whitewash itself (or, at worst, it wasn’t an amazing coincidence, and the Times got played like the proverbial three-dollar banjo and then tried to whitewash itself). Seems to me the Times could start with finding out exactly who Mr. Hahan/Hahn is. There appears to be a “Rich Hahn” involved with “staffing and recruiting” for a company called “PSI” in the “Janesville/Beloit area” in Wisconsin. Is that Mr. Sulzberger’s “union guy”? I’d try to tell you before, but that shred of possibly irrelevant information required me to expend nearly one entire calorie of brain heat performing a google search that kept me hopping for 30 seconds. I just did more research than the Times did and I need a nap. Maybe they could talk to Gabrielle Union. She must have an important point of view on organized labor. Man, what if she liked Walker’s proposals! That’d be some story, huh? That’d get the Right Wing off our backs for eight seconds? Am I right? Sulzberger? Sulzberger? Hello?...

And to Digby:


Hullabaloo: Olbermann... may be a good blogger and a great broadcaster, [but] he missed a very important part of this story. But Jonathan at A Tiny Revolution caught it right away:

For me the best part of the Scott Walker prank call is how much he loves a New York Times article:

SCOTT WALKER: The New York Times, of all things—I don't normally tell people to read the New York Times, but the front page of the New York Times, they've got a great story—one of these unbelievable moments of true journalism—what it's supposed to be, objective journalism—they got out of the capital and went down one county south of the capital, to Janesville, to Rock County, that's where the General Motors plant once was. FAKE DAVID KOCH: Right, right.

WALKER: They moved out two years ago. The lead on this story's about a guy who was laid off two years ago, he'd been laid off twice by GM, who points out that everybody else in his town has had to sacrifice except for all these public employees, and it's about damn time they do and he supports me. And they had a bartender, they had—every stereotypical blue collar worker-type, they interviewed, and the only ones who weren't with us were ones who were either a public employee or married to a public employee. It's an unbelievable—so I went through and called all these, uh, a handful, a dozen or so lawmakers I worry about each day, and said to them, everyone, get that story and print it out and send it to anybody giving you grief.

Noting the fact that the article was written by Sulzberger Jr he later wrote:

So that's ominously funny and funnily ominous in its own right. But we don't need to try to predict how honest New York Times coverage will be in the future when A.G. Sulzberger becomes publisher...because we can just examine his writing right now. Sulzberger just wrote a 733-word article about the prank call. Number of mentions of Walker loving a certain Sulzberger-written New York Times article? Zero.

Yes, that's right. Sulzberger Jr also wrote the article for the NY Times about Walker's prank call and never mentioned that Walker had talked at length about his own (incorrect) article in the call.

One hates to think that just because Sulzberger is the heir to a great newspaper empire that he has an agenda. And perhaps it's better to use Occam's Razor and just assume that he's lazy and inept as so many bosses sons are. But these events are ironically funny at the very least. Indeed, the fact that they assigned the Paris Hilton of newspapers to cover this story at all is hilarious, especially considering that he accepted the word of someone who said he was "a union man" and didn't bother to ask what union he belonged to. I'm guessing that Sulzberger Junior just assumed that no one would lie about being a member of a union. Or maybe he was the only person he could find to properly illustrate the article he already wanted to write.

This is a lovely little story of Big Media and its biases working in favor of the ruling class. Just as one would expect...

John Quiggin Walks the Web of the Future and Examines the House of Saud


After the Sauds: The downfall of the Gaddafi dictatorship now seems certain, despite brutal and bloody attempts at repression. The failure of these attempts kills off what was briefly the conventional wisdom, that dictatorships in the region can hold on if they “don’t blink“. At this point, Gaddafi and his remaining supporters will be lucky if they can make it to The Hague for their trials.... Now a new conventional wisdom seems to be emerging... while dictatorships (more accurately perhaps, tyrannies, in the classical sense of monarchs who have seized their thrones with no prior hereditary claim) are doomed, but that monarchies can survive with cosmetic concessions. In particular, on this analysis, the US relationship with the House of Saud can go on more or less as before.

There’s an element of truth here, but the central claim is wishful thinking

The element of truth is that the Arab monarchies have good prospects of survival if they can manage the transition to constitutional monarchy. And it makes sense for them to do so. After all, a constitutional monarch gets to live, literally, like a king, without having to worry about boring stuff like budgets and foreign affairs. And, in the modern context, the risk that such a setup will be overthrown by a military coup, as happened to quite a few of the postcolonial constitutional monarchs, is much diminished. By contrast, there’s no such thing as a constitutional dictatorship or tyranny and no way to make the transition from President-for-Life to constitutional monarch....

[T]he general point is valid enough. But it doesn’t yield the kind of conclusion implied by the conventional wisdom. The first big difficulty is with the assumption that the monarchs can retain sufficient power to be useful allies of the kind US foreign policy has traditionally sought.... That seems unlikely to me. Monarchs who want to survive should be looking to transform themselves into ornamental figureheads/elder statesmen, not just sacking their existing governments but holding free elections to pick new ones and handing over effective power. That shouldn’t be too hard in, say, Morocco or Jordan, but it will imply that existing relationships with the kings of those countries will be about as valuable as close personal ties with Queen Beatrix.... The other big problem is that this can’t easily be done in Saudi Arabia. There are not even the forms of a constitutional government to begin with. Worse, the state is not so much a monarchy as an aristocracy/oligarchy saddled with 7000 members of the House of Saud, and many more of the hangers-on that typify such states. These people have a lot to lose, and nothing to gain, from any move in the direction of democracy.

The absence of any kind of organised opposition may allow the Sauds to hang on through the current crisis, but assuming that democratisation is successful elsewhere, the regime will stand out as an indefensible medieval anachronism.... I’d put the life expectancy of the regime in months or maybe years, but not in decades. In particular, it’s hard to imagine the monarchy outlasting the current King, Abdullah, aged 88 (according to Wikipedia, his brother and heir aged 82, enjoys the flattering title “Prince of Thieves“).

What would the Middle East be like, if Arabia were no longer ruled by the Sauds? No doubt experts have written on this, but a cursory Google didn’t find any, so it’s open for blog speculation....

Saudi Arabia has already ceased to play the central role it once held in oil markets.... If the downfall of the Sauds were chaotic, output might fall, and world prices rise. But as far as oil consumers are concerned, what you lose on the short-term roundabouts you gain on the long-term swings. Arabian oil is very easy to extract, so sooner or later, all of it will be....

The conventional ‘realist’ view is that Saudi Arabia counterbalances Iran.... I think this is silly. Anyone can see that the Iranian Basij are the same as the goons used by dictatorships elsewhere in the region. They managed to beat pro-democracy protestors last time, but it will be more difficult to pull that off again....

[W]hile Saudi Arabia has not exactly been friendly to Israel, it has been more subject to US influence than any likely successor regime will be. But again, the big effect for Israel will be the demonstration effect as more and more dictatorships and absolute monarchies fall. Why should Palestinians, alone in the region, be denied a democratic government and recognised international boundaries?

Finally, there’s the US.... [T]here are plenty of examples (Indonesia, Phillipines) suggesting that the successor regimes won’t necessarily be hostile.... Uncounted billions (counting Iraq, trillions) of dollars have been spent on the premise that the US has a vital interest in determining political outcomes in the Middle East. Yet in the current upsurge the US Administration has been reduced to the role of a bystander at a sporting event of which they don’t know the rules....

More than any other state in the region, and perhaps in the world, Saudi Arabia is a creation of US policy. A democratic Arabia, if it emerges, will be just another moderately problematic trading partner. After the Sauds, there will be no real reason for the US to have a Middle East policy, just as it no longer has, in any effective sense, a Latin America or Europe policy.

Information You Need to Know

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Gmail messages are downloaded in batches, so it may take time for everything to appear in your mail client.

The Glass Bead Game Is a Really, Really Stupid Game to Play...

Jonathan Chait:

Tom Friedman's Volcano Wakeup Call: A very clever friend sends over today's Tom Friedman column edited down to nothing but mixed metaphors and cliches:

A wake-up call’s mother is unfolding.  At the other end is a bell, which is telling us we have built a house at the foot of a volcano. The volcano is spewing lava, which says move your house. The road will be long and rocky, but it will trigger a shift before it kicks. We can capture some of it. IF the Middle East was a collection of gas stations, Saudi Arabia would be a station. Iran, Kuwait , Bahrain, Egypt, Libya, Iraq, and the United Arab Emirates would all be stations. Guys, here’s the deal. Don’t hassle the Jews. You are insulated from history. History is back. Fasten your seat belts. Don’t expect a joy ride because the lid is blowing off. The west turned a blind eye, but the report was prophetic, with key evidence. Societies are frozen in time. No one should have any illusions. Root for the return to history, but not in the middle.

My friend could have published this himself, but he was between a rock and a hard place with no easy answers.

Mark Thoma: The Fed’s Hawkish Stance


The Fed’s Hawkish Stance - CBS Why such a hawkish stance among the members of the Fed?... [T]here is more to the hawkishness than worry about the Fed’s expansionary policy to combat the recession. There is also the longer run issue of how the federal budget deficit might affect monetary policy. If the deficit is not reined in, and if interest rates begin to rise as the economy recovers - as they certainly will at some point, though not any time soon - then the Fed will need to decide how to respond.... The hawkishness we are seeing presently is, in part, a signal to Congress that if they don’t get the budget under control, they cannot count on the Fed to bail them out through inflationary debt monetization. The Fed is sending a very clear message that it will raise interest rates rather than let inflation become a problem even if that means slowing the economy and increasing unemployment.

But there is a danger here. Members of Congress may use this message about the difficulties deficits pose for monetary policy to bolster their efforts to pass budget reductions in the short-run that do very little to solve the long-run budget problem. For example, the GOP’s proposal to cut $61 billion from discretionary spending through cuts in programs such as Head Start and Pell Grants will do almost nothing to solve the long-run deficit problem, which is driven primarily by rising health care costs, but it could slow the recovery substantially.

The Fed cannot allow itself to be pushed into debt monetization by Congress, so communication along these lines is appropriate. However, how this message is communicated is critical.... Those Fed members who think that tighter monetary or fiscal policy is in the short-run will be harmful need to make it clear that although it’s important to solve the long-run budget problem, short-run contraction could be harmful and it could actually work against fixing the long-run problem.... [I]mmediate cuts to programs that have little or nothing to do with the long-run budget problem will harm the recovery, give the public a false sense of security that Congress is making headway on the budget problem, and it will not avoid the need to address the long-run budget issue down the road. The members of the Fed who understand this reality must do a better job of letting the public know that the current budget proposals would dim employment prospects, do almost nothing about the long-run budget problem, and make it much more likely that the Fed will face difficult choices in the future.

Why Oh Why Can't We Have a Better Press Corps?: Glass-Bead-Game Edition

In general the glass-bead-game is not a good game to play.

Henry Farrell sends us to:

The Intellectual Field: Laura at 11D:

There was a stage set for Remnick and Gladwell. … When they came out, Remnick immediately brought up the Gladwell’s social media article from a few weeks ago, where Gladwell wrote that social media only created weak ties and wasn’t sufficient to push a people to form a social movement. He took a lot of heat in the past few weeks, since social media may have played some role in the uprisings in Egypt. Gladwell was pretty hostile to his critics. He scoffed that his critic was some blogger from Huffington Post. Why should we listen to some pajama-wearing blogger, he asked? Some pajama-wearing blogger who lives in Brooklyn, he added for extra laughs. Well, I’m not sure why we should listen to a journalist who doesn’t like to travel north of 14h Street. Look, it was a very entertaining evening. Those guys were funny and witty and shared lots of amusing stories. But they didn’t know anything about revolutions or social media or Egypt. That’s okay. Journalists don’t have know be experts in their field. But they have to acknowledge that they aren’t experts and they really have an obligation to talk to people who spend their lives studying those subjects. … Why should anyone care what Malcolm Gladwell thinks about Egypt and Facebook, when there are people who have travelled to the Mid East, are fluent in Arabic, and spend most of their waking hours learning about this subject.

Arthur Goldhammer

It must have been more than 30 years ago now that Michel Foucault wrote an article entitled “La mort de l’intellectuel.” Apparently Le Monde didn’t get the message, because it invited four “intellectuals” to comment on the “Arab revolts.” The choice of participants in this forum tells you something about what the word “intellectuel” means today. We hear from Alain Touraine, Alain Badiou, Elisabeth Roudinesco, and André Glucksmann. None is a specialist on the region in turmoil, on the history of revolutions, on Islam, on Arab culture, on the political economy of the rebellious states, on social movements in the Arab world, on previous rebellions against military dictatorships, on relations between the military and civil society, or any of a hundred other topics that might confer authority to speak about one or another aspect of the unfolding wave of rebellion. In France, to be a specialist is almost a disqualification to speak as an “intellectual.” An intellectual is one who has risen above his or her specialty, if any, to acquire a quasi-priestly authority to pronounce on n’importe quoi—and as often as not, to say n’importe quoi about it. But I wonder if this sort of rootless speculation has any purchase on the French audience today. Perhaps a piece like this in Le Monde is simply a throwback to the day when large numbers of people hungered to know what Sartre or Camus thought about the events of the day.

