Z: **Inactive:** Brad DeLong--Economics Only

Herb Gintis Reviews Paul Krugman's "The Conscience of a Liberal"

Herb Gintis reveals that his years on the left have transformed him into a man who buys the substantive argument of how the world works made by the right. Herb writes that more progressive income taxes are bad for the middle class in the long run:

Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes...

Marty Feldstein could not put it better.

Here is the whole review, on Amazon:

Amazon.com: H. Gintis' review of The Conscience of a Liberal: "Being progressive,'' says Paul Krugman in the concluding pages of The Conscience of a Liberal, "means being partisan." Like Krugman, my training lies in economics, but unlike Krugman, I am not partisan. Rather, I take a policy orientation to social issues: there are problems to be solved in order to enhance the lives of citizens, and it is our job to discover and publicize solutions to these problems.

Krugman's partisan stance only clouds the issues. For Krugman there is a "union movement" rather than a "bureaucratic labor aristocracy," critics of the welfare states want to "turn back the clock," rather than streamline and curb the inequities of the welfare state, conservatives have won by "exploiting cultural backlash" rather than by mounting a principled opposition to the explosion of crime, drug abuse, and single-headed households in a manner that resonates with the voting public. Critics of the wealth tax are "financed by a handful of [super-rich] families," with the public being ignorant dupes of the slick politicians.

This book epitomizes what is wrong with American liberalism. Krugman was a fine, perceptive international trade theorist, but he is a political hack, with nothing new to offer. There is one problem as far as Krugman is concerned: inequality. But inequality is an intellectual abstraction, not a politically motivating issue. People hated the Robber Barons because they were robbers and barons, not because they were rich. Oprah Winfrey and Bill Gates do not send the Pinkerton men out to protect their ill-gotten gains; nor to the other super-rich.

Socialists' ringing political slogans dealt with fairness, social progress, and power to the people, not "inequality." Moreover, a truly progressive movement must built on technical progress that is impeded by the reigning powers that be (Sam Bowles and I call this efficiency-enhancing egalitarian redistribution), not the beggar-thy-neighbor, zero-sum-game sort of redistribution favored by Krugman.

I suspect Krugman is correct in saying that the degree of inequality in the USA today is the product of politics, not economic necessity. This is because some advanced industrial countries have more equal distributions of income and wealth that the USA (e.g., France, Germany). But, these countries are plagued by bureaucratic inefficiency and deeply threatened by the "lean and mean" up-and-coming countries like Poland, the Baltic States, Romania, India, et al. The USA has purchased a thriving economy and full employment at the cost of having a bunch of super-rich families. Not a bad deal, after all.

Krugman's vision for the future has three key premises, all wrong.

First, he believes progressives can win on a platform of redistributing from the rich. However, no one cares about inequality. People care about injustice, unfairness, poverty, sexual predators, family values, gay marriage, terrorism, and many other problems of everyday life. People don't care about Gini distributions and other abstractions. Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.

Second, Krugman would strengthen the labor unions, which he credits for their egalitarian effects. However, unions were strong only when industry was highly non-competitive in such areas as automobiles and steel. The oligopolistic character of mid-twentieth century industry, with a few countries in the lead, made fighting over the excess profits highly rewarding. With globalization, there are no excess profits to be fought over. Thus, it is not surprising that most successful unions in the USA are public service, not private (e.g., teachers, government employees). There is no future in unionism, period.

Third, Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).

I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are politically sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment. Politics in the USA is no longer Elephants and Donkeys; it is now conservative Pigs and liberal Bonobos. The pigs are smart but only care about what's in their trough. The Bonobos are polymorphous perverse and great lovers, but will be extinct in short order.

One final comment. Herb "conservatives... are politically sophisticated and hold clear visions of what they want... too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment... conservative pigs... are smart but only care about what's in their trough" claims that he is non-partisan?

Tyler Cowen Likes Bob Reich's Supercapitalism

Tyler writes:

Marginal Revolution: Supercapitalism, by Robert Reich:

Finally, I will come to some conclusions you may find surprising -- among them, why the move toward improved corporate governance makes companies less likely to be socially responsible.  Why the promise of corporate democracy is illusory.  Why the corporate income tax should be abolished.  Why companies should not be held criminally liable.  And why shareholders should be protected from having their money used by corporations for political purposes without their consent.

That's from Robert Reich's Supercapitalism.  I'm coming late to this party, but mostly I liked the book.  It's full of fresh thinking and most of all it is excellent on just how much invisible hand mechanisms shape an economy.  It has the best explanation (and partial defense) of high CEO pay I've seen, namely supply and demand.  If you think it is exploitation of shareholders, take a look at how much private equity pays its CEOs.  And as the above quotation indicates, Reich is willing to rethink just about all the old left-wing shibboleths (what a biased word) about corporations.  He separates the analysis from the moral narrative, so when you disagree with him, that point is an isolated one and it does not infect everything he says.

Reich recommends that we strengthen atrophied democratic constraints on capitalist outcomes; in his view special interest politics are just another form of capitalism and special interests are crushing voter influence.  "Bryan Caplan, telephone!"

Freakonomics Clones

I have a review of Freakonomics clones in the Chronicle of Higher Education Review:

In the beginning were the Steves--Steve Dubner and Steve Levitt, that is. And Steve Dubner interviewed Steve Levitt, who taught at the University of Chicago and had won the American Economic Association's Clark Medal as the outstanding young economist in his two-year cohort. And Steve Dubner and Steve Levitt begat, or conceived or brought forth, Freakonomics, which sold many copies and populated the land. And the publishers of America looked upon Freakonomics, and saw that it was good.

And the publishers of America said, "Let us commission and publish many books sort-of like Freakonomics, for here is a previously-unexploited market segment, and there is unexpectedly-high demand for books that use economists' reasoning presented in clear prose to investigate and explain curious events and patterns in our social life. And let there be marketing campaigns. And TV appearances. And review copies."

And Basic Books and Robert Frank begat The Economic Naturalist. And the Free Press and Steven Landsburg begat More Sex Is Safer Sex. And Dutton Press and Tyler Cowen begat Discover Your Inner Economist. And they were fruitful, and multiplied, and replenished the Earth, and subdued it: and had dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the Earth.

And there was evening and there was morning, another day...

My favorite is Tyler's Discover Your Inner Economist.

A Few Thoughts on "The Plight of the Fortune Tellers"

(A) I suppose that the first lesson from talking to people about Riccardo Rebonato's The Plight of the Fortune Tellers is how foolish we academics are in thinking that there are things that go without saying: a great deal of the very large value of the book comes in saying things that, when I would say them in academic seminars, would be followed by somebody saying "But of course that goes without saying." The biggest example is Rebonato's hammered-home point that the 99.9% value-at -risk for a weekly return distribution cannot be determined. You would need 200 years of data from an unchanging return distribution before you could expect to have ten observations above the 99.9th percentile.

We academics say: of course. You cannot estimate the tails: they are tails. What 99.9 VaR, 1000-year flood, and their cousins mean is that you (a) took the standard deviation in the normal-time non-tail data you observed, and (b) multiplied it by 3.3. To call it the "thousand observation" level does not mean it is a one-in-a-thousand chance because the central limit theorem does not help you out in the tails. But talking to non-academics who have read this book I have found that they feel betrayed by the idea that a breach of the 99.999 weakly VaR can take place much more often than once every 2000 years--it is, after all, only 5.1 times the normal weekly change as defined by the standard deviation.

So: things that are to without saying should instead be said: as often as possible.

---

(B) I do think Rebonato has a tendency to throw the baby out with the bathwater. The tools of modern finance are very useful in dealing with one kind of risk: that associated with frequently-repeated transactions in normal times. Then the central limit theorem is your best friend, and the tools are wonderful. But there are a number of ways things go wrong:

• When transactions are not frequently-repeated enough so that you do not learn that your model is wrong, and you then discover that you were trading against somebody who had a much better mode of the situation.
• When for exogenous reasons times stop being normal, and you wind up in the tails.
• When you and your friends and your peers through your own actions create abnormal times.

These are three very different cases that deserve very different handling, but Rebonato runs them together...

---

(C) The four-part classification of transactions:

• Sold lottery tickets
• Bought insurance
• Sold insurance
• Bought lottery tickets

is very useful, and I wish that he had expanded on it more.

---

(D) The Greenspan quote:

the management of systemic risk is properly the job of the central bank. Individual banks should not be required to hold capital against the possibility of overall financial breakdown. Indeed, central banks, by their existence, appropiately offer banks a form of catastrophe insurance against such events...

Is true but incomplete. Banks should carry out their operation anticipating rescue by the central bank from systemic risk. But banks need to take care that they do not by their actions greatly multiply the systemic risks that otherwise exist.

(E) All in all, a highly recommended book.

