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March 2011

Julian Sanchez: Things That Are Irrelevant to Copyright Policy

Julian Sanchez:

Things That Are Irrelevant to Copyright Policy: Sometimes individual creators decide it’s in their best interests to transfer rights to their works—a song, a movie, a story, a character—to big, faceless, generally unsympathetic corporations. This should have exactly no impact on anyone’s view about the proper scope of the underlying right. Yes, sometimes people are hoodwinked into making unwise deals, and that’s bad and unfair—but it’s a kind of generic sad fact about life and contracts and whatnot, with no special significance in the realm of copyright. Often, the value of a right derives primarily from the ability to transfer it, and doing so will genuinely be in the best interest of the creator. So if you think that underling right is properly defined and deserving of respect when held by the creator, it is exactly equally deserving of respect when voluntarily sold to an entity you might not particularly like.

Sometimes, on the other hand, rights are retained by independent and sympathetic creators, who unsurprisingly want those rights to be as expansive as possible, and object to either general narrowing of those rights or the recognition of any number of “fair use” exceptions. These will often be wonderful, likeable, creative people, and the correct policy response to these objections as such is: Cry me a fucking river; now piss off.

Wise assessment of copyright policy should have nothing to do with how you feel about the person or entity who holds the right at any particular time, because copyright policy is not about identifying wonderful and meritorious people and ensuring—certainly not as an end in itself, anyway—that their income is proportioned to their intrinsic moral desert—or lack thereof. We are all the massive beneficiaries of millennia of accumulated human scientific knowledge and cultural output, and not one of us did anything do deserve a jot of it. We’re all just extremely lucky not to have been born cavemen. The greatest creative genius alive would be hard pressed to create a smiley faced smeared in dung on a tree trunk without that huge and completely undeserved inheritance.

So banish the word “deserve” from your mind when you think about copyright. Nobody “deserves” a goddamn thing. (I say this, for what it’s worth, as someone who makes his living entirely through the production of “intellectual property.”) The only—the only—relevant question is whether a marginal restriction on the general ability to use information incentivizes enough additional information production over the long run to justify denying that marginal use to every other human being on the planet, whether for simple consumption or further creation. That’s an empirical question, and while I strongly suspect the answer will generally be “not by a longshot” beyond a whole lot more limited level of protection than we currently provide, I’m happy to be persuaded otherwise along any particular dimension. But if you want to make an argument that turns in any significant respect on how unlikeable big corporations are or how marvelous creative people are… well, spare me. And the rest of us. Because in both cases it’s probably true, but as a policy matter, nobody should really give a damn.

A Back-of-the-Envelope Measure of the Success of Obama Administration Banking and Fiscal Policy

More on Unemployment and Investment  NYTimes com

Paul Krugman looks at the scatter of private investment and unemployment and comments:

More on Unemployment and Investment - To follow up on John Taylor: suppose we look only at nonresidential investment, and suppose that we think (as we should) that the causation runs mainly from unemployment — a proxy for excess capacity — to business investment, rather than the other way around.... [T]he data since 1990 look like this.... Investment is low as a share of GDP; well, that’s no surprise given how depressed the economy is. And if anything investment is a bit stronger than you might have expected from past behavior.

Not just a bit stronger: substantially stronger. 2% of GDP stronger--that's $300 billion a year more in business investment than we would have expected to see with the unemployment rate this high.

Part of this relationship is reverse causation, sure. But that means that 2% underestimates the effect of policy on investment: had there been no fiscal and banking rescue policies and if investment had not been boosted by policy, the unemployment rate might as a result be at the 16% of the Blinder-Zandi Republican policy baseline, and only THE ONE WHO IS knows how low business investment spending would be--but it would surely be a lot lower than it is now.

Morning Flamebait from Lynne Kiesling

Morning flamebait from Lynne Kiesling:

Where are the female economist bloggers?: I have no time or patience for that; I prefer (greatly) what in the 18th century might have been called civil discourse. That is why you will NEVER see me link to Brad DeLong or try to engage him in an interchange. NEVER. Emphatically...

A quick search pulls up, first:

A "Third Way" on Network Neutrality - Brad DeLong's Grasping Reality with All Ten Tentacles: The highly intelligent Lynne Keisling finds something interesting on net neutrality...

Can't be that, surely?

Continuing to search picks up a Lynne Kiesling comment on my version of "The Tale of the Serf." I had written:

The Tale of the Serf: Archive Entry From Brad DeLong's Webjournal: Here are two situations:

In the first, you are a free and independent peasant living in a village. Your field is your own. Your crops are you own. After working, you huddle before the fire in your peasant hut until you fall asleep. A smallpox epidemic comes. You, your spouse and your children all die.

In the second, you are a peasant living in a village. Once a year a thug with a spear--Sir Pierre de Bois-Guilbert, say--comes and takes 10% of your crop. He uses his takings to live well in the castle up on the hill. He also employs a troubadour who comes and entertains the peasants nightly in the village square, singing, juggling, and telling stories. He also employs chirurgeons who undertake research into the balance of the four humours. One day, the chirurgeons come with their knives: they cut the arms of you and your family, and insert some cowpox-infested tissue. When the smallpox epidemic comes, you and your family (and the other families in the village) survive.

In which situation are you "freer"? Do you really care whether you are "freer"?

To which she replied:

FREE TO CHOOSE SLAVERY? « Knowledge Problem: I agree with Jonathan [Wilde] and say YES! Put another way, I think of freedom as an a priori good.... [T]he crux of Jonathan’s point is: "We all have different preferences. Depending on the circumstances, my preference might be to not have my crop taken from me and to not have the chirurgeons insert vaccine into my arms. Perhaps I believe the vaccine to be unsafe. Perhaps my crop will be better invested by my decisions. In the end, the specific reasons do not matter; what matters is consent. However, based on his preferences, DeLong is willing to violate my consent." Oh, that’s important! Is the manorial lord not telling me about the cowpox thing because he thinks I can’t handle the risk, that I can’t be reasoned with because I’m just a stupid peasant? Does that condescension justify failing to obtain my consent through reason in the service of a “public good”? No.

At the time I did not respond: lots of dead horses, limited number of sticks, and so forth.

But now...

Kiesling argues that it is essential for her to protect your right to watch your children die of smallpox--smallpox she gave them because she thought that the benefits to you and yours from having her vaccinated were outweighed by the risks to her of getting vaccinated.

I cannot think of a single eighteenth-century thinker who would have agreed. I can think of many eighteenth-century thinkers who would have regarded that degree of Weapons-Grade Randroid Superselfishness as incompatible with even the possibility of civil society.

Liveblogging World War II: March 31, 1941


World War: BATTLE OF THE ATLANTIC: Conflict in Three Dimensions - TIME: One day last week London's Anglo-American society, The Pilgrims, sat eating Lord Woolton pie, a pottage of vegetables named for the Food Minister. They stopped clattering their forks as the red-coated toastmaster called for order and gave the floor to Winston Churchill.

The Prime Minister raised his glass and turned to the guest of honor, a man with a face gaunt and ascetic enough to be Bunyan's pilgrim—John G. Winant, the newly arrived U. S. Ambassador to the Court of St. James's. Winston Churchill aimed his toast at the Ambassador, but he drank from his heart not to any man, not to any nation, but to the good issue of a three-dimensional battle: on, over, under the Atlantic waves.

"Anyone can see," he said, "how bitter is the need of Hitler and his gang to cut sea roads between Great Britain and the United States and, having divided these mighty powers, to destroy them one by one. We must regard this Battle of the Atlantic as one of the most momentous ever fought in the annals of war. ..."

Then came the surprise—one of those studied slips of inside dope, those discreet indiscretions, which so delight the Prime Minister: "Not only German U-boats but German battle cruisers have crossed to the American side of the Atlantic and have already sunk some of our independently routed ships not sailing in convoy. They have sunk ships as far west as the 42nd meridian of longitude."

Without bothering to find out just where 42° West lay, U. S. editors dusted off their scare type. They hauled out foggy old pictures of the merchant U-boat Deutschland nosing into Baltimore harbor in July 1916, with its cargo of dyestuffs; remembered the story of the U-53, Lieut. Hans Rose commander, putting right into Newport, R. I. in October of the same year, dropping anchor smack alongside the U. S. submarine D-2 long enough for Lieut. Rose to go ashore and mail a letter to the German Ambassador in Washington; echoed the panic of May 1918, when two of the newest German submarines appeared off the U. S. coast and in a month sank 13 ships of American registry.

Pleased with the scare, the British gave a further nip to American adrenals by announcing that Germany's two powerful battle cruisers, the Scharnhorst and Gneisenau (each 26,000 tons, each faster and better-armed than the late pocket battleship Admiral Graf Spec), were indeed at large and as far west as the 42nd meridian. Displeased with the scare, the Axis press nevertheless aggravated it by jubilating at the alleged sinking of the first shipload of U. S. armaments bound for Britain under the Lend-Lease Act.

