Brad DeLong

Why Is Wood So... Woody?

Wood is truly an amazing substance. Relatively light, very strong for its weight, elastic, capable of being shaped to an extraordinary degree. Why is wood so... woody?

Wood Handbook, FPL-GTR-113: Forest Products Laboratory. 1999. Wood handbook--Wood as an engineering material. Gen. Tech. Rep. FPL-GTR-113. Madison, WI: U.S. Department of Agriculture, Forest Service, Forest Products Laboratory. 463 p.

It seems clear that competition between plants has a bunch to do with it: whatever plants can get their leaves higher and wider spread has a big advantage in photosynthesis and thus in fitness. It seems pretty clear that wind has a bunch to do with it: wind can put great stresses on plants--especially those that reach high and are widely spread.

But I really do wish that by now somebody had told me why wood is so... woody.

Tomorrow: I also wish someone would tell me why doping iron with carbon atoms changes its properties so much...

Somebody Is Willing to Bet That the Dollar Will Decline

From Reuters, via the Financial Times:

FT.com / Companies / US - Berkshire Hathaway loses currency bet: Warren Buffett's Berkshire Hathaway lost $310m in the first quarter from betting against the US dollar, but has nevertheless maintained its roughly $21bn stake against the greenback, the billionaire said on Saturday. At Berkshire's annual shareholder meeting, Mr Buffett said Berkshire expects... to announce an insurance acquisition worth less than $1bn, which is barely 2 per cent of the company's $44bn cash stake...

Does This Mean Anything?

In The Valve, Jonathan Goodwin writes:

The Valve - A Literary Organ | What's up with Social Text?: Ever wonder why Bombay was the bitch city [in Rushdie's Satanic Verses]? Feel as if your intuition that [the movie] Shri 420 was about smoking dope might be uninformed? Then Rashmi Varmi's 'Provincializing the Global City' is just what you need. An intriguing paragraph:

if the urgent political task is to make sense of how both the Hindu Right and transnational capital have achieved a necessarily incomplete hegemony over Mumbai's image and reality, it is equally urgent to construct alternatives. The somewhat hasty fabrication of an earlier universalism needs now to be refashioned in the context of an ever more careless celebration of the global marketplace. Our work, both political and intellectual (and across that potent divide), too, must answer to the new political configurations of our times that do not allow either for the easy recuperation and celebration of the older socialist and nationalist utopias or for an outright rejection of the possibilities of decolonization and global solidarity...

Ummm... Does this mean anything?

I think I understand what "transnational capital [has] achieved a necessarily incomplete hegemony over Mumbai's image and reality" means: it means that a lot of large businesses inside and outside India are trying--and in many cases succeeding--in finding some way to hire the people of Mumbai and sell the products they make on the world market and so make profits, and that this process is playing a powerful role in shaping both how the people of Mumbai live and how people inside and outside Mumbai think of the city, but that this is not the whole story. I think I understand what "the Hindu right [has]... achieved a necessarily incomplete hegemony over Mumbai's image and reality" means: it means that a certain political movement is playing the reactionary nationalism card, linking it to religion--we are Hindus and Indians and India is a Hindu civilization--and so trying to attain political power through shaping public memory into a revulsion of a hated "other" in their midst, and that in this case the hated other is not the African-Americans (as it was in the American Jim Crow South) and not the Jews (as in right-wing movements all across nineteenth and twentieth century Europe) but India's Muslims.

I don't understand what the "If the urgent political task is to make sense of [these two phenomena]..." means. I think we understand them pretty well. I don't know in what way the world market and National Hinduism need to be "made sense of." And I don't understand what "it is equally urgent to construct alternatives" means. Alternative economic systems to open engagement with the global market economy? Is this a call for the return to the License Raj of the Nehru Dynasty? (Varmi's text certainly suggests that as the alternative.) Alternative political movements to National Hinduism? Alternative ways of thinking about India today? But what is the purpose of this critique of critical criticism?¹

---

¹Shri 420 is supposed to be a very good movie. The Satanic Verses is a good read. The first is, in large part, a reinvocation of the very old theme of the corruption of an honest and naive young man by the city where everything is for sale, people are treated by others as means and tools, and what is sought is not love or happiness but wealth--with the interesting twist that what is exalted is not the honest conservative squires of the country (as in Tom Jones and Oliver Twist) but Jawaharlal Nehru's hopes for socialist utopia. The second is, in large part, a cry of anguish against the authoritarian use of religion to control and condemn. One purpose of Shri 420 was to support the Nehru Dynasty. One purpose of The Satanic Verses was to mobilize opposition to religious intolerance (in a manner somewhat analogous to Voltaire). I cannot discern what the purpose of Varmi's juxtaposing and writing about the two of them is.

Jason Furman on Bush's Press Conference

Jason Furman writes:

HOW WOULD THE PRESIDENT’S NEW SOCIAL SECURITY PROPOSALS AFFECT MIDDLE-CLASS WORKERS AND SOCIAL SECURITY SOLVENCY?: In last night’s press conference, President Bush endorsed a proposal that would result in substantial cuts in benefits for middle-income families and deeper cuts for higher-income families. While the proposal was described as reducing benefits for the most affluent Americans, it would result in large benefit reductions for middle-class workers, as well.

All workers with incomes above $20,000 today would be subject to benefit reductions, and the benefit cuts would escalate sharply in size as income climbed above $20,000. A worker making $35,000 today would be subject to benefit reductions more than half as large as the benefit cuts imposed on people at the highest income levels. A worker making $60,000 today would be subject to benefit reductions more than 85 percent as large as someone making several million dollars a year.

The benefit reductions for average earners would be the largest in Social Security’s history. The 1983 Social Security reform, for example, lowered benefits for average workers by 17 percent, with the reduction phased in over 46 years. The President’s plan would lower benefits for average workers by 28 percent over a period of 70 years, and by considerably more than that for middle-class workers with incomes somewhat above the average, such as those who make $60,000 today.

Social Security survivor benefits would be cut by the same magnitude. How disability benefits would be affected is unclear, although the President implied they would not be reduced.

The President’s proposed change in the Social Security benefit structure is essentially a plan known as “progressive price indexing” that has been designed by investment executive Robert Pozen. Analysis by the Social Security Administration’s actuaries shows that Mr. Pozen’s plan would reduce benefits for average earners retiring in 2075 by 28 percent, relative to the current benefit structure, and that this reduction would apply equally to retirees, survivors, and people with disabilities.[1] The actuaries also have reported that the benefit reductions under the Pozen plan would close about 70 percent of the 75-year Social Security shortfall.

The White House last night issued a fact sheet stating that its proposals, too, would close 70 percent of Social Security’s financing problems. To do that, the President’s plan either must cut disability and survivor benefits substantially — after all, one-sixth of the savings in the Pozen plan come just from reductions in disability benefits — or cut retirement benefits for middle-class workers even more deeply than the figures cited above (which are the actuaries’ estimates of the benefit reductions under the Pozen plan). If the President’s plan shields disability benefits from cuts, as the President indicated last night — and does not cut retiree and survivor benefits more sharply than the Pozen plan — then it will close 57 percent of Social Security’s 75-year shortfall, not 70 percent. (The 57 percent figure also reflects the small cost of the poverty-level minimum benefit the President proposed last night.)...

Recipe Malfunction

It's time to admit that in the making of the Fifteen-Year-Old's birthday cake one cup of concentrated cold-process liquid--liquid that is supposed to be diluted four-to-one to make it into coffee--was added to the recipe, rather than one cup of coffee.

The cake was quite tasty...

The Darth Side

Chad Orzel clearly needs additional college administrative responsibilities. He finds this:

The Darth Side: Memoirs of a Monster: 'Make ready the jump to hyperspace.'

'But Lord Vader,' whinnied Admiral Ozzel, 'the armada is already moving along a prescribed route...'

I withered him with a stare, my hands on my belt.

He ordered the helm to replot our course, and notified the fleet commanders. Then he turned and asked as contritely as he could manage, 'May I at least know what leads you to suspect Themoth will yield results, my Lord?'

'You may ask,' I told him, turning away to the glass. 'As an ant may ask the sun why it shines. It is beyond you, Admiral. See to your duty.'

Ozzel hesitated. 'Sir,' he said crisply and turned on heel.

Do you want to know what the worst part is? My left leg is still on the fritz. Whose trachea do you have to crush with your mind to get a little service around here?

Posted by Darth Vader

It's the Circular Firing Squad of Flying Attack Monkeys!

Once again, that is the *only* way to describe the Bush administration's policy development process.

I read Bush's opening statement at his press conference last night:

Text of Bush's Press Conference-Part I: The money from a voluntary personal retirement account would supplement the check one receives from Social Security.

In a reformed Social System, voluntary personal retirement accounts would offer workers a number of investment options that are simple and easy to understand. I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government.

Options like this will make voluntary personal retirement accounts a safer investment that will allow an American to build a nest egg that he or she can pass on to whomever he or she chooses.

The "build a nest egg" part... The "invest in Treasury bonds" part... Let's mosey on over to the Federal Reserve and look at the safest long-term investment the U.S. Treasury offers: the twenty-year inflation-protected TIP:

FRB: H.15--Selected Interest Rates, Web-Only Daily Update--April 28, 2005: Inflation-indexed: 20-year 1.83 1.86 1.87.

What the Federal Reserve is telling us is that the 20-year TIP is currently providing a real yield of 1.87% per year. What Bush is not telling you is that, under the Bush plan, if you divert $1000 from your Social Security to private accounts, that amount is clawed back--charged to an account associated with your normal Social Security benefit, that amount is then compounded at 3% per year plus the rate of inflation, and then after you retired deducted over time from your normal Social Security benefit.

If you are 45 and if Bush's plan were available today...

Follow George W. Bush's advice, divert $1,000 into your private account, invest it in TIPS, and at the 1.85% per year interest rate you will indeed by able to collect an extra amount worth $10.11 a month in today's dollars when you retire at 65...

But the clawback would reduce your normal Social Security benefit by $14.16 a month. You're $4.05 a month behind.

"Building a nest egg." Feh!

---

Did nobody inside the White House bother to run the numbers? Did nobody care?

And now I am told that the White House is wheeling out, to explain the details of his plan... Cathie Martin, Deputy Assistant to the President for Communications, will answer your questions about Strengthening Social Security and Future Generations. Are all the substance people in the White House fleeing from this? Where are they?

Ben Bernanke's Views on Global Economic Policy

He writes:

FRB: Speech, Bernanke--U.S. current account deficit--April 14, 2005 : I disagree with the view... that balancing the federal budget by itself would largely defuse the current account issue.... [E]ven if we could balance the federal budget tomorrow, the medium-term effect would likely be to reduce the current account deficit by less than one percentage point of GDP. [More likely 1.5-2%, IMHO.]

Although I do not believe that plausible near-term changes in the federal budget would eliminate the current account deficit, I should stress that reducing the federal budget deficit is still a good idea. Although the effects on the current account... would likely be relatively modest, at least the direction is right. Moreover, there are other good reasons to bring down the federal budget deficit.... Similar observations apply to policy recommendations to increase household saving in the United States.... Although the effect of saving-friendly policies on the U.S. current account deficit might not be dramatic, again the direction would be right. Moreover, increasing U.S. national saving from its current low level would support productivity and wealth creation and help our society make better provision for the future.

