Grasping Reality on TypePad, by Brad DeLong

This is what Greg Mankiw had to say in 2004 about one of the principal sources of our long-run fiscal imbalance--the fact that the Republican-created Medicare Part D was a spending program, a very large spending program, that made no provision at all for covering its costs:

Medicare Prescription Drug, Improvement, and Modernization Act of 2003: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, enacted in December, adds a prescription drug benefit to the Medicare program. The new drug benefit will give more Medicare beneficiaries access to prescription drug coverage and will provide benefits for individuals with limited means and low incomes. A prescription drug discount card will be available for beneficiaries until the full drug benefit is available nationwide.... The passage of the Medicare bill was a major accomplishment, but much remains to be done.... The U.S. health care system has provided tremendous benefits for both American citizens and the global community. New knowledge, innovative products, and life-saving medical procedures are the results of the U.S. market for health care. [President Bush's] proposed policies will help preserve the strengths of the U.S. market and will improve the efficiency and affordability of health care.

That is all that Greg Mankiw had to say in 2004 about Medicare Part D. No notice that it busted the long-run budget by creating an enormous expansion of long-run Medicare spending and making zero provision to ever pay for any of it. Not even a subordinate clause stating that the expansion of Medicare through the creation of Part D increases our long-run fiscal problems.

Greg Mankiw today writes:

The Day When the Debt Comes Due: The following is a presidential address to the nation — to be delivered in March 2026....

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families. But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income.... If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided. But no one likes paying taxes. Taxes not only take money out of our pockets, but they also distort incentives and reduce economic growth. So, instead, we borrowed increasing amounts to pay for these programs. Yet debt does not avoid hard choices. It only delays them. After last week’s events in the bond market, it is clear that further delay is no longer possible. The day of reckoning is here....

When you elected me, I promised to preserve the social safety net. I assured you that the budget deficit could be fixed by eliminating waste, fraud and abuse, and by increasing taxes on only the richest Americans. But now we have little choice in the matter.

If only we had faced up to this problem a generation ago. The choices then would not have been easy, but they would have been less draconian than the sudden, nonnegotiable demands we now face. Americans would have come to rely less on government and more on themselves, and so would be better prepared today.

What I wouldn’t give for a chance to go back and change the past. But what is done is done...

It is important to notice that when Greg Mankiw writes "if we had chosen to tax ourselves..." and "they saw sickness and created Medicare..." and "we borrowed increasing amounts..." he is talking about himself and his fellow budget arsonists. He is not talking about President Clinton, Clinton's appointees, and Clinton's supporters--they sweated blood to cut spending below and raise taxes above the baseline and actually balanced the budget. He is not talking about President Obama, Obama's appointees, and Obama's supporters--Obama's excise tax on high-cost health plans and the supermajority entrenchment of the Medicare cut recommendations of the Independent Payment Authorization Board are (if they are not repealed) the largest acts of fiscal responsibility ever undertaken in America.

Mankiw is talking about President Reagan, his supporters, and his appointees. Mankiw is talking about President George W. Bush, his supporters, and his appointees. And--as one of George W. Bush's cabinet-level appointees, Chairman of the Presidents Council of Economic Advisers in 2003-2004--he is talking about himself.

Is it too much for me to expect, from him, an apology to America? A whispered: "I am sorry"? An admission that the unfunded 2001 tax cuts that he cheerled for were a mistake, and that we as a nation would have been better off had they not been passed? An admission that the unfunded 2003 tax cuts that he cheerled for were a mistake, and that we as a nation would have been better off had they not been passed? An admission that the unfunded 2003 Medicare Part D prescription drug benefit that he cheerled for was a mistake, and that we as a nation would have been better off had it not been passed?

Is that too much to ask?

The Foreign Ministers of Nazi Germany and Imperial Japan confer:

RIBBENTROP: "When I invited you after the conclusion of the Tripartite Pact, I expressed my wish that this visit should take place soon. The enthusiastic reception which the population of Berlin accorded you is an expression of the good will which the German people feel for the Japanese. The political course which you have taken in Japan is the same that Germany has taken. We remember that when Japan left the League of Nations in 1933 you said at Geneva that the League would suffer more through this step than Japan. Your prediction proved right. Even at that time there was spiritual harmony between our two nations as to the policy to be pursued against the arrogance of the old world. The crowning of this harmony was the conclusion of the Tripartite Pact. The world knows that you, Your Excellency, were champion of this Pact, and that it was mainly due to your initiative and energy that it materialized. May this visit contribute to make the ties between the three nations indissoluble. Your visit takes place at an important moment. It is the period of the final fight against England, which will be waged by the entire German and Italian nations with an unequaled fanaticism. Each bomb which falls on England brings the island empire nearer to its final doom, and with each ton of shipping sunk, there sinks a piece of Great Britain. And our armies stand in readiness. In point of fact-this is our conviction-England's fate is already sealed. We know that the war is won for Germany and her allies and we believe that the whole world will know it at the end of 1941. England which set out to mobilize the nations against us, is in truth isolated today.

We all know that the three great powers which are united in the Tripartite Pact and the States which have joined them are united in a community of destiny. The destiny of Germany and Italy is also the destiny of Japan and vice versa. This community of destiny is determined to turn against anyone who should endeavor to cause an extension or prolongation of the war and thus to counter our true aim, which is speedy restoration of the peace of the world. Our nations are now waging a battle for their vital rights which will perhaps determine the destiny of our nations for centuries. This fight is an ethical one in the highest sense of the word. Today already hundreds of millions are longing for this world of true social justice and are increasingly imbued with this new ideal of freedom. The Tripartite Pact is the political foundation on which these nations will achieve victory and freedom.

MATSUOKA: I should like to thank you most cordially, Herr Reichminister, for the extremely kind words which you have just addressed to me. Let me reply in a few words. We concluded the Three Power Pact on the 27th September of last year. The significance of this Pact is that it was a Pact of peace and its aim is to refute categorically the intervention of any power into the sphere of interests of Germany and Italy in Europe and Japan in Eastern Asia. Immediately after the conclusion of the Pact you had the kindness to invite me to visit Germany. I promised to come as soon as my official duties permitted it. For a long time I had to deny myself this visit to Italy and Germany, but when I had happily concluded the conflict between Thailand and Indochina I left Tokio on the following day. I felt myself that the lack of personal contact was a loss. This feeling was also held in Germany. Now that I am here I wish to, nay I must, make the acquaintance of Hitler, the man of genius, the leader of the Greater German Reich, and his collaborators, among them, especially the Foreign Minister. But it is chiefly up to them whether they want me to make their acquaintance. I should think they do. Otherwise I would not have undertaken the effort of such a long journey.

Ezra Klein wonders about Larry Kudlow:

Is disagreement really so hard to explain?: I like going on “The Kudlow Report.” Larry Kudlow and I don’t agree about much, but I find him good-humored and courteous, and it’s always worth talking to people who aren’t already convinced of your point of view. And, to his credit, he makes it a point to have a lot of people who don’t agree with him on his show. What I don’t understand is how, given all his exposure to sincere people who think differently than he does, Kudlow’s mental model for disagreement ends up being so ideologically skewed.

I was on last night to talk about the Obama administration’s resistance to a tax holiday for the profits American corporations are holding overseas.... Michael Mundaca... [argues] our previous experiment with a corporate tax holiday didn’t pan out.... You can disagree with Mundaca’s take, but you don’t need to ask Dr. Strange to summon a demon in order to interpret it. Bloomberg Business Week — not exactly a publication known for its aggressively anti-business leanings — ran a cover story this week making almost exactly the same argument. In that cover story, a dozen respected tax economists provided support for the position. But that’s not how Kudlow saw it. “I believe they want to punish international business,” he said. A few minutes later: “I’m suspecting that Team Obama just doesn’t want to help the foreign earnings of companies.” And then: “I think they do have an ideological bias against business.”... [Y]ou see this a lot. Somehow, people find it preferable to think the president of the United States a socialist, Marxist or Kenyan anti-colonialist than a guy who agrees with Mitt Romney’s 2005 health-care opinions rather than Mitt Romney’s 2011 health-care opinions. I won’t even get into Glenn Beck’s take on the administration’s motivations, as even on the Internet, I don’t have the space. But you end up with these winding, esoteric theories to explain perfectly common policy preferences and political decisions. It’s really weird.

One oldtime Washington hand who has spent a lot of time working with James "Dow 36000" Glassman claims that for Glassman it is simply a game: Glassman thinks his job is not to say what he thinks is true but rather what the audience he is cultivating wants to hear from him. The two times I have been on the same stage as Kudlow have made me think that the same is true of Kudlow: he is too smart to have meant some of the things he said, or to have actually thought that the other people on the panel had said what Kudlow claimed they had said.

There is a bunch of evidence confirming this view. For example:

I Don't Think That Word Means What You Think It Means - Brad DeLong's Grasping Reality with All Ten Tentacles: Glenn Reynolds quotes Larry Kudlow, who he has "always found... reliable":

Instapundit.com - : LARRY KUDLOW:

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

It's news to me.

UPDATE: Reader Daniel Amerman says that Kudlow didn't include inflation, and that if you include inflation, the U.S. economic expansion was "only" 11.4 %. As Amerman says, "11.4% over 11 quarters is quite respectable in real terms, there is no need for misrepresentation and hyperbole."...

Hmm. I've always found Kudlow to be reliable.

And here's my take from the last time I was on the stage with Kudlow:

Un-Discourse Situations... - Brad DeLong's Grasping Reality with All Ten Tentacles: I can think of seven wedges between the national net savings-investment rate as estimated by the National Income and Product Accounts and statistical estimates of the change in total measured household net worth:

1. There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
2. The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
3. All of us free-ride on technological research and development, reaping where we do not sow, gathering where we do not scatter, and profiting where we do not save and invest.
4. Shifts in the distribution of income away from labor and toward capital increase measured household net worth--which includes the increased expected future profits from capital--but not true household net worth--which also includes the decreased expected future wages of labor.
5. Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today--which is measured in today's dollars--without any outward shift in the true consumption-possibilities frontier.
6. Government deficits that raise the debt lower national savings but not measured household net worth.
7. Good news about the future produces windfall gains and bad news windfall losses which alter this year's household net worth without telling us much about over-all long-run accumulation trends.

I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end--Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation.

Larry Kudlow, in the middle of the panel, aggressively launched into a rant--about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day's employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.

What is one to do? You watch a guy--Bob Solow--one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy--Kudlow--who really isn't in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.

On paper, in print, on the screen, one can point out that the employment report was anemic--it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession. On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading because they do not reflect any true increase in appropriately-defined wealth, that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns, that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow's worry about the savings-investment rate's decline, and thus that only reason (3)--the effects of the now decade-long computer-and-communications real investment boom on our total wealth--provides a reason to even begin to think about whether Bob Solow's worries about declining savings as measured by the NIPA are at all overblown.

But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.

It's an un-discourse situation: Kudlow doesn't acknowledge--may not know--the flaws in his chosen statistic. And I can't help wonder what Kudlow would be saying if a Democrat were president.

It's an intellectual Gresham's Law in action...

What can I do? I can blog about it.

Peter Goodman:

Beyond Left And Right: It's About Reality: For far too long, the public has suffered under the tyranny of dueling narratives served up by one or another interest group seeking self-serving shortcuts around nuanced truths, all the while shortchanging the clarity of important debates about the biggest issues of the day -- from health care reform to defense policy to education. Journalists have too often perpetuated the false notion that seemingly any issue can be cleanly divided into right and left, conservative and liberal, because these labels make our work simpler, supplying us with a handy structure we can impose at will on typically uncooperative facts.

Journalists so frequently deal in the false liberal-conservative dichotomy because it generates the sort of tension that feeds narrative, and narrative makes for more accessible stories. Simply dividing up the interests into two neatly-differentiated competing camps enables lazy beat reporters to claim to have painted all of reality with but two phone calls. Why venture outside and talk to ordinary people -- whose experiences and views almost always challenge the traditional labels -- when we can simply sit at our desks and dial up a D and then an R and gather a pair of quotes that supposedly cover the whole spectrum of the American take on anything?

Political hacks trade in the labels of right and left because it allows them to manipulate the public with shortcut phrases that demonize those in the other camp....

What we need now is an active journalism engaged in figuring out how to restore those basic middle-class aspirations, without getting sidetracked into tendentious debates about right versus left and which side is winning.

What do these labels really mean, anyway, and who gets to assign them, and for what aim?...

Left versus right: These are overly-simplified labels that perpetuate division, and we ought not cater to them, because that amounts to lazy journalism. That is about who won the week, and who controls the conversation, as opposed to the much more difficult, nuanced and crucial questions that remain operative irrespective of phony ideological labels....

