Grasping Reality on TypePad, by Brad DeLong

Alan Blinder’s ‘After the Music Stopped’:

Grab a new book. Open it to page 69. If the passage is compelling…. Today’s edition brings us to Alan Blinder’s “After the Music Stopped”…. On page 69, however, we see him pondering the origins of the subprime housing meltdown:

Consider the sad case of Alberto and Rosa Ramirez, a pair of Mexican American strawberry pickers in California whose annual income was in the $12,000 to $15,000 range and whose English was marginal at best. Egged on and assisted by an unscrupulous real estate agent looking for a big commission, the Ramirezes obtained a $720,000 mortgage from the notorious (and now bankrupt) New Century Financial Corporation to buy a $720,000 house. Yes, you read that right: They didn’t put a penny down, and the mortgage was forty-eight to sixty times their annual income!

The real estate agent apparently recorded their income as $12,000 per month and their occupations as “field technicians.” Slight errors. The Ramirezes moved into their McMansion with another family, and somehow, including receiving financial help from the real estate agent, managed to hang on for a few years before defaulting and losing their home to foreclosure.

Now, here’s a simple test of banking IQ: Should that mortgage have been granted? You may not be an experienced central banker, but your no answer is correct.

Unfortunately, New Century got the answer wrong in 2005 when it actually made this loan and many others like it. Other banks made similarly disgraceful loans. Yes, you are asking the right question: What were these guys smoking? Apparently, the weed was called greed. Make the loan, pocket the commission, pass it downstream, and let someone else worry about the consequences.

“Apparently, the weed was called greed.” Yep, unexpected!

I'm reviewing the book for Foreign Affairs. It's very good…

Sergeant Mack Morris on Guadalcanal:

I fail to see how this can last much longer. By actual figure there are 51,000 of us here and something like 8,000 Japs – all of which aren’t effectives – and this still drags on.

It must be incredible to people who have never seen this place. But I wouldn’t be surprised if we’re not still rounding up strays a year from now unless they all starve to death. It isn’t the Japs so much as it is this god-awful terrain but at the same time the little bastards are as hard to get rid of as a dose of crabs. They dig in and come hell or high water they won’t come out unless you drag them out.

Panel Moderator: J. BRADFORD DELONG (University of California-Berkeley)

Panelists:

• CARLO COTTARELLI (International Monetary Fund)
• PAUL KRUGMAN (Princeton University)
• VALERIE A. RAMEY (University of California-San Diego)
• HARALD UHLIG (University of Chicago)

DELONG: Between 1985 and 2007--the period of the "Great Moderation"--the Federal Reserve and the rest of the U.S. government on the west edge and the central banks and institutions of the European Union on the east edge of the Atlantic Ocean provided a broadly stable macroeconomic environment within which private-sector businesses, workers and investors could make their economic plans. In the U.S., on an annual basis: the rate of nominal GDP growth dropped below 4% for only 3 of those years and rose above 7% for only 2 of those 22 years; the rate of consumer price inflation rose above 5% for only 3 and fell below 2% percent for only 2 of those 22 years; and the civilian adult employment-to-population ratio remained between 60% and 64% for that entire period. And Western Europe experienced a similar "Great Moderation" with low inflation, relatively smooth growth, and diminishing unemployment.

As Robert Lucas put it in those halcyon days: “the problem of depression prevention has been solved”.

Then in 2008-9 the rate of nominal GDP growth in the U.S. crashed to -3%--a major, major downward surprise to anybody expecting and relying on a continuation of "Great Moderation" rates of nominal spending growth--the rate of consumer price inflation on an annual basis bottomed out at -2%, and the employment-to-population ratio dropped from 63% to between 58% and 59%, since when it has flatlined. In Western Europe the initial recession was smaller, but the subsequent labor market performance was even more disappointing, so that now the net fall relative to trend in Western European production and employment exceeds that in the United States.

The problem of depression prevention—and of depression cure—has not been solved.

• Jonathan Samuels: Sydney Bakes In Hottest Day Ever As Bushfires Rage

• John Quiggin: Utopia and climate change: "Economic development and technological progress provide the only real hope of lifting billions of people out of poverty and destitution…. Yet the living standards of the developed world have been built on cheap energy from carbon-based fossil fuels. If everyone in the world used energy as Americans or even Europeans do, it would be impossible to restrict climate change to even four degrees of warming. For those of us who seek a better life for everybody, the question of how much our environment can withstand is crucial. If current First World living standards can’t safely be extended to the rest of the world, the future holds either environmental catastrophe or an indefinite continuation of the age-old struggle between rich and poor. Of course, it might hold both."

• Bill Black: Bill Black: German Growth Goes Negative but Merkel’s Press Remains Glowing

• Ryan Avent: The euro crisis: Mario Draghi's premature canonisation: "I find it shocking how readily we all seem to be accepting the European Central Bank's inaction on euro-zone economic weakness. Some perspective is in order. Real euro-area output is at roughly the level of the end of 2006 and it is declining. The euro-area economy hasn't grown since the third quarter of 2011. Total employment is below the level first attained in the second quarter of 2006 and it is declining. The unemployment rate is of course at a record high 11.8%. And inflation—both core and headline—was virtually nil in the second half of 2012. That's simply a dismal macroeconomic performance…. [T]he complacency on the macro situation (and on the broader process of institutional reform, for that matter) are just astounding."

• Noah Smith: The End of Labor: How to Protect Workers From the Rise of Robots: "For most of modern history, inequality has been a manageable problem. The reason is that no matter how unequal things get, most people are born with something valuable: the ability to work, to learn, and to earn money… two-thirds of the income of most rich nations has gone to pay salaries and wages for people who work…. But in the past ten years, something has changed. Labor's share of income has steadily declined…. [T]here is another, more sinister explanation for the change. In past times, technological change always augmented the abilities of human beings…. Recent technological advances in the area of computers and automation have begun to do some higher cognitive tasks…. Once human cognition is replaced, what else have we got?"

In 2012, the twenty political-economy weblogs that I most often visited were:

• http://www.cepr.net/index.php/blogs/beat-the-press/
• http://economistsview.typepad.com
• http://krugman.blogs.nytimes.com
• http://marginalrevolution.com
• http://blogs.reuters.com/felix-salmon/
• http://www.slate.com/blogs/moneybox.html
• http://noahpinion.blogspot.com
• http://capitalgainsandgames.com
• http://www.economist.com/blogs/freeexchange/
• http://jaredbernsteinblog.com
• http://factsandotherstubbornthings.blogspot.com
• http://www.voxeu.org
• http://ftalphaville.ft.com/
• http://thinkprogress.org/economy/issue/
• http://www.econbrowser.com
• http://nakedcapitalism.com
• http://bonddad.blogspot.com
• http://macroadvisers.blogspot.com
• http://www.samefacts.com
• http://www.washingtonpost.com/blogs/wonkblog/

How should I change this list in 2013?

I went to http://technorati.com and searched for the top weblogs on "economics". After pruning the list of things that I found clearly unsuitable, I found myself with 50 candidates for my frequent-reading list (yes, there is overlap):

• http://www.reason.com/blog
• http://marginalrevolution.com/
• http://crookedtimber.org
• http://www.oilprice.com
• http://delong.typepad.com/
• http://economistsview.typepad.com/
• http://thereformedbroker.com/
• http://www.bigcatcountry.com/
• http://econlog.econlib.org/
• http://theincidentaleconomist.com

• http://libertystreeteconomics.newyorkfed.org
• http://blogs.wsj.com/economics/
• http://blog.foreignpolicy.com
• http://tywkiwdbi.blogspot.com
• http://www.taxfoundation.org/blog/
• http://drezner.foreignpolicy.com/
• http://www.coyoteblog.com/coyote_blog/
• http://captaincapitalism.blogspot.com
• http://www.frcblog.com
• http://blog.acton.org

• http://mungowitzend.blogspot.com/
• http://dqydj.net
• http://www.econtalk.org
• http://the-classic-liberal.com
• http://skydancingblog.com
• http://capitalgainsandgames.com
• http://www.creditwritedowns.com
• http://www.economicpopulist.org
• http://real-estate-and-urban.blogspot.com
• http://blogs.cgdev.org/globaldevelopment

• http://www.azizonomics.com
• http://middleclasspoliticaleconomist.blogspot.com/
• http://orgtheory.wordpress.com
• http://johnquiggin.com
• http://baselinescenario.com
• http://antzinpantz.com/kns
• http://therealrevo.com/blog
• http://blanksslate.blogspot.com
• http://www.ethanzuckerman.com/blog/
• http://www.progressive-economics.ca

• http://scottgrannis.blogspot.com
• http://randomroger.blogspot.com
• http://aguanomics.com
• http://dailycapitalist.com
• http://dollarvigilante.com/blog
• http://beerswithdemo.blogspot.com
• http://thinkafricapress.com/
• http://thisiscommoncents.com
• http://epicureandealmaker.blogspot.com
• http://seeingtheforest.com

That leaves me with three questions:

• What other political-economy weblogs should I add to my candidates for frequent reading?