And Henry comments:

When I read these posts (nearly back to back – I’ve been away from the internets for a few days), the similarities were striking. The current crop of French intellectuals is rather like Malcolm Gladwell. And (such comparisons being commutative) Malcolm Gladwell is rather like the current crop of French intellectuals. I wonder which would take greater umbrage at the comparison.

Mark Zandi: GOP Spending Plan Would Cost 700,000 Jobs

Had John McCain won the 2008 election, Mark Zandi would be in ne of the hot seats.

Lori Montgomery.

GOP spending plan would cost 700,000 jobs, new report says: A Republican plan to sharply cut federal spending this year would destroy 700,000 jobs through 2012, according to an independent economic analysis set for release Monday. The report, by Moody's Analytics chief economist Mark Zandi, offers fresh ammunition to Democrats seeking block the Republican plan, which would terminate dozens of programs and slash federal appropriations by $61 billion over the next seven months.

Zandi, an architect of the 2009 stimulus package who has advised both political parties, predicts that the GOP package would reduce economic growth by 0.5 percentage points this year, and by 0.2 percentage points in 2012, resulting in 700,000 fewer jobs by the end of next year.

His report comes on the heels of a similar analysis last week by the investment bank Goldman Sachs, which predicted that the Republican spending cuts would cause even greater damage to the economy, slowing growth by as much as 2 percentage points in the second and third quarters of this year...

One question: in what sense was Mark Zandi an "architect of the 2009 stimulus plan"? I don't get that at all.

UPDATE: Queried, Lori Montgomery emails:

he was on the team of economists who were advising pelosi during that period, and his research helped shape the package. don't you remember all those photo ops?

Hmmm... By that standard, the Recovery Act had at least 200 "architects," including me...

FURTHER UPDATE: Mark Zandi emails David Weigel:

David Weigel:

Weigel: The Zandi Misfits: "I think the stimulus efforts were a success. They were designed to end the free fall in the economy, and they did that," Zandi told me in an e-mail. "Not sure how I became the chief architect."

Senator Burton K. Wheeler Liveblogs World War II


The Menace of Lend-Lease: The Lend-Lease policy, translated into legislative form, stunned a Congress and a nation wholly sympathetic to the cause of Great Britain. The Kaiser's blank check to Austria-Hungary in the First World War was a piker compared to the Roosevelt blank check of World War II. It warranted my worst fears for the future of America, and it definitely stamps the President as war-minded.

The lend-lease-give program is the New Deal's triple-A foreign policy; it will plow under every fourth American boy.

Never before have the American people been asked or compelled to give so bounteously and so completely of their tax dollars to any foreign nation. Never before has the Congress of the United States been asked by any President to violate international law. Never before has this nation resorted to duplicity in the conduct of its foreign affairs. Never before has the United States given to one man the power to strip this nation of its defenses. Never before has a Congress coldly and flatly been asked to abdicate.

If the American people want a dictatorship - if they want a totalitarian form of government and if they want war - this bill should be steam-rollered through Congress, as is the wont of President Roosevelt.

Approval of this legislation means war, open and complete warfare. I, therefore, ask the American people before they supinely accept it - Was the last World War worthwhile?

If it were, then we should lend and lease war materials. If it were, then we should lend and lease American boys. President Roosevelt has said we would be repaid by England. We will be. We will be repaid, just as England repaid her war debts of the First World War - repaid those dollars wrung from the sweat of labor and the toil of farmers with cries of "Uncle Shylock." Our boys will be returned - returned in caskets, maybe; returned with bodies maimed; returned with minds warped and twisted by sights of horrors and the scream and shriek of high-powered shells.

Considered on its merits and stripped of its emotional appeal to our sympathies, the lend-lease-give bill is both ruinous and ridiculous. Why should we Americans pay for war materials for Great Britain who still has $7 billion in credit or collateral in the United States? Thus far England has fully maintained rather than depleted her credits in the United States. The cost of the lend-lease-give program is high in terms of American tax dollars, but it is even higher in terms of our national defense. Now it gives to the President the unlimited power to completely strip our air force of its every bomber, of its every fighting plane.

It gives to one man - responsible to no one - the power to denude our shores of every warship. It gives to one individual the dictatorial power to strip the American Army of our every tank, cannon, rifle, or antiaircraft gun. No one would deny that the lend-lease-give bill contains provisions that would enable one man to render the United States defenseless, but they will tell you, "The President would never do it." To this I say, "Why does he ask the power if he does not intend to use it?" Why not, I say, place some check on American donations to a foreign nation?

Is it possible that the farmers of America are willing to sell their birthright for a mess of pottage? Is it possible that American labor is to be sold down the river in return for a place upon the Defense Commission, or because your labor leaders are entertained at pink teas? Is it possible that the American people are so gullible that they will permit their representatives in Congress to sit supinely by while an American President demands totalitarian powers - in the name of saving democracy?

I say in the kind of language used by the President - shame on those who ask the powers - and shame on those who would grant them.

You people who oppose war and dictatorship, do not be dismayed because the warmongers and interventionists control most of the avenues of propaganda, including the motion-picture industry. Do not be dismayed because Mr. Willkie, of the Commonwealth & Southern, agrees with Mr. Roosevelt. This merely puts all the economic and foreign "royalists" on the side of war.

Remember, the interventionists control the moneybags, but you control the votes.

Liveblogging World War II: February 27, 1941


From: Honolulu (Okuda)
To: Tokyo (Gaimudaijin)
27 February, 1941
(J17 K6)


Re my #29*.

Apparently the [U.S. Pacific] Fleet goes to sea for a week of training and stays in Pearl Harbor one week. Every Wednesday, those at sea and those in the harbor change places. This movement was noted on last Wednesday, the 26th.

The following vessels were seen in Pearl Harbor on the 27th: 4 battleships (1 of the California class and 3 of the Maryland class); 4 heavy cruisers (all of the San Francisco class); 6 light cruisers (4 of the Honolulu class and 2 of the Omaha class); 25 destroyers of which 3 were outside of the harbor); 2 destroyer tenders; 1 troop transport; several transports; several submarines; and 2 submarine tenders.

The Yorktown was not in port. A vessel which appeared to be a heavy cruiser was anchored outside of the harbor.

Plato in Syracuse--or, Rather, Leptis Magna

Robert Putnam today speaking about his 2007 meeting with Gaddafi:

Two view of Gadhafi « PHILOSOPHY IN A TIME OF ERROR: Students of Western political philosophy would categorize Col. Gadhafi as a quintessential student of Jean-Jacques Rousseau: He made clear that he deeply distrusted any political group that might stand between individual citizens and the “General Will” as interpreted by the Legislator (i.e., Col. Gadhafi himself). When I argued that freedom of association could enhance democratic stability, he vehemently dismissed the idea. That might be so in the West, he insisted, but in Libya it would simply strengthen tribalism, and he would not stand for disunity. Throughout, he styled our meeting as a conversation between two profound political thinkers, a trope that approached the absurd when he observed that there were international organizations for many professions nowadays, but none for philosopher-kings. “Why don’t we make that happen?” he proposed with a straight face. I smiled, at a loss for words. Col. Gadhafi was a tyrant and a megalomaniac, not a philosopher-king, but our visit left me convinced that he was not a simple man.

Anthony Giddens in March 2007:

Anthony Giddens on Gaddafi in The Guardian in March 2007: As one-party states go, Libya is not especially repressive. Gadafy seems genuinely popular. Our discussion of human rights centred mostly upon freedom of the press.... Will real progress be possible only when Gadafy leaves the scene? I tend to think the opposite. If he is sincere in wanting change, as I think he is, he could play a role in muting conflict that might otherwise arise as modernisation takes hold. My ideal future for Libya in two or three decades’ time would be a Norway of North Africa: prosperous, egalitarian and forward-looking. Not easy to achieve, but not impossible.

Benjamin Barber in August 2007:

Benjamin R. Barber - Gaddafi's Libya: An Ally for America?: But the real drama is not in Sarkozy's agile grandstanding... or in the protracted negotiations involving... Gaddafi's gifted son, Saif al-Islam. Rather, the release [of the Bulgarian nurses] points to deep changes in the Libyan regime that began in 2003, when Libya gave up its nuclear program voluntarily, and that continue today with gradual shifts in Libyan governance, its economy and civil society that have been largely ignored by the West. The real architect of the release was Libya's leader. Written off not long ago as an implacable despot, Gaddafi is a complex and adaptive thinker as well as an efficient, if laid-back, autocrat. Unlike almost any other Arab ruler, he has exhibited an extraordinary capacity to rethink his country's role in a changed and changing world.

I say this from experience. In several one-on-one conversations over the past year, Gaddafi repeatedly told me that Libya sought a genuine rapprochement with the United States and that the issues of the Benghazi Six -- along with the still-outstanding final payment from Libya to families of the Lockerbie, Scotland, bombing victims -- would be resolved. And behold: The nurses are free.

In all my public and private conversations with Gaddafi, including a roundtable moderated by David Frost and televised by BBC in March during which Gaddafi responded to unrehearsed questions, Gaddafi acknowledged his history of enmity with the West and did not deny Libya's erstwhile involvement in terrorism. But he spoke of a new chapter for Libya and backed it up with a commitment to societal change. He insisted that in the Libya that comes after him there would be no new Gaddafi but self-governance. This isn't mere bluster. Gaddafi has taken grave risks in the name of change: offending the Benghazi clans that engineered the nurses' arrest; giving up his nuclear program while rogue nations such as Iran and North Korea use theirs to blackmail the West; holding open conversations over the past year with Western intellectuals, not just progressives such as Robert Putnam of Harvard and me but neocon pundit Francis Fukuyama and the tough New Democrat defense expert Joseph N. Nye. Moreover, in seeking to modify the banking industry and economy, he has rattled the existing elite who benefit from the status quo. Surprisingly flexible and pragmatic, Gaddafi was once an ardent socialist who now acknowledges private property and capital as sometimes appropriate elements in developing societies. Once an opponent of representative central government, he is wrestling with the need to delegate substantial authority to competent public officials... he himself surfs the Internet.

Libya under Gaddafi has embarked on a journey that could make it the first Arab state to transition peacefully and without overt Western intervention to a stable, non-autocratic government and, in time, to an indigenous mixed constitution favoring direct democracy locally and efficient government centrally.... Completely off the radar, without spending a dollar or posting a single soldier, the United States has a potential partner in what could become an emerging Arab democracy smack in the middle of Africa's north coast. This partner possesses vital sulfur-free gas and oil resources, a pristine Mediterranean shoreline, a non-Islamist Muslim population, and intelligence capacities crucial to the war on terrorism. Gaddafi, for example, ardently opposes the al-Qaeda brand of Wahhabist fundamentalism that Saudi Arabia sponsors.

Cynics will disregard all this; but after America's "realist" experiences in Iraq, Afghanistan and Pakistan, this may actually turn out to be a recipe for peace and partnership in the unlikeliest of places.

Donna Dubinsky: Money Won’t Buy You Health Insurance

Donna Dubinsky:

Money Won’t Buy You Health Insurance: THIS isn’t the story of a poor family with a mother who has a dreadful disease that bankrupts them, or with a child who has to go without vital medicines. Unlike many others, my family can afford medical care, with or without insurance. Instead, this is a story about how broken the market for health insurance is, even for those who are healthy and who are willing and able to pay for it.

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. The members of Congress who want to repeal the provision of last year’s health insurance law that makes it easier for individuals to buy coverage must assume that uninsured people do not want to buy it, or are just too cheap or too poor to do so. The truth is that individual health insurance is not easy to get. I found this out the hard way. Six years ago, my company was acquired. Since my husband had retired a few years earlier, we found ourselves without an employer and thus without health insurance. My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple.

Why did we even need insurance? First, we wanted to know that, if we had a medical catastrophe, we would not exhaust our savings. Second, uninsured patients are billed more than the rates that insurers negotiate with doctors and hospitals, and we wanted to pay those lower rates. The difference is significant: my recent M.R.I. cost $1,300 at the “retail” rate, while the rate negotiated by the insurance company was $700. An insurance broker helped me sort through the options. I settled on a high-deductible plan, and filled out the long application....

Then the first letter arrived — denied. It never occurred to me that we would be denied! Yes, we had listed a bunch of minor ailments, but nothing serious. No cancer, no chronic diseases like asthma or diabetes, no hospital stays. Why were we denied? What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you....

The new health care reform legislation is not perfect. Nothing that complex could be. But I have no doubt that the system is broken and reform is absolutely essential. If we are not going to have universal coverage but are going to rely on employer plans, then we must offer individuals, self-employed people and small businesses a place to purchase insurance at a reasonable price.

