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June 2011

Jon Gruber: The Impacts of the Affordable Care Act

Jon Gruber, The Impacts of the Affordable Care Act:

The Patient Protection and Affordable Care Act (ACA) is the most comprehensive reform of the U.S. medical system in at least 45 years. The ACA transforms the non-group insurance market in the United States, mandates that most residents have health insurance, significantly expands public insurance and subsidizes private insurance coverage, raises revenues from a variety of new taxes, and reduces and reorganizes spending under the nation’s largest health insurance plan, Medicare. Projecting the impacts of such fundamental reform to the health care system is fraught with difficulty.... [A] key case study that informs our understanding of the ACA’s impacts: a comparable health reform that was carried out in Massachusetts four years earlier....

  1. There has been a dramatic expansion of health insurance, reducing the uninsurance rate by 60-70%.
  2. No change in wait times for general and internal medicine practitioners have been observed.
  3. The share of the population with a usual source of care, receiving preventative care, and receiving dental care all rose.
  4. The rate of utilization of emergency care fell modestly.
  5. There has been a 40% decline in uncompensated care.
  6. The proportion of the population with employer-sponsored health insurance increased by 0.6%.
  7. The rate of employer offers of coverage grew from 70% to 76%.
  8. Mandate compliance has been very high: 98% compliance in reporting via tax filings of obtaining coverage or paying penalties.
  9. The administrative costs of health reform have been low. Overall implementation costs have been close to expectations.
  10. Premiums have fallen dramatically in the non-group market.
  11. Though group premiums have risen, they have not increased faster than one would expect from increases in other states in the region.

How Much Human Capital Are We Pissing Away?

Going To College Is Very Valuable | ThinkProgress

Matthew Yglesias

Going To College Is Very Valuable: Peter Orszag’s slide about college and class stratification is absolutely crucial.... The smartest kids are most likely to go to college, so it’s no surprise that college graduates tend to go on to earn more money even if you’re not learning anything of value there. But... people actually do pick up skills in college, and... whether or not your parents are rich is a major determinant of whether or not you end up going to school and gaining those skills.... If middle-third kids from families in the bottom half of the income distribution went to college at the same rate as middle-third kids from the top quartile, they’d be better off and we’d have a much more skilled workplace....

Anthony Carnevale and Stephen J. Rose of Georgetown... [show] that college has big benefits even in many fields where a degree is not crucial. Construction workers, police officers, plumbers, retail salespeople and secretaries, among others, make significantly more with a degree than without one. Why? Education helps people do higher-skilled work, get jobs with better-paying companies or open their own businesses.... General skills in reading, math, communication, and analytical reasoning are going to help you ply your trade more effectively even if your trade doesn’t itself involve much in the way of reading, math, etc...

Can Contractionary Fiscal Policy Be Expansionary?

Jane G. Gravelle and Thomas L. Hungerford, Can Contractionary Fiscal Policy Be Expansionary?:

The results suggest that successful fiscal adjustments (as defined by the cyclical adjustment method) occurred when the economy was at or near potential output, that is, labor and capital resources were fully employed. Unsuccessful fiscal adjustments generally occurred when actual output was below potential output. The U.S. output gap for 2011 is considerably more negative than the average output gap for all unsuccessful fiscal adjustments and even those that began when actual output was below potential output. Almost nine out of ten fiscal adjustments beginning when actual output was below potential output were unsuccessful—fiscal adjustments beginning in a slack economy (such as the current situation in the U.S.) appear to have a low probability of success.

Democracy and Gay Marriage and New York: Ta-Nehisi Coates is Wrong/Arc of the Universe Tends Toward Justice Department

Ta-Nehisi Coates laments:

Democracy and Gay Marriage: I haven't posted on what happened in New York mostly because I was hoping I'd have something cool to say. I do not. 

He is wrong.


[T]his is huge and direct evidence of democratic action--and yet something more:

Nobody ever expected Carl Kruger to vote yes. A Democrat from Brooklyn, known for his gruff style and shifting alliances, Senator Kruger voted against same-sex marriage two years ago.... Some gay activists, assuming he was a lost cause, had taken to picketing outside of his house and screaming that he was gay -- an approach that seemed only to harden his opposition to their agenda. (Mr. Kruger has said he is not gay.) But unbeknown to all but a few people, Mr. Kruger desperately wanted to change his vote. The issue, it turned out, was tearing apart his household. The gay nephew of the woman he lives with, Dorothy Turano, was so furious at Mr. Kruger for opposing same-sex marriage two years ago that he had cut off contact with both of them, devastating Ms. Turano. "I don't need this," Mr. Kruger told Senator John L. Sampson of Brooklyn, the Democratic majority leader. "It has gotten personal now." Mr. Sampson, a longtime supporter of same-sex marriage, advised Mr. Kruger to focus on the nephew, not the political repercussions. "When everything else is gone," Mr. Sampson told him, "all you have left is family."

Coming out to your family is a specific trauma that doesn't really translate directly to other groups who've the felt the boot on their neck. If there's a parallel experience, it doesn't occur to me. As indicated here, it's often the source of great pain. But it is also the source of great political power. People who seek to ostracize gays must always countenance the potential for disappearing their very  family members. It's not like red-lining black people into ghettos. Homophobes must always face the prospect of condemning their own flesh and blood. 

Surely there are those, who, with depressing regularity,  rise to the occasion. But democracy in America is fundamentally optimistic in that holds that a critical mass of the electorate is persuadable. I've long been skeptical of this implicit assumption. But as I've aged, I have come to see it as quite brilliant. In the present case, I don't know of a more powerful tool of democratic persuasion than the prospect of losing family.

It's been tremendously inspiring to watch gay Americans wield these twin swords--humanism and democracy--against bigotry. It's also, as you've probably noticed, helped clarify my feelings around liberalism's long war. 

I don't want to give in to liberal frustrationism. I've already been there and the only logical outcome is profoundly undemocratic. As I said in comments, surely Ben Tillman reigned during the time of Ida B. Wells. But whose America do we live in? Who really won that war?

John Holbo Reads Kathryn Jean Lopez of National Review on Gay Marriage in New York... we don't have to. John Holbo recommends that we read YA comics instead, rather than National Review.

But we ignore his advice.

We read it anyway.

The two things to hold tight to are: the New York State Legislature is not forcing Kathryn Jean Lopez to enter a lesbian marriage, and the New York State Legislature is not forcing Archbishop Dolan to marry homosexuals as part of the rites of the Roman Catholic church.

Continue reading "John Holbo Reads Kathryn Jean Lopez of National Review on Gay Marriage in New York..." »

On Wikipedia

Jame Fallows sends us to Mark Bernstein:

Something Entertaining, If You're Feeling Smart: Students of Web phenomenon are naturally tempted to regard the Web as part of Nature, that it unfolds as it always has and, more or less, as it ought or must. But the Web is still new, and quite recently it was entirely possible to envision that the World Wide Web would be quite different from the Web we know. As late as 1993, for example, expert consensus held that the cost of persuading a core of writers and publishers to contribute a small library's worth of information to a public docuverse might be a mere trillion dollars; not only was the estimate quantitatively off target, but the sign was wrong...

More American Enterprise Institute-Quality Research: Another Fake Talking Point Is Back

Lying Chart Of The Day Classic Edition | The New Republic

Lying Chart Of The Day Classic Edition | The New Republic 1

And the last time it came around, Jonathan Chait was angry:

Lying Chart Of The Day, Classic Edition: Ubiquitous libertarian anti-tax pundit Veronique de Rugy pulls out the old hackneyed Republican line that tax revenues can't go above 19 percent.... I've seen versions of this dating back two decades. Part of the scam is a simply visual trick familiar to anybody who read "How To Lie With Statistics" -- you scale the chart to make a major change appear tiny. De Rugy's chart, one which the scale of federal tax revenue goes from an absurd o to 100, seems to show little change, thus proving the supply-side claim that increasing marginal tax rates is self-defeating... [things look different] within a reasonable scale.... [T]he first Reagan tax cuts in 1981 caused revenue to plummet.... [T]he tax hikes by George W. Bush and Bill Clinton -- which supply-siders claimed would not increase revenue -- were followed by a massive spike in revenue. And then the tax cuts by George W. Bush -- which supply-siders claimed would not reduced revenue by very much -- were followed by a massive, 5% of GDP drop in  revenue...

Larry Kudlow Is Not a National Treasure...

Case Shiller Home Price Gains Slow Middle Tier Falls | Redfin Bay Area Sweet Digs

Barry Ritholtz sends us to Larry Kudlow, June 20, 2005:

The Housing Bears Are Wrong Again: Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market. None of this has happened.... [T]he homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework....

[I]t should not be shocking that home prices have tended to rise on a steady basis, averaging 6.5 percent price gains over the last 35 years. Upward price momentum has kicked into higher gear in recent years for two important reasons. First, housing is highly tax-advantaged. The 1997 tax-cut bill — proposed by a Republican Congress and signed into law by a Democrat president, Bill Clinton — permitted the first $500,000 of profits from the sale of a home to be tax-free. This came on top of existing law that permits mortgage expenses to be tax deductible.... Since 1997 home prices have been increasing at a 6.5 percent pace on a yearly basis, with a 12 percent gain over the past year. In contrast, stock prices have gained only 3 percent yearly during the same period....

None of this is to argue that low mortgage rates haven’t been a plus in the housing picture. Of course they have. But the imbalance between excess demand over limited supply, resulting from tax factors and land-use restrictions, has made home buying even more profitable in recent years than has been the case in the past.

Which leads to a final thought: Why not apply the same tax laws that have benefited home owners to stock market investors and home buyers? If this were to come about, even more wealth would be created in America, leading to even more new business and job creation. Tax reform to create a level playing field could boost our economy’s potential to grow beyond almost anyone’s wildest dreams. Homeownership, stock ownership, and small business ownership should be taxed at the same minimal rates as they are all key components of economic growth and wealth creation.

Fear the Cloud!

Gordon's Notes:

Nimbophobia: 4 more reasons to fear the cloud: It's been a gratifying week for my fellow nimbophobics. Our numbers are growing by leaps and bounds. Consider just four examples ...

  • Apple MobileMe transition and iCloud: Those beautiful online albums of thousands of images and videos? Kiss them all good-bye. Your massive web site? Sayonara.
  • A few weeks after being caught dissembling about their encryption keys, Dropbox accidentally removes all security for all accounts for four hours.
  • Google is shuttering its hugely hyped Google Health Personal Health Record. Hope you weren't relying on those online medical records you entered.
  • My longstanding and much appreciated Google Custom Search pages are, as of today, abruptly overwhelmed with copious top and side Google ads.

These stories range from appalling (Apple) to annoying (excess ads in custom search pages). The Google PHR fail would be the worst, but it's somewhat mitigated by the data exit options they provide and by the two year warning. Those options include CCR XML migration to Microsoft's HealthVault.

Friends don't let friends rely on the Cloud. Don't put anything in the Cloud unless you have a way to move your data to an alternative platform. That's as true for your business processes as it is for your family photos.

Paul Krugman: It's Not the Madmen in Authority, It's the Fact That the Academic Scribblers Are Mad...

Paul Krugman:

The Triumph of Bad Ideas: Bill Gross of Pimco calls for more fiscal stimulus and denounces the “anti-Keynesian” consensus. Now he tells us. But can we note just how bizarre our situation is? Keynesian economics has actually come through the crisis with flying colors. The only knock on it is the “Obama tried stimulus and it failed, neener neener” thing — but those of us who took our Keynesianism seriously warned literally from the beginning that the stimulus was far too small. And yet in the political domain Keynesianism is seen as discredited, while various forms of crowding out/austerity is expansionary talk, which have in fact totally failed — look at interest rates! — have become orthodoxy.

Bill Gross

PIMCO Founder To Deficit-Obsessed Congress: Get Back To Reality: Bill Gross, a co-founder of investment management giant PIMCO, says members' of Congress incessant focus on deficit -- and in particular, the manner in which they obsess about deficits -- is foolhardy, and a recipe for disaster. What the country needs, Gross said, is real stimulus now, and a measured return toward fiscal balance in the years ahead.

"Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea," Gross writes. "While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama's long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans' extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years."

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, "they will come."...

Unfortunately for Gross and those who share his concerns, the fight over the debt limit seems driven by Republicans hungry for long-standing ideological victories and Democrats cowed into an anti-stimulus fervor whipped up by the right. To many observers it appears that fixing the currently broken economy isn't really what this is about.

Indeed. It is as if the dominant reaction to the stagflation of the 1970s had been a doubling-down of people betting on the static Phillips curve...