However, as I have argued today, some of the key reasons for the large U.S. current account deficit are external to the United States... purely inward-looking policies are unlikely to resolve this issue. Thus a more direct approach is to help and encourage developing countries to re-enter international capital markets in their more natural role as borrowers... improve their investment climates by continuing to increase macroeconomic stability, strengthen property rights, reduce corruption, and remove barriers to the free flow of financial capital. Providing assistance to developing countries in strengthening their financial institutions--for example, by improving bank regulation and supervision and by increasing financial transparency--could lessen the risk of financial crises and thus increase both the willingness of those countries to accept capital inflows and the willingness of foreigners to invest there....

Other changes will occur naturally... the pace at which emerging-market countries are accumulating international reserves should slow.... Domestic investment in East Asia and in other emerging markets will eventually recover.... The various factors underlying the U.S. current account deficit--both domestic and international--are likely to unwind only gradually, however. Thus, we probably have little choice except to be patient...

Why Oh Why Are We Ruled by These Fools? (Republican Congress Edition)

Kevin Drum notes the Republican Congress in action:

The Washington Monthly: A SHINY NEW BUDGET....Here's your new Republican budget:

The House and Senate broke a lengthy impasse over federal spending Thursday night, narrowly adopting a $2.56 trillion federal budget for 2006 that aims to trim the growth of Medicaid by $10 billion over five years, add $106 billion in tax cuts and clear the way for oil drilling in an Alaskan wildlife refuge.

Attaboy! Reduce the deficit $10 billion by cutting back on healthcare for the poor, and then turn around and increase the deficit $106 billion by approving additional tax cuts for the rich. Moral values, baby, moral values.

Mark Thoma Is on Intellectual Garbage Pickup (Another Why Oh Why Can't We Have a Better Press Corps? Edition)

Mark Thoma of the University of Oregon is performing this thankless task.

Here's Thoma on John Tierney:

Economist's View: Tierney on Social Security Privatization: Seeing the Tree: John Tierney looks at the case of a single individual and concludes that privatization in Chile is a success. Success stories are easy to find when the focus is on a single individual, in this case an economist at the University of Chile: "...Pablo, who grew up to become an economist %u2026 called up his account on his computer and studied the projected retirement options for him. 'I'm very happy with my account,' he said to me after comparing our pensions. He was kind enough not to gloat. When I enviously suggested that he could expect not only a much heftier pension than mine, but also enough cash to buy himself a vacation home at the shore or in the country, he reassured me that it would pay for only a modest place..."

But what if we look at the whole forest, not just a single tree? This is... from earlier in April: "In Chile: A Safety Net With Some Holes, By Monte Reel, Washington Post Foreign Service, Monday, April 11, 2005; Page A11.... Given the pace of contributions, more than half of the workers who retire in the next 30 years will not have enough money in their plans to receive the minimum payout..." [T]he forest is much less healthy than the single tree Tierney examined...

And here's Thoma on Robert Samuelson:

Economist's View: Samuelson's One-Sided Scissors: Robert Samuelson... excused the U.S. from any responsibility for the current account deficit.... "[W]hat if the problem of today's global economy is that people elsewhere... are saving too much and spending too little?... Bernanke's global savings glut is just such a notion. It helps explain (a) the huge U.S. trade deficits; (b) the weakness of the current economic recovery (now 3 1/2 years old); and (c) the difficulty of doing anything about (a) and (b).... [T]he flow of surplus global savings to the United States has caused Americans to spend more and save less.... Americans' low saving and high consumption offset foreigners' high saving and low consumption. The huge U.S. trade deficits result.... Like others, Bernanke warns that these trade imbalances -- our huge deficits, their huge surpluses -- seem dangerous. His contribution is to show that their main causes lie outside the United States...."

The argument is that high foreign saving caused low U.S. saving.... But isn't it equally logical... to argue the reverse, that the low saving rate, particularly public saving (the deficit) in the U.S. caused funds to flow in from abroad? Would that then mean, under Samuelson's definition, that the main cause lies within the U.S.?... As Marshall reminded us long ago in a slightly different context, "We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper." Yes, the high foreign saving rate played a role, but that is only one side of the scissors. The U.S. public and private saving rates played a role as well.

And, of course, Mark is right. A global savings glut that generated a two or three percent of GDP trade deficit for--capital inflow into--the U.S. would not be a bad thing. But overlay the Bush deficits on top of that, and the trade deficit gets worrisome. Have the trade deficit further amplified by China's and Japan's desires for export-led growth--and have foreign private investors decide that they don't want to hold any more U.S. bonds--and the situation becomes terrifying.

Samuelson, however, is no longer in the economic analysis business: you learn nothing about why Bernanke sees the current situation as dangerous. Samuelson, instead, is in the business of laying down a marker saying that anything bad that happens in the future is not George W. Bush's fault--"[Bernanke's] contribution is to show that [the deficits'] main causes lie outside the United States." Tierney never was in the economic analysis business: he can't truthfully say that Bush's private accounts are a good deal for beneficiaries, and he can't truthfully say that Chile's system has prefunded adequate pensions for its population, but he can misdirect with one personal case.

As I said, it's intellectual garbage collection. Mark Thoma is performing a thankless but necessary task, for which we should be grateful.

The Bush Social Security Clown Show Continues

Bush gives a press conference...

You will recall that there are four potential dealbreakers--four hurdles a Bush plan must surmount before it is worth supporting:

1. Its private accounts must be a good deal for beneficiaries.
2. The plan must increas national savings (which means not carve-out but add-on).
3. The plan that preserves the defined-benefit component of Social Security in the long run.
4. The plan must implemented by competent technocrats, not the deranged monkeys who have brought us such wonders as the current deficit, the steel tariff and the Iraqi nuclear program.

Bush may have made progress on (3)--or may not. I cannot tell. He certainly did not make progress on (1), (2), or (4).

FT.com / US - Bush shifts approach on Social Security reform: Edward Alden and Holly Yeager in Washington: President George W. Bush on Thursday night endorsed a controversial plan to ensure the scheme's solvency by cutting benefits sharply for better-off workers. In a rare prime-time news conference that also focused on rising petrol prices, Mr Bush said he wanted to reform the national pension scheme so that future benefits for low-wage workers would be preserved, while middle and upper-income workers would receive less than currently promised.... An ABC News-Washington Post poll this week found 64 per cent of Americans did not approve of the way Mr Bush was handling Social Security and 51 per cent did notsupport his plan for private accounts, down from 41 per cent in mid-March. While he reiterated his support for allowing younger workers to shift into private accounts some of the money they pay into Social Security.... Private accounts that divert funds from Social Security have faced united Democratic opposition, as well as criticism from some Republicans....

You know, when I look at my four requirements, it strikes me that three of them--(1), (2), and (4)--are primarily Republican issues, or issues that are of especial concern to those whom I once thought Republicans to be. They are supposed to worry about whether Bush's private accounts are structured to be a good deal for beneficiaries (they are not). They are supposed to be worried about raising national savings (the Bush plan doesn't, except through very indirect and improbable channels). They are supposed to be worried about competence in government.

So where are the grownup Republicans on this? I don't hear a peep.

Signs of the Times

David Altig writes:

macroblog: The GDP Report: We, Apparently, Are Not Pleased: I'm not sure I had ever contemplated what the day would look like when 3.1 percent growth was considered bad news, but now I know for sure...

So much have our estimates of the potential growth rate of the American economy increased in this, our age of technological revolutions.

What I'm Missing Today...

"No. Very few people from Berkeley make any of the seminars at the Federal Reserve Bank of San Francisco," says Chad Jones.

"That's easy to explain," says George Akerlof. "Consider the high quality of the marginal seminar you miss here at Berkeley."

Today's seminar that I'm missing is by Stanford's Bob Hall (I have to teach). Bob says: "I'm giving the 1023rd paper applying George's lemons model to the labor market. And yet there is still something new to say."

Q: Why are we justified in inferring that Bob Hall was once a computer programmer, and that his mind has been shaped by close encounters with a machine with a ten-digit register?

A: The number "1023." 1023 is as high as you can count in ten binary digits. The use of "1023" as a synonym for "a very large number" is a sign of having once spent a lot of time with a ten-digit register.

April 28, 2-4 p.m., 639 Evans MACROECONOMICS: Bob Hall (Stanford University), "The Amplification of Unemployment Fluctuations through Self-Selection": http://www.nber.org/papers/W11186.

---

UPDATE: Bob Hall corrects the record.

First Quarter GDP Growth Slows

The Financial Times reports:

FT.com / US - US GDP growth slows to 3.1 per cent: By Christopher Swann in Washington: The US economy expanded at a slower-than-expected 3.1 per cent rate in the first quarter, its weakest performance in 2 years and below what most analysts consider its non-inflationary potential. The bloated trade deficit dragged the growth rate lower. But spiralling energy costs also appear to have stunted consumer and business spending....

More disappointing was a slowdown in business spending on equipment and software - which grew by 6.9 per cent annualised, compared to 18.4 per cent in the fourth quarter. Economists in the private sector and the Federal Reserve have been hoping that business investment would continue to power ahead as consumers started to rein in their spending. Data over the past few days has now cast that into doubt. ...

The core personal consumption expenditure index - the Federal Reserve's favoured measure of inflation - rose at 2.2 per cent - its fastest rate since the fourth quarter of 2001. In the previous quarter it was rising at a 1.7 per cent pace. "Overall the report is well below expectations," said Matthew Martin, an analyst at Economy.com...

The Future of Higher Education?

In comments, Ralph recommends The Teaching Company:

For the past five years, since retirement, I have been purchasing video lectures by prominent professors on a variety of subjects, put out by the Teaching Company. My interests have centered on Ancient and Modern European history. My expectations were exceeded by the quality of the lectures. They are really amazingly good. A recent example is a lecture on "the long 19th century: Europe from 1789 to 1917" by Prof Robert I Weiner of Lafayette College. There are 33 lectures about 45 minutes each. He covers topics like the French Revolution, the Napoleonic era, French history after Napoleon, Germany unification, Italian unification, diplomacy under Metternich, Bismarck, and post-Bismarck to WW I. Admittedly, this is one of the better products I have purchased and most were bought at sale prices. But as I have mentioned my expectations were exceeded.

They're not cheap. But I would recommend my friend Tim Taylor, who has done four very good lecture series for them:

• Introductory Economics
• Twentieth Century American Economic History
• History of Economic Thought
• Contemporary Economic Issues

A Quote too Good to Linger in Obscurity

Mark Schonfeld, director of the SEC's Northeast Region, has a future in any industry that rewards the creation of vivid metaphors. A correspondent writes that we should check out Deborah Solomon, "Moving the Market: Deloitte Statement About Adelphia Raises SEC's Ire," Wall Street Journal 4/27/05 p. c3:

As Deloitte & Touche LLP sought to resolve charges that it failed to detect accounting fraud at Adelphia Communications Corp., the auditor found itself back in hot water with securities regulators over its depiction of the role it played in the fraud. Deloitte agreed yesterday to pay $50 million to settle Securities and Exchange Commission charges that it missed fraud at the country's fifth-largest cable company. The payment is the largest ever levied by the SEC against an accounting firm. However, Deloitte found itself again in the SEC's cross hairs after issuing a public statement that appeared to shift blame to Adelphia by saying the company and some executives "deliberately misled" Deloitte's auditors.

Under terms of the settlement agreement, Deloitte is required to neither admit nor deny the SEC's charges. SEC officials viewed the statement as denying liability and forced Deloitte to rescind it.

"Deloitte's characterization of the case is simply wrong. Deloitte was not deceived," said Mark K. Schonfeld, director of the SEC's Northeast Region. "They didn't just miss red flags, they pulled the flag over their head and then claimed they couldn't see."