If members of Congress feel so strongly about undoing this important legislation, perhaps we should stop providing them with health insurance...

Gaddafi Nearing His End?

Heba Saleh in Cairo and Reuters: / Middle East & North Africa - Tripoli slipping from Gaddafi’s grip: Col Gaddafi’s grip on power appeared to be slipping on Saturday as his regime lost control of parts of Tripoli, after ten days of a leaderless popular uprising inspired by the revolts which ousted the leaders of Egypt and Tunisia. Security forces abandoned the working-class Tajoura district as poor neighbourhoods of the Libyan capital Tripoli openly defied col Gaddafi, Reuters reported. Col Gaddafi’s strongest European ally, Italian prime minister Silvio Berlusconi, said that he no longer appeared to be in control of the country. The entire eastern region and parts of western Libya near the border with Tunisia have already slipped from the regime’s grip.

But local witnesses told the Financial Times security forces appeared to be digging in to defend the centre of Tripoli. “The security presence now is all around the city which they have cordoned off to prevent any forces coming from outside,” said Samir, a Tripoli resident. “They have stationed tanks and anti-aircraft guns on roads leading into the city. The other security cordon is around Bab al-Aziziah [Gaddafi residence] there of course he has a whole arsenal of weapons. “The streets are quite and there are few people around. There were some 150 supporters of Gaddafi in Green Square, mostly kids,” he said.

Forces loyal to the embattled leader were also attempting regain territory lost to rebels in other parts of the country. There were battles at an airbase outside Misrata on Saturday morning between pro-Gaddafi forces and the local population supported by units of the army. Regime forces have been attempting since Friday to capture Misrata, the third city in Libya which lies on the coast 200 kilometres east of Tripoli. The civilian airport outside the city which lies on the coast 200 kilometres east of Tripoli was attacked and burnt down by regime forces on Friday, according to Ibrahim an eye witness who spoke to the Financial Times. He said the grounds of the airport were strewn with shells. Gharian an area of Misrata was shelled yesterday on Friday night and the number of casualties is unknown, he said. “We are surrounded by regime forces from all directions,” he said. “We don’t know how many martyrs have fallen. They have also abducted several people.”

With the UN debating sanctions against the regime, Col Gaddafi is now desperate to hold on to Tripoli, home to 2m people, or a third of the population of the north African nation. The city is the centre of the shrinking circle of territory still under the control of the Libyan leader...

Mark Thoma's Frustration


Economist's View: I have never argued that monetary policy won't work at all when the economy is near the zero bound. What I have said is that monetary policy alone cannot close the output and employment gaps in severe recessions, and that fiscal policy has an important role to play.... I have called for more aggressive QE... I complained about the Fed waiting until the election was over before announcing the policy -- and I have also called for more aggressive fiscal policy. When I respond to those who call solely for monetary policy, it is not because I think that monetary policy won't work at all, it's because monetary policy alone is likely to be insufficient.... From the very start of this crisis, I have called for a portfolio of policies as a response to our considerable uncertainty over both monetary and fiscal policy multipliers. My view is that fiscal policy is more powerful than monetary policy in severe recessions, but we don't know all that much about these multipliers in normal times, and we know even less about how they work in severe recessions (most estimates of monetary and fiscal policy multipliers come from models that don't connect the financial and real sectors very well, and hence miss a key transmission mechanism in this recession, and the studies use data that mostly come from normal times). The portfolio approach is useful when there is so much uncertainty over the effectiveness of policy because if one of the policies doesn't work as well as hoped, perhaps another will fill the void.... We haven't done enough of either type of policy, and what we have done has been put into place much later than would have been optimal....

I also believe that what has been done on both the monetary and fiscal policy fronts has helped. The empirical evidence isn't all in and won't be for some time, but my reading of the evidence to date is that these policies helped to avoid a much worse outcome.... Right now, we could use more of both types of policy, it's not too late to do more given the expectation that full recovery of employment is years away. Thus, I am also frustrated with the "painfully small additional aid for a very troubled economy," but my frustration is not just with monetary policymakers. Fiscal policymakers have also failed to do enough.

Christina Romer: Empiricists and Theorists on Federal Reserve Policy

I would have put it differently--and less politely.


The Inflation Debate That’s Muting the Fed’s Response : Monetary policy makers are all hawks now. Even those who most emphasize the Fed’s role in fighting unemployment oppose policies that would raise inflation noticeably above the Fed’s implicit target of about 2 percent. The real division is not about the acceptable level of inflation, but about its causes, and the dispute is limiting the Fed’s aid to the economic recovery. The debate is between what I would describe as empiricists and theorists.

Empiricists... put most weight on the evidence... that the main determinants of inflation are past inflation and unemployment. Inflation rises when unemployment is below normal and falls when it is above normal. Though there is much debate about what level of unemployment is now normal, virtually no one doubts that at 9 percent, unemployment is well above it. With core inflation running at less than 1 percent, empiricists are therefore relatively unconcerned about inflation in the current environment.

Theorists... assume people are highly rational in forming expectations of future inflation.... Fed actions that call its commitment to low inflation into question can cause inflation expectations to spike, leading to actual increases in prices and wages. For theorists, any rise in an indicator of expected or future inflation, like the recent boom in commodity prices, suggests that the Fed’s credibility is at risk....

Now, not every monetary policy maker fits neatly into these categories. Most empiricists care about expectations of inflation and would hesitate to take extreme actions for fear that they would damage the Fed’s credibility. Some theorists oppose monetary expansion on other grounds, like the fear of setting off asset price bubbles. But the main division is between the empiricists who say “inflation is unlikely at 9 percent unemployment” and the theorists who say “inflation could bite us at any moment.”...

Most monetary policy makers agree that quantitative easing can stimulate the economy.... The fight over quantitative easing is about the costs. The empiricists say the policy won’t cause inflation because the economy remains so weak. The theorists argue that a small gain in growth could come at the price of a rapid rise in inflation.... As a confirmed empiricist, I am frustrated that the two sides have been able to agree only on painfully small additional aid for a very troubled economy. For a sense of how much more useful monetary policy could be, one can look to the Great Depression....

Franklin D. Roosevelt took the United States off the gold standard in April 1933, and rapid devaluation led to huge gold inflows and a large increase in the money supply. Roosevelt also made it clear that the monetary expansion would not be reversed. Expectations of deflation, which had been enormous, abated quickly. As a result, with nominal rates at zero, real interest rates (the nominal rate less expected inflation) plummeted. The first types of demand to recover were ones that were sensitive to interest rates. Automobile production, for example, jumped 42 percent from March to April in 1933. Inflation did pick up somewhat in the mid-1930s, in part because of other New Deal measures like the National Industrial Recovery Act. But the inflation was modest, and after the crushing deflation of the early 1930s, widely celebrated.

THE triumph of hawkish views on inflation means that there is no appetite today for a Roosevelt-style, inflationary monetary policy. But that doesn’t mean the Fed couldn’t be more aggressive if the empiricists were willing to risk a split with the theorists.

In a strongly worded article and speech several years ago, before he was Fed chairman, Ben S. Bernanke provided a user’s manual for responsible but unconventional monetary policy. Mr. Bernanke focused on Japan in the 1990s, but his recommendations could apply just as well to the United States today. The Fed could engage in much more aggressive quantitative easing, both in size and in scope, to further lower long-term interest rates and value of the dollar. It could more effectively convey to markets its intentions for the funds rate, which would also lower long-term rates. And it could set a price-level target, which, unlike an inflation target, calls for Fed policy to take past years’ price changes into account. That would lead the Fed to counteract some of the extremely low inflation during the recession with a more expansionary policy and lower real rates for a while.

All of these alternatives would be helpful and would retain the Fed’s credibility as a defender of price stability. And any would be better than doing too little just because some Fed policy makers believe in an unproven, theoretical view of how inflation works.

Janet Yellen on Unconventional Monetary Policy


FRB: Speech: February 25, 2011: To assess the macroeconomic effects of the Fed's large-scale asset purchase program, I would like to highlight some findings from a recent study by four Federal Reserve System economists.... The baseline incorporates the first round of asset purchases--which brought the Federal Reserve's securities holdings to a little more than $2 trillion. It embeds an assumption that the FOMC will complete the purchases announced last November so that the balance sheet expands to about $2.6 trillion by the middle of this year. From that point forward, the authors assume that the overall size of the portfolio will remain unchanged until mid-2012 and then shrink gradually at a rate sufficient to return it to its pre-crisis trend line by mid-2016.... [T]he overall characteristics of this assumed trajectory seem broadly consistent with the sense of the Committee's discussions last spring.... [T]he counterfactual scenario in which the FOMC never conducts any asset purchases.... The pace of recovery under the baseline scenario is expected to be painfully slow. But the counterfactual scenario suggests that conditions would have been even worse in the absence of the Federal Reserve's securities purchases: The unemployment rate would have remained persistently above 10 percent, and core inflation would have fallen below zero this year. Of course, considerable uncertainty surrounds those estimates, but they nonetheless suggest that the benefits of the asset purchase programs probably have been sizeable...

Why Oh Why Can't We Have a Better Press Corps?

I had written:

Yes, Gene Sperling Really Is a Liberal - Grasping Reality with an X-11 Seasonal Adjustment Filter: Bob Woodward's The Agenda is in general not a reliable book, but its sections on Gene [Sperling]'s attempts to push Clinton administration economic policy a little further to the left are, I think, accurate...

Bob Woodward commented:

Brad: History, even economic history, should get better with time, not worse. AFter all these years and the multiple confirmations about the accuracy of The Agenda, you persist. For example, I have released transcripts of taped interviews with the late Lloyd Bentsen (wasn't he your former boss?) showing the accuracy of key incidents in the book. What are you talking about? Bob Woodward

My reply:

As I recall, when I heard you speak you gave two examples of why you thought that in general we knew less than 5% of what was going on, and of how in your career you had gotten it wrong: examples you said were "burned into my head--you are sure that this is the way it is, and it turns out to be exactly the opposite. That is very sobering." One of these examples you gave was the contrast between early Clinton economic policy as you portrayed it in "The Agenda" and as you portrayed it in "Maestro": "The Agenda," you said, focused on administrative chaos, and while you had excellent inside sources you missed the big story.

And I am reassured to be reminded over and over again that the lurkers agree with me in email. For example, here in the mailbag is yet another note from a correspondent, an old-time bipartisan senior Washington hand, reassuring me that I am not alone in my view:

I thought, even at the time, The Agenda was a dreadful, awesomely misleading book. Woodward put huge overemphasis on process, disregarding results and outcomes. The first year of the Clinton Administration was, unfortunately, the most successful on substantive economic policymaking grounds. Woodward heaped ridicule on it, not based on the decisions reached and concrete steps taken, but on the sometimes ridiculous turns that the policymaking process took.

Woodward did not recognize that apparently unlovely process can yield excellent results, as was the case here. He made the opposite error early in the Bush II Administration when he confused apparently deliberative and tidy decision making for good policymaking.  In the year after 9/11 the Bush Administration made the most foolish and reckless policy blunder of the past 40 years of U.S. decision making.

Because it was made in a less messy process than Clinton's early economic decisonmaking, however, Woodward mistakenly concluded Bush and his aides were first-rate policymakers. They were the opposite.

When Woodward’s book came out, there was a great deal of discussion of its conclusions. Journalists and political scientists present took Woodward’s conclusions seriously. Many of them seem to believe Woodward had demonstrated the Clinton Administration consisted of an amateurish gang of egoists led by the biggest, most child-like egoist of all.  It did no good to point out that the policies actually adopted (by razor-thin majorities in Congress, as I recall) were unusually sensible and sound after 12 or 20 years of policy follies.

Yves Smith: NYT’s Joe Nocera Defends Failure to Bring Wall Street Execs to Justice


NYT’s Joe Nocera Defends Failure to Bring Wall Street Execs to Justice « naked capitalism: Aargh, it is frustrating to see how quickly establishment-serving shallow arguments become conventional wisdom. We get a big dose of this line of thinking from the New York Times’ Joe Nocera in an article titled, “Biggest Fish Face Little Risk of Being Caught.” Now you can’t disagree with the conclusion: no major banking industry figure is going to be brought to justice. But the explanation he offers is incomplete and misleading, and serves to misdirect the public from more fundamental and more troubling causes.... Nocera recounts some of the unsavory acts of Countrywide’s Angelo Mozilo.... Then he points to the decisions not to pursue criminal prosecutions of Mozilo and Cassano, and recites oft-repeated arguments. First, it’s too costly.... Second, it’s too hard.... Third, the top brass has successfully insulated itself from the really bad actions at their firms....

[Nocera's] statement, “fraudulent actions at Countrywide took place at the bottom of the food chain” suggests that it was low level employees operating on their own. Huh?... [I]nstitutionalized patterns of deception, involving senior managers, not low level employees out of control.... Nocera suggests investors knew Countrywide’s loans were drecky. That too is misleading. The bank made specific representations about the quality of the loans they were making, and now a number of court cases allege the bank violated those promises by putting far worse loans into its deals. So the idea that the investors knew what they were buying is a canard....

