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January 2012

Who Is Teaching in Wheeler This Semester?

Here we all are:

MWF 9: UGBA 10: Robinson
MWF 10: Hist 7b: Einhorn
MW 11: Econ 1: DeLong
MW 12: Psych 1: Gade
F 12: L&S C180U: Reich
MW 2: Nut 10: Faghihnia
M 4-6: PH 116: Potts
W 4-5: PolSci 179: Ross

TTh 8-9:30: Int Bio 132: Brooks
TTh 9:30-11: MCB 61: Presti
TTh 11-12:30: Math 16b: Johnson
TTh 12:30-2: Anthro 1: Deacon

Still kinda surprised that Wheeler is apparently open MW 1-4, and TThF after 2

Kathleen Madigan: The Gap Between Fourth Quarter GDP and Final Sales Growth

Real Time Economics  WSJ

Kathleen Madigan:

Real Time Economics: Real GDP grew at a solid 2.8% annual rate in the fourth quarter…. [But] the bulk of GDP growth came from the inventory sector, which accounted for almost two percentage points of the top-line expansion…. The problem with inventory growth powering GDP is the uncertainty over what motivated the buildup.

If businesses stored more supplies and finished goods in their warehouses because they see future demand growing at a solid pace, then the stockpiling can be viewed as a positive sign of business confidence and for growth going forward.

If, however, businesses stockpiled in anticipation of more demand than materialized, then they ended the fourth quarter with a load of unwanted goods. If so, the buildup is a negative for the outlook because businesses will have to draw down their existing stockpiles first before ordering more supplies and merchandise.


Alex Massie Begs the Republicans Not to Choose Gingrich

Alex Massie:

Alex Massie: [W]hat is Gingrich's campaign actually about? Apart from typically loopy notions such as colonising the moon, nothing more than a declaration of independence from a contemptuous (and contemptible) liberal media and an anti-American elite that's notionally happy to embrace American decline. It is a brand of politics that bathes in the warm, comforting waters of victimhood but that has nothing useful to say about the actual challenges the United States faces. If this is so then it is about poking people in the eye, not about problem-solving. Indeed, while defeating suspiciously-cosmopolitan opponents is dandy, losing to them is also acceptable. For defeat reinforces the suspicion that all that's good and holy is under attack. To the Alamo, my friends!

Gingrich offers a politics of the laager. Is there more to American conservatism than this? Of course there is and must be. I still think voters will appreciate this in sufficient numbers to prove Gingrich wrong but perhaps this is too optimistic a view. Romney, desperate and dire as he is, may be a fake but in this instance the fraud is better, that is less grim, than the real thing…

The Volcker Disinflation and the Volcker Recovery Were Both Primarily the Work of… Volcker: Macroeconomic History Things That Really Should Not Need to Be Said Department

Paul Krugman corrects the record:

Postmodern Business Cycles: Noah Smith finds John Taylor claiming that the V-shaped recovery from the 1981-2 recession proves that Reagan roolz. Kind of sad, really: I find it hard not to believe that Taylor actually knows better.

But anyway, this gives me an occasion to talk about why the sluggish recovery was predictable — and predicted. This is not an after-the-fact rationalization, I was explaining very early on that this wasn’t going to be like the 1981-2 recession.

As I said then, there’s a definite change in the character of recessions after the mid-1980s. Before then, recessions were basically brought on by the Fed, which raised interest rates sharply to curb inflation, causing a slump in housing. When the Fed decided that we had suffered enough, it let rates fall again, and there was a surge from pent-up housing demand. Morning in America!

Since then, however, inflation has been well under control, and booms have died of old age — or more precisely, they have died because of overbuilding and an excessive level of debt. The Fed is then in the position of trying to goose housing (which is the principal channel for monetary policy) even though housing may already be overbuilt (which was the point I was making, sarcastically, when I said long ago that the Fed has to create a housing bubble), and it is cutting rates from an initial level which isn’t that high. So the odds of running up against the zero lower bound are high, and recovery can be a long time in coming….

The early-80s slump was brought on by a huge rise in the Fed funds rate, which left lots of room for cuts, and was driven by a deep slump in housing, which meant that there was lots of pent-up demand when rates fell again. The 2007-? slump was brought on by the bursting of a housing and debt bubble, and left the Fed largely pushing on a string.

Noah Smith:

Noahpinion: Standard Republican narrative of history (John Taylor edition): According to John Taylor, the reason that the recovery from the 2008-9 recession has not been as rapid as the recovery from the 1981-2 recession is that Reagan's policies were better than Obama's policies:

We are not really recovering from the recession, at least not compared to the period after previous big recessions such as the early 1980s…. The reason is pretty clear. In the Wall Street Journal piece I refer to and quote from a memo written by President Reagan’s economic adviser George Shultz and others after the 1980 election. It laid out the long run economic strategy they recommended and which Reagan followed. Contrast that with the memo Larry Summers sent to President-elect Obama after the 2008 election, which is making the internet rounds. It laid out the short-run Keynesian policy Summers recommended and which Obama has followed. The big policy differences largely explain the big economic performance differences.

And what are those big policy differences? In the WSJ article, Taylor spends a lot of time making a general case for "economic freedom," but names only one concrete policy difference between Reagan and Obama: Reagan enacted permanent tax cuts, while Obama enacted temporary tax rebates (in the ARRA). Taylor argues that Reagan's permanent tax cuts represent policy based on predictability and stability, while Obama's policies represent short-term, unreliable interventions.

This is a very standard intellectual-Republican narrative of economic history. Which, again, does not mean it is wrong. But I do see some big problems with Taylor's analysis.

Problem 1: Reagan's permanent tax cuts were enacted in early 1981, before the steep recession. This means that any effect that those tax rates had on the 1983 recovery had to have come not from the policy change, but from the low tax rates that were in place. However, in 2010, thanks to the Bush tax cuts, stable permanent long-term income tax rates were lower under Obama than they were under Reagan. If low permanent tax rates caused a rapid recovery in 1983, why didn't even lower permanent tax rates cause a rapid recovery in 2010?

In other words, if the 1981-2 recession was fundamentally the same kind of event as the 2008-9 recession, then Taylor is concluding that Obama's temporary tax cuts (or other actions, such as saying bad things about "business") substantially prolonged the current slump. I suppose that is possible - it's a claim that many Republicans have repeated - but it seems like a difficult case to make. A lot harder of a case, in fact, than simply saying "Reagan's policies were better than Obama's."

Problem 2: There are other historical examples of deep recessions besides the one in the early 80s. When we compare policies and results between now and the Great Depression, for example, especially in Britain, we are tempted to reach conclusions very different from Taylor's. I'll outsource this part of the argument to Brad DeLong:

This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory. 

By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again. 

In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.

So if you want to ascribe economic outcomes to broad differences in economic policy, why only look at the Reagan years? Why not look at the Depression? And why look only at the U.S. instead of at other countries as well?

Problem 3: The 2008-9 recession does not seem very comparable to the 1981-2 recession. For one thing, the early 80s recession immediately followed (and, most believe, was precipitated by) a huge hike in interest rates by the Federal Reserve (which was trying to beat inflation). That meant that as soon as rates were allowed to fall, the force that had spiked U.S. GDP growth would be removed. In contrast, the 2008-9 recession occurred during a period of historically low interest rates, which were dropped to zero shortly after the recession began. This left the Fed without its usual method of boosting GDP growth. Even more importantly, the difference also indicates that the "shocks" that caused the two recessions were fundamentally different - a policy shock in the case of the early 80s recession, but some other kind of shock in the case of the 2008-9 recession.

In other words, I think this simple standard Republican narrative does not fit the facts. It is tempting, especially for politically conservative economists, to conclude that Reagan's tax cuts made everything about the U.S. economy awesome, and that something done or said by the left-leaning Obama made everything go wrong. But that conclusion just doesn't square with the evidence that we see when we look out the window. I think a more complex narrative is needed.

Quote of the Day: January 27, 2012

"The most obvious damage is to his prose. Whenever Hobsbawm enters a politically sensitive zone, he retreats into hooded, wooden language, redolent of Party-speak. “The possibility of dictatorship,” he writes in The Age of Extremes, “is implicit in any regime based in a single, irremovable party.” The “possibility”? “Implicit”? As Rosa Luxemburg could have told him, a single irremovable party is a dictatorship. Describing the Comintern’s requirement in 1932 that German Communists fight the Socialists and ignore the Nazis, Hobsbawm in his memoirs writes that “it is now generally accepted that the policy . . . was one of suicidal idiocy.” Now? Everyone thought it criminally stupid at the time and has thought so ever since—everyone, that is, except the Communists."

--Tony Judt: Reappraisals: Reflections on the Forgotten Twentieth Century

Alexander Hamilton: America as "Grand Experiment"

Ari writes:

The so-called Grand Experiment is a big lie. « The Edge of the American West: Or so it seems. No, I’m not talking about Joe Paterno again [spits]. I’m talking about the description of the United States as a Grand Experiment in democracy or sometimes as a lower-case grand experiment in democracy. I always assumed that one of the founders* said that, that it was a quote in other words. But no, it seems that’s not the case. Unless I’m missing something — which is entirely possible; no, really, it’s entirely possible — the whole thing is a charade.

