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February 2013

Noted for March 1, 2013

  • Top Conservative Cat: That awkward moment when Paul Ryan blames Obama for the sequester and there is video of Ryan asking for the sequester

  • Josh Marshall on Ted "Joe McCarthy" Cruz: Good Luck With That: "Ted Cruz’s supporters are busily trying to defend or massage or explain away his claim that when he was at Harvard Law School in the mid-90s there were a dozen members of the faculty 'who would say they were Marxists who believed in the Communists overthrowing the United States government'…. [The] argument? Well, saying that there were people who supported 'overthrowing the United States government was a "rhetorical flourish"'. And what about Charles Fried, the Republican and former Solicitor General under Ronald Reagan, who criticized Cruz’s bogus claim? Well, he’s 'become a vocal spokesman for all things Obama'. Look…. I know all about professorial armchair radicalism. I was a big mocker of it…. But Cruz didn’t say there were a bunch of… professors professing a hyper-intellectualized and anemic critical studies variant of Marxism there. He said there were a dozen professors there 'who would say they were Marxists who believed in the Communists overthrowing the United States government'. You can’t just run away from those words or massage them out of existence. If I say someone’s a child molester I can’t fall back and say, ‘Hey, I just meant they’re not a good parent. I didn’t mean they’re actually a child molester. That’s was just hyperbole to drive home the point.’ That’s a very specific and clearly false claim that Cruz made because it was red meat for his audience even though he knew it was not true. It was a lie. That makes Cruz a liar and a smear artist. But then we knew that from his role in the Hagel hearings."

  • William Z. Ripley (1927): Main Street and Wall Street

  • Ezra Klein: Ben Bernanke to Congress: You’re doing it wrong: "Matt Yglesias notes that there seem to be no serious monetary policy doves in Congress. When Federal Reserve Chairman Ben Bernanke heads to the Hill, he gets either softballs from seemingly disinterested Democrats or tough questions from Republicans who favor tighter monetary policy."

Continue reading "Noted for March 1, 2013" »

Thursday February 28 5 PM EST: Taking Stock with Pimm Fox/Bloomberg

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Pimm Fox: TV & Radio Anchors - Bloomberg:

Pimm Fox is a Bloomberg Television anchor and Bloomberg Radio host of the in-depth investment program, "Taking Stock with Pimm Fox", which airs weekdays at 5pm ET. Fox also co-hosts Bloomberg Businessweek Radio with Ken Prewitt on Bloomberg Radio. As the host of “Taking Stock,” Fox provides access to the world of professional investors through conversations with top Wall Street analysts, fund managers and CEOs. “Taking Stock” offers insight into company news, long-term strategy, trading tactics, market techniques, stocks, bonds, commodities and currencies. During his career at Bloomberg, Fox has interviewed numerous business chiefs and investment gurus including Berkshire Hathaway Chairman and CEO Warren Buffett.

Bob Woodward Says: Gene Sperling Threatened Me!

Defining "threatened" way, way down…

From: Gene Sperling … To: Bob Woodward … Feb. 22, 11:52 p.m.: “Bob: I apologize for raising my voice in our conversation today. My bad. I do understand your problems with a couple of our statements in the fall -- but feel on the other hand that you focus on a few specific trees that gives a very wrong perception of the forest. But perhaps we will just not see eye to eye here.

But I do truly believe you should rethink your comment about saying … that Potus asking for revenues is moving the goal post. I know you may not believe this, but as a friend, I think you will regret staking out that claim. The idea that the sequester was to force both sides to go back to try at a big or grand bar[g]ain with a mix of entitlements and revenues (even if there were serious disagreements on composition) was part of the DNA of the thing from the start. It was an accepted part of the understanding -- from the start. Really. It was assumed by the Rs on the Supercommittee that came right after: it was assumed in the November-December 2012 negotiations. There may have been big disagreements over rates and ratios -- but that it was supposed to be replaced by entitlements and revenues of some form is not controversial. (Indeed, the discretionary savings amount from the Boehner-Obama negotiations were locked in in BCA [Budget Control Act of 2011]: the sequester was just designed to force all back to table on entitlements and revenues.)

I agree there are more than one side to our first disagreement, but again think this latter issue is different. Not out to argue and argue on this latter point. Just my sincere advice. Your call obviously.

My apologies again for raising my voice on the call with you. Feel bad about that and truly apologize.


--From: Bob Woodward … To: Gene Sperling … Feb. 23, 7:23 a.m.: Gene: You do not ever have to apologize to me. You get wound up because you are making your points and you believe them. This is all part of a serious discussion. I for one welcome a little heat; there should more given the importance. I also welcome your personal advice. I am listening. I know you lived all this. My partial advantage is that I talked extensively with all involved. I am traveling and will try to reach you after 3 pm today.



Sent from my iPhone

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

Liveblogging World War II: February 28, 1943

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Joachim Ronneberg: Operation Gunnerside:

The main building was 25 by 100 metres in seven stories. The production started in the top storey and continued in circles until it ended as heavy water down in the bottom. And that was our target: a battery of 18 cells, the last stage in the production.

Two of us managed to get in and we started laying the charges. The order was that if anything happened that could endanger the result, you had to act on your own. The three other chaps in the demolition party, one of them carrying a set of charges, decided to break the window to get inside because they did not know that we were busy inside. When the window broke, both groups were equally surprised.

Continue reading "Liveblogging World War II: February 28, 1943" »

Thursday Movie Blogging: Theoden King May Be My Favorite Character in Peter Jackson's "The Lord of the Rings"

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The Return of the King Extended Edition Movie Script Scenes 29 to 32:

SOLDIER: What’s happening, where is he going?  I don’t understand.  (They disappear into the cleft between the rocks)  Lord Aragorn!  Why does he leave on the eve of battle?    GAMLING: He leaves because there is no hope.   THEODEN: He leaves because he must.    GAMLING: Too few have come.  We cannot defeat the armies of Mordor.    Theoden shakes his head.   THEODEN: No, we cannot. But we will meet them in battle nonetheless...

Noted for February 28, 1943

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  • Marco Del Negro and Mary Tao: Historical Echoes: Cash or Credit? Payments and Finance in Ancient Rome: "Imagine yourself a Roman citizen in the 1st Century B.C. You’ve gone shopping with your partner, who’s trying to convince you to buy a particular item. The thing’s pretty expensive, and you demur because you’re short of cash. You may think that back then such an excuse would get you off scot-free. What else can you possibly do: Write a check? Well, yes, writes the poet Ovid in his Ars Amatoria…. And since your partner knows it, you have no way out:… 'But when she has her purchase in her eye,/She hugs thee close, and kisses thee to buy;/'Tis what I want, and ‘tis a pen’orth too;/In many years I will not trouble you.'/If you complain you have no ready coin,/No matter, ‘tis but writing of a line;/A little bill, not to be paid at sight:/(Now curse the time when thou wert taught to write.)'"  
  • John Schmitt: Why Does the Minimum Wage Have No Discernible Effect on Employment?: "The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage."

  • Paul Krugman: Another Attack of the 90 Percent Zombie: "Mark Thoma points me to a post by Miles Kimball… all I found was yet another invocation of the Reinhart-Rogoff claim that bad things happen when debt goes about 90 percent of GDP. Look, this is just not an established result. It’s a correlation; but it could just as well reflect a pathway from slow growth to high debt, or from third factors like political and institutional dysfunction to both slow growth and high debt. This last possibility becomes especially persuasive when you look at the full list of advanced countries that have exceeded the supposed 90 percent threshold in the past 50 years: Japan, Italy, Belgium, Greece. That’s it. So yes, Japan and Italy have had high debt and slow growth; do you really want to say that debt was the only reason for slow growth, or that the Japanese slowdown of the 1990s had no role in causing the rise in debt? Do you really want to say that debt is the only reason for Italy’s poor performance? If your answer to either question is no, you have just said that you don’t believe in Reinhart-Rogoff’s results…. Is Reinhart-Rogoff itself a zombie? Not quite — it could still be true, although I don’t think so. But the idea that the 90 percent threshold is a definite result, established beyond question, is very much a zombie idea, one that has been killed repeatedly but just won’t stay down."