Harry Kreiser's "Conversations with History"

Now that we are in the Broadband Age here on the Internets, this long-term project by Harry Kreisler, the Executive Director of Berkeley's Institute for International Studies, is an extremely valuable resource--largely because Harry is an interviewer genuinely interested in what his subjects have to say:

Harry Kreisler, "Conversations with History" http://globetrotter.berkeley.edu/conversations/

In these lively and unedited video interviews, distinguished men and women from all over the world talk about their lives and their work. Guests include diplomats, statesmen, and soldiers; economists and political analysts; scientists and historians; writers and foreign correspondents; actors and artists. The interviews span the globe and include discussion of political, economic, military, legal, cultural, and social issues shaping our world. At the heart of each interview is a focus on individuals and ideas that make a difference.

Harry Kreisler is executive producer and moderator of the series, which is produced at the Institute of International Studies at the University of California at Berkeley. Conceived in 1982 by Mr. Kreisler as a way to capture and preserve through conversation and technology the intellectual ferment of our times, "Conversations with History" includes over 300 interviews...

Harry's interviews are found not only on the Internets, but Friday evening at 6 and 9 Pacific Time on UCTV, found on the EchoStar DISH Network, Nationwide Channel 9412. Forthcoming TV broadcasts include:

April 29: Forensic Scientist William Haglund talks about digging up bodies in Bosnia, Central America, and Nigeria.
May 6: Steve Coll, author of Ghost Wars: The Secret History of the CIA, Afghanistan, and bin Laden.
May 20: Thomas Barnett, author of The Pentagon's New Maptalks about globalization, the world order, and what U.S. grand strategy should be.
May 27: Nobel Prize-winning economist Amartya Sen.

The Greenspan Succession

Greg Ip writes:

WSJ.com - Finding Someone to Fill Greenspan's Shoes. By GREG IP, Staff Reporter of THE WALL STREET JOURNAL: Sometime in the next nine months, President Bush will make one of the most important appointments of his presidency, one that history suggests will affect the economy in the U.S. and abroad long past the end of his term: Selecting a successor to Federal Reserve Chairman Alan Greenspan... three front-runners, all with sterling academic pedigrees: Martin Feldstein... Glenn Hubbard... and Ben Bernanke, 51.... [T]he White House will likely seek a successor who reassures the markets while being philosophically attuned to Mr. Bush's overall economic agenda. The chief job of the Fed chairman is to set interest rates, but -- especially under Mr. Greenspan -- the Fed chairman also has emerged as the arbiter of sound fiscal policy, and Mr. Bush is likely to steer clear of someone he thinks would criticize his budget policies.... Mr. Feldstein may have the edge in economic stature and political experience.... In an interview, Mr. Feldstein says the deficit is much smaller today as a share of gross domestic product than it was in the early 1980s, and it will likely decline further even if the tax cuts are made permanent, provided the administration is "even reasonably successful" in controlling discretionary spending.... Mr. Hubbard, as chairman of Mr. Bush's Council of Economic Advisers from 2001 to 2003, won admiration for his discipline and work ethic on issues ranging from the West Coast dockworker lockout to the 2003 dividend-tax cut. He was known for getting his staff to quickly draft authoritative policy memos for White House decision makers. "He earned his way into the Oval Office," says a former administration official.... Mr. Bernanke conducted research on monetary policy at Princeton University before joining the Fed in 2002. Since then, his plain-speaking style, numerous speeches and copious research have made him second in prominence at the Fed only to Mr. Greenspan. He recently said the hardest part of moving to the Fed was having to wear a suit: "My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded."... There could be several dark-horse candidates. Donald Kohn, a longtime Fed staffer and now governor, is well placed to emulate Mr. Greenspan but he is a political independent. Consultant Lawrence Lindsey has close ties to the White House and was a Fed governor, but his record as Mr. Bush's first National Economic Council director was mixed. John Taylor is a prominent monetary-policy scholar but he didn't leave a big mark in the four years he just spent as Treasury's top international official...

My view is that Bernanke is the best qualified: monetary policy is and has been his thing for his whole career.

Zero-Sum Grand Strategy: Just Say No!

Robert Kaplan has annoyed the highly-intelligent Praktike:

Robert Kaplan is Afraid | Liberals Against Terrorism: I have to say that it would be deeply unfortunate and downright foolish if America and China backed themselves both into a 'second Cold War,' as Kaplan puts it. It could only be the result of a mutual miscalculation. There's no doubt that we should be prepared militarily, and we shouldn't be naive in scrutinizing Chinese intentions. I admit that I have my own inchoate concerns about Chinese nationalism, its drive for new energy supplies, and its rumblings over Taiwan. But there are obvious and important differences between the Soviet Union and China, just as there are differences between the late 19th Century balance of power that Kaplan so lovingly uses as an analogy (which, as every schoolboy knows, collapsed after Bismark departed the scene) and the current state of play in the Pacific region.

The Soviet Union was, notably, communist and autarkic. China, by contrast, is developing via an export and FDI-led strategy--meaning that it understands that wealth, power, and geostrategic influence are best created by means other than territorial aggrandizement. The (nominally) Communist Party's internal legitimacy rests upon its ability to improve the living standards of its people, and that economic development is therefore its first priority. And that's good for us, because we like to buy cheap and increasingly well-made Chinese products, and we hope that China's huge population will become a vital market for our own goods and services.

U.S. policy ought to be about finding ways to create a win-win situation in Asia rather than on blundering into a pointless new Cold War that can only make everyone poorer and stupider. We shouldn't be afraid of China, but rather we should be afraid that U.S. China policy will be determined by people who think in zero-sum terms.

People like Robert Kaplan.

Inflation Central: FRB Cleveland

William Polley directs us to:

Inflation :: FRB Cleveland: Inflation Central: Track inflation in the United States and across the world and put it all in perspective with our analysis and commentary.

Why Is Bush Holding Up Galveston, Matagorda, and Brazoria as Good Examples?

Everything I've seen says that their numbers are not so good.

Think Progress Reports:

The Texas Privatization Plan:: Sen. Barbara Boxer (D-CA) took the president up on the "Texas idea" suggestion. The senato's office has released a report looking at the 1981 Texas plan. In 1981, three Texas counties "decided to opt out of Social Security and instead to provide their public employees with a system of privatized accounts." The analysis done by Boxer's office and the nonpartisan Congressional Research Service "compares two sets of families in three different income brackets [and] shows what happens to their retirement in 2005 under Social Security and under the Texas plan." The conclusion: "By examining the actual system in place in Texas, this study shows that Americans are worse off with privatized accounts - not in theory, but in reality."

Fontana Labs Gives College Advice

My only quarrel is that it understates the importance of being energetic and aggressive (and tough-skinned) in making a success of one's time at a large state school (or a large private school, for that matter):

Unfogged: Fontana Labs' agony column: college edition: ... an interesting question about choosing colleges: go with a moderate name and a big loan, or Big Ten for free? This is something I think about a bit, since I spent time at Big State as a student and I teach at a moderately tony private college.

The case for a smaller private institution: interesting opportunities are easier to find, and faculty are there for you-- something that's not true at a large university, where faculty are there primarily for research and grad student training. Our undergraduates have tremendous access to faculty.... My colleagues think a lot about teaching, and people can get fired for doing it badly.... The case for Big Ten: a larger, more diverse faculty means that you can find someone who's an expert in whatever you're interested in studying. You can work with profs with more active research profiles. If you're dedicated to finding good teachers and mentors, you can take advantage of these tremendous resources and put together a great education (and you can get letters from people who are pretty well-known, though they won't know you as well as their counterparts at College). Plus, it's cheap, or, in L's case, free.

Verdict: I'd have to go with the Big Ten in this case. Disclaimers: a lot of this depends on what the student is like. Some people get lost in a sea of 30,000 undergraduates. If you're not savvy about course selection, researching your profs, and so on, you can end up with mediocre product. You have to BE! AGGRESSIVE! BE BE AGGRESSIVE!"

The Pile Grows Bigger

Things that have shown up this morning that I really need to read quickly:

Martin Feldstein (2005), "Rethinking Social Insurance" (Cambridge: NBER Working Paper 11250) http://papers.nber.org/papers/w11250.

Eswar Prasad and Shang-Jin Wei (2005), "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations" (Washington: IMF).

Pranab Bardhan (2005), Scarcity, Conflicts, and Cooperation: Essays in the Political and Institutional Economics of Development (Cambridge: MIT Press: 0262025736) http://www.amazon.com/exec/obidos/asin/0262025736/.

Offshoring Creeps Closer to the Professoriate!

Sujeet Bhatt sujeet.bhatt@gmail.com writes:

BBC News: British exam papers India bound: "Thousands of exam papers from England will be sent to India later this year as part of the marking process. Critics in England say the move is the latest example of cost-cutting by outsourcing, and will result in errors in exam marking and delays in results. The exam board behind the initiative, AQA, told the BBC that no marking would take place in India and that the move would make marking more efficient.

There has been no comment from the firm in Madras that handles the papers.

http://news.bbc.co.uk/2/hi/south_asia/4485517.stm

Adrian Hon Tells Me to Like Serenity/Firefly

He writes:

Anyway, I for one welcome our new Serenity overlords. I bought the Firefly DVD set on the strength of numerous recommendations from forums and friends, despite not being a real Whedon fan (I didn't watch Buffy or Angel), and I loved it. Very dramatic, very funny and unconventional SF. Good dialogue and characters as well.

Much of Firefly's poor performance when it was on TV was down to Fox, as usual. They aired the series completely out of order, showing the pilot last, and also weren't sure how to promote it. It was primarily on the strength of the massive DVD sales that Universal decided to make it into a movie, something pretty much unheard of for a TV show cancelled after 14 episodes. The fact that it has a 5 star rating at Amazon.com averaged over 1278 reviews speaks to how much people liked it. A quick google search of "firefly dvd review" also brings up a bunch of highly positive reviews from DVD sites.

I'm sure we've had conversations about Firefly on the list a few times before and a lot of people liked it...

Adrian Hon

http://www.mssv.net - http://www.newmars.com - http://www.ibiblio.org/astrobiology

Gurk!

An unhappy durable goods number:

FT.com / International economy - US durable goods orders drop 2.8% By Christopher Swann in Washington: Orders for durable goods fell unexpectedly last month, adding to the mounting gloom in financial markets over the strength of the US economy. The 2.8 per cent fall - the largest monthly decline in more than 2 years - was relatively broadly based with ebbing orders for aircraft, cars and computers. Even excluding the volatile transport sector, bookings fell 1 per cent after a 0.2 per cent decline in February. The closely watched non-defence capital goods excluding aricraft component - seen as the best proxy for business equipment investment - slid 4.7 per cent after a 2.5 per cent decline in Febraury. ING Financial Markets said this may cause some analysts to nudge down their expectations for economic growth in the first quarter to 3 per cent from around 3.5 per cent. "Overall another disappointing figure that is likely to increase talk of a pause at some point by the Federal Reserve as it moves rates to neutral," ING said, in its research this morning.

Well, That's It...

I guess I've bought my last software product from--excuse me, paid my last license fee to--Microsoft:

Suburban Guerrilla: "WASHINGTON -- Microsoft Corp. is paying social conservative Ralph Reed $20,000 a month as a consultant, triggering complaints that the well-connected Republican with close ties to the White House and to evangelist Pat Robertson may have persuaded the company to oppose gay rights legislation...