[D]itching the bogus left-right frame is not about moving reflexively to the center. It is rather a rejection of the very concept that left, right and center are a good way to map the crucial debates of the day.... I want my reporters to reject the false idea that you simply poll people at both extremes of any issue, then paint a line down the middle and point to it as reality. We have to reject the tired notion that objectivity means the reader can get all the way to the bottom of the story and not know what to think....

[O]bjectivity means that we conduct a fully open-minded inquiry. We do not begin our reporting with a fully-formed position. We do not adhere to the contentions of one think tank or political party or government organ as truth. We don't write to please our friends or sources or interest groups. Rather, we do our own reporting, our own independent thinking, our own scrutinizing. But at the end of that process, we offer a conclusion, and transparently so, with whatever caveats are in order. We do not concern ourselves with how others may describe our place on the ideological spectrum, and we do not hold back when we know something, or lard up our journalism with disingenuous counter-quotes to cover ourselves against the charge that we staked out a position. As long as our process is pure, so is the work.

And this sort of objectivity is the real argument for diversity in newsrooms -- the need to ensure that we have people in place who can tell a greater range of stories, so that we collectively see and understand the breadth of the American experience.... [N]o ideological position can be counted on to deliver the facts, and any journalism that loses track of this ultimately reduces itself to a version of propaganda. Verifiable truth is our master, the one element that does not change when a new party takes over in Washington, when a new fashion sweeps the country, or a fresh approach prevails on university campuses...

Bill Keller's claim about what Peter Goodman wrote:

Traditional News Outlets: [J]ust as doctors and lawyers, teachers and military officers, judges and the police are expected to set aside their own politics in the performance of their duties, so are our employees. This does not mean — as one writer recently scoffed — that we “poll people at both extremes of any issue, then paint a line down the middle and point to it as reality.” It does not mean according equal weight to every point of view, no matter how far-fetched. (Sorry, birthers, but President Obama is an American citizen.) Impartiality is, for us, not just a matter of pretending to be neutral; it is a healthful, intellectual discipline. Once you proclaim an opinion, you may feel an urge to defend it, and that creates a temptation to overlook inconvenient facts when you should be searching them out.

In short, our mission is not to tell you what we think or what you are supposed to think, and it is certainly not to pander to your prejudices. It is to supply to you, as best we can, the basis to make up your own minds.

As partisan “news” sites have proliferated and the country has grown more polarized, there is sometimes pressure on journalists to abandon the effort to be impartial, to openly take a side and to write accordingly.... To me that is like saying that because much of our children’s future is ordained by genetics, we should abandon the effort to be good parents. Impartial journalism, like child-rearing, is an aspiration, but it is a worthy one.

It is unclear whether Keller did not spend enough time reading Goodman to understand what he was saying, or understood damned well and decided to misrepresent Goodman anyway.

But because Keller does not provide links or name names, only the insiders can understand what he really means.

Felix Salmon:

Bill Keller vs openness and transparency: Bill Keller has now written two columns for Hugo Lindgren’s NYT Magazine, and both of them have taken aim at the Huffington Post. The first one... an opening paragraph of astonishing braggadocio,... elicited a blistering response from Arianna which made him look decidedly petty. He then replied to Arianna on the magazine’s blog — except he violated the first rule of blogging, and failed to link to the argument he was engaging. So when he talked about “the reaction” to his column, or “clueless commentary”, the lack of any link was a CYA move, giving him the opportunity to say “oh no, I didn’t mean you“. Keller did however say a couple of nice things about Arianna:

I think she’s a shrewd entrepreneur and a charming woman. Also, we seem to share a belief in hiring professional journalists; she’s hired some good ones from The Times.

This, too, was presented without a hyperlink. But it was clearly a reference to the way in which Arianna poached first Peter Goodman and then Tim O’Brien....

Which brings me to Keller’s second column, where we he tries to talk about “the essentials that set us apart from agenda-driven journalists of the right and the left”, and explains that NYT journalists “are expected to set aside their own politics in the performance of their duties”:

This does not mean — as one writer recently scoffed — that we “poll people at both extremes of any issue, then paint a line down the middle and point to it as reality.” It does not mean according equal weight to every point of view, no matter how far-fetched. (Sorry, birthers, but President Obama is an American citizen.) Impartiality is, for us, not just a matter of pretending to be neutral; it is a healthful, intellectual discipline. Once you proclaim an opinion, you may feel an urge to defend it, and that creates a temptation to overlook inconvenient facts when you should be searching them out.

Wow, who is this dreadful scoffer — this person who just pretends to be neutral — who dares to imply that the NYT gives credence to birthers? Again, Keller provides no link. But he does provide a direct quote... [it is] none other than... Peter Goodman....

Keller’s failure to link to or otherwise identify Goodman is simple intellectual dishonesty — it’s a way of giving the truth but not the whole truth, a way of hiding his agenda and making the meaning of his column opaque to most readers while still transparent to the insidery few. (Chris Anderson has a less polite way of putting it.)

And that’s not the only piece of intellectual dishonesty in the passage....

In his urge to place himself in opposition to everything that HuffPo stands for, it seems, Bill Keller has dug himself into a nasty hole.... The NYT needs to make its mind up: is it going to stand up for openness and transparency and human reporters who dare to have opinions, or is its beef with HuffPo going to force a retreat to some unobtainable halcyon past where reporters handed down the news from Mount Olympus to a grateful public which had no means to effectively respond? Keller might talk the talk when it comes to social openness and transparency. But his heart clearly isn’t in it.

Greg Ip writes:

America's recovery: What is going on with GDP?: I'M STARTING to worry about the economy again. Last fall, I became bullish on the American outlook, concluding that deleveraging had slowed enough for consumption to accelerate. By December, with Congress and President Obama agreeing to massive new tax stimulus, the consensus also turned bullish, forecasting growth of 3.5% to 4% this year. The darned economy refuses to cooperate... new home sales hit an all-time low... it’s not just housing that has disappointed.... Macroeconomic Advisers today lowered their tracking estimate of first quarter GDP growth to a 2.5% annual pace.... Ben Herzon of Macroeconomic Advisers tells me:

It is puzzling how the year has started off so sluggishly. Part of it is weather, which I don’t think we had fully incorporated into our tracking estimates early this year. But this is only worth about ½ percentage point. The balance is simply unexpected (and, in our view, temporary) weakness.

If this is how growth looks in the quarter when the new stimulus took effect, how will it look later this year?

This is probably the natural variation in quarter-to-quarter growth.... The high frequency data, such as claims for unemployment insurance, are encouraging; there’s no reason to believe the labour market has suddenly fallen ill again. That means, however, that the second quarter better be a blowout. The same thing is happening in Britain where the Office of Budget Responsibility lowered its forecast for growth this year, in connection with the release of the budget, to 1.7% from 2.1% last November.

A helpful reminder that on both sides of the Atlantic, this is a post-crisis recovery. Do not expect miracles.

I am not expecting miracles. I am hoping for a rising employment-to-population ratio. But I am not getting one.

Nick Rowe:

Worthwhile Canadian Initiative: The preponed government spending multiplier may exceed one: I get the sense that a lot of extra government spending in the last couple of years was to build stuff that would have been built anyway. They just built it a bit earlier. It was preponed government spending.... [M]ake two more assumptions to keep the thought-experiment as clean as possible.

1. The real rate of interest on government bonds is zero....

2. The stuff the government builds is mothballed at zero cost until the time it would have been built otherwise.... Maybe a bit unrealistic, but it makes the thought-experiment cleaner.

What's so neat about this thought-experiment is that we can totally ignore the present value of the future tax liabilities. They are exactly the same.... [W]e can totally ignore whether the government expenditure is useful and productive or not. It's going to be done anyway... preponing the government expenditure is useless by assumption, because it's mothballed during the preponement years. So it can't be a substitute or complement to private consumption or investment....

If the economy has unemployed resources due to deficient demand, both this year and next, then there is no real benefit from preponing the government spending by one year. We get higher demand, output and employment this year, and lower demand, output and employment next year. Adding the two years together the multiplier is zero.

But if the economy has unemployed resources due to deficient demand this year, but not next year, there are benefits.... We get an extra bridge (or whatever) almost for free. The resources that would have been used to build this bridge next year are now freed up to build something else instead. Like a second bridge. And the resources used to build the bridge this year weren't doing much anyway....

If we prepone the bridge, government expenditure will be lower next year. That means private consumption will be higher next year. (Because government spending crowds out private spending under "full employment"). Assume people know this. The Euler equation for intertemporal optimisation tells us that an increase in expected future consumption will cause an increase in desired current consumption. So preponing the bridge also increases current consumption...

Of course, if monetary policy were quick enough and aggressive enough, this would all be academic. But then, I am an academic.

Dean Baker reads the Washington Post these days so we don't have to. He notices that nobody at the Post appears to know that stocks pay dividends.

He misses one thing: The *Post" claims that "Eighty-eight of the 126 largest public pension plans assume a [nominal] rate of return exceeding 8 percent a year."

It lies.

Only 31 of the pension plans in the Boston College CRR database assume a nominal rate of return in excess of 8% per year. The highest assumed rate of return is 8.5% per year. 38 pension plans assume a rate of return of less than 8% per year. 57 assume a rate of return of 8% per year.

Dean Baker writes:

Public Pensions and Arithmetic Problems at Fox on 15th (a.k.a. The Washington Post) | Beat the Press: The Post made yet another effort to attack public sector employees today in an editorial (this one is on its editorial page) that criticized the rate of return assumptions used by public pension plans. It tells readers that:

Eighty-eight of the 126 largest public pension plans assume a [nominal] rate of return exceeding 8 percent a year, according to the Wall Street Journal. By way of comparison, the S&P 500 achieved a compound average [nominal] annual growth rate of 5.69 percent over the past 20 years.

Okay, get your calculators out boys and girls. If I look up the value of the S&P 500 for March 1991 I get 375.22. The S&P closed yesterday at 1313.8. This gives a compounded annual rate of return of 6.46 percent. 

But wait, we have to share a little secret with the folks who write editorials for the Washington Post: stocks pay dividends. Dividends are typically paid out quarterly and usually average 3-4 percent of the stock price. If we add in dividend yields, then we would get an average return over the last 20 years in the 9-10 percent range that is assumed by pension funds in their analysis. 

Of course returns going forward will depend on the current ratio of stock prices to corporate earnings. This is around 15 today (measured against trend earnings) compared to about 20 in 1991, suggesting that the prospects going forward over the next 20 years are likely better than they were back in 1991.

It is especially ironic to see this misplaced warnings about excessive stock return assumptions in the Washington Post. This is a paper that for years featured the columns of James K. Glassman, the co-author of Dow 36,000. At the time, it had no room in the paper for those of us who tried to warn of the risks of the stock bubble.

Note that the source is not the Wall Street Journal but rather Alicia Munnell's Center for Retirement Research at Boston College.

An equity price-trend earnings ratio of 15 suggests, at current inflation rates, a forward long-term nominal rate of return on equities of 9% per year. If we anticipate a forward equity return premium of 4% per year, then a portfolio of 3/4 equities and 1/4 debt would be projected to yield a 8% per year nominal return.

Thus 8% per year nominal does not seem to me to be a bad number to use as a central case for pension planning.

The Bureau of Labor Statistics reports:

BLS: The Beveridge Curve: The... graph plots the JOLTS job openings rate against the CPS unemployment rate. This graphical representation of the relationship between the unemployment rate and the vacancy rate is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle.

During an expansion, the unemployment rate is low and the vacancy rate is high. During a contraction, the unemployment rate is high and the vacancy rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward.

From the start of the recent recession in December 2007 through the end of 2009, the point on the curve moved lower and further to the right as the job openings rate declined and the unemployment rate rose. In 2010, the point moved up and to the left on the curve as the job openings rate increased and the unemployment rate decreased.

In January 2011, the job openings rate edged down to 2.1 percent and the unemployment rate declined to 9.0 percent.

David Altig wrote last August:

macroblog: Just how curious is that Beveridge curve?: Since the second quarter of last year, the unemployment rate has far exceeded the level that would be predicted by the average correlation between unemployment and job vacancies over the past decade...

And then followed up with:

Since my last post, the U.S. Bureau of Labor Statistics (BLS) published the June edition of its Job Openings and Labor Turnover Survey (JOLTS). Just as not much changed in June relative to May, either with respect to job openings or the unemployment rate, not much changed.... One of the observations made in my previous post was that the apparent shifting of the Beveridge curve—in other words, the observation that given recent experience the number of unemployed individuals seems high relative to the number of available jobs—might be explained by extended unemployment benefits, but only if you are willing to accept estimates of the policy's impact that are on the high end. I referenced a few Federal Reserve papers—here and here—but they only included estimates on the lower end. Several people have asked (in the comments section of my earlier post and in private e-mails) where the higher-end estimates come from. One of these is from an article titled "The Economic Effects of Unemployment Insurance" by Shigeru Fujita, which is forthcoming (but not yet published) in the Philadelphia Fed's Business Review. (Shigeru estimates that extended unemployment benefits raise the unemployment rate by 1.5 percentage points, enough to explain the lion's share of the Beveridge curve shift.)