Continue reading "Noted for February 28, 1943" »

No, Amity Shlaes Has No Idea What She Is Talking About. Why Do You Ask?: WTF!?!?!?!? Weblogging

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

Amity Shlaes: Gatsby, Galbraith and the Myth of Coolidge’s Crash:

[John Kenneth Galbraith writes that] the 30th president [Calvin Coolidge] was the one to fall asleep at the wheel of our economic car [as the 1920s stock bubble developed]… [Galbraith's] reasoning… [is] as substantial as a champagne bubble…. [I]t wasn’t as if Coolidge didn’t know or care about the stock-market jump…. Privately, Coolidge counted on a crash…. What Galbraith and others take for Coolidge laziness was actually Coolidge restraint. Coolidge didn’t deem it appropriate for the federal government to intervene in the stock market…. Policy at the Federal Reserve was not set by Coolidge but by the Fed and, to some extent, his mighty Treasury secretary, Andrew Mellon, whose autonomy Coolidge respected…

Robert Gilbert: The Tormented President: Calvin Coolidge, Death, and Clinical Depression:

About four months later [in January 1928], as the Federal Reserve Board prepared to curb wanton stock speculation, Coolidge made a statement to the press that stopped the Board in its tracks. This was largely regarded as the greatest single blunder of his presidency. On this occasion, he indicated--quite amazingly for the president of the United States--that…

Whether the amount at the present time [of brokers' loans] is disproportionate to the resources of the country, I am not in a position to judge accurately…. [S]o far as indicated by an inquiry that I have made of the Treasury and so on, I haven't had any indications that the discount was large enough to cause particularly unfavorable comment…

Coolidge's reassuring statement did not come until after the close of the market that Friday afternoon The next day there was an explosion of stock buying, making it one of the most active Saturdays in stock-trading history, The New York Times reported on January 8 that:

Stocks were turned over on high volume on the New York Stock Exchange yesterday largely because of the enthusiasm caused by President Coolidge's statement that he saw no reason for alarm in the large expansion of brokers' loans…

Not everyone, however, was quite so enthusiastic. When Hoover was told that Coolidge had made such comments about brokers' loans, he was incredulous, asking: "Did that man actually say that?"

Had he known of a conversation between the president and H. Parker Willis, editor of the New York Journal of Commerce, [Hoover] would have been even more appalled. In this conversation, Coolidge had admitted that his personal view and his official views on brokers' loans were quite different…. [A]s an official representative of the government, he felt compelled to stand on information he received from a department of that government [i.e., Andrew Mellon's Treasury], even if he disagreed with it. Willis reportedly replied that if Coolidge had only indicated his concern, he would have had a great impact in curtailing 'an unwholesome speculation'. Coolidge's January 6 press conference remarks and the follow-up conversation with Willis are rather remarkable…

It is not often that words genuinely fail me…

Continue reading "No, Amity Shlaes Has No Idea What She Is Talking About. Why Do You Ask?: WTF!?!?!?!? Weblogging" »

American Conservatism’s Crisis of Ideas: Project Syndicate Monarchy, Patriarchy, Orthodoxy Weblogging

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Let me note three things:

  1. Most of what I have to say is highly, highly derivative from Mike Konczal and Mark Schmitt (and others);
  2. The problem is not just that today's crop of AEI-conservative ideas is not politically sustainable, but that it is simply wrong--Cahn and Carbone's Red Families, Blue Families has convinced me that contra Murray America's (Blue) families are actually in pretty good shape (Red families that try to keep their daughters ignorant about family planning not so much), my take on Eberstadt is coming out in Democracy Journal later this month; and
  3. Arthur Brooks seems to me at bottom simply lamenting that Democratic policies work and make people's lives better--that Republicans are losing their campaign to try to make America a worse-off place does not strike me as a minus.

And we are live at Project Syndicate:

American Conservatism’s Crisis of Ideas: BERKELEY – On the back left corner of my desk right now are three recent books: Arthur Brooks’ The Battle, Charles Murray’s Coming Apart, and Nicholas Eberstadt’s A Nation of Takers. Together, they constitute an important intellectual movement, which also happens to be a large part of the reason that American conservatism today has little that is constructive to say about managing the economy – and little purchase on the center of the American electorate.

But let’s back up historically, to the founding of what we might call modern conservatism in early nineteenth-century Britain and France. There were some – Frédéric Bastiat and Jean-Baptiste Say come to mind – who believed that government should put the unemployed to work building infrastructure when markets or production were temporarily disrupted. But they were balanced by those like Nassau Senior, who spoke out against even famine relief: Although a million people would die in the Irish Potato Famine, “that would scarcely be enough.”

The main thrust of early conservatism was root-and-branch opposition to every form of social insurance: make the poor richer, and they would become more fertile. As a result, farm sizes would drop (as land was divided among ever more children), labor productivity would fall, and the poor would become even poorer. Social insurance was not just pointless; it was counterproductive.

The proper policy was to teach people to venerate the royal throne (so that they would respect property), the paternal hearth (so that they would not marry imprudently young), and the religious altar (so that they would fear pre-marital sex). Then, perhaps, with women chaste for half or more of their childbearing years, the surplus population would diminish and conditions for the poor would be as good as they could be.

Continue reading "American Conservatism’s Crisis of Ideas: Project Syndicate Monarchy, Patriarchy, Orthodoxy Weblogging" »

Did Ben Bernanke Just Say He Agrees with DeLong and Summers (2012)?


If, as we argued, under current circumstances, fiscal expansion is self-financing, then austerity makes the debt burden worse. It looks like that is what Bernanke said yesterday…

John Cassidy:

Ben Bernanke Lectures Congress on Austerity Economics: “Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant,” Bernanke told his students, who included a number of right-wing Republican diehards, such as Senator Bob Corker, of Tennessee, and Patrick Toomey, of Pennsylvania. “Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run.”

Yes, Thoughtful Economists Think Raising the Minimum Wage Right Now Is a Good Idea

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I would point out that the EITC and the minimum wage have different weak points--too high a minimum wage will have a substantial disemployment effect, and too high an EITC does create incentives to pad your hours. A mixed strategy helps attenuate both these flaws.

Steve Roth:

Leading Economists Vote on Raising the Minimum Wage: I’m delighted to see the U Chicago IGM Forum ask a really useful, non-softball question.

The panelists are evenly split on whether an increase to $9 would make it “noticeably harder for low-skilled workers to find employment.”

A 4:1 majority thinks that weighing the costs and benefits, “this would be a desirable policy.”

I note how many who commented bring up the EITC, suggesting that an increase in that support might be better than a minimum-wage increase. I note further that they apparently haven’t read the very good reasoning and research suggesting that the two together very effectively address the problems of each. But Paul Krugman has. And his surprise helps explain why the others haven’t thought about this:

Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right.

Continue reading "Yes, Thoughtful Economists Think Raising the Minimum Wage Right Now Is a Good Idea" »

Paul Krugman: The Fever Swamp of the Center

Screenshot 2 26 13 6 41 PM The Fever Swamp of the Center, Continued:

I love Jonathan Chait’s phrase “the fever swamp of the center”; it really is true that self-identified centrists are sounding crazier and crazier, as they try to reconcile their fanatical devotion to the proposition that both parties are equally at fault with the distressing reality that Obama actually advocates the policies they claim to want…. [T]oday’s WaPo editorial… a new pitch. The editorial admits that Obama is calling for exactly the polices the WaPo wants… but the piece is nonetheless written as a criticism of Obama, because:

Mr. Obama has presented entitlement reform as something he would do grudgingly, as a favor to the opposition, when he should be explaining to the American people — and to his party — why it is an urgent national need.

Oh, Barack, you’re telling me what I want to hear, but you don’t sound as if you mean it!… [I]t’s all there: hyperventilating about the deficit, together with an absolute determination to blame both sides equally no matter how unbalanced they really are. And as Chait, Greg Sargent, and others say, this refusal to hold the worse parties accountable is in itself an important source of our political dysfunction.

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

Wednesday Hoisted from the Archives from Four Years Ago: Stimulus Ostriches

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Brad DeLong : Stimulus Ostriches: BERKELEY - Of all the strange things that have happened this winter, perhaps the strangest has been the emergence of large-scale Republican Party opposition to the Obama administration's effort to keep American unemployment from jumping to 10% or higher. There is no doubt that had John McCain won the presidential election last November, a very similar deficit-spending stimulus package to the Obama plan - perhaps with more tax cuts and fewer spending increases would have moved through Congress with unanimous Republican support.