It's Not Just About Politics

Robert Waldmann writes:

Robert's Stochastic thoughts: Brad DeLong has criticised Jonathan Weisman from time to time for excessive Bush friendliness. I expect that Brad is satisfied with this column. I personally have no complaints about the headline (for a change)...

Robert is wrong! Take a look at the leading paragraphs:

GOP May Be Splintering on Social Security: A badly divided Senate Finance Committee yesterday held the first hearing examining President Bush's efforts to restructure Social Security. While the Democrats remained united in their opposition, there were signs of cracks in the Republicans' support for the president.

After months of political positioning, the stakes were high as the committee took up Bush's signature domestic issue for his second term. The White House has framed the Social Security debate as a matter of political courage, challenging both parties to secure the program's long-term solvency while giving all Americans an ownership stake in their economy. But over the course of the president's Social Security tour, public support for Bush's proposal has fallen, and Democrats see the issue as their best chance to make political gains in Washington.

With that highly charged backdrop, Republican divisions at the hearing had added significance...

Democrats see the issue as one of stopping yet another destructive and badly-thought-out Bush proposal--like its entire security policy, like its budget deficits, like its corporate tax giveaways, like its farm bill, like its incredibly defective Medicare drug benefit. It's not just about politics.

After all, if it were just about politics, would the Republicans be splintering? Grassley, Thomas, and Snowe are not just playing the game of politics, they are trying to figure out what is best for the country--as are Conrad and others.

Weisman and Fletcher mislead their readers when they pretend that it is all about, and just about politics. But they don't know enough to write the story any other way.

So no, Robert, I am not satisfied.

Where's My Access to the Universal Online Library of Humanity?

It's heeerrrreee! Actually, it's not here yet. But it's coming:

Google Print Search: brad delong:

"Economic Puppetmasters: Lessons from the Halls of Power by Lawrence B. Lindsey - Page 18As Brad delong, former Clinton aide, now a professor at the University of California at Berkeley, said in a Wall Street ...[ More results from this book ]

Human Dignity and Contemporary Liberalism by Brad Stetson - Page 41On the loss of property rights specifically, see James V. delong, Property Matters (New York: The Free Press, 1997). 63. ...[ More results from this book ]

Money Changes Everything: How Global Prosperity Is Reshaping Our Needs, Values, and Lifestyles by Peter Marber - Page 24As economist Brad delong points out: Today the average American possesses a degree of material comfort that in many ways outstrips the reach of even the ...[ More results from this book ]

Explorations in Classical Sociological Theory: Seeing the Social World by Kenneth Allan - Page 100... .berkeley.edu/Economists/smith.html (Site maintained by Brad delong, Professor of Economics at the University of California, Berkeley; brief biography ...[ More results from this book ]

Death of Distance: How the Communications Revolution Will Change Our Lives by Frances Cairncross - Page 4... in the way mass production raised the efficiency and quality of manufacturing. As Brad delong, an economist at the University of California at Berkeley ...

Duncan Black Tries to Teach Economics to the Wall Street Journal

Like teaching a pig to sing opera, it doesn't work. You waste your time, and it annoys the pig:

Remedial economics for the WSJ editorial board ... [Media Matters for America]: The Wall Street Journal editorial argued that 'the overall tax burden grew more progressive' in the last 25 years because upper income taxpayers pay a larger share of total taxes than they did in 1979... between 1979 and 1999, the share of total taxes paid by the richest 0.1 percent of taxpayers rose from 5.06 percent to 11.05 percent, and the share paid by the top 1 to 5 percent of earners rose from 14.69 percent to 17.75 percent. But over the same 20-year period, the share of total U.S. income that these two groups earned increased much faster than their share of the tax burden, as economists Thomas Piketty and Emmanuel Saez explained in an updated version of their paper 'Income Inequality in the United States, 1913-1998' (which now includes data up to the year 2000). In 1979, the top 0.1 percent of taxpayers earned 2.01 percent of total U.S. income; in 1999, they earned 6.63 percent. This group's share of total income more than tripled, while its share of federal taxes paid only increased by a little more than double.... The relative share of total taxes paid by various income groups -- which the Journal cites -- is [not] a... measure of... progressivity.... [A] tax system is 'more progressive' if taxpayers pay a progressively larger share of their incomes in taxes as these incomes go up... [as is explained in] the online supplement (PowerPoint exhibit for chapter 12, slide 35) to the third edition of his introductory economics textbook, Principles of Economics (Thomson South-Western, 2004), [by] N. Gregory Mankiw, who served as the chairman of President Bush's Council of Economic Advisers until late February 2005...

Well, maybe annoying the pig is worthwhile.

One of my most interesting moments in Washington was being seated at a luncheon table behind Charlie Stenholm and Judd Gregg, who began to spin more and more interesting and improbable theories about just why Dow-Jones let the Journal editorial page exist in its current form...

Grassley Tells Bush to Be Quiet

The Senate Finance Committee starts working. Dana Milbank reports:

Personal Accounts Are Not A Certainty: On the eve of the first congressional hearing on the restructuring of Social Security, Republicans on the Senate Finance Committee signaled that they will not insist that personal accounts be part of the legislation and that they will not seek further details from President Bush about his plans for the government-run retirement program. In a briefing arranged by Republican staff on the committee and given to 60 reporters yesterday, a committee official involved in the Social Security discussions also said the legislation will move through the committee in June or July. The briefing was given on the condition that the official, who is an aide to Finance Committee Chairman Charles E. Grassley (R-Iowa), would not be named and that his remarks would not be directly quoted.

The official's account, given in preparation for today's hearing on various Social Security proposals, appeared to soften many of the statements Grassley had previously made.... In yesterday's briefing, the committee official asserted that the contours of Bush's plan for Social Security are already well known and that the panel did not believe the release of further details of the plan would be helpful.

The Reaction to Greenspan's 2001 Testimony

Mark Thoma has done some digging and takes a look at press reaction to Greenspan's 2001 tax cut testimony:

Economist's View: "hat Did Greenspan Say and When Did He Say It?...

Mr. Greenspan told Mr. Sarbanes that the charge was 'frankly unfair' because it neglected the Fed chairman's unambiguous endorsement of 'trigger' mechanisms during the same testimony. 'I advocated tax cuts' in 2001, Mr. Greenspan acknowledged Thursday, 'but I also advocated triggers in the same testimony.' Did he advocate triggers?

While that term is not used directly in his testimony, it is used in a CBS report noted below, the only report I could find explicitly discussing spending restraint mechanisms, and Greenspan does say:

In recognition of the uncertainties in the economic and budget outlook, it is important that any long-term tax plan, or spending initiative for that matter, be phased in. Conceivably, it could include provisions that, in some way, would limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied. Only if the probability was very low that prospective tax cuts or new outlay initiatives would send the on-budget accounts into deficit, would unconditional initiatives appear prudent.... Indeed, the current economic weakness may reveal a less favorable relationship between tax receipts, income, and asset prices than has been assumed in recent projections.... But the risk of adverse movements in receipts is still real, and the probability of dropping back into deficit as a consequence of imprudent fiscal policies is not negligible. But let me end on a cautionary note. With today's euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.

In my view, he does add quite a bit of caution regarding slipping back into large deficits, cautions that, as noted below, were not reported widely in the press.... However.... Consider the following quote:

But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets.... I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the government's investment decisions from political pressures. Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise....

[W]hen the economy began slipping into deficit and the Trust Fund assets were evaporating, Greenspan did not protest....

Here are the headlines [from January 2001]:

Greenspan Endorses Tax Cuts WASHINGTON, Jan 25, 2001 (AP Online via COMTEX) -- Federal Reserve Chairman Alan Greenspan gave a major boost Thursday to President Bush's plan for across-the-board cuts in taxes...
GOP Raves at Greenspan's Tax Views January 26th WASHINGTON (AP) - President Bush, in office less than a week, has scored an early triumph in his campaign for a $1.6 trillion tax cut, winning Federal Reserve Chairman Alan Greenspan's support for tax relief...
In Policy Change, Greenspan Backs A Broad Tax Cut RICHARD W. STEVENSON (NYT) January 27, 2001... it should not be so big that it would plunge government back into deficit if federal budget surplus fails to materialize as projected...
Greenspan eyes tax cuts January 25, 2001: 2:09 p.m. ET WASHINGTON (CNNfn) - Federal Reserve Chairman Alan Greenspan gave his broadest endorsement of tax cuts to date Thursday... Greenspan said that if it became clear that politicians might be tempted to use the money for major spending initiatives, it would be better to cut taxes. 'It is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases,' the Fed chairman said...
Greenspan supports tax cut plan By Gerard Baker in Washington FT.com site; Jan 25, 2001 Alan Greenspan, chairman of the US Federal Reserve, on Thursday threw his weight behind proposals for a large tax cut, giving a powerful boost to the centerpiece of President George W. Bush's economic policy.... That created the real risk that, if budget surpluses continued, the US government would begin to acquire a growing portion of the nation's private financial assets - which would create serious inefficiencies...
Greenspan quick to move with times By Gerard Baker in Washington FT.com site; Jan 26, 2001 Alan Greenspan... found himself repeatedly echoing Keynes's defence...as he explained his remarkable U-turn...
LEX COLUMN Financial Times; Jan 26, 2001 Alan Greenspan's sudden endorsement of President George W. Bush's tax cutting plans looks like smart politics rather than sound economics.... Mr Greenspan worries that in six to seven years this debt will have been repaid and the government will be forced either to acquire private assets or go on a spending spree...
Greenspan Gets Mixed Reviews CBS News, WASHINGTON, Jan. 26, 2001 ...Greenspan urged caution, suggesting that Congress consider some type of trigger to trim government spending or tax cuts if the budget surpluses aren't as large as currently estimated...
Greenspan on tax-cut bandwagon Chicago Tribune - US FT Abstracts; Jan 26, 2001 Federal Reserve chairman Alan Greenspan told the senate budget committee yesterday that... he is ready to support reduced tax rates. Greenspan backs tax cuts as way to trim surplus...
Los Angeles Times - US FT Abstracts; Jan 26, 2001 Federal Reserve Chairman Alan Greenspan gave his endorsement for President Bush's ambitious tax cut program yesterday, citing the expanding budget surplus as reason for lower taxes...
Editorial: Interpreting Mr. Greenspan The New York Times - US FT Abstracts; Jan 26, 2001 Alan Greenspan's approval of tax cuts in his Congressional testimony yesterday should not be misconstrued by Bush as an endorsement of his $1.6 trillion tax cut offer.... Congress should therefore move carefully toward tax cuts...
In policy change, Greenspan backs a broad tax cut The New York Times - US FT Abstracts; Jan 26, 2001 Federal Reserve Chairman Alan Greenspan has given his blessing for a substantial tax cut... but he did warn that any cut should not be so big that it plunged the government into deficit should the federal budget fail to materialize as projected...
Greenspan, in about-face, backs tax cuts The Wall Street Journal - US FT Abstracts; Jan 26, 2001 In a dramatic departure from a long-held view, Federal Reserve Chairman Alan Greenspan yesterday lent his support to the federal government's tax cut package...
Zeal and doubt follow tax-cut blessing The Boston Globe - US FT Abstracts; Jan 26, 2001 The Federal Reserve's Alan Greenspan lent his support to the Republican's plan for a tax-cutting initiative yesterday...
Economic Realities Drove Greenspan The Washington Post. Washington, D.C.: Jan 26, 2001. pg. A.4 [FROM ABSTRACT] Alas, said [Alan Greenspan], it's not that simple. The moment the target is reached and the government stops using its annual surpluses to pay down the national debt, it faces a problem... What to do with the extra cash piling up at the Treasury?...
Bush's Hand Greatly Strengthened Glenn Kessler. The Washington Post. Washington, D.C.: Jan 26, 2001 [FROM ABSTRACT] [Alan Greenspan] dispelled the notion that [Bush]'s plan to cut taxes might be reckless, dangerous or even massive, as former vice president Al Gore charged...