Debt Ceiling Strategies

In the 1990s Bob Rubin established a precedent that when the debt ceiling binds and the Treasury cannot pay all the bills congress has ordered it to pay, the Treasury Secretary gets to choose which bills not to pay.

Debts the Treasury owes but is not paying, you see, are not part of the debt subject to limit.

Rubin simply did not pay the Federal Emoloyees Thrift Savings Plan the monies the Treasury owed it--it neither had Treasury bonds nor cash as assets but only the Treasury Secretary's word that the Treasury would pay the debt someday.

Were I Tim Geithner, I would start by not paying congressional salaries, rather than not paying the TSP.

Debt Ceiling Strategies

In the 1990s Bob Rubin established a precedent that when the debt ceiling binds and the Treasury cannot pay all the bills congress has ordered it to pay, the Treasury Secretary gets to choose which bills not to pay.

Ezra Klein Is Making No Sense


I liked this Greg Mankiw column better than a lot of others did, though it’s true that Mankiw ignores the primary critique of Ryan’s health-care plans, which is that the subsidies grow too slowly.

But that is all Mankiw's column is: pretending that the primary critique of Ryan’s health-care plan is not there. There is nothing else to like...

What Lessons from the Little Depression?

Ezra Klein is scared by the financial crisis:

And ultimately, that’s what makes the financial crisis so scary. The complexity of the system far exceeded the capacity of the participants, experts and watchdogs. Even after the crisis happened, it was devilishly hard to understand what was going on. Some people managed to connect the right dots, in the right ways and at the right times, but not so many, and not through such reproducible methods, that it’s clear how we can make their success the norm. But it is clear that our key systems are going to continue growing more complex, and we’re not getting any smarter, or any less able to ignore risks that we know we should be preparing for. “Inside Job” may have missed that story, but the rest of us can’t afford to.


In order to have successfully predicted that we would be where we are now, you would have to have predicted a large number of things:

  1. That a global savings glut and a period of low interest rates would produce a housing boom.

  2. That the housing boom would turn into a housing bubble.

  3. That the housing bubble would lead to a collapse of mortgage underwriting standards.

  4. That risk management practices on Wall Street would have been nonexistent.

  5. That the Federal Reserve would not be able to construct its usual firewall between finance and the real economy.

  6. That the Federal Reserve would not feel itself empowered to take the emergency steps to stabilize demand needed during and in the immediate aftermath of the financial crisis.

  7. That the incoming Obama administration would come out of the gate with too small an economic recovery package.

  8. That politics would prevent the Obama administration from being able to take a second bite at the apple.

  9. That the Obama administration would then give up on pushing the envelope of its powers to try to generate a strong recovery.

  10. That the intellectual victory of Keynesian approaches on the level of reality--forecasting and accounting for the course of the Little Depression--would be accompanied by a non-intellectual defeat of Keynesian approaches on the level of politics.

Get all of those 10 right, and you are a wizard.

But I know of nobody who did.

The smart people I know--there imagination failed after number five or so. Indeed, I--and most reality-based economists--failed at (4): Wall Street was supposed to be full of professional risk managers. Instead, it was composed of clueless large bank CEOs leveraging up their organizations while thee subordinates underneath them sold unhedged out of the money puts.

But I am not sure the story is complex, exactly...

What Happened to the Government's Duty to Iron Out the Business Cycle?

To me it is a mystery. But Paul Krugman has some ideas:

The strange death of Keynesian policy: Instability of the Samuelsonian synthesis: So far I’ve argued that Keynesian analysis... is an excellent tool for understanding the mess we’re in. Where simple Keynesian models seem to conflict with common sense, with the wisdom of practical men, the Keynesian models are right and the wisdom of the practical men entirely wrong.

So why are we making so little use of Keynesian insights...? Why are we having to have the old arguments all over again? For it does seem as if all the old fallacies are new again. By all means let us condemn famous men. There is no excuse for the timidity of Barack Obama, the wishful thinking of Jean-Claude Trichet, and the determined ignorance of almost everyone in the Republican Party. But watching the failure... I find myself believing... that this failure has deep roots.... I now suspect that the kind of moderate economic policy regime economists in general used to support – a regime that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps – is inherently unstable....

Let me start with the intellectual instability. The brand of economics I use in my daily work... was largely established by Paul Samuelson back in 1948.... It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasises the way the economy can develop what Keynes called “magneto trouble”, requiring policy intervention.... It’s a deeply reasonable approach – but it’s also intellectually unstable. For it requires some strategic inconsistency.... When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioural assumptions are essential.... [E]conomists were bound to push at the dividing line between micro and macro – which in practice has meant trying to make macro more like micro.... And if the attempts to provide “microfoundations” fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.

The result was what I’ve called the Dark Age of macroeconomics....

To this intellectual instability, add political instability. It’s possible to be both a conservative and a Keynesian; after all, Keynes himself described his work as “moderately conservative in its implications.” But in practice, conservatives have always tended to view the assertion that government has any useful role in the economy as the thin edge of a socialist wedge.... I’ve always considered monetarism to be, in effect, an attempt to assuage conservative political prejudices without denying macroeconomic realities. What Friedman was saying was, in effect, yes, we need policy to stabilise the economy – but we can make that policy technical and largely mechanical, we can cordon it off from everything else. Just tell the central bank to stabilise M2, and aside from that, let freedom ring! When monetarism failed... it was replaced by the cult of the independent central bank.... And this worked for a while.... But this, too, was unstable. For one thing, there was bound to be a shock, sooner or later, too big for the central bankers to handle without help from broader fiscal policy. Also, sooner or later the barbarians were going to go after the monasteries too; and as the current furore over quantitative easing shows, the invading hordes have arrived.

Last but not least, there is financial instability. As I see it, the very success of central-bank-led stabilization, combined with financial deregulation – itself a by-product of the revival of free-market fundamentalism – set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock....

So the era of the Samuelsonian synthesis was, I suspect, doomed to come to a nasty end. And the result is the wreckage we see all around us....

[S]teady upward progress was probably too much to expect, especially in a field where interests and prejudices run as strong as they do in economics. And there may yet be scope for Keynesian ideas... the crisis shows no sign of ending... the policies of what I call the pain caucus are visibly failing.... There may be another chance to return to the ideas that should have been governing policy all along. So since I’m in England, here’s my advice to economists (and policy makers) frustrated – as I am – by the inadequacy of policy responses and the intellectual regression of too much of our profession: Keep calm and carry on. History will vindicate your persistence.

And Tyler Cowen Makes Another Elementary Error...

Very unusual. Tyler:

Sorted Turkish links — Marginal Revolution: Turkey will prove to be an important test case for whether a rapid influx of foreign capital can be done in a stable manner.  It’s funny how a lot of the same economists who distrust a rapid capital influx in an international development context (“the hot money comes and goes”) are entirely happy to trust a rapid influx of capital into U.S. Treasury securities.

As one of "the same economists" let me say that Tyler is simply wrong.

The major reason we distrust rapid capital influxes in international development (and international macro) contexts is when they come in the form of a harder currency than your own. The big danger is that a wave of capital flight produces a collapse in the value of your currency that greatly increases the real value of the debt you owe: that is the principal source of instability that we fear.

With the flow of capital into U.S. Treasury securities that is simply not the case: capital flight does not raise but reduces the real value of the debts we owe. Rather than being a destabilizing shock, a flow of capital out of U.S. Treasuries and out of the U.S. would set in motion economic forces that would not amplify but would damp its impact.

And, no, we are not entirely happy to trust a rapid influx of capital into U.S. Treasury securities. Indeed, Paul Krugman wants a higher renminbi right now precisely to stop the rapid influx of Chinese capital into U.S. Treasury securities. But we have other, bigger, more immediate problems to worry about...

Ryan Avent on Ben Bernanke

Note, first, that the Federal Reserve's forecasts of unemployment are consistent with its forecasts of GDP only if you have a pessimistic view of long-term potential output growth.

Ryan Avent watches the Man Who Did too Little:

America's recovery: The man who did too little: American unemployment is expected to remain uncomfortably high through 2013 at least (in which year the Fed projects an unemployment rate between 7.0% and 7.5%, up from April's estimate). Keep in mind that 2013 is 7 years from the official start of the recession. One simply can't look at projections of serious labour market difficulties over that stretch of time and see anything other than a major crisis, for workers, wages, and budgets.... The Fed projects that the economy will expand at less than 3% for 2011 as a whole; growth was revised downward for 2011, 2012 and 2013. It should be noted once again that rapid labour market recoveries are associated with periods of rapid, above-trend growth. If you don't have the latter, you don't get the former.... It could be the case that if the Fed attempted to push the economy to go any faster, accelerating inflation would result. The Fed doesn't actually seem to believe this; following the initiation of QE2, the Fed's economic projections for 2011 were for growth between 3.5% and 4.5%. The Fed was obviously happy with this; if it had believed that inflation were running out of control it would have curtailed the programme. It didn't....

[R]ight now, it appears that nominal output growth in 2011 will fall short of the economy's long-term trend. Not short of the growth rate consistent with a speedy recovery; short of trend.... I don't expect the Fed to work miracles. There are lots of economic problems Ben Bernanke can't solve. I do expect the Fed to do its job, and right now it looks like the Fed is saying it has no responsibility for meeting its nominal goals. That's not acceptable...

Greg Mankiw Annoys Paul Krugman

And Paul is right to be annoyed. Ever since this business started--even before Wesley Clair Mitchell--peak-to-peak measures have always been better than trough-to-trough or midcycle-to-midcycle ones.

Paul Krugman:

A Fit of Peaks/a>: A Fit of Peaks Ah. I see that Greg Mankiw is pretending to be stupid in reacting to my post on revenue trends. Greg, of course, knows perfectly well why I chose the dates I did. But readers may not have gotten it, even though I explained it right there, Tolstoy and all.

So here’s the point: the biggest single influence on revenue is the state of the business cycle (which is why austerity in the face of a liquidity trap is so ineffective even at reducing deficits). And in normal times the business cycle depends much more on what the Fed does than on anything the rest of the government does (again, it’s different when there’s a liquidity trap). So what you want is to somehow abstract from the business cycle. And the easiest way to do that is to compare business cycle peaks, times when the economy is at more or less full employment. True, employment is fuller at some peaks than at others, but those differences are small, whereas the depth of the slump at recession troughs is much more variable. Hence, Anna Karenina.

The peak-to-peak interpolation thing is standard practice in many analyses; it’s how the Fed estimates capacity utilization, it’s how the Social Security Administration makes long-term projections, and so I’ve used it for revenues.

Those business cycle peaks don’t correspond to presidential terms. So? And here’s the thing: Reagan’s miracle must have been a very puny thing if it did nothing that shows at all when you compare the Reagan-Bush-era business cycle peak with the Carter peak.

Paul Krugman Says That Clive Crook Is Three Years Behind the Curve

I wonder what Clive will be writing in 2014?

Paul Krugman:

Our Lost Decade Relationship: Clive Crook argues that we’re flirting with the possibility of a lost decade. I disagree — the flirting took place three years ago. The lost decade question now isn’t whether our flirtation with a lost decade will turn into something serious; it’s whether the torrid affair we’re now having with the potential for a lost decade can somehow be broken up.... What you see isn’t a recovering economy that may be stumbling; you see an economy that has stopped its free fall, but hasn’t really been recovering at all. I’d say that the burden of proof right now is on those who claim that we aren’t on track for a lost decade.

Who Are You and What Have You Done with Ben Bernanke? Department

Congress directs the Federal Reserve to:

maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates...

The Burns and Miller Feds of the 1970s did not take the "stable prices" part of this mandate seriously. Today's Federal Reserve does not take the "maximum employment" part of this mandate seriously.

Paul Krugman raves:

Profiles in Fed Cowardice: The Fed predicts disastrously high unemployment as far as the eye can see.... And in response to this dire prospect, it declares its work done. Notice that the Fed does not buy into the notion that there has been a large rise in the structural rate of unemployment, that 9 percent is the new normal. That stuff off to the right, labeled “longer run”, is in effect the Fed’s estimate of how low unemployment could and should go without causing inflation problems. So the Fed agrees that something should be done to greatly increase demand. But it washes its hands of the problem, even though Bernanke and his colleagues are well aware that nobody else will act.

I’m aware that there are doubts about how much the Fed could accomplish; I share those doubts. But that’s no reason not to try.

This display of passivity is awesome. And it’s shameful.