• Which of those on my candidate list should I add to my frequent-reading list?

• And what things on my frequent reading list should I drop?

Lisa Pollack:

A tempest in a spreadsheet: But none of that is the spreadsheet error. This is the spreadsheet error (on the last two pages of the 129-page Report — way to save the best for last?):

…further errors were discovered in the Basel II.5 model, including, most significantly, an operational error in the calculation of the relative changes in hazard rates and correlation estimates. Specifically, after subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had intended. This error likely had the effect of muting volatility by a factor of two….

Did we say “error”? We meant errors:

The West End analytic had two options for calculating hazard rates and correlations: a traditional Gaussian Copula model and a so-called Uniform Rate…. The Model Review Group employee discovered that West End defaulted to running Uniform Rate rather than Gaussian Copula… contrary to the language in the Model Review Group approval….

Now, we’re not exactly big fans of the Gaussian Copula, but it is quite a concern when the spreadsheet doesn’t even do what you think it does. There’s more juicy background to this than you think. It concerns the guy who developed the new VaR model. First, there’s the fact that he was overworked (“join the club”, we hear you think):

The modeler is a London-based quantitative expert, mathematician and model developer…. On a number of occasions, he asked the trader to whom he reported for additional resources to support his work on the VaR model, but he did not receive any… increased operational risk and artificially low volatility numbers:

For example, the model operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another. In addition, many of the tranches were less liquid, and therefore, the same price was given for those tranches on multiple consecutive days, leading the model to convey a lack of volatility….

These two things (manual entry and artificial lack of volatility) came up in the review of the model. The report says there is “some evidence” that pressure was put on the reviewers to get on with approving the model in January because of the risk limit breaches being incurred with the old model…. Hence the Model Review Group “may have been more willing to overlook the operational flaws apparent during the approval process.”… The Numerix analytic suite had been approved by the Model Review Group. But the modeler, when developing the new VaR model, developed his own suite — called “West End”. This suite was not reviewed in advance of the new VaR model being rolled out, but rather only had a limited amount of backtesting completed on it. All of which makes the little errors (in the sense of single-day fat fingers)…

…a spreadsheet error caused the VaR for April 10 to fail to reflect the day’s $400 million loss in the Synthetic Credit Portfolio. This error was noticed, first by personnel in the Investment Bank…

And the more systemic ones…

…the new CIO VaR model for the Synthetic Credit Portfolio in late January 2012 were flawed, and the model as implemented understated the risks presented by the trades in the first quarter of 2012.

…considerably less surprising.

Reconciliation:

David Brooks teaches Yale class on humility, compares self to Bono.

World War II Today:

Sergeant Robert Raymond was an American volunteer serving in the RAF. He knew that the ‘tremendous propaganda value’ of hitting Berlin was good for morale. After eight hours sleep following the first raid, when his load included a 4,000 lb ‘blockbuster’ bomb, he went back to do it all over again on the night of 17th….

Verily it is better to send than to receive in this racket.

I see that over at Naked Capitalism, the commenters are talking about John N. Grey, whose try for the Stupidest Man Alive prize was his statement that:

Financial markets are moved by contagion and hysteria. Mesmer and Charcot are better guides to the new economy than Hayek or Keynes...

I very much doubt that John N. Gray has ever read a word written by John Maynard Keynes. But it is never too late!

So it is time to once again, give the mike to John Maynard Keynes, and reprint the excellent Chapter 12, "The State of Long-Term Expectation" from The General Theory of Employment, Interest and Money:

WE have seen in the previous chapter that the scale of investment depends on the relation between the rate of interest and the schedule of the marginal efficiency of capital corresponding to different scales of current investment, whilst the marginal efficiency of capital depends on the relation between the supply price of a capital-asset and its prospective yield. In this chapter we shall consider in more detail some of the factors which determine the prospective yield of an asset.

The considerations upon which expectations of prospective yields are based are partly existing facts... partly future events which can only be forecasted... future changes in the type and quantity of the stock of capital-assets and in the tastes of the consumer, the strength of effective demand from time to time during the life of the investment under consideration, and the changes in the wage-unit in terms of money.... We may sum [these] up... as being the state of long-term expectation....

It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain.... For this reason the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change....

The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention. But economists have not analysed it carefully.... Our conclusions must mainly depend upon the actual observation of markets and business psychology.... The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market....

• Report of JPMorgan Chase & Co. Management Task Force Regarding 2012 CIO Losses

• Hurricane Relief Passes with Minority of the Majority

• Adam Posen is no fan of more expansionary fiscal policy in Japan: Japan should rethink its stimulus: "What happens when an economy runs out of fiscal space?… [P]ublic debt exceeds a certain limit and financial confidence collapses…. At times this scenario holds true…. Japan demonstrates a different reality…. Japan was able to get away with… high deficits… [because] Japan’s banks were induced to buy huge amounts of government bonds… Japan’s households accepted… persistently low returns… market pressures were limited by… few foreign holders of JGBs… [and] the share of taxation and government spending… was low…. Each of these factors enabling the ongoing fiscal deficits has had its costs…. The case for continued deficit spending in Japan ended by mid-2003. Though it is often overlooked, Japan’s economy recovered well following a rectification of financial and macroeconomic policies… [f]rom 2003 to 2007, per capita real income growth was the same in Japan as in the US…. Mr Abe’s new fiscal stimulus initiative is therefore questionable…. [C]ombined with monetary expansion and a likely consumption tax rise in the near future, I expect its multiplier and thus short-run impact to be high. The additional stimulus in Japan is counterproductive because it adds to the long-term costs without addressing Japan’s real problem: a return to deflation and an overvalued exchange rate…. When a large country with its own currency reaches its fiscal limit, growth ends not with a bang but a whimper of declining vitality and diminishing resilience."

• Aaron Swartz Memorial JSTOR Liberator sets public domain academic articles free

• Alan Blinder: Alan Blinder: The Debt Ceiling Is Scarier Than the Fiscal Cliff: "If the borrowing limit isn't raised, then spending would contract by 6% of GDP, followed by a swift recession."

@delong [The] CPS March supplement finds 1-3 each year from 2008-2012 [in their random sample], suggesting a couple of thousand [single mothers with two kids under ten making $260K/year or more], out of 16-17 million single mothers

— Evan Roberts (@evanrobertsnz) January 16, 2013

But they all read the Wall Street Journal, and are miserable:

Ann Marie Marciarille:

PrawfsBlawg: Up In Smoke: [T]he ACA's much vaunted promise to end both pre-existing condition exclusions and individual underwriting of insurance risk…. There are some exceptions… use of tobacco products…. The ACA permits premiums to vary based on tobacco use by a factor of 1.5.  And the premium supports available to low income individuals are not available for the tobacco use premium band bump. 

What does this really mean for older low income tobacco users?… [I]nsurers could apply a different -- and considerably lower -- surcharge for tobacco use on younger smokers than on older smokers… could knock a substantial number of older smokers into a very familiar kind of uninsurability known as unaffordability… an un-subsidized tobacco premium surcharge of perhaps $4,000 a year…. (Of course, were you an older low income citizen intent on evading the individual mandate you could take up smoking and game yourself into the exceeds 8% of houshold income exemption for the individual mandate.)