Mark Schmitt Agrees with Me...

Peter Orszag is a national treasure:

The Decembrist: Peter Orszag is a national treasure: I'm watching the Finance Committee hearing on Social Security. Peter Orszag of Brookings and the Center on Budget and Policy Priorities just had a wonderful metaphor to respond to the idea that private accounts are a 'sweetener' or 'dessert' to Social Security that will make it easier to swallow the tax increases or benefit cuts that would ensure solvency.

'That's like trying to convince your kid to eat spinach by offering him a turnip for desert.'

Perhaps the most bizarre thing is that I'm told that the White House has for months had numbers like Robert Shiller's and Goldman Sachs's thumbs-down assessments of the desirability of private accounts on the terms the administration has offered them. Yet they haven't bothered to change the terms, or even to make the argument that financing investments by borrowing from your Social Security defined-benefit account at 3% plus inflation is a good deal. Something very similar used to happen with Ira Magaziner and company: Marina Weiss--Bentsen's senior health care aide--would go in there and say, "Ira, we don't think this will work. Moreover, Robert Reischauer at CBO and Breaux's and Moynihan's people in the Senate think like us--they won't think this will work either. And you need Reischauer, Breaux, and Moynihan to be enthusiastic or this is going nowhere." And there would be no response.

In a Good World, Peter Orszag Would Be in the White House Running Social Security Reform

His testimony before the Senate Finance Committee this morning:

Social Security Reform

Peter R. Orszag
Joseph A. Pechman Senior Fellow in Economic Studies
The Brookings Institution

Senate Committee on Finance
April 26, 2005

Mr. Chairman and other members of the Committee, thank you for inviting me to testify before the Committee this morning. Social Security provides the foundation of retirement income, but must be combined with other saving to achieve full retirement security. Retirement income should thus be viewed in terms of tiers, with Social Security delivering a core tier of protection upon which additional retirement income must be built....

Both tiers of retirement security face challenges. In that context, my testimony makes four main points:

• Retirement security can be significantly enhanced by improving 401(k)s and IRAs through commonsense reforms that both sides of the Social Security debate should embrace. The individual accounts we already have -- in the form of 401(k)s and IRAs -- can be substantially improved and strengthened through a series of commonsense reforms that would make the pension system easier to navigate and more rewarding for American families. In the face of the difficult choices presented by the current system, many people simply procrastinate, which dramatically raises the likelihood that they will not save enough for retirement. Disarmingly simple concepts -- such as changing 401(k) plans so that workers are automatically enrolled unless they opt out, and making it easy to save part of an income tax refund -- have the potential to strengthen retirement security significantly. Both sides of the Social Security debate should agree on the straightforward steps necessary to improve 401(k)s and IRAs, and should come together to enact the changes immediately.

• Although improving the accounts we already have on top of Social Security makes sense, introducing accounts within Social Security does not. Under the Administration's proposal for accounts within Social Security, workers receive payroll revenue today, but pay the payroll revenue back, plus interest at a 3 percent real rate, at retirement through a reduction in traditional Social Security benefits. In effect, the individual accounts represent a "Social Security line of credit." Workers drawing upon that line of credit have payroll revenue deposited into their individual account today, but then owe the funds back, plus interest, once they retire. The system is thus similar to a loan from the government to workers. At best, assuming that all the loans carry the government's borrowing rate and are fully repaid, the accounts do nothing to improve solvency within Social Security over the long term -- as even the White House has acknowledged. A more likely scenario is that some of the loans will not be repaid in full, in which case the accounts harm solvency, even over an infinite horizon. And even if they are actuarially neutral over the long term, the accounts create a massive cash-flow problem in the meanwhile. Some argue that the accounts would facilitate other changes -- especially benefit reductions for higher earners -- that would help to restore long-term balance to Social Security. But it is hard to see why, unless they were subsidized, the loans should be particularly attractive, especially to higher earners. Indeed, a Goldman Sachs analysis recently concluded that, "In essence, the 3% real rate offset represents a loan from the federal government to the accountholder to fund the personal saving account. This is not an attractive proposition." Higher earners who typically already own a mix of stocks and bonds should find little or no value in unsubsidized loans from the government. And if the accounts were subsidized to make them more attractive to higher earners, their direct effect would be to expand the Social Security deficit. Increasing stock ownership among moderate and lower earners is desirable, but not by encouraging them to borrow against their future Social Security benefits. Instead, a better approach to increasing equity ownership and retirement saving for such households are the commonsense changes to 401(k)s and IRAs described above. Reducing traditional Social Security benefits to make room for individual accounts would also be unsound for society as a whole, since it would decrease the core tier of retirement income that is protected against financial market fluctuations, inflation, and the risk of outliving one's assets. Furthermore, whatever the initial rules for the accounts, there is likely to be considerable pressure over time for liberalizing pre-retirement access to the funds -- which is precisely what has occurred with 401(k)s and IRAs, along with the Thrift Savings Plan. Such access may make sense in the upper tier of retirement income, but not within the core tier because it undermines the preservation of funds for retirement.

• Failing to dedicate additional revenue to Social Security means that larger benefit cuts would be necessary to restore solvency. For example, dedicating the revenue from a reformed estate tax to Social Security could eliminate the need for more than $1 trillion in benefit reductions over the next 75 years. Every dollar of estate tax revenue dedicated to Social Security is a dollar less of benefit reductions or payroll tax increases necessary to address Social Security's projected deficit. Despite the claims of some advocates, the Administration's proposal for individual accounts makes brutally clear that such accounts do not directly help to restore solvency. Since accounts do not directly improve solvency and may well impair it, the only available policy options to restore solvency are reductions in benefits or increases in dedicated revenue. A fundamental tradeoff thus exists: Proposals that fail to dedicate additional revenue to Social Security will necessarily involve larger benefit reductions than plans that do dedicate additional revenue to the program. When push comes to shove, Americans seem to prefer relying on additional revenue -- or some combination of additional revenue and benefit reductions -- to mainly relying on benefit reductions. As just one example of the tradeoffs, taking the revenue from a reformed version of the estate tax and dedicating it to Social Security could close a substantial share of the projected deficit. For example, the revenue from an estate tax with a $3.5 million exemption per person ($7 million per couple) and a 45 percent tax rate on estates above that exemption would eliminate at least one-quarter of the projected 75-year deficit. That would obviate the need for more than $1 trillion in benefit reductions over the next 75 years. For a 20-year-old medium-earning worker today, it could mean avoiding $1,500 per year in benefit reductions. As a further illustration of the tradeoffs, retaining the same exemption level but reducing the tax rate on large estates to 15 percent would avoid only about $300 billion in benefit reductions over the next 75 years. In other words, with the revenue from a reformed estate tax dedicated to Social Security, reducing the tax rate to 15 percent would increase the benefit reductions required to address Social Security's deficit by $700 billion over the next 75 years. We as a society must decide whether this $700 billion is better used to provide larger after-tax inheritances to wealthy children or to reduce any benefit reductions necessary to restore solvency to Social Security. Every dollar of estate tax revenue dedicated to Social Security is a dollar less of benefit reductions or payroll tax increases necessary to eliminate Social Security's deficit.

• Recent "progressive price indexing" proposals are seriously flawed because they rely excessively on benefit reductions, cut benefits more if future productivity growth turns out to be faster than currently expected, and treat workers earning $900,000 or even $9 million a year the same as those earning $90,000. The recent "progressive price indexing" proposal involves surprisingly and excessively large benefit reductions for average workers. In addition, it reduces benefits more if productivity growth turns out to be higher than we currently expect, exactly the opposite of the appropriate response because the underlying 75-year actuarial deficit would be smaller with faster productivity growth. As the Congressional Research Service recently noted, "somewhat paradoxically, if real wages rise faster than projected, price indexing would result in deeper benefit cuts, even as Social Security's unfunded 75-year liability would be shrinking." Finally, the proposal treats someone earning $900,000 or even $9 million the same as someone earning $90,000; a sound reform plan would instead differentiate between the two. To be sure, imposing proportionately larger reductions in monthly benefits on higher earners compared to lower earners is sensible, in part because higher earners are increasingly living longer than others. "Progressive price indexing," however, is not the right way to accomplish that goal: It would make far more sense simply to adjust the current benefit formula directly to achieve the desired degree of protection for lower earners.

Why doesn't the White House care to find people of this caliber to staff its administration?

There's Something Very Wrong with the Republican Party

The Carpetbagger Report points out that there's something very wrong with a Republican Party whose senators think that Janice Rogers Brown belongs on the federal bench:

Janice Rogers Brown sees herself as part of religious "war": Part of being a qualified judicial nominee is an ability to show some judicial temperament and restraint. Janice Rogers Brown, clearly one of Bush's worst would-be judges, obviously doesn't understand that.

Just days after a bitterly divided Senate committee voted along party lines to approve her nomination as a federal appellate court judge, California Supreme Court Justice Janice Rogers Brown told an audience Sunday that people of faith were embroiled in a "war" against secular humanists who threatened to divorce America from its religious roots, according to a newspaper account of the speech.

Brown's remarks come as a partisan battle over judges has evolved into a national debate over the proper mix of God and government and as Senate Majority Leader Bill Frist (R-Tenn.) ponders changing the chamber%u2019s rules to prevent Democrats from using procedural moves to block confirmation of conservative jurists such as Brown.

Her comments to a gathering of Roman Catholic legal professionals in Darien, Conn., came on the same day as "Justice Sunday: Stop the Filibuster Against People of Faith," a program produced by evangelical leaders and simulcast on the Internet and in homes and churches around the country. It was designed to paint opponents of Bush's judicial nominees as intolerant of believers.

Apparently, Judge Brown was on quite a roll. She described these as "perilous times for people of faith" in the United States; she insisted the "idea of human freedom" is undermined when we move away from the nation's alleged religious underpinnings; and she condemned atheists for rejecting the "idea of freedom."... Her nomination sounds more like some kind of bizarre joke than a serious move to fill an appellate court vacancy. If the Republican Party still had any sense of decency left, Dems wouldn't have to filibuster Brown's nomination %u2014 GOP senators would have the sense to vote against her.

Charlene Huang Criticizes Dani Rodrik

My undergraduate thesis student Charlene Huang takes aim in her draft at Dani Rodrik's assertion that East Asia's "favorable initial conditions"--specifically, a high initial level of human capital--helped fuel its extraordinarily rapid post-WWII growth:

East Asia is generally characterized as having high initial levels of human capital (Rodrik 1994, 1997).... Primary school enrollment rates circa 1960 are usually employed in ascertaining the human capital levels... what Rodrik uses in his parsimonious regressions of growth in East Asia on the level human capital and the distribution of income circa 1960, which leads him to conclude that favorable initial conditions, that is, high initial levels of human capital and low income inequality, can explain 80% of South Korea and Taiwan’s rapid growth (Rodrik 1994).

However, a country’s primary school enrollment rate circa 1960 is less of an "initial condition" than an indicator of the competence and success of public policy. It serves better as a reflection of the post-colonial government's commitment to education and human capital development than as an indicator of initial levels of human capital. A more appropriate indicator of the stock of human capital, and hence circumstances before the period of growth being studied, would measure the educational level of the working age population in 1960, rather than the percentage of children enrolled in primary school in 1960.