Hoisted from the Archives: Review of Johnson and Broder, The System

Now that health care reform is heating up again, I want to be reminded of what I thought back in another decade far, far away. It's also worth noting that there are two different critiques of the Higher Broderism:

• The first is that David Broder is not doing his job as he envisions it--he is not being a straight reporter/analyst, but is instead providing cover for his friends like Karl Rove: "Let me disclose my own bias in this matter. I like Karl Rove. In the days when he was operating from Austin, we had many long and rewarding conversations. I have eaten quail at his table and admired the splendid Hill Country landscape from the porch of the historic cabin Karl and his wife Darby found miles away and had carted to its present site on their land." (Cf. recent columns providing cover for HHS Secretary Michael Leavitt and Mike Huckabee, plus the big wet kiss for Republican governor Bobby Jindal--and that's only the past two weeks!)

• The second is that his job as he envisions it is not worth doing--it is as likely to misinform as to inform his readers. My disappointment with Johnson and Broder's The System is the second kind of critique.

So let's roll the videotape:

J. Bradford DeLong, "Review of Haynes Johnson and David Broder (1997), The System (Boston: Little Brown: 0317111457)
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

I had been avoiding reading The System--Washington reporters Haynes Johnson and David Broder's account of the catastrophic collapse of the Clinton Administration health care reform effort--for a number of years. The worst hours of my life in 1993-1994 were those I spent providing analytical support for health care reform. I watched the catastrophe approach and then saw the crash, the product of a three-fold bankruptcy: moral, intellectual, and political. The moral bankruptcy was on the part of the Republican Party's power structure, which thought (correctly) that placing the government into total gridlock was a road to political success, and cared not at all for making public policy better along any dimension. The intellectual bankruptcy was on the part of President Clinton and the senior White House domestic policy staff, which never solved the puzzle of how to construct and sell a plan to make the American health care system better and how to construct a coalition to support reform. The political bankruptcy was on the part of the Democratic congressional majorities in the House and Senate, which ultimately failed to pass even a ghost of a bill to reform America's health care system along any dimension. The combination of these three bankruptcies has left America in 2000 with a health-care system even more wasteful and inefficient and even worse at delivering health care to the poor than we had a decade ago.

Participating in this was a dark experience. And it left me with a profound sense of guilt: a lot of people would lose the chance for better medical care because my side--me, my political allies, and those whom we had chosen to lead us--failed to do our job.

But when I did pick up The System I found it a good book of its kind: largely free of factual mistakes, an engaging read, almost fair (although sometimes more-than-fair) to all the participants. It reminded me of why my political commitments are what they are, and solidified them. But it was a good book of its kind only: it was not a good book. For I do have three major quarrels:

• Because Johnson and Broder are journalists whose principal sources are politicians and "media affairs people" and not policy analysts, they show little sign of understanding the substance of health care policy.
• Johnson and Broder take the failure of health-care reform as a "metaphor" for the failure of the American political "System." It wasn't a metaphor for anything. It was a policy debate.
• Johnson and Broder give the last word (in the paperback edition, at least) to someone who does not deserve to have it.

Let me postpone my quarrels and, first, summarize the story:

Johnson and Broder begin the story with the moment at the start of the 1990s when the American political class realizes that middle-class Americans are genuinely worried that if they lose their jobs they will lose their health insurance and their medical care. As Harris Wofford put it in his successful 1992 campaign for the Senate in Pennsylvania: "the Constitution says that if you are charged with a crime, you have a right to a lawyer. Every American, if they're sick, should have the right to a doctor." Johnson and Broder report that the audience "...response was immediate. Loud applause" (pp. 59-60). Thus health-care reform becomes a large political issue in the 1992 election, and to push for health-care reform becomes a major campaign promise of President-to-be Bill Clinton. (I would have stared the story at another point: with penicillin, or Bismarck's first national health program in late nineteenth-century Germany. Starting with the policy gives you a much better background for understanding. But, as I said, Johnson and Broder are journalists, not analysts.)

Thus after his election, President Clinton set up a policy-planning process to prepare a health-care reform plan for congress to pass. He chose his wife, the First Lady, Hillary Rodham Clinton to head up the planning process. He chose his long-time friend Ira Magaziner to be her deputy. He told them to think big.

It is hard to tell how much power Hillary Rodham Clinton had. Certainly she did not effectively manage the process. But I did see Ira Magaziner in action. And it seems to me that the process was impossible to manage as long as Ira Magaziner was involved, and perhaps she did not have the power to fire him.

Magaziner, you see, had two major flaws. His first was that his instinct was always to make things more complicated. Faced with a choice between doing 90% of a job with an organization that has 10% of the present complexity and doing 100% of a job with 200% of the present complexity, he would always choose the second. He had no sense that complicated organizations tend to break, to exhibit bizarre and unplanned behaviors, and are hard to explain--but he had never run and had spent little time working in large human organizations, and when he got his chance to do so during health-care reform he rapidly proved to be incompetent at marshalling resources and using his people's time effectively.

His second flaw was that he thought like a management consultant. A management consultant's principal goal is to win a debate in front of his employer, the senior decision maker, the "Principal." You win a debate by making intellectual arguments, controlling the flow of information to the senior decision maker, walling-off potential adversaries from the process, and winning the confidence of the Principal by telling him things that he likes to hear: that he is smart, that his goals can be achieved, that the nay-sayers just don't grasp the issues. But that's not how you develop a policy. You develop a policy by forming a large coalition all of whom agree that the proposal will make the world a better place, and that it is close to the best that can be attained at the current moment. Then you have a large group of people who are enthusiastic about the proposal: they will go out and make your arguments for you. The compromises and concessions that had to be made within the policy-planning group in order to form the coalition will then perform a very important exterior purpose: just as they brought people within the process onboard, so they will bring other people outside the process who think in a similar fashion onboard as well. For a management consultant, it doesn't matter if everyone else in the organization hates your guts as long as the Principal--the CEO--is convinced, for the CEO is the boss and can then make things happen. For a policy planner, winning the confidence of the Principal is almost beside the point: instead, the point is forming a coalition that can then be extended to win a majority of the House of Representatives, the 60 votes in the Senate to end a filibuster, and a Presidential signature.

So those were his two maor flaws: a love of complexity, and the instincts of a consultant--no, three major flaws: his judgment was also very poor. Remember: this is a guy who, without knowing anything about nuclear physics, testifies before congress that America has no choice but to pour lots of money into research into Cold Fusion. This is a man who thinks at the end of the 1970s--a time of record high energy prices and rapidly-growing competition from new producing nations like Brazil and Korea--that what America really needs to do is to invest in more brand-new integrated steel factories. Combine Magaziner's flaws with the sense at the start of 1993 that possibilities were unbounded--that, as one (anonymous) senior White House aide put it, no one in the White House "...was thinking about the fact that Bill Clinton got only 43 percent of the votes. He was on top of the world. He was young, he was good-looking, he gave a good speech. The world was full of hope"--and you have the setting for a policy-planning disaster.

And the policy-planning disaster duly took place, for Magaziner set up a process that was the antithesis of the coalition-forming, doubt-resolving, opposition-coopting process needed to construct a viable legislative proposal. As Johnson and Broder put it, Magaziner wanted a non-standard design. He wanted "...outside experts to challenge the conventional views.... to keep the veteran policy-network players [out]... [to keep] the final key decisions... [in the hands of] three people," the President, the First Lady, and Ira Magaziner. That this turned out to be a bad idea did not come as a surprise. At the very start of the Clinton Administration Donna Shalala, HHS Secretary, and Alice Rivlin, Deputy Director of OMB, were especially vocal at stating their belief that the Magaziner process was not "a disciplined policy-development process that would result in a piece of legislation that was fully vetted."

But don't blame Magaziner for the whole thing. Blame the guy who chose him--Bill Clinton. And blame Bill Clinton's inability to accept bad news and his eagerness to trust those who would tell him what he wanted to hear. As Senator Jay Rockefeller tells the story, his former aide Judy Feder "...flew to Little Rock.... She was worried.... Economists among the working group argued strongly that their work must not be tainted by the kinds of 'rosy scenarios' that had marred other administrations' cost projections.... [T]he cost estimates Feder had been asked to prepare... came in... 'very high'.... Feder confided to Rockefeller that she didn't think they were going to like them.... 'Be honest,' Rockefeller counseled her.... But, [Rockefeller] later reflected, 'Of course, I was wrong She got crushed. They were furious at her. Clinton personally was furious at her...'" (pp. 109-110). So Judy Feder did not get the job of the First Lady's deputy on health-care reform (a job she would have performed with distinction). Ira Magaziner did. And he began constructing a plan that he believed would produce (a) universal health coverage with (b) a generous and extensive benefit package that would (c) cost the federal government less than it was currently spending on health care because (d) "managed competition" among health care providers would immediately and substantially reduce the cost of medical care.

The economists assigned to health care reform planning were all--every one--upset and disturbed. The cost savings from increased competition seemed to be generated not by estimates of what could reasonably accomplished without compromising the quality of care, but by whatever was required to keep health care reform from costing the federal government money. And to make sure that health care reform did not cost the federal government money, price controls would be imposed on the amount that insurance companies could charge for health-insurance policies. But what if "managed competition" (which had never been tried) did not produce immediate and massive improvements in efficiency? Then health insurance companies and HMOs would find themselves under enormous pressure to save money and avoid bankruptcy by reducing the quality of care. Extremely tight controls on premiums seemed to produce the possibility of an unnecessary health-care disaster. Moreover, they greatly lessened the potential political attractivenss of the plan: few centrist Democrats and no Republicans in congress wanted to sign on for such a large expansion of government regulation.