How about this? Will it do?

Alexander Hamilton:

Federalist #9: It is impossible to read the history of the petty republics of Greece and Italy without feeling sensations of horror and disgust at the distractions with which they were continually agitated, and at the rapid succession of revolutions by which they were kept in a state of perpetual vibration between the extremes of tyranny and anarchy…. From the disorders that disfigure the annals of those republics the advocates of despotism have drawn arguments, not only against the forms of republican government, but against the very principles of civil liberty. They have decried all free government as inconsistent with the order of society, and have indulged themselves in malicious exultation over its friends and partisans. Happily for mankind, stupendous fabrics reared on the basis of liberty, which have flourished for ages, have, in a few glorious instances, refuted their gloomy sophisms. And, I trust, America will be the broad and solid foundation of other edifices, not less magnificent, which will be equally permanent monuments of their errors.

But it is not to be denied that the portraits they have sketched of republican government were too just copies of the originals from which they were taken. If it had been found impracticable to have devised models of a more perfect structure, the enlightened friends to liberty would have been obliged to abandon the cause of that species of government as indefensible. The science of politics, however, like most other sciences, has received great improvement. The efficacy of various principles is now well understood, which were either not known at all, or imperfectly known to the ancients. The regular distribution of power into distinct departments; the introduction of legislative balances and checks; the institution of courts composed of judges holding their offices during good behavior; the representation of the people in the legislature by deputies of their own election: these are wholly new discoveries, or have made their principal progress towards perfection in modern times. They are means, and powerful means, by which the excellences of republican government may be retained and its imperfections lessened or avoided…

And there is always:

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure…. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

Mortgage Crisis Criminal Investigations Unit

Simon Johnson:

Breakthrough: Eric Schneiderman To Chair Mortgage Crisis Unit: As reported first in the Huffington Post, President Obama is creating “a special unit to investigate misconduct and illegalities that contributed to both the financial collapse and the mortgage crisis”.  This will be chaired by Eric Schneiderman, the New York attorney general. For more background on why this makes sense and could represent a major policy breakthrough, please see this column:

If This Is What Robert Dole Thinks, Why Didn't He Help Clinton Govern the Country in 1995-6?

Yes, I know, he thought that if he made Clinton appear a failure that then he, Dole, could be president.

Robert Dole:

Dole Goes Nuclear: I have not been critical of Newt Gingrich but it is now time to take a stand before it is too late. If Gingrich is the nominee it will have an adverse impact on Republican candidates running for county, state, and federal offices. Hardly anyone who served with Newt in Congress has endorsed him and that fact speaks for itself. He was a one-man-band who rarely took advice. It was his way or the highway.

Gingrich served as Speaker from 1995 to 1999 and had trouble within his own party. By 1997 a number of House Republican members wanted to throw him out as Speaker. But he hung on until after the 1998 elections when Newt could read the writing on the wall. His mounting ethics problems caused him to resign in early 1999. I know whereof I speak as I helped establish a line of credit of $150,000 to help Newt pay off the fine for his ethics violations. In the end, he paid the fine with money from other sources.

Gingrich had a new idea every minute and most of them were off the wall. He loved picking a fight with President Clinton because he knew this would get the attention of the press. This and a myriad of other specifics like shutting down the government helped to topple Gingrich in 1998. 

In my run for the presidency in 1996 the Democrats greeted me with a number of negative TV ads and in every one of them Newt was in the ad. He was very unpopular and I am not only certain that this did not help me, but that it also cost House seats that year. Newt would show up at the campaign headquarters with an empty bucket in his hand — that was a symbol of some sort for him — and I never did know what he was doing or why he was doing it, and I’m not certain he knew either. 

The Democrats are spending millions of dollars running negative ads against Romney as they are hoping that Gingrich will be the nominee which could result in a landslide victory for Obama and a crushing defeat for Republicans from the courthouse to the White House. Democrats are not running ads against Gingrich which is further proof they want to derail Governor Romney. 

In my opinion if we want to avoid a sweeping victory by Obama in November, Republicans should nominate Governor Romney as our standard bearer. He could win because he has the requisite experience in the public and private sectors. He would be a president in whom we could have confidence and he would make us proud.

Note: not "if we want to win we will nominate Romney". It is "if we want to avoid a landslide victory for Obama and a crushing defeat" we will nominate Romney.

That is, I think, revealing...

Paul Krugman Begs Ben Bernanke for Better Inflation Targetting

Paul Krugman:

Two Percent Is Not Enough: I’m being asked for comments on the Fed’s low-rates-until-2014 announcement. It’s a step in the right direction — and it has had a visible effect on markets, pushing long-term rates down, which is all good.

But why is the inflation target only 2 percent?

Actually, I understand why; the inflation hawks are still a powerful force that must be appeased. But the truth is that recent experience has made an overwhelming case for the proposition that the 2 percent or so implicit target prior to the Great Recession was too low, that 4 or 5 percent would be much better. Even the chief economist at the IMF says so. (OK, in real life it’s Olivier Blanchard, who is a very smart and also flexible-minded macroeconomist who just happens to be at the IMF for now — and I’m glad that he is!)

The thing is, if we’re going to lock in a formal inflation target, now would be a good time to get it right, instead of waiting until the memory of the crisis fades and everyone gets complacent again.

So this isn’t the Fed policy transformation we’ve been waiting for. But better than nothing.

Econ 210a: UC Berkeley: Spring 2012: Readings for February 1, 2012: The Agricultural Revolution

February 1. The Agricultural Revolution (DeLong)

Econ 1: Spring 2012: U.C. Berkeley: From the (World Readable) Chatroom: January 13, 2012-January 26, 2012

J. Bradford DELONG (Jan 13, 2012 8:46 AM PST) Welcome to Econ 1, Spring 2012...

J. Bradford DELONG (Jan 13, 2012 2:04 PM PST) Yes, there are sections on Tuesday, January 17. Moreover, if you do not attend your sections the first week, even if they happen before the first lecture, THE ECONOMICS DEPARTMENT AUTOMATICALLY DROPS YOU FROM THE COURSE. YOU MUST THEN RE-ENROLL. AND YOUR RE-ENROLLMENT PRIORITY PUTS YOU BEHIND ALL CURRENT MEMBERS OF THE WAITLIST. So, yes, go to section on January 17...

J. Bradford DELONG (Jan 13, 2012 4:23 PM PST) The first assignment will be going out by email in less than 24 hours. It will be to read the "Preface", "Prologue", and "Macroeconomic History" sections of Dasgupta's "Economics: A Very Short Introduction" before your first section...

J. Bradford DELONG (Jan 13, 2012 5:42 PM PST) There are at least 30 available seats in the lecture--and at least 5 sections with open seats in them. Why are you on the waitlist rather than in the class?

J. Bradford DELONG (Jan 14, 2012 9:34 AM PST) The first assignment is to read the "Preface", "Prologue", and "Macroeconomic History" sections of Dasgupta's book, "Economics: A Very Short Introduction", before your first section...

J. Bradford DELONG (Jan 14, 2012 12:41 PM PST) I'm looking for four students who would like to join me for lunch (my treat) at A Musical Offering after lecture on January 23. First come, first served...

YIJIA MAO (Jan 16, 2012 4:33 PM PST) Professor, I bought the textbook "Principles of Microeconomics" at cal bookstore, but you are not one of the author. The authors are Janet Gerson, Paula Malone and Chris Proulx. Is it the correct textbook? By the way, do we have to buy this textbook? Or can we just buy the other three books? From course website, I cannot find what chapters we need to read in "Principles of Microeconomics".

J. Bradford DELONG (Jan 16, 2012 4:53 PM PST) Yes. Gerson, Malone, and Proulx just taught from this version last semester at Michigan...

J. Bradford DELONG (Jan 23, 2012 10:48 AM PST) First Essay “Intro to GSI” due at start of next section... One more week to do problem set 1... iClicker points will start for real next Monday... Econ 1 §106 REASSIGNED TO 156 DWINELLE...

J. Bradford DELONG (Jan 25, 2012 5:36 AM PST) what's the textbook situation, anyway? Any sign that the next tranche of the order has arrived at the bookstore?

J. Bradford DELONG (Jan 25, 2012 3:49 PM PST) 34 students on the wait list, 26 places in the class. If 8 more drop, the wait list is going to clear...

J. Bradford DELONG (Jan 26, 2012 9:14 AM PST) We are now down to a waitlist of 32 with 28 seats available. This waitlist is going to clear...

J. Bradford DELONG (Jan 26, 2012 9:14 AM PST) And I guess I did not have to make the first problem set a double-length one after all...

RUCHIKA GUPTA (Jan 26, 2012 10:44 AM PST) how do you calculate opportunity cost if a worker can produce n of one good and 0 of the other. The opportunity cost of the other would be n/0 which is undefined

J. Bradford DELONG (Jan 26, 2012 11:00 AM PST) Don't say "undefined"! Say "larger than any real number"! There is a symbol for a quantity larger than any real number: "∞".