All of this makes some actuarial sense…. All of this may not make the most public health sense, however.  If higher unsubsidized premiums are designed to discourage tobacco use, there is little doubt that shorter term tobacco users have a higher success rate at quitting. Older smokers -- say a 57 year old male -- tend to be those with a pretty hard core addiction to nicotine, an addiction intensity not evenly distributed among the smoking population.

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

Xenos:

Reading is for Snobs: These Are The People The Wall Street Journal Thinks We Should Have Sympathy For?: The Wall Street Journal had an article providing a fairly thorough breakdown of the new tax policies that will now be in effect due to the "fiscal cliff" agreement…. The article itself wasn't too bad…. However, it did include one little thing…. Yes, in that comic, every single one of those families makes a six figure income, the lowest being $180 thousand, and yet because of the new tax hikes imposed by Obama, they all appear as though he ran over the family dog.

The median household income in the U.S. between 2007-2011 was $52,762, but the American people are all supposed to shed tears for those that make between three to twelve times as much? Seriously, how out of touch do you have to be to think that? Of course, this is the same outfit that supported a guy who thought making $250k qualified as "middle income".

Just how many female-headed single-parent families with two children under 10 are there in the United States making $260K/year, anyway?

Austin Frakt:

The epidemic of low-value care | The Incidental Economist: Craig A. Umscheid, MD, MSCE. Being a physician does not confer immunity from clinical capture disease:

The ophthalmologist was underwhelmed by my findings. But “just in case,” he wanted a brain MRI scan, eye ultrasonography, and a visual field test to rule out multiple sclerosis (MS), subclinical neurovascular disease, masses compressing my fourth cranial nerve, and thyroid disease causing ocular muscle hypertrophy. We agreed that these diagnoses were extremely unlikely because I had no symptoms and no changes in examination findings over 2 years. But he “wanted to make sure.”

I tried to understand and put myself in his place. But it was difficult, because he seemed so unimpressed. Even if I had MS or vascular disease, I wouldn’t do anything differently. I was already getting blood pressure checks and was taking a statin for a family history of early heart disease. An intracranial mass also seemed unlikely given the duration and asymptomatic nature of my findings. But despite my own medical and epidemiologic training, it was difficult to resist his advice. As my physician, his decision making was important to me. I trusted his instincts and experience.

Jack Swab of the Royal Artillery, east of Tripoli:

a.m.: In truck. Barrage crashed out till midnight. Up at 2.30 for orders and moved at dawn. Action about 0830. Now sitting in truck waiting to advance again. Frantic hurry everywhere; breakfast cooked and served in about 20 minutes; eaten in about 20 seconds. Fighters about .. identity uncertain. Suspect Kittyhawks.

Later: In action again some miles nearer the Tripoli road. No rations, water or petrol or ammo have so far come up so the smallest amount of each is vital. The sky is again rather monopolised by German planes (later this situation reversed). So far we have not been attacked.

We have just brewed up. It is about 1315. People are getting tired and irritable from lack of food and sleep. I find Sgt. Sherrat our Sig. N.C.0. the worst offender but there are several others. Buchanan and Cowie are keeping going well, and so is Wagstaff – somewhat ostentatiously.

12 of our fighters just going over. At least they`re probably ours but rather high to be sure. Nobody knows anything tactical. Came up through a minefield on which some of our tanks had been blown up. Lots of enemy trenches, some very deep. Flies are bloody here. Cleaned teeth and shaved at this posn. in 1/4 of a pint of water.

1730: As usual in the middle of our evening stew panic order from R.H.Q.. Equally as usual we are still waiting for the preceding part of the column to come through. B.C. (and my watch) back. A 5.9 is shelling the ridge about 1 1/2 miles forward.

2030, by moonlight: We’ve just received orders. Rommel has gone North fast and this time we’re not sending armour only but 152 (H) Brigade and all the Div Arty with mediums, bofors and what have you.

It means driving all tonight, all tomorrow and maybe tomorrow night. We have no food in hand (Regt. has it I believe) and hardly any water – a bottle full each. Cross country it certainly looks like being a tiring pursuit, [e]specially as most of us have only had from none to 4 hours sleep during the last 3 days. We are at present lined up in bright moonlight waiting to go.

• Jonathan Chait: Math Victimizes Journal Editorial Page Again: One of the things about the Journal editorial that makes it so consistently entertaining is that its supply-side enthusiasts are so bad at their jobs they don’t even know how to do propaganda right… the editorial writer wanted a fact to prove that rich people don’t have enough money to make a real dent in the deficit… tried their best to rejigger the definition of rich… the number came in way too high anyway…. [A] good propagandist would have just kept the fact out of the editorial…. I strongly suspect this is the work of Journal economic editorial writer Stephen Moore, a writer whose work is the subject of a longtime morbid fascination of mine, especially his trademark habit of producing facts or pseudo-facts that utterly refute his point while presenting them as though they confirm it."

• Mark Thoma: Economist's View: 'Skill-Biased Technological Change and Rising Wage Inequality'

• FRONTLINE & Longreads: Inside Obama’s Presidency

• John Scalzi: The Human Division

Gordon's Tech: Removing 3500+ iCloud Contacts with no content (No Name) and Contacts.app use of 25GB of virtual memory:

I suspect many people's iOS Contacts have been trashed by iCloud, but only a small percentage realize how bad things are. It may explain some of the mysterious data use and battery life problems some see.

I can't prove this of course; I'm not about to study a random sample of 100 devices. I can only go by my own disastrous experience and Emily's recent malfunction.

In my case the bug had to do with a change between MobileMe and iCloud in the handling of line endings resulting in large numbers of 'Groups' metastasizing between my devices. It was very hard to diagnose and fix that bug; since then things have seemed to go well with my use.

Emily's malfunctions seemed simple at first. I noticed she had both addresses on her device and in iCloud. I didn't expect that, but I figured it would be easy to clean up. [1]. Then I discovered about 3,500 entries in Contacts that showed up only as 'No Name'. This isn't a new problem and I don't know how long Emily had it. She never noticed, I suspect most non-geeks ignore that sort of thing. I wonder if it explains some battery life issues she's had, and even Spotlight and disk access issues on some of our older machines as these malformed entries propagated. (As noted below, during the removal process the OS X Contacts app used 25 GB of virtual memory and locked up my 27" iMac.)

Removing these malformed null-value entries was much harder than expected. Something about processing the deletes using Mountain Lion Contacts.app consumed vast amounts of virtual memory -- almost completely paralyzing my 2 yo iMac. (More about how I got control in a later post.)

Northwest Ordinance; July 13, 1787:

An Ordinance for the government of the Territory of the United States northwest of the River Ohio.

§1: Be it ordained by the United States in Congress assembled, That the said territory, for the purposes of temporary government, be one district, subject, however, to be divided into two districts, as future circumstances may, in the opinion of Congress, make it expedient.

A rather obvious statement that 84% of polled economists agree with:

Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.

Luigi Zingales says that he disagrees--presumably he thinks that the separate debt-ceiling vote adds to certainty about future policy and leads to better fiscal outcomes.

Kevin Outterson:

Reality: Red State Option Edition: Yesterday, Arizona’s Governor [Jan Brewer] stopped pointing her finger and joined the Medicaid expansion. Pundits expressed shock, but no one should be surprised. Most of the plaintiff states will ultimately follow suit, for two reasons: politics & money. First, in most counties, the local hospital is one of the largest employers and these hospitals want the Medicaid expansion. The political pressure will be intense, well-connected, and local. Second, the federal match rate is indeed generous. It is hard to justify turning down such largess. But as the plaintiff states jump on ship voluntarily, it undermines their prior claims of unconstitutional coercion.

Meanwhile, in Oklahoma, the Governor is sticking to her guns.  200,000 Oklahomans will lose (or fail to obtain) coverage as a result. The state authorized $500,000 for a consultant to study options to cover these people. Will the report recommend the expansion?

…only Massachusetts and Vermont were free states, and only Pennsylvania, New Hampshire, Connecticut, and Rhode Island had enacted laws that would someday lead to their becoming free states.