Tasci and Lindner, in the article mentioned earlier, offer up a few other observations. First, in the last several months labor market statistics have in general been distorted by the entry and exit of significant numbers of temporary Census workers. Second, it does appear to be the case that the current rise in the unemployment relative to job openings is just a standard characteristic of the early phases of a recovery. On this point they provide this chart...

along with this explanation:

One important observation is that a longer-term look at the Beveridge curve shows that the dynamics we have seen recently are not an exception, but are common during the recovery phase of business cycles. As the economy starts improving, it takes time to deplete unemployment, even though job openings are relatively quick to adjust.

Hence, cyclical changes may not necessarily present themselves as... a neat movement along the curve. During and after recessions in the postwar period, the Beveridge curve has generally followed a pattern of shifting to the right during a recovery. One potential reason for this could be that even though some unemployed workers start filling the available job openings, workers who had left the labor force might get encouraged by the recovery and start looking for a job, thereby keeping the unemployment high. While the Census may have skewed the data for this recovery, the path of the curve going forward looks poised to follow in the footsteps of previous recessionary periods...

That still seems to me to be state-of-the-art.

Which makes me wonder what data Narayana Kocherlakota is looking at when he writes:

Kocherlakota: In the past three years, the Beveridge curve has shifted in the United States in a way that suggests that labor market matching efficiency has declined...

Time to go reread Peter Diamond again:

Is there really a widespread difficulty in hiring in some industries or locations? I have not seen such reports.[40] Thus we may be having shifts in the Beveridge Curve and the matching function that do not signal change for the underlying functioning of the economy once a recovery is well-established. That is, the pattern would return to normal after a sufficient rise in aggregate demand, apart from the lingering effects of long-term unemployment....

[W]hatever one’s view on the magnitude of recent slippage in matching efficiency, more education, better education, good retraining all make for a more productive labor force and, done well at a reasonable cost, are policies to pursue. And carefully evaluated experiments in helping the long-term unemployed get and hold jobs seem likely to be worthwhile. Indeed a time of high unemployment is likely to be a time when further education is less socially costly by using time that would otherwise not be so well spent. The policy debate is not about whether to do more on the structural side; it is about what to do on the aggregate demand side, which is particularly an issue now with concern about projected long-run debt levels.

Second, for the current moment, the argument about the aggregate demand side is academic, in the negative sense of the word. Current estimates I have seen of how much of the increase in unemployment from a few years ago is “structural,” rather than due to inadequate aggregate demand, still leaves enough need for aggregate demand stimulation that it is clear what direction is needed for further policies.

Third, I am skeptical of the value of attempting to separate cyclical from structural unemployment over a business cycle.... The tighter the labor market and the more valuable the filling of a vacancy, the more a firm is willing to hire a worker who is a less good match, who may need more training.... [A] worker who might be viewed as structurally unemployed, as facing serious mismatch in the current state of the economy, may be readily employable in a tight labor market. The common practice of thinking about the extent of unemployment as a sum of frictional, structural and cyclical parts misses the point.... [D]irect measures of frictional or structural unemployment... dependent on the tightness of the labor market... have limited relevance for the role of demand stimulation policies. The idea that the US economy is not adaptable and capable of dealing with the need for skills and jobs to adapt to each other is peculiar, given the long history of unemployment going up and down. When the labor market is tight and firms have trouble finding workers, they reach out to places they have not looked before and extend training in order to find workers who can fill their needs. Supporting current stimulus policies as very good for the economy is entirely compatible with taking care to avoid future inflation.

[40] Dickens, 2010 p. 10, notes: “Figure 3 presents the ratio of vacancies to unemployment in 8 different industries. While it is possible to discern the increase in vacancies over recent months in some industries, the ratio remains substantially depressed in all industries. What we do not see is any industries with high vacancy unemployment ratios. This suggests that it would be hard to make a case for structural mismatch being a major problem today.” In personal correspondence, he reports on ongoing work with Bob Trieste that looked at geographic mismatch indices based on both the JOLTS and the Conference Board's new help wanted on line data. They explored occupational mismatch, geographic mismatch at a much more detailed level than in the original paper, and industry mismatch. None show any evidence of increasing mismatch coincident with the apparent outward shift in the Beveridge Curve. Regis Barnichon, Michael Elsby, Bart Hobijn, and Ayşegűl Şahin (2010) “decompose the recent deviation from the Beveridge curve ... [and] find that most of the current deviation from the Beveridge curve can be attributed to a shortfall in ... hires per vacancy. This shortfall is broad-based across all industries and is particularly pronounced in construction, transportation, trade, and utilities, and leisure and hospitality. Construction alone accounts for more than a third of the Beveridge curve gap.” P 1.

Britain cuts its meat ration to 6 oz. per person per week.

Via Andrew Sullivan, Damon Linker:

I agree that the strong second-generation neocon emphasis on nationalism and warmaking as a means to overcoming domestic nihilism does lean in the direction of fascist political ideas. But I would still counsel against using the term because the similarities are mainly formal. Political analysis must go beyond noting formal likeness to examine the content of ideas. A political program that advocates war as a means of spreading democracy and overthrowing dictators (like the homicidal maniac who’s run Libya for the past 40-something years) is very different from a political program that advocates war as a means of territorial aggrandizement and/or racial and ethnic oppression, domination, and genocide. That means that however much William Kristol’s foreign policy views resemble fascism on one level, they diverge from fascism pretty fundamentally on another. That complication, combined with the polemical overuse of the term in our political discourse, makes its invocation exceedingly ill-advised, in my view...

Jonathan Alter:

'Reading Leo Strauss,' by Steven B. Smith - New York Times: Strauss was very much caught up in an extraordinary intellectual ferment among German Jews who came of age around the time of World War I. He was friends with Gershom Scholem, the great historian of Jewish mysticism, in the early 1920's. He worked with Franz Rosenzweig, the bold architect of a Jewish existentialist theology. He was admired by Scholem's friend Walter Benjamin, the eminent literary critic and cultural theorist. Like all these thinkers, he was concerned with the tensions between tradition, founded on revelation, and modernity, operating with unaided reason.

How, then, has Strauss come to be viewed as a sinister presence in contemporary politics? Some of his students, or students of his students, went on to become conservative policy intellectuals in Washington.... [A] highly critical article in The New York Review of Books linked Strauss with conservatism, and in the next few years, numerous pieces in other journals followed suit. It has become received wisdom that a direct line issues from Strauss's seminars on political philosophy at the University of Chicago to the hawkish approach to foreign policy by figures like Paul Wolfowitz and others in the Bush administration.

"Reading Leo Strauss," Steven B. Smith's admirably lucid, meticulously argued book, persuasively sets the record straight on Strauss's political views.... Liberal democracy lies at the core of Strauss's political views, and its basis is the concept of skepticism...

Ur-neoconservative Leo Strauss has a very different view. He thought that fascist principles were a very good thing indeed:

[O]nly from... fascist, authoritarian and imperial principles, is it possible with seemliness, that is, without resort to the ludicrous and despicable appeal to the droits imprescriptibles de l’homme to protest against the [Nazis].... There is no reason to crawl to the cross, neither to the cross of liberalism...

Rarely, indeed, do you find anyone criticizing Adolf Hitler for not being fascist enough...

Recent and Worth Reading:

Seven Sects of Macroeconomic Error | Is Economics a Discipline? | Paul Krugman Is too Tired to Comment on Alan Greenspan | Did the Singularity Already Happen? | Pain without Purpose | Washington's Deficit-Hawk Pretenders | America's Fiscal Problem Is Something We Can Fix Only at the Ballot Box | Peters Agonistes (Peter Orszag and Peter Baker, That Is) | In Which Suresh Naidu Has a Vision of the New Jerusalem... | Sensible Economists' 48-Hour Letter on Health Care Reform | RomneyWorld vs, ObamaWorld | What Have We Unlearned from Our Recession? | What an Unmanaged Macroeconomy Looks Like | The Metaphysical Necessity of Monetarism | Milton Friedman Supports QEII | Battered and Beaten | Time for Bank Nationalization...

Khan Academy

Just saying...

It would get us a better press corps.

Frances Perkins, September 30, 1964:

Cornell University - ILR School: Al Smith had never heard the words New Deal, he was governor of the State of New York, he had been in the legislature before. As a member of the legislature he was the majority leader he could have appointed anybody he wanted to the factory investigating commission, but he had himself appointed to the factory investigating commission so that he could see with his own eyes what was going on. As he said, this is too raw, we can't have any mistakes here, we can't make any blunders and I am going to sit there myself, I am not going to turn this over to somebody else. So he appointed himself to the factory investigating commission in 1911 which was the year of the great Triangle Fire in New York City, a terrible industrial accident which burned out the contents of a 9th and 10th floor loft building factory where they made light cotton shirt waists for women.

It caught on fire and the blaze spread very rapidly. There was only one means of exit available, the other two means of exits were the elevator which was ablaze almost immediately as the flames got into this open shaft and spread from floor to floor and the second exit was locked. It was an exit to the roof, not a very good means of exit at best but it would have saved most of the people in that building if it had not been locked.

It had been locked by the employer himself because he feared that on a Saturday afternoon which he was working just before Easter on a lot of shirtwaists for the market, he feared that some of the people in the shop might stroll out over the roof exit with a few shirtwaists rolled up under their jackets or that somebody might come in and take a few shirtwaists. In other words, he was - I only know what he said on the stand - he was afraid he would be robbed either by his employees or by the outsider. Not so much by the outsider, mostly afraid of his employees. I remember the judge in righteous indignation reproached him for his attitude toward his employees. It may have been a perfectly legitimate attitude. He may have lost goods that way, one doesn't know, but it was at least bad judgement to tell it to the judge on that particular occasion.

At any rate, this was a terrible accident; 147 young people, they were all young men and women, were killed, lost their lives and a number of others were badly injured. Some of them were injured after the fire in the elevator shaft had gone out. Of course the boys that ran the elevator had gone, they had fled. Some of the people tried to get out by jumping into the elevator shaft and grabbing the cables and letting themselves down that way. Some of them fell, some of them were awkward and didn't grab right, don't you know, and couldn't hold on. Some of them merely blistered their hands, took the skin and flesh off their hands coming down on the cables and there were a number of people sadly injured. Everybody who jumped, and a good many did jump from the 9th and 10th floors, was killed. The other people who died were all people who were burned or smothered by the smoke in the factory itself.

This made a terrible impression on the people of the State of New York. I can't begin to tell you how disturbed the people were everywhere. It was as though we had all done something wrong. It shouldn't have been. We were sorry. Mea culpa! Mea culpa! We didn't want it that way. We hadn't intended to have 147 girls and boys killed in a factory. It was a terrible thing for the people of the City of New York and the State of New York to face.

I remember that, the accident happened on a Saturday, I happened to have been visiting a friend on the other side of the park and we heard the engines and we heard the screams and rushed out and rushed over where we could see what the trouble was. We could see this building from Washington Square and the people had just begun to jump when we got there. They had been holding until that time, standing in the windowsills, being crowded by others behind them, the fire pressing closer and closer, the smoke closer and closer. Finally the men were trying to get out this thing that the firemen carry with them, a net to catch people if they do jump, there were trying to get that out and they couldn't wait any longer. They began to jump. The window was too crowded and they would jump and they hit the sidewalk. The net broke, they fell a terrible distance, the weight of the bodies was so great, at the speed at which they were traveling that they broke through the net. Every one of them was killed, everybody who jumped was killed. It was a horrifying spectacle. We had our dose of it that night and felt as though we had been part of it all. The next day people, as they heard about it in all parts of the city, they began to mull around and gather and talk.

I remember that Al Smith, who was not a governor at that time but a member of the legislature, a majority leader in the assembly, found that many many of these young people were residents of the same district he was a resident of and he did the most natural and humane thing. As he said: Why I did it just as I would if they had died of anything else, you know, you go to see the father and mother to try to help them. He went to the places where they lived; he went to the tenement they had occupied to see their father and mother and tell them how sorry he was or their husband, as the case might be, or their wife, to tell them of his sympathy and grief. It was a human, decent, natural thing to do and it was a sight he never forgot. It burned it into his mind. He also got to the morgue, I remember, at just the time when the survivors were being allowed to sort out the dead and see who was theirs and who could be recognized. He went along with a number of others to the morgue to support and help, you know, the old father or the sorrowing sister, do her terrible picking out....

That does appear to be the plan.

Mark Thoma:

Economist's View: The Fear Fairy: Some people think the solution to unemployment is more unemployment.... [I]t's not the confidence fairy, but rather the fear fairy that is supposed to stimulate the economy? Yeah, that'll work because -- you know -- there's not enough people looking for jobs now. Yet another economic rationale invented by Republicans to support ideological preferences.