At week's end the scare blew up—but not the need for it. No one believes German claims—especially claims of sinkings, which the sinker can seldom confirm. But when the German High Command announced at week's end that 224,000 tons had been sunk on, over, and under the sea, and that of them 22 ships of 116,000 tons had been sunk by "a battleship unit" in the North Atlantic, it was obvious that the Scharnhorst and Gneisenau were up to dirty work.

There is a very rough index for scaling down German claims. The Germans claim that since the war began Britain has lost 9,000,000 tons of shipping. Last week the British admitted they and their Allies had lost 5,000,000 by sinking. Therefore five-ninths of German claims should be roughly accurate. Applying this to last week's claim, the British lost perhaps 124,000 tons. The most optimistic estimates of combined U. S. and British ability to produce new shipping: 40,000 tons a week. There was good reason for the fervency of Winston Churchill's toast.

Read more:,9171,765353,00.html#ixzz1I2YvyomF

Facebook as Leading Sector...

Karl Smith:

The Great Stagnation and the Socialvore: For me, and I know I am an in infovore subset, there has been massive deflation. However, the internet as the exclusive playground for infovores may be coming to an end. Social interactions may be the textiles of this new revolution. A product that almost every wants, that is suddenly becoming cheaper....

Suppose I have a hotel which blocks Facebook and is out of range of 3G. How much does this knock off the daily rate versus other hotels with no 3G but do have Facebook access. Even at $5 per night you you would be talking about $5*365*300M = $547B in annual GDP, priced out a zero dollars. That’s roughly 3% of national income, attributed to Facebook alone. Not advertising on Facebook mind you, but the economic value produced for users.

Is it that high? It could be lower but I could imagine it being higher possibly even $10 a night.... And of course, this is in theory just the beginning.

Neil Barofsky Is Shrill: Lend Freely at a Penalty Rate Watch

A considerably harsher verdict on the Obama Treasury than I would have handed down. But he is there...

Neil Barofsky:

Where the Bank Bailout Went Wrong: TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage.... Treasury promised that it would modify those mortgages to assist struggling homeowners.... But it has done little to abide by this legislative bargain.... Treasury... provided... money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds....

[T]he Home Affordable Modification Program... has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000).... Treasury Secretary Timothy Geithner has acknowledged that the program “won’t come close” to fulfilling its original expectations, that its incentives are not “powerful enough” and that the mortgage servicers are “still doing a terribly inadequate job.” But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury’s most specific Main Street promise will not be honored.

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary....

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

Work for McCain in 2008? The Wall Street Journal, Fox News, and Company Will Claim You Lead a Sinister Global Conspiracy so Immense...

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

The downward spiral of the American media continues...

This evening I read in the Wall Street Journal and Fox News that I am part of a Sinister Global Conspiracy so Immense, the Institute for New Economic Thinking, which aims to “establish new international rules... reform the currency system... [seeks] an economic system where America isn’t so dominant... [seeks] a new [monetary] agreement... between the United States and China... China figures prominently... [is] Bush-hating... [is] designed to put America in its place... [seeks] a multilateral world... changing the global economy and the United States to make them 'acceptable'..."

Is it true?

Google "INET"--for the Institute for New Economic Thinking--right now and you find that INET is right now highlighting:

inet - Google Search: Front Page | Institute for New Economic Thinking: INET Advisory Board Member Kenneth Rogoff was awarded the Deutsche Bank Prize in Financial Economics yesterday for his pioneering contributions to the field ...

Who is Ken Rogoff? Well, he is a very, very good economist--IMHO, should have been one of those sharing the Nobel Prize with Paul Krugman in 2008. And, among other things, he was one of John McCain's economic advisers during the 2008 presidential campaign:

Chess - McCain Economics Adviser Has a Grandmaster’s Rank: Could a grandmaster become a member of the next administration? Possibly. Kenneth S. Rogoff, a professor at Harvard, is an economics adviser to the Republican presidential nominee, Senator John McCain. Rogoff is also a grandmaster. Rogoff said that he has known McCain since meeting him at an economics conference years ago. “One of the reasons that I think I got along with him was that I felt like I could say what I wanted even if it was not what he wanted to hear,” Rogoff said.... Rogoff said he was not “a political animal” or tied to one party. “I have never associated myself with a candidate or administration before,” he said, but “I see Senator McCain as making important changes where change is needed”...

I guess it is true only if the Sinister Global Conspiracy so Immense has grown so large as to extend its tentacles even into the advisors of the most senior leaders of the Republican Party.

My grandfather used to tell me stories about how back in the 1950s there were Californians from Orange County who sincerely believed that Dwight D. Eisenhower was a Communist, but they weren't given platforms at the Wall Street Journal or on major news networks...

What is the problem according to the Journal and Fox News? The problem is that INET is having its annual conference in April, and 200 economists (including me) are going. How did they learn about this Sinister Global Conspiracy so Immense? By going to You can do it too:

Bretton Woods Conference | Institute for New Economic Thinking: INET is pleased to announce that it will hold its annual conference April 8-11, 2011 at the Mount Washington Hotel in Bretton Woods, New Hampshire, the scene of the great conference that established a renewed global economic architecture as World War II drew to a close.

Today, as the aftershocks of our own Global Finance Crisis continue to reverberate, we face our own challenge of reconstruction. The 1944 conference was, famously, largely an Anglo-American affair, whereas today's reconstruction must engage the larger European Union, as well as the emerging economies of Eastern Europe, Latin America, and Asia. In the years since the 1944 conference, the globalization of production, trade, and especially finance, has transformed our economy, but has not yet transformed our system of regulation or our tools of policy intervention. Indeed, our very habits of thought and speech lag behind the realities that we desperately need to think and speak about.

This conference reflects INET's dedication to inspiring and provoking new economic thinking. More than 200 academic, business and government policy thought leaders from around the world will be attending.

Who is talking? It is a very good group of very smart and thoughtful people:

Anat Admati, Phillipe Aghion, W. Brian Arthur, Jim Balsillie, Eric Beinhocker, Erik Berglöf, Tom Bernes, Paul Blustein, Claudio Borio, James Boughton, Richard Bronk, Gordon Brown, Wendy Carlin, Mark Carney, John Cassidy, Ha-Joon Chang, Barbara Craig, Marcello De Cecco, Charles Dallara, Paul Davidson, Brad Delong, Barry Eichengreen, Alex Evans, Niall Ferguson, Tom Ferguson, Jean-Paul Fitoussi, Duncan Foley, Jeffrey Frankel, Chrystia Freeland, Roman Frydman, Ian Goldin, Andy Haldane, Joseph Halevi, Carl-Ludwig Holtfrerich, Kevin Hoover, Thomas Homer-Dixon, Yasheng Huang, Joyce Jacobsen, Harold James, William Janeway, Marleen Janssen Groesbeek, Paul Jenkins, Robert A. Johnson, Simon Johnson, Peter Jungen, Anatole Kaletsky, Henry Kaufman, John Kay, Richard Koo, Louis Kuijs, Deepak Lal, William Lazonick, Robert Litan, Barry Lynn, Wolfgang Munchau, Dalia Marin, Felix Martin, Richard McGregor, Perry Mehrling, Zhu Min, Alan Murray, Daniel Neilson, Kevin O’Rourke, Jean Pisani-Ferry, Y.V. Reddy, William Rees, Carmen Reinhart, Kenneth Rogoff, Jeff Sachs, Andre Sapir, Orville Schell, Garry Schinasi, Mario Seccareccia, Andrew Sheng, Victor Shih, Robert Skidelsky, John Smithin, George Soros, Joseph Stiglitz, Larry Summers, Jomo Kwame Sundaram, Alan Taylor, Gillian Tett, Niels Thygesen, Camilla Toulmin, Adair Turner, Leanne Ussher, Andrés Velasco, Paul Volcker, Christian Westerlind Wigstrom, Martin Wolf, Yu Yongding, Steve Ziliak.

When you ahve reached the stage where Ken Rogoff and Niall Ferguson are leaders of the Sinister Global Conspiracy So Immense, you have left reality so far behind that it would not be funny--but for the fact that it is utterly hilarious...

The Best of: “With Notably Rare Exceptions”

Henry Farrell:

“With Notably Rare Exceptions” — Crooked Timber: Alan Greenspan is back as free market evangelist, and it’s rather wonderful.