Those of us Democrats who were happy when Barack Obama reappointed Ben Bernanke as Fed Chair thought that we were getting the Ben Bernanke we knew--the student of the Great Depression and of Japan's Lost Decade dedicated to doing whatever was necessary to stabilize the time path of nominal GDP, up to and including dropping bales of money out of helicopters.

Whatever happened to him?

Dick Gephardt Sends Himself to Hell

Now he wakes up every morning and wonders: "How did I come to this? Is this really who I am?"

And the answer appears to be: yes, it is.

David Weigel:

Weigel : Et Tu, Gephardt?: The former Democratic leader of the House writes an op-ed calling -- gently, gently -- for the repeal of the Independent Payment Advisory Board.... He sounds awfully concerned, but why? We look for clues in the client list provided by Gephardt Government Affairs. And we see: the radiation oncology company Accuray, the Council for Medical Innovation, the Cyberknife Coalition.... And we go on to eHealth, ISCON ("whole body imaging solutions without radiation"), pHRMA, and United Health Group. Anyway, I'm stumped. Can we think of a reason Gephardt wants to get rid of IPAB?

Obama and Legislators to Nation: We Must Stop Ourselves from Busting the Budget!

CBO We ll only have giant deficits if Congress wants giant deficits  Ezra Klein  The Washington Post

Ezra Klein notes that the CBO's long-term budget outlook says what it always says:

CBO: We’ll only have giant deficits if Congress wants giant deficits : The Congressional Budget Office just released the latest edition of its long-term budget outlook (pdf), and it shows the same thing as always: If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable. If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control.... This is a good time to remind everyone that when you hear politicians telling you that their plan cuts taxes or balances the budget... they... [are not] admit[ting] that before they make the deficit somewhat better, they’re first planning to make it much, much worse.

Indeed. If Obama were to pledge--and get everybody running for his seat to pledge--not to sign any bill that breaks PAYGO, we don't have a long-run deficit problem. If the majority and minority leaders of the Senate and their successors pledge not to let anything move through the Senate that breaks PAYGO, we don't have a long-run deficit problem. If the Speaker of the House and his successors pledge not to let anything move through the House that breaks PAYGO, we don't have a long-run deficit problem.

It boggles my mind why Barack Obama did not, on January 21, 2009, promise to veto everything that broke ten-year PAYGO. I am morally certain that this is what Peter Orszag told him to do. I am morally certain that this is what Jack Lew is telling him to do.

What a disappointment...

Yet Another New York Times Fail

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

Alexis Madrigal watches New York Times honcho Bill Keller in action:

Alexis Madrigal - Authors - The Atlantic: Zeynep Tufekci (@techsoc) is a University of North Carolina sociologist of technology who occasionally writes for this website. Bill Keller (@nytkeller) is the outgoing executive editor of the New York Times. About an hour ago on Twitter, after Tufekci said research didn't support Keller's view that social media hurt real-world sociality, Keller shot back, "Um, did you plan on linking to the research?" At which point, Tufekci barraged him with a host of links showing that, at the very least, social media has no negative impact on people's social lives, and it might even make them better.

Keller challenged the wrong person to do some linking because our experience of Tufekci leads me to believe that she knows the academic research about social media backwards and forwards. But, if you think Twitter makes people act stupidly, you don't expect that a challenge will be met by citation after citation.

So far, Keller has not responded to Tufekci's research links. My favorite comment was doctoral student and blogger Aaron Bady, who wrote of the exchange, "I feel like I just saw @techsoc pull Marshall McLuhan out from behind a movie poster."

Here's the exchange:

When Bill Keller Met Zeynep Tufekci

.@nytkeller: time spent on "your 200 Facebook friends" is at expense of "in person" sociality. Research says otherwise. techsoc

IOW, after many factors (race, gender, educ) statistically equalized, people who used more social media like FB had more very close ties. techsoc

.@nytkeller "use of certain 'social media' - were .. associated w/ having a larger number of confidants" --this after regression controls. techsoc

@techsoc Um, did you plan on linking to the research? nytkeller

Yes. Here's non-paywalled article from @mysocnet @nytkeller: @techsoc Um, did you plan on linking to the research? techsoc

.@nytkeller My earlier paper (college age, not national) finds same number of friends b/w users & non-users of FB. techsoc

.@nytkeller Nationally-representative sample, @barrywellman & Wang: Either no diff or heavy net-users have more friends techsoc

Correction, sorry. RT @mubaraketganen: @mysocnet @nytkeller there was an extra RT at the end of the link, this works techsoc

.@nytkeller Jeffrey Boase study from 2006 about email. Email users had more close ties than non-users. techsoc

.@nytkeller I have detailed but old anaylsis of Gen. Social Survey 04 (probably best soc. science survey ) -under review- w/ similar results techsoc

.@nytkeller, latest @pewinternet by @mysocnet Need to look at regressions. No effect of FB or Twitter on network size. techsoc

@techsoc @nytkeller I also have paper under review where I found student time on FB is + related to time spent in co-curricular activities reyjunco

.@nytkeller Other smaller research exists, too. All increasingly find little effect or more ties of Net users. None I know shows fewer ties. techsoc

.@nytkeller Also don't know of recent research showing notable "displacement" of offline ties by online ones--as you voiced. Au contraire. techsoc

Finally, .@nytkeller important to use regressions so effect of Internet use isn't exaggerated, i.e. not a proxy for education, income, etc. techsoc

OK, folks, over &out, need to finish that revision I mentioned. @nytkeller totally right on about that. Twitter can displace writing time:-) techsoc

Yes, excellent book RT @nancybaym: @nytkeller You could also read my book that summarizes this research, esp chapter 6: techsoc

I feel like I just saw @techsoc pull Marshall McLuhan out from behind a movie poster: zunguzungu

Why Oh Why Can't We Have a Better Press Corps? Don't Believe Claims About Fiscal Policy You Read in Forbes Edition

Microsoft Excel 1

Four things happen with personal income tax receipts as a share of GDP:

  1. They tend to go up over time if rates stay constant because inflation (before 1981) and economic growth tend to push more income into higher tax brackets.
  2. They fall when tax rates are cut.
  3. They rise when the tax base is expanded.
  4. They fall in recessions and rise in booms.

You can see the Kennedy-Johnson tax cut of the 1960s. In response to it personal tax revenues as a share of GDP fell (albeit by only about 3/4 as much as the cut in rates or a "static" estimate of the revenue effect would naively suggest). Thereafter we had the--unwelcome, inflationary--boom of the late 1960s that (along with the surtax of the late 1960s) pushes tax collections up before the recession of 1970-71 pushes them down.

You can see the Reagan tax cut of the 1980s: in response to it personal tax revenues as a share of GDPfall.

You can see what I call the Bradley-Baker tax reform of 1986: broaden the base (which collects more revenue) and lower the rates (which collects less) and so have next to zero net effect.

You see the (tiny) Clinton tax-rate increase of 1993--and thereafter tax revenues boom not because the tax increase was big (it wasn't) but because of the reduced deficit and other factors that drove the boom of the late 1990s.

And you can see the Bush tax cut of 2001--followed by no tendency of revenue to return to its pre-tax cut level, and then by the collapse of personal income tax revenue with the coming of the Little Depression.

That's the story.

Now comes wingnut-sounding David Ranson--given airtime by Forbes--to write:

Probing The Limits Of Federal Revenue: In the field of taxation there is one natural law which policymakers persist in ignoring. Formulated by W. Kurt Hauser nearly twenty years ago, this is the empirical observation that even the most aggressive taxation has never succeeded in sustaining federal revenue beyond 19% of GDP. The top bracket rate has been as high as 94% (under Franklin Roosevelt) and as low as 28% (under Ronald Reagan) with no noticeable difference in the percentage tax take--that is, the ratio of revenue to GDP. It's not an exaggeration to describe this historical fact as Hauser's Law. Rates that exceed the economy's willingness to pay are self-defeating because they curb the economy enough to offset the revenue gain...

Does Ranson really want to argue that the inflationary boom of the 1960s was a wonderful consequence of the Kennedy-Johnson tax cut? Does he want to argue that the George H.W. Bush-Clinton tax increases of the 1990s crippled the economy? Does he want to take "credit" for the "Bush boom" of the 2000s?

Not if he is sane.

So what is Ranson doing? He is playing intellectual three-card-monte with you.

And note that total revenues as a share of GDP did recover after the Reagan tax cuts. Note that: revenues. Not personal income tax revenues, but revenues. Why? Because Reagan raised Social Security taxes. That you can cut income tax rates and not lose revenue is not at all surprising if you then raise some other tax.

Does Ranson want to claim that personal income tax receipts as a share of GDP returned to their 1980 levels after the Reagan tax cut? No. Because they did not do so.

Bring Back God's Wife!

It s an option April 2010

It really looks as though originally the God YHWH had a wife: Asherah, Queen of Heaven, She Who Treads the Sea. We see her as late as the time of Jeremiah:

Seest thou not what they do in the cities of Judah and in the streets of Jerusalem? The children gather wood, and the fathers kindle the fire, and the women knead their dough, to make cakes to the Queen of Heaven!

Jeremiah does not like this at all. No division in the godhead allowed. No female principles in the godhead wanted.

He and his theological allies changed Judaism, ripping YHWH's wife out of the religion: no more Queen of Heaven. (Later on the Yeshuan Heresy was to bring the Queen of Heaven back, kinda-sorta, but that is another story...)

Now comes Jeffrey Goldberg, continuing his snitfest against Alison Benedikt, this time for daring to alter the Haggadah:

Who is the Wicked Son?: Benedikt linked, in this repellent rebuttal, to an Amazon page featuring all manner of Haggadot, ostensibly to prove that all sorts of people write their own seder service. This, of course, is true, but what people generally don't do is "delete" the unpleasant bits. They explain and analyze them, but they don't delete. I wanted to make sure I was correct in thinking that Benedikt was doing something un-Jewish by deleting sections of the Haggadah...

Seems to me that it is the essence of all religions to change over time. It is what they do. And to say that those who are changing a religion at the margins are not of it--well, that strikes me as the kind of behavior that the story of the Wicked Son is designed to warn against...

For the Virtual Green Room: June 22, 2011

Rebuttals to right-wing talking-points misinformation that I want to have at the forefront of my brain--for when I am surprised, as I will be, by an unexpected question from an unexpected direction while talking to reporters, phone callers, passers-by, radio interviewers, cable TV interviewers, etc....

A baker's dozen:

  1. Republican claims that tax rate cuts invariably raise revenues: Rebutted by Diane Lim Rogers: "Here’s a really nice video interview of Bruce Bartlett.... [C]ertain tax cuts can do a decent job stimulating demand for goods and services in a recessionary economy, and certain tax cuts (usually other kinds) can do a decent job encouraging the supply of productive resources (labor supply and saving) in a full(er)-employment economy. But neither type of tax cut is likely to generate so much demand or so much supply that they pay for themselves (a la Laffer), even over the longer run. And once you get long enough into the longer run, chances are any credit you are giving to the tax cut itself is misplaced..."

  2. Greg Mankiw's claim that Ryan's Medicare plan is like the Affordable Care Act: Rebutted by a really angry Jonathan Chait: "Mankiw's Misleading Defense Of Paul Ryan: Former Bush economic advisor Greg Mankiw, writing in the New York Times, picks up the GOP talking point that Paul Ryan's plan to radically alter Medicare is really a pretty familiar bipartisan idea being blown out of proportion.... [L]iberals, who couldn't pass universal single payer health care, prefer giving people medical coverage through regulated private insurance subsidies than letting them go without coverage at all. That's why liberals support the Affordable Care Act vis a vis the status quo. But that is not the same thing as liberals agreeing that private insurance is better than single payer health care. Thus Mankiw's claim that the ACA demonstrates "agreement about the value of private competition" is clearly false.... Even if liberals did prefer to turn Medicare into a private insurance voucher, they would strongly object to his plan to make the vouchers grossly and increasingly inadequate to the cost of a plan. Likewise, conservatives agree that the rich should pay some taxes, but they would object to making them pay a 98% tax rate. Mankiw's logic would present this objection as hysterical partisanship -- we all agree the rich should pay taxes, so what's the problem?... Mankiw may share Ryan's ideological values and thus have reasons to wish to discredit critics of his program, but he should refrain from misleading people about the criticism."