Let’s work back to Nocera’s second argument, that these cases are hard to win and the failed Bear hedgie case proves it. Yes, financial fraud litigation is hard to win. But a single data point proves very little.... [A] separate issue: the weakened state of the various offices that ought to be chasing banking industry crooks. But using current bad performance to say it’s inevitable is also lame.... And he also has the wrong implicit standard. The goal is not to win every case, or even most cases. It’s to win enough to be a threat and not to lose them in the embarrassing fashion of the Bear case. And prosecutions that fail can still be powerful deterrents. They put information in the public domain that private litigants can use to mount civil cases....

Let’s finally turn to Nocera’s first reason: it’s too costly, and the successful effort during the S&L crisis depended on the FBI throwing a lot of horsepower at the problem.... But the S&L crisis is not the right model. These cases are much more like Enron, where a number of executives were in cahoots in both creating questionable products and presenting a misleading picture to the outside world. And the Enron case did not start at the top. It used the same model that prosecutors have perfected with the Mafia and drug rings: go after the foot soldiers, get them to turn state’s evidence in return for immunity. For financial crimes, that also vastly lowers the cost of prosecution. The cooperating insiders provide the road map and enable the prosecutors to do much more focused discovery, as well as potentially serving as witnesses.

But why could prosecutors take that approach with Enron? Because it had already failed. We are back to fundamental mess the officialdom has created by leaving the management and boards of bailed-out companies in place.... The overly generous terms of the TARP, and the failure of Team Obama to force management changes on the industry in early 2009 was a fatal error. It has embedded and emboldened a deeply corrupt plutocracy...

Catherine Rampell: G.D.P. Data Show How Smaller Government Is a Drag on Growth


G.D.P. Data Show How Smaller Government Is a Drag on Growth - My colleagues Motoko Rich and David Streitfeld and I had an article today focusing on how rising oil prices are threatening America’s fragile economic recovery. But we could just have easily written another 1,000 words on the perils shrinking governments now present to the economy. Item No. 1 is today’s revised report on gross domestic product for the last quarter of 2010. Output last quarter grew more slowly than initially reported, according to the Bureau of Economic Analysis: an annual rate of 2.8 percent rather than 3.2 percent. One of the main reasons for the downward revision was that state and local governments cut their spending at a 2.4 percent annual pace. That was a much sharper decline than the 0.9 percent first estimated. The drop was also faster than what the country had experienced in the previous two quarters, reflecting the fact that state and local budgets are in more trouble than ever.

A decline in state and local spending — and the layoffs that are likely to be involved — can have dangerous reverberations throughout the economy. So would the cut in federal spending that many Congressional Republicans have been threatening. Besides chucking even more workers into the pool of the unemployed, such cutbacks would also take away services supporting the many Americans trying to get back on their feet. This in turn hurts their ability to spend, threatening the bottom lines of the businesses they patronize, potentially leading to even more layoffs in the private sector. And so on.

In other words, government cutbacks during a weak economy affect much more than just government payrolls.

Ronald Reagan on Union Membership as One of the Most Elemental Human Rights

Zaid Jilani:

ThinkProgress » FLASHBACK: Ronald Reagan Called Union Membership ‘One Of The Most Elemental Human Rights’: Reagan was the only president in American history to have belonged to a union, the AFL-CIO affiliated Screen Actors Guild. And he even served six terms as president of the organized labor group. Additionally, Reagan was a staunch advocate for the collective bargaining rights of one of the world’s most famous and most influential trade unions, Poland’s Solidarity movement.... December 23, 1981....

REAGAN: The Polish government has trampled underfoot to the UN Charter and Helsinki accords. It has even broken the Gdańsk Agreement of 1980 by which the Polish government recognized the basic right of free trade unions and to strike...


REAGAN: Ever since martial law was brutally imposed last December, Polish authorities have been assuring the world that they’re interested in a genuine reconciliation with the Polish people. But the Polish regime’s action yesterday reveals the hollowness of its promises. By outlawing Solidarity, a free trade organization to which an overwhelming majority of Polish workers and farmers belong, they have made it clear that they never had any intention of restoring one of the most elemental human rights—the right to belong to a free trade union...

Menzie Chinn: Expansionary Policy Is Expansionary, Contractionary Policy Is Contractionary

Econbrowser CBO on the Stimulus Package and Still No Expansionary Fiscal Contraction in UK

Menzie Chinn:

Econbrowser: CBO on the Stimulus Package, and Still No Expansionary Fiscal Contraction in UK: A couple days ago, CBO released its most recent evaluation of the impact of the American Recovery and Reinvestment Act (ARRA). Using Table 1, I obtain the following implied values for GDP in the absence of the stimulus, assuming low and high values for multipliers. Even with conservative values for the multipliers, the estimates imply that in the absence of the stimulus package, output would still be about $145 billion Ch.2005$ lower than the 2008 peak; under the high range values, approximately $450 billion....

Crossing the Atlantic, one finds that the (short term) evidence in favor of an incipient expansionary fiscal contraction (see here for previous post) is getting weaker and weaker, even for an open economy like the UK. The 2010Q4 estimate for UK GDP was revised down from -0.5% (q/q) to -0.6% (essentially -2.6% on an annualized basis). Hence, the possibility that the negative reading was due to mis-estimation of the impact of bad weather has been largely ruled out, since the estimated impact has been held at negative 0.5 ppts. If one is hoping that at least firms are anticipating positive effects from the coming spending cuts, the behavior of gross fixed capital formation (investment) is not promising. In 2010Q4, this series was declining 2.5% q/q (-9.7% on an annualized basis), contributing -0.4 ppts of the overall 0.6 ppts q/q decline in GDP.

In a commendably understated assessment:

Economist James Knightley at ING said the declining GDP was "fairly worrying given we know about the wave of fiscal austerity that is now starting to hit the U.K. economy. We will soon be starting to see negative figures for this component.

Apparently financial sector economists are not expecting a expansionary fiscal contraction either.

Jonathan Chait: Lori Montgomery of the Washington Post Needs to Lay Off the 'Shrooms


Peter Orszag As Macho Texan | The New Republic: The Washington Post posits this highly bizarre personality contrast between Budget Director Jacob Lew and his predecessor Peter Orszag:

Though tall and dark like his predecessor, former budget director Peter Orszag, Lew, 55, shares none of Orszag's cowboy-booted, marathon-running swagger. A lawyer by training, Lew exudes a calm geniality. 

Swagger? Peter Orszag? And then the implication that "calm geniality" represents a sharp contrast with his personality style? That is... really weird.

Clive Crook: The Republican Party Deserves Political Annihilation

It took Clive long enough to get to where the reality-based community has been for... quite a while. But welcome!

Clive Crook:

A daft way to tackle America’s debt: Tea Party true believers may be salivating at the prospect... [of s]hutting down the government.... They did it once before, during the Clinton administration, and were slammed: the shutdown rescued the Clinton presidency. To do it in 2011, with the economy laid low and financial markets still twitchy, would be the limit of irresponsibility. It would be betting the recovery to make a point. This time, political annihilation might follow, and the party would deserve it...

Noahpinion: Is Free Trade Really "Efficient"?


Noahpinion: Is trade really always efficient?: I'm a bit late to the party on Greg Mankiw's column about trade.... Mankiw's case for trade is the textbook one.... Trade is good because it is a voluntary exchange, and voluntary exchanges benefit the people who do them (or else they would not have chosen to carry out the exchange). Hence, trade liberalization is always good, Q.E.D.... [P]eople seem to agree (and agree with Mankiw) on one basic point: The efficiency of trade is not in question. Only the distributional effects of trade are in question. But to me, this seems highly non-obvious....

The question is: Since trade is a voluntary exchange,why would a country choose to trade if it were harming itself by doing so?

Answer #1: Externalities. As Angus so pithily points out, "People, the United States is not a person!" Trades are undertaken not by countries, but by individuals within those countries. Negative externalities, as every Econ 101 student knows, happen when an exchange between two people causes harm to a third. In the case of trade, the third person who is harmed may be in one of the countries that is engaging in trade.... [T]here would have to be some pretty big externalities for protectionism to actually be better than free trade in the aggregate. But certain types of trade could easily lead to reductions in overall economic efficiency. Unless every country could be persuaded to tax or otherwise mitigate the externality, liberalizing these types of trade could be a mistake, regardless of distributional effects.

Answer #2: Dynamic Inconsistency.... For most individual decisions, it seems unlikely that dynamic inconsistency outweighs the benefits of voluntary exchange. Addictive drugs are one of only a handful of plausible exceptions. But again, a country is not a person. A country's decision-making process may be far more prone to dynamic inconsistency than an individual's. This could throw a wrench into the "trade is always good" argument....

Notice that neither of these exceptions are arguments for autarky, or even for across-the-board trade restrictions. They are arguments that certain instances of trade liberalization may cause efficiency losses.

Mankiw does not address either of these theoretical possibilities. As far as he is concerned, the case for trade's efficiency is iron-clad in all cases.... I am against giving this sort of free pass. The supposed consensus that trade is always efficient to me smacks a bit of golden-age-ism and false consensus. You hear again and again that trade (or, at least, the efficiency aspect) is the one issue that economists have settled. But if a consensus exists, it is a result of politics and opinion, not because economic theories make an iron-clad case for the efficiency of trade. Theoretical exceptions do exist, and to ignore this fact (as we do) probably just makes people less trustful of economists in general.

Alan Blinder: The Economic Silly Season


Alan Blinder: The Economic Silly Season Is Upon Us: 'Debt ceilings' and 'job killing' spending are two dumb ideas. Obsessing on the deficit while unemployment is at 9% is another:

Our country seems mired deeply in the silly season.... The silliness comes in at least four parts. The first is the debate over raising the national debt ceiling.... The increase in the debt each year is simply the difference between total expenditures and total receipts, both of which come from the annual budget. If Congress wants a smaller national debt, it must either spend less or tax more.... [N]either party can just command the national debt to stop growing. Some people see the debt ceiling as a way to force spending cuts that Congress would otherwise refuse to make. Maybe. But it's a clumsy and risky way that, among other things, could endanger the credit-worthiness of the United States government if our inability to float new debt made it impossible to raise needed cash. And for what purpose? To accomplish something that Congress has the power to do anyway?

The second element of silliness is the belief that the American public stands solidly behind rapid and large budget cuts. Sure, and they also want better weather.... The public wants smaller deficits, lower taxes and less spending in the abstract. But when it comes to specifics, it finds few spending cuts that it likes....

The necessity to choose among various spending cuts and tax increases brings me to the third element of silliness—the one that seems to afflict only Republicans. How many times have you heard Speaker of the House John Boehner (and others) refer to "job-killing government spending"? That phrase has become an official GOP mantra, on a par with "death taxes" and "death panels"—and it's just about as truthful.... [T]he government should be a smart steward of the public's money.... [But] when there is so much unused capacity and so many unemployed people hungry for work, "job-killing government spending" is oxymoronic. Virtually any type of spending, public or private, will create jobs.

The final element of silliness is... the popular notion that we need deficit reduction urgently, right now, even though the unemployment rate is still 9%.... The federal budget deficit is on an irresponsibly unsustainable path.... We need to both restrain spending and raise more revenue—and by large amounts. But not right this minute, because doing either would shrink the economy. Despite recent increases, Treasury borrowing rates remain low. There is no evidence that investors are fleeing the dollar. Our economy is still in desperate need of more demand. Each of these facts argues for waiting.... Congress is tied up in knots over some $60 billion in immediate spending cuts. That number, while draconian in the short run (only half the fiscal year is left), is chump change in the long run. And while Congress is consuming itself in partisan acrimony over the $60 billion, it is doing essentially nothing about the multitrillion dollar long-run deficit—which, as everyone should know by now, hinges on The Big Four: Social Security, medical care, defense and taxes.

As I said, it's the silly season.

Economist's View: Has Consumption Inequality Mirrored Income Inequality?

Mark Thoma sends us to Mark Aguiar and Mark Bils:

Economist's View: Has Consumption Inequality Mirrored Income Inequality?: This paper by Mark Aguiar and Mark Bils finds that "consumption inequality has closely tracked income inequality over the period 1980-2007":

Has Consumption Inequality Mirrored Income Inequality?, by Mark A. Aguiar and Mark Bils, NBER Working Paper No. 16807, February 2011: Abstract We revisit to what extent the increase in income inequality over the last 30 years has been mirrored by consumption inequality. We do so by constructing two alternative measures of consumption expenditure, using data from the Consumer Expenditure Survey (CE). We first use reports of active savings and after tax income to construct the measure of consumption implied by the budget constraint. We find that the consumption inequality implied by savings behavior largely tracks income inequality between 1980 and 2007. Second, we use a demand system to correct for systematic measurement error in the CE's expenditure data. Specifically, we consider trends in the relative expenditure of high income and low income households for different goods with different income (total expenditure) elasticities. Our estimation exploits the difference in the growth rate of luxury consumption inequality versus necessity consumption inequality. This "double-differencing,'' which we implement in a a regression framework, corrects for mis-measurement that can systematically vary over time by good and income group. This second exercise indicates that consumption inequality has closely tracked income inequality over the period 1980-2007. Both of our measures show a significantly greater increase in consumption inequality than what is obtained from the CE's total household expenditure data directly.