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

It’s best not to interpret this as an empirical claim, but a carefully-thought-out bid for Internet immortality. It has the sublime combination of supreme self-confidence and utter cluelessness of previously successful memes such as “I am aware of all Internet traditions” and the “argument that has never been made in such detail or with such care,” but with added Greenspanny goodness. I tried to think of useful variations on the way in to work this morning – “With notably rare exceptions, Russian Roulette is a fun, safe game for all the family to play,” and “With notably rare exceptions, (the Third Punic War for example), the Carthaginian war machine was extremely successful,” but none do proper justice to the magnificence of the original. But then, that’s why we have commenters. Have at it.

Stu 03.30.11 at 1:39 pm “With notably rare exceptions, Newt Gingrich is a loyal and faithful husband.”

Andrew Edwards 03.30.11 at 1:44 pm “With notably rare exceptions, Japanese nuclear reactors have been secure from earthquakes”

Sufferin' Succotash 03.30.11 at 1:54 pm With notably rare exceptions, Adolf Hitler was extremely tolerant of diverse religions and cultures.

Sev 03.30.11 at 2:03 pm Though unredeemably(sic) opaque, Mr. Madoff’s operations delivered excellent returns, with notably rare exceptions.

Jeff 03.30.11 at 2:08 pm With notably rare exceptions, Germany remained largely at peace with its neighbors during the 20th century.

ed 03.30.11 at 2:11 pm With notably rare exceptions, Mrs. Lincoln enjoyed the play.

ed 03.30.11 at 2:24 pm With notably rare exceptions, the levees protecting New Orleans have held fast in the face of major hurricanes.

ed 03.30.11 at 2:30 pm With notably rare exceptions, simply stated, there is no doubt that Saddam Hussein had weapons of mass destruction after August of 2002.

chris 03.30.11 at 2:43 pm With notably rare exceptions, locking all exits to the workplace is a harmless way to improve your employees’ productivity.

Dragon-King Wangchuck 03.30.11 at 2:59 pm With notably rare exceptions, none of us is Spartacus.

MPAVictoria 03.30.11 at 3:15 pm With notably rare exceptions, the Toronto Maple Leafs win the Stanley Cup every year.

william u. 03.30.11 at 3:37 pm With notably rare exceptions, noise is Gaussian distributed.

Hidari 03.30.11 at 3:42 pm With notably rare exceptions, when you wake up in the morning, you know for a fact that you will still be alive by the end of the day.

Daragh McDowell 03.30.11 at 3:49 pm With notably rare exceptions, Soylent Green is NOT people.

JGabriel 03.30.11 at 4:30 pm With notably rare exceptions, the Roman Empire’s crucifixion policy was successful in containing subversive religious movements

Juha T 03.30.11 at 4:45 pm With notably rare exceptions, the shadow banking system has made the US economy more stable.

Malaclypse 03.30.11 at 4:52 pm With notably rare exceptions, the bacterium Yersinia pestis does not cause significant human suffering.

Cosma Shalizi 03.30.11 at 5:19 pm With notably rare exceptions, economics is scientific discipline.

Malaclypse 03.30.11 at 6:29 pm With notably rare exceptions, allowing Ayn Rand’s acolytes to serve as Federal Reserve chairmen has worked out well

Jay 03.30.11 at 6:58 pm With notably rare exceptions, Michael Jackson behaved perfectly normally.

Austin Frakt Is Shrill: Fred Barnes Knows Nothing: Voucherizing Medicare Is Not Like Part D

One of Michael Kinsley's many sins was bringing us Fred Barnes. Now he has driven Austin Frakt into shrill madness:

How voucherizing Medicare is not like Part D : Fred Barnes, executive editor of the Weekly Standard, wrote an opinion piece for NPR earlier this week in which he made the case for voucherizing Medicare. To the extent that I find the competitive bidding version of vouchers a sensible idea, I agree  with Barnes. However, that’s not what he’s talking about.... There are some things Barnes and I seem to agree on too. Let’s start at the beginning. His column opens,

Social Security’s looming deficit can be handled, for the time being, by adjusting benefits a tad downward. Medicaid’s runaway spending can be restrained by giving state governors more flexibility in administering the program. These are modest solutions. Medicare is different. It needs a big solution.

OK, I agree that Social Security is an insignificant problem relative to Medicare. No doubt it could be solved by tinkering with benefits, though that is not the only way to solve it.... I’ve written a lot already about Medicaid, but Harold Pollack has written more, and specifically on what “flexibility” will do.

Medicare is different and it does need a big solution. No argument there.

But what is the solution? Barnes says the only solution... [is] voucherization. Well, it isn’t the only solution, but it is a solution....

[Barnes] points to a voucher plan within the current Medicare program that works very well, Part D.

What has worked is competition. The Medicare prescription drug benefit program, enacted in 2003, has cost 40 percent less than projected. This is due to competition among providers for the business of millions of seniors.

Yes. Yes. One thousand times, yes! Part D is a good model, with protections for taxpayers and beneficiaries. Guess what it has that Medicare Advantage and the Ryan-Rivlin plan do not. (Wait for it …) Competitive bidding. That’s the source of its protections. That’s the crucial way in which it differs from other voucherization ideas.... No such bidding system would exist under the Ryan-Rivlin plan. Thus, Barnes preferred method of voucherizing Medicare is not like Part D. Yet he points to Part D as a justification, a model, for it. Well, if Part D is so laudable, let’s follow that model.

How voucher levels are set is the most important aspect of a premium support plan. It’s crucial to understand the mechanics. Is it by declaring, “Thou shall not raise subsidies faster than GDP + 1 percent,” or is it based on an apolitical market mechanism? Don’t be fooled by the sleight of hand Barnes has employed. Competitive bidding is different. Part D does it. Medicare Advantage and the Ryan-Rivlin plan do not.

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

Justin Wolfers Is Shrill: John Taylor Does Not Know What He Is Talking About Edition

Freakonomics  How to Spot Advocacy Science John Taylor Edition

Safari 1

Justin Wolfers writes:

Freakonomics » How to Spot Advocacy Science: John Taylor Edition: Be wary of economists wielding short samples.

And Justin comments:

Sometimes you see the perfect piece of evidence. The scatter plot that is just so. The data line up perfectly. And then you realize, perhaps they’re just too perfect. What you are seeing is advocacy, dressed up as science. Here’s an example, provided by John Taylor (via Greg Mankiw).... What conclusions should we draw about this relationship? And now why do you think Taylor began his sample in 1990? Actually, we should use all the available data. The chart below goes back to 1948, when these series—in their current form—began....

Here’s Mankiw’s assessment of Taylor’s claim:

There’s no doubt that the strength of the correlation is impressive.

But when you look beyond the cherry-picked sample, the correlation is a decidedly unimpressive -0.14.

Ryan Avent Is Shrill: The Default Republican Position Is a Set of Thoroughly Discredited Fringe Beliefs that Would Prove Economically Disastrous

Ryan Avent:

Strange ideas: You money is no good here | The Economist: TIM PAWLENTY, former Minnesota governor and potential Republican presidential candidate, has thoughts on money:

The former Minnesota governor said the administration has devalued the dollar by injecting "fiat money" into the economy.Former Minnesota Gov. Tim Pawlenty (R) predicted Tuesday that the U.S. will face a double-dip recession that could last all the way until the 2012 elections.The likely presidential candidate said the government, under President Obama, has devalued the dollar by injecting "fiat money" into the economy in an attempt to boost it — a plan he said will be damaging in the long-run.

This is unfortunate. Let's review the reasons why:

  • "Fiat money" is another way of saying "money". Fiat money—that is, dollars—is what people use to obtain goods and services in America. I'm assuming this is Mr Pawlenty's way of suggesting that everything would be better if America were on the gold standard.

  • Everything would be terrible on the gold standard. Once upon a time, conservatives understood this. Conservative patron saint and economics Nobelist Milton Friedman argued that tight monetary policy—a product, in part, of the need to defend gold convertibility—was responsible for the depth of the Great Depression.

  • If Mr Pawlenty is talking about monetary policy here, and it seems as though he is, he's got his organisational charts all wrong. The administration does not control monetary policy; the Federal Reserve does. Barack Obama did reappoint (Republican appointee) Ben Bernanke, but once Mr Bernanke was confirmed the administration had little say over the Fed's policy decisions.

  • Mr Pawlenty seems to think a falling dollar will lead to a recession. I...don't know why. I suspect that if asked, Mr Pawlenty would heartily agree that America should export more and import less. A falling dollar is one of the ways unbalanced economies engineer a reduction in the current account gap.

What more can you say? Increasingly, it seems as though the default Republican position on monetary policy is a set of thoroughly discredited fringe beliefs that would prove economically disastrous if adopted. That's a problem!

As one person who has had the chance to observe Tim Pawlenty up close in the past says: "It really is amazing what he does not know."

And this is the class act of the Republican presidential field--the one who doesn't denounce his own health care plan or accuse his opponents of being devil worshippers.