Ira Magaziner responded to these criticisms not like a policy planner building a consensus but like a management consultant. Instead of bringing the Clinton Administration's economic (and social!) policy analysts and cabinet secretaries (and senators and representatives who chaired committees) on board, he posed his and their positions to the President as sharp alternatives. And in early September 1993 the Peresident ruled in favor of Magaziner--and against Rubin, Bentsen, Shalala, Panetta, Rivlin, Tyson, and company, who had argued that the "so-called premium caps would be viewed, correctly, as proxies for price controls--and congress despised price controls... that the alliances were too regulatory... the overall plan too bureaucratic... that Magaziner had stacked the deck against them in the briefing papers...." Joining the policy analysts in opposition to Magaziner were the White House media affairs people: as Johnson and Broder say: "'The plan itself is disastrously complex', Bob Boorstin said, days after it was presented to Congress.... 'Somewhere, somebody... should have come in and said, "We cannot send this fucker up to the Hill." George or Mandy or Stan or myself or somebody should have gone to Ira and Hillary and said, "This isn't a working document."'"

The reaction once the Magaziner plan was made public should not have been unexpected. Conservatives feared that the requirement that all firms pay for their employees' health insurance would cost jobs, and nearly everyone feared that the extremely tight price controls would compromise the quality of care. Magaziner's belief that it was sufficient to roll over the economic and social policy planners and win the confidence of the President meant that the plan when issued had no effective defenses against those outside the Administration who had similar concerns. More important, the Democratic members of Congress and their staffs felt betrayed. The way that David Abernathy, staff director of the Ways and Means Health Subcommittee, put it was as follows: "I have been doing this all my life and I just marveled at the chutzpah of the administration coming out with these numbers. It begs the straight-face test to think that you're going to cover thirty-eight-and-a-half million new people and not spend any more.... They just went out and told the American people, 'Don't worry. This will be very easy'" (p. 172). As a result, the congress had been "boxed in" because "that son-of-a-bitch Magaziner" had made "... their plan look cheap" and "screwed us." If the congress adopted more realistic estimates of likely savings, then it would have been the Democrats in congress--not the President--who had proposed raising taxes to pay for health-care reform. If the congress scaled back the benefit package to avoid tax increases than that would have been their responsibility too.

The sense of betrayal was heightened among the centrist Democrats whose support was absolutely and totally crucial as the Clinton Administration adopted a strategy of attempting to stampede rather than coopt the moderates. The worst example was the triple offensive--by the First Lady, House Committee Chair John Dingell, and the AFL-CIO--against Tennessee congressman Jim Cooper, sponsor with Senator John Breaux of an alternative centrist reform bill. As Johnson and Broder tell the story:

At a union-sponsored rally in Chattanooga, a copy of the "phony" Cooper-Grandy bill was ceremoniously burned. Unless Cooper changed his tune, threatened Jim Neely, the President of the Tennessee AFL-CIO, labor would either 'sit out' the Senate election or possibly endorse Republican candidate Fred Thompson. The most damaging blow fell at a civil rights meeting in Memphis. AFSCME... distributed a flyer that claimed "Cooper's plan would punish African-Americans more than others" and is "an injustice to our community." Cooper, the flyer said, has joined forces with the "health care profiteers" to offer "a fatal dose of phony reform"' Ellen Globocar, AFSCME's political director, justified the tactics: "Cooper probably did more damage to Bill Clinton's program than anybody.... We would get calls from the DNC [asking]... 'Why are we beating up on him?" And we'd say, "Maybe it's because he's trying to kill the President's health care proposal'."

Yet aggressive attacks on centrist Democrats--key swing votes--were coupled by total passivity on the part of a White House that seemed unwilling or unable to make the case for health care reform. They way Jay Rockefeller put it as early as December 1993: "I'm furious right now at the White House for several reasons. There is still no organization on health care. There's nothing out there.... The White House was simply not fighting back. There wasn't any effective political operation to win the battle..." Later on President Clinton would claim that the failure of the White House to get the pro-reform message out was his own fault. "I had cut back the staff of the White House as I said I would," the President told Johnson and Broder. "We didn't have the resources to do it, and we should have..." This claim on the part of President Clinton is a lie. First, the core White House staff was not cut back: the cutbacks in the "White House staff" had come in the Office of National Drug Control Policy (and these cutbacks may have been a good idea: as far as I know, all the ONDCP does is to try to make sure the President takes credit for whatever good happens with respect to drug abuse and make sure the President avoids blame for whatever bad happens; it doesn't teach people about dangers, treat addicts, conduct research into pharmacology and neurophysiology, or intercept smugglers). But the core White House staff was untouched. Second, the main resources of the Administration had been and remained outside the White House: the principal policy planners and policy advocates who could fix flaws in proposals, marshall arguments that policies were good for America, and communicate with the public remained where they had always been in the agencies and in the Democratic policy community. They had, after all, worked very hard for President Clinton and won him other significant victories. But on health care they were unused.

I paged through Newsweek for 1994. I found one story by Jane Bryant Quinn that focused on how quickly and unexpectedly a family could lose its health insurance--and how health care reform would fix this. I found no other stories that spent any significant amount of space on the potential benefits for the country of health care reform. Instead, I found Godfather's Pizza CEO Herman Cain talking about how he would have to fire people if the Clinton proposal passed. (I did not find it mentioned that the Clinton proposal would have given Godfather's Pizza a 70% price break on the cost of employer-sponsored health insurance), and the National Federation of Independent Businesses predicting a million lost jobs from the Clinto plan. On deficit reduction, on GATT and NAFTA, on crime control, and on other--successful--Clinton Administration initiatives, the elite print and video media were force-fed studies, numbers, and stories of the extraordinary potential benefits of Clinton Administration policies. I know: as a not-so-senior administration official I was sent out to force-feed them. But memos, studies, and supporting documents making arguments for health-care reform that were sent up the food chain to the White House Health Care War Room vanished, as if thrown down a well. And the flow of phone calls from journalists asking for background information and of invitations to come and talk to audiences about the benefits of reform never started.

I don't know whether it was managerial ineptness or paranoia that kept the Magaziner-led health care effort from drawing on the rest of the government to make the substantive case for policy reform in 1994. Maybe the work we did on the case for reform was never used because Magaziner and company drowned in paper. Maybe the work was thought counterproductive--too hostile to Herman Cain of Godfather's Pizza, say, by accusing him of being a cheapskate unwilling to spend even a cent to get health insurance for his employees (but if so, then why the treatment of Jim Cooper?). Maybe paranoia set in, and the economic analysts' quarrels with the Magaziner Plan were viewed as opposition to all reform. But whatever the source of the failure to make the substantive case, health care reform quickly entered its death spiral: Republicans decided to block any reform, no matter how minor; congressional Democrats could not assemble a majority on their own; and President Clinton had promised in his State of the Union address to veto any bill that did not provide for universal coverage. Combine these with a plan with severe substantive weaknesses and next to no attempt to make the substantive arguments for reform, and the end was sure once the Republicans had decided that it was essential to oppose the plan, and that the better the plan the more essential it was to oppose it. (They could not, you see, let President Clinton pass a reform that would be good for the country--that would be bad because it would entrench the Democrats.)

Johnson and Broder tell this part of the story--the congressional politics, the feints and false starts, the collapse--well. It is their home turf, after all. And I ended the book thinking that they had told that part of the story well. They should have spent more time detailing the moral bankruptcy of the Republicans--they really fell down there. I would have appreciated it if they had spent more time detailing the politcial bankruptcy of the Democrats who did not understand that their jobs on Capitol Hill were at risk if health care-reform failed. But you cannot ask reporters who see themselves as Washington insiders and who require the daily cooperation of Capitol Hill to be blunt and frank if being blunt and frank is too discreditable to sitting senators and representatives.

Nevertheless, a good book of its kind, not a good. book. Here are the quarrels with the book that I promised to return to at the end:

First, because Johnson and Broder are journalists whose principal sources are politicians and "media affairs people" and not policy analysts, they don't understand the substance of health care policy. They don't understand the dilemmas confronting any serious attempt to fix America's badly-broken health-care system. More serious, they are not aware of their lack of understanding: they seem to have made little or no attempt to correct it. Thus they can couple quotes from Ira Magaziner's "strategy memos" on how Republican cooperation was essential and fail to note that Magaziner's cost-containment mechanisms had already and automatically ruled out Republican votes. They can call CEA Chair Laura Tyson "one of the administration's tougher guardians of the free marketplace," not knowing that Tyson is a strong believer in a major role for the government in the economy--not a mindless knee-jerk believer that markets must be "free", but is instead for competent and well-planned government action to structure markets so that private incentives are aligned with social consequences. Thus they miss the fact that the debate within the administration was not between traditional Democrats and free-marketeers, but between an Ira Magaziner who somehow knew--how he knew this when no one else did we could never figure out--that costs could be stringently controlled by fiat without affecting quality of care, and the rest who feared that Magaziner's enthusiasm for managed competition was as well-founded as his enthusiasm for Cold Fusion.