Ezra Klein:

Prosperity through lower wages?: Tim Fernholz and Jim Tankersley took the time to read a report that Speaker John Boehner’s office distributed as evidence that sharp deficit reduction can lead to rapid economic expansion. The plan, it seems, is to create a bunch of unemployed public workers who’ll create more competition for the few open jobs in the private sector and thus drive wages down for everybody.... [T]he worst thing for an unemployed person is another unemployed person....

[The report's] argument is that in the mid-1990s, a number of small, European nations (and Canada) sharply cut government spending and saw rapid economic growth.... The problem, as the International Monetary Fund details... is that these countries understood that cutting government spending would kill demand, and so they compensated with policies that would keep demand strong. Those policies were 1) really aggressive efforts on the part of the central bank, 2) devaluing their currencies, and 3) living in the mid-1990s, when the global economy had one of its best-ever decades. Republicans oppose policies that would lead to #1 and #2, and 2011 is... very different... than 1994....

[O]ver the long-term, cutting deficits does help the economy. Unfortunately, over the short-term they do real harm: “A fiscal consolidation equal to 1 percent of GDP typically reduces GDP by about 0.5 percent within two years and raises the unemployment rate by about 0.3 percentage point.”...

[O]ne caveat... is that the countries in this report have higher taxes and more government spending than we do, and so it’s possible that raising taxes there does more damage than raising taxes here as taxes are already high over there, while cutting spending here would do more damage than cutting spending there as spending is lower here.

Friends really don't let friends support the Republican Party in any way...

Buce:

Underbelly: 100 Years Ago at This Hour: Triangle Shirtwaist fire, 440p EST March 25, 1911 on the eighth, ninth and tenth floor of the Asch Building (now the Brown Building of Science), Washington Place and Greene Street, Greenwich Village. One hundred and forty-six people died, mostly young women locked in at their workspace to keep them from skipping out early. The owners won an acquittal at their criminal trial but plaintiffs won compensation in a civil suit to the tune of $75 per deceased victim.

Tiago at History of Economics Playground reacted very negatively to an AEA Annual Meeting presentation by Robert Shiller and Virginia Shiller:

Bad job « History of Economics Playground: Imagine I write a paper on Behavioral Macroeconomics making off the cuff observations about the latest financial products and how my bank manager frames that information, and noting my friends and neighbors’ flight to safety or to risk on the flimsiest of whims. Imagine I make no reference to secondary literature, or to methodology as I approach the questions. Were I then to submit this piece to general appreciation, say get Robert Shiller to referee it. How do you think he would assess my effort?

I am sure we would be fast and dirty in telling me to do something else with my time.

I have not written a paper on Behavioral Macroeconomics and have no intention of doing so. But Shiller has written a working paper, kind of on the history of economics (Cowles Foundation Discussion Paper No. 1788 – Economists as Worldly Philosophers). There is no thread to the argument, no understanding of context, and zero references to the vast body of work by historians on his subject. The working paper, I am sure, will get plenty of readers, downloads and comments. But were I ever to referee it, I would be fast and dirty in telling him to do something else with his time.

I read this as Tiago policing the subdisciplinary boundaries: nobody working in the history of economic thought has any business writing about finance or behavioral macro, and nobody working in finance or behavioral macro has any business talking about how looking at the history of economic thought informs what the future of economics should be.

So I asked:

So what is it in the working paper by Robert Shiller and Virginia Shiller that you think is wrong?

Tiago responded:

You want me to referee it? Someone missed the point of my post.

Economics appears somehow ready formed and fully bounded from the beginning. Take this: “Adam Smith was a professor, not of economics but of moral philosophy. His The Theory of Moral Sentiments, first published in 1759, was a mixture of philosophy, psychology, and economics.” — the anachronism of the statement makes me cringe.

A reference to a Baltimore Sun article to announce the emergence of economics departments? What about saying something about the importation of the German Research University or the context of the Progressive Era shaping standards of expertise and advocacy and trust in numbers.

And then the whole thesis is pants. Economists never stopped being “worldy philosophers” even if the public sphere has changed and become less accepting of certain brands of generalists — vide a forthcoming conference and special issue of History of Political Economy on Public Intellectuals in Economics (shameless self-plug).

I could go on ad nauseum. Nearly sentence by sentence.

I think this deserves some additional relflection. First, start with Tiago's:

You want me to referee it? Someone missed the point of my post.

He is talking to me. But he is wrong. I am not stupid. I did not miss the point of your post.

I do maintain that if Tiago dislikes Shiller and Shiller enough to trash the piece, he owe people who inquire an explanation of why he dislikes it--rather than a further policing of subdisciplinary boundaries. Moreover, I think that when Tiago does try to lay out his complaints about Shiller and Shiller he does not do particularly well. The first thing he complains about is Shiller and Shiller's claim that:

Adam Smith was a professor, not of economics but of moral philosophy. His The Theory of Moral Sentiments, first published in 1759, was a mixture of philosophy, psychology, and economics...

and his only complaint about it is:

the anachronism makes me cringe...

But when you look at what Shiller and Shiller are saying in that paragraph, you see that they are correct:

• Adam Smith was a professor of moral philosophy.
• His Theory of Moral Sentiments was published in 1759. The *Theory of Moral Sentiments indeed does contain a braided mixture of ideas that we would now classify as being ideas that belong to the disciplines philosophy, society, and economics.

The only just complaint I see against Shiller and Shiller's claim is that it should have read:

Adam Smith was a professor, not of economics but of moral philosophy. His The Theory of Moral Sentiments, first published in 1759, contains ideas that we would now classify as a mixture of philosophy, psychology, and economics...

That hardly seems cringe-inducing.

Second, I would in fact go considerably further.

I would say that the claim that TMS (and much more so WN) is not "a mixture of philosophy, psychology, and economics" is more false and misleading than the claim that TMS is "a mixture of philosophy, psychology, and economics." You can look back into the past before 1759--in which case TMS is not a mixture of philosophy, psychology, and economics" but rather one of the culminating works of the "moral philosophy" episteme, to use a Foucaultian http://en.wikipedia.org/wiki/Episteme term. You can look forward into the future from 1759--in which case TMS is indeed a mixture of philosophy, psychology, and economics as some pieces of it are thereafter read as foundational discussions of issues that the two new disciplinary epistemes were to pick up and run with, and some pieces remain in the ongoing tradition of philosophy. A good historian of thought would look both ways: neither denying that TMS can be and has been fruitfully read as a work of "moral philosophy" rather than as a braided combination of philosophy, psychology, and economics; nor denying--as Tiago appears to wish to--that TMS can be and has been fruitfully read as a braided combination of philosophy, psychology, and economics.

The reason that a good reading of TMS is Janus-faced--rather than the exclusively past-faced reading that Tiago wishes to impose on us as the only legitimate way to read TMS--is the reason that we return over and over again to TMS and even more so to WN: Adam Smith is not just another moral philosopher working within the tradition of moral philosophy. Adam Smith wants to do much more. Adam Smith wants to change the game. And Adam Smith succeeds.

If I may crib from my own contribution to John Holbo, ed. (2007), Framing Theory's Empire (West Lafayette, IN: Parlor Press) http://www.amazon.com/Framing-Theorys-Empire-Valve-Event/dp/1602350140...

I first ran into these ideas of anachronism in the reading of Adam Smith when Associate Professor of Social Studies Michael Donnelly recommended taht I read an excellent book by Keith Tribe, Land, Labour, and Economic Discourse. Tribe, writing in a Foucaultian frame, introduced me to the idea that the Theory of Moral Sentiments and the Wealth of Nations that contemporary economists read was not the Theory of Moral Sentiments and the Wealth of Nations that Adam Smith had written. This was especially true for the Wealth of Nations. The Wealth of Nations that economists read was made up of two books: Book I on markets, Book II on capital, and there they tended to start. The Wealth of Nations that Adam Smith wrote was made up of five books: Book I on the "system of natural liberty," Book II on accumulation and the profits of stock, Book III on the economic history of Europe and why the empirical history of its economic development had diverged from its natural history, Book IV on the mercantile and physiocratic systems of political economy, and Book V on the proper management of the affairs of the public household by the statesman.

The Wealth of Nations, Tribe claimed, could not be a book of economics because a book of economics had to be about the economy. And there was no idea of "the economy" back in 1776 for a book of economics to be about. What was there? There was the undifferentiated stuff of the mixed social-cultural-political-trading system that governed production and distribution: material life. There was the study of the management of public finances. This was conceived in a manner analogous to the domestic-economic management of household finances. Just as--to Robert Filmer and others--the King was the father of the people, so the King's household--which became the state--had to be properly and prudently managed.

In the words of James Steuart, who wrote his Principles of Political Oeconomy nine years before the Wealth of Nations, in 1767: "Oeconomy, in general, is the art of providing for all the wants of a family, with prudence and frugality. What oeconomy is in a family, political oeconomy is in a state." It is managing affairs to make the people prosperous and the tax collections ample by governing "in such a manner as naturally to create the reciprocal relations and dependencies between [inhabitants], so as to make their several interests lead them to supply one another with their reciprocal wants."

There wasn't, Tribe argued, an economy that an economist could write a book of economics about until the 1820s or so.

Strip Tribe's (and Foucault's) arguments of their rhetoric of apparent contradiction and you can understand that within the mystical shell there is a rational kernel. It is--or, at least, I read them as--an injunction to analyze a school of thought in more-or-less the following way:

1. Read not just one or two important books, but a whole bunch of books that talk to our past each other and use the same or similar vocabulary in order to identify the school you will look at.
2. Strip your mind of what they must be talking about, and look with fresh eyes on what they are talking about.
3. Examine what rhetorical, conceptual, and intellectual moves are common within the examples you have of this "discursive formation."
4. Think hard about what rhetorical, conceptual, and intellectual moves you would think you would find in these books--but don't.
5. Think hard about what rhetorical, conceptual, and intellectual moves you do not expect to find prominently in these books--but that you nevertheless do find.
6. Present to the world, in as clear and straightforward a way as you can, what this particular form of discourse was--what it thought the world was like, what it saw as important, what its particular blindnesses were, what its particular sharp points of insight were.
7. Do not, ever, grade a discursive formation of the past by how much it falls away from the ideas of the bien-pensant of today. The past is another country.

And I became convinced that Tribe and Foucault were at least partially right.

It was, indeed, only with Ricardo that the operation of what we now say is the economy--the production, exchange, and distribution of goods and services all mediated through market exchange--was seen as something that was important enough, or separate enough, or coherent enough to be something that it made sense to write books about, and, indeed, something that it made sense to be an expert in. David Ricardo was a political economist. Adam Smith was a moral philosopher. To try--as somebody like Joseph Schumpeter was--to grade Adam Smith as if he were engaged in the same intellectual project as Schumpeter was somewhat absurd.

Tribe applied this methodology to Adam Smith, his predecessors, contemporaries, and successors. What they were doing, before Ricardo, was Political Oeconomy--writing manuals of tactics and policy as advice to statesmen, although manuals restricted to what Adam Smith would have called (did call) a subclass of police: how to keep public order and create public prosperity. Hence for Adam Smith Book V of Wealth of Nations is the payoff: it tells British statesmen what they ought to do in order to make the nation prosperous, their tax coffers full, and thus the state well-funded. Book IV is a necessary prequel to Book V: it tells the statesmen in the audience why the advice that they are being given by others in other books of Political Oeconomy--by Mercantilists and Physiocrats. Book III is another necessary prequel: it teaches statesmen about the economic history of Europe and how political oeconomy of various kinds has been practiced in the past.

But Tribe's (and Foucault's) methodology, while it is partially right, is also partially wrong. Their theoretical framework collapses when we work back to Books II and I of the Wealth of Nations. For Adam Smith is not the prisoner of the discursive formation of Political Oeconomy. He is not the simple bearer of currents of thought and ideas that he recombines as other authors do in more-or-less standard and repeated ways. Adam Smith is a genius. He is the prophet and the master of a new discipline. He is the founder of economics. And he knows that he is a genius. And he wants to change the game.

Adam Smith is the founder of economics because he has a great and extraordinary insight: that the competitive market system is a remarkably powerful social calculating and organizing mechanism, and that the sophisticated division of labor to which a competitive market system backed up by secure and honest enforcement of property rights give rise is the key to the wealth of nations. Some others before had had this insight in part: Richard Cantillon writing of how once you have specified demands the market does by itself all the heavy lifting that a central planner would need to do; Bernard de Mandeville that dextrous management by a statesman can use the power of private greed to produce the benefit of public utility. But it is Smith who sees what the power of the "system of natural liberty" that is the market could be--and who follows the argument through to the conclusion that it forever upsets and overturns the previous intellectual moves made in and conclusions reached by the discursive formation of Political Oeconomy.