Paul Krugman Is Shrill: John Taylor Does Not Appear to Know What He Is Talking About

Paul Krugman:

What's Behind Low Investment?: John Taylor... show[s] a striking correlation between investment and unemployment... [and] leaps from that correlation to saying that what we need for economic recovery is to “lighten up on the anti-business sentiment coming out of Washington,” I wonder what is going on in his head....

[The] plunge in fixed investment since 2006... [is] the housing bust! Yes, business investment is... no lower than you might expect given the depressed state of the economy.... What the data actually say is that we had a catastrophic housing bust and consumer pullback, and that businesses have, predictably, cut back on investment in the face of excess capacity. The rest is just politically motivated mythology.

Jonathan Cohn Is Shrill: Says Mitch Daniels Does Not Have a Good Health Care Plan

Jonathan Cohn:

Conservatives Tout Healthy Indiana As A Model For Health Care Reform. Here's Why It Isn't: Conservatives don't know whether Mitch Daniels, the governor of Indiana, will run for president. But they know about the health care plan he introduced. And many of them are excited about it. The Healthy Indiana Plan, as it's known, is the Hoosier state's alternative to traditional Medicaid. It's also a viable alternative to the dreaded federal Affordable Care Act, if its boosters on the right are to be believed.

Do they have a case?...

Healthy Indiana.... Beneficiaries get a private, managed-care insurance policy that covers expenses beyond $1,500 and a so-called Power Account, modeled on HSAs. When beneficiaries go to the emergency room, they have to pay between $3 and $25 per visit.... [T]he program has reduced ER visits.... [T]he program is not as conservative as its reputation suggests. For one thing, Healthy Indiana applies cost-sharing with discretion. The monthly contributions into the Power Accounts vary between 2 percent and 5 percent of income, with the poorer recipients paying a smaller share than the richer ones. And that's only for people who have incomes. About one-third of the program's beneficiaries pay nothing at all. The state also regulates the insurers that participate in Healthy Indiana, requiring that they cover preventative care free of charge. These are the sorts of features favored by liberals.... Still, Healthy Indiana would not meet most liberals' expectations.... It also has lifetime caps on benefits....

[T]he underlying reality of Healthy Indiana that conservatives either don't acknowledge or don't realize: For what it offers, it's expensive.... Healthy Indiana doesn't seem to be providing better management of chronic disease, which is what the low-income population really needs...

David Leonhardt Is Shrill: We Need a Very Different Federal Reserve

David Leonhardt:

As Economy Sputters, a Timid Fed: Whenever officials at the Federal Reserve confront a big decision, they have to weigh two competing risks. Are they doing too much to speed up economic growth and touching off inflation? Or are they doing too little and allowing unemployment to stay high? It’s clear which way the Fed has erred recently. It has done too little. It stopped trying to bring down long-term interest rates early last year under the wishful assumption that a recovery had taken hold, only to be forced to reverse course by the end of year. Given this recent history, you might think Fed officials would now be doing everything possible to ensure a solid recovery. But they’re not. Once again, many of them are worried that the Fed is doing too much. And once again, the odds are rising that it’s doing too little.

Higher oil prices, government layoffs, Japan’s devastation and Europe’s debt woes are all working against the recovery. Already, a prominent research firm founded by a former Fed governor, Macroeconomic Advisers, has downgraded its estimate of economic growth in the current quarter to a paltry 2.3 percent, from 4 percent. The Fed’s own forecasts, notes that former governor, Laurence Meyer, “have been incredibly optimistic.” Why is this happening? Above all, blame our unbalanced approach to monetary policy. One group of Fed officials and watchers worries constantly about the prospect of rising inflation, no matter what the economy is doing.... There is no equivalent group — at least not one as influential — that obsesses over unemployment. Instead, the other side of the debate tends to be dominated by moderates, like Ben Bernanke, the Fed chairman, and Mr. Meyer, who sometimes worry about inflation and sometimes about unemployment.

The result is a bias that can distort the Fed’s decision-making. Just look at the last 18 months. Again and again, the inflation worriers, who are known as hawks, warned of an overheated economy. In one speech, a regional Fed president even raised the specter of Weimar Germany....

The problem is that some Fed officials already seem to have made up their minds, regardless of the data. In their public remarks, officials continue to wring their hands about QE2 rather than prepare people for the possibility of QE3. Some hawks have gone so far as to suggest halting QE2 early.

Meanwhile, the recovery looks uncertain, and the job market remains weak. Even if job growth were to accelerate sharply in coming months, the economy would be years away from so-called full employment. But never mind that, the hawks say — rampant inflation is just around the corner.

Joe Klein Is Shrill: We Need a Very Different Republican Party

Why friends don't let friends have anything to do with the Republican Party.

Joe Klein:

American Embarrassment/a>: It is always an education to watch our American writhings from overseas. It is particularly excrutiating watching the Republican Party presidential candidates who, on a daily basis, pronounce some ignorant racist or irreligious twaddle...which--amazingly enough--manages to be heard around the world. As Crowley notes below, today's example primo is Newt, who really needs to get back on his meds, worrying about his grandchildren:

"I have two grandchildren — Maggie is 11, Robert is 9," Gingrich said at Cornerstone Church here. "I am convinced that if we do not decisively win the struggle over the nature of America, by the time they're my age they will be in a secular atheist country, potentially one dominated by radical Islamists and with no understanding of what it once meant to be an American."

There is genius in this: no other human had located the secular humanist wing of radical Islam before. And then there is Herman Cain, the former chief executive of Godfather's Pizza who is pretending to run for President, proving that a black man can be as gutter-cheap bigoted as anyone. If elected, he would not appoint a Muslim to his cabinet or the federal bench because:

There is this creeping attempt, there is this attempt to gradually ease Sharia law and the Muslim faith into our government.

Sharia law! Break out the burqas! Even Pete Wehner is appalled. I mean, what are these guys smoking? (Nothing so benign as marijuana, I would venture to say.)

This is my 10th presidential campaign, Lord help me. I have never before seen such a bunch of vile, desperate-to-please, shameless, embarrassing losers coagulated under a single party's banner. They are the most compelling argument I've seen against American exceptionalism. Even Tim Pawlenty, a decent governor, can't let a day go by without some bilious nonsense escaping his lizard brain. And, as Greg Sargent makes clear, Mitt Romney has wandered a long way from courage. There are those who say, cynically, if this is the dim-witted freak show the Republicans want to present in 2012, so be it. I disagree. One of them could get elected. You never know. Mick Huckabee, the front-runner if you can believe it, might have to negotiate a trade agreement, or a defense treaty, with the Indonesian President some day. Newt might have to discuss very delicate matters of national security with the President of Pakistan...

Henry Farrell Is Shrill: Alan Greenspan Misses the Point Completely: “With Notably Rare Exceptions”

The best I have read so far is:

With notably rare exceptions, Bernie Madoff delivered superior returns to his clients.

After all, he only had one bad year.

Henry Farrell:

“With Notably Rare Exceptions”: Alan Greenspan is back as free market evangelist, and it’s rather wonderful.

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

It’s best not to interpret this as an empirical claim, but a carefully-thought-out bid for Internet immortality. It has the sublime combination of supreme self-confidence and utter cluelessness of previously successful memes such as “I am aware of all Internet traditions” and the “argument that has never been made in such detail or with such care,” but with added Greenspanny goodness. I tried to think of useful variations on the way in to work this morning – “With notably rare exceptions, Russian Roulette is a fun, safe game for all the family to play,” and “With notably rare exceptions, (the Third Punic War for example), the Carthaginian war machine was extremely successful,” but none do proper justice to the magnificence of the original. But then, that’s why we have commenters. Have at it.

Stu 03.30.11 at 1:39 pm “With notably rare exceptions, Newt Gingrich is a loyal and faithful husband.”

Andrew Edwards 03.30.11 at 1:44 pm “With notably rare exceptions, Japanese nuclear reactors have been secure from earthquakes” “With notably rare exceptions, Charles Manson has lived a peaceful life”...

chris y 03.30.11 at 1:54 pm With rare exceptions, you can’t get pregnant if you do it standing up.

Sufferin' Succotash 03.30.11 at 1:54 pm With notably rare exceptions, Adolf Hitler was extremely tolerant of diverse religions and cultures....

Tim Wilkinson 03.30.11 at 1:58 pm With notably rare exceptions, people of the same trade can meet together, if only for merriment and diversion, with relatively little in the way of a conspiracy against the public or of any contrivance to raise prices.

Sev 03.30.11 at 2:03 pm Though unredeemably(sic) opaque, Mr. Madoff’s operations delivered excellent returns, with notably rare exceptions...