DEBORAH MARI FRIAS (Jan 26, 2012 8:25 AM PST) Professor Delong, for some reason when I click on the lecture audio, it doesn't work. And I asked the staff if your lecture will be podcasted and they said no.

J. Bradford DELONG (Jan 26, 2012 11:02 AM PST) Are you sure? It looks like there is a podcast of the lectures here:

The British Economy Is Now Doing Worse than it Did in the Great Depression

Untitled 2

Source: NIESR, via the Guardian.

Yep. This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory.

By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again.

In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.

That is quite an accomplishment.

As Phillip Inman of the Guardian puts it:

the UK's plan for recovery from the financial crisis was based on a full-throttle recovery in 2012... consumer confidence, business investment and general spending would converge to send the economy on a trajectory of above-average growth... the lack of investment will perplex ministers. They have done what the right-wing economists told them to do and moved out of the way – the theory being that public sector spending and investment was ‘crowding out’ the private sector...

It did not work: “Spain is showing the way with its austerity-driven recession. Where the weak tread, we [in Britain] look keen to follow...”

That expansionary austerity is not working in Britain should give all of its advocates great pause, and lead to a great rethinking. Britain is a highly open economy with a flexible exchange rate. Britain has some room for further monetary ease. There is no risk or default premium baked into British interest rates to indicate that fear of future political-economic chaos down the road is discouraging investment. There was an argument--I’m not saying that it was true, but there was an argument--that the Blair-Brown governments had overshot Britain’s long-term sustainable government-spending share of GDP (in contrast to those countries that had reduced their debt-to-GDP levels in the 2000s, where there was no such argument, and in contrast to the United States where the problem was not spending overshoot but taxation undershoot under the Bush administration) and that spending cutbacks were advisable in the long run.

Yet with a ten-year nominal interest rate in Britain of 2.098% per year, if low long-term Treasury interest rates were the key to recovery, Britain would be in a boom. If there was ever a place where expansionary austerity would work well--where private investment and exports would stand up as government purchases stood down--if its advocates’ view of the world was reality rather than fantasy, it would be Britain today.

But it is not working.

And the lesson is general.

If it is not working in Britain, how well can it possibly work elsewhere in countries that are less open, that don’t have the exchange-rate channel to boost exports, that don’t have the degree of long-term confidence that investors and businesses have in Britain?

Liberal Party leader Nick Clegg ought to end this farce today. He ought to tell Queen Elizabeth II Windsor that his party has no confidence in her government, and that his humble suggestion is that she ask Labour Party leader Ed Milliband to form a government.

It is true that if he does this his political career and his party’s electoral future are dog vomit. But his political career and his party’s political future is dog vomit anyway. At least defection from the ill-advised Conservative-Liberal coalition now would benefit his country.

Policy makers elsewhere in the world take note: starving yourself is no road to health, and pushing unemployment higher now is no road to market confidence.

Ta-Nehisi Coates: The Fraud of 'Voter Fraud'


The Fraud of 'Voter Fraud': Jeffrey Toobin takes a look at the Attorney General's fight with South Carolina's voting laws:

This is a chance for Holder to define his legacy as Attorney General--as something more than the guy who tried, and failed, to have Guantánamo Bay detainees tried in federal court in New York. There is a purity, a simplicity, about the voting-rights fight that is sadly absent from many modern civil-rights battles. This is not about special privileges, or quotas, or even complex mathematical formulae. It's about a basic right of American citizenship, which is being taken from large numbers of people for the most cynical of reasons. The laws are, quite literally, indefensible--so Holder ought to make the states that have them try to defend them. That would be a legacy that would make any Attorney General, and any American, proud. 

I'm disappointed in how Holder has handled the drug war, but on this I agree. Actual evidence of "voter fraud" is scant to nonexistent. It's worth remembering that blacks weren't disenfranchised through a literal effort of barring blacks from voting booths (like the water-fountains or restrooms,)  but through technicalities--grandfather clauses, literacy tests, property requirements etc--all of which were marshaled against the scourge of the "unqualified voter."

Liveblogging World War II: January 26, 1942

World War II Day-By-Day: Day 879 January 26, 1942:

Siege of Leningrad Day 141. Trucks bring in 2000 tons per day on Road of Life across frozen Lake Lagoda and the bread ration has doubled, but civilians are still dying at the rate of 4000 per day. Scurvy is a problem so pine needles are extracted to produce vitamin C. Road of Life capacity now allows civilians to be evacuated from Leningrad (440,000 will be transported out before the Ice Road melts on April 15).

Quote of the Day: January 26, 2012

"A 25-ton container of coffeemakers can leave a factory in Malaysia, be loaded aboard a ship, and cover the 9,000 miles to Los Angeles in 16 days. A day later, the container is on a unit train to Chicago, where it is transferred immediately to a truck headed for Cincinnati. The 11,000-mile trip from the factory gate to the Ohio warehouse can take as little as 22 days, a rate of 500 miles per day, at a cost lower than that of a single first-class air ticket. More than likely, no one has touched the contents, or even opened the container, along the way."

--Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World…

Daring Fireball: Google Makes the Old 1990s Mistake

John Gruber:

Daring Fireball: MG Siegler on Google’s promotion of Google Plus pages in web search results:

I’m going to go ahead and make a prediction: this does not end well for Google. I’m not saying Google falls as a result of this mistake — that would be foolish, they’re too big to fail anytime soon — but I do think that over an extended period of time, whether users consciously realize it or not, they’ll start looking elsewhere for their information needs because Google has strayed from their foundation.

It’s a philosophical line they never should’ve crossed. What made Google Google is that their web search results were better than anyone else’s, and were ordered simply by their best guess as to relevancy. Even when they introduced ads, they did it in a way that was true to the same spirit: the ads most relevant to the search terms. They profit handsomely and deservedly from this.

I think their decision to artificially promote Google plus pages above more relevant pages on competing social networks is the modern-day equivalent of the ’90s era search engines turning their homepages into “portals”. A search engine should be designed to send users quickly and accurately away to whatever sites on the Internet they’re looking for. The ’90s-era search engine portals blew this, because the whole portal idea was to keep users on their sites rather than send them away. This Google Plus integration is the same thing — an attempt to keep users on for another page view or two.

British Macro Watch: Nick Clegg Will Need a Lot of Help Come Doomsday...

Menzie Chinn:

Econbrowser: UK: Into Recession: So much for expansionary fiscal contraction in the UK. Not that that’s a surprise. The UK Office of National Statistics has just released preliminary estimates for real GDP growth in 2011Q4. The 0.8% contraction (q/q SAAR) was large than consensus, and in fact larger than the 0.6% decline forecasted by Deutsche Bank on 1/18…. In my view, this is pretty much the nail in the coffin that an expansionary fiscal contraction will occur, even in a relatively small, open economy with a flexible exchange rate (see JEC/Republicans for an exposition, and this post for a critique). Simon Wren-Lewis and Mainly Macro provides additional commentary, which I think advocates of austerity in the US would do well to heed:

The first estimate of UK growth in the last quarter of 2011 was negative. As these updated NIESR charts show, no other UK recovery has stalled in this way. Of course very little is ever certain, but we can be pretty sure that growth would have been significantly better if the current government had not imposed severe additional austerity measures beginning in 2010….

I believe we must add 2010 to a list of major macroeconomic policy errors made in the UK since the war. Like the failed monetarist experiment in the early 1980s, it is the result of a government adopting a policy which relied on a mistaken macroeconomic analysis that was not supported by the majority of academic opinion. And like that earlier failure, it will leave unemployment significantly higher than it need to have been for many years.

So, time for those in the US calling for an end to the payroll tax reduction, the reduction in food stamp programs, and cessation of stimulative monetary policies, to read a macroeconomics textbook. I suggest Greg Mankiw’s.