And once I had worked my way through to this conclusion, Tribe's and Foucault's ideas of "discourse" and "archaeology" were not my masters, but my tools. I needed to supplement their ideas with another set of ideas--call it Thomas Kuhn's idea of "scientific revolutions" or Louis Althusser's idea of "epistemological breaks." Adam Smith intended the Wealth of Nations to be read not as a contribution to but as a transformation of the discourse of Political Oeconomy. And it was--to an extent he could hardly have imagined.

Thus it is not "anachronistic," or it is not only "anachronistic" to write that Smith's corpus is a braided mixture of what we now call philosophy, psychology, and economics. If it were only anachronistic to write that, we would not now be reading Adam Smith at all any more than we are now reading James Steuart at all: we simply would not care. The fact that we do care about Adam Smith is what tells us that Tiago's dismissal of Shiller and Shiller's claim cannot be fully right.

He is, of course, correct. It is impossible to write about Marx at all without oversimplifying him.

RB:

Lecture: Seven Sects of Macroeconomic Error, Part II: Rakesh Bhandari said...

I need to study this post a bit more, but I think there is fundamental problem with Marx's theory of crisis not mentioned here.

Keynes spoke of the declining marginal efficiency of capital, Marx spoke of the falling rate of profit. Economists today speak of the capital/output ratio; Marx focused on what he called the organic composition of capital.

Keynes considered investment the most volatile element of effective demand, and so did Marx.

However Marx thought that the investment levels would fall short of full employment and periodically low enough to create a crisis not due to an inexplicable loss of confidence in the future but because profitability on new investments had already begun to fall off. This would then create excess capacity.

For Marx this was ultimately because the organic composition of capital or capital/output ratio had become too high and profitability on new investments insufficient to overcome the liquidity preference.

For both Marx and Keynes the situation cannot be overcome by lower wages, even lower real wages.

But what Marx did not understand is that autonomous government expenditures can create the demand with which excess capacity can be worked down with minimal losses and reduced unemployment, preparing the way for new investments embodying technological progress by means of which the capital/output ratio can be reduced, profitability restored, and investment levels raised.

Kyodo News:

Fresh coolant injected, high-radiation water leaks in nuke crisis | Kyodo News: Tokyo Electric Power Co. said Friday it has begun injecting freshwater into the No. 1 and No. 3 reactor cores at the crisis-hit Fukushima Daiichi nuclear plant to enhance cooling efficiency, although highly radioactive water was found leaking possibly from both reactors as well as the No. 2 reactor. The latest efforts to bring the troubled reactors at the plant under control are aimed at preventing crystallized salt from seawater already injected from forming a crust on the fuel rods and hampering smooth water circulation, thus diminishing the cooling effect, the plant's operator said. The utility known as TEPCO is also preparing to inject freshwater into the No. 2 reactor core.

But a day after three workers were exposed to water containing radioactive materials 10,000 times the normal level at the turbine building connected to the No. 3 reactor building, highly radioactive water was also found in the turbine buildings of the No. 1 and No. 2 reactors. The latest development in Japan's worst nuclear crisis raises the risk of more workers being exposed to radioactive substances, hindering their efforts to restore the plant's crippled cooling functions that are key to overcoming the crisis...

Paul Krugman:

The Austerity Delusion: Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up. What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong. It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.

It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction. Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks. So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes....

Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease.... But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery.... [C]ouldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

Just ask the Irish.... And then there’s the British experience....

Which brings me back to what passes for budget debate in Washington these days. A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.... [W]e have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems.... The confidence fairy won’t save us from the consequences of our folly.

Romer:

Ezra Klein's Weblog: I’d start with what the president talked about in the State of the Union, which is more public investment. He didn’t propose anything very bold, but another $50 billion of infrastructure spending would help. More funding for education programs and research and development tax credits and basic scientific research would be good, too. I would offer more state and local aid. Going further, we cut 2 percent off the payroll tax on the employee side in December and we could’ve done another 2 percent off the employer side....

There’s this debate going on over what the source of the unemployment is: Do we not have enough aggregate demand, or is it structural? What frustrates me is the advocates of the structural theory go from saying it’s hard to turn construction workers into nurses to saying we should do nothing. If you think our problem is structural, there are things we should be doing: money for training, or helping people get out of their mortgages, or massive investment in Detroit. I don’t believe that skills are the problem here, but if that’s your point of view, there’s still a lot we can do. Saying it’s structural is not the same as saying it’s not our problem....

I’m teaching a course this semester on macro policy from the Depression to today. One thing I had the class read was Ben Bernanke’s 2002 paper on self-induced paralysis in Japan and all the things they should’ve been doing. My reaction to it was, ‘I wish Ben would read this again.’ It was a shame to do a round of quantitative easing and put a number on it. Why not just do it until it helped the economy? That’s how you get the real expectations effect. So I would’ve made the quantitative easing bigger. If you look at the Fed futures market, people are expecting them to raise interest rates sooner than I think the Fed is likely to raise them. So I think something is going wrong with their communications policy....

[Alan Greenspan] is wrong about today and he’s wrong about the 1930s.... Milton Friedman explained... that financial institutions that have been through a terrible financial crisis tend to be quite cautious. Greesnpan could put that at his own doorstep.... That’s why [our banks and companies] want to sit on huge piles of cash. It’s not because we had the audacity to strengthen some regulations, much less because we had the audacity to bail out the financial sector and have a huge fiscal stimulus....

If people do think we’re out of control of our budget, that surely can’t be good for [private] investment. But how do we show we’re in control?... [Cutting] $61 billion [out of this year's budget] won’t do anything [to solve the long-run problem], so why would anyone be reassured by that? The more sensible thing is we should have a package for short-term stimulus that also includes concrete policies that deal with the deficit, which means entitlements and taxes and defense spending and everything else. There’s a joke in economics about the drunk who loses his keys in the street but only looks for them under the lightposts. When asked why, he says, ‘because that’s where the light is.’ That’s the problem with the deficit. Republicans want to bite off this little piece that they know how to deal with, not the broader problem...

I would put it more strongly: Republicans do not want to reduce even the short-term deficit; they want to cut non-security discretionary spending, extend the high-income tax rate reductions, and repeal the Affordable Care Act. Taken together, those do not reduce but rather increase the deficit.

Alexis Madrigal:

When Crowdsourced Data Meets Nuclear Power: One of the key problems has been that people aren't sure whether to trust the official measurements, no matter how many of them there are. Today, sociologist Zeynep Tufekci addressed the issue of lack of trust in institutions in her essay, "If We Built a Safer Nuclear Reactor, How Would We Know?" I think I may have seen the beginnings of a way to build that trust in this crowdsourced map of Geiger counter readings from around Japan. It's one thing to blindly trust the experts. It's quite another to doublecheck them with a distributed network of 215 Geiger counters -- forcing them to earn that trust. This is DIY science with purpose.

Yugoslavia joins the Axis powers. Prime Minister Cvetkovic and Foreign Minister Cincar-Markovic sign the Tripartite Pact. Germany agrees to respect Yugoslav sovereignty and not to demand passage for troops.

Virtually speaking:

Professor Brad DeLong Virtually Speaking: 8pm eastern-Stuart Zechman & Jay Ackroyd: on what economists are talking about. 9pm eastern: economist Brad DeLong discusses questions of macroeconomic policy, and the role of the freshwater economists, and the media, in setting it.

Soon she too will join the Order of the Shrill Passionate:

Ben Smith: Former top economist: Economic inaction ‘shameful’: President Obama’s former top economic advisor sharply criticized the federal government for failing to take more aggressive action against unemployment...

Here is the text:

http://www.econ.berkeley.edu/~cromer/Vanderbilt2.pdf: Let me talk first about unemployment—because nothing is more important to the economic security of a middle class family than having a job. The bursting of the housing bubble and the financial crisis in the fall of 2008 dealt a terrible blow to the economy. The shock that hit the United States in 2008 was at least as large as that in 1929. Indeed, by one key indicator, it was much worse. The collapse of house prices and the stock market in 2008 destroyed 13 trillion dollars of household wealth. The percentage decline in wealth in 2008 was nearly seven times larger than in 1929. The result of the destruction of wealth and the financial crisis was a collapse in demand that closed factories and led to horrible job losses. The extraordinary actions taken by monetary and fiscal policymakers, both at the end of the Bush administration and when President Obama came into office, helped prevent the recession from turning into a second Great Depression. And, they have helped to put the United States on the road to recovery.

But, though the recession may be over in the technical sense that we are now growing and adding jobs again, it is clear that there is still a lot of devastation out there. The national unemployment rate is still 8.9%. Nearly 14 million Americans currently are looking for a job, but can’t find one. Unemployment remains an absolute crisis. The policy actions taken in the lame-duck session of Congress last December will be helpful. The payroll tax cut and another year of extended unemployment insurance are good policies for putting people back to work and preventing suffering. The additional business tax cuts to encourage investment are also useful for creating jobs today and making us a more productive economy over the long haul.

But we ought to be doing more. I have been a vocal proponent of the Federal Reserve using the tools it still has to do more to get the unemployment rate back down to normal more quickly. The President in his State of the Union Address called for more public investment in infrastructure, education, and innovation. That would be excellent policy to reduce unemployment, and would leave the country richer in the process.

I would also go further and give businesses a cut on their share of payroll taxes. The action last December only cut the employee side of the payroll tax. Cutting the business side would lower the cost of hiring workers and so give employers an incentive to do exactly what we need them to do.

I frankly do not understand why policymakers aren’t more worried about the genuine suffering of so many families. We have tools that we can use to bring the unemployment rate down, and I think it is shameful that we are not using them. That is the number one thing that we could and should be doing to strengthen the middle class.

And don’t tell me we can’t do it because of the deficit. We could certainly do it in a fiscally responsible way. And even if all you cared about was the deficit, dealing with the unemployment rate is good policy. The longer we let unemployment remain high, the more likely it is to stay high. This would be devastating both for the people affected and for the government budget.

Ken Houghton sqys:

Because He Would Never Name N. Gregory Mankiw or R. Glenn Hubbard as Arsonists Screaming for a Fire Hose | Angry Bear: Go read Mark Thoma. Because he's a kinder, gentler human being than I am...

And so I do:

Economist's View: Former CEA Chairs and the Unsustainable Budget Deficit: Reading the names on the list, and noting the staunch opposition to tax increases by some, this came to mind:

Back in 2000, the U.S. government's long-term budget was out of balance--although not by all that much. The government had, you see, made promises--very popular promises--for Medicare, Medicaid, and Social Security without proposing sufficient funding streams to pay for those promises. So back in 2000, looking forward, we had a choice: raise taxes, or "bend the curve" by cutting the growth of spending.

Instead of doing either of these, we elected George W. Bush. Two wars. A big (and ill-advised) defense buildup that is very unsuited to protecting us from Al Qaeda and company. A huge unfunded expansion of Medicare. Plans for the unfunded expansion of Social Security that came to nothing. However, instead of raising taxes George W. Bush reduced them.

This simply does not work. As Milton Friedman liked to say, to spend is to tax. If the government spends somebody will pay for it. And if you don't levy the taxes to pay for it now all that means is that the person who owes the taxes does not know it yet. ... Taxes are going up over the next decade--barring cuts of 1/3 to Medicare, etc. They can either go up smartly or we can pretend they don't have to go up, in which case they go up stupidly. The argument for small government was lost long ago, and was lost again and anew in the past decade with Medicare Part D and the wars of George W. Bush.

The time to stand up to the budget busting was when it happened, and when members of the list had the power to affect policy, not many years later in an article at Politico. Many on the list were either part of the decision making team in the 2000s that opened the hole in the budget, or supported what the team did. I suppose it's possible to argue things were different in 2000 -- there was a wide expectation that budget surpluses would be the "problem" at that time. But if the forecasts by members of the list were so bad then -- and they were -- why should we listen now?

The long-run budget problem does need to be addressed, but the standing of some on the list to make this claim can certainly be called into question.

"Gee," I thought to myself. "The person whom Mark is quoting is really smart, and writes really well. I should pay attention to him or her..."

You would think I could remember and recognize what I myself wrote only six months ago. [Insert early-onset dementia joke here.]

UPDATE: DeLong Smackdown Watch: In my inbox right now:

Perhaps it would be better not to criticize them for showing up late to the party, but to embrace the fact they are there at all? We do need Republican support to actually get the deficit under control.

Because I do not have an answer to this, from Duncan Black:

Eschaton: There's literally nothing that this Congress today can do to reduce the deficit 20 years from now. What you can do is sign into law legislation which reduces granny's pension 20 years from now. And, yes, given the way our system works it wouldn't necessarily be easy to reverse that decision 20 years from now depending on the politics and who is in power. But what will still be easy to do 20 years from now is cutting taxes on rich people and writing giant checks to defense contractors. Those things are always easy to do when Congress and their donors are mostly rich people. Reduce the deficit by cutting granny's pension, increase it again by cutting taxes on rich people. Rinse repeat...