  3. Republican claims that we can't afford to borrow now to build infrastructure: Rebutted by M.S. at The Economist: "I agree with the "it's insane" analysis offered by Matthew Yglesias of America's refusal to borrow money at historically cheap rates and spend it on infrastructure and other job-generating activities that will need to be undertaken eventually anyway.... [T]echnological change and globalisation have absolutely nothing to do with high unemployment in the construction sector. The people who build things in America will always be Americans, and there haven't been any revolutions in construction technology between 2007 and 2011.... The reason the construction sector is sitting on the couch playing with the Wii instead of out fixing America is that America isn't spending the money to do the fixing. America has a $2 trillion backlog of infrastructure maintenance, according to the Urban Land Institute. With the government able to borrow money at ridiculously low 10-year rates, it seems pretty convincing that we should be borrowing that money and spending it now, both to improve that infrastructure and to get the economy going. (Insert sub-argument: yes, but infrastructure programmes take a long time to get underway. Response: did you or didn't you say this was structural unemployment that will take many years to resolve?)..."

  4. Bernanke's claims that the Federal Reserve has done enough "extraordinary things in order to try to help this economy recovery": Rebutted by Joe Gagnon: "If Bernanke says the “little blip in inflation is temporary and it’s going to go back below target, and he says he’s very unhappy with the unemployment rate, then why isn’t he doing more? It’s really ironic. It’s a self- induced paralysis.”"

  5. RERUN: Republican claims that Medicare ought to be "means tested": Rebutted by Paul van de Water: "Even Greg Mankiw apparently did not realize a point I made in a post last month:  'while Medicare coverage is nearly universal among people age 65 and older and all beneficiaries are eligible for the same services, high-income beneficiaries already pay much more for those benefits'. Citing House Speaker John Boehner’s statement that we 'consider means-testing Medicare', Mankiw outlined the option of raising Medicare premiums for higher-income seniors. But, as I explained, upper-income people already pay higher premiums for Medicare’s Supplementary Medical Insurance (or SMI, the part that pays doctor bills) and the Medicare prescription drug benefit than other beneficiaries do.  High-income taxpayers also pay more for Medicare’s Hospital Insurance (HI). Policymakers may still want to raise Medicare premiums further.... But, in considering such a step, they need to understand that Medicare is already means-tested..."

  6. RERUN: Claims that out-of-control public program costs are our big health care problem: Rebutted by Austin Frakt: "[John Goodman] wrote 'he Congressional Budget Office has calculated excess cost growth in health care spending after accounting for GDP growth, changes in demographics and the age distribution and other factors. The CBO found that the excess cost growth in Medicare spending from 1975 to 2008 was 2.5 percentage points, on average, each year. Over the same period, the excess cost growth in Medicaid spending was 2 percentage points while the excess cost growth in all other medical spending was 1.8 percentage points.' 'All other' is not just private insurance. It also includes out of pocket spending, even by Medicare beneficiaries, and, crucially, the uninsured. No wonder the rate of increase in spending in that category is so low. It has been pushed down by the growing ranks of the uninsured. Medicare could achieve lower rates of growth too if it failed to cover everyone who is now eligible. It should be clear that this is a terrible set of figures upon which to base a conclusion that private spending has grown at a lower rate than that of public programs. The CBO agrees, writing, 'Consequently, the differences in excess cost growth between Medicare, Medicaid, and other health care spending should not be interpreted as meaning that Medicare or Medicaid is less able to control spending than private insurers'..."

  7. RERUN: Fake Republican claims that the Affordable Care Act is being waived only for Democratic groups: Rebutted by Harold Pollack: "I’ve corresponded offline with Avik Roy about his column today titled “Obama Administration Says It Will End “Waivers for Favors”.... [H]is column and headline are unfair. GAO performed an actual audit study of this waiver program, finding that it operates as the administration stated it did, granting or refusing waivers based on objective and explicit criteria. One can agree or disagree with this waiver program. I myself find the waivers a distasteful short-term compromise to prevent large immediate rate hikes in plans that offer poor coverage. Still, I think the process has been conducted with integrity under difficult political and administrative circumstances. It’s not right to imply otherwise. But don’t take my word for it. Read Roy’s and Suderman’s columns and then the GAO report, and you decide."

  8. David Brooks's claim that the housing crash was Fannie Mae's fault: Rebutted by Kevin Drum: "It's absolutely legitimate to be mad as hell at what Fannie did. It's not legitimate, though, to pretend that Fannie was really a motivating force behind the financial crash. The evidence is pretty clear on this point: although Fannie (and Freddie Mac) expanded their share of the mortgage securitization market dramatically in the 80s and 90s, their market share plummeted just as dramatically at exactly the time when the housing bubble really started to take off in 2002. It was mostly the private sector that drove the declining standards in home loans during the bubble, with Fannie and Freddie playing catchup only years later after they had lost a big chunk of market share.... This is important. Fannie and Freddie screwed up badly during the tail end of the housing bubble.... They shouldn't be let off the hook for that. But did they drive the housing bubble? No. Wall Street is desperate for confirmation that they weren't really to blame for the collapse in underwriting standards and the securitization mania that followed in the early aughts, but they shouldn't be allowed to get away with this no matter how many conservative think tanks are in the bag for them..."

  9. RERUN: Obama's claims to be restoring the rule of law in America:** Rebutted by Jack Balkin: "George W. Bush... sought legal justification for his decision to engage in... torture. Bush wanted above all to be able to deny that he was violating the anti-torture statute and other laws and treaties. So he found a small group of lawyers in the OLC, headed by John Yoo, and asked for their opinions. This short-circuited the usual process.... Obama routed around the OLC, asking for opinions from various lawyers, including the White House Counsel and the Attorney-Advisor for the State Department. It is difficult to escape the conclusion that from the outset Obama was prospecting for opinions that would tell him that his actions were legal, and once he found them, he felt comfortable in rejecting the opinion of the OLC.... By bypassing a careful set of procedures designed to produce careful legal opinions, George W. Bush... was effectively undermining the OLC's function as an honest broker of executive branch opinions. Obama also bypassed this same careful set of procedures by canvassing various lawyers until he found opinions he liked better than the OLC's. If one is disturbed by Bush's misuse of the process for vetting legal questions, one should be equally disturbed by Obama's irregular procedures..."

  10. RERUN: Republican Senator Orrin Hatch's fake claim that Medicaid coverage is worse than none at all: Rebutted by Judy Solomon: "Studies that appropriately adjust for the fact that Medicaid enrollees tend to be both sick and poor, as well as other factors that can skew results, “have consistently found that Medicaid coverage leads to health improvements,” conclude the authors, who include noted health policy experts Austin Frakt and Uwe Reinhardt. George Washington University professors Leighton Ku and Christine Ferguson also point out that Gottlieb confuses causation and correlation: “Patients often become eligible for Medicaid as a result of being sick,” they write. “It is not that Medicaid enrollment causes ill health, but that ill health leads to Medicaid enrollment.” To be sure, adequate access to physicians — particularly specialists — remains a concern in Medicaid, as a new study notes. But Ku and Ferguson cite abundant evidence that people have much better access to health care when they have Medicaid than when they are uninsured..."

  11. RERUN: Douglas Holtz-Eakin's claim that it would be better to default than to pass a clean increase in the debt ceiling: [Rebutted by] Douglas Holtz-Eakin, a top Republican advisor and former CBO director, [who] warned in a panel discussion this week that creditors would not be easily reassured after a default: "The idea that somehow it's a pro-growth strategy to raise interest rates on a permanent basis in the United States is just crazy," he said. "We need to grow at this point more than anything else."

  12. RERUN: Mitt Romney's claim that we are only inches away from ceasing to be a free market economy: Buce: "[W]hen Mitt Romney says that we are 'only inches away from ceasing to be a free market economy', you'd just have to write it up as an arrogant, insolent, baldfaced lie. Which is pretty much what they are calling it over at Politifact, the Poynter journalistic fact-checker (sourced, ironically, in large measure, to those bomb-throwing insurrectionists at the Heritage Foundation).... [T]he US ranks ninth from the top "freest") out of 179.... None of this is surprising to anyone of even mildly wonky sentiments, a group which clearly includes Romney himself. But here's an extra irony I hadn't noticed before: health care. Namely that every one of those top eight has some kind of universal public health care. And they virtually all get better results than the US has, and at substantially less cost.... I dunno, maybe Romney (who can clearly say anything with the same schoolboy grin) will soon be telling us that Singapore and Hong Kong (and Switzerland, and Denmark, and Canada, and Ireland, and New Zealand, and Australia) are just mired in post-Leninist purgatory. Others might say otherwise: they might say it shows that freedom can be enhanced (even on a Heritage definition) by the right kind of government intervention. Like, say, in Massachusetts..."

  13. SPEAKS FOR ITSELF: "At one table, a boy offered Romney a $1 bill that he had folded origami-style for good luck. The candidate happily accepted it, but then rifled through his wallet looking for money to give the boy in return. Romney had a $100 bill, but evidently did not want to give that away."

Joachim von Ribbentrop Liveblogs World War II: June 22, 1941


Statement by Joachim von Ribbentrop: When in the Summer of 1939 the Reich Government, motivated by a desire to achieve adjustment of interests between Germany and the U.S.S.R., approached the Soviet Government, they were aware of the fact that it was no easy matter to reach an understanding with a State that on one hand claimed to belong to a community of individual nations with rights and duties resulting therefrom, yet on the other hand was ruled by a party that, as a section of the Comintern, was striving to bring about world revolution-in other words, the very dissolution of these individual nations.

The German Government, putting aside their serious misgivings occasioned by this fundamental difference between political aims of Germany and Soviet Russia and by the sharp contrast between diametrically opposed conceptions of National Socialism and Bolshevism, made the attempt.

They were guided by the idea that the elimination of the possibility of war, which would result from an understanding between Germany and Russia, and safeguarding of the vital necessities of the two people, between whom friendly relations had always existed, would offer the best guarantee against further spreading of the Communist doctrine of international Jewry over Europe.

This belief was strengthened by the fact that certain happenings in Russia itself and certain measures of international scope undertaken by the Russian Government allowed it to be assumed that departure from these doctrines and former methods of causing disintegration among foreign nations appeared possible.

The reception accorded in Moscow to the German démarche and the readiness of the Soviet Government to conclude a pact of friendship with Germany appeared to confirm this change of attitude.

Thus, on Aug. 23, 1939, a non-aggression pact was concluded, while on Sept. 28, 1939, a frontier and friendship agreement was signed by the two States. The essence of these agreements consisted of:

(1) Reciprocal engagement on the part of both States not to attack one another and to live on peaceful and neighborly terms, and

(2) Delimitation of spheres of interest-the German Reich renouncing all influence in Finland, Latvia, Estonia, Lithuania and Bessarabia while territories of the former Polish State as far as the line formed by the Narew, Bug and San (rivers) were to be incorporated into Russia according to the desire of the Soviets. The Reich Government, in the pact immediately following conclusion of the non-aggression pact with Russia, effected a fundamental change in their policy toward the Soviet Union. The German Government faithfully adhered in both letter and spirit to the treaties concluded with the Soviet Union. In addition to this they had, through the conquest of Poland, by shedding German blood, gained for the Soviet Union the greatest success in foreign politics that it had achieved since coming into existence. This was only possible by reason of Germany's friendly policy toward Russia and the overwhelming victories of German forces.

Not unreasonably, the Reich Government therefore felt entitled to expect that the attitude of the Soviet Union toward the German Reich would be of the same nature, especially since, during the negotiations that were conducted in Moscow by Herr von Ribbentrop, Reich Minister for Foreign Affairs, and also on other occasions, the Soviet Government had repeatedly expressed the view that these treaties would form the basis for permanent adjustment of German-Soviet Russian interests and that the two peoples, each respecting the regime of the other and prepared to abstain from any interference in internal affairs of the other partner, could reach permanent good neighborly relations.

Unfortunately it soon was to become evident that the German Government had been quite mistaken in this assumption.

In actual fact the Comintern resumed its activities in every sphere very soon after conclusion of the German-Russian treaties. This was true not only of Germany herself, but also as applied to States friendly to Germany, to neutral States and to such European territory as was occupied by German troops. In order to avoid openly infringing the treaties methods were changed and camouflage was applied more painstakingly and with greater cunning.

It obviously was thought necessary in Moscow to counteract the effect of conclusion of the pact with National Socialist Germany by continually pillorying Germany's alleged "imperialistic war."

Strict and effective preventive measures adopted by German police compelled the Comintern to seek to conduct their subversive activities and their intelligence work in Germany by devious routes, making use of centers established for that purpose in neighboring countries.