Why is this important? (see also "Is Consumption the Grail for Inequality Skeptics?"):

An influential paper by Krueger and Perri (2006), building on related work by Slesnick (2001), uses the CE to argue that consumption inequality has not kept pace with income inequality.

And these results have been used by some -- e.g. those who fear corrective action such as an increase in the progressivity of taxes -- to argue that the inequality problem is not as large as figures on income inequality alone suggest. But the bottom line of this paper is that:

The ... increase in consumption inequality has been large and of a similar magnitude as the observed change in income inequality.

Double-Dip Watch

Ryan Avent:

Growth: A disappointing day: I AM attending a conference this morning, and so blogging will be light. But let me draw your attention to two stories before I go. First, America's fourth quarter GDP growth has been revised down:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent...The downward revision to the percent change in real GDP primarily reflected an upward revision to imports and downward revisions to state and local government spending and to personal consumption expenditures (PCE) that were partly offset by an upward revision to exports.

And Britain's economy shrank by more than initially thought:

Britain’s economy shrank more than initially estimated in the fourth quarter, complicating the task of the Bank of England as a split deepens among policy makers on whether to withdraw stimulus.Gross domestic product fell 0.6 percent from the previous three months, compared with an initial estimate for a 0.5 percent drop, the Office for National Statistics said today in London. The statistics office said its “best estimate” for the impact of cold weather on the data remains 0.5 percent. The slump was led by construction and investment.

Why Mitch Daniels Should Not Be President

Paul Krugman from 2001:

Reckonings; Pants On Fire: Published: August 24, 2001

To: Mitch Daniels, Office of Management and Budget

Dear Mitch:

I have a suggestion. It's dishonest and irresponsible -- but I suspect that doesn't bother you. And it would help you squirm out of a problem that we both know isn't going away.

True, your bobbing and weaving have been impressive. Some people have actually bought your line that the surplus has vanished because of Congressional big spending, even though the spending numbers have hardly changed since your previous, bullish projection. And most reporters, bless their tiny little heads, have written about the budget shortfall as if it were a temporary problem; they haven't looked at Table 3 of your own report, which despite all your cooking of the books projects only a razor-thin non-Social-Security surplus for the next five years. But there's more trouble ahead. You bullied the Congressional Budget Office into delaying its own budget projection until next week, so that you could get your numbers out first. Still, when the C.B.O. numbers come out everyone knows that they will look considerably worse than yours. And of course we both know that the truth is actually even worse than that, because the C.B.O. must pretend to believe... when you claim that you can provide prescription drug insurance for a third of what anyone else thinks it will cost, or that you won't adjust the alternative minimum tax even when millions of irate voters ask why their tax cut has been snatched away....

In the end, we both know, the truth will become apparent. Eventually there will be no disguising the fact that thanks to the tax cut the nation has failed to make adequate preparations for the demographic deluge, that money that was supposed to be accumulated to pay retirement benefits has been used instead to provide big tax cuts to the very, very affluent.

But then that's been the plan all along, hasn't it?

51 Herbert Hoovers


GDP: Economy Slows on Cuts From State and Local Levels: Deeper spending cuts by state and local governments slowed U.S. economic growth in the final three months of last year. The government's revised estimate for the October-December quarter illustrates how growing state budget crises could hold back the economic recovery. The Commerce Department reported Friday that economic growth increased at an annual rate of 2.8 percent in the final quarter of last year. That was down from the initial estimate of 3.2 percent. State and local governments, wrestling with budget shortfalls, cut spending at a 2.4 percent pace. That was much deeper than the 0.9 percent annualized cut first estimated and was the most since the start of 2010...

Oh, the Farmer and the Google Should Be Friends--NOT!!

Danny Sullivan:

Google Forecloses On Content Farms With “Farmer” Algorithm Update: In January, Google promised that it would take action against content farms that were gaining top listings with “shallow” or “low-quality” content. Now the company is delivering, announcing a change to its ranking algorithm designed take out such material. The new algorithm — Google’s “recipe” for how to rank web pages — starting going live yesterday, the company told me in an interview today.... [t]he change impacts 12% (11.8% is the unrounded figure) of its search results in the US, a far higher impact on results than most of its algorithm changes. The change only impacts results in the US.... Officially, Google isn’t saying the algorithm change is targeting content farms. The company specifically declined to confirm that, when I asked. However, Matt Cutts — who heads Google’s spam fighting team — told me, “I think people will get the idea of the types of sites we’re talking about.”

Well, there are two types of sites “people” have been talking about in a way that Google has noticed: “scraper” sites and “content farms.” It mentioned both of them in a January 21 blog post:

We’re evaluating multiple changes that should help drive spam levels even lower, including one change that primarily affects sites that copy others’ content and sites with low levels of original content. We’ll continue to explore ways to reduce spam, including new ways for users to give more explicit feedback about spammy and low-quality sites. As “pure webspam” has decreased over time, attention has shifted instead to “content farms,” which are sites with shallow or low-quality content....

By the way, sometimes Google names big algorithm changes, such as in the case of the Vince update. Often, they get named by WebmasterWorld, where a community of marketers watches such changes closely, as happened with last year’s Mayday Update. In the case of the scraper update, no one gave it any type of name that stuck. So, I’m naming it myself the “Scraper Update,” to help distinguish it against the “Farmer Update” that Google announced today. “Farmer Update?” Again, that’s a name I’m giving this change, so there’s a shorthand way to talk about it. Google declined to give it a public name, nor do I see one given in a WebmasterWorld thread that started noticing the algorithm change as it rolled out yesterday, before Google’s official announcement....

Google wouldn’t confirm it was targeting content farms, but Cutts did say again it was going after shallow and low quality content. And since content farms do produce plenty of that — along with good quality content — they’re being targeted here. If they have lots of good content, and that good content is responsible for the majority of their traffic and revenues, they’ll be fine. In not, they should be worried....

Cutts, in my interview with him today, made a point to say that none of the data from that tool was used to make changes that are part of the Farmer Update. However, he went on to say that of the top 50 sites that were most reported as spam by users of the tool, 84% of them were impacted by the new ranking changes. He would not confirm or deny if Demand’s eHow site was part of that list. “These are sites that people want to go down, and they match our intuition,” Cutts said. In other words, Google crafted a ranking algorithm to tackle the “content farm problem” independently of the new tool, it says — and it feels like tool is confirming that it’s getting the changes right.

By the way, my own definition of a content farm that I’ve been working on is like this:

  • Looks to see what are popular searches in a particular category (news, help topics)
  • Generates content specifically tailored to those searches
  • Usually spends very little time and or money, even perhaps as little as possible, to generate that content

The problem I think content farms are currently facing is with that last part — not putting in the effort to generate outstanding content....

Will the changes really improve Google’s results?... Cutts tells me Google feels the change it is making does improve results according to its own internal testing methods. We’ll see if it plays out that way in the real world.


From Shunn:

Inhuman Swill : Into the time vortex!: The most entertaining and rewarding piece of fiction of the past six months has been, without a doubt, the Twitter stream of @MayorEmanuel. @MayorEmanuel is, or was, a delightfully profane Rahm Emanuel impersonator whose tweets started appearing six months ago, after the real Emanuel expressed his intention to enter the Chicago mayoral race...

Urban Architecture and Revolution

Design and History of Tahrir Square - People - Dwell.png

I tried to snarf a copy of Nezart Al-Sayyad's book out of his office last week, but he pointed out that (a) he was still hunting typos and (b) he only had one copy of the galleys...

Aaron Britt:

Design and History of Tahrir Square - People - Dwell: Nezar AlSayyad is a Cairo-born professor of Architecture, Planning and Urban History and the chair of Center for Middle Eastern Studies at the University of California at Berkeley. He's also a lucid thinker and the author of the forthcoming book Cairo: Histories of a City from Harvard University Press. I've spoken with Nezar a couple times before, but with the magnificent success of the recent Egyptian protests and with Tahrir Square entering the popular American lexicon I wanted to put a few questions about the design, history, and spirit of the place to the professor. I was fascinated by what he had to say.

Can you give us a bit of history of Tahrir Square in Cairo?

Tahrir Square came into existence 140 years ago during the time of another ruler who was considered ruthless, Ismail. He had lived in Paris, in Haussmann's Paris and saw the changes that came about in France under Napoleon III and he wanted to remake Cairo in the image of Paris. If George Bush was the decider, Ismail was the modernizer. So he redesigned an area that was all pretty much vegetation adjacent Nile, and from time to time would be flooded by the Nile. It was known as Ismailia Square because of him.

But it's not really a city square in strict urban planning terms is it?

No, it's not exactly a square at all. For one, the Nile borders one edge, so that's not straight. And it's not surrounded by buildings on all four sides, it only has buildings on one side. It's an ill-defined space that is constituted by five or six adjacent spaces, and in a sense no one really paid attention to it.

Why from a design angle was it so successful as a point of protest?

Twenty-three streets lead to different parts of it, which is why it was so successful with the demonstrators. There isn't one big boulevard that you can block off, and there are two bridges that lead to it as well. One of them saw a clash between the regime and the demonstrators. It's also the case that all of downtown Cairo, which isn't that big, has a street that leads to side or another of Tahrir Square.

Tell me about the name, Liberation Square, and it's import.

Tahrir Square got its name by a presidential decree in 1955. It was supposed to be a sign of Egypt's liberation from the British--who actually left in the 20s--and also from the monarchy of King Farouk. Actually in Tarhrir Square there is a large pedestal that was put in place in the time of King Farouk that was supposed to have a statue of him on top. But it never got built and power changed hands so President Nasser decided to keep the pedestal with nothing on it as a reminder of the failure of the Egyptian monarchy. But honestly it's not really clear to me what liberation the presidential decree was recognizing. In my opinion Tahrir Square didn't earn it's name until January 25th, 2011...

Washington's Deficit-Hawk Pretenders

We are live at The Week: Even if Republicans outdo Obama's spending cuts, they'll fritter it away on tax cuts and repealing health care reform:

The Obama administration's proposed spending freeze promises to reduce certain categories of government spending over the next decade by $400 billion. This is a bad idea. It will cut not fat, but muscle. It will leave our country worse off. So why cut important spending instead of scrapping unnecessary excess? The fat is jealously guarded by Senators from states with small populations. And Obama's spending freeze on non-defense discretionary spending targets the muscle.

By contrast, we do not know what the Republican House's long-term budget proposal would cut. They have not told us. Perhaps it will cut non-defense discretionary spending by a total of $800 billion over the next decade, relative to its baseline level. Perhaps it will not do anything. Perhaps it will cut muscle and add to fat and leave us about where we are now. We really do not know.

Suppose the Republican plan actually does cut spending by $800 billion. The House Republicans then want to take that $800 billion, and spend $200 billion of it trying to repeal health care reform. They then want to take what's left, and use it to pay for extending the Bush marginal tax rate reductions on high-earning Americans. But it will not stretch quite that far. Extending those Bush tax cuts is projected to cost $750 billion, and there is only $600 billion left in this hypothetical scenario. There's a $150 billion shortfall.

The Obama proposal looks to reduce debt 10 years from now, by $400 million billion. This theoretical House Republican proposal looks to increase the debt 10 years from now, by $150 billion.

And over the past 30 years, Democratic budget proposals have by and large delivered what they promised. Republican proposals, by contrast, have all turned out to produce much bigger deficits than were pledged at the start.

If you are a real deficit hawk, there is simply no contest as to which political party you should support right now.

But there are a lots of people in Washington who are paid in either dollars or favor points to pretend to be deficit hawks when they are no such thing.

Adolf Hitler Liveblogs World War II: February 24, 1941

Adolf Hitler:

Munich: Fellow Party Members:

The twenty-fourth of February is always, and rightly so, a day of vivid memories for us. On this date and from this very hall began the Movement's amazing march to victory, which bore it to the helm of the Reich, to leadership of the nation and its destiny. This day is a great day for me too.

Surely, it is seldom that a political leader can stand before the same band of followers that hailed his first great public appearance twenty-one years before, and repeat the same program. Seldom can a man proclaim the same doctrines and put them into practice for twenty-one years without at any time having had to relinquish a single part of his original program. In 1920, when we met for the first time in this hall, many of you must have asked yourselves: 'Dear me, a new party, another new party! Why do we want a new party? Don't we have parties enough? . . .'

Thus began a heroic struggle, opposed at its inception by nearly all. Nevertheless, the essential objects of the Movement embraced the decisive element. Its clear and unambiguous aim did not allow the Movement to become the tool of definite and limited individual interests, but raised it above all special obligations to the particular obligation of serving the German nation in its entirety, of safeguarding its interests regardless of momentary dissensions or confused thoughts. Thus, today, after twenty-one years, I again stand before you....