What went on in 1787 to make this happen?

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Ag_Atlas_Maps/

"News of day" No.1-2 (1943, January) : Central Newsreel Studio, USSR

The Republican grifters of the world salivate...

Scott Lemieux:

Bring Back Tech Central Station!: Another milestone in the death of parody, from the National Review cruise:

That prompted a tall, extremely tanned blonde named Kay, from Old Greenwich, Connecticut, to ask Hassett, the co-­author of the 1999 book Dow 36,000, “So what do we do with our money?”

The contact list from the people who paid money for this cruise has to be among the most valuable set of leads in history. I’m pretty sure Mitch and Murray have already given NRO a six-figure bid.

• Eschaton: F The Deficit: "The additional maddening thing is that if you fix the jobs problem you largely fix the deficit problem. The reverse is not true. If you "fix" the deficit you kill the jobs."

If becoming the paid employee of Scientology isn't rock bottom for the Atlantic, I don't know what is. theatlantic.com/sponsored/scie…

— Erik Loomis (@ErikLoomis) January 15, 2013

• Aaron Swartz's Lawyer: Prosecutor Stephen Heymann Wanted 'Juicy' Case For Publicity

• Eric Loomis: Longing for the Days of Megan McArdle: "You thought McArdle was as low as The Atlantic could go? Oh no. Not even close. How about allowing Scientology to write a “Sponsor Content” that looks just like a news article but is in fact a self-written story about the awesomeness of Scientology leader David Miscavige? Wow. If this isn’t rock bottom, I don’t know what is. Also, make sure you read the comment section. I’m sure it’ll soon be inundated with people ripping the magazine. But right now, it’s clearly a coordinated campaign by Scientology to flood the comment section with laudatory comments. It’s all very special."

• Gavyn Davies: How much spare capacity does the world have left?

• Ken Thomas: Middle Class Political Economist: US already has high elder poverty rate; how can cutting Social Security even be on the table?

Suppose that you believed in the Solow long-run growth model—that economies converge over time to steady-state growth paths with a speed of convergence determined by the factor shares in the production function, and that the different steady-state growth paths of developed economies at least have different levels determined by accumulation rates and population growth rates but all have a constant growth rate given by the world’s frontier rate of labor-augmenting technological progress.

What can we say about the long-run consequences of the Japanese financial crisis as viewed through this particular lens?

Casablanca Conference:

The Casablanca Conference (codenamed SYMBOL) was held at the Anfa Hotel in Casablanca, Morocco, then a French protectorate, from January 14 to 24, 1943, to plan the Allied European strategy for the next phase of World War II. In attendance were United States President Franklin D. Roosevelt, British Prime Minister Winston Churchill, and representing the Free French forces, General Charles de Gaulle, and General Henri Giraud. Premier Joseph Stalin had declined to attend, citing the ongoing conflict in Stalingrad required his presence in the Soviet Union. The conference agenda addressed the specifics of tactical procedure, allocation of resources and the broader issues of diplomatic policy.

• Russil Wvong

• Steve M.: No More Mister Nice Blog: "Paul Krugman has been supporting the platinum coin option as an end-run around Republican debt-ceiling terrorism, so he's dismayed by the latest news: ;If I'd spent the past five years living in a monastery or something, I would take the Treasury Department's declaration that the coin option is out as a sign that there's some other plan ready to go. Maybe 14th Amendment, maybe moral obligation coupons or some other form of scrip, something. And maybe there is a plan. But as we all know, the last debt ceiling confrontation crept up on the White House because Obama refused to believe that Republicans would actually threaten to provoke default. Is the WH being realistic this time, or does it still rely on the sanity of crazies?…. If we didn't have some history here I might be confident…. But we do have that history…"

• Matthew Yglesias: Jeffrey Lacker: Richmond Fed president keeps being wrong but never changes his mind

• JSTOR: Aaron Swartz: "We extend our heartfelt condolences to Aaron’s family, friends, and everyone who loved, knew, and admired him. He was a truly gifted person who made important contributions to the development of the internet and the web from which we all benefit. We have had inquiries about JSTOR’s view of this sad event given the charges against Aaron and the trial scheduled for April. The case is one that we ourselves had regretted being drawn into from the outset, since JSTOR’s mission is to foster widespread access to the world’s body of scholarly knowledge. At the same time, as one of the largest archives of scholarly literature in the world, we must be careful stewards of the information entrusted to us by the owners and creators of that content. To that end, Aaron returned the data he had in his possession and JSTOR settled any civil claims we might have had against him in June 2011."

• Greg Sargent: Business leaders to GOP: No more debt limit hostage taking!

• Nick Rowe: Worthwhile Canadian Initiative: Did inflation targeting make inflation stickier?: "I used to think that if the Bank of Canada succeeded in keeping inflation on target, there wouldn't be deficient-demand recessions…. I was wrong. The Bank of Canada did keep inflation almost exactly at the 2% target, but there was a deficient demand recession. If you had told me in 2008 how long the recession would last in many countries, I would have predicted that inflation would have fallen a lot in those countries. It didn't fall a lot. In some countries, like the UK, it didn't fall at all. I would have been wrong. It didn't use to be like this. In past recessions, absent significant supply shocks, inflation did fall a lot…. Those two things I was wrong on are related…. Why didn't that happen like it was supposed to? One possible answer is that inflation targeting made inflation stickier than it used to be…. Imagine some sort of simultaneous-moves Nash game, which is partly an American Beauty Contest. Each individual player has to pick a number. He is trying to pick a number that is the same as the average number picked by all the other players, plus or minus some amount that reflects a shock specific to him. He knows that all the other players are trying to do the same…. [S]omebody stands up in the middle of the room and loudly calls out "2%! I want you all to choose 2%!". It would be very tempting just to give up on all the Nash stuff, ignore the shocks, and just choose 2%. I know. That's not a model. It's not even a fully-coherent story."

Leave to one side the fact that policies to reduce the deficit in the short run--before 2016, say--are highly, highly likely to actually increase the long-run burden of the national debt. Even making the unlikely assumption that deficit reduction in the near future would reduce rather than increase the long-run burden of the debt, the fact is that the debt-to-GDP ratio is now stable until at least 2020. A lower debt-to-GDP ratio would be a good thing in the long run, but there is absolutely no urgency. And there is enormous urgency in getting the economy moving again.

In focusing in 2013 on further deficit-reduction deals rather than on policies to boost employment growth and infrastructure investment, President Obama is making yet another hideous economic policy mistake.

Paul Krugman:

The Mostly Solved Deficit Problem: The Center on Budget and Policy Priorities has a graph…. The blue line at the top represents the projected path of that ratio as of early 2011 — that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see…. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon…. True, there are projected problems further down the road, mainly because of the continuing effects of an aging population. But it still comes as something of a shock to realize that at this point reasonable projections do not, repeat do not, show anything resembling the runaway deficit crisis that is a staple of almost everything you hear, including supposedly objective news reporting.

So you heard it here first: while you weren’t looking, and the deficit scolds were doing their scolding, the deficit problem (such as it was) was being mostly solved. Can we now start talking about unemployment?

Brad DeLong : There Is Something I Do Not Understand About Kansas City Fed President Esther George's Reasoning Here: The Fed's current Quantitative Easing ∞ program involves its buying risky bonds--thus diminishing the pool of risky assets that the private sector can hold. Esther George objects because… it does not make complete sense to me…. Because there is less in the way of risky assets for the private sector to hold--and because that pushes prices of risky assets up and returns on risky assets down--QE ∞ actually makes private-sector portfolios riskier? Is that the argument? It could be--the world is a surprising place, and lots of things can happen. But my first thought would be that a world in which the Federal Reserve takes risk off of private-sector balance sheets and onto the government's balance sheet is one in which the private sector is holding not more-risky but less-risky portfolios…

Tim Duy performs the smackdown:

Safe Assets and the Coordination of Fiscal and Monetary Policy - Tim Duy's Fed Watch: DeLong is looking at a continuum of assets from safe to risky, where cash anchors the safe end of the continuum.  Right next to cash is the somewhat riskier Treasury… by exchanging cash for Treasury securities, you by definition must be removing risk… and thus the public's portfolio is now less riskier. But… this is obviously not how George views the situation…. George… believes that [Fed policies] are in fact making the public's portfolio more, not less, risky…. I think a way you can explain George's position if you consider Treasuries as less risky than cash…. [T]he Treasury bond may be perceived as a safer because it provides some return…. [F]or any given inflation rate, the Treasury bond will thus be a safer store of value [if held to maturity].  If you viewed the world from this perspective, then the Fed is increasing riskiness of the public's portfolio…. George appears to be saying that the Fed is eliminating (more accurately, removing) the safe assets that the public wants to hold.  Suppose that this is true.  Does this mean that the Fed should reverse policy to increase the proportion of safe assets in the public's hands?  Or does it mean that another agency - perhaps a fiscal authority, hint, hint - should take action to increase the proportion of safe assets in the public's hands?  