For this purpose former German Communist agents were employed to foment sedition and to arrange for acts of sabotage in Germany. OGPU Commissar Kryloff was in charge of systematic courses of training with this object in view. Apart from this, intensive subversive activities were carried on in territories occupied by Germany, more particularly in the protectorate [Bohemia-Moravia] and occupied France, but also Norway, Holland, Belgium, etc.

Soviet Russian representatives, notably the Consul General at Prague, rendered valuable assistance in this connection. Assiduous intelligence service maintained by means of wireless transmitters and receiving stations afforded absolute proof of the activities of the Comintern directed against the German Reich. There also is comprehensive documentary evidence consisting of witnesses' statements and correspondence concerning all subversive activity and reconnoitering carried on by the Comintern.

In addition to this sabotage groups were formed, which maintained their own laboratories for the manufacture of incendiary and high-explosive bombs for the purpose of committing acts of sabotage. Attempts of this kind were made, for example, against no fewer than sixteen German ships.

Espionage was another field of activity. Thus repatriation of Germans from Soviet Russia was utilized for the purpose of gaining the services of these Germans for ends of the OGPU by the most reprehensible means. Not only men but women too were victims of shameless extortion and were forced to enter the service of the OGPU.

Even the Soviet Russian Embassy in Berlin, headed by M. Kobuloff, Counselor of the Embassy, did not shrink from unscrupulous abuse of the rights of extraterritoriality for espionage purposes. M. E. Mokhoff, member of the Russian Consulate at Prague, was at the head of another Russian espionage organization, which had ramifications throughout the protectorate.

Further instances in which the police were able to take action in good time provided clear, unequivocable evidence of these extensive Soviet Russian machinations. The whole of the evidence proves irrefutably that Soviet Russia was engaged against Germany in the political, military and economic spheres in large-scale subversive activities, acts of sabotage, terror and espionage in preparation for war.

As to activities by Russia in European countries outside Germany, they extended to almost all European states that are friendly to or are occupied by Germany. Thus in Rumania, for example, Communist propaganda in the form of pamphlets of Russian origin represented Germany as being responsible for all local troubles in order to create an anti-German atmosphere

The same thing had been evident in Yugoslavia since the Summer of 1940. Pamphlets there incited the people to protest against the Cvetkovitch regime, which was "hobnobbing with the imperialistic governments in Berlin and Rome." At a meeting of Communist party functionaries in Zagreb the whole of Southeastern Europe from Slovakia to Bulgaria was described as a Russian protectorate that would come into being after Germany's hoped for military decline.

In the Soviet Legation at Belgrade, German troops discovered documentary evidence of the Soviet Russian origin of this propaganda.

Whereas Communist propaganda in Yugoslavia sought to make use of nationalist catch-words, in Hungary it was effective chiefly among the Ruthenian population, to whom it held out hopes of coming liberation through Soviet Russia.

Anti-German propaganda was particularly active in Slovakia, where the propaganda was openly carried on in favor of annexation of that country by Soviet Russia.

In Finland the notorious "Association for Peace and Friendship With the Soviet Union" actively cooperated with the Petroskoi broadcasting station, attempting to bring about disintegration of this country and at the same time carried on activities of a marked anti-German nature.

In France, Belgium and Holland agitation was directed against the German armies of occupation. A similar campaign was conducted in the Government General [Poland], cloaked by national Pan-Slavistic propaganda.

Scarcely had Greece been occupied by the German and Italian Armies when Soviet Russian propaganda commenced there too.

All this is evidence of a campaign systematically carried out in every country by the U.S.S.R. against Germany's endeavor to establish a sound order in Europe.

Parallel with this there was directed propaganda designed to counteract measures of German policy, taking the form of denunciation of these measures as anti-Russian and attempting to win over various countries to side with Soviet Russia against Germany.

In Bulgaria there was agitation against adherence to the Tripartite Pact and in favor of a guarantee pact with Russia. In Rumania attempts were made at infiltration into the Iron Guard and suborning its leaders, including Groza, a Rumanian who started the Putsch of Jan. 23, 1941, and behind whom Bolshevist agents of Moscow stood as wire-pullers. Indisputable proofs of this are held by the Reich Government.

In regard to Yugoslavia the Reich Government has come in possession of documents according to which a Yugoslav delegate named Georgevitch gained the impression from a conversation with Molotoff [Vyacheslaff M. Molotoff, Russian Foreign Commissar], in Moscow early in May, 1940, that Germany was being regarded there as a mighty foe of tomorrow.

Soviet Russia's attitude to requests for arms made by Serbian military circles left even less doubt. In November, 1940, the Chief of the Soviet Russian General Staff declared to the Yugoslav military attaché: "We will give you everything you ask for immediately." The prices to be paid and the mode of payment were left to the discretion of the Belgrade Government and only one condition was made-secrecy as far as Germany was concerned.

When the Cvetkovitch government subsequently approached the Axis powers Moscow began to delay deliveries of munitions, and this was briefly communicated to the Yugoslav military attaché by the Soviet Russian War Ministry.

The staging of the Belgrade Putsch of March 27 of this year formed the climax to these conspiracies against the Reich by Serbian plotters and Anglo-Russian agents. The Serbian leader of this Putsch and the head of the "Black Hand," M. Simitch, is still today in Moscow, displaying there great activity against the Reich on closest cooperation with Soviet Russian propaganda officers.

The foregoing examples provide only a glimpse of the enormously varied propaganda activities which the U.S.S.R. is conducting against Germany throughout Europe. In order to furnish the outside world with a comprehensive survey of the activities of Soviet Russian authorities in this direction since the conclusion of the pacts between Germany and Russia and to enable the public to judge for themselves, the Reich Government will publish the extensive material at their disposal.

In general, the Reich Government note the following:

At the conclusion of the pacts with Germany, the Soviet Government repeatedly made the unequivocal declaration that they did not intend to interfere, either directly or indirectly, in German affairs.

On conclusion of the pact of friendship they solemnly stated they would collaborate with Germany in order to bring an end, in accordance with the true interests of all peoples, of the war existing between Germany on one hand and Great Britain on the other, and to achieve this aim as soon as possible.

In the light of the above mentioned facts, which have continually become more apparent during the further course of the war, these Soviet Russian agreements and declarations were revealed as being intentionally misleading and deceptive. Nor did the advantages accruing from Germany's friendly attitude cause the Soviet Government to adopt a loyal attitude toward Germany.

On the contrary, the Reich Government have been forced to observe that conclusion of the pacts in 1939 was yet another instance of the application of Lenin's thesis, as expressly reaffirmed in October, 1939, in "instructions for the Communist party in Slovakia," stating that "pacts may be concluded with certain other countries if they further the interests of the Soviet Government and help render the opponent innocuous."

The conclusion of these pacts of friendship was, accordingly, for the Soviet Government only a tactical manoeuvre. The real aim was to reach agreements which were advantageous to Russia, thus simultaneously preparing for future action.

The leading idea remained the weakening of non-bolshevist states in order to be in a position to disintegrate them more easily and, when the time came, break them up. In a Russian document discovered after the capture of Belgrade in the Soviet Legation there, this object was expressed with stark brutality in the following words:

"The U.S.S.R. will not wait until the opportune moment occurs. Axis powers have further dissipated their forces and the U.S.S.R. will consequently strike a sudden blow against Germany."

The Soviet Government have not heeded the voice of the Russian people, who sincerely wished to live in peace and friendship with the German people, but have continued in the old bolshevist policy of duplicity and, by so doing, have assumed a heavy burden of responsibility.

If the Soviet Union's subversive propaganda carried out in Germany and the rest of Europe leaves no room for doubt as to its attitude toward Germany, then the policy of the Soviet Government toward Germany in the military sphere and in the fields of foreign politics, even since the conclusion of pacts between Germany and Russia, makes matters even clearer.

In Moscow, on the occasion of the delineation of spheres of interest, the Soviet Government declared to the German Minister of Foreign Affairs that it did not intend to occupy, bolshevize or annex any states situated within their sphere of interest, other than territories of the former Polish State, which were at that time in a state of disintegration.

In actual fact, however, as the course of events has shown, the policy of the Soviet Union during the whole time was exclusively directed toward one object-namely, that of extending Moscow's military power wherever the possibility offered in the area between the Arctic Ocean and the Black Sea, and of furthering bolshevism in Europe.

Development of this policy was marked by the following stages:

  1. It was initiated by the formulation of so-called assistance pacts with Estonia, Latvia and Lithuania in October and November, 1939, and by establishment of military bases in those countries.

  2. The next Soviet Russian move was against Finland, when Soviet Russian demands, acceptance of which would have meant the end of the sovereignty of an independent Finnish State, were rejected by the Finnish Government. The Soviet Government was responsible for the formation of the Kusinin Communist puppet government, and, when the Finnish people refused to recognize this government, an ultimatum was presented to Finland. The Red Army was subsequently marching in at the end of November, 1939. By the Finnish-Russian peace concluded in March, Finland was obliged to surrender part of her southeastern provinces immediately.

  3. A few months later-in July, 1940-the Soviet Union took action against the Baltic States. Under terms of the first Moscow pact Lithuania belonged to the German sphere of interest. In the second pact, at the desire of the Soviet Union, the German Government relinquished their interests in a greater part of Lithuania in favor of the Soviet Union for the sake of peace, although they did so with heavy heart. A strip of this territory still remained within the German sphere of interest. Following upon an ultimatum delivered on June 15, the whole of Lithuania, including that part which had remained within the German sphere of interest, was occupied by the Soviet Union without notification of the German Government so that the U.S.S.R. now extended right up to the entire eastern frontier of East Prussia. When subsequently Germany was approached on this question the German Government, after difficult negotiations and in order to make a further effort toward reaching a friendly settlement, ceded this part of Lithuania also to the Soviet Union. A short time afterward Latvia and Estonia were likewise occupied by military force, procedure which constituted gross abuse of the pacts of assistance concluded with these states. Contrary to the express assurance given by Moscow, all Baltic States were then Bolshevized and summarily annexed by the Soviet Government a few weeks after occupation. Simultaneously with the annexation, the Red Army was for the first time concentrated in force throughout the whole of the northern sector of the Soviet Russian buttress directed toward Europe. It goes almost without saying that the economic pacts between Germany and these States, which, according to the Moscow agreements were not to be affected, were unilaterally canceled by the Soviet Government.

  4. In the pacts of Moscow it had been expressly agreed in connection with the delimitation of interest in former Polish territories that no kind of political agitation was to take place beyond the frontiers marking these zones of interest, but that activity of occupation authorities on either side was to be restricted exclusively to peaceful development of these territories. The German Government possesses irrefutable proof that in spite of these agreements the Soviet Union very soon after occupation of the territory not only permitted anti-German propaganda for consumption in the Government-General of Poland but, in point of fact, sponsored it parallel with Bolshevist propaganda in the same region. Strong Russian garrisons were also transferred to these territories immediately after the occupation.

  5. While the German Army still was fighting in the west against France and Britain, the Soviet Union advanced in the Balkans. Although the Soviet Government had declared during the Moscow negotiations they would never make the first move toward achieving settlement of the Bessarabian question, the German Government was informed on June 24, 1940, by the Soviet Government that they now were resolved to settle the Bessarabian question by force.

It was stated at the same time that Soviet claims also extended to Bukovina, that is to say, territory which was ancient Austrian crown land, had never belonged to Russia and had, moreover, not ever been mentioned at the time of the Moscow negotiations.

The German Ambassador to Moscow declared to the Soviet Government their decision had come as a complete surprise to the German Government and that it would seriously affect Germany's economic interest in Rumania and lead to disruption of the life of a large German settlement there as well as of the German element in Bukovina. Molotoff replied that the matter was one of extreme urgency and that the Soviet Union expected to be apprised of the German Government's attitude with regard to this question within twenty-four hours.

In spite of this brusque action against Rumania, the German Government once more intervened in favor of the Soviet Union in order to preserve peace and maintain their friendship with that country.

They advised the Rumanian Government, who had appealed to Germany for help, to yield and recommended to them to surrender Bessarabia and Northern Bukovina to Soviet Russia. The affirmative answer of the Rumanian Government was communicated to the Soviet Government by Germany, together with the Rumanian Government's request to be granted sufficient time for evacuation of these large areas and the safeguarding of lives and property of the inhabitants.

Once more, however, the Soviet Government presented an ultimatum to Rumania, and, before its expiration, began to occupy parts of Bukovina on June 28, and immediately afterward the whole of Bessarabia as far as the Danube. Those territories were also immediately annexed by the Soviet Union, bolshevized and thus literally reduced to ruin.