Barro and Lee’s data on the percentage of the adults over 25 years of age in 1960 who completed primary school is such an indicator. Operating on the reasonable assumption that primary education was generally completed by 15 years of age, this measure would only include adults in 1960 who received their education by 1950.

As colonization of Taiwan and South Korea ended with Japan’s defeat in 1945, and Malaysia, Singapore, and Indonesia were decolonized by the British and the Dutch in the 1950s, this is a much closer approximation of the human capital with which the HPAEs were endowed, rather than policy choices of their post-colonial governments, or post-war governments in the case of Japan and Thailand. The percentage of adults who completed primary school during the time of colonization is a better indicator of colonial legacy than the percentage of children who are enrolled in primary school under a new non-colonial government.

A comparison of primary enrollment ratios in 1960 and the Barro-Lee data on the stock of human capital in 1960 clearly illustrates the difference between these two measures. For example, although Singapore and Korea both have about 100% primary enrollment in 1960, the percentage of the adults over 25 years of age in 1960 who completed primary school was 26.2% for Korea, but only 5.6% for Singapore. It seems that Singapore’s British colonizers were not as interested in educating the masses, as was Lee Kuan Yew’s government.

Primary enrollment ratios, especially under post-colonial governments, may thus paint a very misleading picture of true initial conditions. And the initial-condition levels of human capital in East Asia are not so favorable when this more appropriate measure is used...

Jeffrey Frankel on the Renminbi

Brad Setser directs us to Jeffrey Frankel's views on exchange rates:

Jeffrey Frankel (2005), "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate" (Cambridge: NBER Working Paper 11274).

Abstract: Fixed and flexible exchange rates each have advantages, and a country has the right to choose the regime suited to its circumstances. Nevertheless, several arguments support the view that the de facto dollar peg may now have outlived its usefulness for China. (1) China's economy is on the overheating side of internal balance, and appreciation would help easy inflationary pressure. (2) Although foreign exchange reserves are a useful shield against currency crises, by now China's current level is fully adequate, and US treasury securities do not pay a high return. (3) It becomes increasingly difficult to sterilize the inflow over time, exacerbating inflation. (4) Although external balance could be achieved by expenditure reduction, e.g., by raising interest rates, the existence of two policy goals (external balance and internal balance) in general requires the use of two independent policy instruments (e.g., the real exchange rate and the interest rate). (5) A large economy like China can achieve adjustment in the real exchange rate via flexibility in the nominal exchange rate more easily than via price flexibility. (6) The experience of other emerging markets points toward exiting from a peg when times are good and the currency is strong, rather than waiting until times are bad and the currency is under attack. (7) From a longer-run perspective, prices of goods and services in China are low -- not just low relative to the United States (.23), but also low by the standards of a Balassa-Samuelson relationship estimated across countries (which predicts .36). In this specific sense, the yuan was undervalued by approximately 35% in 2000, and is by at least as much today. The paper finds that, typically across countries, such gaps are corrected halfway, on average, over the subsequent decade. These seven arguments for increased exchange rate flexibility need not imply a free float. China is a good counter-example to the popular "corners hypothesis" prohibition on intermediate exchange rate regimes.

Moral Relativism

Matthew Yglesias writes:

Matthew Yglesias: Relativism and Beyond: David Vellemen's gone and written a useful primer on what 'moral relativism' is and isn't that people interested in the Pope's anti-relativist campaign ought to check out.... My best guess is that Benedict XVI is mostly concerned about moral authoritarianism rather than relativism and anti-relativism... thinking it very important to get all the Bishops on more-or-less the same doctrinal page.... The only kind of real relativism that I hear anyone seriously endorsing (as opposed to sloppily seeming to endorse when they're not really thinking through what they're trying to say) is agent-relativism about the past... a relaxed attitude to, say... Abraham Lincoln's racism on the grounds that they were 'men of their times.'... Probably the best interpretation of that practice is to steer it away from relativism and say it's an effort to try and avoid a wrongful self-righteousness... it would be pointless to get too up in arms about the fact that Lincoln reflected to a large extent the bad ideas that prevailed during his lifetime. But in an abstract sense, racism wasn't 'more okay' in the 1860s than it is today.

I find myself thinking that something like Alasdair Macintyre's argument in After Virtue is a relativist argument. Macintyre begins by saying that in modern society there is no agreed-upon set of virtues and hierarchy of goods to guide our moral decisions and to settle our moral arguments--and he says that our collective lack of a consensus moral framework is a very bad thing. It would be better, he seems to say, if we had a consensus moral framework--whether of not that consensus moral framework were in some sense the right one. Better to have a collective consensus moral compass that says that east is north than not to have a collective consensus moral compass at all...

At the end of After Virtue, after all, Macintyre appears to be praying for the Second Coming of Someone--but not to greatly care whether it is Nietzsche or Aristotle, Trotsky or St. Benedict who shows up. (Admittedly, in later work Macintyre revises his position and says that only St. Benedict--or is that Benedict XVI?--will do...)

Marginal Revolution Says It Will Stick Around for More than a Hand or Two

Tyler Cowen and Alex Tabarrok take off their coats, roll up their sleeves, sit down at the table, and admit that they are in the game for the long haul:

Marginal Revolution: Thanks to our readers: We are pleased to have reached two million hits sooner than we had expected. No, I don't know exactly what these figures mean, but I do know I wouldn't be happier if they were lower. When Alex and I started MarginalRevolution, we vowed to do it for two years, and then evaluate where we stood. Two years is not yet here (September 2005), but I am ready to sign for more. Thank you all for reading us, and also for sending your thoughts and suggestions for material. Special thanks to those who have supported our hosting costs, and our book and newspaper subscription costs, with donations.

Very nice to see. If they did not exist (or if they dropped out) we would have to create or recreate them, right Igor?

Political Unreform in China

Philip Pan writes:

Hu Tightens Party's Grip On Power: More than two years after taking office amid uncertainty about his political views, Chinese President Hu Jintao is emerging as an unyielding leader determined to preserve the Communist Party's monopoly on power and willing to impose new limits on speech and other civil liberties to do it.... There is a growing consensus inside and outside the government, however, that the 62-year-old former engineer believes the party should strengthen its rule by improving its traditional mechanisms of governance, not by introducing democratic reforms. Hu has placed particular emphasis on tightening the party's control over public opinion, presiding over a crackdown to restore discipline to state media and intimidate dissident intellectuals. He has also gone further than his predecessor, Jiang Zemin, by adopting new measures to regulate discussions on university Internet sites and the activities of nongovernmental organizations....

'He is the ultimate product of the system,' said one party academic with access to the leadership who spoke on condition of anonymity. 'He never studied overseas or had much contact with the outside world. He was educated by the system, spent his entire career in the system, and his values are the same as the system's.' Hu sealed his reputation after taking control of the military at a meeting of the party's ruling elite in September, a final step in his long climb to power. On the last day of the conclave, in his first major address to the 300-plus member Central Committee as the nation's undisputed new leader, Hu warned that 'hostile forces' were trying to undermine the party by 'using the banner of political reform to promote Western bourgeois parliamentary democracy, human rights and freedom of the press,' according to a person given excerpts of the speech. Hu said China's enemies had not abandoned their 'strategic plot to Westernize and split China.' He blamed the fall of the Soviet Union on policies of 'openness and pluralism' and on the efforts of 'international monopoly capital with the United States as its leader.' And in blunt language that party veterans said recalled Mao Zedong's destructive Cultural Revolution, he urged the leadership to be alert to the danger of subversive thinking. 'Don't provide a channel for incorrect ideological points of view,' the person who had read some of the speech quoted Hu as saying. 'When one appears, strike at it, and gain the initiative by subduing the enemy.'...

In a recent comment often cited as a clue to his thinking, Hu wrote in an instruction to propaganda officials that though the economic policies of communist allies Cuba and North Korea were flawed, their political policies were correct, according to a person who saw the instruction and others briefed on it. The remark, first reported by the Hong Kong magazine Open, stunned many in the party who consider the two countries repressive and isolated from the rest of the world.... 'Looking back at the policies of Jiang Zemin now, it wasn't so bad,' said Mao Yushi, an economist who has had a book banned by the government and who runs a private research institute that has not been able to renew its permit. 'We survived for 10 years under Jiang, but with Hu Jintao the authorities are trying to shut us down.'... Hopes that Hu might pursue political reform peaked in 2003 when he and Premier Wen Jiabao took the lead in reversing the party's cover-up of the deadly SARS outbreak, pledging greater accountability and transparency in government. Later, many blamed Jiang's lingering influence for Hu's failure to act on proposals to strengthen the judiciary, expand media freedoms and hold limited elections for party posts....

Hu has focused economic policy on shifting resources to the country's poorer interior and promoting what he calls a 'scientific development concept,' which officials have described as an attempt to balance economic growth with concerns about the environment, the welfare of rural farmers and workers, and a widening income gap. State media have trumpeted these policies, reinforcing Hu's image as a leader who is more concerned about those left behind by the country's reforms than his predecessor. But the shift has caused grumbling among business interests and party officials who advocate faster market reforms, said a party scholar....

Why Oh Why Are We Ruled by These Fools? (Yet Another Bush Budget Edition)

Howard Gleickman of Business Week watches the clown show:

Washington's Deficit Plan? Nada: By Howard Gleckman: Waiting for Washington to get the deficit under control? Pull up a chair and relax. It's going to be a while. Despite annual deficits that are approaching $400 billion -- and that will explode as the baby boomers begin to retire over the next decade -- Washington seems unwilling to take action. There are only two solutions: raising taxes or cutting spending. Lawmakers will do neither.

Despite their brave talk about the need to control the red ink, President George W. Bush and Congress are marching in the opposite direction. At Bush's urging, lawmakers are about to approve an additional $80 billion to fund the war in Iraq for 2005. The House has voted to repeal permanently the estate tax -- at a staggering 10-year cost of nearly $1 trillion. Congress is abandoning a White House request to trim farm subsidies, and lawmakers are balking at modest cuts in Medicaid.... You don't need a green eyeshade to understand the long-range problem. Today, as a percentage of the economy, federal tax revenues are at 50-year lows -- only about 16% of gross domestic product. But spending is humming along at 20% of national output.

And that's just the beginning of the problem. As the boomers age, three government programs -- Social Security, Medicare, and Medicaid -- will suck up a mind-boggling chunk of the income the nation produces. In just two decades, those programs alone will eat up every dollar of anticipated tax revenues.... Even Federal Reserve Chairman Alan Greenspan, who gave the green light to big deficits in early 2001 when he put his stamp of approval on Bush's tax cuts, told the Senate Budget Committee on Apr. 21 that the budget is "on an unsustainable path."

For a good description of the mess, as well as some solutions, take a look at a new Brookings Institution study called Restoring Fiscal Sanity 2005.... Medicare is off the table for now because both parties are leery of touching it. Social Security reform is explicitly exempted from the budget debate, and any overhaul Congress agrees on is likely to add to the deficit. That leaves Medicaid. The budget agreement has been stalled by a battle over how much to trim the joint state/federal health program for the poor. Bush and the House want to trim $20 billion from planned Medicaid spending over five years -- about a 2% reduction. But the Senate has balked. If lawmakers agree at all, they'll split the difference at roughly $10 billion. But that would be far from enough to reduce deficits... the House and Senate... [will] cut [taxes] by at least $70 billion over the next five years -- mostly by extending the 15% rate on capital gains and dividends through 2010. Plus, if they reach a deal on the estate tax -- which would be passed outside of the budget framework -- deficits will explode....