Second, Johnson and Broder take the failure of health-care reform as a "metaphor" for the failure of the American political "System." But it wasn't a metaphor for anything. It was a policy debate. Its catastrophic end was the result of a unique combination of malevolence, bad luck, and incompetence. But their story will not support broad conclusions. Had they taken a look at some other Clinton Administration policy initiatives--deficit reduction say, or what I believe to be the almost completely destructive "reform" of welfare--they would have reached very different conclusions about the ability of the "System" to get things done and to reform how America works. Gridlock is not inevitable. The currently-favored interests do not always have to triumph.

Third, Johnson and Broder give the last word (in the paperback edition, at least) to someone who does not deserve to have it. They give Ira Magaziner, the man whom the Democratic congressional staff called "Hillary's Rasputin," the last word. Magaziner defends "the President's judgment" that massive immediate cost savings were feasible. But those of us who were there remember that one of Magaziner's standard--and most mendacious--moves was to claim that his judgments were the President's, and he was merely echoing them as the President's most loyal servant. Magaziner claims that the President was correct, failing once again to recognize that the task was not to win a debate but to construct a reform-passing coalition. To those of us who were there Magaziner's Parthian shot is a painful reminder of just how screwed-up the process was; but to those who were not there it gives him a bit of credibility and a platform he does not deserve.

Looking for an Expert on the Agrarian History of South Asia

David Ludden:

• David Ludden, New Cambridge History of India: An Agrarian History of South Asia
• David Ludden, _India and South Asia: A Short History
• David Hardiman reviews David Ludden, The New Cambridge History of India. Volume 4, Part 4, An Agrarian History of South Asia http://links.jstor.org/sici?sici=0002-8762%28200012%29105%3A5%3C1718%3ATNCHOI%3E2.0.CO%3B2-%23
• Marcia Frost reviews reviews David Ludden, The New Cambridge History of India. Volume 4, Part 4, An Agrarian History of South Asia http://eh.net/bookreviews/library/0250

Hoisted from the Archives: Large-Scale Social Cooperation in the East African Plains Ape

Of all the puzzles in xenobiology, perhaps the most remarkable is the existence of large-scale (but very imperfect) social cooperation among the East African Plains Ape of Sol III. Elsewhere on Sol III, large-scale social cooperation is limited to the social insects, in which each (sterile) worker is genetically identical to the (fertile) queen, and thus through standard Darwinian mechanisms treats the queen's children as if they were her own children and sisters. Aside from these social insects in which large-scale cooperative behavior is evolutionarily stable by virtue of genetic identity, cooperation on Sol III is limited to herds or packs of at most 100 individuals--and even there the pack must be closely genetically related.

By contrast, one million East African Plains Apes are involved in the complex social division of labor that we have termed "Toyota"--and those one million engage in complicated acts of social reciprocity with at least twenty times their number of outsiders who are not engaged in the "Toyota" social network.

How can this be?

We have recovered and are analyzing a textual artifact that we hope will provide the answer:

Paul Seabright (2004), In the Company of Strangers: A Natural History of Economic Life (Princeton: Princeton University Press: 0691118213).

Highly recommended.

Alan Greenspan on the Presidents

Greg Ip and Emily Steel:

Greenspan Book Criticizes Bush And Republicans - WSJ.com: Mr. Greenspan writes that when President Bush chose Dick Cheney as vice president and Paul O'Neill as treasury secretary -- both colleagues from the Gerald Ford administration, during which Mr. Greenspan was chairman of the Council of Economic Advisers -- he "indulged in a bit of fantasy" that this would be the government that would have resulted if Mr. Ford hadn't lost to Jimmy Carter in 1976. But Mr. Greenspan discovered that in the Bush White House, the "political operation was far more dominant" than in Mr. Ford's. "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," he writes.

From serving under so many presidents, Mr. Greenspan concludes that there's something abnormal about anyone willing to do what it takes to get the job. Mr. Ford, he writes, "was as close to normal as you get in a president, but he was never elected." The Watergate tapes, he says, show Richard Nixon as "an extremely smart man who is sadly paranoid, misanthropic and cynical." He recalls telling someone who had accused Nixon of anti-Semitism that he "wasn't exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek, anti-Slovak. I don't know anybody he was pro."

Ronald Reagan's ability to instantly tap one-liners and anecdotes in support of a particular policy represented an "odd form of intelligence." He describes Bill Clinton as "a fellow information hound" with "a consistent, disciplined focus on long-term economic growth" whose relationship with Monica Lewinsky "made me feel disappointed and sad."

Mr. Greenspan makes no mention of his successor as Fed chairman, Mr. Bernanke, other than in a caption accompanying a picture: "I was very comfortable leaving the post in the hands of such an experienced successor," it reads...

Alex Harrowell on Adam Tooze's The Wages of Destruction

Alex writes:

Review: The Wages of Destruction, Adam Tooze: The Wages of Destruction: The Making and Breaking of the Nazi Economy... is getting some very good reviews, and this one will be no different. Tooze’s thesis is that the Nazi German economy was a more powerful factor in many decisions taken by the leadership than hitherto assumed, that its structural weaknesses were determining in the failure of Nazism, and that Nazism itself can be understood as an effort to escape them by a combination of will and technology. The first is fairly original, and certainly controversial, the second is hardly controversial (although it is surprising that it still needs restating; the image of impregnable fascist might dies hard), and the third is both new and highly controversial.

Tooze begins with a discussion of Germany’s economic problems and relative place in the world whilst passing through the Depression. He provides an excellent account of Stresemann’s policy in terms of a special relationship with the United States.... America in German eyes is a main theme of the book, and a little-remembered sub-theme of Nazi discourse more generally. Not only were leading Nazis concerned about the potential power of the US, they both idealised what they took to be the unique efficiency of 1920s US industry, and demonised what they took to be the decadence and miscegenation of US society....

Stresemann and his fellow liberals, and the Social Democrats, thought the answer to America was to preserve the international political and trading structure; perhaps with a European community in the far future. The Nazi response was to shake the structure until it fell down....

What got Germany back to work was rearmament, and Tooze argues that much of what is thought of as civilian investment was actually more like disguised military investment, or investment in war-supplying industry. It is well worth pointing out here that Tooze is excellent on the corporate world of Nazi Germany, and especially the fast-growing influence and power of the top technical executives of big industry (especially chemicals and aeronautical engineering), who made up something like an independent technocratic lobby in their own right. J.K. Galbraith’s technostructure comes to mind; this may have been the most malevolent and evil manifestation of it ever....

The upshot was that the decision for war, and then the decision to take the offensive in the West, and finally the decision to take the offensive into Russia, were at each step driven by a logic of economic bootstrapping. War, and the consequent loss of world trade, had a serious initial impact on the German economy; inflation threatened to burst out of control, there was a constant struggle between interests over short-supply assets, and a key feature of the German economy caused deep discontent....

Peasants were a key Nazi constituency, as well as occupying an important place in ideology; unfortunately this image of virtue didn’t translate into grain all that well.... Here, the appalling figure of Herbert Backe, State Secretary and later Minister of Agriculture, stands out; Backe wrote a PhD thesis years before entering office on the Russian grain business, in which he explained that the superior people without space must get rid of the Russians in order to secure the Ukraine’s surplus and settle enough of their urban working class to overcome the unrooted, degenerate tendencies created by the modern nomads, that is to say the Jews....

[A]lthough the conquest of western Europe turned a very bad economic position into a tolerable one with considerable potential, Europe was far more globalised than the Nazi economists assumed. Oil is the canonical example, but Europe also imported a lot of animal feed, and also British coal. Problems with transport, and the planners’ inability to come up with a settlement of coal supply between the mighty interest groups concerned, exacerbated the feed problem. As agricultural productivity fell, so did productivity down the mines; it probably would have done anyway, French communists not being likely to bend their backs any harder for German fascists, but hunger is enough to explain the droop in coal output per hour.... The upshot was a European economy operating massively below capacity and a German economy running red hot, with a continent-wide shortage of key inputs. Soviet trade, under the Molotov-Ribbentrop pact, matched part of the difference, but the Soviet government demanded its price, especially in terms of technology transfer....

[W]ith the occupied territories only a marginal benefit, and much capital investment not yet producing, Germany was faced with the rapid spin-up of US production. Where to go for the next bootstrap, before US industrial power took effect? Russia, clearly. Tooze’s book may be a final slam-dunk demonstration for the “functionalist” view of Nazism, dominant since the 1980s, which argues that the regime’s internal politics, shared assumptions, and the incremental radicalisation caused by a succession of crises drove Germany into war and genocide, rather than a clear rationalist design. Independent decisions, taken for different reasons, mutually reinforced each other....