As N. Gregory Mankiw said of a stimulus package back in 2003, when he was President George W. Bush's chief economic advisor, this is not rocket science. Deficit spending in a recession, he said, "help[s] maintain the aggregate demand for goods and services. There is nothing novel about this. It is very conventional short-run stabilization policy: you can find it in all of the leading textbooks..."

I can understand (though I disagree with) opponents of the stimulus plan who believe that the situation is not that dire; that the government spending will be slow and wasteful (whereas properly targeted tax cuts would provide a more effective stimulus); and thus that it would have been better to defeat Obama's stimulus bill and try again in a couple of months.

I can also understand (though I disagree with) opponents who believe that the short-run stimulus effect of the plan will be small, while America's weak fiscal position implies a large long-run drag on the economy from the costs of servicing the resulting debt.

Continue reading "Wednesday Hoisted from the Archives from Four Years Ago: Stimulus Ostriches" »

Yes, We May Well Have a Double Dip This Year. Why Do You Ask?


I cannot find anybody now forecasting that the employment-to-population ratio will be higher in a year than it is today…

Binyamin Applebaum:

As Budget Cuts Loom, Austerity Kills Off Government Jobs: The federal government, the nation’s largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war. The reductions are designed to be indiscriminate, cutting everything from air traffic control to nursery schools. And the turn toward austerity is set to accelerate on Friday if the mandatory federal spending cuts known as sequestration start to take effect as scheduled. Those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government’s contribution to the nation’s gross domestic product by almost 7 percent in the last two years…. Federal, state and local governments now employ 500,000 fewer workers than they did on the eve of the recession in 2007, the longest and deepest decline in total government employment since the aftermath of World War II.

And it happened at exactly the wrong time to cut back on government employment--at a time when the government needed to be spending more employing more people, not fewer.

Liveblogging World War II: February 27, 1943

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Hildegard Henschel:

27 February began like any normal work day. The music hall at the nurses dormitory of the Jewish hospital was empty. In every corner sat a doctor and two nurses with cases of medicine and supplies, waiting for what was to come.

There was nervousness and restlessness in the air. People hardly spoke to each other. Between 9 and 10 a.m. the phones started ringing: Oranienburger street [the community offices] reported that all community officials had been arrested at their work places all over.

People were loaded onto SS trucks and brought to four assembly camps (the “Clou” concert hall, two military camps and the building at Rosen street). Large teams of aides and medical staff were taken there. Treatment was to be given around the clock.

Orianienburg Street was ordered to have the community staff come and present themselves with all necessary equipment. They also nominated certain people to be the Jewish commanders of each such camp. It was now known what had happened, but it was yet unclear how it happened.

Continue reading "Liveblogging World War II: February 27, 1943" »

Noted for February 27, 2013

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  • Martin Wolf: The sad record of fiscal austerity: "The ECB could have prevented the panic. Tens of millions are now suffering unnecessarily: At the Toronto summit of the Group of 20 leading economies in June 2010, high-income countries turned to fiscal austerity. The emerging sovereign debt crises in Greece, Ireland and Portugal were one of the reasons for this. Policy makers were terrified by the risk that their countries would turn into Greece. The G20 communiqué was specific: 'Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilise or reduce government debt-to-GDP ratios by 2016'. Was this both necessary and wise? No…. The idea that being Greece was around the corner gained traction in the US, too, notably among Republicans. Today’s battle over sequestration is partly a product of that concern…. A leading and, in my view, persuasive proponent of a contrary view is the Belgian economist, Paul de Grauwe, now at the LSE. He has argued that eurozone countries’ debt crises resulted from European Central Bank policy failures… the decision in principle of the ECB to buy up the debt of governments in trouble, through the so-called 'outright monetary transactions' (OMT), allows one to test his hypothesis…. By adopting OMT earlier, the ECB could have prevented the panic that drove the spreads that justified the austerity. It did not do so. Tens of millions of people are suffering unnecessary hardship. It is tragic."

  • Laura Tyson: America’s Sequestered Recovery: "The United States is confronting another round of cuts in federal government spending, this time threatening to trim at least 0.5 percentage points from GDP growth and to precipitate a loss of at least one million jobs. Automatic across-the-board spending cuts, the so-called “sequester,” would reduce spending by $85 billion, with defense programs cut by about 8% and domestic programs by about 5% this year…. These cuts, along with the tax increases agreed to in January, would knock about 1.25 percentage points off 2013 GDP growth, consigning the economy to another year of tepid recovery and disappointing job gains…. Anemic government spending, not profligacy, has been a major factor behind the economy’s lackluster recovery."

  • Ramesh Ponnuru: Romney and the Senate Candidates: "In Wisconsin, Virginia, and Texas, Romney ran just barely ahead of Tommy Thompson (by 0.03 percent), George Allen (0.3 percent), and Ted Cruz (0.7 percent), respectively. In Nebraska, Ohio, and Arizona, Romney ran ahead of Deb Fischer (2.3), Josh Mandel (3), and Jeff Flake (4.3). Romney performed significantly better in Michigan, Florida, North Dakota, Indiana, Montana, and Missouri than Pete Hoekstra (6.7), Connie Mack IV (6.9), Rick Berg (9), Richard Mourdock (9.8), Denny Rehberg (10.5), and Todd Akin (14.7). I had not noticed earlier that Berg and Rehberg underperformed Romney by about as much as Mourdock did."

Continue reading "Noted for February 27, 2013" »

FIRST DRAFT: Review of Stanley L. Engerman, Kenneth L. Sokoloff, *et al.*, *Economic Development in the Americas since 1500: Endowments and Institutions*

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Stanley L. Engerman, Kenneth L. Sokoloff, Stephen Haber, Elisa V. Mariscal,and Eric M. Zolt (2011), Economic Development in the Americas since 1500: Endowments and Institutions (Cambridge: Cambridge University Press: NBER Series on Long-Term Factors in Economic Development: 978-0521251372):

FIRST DRAFT REVIEW: Engerman and Sokoloff begin with the eighteenth-century European view of the Americas: that the smart money of the time saw extraordinary opportunities for exploitation, trade, and wealth in Latin America and the Caribbean and virtually no opportunities in North America, for:

no area north of 40 degrees latitude ever produced wealth" and such military contests as the 1756-63 French and Indian War was madness, in Voltaire's words "fighting over a few acres of snow.

The pre-1800 smart money was wrong: those who both before and since 1800 migrated to North America today see their descendants far richer than those who migrated to Latin America and the Caribbean. Why?

The conventional history of comparative New World conquest, colonization, and development has--to throw full buckets of paint at the canvas--taken one of three paths:

  1. Environmental-Determinist: there is something wrong with the climates of regions too much closer to the equator than Cambridge, MA, and New Haven, CT);

  2. Political-Heritage: there is something very right with the political institutions handed down to Britons as their entailed inheritance of the fruits of the Glorious Revolution of 1688; or

  3. Colonizer-Choice: the resource wealth of the Caribbean led colonizers to choose to create societies of plunder-extract-and-return-to-Europe where they could, and to only do the hard work of investment to build productive economies where they must.

Engerman and Sokoloff find all three of these inadequate.

On the one hand, Glorious Revolution political institutions could produce Guiana or Jamaica--or Mississippi--as well as Pennsylvania and Ohio. As Engerman and Sokoloff write:

Having been part of the British Empire was far from a guarantee of economic growth.

On the other hand, St. Louis, MO, and Cincinnati, OH, have much better agricultural possibilities as are Charlottesville, VA, and Springfield, MA. And they are at least as accessible from Europe in the eighteenth century, for the Mississippi is a very powerful potential highway.

And, on the prehensile tail, there never was any single guiding intelligence. There was no conscious actor choosing to maximize something by setting up "extractive" institutions in one colony and "developmental" institutions in another. Moreover, this puts completely to one side the fact that in any long-run maximization at all choosing to establish "developmental" institutions--if you could--creates much more wealth than choosing to establish "extractive" ones.

Engerman and Sokoloff see their key contribution in their:

specific focus on how… different environments… led to societies with very different degrees of inequality… [which] persisted… [and] affected the course of development through their impact on institutions.