Twitterstorm delong: January 26, 2012

  • joshtpm Josh Marshall On press call tomorrow, Gingrich to introduce 2012 Moon Kraken 4 minutes ago Retweeted by delong

  • mattyglesias Matt Yglesias @ @MattZeitlin At least no governors of large states threatened to literally kill the guy [Bernanke]. #oops 9 hours ago Retweeted by delong

  • MattZeitlin Matt Zeitlin Housing is super important. Housing policy and the FHFA is to. Follow @JonAPrior of @HousingWire 8 hours ago Retweeted by delong

  • davidmwessel David Wessel Bernanke does little to discourage speculation that Fed will end up doing more asset-buying in light of infl and unemploymt outlook. 7 hours ago Retweeted by delong

  • MattZeitlin Matt Zeitlin @ You know what this means? He turns into @NEOLIBERALHULK RT @mattyglesias Your approach to dialogue on this topic really angers me. 7 hours ago Retweeted by delong

  • CitizenCohn Jonathan Cohn Why did Obama take so long to try populism? @NoamScheiber has a theory #p2 3 hours ago Retweeted by delong

  • GingrichIdeas Newt Gingrich Ideas Three marriages only weigh as much as one on the moon. 2 hours ago Retweeted by delong

  • EmanuelDerman Emanuel Derman It's a slippery slope & Google's has slid down it. Bit like the SEC's policy: neither admit nor deny, just pay a fine. 11 hours ago Retweeted by delong

  • delong J. Bradford DeLong John Quiggin Watches the Political Equivalent of a Tightrope-Walking Apatosaurus... 11 hours ago

  • kjhealy Kieran Healy @ @rauchway Comte FTW. 12 hours ago Retweeted by delong

  • DemocratMachine Viva DemocratMachine We once went out to dinner with Mitch Daniels. He estimated the cost of dinner at $10. It cost $316. #BudgetaryGuru 21 hours ago Retweeted by delong

  • froomkin Dan Froomkin OK, best #SOTU line: "The greatest blow 2 confidence in our economy lst yr…came from a debate... over whether US wd pay its bills or not." 22 hours ago Retweeted by delong

  • ayeletw Ayelet Waldman Just saw John Carter. It was AWESOME. Seriously. Best action movie I've seen ... maybe ever? Lush and gorgeous. Great love story. FAB!!!! 22 hours ago Retweeted by delong

  • zunguzungu Aaron Bady I just discovered that "Friends with Benefits" and "No Strings Attached" are actually different movies. #mindblown 22 hours ago Retweeted by delong

  • bobbybaird robert p. baird David Brooks is frustrating until you understand he was sent to our planet to disprove the hypothesis of actually existing meritocracy. 23 hours ago Retweeted by delong

  • neilbarofsky Neil Barofsky If task force created either b/c DOJ hasn't done an investigation, or b/c 3 yr DOJ investigation a failure, how does Holder keep his job? 23 hours ago Retweeted by delong

  • afrakt Austin Frakt Health care still 1/6 of economy and growing. Wouldn't know it from #sotu. 24 Jan Retweeted by delong

  • delong J. Bradford DeLong @ @Noahpinion @mattyglesias Did you hear I liked being poked in the eye with a sharp stick too? 24 Jan

  • Mitt Romney and Ann: the students “struggling” so much that they had to sell stock. « The Reality-Based Community 24 Jan

  • Paul Krugman Is Grateful to Be Lectured on Professional Etiquette by John "Fairy Tales" Cochrane 24 Jan

  • The Pho Bar 23 Jan

  • zunguzungu Aaron Bady "Zookeeper. Lacked the subtlety and depth of feeling that made Paul Blart: Mall Cop merely soul-crushingly horrendous." 23 Jan Retweeted by delong

  • DemocratMachine Viva DemocratMachine Romney supporter: if Romney loses FL, then we need to take the decision out of the hands of Republican voters #PrettyMuch 23 Jan Retweeted by delong

  • digby56 digby RT @Lizardoid: Brian Williams even let Santorum get away with white-washing his disgusting exploitation of the Schiavo debacle/#lowpoint 23 Jan Retweeted by delong

  • Udacity - Educating the 21st Century 23 Jan

  • When_Im_POTUS The GOP Circus @ @SuzyKhimm @delong @BenjySarlin it's Moonifest Destiny #whenimPOTUS #newtisms 2 hours ago

  • BizTrends FRANK FEATHER RT @delong: Udacity and the future of online universities | Felix Salmon via @twttimes 4 hours ago

  • Dodson_Realty Dodson & Associates Great comments on an article from @WSJ : Three Ways to Give Housing Market a Lift - Thx @delong, @appraisernews 23 Jan

I Have Renewed Respect for Louie and Freddy...

Ludwig von Mises and Friedrich von Hayek that is.

If only we had a market university rather than this centrally-planned administered monstrosity, I would have been willing to pay good money not to have my Wednesday teaching scheduled from 11-12 in Wheeler and then 12-2 in Evans…

A Note on Office Hours

A Note on Office Hours

OK. It is now clear the way office hours are going to work. They are going to start in either Evans 597 or Evans 601 at 2 PM on Wednesdays (depending on where I am at that moment), and then I will gradually drift upward to Evans 601--with occasional runs into Evans 611 to grab cookies and coffee.

Is Social Mobility Horrible?: Adam Smith Snarks at Tyler Cowen

From the Theory of Moral Sentiments:

Smith: Theory of Moral Sentiments: When we consider the condition of the great, in those delusive colours in which the imagination is apt to paint it. it seems to be almost the abstract idea of a perfect and happy state. It is the very state which, in all our waking dreams and idle reveries, we had sketched out to ourselves as the final object of all our desires. We feel, therefore, a peculiar sympathy with the satisfaction of those who are in it. We favour all their inclinations, and forward all their wishes. What pity, we think, that any thing should spoil and corrupt so agreeable a situation! We could even wish them immortal; and it seems hard to us, that death should at last put an end to such perfect enjoyment. It is cruel, we think, in Nature to compel them from their exalted stations to that humble, but hospitable home, which she has provided for all her children.

"Great King, live for ever!" is the compliment, which, after the manner of eastern adulation, we should readily make them, if experience did not teach us its absurdity. Every calamity that befals them, every injury that is done them, excites in the breast of the spectator ten times more compassion and resentment than he would have felt, had the same things happened to other men…. To disturb, or to put an end to such perfect enjoyment, seems to be the most atrocious of all injuries. The traitor who conspires against the life of his monarch, is thought a greater monster than any other murderer. All the innocent blood that was shed in the civil wars, provoked less indignation than the death of Charles I.

A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than to those of meaner stations.

Upon this disposition of mankind, to go along with all the passions of the rich and the powerful, is founded the distinction of ranks, and the order of society. Our obsequiousness to our superiors more frequently arises from our admiration for the advantages of their situation, than from any private expectations of benefit from their good-will…. Neither is our deference to their inclinations founded chiefly, or altogether, upon a regard to the utility of such submission, and to the order of society, which is best supported by it. Even when the order of society seems to require that we should oppose them, we can hardly bring ourselves to do it.

That kings are the servants of the people, to be obeyed, resisted, deposed, or punished, as the public conveniency may require, is the doctrine of reason and philosophy; but it is not the doctrine of Nature. Nature would teach us to submit to them for their own sake, to tremble and bow down before their exalted station, to regard their smile as a reward sufficient to compensate any services, and to dread their displeasure, though no other evil were to follow from it, as the severest of all mortifications. To treat them in any respect as men, to reason and dispute with them upon ordinary occasions, requires such resolution, that there are few men whose magnanimity can support them in it, unless they are likewise assisted by familiarity and acquaintance…

Decisions, Decisions...

Do I spend the next hour working on the draft of the Brookings paper due Friday in the Wheeler Green Room, or do I go out into Wheeler Auditorium and listen to Robin Einhorn's U.S. history lecture instead?

John Quiggin Watches the Political Equivalent of a Tightrope-Walking Apatosaurus...

John Quiggin watches Tyler Cowen abandon equality of opportunity as a goal and endorse stasis of relative incomes instead:

How (not) to defend entrenched inequality: Once the Overton window shifted enough to allow inequality and social immobility to be mentioned, the weight of evidence has been overwhelming. This post by Tyler Cowen is an indication…. Cowen feels the need, not merely to dispute some aspects of the data on inequality and social mobility in the US, but to make the case that a unequal society with a static social structure isn’t so bad after all. Cowen makes seven arguments, ranging from weak to risible….

(3) For a given level of income, if some are moving up others are moving down.  Do you take theories of wage rigidity seriously?  If so, you might favor less relative mobility, other things remaining equal.  More upward — and thus downward — relative mobility probably means less aggregate happiness, due to habit formation and frame of reference effects.

This is an ancient argument against income redistribution… but it’s surprising to see it extended to the case of intergenerational mobility.  Apparently, expensive tastes, once acquired in childhood, can’t be dispensed with without great suffering.

(5) How much of immobility is due to “inherited talent plus diminishing role for random circumstance”?  Is not this cause of immobility very different — both practically and morally — from such factors as discrimination, bad schools, occupational licensing, etc.?  What are you supposed to get when you combine genetics with meritocracy?  I do not know how much of current American (or other) immobility is due to this factor, but I find it discomforting that complaints about mobility are so infrequently accompanied by an analysis of this topic.

A lot of handwaving here. The supposed genetic role is assumed, not supported by any evidence to produce a suggestion that declining mobility arises because the US has now become more meritocratic, and therefore more efficient at promoting people of high ability. There’s plenty of evidence going the other way, notably including the fact that class matters much more than it used to in getting admission to high-status colleges..

(4) Why do many European nations have higher mobility?  Putting ethnic and demographic issues aside, here is one mechanism.  Lots of smart Europeans decide to be not so ambitious, to enjoy their public goods, to work for the government, to avoid high marginal tax rates, to travel a lot, and so on.  That approach makes more sense in a lot of Europe than here.  Some of the children of those families have comparable smarts but higher ambition and so they rise quite a bit in income relative to their peers.  (The opposite may occur as well, with the children choosing more leisure.)  That is a less likely scenario for the United States, where smart people realize this is a country geared toward higher earners and so fewer smart parents play the “tend the garden” strategy.  Maybe the U.S. doesn’t have a “first best” set-up in this regard, but the comparison between U.S. and Europe is less sinister than it seems at first.  “High intergenerational mobility” is sometimes a synonym for “lots of parental underachievers.”