It was in this very town that I began my struggle, my political struggle against Versailles. You know this, you old members of my party. How often did I speak against Versailles! I probably studied this treaty more than any other man. To this day, I have not forgotten it. The treaty could not be abolished by humility, by submission. It could only be abolished by reliance upon ourselves, by the strength of the German nation.

The days of bitter struggle necessarily led to a selection of leaders. When today I appear before the nation and look at the ranks that surround me, I look at a band of men, real men who stand for something. On the other hand when I regard the cabinets of my opponents, I can only say: 'Quite incapable of being put in charge even of one of my smallest groups.' Hard times resulted in a selection of first class men who naturally caused us a little anxiety now and then. Everybody who is worth his salt is sometimes difficult to handle. In normal times it is not always easy to get divergent elements to work together instead of against one another. But as soon as danger threatens, they form the most resolute body of men. Just as selection is a natural consequence of war and brings real leaders to the fore among soldiers, so in the world of politics selection is the outcome of struggle. It was a result of this slow development, this eternal struggle against opposition, that we gradually acquired leaders with whose aid we can today achieve anything.

When, on the other hand, I look at the rest of the world I am obliged to say: They were simply asleep while this miracle was taking place. Even today they refuse to grasp it. They do not realize what we are, nor do they realize what they themselves are. They go on like a figure of 'Justice' - with blindfolded eyes. They reject what does not suit them. They do not realize that two revolutions in Europe have created something new and tremendous. We are fully conscious of the fact that a second revolution, where the assumption of power occurred earlier than it did in our country, proceeded parallel with ours. The fascist Revolution, too, yielded the same results. Complete identity exists between our two revolutions, not only as regards aims, but also as regards methods. Over and above this there is our friendship, which is more than co-operation with a purpose in view. Nor do our opponents realize yet, that once I regard a man as my friend, I shall stand by him....

I wish to display no faltering in this matter. There cannot be the slightest doubt that the bond uniting the two revolutions, and especially the bond uniting their two leaders, is indissoluble, and that one will always support the other. Moreover, it is a common enemy whom we shall defeat.

There was a time when Italy, fascist Italy, which is engaged in the same struggle as we are, which is shut in in the same way as we are, which is as over-populated as we are and, up until now, has been given no better chance of living than we, kept powerful enemies engaged in our behalf. Numerous British ships were engaged in the Mediterranean; numerous British airplanes were engaged in the African colonies. This was a very good thing for us, for, as I told you the other day, our warfare at sea is just beginning. The reason for this is that we first wanted to train new crews for the new submarines which will now make their appearance on the scene. Let no one doubt that they are about to appear.

Just two hours ago I received a communique from the Commander-in-Chief of the Navy stating that the reports of the last two days from our ships and submarines on the high seas reveal that another 215,000 tons have been sunk; that of this total 190,000 tons were sunk by submarines alone, and that this figure includes a single convoy of 125,000 tons which was destroyed yesterday.

From March and April on, those gentlemen will have to be prepared for something very different. They will see whether we have been asleep during the winter, or whether we have made good use of our time. During the long months when we had so few submarines to fight our battles, Italy kept large forces engaged. It does not matter to us whether our Stukas attack British ships in the North Sea or in the Mediterranean; the result is always the same. One thing is certain: Wherever Britain touches the Continent she will immediately have to reckon with us, and wherever British ships appear, our submarines will attack them until the hour of decision comes. Thus, except for Germany, only Italy has had a revolution which, in the long run, will lead, must lead and has led to the construction of a new national community.

We had to exercise patience for many a long year, and I can only say: My opponents may believe that they can terrify me with the threat of time, but I have learned to wait,

and I have never been idle while waiting. We had to wait ten years after 1923 until we at last came into power. But you old members of the Party know that we accomplished much in those ten years.... We were never in the habit of setting ourselves a limit and saying: This must be done on March 1, or June 15, or September 7....

These sharp-witted journalists who are now in England - they are no longer among us - knew all about it. Now they said: 'August 13 is the turning point; National Socialism is done for.' August 13 came - and National Socialism was not done for. A few months later they had to fix a new date. Finally came January 30, 1933. Then they said: 'Well, now they have made their mistake! They have gained power, and in six weeks they will be finished - three months at the most. Three months, and that will be the end of them.' The six weeks and the three months passed, and still we were not finished.

And so they kept on fixing new dates for our downfall, and now, in wartime, they are doing exactly the same thing. And why not? They are the same people, the same prophets, the same political diviners who prophesied the future so wonderfully when they were here. Now they are employed as assistants in the British Ministry of Information and the British Foreign Office. They always know exactly that on such and such a date the Germans will be finished. We have experienced that more than once. You all know what they said. I need only refer to the celebrated utterance of a great British statesman whom you in Munich know by sight - Mr. Chamberlain. A few days before April 9, of last year, he said: 'Thank God, he has missed the bus.' I can remind you of another - the British Commander-in-Chief - who said: 'A few months ago I was afraid, now I am afraid no longer. They have missed their opportunity. Besides, they only have young generals. That is their mistake and their misfortune; it is the same with all their leaders. They have lost their opportunity. It is all over.' A few weeks later this general had departed. Probably he, too, was too young.

Today they are doing exactly the same thing. They always fix final dates. In the autumn they said: 'If they don't land now, all is well. In the spring of 1941 Britain will transfer the offensive to the Continent.' I am still waiting for the British offensive. They have transferred the offensive elsewhere, and now, unfortunately, we must run after them wherever they happen to be. But we shall find them wherever they run. And we shall strike them where they are most vulnerable.

Thus, twenty-one years of a dauntless struggle for our Movement have passed. After thirteen years we at last came to power. Then came years of preparation of our foreign policy, of gigantic work at home. You know that it is all an exact repetition of what happened in the Party. We asked nothing of the world but equal rights, just as we asked for the same rights at home. At home we demanded the right to meet freely, the right which the others possessed. We demanded the right of free speech, the same right as a parliamentary party as the others held. We were refused and persecuted with terrorism. Nevertheless, we built up our organization and won the day....

Of course, a fundamental social principle was necessary to achieve this. It is today no longer possible to build up a state on a capitalistic basis. The peoples eventually begin to stir. The awakening of the peoples cannot be prevented by wars. On the contrary, war will only hasten it. Such states will be ruined by financial catastrophes which will destroy the foundations of their own former financial policy.

The gold standard will not emerge victorious from this war. Rather, the national economic systems will conquer. And these will carry on among themselves the trade that is necessary for them. . .

In this respect we can look to the future with confidence. Germany is an immense factor in world economy, not only as a producer but also as a consumer. We certainly have a great market for our goods. But we are not only seeking markets; we are also the greatest buyers. The Western world wants, on the one hand, to live upon its empires and, on the other hand, to export from its empires as well. That is impossible because in the long run the nations cannot carry on one-sided trade. They not only have to buy, but also have to sell. They can sell nothing to these empires. The peoples will therefore trade with us in the future, regardless of whether this happens to suit certain bankers or not. Therefore we will not establish our economic policy to suit the conceptions or desires of bankers in New York or London....

Our economic policy, I repeat, is determined solely by the interests of the German people. From this principle we shall never depart. If the rest of the world says: 'War,' I can only say: 'Very well. I do not want war, but no one, however peaceable, can live in peace if his neighbor intends to force a quarrel.'

I am not one of those who see such a war coming and start whining about it. I have said and done all that I could; I have made proposal after proposal to Britain; likewise to France. These proposals were always ridiculed - rejected with scorn. However, when I saw that the other side intended to fight, I naturally did that which as a National Socialist of the early days, I did once before: I forged a powerful weapon of defense. And, just as of old, I proclaimed that we should be not merely strong enough to stand the blows of others but strong enough to deal blows in return. I built up the German armed forces as a military instrument of State policy, so that if war were inevitable, these forces could deliver crushing blows.

Only a few days ago, an American general declared before an investigating committee in the House of Representatives that in 1936 Churchill had personally assured him, 'Germany is becoming too strong for us. She must be destroyed, and I will do everything in my power to bring about her destruction.'

A little later than 1936, I publicly issued a warning against this man and his activities for the first time. When I noticed that a certain British clique, incited by the Jews - who are, of course, the fellows who kindle the flames everywhere - was intentionally provoking war, I immediately made all preparations on my part to arm the nation. And you, my old Party comrades, know that when I speak it is not a mere matter of words, for I act accordingly. We worked like Titans. The armaments we have manufactured in the past few years are really the proudest achievement that the world has ever seen. If the rest of the world tells us: 'We are doing likewise now,' I can only reply: 'By all means do so, for I have already done it. But above all, don't tell me any of your tales. I am an expert, a specialist in rearmament. I know exactly what can be made from steel and what can be made of aluminum. I know what achievements can be expected of men and what cannot be expected. Your tales do not impress me in the least. I enlisted the strength of the whole German nation in good time to assist in our arming and, if necessary, I shall enlist that of half Europe. I am prepared for all impending conflicts and consequently face them calmly.' Let the others face them with equal calm.

I place my confidence in the best army in the world, in the best army which the German nation has ever possessed. It is numerically strong, it has the finest weapons and is better led than ever before. We have a body of young leaders who have not merely proved their worth in the present war but, I can well say, have covered themselves with glory. Wherever we look today, we see a bodyguard of chosen men to whom the German soldiers have been entrusted. They in their turn are the leaders of soldiers who are the best trained in the world, who are armed with the finest weapons on earth. Behind these soldiers and their leaders stands the German nation, the whole German people

In the midst of this people, forming its very core, is the National Socialist Movement which began its existence in this room twenty-one years ago, - this Movement, the like of which does not exist in the democratic countries, this Movement whose only pendant is fascism. Nation and Army, Party and State are today one indivisible whole. No power in the world can loosen what is so firmly welded together. Only fools can imagine that the year 1918 can be repeated.

We encountered the same ideas among our plutocrats at home. They, too, always hoped for internal disruption, dissolution, civil war of German against German. Exactly the same ideas are encountered today. They say: 'There will be a revolution in Germany in six weeks.' They do not know who is going to make the revolution. There are no revolutionaries among us. Thomas Mann and others like him went to England. Some have already left England for America, because England is too close to their revolution's future field of operations. They are establishing their headquarters far from their future field of battle. Nevertheless, they assert that the revolution will come. Who will make it? I do not know. How it will be made, I do not know either. All I know is that in Germany there can be, at the most, only a few fools who might think of revolution, and that they are all behind iron bars.

Then they said: 'Winter, General Winter is coming, and he will force Germany to her knees.' But, unfortunately, the German people are 'winter-proof.' German history has passed through I do not know how many tens of thousands of winters. We will get through this one, too.

Then they say: 'Starvation will come.' We are prepared against this, too. We know the humanitarian sentiments of our British opponents and so have made our preparations. I believe that starvation will reach them before it reaches us.

Then they said: 'Time is on our side.' But time is only on the side of those who work. No one has been harder at work than we. Of that I can assure them. In fact, all these vague hopes which they are building up are absolutely childish and ridiculous....

And so, in all due modesty, I have just one more thing to say to my opponents: I have taken up the challenge of many democratic adversaries and up to now I have always emerged the victor from the conflict. I do not believe that this struggle is being carried on under different conditions. That is to say, the relation of the forces involved is exactly the same as before. In any case I am grateful to Providence that this struggle, having become inevitable, broke out in my lifetime and at a time when I still feel young and vigorous. Just now I am feeling particularly vigorous. Spring is coming, the spring which we all welcome. The season is approaching in which one can measure forces. I know that, although they realize the terrible hardships of the struggle, millions of German soldiers are at this moment thinking exactly the same thing....

If fate should once more call us to the battlefield, the blessing of Providence will be with those who have merited it by years of hard work. When I compare myself and my opponents in other countries in the light of history, I do not fear the verdict on our respective mentalities. Who are these egoists? Each one of them merely defends the interests of his class. Behind them all stands either the Jew or their own moneybags. They are all nothing but money-grubbers, living on the profits of this war. No blessing can come of that. I oppose these people merely as the champion of my country. I am convinced that our struggle will in the future be blessed by Providence, as it has been blessed up to now.

When I first entered this hall twenty-one years ago, I was an unknown, nameless soldier. I had nothing behind me but my own conviction. During the twenty-one years since, a new world has been created. The road leading into the future will be easier than the road from February 24, 1920, to the present. I look to the future with fanatical confidence. The whole nation has answered the call. I know that when the command is given: 'Forward march!' Germany will march.

Carl Shapiro and Katherine Abraham to Obama's Council of Economic Advisers

Excellent choices:

Obama to Nominate Justice's Carl Shapiro to Council of Economic Advisers: President Barack Obama will nominate Carl Shapiro, the deputy assistant attorney general for economics at the antitrust division of the Justice Department, to his Council of Economic Advisers, White House press secretary Jay Carney said. Shapiro, who is also an economics professor at the University of California at Berkeley, will replace Cecilia Rouse, who is leaving the panel at the end of next month. Obama previously nominated University of Maryland Professor Katharine Abraham to the vacancy on the panel created when [Christina Romer returned to Berkeley.]

