Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

Why Oh Why Can't We Have a Better Press Corps? (Carl Hulse of the New York Times Edition)

Carl Hulse of the New York Times takes a baby step toward becoming a real journalist. He writes:

Congress Mounts Drive for Big Budget Cuts - New York Times: WASHINGTON, Oct. 30 - Congress will embark this week on a major cost-cutting drive that conservative Republicans see as their party's chance to revive its reputation for frugality. But the conservatives face stiff resistance from united Democrats and skeptical fellow Republicans.

With Republican leaders pointing to a need to reduce spending elsewhere to pay for hurricane recovery, the Senate will begin considering a plan on Monday to pare $39 billion over the next five years. The House is assembling its own $50 billion package with an eye toward additional across-the-board cuts this year.

Those pushing hardest for Congress to tighten the federal belt say this is a crucial moment for Republicans who have strayed far from their fiscally responsible roots by engaging in profligate spending and overseeing a vast expansion of government programs. "I think this is a test of character for the Republican majority in Congress," said Representative Mike Pence, an Indiana Republican, who leads a caucus of House conservatives. "The American people are watching and waiting."...

The baby step is that he is including the fact that the $39 billion and $50 billion numbers that are being thrown around are not for this fiscal year but are over five years--i.e., between $8 billion and $10 billion a year.

But he is still very far from being a real journalist: a real journalist would remind his readers in the first two paragraphs that $10 billion a year is 2% of the on-budget deficit (i.e., excluding the Social Security surplus), 0.4% of annual federal spending, and 0.1% of annual GDP. It would need 50 successful "major cost-cutting drives" like this to get the budget to where it ought to be.

It's a big deal only in the propaganda of Republican congressional leaders who want to pretend to fiscal responsibility, and reporters who don't see anything wrong with being their megaphones.

Things That Shouldn't Work But Somehow Do

Strangely successful:

WAKE THE DEAD : Welcome to the WAKE THE DEAD website -- home of the World's First Celtic All-Star Grateful Dead Jam Band. The way this hot Northern California septet blends Celtic traditional music and the songs of the Grateful Dead is delighting Deadheads, folkies, jam band fans, and adventurous music lovers alike around the world.

Roger Lowenstein on the Pension System

Roger Lowenstein writes about the messed-up U.S. pension system. Congress has succumbed to lobbying to keep the U.S.'s private-sector defined-benefit pensions underfunded. And Congress has not managed to reform ERISA in order to make 401(k)s a very good substitute.

I do think Roger is unfair to Mark Warshawsky, Assistant Secretary of the Treasury for Economic Policy, in writing that Mark "merely said that [ERISA reform] was under study. Anything that smacks of regulation (like rules to make sure employees get a particular menu of choices, whether for annuities or for their portfolios) gives the administration shivers." It's widely recognized among the administration's economists that the 401(k) system is broken and that more can be less where investment choices are concerned (see, for example, Alicia Munnell (2005), "Test Drive Suggests 'Ownership Society' May Be a Lemon," Economists Voice http://www.bepress.com/ev/vol2/iss1/art9/). And there has been considerable staffwork to support a bunch of small but very important and powerful reforms that only idiots think would count as 'overregulation'. If President Bush and Senator Grassley could agree on making pension reform a high priority, we could have it quickly. It's a failure of political will, not of analysis or of ideological blinders.

The End of Pensions By ROGER LOWENSTEIN: When I caught up with Robert S. Miller, the chief executive of Delphi Corporation, last summer, he was still pitching the fantasy that his company, a huge auto-parts maker, would be able to cut a deal with its workers and avoid filing for bankruptcy protection. But he acknowledged that Delphi faced one perhaps insuperable hurdle - not the current conditions in the auto business so much as the legacy of the pension promises that Delphi committed to many decades ago, when it was part of General Motors. This was the same fear that had obsessed Alfred P. Sloan Jr., the storied president of G.M., who warned way back in the 1940's that pensions and like benefits would be "extravagant beyond reason." But under pressure from the United Auto Workers union, he granted them. And as future auto executives would discover, pension obligations are - outside of bankruptcy, anyway - virtually impossible to unload. Unlike wages or health benefits, pension benefits cannot be cut. Unlike other contracts, which might be renegotiated as business conditions change, pension commitments are forever. And given the exigencies of the labor market, they tend to be steadily improved upon, at least when times are good.

For the U.A.W., Miller noted forlornly, "30 and Out" - 30 years to retirement - became a rallying cry. Eventually, the union got what it wanted, and workers who started on the assembly line after high school found they could retire by their early 50's.... Earlier this month, Miller and Delphi gave in to the pressure and sought protection under the bankruptcy code.... It followed by a few weeks the Chapter 11 filings of Delta Air Lines and Northwest Airlines, whose pension promises to workers exceeded the assets in their pension funds by an estimated $16 billion. The three filings have blown the lid off America's latest, if long-simmering, financial debacle....