Relative to the baseline provided by Canada and the Northern United States, the most important institutional divergences of the Caribbean and Latin America that they see come in the areas of suffrage, education, and land policy. In the first step, initial wealth in the first few colonizing generations leads to high inequality. In the second step, high inequality both produces a powerful elite that can restrict suffrage and produces a fearful elite that believes that broader suffrage may lead to a politics that redistributes away from them. In the third step, restricted suffrage means that popular demand for public education and for, where advantageous, Amerindian dispossession to open the frontier to family farm settlement never attains political critical mass. And, in the fourth step, a labor force without access either to land via westward migration or to human capital accumulation via education is a labor force that will receive low wages--further boosting returns to land and capital, and thus reinforcing inequality.

They see no iron laws in this pattern.

Argentina in the southern cone of South America has no silver mines and no ability to grow sugar cane. Yet Argentina's latifundia grew and persisted. Its politics of inequality were (and remain) poisonous--even though Argentina was much richer than Mexico or Brazil for the late-nineteenth and for much of the twentieth century. Universal (white) manhood suffrage came to the U.S. South with Andrew Jackson as early as it came to the U.S. North. But in the U.S. South the investments in infrastructure and in education did not follow on the same scale as in the North. And in the U.S. South the politically-favored scions of the elite had no problem aggrandizing large plantations on the navigable rivers.

But even though there were no iron laws, institutional trajectories once embarked upon became very difficult to change. "[G]overnment policies and other institutions tended to reproduce" the already-existing pattern of policy and distribution of wealth. As Engerman and Sokoloff note, political elites in Argentina, Brazil, and Chile in the second half of the nineteenth century saw the advantages of the United States's openness to immigration. They debated whether they should adopt a Homestead Act-like land policy. But, in the end, those seeking more pro-small settler policies failed to carry the political day, just as Cassius Clay and his political allies had been unsuccessful in his attempt to turn Kentucky into a free state in the generation before the Civil War.

The political power of the entrenched and unequal elite simply turned out to be too great.

This is a brilliant book, an example of what economic historians do best--better than non-economic historians, and better than non-historical economists.

It is a fitting monument to Ken Sokoloff, who is, I think, still the best of my generation of economic historians.

Max Fisher of the Washington Post Fears to Criticize Ezra Klein!

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This came out much nastier to Max than I had thought it would, or intended, or intended to intend. I apologize, and withdraw:

Max Fisher:

How China and the U.S. misunderstand one another: None of this is to criticize Ezra, of course, but just to supplement on his “myth of scheming” – the idea that Washington has successfully convinced the world that its leaders are constantly running sophisticated schemes, when in fact they’re usually struggling to keep up – with Beijing’s own myth of harmony.

Why not criticize Ezra? Especially since he has no special expertise on China's foreign and defense policies?

Tuesday Ten Years Ago on the Internet: Ken Rogoff: The IMF Strikes Back

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The IMF Strikes Back, By Kenneth Rogoff, Economic Counsellor and Director, Research Department, IMF 2003:

Vitriol against the IMF, including personal attacks on the competence and integrity of its staff, has transcended into an art form in recent years. One bestselling author labels all new fund recruits as "third-rate," implies that management is on the take, and discusses the IMF's role in the Asian financial crisis of the late 1990s in the same breath as Nazi Germany and the Holocaust. Even more sober and balanced critics of the institution—such as Washington Post writer Paul Blustein, whose excellent inside account of the Asian financial crisis, The Chastening, should be required reading for prospective fund economists (and their spouses)—find themselves choosing titles that invoke the devil. Really, doesn't The Chastening sound like a sequel to 1970s horror flicks such as The Exorcist or The Omen? Perhaps this race to the bottom is a natural outcome of market forces. After all, in a world of 24-hour business news, there is a huge return to being introduced as "the leading critic of the IMF."

Continue reading "Tuesday Ten Years Ago on the Internet: Ken Rogoff: The IMF Strikes Back" »

Noted for February 26, 2013

  • Alex Pareene: Watching the Sunday shows so you don’t have to: ABC’s “This Week” with George Stephanopoulos…. [W]e had… two professional liars, one party hack, one disgraced financier and one old journalist guy, here to discus the issues of the day. Somewhat wonderfully, the discussion of Steven Brill’s giant TIME piece on healthcare costs turned into a fairly explicit endorsement of lowering the Medicare eligibility age — even dedicated 'entitlement' foe Stephen Rattner unexpectedly endorsed this proposal! — which leads Stephanopoulos to point out that by the same logic we should just have single-payer healthcare…. Oh hey guys, you have all just discovered all the ancient arguments for single-payer that left-liberals have been making since forever, congrats. By tomorrow you will all return to demanding that the Medicare eligibility age be raised in the name of fiscal responsibility but for now, let’s enjoy this moment…. The show closed with everyone agreeing with George Will that 'Zero Dark Thirty' should win best picture because it would annoy Carl Levin and torture survivor John McCain."

  • Deus Ex Macchiato: What did Lehman’s Eurosystem collateral turn out to be worth?: "LBB’s collateral turned out to be worth 84 cents on the dollar, after accounting for haircuts; and it took four years to get that much."

Continue reading "Noted for February 26, 2013" »

Economists Looking Under the Lamppost for Fiscal Doomsday

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Ryan Avent:

Debt crises: On predicting fiscal doomsday | The Economist: IT SURE seems like high public debt levels ought to represent a looming economic problem…

They do--but there are other, more serious economic problems we have now, to which government deficits can be an answer.\

Ryan goes on:

Why, then, is it so difficult to demonstrate, conclusively, that they are?… A new paper illustrates the trouble economists have when they try to show that debt is scary…. David Greenlaw, James Hamilton, Peter Hooper, and Frederic Mishkin conclude that "countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of… tipping-point dynamics". But their work is remarkably unpersuasive…. The regression covers 20 countries for years t = 2000 − 2011 for a total of 240 observations…. [I]f the country’s primary deficit increases by 1% of GDP (causing both gross and net debt to increase by one percentage point relative to GDP), the borrowing cost would increase by...4.5 basis points…. In choosing to study advanced economies, the authors specifically note the problem of "original sin" in studies of emerging markets—that countries which borrow in foreign currencies are subject to different debt dynamics—only to then use a sample in which most of the chosen economies are unable to print their own money. With that understood, the possibilities of spurious findings are clear…. [S]everal of the sampled economies did experience soaring debts and skyrocketing borrowing costs. Troublingly… yields reversed after the ECB effectively broke the link between banking system solvency and sovereign obligations, even though total debt stocks have continued to grow…. [T]he largest increases [in debt-to-GDP] occurred (in order) in Ireland, Greece, Spain, Japan, Portugal, Britain, and America. Yields over that time frame soared in Ireland, Greece, Spain, and Portugal, of course. But they fell, sharply, in Japan, Britain, and America. We can draw a lot of important macroeconomic lessons from the sample the authors consider, but I'm not sure that the universal danger of a debt stock above 80% of GDP is one of the top ones.

That is, I think, the takeaway.

Continue reading "Economists Looking Under the Lamppost for Fiscal Doomsday" »

Laura Panza and Jeffrey G Williamson on Early Nineteenth-Century Egypt

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Laura Panza and Jeffrey G Williamson:

CEPR Discussion Paper Abstracts: DP9363 Did Muhammad Ali Foster Industrialization in Early 19th Century Egypt?: Muhammad Ali, who ruled Egypt between 1805 and 1849, intervened in Egyptian markets in an attempt to foster industrialization, especially between 1812 and 1840.

Like a modern marketing board, the state purchased agricultural commodities (cotton, wheat) at low prices and sold them on world markets at much higher prices, a policy equivalent to an export tax. Ali also replaced tax farming with his own land taxes. The revenues so derived were used in part to finance manufacturing investment and to build irrigation canals. In addition, Ali supplied flax and cotton at those cheap purchase prices to domestic textile manufacturing, thus subsidizing the industry. He also used non-tariff barriers to exclude foreign competition from domestic markets.

Were Ali’s state-led policies successful in fostering industry? The answer is no easier to extract from this phase of Egyptian history than from other poor countries at that time since Egypt faced the same terms of trade boom typical of most poor commodity exporters – Egyptian export commodity prices soared relative to manufactured imports, forces that were causing de-industrialization everywhere else in the poor periphery. Ali picked a very difficult time to pursue his agenda, but we show that his policies were successful.