And Duncan says some very true things:

It'd be one thing if there was anything out there suggesting that borrowing costs were going to spike. But there isn't.... As long as we're in a recession... [the] message [ought to be]... "we should borrow a large amount of money basically for free and spend it on jobs and boosting aggregate demand."... Worrying about problems 10-20 years from now is worrying about things you have almost precisely zero control over....

[J]ust to remind us of history I'm sure we all remember. That Democratic Socialist Bill Clinton got rid of the deficit. Alan Greenspan, who spent years fretting about the deficit, suddenly decided the great danger we faced was not having a deficit. And Bush tax cuts, and too and such.

Chris Brown:

John Lott's Mysteriously Changing Blog Post | Media Matters for America: John Lott has taken to his website to respond to a recent post of mine pointing out two misleading claims he made about the Obama Administration. Lott now accuses me of misquoting what he wrote in a March 18 Big Government post. In fact, I quoted Lott accurately, but someone subsequently altered his Big Government post, making it appear that I was wrong.

On March 22, I wrote [emphasis added]:

Lott also criticized Obama for a request made by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) citing an out-of-date article, saying that the Obama administration has "also imposed much more extensive reporting requirements on sales of long guns."

In fact, the Obama administration has not imposed the regulation in question. The proposed regulation by the ATF has been repeatedly delayed by the Obama administration, which most recently rejected the ATF's request to enact the proposal as an emergency regulation. The administration will decide on approval in April, if no further delays occur. If enacted the proposal would require gun shops along the Mexican border to report multiple sales of certain classes of rifles, such as AK-47s or AR-15s, made within a five-day period.

Lott responds [emphasis in original]:

In fact, my quote is "They have also tried imposing much more extensive reporting requirements on sales of long guns." Besides, even if the point had been honestly misread, if someone has tried to check the link, the point would have been clear. Nice try Media Matters.

Sure enough, Lott's March 18 Big Government piece now reads, "They have also tried imposing much more extensive reporting requirements on sales of long guns." That's what it says today, anyway. But that's not what it said when the article was published. Here's a screen shot showing how the article appeared on March 22 when I wrote the criticism:

And Chris goes on:

the surreal thing is that the original quote still appears in a March 18 post on Lott's own website, still on the front page, not far below the post where he accuses me of misquoting him:

The natural conclusion:

Did John Lott change his quote on Big Government and then accuse me of misquoting him? Is someone else to blame? Maybe Mary Rosh did it.

Jonathan Cohn on Nationwide Romneycare:

Instead Of Debating Health Care Reform, We Should Be Celebrating It | The New Republic: A year ago this week, Capitol Hill was full of noise as the House of Representatives debated, and then voted, on the Affordable Care Act. But one of the most vivid memories of that experience for me was an extended moment of silence. It came very late on Sunday evening--after the floor speeches, the votes, and the press conferences had ended. The galleries had long since emptied and the Capitol building itself was virtually unoccupied, so that it was possible to walk the entire length of the building, on the ground floor hallway that stretches from the House all the way to the Senate, without hearing so much as a single conversation. It felt more than silent. It felt peaceful and, yes, satisfying. A prolonged, difficult debate had finally ended. It was time to move on.

Except that we haven’t moved on.... So perhaps it is worth taking a step back, just for a moment, and remembering how we got to this point--why this debate started in the first place and why it led to the enactment of this law....

Around one-fifth of the non-elderly population, or somewhere in the neighborhood of 50 million people, have no health insurance. Many millions more have insurance with major gaps or limitations, leaving them at risk of financial or medical catastrophe. Notwithstanding legitimate debates over exactly how many people go bankrupt or suffer physical hardship because they can’t pay their medical bills, virtually nobody denies that the human toll is real and significant. These problems are the product, in part, a dysfunctional health insurance system that evolved haphazardly during the 20th Century. They also the product of a medical system as inefficient as it is costly....

The goal of reform was really two-fold: In the short term, to make sure everybody can afford to pay for medical bills without financial distress; it the long term, to make the health care system as a whole more efficient, so that it no longer applied such a crushing financial burden on society. A single-payer system, like the ones in France or Taiwan, would have accomplished this. So would a scheme that turned health insurance into a regulated utility, as the Dutch and Swiss governments have done. Political compromises, dating back to the earliest days of the 2008 presidential campaign, left the U.S. with a second-best--or, more accurately, a third- or fourth-best solution. It bolsters two existing insurance arrangements: Employer-sponsored coverage for workers in most companies, Medicaid for the very poor. It creates a new, regulated marketplace--insurance “exchanges”--for everybody else. Then, through a combination of tax changes and alterations to Medicare, it tries to reengineer medical care itself, wringing out administrative waste and focusing resources on the treatments, and care styles, that provide the most bang for the buck.

It’s easy to find the flaws--and to figure out who’s responsible for them. Doctors, hospitals, drug manufacturers, and device makers fought changes in the delivery of medical care that might affect their incomes; unions lobbied against tax reforms designed to discourage overly generous insurance; everyday Americans resisted changes to plans they already had. All of this blunted the Affordable Care Act’s efforts at cost control, which explains why, ten years from now, the best projections suggest we’ll have spent roughly as much on health care--as a government and as a country--as we would have if the law never passed....

But the law’s shortcomings should not tarnish its many virtues. Eight percent uninsured means 92 percent insured, or around 95 of residents here legally. Or, to put it another way, more than 30 million additional people will have health insurance because of this law. The coverage, if not always as generous as it should be, will be enough to keep many if not most of the newly insured out of bankruptcy--and it will be available to almost everybody, regardless of pre-existing condition or insurance status.

The cost picture is also encouraging. The official projections suggest that, as of 2021, government spending (and, apparently, the country’s total spending) on health care will not be rising as fast as it is now. This is the critical distinction, because it’s the long-term burden of health care that threatens to bankrupt us...

AFP:

Some readers will get around paywall: NY Times: The publisher of The New York Times said Wednesday that some people will manage to find ways around paying for the newspaper online but they will mostly be teenagers and the unemployed. "We did create something purposely porous," Arthur Sulzberger said of the system being implemented by the Times to begin charging readers next week for full access to NYTimes.com. "Can people go around the system?" Sulzberger asked during an appearance at The Paley Center for Media here. "The answer is yes. There are going to be ways. "Just as if you run down Sixth Avenue right now and you pass a newsstand and grab the paper and keep running you can actually get the Times free," he said. "We have to accept that. Is it going easy? No. Is it going to be done by the kind of people who buy the quality news and opinion of the New York Times? We don't think so," he said.

"It'll be mostly high school kids and people out of work," Sulzberger said, before adding "I can't believe I said that"...

Dan Kuehn:

Facts & other stubborn things: Price Coordination, Structural Adjustments, and Keynesian Downturns: I obviously don't need to be convinced that we're facing demand problems... what I'm a little confused about is precisely what structural problems we're facing that Brad refers to. Certainly there's the issue with housing. That strikes me as a bubble that popped and we're going to need some reassignment of resources previously dedicated to that. Is that all we're talking about here? Or is there something deeper?... Is there large scale technological unemployment associated with skill-biased technological change that we need to adjust to?...

The important point, though, is that Keynesianism is all about problems with the price mechanism. The nice, tight, Walrasian system is actually over-identified which interferes with price signals sent to investors especially. You can think of it as an "interest rate wedge" similar to the "tax wedge" that is standard fare in undergraduate economics. I don't know if anyone has talked about it in this way before, but it seems like a useful way of doing it for people who seem to think Keynesians ignore price coordination.... If interest rates are artificially higher than the equilibrium rate, you're going to have a stable Keynesian obstacle to structural adjustments just like you have to any other investment. As Brad said initially, ""structural adjustment" takes place when unemployment is low, not when unemployment is high"...

In the language that Dan is talking, I think that the right thing to say is that if the price level is sticky then the Walrasian system is over-identified. If the price level is flexible then the Walrasian system is just identified--the thing that is supposed to move in order to eliminate the excess demand for financial assets is the price level, and it does not, or it does not move fast enough.

Of course, in the real world it is not at all clear that we want to have downward-flexible aggregate price and wage levels in a world with nominal debt contracts. Think we have a financial crisis now? What we had was a 30% decline in housing prices. Where would we be if we had had a 30% decline in all wages and prices?

Jonathan Bernstein:

A plain blog about politics: Catch of the Day: Sure, it's fish in a barrel, but I'll award a CotD to CAP's George Zornick, for noting that Newt Gingrich executed a complete partisan reversal on Libya, going from beating on the president for not establishing a no-fly-zone to attacking him for doing so without so much as a phony explanation. And for noting Newt's historical amnesia (Newt is certain, also without any actual argument or explanation, that this is as "badly run as any foreign operation we’ve seen in our lifetime," apparently managing to exceed Vietnam, Iraq, and the Iran hostage rescue, among other things, despite not producing even anything anecdotal that's gone wrong). And for noting that Today Show host Matt Lauer didn't challenge any of that. See Dave Weigel for transcripts.

Of course, the thing to remember about Newt is that he's a total fraud. So calling him out is not that hard to do. Still, kudos to Zornick for doing so, and a nice job, too. Great catch!

The Daily Worker:

AMERICA IS IN THEIR SONGS by George Lewis:

At a recent meeting of the League of American Writers, Theodore Dreiser heard Pete Bowers and Lee Hays, the Almanac Singers, sing ballads from their endless repertoire. When they had finished singing, Dreiser commented, “If there were six more teams like you, we could save America.” Lee Hays, youthful ex-preacher and teacher (Commonwealth College), was born to an Arkansas family of whom he is not proud. “They were reactionaries," he said. He ran away from home at the age of 15; and he has since that time been associated with the workers of the South, labor unions, as well as peo ple’s literary and musical organizations. Pete Bowers, who prepared for college at a Connecticut Preparatory School, and attended Harvard, developed an interest in the people’s music and has for the last two years been traveling through all sections of the country learning the songs that America sings.

Bowers and Hays are the performers. But actually they are two of a trio. The third member of the group is Millard Lampell, born in West Virginia, now doing magazine work in New York. The group has recently completed a book of songs which it has prepared for the American Peace Mobilization. They are songs of labor, songs of social protest, songs of satire. They use the tradi tional ballad and hymn forms, and to the established music they add topical lyrics, such as:

Remember when the AAA
Killed a million hogs a day;
Instead of hogs it’s men today
PLOW THE FOURTH ONE UNDER!

The Almanac Singers make it a point not to be an exclusive writing group; anyone who has an idea for them will be heard and the idea will be used if it is good. For the most part they use ballads. But they are also engaged in writing original words and music. In addition they parody such old songs as “Billy Boy:”

Don’t you want to see the world, Billy Boy, Billy Boy?
Don’t you want to see the world, Charming Billy?
It wouldn’t be much thrill to die for DuPont in Brazil
He’s a young boy and cannot leave his mother.

In a foreword to their book for the APM they say, "Write new songs of your own and parodies and poetry, and sing them so loudly that all the warmongers and native fascists and enemies of peace will hear you and tremble in their counting houses."

“We are in the peace army. Remember that a singing army is a winning army”...

Matt Blake of the Daily Mail writes:

Fukushima Fifty: First pictures emerge from inside Japan's stricken nuclear power plant: The darkness is broken only by the flashing torchlight of the heroes who stayed behind. These first images of inside the stricken Fukushima Dai-Ichi power plant reveal the terrifying conditions under which the brave men work to save their nation from full nuclear meltdown. The Fukushima Fifty - an anonymous band of lower and mid-level managers - have battled around the clock to cool overheating reactors and spent fuel rods since the disaster on March 11.

Despite sweltering heat from the damaged reactors, they must work in protective bodysuits to protect their skin from the poisonous radioactive particles that fill the air around them. But as more radiation seeps into the atmosphere minute by minute, they know this job will be their last. Five are believed to have already died and 15 are injured while others have said they know the radiation will kill them.

The original 50 brave souls were later joined by 150 colleagues and rotated in teams to limit their exposure to the radiation spewing from over-heating spent fuel rods after a series of explosions at the site. They were today joined by scores more workers....

A woman said her husband continued to work while fully aware he was being bombarded with radiation. In a heartbreaking email, he told his wife: 'Please continue to live well, I cannot be home for a while.' One girl tweeted in a message translated by ABC: 'My dad went to the nuclear plant, I've never seen my mother cry so hard. People at the plant are struggling, sacrificing themselves to protect you. Please dad come back alive.'...

[I]t is becoming even more pressing that the Fukushima succeed after it was revealed today that Tokyo's tap water has been contaminated by unusual levels of radiation. The government have issued a warning to all mothers urging them not to let babies drink the tap water.... And fresh safety concerns arose today as black smoke was spotted emerging from Unit 3 of the plant, prompting a temporary evacuation of all workers from the complex, operators Tokyo Electric Power company said....