The amount of underfunding in corporate pension plans totals a staggering $450 billion. Part of that liability is attributable to otherwise healthy corporations that will most likely, in time, make good on their obligations. But the plans of the companies that fail will become the responsibility of the government's pension insurer, the Pension Benefit Guaranty Corporation.... Given that pension promises do not come due for years, it is hardly surprising that corporate executives and state legislators have found it easier to pay off unions with benefits tomorrow rather than with wages today. Since the benefits were insured, union leaders did not much care if the obligations proved excessive.... The P.B.G.C. is now $23 billion in the red - a deficit that is expected to grow, significantly, as more companies go under. The balance sheet for the end of September will very likely show a deficit of more than $30 billion. If nothing is done to fix the system, the Congressional Budget Office forecasts, the deficit will mushroom to more than $100 billion within two decades....

[T]he problem of state and local government pensions is even worse. Public pensions, which are paid by taxpayers and thus enjoy an implicit form of insurance, are underfunded by a total of at least $300 billion.... In San Diego... the city has been forced to allocate $160 million, or 8 percent of the municipal budget, to the San Diego City Employees Retirement System this year, with similar allocations expected for years to come. San Diego has tabled plans for a downtown library, cut back the hours on swimming pools, gutted the parks and recreation budget, canceled needed water and sewer projects and fallen behind on potholes....

Bradley Belt, executive director of the P.B.G.C.... points out, the number of workers covered by pensions is shrinking without government help. In 1980, about 40 percent of the jobs in the private sector offered pensions; now only 20 percent do....

To understand why pensions are still important, you have to understand the awkward beast that benefits professionals refer to as the U.S. retirement system. It is not really one "system" but three, which complement each other in the crudest of fashions. The lowest tier is Social Security, which provides most Americans with a bare-bones living (the average payment is about $12,000 a year). The highest tier, available to the rich, is private savings. In between, for people who do not have a hedge-fund account and yet want to retire on more than mere subsistence, there are pensions and 401(k)'s.... During most of the 90's the decline in pension coverage was barely lamented. It was not that big companies were folding up their plans... but that newer, smaller companies weren't offering them....

From the beneficiary's standpoint, pensions mean unique security. The worker gets a guaranteed income, determined by the number of years of service and by his or her salary at retirement. And pensions don't run dry; workers (or their spouses) get them as long as they live.... A 401(k), on the other hand, promises nothing. It's merely a license to defer taxes - an individual savings plan. The employer might contribute some money, which is why 401(k)'s are known as "defined contribution" plans. Or it might not....

Various people have studied how investors perform in their 401(k)'s. According to Alicia Munnell, a pension expert at Boston College and previously a White House economist, pension funds over the long haul earn slightly more than the average 401(k) holder. Among the latter, those who do worse than average, of course, have no protection. Moreover, pensions typically annuitize - that is, they convert a worker's retirement assets into an annual stipend.... This might seem a trivial service.... [But as] Jeffrey Brown, an associate finance professor at the University of Illinois at Urbana-Champaign and a staff member of the president's Social Security commission, notes that as baby boomers who have nest eggs in place of pensions begin to retire, they will be faced with a daunting question: "How do I make this last a lifetime?"...

[I]n the first half of the 20th century... government policies turned pensions into a tool of social policy. First came the tax deduction. This feature was abused, as companies used pensions to shelter payments to their executives. The rules were gradually tightened... forcing plans to include the rank and file. World War II gave more incentives to create pensions: punitive tax rates made the pension shelter enormously attractive.... The effect of these policies was to encourage unions to bargain for pensions and to pressure employers to grant them....

The Studebaker failure was a watershed. Thousands of employees, including some who had worked 40 years on the line, lost the bulk of their pensions. Stunned by the loss, which totaled $15 million, the U.A.W. changed its tactics and began to lobby in earnest for federal pension insurance.... [I]n 1974, Congress finally passed the Employee Retirement Income Security Act, or Erisa, which, among other protections, established the P.B.G.C. to insure private pensions.... Erisa, which would be amended several times, was supposed to ensure that corporate sponsors kept their plans funded. The act includes a Byzantine set of regulations that seemingly require companies to make timely contributions. As recently as 2000, most corporate plans were adequately funded, or at least appeared to be.... Corporations have been gaming the system by using the highest rates allowable, which shrinks their reported liabilities, and thus their funding requirements. The P.B.G.C., when calculating the system's deficit, uses what is in effect a market rate.... Depending on whom you talk to, General Motors' mammoth pension fund is either fully funded or, as the P.B.G.C. maintains, it is $31 billion in the hole.