Another version of the same argument.  The only notable point is the observation that “smart people realize this is a country geared toward higher earners”.

(6) I am more than willing to hear arguments than a less mobile society is a less stable society, or otherwise a society which makes worse political decisions.  But I haven’t seen serious arguments here.  By “serious arguments” I mean those which take endogeneity into account and go beyond noting that Denmark is a better polity than Brazil, and so on.

Granted, there doesn’t appear to be a lot of hard statistical evidence here (commenters, please prove me wrong on this). But there is a ton of US political rhetoric from the past (right up to the last six months or so) that would suggest great social and political benefits from living in a ‘land of opportunity’...

The rest of it is no better.

John Quiggin sums up:

To sum up, Cowen’s post is an exercise in defending the indefensible, and its weaknesses reflect that. As Mitt Romney’s tax returns show, wealthy Americans have the rules rigged in their favor from day one. And that’s assuming they obey the rules. Unlike the poor, they can mostly cheat with impunity. In these circumstances, it’s unsurprising that US inequality is so deeply entrenched. The only surprise is the suddenness with which the facts have become common knowledge…

And then John gets triumphalist:

The fact that the Repubs are extreme reactionaries, uninterested in any kind of bipartisan compromise, has finally sunk in to all but the most obtuse centrists…. [T]he point that the rich play by different rules from the rest of us has been made glaringly obvious…

I'm more skeptical. But at least I have seen an apatosaurus try to walk a tightrope. That's worth the price of admission all by itself.

Macroeconomic Stabilization Policy: Should Have Listened To The DFHs Edition

Duncan Black:

Eschaton: Perhaps More People Should Have Listened To The Dirty Hippies From The Beginning: Apparently imploding economies is not the best strategy.

Financial market participants say they are more concerned about the absence of growth in the euro zone than about budget deficits and public debt levels now, because growth is what will enable countries to service and repay their debts over time. "It looks like the LTRO is having a positive contribution. Does it solve all of the problems sustainably? Probably not," said Andrew Bosomworth, a senior portfolio manager at Pimco.

"At the end of the day, it comes down to growth -- that's what these countries need to keep their debt sustainable."

Everybody has been getting it backwards.

  1. Cut spending
  2. ?? 3.Growth

When the reality is:

  1. Increase spending
  2. Growth
  3. pay down debt

Yes things were a bit more complicated with Greece, but the people in charge have just made things worse. Won't hold my breath for an apology. Sorry we destroyed your economy! Bygones.

Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion bailout coupled with savage austerity was not working after two years of crisis that has brought the single currency to the brink of unravelling.

It never, you know, made any [fraking] sense.

Econ 210a: UC Berkeley: Spring 2012: The Commercial Revolution

January 25. The Commercial Revolution (DeLong): Readings

Discussion Powerpoint

Liveblogging World War II: January 25, 1942

World War II Day-By-Day: Day 878 January 25, 1942:

Libya. [The Nazi Afrika Korps offensive continues and they] overrun British tanks, capturing 30 Valentines (heavily-armored British “Infantry” tanks) parked in formation and part of the Divisional HQ, at the key road junction at Msus. The road runs Northeast of Msus to Benghazi, while a track heads East across the desert towards Egypt. British 1st Armored Division, which arrived from Britain in November, has lost 100 of its 150 tanks in 5 days.

Quote of the Day: January 25, 2012

"The history of enterprise in antiquity therefore falls naturally into two periods. First is the development of economic practices in Mesopotamia circa 3500-1200 BC. By the end of antiquity we find gain-seeking shifting away from productive enterprise to land acquisition, usury, profiteering from political office, and extraction of foreign tribute by force…"

--David S. Landes, Joel Mokyr, and William J. Baumol, The Invention of Enterprise

Google's Earnings Call Has Freaked Alexis Madrigal Out


How Good Are Those Google Plus Numbers Again?: The longer tech industry watchers chew over the numbers that Google CEO Larry Page gave on last week's earnings conference call, the worse the aftertaste seems to get. Rocky Agrawal calls attention to the key Page quote about the site's supposed 90 million users:

Over 60 percent of Google+ users use Google products on a daily basis. Over 80 percent of Google+ users use Google products every week.

Unless we're misinterpeting what 'Google product' is, these numbers are very strange. Remember that Google's products include Google Search, Gmail, and YouTube, so one has to wonder about the 40 percent of Google+ users who don't use a single Google product in a day. One might even conclude that the 20 percent of Google+ users who don't use a Google product in a week are not really "on" the Internet in a way that most users would recognize.

Worse, if these are the numbers that Page chose to use to bolster his case that Google+ was succeeding, imagine what the other numbers look like?

Ta-Nehisi Coates Continues to Kick Confederate Dreamer Ron Paul, His States-Rights Libertarians, and His Republican Party Up and Down the Avenue

I must say, this is a thing of beauty to watch. TNC:

Compensation - Politics - The Atlantic: When Ron Paul claims that Lincoln "shouldn't have gone to war," he is deploying a convenient and erroneous frame which necessarily holds that the inciting aggression was not in raising an Army, seizing federal property and arms, urging revolution among ones neighbors, and then firing on a federal fort, but in democratically electing a president with whom slave-holders disagreed. Throughout the War, Lincoln attempted to bring about a peaceful and magnanimous end. He pitched compensated emancipation, and was rebuffed, not by the Confederates, but by slave states still loyal to the Union. When Union armies brought states back under federal control he urged easy paths to regaining citizenship. And in his final inauguration speech, even in seeing some justice in the War's carnage, still he spoke of concilliation:

With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation's wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

A month later, he was dead. Again, the reasons are a matter of history:

I have ever held the South were right. The very nomination of ABRAHAM LINCOLN, four years ago, spoke plainly, war -- war upon Southern rights and institutions. His election proved it. "Await an overt act." Yes, till you are bound and plundered. What folly! The South was wise. Who thinks of argument or patience when the finger of his enemy presses on the trigger? In a foreign war I, too, could say, "country, right or wrong." 

But in a struggle such as ours, (where the brother tries to pierce the brother's heart,) for God's sake, choose the right. When a country like this spurns justice from her side she forfeits the allegiance of every honest freeman, and should leave him, untrameled by any fealty soever, to act as his conscience may approve. People of the North, to hate tyranny, to love liberty and justice, to strike at wrong and oppression, was the teaching of our fathers. The study of our early history will not let me forget it, and may it never. 

This country was formed for the white, not for the black man. And looking upon African Slavery from the same stand-point held by the noble framers of our constitution. I for one, have ever considered if one of the greatest blessings (both for themselves and us,) that God has ever bestowed upon a favored nation. Witness heretofore our wealth and power; witness their elevation and enlightenment above their race elsewhere. I have lived among it most of my life, and have seen less harsh treatment from master to man than I have beheld in the North from father to son. Yet, Heaven knows, no one would be willing to do more for the negro race than I, could I but see a way to still better their condition.

An avowed white supremacist, Booth signed his last letter, "A Confederate doing duty upon his own responsibility." 

History is identity. When we erase the painful portions, we lose texture, color and we are reduced. Patriotism, in my eyes, has always been about the strength of seeing those rough spots, of  considering your home at its worse, and remaining enthralled, nonetheless. That is how we love our daughters, our husbands, our mothers. That is how we make family. 

I have come to a fairly recent regard for Lincoln. He rose from utter frontier poverty, through self-education and hard work, to the presidency and the upper reaches of American letters. His path was harsh. His wife was mentally ill. His son died in office. He was derided in newspapers as ugly, stupid, a gorilla and white trash. For his patience, endurance, temperance and industry in the face of so many troubles, Lincoln was awarded a shot to the head. 

Now in some sectors of the country for which Lincoln died, patriotism means waving the flag of his murderer. The party he founded supports this odious flag-waving and now gives us a candidate who would stand before that same flag and peddle comfortable fictions. What hope is there when those who talk of patriotism brandish the talisman of bloody treason?

Ryan Lizza's Verdict on Obama so Far…

Ryan Lizza:

The White House staff memos show Obama scaling back his proposals in the face of the business lobby, designing a health-care bill to attract support from doctors, rejecting schemes from his aides that could be caricatured by the right, and in dozens of other ways making the unpleasant choices of governing in a system defined by its constraints.

Obama made important mistakes in the first half of his term. He underestimated the severity of the recession and therefore the scale of the response it required, and he clung too long to his vision of post-partisanship, even in the face of a radicalized opposition whose stated goal was his defeat. The memos show a cautious President, someone concerned with his image. When, in 2009, he was presented with the windfall pot of thirty-five billion dollars that he could spend on one of his campaign priorities or use for deficit reduction, Obama wrote, “I would opt for deficit reduction, but it doesn’t sound like we would get any credit for it.” At other moments, the memos show a President intensely focussed on trying to restrain the government Leviathan he inherited, despite an opposition that doesn’t trust his intentions. When his aides submit a plan to save money on administrative efficiencies, Obama writes back, with some resignation, “This is good—but we should be careful not to overhype this given D.C. cynicism.” He is frustrated with the irrational side of Washington, but he also leans on the wisdom of his political advisers when they make a strong case that a good policy is bad politics. The private Obama is close to what many people suspect: a President trying to pass his agenda while remaining popular enough to win reëlection.