Once again, we come back to the issue of coordinating monetary and fiscal policy.  If the public has a strong demand for noncash safe assets, monetary policy has something of a secondary role by providing an accommodative environment by which the fiscal authority can issue those assets. If the proportion of safe to risky assets is not "correct", the the fiscal authority should have a role in correcting that imbalance.  In this world, then, it is not really the actions of the monetary authority that is creating the financial sector imbalances that concern George.  It is the lack of action by the fiscal authority that creates those imbalances.  George should be criticizing the fiscal authorities, not the monetary authority.

In other words, if a recession is the result of the public shifting to safe assets, the Fed is trying to respond by taking away the option of safe assets, leaving only risky assets.  Instead, the Fed should view their role creating an environment (making clear that default is not an option) that allows the fiscal authority to issue more safe assets.

All of this, however, suggests that fiscal policy has a much greater role in stabilizing economy activity than conventional wisdom would hold.  I suspect, however, that thinking along these lines is anathema to Federal Reserve officials who maintain that stabilization policy is the domain of monetary policy only.  But if in fact there needs to be greater cooperation, and instead we continue to rely solely on monetary policy, then we will continue to experience less-than-satisfactory economic outcomes which will eventually endanger the cherished independence of central banks.

In short, I don't think you can have a discussion about the influence of monetary policy on the riskiness of the public's portfolio without including some discussion about the role of the issuer of those safe assets, the fiscal authority.

This is, I think, why I want the Fed's QE ∞ policies to take the form of buying genuine long-term risky securities more risky than Treasurys or MBS. If the point is to remove risk from the private sector balance sheet-if the point is to take Vienna--then remove risk from the private sector balance sheet--take Vienna! If the point is to expand the supply of cash to create expectations that interest rates will stay lower for longer, then it is better to buy assets the unwinding of which must by the nature of things be gradual and prolonged rather than buying assets positions in which can be unwound nearly costlessly in the blink of an eye. If the point of QE ∞ is neither to remove risk from the private sector balance sheet nor to back up guidance that interest rates will stay low for a long time, I do not understand what the point of the policy is.

And, of course, he is 100% right that expansionary fiscal policy by credit-worthy governments (or expansionary financial policy via loan guarantees) is the right policy to deal with a shortage of safe nominal assets leading economic agents to try to cut their spending below their income. This is, of course, the reason that I think a proper assessment of Tim Geithner's tenure at the Treasury would be a very harsh one indeed.

Tim's point that for an economic agent with a five-year horizon a five-year Treasury dominates cash is a good one, and I think it points to a flaw in my visualization of the Cosmic All that I do not know how to repair.

Friedrich Paulus, Commander of the Nazi Sixth Army, in Stalingrad:

According to Gaius Suetonius Tranquillus, a favorite saying of first-century Roman emperor Gaius Julius Caesar Augustus Germanicus "Caligula"…

Justin Wolfers tweets:

Sympathetic to @davidmwessel's view that Krugman & @delong can be too quick to call him a fool for citing their ideological opponents.

— Justin Wolfers (@justinwolfers) January 5, 2013

I protest. Go to Google, enter "site:delong.typepad.com 'david wessel'" into the search box, press "I'm feeling lucky", and what comes up is:

Brad DeLong : David Wessel's You Are There: Ben Bernanke Five Years Ago Today: David Wessel alone is worth the price of the Wall Street Journal…

• RIP Aaron Swartz: Guest Review by Aaron Swartz: Chris Hayes’ The Twilight of The Elites

Cory Doctorow:

RIP, Aaron Swartz - Boing Boing: My friend Aaron Swartz committed suicide yesterday, Jan 11. He was 26. I got woken up with the news about an hour ago. I'm still digesting it -- I suspect I'll be digesting it for a long time -- but I thought it was important to put something public up so that we could talk about it. Aaron was a public guy.

I met Aaron when he was 14 or 15. He was working on XML stuff (he co-wrote the RSS specification when he was 14) and came to San Francisco often, and would stay with Lisa Rein, a friend of mine who was also an XML person and who took care of him and assured his parents he had adult supervision. In so many ways, he was an adult, even then, with a kind of intense, fast intellect that really made me feel like he was part and parcel of the Internet society, like he belonged in the place where your thoughts are what matter, and not who you are or how old you are.

But he was also unmistakably a kid then, too. He would only eat white food. We'd go to a Chinese restaurant and he'd order steamed rice. I suggested that he might be a supertaster and told him how to check it out, and he did, and decided that he was. We had a good talk about the stomach problems he faced and about how he would need to be careful because supertasters have a tendency to avoid "bitter" vegetables and end up deficient in fibre and vitamins. He immediately researched the hell out of the subject, figured out a strategy for eating better, and sorted it. The next time I saw him (in Chicago, where he lived -- he took the El a long way from the suburbs to sit down and chat with me about distributed hash caching), he had a whole program in place.

I introduced him to Larry Lessig, and he was active in the original Creative Commons technical team, >and became very involved in technology-freedom issues. Aaron had powerful, deeply felt ideals, but he was also always an impressionable young man, someone who often found himself moved by new passions. He always seemed somehow in search of mentors, and none of those mentors ever seemed to match the impossible standards he held them (and himself) to.

This was cause for real pain and distress for Aaron, and it was the root of his really unfortunate pattern of making high-profile, public denunciations of his friends and mentors. And it's a testament to Aaron's intellect, heart, and friendship that he was always forgiven for this. Many of us "grown ups" in Aaron's life have, over the years, sat down to talk about this, and about our protective feelings for him, and to check in with one another and make sure that no one was too stung by Aaron's disappointment in us. I think we all knew that, whatever the disappointment that Aaron expressed about us, it also reflected a disappointment in himself and the world.

Aaron accomplished some incredible things in his life. He was one of the early builders of Reddit (someone always turns up to point out that he was technically not a co-founder, but he was close enough as makes no damn), got bought by Wired/Conde Nast, engineered his own dismissal and got cashed out, and then became a full-time, uncompromising, reckless and delightful shit-disturber.

The post-Reddit era in Aaron's life was really his coming of age. His stunts were breathtaking. At one point, he singlehandedly liberated 20 percent of US law. PACER, the system that gives Americans access to their own (public domain) case-law, charged a fee for each such access. After activists built RECAP (which allowed its users to put any caselaw they paid for into a free/public repository), Aaron spent a small fortune fetching a titanic amount of data and putting it into the public domain. The feds hated this. They smeared him, the FBI investigated him, and for a while, it looked like he'd be on the pointy end of some bad legal stuff, but he escaped it all, and emerged triumphant.

He also founded a group called DemandProgress, which used his technological savvy, money and passion to leverage victories in huge public policy fights. DemandProgress's work was one of the decisive factors in last year's victory over SOPA/PIPA, and that was only the start of his ambition.

I wrote to Aaron for help with Homeland, the sequel to Little Brother to get his ideas on a next-generation electioneering tool that could be used by committed, passionate candidates who didn't want to end up beholden to monied interests and power-brokers. Here's what he wrote back:

First he decides to take over the whole California Senate, so he can do things at scale. He finds a friend in each Senate district to run and plugs them into a web app he's made for managing their campaigns. It has a database of all the local reporters, so there's lots of local coverage for each of their campaign announcements.