The IAEA lacks data on the temperatures of the spent fuel pools of reactors 1, 3 and 4 at Fukushima...

Paul Krugman:

Dances With Wolf: Martin Wolf apparently shares my views about the trouble with Chinese currency policy — and throws Germany into the mix. The difference is that he uses stronger language! As I read this debate, one thing that’s truly amazing is the way China defenders are recapitulating some old fallacies from, of all places, Latin America. Back in the 50s it was common for Latin economists to insist that getting realistic exchange rates wouldn’t solve their persistent balance of payments problems because imbalances were “structural” — now we’re hearing the same thing about China, with the only difference being that this time it’s a surplus, not a deficit, that is supposedly immune from the usual rules of supply and demand. I’d also point out, without having time to track down the references, that the global macro aspects of the situation are reminiscent of the late 1920s, when the US was simultaneously insisting that European nations repay their dollar debts and that they not be allowed to export more to earn the dollars. That didn’t end well.

Institute for New Economic Thinking

Ryan Avent:

Business cycles: Is there more than one kind of downturn? | The Economist: I'm need to go catch a flight, so I don't have a lot of time to dig into this, but let me just offer one thought on this view (which is one I've long shared). What if the difference in the outcomes isn't directly due to the differences in causes? What if the difference in outcomes is due to the fact that because the Fed creates a recession through high interest rate, it—by definition—has plenty of room to loosen policy by cutting rates? And when another shock generates the recession, the Fed, often as not, can't drop rates much before hitting the psychological barrier of the zero lower bound? Just a thought.

Lord Jeebus save us!

From: AEI Events event@aei.org
Date: March 23, 2011 12:10:37 PM PDT
To: XXXXX
Subject: AEI Bradley Lecture: The State of White America, April 4, 2011
Reply-To: [email protected]

Please register for this event online at: http://www.aei.org/event/100281

AEI Events is an unmonitored e-mail address. Please do not reply to this e-mail. See below for contact information.

The State of White America
Bradley Lecture by Charles Murray

Monday, April 4, 2011, 5:30-7:00 p.m.
AEI, Twelfth Floor
1150 Seventeenth Street, N.W., Washington, D.C. 20036
(Two blocks from Farragut North Metro)

xkcd: Trapped

From WW2 Total:

Air War: Stukas with fighter escort carry out major raid on Malta: 13 Stukas shot down (2 RAF fighters lost in air combat), but British decide on immediate withdrawal of all bombers and flying boats.

I'm not sure a bubble collapse or an episode of financial distress counts as a "structural shock." But, then, I am not sure that it does not. I am confused.

David Altig writes:

macroblog: The unemployment puzzle--or at least one of them: I am sympathetic to [DeLong's] view as the dynamics of employment recoveries do seem much different in the post-1990 era than in the pre-1990 era. To provide yet another example, on average it took 10 months to recover all the jobs lost during the recessions of the period between 1950 and 1989. In contrast, it took 23 months to recover the jobs lost following the 1990–91 recession and 38 months following the 2001 recession. Right now we are 20 months from the official end of our most recent contraction and still almost 5.5 percent below the pre-recession employment peak. (A stark graphical reminder from Calculated Risk is featured at Economics Roundtable.) What's more, the mechanism DeLong appeals to rings true. That is, prior to the 1980s, downturns in the economy were dominated by intentional tightening by the Federal Reserve to contain inflation. In the post-Volcker era, however, structural shocks appear to be the dominant story.

But the deeper one digs into the labor market facts, the deeper the questions become. Let me offer up an old macroblog favorite, the Beveridge curve. We have noted in the past that the Beveridge curve—which measures the relationship between the unemployment rate and job openings created by businesses (or vacancies)—seems to have shifted outward over the course of this recovery.... My view has been that this shifting of the Beveridge curve relationship represents structural issues in the U.S. labor market. A counterargument has been that such shifting is typical of the early phases of a recovery. And if the 1990-91 and 2001 recessions are the best analogs to the current cycle, we might well expect the relationship between job availability and unemployment to return to the prerecession norm.... The fact that all the points highlighted in green lie to the left of the points highlighted in red means that, for a given number of job openings, unemployment rates were lower during most of the past decade than they were in the 1990s. And there is certainly no evidence that outward shifts in the Beveridge curve are permanent.

Here, though, is where the search for unified business cycle theories gets a little tough. The return of the Beveridge curve to its prerecession norm is a distinctly post-1980 phenomenon. Excepting the 1960–61 episode, the recessions in the 1950–80 era are consistently associated with seemingly permanent rightward shifts in the Beveridge curve:

On the other hand, the aftermath of the inflation-fighting 1981–82 recession represented a clear shift, as the vacancy/unemployment relationship improved dramatically (albeit slowly):

How can we explain, then, that the supposedly demand-driven recessions of the pre-1990 era were associated with seemingly structural changes in the Beveridge curve relationship (in the "wrong" direction prior to 1980 episodes, in the "right" direction after the inflation-wringing contraction of 1981–82).

And what about this time around? Here's where we stand:

Is the recent shift in the Beveridge curve here to stay, or transitory as appears to have been the case in the last two recessions?

Can I get back to you on that?

I had always held two contradictory views of the 1960-2000 moves of the Beveridge Curve. The first was that it was due to the coming into the labor force of the baby boom generation--the stresses of finding places for so many young workers pushes the Beveridge Curve out in the years up to 1980, and that outward push is reversed as the baby boomers age and begin to understand what is what. The second was that it was due to the inflation of the 1970s degrading the efficiency of the labor market pricing mechanism.

Paul Krugman:

The (Nature of) Shock Doctrine: how can you place an interpretation on market movements? What’s the nature of the shock? One way to answer this question would be to ask the traders — although my sense is that really good traders have intuitions that generally go beyond their ability to articulate reasons. Another approach, however, is to look at more than one asset price; if you have a story about what’s driving one price, that story should make sense for the other, too.

Many years ago, when the Fed still claimed to pay attention to targets for monetary aggregates, there was an observable pattern: whenever the money supply came in higher than expected, interest rates rose.... Some people said that rates went up because markets believed rising money supplies heralded future inflation; others, that rates rose because people expected the Fed to tighten to get the money supply back on target.

Jeff Frankel cut through this debate by pointing out that we could look at what happened to the exchange rate. In fact, high money numbers were associated with a rise, not a fall, in the dollar — and this meant that fears of Fed tightening, not fears of inflation, were the real story.

Which brings me to today’s figure: 10-year interest rates versus stock prices.

If fears of default, attacks of the bond vigilantes, were driving rates, a rise in interest rates should be associated with a fall in stock prices — because the change was about bad news. If, on the other hand, it’s about economic optimism — rates rise because people think the US will emerge from the liquidity trap sooner — stocks and rates should move in the same direction.

Michael Froomkin:

Death Rate Per Watt Produced | Discourse.net: I knew this, and the chart still is effective. And my kids were at first very skeptical last week when I tried to tell them that so far coal had killed far more people than nuclear power. (Of course the very worst case scenario for a nuclear plant is much worse than the very worst case scenario for any coal-fired plant; but the very worst case scenario for coal plants aggregated is…global warming.)

JB:

Many Holes in GOP Mantra that Stimulus ‘Failed’: It’s likely that in the run-up to the 2012 election, we will be treated to the Republican mantra that the federal government is broke and that President Obama’s $800 billion stimulus package “failed.” By any fair measure, both of those assertions are nonsense.... Boehner and others, such as Mississippi Gov. Haley Barbour, a Republican presidential aspirant, are trying to turn the reality of the stimulus on its head: More government spending destroys jobs and slashing spending creates them, they claim....

[O]n the local level, it seems even conservatives have no real doubt that federal spending can create jobs. What about at the national level?

The Congressional Budget Office certainly has no doubts about it. A CBO report last month said that provisions of the American Recovery and Reinvestment Act, the stimulus bill passed in early 2009, had the following effects in the fourth quarter of calendar year 2010:

• Raised the level of inflation-adjusted gross domestic product by between 1.1 percent and 3.5 percent.

• Lowered the unemployment rate by between 0.7 percentage points and 1.9 percentage points.

• Increased the number of people employed by between 1.3 million and 3.5 million.

• Increased the number of full-time-equivalent jobs by 1.8 million to 5.0 million as additional workers moved from part-time to full-time work.

The only sense in which the stimulus failed was that the unemployment rate did not fall to 8 percent by the end of last year, as administration economists originally predicted, because the recession that followed the financial crisis turned out to be much more severe than expected. The actual unemployment rate in the fourth quarter was 9.6 percent. The CBO analysis indicated that without the stimulus, the rate would have been between 10.3 percent and 11.5 percent. And the mid-point of the estimate for the number of additional people with jobs? More than 2 million...

Karl Smith writes:

In Response to the Mankiw Chart Making the Rounds «  Modeled Behavior: Here is the correlation between share of income and the share of taxes within the OECD. The US is the point right at the tip of the trend line. The two upper outliers are Poland on the left and Italy on the right.  In any case the US is more or less right on target. Oh and I know that the lack of any context makes this blog even more insidery and opaque than it already is but, it is what it is. I wanted to make the the point but am trying to finish something completely different.

The context is Greg Mankiw's endorsement of Scott Hodge's claim that the U.S has "the most progressive income tax system among industrialized nations."

As often is the case with stuff coming out of the Tax Foundation, it ain't so.

First of all, there is the restriction to income taxes. Why would we care about the income tax system rather than the tax system as a whole?

Second, the U.S. income tax system is not more progressive than the systems of other industrialized nations. The rich in the U.S. pay a greater share of income taxes because the rich in the U.S. capture a greater share of income.[1]

[1] Hodge claims that if the progressivity of the tax system rises, then the ratio of taxes paid by the rich to total taxes should not change as the spread of incomes rises. This is simply false.

Browsing through the newly online Brookings Papers on Economic Activity reminds me of the days when the then-junior senator from New York, Alfonse D'Amato, accused me of withholding from Congress a report on the Mexican economy by Rudi Dornbusch and Alejandro Werner that the Brookings Institution had printed up in a print run of 7,000--and when the Washington Post printed D'Amato's charge without demurer...

Hoisted from the Archives: January 21, 1998:

Last week I came across an old Washington Post clipping from March 2, 1995. The story was by Clay Chandler. The headline was: "TREASURY AIDES' MEMOS WARNED OF PESO PLUNGE... ADMINISTRATION DIDN'T HEED SIGNALS." It brought back memories, for I worked at the Treasury, and the not-very-senior aide in the headline--one of them, at least--was me.

According to the story, I had warned eight months before the crisis that Mexico was in trouble. I had advised senior officials to "pay careful attention" to M.I.T. Professor Rudiger Dornbusch's predictions of trouble . The story quoted my "bottom line: peso overvalued..." In the passive voice and subjunctive mood, the reporter--Clay Chandler--concluded that my memo (and two others) "bolster[ed] ... [the] charge that {Clinton administration] officials missed warnings of trouble" and lent support to "critics of... handling of the Mexican crisis": staff warnings had been ignored.

But the story was false.

I had not warned anyone in April 1994 that Mexico was in trouble. No one needed to tell anyone to pay close attention to Rudiger Dornbusch, who has been one of the most insightful analysts of international currencies for a quarter of a century. What the article reported as my bottom line was in fact Dornbusch's assessment. And in April 1994 I dismissed it. I called it possible but unlikely: the Mexican government had only recently intervened to keep the peso from rising. The market was pushing the peso up, not down.

I wish that I had forecast the collapse. But every half-competent economist and financial reporter knows such collapses, whether in Mexico or in East Asia, can't be reliably forecast. They depend on a sudden psychological conversion of the community of investors: consensus that investments were profitable and attractive turns, suddenly, into consensus that investments are dogs.

The best that economists can do is note situations in which such a crisis is possible. But as I (wrongly) read the situation in April 1994, the Mexican peso did not look like a bubble about to burst. Even Dornbusch--out on the (then) extreme of economists' positions--thought the worst-case outcome for the next year was a small devaluation (along the lines of Britain's devaluation of 1992), not the large collapse and a subsequent severe depression (alleviated only by the peso support package).

So why write a story full of half-truths spun into whole lies? That's not a terribly interesting question. This is not your mother's Washington Post--indeed, it never was. In Washington not-very-good reporters bossed by not-very-good editors print a lot of one-sided stories. They find the story--gift-wrapped, with a ribbon and a bow--on their front step. They print it because they want to go home early, or because they want someone to owe them a favor.

What is interesting is: who boxed and wrapped the story? The answer is as clear as if muddy prints led from the pond where the victim drowned to the suspect's front door: Alfonse D'Amato.

The lead refers to "sources familiar with the documents" that detail Treasury staff thinking about Mexico in 1994. The story discusses Senator Alfonse D'Amato (R-N.Y.) and his request for "all records... on Mexican currency policies and any assistance... provided Mexico." In Washington-speak, this juxtaposition says that "sources familiar with the documents" are Senator D'Amato's staff at the Banking Committee, and that they selectively leaked the documents.