In nearly all British accounts of the second world war, the author takes sides regarding one or more of the morality, effectiveness, and wisdom of the RAF’s strategic bomber offensive against Germany; it’s an identity-creating decision for any British historian.... Tooze argues, against Galbraith, that the bombing was indeed effective....

In conclusion, what stands out is that the Third Reich was fascinated by the United States, perhaps even more than the Soviet Union; Hitler spoke of the Volga as Germany’s Mississippi, and various SS Schreibtischtäter of treating its inhabitants as “Red Indians”. The size of the proposed empire was frequently compared to Canada or Australia. It is clear that a major motivating factor for many leading Nazis was a wish to escape from an increasingly integrated world economy, and a matching desire to have a Grossraumwirtschaft to match the people seen as controlling the world economy; Tooze’s book leaves the disturbing sensation that this is us.

John Hobson's Theory of Imperialism

Imperialism as military and export Keynesianism. Written in 1902:

Hobson, Imperialism, A Study, Part I, Chapter VI: Library of Economics and Liberty: The fallacy of the supposed inevitability of imperial expansion as a necessary outlet for progressive industry is now manifest. It is not industrial progress that demands the opening up of new markets and areas of investment, but mal-distribution of consuming power which prevents the absorption of commodities and capital within the country. The over-saving which is the economic root of Imperialism is found by analysis to consist of rents, monopoly profits, and other unearned or excessive elements of income, which, not being earned by labour of head or hand, have no legitimate raison d'être. Having no natural relation to effort of production, they impel their recipients to no corresponding satisfaction of consumption: they form a surplus wealth, which, having no proper place in the normal economy of production and consumption, tends to accumulate as excessive savings. Let any turn in the tide of politico-economic forces divert from these owners their excess of income and make it flow, either to the workers in higher wages, or to the community in taxes, so that it will be spent instead of being saved, serving in either of these ways to swell the tide of consumption—there will be no need to fight for foreign markets or foreign areas of investment.

Many have carried their analysis so far as to realise the absurdity of spending half our financial resources in fighting to secure foreign markets at times when hungry mouths, ill-clad backs, ill-furnished houses indicate countless unsatisfied material wants among our own population.... [M]ore than one-fourth of the population of our towns is living at a standard which is below bare physical efficiency. If, by some economic readjustment, the products which flow from the surplus saving of the rich to swell the overflow streams could be diverted so as to raise the incomes and the standard of consumption of this inefficient fourth, there would be no need for pushful Imperialism, and the cause of social reform would have won its greatest victory.

It is not inherent in the nature of things that we should spend our natural resources on militarism, war, and risky, unscrupulous diplomacy, in order to find markets for our goods and surplus capital. An intelligent progressive community, based upon substantial equality of economic and educational opportunities, will raise its standard of consumption to correspond with every increased power of production, and can find full employment for an unlimited quantity of capital and labour within the limits of the country which it occupies. Where the distribution of incomes is such as to enable all classes of the nation to convert their felt wants into an effective demand for commodities, there can be no over-production, no under-employment of capital and labour, and no necessity to fight for foreign markets....

The struggle for markets, the greater eagerness of producers to sell than of consumers to buy, is the crowning proof of a false economy of distribution. Imperialism is the fruit of this false economy; "social reform" is its remedy. The primary purpose of "social reform," using the term in its economic signification, is to raise the wholesome standard of private and public consumption for a nation, so as to enable the nation to live up to its highest standard of production. Even those social reformers who aim directly at abolishing or reducing some bad form of consumption, as in the Temperance movement, generally recognise the necessity of substituting some better form of current consumption which is more educative and stimulative of other tastes, and will assist to raise the general standard of consumption.... Social reform bifurcates, according as reformers seek to achieve this end by raising wages or by increasing public taxation and expenditure. These courses are, not essentially contradictory, but are rather complementary. Working-class movements aim, either by private co-operation or by political pressure on legislative and administrative government, at increasing the proportion of the national income which accrues to labour in the form of wages, pensions, compensation for injuries, &c. State Socialism aims at getting for the direct use of the whole society an increased share of the "social values" which arise from the closely and essentially co-operative work of an industrial society, taxing property and incomes so as to draw into the public exchequer for public expenditure the "unearned elements" of income, leaving to individual producers those incomes which are necessary to induce them to apply in the best way their economic energies, and to private enterprises those businesses which do not breed monopoly, and which the public need not or cannot undertake. These are not, indeed, the sole or perhaps the best avowed objects of social reform movements. But for the purposes of this analysis they form the kernel...

Recommending "The Strange Death of Tory England"

Another book I should add to the pile:

On its last legs or healthy enough to be milked?: In The Strange Death of Tory England, a book full of great lines, Geoffrey Wheatcroft writes,

Just as the labour movement had never been quite sure whether the capitalist system was on its last legs and needed only a final push to be toppled, or was healthy enough to be milked over and again, so the cultural-intellectual left had never quite decided whether it liked increasing prosperity or not.

I highly recommend this book to anyone who has a sense of who's who in British politics of the past 40 years. It's the best political book I've read in awhile--maybe it helps to read about another country, it gives some distance on things.

Anyway, I like the above quote. I would add something analogous for conservatives, that they have never been quite sure whether the capitalist system is an amazing wealth machine with even low-income people being rich on an absolute scale, or whether the system is so fragile that people can barely afford to pay their taxes and that any particular tax or regulation will bankrupt the system. [Unfortunately, try as I might, I can't manage to phrase this as aphoristically as Wheatcroft did]...

Kevin Drum Enthusiastically Praises Jonathan Chait on Bush the Class Warrior

Kevin Drum writes:

Kevin Drum: fears of Bush the Fascist and Bush the Theocrat are little more than minstrel shows that distract us from truly taking notice of Bush the Plutocrat—and that’s the Bush that really matters. This, along with Chait’s trademark take-no-prisoners writing style, is the great strength of The Big Con.... Take supply-side economics. There are, it’s true, a few honest supply-siders.... [But] it has become little more than a carnival barker’s cure-all: Cut taxes and the economy will boom! There isn’t a practicing economist in the country who believes this, but that hasn’t stopped Republican primaries from becoming virtual meat markets where the candidates vie to outbid each other over their fealty to tax cuts today, tax cuts tomorrow, tax cuts forever.

Why? As Chait points out, the answer is simple if you don’t mind being thought unsophisticated: Republicans do it not because it’s defensible policy, but because tax cut jihadism is popular with both the rich donors and the corporate lobbying groups who contribute to their campaigns.

How do they get away with this?... [A] big modern Republican sin: their almost complete disregard for policy analysis.... Analysis is for wimps.... [T]he post-Gingrich discovery by Republicans that an awful lot of what happens in Washington isn’t governed by actual rules, but by mere traditions.... [A] single purpose: passing business-friendly pork as efficiently and as quietly as possible. Tax bills, energy bills, Medicare prescription bills: all become mere vehicles for corporate largesse.

There’s also the peculiar way in which Republicans publicly defend their policies: by talking like liberals. “Republicans simply can’t win office or get their plans enacted into law, without fundamentally misleading the public,” Chait says. “Lying has become a systematic necessity.” The reason is obvious: if you sell tax cuts on their actual merits (i.e., they help Enron and Rupert Murdoch), no one will support you.... And it’s not just tax cuts. Business-friendly environmental policies are sold as “Healthy Forests” and “Clear Skies.” Business-friendly legal policies are sold as a way to stop “lawsuit abuse.” Business-friendly Medicare legislation is sold as a way of helping out Granny and Gramps. And the whole thing is sold under the umbrella of “compassionate conservatism.” It turns out that the only way to sell business-friendly conservative policies is to pretend they’re actually liberal policies.

As Chait points out, however, Republicans could never have gotten away with this without some help from the media... trained to assume that the “center” is a reasonable place to be, and that the center is the midpoint between the two parties.... [And] most reporters really don’t care much about policy. In fact, they’re often contemptuous of it. Rather, they care about personalities, “character,” scandals, polling numbers, and backroom deal making. The result is that Republicans can engage in transparent class warfare with barely even a pretense at serious justification and the press either doesn’t notice or doesn’t really care...

Linda Perlstein Talks About Educational Reform Choices

From USA Today:

'Tested' examines difficult choices - USATODAY.com: Linda Perlstein, a former Washington Post reporter, wanted to see the effects firsthand, so she spent an academic year inside a high-poverty elementary school in Annapolis, Md. The result is Tested: One American School Struggles to Make the Grade. USA TODAY's Greg Toppo talks with her about testing:

Q: You spent a year getting to know kids at Tyler Heights Elementary School. How did this change your outlook on their education and tests?

A: I don't have a problem with testing children. I have a problem with thinking test results tell you most of what you need to know. They simply don't — these tests are often very narrow instruments. Where reforms have forced educators to notice children who might otherwise have been neglected, I give credit. But I wrote this book because school reforms intended to abolish a two-class system were in some ways exacerbating it. There's one world where students pass the test as a matter of course and get to write poems, and another where children write paragraphs about poems. Meanwhile, there's supposed to be a movement in American schools to educate each child as an individual. The teachers at Tyler Heights work mightily to do that, but they have to get everybody to the same place in the same amount of time, and follow daily curriculum agendas handed down from above.