Calculated Risk: ADP: Private Employment increased by 201,000 in March


Calculated Risk: ADP: Private Employment increased by 201,000 in March:

Private-sector employment increased by 201,000 from February to March on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from January 2011 to February 2011 was revised down to 208,000 from the previously reported increase of 217,000.


The average monthly increase in employment over the last four months – December through March – has been 211,000, consistent with a gradual if uneven decline in the unemployment rate...

The Former CEA Chairs' Deficit Letter...

Mark Thoma sends us to Joe Stiglitz, who complains about what the CEA Chairs' letter did not say:

Why I didn't sign deficit letter: I was asked to sign the letter from a bipartisan group of former chairmen and chairwomen of the Council of Economic Advisers that stresses the importance of deficit reduction and urges the use of the Bowles Simpson Deficit Commission’s recommendations as the basis for compromise. The letter’s signatories believed that their support would show that there was a core to scientific economics that crosses ideological boundaries. While I agree there is a core set of principles to which all card-carrying economists would (or should) subscribe — resources are limited, incentives matter — I did not sign.

The Bowles-Simpson recommendations, if adopted, would constitute a near-suicide pact: Growth would slow, tax revenues would diminish, the improvement in the deficit would be minimal. What matters for sustainability is the debt to gross domestic product ratio — and that likely could worsen. This is what we have seen in the similarly poorly designed austerity measures.... The International Monetary Fund seems to have learned the lesson — but not the Bowles-Simpson Commission.

With monetary policy demonstrably ineffective in pulling us out of our malaise, fiscal policy is only recourse to putting America back to work. Fortunately, we can simultaneously stimulate the economy now and reduce the deficit in the medium term. Years of underinvestment in the public sector—in infrastructure, education and technology—mean that there are ample high-return opportunities. Tax revenues generated by the higher short- and long-term growth will more than pay the low interest costs, implying significant reductions in deficits. Any firm that could borrow at terms similar to those available to the U.S., and with such high return projects, would be foolish to pass up the opportunity.

So, too, increased progressivity of the tax system....

The Bowles-Simpson Commission is correct in pointing to the middle class tax expenditures, which encourage excessive spending on health care and housing.... [T]he commission seems insensitive to the consequences of even making commitments today to reduce mortgage deductions in the future – no matter how gradually phased in. Housing prices would fall further....

The Bowles Simpson Commission is correct in one conclusion: At the core of the country’s long run deficit and debt problem are soaring health care costs.... But the commission did not point out the implications of attempting to curb costs of the public system for the aged and poor, without reforming that for rest of the economy....

I outline the low-hanging fruit that could easily exceed the $4 trillion dollar target set by the Bowles-Simpson Commission.... The Cold War ended more than two decades ago.... The health care reform bill did little to eliminate the trillion-dollar giveaway to the drug companies.... Eliminating corporate welfare.... [T]axing activities that generate large negative externalities....

Deficit reduction is important. But it is a means to an end.... Bowles-Simpson confuses means with ends, and would take us off in directions which would likely be counterproductive. Fortunately, there are alternatives...

The letter:

As former chairmen and chairwomen of the Council of Economic Advisers, who have served in Republican and Democratic administrations, we urge that the Bowles-Simpson report, “The Moment of Truth,” be the starting point of an active legislative process that involves intense negotiations between both parties. There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention.

While the actual deficit is likely to shrink over the next few years as the economy continues to recover, the aging of the baby-boom generation and rapidly rising health care costs are likely to create a large and growing gap between spending and revenues. These deficits will take a toll on private investment and economic growth. At some point, bond markets are likely to turn on the United States.... It is tempting to act as if the long-run budget imbalance could be fixed by just cutting wasteful government spending or raising taxes on the wealthy. But the facts belie such easy answers....

The commission’s specific proposals cover a wide range. It recommends cutting discretionary spending substantially, relative to current projections. Everything is on the table.... It also urges significant tax reform. The key principle is to limit tax expenditures....

The commission’s recommendations for slowing the growth of government health care expenditures — the central cause of our long-run deficits — are incomplete. It proposes setting spending targets and calls for a process to suggest further reforms if the targets aren’t met. But it also lays out a number of concrete steps, like increasing the scope of the new Independent Payment Advisory Board and limiting the tax deductibility of health insurance.

To be sure, we don’t all support every proposal here. Each one of us could probably come up with a deficit reduction plan we like better. Some of us already have. Many of us might prefer one of the comprehensive alternative proposal....

Yet we all strongly support prompt consideration of the commission’s proposals. The unsustainable long-run budget outlook is a growing threat to our well-being. Further stalemate and inaction would be irresponsible.

We know the measures to deal with the long-run deficit are politically difficult. The only way to accomplish them is for members of both parties to accept the political risks together.

Had I been Joe, I would have asked for two and only two changes in the letter before signing on:

  1. An explicit declaration that cutting current-year non-security discretionary spending as long as the unemployment rate remains above 7.5% is counterproductive and destructive--the deficit we need to cut is the long-run projected deficit, and at least as long as interest rates remain near their current levels larger current-year deficits are more likely to help than hurt.

  2. An explicit recognition that two of Simpson-Bowles's most important and significant recommendations--"increasing the scope of the new Independent Payment Advisory Board and limiting the tax deductibility of health insurance"--have already been signed into law in the 2010 Affordable Care Act that is ObamaCare, and that they need to be maintained, and if possible strengthened and extended, not repealed.

Without those two changes, it seems to me that in the current political environment the letter is likely to do more harm than good. Had it included those two changes, it seems to me that it would have been likely to push the political debate in constructive directions.

Donald Trump's 'Birth Certificate' Proven to Be Fake

Jim Newell:

Donald Trump's 'Birth Certificate' Proven to Be Fake: Jim Newell — Pretend presidential candidate Donald Trump released his "birth certificate" yesterday, and by the end of the day, it was proven to be a fake.... As The Smoking Gun explains:

As seen above, he provided the conservative web site with what he purports to be his birth certificate. Except the document is not an official New York City birth certificate, but rather a document generated by Jamaica Hospital, where Trump's mother Mary reportedly gave birth in June 1946. Official birth certificates are issued (and maintained) by the New York City Department of Health and Mental Hygiene's Office of Vital Records. So, what is Trump trying to conceal?

Donald Trump is trying to conceal the fact that he was never born...

Fukushima Is Definitely Worse than Three Mile island

Ian Sample:

Japan may have lost race to save nuclear reactor | World news | The Guardian: The radioactive core in a reactor at the crippled Fukushima nuclear power plant appears to have melted through the bottom of its containment vessel and on to a concrete floor, experts say, raising fears of a major release of radiation at the site.... Richard Lahey, who was head of safety research for boiling-water reactors at General Electric when the company installed the units at Fukushima, told the Guardian workers at the site appeared to have "lost the race" to save the reactor, but said there was no danger of a Chernobyl-style catastrophe.... At least part of the molten core, which includes melted fuel rods and zirconium alloy cladding, seemed to have sunk through the steel "lower head" of the pressure vessel around reactor two, Lahey said.

"The indications we have, from the reactor to radiation readings and the materials they are seeing, suggest that the core has melted through the bottom of the pressure vessel in unit two, and at least some of it is down on the floor of the drywell," Lahey said. "I hope I am wrong, but that is certainly what the evidence is pointing towards."... Lahey said: "It won't come out as one big glob; it'll come out like lava, and that is good because it's easier to cool." The drywell is surrounded by a secondary steel-and-concrete structure designed to keep radioactive material from escaping into the environment. But an earlier hydrogen explosion at the reactor may have damaged this.

"The reason we are concerned is that they are detecting water outside the containment area that is highly radioactive and it can only have come from the reactor core," Lahey added. "It's not going to be anything like Chernobyl, where it went up with a big fire and steam explosion, but it's not going to be good news for the environment." The radiation level at a pool of water in the turbine room of reactor two was measured recently at 1,000 millisieverts per hour. At that level, workers could remain in the area for just 15 minutes, under current exposure guidelines...

Walter Bagehot on the Lender of Last Resort

Lombard Street:

Chapter 7: Nothing, therefore, can be more certain than that the Bank of England has in this respect no peculiar privilege; that it is simply in the position of a Bank keeping the Banking reserve of the country; that it must in time of panic do what all other similar banks must do; that in time of panic it must advance freely and vigorously to the public out of the reserve.

And with the Bank of England, as with other Banks in the same case, these advances, if they are to be made at all, should be made so as if possible to obtain the object for which they are made. The end is to stay the panic; and the advances should, if possible, stay the panic. And for this purpose there are two rules:—First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.

Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them. The reason is plain. The object is to stay alarm, and nothing therefore should be done to cause alarm. But the way to cause alarm is to refuse some one who has good security to offer. The news of this will spread in an instant through all the money market at a moment of terror; no one can say exactly who carries it, but in half an hour it will be carried on all sides, and will intensify the terror everywhere. No advances indeed need be made by which the Bank will ultimately lose. The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business. That in a panic the bank, or banks, holding the ultimate reserve should refuse bad bills or bad securities will not make the panic really worse; the 'unsound' people are a feeble minority, and they are afraid even to look frightened for fear their unsoundness may be detected. The great majority, the majority to be protected, are the 'sound' people, the people who have good security to offer. If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good security—on what is then commonly pledged and easily convertible—the alarm of the solvent merchants and bankers will be stayed. But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse...

Median Income People Are Not Middle Class Watch

Last September Paul Krugman joked:

Have You Left No Sense Of Decency?: Pretty soon, we’ll be having serious, completely un-self-conscious discussions in major magazines about the servant problem...

And soon afterwards yet another reporter called me to, among other things, claim that a New York police inspector and school principal together making $250-$300K a year were not rich. When I point out that the middle-class family making the median $50k a year in household income might disagree that he and his are in the same class as they and theirs, he said that people making the median income aren't what he calls middle class...

However, the story he was working on does not seem to have ever appeared in the New York Times...

But let me quote Ezra Klein anyway:

Ezra Klein - Even in New York City, $250,000 is rich: Arguments over income taxes tend to get bogged down in arguments about who is really "rich." And what you hear then is that rich in Ohio and rich in New York City are different. But how different?According to the Census Bureau, only 6.3 percent of New York City's households pulled in more than $200,000. So if you're a household making $250,000 or more, you're easily in the top 5 percent -- even in New York City. Now, it's true that those people might not "feel" rich. There's lots of stuff to buy in New York City. It's pretty easy to construct a lifestyle where you spend $250,000 a year. In Columbus, Ohio, only 1.3 percent of households make more than $200,000, so there's less stuff for them to buy and fewer rich people for them to try to keep up with. But what you buy and whether you try to keep up with the people in the penthouse is a personal decision, not an objective economic necessity. The fact of the matter is that a household making $250,000 in New York City is making more than pretty much anyone else in the city. Being rich is more than just a feeling.

Peter S. Goodman: "I Don't Get Why" the New York Times's Bill Keller Misrepresented My Comments...

Peter Goodman:

the nytpicker: I greatly respect Bill and I still love the Times, and I'm not sure why he construed my sentence as a "scoff." I don't get why he apparently took it as being about the Times, when I was speaking much more generally about a troubling default mode in contemporary journalism. I was simply saying that I think it's crucial that journalists report impartially, insofar as we start our inquiry without being beholden to any particular interest, but equally that we then write it as we see it, without fretting over how readers will see us. I was in particular criticizing the tendency in many publications to insert mentions of bogus contentions as a means of inoculating themselves against claims that they are staking out a clear position. That doesn't help readers decide anything for themselves. It's phony centrism masquerading as impartiality. At the HuffPost, I don't allow my reporters to start out trying to buttress an ideological position, but if the reporting winds up going there, I see no value in muddying it up with dubious pseudo-facts aimed at creating a false sense of balance.

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

Larry Meyer on Core Inflation


The C-word (as in core inflation) has become toxic. OK, you can say “underlying” inflation if it makes you feel better, or if you want to reduce the prospect of scorn—Chairman Bernanke seems to be doing this. But the new terminology begs the question: What does “underlying” inflation mean and how do we measure it? If “underlying” is the question, “core” is an answer! We define “underlying” inflation as the rate to which inflation will converge after the price level has adjusted to a temporary or one-time increase in a volatile component of consumer prices. The question is: What is the better measure of underlying inflation: core or headline inflation today?

Why do we, as forecasters, and the FOMC in its own forecasts, focus on core inflation? The question should not be whether I buy groceries and gas, but whether headline or core inflation is a better measure of where headline inflation is likely to settle once overall prices have adjusted to the higher prices of energy and food. As forecasters, we want to know not only what (headline) inflation is today, but also, and much more importantly, where headline inflation is likely to be tomorrow (the medium term). Identifying a measure of underlying inflation gives us a good head start....

Our thesis, and the FOMC’s position, is that headline inflation converges to core, that is, headline inflation tomorrow will fall towards core inflation today. Whether or not this is a valid thesis is an empirical question.... If you test whether higher oil prices raised core inflation over the 1970s and early 1980s (or in samples that include this period), the answer is a definitive “Yes” (higher oil prices pass through to core inflation). In this case, core inflation tomorrow will converge to headline today. However, if you test this hypothesis over the subsequent period, from the mid-1980s to today, the answer is “No” (no pass-through). In this case, headline tomorrow will converge to core today. This is the basis for our forecasts.... The Fed has built credibility over the last two decades: Long-term inflation expectations are stable, have been stable for more than a decade, and are likely to remain so. This means that spikes in food and energy prices do not get translated into expectations of higher inflation down the road and, thus, do not lead to a generalized increase in prices, today or tomorrow. So the critical question is whether inflation expectations are well anchored today—we believe that they are—and, more importantly, whether they are likely to remain so...

Stan Collender Despairs of the Concord Coalition

He concludes that, like the CRFB, the Concord Coalition is now in the business of burnishing the reputations of Republican budget arsonists:

Et Tu Concord Coalition? | Capital Gains and Games: The Concord Coalition has now joined the Committee for a Responsible Federal Budget in praising the remarkably vapid and incredibly inconsequential letter 64 senators sent to the White House last week asking for a comprehensive deficit reduction effort but not even hinting that they will vote for it if it is developed. As I said in my post about the CRFB press release about the letter, the fact that the Concord Coalition thought the letter deserved to be hyped may say more about how desperate deficit reduction groups are to show something they can classify as progress than about any actual progress...

Stan Collender: Zombie Budget Politics from the 1970s


GOP Paints Itself into a Corner on the Budget...Again | Capital Gains and Games: Budget-watchers everywhere seem to be asking two questions... whether there’s going to be a federal government shutdown... whether Congressional Republicans have any chance of getting out of the budget corner they’ve painted themselves in without inflicting serious political damage on themselves.

A similarly tough budget situation played out in the late 1970s.... Republican members of the House Budget Committee made it clear year after year to then-Chairman Bob Giaimo (D-Conn.) that there was no way they would vote for any budget resolution that didn’t completely capitulate to GOP demands. Their position forced Giaimo to move to the left with his budget resolutions to win the support of enough Democrats so he could move the bills to the House floor. That gave Democratic Reps. Elizabeth Holtzman of New York (my boss at the time), Parren Mitchell of Maryland and Louis Stokes of Ohio enormous — some might even say undue — influence over the committee’s work.... [T]the GOP always ended up with even less of what it wanted than otherwise would have been the case.

Today’s GOP budget dilemma is similar in many respects to the one it imposed on itself 30-plus years ago. This time the tea party wing of the Republican Party in the House has repeatedly let its own leadership know that a budget compromise is unacceptable.... This has presented Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) with a Giaimo-like choice: Completely capitulate to the tea party or move toward the Democrats to get enough votes to pass a continuing resolution in the House.

But this year’s budget corner is significantly tighter than the one Giaimo was in.... Giaimo knew that the Democratic-controlled Senate would modify his budget resolution and that a conference report with those changes would ultimately be adopted. But based on the budget negotiations and votes that have already taken place this year, Boehner and Cantor have to assume that the Senate and White House won’t accept a tea-party-supported continuing resolution. A government shutdown that might well be blamed on Boehner, Cantor and the Republican Party would then occur.

Giaimo also knew that, no matter what happened on the budget, the Holtzman-Mitchell-Stokes wing of the Democratic Party would work with the Caucus on other issues.... Boehner and Cantor have no such assurances.... Giaimo was fortunate in that he was only dealing with one issue — the budget resolution. Now, however, the GOP leadership has to be very mindful that, by its own choosing, the debate over the continuing resolution will be followed in very short order by difficult debates on two other mega budget issues: the fiscal 2012 budget and an increase in the federal debt ceiling. Moving away from the tea party on the first issue very likely will mean losing it on the other two....

This leads back to the question of whether there will be a government shutdown. If courting Democratic votes for the continuing resolution will cause an angry and potentially irrevocable GOP split on the other budget issues, then going with a tea-party-preferred continuing resolution will be the House GOP leaders’ politically correct choice even if it is more than likely to lead to a shutdown. If a shutdown then demonstrates to the tea party that the no-compromise position is damaging, the leadership might find its way out of that tight budget corner after all.