Then it's just a vote-finding machine. First it goes through your contacts list (via Facebook, twitter, IM, email, etc.) and lets you go down the list and try to recruit everyone to be a supporter. Every supporter is then asked to do the same thing with their contacts list. Once it's done people you know, it has you go after local activists who are likely to be supportive. Once all those people are recruited, it does donors (grabbing the local campaign donor records). And then it moves on to voters and people you could register to vote. All the while, it's doing massive A/B testing to optimize talking points for all these things. So as more calls are made and more supporters are recruited, it just keeps getting better and better at figuring out what will persuade people to volunteer. Plus the whole thing is built into a larger game/karma/points thing that makes it utterly addictive, with you always trying to stay one step ahead of your friends.

Meanwhile GIS software that knows where every voter is is calculating the optimal places to hold events around the district. The press database is blasting them out -- and the press is coming, because they're actually fun. Instead of sober speeches about random words, they're much more like standup or the Daily Show -- full of great, witty soundbites that work perfectly in an evening newscast or a newspaper story. And because they're so entertaining and always a little different, they bring quite a following; they become events. And a big part of all of them getting the people there to pull out their smartphones and actually do some recruiting in the app, getting more people hooked on the game.

He doesn't talk like a politician -- he knows you're sick of politicians spouting lies and politicians complaining about politicians spouting lies and the whole damn thing. He admits up front you don't trust a word he says -- and you shouldn't! But here's the difference: he's not in the pocket of the big corporations. And you know how you can tell? Because each week he brings out a new whistleblower to tell a story about how a big corporation has mistreated its workers or the environment or its customers -- just the kind of thing the current corruption in Sacramento is trying to cover up and that only he is going to fix.

(Obviously shades of Sinclair here...)

also you have to read http://books.theinfo.org/go/B005HE8ED4

For his TV ads, his volunteer base all take a stab at making an ad for him and the program automatically A/B tests them by asking people in the district to review a new TV show. The ads are then inserted into the commercial breaks and at the end of the show, when you ask the user how they liked it, you also sneak in some political questions. Web ads are tested by getting people to click on ads for a free personality test and then giving them a personality test with your political ad along the side and asking them some political questions. (Ever see ads for a free personality test? That's what they really are. Everybody turns out to have the personality of a sparkle fish, which is nice and pleasant except when it meets someone it doesn't like, ...) Since it's random, whichever group scores closest to you on the political questions must be most affected by the ad. Then they're bought at what research shows to be the optimal time before the election, with careful selection of television show to maximize the appropriate voter demographics based on Nielsen data.

anyway, i could go on, but i should actually take a break and do some of this... hope you're well

This was so perfect that I basically ran it verbatim in the book. Aaron had an unbeatable combination of political insight, technical skill, and intelligence about people and issues. I think he could have revolutionized American (and worldwide) politics. His legacy may still yet do so.

Somewhere in there, Aaron's recklessness put him right in harm's way. Aaron snuck into MIT and planted a laptop in a utility closet, used it to download a lot of journal articles (many in the public domain), and then snuck in and retrieved it. This sort of thing is pretty par for the course around MIT, and though Aaron wasn't an MIT student, he was a fixture in the Cambridge hacker scene, and associated with Harvard, and generally part of that gang, and Aaron hadn't done anything with the articles (yet), so it seemed likely that it would just fizzle out.

Instead, they threw the book at him. Even though MIT and JSTOR (the journal publisher) backed down, the prosecution kept on. I heard lots of theories: the feds who'd tried unsuccessfully to nail him for the PACER/RECAP stunt had a serious hate-on for him; the feds were chasing down all the Cambridge hackers who had any connection to Bradley Manning in the hopes of turning one of them, and other, less credible theories. A couple of lawyers close to the case told me that they thought Aaron would go to jail.

This morning, a lot of people are speculating that Aaron killed himself because he was worried about doing time. That might be so. Imprisonment is one of my most visceral terrors, and it's at least credible that fear of losing his liberty, of being subjected to violence (and perhaps sexual violence) in prison, was what drove Aaron to take this step.

But Aaron was also a person who'd had problems with depression for many years. He'd written about the subject publicly, and talked about it with his friends.

I don't know if it's productive to speculate about that, but here's a thing that I do wonder about this morning, and that I hope you'll think about, too. I don't know for sure whether Aaron understood that any of us, any of his friends, would have taken a call from him at any hour of the day or night. I don't know if he understood that wherever he was, there were people who cared about him, who admired him, who would get on a plane or a bus or on a video-call and talk to him.

Because whatever problems Aaron was facing, killing himself didn't solve them. Whatever problems Aaron was facing, they will go unsolved forever. If he was lonely, he will never again be embraced by his friends. If he was despairing of the fight, he will never again rally his comrades with brilliant strategies and leadership. If he was sorrowing, he will never again be lifted from it.

Depression strikes so many of us. I've struggled with it, been so low I couldn't see the sky, and found my way back again, though I never thought I would. Talking to people, doing Cognitive Behavioral Therapy, seeking out a counsellor or a Samaritan -- all of these have a chance of bringing you back from those depths. Where there's life, there's hope. Living people can change things, dead people cannot.

I'm so sorry for Aaron, and sorry about Aaron. My sincere condolences to his parents, whom I never met, but who loved their brilliant, magnificently weird son and made sure he always had chaperonage when he went abroad on his adventures. My condolences to his friends, especially Quinn and Lisa, and the ones I know and the ones I don't, and to his comrades at DemandProgress. To the world: we have all lost someone today who had more work to do, and who made the world a better place when he did it.

Goodbye, Aaron.

Ann Cai:

Aaron Swartz commits suicide: Computer activist Aaron H. Swartz committed suicide in New York City yesterday, Jan. 11, according to his uncle, Michael Wolf, in a comment to The Tech. Swartz was 26. “The tragic and heartbreaking information you received is, regrettably, true,” confirmed Swartz’ attorney, Elliot R. Peters of Kecker and Van Nest, in an email to The Tech.

Swartz was indicted in July 2011 by a federal grand jury for allegedly mass downloading documents from the JSTOR online journal archive with the intent to distribute them. He subsequently moved to Brooklyn, New York, where he then worked for Avaaz Foundation, a nonprofit “global web movement to bring people-powered politics to decision-making everywhere.” Swartz appeared in court on Sept. 24, 2012 and pleaded not guilty.

The accomplished Swartz co-authored the now widely-used RSS 1.0 specification at age 14, was one of the three co-owners of the popular social news site Reddit, and completed a fellowship at Harvard’s Ethics Center Lab on Institutional Corruption. In 2010, he founded DemandProgress.org, a “campaign against the Internet censorship bills SOPA/PIPA.”

RIP 2nd Hungarian Army:

The launch of the Soviet Ostrogozhsk–Rossosh offensive, which was mainly directed at the Hungarian 2nd Army (as well as partially against the Italian 8th). "The Hungarian army is not capable to participate in such a remote operation, neither mentally, nor organizationally" wrote the Hungarian chief of staff, after meeting with Keitel, when the sending of the 2nd Army was planned. Regardless, Horthy personally promised Hungarian participation in the planned 1942 spring offensive. That was after Ribbentrop and Keitel applied big pressure in January '42. Ribbentrop threatened with resetting the border revisions we received, while Keitel assured the Hungarian generals that Romania would send more troops than them, so there would be no danger of a backstab. Which of course was true. Actually, Keitel used the "Hungarian army will be in Russia" argument to convince the Romanians on sending their guys.

It seems highly likely that the leadership was fully aware of the risks involved. They made sure that conscripts would arrive from all parts of the country (to balance the distribution of future losses). No district was to conscript more than 20% of it's eligible population, and they preferred the 30-45 age group. (My grandmother used to tell me that this was the local impression at the time as well - not the youngest and strongest was taken)

Even getting to the Don was very painful. They lacked heavy armaments and basic equipment. By the time the got dug in at the river (they failed to take 3 Soviet bridgeheads), their lost half their armor, all of their artillery. Local reports by officers complained about lack of basic equipment for defensive preparations, like shovels, barbed wire, etc. During the autumn some replacements were sent, but not nearly all of the new conscripts could receive rifles, had to be equipped with surplus and remnants at the front.