Joe Weisenthal: To Save The British Economy, David Cameron Will Have To Do The Hardest Thing For Any Politician To Do

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Joe Weisenthal:

To Save The British Economy, David Cameron Will Have To Do The Hardest Thing For Any Politician To Do: [I]t is a good time to take stock of the situation in the UK, which has not only been downgraded, it's also on the verge of a triple dip recession. When David Cameron came to power he won praise for pursuing an austerity agenda (unlike Obama) but it's flopped….


I would like to thank the British government for conducting a massive social experiment, which will be used in decades to come as a proof that a tight fiscal/loose monetary policy mix does not work in an environment of a liquidity trap. We sort of knew that from the theory anyway but now we have plenty of data to base that on.

This idea that Britain has conducted a huge social experiment is not spoken loudly, since it's insensitive, but it's one that economists have talked about. People like that Britain has blown its recovery, because it shows that the theory behind austerity is bunk….

[H]e goes on to argue that the only hope now is that Britain take a "stop loss" on its austerity agenda, and spend more.

I do believe that Britain has finally cornered itself into a situation where there is overwhelming evidence that Mr Osborne should really start spending. He should also assume that Mr Carney will not let that spending lead to appreciation of Real Effective Exchange Rate (a bit more on that mechanism in one of my previous posts entitled “Be careful what you target or am I in the right church?“). That is to say that the Bank of England will keep nominal and real rates very low. In my opinion this is the only rational way of the situation that we’re currently in. Then again, I am assuming the impossible here, i.e. that the politicians know what the stop-loss is….

In the wake of a debt downgrade, David Cameron must spend more money. This is incredibly difficult, since prima facie, it would fly in the face of the downgrade. And more importantly, it would basically require him (and his finance minister George Osborne) to admit that they were totally wrong since the crisis. That's the really hard part. Perhaps even impossible. But that's what it will take.

Monday Hoisted from Comments: Bloix on Ezra Klein and Marcy Wheeler

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I am sure both Matt and Ezra would--with great reason--quarrel deeply with this analysis. But I find it and its reference to the puzzle of Marcy interesting enough to want to hoist it:

Bloix on Ezra Klein and Marcy Wheeler:

Klein made himself indispensable in the health care debate. Everyone else ran around getting this-side, that-side quotes. Klein read the literature, the hearings, the bills, the reports. You could actually learn something by reading Klein. He was nothing like Yglesias: Yglesias was a whip-smart kid who went to Dalton and Harvard and had lots of things to say about lots of things. Klein went to UCLA, knew nobody, and decided that the way to get ahead was to understand one thing better than anyone else and explain it better than anyone else. The Klein health care posts had hours and hours of research behind them. And he's got other skills, as well. He's a superb interviewer, for example. He's the purest example of meritocracy around. But he's also ambitious and savvy…. And if that means paying respects to David Brooks or writing the occasional both-sides-do-it piece, he does it….

Another blogger from the golden age who put in the level of effort that Klein did is Marcy Wheeler (Emptywheel). She did extraordinarily important work on the yellowcake story, Valerie Plame, and the Scooter Libbyy trial. But when she got her big break and was interviewed on MSNBC, she said "blowjob." End of mainstream media career option.

She's still worth reading.

Robert Murphy: "Austrian Economics Has Nothing to Do with [Making Accurate] Predictions of the Future"...


… and, I presume, nothing with understanding the present either!

A correspondent who must not wish me well directs me to the latest path of radioactive fallout from Robert Murphy's 5000-word "only jerks use Bayes's Rule to update their beliefs" post:

Robert Murphy:

Suppose I bet… $500 that Team X would win the Superbowl, and then I lost. Would you guys say that was a foolish thing, and that I obviously didn't understand Mises? Suppose I take an umbrella with me to work, because I see thunderclouds and make a prediction about the future. Would you email me Rothbard's critique of econometrics?

No… you would say, "Bob is making a bet. This doesn't have anything to do with Austrian economics. He isn't misapplying the theory, and he's not jeopardizing the integrity of the movement because--as the author of several study guides on Mises and Rothbard--surely Murphy knows Austrian economics has nothing to do with predictions about the future."

Noted for February 25, 2013

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  • Paul Krugman: Euro Delusions: "I’ve been browsing… Olli Rehn… the face of denialism when it comes to the effects of austerity… [to] pinpoint what [they].. see as the evidence that their view is right…. [T]he decline in interest spreads against Germany…. I see these moves as indicators of the effects of… the LTRO program… and the… willingness to buy sovereign debt…. But they see it as proof that the confidence fairy has arrived. Second, they see adjustment in unit labor costs. I see that too — but… only a fraction of the needed adjustment…. [T]hey have seized on the ECB’s success at stabilizing debt markets… a demonstration that extreme austerity was unnecessary and unwise as a vindication of austerity; and they have taken the slow progress of grinding deflation as a sign that all will be well."

  • Alice Dreger: .@davidgraeber Well, if Sahlins can't face the facts about what Chagnon didn't do, then maybe he shouldn't be in the Nat Acad Sci anyway | Raymond Hames: Sahlins' Invention: "Sahlins’ review of Darkness in El Dorado in the Washington Post entitled 'Jungle Fever'…. The fundamental falseness of part of Sahlins’ review… can be easily concluded by reading Chagnon’s ethnography…. I posted the following response…. [Q]uote of Sahlins' review: 'As for the dead, they are completely excluded from Yanomamö society, ritually as well as verbally, as a necessary condition of the continued existence of the living. But for the sake of science, Chagnon had to know--and so set in motion an opposition between their humanity and his epistemology that developed progressively through his professorial career.' This statement by Sahlins is categorically false. The dead are not excluded from Yanomamö society. In fact, I would argue that the Yanomamö remember and memorialize their dead more than most societies… much like the custom of widows dressing in black in parts of southern Europe. Even more to the point is the most important Yanomamö religious event, the reahu ceremony… ashes of the deceased are consumed in a plantain soup by close kin, in-laws, and members of allied villages who have traveled to help memorialize the dead. If the deceased is especially prominent and was killed in battle or through sorcery a ceremony will be preformed time and time again over a period of many years until his death is avenged in a counter raid…. I have no idea what possessed Sahlins to say what is exactly the opposite of the truth. Perhaps it was a ill-advised rhetorical flourish designed to put Chagnon in the worst possible light."

Continue reading "Noted for February 25, 2013" »

Why Oh Why Can't We Have a Better Press Corps?: Bob Woodward of the Washington Post Writes Fishwrap Edition

Ezra Klein:

On the sequester, the American people ‘moved the goalposts’: I don’t agree with my colleague Bob Woodward, who says the Obama administration is “moving the goalposts” when they insist on a sequester replacement that includes revenues…. [I]n 2011… everyone was perfectly clear that Democrats were going to pursue tax increases in any sequester replacement, and Republicans were going to oppose tax increases in any sequester replacement. What no one knew was who would win….

The sequester was a punt. The point was to give both sides a face-saving way to raise the debt ceiling…. The hope was that… something would… change… the supercommittee…[would come] to a deal… [or] the 2012 election [would resolve things]….

[In 2012] the American people voted for the guy who wants to cut the deficit by increasing taxes…. They also voted for a Senate that would cut the deficit by increasing taxes. And then they voted for a House that would cut the deficit by increasing taxes, though due to the quirks of congressional districts, they didn’t get one….

[T]he goalposts in American politics aren’t set in backroom deals between politicians. They’re set in elections. And in the 2012 election, the American people were very clear on where they wanted the goalposts moved to.

Liveblogging World War II: February 24, 1943

Charleston Gazette: Nazi Tunisia Drive/Reds Gain West of Kharkov/Rommel Repulsed In One Sector, Both Sides Now Bringing Up Reinforcements:

ALLIED HEADQUARTERS IN NORTH AFRICA, Feb. 23.—AP—Hurled back in one sector and stalled in another, the German armored units of Marshal Erwin Rommel relaxed their pressure along the Tunisian front today, giving the stubborn Allied defense forces their first rest of the bitter three-day struggle to keep Nazi spearheads from cracking their lines. "The fighting has died down," said a terse dispatch from the front, and both sides apparently prepared to make the most .of the lull by regrouping and bringing up supplies and reinforcements, In the hills north of the Kasserine gap, Rommel's most dangerous thrust had been halted by British and American tanks and infantry four miles from Thala, the gateway to the strategic Kremansa plateau near the Tunisian-Algeran frontier.