By occupying and bolshevizing entire spheres of interest in Eastern Europe and in the Balkans accorded to the U.S.S.R. by the Reich Government during the Moscow negotiations, the Soviet Government plainly and irrefutably acted contrary to the Moscow agreements.

In spite of this, the Reich Government continued to maintain an absolutely loyal attitude toward the U.S.S.R. They refrained from intervention in the Finnish war and in the Baltic question. They supported the attitude of the Soviet Government against the Rumanian Government in the Bessarabian question, and reconciled themselves, albeit with heavy heart, to the state of affairs created by the Soviet Government.

Furthermore, in order to eliminate as far as possible any divergences between the two States from the very outset, the Reich government set to work on a large-scale resettlement scheme, whereby all Germans in areas occupied by the U.S.S.R. were brought back to Germany. The Reich Government felt that more convincing proof of their desire to come to a lasting peace with the U.S.S.R. could scarcely be given.

As a result of Russia's advance toward the Balkans, territorial problems in this region came up for discussion. In the Summer of 1940, Rumania and Hungary appealed to Germany to effect settlement of their territorial disputes after these divergencies, fostered by British agents, had resulted in a serious crisis at the end of August.

War was imminent between Rumania and Hungary. Germany, who had repeatedly been requested by Hungary and Rumania to mediate in their quarrel, desired to maintain peace in the Balkans and, together with Italy, invited the two States to confer at Vienna, where, at their request, she proclaimed the Vienna arbitration award of Aug. 30, 1940.

This defined the new frontier between Hungary and Rumania and, in order to enable the Rumanian Government to justify before their people territorial sacrifices which they made and to eliminate any quarrels in this area for the future, Germany and Italy undertook to guarantee the remaining Rumanian State.

As Russian aspirations in this area had been satisfied, this guarantee could never be taken as directed against Russia. The Soviet Union nevertheless complained and stated that, contrary to former declarations according to which its aspirations in the Balkans had been satisfied by occupation of Bessarabia and Northern Bukovina, it had further interests in Balkan questions, though for the time being those were not further defined.

Soviet Russia's anti-German policy began from that time to become steadily more apparent. The Reich Government kept on receiving more and more definite news, according to which negotiations which had been carried on for some time in Moscow by British Ambassador Cripps were developing favorably. The Reich Government at the same time came into possession of proof of the Soviet Union's intensive military preparations in every sphere.

These proofs are, among other things, confirmed by a report recently found in Belgrade by the Yugoslav military attaché to Moscow, dated Feb. 17, 1940, which reads literally: "According to information received from Soviet sources, armaments for the air force, tank corps and artillery in accordance with experiences of the present war are in full progress and will, in the main, have been completed by August, 1941. This probably also constitutes a time limit before which no appreciable changes in the Soviet's foreign policy can be expected."

Despite the unfriendly attitude of the U.S.S.R. over the Balkan question, Germany made a fresh effort to come to an understanding with the Soviet Union: the Reich Minister of Foreign Affairs, in a letter to Stalin, gave a comprehensive survey of the policy of the Reich Government since the negotiations in Moscow. The letter referred in particular to the following points:

When the Tripartite Pact between Germany, Italy and Japan was concluded it was unanimously agreed this pact in no sense was directed against the Soviet Union, but that friendly relations of the three powers and their treaties with the U.S.S.R. should remain completely unaffected by the pact. This was also placed on record in the Tripartite Pact of Berlin.

At the same time the letter expressed the desire and hope that it might prove possible jointly to clarify still further friendly relations with the U.S.S.R. desired by the signatories to the Tripartite Pact and to give such relations concrete form. In order to discuss these questions more fully, the Reich Minister of Foreign Affairs invited Molotoff to visit Berlin.

During Molotoff's visit to Berlin the Reich Government was forced to the conclusion that the U.S.S.R. was inclined toward genuinely friendly cooperation with the signatories of the Tripartite Pact and with Germany in particular, provided the latter were prepared to pay the price demanded by the Soviet Union. This price was to take the shape of further penetration of the Soviet Union into North and Southeast Europe.

The following demands were made by Molotoff in Berlin and in subsequent diplomatic conversations with the German Ambassador in Moscow:

  1. The Soviet Union desired to give a guarantee to Bulgaria and, above this, to conclude with her a pact of assistance on the same lines as those concluded with the Baltic states-i.e., providing for military bases. At the same time Molotoff declared he did not wish to interfere with the internal regime of Bulgaria. A visit of Russian Commissar Soboleff to Sofia at that time was likewise undertaken with the object of realizing this intention.

  2. The Soviet Union demanded an agreement in the form of a treaty with Turkey for the purpose of providing, on the basis of a long-time lease, a base, for Soviet land and naval forces on the Bosporus and in the Dardanelles. In case Turkey should not agree to this proposal, Germany and Italy were to cooperate with Russia in diplomatic steps to be undertaken to enforce compliance with this demand. These demands were aimed at the domination of the Balkans by the U.S.S.R.

  3. The Soviet Union declares that once more it felt itself threatened by Finland and therefore demanded complete abandonment of Finland by Germany, which, in actual fact, would have amounted to occupation of this state and extermination of the Finnish people.

Germany naturally was unable to accept these Russian demands designated by the Soviet Government as a primary condition for cooperation with the signatories to the Tripartite Pact. Thus the latter's efforts to come to an understanding with the Soviet Union failed.

In consequence the attitude adopted by Germany was that the U.S.S.R. now had intensified a policy more openly directed against Germany and that its increasingly close cooperation with Britain was clearly revealed.

In January, 1941, this antagonistic attitude on the part of Russia first showed in the diplomatic sphere. When that month Germany adopted certain measures in Bulgaria against the landing of British troops in Greece the Russian Ambassador in Berlin pointed out in an official démarche that the Soviet Union regarded Bulgarian territory and the two straits as the security zone for the U.S.S.R. and that it could not remain a passive spectator of events taking place in these territories which amounted to a menace for the interests of such security. For this reason the Soviet Government issued a warning with regard to the appearance of German troops on Bulgarian territory or on that of either of the two straits.

Thereupon the Reich Government furnished the Soviet Government with exhaustive information about the causes and aims of their military measures in the Balkans.

They made it clear Germany would prevent, with every means of her power, any attempt on the part of Britain to gain a foothold in Greece, but that she had no intention of occupying the straits and would respect Turkish sovereignty and territory. The passage of German troops through Bulgaria could not be regarded as an encroachment on the Soviet Union's security interests; on the contrary, the Reich's Government believed they were serving Soviet interests by those operations. After carrying through her operations in the Balkans, Germany withdrew her troops from there.

Despite the declaration on the part of the Reich Government, the Soviet Government for their part published a declaration addressed to Bulgaria directly after the entry of German troops into that country which manifested a character clearly hostile to the German Reich and said in effect that the presence of German troops in Bulgaria was not conducive to the peace of the Balkans, but rather to war.

An explanation of this attitude was found by the Reich Government in incoming information, steadily increasing in volume, about growing collaboration between Soviet Russia and Britain. Even in the face of these facts, Germany remained silent.

Along the same lines was the assurance given in March, 1941, that Russia would not attack Turkey in event of the latter's joining in war on the Balkans. This, according to information in possession of the Reich Government, was the result of Anglo-Russian negotiations during the visit of the British Foreign Secretary in Ankara, who thereby aimed at drawing Russia closer to the British camp.

The aggressive policy of the Soviet Union toward the German Reich, which steadily was becoming more pronounced ever since this time, as well as the hitherto somewhat discreet political cooperation between the Soviet Union and Britain became, however, patent to the whole world on the outbreak of the Balkan crisis at the beginning of April.

It is today fully established that the Putsch instigated by Britain in Belgrade after Yugoslavia had joined the Tripartite Pact was started with the connivance of Soviet Russia. A long time before, in fact since Nov. 19, 1940, Russia had secretly assisted Yugoslavia in arming against the Axis powers. Documents which fell into the hands of the Reich Government after the occupation of Belgrade revealing every phase of these Russian deliveries of arms in Yugoslavia give decisive proof of this.

Once the Belgrade Putsch had succeeded Russia on April 5 concluded a friendly agreement with the illegal Serbian Government of General Simovitch which was to lend moral support to the Putschists and with its weight assist the growing Anglo-Yugoslav-Greek front.

Evident satisfaction was expressed on this occasion by American Under-Secretary of State Sumner Welles when he stated on April 6, 1941, after several conversations with the Soviet Ambassador in Washington that "the Russo-Yugoslav Pact might, under certain circumstances, be of the greatest importance. It is attracting interest in many quarters and there are grounds for assuming it will be more than a mere pact of friendship and non-aggression."

Thus, at the same time when German troops were being concentrated on Rumanian and Bulgarian territory against growing landings of British troops in Greece, the Soviet, now obviously in concerted action with the British, was attempting to stab Germany in the back by:

  1. Giving Yugoslavia open political and secret military support.

  2. Attempting to move Turkey to adopt an aggressive attitude toward Bulgaria and Germany by guaranteeing not to attack her and to concentrate her army in a very unfavorable strategic position in Thrace.

  3. Herself concentrating a strong force on the Rumanian frontier in Bessarabia and in Moldavia, and

  4. The sudden attempt early in April of Vyshinski, Deputy Peoples' Commissar in the Foreign Commissariat, in his conversations with Gafencu, Rumanian Minister in Moscow, to inaugurate a policy of rapid rapprochement with Rumania in order to persuade that country to break away from Germany.

British diplomacy through the intermediary of the Americans was making efforts in the same direction in Bucharest.

According to the Anglo-Russian plan, German troops concentrated in Rumania and Bulgaria were to have been attacked from three sides, namely Bessarabia and Thrace and from the Serbian-Greek frontier.

It solely was due to the loyalty of General Antonescu's realistic policy, followed by the Turkish Government and, above all, to the rapid German initiative and decisive victories of the German Army, that this Anglo-Russian plan was frustrated.

According to information in the hands of the Reich Government, almost 200 Yugoslav aircraft carrying Soviet Russian and British agents as well as Serbian parachutists led by Simitch were flown off, partly to Russia-these officers are today serving in the Russian Army-and partly to Egypt. This fact alone throws a particularly characteristic light upon the close collaboration between Britain, Russia and Yugoslavia.

In vain the Soviet Government tried on various occasions to veil the real intentions underlying their policy. Besides maintaining economic relations with Germany even during the last stage, they adopted a succession of measures to deceive the world into thinking they were maintaining normal, even friendly, relations with Germany.

Instances of this, for example, are requests to leave that they addressed a few weeks ago to diplomatic representatives of Norway, Belgium, Greece and Yugoslavia, silence observed by the British press about German-Russian relations, acting under instructions of Sir Stafford Cripps, British Ambassador, who was in agreement with the Russian Government, and finally the dementi recently published by the Tass Agency in which relations between Germany and the Soviet Union were described as completely correct.

These attempts at camouflage, which stand in such flagrant contrast to the real policy of the Soviet Government, naturally did not succeed in deceiving the Reich Government.

The anti-German policy of the Soviet Government was accompanied in the military sphere by steadily increasing concentration of all available Russian armed forces on the long front extending from the Baltic to the Black Sea. Already at the time when Germany was deeply engaged in the west in the campaign against France and when only a few German detachments were stationed in the east, the Russian High Command began systematically to transfer large bodies of troops to their eastern frontiers with the Reich, marked mass movements being noticed along the East Prussian frontier and that of the Government-General, as also in Bukovina and Bessarabia, opposite Rumania.

Russian garrisons facing Finland continually were being reinforced. Constant transfers of more and more fresh Russian divisions from the Far East and the Caucasus to Western Russia were further measures of a similar kind. After the Soviet Government had declared originally that the Baltic area, for instance, would only be occupied by troops, they proceeded to concentrate in this area, after military occupation had been completed, masses of additional troops, their number today being estimated at twenty-two divisions.

It was obvious that Russian troops were advancing ever closer to the German frontier, although no military measures had been adopted on the German side which might justify such action on the part of the U.S.S.R. It is this action on the part of the Soviet Union which first compelled German armed forces to adopt counter-measures.

Various units of the Russian Army and Air Force moved closer and closer in the direction of the frontier and strong detachments of the air force were posted on airdromes along German boundaries. Since the beginning of April more frontier violations also have taken place and a steadily increasing number of incursions over Reich territory by Russian aircraft have been observed.

According to reports from the Rumanian Government, similar occurrences have been observed on the Rumanian frontier in the area of Bukovina and along Moldavia and the Danube.