Obama didn’t remake Washington. But his first two years stand as one of the most successful legislative periods in modern history. Among other achievements, he has saved the economy from depression, passed universal health care, and reformed Wall Street. Along the way, Obama may have changed his mind about his 2008 critique of Hillary Clinton. “Working the system, not changing it” and being “consumed with beating” Republicans “rather than unifying the country and building consensus to get things done” do not seem like such bad strategies for success after all.

Paul Krugman Is Grateful to Be Lectured on Professional Etiquette by John "Fairy Tales" Cochrane


A Bizarre Turn In The Stimulus Debate (Boring): Wow. Just wow. John Cochrane puts up a post that to all appearances amounts to a complete retreat from his previous denunciations of deficit spending in a recession. But he simultaneously denies having ever held the position everyone thought he held, and denounces me and Brad DeLong as big meanies. I’ll outsource the analysis to Noah Smith.

Just for reference, if you want to know what I was reacting to, here’s my original Dark Age post, and some further Cochrane quotation. Notice, by the way, the highly polite declaration that anyone who believed in stimulus was telling “fairy tales”; it goes with Lucas’s highly polite dismissal of Christy Romer’s stimulus analysis as “shlock economics.” I’m so glad to be lectured now on professional etiquette.

Anyway, see if you can reconcile all that with what Cochrane now claims he believed all along.

Paul on the Dark Age:

A Dark Age of macroeconomics (wonkish): Here’s Fama:

The problem is simple: bailouts and stimulus plans are funded by issuing more government debt. (The money must come from somewhere!) The added debt absorbs savings that would otherwise go to private investment. In the end, despite the existence of idle resources, bailouts and stimulus plans do not add to current resources in use. They just move resources from one use to another.

And here’s Cochrane:

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both.1 This is just accounting, and does not need a complex argument about “crowding out.”

Second, investment is “spending” every bit as much as consumption. Fiscal stimulus advocates want money spent on consumption, not saved. They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather save it. But the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift.

There’s no ambiguity in either case: both Fama and Cochrane are asserting that desired savings are automatically converted into investment spending, and that any government borrowing must come at the expense of investment — period.

What’s so mind-boggling about this is that it commits one of the most basic fallacies in economics — interpreting an accounting identity as a behavioral relationship. Yes, savings have to equal investment, but that’s not something that mystically takes place, it’s because any discrepancy between desired savings and desired investment causes something to happen that brings the two in line.

And Paul on Robert Lucas's inability to… I guess "inability to discount" is the best way to describe it:

A Note On The Ricardian Equivalence Argument Against Stimulus (Slightly Wonkish): [E]ven if you assume that the [Ricardian Equivalence] doctrine is right, it does NOT imply that government spending on, say, infrastructure will be met by offsetting declines in private spending. In other words, Robert Lucas was betraying a complete misunderstanding of his own doctrine when he said this:

If the government builds a bridge, and then the Fed prints up some money to pay the bridge builders, that’s just a monetary policy. We don’t need the bridge to do that. We can print up the same amount of money and buy anything with it. So, the only part of the stimulus package that’s stimulating is the monetary part.


But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.

This remark was followed, by the way, by a smear against Christy Romer:

Christina Romer — here’s what I think happened. It’s her first day on the job and somebody says, you’ve got to come up with a solution to this — in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning.

So she scrambled and came up with these multipliers and now they’re kind of — I don’t know. So I don’t think anyone really believes. These models have never been discussed or debated in a way that that say — Ellen McGrattan was talking about the way economists use models this morning. These are kind of schlock economics.

Maybe there is some multiplier out there that we could measure well but that’s not what that paper does. I think it’s a very naked rationalization for policies that were already, you know, decided on for other reasons.

I’ve tried to explain why Lucas and those with similar views are all wrong several times...

Chicago's John "Fairy Tales" Cochrane Says: Chicago's John "Fairy Tales" Cochrane Used to Be a Bullshit Artist

Noah Smith tells us that John Cochrane now writes:

Let's be clear what the "fiscal stimulus" argument is and is not about. It is not about the proposition that governments should run deficits in recessions. They should, for simple tax-smoothing, consumption-smoothing, and social-insurance reasons…. Nor is it about debt financing of "infrastructure" or other genuine investments. If the project is valuable, do it. And recessions, with low interest rates and available workers, are good times to do it…. The "stimulus" proposition is that additional spending -- whether needed or not -- raises output and general welfare. Pay people $1 to dig ditches and fill them up again, and the whole economy gains $1.5….

Stimulus [is] still an economically interesting proposition, and there is a great deal of uncertainty about whether, when, and how well it might work. There is a huge academic literature being produced right now…. Here are the facts. Some economic models do predict a fiscal stimulus effect. Some don't…. The facts are far from decisive…. So, there is a lot of uncertainty and a lot we don't know about how the macroeconomy works…

And I think of John Cochrane of the past, of three years ago, as reported by Oliver Staley and Michael McKee:

John Cochrane, a finance professor at the Booth School of Business at the University of Chicago, said that while Tobin made contributions to investing theory, the idea that spending can spur the economy was discredited decades ago. “It’s not part of what anybody has taught graduate students since the 1960s,” Cochrane said. “They are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we heard as children but it doesn’t make them less false.” To borrow money to pay for the spending, the government will issue bonds, which means investors will be buying U.S. Treasuries instead of investing in equities or products, negating the stimulative effect, Cochrane said. It also will do nothing to unlock frozen credit, he said…

I read John Cochrane today as constructively admitting that John Cochrane three years ago was a full-fledged bullshit artist.

I read John Cochrane today as constructively admitting that John Cochrane three yards ago was writing and saying things that simply were not true, and was doing so simply because he had not done his homework.


It's nice to see.

But what I would really like to see is something more. What I would really like to see would be an explicit admission: Something like: "I wrote a lot of bullshit three years ago because I had not done my homework. It made Christy Romer and Larry Summers and company's jobs more difficult. I'm sorry."

Continue reading "Chicago's John "Fairy Tales" Cochrane Says: Chicago's John "Fairy Tales" Cochrane Used to Be a Bullshit Artist" »

How Much Did Larry Summers Fear the Invisible Bond Market Vigilantes in December 2008?: The Obama Economic Policy Memo

My conclusion is that he did not fear them much, if at all.

Remember that this memo is not Larry Summers's view as of December 2008. It is, instead, the rough consensus of an initial Obama economic policy team whose members spread out on the policy spectrum from left to right roughly in the order: Romer-Summers-Orszag-Geithner. This is Larry Summers being honest broker: his own personal views at the time were probably a couple of steps to the left of the broad thrust of the memo.

Reading the memo, the piece of it that I thought summarized the memo's view of the "bond market vigilantes will come to kill us all if we try to give the economy a fiscal boost!" argument was this:

From the perspective of raising demand and creating jobs there is a case for a very large program of stimulus. Considerations on the other side include… [a]n excessive recovery package could spook markets or the public and be counterproductive. Given where the public discussion is moving and given the "flight to treasuries" present in markets at this point, we do not believe this should deter escalation well above $600 billion - a view shared by senior Federal Reserve officials. It does speak to the importance of accompanying recovery actions with strong measures to reinforce medium term fiscal credibility…

This seems to me to raise the argument that the administration-to-be should do less than it was planning to do out of fear of bond market vigilantes--and then to rebut that argument. The bottom line I get is that the economic team believed that the invisible bond market vigilantes were simply not an issue for policies in the range that the administration-to-be was thinking of proposing.

The other place in the memo where the invisible bond market vigilantes are mentioned is this:

To accomplish a more significant reduction in the output gap [than in the four illustrative policy proposals] would require stimulus of well over $1 trillion based on purely mechanical assumptions - which would likely not accomplish the goal because of the impact it would have on markets…

If you read the memo as expressing the opinions of a single rational mind--which is probably a mistake: such memos are by their nature a compromise, and coherence and consistency of thought across sections is invariably sacrificed to the need to get the memo out the door when participant X says that §Y must say Z or they will demand another meeting to thrash out the issues--then the midpoint of the Obama economic policy team as of December 2008 thought that a $600 billion fiscal boost was too small while a "well over $1 trillion" fiscal boost was too big. The Recovery Act that we got was about $600 billion of real stimulus, plus $200 billion of stimulus-ineffective congressional gee-gaws like AMT relief.

Given the situation and forecasts as of December 8, 2008, this looks like the right number to me. Remember that as of December 8, 2008 the economy looked much brighter than it turned out to be--and that as a result the magnitude of "flight to quality" demand for Treasuries looked to be much smaller than it turned out to be, which means that it was rational then to think that the bond market vigilantes were much closer than they have turned out to be.