The biggest problem by far remains taxes. Earlier this year deficit hawks such as Senate Budget Committee Chairman Judd Gregg (R-N.H.) were willing to combine spending reductions with a freeze on new tax cuts. But they were overruled by the White House.... Democrats won't cut their favorite programs while seeing ever more tax cuts. Even GOP strategists concede that deficit reduction will go nowhere unless tax hikes are in the mix. Trying to eliminate deficits on the spending side alone is "completely insane," says Ron Haskins, a senior fellow at the Brookings Institution and former House GOP aide.... [T]here's no reason to believe serious deficit reduction will be on the table for the rest of the Bush Presidency.

Why Oh Why Are We Ruled by These Fools (Martin Wolf Now Heads the Order of the Shrill Department)

The mild-mannered and very sensible Martin Wolf out-shrills Paul Krugman--and matches me, at least according to my own internal shrill-o-meter. And all he has to do to reach this pitch is to look around him:

FT.com / Home UK - America's deficits are more than just China's problem: John Snow, the US treasury secretary, insisted that China should embrace a looser exchange rate immediately. Mr Snow is not the organ-grinder of US economic policy but the monkey.... As Nouriel Roubini of New York University promptly responded, the US attack on one of its principal creditors is playing with fire. In the past two years, he argues, three quarters of the US fiscal deficit has been financed by foreign central banks, 100 per cent of the fiscal deficit has been financed from abroad and about 80 per cent of the current account deficit has been financed by foreign central banks. Biting the hand that feeds one is folly.... [T]he US general government fiscal deficit this year will be 4.4 per cent of gross domestic product, while the current account deficit is forecast to be 5.8 per cent of GDP. At present... the American people are able to consume and invest as if the fiscal deficits did not exist. The treasury secretary of... the most fiscally irresponsible US administration since the second world war should fall down on his knees in thanks....

Prof Roubini is also right to note the economic disruption that would ensue if the flow of official international credit were cut off... a dollar collapse, higher domestic prices, a jump in interest rates, a fall in prices of housing, a steep rise in household bankruptcies and, not least, a sharp US recession. The bigger and swifter the adjustment in the external accounts, the more drastic those impacts would be. The landing would be hard.

Nevertheless, it is in US long-run interests to avoid an explosive build-up of net external liabilities. However big the crisis if a sudden correction were to occur now, it would be nothing compared with what would happen after another decade of rising net liabilities. Better still, instead of choosing between a sudden correction now and a still more brutal sudden correction later, why not go for a smoother correction that starts now?... a reduction of spending... in the US and an increase in spending in its creditors. A reduction in the US structural fiscal deficit will be required. Exchange rate movement will be needed as well....

[I]t will be impossible to achieve a significant adjustment of the US current account deficit without a big adjustment by emerging market economies.... The huge reserve accumulations of emerging market economies are by now senseless.... Hectoring China on the exchange rate alone is folly. But a serious discussion of policies to deliver a better global balance is not. That discussion must begin now.

But who is going to begin it with the Bushies in charge?

And it's not the most fiscally irresponsible U.S. administration since World War II. It's the most fiscally irresponsible U.S. administration since before Alexander Hamilton rammed Revolutionary War debt assumption through Congress.

Why Oh Why Can't We Have a Better Press Corps? (National Review: "It Is Their Stupidity We Should Fear..." Edition)

John Stuart Mill said: "Lord, enlighten thou our enemies... sharpen their wits, give acuteness to their perceptions and consecutiveness and clearness to their reasoning powers. We are in danger from their folly, not from their wisdom: their weakness is what fills us with apprehension, not their strength."

A poor and stupid right wing is a dangerous menace--to the rest of us as well as to itself. And we are informed that, yes, we have yet another example from National Review, as we watch PGL from Angry Bear engage in yet another battle of wits with one of National Review'smany unarmed man--one who, it seems, doesn't know the difference between annual and quarterly profit numbers:

Angry Bear: "Jerry Bowyer has produced some incredibly bizarre spin with his BuzzCharts rants with the latest being an attack on something Paul Krugman recently wrote (surprise).... [T]he latest chart seems to say something other than what Jerry wrote.... "Corporate profits per payroll job in 1998 were $14,928.90. Corporate profits per payroll job in 2004 were $21,593.51."... I looked at his numbers and thought that the 1998 after-tax profits per payroll job were quite high. BEA reports that after-tax corporate profits were $469.96 billion for 1998 and BLS reports payroll employment that averaged 125.924 million for 1998. So Jerry's number is four times what it should be. Did he take the quarterly flows (annualized) and sum them--rather than average them?

It sure looks like it. I can't match $21,593.51 for 2004. I can, however, get close: divide after-tax corporate profits for 2004 by non-agricultural payroll employment for 2004, and I get $5,447.22. Multiply that by four--as National Review might well do if it does not understand how the data are reported--and I get $21,788.87.

This, of course, leaves to one side the question of why in God's Holy Name National Review would want to divide corporate profits by payroll employment. A huge number of people who are on payrolls don't work for corporations: 21 million of them work for the government, and a host of others for partnerships and sole proprietorships. A bunch of people who are not on non-agricultural payrolls work for corporations as well. Moreover, you miss a good third of economy-wide profits by restricting yourself to corporate profits. Either (a) divide corporate profits by corporate employment, or (b) divide total profits by private employment. Corporate profits divided by a measures of private plus public employment is not sensible--even if you knew enough about the data to avoid accidently multiplying your result by four.

Isn't there anyone on National Review's masthead who cares enough to hire people who understand what they are writing about--who don't produce total dreck because they're too lazy to learn what the numbers they are throwing around are?

Matt Miller: Why Are Republican Economists Averse to Raising National Savings?

Matt Miller--professional centrist Democrat--is an unhappy camper. He looks for fiscal policy hawks among Republican policy advisors, and is disappointed.

He writes:

The New York Times > Business > Your Money > Economic View: Private Accounts, and Priorities: If the White House and its allies think that private accounts are such a good idea, why don't they propose paying for the fiscal hole that the payroll tax diversion creates, rather than borrowing a fresh $200 billion or so each year for a few decades? Why isn't the idea of paying for the accounts - through spending trims elsewhere, or, more likely, through some new tax stream - even part of the debate?... It wasn't always this way. As privatization proposals kicked around in the 1990's... Edward M. Gramlich, the Federal Reserve governor who previously served on a presidential commission on Social Security, wanted to require individuals to pay for new accounts atop Social Security out of their own pockets. In President Bush's first term, Treasury Secretary Paul H. O'Neill lost his battle to preserve the budget surplus rather than use it for big tax cuts, so that it would have been available to pay for a potential Social Security transition. Today, Laurence J. Kotlikoff, an economics professor at Boston University, has a plan that would divert more of the payroll tax to private accounts than the president's plan would. But Professor Kotlikoff would finance this without new borrowing by enacting a 12 percent retail sales tax that phases out over several decades.

So why don't today's brand-name G.O.P. economists consider paying for these accounts? Recent conversations with Mr. Boskin and Mr. Mankiw suggest that they view this as an almost unintelligible question.

Their first answer is that we are 'paying for it' already, because the president's plan would reduce people's future Social Security benefits dollar for dollar with what they chose to put into private accounts today. As Mr. Mankiw, who recently stepped down as Mr. Bush's chief economic adviser, explains, this makes the plan a wash, or 'financially neutral to the government in a present-value sense. There's no reason why making an implicit liability explicit should change the path of taxes or of other spending behavior,' he said.

But one can acknowledge Mr. Mankiw's point and still think that it's a bad idea to soon add $200 billion or more a year to today's sky-high deficits. For one thing, it's not clear that financial markets will agree that huge deficits today are fine because our leaders have instructed their successors 50 years from now to cut benefits, and thus future deficits....

(A parenthetical remark: there are two reasons to think that spending behavior will change. The first is, as Matt Miller says, if participants in financial markets do not have full confidence that the plans set in motion today for what will happen in fifty years will be honored. That's one reason to think that the Bush proposal should change spending behavior. The second is that if account holders regard their private accounts as closer substitutes for their other savings than Social Security benefits are, then they will change their savings behavior.)

[W]ith deficits already topping $400 billion, the borrow-it-all approach essentially says that it is O.K. if we run $600 billion deficits before long. Does Mr. Boskin really want to make that assumption explicit? In response, he asserts that deficits above today's $400 billion range simply aren't in the cards. The Congressional Budget Office's forecast, he notes, shows deficits shrinking to a manageable 2 percent of gross domestic product, or in the low $200 billions, in the years ahead. But... the budget office's forecast also assumes that all of President Bush's tax cuts will expire, that doctors' fees paid by Medicare will be cut by 35 percent and that a host of other budget fantasies will come true.

Moreover, if the president's approach is enacted, it will mean that the energy and political capital absorbed by Social Security reform will come and go without seizing this moment to increase the paltry national savings rate - which we could do if we offset the gap created by the diversion of payroll taxes. That means we would be likely to squander the chance to enlarge the economic pie out of which all retirement needs must be met. Mr. Mankiw and Mr. Boskin say that they share this concern, but that it's a question we should address later....

A CYNIC would say that today's top Republican economists have found fancy ways of staying on message - which means not questioning the wisdom of making Mr. Bush's tax cuts permanent, and justifying the president's plan to Leave Huge Debts Behind.... [I]t's hard not to scratch your head when conservative Republican senators like Lindsey O. Graham of South Carolina and Charles E. Grassley of Iowa talk about finding new revenue for Social Security so we don't borrow fresh trillions, while the policy professionals trumpet the miracle of the free lunch. They don't call it 'political economy' for nothing.

The Distribution of Income

Max Sawicky notes a little item in the Washington Post:

Detroit Spinning Out: Economic growth is above 4 percent, profits are strong, but pay is not keeping up with inflation. The government reported that hourly wages were up 2.4 percent in the year ended in March, below the 3.1 percent increase in consumer prices. One reason: Workers prefer to take more of their compensation in tax-free benefits, particularly health insurance. With benefits included, inflation-adjusted compensation was up about 0.5 percent, raising the question of who benefited from those 4 percent annual productivity gains...

There's a question? Doesn't the Washington Post have anyone who knows about profits?

It Is the Passover of the LORD

And Mark Kleiman preaches the lesson on Dvarim 24:17-18: Avodim hayyinu l'Pharoh b'Mitzrayim:

Last week in the faculty Torah study group at UCLA -- which has been fighting its way through Deuteronomy at the rate of about two verses a week for the past decade -- we were examining Deut. 24:17-18: "Thou shalt not pervert the justice due to the stranger, or to the fatherless; nor take the widow's raiment to pledge. But thou shalt remember that thou wast a bondman in Egypt, and the Lord thy God redeemed thee thence; therefore I command thee to do this thing." A quick check with a concordance showed that the formula: "Do X, because you were slaves in Egypt and the Lord redeemed you" occurs five times in Deuteronomy, in each case following a commandment about dealing fairly with the vulnerable...

The History of the "Nuclear Option"

Joshua Micah Marshall reports:

Talking Points Memo: by Joshua Micah Marshall: April 17, 2005 - April 23, 2005 Archives: I was pretty sure that it was the Republicans themselves who coined the phrase 'nuclear option', for the reasons I note above. But I wasn't sure of the details. But, in fact, as many of you have now written in, it seems that the guy who came up with this notorious Democratic smear was none other than its prime proponent, Sen. Trent Lott (R) of Mississippi. For more on this we listen in on Jeffrey Toobin's piece from March 7th issue of The New Yorker ...