Paul Krugman vs. Zombie Fred Hayek


Friedrich Hayek, Zombie: [A] 1932 letter by Friedrich Hayek and others arguing that (a) deficits somehow caused the Great Depression (b) deficit spending would drive up interest rates and make the Depression worse. Truly, nothing ever changes. The insistence that big deficits somehow caused the crisis even thought they actually didn’t appear until after the crisis was well underway — and were clearly caused by the crisis, not the other way around — prefigures the debate in Europe, in which everyone declares that fiscal irresponsibility is the core issue even though both Ireland and Spain had low debt and budget surpluses on the eve of crisis. And Hayek’s prediction that deficits would drive up interest rates despite high unemployment was, of course, totally wrong.... [T]he deficit came after the slump began, not before, and that much bigger deficits never did push rates up. You can also see the big mistake of 1937, when FDR gave in to the austerians of his era.

Still, you can make excuses for Hayek and friends: this was all new territory, and macroeconomics barely existed as a field.

What’s terrifying is... the arguments of today’s pain caucus are exactly the same as those Hayek was making in 1932, except that they’re less well expressed. And they’re sticking with their doctrine even though the economic story — deficits mainly the result of the slump, not the cause, and interest rates not rising in the face of those slump-caused deficits — is playing out the same way...

Don't Expect Consumers to Drive a Strong Recovery

Greg Ip sends us to Julie Coronado:

Consumer spending: No pent up demand around here: As Ms Coronado nicely puts it:

While consumers are spending, as shown in the chart above, there has been no sign of pent up demand. Real consumer spending on goods fell off its pre-2008 trend line during the recession and has since resumed its former pace with no indications that a surge in spending to make up for lost time is imminent.The burst of spending in Q4 was bound to be followed by some moderation with or without higher food and energy prices. The tax of higher inflation robbed consumers of the benefits of the payroll tax cut and has left their confidence shaken, which appears to be producing a greater than anticipated moderation. If firms keep adding jobs, this will prove to be a nothing more than a slow patch.Nonetheless rising headline inflation has naturally put central bankers a little on the defensive, and they are vulnerable to seeming out of touch by citing abstract measures of core inflation or the lack of higher prices on Ipads. Yet it is relatively straightforward that a burst of headline inflation that does not emanate from wages is likely to be self-destructive.

In other words, don't worry about inflation until you see it in wages. With unemployment around 9%, I'm not holding my breath.

Joe Bageant, Author of "Deer Hunting with Jesus," Has Died

It is a wonderful book.

Susie Madrak of Suburban Guerrilla tells us about Joe:

Suburban Guerrilla » Blog Archive » Goodbye, Joe: Joe Bageant, author, blogger and fire-breathing class warrior, died yesterday after a short bout with cancer. The financial success of Joe’s first book, Deer Hunting with Jesus, shocked and, I think, embarrassed him. He tried to give away as much of the money as he could, as fast as he made it, but felt compelled to hang onto at least some of it because he figured sooner or later, his drinking and smoking would catch up with him and he’d be at the mercy of the American healthcare system.

He was right.

I don’t think I ever felt so comfortable, so fast with anyone as I did with Joe. We were fans of each other’s work, and corresponded back and forth for years. I still remember our first phone call, which lasted a couple of hours and covered everything from class stratification to the consciousness-raising wonders of LSD. I always intended to visit him, either in Winchester, Virgina where he was first born and returned decades later, or in Belize and then Ajijic, Mexico, where he’d been spending a lot of time and was trying to lure his many friends down to form a community of like-minded ex-pats. But I never had a reliable car, or enough money to travel.

And then he got sick.

After a vibrant life, Joe Bageant died yesterday following a four-month struggle with cancer. He was 64. Joe is survived by his wife, Barbara, his three children, Timothy, Patrick and Elizabeth, and thousands of friends and admirers. He is also survived by his work and ideas.

According to Joe’s wishes, he will be cremated. His family will hold a private memorial service.

Did I mention that Joe was, in fact, an actual socialist? He wrote so powerfully about the tyranny of owning things, but also had a deep well of compassion for fellow Americans who were caught on the wheels of the economic machine. He was always urging me to stop looking for a job and “just write, goddamnit!” He was my friend, a mentor, and a fellow traveler on the road to enlightenment. He was no doubt easier from a distance, but really, aren’t we all?

I have a review copy of his latest book, Rainbow Pie, sitting on my desk. I’ve been edging my way toward it, sad because I knew it was his last book. I think I’ll read it this week, in his memory.

Bless you, brother. See you on the other side.

Come to think of it, I have read three wonderful books in the past decade that were all edited by my high school friend Rachel Klayman: Deer Hunting with Jesus, Twenty-One Dog Years, and The Audacity of Hope. Seems to me an editor that good is a very rare thing...

The Pain Caucus of 1932

Tyler Cowen sends us to Friedrich August von Hayek, T.E. Gregory, Arnold Plant, and Lionel Robbins on October 18, 1932.

I'm trying to get Ryan Avent to let Hayek represent the Pain Caucus on the Economist's "By Invitation" feature: he's more articulate than most members of today's pain caucus, and also more upfront in what he wants to see.

Hayek et al.:

Sound familiar?: We are of the opinion that many of the troubles of the world at the present are due to imprudent borrowing and spending on the part of the public authorities. We do not desire to see a renewal of such practices. At best they mortgage the Budgets of the future, and they tend to drive up the rate of interest--a process which is surely particularly undesirable at this juncture, when the revival of the supply of capital to private industry is an admittedly urgent necessity. The depression has abundantly shown that the existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions an dobstacles imposed by the existence of private debt.

Hence we cannot agree with the signatories of the letter that this is a time for new municipal swimming baths, etc., merely because "people feel they want" such amenities.

If the Government wish to help revival, the right way for them to proceed is, not to revert to their old habits of lavish expenditure, but to abolish those restrictions on trade and the free movement of capital (including restrictions on new issues) which are at present impeding even the beginning of recovery.

And a little fact-checking. Barrie Wigmore points out:

The low point in government bonds was in January 1932, when the U.S. Treasury 4 1/4 percent bonds due in 1952 hit $99... thereafter prices rose... reduced U.S. government bond yields from an average of 3.92% in March 1932 to 3.76% in June...

U.S. debt-to-GDP was to more than quadruple from its 1932 value in the New Deal and World War II, with no signs at all that such borrowing was in any way "imprudent."


P.Z. Myers quotes Newt Gingrich:

Pharyngula: Newt Gingrich:

I have two grandchildren: Maggie is 11; Robert is 9. I am convinced that if we do not decisively win the struggle over the nature of America, by the time they're my age they will be in a secular atheist country, potentially one dominated by radical Islamists...

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Friends Really Do Not Let Friends Ever Support the Republican Party


It’s beginning to look a lot like a shutdown: Brian Beutler has a nice story running down the state of play on the budget negotiations. The takeaway is that Republicans aren’t just insisting that Democrats cut as deep as the GOP wants, but that they also cut in the way the GOP wants. House Appropriations Committee aide Bob Inglee, for instance, told Democrats “they should reach a spending cut target by choosing from the menu of cuts included in the controversial House-passed continuing resolution.”... Democrats, as you might imagine, aren’t interested in sticking to the menu House Republicans drew up for them. Can you imagine Chuck Schumer saying, “I’ll take the education cuts, with a side of defunding Planned Parenthood”? Democrats, rather, have begun looking for savings outside the non-defense domestic discretionary budget. And they’ve found some, But Republicans aren’t happy about it.

Asked about the offer the White House has floated, a top Republican aide says, “This debate has always been about discretionary spending — not autopilot ‘mandatory’ spending or tax hikes.” Funny. I thought this debate had always been about the deficit, or at least cutting spending. Guess not. Rather, the Republican position appears to be: “How do we preserve current tax rates and most current spending while getting Democrats to accept deep cuts to the small fraction of the budget called non-defense discretionary spending?” It's a weird position, but it looks to be what we’re dealing with.

The Fiscal 2011 Budget: The Country Loses

Ezra Klein on how Obama will be said to have won but will have actually lost the fiscal 2011 budget battle:

Wonkbook: We’re coming up fast on the deadline by which Congress needs to agree on government funding or the Feds has to turn the lights off. The negotiations remain fluid, but here’s what seems pretty clear: The House Republican leadership will win, the Tea Party will be disappointed and the Democrats will lose. But really, it’ll be the Tea Party that won, the House Republican leadership who learned a valuable lesson and the Democrats who lost. Confused? Let me explain.

Back in February, Paul Ryan unveiled what was supposed to be the opening bid from the House Republicans: $32 billion in cuts for the rest of 2011. But the Tea Party demanded more and House leadership quickly caved, doubling their proposed cuts to more than $60 billion.... Now Democrats are offering as a compromise measure $30 billion in total cuts, or exactly what Ryan’s original proposal had called for. Pretty neat, huh?