Jeffrey Frankel: Why Oh Why Can't We Have a Better Press Corps?


Democrats should not rise to the bait of “fiscal conservatives”: I never cease to be frustrated that the current public policy debate is described as a contest of ideas: fiscal conservatives versus liberals.   It is not just Republicans or Tea Partiers who believe that they are fiscal conservatives, no doubt sincerely.   Democrats and liberals seem to accept this characterization at face value, as does most of the media.  

The problem is that a heavy majority of the supposed fiscally conservative congressmen, although passionate about cutting government spending in the abstract, are in truth no better able to find specific dollars of budget cuts that they can support or defend to their constituents than are the Democrats.... [I]f the Republicans were in full control, we would have larger budget deficits in the coming years than if the Obama crowd retained power.  This is what happened in a big way when Presidents Reagan and GW Bush took office promising to cut the debt while also cutting taxes.   Spending, deficits, and debt soared during their terms, relative to their respective Democratic predecessors.  There is no reason to think anything has changed. 

The first thing the Republicans did after their congressional victories in the November election was achieve their precious extension of the Bush tax cuts for the wealthy.  This extension will raise the budget deficit by more than all the domestic spending cuts that all of the Congressional freshmen have identified put together. 

Next they turned to their campaign to kill Obamacare.... [I]t is even more surprising that the conservatives can continue to get away with simultaneously tarring the reform as “death panels” while refusing to acknowledge that it will cut costs.   Their plans for going back to our previous health care system include suspending their own rule that bills that would increase spending (as determined by the non-partisan Congressional Budget Office) must be paid for....

Yes, fiscal adjustment is necessary.   I might even think that such cuts would be a price worth paying, if they were a proportionate component of a comprehensive plan to address the long-run fiscal situation.   But they are nothing remotely like that.   Rep. Paul Ryan’s supposedly tough long-term plan to cut spending doesn’t balance the budget until 50 years from now and runs up another $62 trillion in national debt in the meantime.... I would prefer to divert the narrative from the unenlightening and sterile debate of small versus big government, to the realities of arithmetic and history.

Ryan Avent: The Republican Party Deserves Political Annihilation

Ryan Avent:

Fiscal policy: Cutting recovery short | The Economist: REPUBLICANS are pushing to slash federal government spending in the present fiscal year. If they don't get their way, the government will shut down. And if they do get their way?

Spending cuts approved by House Republicans would act as a drag on the U.S. economy, according to a Wall Street analysis that put new pressure on the political debate in Washington. The report by the investment firm Goldman Sachs said the cuts would reduce the growth in gross domestic product by up to 2 percentage points this year, essentially cutting in half the nation's projected economic growth for 2011.

That's just one estimate, of course. It's also possible that the Fed would react to these deep cuts by pursuing a more expansionary monetary policy than they'd planned, but the British example suggests that rising commodity prices may make this balancing act difficult.

What really makes this so upsetting, and it's really, genuinely upsetting, is that these proposed cuts are basically useless. America doesn't face a short-term fiscal crisis; its debt is dirt cheap. America faces a long-term fiscal crisis due to projected increases in government health spending. So Republicans are cutting short-term discretionary spending to address a fiscal crisis that doesn't exist while ignoring the fiscal crisis that does exist. Their proposed cuts aren't emerging from any cost-benefit analysis; rather they seem designed to spare GOP interests at the expense of Democratic interests. And to do this, they're prepared to—potentially—cost the American economy 2 percentage points of growth.

It's really remarkable. It's remarkable how things have deteriorated in so short a time. Last year, the president's bipartisan deficit commission recommended deficit cuts that didn't focus on the short-term, and that did put defence and entitlements on the table. Now Republicans are declaring that they'll shut down the government unless all of their demands are met—demands with virtually no redeeming value. This is no way to govern. No way at all.

Republican Congress Seeks to Slow Economic Growth

James Politi and Stephanie Kirchgaessner: / US / Economy & Fed - Goldman sees danger in US budget cuts: The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned... Alec Phillips, a forecaster based in Washington.... The Goldman analysis also points out that a potential compromise deal with $25bn in spending reductions this year – a more likely scenario – would lead to a smaller drag on growth of 1 percentage point in the second quarter.... Goldman, which is currently forecasting US gross domestic product growth of 4 per cent in the second and third quarters of 2011, also pegged the cost of a government shutdown to the US economy at $8bn in reduced spending per week, based on the experience of the federal closures of 1995 and 1996. A government shutdown in the world’s largest economy will occur if Congress and the White House do not agree on a budget measure by the end of next week. Tough rhetoric from Republicans and Democrats has engulfed Washington in recent days, as both sides are positioning themselves for the final round of negotiations and trying to avoid blame if a shutdown occurs...

Mark Thoma: How Long Will It Be Until the Fed Raises Interest Rates?

He peers into his crystal ball:

How Long Will It Be Until the Fed Raises Interest Rates? - CBS There’s another factor that increases uncertainty about the future of the economy, and hence argues for continued monetary accommodation. Oil prices are rising, and if they continue to do so that could put a substantial drag on the recovery.... For that reason, keeping the target interest rate at its present level for an extended period of time is warranted (and I agree that there is no indication at present that the Fed intends to change the federal funds rate “anytime soon”).... [I]n this case, rising prices are not a signal that monetary policy is too loose. The price increases are due to worries about oil supplies. Some people will try to argue for interest hikes based upon these price increases, but that would be the wrong response.

The other factor that could come into play is budget reduction. As we are seeing right now, state budgets are still in shambles largely from the effects of the recession, and there is considerable pressure to take action on the federal budget. Budget cuts at all levels of government — which will involve loss of jobs and cutbacks in spending — will reduce demand and slow the recovery.... The Fed should also maintain an accommodative stance to offset, as best they can, the effects of any premature fiscal contraction.

I agree with the forecasts given above, though I’m probably more worried than they are about a wave of hawkishness coming over the Fed at the slightest hint of positive data. But my best guess it that the Fed will keep the federal funds rate at its present level through the end of the year and perhaps a bit longer. I also believe this is the correct policy...

Benito Mussolini Liveblogs World War II: February 23, 1941

Benito Mussolini:

Febraury 23, 1941: Blackshirts of Rome! I come among you to look you firmly in the eyes, feel your temperature and break the silence which is dear to-me, especially in wartime. Have you ever asked yourselves in an hour of meditation, which every one finds during the day, how long we have been at war? Not only eight months, as a superficial observer of events might believe; not from Sept. 1, 1939, when through guarantees to Poland, Britain unleashed the conflagration with a criminal and premeditated will; we have been at war six years, precisely from Feb. 1, 1935, when the first communiqué announcing the mobilization of Peloritana was issued.

The Ethiopian war was hardly finished when from the other shore of the Mediterranean there reached us appeals from General Franco, who had begun his national revolution. Could we Fascisti leave without answer that cry and remain indifferent in the face of the perpetuation of the bloody crimes of the so-called popular fronts? Could we refuse to give our aid to the movement of salvation that had found in Antonio Primo de Rivera its creator, ascetic and martyr? No. Thus our first squadron of airplanes left on July 27, 1936, and during the same day we had our first dead.

We have actually been at war since 1922-that is from the day when we lifted the flag of our revolution, which was then defended by a handful of men against the Masonic, democratic, capitalistic world. From that day world liberalism, democracy and plutocracy declared and waged war against us with press campaigns, spreading libelous reports, financial sabotage, attempts and plots even when we were intent upon the work of international reconstruction which is and will remain for centuries, as the undestroyable documentation of our creative will.

With the outbreak of hostilities on Sept. 1, 1939, we had just finished two wars which imposed relatively modest sacrifices in human life but had forced us to make an enormous logistic and financial effort.

On another occasion-not to tire you with too many figures-our intervention in the Falangist Revolution will be documented. This is why-and was publicly declared in December, 1939-when the reckoning of accounts had to be reached between two worlds which were inevitably antagonistic, we preferred to have it retarded as long as necessary for us to replace that which we consumed or ceded.

But developments in history, which sometimes are speeded up, cannot be halted any more than the fleeting moment of Faust could be halted. History takes one by the throat and forces a decision. This is not the first time this has occurred in the history of Italy! If we had been 100 per cent ready we would have entered the war in September, 1939, and not in June, 1940. During that brief period of time we faced and overcame exceptional difficulties.

The lightning-like and crushing victory of Germany in the West eliminated the eventuality of a long continental war. Since then the land war on the Continent has ended and it cannot flare back. The German victory was facilitated by Italian non-belligerency which immobilized heavy naval, air and-land forces of the Anglo-French bloc. Some people who today apparently think Italy's intervention was premature were probably the same who then deemed it too late.

In reality the moment was timely because if it is true that one enemy was in the course of liquidation there remained the other, the bigger one, the most powerful enemy number one against whom we are engaged and against whom we will continue the struggle to the last drop of blood.

Having definitely liquidated Britain's armies on the European Continent, the war could not but assume a naval, air and, for us, also a colonial character. It is the geographic and historic order of things that the most difficult and most faraway theatres of war are reserved for Italy. War beyond the sea and in the desert. Our fronts stretch for thousands of kilometers and are thousands of kilometers away. Some ignorant foreign commentators should take due account of this. However, during the first four months of the war we were able to inflict grave naval, air and land blows to the forces of the British Empire.

Since 1935 the attention of our general staff has been focused on Libya. All the work of the Governors who succeeded each other in Libya was aimed at strengthening economically and militarily that large region, transforming the former desert or desert zones into fecund land. Miracles! This word is able to sum up what has been done down there. With European tension becoming graver, and following the events of 1935 and 1936, Libya, reconquered by Fascism, was considered one of the most delicate points in our general strategic setup, since it could be attacked from two fronts....

It was during October and November that Great Britain gathered and lined up against us the mass of her imperial forces, recruited from three continents and armed by a fourth. She concentrated in Egypt fifteen divisions and a considerable mass of armored means and hurled them against our lines in Marmarica where on the first line were Libyan divisions, brave and faithful but unsuited to bear the attack of enemy machines. On Dec. g a battle was thus started, which was only five or ten days in advance of ours, and which brought the enemy to Bengazi.

We are not like the English. We boast that we are not like them. We haven't elevated lying into a government art nor into a narcotic for the people the way the London government has done. We call bread bread and wine wine, and when the enemy wins a battle it is useless and ridiculous to seek, as the English do in their incomparable hypocrisy, to deny or diminish it.

One entire army-the Tenth-was broken up almost completely with its men and cannon. The Fifth Air Squadron was literally sacrificed, almost entirely. Where possible we resisted strongly and furiously.

Since we recognize these facts it is useless for the enemy to exaggerate the figures of its booty. It is because we are certain regarding the grade of national maturity reached by the Italian people and regarding the future development of events that we continue to follow the cult of truth and repudiate all falsification.

The events during these months exasperate our will and must accentuate against the enemy that cold, conscious, implacable hate, hate in every home, which is indispensable for victory.

Great Britain's last support on the Continent was and is Greece, the only nation that did not want to renounce the British guarantee. It was necessary to face Greece, and on this point the accord of all responsible military leaders was absolute. I add that the operative plan, prepared by the superior command of the armed forces of Albania, was unanimously approved without reservations. Between the decision and the start of action there was a delay of only two days.

Let it be said once for all that the Italian soldiers in Albania combated superbly. Let it be said in particular that the Alpini wrote pages of blood and glory that would honor any army. When the sufferings of the march by the Julia division almost up to Metzovo are known all will appear legendary.

Neutrals of every continent who are spectators at the bloody clashes between the armed masses must have sufficient shame to keep quiet and not express libelous provocative opinions.

The Italian prisoners who fell into the hands of the Greeks are a few thousand, most of them wounded. The Greek successes do not go out of the tactical field and only megalomania has magnified them. The Greek losses are very high and shortly it will be Spring, and as befits such a season our season-beautiful things will grow. I say beautiful things will be seen in every one of the four cardinal points.

Not less heavy are the losses we inflicted on the English. To state as they do that their losses in the battle of sixty days in Cyrenaica are not above 2,000 dead and wounded means adding a grotesque note to the drama. It means attempting to exceed themselves as far as shameless lies are concerned, which should seem difficult for the English. They must add at least one zero to the figures of their communiqués.

From Nov. 7 to when English torpedo planes, which took off not from Greek bases but from an aircraft carrier, succeeded with their coup at Taranto, which we admitted, we met adversity in the war. We must recognize this. We had gray days.

This happens in all wars, in all times. Think of the Punic Wars when the Battle of Cannae threatened to crush Rome. But at Zama, Rome destroyed Carthage and wiped it out from geography and history forever. Our capacity to recuperate in moral and material fields is really formidable and constitutes one of the peculiar characteristics of our race.