Since the beginning of the current year the German High Command has repeatedly attracted attention of the Foreign Office to the steadily increasing menace which the Russian Army presents for Reich territory, emphasizing at the same time that only aggressive intentions could account for the troop concentrations. The communications from the German High Command will be published in detail.

If the slightest doubts about the aggressive intentions of this Russian concentration could still be entertained, they have been completely dispelled by news which reached the German High Command during the past few days.

Now that the Russian general mobilization is complete, no less than 160 divisions are concentrated facing Germany. Observations made during the past few days have shown that grouping of Russian troops, and especially of motorized and armored units, has been carried out in such a way as to allow the Russian High Command at any moment to make an aggressive advance on the German frontier at various points.

Reports about increased reconnaissance patrol activity as well as accounts received daily of incidents on the frontier and outpost skirmishes between the two armies complete the picture of an extremely strained military situation which may at any moment reach the breaking point.

News received today from England about negotiations by Sir Stafford Cripps, with the view of establishing still closer collaboration between the political and military leaders of Britain and the U.S.S.R., together with the appeal by Lord Beaverbrook, one-time enemy of the Soviet regime, to support Russia in the oncoming conflict by every available means and his exhortation to the United States to do the same, show unambiguously what kind of a fate it is desired to prepare for the German nation.

Summarizing the foregoing points the Reich Government wish therefore to make the following declaration:

Contrary to all engagements which they have undertaken in absolute contradiction to their solemn declarations, the Soviet Government have turned against Germany. They have:

  1. Not only continued but, even since the outbreak of war, intensified subversive activities against Germany and Europe; they have

  2. In continually increasing measure, developed their foreign policy in a tendency hostile to Germany; and they have

  3. Massed their entire forces on the German frontier ready for action.

The Soviet Government have thus violated treaties and broken their agreements with Germany.

Bolshevist Moscow's hatred of National Socialism was stronger than its political wisdom.

Bolshevism is opposed to National Socialism in deadly enmity.

Bolshevist Moscow is about to stab National Socialist Germany in the back while she is engaged in a struggle for her existence.

Germany has no intention of remaining inactive in the face of this grave threat to her eastern frontier.

The Fuehrer has, therefore, ordered German forces to oppose this menace with all the might at their disposal.

In the coming struggle the German people are fully aware that they are called upon not only to defend their native land but to save the entire civilized world from the deadly dangers of bolshevism and clear the way for true social progress in Europe.

Stan Collender: Don't Believe What You're Hearing About Budget Talks

Stan Collender:

Don't Believe What You're Hearing About Budget Talks | Capital Gains and Games: Last week was the point in this year’s budget negotiations when everyone’s worst fears about what would happen seemed to be on the verge of being realized. The combination of increasingly happy talk about the summit being led by Vice President Joseph Biden and President Barack Obama’s golf outing with Speaker John Boehner (R-Ohio) seemed to have every blogger, pundit and interest group convinced that what they least wanted either was on the verge of happening or had already been agreed to. If you listened closely, the rumors indicated that everything — from significant tax changes to substantial Social Security cuts — not only was on the table but was coming together in a package that would soon be ready for political prime time and would fly through the legislative process. This is a routine part of the federal budget debate and the fiscal equivalent of one of the five stages of grief. I first noticed it during the Andrews Air Force Base budget summit in 1990, when I received a series of calls from people inside and outside the Beltway who could not possibly know what was actually happening. They all said one side or another in the negotiations had already agreed to the particular spending cut or tax increase they were most worried about. Although some of those calls were from people who wanted to see whether I could confirm or assuage their fears, most were genuinely convinced that what they had heard or imagined was true.... This year’s negotiations have already produced the same type of premature and very likely inaccurate misgivings as typically occur whenever those involved with the federal budget get together to talk about what can, should and needs to be done. And this year there may be more reason to think that what someone considers a budget nightmare is going to come true given the magnitude of the problem, the few relatively easy deficit reductions that are still available and the paucity of spending and revenue options that numerically and politically are possible. (Note to deficit hawk groups: The formal and ad hoc recommendations you so publicly support are not as novel as you want everyone to believe because they are really little more than what’s available.) But as is also the case at this stage of the budget negotiations, there are still many reasons to think the fears about budget nightmares are far more imagined than real. This year, for example, it’s not at all clear that those involved in the budget discussions actually have the authority to negotiate a deal that will be accepted by enough Representatives and Senators to enact the legislation...

Our Need for Expansionary Fiscal Policy: Alan Blinder Explains Why the Republican Party Deserves Political Annihilation

Alan Blinder:

Alan Blinder: The GOP Myth of 'Job-Killing' Spending: It was the British economist John Maynard Keynes who famously wrote that ideas, "b House Speaker John Boehner and other Republicans regularly rail against "job-killing government spending." Think about that for a minute. The claim is that employment actually declines when federal spending rises.... Acting on such a belief would imperil a still-shaky economy that is not generating nearly enough jobs. So let's ask: How, exactly, could more government spending "kill jobs"?... [H]ow is it that public purchases of computers destroy jobs but private purchases of computers create them?

One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But... the current debate is about deficit spending: raising spending without raising taxes....

A second job-destroying mechanism operates through higher interest rates. When the government borrows to finance spending, that pushes interest rates up, which dissuades some businesses from investing.... There are times when this "crowding-out" argument is relevant. But not today. The Federal Reserve has been holding interest rates at ultra-low levels for several years, and will continue to do so. If interest rates don't rise, you don't get crowding out....

Let's try one final argument that is making the rounds today. Large deficits, it is claimed, are creating huge uncertainties (e.g., over what will eventually be done to reduce them) and those uncertainties are depressing business investment. The corollary is a variant of what my Princeton colleague Paul Krugman calls the Confidence Fairy: If you cut spending sharply, confidence will soar, spurring employment and investment.

As a matter of pure logic, that could be true. But is there evidence? Yes, clear evidence—that points in the opposite direction. Business investment in equipment and software has been booming, not sagging. Specifically, while real gross domestic product grew a paltry 2.3% over the last four quarters, business spending on equipment and software skyrocketed 14.7%. No doubt, there is lots of uncertainty. But investment is soaring anyway....

[I]t is undeniable that we have a tremendous long-run deficit problem to deal with—and the sooner, the better.... Suppose we enacted a modest fiscal stimulus program specifically designed for maximum job creation... a tax credit for firms that add to their payrolls.... And suppose we combined that with a serious plan for reducing future deficits—and enacted the whole package now. Then we could, in a sense, have our cake and eat it, too. A package like that is not fantasy. I believe that a bipartisan group of economists, if given the authority, free of political interference, would design some version of it. But... as long as one political party clings to the idea that government spending kills jobs, it's hard to see how we extricate ourselves from this mess. As Keynes understood, ideas, whether right or wrong, have consequences.

The Turing Test: Who Can Successfully Explain Robert Nozick?

Bryan Caplan writes:

The Ideological Turing Test, : In his FiveBooks interview with the Browser, Paul Krugman seems to suggests an analogous test.  According to Krugman, liberals have the ability to simulate conservatives, but conservatives lack the ability to simulate liberals.... It's easy to scoff at Krugman's self-congratulation, but at the meta-level, he's on to something. Mill states it well: "He who knows only his own side of the case knows little of that."  If someone can correctly explain a position but continue to disagree with it, that position is less likely to be correct.... I'd add that we should compare people in the same field: Rand's inability to explain Keynesian economics would be no more telling than Krugman's inability to explain Nozickian political philosophy.  (Of course, if Krugman could correctly explain Nozickian political philosophy, that would be fairly impressive)...

I would maintain that only liberals can successfully explain Nozickian political philosophy--certainly I have never met a believer in Nozickianism who can do so, and I expect never to do so.

Why? Well, let me sketch out the logic of Robert Nozick's argument for his version of catallaxy as the only just order. It takes only fourteen steps:

  1. Nobody is allowed to make utilitarian or consequentialist arguments. Nobody.
  2. I mean it: utilitarian or consequentialist arguments--appeals to the greatest good of the greatest number or such--are out-of-order, completely. Don't even think of making one.
  3. The only criterion for justice is: what's mine is mine, and nobody can rightly take or tax it from me.
  4. Something becomes mine if I make it.
  5. Something becomes mine if I trade for it with you if it is yours and if you are a responsible adult.
  6. Something is mine if I take it from the common stock of nature as long as I leave enough for latecomers to also take what they want from the common stock of nature.
  7. But now everything is owned: the latecomers can't take what they want.
  8. It gets worse: everything that is mine is to some degree derived from previous acts of original appropriation--and those were all illegitimate, since they did not leave enough for the latecomers to take what they want from the common stock of nature.
  9. So none of my property is legitimate, and nobody I trade with has legitimate title to anything.
  10. Oops.
  11. I know: I will say that the latecomers would be poorer under a system of propertyless anarchy in which nobody has a right to anything than they are under my system--even though others have gotten to appropriate from nature and they haven't.
  12. Therefore they don't have a legitimate beef: they are advantaged rather than disadvantaged by my version of catallaxy, and have no standing to complain.
  13. Therefore everything mine is mine, and everything yours is yours, and how dare anybody claim that taxing anything of mine is legitimate!
  14. Consequentialist utilitarian argument? What consequentialist utilitarian argument?

To be able to successfully explain Nozickian political philosophy is to face the reality that it is self-parody, or perhaps CALVINBALL!

Hence if any Nozickian believer ever grasps the structure of the argument well enough to successfully explain it, they thereby cease to be a Nozickian believer. Nozickian believers are thus, in a sense, incapable of passing the Turing Test...

Professor Bernanke Warning of Paralysis Meets Fed Facing Same

Rich Miller:

Professor Bernanke Warning of Paralysis Meets Fed Facing Same: As a Princeton University professor, Ben Bernanke castigated the Bank of Japan in 2000 for a “case of self-induced paralysis” that led to a decade of stagnation. Now, the Federal Reserve chairman may be allowing the U.S. central bank to fall into the same trap after its second round of quantitative easing ends this month. By all but ruling out another cycle of bond purchases, Fed officials have left themselves with little in the way of policy options to respond to slowing growth and rising unemployment. This raises the risk that the U.S. will remain saddled with what Bernanke himself has called a “frustratingly” sluggish recovery that leaves millions of Americans out of work.

“I worry that QE3 will be hostage to QE2,” said Vincent Reinhart, a former director of the Fed’s monetary-affairs division who is now a scholar at the American Enterprise Institute in Washington. “That may lead to that self-induced paralysis” in further easing policy to aid the economy.... [A;;en]Sinai said. “If I were at the Fed, I’d be looking at ways to do something like QE3,” he added. Fed officials don’t seem so inclined. “We’ve done enough,” Federal Reserve Bank of Dallas President Richard Fisher said in a June 13 speech....

In a paper Bernanke wrote while at Princeton in 2000, he took Bank of Japan officials to task for saying they had done all they could to help an economy that had grown about 1 percent a year in the previous decade after the country’s real-estate bubble burst. While agreeing Japan faced structural problems that monetary policy couldn’t solve, including a broken banking system, Bernanke argued the central bank could do more to pump up demand beyond cutting short-term interest rates to zero. Among the steps he discussed were “nonstandard open-market operations,” including the purchase of Japanese government bonds -- just the sort of strategy the U.S. pursued under QE2....

Bernanke defended the Fed’s performance at a press conference following the central bank’s last meeting in April. “We have done extraordinary things in order to try to help this economy recover,” he said, pointing to the near-zero fed funds rate and two rounds of securities purchases.... If Bernanke says the “little blip in inflation is temporary and it’s going to go back below target, and he says he’s very unhappy with the unemployment rate, then why isn’t he doing more?” Gagnon asked. “It’s really ironic. It’s a self- induced paralysis.”

Msrk Thoma; The Fed’s Monetary Policy Meeting: Will Policy Change?

Mark Thoma:

The Fed’s Monetary Policy Meeting: Will Policy Change?: The Fed’s Federal Open Market Committee is meeting today.... [T]here are substantial headwinds pushing against the recovery, but there is uncertainty over how long they will persist.... My own view is that the weakness is likely to be with us for awhile, and that it would be a mistake for policymakers to dismiss the recent data as a temporary blip in the recovery.... QE2 — which expanded the Fed’s balance sheet in an attempt to stimulate the economy — is coming to an end. In response, the Fed can make three choices. It can expand the balance sheet further by moving on to QE3, maintain the balance sheet at its present size, or begin reducing the size of its balance sheet immediately (i.e. sell the assets it purchased during QE1 and QE2).... I think the chances of QE3 at this point are non-existent. If the economy continues to weaken, then perhaps the Fed will consider it, but conditions are not yet bad enough for the Fed to take this step.