Continue reading "Liveblogging World War II: February 24, 1943" »

Noted for February 24, 2013

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  • Ben Jacobs: Why Is Oscar Pistorius The Only News Story In Africa That The Press Cares About?: "One of the great failures of the American news media is its inability to adequately cover any story that happens in Sub-Saharan Africa…. Why the sudden wave of attention for a news story in Pretoria, South Africa? The answer is simple. Because, unlike 99% of the inhabitants of Sub-Saharan Africa, Pistorius is white. In fact, both Pistorius and his deceased girlfriend, Reeva Steenkamp, are young attractive white people with blond hair…. And Mali? The only way Mali is going to get the attention it deserves is if Taylor Swift’s next underage boyfriend happens to be a Tuareg child soldier."

  • Cardinal Roger Mahony says that it is all an opportunity for him to undergo spiritual growth: CARRYING A SCANDAL BIBLICALLY: "]A]ll of us in the Church [have] had to face the fact that Catholic clergy sexually abused children and young people…. [O]ur suffering… [our] painful and public humiliation… is spiritually a grace-opportunity…. [T]his scandal is putting us, the clergy and the church, where we belong--with the excluded ones; Jesus was painted with the same brush as the two thieves…. Jesus and Mary, walk with us and show us how to follow you!"

Continue reading "Noted for February 24, 2013" »

Henry A. Wallace (1952) on the Ruthless Nature and Utter Evil of Soviet Communism: Cold-War Era God-That-Failed Weblogging

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Henry A. Wallace (1952), "Where I Was Wrong", The Week Magazine (September 7):

Here are startling admissions from a former vice-president of the United States. For years a Russian apologist, he now tells "Where I Was Wrong", by Henry A. Wallace.

Wallace says his big mistake was not denouncing Red coup in Czechoslovakia.

Henry A. Wallace:

Many people have asked me how I reconcile my stand before Korea with my uncompromising anti-Communist attitude of the past two years The answer is simple.

Before 1949 I thought Russia really wanted and needed peace. After 1949 I became more and more disgusted with the Soviet methods and finally became convinced that the Politburo wanted the Cold War continued indefinitely, even at the peril of accidentally provoking a hot war.

In this article eI shall speak frankly of some of the circumstances which have caused me to revise my attitude.

Continue reading "Henry A. Wallace (1952) on the Ruthless Nature and Utter Evil of Soviet Communism: Cold-War Era God-That-Failed Weblogging" »

More on the Ezra Klein David "I Have Not Read Robert Rubin's Tax Plan" Brooks Smackdown Weblogging

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Kevin Drum:

Quote of the Day: Defining "Politically Plausible" Down: avid Brooks… wrote (inaccurately) that the White House doesn't have a proposal to avert the sequester, "let alone one that is politically plausible"…. [Ezra Klein asked:] "What would you like to see [the White House] offer?"

[Brooks replied:]

My fantasy package, and I'm not running for office, would include a progressive consumption tax, and it would have chained CPI, and it would have a pretty big means-test of Medicare. I'd direct you to Yuval Levin's piece in the Times a few days ago, which seemed sensible.

I guess I shouldn't complain about this. I mean, props to Brooks for admitting that he went overboard, and props for being willing to talk to Ezra about it in a good natured way. Still, I have to chuckle when he complains about Obama not proposing a "politically plausible" plan, and then offers up an alternative that includes a progressive consumption tax, something that Republicans have been unrelentingly opposed to for decades…. I think we really need to have a little chat about just what "politically plausible" really means.

Continue reading "More on the Ezra Klein David "I Have Not Read Robert Rubin's Tax Plan" Brooks Smackdown Weblogging" »

Liveblogging World War II: February 23, 1943

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Battle of the Kasserine Pass:

Overextended, available supplies now dwindling, pinned down by the Allied artillery in the pass in front of Thala and now facing US counterattacks along the Hatab River, Rommel realised his attack had been stopped. At Sbiba, along the Hatab River and now at Thala, the efforts of the German and Italian forces had failed to make a decisive break in the Allied line. With little prospect of further success, Rommel judged that it would be wiser to break off to concentrate in South Tunisia and strike a blow at 8th Army, catching them off balance while still assembling its forces. He at least had the consolations that he had inflicted heavy losses on his enemy and that the Allied concentrations in the Gafsa - Sbeitla area had been destroyed.

At a meeting at Rommel's Kasserine HQ on February 23 Albert Kesselring and his Chief of Staff Siegfried Westphal tried to change Rommel's mind, arguing that there were still possibilities for success. However, Rommel was adamant; Kesselring finally agreed and formal orders from the Comando Supremo in Rome were issued that evening calling off the offensive and directing all Axis units to return to their start positions.

On February 23 a massive U.S. air attack on the pass hastened the German retreat, and by late on February 24, the pass had been reoccupied and Feriana was in Allied hands. Sidi Bou Zid and Sbeitla followed soon after.

Noted for February 23, 2013

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  • Tyler Cowen: Napoleon Chagnon and his Noble Savages: "I started reading Napoleon Chagnon’s Noble Savages: My Life Among Two Dangerous Tribes — the Yanomamo and the Anthropologists.  The first fifty pages are excellent fun and well-constructed, though I cannot speak to the details of his claims…. At some point, however, I realized I don’t want to read an entire book on either tribe, at least not at this moment.  I am not suggesting that the book gets worse, but my interest did ebb. I do not have a view about the controversies surrounding Chagnon, and ultimately that is what should decide the merits of this work.  Here is Dreger’s systematic defense of Chagnon."

  • Taegan Goddard: The sequester showdown isn't really about spending cuts: "Obama has already proposed more spending cuts that the sequester would guarantee… if the Republicans would just agree to close certain 'tax loopholes'…. [T]he sequester fight is about protecting current low tax rates on capital gains and dividends and keeping open the carried interest loophole that hedge fund and private equity managers use to reduce their own tax burden…. A compromise that included both spending cuts and new revenues would obviously reduce the federal deficit by significantly more than the sequester alone. But Republicans have dug in, saying new tax revenues are off the table. Bottom line: Republicans don't really care any more about the deficit and spending cuts than they say Democrats do."

  • William Murray, Baron Mansfield, Lord Chief Justice: (June 22, 1772): Abolition wasn’t an Anachronism: "The state of slavery is of such a nature that it is incapable of being introduced on any reasons, moral or political, but only by positive law, which preserves its force long after the reasons, occasions, and time itself from whence it was created, is erased from memory. It is so odious, that nothing can be suffered to support it, but positive law."

  • Josh Marshall: 12 Dimensional Chess: "DC press so bored by sequester stand-off, now reduced to writing articles about how overwhelming public support may backfire on the President."

Continue reading "Noted for February 23, 2013" »

Ezra Klein Smacks Down David Brooks: "Centrism" Weblogging

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David Brooks: In my ideal world, the Obama administration would do something Clintonesque… a budget policy… like… Robert Rubin… and if the Republicans rejected that, moderates like me would say that’s awful…

Ezra Klein: I’ve read Robert Rubin’s tax plan. He wants $1.8 trillion in new revenues. The White House… is down to $1.2 trillion…. [T]he White House’s offer seems more centrist…. People say the White House should do something centrist like Simpson-Bowles, even though their plan has less in tax hikes and less in defense cuts…

At this point David Brooks has a choice: he can say "I am an idiot who does not know what I am talking about"; or he can change the subject.

Guess what he does?

David Brooks: My first reaction is I’m not a huge fan of Simpson-Bowles anymore; I used to be. Among others, you persuaded me the tax reform scheme in theirs is not the best. Simpson-Bowles just doesn’t do enough on entitlements…

If I were running the New York Times, I would look at this and immediately say: We need to get Brooks out of our pages yesterday if not before, and we need an Ezra Klein of our own very badly.