Food supply was under German authority, and it's hardly surprising it was lacking. Supply depots were 100 kilometers back, and not only abysmal road conditions delayed their delivery, but they tried to "save them for worse times". With the onset of winter all that became worse. Supply got even harder to get to the troops, because horses were taken back from the first lines. Winter clothing was severely lacking.

When the Soviet attack came, a lot of the Hungarian rifles were simply frozen and unusable. There were very little anti-tank weaponry, and what they had was inefficient against the T34s. The rout was complete, which was hardly surprising of course. Command tried to restore order with draconian measures. Military police was unleashed on the retreating Hungarians, with a few cases of mass executions of everyone who had no rifle on him.

• Gaius Suetonius Tranquillus: The Twelve Caesars: Book IV: Gaius Caligula

• Mark Thoma sends us to David Altig: macroblog: Visualizing Labor Market Improvement

• Miles Kimball: Q&A on the Financial Cycle

• Richard Bookstaber: Using Agent-Based Models for Analyzing Threats to Financial Stability

• Aaron Clauset: How Large Should Whales Be?

"[Althusser] seems to know nothing of recent history (among his howlers is an indictment of the “Polish fascist” Pilsudski for starting World War II). He appears only late in life to have discovered Machiavelli and other classics of Western philosophy, and he even admits to a skimpy and partialacquaintance with Marx’s texts (something one might have inferred from his published work). He is also unsophisticated to the point of crudity in his political analysis. He seems to have learned nothing and to have forgotten nothing in the last twenty years of his life. Thus there is much talk of “the hegemony of bourgeois, imperialist capitalism”; and he is dismissive of the dissidents of the Soviet bloc (“cut off from their own people”) and contemptuous of writers like André Glucksmann for “putting around unbelievable horror stories of the Gulag.” Those words were written in 1985!"

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

The Fed's current Quantitative Easing ∞ program involves its buying risky bonds--thus diminishing the pool of risky assets that the private sector can hold. Esther George objects because… it does not make complete sense to me:

Michael S. Derby; 2013 Fed Voter George Warns of Risks in Current Policy: As she prepares to take on a direct role in setting monetary policy this year, the leader of the Federal Reserve Bank of Kansas City….

We must not ignore the possibility that the low-interest rate policy may be creating incentives that lead to future financial imbalances… [that would] hamper attainment of the [Federal Open Market Committee's] 2 percent inflation goal in the future…. [M]onetary policy, by contributing to financial imbalances and instability, can just as easily aggravate unemployment as heal it….

She noted that prices for bond, farmland, high yield and leveraged loans “are at historically high levels,” and if there were to a big correction in those prices, it could be “destabilizing and cause employment to swing away from its full-employment level and inflation to decline to uncomfortably low levels.”… The policy maker said the Fed buying of Treasury and agency mortgage bonds “almost certainly” increases the risk of calamity when the time comes to shrink the size of the balance sheet…

Because there is less in the way of risky assets for the private sector to hold--and because that pushes prices of risky assets up and returns on risky assets down--QE ∞ actually makes private-sector portfolios riskier? Is that the argument?

It could be--the world is a surprising place, and lots of things can happen. But my first thought would be that a world in which the Federal Reserve takes risk off of private-sector balance sheets and onto the government's balance sheet is one in which the private sector is holding not more-risky but less-risky portfolios…

Pope Pius XII Preaches for the Nobility and Against the Bolshevik Threat:

How, beloved Sons and Daughters, could the warm and heartfelt greetings that the lofty words of your illustrious representative conveyed to Us in your name fail to find their response in the offerings We now raise to God on your behalf? Unvanquished by the sorrows of the present hour, We feel, at this moment, a sweet consolation and a profound joy, for in our persons We see before Us a kind of representation of Our beloved Rome. To such an eminent condition, the disposition of Divine Providence has seen fit to raise you in the course of history; you are aware of this and at the same time you feel thereby a sense of legitimate dignity and of weighty responsibility.

By privilege of birth, you have been placed by God in His wisdom like a city atop a mountain; you cannot therefore remain hidden By privilege of birth, you have been placed by God in His wisdom like a city atop a mountain; you cannot therefore remain hidden (cf. Matt. 5:14). In addition, He has destined you to live in the middle of the twentieth century, now in a moment of great hardship and anguish. And though you are still highly placed and at a dominant position, it is no longer in the same manner as your ancestors. Your forebears, living in their strongholds and their lonely castles, formidably defended and of difficult access—with towers and manors scattered throughout Italy, including the Roman province—had therein a refuge against the incursions of rivals and malefactors and organized therein an armed defense, and from those heights descended to do battle on the plain. You too, and your progeny, attract the gaze of those from the valley below. Consider the great names that you bear, rendered famous in history by military valor, by social service worthy of every praise and benefit, by religious zeal and holiness; what crowns of glory surround them! The people have exalted them and sung their praises through the voices of their writers and poets and through the hands of their artists; but they have also judged, and still do judge, with implacable severity, at times to the point of injustice, their errors and faults. If you seek the reason for this, you shall find it in the high office, the weighty responsibilities to which even a common honesty or a simple and ordinary mediocrity, to say nothing of failures and downfalls, are unsuited.

Lambert Strether:

Imminent Death of the Blogs Predicted, Except Not « naked capitalism: [A] single comment ignited a media and policy explosion* two-and-a-half years later. Does that look like a power curve to you, or what? The chart above is a postage stamp-sized version of the History of the Proof Platinum Coin Concept, 2010-2013 timeline** — each of the tiny black horizontal lines is a link to a piece of content, and the links stack up vertically by date. (There are also larger, post card-sized images of the timeline below, annotated in Skitch.) Now, I should say that the timeline is just a super-duper aggregation or link-fest; there’s very little interpretation or analysis. (For that, see Joe Firestones’s series on How the Proof Platinum Coin Concept was Propagated, especially Chapter 1: “Origin and Early History of Platinum Coin Seigniorage In the Blogosphere”.) Still, we can observe a lot by watching.

Linda Greenhouse:

No one who actually lived through the Senate Judiciary Committee hearing in September 1987 is without views on the subject, and I have previously offered mine. I think that the televised hearing, which held the country spellbound, provided a rare and valuable public seminar on the meaning of the Constitution, the methods of constitutional interpretation, and the different answers that competing methods offer to the most profound questions of individual autonomy and equality.... [What] “borking” really amounted to was holding the nominee’s vigorously expressed views up to the light for public inspection. In five days of testimony, then-Judge Bork – a former professor of mine whom I liked and respected – had every opportunity to make his case. His ideas were fully aired and considered. By a vote of 58 to 42, the senators, having heard from their constituents, concluded that his constricted constitutional vision, locked into the supposed “original intention” of the framers, was not what the country needed or wanted.... I [later] asked [Bork] whether, at any time during the hearing, he had felt that a member of the Judiciary Committee had met him on his own level in serious constitutional conversation.

• Cardiff Garcia #mintthecoin Special: The best version of the hypothetically least-bad last-ditch solution: "Greg Ip has the single best post on the economics and logistics of the Platinum Coin option that we’ve come across. It includes a solution that involves two of our favourite topics from 2012: the expiration of the Transacton Account Guarantee and the safe asset grab (even throwing in a bonus Gary Gorton reference)…. We continue to think that any option requiring unilateral executive action should be a last-minute, last-ditch solution in the event that negotiations have broken down, Congress has refused to raise the debt ceiling, and default really is imminent. Indeed we suspect that many of those arguing in the coin’s favour would still prefer a negotiated solution, though we’re less certain of this than we were just yesterday. But if we do get to that point and the administration deems that coin-minting is the least-bad of those executive workarounds, then Ip’s idea makes a lot of sense."