And that’s not the Democrats’ final offer, either. Odds are good that the eventual compromise will see cuts somewhere between the $30 billion Republican leadership called for and the almost $70 billion the conservative wing of the House GOP demanded. “That’s not much of a compromise if we end up with what the House Republican leadership wanted in the first place,” observe Michael Ettlinger and Michael Linden. And they’re right. But the irony is that it’s entirely possible the press will report that Democrats “won” the negotiations, as Republican leadership is likely to have to lose a lot of conservative votes in the House to get any compromise, no matter how radical, through the chamber. That will make them look bad, and in the weird logic of Washington, make the Democrats look good.

But if you just keep your eye on the policy, Republicans are moving towards a win far beyond anything the House leadership had initially imagined...

What Ezra does not mention is that the country loses--what we need right now is bigger government deficits and policy changes that reduce government deficits after 2020. What we are getting is policy changes that increase government deficits after 2020 and reduce government deficits now.

Can't anybody here play this game?

Ta-Nehisi Coates Praises the Governor of Mississippi


Barbour on the Late Unpleasantness: Mississippi's governor offers his thoughts:

"Slavery was the primary, central, cause of secession," Barbour told me Friday. "The Civil War was necessary to bring about the abolition of slavery," he continued. "Abolishing slavery was morally imperative and necessary, and it's regrettable that it took the Civil War to do it. But it did." 

Matt smirks at this. I'm less inclined to do so. 

I think this is an important admission. You can make the case that this is all politics, and not heartfelt. Given that Barbour is a politician, I don't find that particularly damning. George Wallace's racism wasn't heart-felt either, but it still did incredible damage to Alabama. By that same principal, a step away from the gleeful profession of Confederate creationism, no matter the motives, will always earn my praise.

Good on Haley Barbour. It's that simple.

Dean Baker: The U.S. Cannot Turn into Greece (Although It Might, Someday, far in the Future, After Generations of Failed Policies, Turn into Zimbabwe)

Dean Baker complains about Paul Krugman:

Greece vs. Zimbabwe: More on Krugman and Deficits | Beat the Press: Greece had very little choice in agreeing to the terms of the EU/IMF because it did not have its own currency. The United States will therefore always have the option to risk higher inflation to buy its own debt. Those who claim that we do not have this option are not being honest.

The other reason why it is important that we are not Greece is that we do not have to worry about the psychology of the markets (i.e. the bond market vigilantes [BMV]) in the same way. The story goes that everything was going along just fine with investors willing to hold Greek debt at a very small premium over German debt. Then the BMV got freaked and suddenly interest rates on Greek debt went through the roof. 

In an analogous situation, the Fed could just step in and buy the debt that private investors were unwilling to hold. If the economy is fundamentally unbalanced (i.e. we are operating above full employment levels of output) then this will give us a serious problem of inflation, but if the fundamentals are essentially fine and the BMVs just freaked for nothing, then we don't have to worry. The Fed can keep interest rates at reasonable levels and eventually private investors will step in and buy our debt.

It is also important to recognize that there are literally zero incidents of inflation just going through the roof in an advanced economy, absent war, natural disaster, or political collapse. Inflation rises through a gradual process; we don't have to worry that the inflation rate will jump from 2 percent to 20 percent overnight. This means that if the BMV bolted and the Fed filled the gap we would have the luxury of waiting and seeing whether this action was leading to higher inflation and then responding accordingly. The idea that we are sitting on a hairspring trigger that could go off at any moment is just nonsense.

For these reasons it is important that the U.S. has its own currency. It can never be Greece. It may end up as Zimbabwe, but this sort of hyper-inflation would be the result of long period of badly failed policies in which our economy essentially unraveled...

And Paul Krugman agrees:

The Euro Straitjacket  NYTimes com

Paul Krugman on having your own currency and denominating your debt in it:

The Euro Straitjacket : I think Dean Baker and I are converging on deficits and independent currencies. He asserts that having your own currency makes a big difference — you can still end up like Zimbabwe, but not like Greece right now. I’m fine with that. Specifically, the reason Greece (and Ireland, and Portugal, and to some extent Spain) are in so much trouble is that by adopting the euro they’ve left themselves with no good way out of the aftereffects of the pre-2008 bubble. To regain competitiveness, they need massive deflation; but that deflation, in addition to involving an extended period of very high unemployment, worsens the real burden of their outstanding debt. Countries that still have their own currencies don’t face the same problems.... [T]he US and the UK look as if they should be in a similar category with the troubled European peripherals; and Japan is literally off the chart. But having our own currencies makes a big difference.

All I’m saying is that dollar or no dollar, fiscal solvency is still an issue — not now, not for some time to come, but not something we can always ignore.

J-P Teti: The iPad Does More

J-P Teti:

J-P Teti (The iPad is 99% more open than any other computer): [T]his is my 8th grade year.... I don’t have any nerdy friends at school. I’m the only nerd in the whole 8th grade. I have an iPad. I’m the only person in my class who has one.... Today, I had this conversation with a friend of mine named Sophie:

Sophie: So, J-P, guess what?

Me: What?

Sophie: I’m getting an iPad!...

J-P: Awesome. Why are you getting it?

Sophie: Well, my grandpa was going to get me a laptop for my graduation gift, but we couldn’t find the one I wanted and my mom said “maybe you should look into that iPad thing” and it’s the same >>price and it does more. (emphasis mine)


It does more.

The teenage market is where I like to turn for a prediction of where the general market will be in a few years. Because while teens aren’t nerdy, they tend to be early adopters because it’s cool.... And this market thinks the iPad does more. This is the key to the iPad that nobody has figured out. The iPad does everything that a regular computer user does. Facebook. YouTube. Email. Web browsing. It does all this out of the box.

And it has all the apps.

The iPad is actually opening up technology to more people. None of this crap about it being closed is accurate. By giving people freedom to explore the app store without having to worry about anything (except their wallets), Apple has possibly made the best move they could make — by locking down the iPad’s installation sources. That’s the one that’s the most helpful for the general state of technology. Apple is encouraging people to explore and play around. The iPad only does less than a regular computer to us geeks. To everyone else, it does more....

Deflation Does Not Raise Employment

Paul Krugman:

Wages and Employment, Yet Again: [E]ven if we didn’t have that problem [that deflation causes bankruptcies because of nominal debt], there would be no reason to expect a general fall in wages to raise employment.... [D]emand curves usually slope downward... because when you cut the price of something, it normally gets cheaper relative to other things, leading people to redistribute their spending.... But when you cut the price of everything — which is more or less what happens when wages fall across the board — there’s nothing else to substitute away from. Yes, economics textbooks typically show a downward-sloping “aggregate demand curve”. But the reasons for that curve’s downward slope aren’t the same as for your ordinary demand curve. It’s a process that works like this: lower prices -> lower demand for money -> lower interest rates -> higher spending. And that process doesn’t operate when, as is currently the case, short-term interest rates (which are the ones that matter for money demand) are zero.

Things are different for a country that shares a currency with other countries. Ireland can raise employment by cutting wages of Irish workers relative to German workers. But America, with its floating dollar, gains nothing — nothing at all — from overall wage cuts. All we get is a magnified real debt burden.

Rationalizing Intellectual Property

Julian Sanchez:

Orphan Works: The ruling rejecting the Google Books settlement suggests, plausibly enough, that any general solution to the problem of orphan works is more properly the task of Congress than any kind of private agreement. I’ll admit to being a bit puzzled about why this hasn’t already happened. I take it for granted that our current lunatic copyright policy can be adequately explained by the fact that concentrated incumbent entities—RIAA and MPAA—are in a better position than dispersed consumers and amateur creators to lobby for legislation reflecting their (perceived) interests. But it seems like everyone ought to have an interest in resolving the orphan works problem. Content owned by incumbent content firms—and especially content currently generating revenue—is by definition not “orphan works.” Producers affiliated with those firms would also benefit from the presumption that they may make use of works whose owners cannot be found. And in the cases where there actually is a current living rights holder, they may well become aware of a highly successful adaptation of their work (and thus enjoy the benefit of royalties) that would simply not exist under the status quo because good-faith efforts to locate them failed. Who’s the rational veto player here?

What Is Jennifer Anniston Having for Breakfast?

From the Economist

Hal Varian Interview - Innovation with Google Economist Hal Varian | The Ideas Economy:

Economist: What fascinates you most about the rate of productivity today?

Hal Varian: There's a recent study out of the University of Michigan, where they had a team of students find answers to a set of questions using materials in the campus library. Then another team had to answer the same set of questions using Google. It took them 7 minutes to answer the questions on Google and 22 minutes to answer them in the library. Think about all the time saved! Thirty years ago, getting answers was really expensive, so we asked very few questions. Now getting answers is cheap, so we ask billions of questions a day, like “what is Jennifer Aniston having for breakfast?” We would have never asked that 30 years ago.