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

Continue reading "Ezra Klein Smacks Down David Brooks: "Centrism" Weblogging" »

Paul Krugman: Paul De Grauwe and the Rehn of Terror

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Paul Krugman: Paul De Grauwe and the Rehn of Terror:

Nobody has taught me as much about the euro crisis as Paul De Grauwe… self-fulfilling debt panics in countries that no longer have their own currencies. Now… De Grauwe and Li show is that the rush to austerity in Europe largely reflected the surge in sovereign debt spreads after Greece got in trouble; the bigger the spread, the harsher the austerity. But it turned out that the spreads didn’t reflect underlying fiscal fundamentals… [as shown by] spectacular decline in spreads once the ECB… remov[ed] fears of a self-fulfilling liquidity crisis. Meanwhile, all that austerity has taken a terrible toll….

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They also show that countries pursuing austerity have by and large seen their debt positions worsen. But take heart. Olli Rehn of the European Commission, last heard declaring that the big problem with austerity isn’t that it doesn’t work, it’s the fact that economists keep publishing studies showing that it doesn’t work, says that the only thing we have to fear is fear itself:

Mr. Rehn insisted that Europe’s belt-tightening policies were working and would lay the groundwork for a recovery…. “We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation,” he said in the statement.

Well, that’s all right, then.

Readings from Jérémie Cohen-Setton and Martin Kessler of Bruegel: Safe Assets, the Downturn, and the Recovery

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Jérémie Cohen-Setton and Martin Kessler: Bruegel - The Brussels-based think tank: The excess demand for safe assets and the excess supply of goods:

Brad DeLong [says]… "John Stuart Mill… saw that excess demand for some particular set of assets in financial markets was mirrored by excess supply of goods and services in product markets, which in turn generated excess supply of workers in labor markets. If you relieved the excess demand for financial assets, you also cured the shortfall of aggregate demand" [for a recent formulation of these arguments, see Ricardo Caballero and Emmanuel Farhi].

  • When the excess demand is for liquid assets used as means of payment – for “money” – the natural response is to have the central bank buy government bonds for cash.
  • When the excess demand is for longer-term assets – bonds to serve as vehicles for savings that move purchasing power from the present into the future – the natural response is to induce businesses to borrow more and build more capacity, and encourage the government to borrow and spend.
  • When excess demand is for high-quality assets – places where you can park your wealth and be assured that it will still be there when you come back – the natural response is to have credit-worthy governments guarantee some private assets and buy up others. One way to understand European austerity is to say that yes having governments spend more money and continue to run large deficits will increase the supply of bonds and will thus relieve the shortage of longer-term assets. But if a government’s debt emissions exceed its debt capacity, all of that government’s debt will become risky and will thus create a shortage of high-quality assets.

Continue reading "Readings from Jérémie Cohen-Setton and Martin Kessler of Bruegel: Safe Assets, the Downturn, and the Recovery" »

Douglas Holtz-Eakin and Avik Roy: "You Know All That Stuff We Have Been Saying for Four Years? Nevermind!"

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Via Andrew Sullivan, Don Taylor notices Doug Holtz-Eakin and Avik Roy effectively saying "we've been misleading you about ObamaCare for the past four years":

Obamacare Obstruction Begins To Crack II « The Dish: Holtz-Eakin and Roy’s piece was and is primarily political, and doesn’t really have much to do with any facts or policy. They both (and many others) have overstated the case against the ACA for quite a while in my mind; that doesn’t mean I don’t read their stuff. And Holtz-Eakin was Senator McCain’s chief health policy advisor and Avik was an advisor to Gov. Romney. Given all this, the main content of the piece was reform of Obamacare v. strident ideological language arguing against something without offering an alternative that has been the norm for most opponents of the law for the past 34 months. So, even though my first thought was “Switzerland! I thought you guys hated mandates” I am personally glad to welcome them down from the ledge.

How Did I Miss Greg Mankiw's Grandmother vs. Supreme Court Justice Sotomayor?

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The Thunderdome… Two enter. One leaves…

How did I miss this?:

*Andrew Gelman: The grasshopper wins, and Greg Mankiw’s grandmother would be “shocked and appalled” all over again.

Liveblogging World War II: February 22, 1943

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Beheading of the White Rose:

[Seventy] years ago today, three German students were executed by guillotine in Munich’s Stadelheim Prison for their crimes of high treason against Hitler’s Third Reich. Just four days earlier, 24-year-old Hans Scholl and his 21-year-old sister, Sophie, had been arrested after they’d been caught throwing hundreds of anti-Nazi leaflets from the third floor of the main building of their Munich University campus…. Non-violent and rooted in intellectualism, this impudent movement… was no more than a handful of Munich University students in their early twenties – inspired and aided by their professor of philosophy, Kurt Huber….

The White Rose mass-printed a total of six ingenious propagandist leaflets, in which they called for the active opposition of the German people to Nazi oppression and tyranny. Quoting Goethe, Schiller, Aristotle and the Bible, these fiery missives targeted Germany’s intelligentsia – imploring them to “rip off their cloak of indifference”:

Continue reading "Liveblogging World War II: February 22, 1943" »

A Noted Dozen for February 22, 2013

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  • Matthew Yglesias (November 2012): Latino vote 2012: Opposition to immigration doesn’t explain Romney’s crushing defeat: "In the past, predictions of a brown wave… struck me as… misguided. As the Hispanic population grows, it also gets… 'Hispanic' (take me for example)…. [But] consider the GOP’s deeply racialized campaign against Supreme Court Justice Sonia Sotomayor.… I’m not the only fair-skinned English-dominant person with a Spanish surname who was genuinely shocked… the country was treated to a mass racial panic in which Anglo America was about to be stomped by the boot of Sotomayor’s ethnic prejudice… a 'lightweight' who’d been coasting her whole life on the enormous privilege of growing up poor in the South Bronx…"

  • Eric Boehlert: "Friends Of Hamas" And Why The GOP Can't Win The Internet: "If you want to appreciate how vast [is] the digital divide… separat[ing] conservative failures and liberal accomplishments online… just look…. Breitbart's Ben Shapiro… suggesting Hagel… received 'foreign funding'… from… Friends of Hamas'…. Andrew McCarthy, and AM talker Hugh Hewitt all hyped Breitbart…. By comparison, note Monday's news… prestigious Polk Award for the big campaign scoop David Corn posted online last September about… Mitt Romney, ['s]… '47 percent' of Americans who 'believe they are victims'…. Andrew Leonard…. 'Democrats have grasped a fundamental attribute of the digital age -- information is easy to share -- and have understood that the best way to take advantage of this special quality is set up a structure in which "smart people" are allowed to operate freely in an environment where information flows fluidly.'

  • Josh Barro:** Why We Need Republicans: "Democrats make their own errors in evaluating the economy…. Republicans have an often-healthy skepticism of regulation…. When they try, Republicans can make government more efficient…. Republicans aren't all out to lunch… Republicans are succeeding in states where their national brand is severely damaged tends to be that their state-level policy agendas are markedly better than the party's national one."

  • Evan Soltas: Spend Now! It’ll Save Us Money

Continue reading "A Noted Dozen for February 22, 2013" »

Ann Marie Marciarille: Self-Insurance by Small Employers and the Possible Breakdown of Community Rating Under the ACA

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Ann Marie Marciarille:

Missouri State of Mind: Self-Insurance by Small Employers Under the ACA: [S]elf-insurance in employer-sponsored health insurance is a riddle wrapped in a mystery inside an enigma… the explosive growth in self-insurance by employer sponsored health insurance plans is… under-discussed… the New York Times took it on…. explains… 59% of private sector workers with health coverage are enrolled in self-insured plans (up from 41% in 1998)… the exemption of self-insured plan from state health insurance regulation is not premised on any genuine absence from all insurance markets, the article explains about self-insured plans' participation in the stop-loss insurance market…. The stop-loss market responds by cherry picking among the new refugees on the basis of -- you guess it -- health status of the employee group, reintroducing underwriting by small group to places where it had been eliminated for individuals by the Affordable Care Act. 

The moral of the story? Whereever and whenever we have competing insurance products whose profitability is determined by calculating every health care payout as a loss, the insurance markets will respond accordingly -- ever inventing more methods, even if once or twice removed, to screen those who need health insurance out of the health insurance marketplace.