Q: President Bush says the "soft bigotry of low expectations" preceded his school reforms, but you say condemning kids to a "rudimentary education" is just as bad. What's so rudimentary about the education at Tyler Heights? And what about similar schools that keep a rich curriculum while doing well on tests?

A: Tyler Heights kids in some ways are very fortunate: Even though many are poor, their well-off district provides them a safe, clean building, plenty of learning tools and a smart, hard-working staff who cares immensely about them. But those educators feel constrained because of rigid curriculum strictures, the low skills of many kids and the pressure to excel on the test. So a teacher suspects her third-graders might be asked on the test to write a paragraph enumerating the elements of a poem. The kids can't get it right. Does she have them write that paragraph over and over until they do, or does she let them actually write poems? The latter would be more engaging and, in the long run, instructive, but the school might calculate that drilling is the more direct, reliable line between two points. Or that science experiments, since they won't be on the test, aren't the best use of a too-short school day. These aren't choices I agree with, but I understand why they're made. The schools with rich curricula exist here and there, most likely with daring staffs and flexible school districts that give educators plenty of room to innovate.

Q: In one memorable scene, a district supervisor watches kindergartners in gym class waft a parachute into the air and scamper beneath it. She says of the teacher, "I can't see his goal." It seems absurd, but does she have a point?

A: No. The silliest thing I have seen in my decade of education reporting is the insistence that every "learning outcome" be posted — the more jargon, the better. Do 5-year-olds need to know that they are tossing balls onto a parachute and running underneath to "demonstrate ways to send and project an object using a variety of body parts and implements" and "move safely in personal and general space"? Can't they just think they're having fun?

Q: Reading your account of a teacher dropping nonsense words into lessons to prep for their appearance on a vital speed-reading test, I thought about Thoreau's warning against becoming "the tools of our tools." What is wrong with this picture?

A: The teacher wanted her kindergartners to be prepared for their assessment, which makes sense. Kids should learn to sound out letter combinations whether or not they make actual words. But she would have preferred to use that time teaching her kids real vocabulary.

Q: I won't give away the ending, but Tyler Heights seems a different place after the big state test is over — science fairs, creative writing and field trips return. Are tests really calling the shots?

A: After I left Tyler Heights, the principal eased up a bit on her "laser-sharp focus." Activities were spread more evenly throughout the year, third-graders wrote poems, there were more attempts at critical thinking. Compared to the previous year, the percentage of kids passing the state test decreased in more categories than it increased. But I don't think the teachers would tell you the students learned any less.

Woytinsky!

Frivolous academic purchase of the month: W.S. and E.S. Woytinsky (1953), World Population and Production: Trends and Outlook and World Commerce and Government: Trends and Outlook (New York: Twentieth Century Fund).

Maury Obsteld next door says: "Ah! Woytinsky! You going to scan it all in and put it on your weblog?" World Commerce and Government--the smaller of the two volumes--clocks in at 907 pages.

It seemed that I was old enough and it was cheap enough that I deserved my own copy of Woytinsky...

There is one thing that is very sad. The very last page of World Commerce and Government shows that this was a library copy: it was stamped due back into the library by Jan 13, 1956; Jan 19, 1956; Jun 11, 1956; Oct 1, 1959; Jun 11, 1973; Jul 29, 1983; Jun 01, 1992; Sep 1, 1992; Sep 1, 1995. Which library? Harvard's Littauer Library of Public Administration. This is the copy of World Commerce and Government that I checked out the summer after my first year of graduate school, and returned at the end of July 1983. Littauer Library has gotten rid of it, and I now have it.

I hope it wasn't their only copy, but I don't remember seeing two...

Greg Clark's New Book: "A Farewell to Alms"

Greg Clark's new book may be right, may be wrong, but it is brilliant--the pre-industrial chapters may well be the best short treatment of the topic ever.

Nicholas Wade reviews:

Review - A Farewell to Alms: For thousands of years, most people on earth lived in abject poverty, first as hunters and gatherers, then as peasants or laborers. But with the Industrial Revolution, some societies traded this ancient poverty for amazing affluence.... Gregory Clark, an economic historian at the University of California, Davis, believes that the Industrial Revolution ... occurred because of a change... people gradually developed the strange new behaviors required to make a modern economy work. The middle-class values of nonviolence, literacy, long working hours and a willingness to save.... Because they grew more common in the centuries before 1800, whether by cultural transmission or evolutionary adaptation, the English population at last became productive enough to escape from poverty, followed quickly by other countries with the same long agrarian past....

“This is a great book and deserves attention,” said Philip Hoffman, a historian at the California Institute of Technology. He described it as “delightfully provocative” and a “real challenge” to the prevailing school of thought that it is institutions that shape economic history. Samuel Bowles, an economist who studies cultural evolution at the Santa Fe Institute, said Dr. Clark’s work was “great historical sociology and, unlike the sociology of the past, is informed by modern economic theory.”...

[F]rom 1200 to 1800... the economy was locked in a Malthusian trap--each time new technology increased the efficiency of production a little, the population grew, the extra mouths ate up the surplus, and average income fell back to its former level. This income was pitifully low.... By 1790, the average person’s consumption in England was still just 2,322 calories a day, with the poor eating a mere 1,508.... “Primitive man ate well compared with one of the richest societies in the world in 1800,” Dr. Clark observes....

The Industrial Revolution... occurred when the efficiency of production at last accelerated, growing fast enough to outpace population growth and allow average incomes to rise....

[A]ncient wills... reveal[ed] a connection between wealth and the number of progeny.... Generation after generation, the rich had more surviving children than the poor.... “The modern population of the English is largely descended from the economic upper classes of the Middle Ages,” he concluded. As the progeny of the rich pervaded all levels of society, Dr. Clark considered, the behaviors that made for wealth could have spread with them. He has documented that several aspects of what might now be called middle-class values changed significantly from the days of hunter gatherer societies to 1800. Work hours increased, literacy and numeracy rose, and the level of interpersonal violence dropped.

Another significant change in behavior, Dr. Clark argues, was an increase in people’s preference for saving over instant consumption, which he sees reflected in the steady decline in interest rates from 1200 to 1800. “Thrift, prudence, negotiation and hard work were becoming values for communities that previously had been spendthrift, impulsive, violent and leisure loving,” Dr. Clark writes....

After the Industrial Revolution, the gap in living standards between the richest and the poorest countries started to accelerate, from a wealth disparity of about 4 to 1 in 1800 to more than 50 to 1 today. Just as there is no agreed explanation for the Industrial Revolution, economists cannot account well for the divergence between rich and poor nations or they would have better remedies to offer.... [T]he middle-class values needed for productivity could have been transmitted either culturally or genetically. But in some passages, he seems to lean toward evolution as the explanation. “Through the long agrarian passage leading up to the Industrial Revolution, man was becoming biologically more adapted to the modern economic world.”...

Dr. Clark’s view is that institutions and incentives have been much the same all along and explain very little....

“He deserves kudos for assembling all this data,” said Dr. Hoffman, the Caltech historian, “but I don’t agree with his underlying argument.” The decline in English interest rates, for example, could have been caused by the state’s providing better domestic security and enforcing property rights, Dr. Hoffman said, not by a change in people’s willingness to save, as Dr. Clark asserts.... Dr. Bowles, the Santa Fe economist, said he was “not averse to the idea” that genetic transmission of capitalist values is important, but that the evidence for it was not yet there.... He also took issue with Dr. Clark’s suggestion that the unwillingness to postpone consumption, called time preference by economists, had changed in people over the centuries. “If I were as poor as the people who take out payday loans, I might also have a high time preference,” he said....

“The actual data underlying this stuff is hard to dispute,” Dr. Clark said. “When people see the logic, they say ‘I don’t necessarily believe it, but it’s hard to dismiss.’”

IMHO, in all Malthusian economies downward mobility is the rule: that's what being rich buys you--enough food to feed your children. I am much more inclined to see virtuous circles--especially longer lifespan leading to a longer planning horizon and lower interest rates--and successful institutions driving changes in attitudes and the pace of technological improvement.

But the book is brilliant.

Books Do Furnish a Room

Tyler Cowen on books that require extra-sharp eyes:

Marginal Revolution: Which are the books with the smallest print?: Editions of Dostoyevsky and Tolstoy often have excessively small print.  Why?  The major works by those authors are long.  Larger print will make the volumes too long and thus too expensive.  Perhaps more importantly the volumes will appear too forbidding to the average buyer. But isn't miniscule type for Raskolnikov hard to read?  Ah... most of the people who buy the book don't read it.  If miniscule type gets them to stop reading sooner rather than later, you might even call it a Pareto improvement.

Self-help books almost always have reasonably large print or even ridiculously large print.  The author doesn't have much to say and the publisher wishes to pad the book so it looks real.  Furthermore most self-help books are read (at least in part), so to keep the reader happy the print should be large.