Don't complain about excessive fear of the bond market vigilantes.

And be very grateful that we had President Obama rather than President McCain advised by Greg Mankiw:

Greg Mankiw is the only economist we have consulted with who refused to name a number and was generally skeptical about stimulus.

You want, nevertheless, to complain, when you should be grateful? You can complain--but wait until the very end of this post…

Ezra Klein has thoughts:

What the Summers memo tells us about the Obama White House: The economic policy memo that Larry Summers sent to Barack Obama in December 2008, and that the New Yorker’s Ryan Lizza has posted in full, is the ur-text for the Obama administration…. This memo is best understood as the rough consensus of the members of the economic team…. The economic team clearly thought it was counseling the president to embrace a more aggressive response than anything that had previously been proposed. “We have become convinced there there is a compelling case for a recovery package considerably larger than the $500 to $600 billion that we were originally contemplating,” the memo reads. “The rule that it is better to err on the side of doing too much rather than too little should apply forcefully to the overall set of economic proposals.”…

But the team made two huge miscalculations — one political, one economic. The political miscalculation was that “it is easier to add down the road to insufficient fiscal stimulus than to subtract…” That was clearly untrue…. The economic miscalculation was that “forecasters now expect output to contract at least a five percent annual rate in 2008 Q4.” In fact, the contraction in the fourth quarter of 2008 was 9 percent….

The controversial takeaway from the memo is that Summers suggested that a stimulus in excess of $1 trillion would spark a counter-reaction from the bond markets…. The line in question is slightly more ambiguous:

To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions — which would likely not accomplish the goal because of the impact it would have on market…

Summers defenders argue that he was making a more limited claim: Not that anything over $1 trillion should be off the table, but that the mechanical relationship between stimulus dollars and growth only goes so far…. Summers and his team clearly thought they were fighting for a larger stimulus than was currently on the table, and designed the memo — complete with outside validators — to achieve that goal.

But for all the attention given to the sentence on the bond market, the memo quickly moves onto other topics. Much more attention is paid to a different constraint: the operational constraints in trying to put so much money into the economy in a way that was both quick and smart:

While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.

The memo deals with this question in great detail, and concludes that “we can only generate about $225 billion of actual spending on priority investments over the next two years”…

Jared Bernstein:

Summers and Stimulus | Jared Bernstein | On the Economy: I’m not saying we did enough, but I am saying Larry was among those who recognized the urgency of the Keynesian imperative.  And not just in January of 2009, but for the duration of his tenure.

How does that square with a section like this, from Lizza’s piece?

Summers advised the President that a larger stimulus could actually make things worse. “An excessive recovery package could spook markets or the public and be counterproductive,” he wrote, and added that none of his recommendations “returns the unemployment rate to its normal, pre-recession level. To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.”

Again, look at the actual memo.  On page 11, Larry cites four reasons for not going big on the stimulus, including spooking the bond markets.  And in each case, he stresses the counterargument…. [T]he President may have been longing for Truman’s one-handed economist, but with respect to Lizza’s otherwise excellent piece, the thrust of Larry’s emphases here is consistent with his view that the risk was doing too little on stimulus, not too much.

And yes, Larry was wrong, as was I and many others, that it would be easier to add than subtract. In fact, the evolution of that view is at the heart of the Lizza’s trenchant analysis, which at its core is an anatomy of the level of partisanship with which we are currently stuck. 

It’s fair to say that too few of us recognized that dynamic coming out of the gate.  It’s also fair to say that such die-hard, mindless opposition by those whose primary goal is to defeat the President is…um…antithetical to good government, to put it nicely.

Derek Thompson:

The Most Important Passage from the Secret Larry Summers Memo: [A] 57-page memo that Larry Summers wrote to Barack Obama to frame the debate over the stimulus…. [O]nly one passage is underlined, or bolded, or italicized. In fact, it was so important to Summers, it got all three treatments. It's this one:

But it is important to recognize that we can only generate about $225 billion of actual spending on priority investments over next two years. and this is after making what some might argue are optimistic assumptions about the scale of investments in areas like Health IT that are feasible over this period.

Here's why this passage was critical. The recession was so deep that it might require up to $1 trillion in stimulus, according to economists surveyed by Summers' team. But the federal government could "only generate about $225 billion of actual spending" in Summers' estimation. To fill the gap, the White House would have to rely on less-than-ideal sources of stimulus spending. Those sources were tax cuts and state relief…. [T]ax breaks are more likely to be saved, especially when families are in debt, which dampens their effect as stimulus (since the point of stimulus is to circulate money, not to increase families' savings). State relief wasn't Summers' idea of perfect stimulus, either. States would likely use the money to offset tax increases, support old spending programs, or fortify rainy day funds…. The gap between the needs of the economy and Summers' doubts about the capacity of government to spend money effectively is all over this memo, and it's summed up nicely in this paragraph:

Constructing a package of this size, or even in the $500 billion range, is a major challenge. While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses….

The fact that this memo has been out of the public eye for the last three years might suggest to you that the administration would be embarrassed by it. Indeed, the now-famous prediction that the stimulus would hold unemployment closer to 7 percent was proved wildly inaccurate. The White House also clearly underestimated the scale of the housing mess, and failed to come up with a way to address the housing crisis on par with its severity.

But there's quite a lot that Summers and his team got right. He was right to suspect that the tax cuts might be saved by indebted families. He was right to suspect that Republicans would attack state relief as unproductive and rewarding to profligate states. He was right that using the stimulus to fulfill the president's campaign promises wasn't ideal…. He was right that the president would inevitably be on the defensive about deficits caused by lower tax revenues and exacerbated (in the short term, at least) by the stimulus. He was right to predict that deficits would lasso entitlement reform into the big picture. He was right that financial reform was a necessary item on the president's agenda, but that it would prove difficult to build political support for major reform while the banks still seemed sick. And so on.

History might remember this memo as the document that killed any hope for a trilion-dollar stimulus, but it's a rich and complicated report that offers a wonderful look at how Obama's team was grappling with an economic downturn that turned out to be even worse than they imagined.

Paul Krugman:

Larry and the Invisibles: One problem with interpreting the memo is that it does read like an imperfectly fused merge of stuff from several people; I told Ryan Lizza that I felt like someone doing textual analysis of the Bible, trying to identify which passages came from author S, which from author O, which from author R. The ones I agree with most look like R; the ones I dislike probably came from O. Jared is right that the really, really key misjudgment was the notion that they could come back for more — a failure to understand the bitterly partisan nature of the situation. And this remains totally baffling and frustrating to me, because I thought it was dead obvious…. And this, I have to say, goes back to Obama. He came into office believing, in the teeth of all the evidence, that he could transcend partisanship. This is the thing I worried about all through the primary; and his reluctance to give up on this vision arguably did major damage in those crucial first few months. Barney Frank quipped that Obama gave him “post-partisan depression”. Yeah. But he is expected to be a very different guy tonight…


The key thing I took away from the memo is that it does not read at all like the current story the administration gives for the inadequate size of the stimulus, which is that they knew it should be larger but had to face political reality. Instead, the memo argues that a bigger stimulus would be counterproductive in economic terms, because of the “market reaction”. That is, Summers et al were afraid of the invisible bond vigilantes. And to the extent that there is a political judgment, it’s all in the opposite direction: if the stimulus is too big, we’ll have trouble scaling it back…. That was deeply naive — and I said so in real time. Now, you can still argue that politics made a bigger stimulus impossible. But that’s not at all the argument being made internally within the administration at the time.

Where I think the Obama economic policy team erred on December 8, 2008 was in not taking seriously enough its injunctions that:

In thinking about the risks to the forecast, further negative revisions seem more likely than positive revisions. A significant worry is that the accelerated real decline in output could cause further deterioration in asset prices and further financial market distress…


The rule that it is better to err on the side of doing too much rather than too little should apply forcefully to the overall set of economic proposals...

Where the team, in my 20-20 hindsight view, erred after December 2008 was in:

  1. not raising its estimates of the desired size of the Recovery Act as the economy and the forecast deteriorated between December 8, 2008 and inauguration day.

  2. not setting up an alternative, Reconciliation-process track to create the option to do a second Recovery Act fiscal boost in late 2009 with a simple Senate majority should forecast revisions in fact be negative.

  3. not creating the power to do a serious financial-sector boost to the economy via the role of the GSEs in the housing market by prioritizing appointment of a Director of FHFA who would believe that his job was to use the GSEs as instrumentalities of stabilization policy should that become necessary.

  4. not prioritizing the appointment of a Federal Reserve Chair and of Federal Reserve Governors who would take an employment-population ratio of 58.5% (rather than 63%) as as large an economic policy disaster as an inflation rate of 7% (rather than 2.5%) would be.

  5. the premature rhetorical switch away from macroeconomic recovery to long term fiscal balance in January 2010, based not on a plan but simply on the hope that there would not be a jobless recovery.

  6. the insistence by the political and communications teams to this very day that the Recovery Act was the right size for the economy, or was the best that could be accomplished--could not have been amplified via either Reconciliation, the FHFA, or the Federal Reserve.