In Washington-speak, the story tells us that it is a plant by Senator D'Amato to support his claims that the Treasury Department lied and covered-up, and so Congress should stop the loans form the U.S. and the IMF to Mexico. (Never mind that the claims were ludicrous: the story could have--but didn't--point out that the April 1994 "information" D'Amato said the Treasury "withheld" from Congress was Rudi Dornbusch and Alejandro Werner's article that had in fact been published in the spring 1994 edition of Brookings Papers on Economic Activity.)

And when I realized that it was D'Amato who was the prime mover, I was amazed.

There were arguments against supporting the peso. I think they are weak, and that when such arguments dominated economic discourse they brought us the Great Depression. That they were wrong in this case is conclusively shown by the fact that everyone gained from the peso support package (although Mexican workers gained far less than had the U.S. put up more money and loaned it to Mexico for a longer term).

But these arguments, boiled down, amount to the claim that New York City is too large and too well-off a place: the world financial industry should be smaller, less money should be flowing through New York, and much of the financial-sector employment in New York should simply not exist. So I was astonished to see Alfonse D'Amato making them.

I was amazed because I had never before seen a Senator try his very best--using every political trick in the book, and some that added new (to me at least) pages to the book--to shrink the major industry that employs his constituents.

And now it looks like he is about to do it again. A strange alliance of the left and the right against the center is forming to try to keep the International Monetary Fund from gaining additional resources to manage possible future financial crises. Hearings will be held. I think the case for topping-off the IMF's funding is very strong, and is especially strong for anyone who lives in New York City. And what does the junior Senator from New York say? Publicly, he is on the fence--but worrying about "taxpayer dollars... put at risk" through IMF expansion.

Here, from the Post's electronic archives, is a later version of the story, missing the direct and out-of-context quote from my memo "bottom line: peso overvalued" that told me what Clay Chandler was looking at when he wrote his article:

Treasury Aides' Memos Warned of Peso Plunge; Critics Say Administration Didn't Heed Signals [FINAL Edition]
The Washington Post (pre-1997 Fulltext) - Washington, D.C.
Author: Clay Chandler
Date: Mar 2, 1995
Start Page: C.11
Section: FINANCIAL
Text Word Count: 745

Treasury Undersecretary Lawrence H. Summers, the Clinton administration's senior official for international finance, was warned of potential economic problems in Mexico in at least three separate memos during the eight months before the peso's collapse, according to sources familiar with the documents.

Congressional critics of the administration's unprecedented $20 billion bailout of the Mexican economy say they want to know whether Treasury Department officials missed warning signs of impending trouble in the months leading up to the peso's spectacular collapse, and what advice they may have given Mexican officials.

Two of the memos from Summers's subordinates -- one written in April and the other in September -- recommended he pay careful attention to papers written by Rudiger Dornbusch, a Massachusetts Institute of Technology economist widely respected for his expertise on developing Latin American economies.

Dornbusch, whom Summers has known since Summers's days as a Harvard University graduate student, had been warning since the beginning of 1994 that the peso was overvalued by at least 20 percent and that failure to devalue the currency quickly could result in a painful peso collapse later.

A third memo, passed from staff to Summers through Deputy Assistant Treasury Secretary Timothy F. Geithner in late November, warned that the Mexican economy had seriously deteriorated and recommended the Treasury Department begin "contingency planning" in anticipation of a possible financial slump in the Latin nation.

These documents, whose authenticity was not disputed by Treasury Department officials, could bolster critics of the administration's handling of the Mexican crisis who charge that officials missed warnings of trouble.

Treasury Department spokesman Howard Schloss said the memos buttressed the administration's argument that officials were on top of events.

"These leaked documents, one of which may be classified, confirm what we have been saying all along," he said. "Senior officials at the highest levels of the Treasury Department were alert to potential financial problems in Mexico throughout 1994." Schloss said the officials "monitored the Mexican economic situation closely and communicated appropriately with their Mexican counterparts."

Yesterday was the deadline set by Senate Banking Committee Chairman Alfonse M. D'Amato (R-N.Y.), who plans hearings on the administration's handling of the Mexican bailout, for Treasury Secretary Robert E. Rubin to turn over all records from Jan. 1, 1994, to the present on Mexican currency policies and any assistance the Treasury Department provided Mexico.

A Treasury official said that while 260 pages of material had been turned over to the committee by yesterday, all the requested documents would not be forwarded by D'Amato's deadline. Documents also have been sent to the House Banking Committee.

"We're getting the runaround," D'Amato said last night. "This is absolute and total nonsense . . . I know darn well that the administration received information that should have alerted any prudent person that there were problems with the Mexican economy and then ignored it and withheld it from the Congress."

D'Amato made similar requests of Secretary of State Warren Christopher and Federal Reserve Chairman Alan Greenspan.

Yesterday, the House voted 407 to 21 to ask the administration to turn over within 14 days a long list of documents concerning the Mexican rescue.

The September memo also included assessments of the Mexican economy's prospects by Fed officials and by Wall Street economists and analysts. The Wall Street experts, contacted by Treasury officials and not named in the document, offered predictions about Mexico that ranged from bullish to bearish, the sources said.

How much Mexican officials understood about the stability of their nation's economy also remains unclear. In recent days, senior aides to Mexican President Ernesto Zedillo have leaked accounts of an October confrontation between Zedillo and then-Mexican President Carlos Salinas de Gortari.

According to the accounts, Zedillo, who was elected in August but was not sworn in until December, repeatedly urged Salinas to devalue the peso before leaving office. But Salinas, concerned about his political legacy and mindful of his bid to head the new World Trade Organization, rejected the plea.

Also yesterday, House Republican leaders dismissed a colleague's suggestion of a conflict between Rubin's handling of the Mexican financial crisis and his previous role as co-chairman of Goldman Sachs & Co., a major underwriter of Mexican stocks and bonds.

"I don't have any evidence to that effect," House Speaker Newt Gingrich (R-Ga.) told reporters at his daily briefing. Rep. Spencer Bachus (R-Ala.), chairman of the House Banking subcommittee on oversight and investigations, has said he would hold hearings on that question.

As near as I can see, a bunch of lobbyists working for industry fooled the reporters and spun the FDA panel's report on menthol last week as much weaker than it was in an attempt to make it harder for the FDA to ban menthol.

Panel Chair Jonathan Samet tries to correct the record.

Duff Wilson reports:

Panel Chief: F.D.A. Could Still Ban Menthol: Dr. Jonathan M. Samet, the chairman of a federal advisory panel on tobacco whose report last Friday sent menthol cigarette stock prices soaring, says the investor enthusiasm may be premature. “What’s critical for their interests are what steps the F.D.A. actually takes,” he said in an interview on Tuesday. And Dr. Samet, a professor of medicine at the University of Southern California, said that the panel’s scientific report gives ample evidence to the Food and Drug Administration to phase out or restrict menthol in cigarettes. The group found the minty additive, compared with nonmenthol cigarettes, poses a public health risk because it makes it easier to start smoking and harder for some smokers to quit.

While the eight-member group led by Dr. Samet did not recommend a specific policy to phase out or ban menthol cigarettes, that was never its role, he said in the interview, emphasizing the word “scientific” in its formal title, Tobacco Products Scientific Advisory Committee. Further, Dr. Samet disagreed with statements by some stock analysts and public health advocates that the panel did not make a clear recommendation. It did, he said, in the conclusive statement in its 231-page report: “Removal of menthol cigarettes from the marketplace would benefit public health in the United States.” “To me that speaks quite clearly to what our recommendation is,” Dr. Samet said. “I think the major issue is probably a failure to understand the role of this committee and what the F.D.A. does as a regulatory agency. I think the statement about removal is what the public health recommendation is, and I think how one achieves that outcome depends on the strategies available to the F.D.A. under the law.”

Unlike an F.D.A. drug advisory committee, which could recommend removal of an unsafe drug or a black-box warning, the F.D.A. tobacco panel has no history of clear cut policy options, Dr. Samet said. He added that would make it even more important to let the agency assess the options and their consequences before acting — especially in the litigious tobacco field. “I’ll be watching with interest what the F.D.A. does next,” he said.

Menthol cigarettes themselves do not pose a greater health risk to individual smokers, the report found, but they pose a greater risk in overall public health by increasing the number of smokers and smoking-related deaths. Menthol is smoked disproportionately by youths and African-Americans. Shares in Lorillard Tobacco, the nation’s leading seller of menthol cigarettes with the Newport brand, rose nearly 10 percent on Friday after the panel released its report, and they have continued to rise. Lorillard stock was trading at $91.20 a share on Tuesday afternoon, up 14 percent from Friday morning.

David J. Adelman, tobacco industry analyst for Morgan Stanley, wrote Monday that the scientific report was “a favorable development” because it did not box in the F.D.A. policy options.

But a joint statement Friday from four health groups seemed to support Dr. Samet’s interpretation of the panel’s action. The statement, signed by the Campaign for Tobacco-Free Kids, the American Cancer Society Cancer Action Network, the American Heart Association and the American Lung Association, said, “The committee has done exactly what Congress directed when it enacted the 2009 law granting the F.D.A. authority over tobacco products. Now the F.D.A. must act expeditiously and implement the committee’s recommendation”...

Moral philosophy, or is it immoral philosophy, or is it amoral philosophy?

Jason Kuznicki:

Leo Strauss, Meet John Stuart Mill — The League of Ordinary Gentlemen: At my real job, Professor C. Bradley Thompson is discussing neoconservatism. Here’s a teaser:

What did Irving Kristol learn from Leo Strauss?

1. There is an unbridgeable chasm between theory and practice, philosophy and the city, the wise few and the vulgar many.... What this meant for Strauss is that Platonic idealism is compatible with Machiavellian realism.

2. The West is in a state of intellectual and moral decline as seen by the rise of philosophic nihilism.... the liberalism of John Locke and Thomas Jefferson... of modern rationalism and science, natural-rights individualism, and laissez-faire capitalism.... [M]an and society have come unhinged from the natural order and from the religious faith necessary to sustain moral and political unity.

3. Platonic political philosophy is a necessary antidote to the maladies of modern society... the political community is the primary unit of moral value... [the] political order should mirror the “hierarchic order of man’s natural constitution”... that which is naturally right for any given society is always changing depending on necessity and circumstances... philosophic statesmen should not be hampered by conventional morality or the rule of law... wise statesmen must use “benevolent coercion” to make their citizens virtuous.

4. Platonic statesmen should ground the regime on... pieties and... myths. The cardinal virtue for the vulgar many is self-sacrifice.

On one foot: Plato for me; Machiavelli for thee. The one classical idea entirely lost on neoconservatives is hubris. Its absence startles....

Now, a seminar on Plato may well be enlightening. But the idea that it prepares you to rule over others should have perished with Dionysius of Syracuse. Like many other drugs, doing philosophy — even bad philosophy — makes you feel like you’re the king of the world. Yet it supplies no particular reason to trust that feeling.

I’ve been reading Leo Strauss this month as well, and I’m struck at how blatant so much of his supposedly esoteric doctrine really is. Strauss repeats ad nauseam those terrible, terrible secrets that cannot be told to the common man....

John Stuart Mill wrote about a century earlier:

It is, in short, perfectly conceivable that religion may be morally useful without being intellectually sustainable: and it would be a proof of great prejudice in any unbeliever to deny, that there have been ages, and that there are still both nations and individuals, with regard to whom this is actually the case.

But Mill had a bit more courage than Strauss; he ends his essay in part:

History, so far as we know it, bears out the opinion, that mankind can perfectly well do without the belief in a heaven. The Greeks had anything but a tempting idea of a future state. Their Elysian fields held out very little attraction to their feelings and imagination. Achilles in the Odyssey expressed a very natural, and no doubt a very common sentiment, when he said that he would rather be on earth the serf of a needy master, than reign over the whole kingdom of the dead. And the pensive character so striking in the address of the dying emperor Hadrian to his soul, gives evidence that the popular conception had not undergone much variation during that long interval. Yet we neither find that the Greeks enjoyed life less, nor feared death more, than other people.

No existential, civilization-ending crisis of unbelief for him! Without it, no need for philosopher-kings to trick us into a belief in natural right. Also, no need for a war to revitalize our decadent, post-moral society in a rejuvenating bloodbath.

Greg Sargent:

Mitt Romney blasts Obama for being “nuanced”: Call it the Dingbat Doctrine: If you think the world is a complicated place; if you think that navigating the most powerful military in human history through treacherous and ever-shifting geopolitical cross-currents involves difficult moral choices; if you think America can gain anything at all by recognizing that we have common interests with other nations; well, then you’re too weak to be president.

Friends really do not let friends have anything to do with the Republican Party.