Can you think of other generalizations?

Which books are most likely to go into "Large Print" editions?

Tyler Cowen on Paul Collier's "The Bottom Billion"

He runs into an interesting problem:

Marginal Revolution: Auditing natural resource revenues: When my editor and I were exchanging drafts of this piece, my spam blocker wouldn't let them through.  There is too much talk of Nigeria and diamonds!  Here is one excerpt:

Paul Collier, an economics professor at Oxford University, has a new and potentially powerful idea.  In his recently published book, “The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It” (Oxford University Press), Professor Collier favors an international charter — some widely publicized guidelines that countries can voluntarily adopt — to give transparency in spending wealth from natural resources.  A country would pledge to have formal audits of its revenues and their disposition.  Imagine PricewaterhouseCoopers auditing the copper revenues of Zambia and issuing a public report.

It's not as futile as it might sound:

Professor Collier’s proposal at first glance seems toothless; a truly corrupt country probably wouldn’t follow the provisions of the charter, which, after all, is voluntary.  Yet citizens could pressure their government to follow such a charter, and the idea of the charter would create a focus for political opposition and signify international support for concrete reform.

Foreign corporations would bring further pressures to heed the charter.  Multinational companies that are active in corrupt countries might receive bad domestic publicity. Eventually the companies might push for adherence to the charter, even if the charter limited their ability to bribe.  In another context, De Beers has been stung by bad publicity about “blood diamonds,” and the company is now a force for positive change where it operates.

In the optimistic case, a few poor countries start abiding by the charter. Those countries prosper and attract more investment and status in the international community.  The pressure to adopt the charter would then spread.  Of course, promoting the charter costs relatively little and the potential benefits are significant.  International pressures did eventually force a change in South African apartheid.  So maybe they can improve other countries as well.

Did you know that Tony Blair was already promoting such a charter?  And the Nigerian government (really) already commissioned a private sector audit and now has enacted a version of this idea into law?  We'll see how that goes, but Nigerian flirtation with rule of law ideas is one of the underreported stories of this year.

Paul Collier's The Bottom Billion is a very exciting and important book.  It is rare to read something on economic development that is true, non-trivial, and potentially useful.  I recommend this book highly, it is also short and easy to read...

Ronald Reagan on the Budget Deficit!

From Douglas Brinkley, ed. (2007), The Reagan Diaries (New York: Harper Collins: 9780060876005).

Interesting how Reagan never asked his economic advisers: "Well, isn't what you are telling me now inconsistent with what you told me last year?" Easy to bamboozle. And nobody appears to have tried to unbamboozle him:

Tue Sep 8 1981: Back on schedule--9 AM in the office. First of what will be several budget meetings. Hi interest rates are going to force more budget cuts or we won't meet our 82, 83, and 84 targets. I've given the order--we'll cut and we'll meet the goals we set for ourselves. We have to convince the money market that we mean it and that means some cuts in defense. But we have to do that in such a way that the world sees us as keeping our word to restore our defense strength. It can be done.

Thur Sep 10 1981: Dropped in on meeting of Ec. Advisors--a roomful of our country's greatest economists. None of them could explain why interest rates are so high.

Sun Oct 17 1981: Over to the cabinet room for a 10 AM meeting. Another bomb--the latest figures on deficit projections--bad. It seems our success is actually hurting us. Inflation is a tax. We have brought inflation down so much faster than we anticipated that tax revenues will be lower than we figured. We force the prospect of low inflation and lower interest rates--all of which is good--but gigantic deficits and that's bad.

Fri Nov 6 1981: We're going to have to build in more open time around meetings with Congressional leaders. Met 1st with Sen. leaders and meeting went 45 min. over time. Then the House Leadership which of course started late but ended later. The meetings were about the economy. With our plan barely started unforeseen things such as the high interest rates, etc. have increased the estimated deficit and make a balanced budget by '84 look unlikely. On the hill they automatically start thinking of tax increases. We differ and I think with good reason. I believe we reduced the differences between us but the press is going wild with its usual irresponsibility.

Thur Nov 12 1981: It looked like everything was going wrong today. The "Big 3" were waiting with a "what to do about Stockman" question. Before we could get into that--had a meeting with leadership Repub. of the House and Sen. on the budget--Stockman present. He asked for the floor--got up and told them he'd made a stupid mistake, etc and they applauded.

Back in the Oval Off met with staff, George B. and Don Regan. I didn't go along with one or two who wanted to fire Dave--nor did Don R. or George B.

Dave came over he and I had lunch. I had lunch--he couldn't eat. He stood up to it and then tendered his resignation. I got him to tell the whole thing about his supposed friend who betrayed him, then refused to accept his resignation. Told him he should do a "mea culpa" before the press and clear the misconceptiono that had been created by the tory. He was all set to go and did--taking their questions head on.

Tue Dec 8 1981: First a meeting to hear the 1st 1983 budget review. We who were going to balance the budget face the biggest budget deficits ever. And yet percentage wise they'll be smaller in relation to GDP. We have reduced Carter's 17% spending increase to 9%. The recession has added to costs and reduced revenues however so even with that reduction in govts. size we fact a large deficit.

Thur Dec 10 1981: Met with Council of Ec. advisors. While one or two spoke of possible tax increases after 1982 the others (majority) said no. Tax increases don't eliminate deficits they increase govt. spending. The general consensus was that our plan is the proper medicine for the recession and we should stick to it. That's what I intended to do all the time. [I.e., doesn't know that the (outside the administration) Economic Advisory Council isn't the (inside the administration) President's Council of Economic Advisers...]

Mon Dec 14 1981: Met with Paul Volcker. I'm not sure he sees the need to let the increase in money supply go forward in the upper range of their moderate schedule. The recession is because they slammed the door in April and kept it closed until Sept.--almost Oct. Our plan will get the Ec. moving again only if the Fed. allows--not an upward surge--but a moderate growth geared to Ec. growth.

Thur Dec 22 1981: A budget meeting. We've finally come together on the cuts--probably won't get all we ask for from Congress. They're so used to spending (for votes) they're getting edgy with '82 being an election year. The recession has worsened, throwing our earlier figures off. Now my team is pushing for a tax increase to help hold down the deficits. I'm being stubborn. I think our tax cuts will produce more revenue by stimulating the economy. I intend to wait and see more results.

Mon Jan 11 1982: Repub. House leaders came down to the W.H.--Except for Jack Kemp they are h--l bent on new taxes and cutting the defense budget. Looks like heavy year ahead.

Wed Jan 20 1982 The day however was a tough one. A budget meeting and pressure from everyone to give in to increases in excise taxes tied to Federalism program. I finally gave in but my heart wasn't in it.

Tue Apr 20 1982: Met with Repub. Cong. Leadership. The budget was the subject. I think they were relieved to learn that I'm willing to compromise some in return for a bi-partisan program. I called Tip O'Neill--I'm not sure he's ready to give. Tip is truly a New Deal liberal. He honestly believes that we're promoting welfare for the rich.

Fri Nov 19 1982: Back to a Cabinet meeting on the budget. Our deficits are structural as well as recession caused. We have a built in increase in the budget which is automatic--we must deal with it.

Mon Jan 3 1983: A tough budget meeting and how to announce the deficits we'll have--they are horrendous and yet the Dems. in Cong. are saying there is no room for budget cuts. Met with a group of young Repub. Congressmen. Newt Gingrich has a proposal for freezing the budget at the 1983 level. It's a tempting idea except that it would cripple our defense program. And if we make an exception on that every special interest group will be asking for the same.

Tue Jan 4 1983: Brkfst. with GOP leaders (Sen.). Gave them bad news about deficits. They agree the law that says we must project 5 yrs ahead is crazy but we still have to do it. No economist can predict more than 1 yr. ahead (if that) with any degree of accuracy.

Mon Apr 18 1983: A Budget briefing by Dave S. If the Dems. have their way the recovery will be over before it starts. They must give us the spending cuts we want or we face a trillion dollar deficit over the next 5 yrs.

Mon Jun 15 1987: A meeting with bipartisan Cong. leaders--Byrd, Jim Wright, Bob Michel, Bill Armstrong etc. We talked mainly about the budget and the Dems. of course took no blame for the deficit. I sort of corrected them on that with the 50 year history of deficit spending under Dem. control.

The Small Place of Economists in a President's Mind

From Douglas Brinkley, ed. (2007), The Reagan Diaries (New York: Harper Collins: 9780060876005).

It is interesting--but depressing--to recognize that Ronald Reagan did not know the difference between a group of prominent outside economists brought in to the White House compound for a day or so--an economic advisory council--and the economists on his personal staff who worked for him--the Council of Economic Advisers, a group of three who were headed during the Reagan administration by Murray Weidenbaum, Marty Feldstein, Bill Niskanen, and Beryl Sprinkel:

Thur Dec 10 1981: Met with Council of Ec. advisors. While one or two spoke of possible tax increases after 1982 the others (majority) said no. Tax increases don't eliminate deficits they increase govt. spending. The general consensus was that our plan is the proper medicine for the recession and we should stick to it. That's what I intended to do all the time.