• CBO: The 2012 Long-Term Budget Outlook

• Bill Janeway: Private Venture Capital Didn't Build That

• Heirs of Mao’s Comrades Rise as New Capitalist Nobility

• Laura Tyson: Inside America’s Tax Battle

• Binyamin Applebaum on Tim Geithner's Legacy: Slow Response to Housing Crisis Now Weighs on Obama

• Roy Edroso: SQUARE PEG: "Victor Davis Hanson goes on for more than 4,200 words about how everybody loves you if you're "hip" -- which in his lexicon is just another word for "liberal" -- and it's just not fair…. The odd thing is, Hanson never seems to grasp how these alleged hip people and things  -- he includes Starbucks, Jay-Z, "Snoop Dogg," Al Gore, and Katie Couric, believe it or not -- acquired whatever cachet they have. Since he hates them, the explanation can include nothing of what they offer the public, which severely limits his options… [for any coherent] explanation would cost Hanson his opportunity for self-pity…"

WWII Axis Military History Day-by-Day:

After a 55-minute bombardment by thousands of guns and rocket-launchers, and employing seven armies, the Red Army begins Operation Ring, the final annihilation of the tattered remnants of 6.Armee defending themselves desperately against all odds in the ruins of Stalingrad.

The answer is "No: reporters somehow never ask them why they got it so wrong in late 2010, and how they have revised their visions of the Cosmic All as a result of getting it wrong. Reporters remain eager to take their quotes down and publish them as the informed views of experts."

And the other real shame--besides the journalistic one of pretending that this embarrassment never happened and continuing to burnish the reputation and media presence of the signers--is that, to my knowledge at least, not a single one of the signatories has gone back and explained (a) why they were so certain that QE was a disaster, (b) why they were wrong, (c ) how they have changed their working model of the economy according to Bayes's Rule, and (d) how their policy recommendations will be different in the future.

The tripe:

An Open Letter to Ben Bernanke | e21 - Economic Policies for the 21st Century:

November 15, 2010

To: Chairman Ben Bernanke
Federal Reserve
Washington, DC

Dear Mr. Chairman:

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

We subscribe to your statement in The Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own." In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Respectfully,

Cliff Asness, AQR Capital

Michael J. Boskin, Hoover Institution, Stanford University; Former Chairman, President’s Council of Economic Advisors

Richard X. Bove, Rochdale Securities

Charles W. Calomiris, Columbia University Graduate School of Business

Jim Chanos, Kynikos Associates

John F. Cogan, Hoover Institution, Stanford University; Former Associate Director, U.S. Office of Management and Budget

Niall Ferguson, Harvard University; Author, The Ascent of Money: A Financial History of the World

Nicole Gelinas, Manhattan Institute & e21, Author, After the Fall: Saving Capitalism from Wall Street—and Washington

James Grant, Grant's Interest Rate Observer

Kevin A. Hassett, American Enterprise Institute; Former Senior Economist, Board of Governors of the Federal Reserve

Roger Hertog, Hertog Foundation

Gregory Hess, Claremont McKenna College

Douglas Holtz-Eakin, Former Director, Congressional Budget Office

Seth Klarman, Baupost Group

William Kristol, Editor, The Weekly Standard

David Malpass, GrowPac, Encima Global; Former Deputy Assistant Treasury Secretary

Ronald I. McKinnon, Stanford University

Joshua Rosner, Graham Fisher & Co., Inc.

Dan Senor, Council on Foreign Relations; Co-Author, Start-Up Nation: The Story of Israel's Economic Miracle

Amity Shlaes, Council on Foreign Relations; Author, The Forgotten Man: A New History of the Great Depression

Paul E. Singer, Elliott Management Corporation

John B. Taylor Hoover Institution, Stanford University; Former Undersecretary of Treasury for International Affairs

Peter J. Wallison, American Enterprise Institute; Former Treasury and White House Counsel

Geoffrey Wood, Cass Business School at City University London

James Buchanan Is Dead.

Daniel Kuehn gets it right, I think, on the significance of the career of the late Nobel Prize-winning economist James Buchanan:

He got a lot right, with public choice and constitutional economics. He also got a lot quite wrong, particularly his take on the political economy of the Keynesian revolution. But he certainly was a talented and productive economist well deserving of his Nobel prize.

I would go somewhat further: he got a lot right that desperately needed to be gotten right and that nobody else would have gotten right in his absence. He made a difference in economics at more than the margin, which is something you can say of very few economists.

Within limits—until it starts printing money fast enough to become Zimbabwe—a country that controls its own currency and can print its own money does not face a tight and binding government budget constraint: the government spends what it wishes, taxes what it wishes, borrows what it wishes, prints money to make up the difference, and the exchange rate and the price level and interest rates then do their things as investors try to figure out on what terms they want to hold domestic as opposed to foreign assets and on what terms they want to hold bonds rather than cash.

By contrast, a country with a fixed exchange rate has its money stock nailed by the requirement that it maintain its exchange rate peg. That then forces spending, taxes, and borrowing into a configuration in which bond vigilantes believe that the debt will be paid off—and if they don’t believe that, then spending must be equal to taxes minus the debt repayment the bond vigilantes demand.

But suppose that you are in an intermediate case, where the Treasury and the central bank do not want to peg the currency (and the internal price level) but do not want to let it (them) do their own thing without limit either? Suppose the Treasury Secretary believes that a strong dollar is in America’s interest. What you then have is a mix of the polar gold-standard and MMT cases. But what are the proportions of the mix?

Worth Reading:

• Tom Slee: No One Makes You Shop at Wal-Mart: The Surprising Deceptions of Individual Choice

• Roger Farmer: How effective is fiscal policy?: "I do not share the consensus view of self proclaimed Keynesians that a large fiscal expansion is the solution to our dilemma…. Why does high unemployment persist? Samuelsonian Keynesians see the issue as one of deficient nominal aggregate demand…. There is a group of DSGE models that account for unemployment by combining search theoretic models of the labor market with inter-temporal choice by maximizing households…. In these models there is a coherent account of the idea that there may be a continuum of steady state unemployment rates, and unlike bastard Keynesian analysis, the problem is real not monetary."

• Kevin Drum: Lead and Crime: Assessing the Evidence: "It's important to understand that there are at least three independent strands of evidence linking lead to violent crime: 1. Ecological studies… correlations between lead exposure and crime rates at a population level…. 2. Longitudinal studies. A University of Cincinnati team began following a group of children starting in the early 80s. Every six months they measured lead levels in their blood. At age 7, kids with higher lead levels were doing worse in school. At age 17 they were more heavily involved in juvenile delinquency. At age 27 they had higher arrest rates for violent crimes. 3. Imaging studies. The Cincinnati team recently did a series of MRI scans of their subjects and found that participants with higher childhood lead levels had permanent damage to areas of the brain…. For a more skeptical take on this, check out this post by Scott Firestone. I think he's right to question this stuff, but I also think he might be a little too skeptical here. If there were only one study showing a single correlation, that would be one thing. But there are multiple high-quality population studies showing the same result, and there also longitudinal studies and imaging studies to back them up."

• Jonathan Portes: Not the Treasury view...: The macroeconomics of recessions: AEA panel discussion: "[I]t is really quite remarkable how far the Fund has come (as I have previously chronicled here, on the myth of "credibility" and here, on multipliers).  They have got a lot of stick for this, but surely it is commendable that they are prepared to admit the flaws in their ealier analysis (which was, in any case, never nearly as bad as, say, the European  Commission and European Central Bank) rather than double down on their mistakes, as others have done?"

• Mark Dow: Behavioral Macro - The Effects of QE on UST Yields—Now the Answers Start to Matter: "LSAPs have almost certainly over time lowered the clearing rate for UST yields—even though the impulse correlation, driven by economic expectations, has worked in the short-term in the opposite direction. The second observation is that the “expectations effect” was of lesser amplitude with each Fed announcement, again, against the backdrop of an improving economy. In fact, after QE3, there was virtually no bump at all…. Two conclusions can be drawn from this. One, the end of LSAPs will matter for yield levels—even if the Fed decides not to sell any of its holdings and let their book run off. So, if you think it is entirely about economic expectations you are likely to underestimate the magnitude of yield “normalization”. Two, many investors and analysts have settled into the notion that we are in a liquidity trap, and that monetary policy here is largely “pushing on a string”. While this is still for the most part the current environment, it is finally, slowly, starting to change."