If anything, the Fed is inclined to move in the other direction.... When will the balance sheet reduction begin? The first thing that will happen is that the Fed will stop reinvesting maturing securities, and after a time it will also begin selling the financial assets it accumulated during QE1 ad QE2. Several months back I expected the first step to happen in late summer. But now I expect it to be much later than that, near or past the first of the year.... As for interest rates, the Fed won’t begin increasing rates until after balance sheet reduction is well underway...

Why Doesn't America Have an Infrastructure Bank?

M.S. at The Economist agrees that the Republican Party deserves political annihilation:

More stimulus: Buffers for the flighty: ON BALANCE, I agree with the "it's insane" analysis offered by Matthew Yglesias of America's refusal to borrow money at historically cheap rates and spend it on infrastructure and other job-generating activities that will need to be undertaken eventually anyway.... [T]echnological change and globalisation have absolutely nothing to do with high unemployment in the construction sector. The people who build things in America will always be Americans, and there haven't been any revolutions in construction technology between 2007 and 2011.... The reason the construction sector is sitting on the couch playing with the Wii instead of out fixing America is that America isn't spending the money to do the fixing. America has a $2 trillion backlog of infrastructure maintenance, according to the Urban Land Institute. With the government able to borrow money at ridiculously low 10-year rates, it seems pretty convincing that we should be borrowing that money and spending it now, both to improve that infrastructure and to get the economy going. (Insert sub-argument: yes, but infrastructure programmes take a long time to get underway. Response: did you or didn't you say this was structural unemployment that will take many years to resolve?)...

[I]s the American government like a busines...? Will creditholders begin to demand higher yields because they worry that, if things go pear-shaped, the government cannot pass on costs to consumers, viz raise taxes, should it need to? Creditholders certainly haven't demanded higher yields yet. And you can see why not. America is the world's largest economy. Its citizens are among the richest and least-taxed in the developed world. American citizens will not move to other countries en masse if taxes go up (the equivalent of "losing market share"), and citizens can't simply refuse to pay their taxes (the equivalent of "elastic demand"). Setting politics aside, there should be no question that the American government can "pass on its costs to consumers" if necessary. This ought to mean that debtholders will continue to trust the credit of the government....

There is, however, a low but mounting level of anxiety amongst ratings agencies that in fact the American government will not be able to pass on costs to consumers. The reason is that one of the two political parties, and the voters who support it, appear unwilling to pass those costs on, and are sending ambiguous signals that they may default on debt obligations rather than do so.... To the extent that I do worry that increasing America's debt to pay for infrastructure improvement now rather than later is a dangerous thing to do, it's mainly because I worry that political irresponsibility...

Jon Chait: Greg Mankiw's Misleading Defense of Paul Ryan

Jon Chait writes:

Mankiw's Misleading Defense Of Paul Ryan: Former Bush economic advisor Greg Mankiw, writing in the New York Times, picks up the GOP talking point that Paul Ryan's plan to radically alter Medicare is really a pretty familiar bipartisan idea being blown out of propotion:

Representative Paul D. Ryan, Republican of Wisconsin, has attracted much attention with his plan to reform Medicare. He proposes replacing the current fee-for-service program, in which the government picks up the bill for medical expenses, with a “premium-support” system in which seniors use federal dollars to choose among competing private insurance plans.... [T]he premium-support model is in some ways similar to the system set up under President Obama’s health care law. If choosing among competing private plans on a government-regulated exchange is a good idea for someone at age 50, why is it so horrific for someone who is 70?

This is deeply misleading. Ryan's plan... transforms [Medicare] from a single-payer system into subsidies for private insurance... interject[s] a costly insurance bureaucracy into the system, and decrease... Medicare's bargaining power.... [I]t's certainly true that liberals... prefer giving people medical coverage through regulated private insurance subsidies than letting them go without coverage.... But that is not the same thing as liberals agreeing that private insurance is better than single payer.... Mankiw's claim that the ACA demonstrates "agreement about the value of private competition" is clearly false....

[T]he subsidies in Ryan's plan, unlike the subsidies in the Affordable Care Act, would fall far below the value of private insurance.... Mankiw treats [this] as though it doesn't exist.... [C]onservatives agree that the rich should pay some taxes, but they would object to making them pay a 98% tax rate. Mankiw's logic would present this objection as hysterical partisanship -- we all agree the rich should pay taxes, so what's the problem?... Mankiw may share Ryan's ideological values and thus have reasons to wish to discredit critics of his program, but he should refrain from misleading people about the criticism.

My view: don't get too attached to the prospect of high federal office. If you do, you won't like who you become:


Diane Lim Rogers Confuses Republican Economists with Ex-Repubican Economists

She should listen to herself:

Do Tax Cuts Pay for Themselves? Sorry, No.: Here’s a really nice video interview of Bruce Bartlett on the issue. Don’t let the fact that it’s MSNBC lead you to automatically dismiss the story as hyper-partisan hogwash. It actually quotes a lot of Republican experts. The basic point is that certain tax cuts can do a decent job stimulating demand for goods and services in a recessionary economy, and certain tax cuts (usually other kinds) can do a decent job encouraging the supply of productive resources (labor supply and saving) in a full(er)-employment economy. But neither type of tax cut is likely to generate so much demand or so much supply that they pay for themselves (a la Laffer), even over the longer run. And once you get long enough into the longer run, chances are any credit you are giving to the tax cut itself is misplaced.

Get out of the defensive crouch, Diane. If you and your peers won't stand up and say that every single Republican presidential candidate is talking hogwash and that every economist who wants high federal office in the next Republican administration is acting like a craven coward, then you are giving them every incentive to do so.

Et Tu, Doug?: Fiscal Policy Edition

Doug Elmendorf writes:

Director's Blog » Blog Archive » Federal Budget Math: We Can’t Repeat the Past: Despite the low projected figure for defense spending and all other spending, the high costs of the major health care programs and Social Security mean that total outlays apart from interest on the debt are projected to be 20.5 percent of GDP in 2021, nearly 2 percentage points above the 40-year average. After interest payments are included, total outlays are projected to be nearly 24 percent of GDP, 6 percentage points more than the average amount of revenues during the past 40 years.

Therefore, given the aging of the population and the rising cost of health care, the United States cannot achieve all of the following objectives in the future:

  • Keep federal revenues at their average share of GDP during the past 40 years.
  • Provide the same sorts of benefits for older Americans that we have provided in the past 40 years.
  • Operate the rest of the federal government in line with its role in our economy and society during the past 40 years.

Putting fiscal policy on a sustainable path will require significant changes relative to our historical experience in popular programs, people’s tax payments, or both.

What this misses is that these are problems for the post-2015 period--not for right now. And we do not have the post-2015 congress here now to solve these problems. We should attempt to bind the post-2015 congress through supermajority provisions and triggers so that if we have post-2015 gridlock we won't go careening off into disaster. But that is all we can do right now.

What Doug Elmendorf's piece fails to mention is that right now we have an immediate problem that is as great a threat to American economic welfare as our post-2015 structural deficit. Right now we have nine percent unemployment, a static employment-to-population ratio, the threat of a double dip if not deflation, and an obstructionist Republican Party that, as Clive Crook wrote, "deserves political annihilation."

Right now cutting spending or raising taxes would be counterproductive--it would certainly push GDP down and unemployment up, and in my view at least stands a better than even chance of making our long-run deficit outlook worse.

Hoisted from the Archives:

Debt Arithmetic and Expansionary Policy: Paul Krugman Vastly Understates His Case - Grasping Reality with Both Hands: [T]he Keynesian logic for expansion right now is reinforced by the fact that recessions and austerity programs cast shadows: raise unemployment now via austerity cuts in government spending, and some of that increased unemployment sticks around permanently as higher structural unemployment. Call the share of unemployment that does so s. Then an austerity program today worsens the long-run debt-and-deficit picture if:

mt > (r - g)/(r - g + s)

if m is the multiplier, t is the marginal tax rate, s is the share of the recession rise in unemployment that turns into a permanent rise in unemployment, r is the real interest rate on government debt, and g is the economy's real growth rate. Since right now mt is about 0.5, and r is less than 2% per year, this means that further fiscal expansion is good for the long-run debt-and-deficit right now as long as:

s + g > 2%

As long as the sum of the economy's long-term growth rate--which is now about 3%--and the share of a rise in unemployment that becomes structural is greater than 2%--which it definitely is--fiscal expansion is a good thing.

Second, even if you have no Keynesian effects in the model at all, there is still an overwhelming case for borrow-and-spend right now. Why? Because the thirty-year Treasury inflation-indexed security rate at 1.86% per year is lower than the expected long-run growth rate of the real economy right now of close to 3% per year.

This is a basic topic sometimes taught in intermediate undergraduate macroeconomics: the neoclassical optimizing growth "Golden Rule."

If the economy ever gets itself into a situation in which risk-adjusted long-run interest rates are lower than the risk-adjusted expected long-run growth rate of the economy, it is dynamically inefficient--and government should borrow and spend and keep borrowing and spending until at least it drives long-term interest rates up to and above the risk-adjusted expected long-run growth rate. (And the Keynesian multiplier and the shadows cast by recessions strengthen the case for spending.)

Yet I find none of the classical, semi-classical, new classical, or neoclassical economists who believe in optimizing growth models stepping forward and saying: "Because r < g right now, what we really need is more government spending and an expanded government debt."

It is very odd...

Can't Anybody Play This Game? Barack Obama Edition

Mike Konczal sends us to last December:


THE PRESIDENT: Marc Ambinder.

Q Mr. President, thank you. How do these negotiations affect negotiations or talks with Republicans about raising the debt limit? Because it would seem that they have a significant amount of leverage over the White House now, going in. Was there ever any attempt by the White House to include raising the debt limit as a part of this package?

THE PRESIDENT: When you say it would seem they’ll have a significant amount of leverage over the White House, what do you mean?

?Q Just in the sense that they’ll say essentially we’re not going to raise the — we’re not going to agree to it unless the White House is able to or willing to agree to significant spending cuts across the board that probably go deeper and further than what you’re willing to do. I mean, what leverage would you have –

THE PRESIDENT: Look, here’s my expectation — and I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen. And so I think that there will be significant discussions about the debt limit vote. That’s something that nobody ever likes to vote on. But once John Boehner is sworn in as Speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower.

And so my expectation is, is that we will have tough negotiations around the budget, but that ultimately we can arrive at a position that is keeping the government open, keeping Social Security checks going out, keeping veterans services being provided, but at the same time is prudent when it comes to taxpayer dollars.

Yes, It Is Another Slate Fail Edition...

I suppose that it might be considered good news that libertarianism is now at the point where Slate--the website for pointless contrarianism--thinks that libertarian-bashing is part of their pointless contrarianism mission.

But I read, in Slate, from Stephen Metcalfe, that:

Stephen Metcalf: The Dilettante: In the decades after the war, a kind of levee separated polite discourse from free-market economics. The attitude is well-captured by John Maynard Keynes, whose scribble in the margins of his copy of The Road to Serfdom reads: "An extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam"...

and I wince.

Now Keynes did write, of one of Hayek's books:

The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45 [Hayek provided historical background up to page 45; after that came his theoretical model], and yet it remains a book of some interest, which is likely to leave its mark on the mind of the reader. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in bedlam...

But Keynes did not write this on the margin of any book. He did not write it by hand. He said it in print--"Keynes at his witty bitchy best", as Bruce Caldwell puts it. Keynes published it in 1931 in the journal Economica--13:34 (November), pp. 387-97, "The Pure Theory of Money: A Reply to Dr. Hayek", and it was of Hayek's Prices and Production. It was about Hayek's business-cycle theory (where, Milton Friedman used to say, Hayek "was not a great economist") and not about his moral philosophy (where, I would argue, he was a great albeit flawed economist).

What did Keynes think of The Road to Serfdom?

Here are three comments he made:

In my opinion it is a grand book.... Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement...

What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger is the probable practical failure of the application of your philosophy in the United States...

You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere, and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it...

So how did Metcalfe come up with the idea that "how... a remorseless logician can end up in Bedlam" was Keynes's judgment of The Road to Serfdom?

If you--or at least if I--google "Keynes road to serfdom" the first four results are the "grand book.... deeply moved agreement" quote.

If you--or at least I---google "Keynes a remorseless logician can end up in bedlam" I am led rapidly as I chase links either to the Economica original or to the reprint of "The Pure Theory of Money: A Reply to Dr. Hayek" in Contra Keynes and Cambridge...

Can't anybody play this game?

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