Changing the Senate's rules on judicial filibustering was first addressed in 2003, during the successful Democratic filibuster against Miguel Estrada, whom Bush had nominated to the United States Court of Appeals for the District of Columbia Circuit. Ted Stevens, a Republican Senate veteran from Alaska, was complaining in the cloakroom that the Democratic tactic should simply be declared out of order, and, soon enough, a group of Republican aides began to talk about changing the rules. It was understood at once that such a change would be explosive; Senator Trent Lott, the former Majority Leader, came up with "nuclear option," and the term stuck.

You might have thought getting gamed on 'privatization' might have led some of these newshounds to a greater skepticism the next time those RNC operatives came calling. But it seems we have not yet plumbed the depths of the 'spank me, spank me' journalistic ethic.

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Dive by the New York Times Department)

David Kirkpatrick of the New York Times is a liar:

The New York Times > Washington > Cheney Enters Filibuster Fight, Backing Change in Senate Rules: Current Senate rules require 60 votes to close debate on a confirmation, allowing Democrats to thwart the action by mustering 41 votes. Republicans want to lower the threshold for closing debate on all nominations to a simple majority. Democrats call this the nuclear option, while Republicans call this a constitutional option.

How many Republicans has David Kirkpatrick heard call it the "nuclear option"? 50? 100? More?

Web Clippings--20050422

What I would write about if time were infinite:

http://slacktivist.typepad.com/slacktivist/2004/11/who_made_steve.html:slacktivist: Who made Steve?: In the third grade at Timothy Christian School, we learned a variation of the children's catechism. I don't remember most of it any longer, but I've always treasured the first three questions. Recently, however, I've come to realize that these three questions do not accurately represent what it is that many American Christians believe. I have amended them to bring them into line with current practice and teaching:

Q: Who made you?
A: God made me.
Q: What else did God make?
A: God made me and all things -- except Steve.
Q: Why did God make all things except Steve?
A: God made all things except Steve for His own glory.

'Steve' has emerged as a central figure in American theology. He even played a significant role in the recent national elections. Yet despite his enormous influence, we know little about Steve aside from a single reference to him in our holy texts. This reference is, like the catechism, extra-canonical but considered authoritative: 'God made Adam and Eve, not Adam and Steve.' This oft-quoted text presents a mystery. If God did not make Steve, then where did this uncreature come from? How did Steve come to be? God did not make Steve, therefore we must also assume that Steve was never born. If Steve had been born, after all, then he would be 'begotten, not made.' Surely we are not meant to conclude that Steve is a little-known fourth member of the Trinity. Thus again we come to mystery. Steve was neither made nor begotten; yet Steve is. What can we do in the face of such mystery? It is beyond our ken. We cannot hope to understand, we can only drop to our knees to sing a bewildered hymn of praise to the Creator of all things except Steve. I have taken to doing exactly this whenever anyone recites this particular sacred text in my hearing.

http://ezraklein.typepad.com/blog/2005/04/point_counterpo.html: Ezra Klein: Point, Counterpoint:

Krauthammer writes: "Have that independence and supremacy been abused? Grossly. What other advanced democracy would radically legalize abortion by judicial decree rather than by democratic will expressed through legislatures or referendums? What sane democracy allows four unelected robed eminences in Massachusetts to revolutionize the very definition of marriage, the most ancient institution in society?"

Matt responds: "Obviously, no nation other than the United States would allow robed eminences in Massachusetts to make decisions about the legality of discrimination on the basis of sexual orientation in marriage, but provincial Supreme Courts in such far-off lands as Canada have likewise been ruling on such matters. And if you want to know what other advanced democracy would have judicial decrees legalizing abortion you, again, don't need to look further than Canada. All of which would merely demonstrate ignorance on Krauthammer's part were he not, well, Canadian."

http://www.bigbrassblog.com/2005/04/special-announcement-compleat.html: Big Brass Blog, in association with The Dark Wraith Forums, is proud to announce that the Bloggrrrlz Gallery slate of blogs has now been completed. That's right: the very best blogs by women can now be read at one meta-site portal where you can spend a minute, an hour, or an entire day working your way across the freshest, most dynamic, most interesting voices in the Blogosphere. If you haven't visited the Gallery yet, you have no idea what you've been missing. Creative coding architecture makes the Bloggrrrlz Gallery something unique on the Web. We think you'll agree.Although every effort has been made to include all of the best of the women bloggers, if you know of one we've missed, send Shakespeare's Sister an e-mail message...

http://www.nytimes.com/2005/04/22/opinion/22krugman.html?hp: Paul Krugman: Passing the Buck: Think about how crazy all of this is. At a rough guess, between two million and three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck for that care to someone else. And the result of all their exertions is to make the nation poorer and sicker. Why do we put up with such an expensive, counterproductive health care system? Vested interests play an important role. But we also suffer from ideological blinders: decades of indoctrination in the virtues of market competition and the evils of big government have left many Americans unable to comprehend the idea that sometimes competition is the problem, not the solution.

http://www.athenaalliance.org/weblog/archives/2005/04/innovation_rese.html: Ken Jarboe: The Intangible Economy: Patents and innovation research: One of the most interesting papers is by Adam Jaffe of Brandeis University and Josh Lerner of Harvard University. The paper 'Innovation and its Discontents' is an extension of the 2004 book by the same title: Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What To Do About It. Their thesis is simple: "In the last two decades, however, the role of patents in the U.S. innovation system has changed from fuel for the engine to sand in the gears. Two apparently mundane changes in patent law and policy have subtly but inexorably transformed the patent system from a shield that innovators could use to protect themselves, to a grenade that firms lob indiscriminately at their competitors, thereby increasing the cost and risk of innovation rather than decreasing it." Some of their recommendation, especially concerning business methods, software and biotechnology patents, will likely generate debate. Others, such as pre-grant opposition and re-examinations of granted patents, seem to be part of the building consensus on patent reform...

http://crookedtimber.org/2005/04/21/i-am-in-awe/: I am in awe. Posted by Kieran Healy. It takes a long, long apprenticeship laboring the Augean stables of Globollocks to write a sentence like this: "The walls had fallen down and the Windows had opened, making the world much flatter than it had ever been--but the age of seamless global communication had not yet dawned." Amazing. Tom Friedman is a God. No, not a God so much as a moustachioed force of nature, pumped up on the steroids of globalization, a canary in the coalmine of an interconnected era whose tentacles are spreading over the face of a New Economy savannah where old lions are left standing at their waterholes, unaware that the young Turks--and Indians--have both hands on the wheel of fortune favors the brave face the music to their ears to the, uh, ground.

http://www.nytimes.com/2005/04/22/business/22cnd-wendys.html?ei=5088&en=aa9c2a1cbe86691c&ex=1271822400&partner=rssnyt&emc=rss&pagewanted=print&position: At CSI: Wendy's, Tracking a Gruesome Discovery. By MATT RICHTEL and ALEXEI BARRIONUEVO: Denny Lynch sat at a booth at a Wendy's restaurant, finishing bites of a chicken sandwich between cellphone calls. Mr. Lynch, a Wendy's executive, was one of only a few lunchtime patrons at the normally buzzing restaurant, where lately business is off by half. That's because, in the same booth where Mr. Lynch sat, a patron claimed on March 22 that she dipped into her cup of beef chili and found part of a human finger. Since then, Mr. Lynch, Wendy's senior vice president for communications, and the rest of Wendy's executive team have been on a ceaseless treadmill trying to manage a public relations crisis that has consumed and frustrated the company. Mr. Lynch still does not know whose finger it was or where it came from. But some of the many questions surrounding the incident may be resolved once the police receive the results of lab tests, possibly as early as Friday.... The troubles began for Mr. Lynch when the phone rang just after 11:30 p.m. on March 22. He had been sleeping at home in Dublin, Ohio, where Wendy's has its headquarters. The caller was Bob Bertini, the chain's media relations manager, explaining that Anna Ayala, a Las Vegas resident visiting family in San Jose, had bitten down on the finger in a spoonful of Wendy's chili. For the 52-year-old Mr. Lynch, there was no time to prepare a sophisticated plan of action. The news media, he was informed, knew about the gruesome discovery, and wanted a statement. He did not wake John T. Schuessler, Wendy's chairman and chief executive, that night, but sent him e-mail messages explaining the news and the steps he had taken...

http://www.bradblog.com/archives/00001345.htm: THE BRAD BLOG: AP: Republican Chairman of Voting Reform Panel Resigns!: Another intellectually-honest Republican is found! Just in from AP... "The first chairman of the federal voting agency created after the 2000 election dispute is resigning, saying the government has not shown enough of a commitment to reform. DeForest Soaries, a Baptist minister, said Friday that his resignation from the commission created by Congress would take effect next week .Soaries, 53, cited personal reasons... but he added the decision was prompted in part by a lack of support for the commission from Congress and the federal government. 'All four of us had to work without staff, without offices, without resources. I don't think our sense of personal obligation has been matched by a corresponding sense of commitment to real reform from the federal government,' Soaries told The Associated Press. Soaries is a Republican who was the White House's pick to join the Election Assistance Commission, which was created by the Help America Vote Act of 2002 to help states enact voting reforms...

http://www.cjrdaily.org/archives/001464.asp: CJR Daily: Amtrak executives have simply thrown up their hands as problems with their only profitable operation sent more than 10,000 regular commuters scrambling for alternative rail transportation this week. And for the slacker media's part, the whole event has been a yawner. Cover a press conference, rewrite the news releases, attend a Senate hearing, maybe dole out some data. But, for heaven's sake, don't ask any tough questions. On Wednesday, Amtrak officials announced that the Boston to Washington Acela Express trains... will be out of service at least until summer because of problems getting replacement brake parts.... Acela's manufacturer, a consortium of Montreal-based Bombardier and France's Alstom S.A., has only 80 replacement brake parts in stock because neither Amtrak nor the consortium expected them to wear out as quickly as they did, according to officials.... After testing some high-speed trains from Sweden and Germany in the early 1990s, Amtrak officials decided to design their own version and to have the equipment built by the consortium -- a $1.1 billion deal that was largely driven by financing the cash-strapped railroad received from a bank set up to promote Canada's exports.... Amtrak executives decided to move straight from design to production and to skip building a prototype.... Maybe it's time to go beyond the news releases and press briefings and do some reporting...

Rick Santorum's Price: $7,750

Angelica Oung argues that Senator Rick Santorum's price is only $7,750:

Ezra Klein: Cheap as well as nasty: By now we've all heard about Rick Santorum's bill seeking to prevent the National Weather Service from actually sharing weather forecasts with Americans. You see, that 'socialized weather' business has got to stop. It's taking the bread right out of the mouths of private web-based forecast providers who work so hard to make a profit by repackaging that information the NWS just want to give away for free. One such firm is Accuweather, which just so happens to be based in Pennsylvania, just like the good senator. Fancy that.

[T]hroughout 2003 and 2004, both Joel and Barry Myers have donated nearly $2,750 to Santorum's 2006 re-election efforts. Public records also showed that since 1999, the Senator received nearly $5,000 in contributions from AccuWeather executives, raising questions of whether the company attempted to court favor with the Senator through campaign contributions.

Count it up...$2,750+$5,000=$7,750. For a blatant gimme bill introduced in congress? That's what I call value!

The Republicans should be able to find a senate candidate in Pennsylvania whose price is at least $100,000! Where are standards these days?