Want to complain about Obama and his economic policy team? Complain about those. Don't complain about excessive fear of the invisible bond market vigilantes.

And then there are the further lost opportunities, not on macroeconomic but rather on other forms of policy:

  • not grabbing equity in the large money-center banks in the winter of 2009 in order to neutralize their ability to lobby to neuter financial regulatory reform.

  • not grabbing Mitt Romney and Olympia Snowe the day after Election Day 2008 and saying: "You write the health care reform universal coverage bill: I will endorse it and make sure enough Democrats fall into line to pass it."

  • not using Reconciliation to uncap FICA in March 2009 so that you could then negotiate a long-term Social Security deal from a position of strength.

  • not using Reconciliation to impose a carbon tax in April 2009 so that you could then negotiate a cap-and-trade environmental deal from a position of strength.

The December 8, 2008 Obama Economic Policy Team Memo:

Quote of the Day: January 24, 2012

"'I believe in white supremacy until blacks are educated to a point of responsibility', John Wayne said. And: 'I don’t feel we did wrong in taking this great country away from the Indians. There were great numbers of people who needed new land, and the Indians were selfishly trying to keep it for themselves.'"

--Rick Perlstein, Nixonland: The Rise of a President and the Fracturing of America

Liveblogging World War II: January 24, 1942

Vincent O'Hara:

Balikpapan anchorage, Borneo: On January 23, 1942 Allied aerial reconnaissance spotted a convoy of fifteen transports carrying the 56th Infantry regiment and 2nd Kure Special Naval Landing Force (SNLF) bound for Balikpapan, an important oil field in southeastern Dutch Borneo.   Admiral Hart, commander of the Asian Fleet and ABDAFLOAT ordered USN light cruisers Boise and Marblehead and six destroyers stationed at Kupang, Timor to intercept this convoy. En route Boise struck an uncharted pinnacle in Sapeh Strait tearing a hole in her bottom.  She was forced to turn back to Java, keeping Barker as her escort.  Then, Marblehead burned out a turbine reducing her speed to 15 knots; she received Bulmer as her escort.  These misfortunes reduced the attack force to Destroyer Division 59, John D. Ford, Pope, Parrot and Paul Jones.   Marblehead and Bulmer followed the division north so the cruiser's six inch guns could provide a rendezvous point for the destroyers to fall back to after their attack.  

After losing half his ships and almost all his firepower, it would have been understandable if Admiral Glassford, the American commander, had aborted his apparently jinxed mission.  Instead, he pressed his luck and, against the odds, his elderly destroyers managed to elude the powerful Japanese escort of a light cruiser and ten modern destroyers and surprise the transports anchored at Balikpapan. This escort, 4th Destroyer Flotilla led by light cruiser Naka, dashed off just as the Americans arrived, apparently in response to an attack by Dutch submarine K-XVII that damaged Tsuruga Maru.   From Ford it seemed that: "a whole division of Jap destroyers burst out of the gloom and oil smoke on our port bow and steamed rapidly across in front of us and off into the darkness to starboard. . . I don't know why they didn't see us." Japanese lookouts usually did excellent work; they probably mistook DesDiv 59 for a friendly force.  

The Japanese force, meanwhile, had been suffering steady attrition.  On the evening of the 23rd nine Dutch B-10 bombers out of Samarinda damaged one and sank another transport off Balikpapan.  The convoy arrived at 2045 hours on the 23rd and anchored off shore in two rows; eight ships near the shore and five more further off.  At 0045 on the 24 the Dutch submarine K-XVIII torpedoed another transport.  She made a second attack shortly before the Americans arrived and was damaged by subchaser No. 12.  

The American destroyers sighted the Japanese at 0245 about 9,000 yards distant.  The transports were anchored in two lines, the furthest five miles off shore and silhouetted periodically against the lurid fires of burning oil storage tanks. Three patrol boats, converted World War I destroyers, four minesweepers and four subchasers provided close protection to the convoy.  

Between 0246 and 0255, the Americans made a high speed run toward the outer line of transports.   Ford led followed by Pope, Parrott and Jones.  They fired ten torpedoes in four salvos.  Parrott opened with three, to port and then, two minutes later, with five more at what she thought was a destroyer or cruiser 1,000 yards to starboard, i.e. to sea, that was in fact W15, one of the 700 ton mine sweepers.  Next, Ford fired one at an anchored transport to port and astern.  Finally, Paul Jones let go with one more to starboard, W15 again.  All missed (or failed to explode).  The six torpedoes launched at W15, a small target stern on and withdrawing, were difficult shots in any case.  

By 0300 the American column had run north, past the outer line of transports.  Talbot ordered a turn to starboard to lead his ships south for another pass.  Parrott, the third ship in line and the most ready to use her ordnance, sighted a target to port just before commencing her turn and let loose three more torpedoes.  At 0302 she was rewarded with at least one hit on the Sumanoura Maru of 3,519 tons displacement.  

This blow announced to the Japanese that they were under attack, but did not disclose the agent of the attack. At 0302 the Americans were north of the Japanese and embroiled in the midst of the smoke stream from the oil tanks. Dutch submarines and planes had been harrying the Japanese force with some success.  Nishimura mistook this event for another submarine attack and at led his ships once again from the anchorage out to sea.  

As the powerful Japanese escort chased phantoms, the four American destroyers headed south parallel to the outer line of transports.  At 0306 Pope fired five torpedoes at a silhouetted target to starboard followed by Parrott at 0308 and Paul Jones at 0310.   These salvos resulted in one hit on the Tatsukami Maru, an ammunition ship of 7,064 tons displacement, which, not surprisingly given her cargo, blew up and sank. At 0314 Ford made a hard swing to starboard to penetrate the southern end of the Japanese line.  Her three consorts followed.  At 0319 Pope and Parrott heading west fired two and three torpedoes respectively at a target less than 2,000 yards to port.  Three hits were scored on PC-37.  The patrol boat sank and although she was later raised from the shallow water, her damage was so great she never returned to service.  

At 0322 Ford and Paul Jones each let go one torpedo at a merchant ship about 1,000 yards to port.  This vessel was underway and managed to evade both shots; however, Ford let the column around her, first south and then back east and Paul Jones scored with one more torpedo fired at 0325.  This sank Kuretake Maru 5,175 tons.  

Continuing her swing around the stricken Kuretake Maru, Ford led the column back north.  By this time, Pope, Parrott and Paul Jones were all out of torpedoes.  According to the battle plan, these ships opened fire with their 4" guns.   Then, at 0335 Ford turned northwest through the first line of transports.   The others, having conformed with their flag's movements for almost an hour, failed to keep up with her this time.  First Parrott and Paul Jones peeled off, circling back south and out of the action, followed shortly after by Pope.   Ford continued through the inner line of transports, firing her guns and her remaining stock of torpedoes.  At  0332 she scored gunfire hits on Asahi Maru and caused some damage.  Another transport was also damaged by Ford's gunfire during this portion of the battle.  At 0335 her last two torpedoes found and sank Tsuruga Maru, 6,988 tons which  had been torpedoed by the Dutch submarine K-XVIII about four hours earlier.  At 0347 one of the transports gained a small measure of revenge when she hit Ford on her aft deckhouse wounding four men.  This was the only damage inflicted on the Americans.  Ford had to circle back to the southeast to avoid running aground and by 0400 she was steaming south.  

The battle was over. Naka, Minegumo and Natsugumo from the escort finally realizing the true nature of the attack, collected themselves and chased the Americans, but without success.  By 0642 the four destroyers reunited south of Balikpapan and at 0800 they rejoined Marblehead and Bulmer.      While clearly winning a tactical victory, Morison and others have criticized the Americans for failing to better exploit the perfect set-up fortune presented them: of 48 torpedoes fired at close range against clearly visible, stationary targets, "sitting ducks," only six struck home.  Lack of experience, a hasty approach and/or defective torpedoes are given as the primary factors behind the American failure to achieve greater results.  These factors doubtless all told, nonetheless, a year and a half would pass, filled with bitter and hard fought battles, most of them defeats, before American torpedoes fired from a surface warship would again damage Japanese ships.  The Americans sank a quarter of the Japanese force with torpedoes that truly were defective, with vastly superior enemy forces nearby, and escaped effectively unharmed.  

While this victory did not delay for one day the invasion of Borneo, the Battle of Balikpapan was a remarkable effort, especially compared with subsequent Allied attempts in this campaign to stop the Japanese. The battle was the first surface engagement fought by the USN since the Spanish American War, forty-four years before and it was the first victory achieved solely by warships against the Japanese.  The Japanese light cruiser and her destroyers permitted this victory by sailing away from the loaded convoy they were supposed to be protecting.  In their defense, they had good reason to fear submarines and no reason to think any ABDA surface forces were in a position to intervene.   Even discounting the 4th Destroyer Flotilla, the Japanese firepower matched the Americans in this battle at 14x4.7" guns against 16x4".  The transports were armed with additional weapons, one of which damaged Ford.  However, none of the Japanese ships engaged carried torpedoes.