Especially-in this war, which has the world as its theatre and pits continents directly or indirectly one against another. On land and sea and in the air it is the final battle that counts. That we shall have to fight hard is certain, that we shall have to fight long is also probable, but the final result will be an Axis victory.

Great Britain cannot win the war. I can prove this logically and in this case belief is corroborated by fact. This proof begins with the dogmatic premise that although anything may happen Italy will march with Germany, side by side, to the end.

Those who may be tempted to imagine something different forget that the alliance between Italy and Germany is not only between two States or two armies or two diplomacies but between two peoples and two revolutions and is destined to give its imprint upon the century.

The collaboration offered by the Fuehrer and that which the German air and armored units are giving in the Mediterranean are proof that all fronts are common and that our efforts are common. The Germans know that Italy today has on her shoulders the weight of 1,000,000 British and Greek soldiers, of from 1,500 to 2,000 planes, of as many tanks, of thousands of cannon, of at least 500,000 tons of military shipping.

Cooperation between the two armed forces occurs on the plan of comradely, loyal, spontaneous solidarity. Let it be said for foreigners who are always ready to libel that the comportment of German soldiers in Sicily and Libya is under all respects perfect and worthy of a strong army and a strong people brought up under severe discipline.

Follow me now please:

First, in war potentiality Germany not only did not decrease after seventeen months of war, but increased in gigantic proportions. From the standpoint of human losses, they have been at a minimum if compared with the masses in action. Losses of materials were more than compensated for by immense booty and were absolutely insignificant.

The unity of political and military command in the hands of the Fuehrer-he who once was simple soldier and volunteer Adolf Hitler-gives to the operations an enthusiastic, irresistible, revolutionary and therefore National Socialist rhythm that begins with the highest generals and goes to the humblest soldiers. Britain will realize that once again.

Second, German armaments are in quality and quantity infinitely superior to those available at the start of the war. Germany has not yet brought to the limit the employment of her human forces. For Italy it is just the same. We have at present under arms more than 2,000,000 men, but within the year we will, if necessary, reach, 4,000,000.

Third, while during the World War Germany was isolated from Europe and the world, today the Axis is master of the Continent and allied with Japan. The Scandinavian world (Finland, Sweden, Norway, Denmark) is directly or indirectly inside the German orbit. The Danubian and Balkan world cannot ignore and does not ignore the Axis, Hungary and Rumania have joined the Tripartite Pact. Occupied France, Belgium, Holland and Luxembourg are, like the Scandinavian and Danubian worlds, within the orbit of Germany. In the Mediterranean Italy is allied with a friendly Spain. There remains Russia, but her fundamental interests advise her also to follow in the future a good-neighbor policy with Germany. Europe therefore, with the exception of Portugal, Switzerland and, for a little while yet, Greece, is all outside the orbit of Britain and against Britain.

Fourth, with this situation things are diametrically opposed to conditions from 1914 to 1918. Then the blockade was a terrible weapon in the hands of Great Britain. Today this is a broken weapon because, from being a blockading nation, Britain became blockaded by the Axis air and naval forces and will increasingly be blockaded until catastrophe comes.

Fifth, the morale of the Axis people is infinitely superior to the morale of the British people. The Axis fights in certainty of victory, while the British fight because, as Lord Halifax said, they have no other choice. It is highly ridiculous to count on the eventual moral breakdown of the Italian people. This will never happen. To speak of a separate peace is idiotic.

Churchill has not the least idea of the spiritual forces of the Italian people or of what Fascism can do. We can understand Churchill's ordering the shelling of industrial plants at Genoa to disrupt work, but to shell the city in order to break down its morale is a childish illusion. It means that the British do not at all know the race temperament of the Ligurian people in general and the Genoese in particular. It means that they are ignorant of the civilian virtues and proud patriotism of the people who gave the fatherland Columbus, Garibaldi and Mazzini.

Sixth, Great Britain is alone. This isolation pushes her toward the United States, from which she urgently and desperately seeks aid. The industrial power of the United States certainly is great, but for aid to be useful supplies must safely reach England and also be of such quantity as not only to replace the destruction already inflicted and that which will come to the industrial plants of Britain, but also to bring about superiority over Germany. This is impossible because Germany now works with the men, machines and raw materials of the entire European Continent.

Seventh, when Great Britain falls, then the war will be ended, even if by any chance it should die out slowly in other countries of the British Empire. Unless-and it is possible-these countries, where already something is fermenting, do not Teach their independence once the metropolitan area is conquered. This would bring about a change not only in the European political map, but also in the world's map.

Eighth, in this gigantic struggle Italy has a first-class job. Our war power also improves daily in quality and quantity. Two of the three great ships damaged at Taranto are already in the way of complete repair. Technicians and workers toiled day and night, giving a convincing demonstration not only of their professional capacity but also of their patriotism. When the war is over, in the world's social revolution that will be followed by a more equitable distribution of the earth's riches, due account must be kept of the sacrifices and of the discipline maintained by the Italian workers. The Fascist revolution will make another decisive step to shorten social distances.

Ninth, that Fascist Italy dared measure herself against Great Britain is a matter of pride that will live through the centuries. It was an act of conscious daring. People become great by daring, risking and suffering, and not by placing themselves by the wayside in parasitic and vile expectancy. The protagonists of history can revindicate their rights, but simple spectators never can.

Tenth, to beat the Axis, Great Britain's armies would have to land on the Continent, invade Germany and Italy and defeat their armies, and this no Englishman, no matter how insane and delirious by the use and abuse of drugs and alcohol, can even dream of.

Let me say now that what is occurring in the United States is one of the most colossal mystifications in all history. Illusion and lying are the basis of American interventionism-illusion that the United States is still a democracy, when instead it is a political and financial oligarchy dominated by Jews, through a personal form of dictatorship. The lie is that the Axis powers, after they finish Great Britain, want to attack America.

Neither in Rome nor Berlin are such fantastic plans as this prepared. These projects could not be made by those who have an inclination for the madhouse. Though we certainly are totalitarian and will always be so, we have our feet on hard ground. Americans who will read what I say should be calm and not believe in the existence of a big bad wolf who wants to devour them.

In all cases it is more likely that the United States, before it is attacked by Axis soldiers, will be attacked by the not well known but very warlike inhabitants of the planet Mars, who will descend from the stratosphere in unimaginable flying fortresses.

Rome comrades! Through you I want to speak to the Italian people, to the authentic, real, great Italian people, who fight with the courage of lions on land, sea and air fronts; people who early in the morning are up to go to work in fields, factories and offices; people who do not permit themselves luxuries, not even innocent ones.

They absolutely must not be confused or contaminated by the minority or well-known poltroons, anti-social individuals and complainers, who grumble about rations and regret their suspended comforts, or by snakes, the remains of the Masonic lodges, whom we will crush without difficulties when and how we want.

The Italian people, the Fascist people deserve and will have victory. The hardships, suffering and sacrifices that are faced with exemplary courage and dignity by the Italian people will have their day of compensation when all the enemy forces are crushed on the battlefields by the heroism of our soldiers and a triple, immense cry will cross the mountains and oceans like lightning and light new hopes and give new certainties to spirit multitudes: Victory, Italy, peace with justice among peoples!

Mark Schmitt Is a Very Smart Man: His Forecast from Last Summer

Mark Schmitt, writing on July 27, 2010:

What Will a Republican Majority Do Next?: WIf, as predicted, the Republicans take control of the House, or both houses of Congress, this November, will they: 1) shut down the government? 2) propose massive budget cuts? 3) begin proceedings leading toward impeachment of President Barack Obama? 4) repeal the health-reform bill?... [T]he scholarly consensus seems to be "all of the above."

But a better question is, what will they do next, after those things don't work?

I've seen this movie before, having worked on the Hill when the Republicans took over in 1995. But they've seen it before, too, and will want to avoid making the same mistakes. (Though fewer of them have seen it than you might think -- only 55 current House Republicans were there in 1995, and 10 of them are retiring this year, meaning that if Republicans win a bare majority, 80 percent of their caucus will not have had that experience.)

Let's take their next moves in order:

First, Rep. John Boehner, who would become speaker of the House should Republicans gain the majority, has already proposed a partial shutdown of government in the form of a moratorium on enforcement of new regulations. But that's the easiest sort of gimmick for Democrats to counter, and they did so last week. Are you trying to block safety standards for cribs and bassinets, Mr. Would-Be Speaker? Boehner quickly modified the plan to grandfather in the babies, but we've probably seen the last of that scheme.

Shutting down the government usually isn't meant literally but refers to any sort of game of chicken over a legislative priority. In 1995, Congress refused to pass the usual increase in the debt limit or a continuing resolution to keep government going, in an effort to force President Bill Clinton to accept big spending cuts. It backfired. But even knowing that lesson, a new Republican majority has to find some way to show that it is the boss, so the temptation for some kind of showdown will be irresistible. But unless the fight is over something overwhelmingly popular, Republicans will wind up backing down, just as Newt Gingrich did.

The main alternative is the Andrews Air Force Base strategy -- named for the location of a 1990 meeting where Republican and Democratic leaders hammered out a budget agreement. But the words "Andrews Air Force Base" are to every Republican what the word "Munich" is to a neoconservative: Simply agreeing to meet represents appeasement, perhaps treason. "Never another Andrews" has been the one unbroken principle of congressional Republicans for the last two decades. And since much of any potential new Republican majority would be based on a conviction that the administration is illegitimate, it will hardly be a good climate in which to sit down and hash out budget numbers. So, showdown and shutdown it might be -- but there's little reason to think that will turn out well.

Next, Republicans will want to make good on plans to cut spending. But the only serious plan they have, Rep. Paul Ryan's "Roadmap for America's Future" gets no stronger endorsement than "It's a pretty good list of options" from Boehner, and Ryan himself apparently told an audience at the Brookings Institution that Republican candidates were "talking to their pollsters, and their pollsters are saying, 'Stay away from this.'" That's not surprising, since the plan privatizes Social Security, turns Medicare into a voucher program, and raises taxes on the middle class. But it's the only actual plan they've had since the beginning of the Obama administration.

Then there's impeachment. In a majority heavy with politicians who will believe they were elected solely because of the illegitimacy of the occupant of the White House, there will be subpoenas and fake scandals (and real scandals, too; no administration, however devoted to "no drama" and high ethical standards, escapes without some screw-ups and lapses in vetting) -- and articles of impeachment are sure to follow. The cynical Clinton impeachment certainly established that it is now purely an instrument of politics. But the episode also established that you can't do it without some basis -- although the groundwork was laid early, it took three years before they caught Clinton actually doing something that shocked a lot of people.... As much as some on the right may have convinced themselves that Obama was only elected president because a listserv of little-known opinion writers and professors colluded to bury bad news about him, with support on the ground from ACORN and the New Black Panther Party, that won't make the cut.

And finally, there is repealing health care. It is easier said than done, for the simple reason that Republicans are split about whether to repeal all or part of it. Trying to keep the parts they say they like (coverage of pre-existing conditions) without the parts they don't (the individual mandate), would be very expensive and not welcomed by their allies in the insurance industry, which would prefer to do the opposite. So I suspect they would just start making noise about the 10th Amendment and how the states should reject the plan. Sure, they can grind health reform into dust by refusing to fund key aspects of implementation or blocking appointments, but it won't deliver the political satisfaction of dramatic repeal.

That will leave a majority without much to show for its victory once in office. Its next steps will be critical for the future path of American politics. What do the options look like?

So let's look at the movie from 1995. After the failed government shutdown, the Republicans turned to the basic legislative agenda that had been part of the Contract with America -- notably welfare reform. (It's often credited as a Clinton initiative, but his role was to sign it, after vetoing it once.) Welfare reform and anti-crime legislation were the big substantive initiatives of the Republican agenda, and they had the advantage of being popular and acting on things Clinton had promised to do but hadn't.

The current Republican Party lacks a similar basic, manageable agenda. It's all or nothing. And the GOP no longer seems to have the capacity to get policy plans developed into legislation that is written, negotiated, and signed into law. The GOP has made a political choice to cut off a lot of its policy capacity. That's why it has no budget plans other than Ryan's super-unpopular one. It's why it didn't come up with any meaningful alternative to health reform. It's not because Republicans are dumb -- although Boehner and his allies were no match for Nancy Pelosi in a battle of tactics and determination -- but because offering an alternative would mean negotiating, finding areas of agreement and disagreement. And that sounds suspiciously like, well, Andrews Air Force Base!

And so the GOP is left with only one move, the culture war that Arthur Brooks of the American Enterprise Institute calls for in a new book, ably critiqued by the libertarian Brink Lindsey here two weeks ago. What Newt Gingrich and his crew learned 16 years ago should have been more than just "Don't shut down the government." It's that the president still retains the power to set the agenda, and going to war with the White House rarely turns out well. If there is a new Republican majority, we'll have to see how long it takes them to relearn that lesson.