Maintaining the pooling equilibrium as health care costs increase is going to be really hard. If it turns out to be impossible--well, then, the ACA system will lurch toward pay-or-play and then single-payer.

Ann Marie Marciarille: California's Health Insurance Exchange Web Presence is Up and Running

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Ann Marie Marciarille:

Missouri State of Mind: California's Health Insurance Exchange Web Presence is Up and Running: Lots of people ask me what a health insurance exchange will look like.  I've been telling them that they may visit the Massachusetts connector for one example and that California's site will be up soon.  Now I have to amend that: Covered California may be visited here:

Now the harder question still remains unanswered: what will it be like to actually use the health insurance exchange to try to acquire health insurance? The conventional response seems to be that the exchanges will be modeled on Travelocity. I guess it all depends on your most recent experience with Travelocity and whether you think the kind of sophisticated value-driven computer-savvy consumers that use a site like Travelocity were the ones I am most worried about in the Exchanges.

I would add a worry: Travelocity needs to attract customers or its people will lose their jobs, the Director of Human Resources at a large company needs to have an HR website that does not get the CEO mad enough to fire them. The exchanges, by contrast, will work according to a less consumer-is-always-right more political-horse-trading logic. How will that work?

Sam Wilkinson: Republican Grifters Gotta Grift: Pete Domenici Edition

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Sources believed to be reliable report that Senator Pete Domenici (R-NM) was a complete non-presence in his son Adam's life…

Sam Wilkinson:

Secret Children For Me, No Gay Marriage For Thee!: Pete Domenici used to be a Senator and a conservative one… staunchly oppose[d to] anything that might benefit gay citizens. The Defense of Marriage Act? He was for that. A 2004 Constitutional Amendment that would have defined marriage as being between a man and a woman? He was for that. A 2006 Constitutional Amendment that would have defined marriage as being between a man and a woman? He was for that too. He enjoyed a 0% rating from the Human Rights Campaign. He was a man who stood athwart history yelling “Stop!” as the saying goes, steadfastly advocating the morality that he grew up with, swearing that marriage as an institution was the sort of thing that must be defended against the mongrel horde.

Funny thing… he just could not find the time to tell anybody about the secret son fathered as a result of an extramarital affair… she was 24 (he was 46 at the time) and the daughter of another serving Senator, Nevada’s Paul Laxalt… did not bother to inform either his wife Nancy (a woman he’d only been married to since the 1950s) or their eight children about his new child; they found out only several months ago….

Domenici is… after all, a product of his generation, one in which men commonly had extramarital sex with their coworkers’ conservative daughters and then also fathered out-of-wedlock children with those conservative daughters and then also did not tell anybody about a secret out-of-wedlock child and then also continued to insist publicly that his moral vision should become law and then also continued to vote for laws that would force his moral vision onto people whether they were interested in it or not or and then… wait, what? That’s not what men of his generation did, is it? That’s not the culture he was raised in, was it?

Liveblogging World War II: February 21, 1943

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Kasserine Pass, from Rick Atkinson's An Army at Dawn:

Rommel again held the initiative, but with it came a familiar conundrum: now what? From his command post near Kasserine, he studied the map, then motored through the pass to study the ground. He had twice divided his army, at Sbeïtla and at Kasserine. “I hoped to split the enemy forces far more than our own,” he later explained. But now he lacked the strength to attack simultaneously north toward Thala and west toward Tébessa. Thala led north to Le Kef. But he could hardly ignore CCB and the other American forces lurking somewhere west, beyond the Bahiret Foussana, perhaps waiting to counterattack to sever the Axis path of retreat through Kasserine. Despite its grievous losses, II Corps still had 150 tanks.

A reconnaissance report at 11:25 A.M. on February 21 pushed Rommel to a decision that led to the third action in this sequence, which in turn would lead to Kasserine’s finale. Twenty miles west of the pass and parallel to the Algerian border, a jagged escarpment known as Djebel el Hamra ran north to south, crossed by the packed-dirt roadbed of Highway 13. Wehrmacht scouts reported that no substantial Allied forces could be found east of el Hamra; the shallow bowl of the Bahiret Foussana was empty. Without waiting for confirmation from Luftwaffe pilots that his left flank was indeed secure, Rommel ordered the 10th Panzer to continue up Highway 17 toward Thala in his main attack; the Afrika Korps would push to el Hamra and safeguard the flank by sealing the passes from Tébessa and Bou Chebka.

The scouts were wrong. Djebel el Hamra and its lesser foothills bristled with Americans, on good ground and in formidable strength. In the south, Terry Allen held the Bou Chebka Pass with the 16th Infantry. “Well, boys,” Allen announced, “this is our sector and we will fight in place.” On the north, on the east face of the ridge and in a thin screen across the Bahiret Foussana, Robinett commanded eight battalions, eleven artillery batteries—nearly fifty guns—and a hodgepodge of others, including Senegalese riflemen and 700 lost souls snagged in a straggler line. Thick pines and rocky redoubts provided excellent concealment along a 4,000-yard front.

Continue reading "Liveblogging World War II: February 21, 1943" »

Noted for February 21, 2013

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  • Paul Krugman: The Great Dollar Decline: "Matt O’Brien is covering the continuing Scarborough freakout over bearded prophets of non-doom; better him than me…. JoScar… [has] graduated from frantic appeals to imagined authority… to efforts to make his case with actual data…. But this particular episode jogged me into doing something I’ve been meaning to do for a while: talk about the causes of the big decline in the dollar during the Bush years. As O’Brien says, it’s ludicrous to blame this pre-crisis decline on deficits that only ballooned after the crisis struck; it’s also bizarre to think of the dollar’s decline as a tragedy, when it actually took place in the context of mostly low inflation and a growing economy. Still, what was actually going on?… [M]aybe the question isn’t why the dollar fell so much during the Bush years, but rather why it was so strong during the late Clinton years. (The tech boom/bubble is an obvious answer). It’s also interesting to ask who the dollar declined against. And the main answer is Canada and Europe…. [T]he decline in the dollar under Bush probably had more to do with what was going on in our trading partners than with what was going on here. And in any case, again, it was not a problem for America."

  • Steve Benen on the sequester: Reality 1, Boehner 0

  • Lisa D. Cook, Trevon D. Logan, John M. Parman: Distinctively Black Names in the American Past: "We document the existence of a distinctive national naming pattern for African Americans in the late nineteenth and early twentieth centuries. We use census records to identify a set of high-frequency names among African Americans that were unlikely to be held by whites. We confirm the distinctiveness of the names using over five million death certificates from Alabama, Illinois and North Carolina from the early twentieth century. The names we identify in the census records are similarly distinctive in these three independent data sources. Surprisingly, approximately the same percentage of African Americans had 'black names' historically as they do today. No name that we identify as a historical black name, however, is a contemporary black name. The literature has assumed that black names are a product of the Civil Rights Movement, yet our results suggest that they are a long-standing cultural norm among African Americans. This is the first evidence that distinctively racialized names existed long before the Civil Rights Era, establishing a new fact in the historical literature."

  • Linda Beale: ataxingmatter: Mark Thoma puts Holtz-Eakin on (figurative) hot seat

  • Project Syndicate: Dismal Soothsaying

Continue reading "Noted for February 21, 2013" »

Atrios on the Federal Reserve's Bill Poole

Eschaton: Bill Poole:

He'd gone full wingnut (on economics) when I was his TA, so this isn't really new to me...

Brad DeLong : Wednesday Hoisted from the Archives from Four Years Ago: Technological Regress in the Thinking of Federal Reserve Bank President William Poole: When I knew William Poole in the 1980s, it was very clear that he was not a devotee of the Treasury View--that he believed and understood that the interest elasticity of money demand was not zero, and hence that expansionary fiscal policy could spur production and employment. Now he appears to have forgotten what he once knew, and retreated to the position R.G. Hawtrey assumed at the request of his then-political masters in 1926.

Sigh. 82 years of progress in monetary economics thrown away:

William Poole: The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.... [G]overnment spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

Poole is predicting a large and rapid rise in Treasury interest rates in the future, as the spending from the fiscal boost package hits the economy. Excuse me, Poole was predicting a large and rapid rise in Treasury interest rates in the past as markets realized that the Obama bill was going to get through congress. Yet the failure of his prediction has not fazed him at all...

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