Michael O'Hare Praises Robert Frank's Economic Naturalist

Michael O'Hare writes:

The Reality-Based Community: Serve fewer courses to nourish more; let the diners in the kitchen and give them aprons.: Bob Frank exhibits the factor most highly correlated with student evaluations of teaching, which is manifest enthusiasm for his subject matter.... Modern psychology has boiled down being really smart to a couple of core traits. One is knowing a lot about a lot of different things; the other is being wired up so these different things jump out of their usual cognitive boxes and connect in unusual ways. Frank is smart in this way, so his exploration connected his experience with learning languages and his general education knowledge of why male and female albatrosses look alike while bull and cow seals don't.

The result is three very solid insights, consistent with a lot of what others are discovering about how people learn. The first is the difference between (i) recall and repetition of a recipe, formula or fact on cue and (ii) really knowing something. The second is the principle articulated by Bob Behn thus: "If you're teaching someone to use a computer, you should never touch the computer." The third is the difference between the few important basic principles that experts use all the time without realizing it, and the many abstruse and frontier-pushing results they get with them.

Put these together and you get a teaching model with:

1. A few big ideas, looked at from many directions and dressed up (but not hidden) in many guises.
2. Students getting their hands dirty using these ideas to solve problems they know they have (this is always better than letting the ideas look like new problems they didn't want).
3. Displacement of the concept of being right by the concept of being useful (Nelson Goodman explains this in Ways of Worldmaking).

The central exercise of such a course is to assign the students the role of naturalist (this is where the birds and seals come in): Find a situation that surprises you, that you can understand better (or even explain completely) using the core concepts of economics. Your explanation doesn't have to be complete, or even right, but it has to be interesting and reasonable. Five hundred words, once in the middle of the semester and again at the end.

I have generalized his exercise this spring in my introduction to public policy course to a "policy naturalist" assignment with excellent results (though I'm not sure I did such a good job of distilling the course down to fewer big ideas and less showoffy arcana), and I intend to do the same next fall in an introductory probability and statistics course. This model really has legs.

The result of Bob's experiment is, obviously, a drawer full of these exercises, which he has assembled into a book... The Economic Naturalist, and if you're not putting on your coat to repair immediately to your local physical bookstore, or mousing over to your favorite online merchant to buy it, you are reading the wrong blog.

Underbelly Praises Sam Bowles

It writes:

Underbelly: "If We Knew How to Do That,
We Would Not Be Poor": While others are sorting out the question whether neoclassic econ is a Mafia (link, link), allow me to share this anecdote copped from one of the most interesting and original microeconomics textbooks I’ve ever seen:

Like the overnight train that left me in an empty field some distance from the settlement, the process of economic development has for the most part bypassed the two hundred or so families that make up the village of Palanpur. They have remained poor, even by Indian standards: less than a third of the adults are literate, and most have endured the loss of a child to malnutrition or to illnesses that are long forgotten in other parts of the world. But for the occasional wristwatch, bicycle, or irrigation pump, Palanpur appears to be a timeless backwater, untouched by India’s cutting edge software industry and booming agricultural regions. Seeking to understand why, I approached a sharecropper and his three daughters weeding a small plot. The conversation eventually turned to the fact that Palanpur farmers sow their winter crops several weeks after the date at which yields would be maximized. The farmers do not doubt that earlier planting would give them larger harvests, but no one the farmer explained, is willing to be the first to plant, as the seeds on any lone plot would be quickly eaten by birds. I asked if a large group of farmers, perhaps relatives, had ever agreed to sow earlier, all planting on the same day to minimize losses. “If we knew how to do that,” he said, looking up from his hoe at me, “we would not be poor.”

--Samuel Bowles, Microeconomics: Behavior, Institutions, and Evolution, pp. 24-25 (Princeton Paperback ed. 2004)

There must be 100 books entitled “Microeconomics”—-a thousand? This one is so far out of the conventional mode that it might count as a violation of the British Trade Descriptions Act. It’s far closer to what might have passed as “Political Economy”—-Economics before the Mafia took over. Lots more attention to the structure of economies than you would expect in a standard Micro intro. Yet in detail (at the micro level?) it is actually fairly conventional stuff: all the individual items appear to come out of the standard toolbox. The unconventional ordering gives them a fresh and invigorating spin.

Tyler Cowen Alex Tabarrok on Tom Slee's "No One Makes You Shop at Wal-Mart"

Nobody makes Tyler Cowen Alex Tabarrok shop at Wal-Mart, but Tyler Cowen Alex Tabarrok thinks that the government should not make him not shop at Wal-Mart:

Marginal Revolution: No one makes you shop at Wal-Mart: [Tom] Slee['s No One Makes You Shop at Wal-Mart] attacks MarketThink:

In the world according to MarketThink, the combination of choice and the market is a mechanism for solving problems and improving outcomes in areas as diverse as education, city growth and culture.Hmmm...sound familiar?  (The links, also ironic, are mine not Slee's.) Let the irony continue, I recommend No One Makes You Shop at Wal-Mart. 

Slee's book is the best of the anti-market books: it is well written, serious, and knowledgeable about economics.  In fact, I regard Slee's book as an excellent primer on asymmetric information, free riding, externalities, herding, coordination problems and identity - Economics 301 for all those budding young Ezra Klein's.... Here is one bit.  Early on Slee makes a good point about preferences and outcomes:

The prisoner's dilemma shows how, as soon as one person's choice alters the outcome for another person... choices do not reveal preferences... instead of thinking about choices as revealing preferences, it pays to think of choices as 'replies' to the actions or likely actions of others.  The best choice you can make is the best reply to the likely actions of others.

Later, he drives the point home with a nice example:

Faced with the observation that few children walk to school anymore, we commonly hear that this tendency represents our preferences: that "people won't walk" anymore.  But this is oversimplified.  What we are seeing is one equilibrium among many, and perhaps not the best one.  There is an equilibrium in which no one wants their children to walk along empty streets, and so no children walk, but there is another equilibrium in which many children enjoy walking with groups of other children, and parents feel safe about their children because there is safety in numbers on the busy sidewalks.... Too many cities have concluded that empty sidewalks are a result of our preferences... but once a city takes it as a given that most children will be driven to school, there is no need for the city to even build sidewalks in new subdivisions, and there is more temptation to build fewer, bigger schools rather than more, smaller, easily accessible schools.  With these decisions, the empty-sidewalks equilibrium becomes even more entrenched: we are trapped in an outcome that was the result of individual choices, but that may not represent our true preferences.

Naturally, I have some criticisms.... As noted, the heart of the book is a well-written primer on let's call it new economics.  As such, this book would make a good supplement to an advanced undergraduate class....

As [a] primer, it's fine to illustrate with examples and move on but as an attack on markets one expects a balanced consideration of opposing theories.  For example, Slee looks at beer micro-breweries vs. mass brewers arguing that we are currently stuck in the bad mass-equilibrium because micro-breweries rely on word-of-mouth but the institutions which sustain the word-of-mouth equilibrium only work when there are already lots of micro-breweries about which one can talk.  Nice, but here is an alternative theory.  Economies of scale made mass produced beer cheaper and when push came to shove consumers chose the cheaper good product over the more expensive but slightly better product (I don't eat at 5 star restaurants every night).  New technologies, however, have made micro-brewing more economic and as they have done so we are moving to the mass-customization world that Slee prefers.  Consumers have gotten the best of all worlds - given scarcity - in both time frames.  The beer activists in England that Slee likes moved the process along but in the direction that it was already going.

There is no comparative analysis in the book at all.  No discussion, for example, of how free riding, asymmetric information, herding etc. distorts government choice.  Also, no appreciation that what some of us MarketThink people really advocate is civil society which includes non-profits and voluntary collective action of all kinds.  And, no we are not all corporate shills (p. 106). 

It's true that outcomes do not always illustrate preferences but often they do.... Tom seems all too eager to call in the government to force us into the better equilibrium.  I worry when people start talking about how government can help us to express our true preferences.... 

The chapter on power is terrible, I did throw the book against the wall.  Perhaps in order to prepare us to welcome government as the deliverer of our true preferences, Slee wants to diminish the distinction between liberty and coercion.  But a true liberal should never write things like this:

...the formal structure of democracy and free markets is not enough to rule out exploitation and plunder - characteristics usually associated with repressive regimes....

[R]epressive governments around the world threaten, rob, torture and murder with impunity.  Courageous individuals have died trying to escape such regimes while others have died fighting for their rights.  No matter how great are differences in wealth, it is morally wrong to equate what goes on in repressive regimes with capitalist acts between consenting adults.

More Reading Recommendations from David Romer

More reading advice from David Romer, Bryan Caplan's The Myth of the Rational Voter is, he says, brilliant: everybody should read it.

Robert Solow on Schumpeter and McCraw

David Romer says that I should drop everything and go read Robert Solow's review of Thomas McGraw's Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Time spent reading anything by Robert Solow (or time spent listening to Robert Solow) is always time very well spent, but David says that time spent reading this would be extra especially so.