What is not in dispute is that... falling stock prices, plunging interest rates and a recession in the beginning of this decade was the pension world's equivalent of the perfect storm.... As the P.B.G.C. assumed responsibility for more and more pensioners, it became clear that the premium it charged was way too cheap. Mispriced insurance, like mispriced anything, sends the market a distorted signal.... United Airlines did not make contributions to any of its four employee plans between 2000 and 2002, when it was heading into Chapter 11, and made minimal contributions in 2003.... Bethlehem Steel similarly enjoyed a three-year funding holiday as it was going through hard times, letting its liabilities swell in advance of turning them over to the government.... Neither Bethlehem nor United broke any laws.... As Belt testified to the Senate Committee on Finance in June, "United, US Airways, Bethlehem Steel, LTV and National Steel would not have presented claims in excess of $1 billion each - and with funded ratios of less than 50 percent - if the rules worked."... [C]orporations - airlines in particular - have been lobbying for greater permissiveness for several years. And they have gotten it. Congress has twice relaxed the rules, permitting pension sponsors to use a higher rate to calculate their liabilities.

Enter the Bush administration... [which] wants the funding rules tightened.... G.M. and other industrial companies, along with their unions, have harshly attacked the Bush pension proposal, which would force many old-economy-type corporations to put more money into their pension funds just when their basic businesses are hurting.... The Senate is still divided, however, on how to treat corporations with junk credit ratings - the ones most likely to wind up in the P.B.G.C.'s lap. Hard-liners like Senator Chuck Grassley insist they should be forced to strengthen their pension plans in a hurry; Senators Mike DeWine and Barbara Mikulski (both from states with blue-collar constituencies) want to give such companies lenience....

Even in states where budget restraint is gospel, public-service employees have found it relatively easy to get benefit hikes for the simple reason that no one else pays much attention to them.... The average voter doesn't take notice when the legislature debates the benefits levels of firemen, teachers and the like. On the other hand, public-employee unions exhibit a very keen interest, and legislators know it. So benefits keep rising.... Because public pension benefits are legally inviolable, default is not an option. Sooner or later, taxpayers will be required to put up the money.... [T]he West Virginia Teachers Retirement System has, embarrassingly, only 22 percent of the assets needed to meet its expected liabilities.... According to Barclay's Global Investors, if you use realistic assumptions, the total underfunding in all public plans is on the order of $460 billion....

Earlier this year, Schwarzenegger tried to move California to a 401(k)-style defined contribution plan (for new employees), but the Legislature refused to go along.... De Maio, the San Diego watchdog, is lobbying for a federal law that would impose Erisa-type rules on public plans....

Elaine Chao, the secretary of labor... made no bones about the fact that, in the administration's view, traditional pensions are losing their relevance.... It's hard to argue with her.... Although 44 million people are covered by private-sector plans, half are people who have already retired and are collecting benefits or whose plans have been frozen or terminated.... [T]he private-sector pension community will mostly die off in a generation.... [I]t would make sense to try to incorporate their best features into 401(k)'s. The drawback to 401(k)'s... [T]he government could... require that a portion of 401(k) accounts be set aside in a lifelong annuity... [make] a high contribution rate the "default option" for employees.... Promoting an annuity culture is probably the single best way to make up for the demise of pensions. Yet most companies that provide 401(k)'s don't even give the option of purchasing an annuity when people cash in their accounts. As Brown, the Illinois professor, notes, "There is no box to check that says 'annuities."' That is a minor scandal. "I wish someone in Washington were thinking bigger thoughts about what the optimal retirement package should look like," says Watson Wyatt's Coronado.... Mark Warshawsky, the Treasury's top economist, has written about the need for annuities, and in an interview he allowed that as 401(k)'s become the primary, or the only, source of retirement income for more people, "I think it is a concern that annuities are not being offered in those plans." When I asked what the Treasury was doing about encouraging annuities, Warshawsky merely said that it was under study. Anything that smacks of regulation (like rules to make sure employees get a particular menu of choices, whether for annuities or for their portfolios) gives the administration shivers....

When it passed Erisa, Congress agreed that corporations that invested tax-sheltered retirement funds - pensions - should have to live by certain rules. But in the defined contribution world - the world of 401(k)'s - there are no rules. Employers can contribute or not. Employees can diversify or blow it all on the company stock (even if it is Enron). If nothing else, the century-long experiment with pensions has proved that in the absence of the right rules, the money will not always be there. The purpose of pension reform should be not merely to avoid a fiscal disaster but to find a fiscally sound way to preserve the likelihood of secure retirements...

Banking Panics in the 1930s: Liquidity Crises or Solvency Crises?

Were the banking crises during the Great Depression liquidity crises or solvency crises? Gary Richardson is coming to talk about this tomorrow. I'm looking forward to it:

Gary Richardson and William Troost (2005), "Monetary Intervention Mitigated Banking Panics During the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border in Mississippi, 1929 to 1933" http://orion.oac.uci.edu/~garyr/papers/MS_23may2005_final.pdf:

Abstract: The Federal Reserve Act of 1913 divided Mississippi between the 6th (Atlanta) and 8th (St. Louis) Federal Reserve Districts. Before and during the Great Depression, these districts’ policies differed. The Atlanta Fed championed monetary activism and the extension of credit to troubled banks. The St. Louis Fed adhered to the doctrine of real bills and eschewed expansionary initiatives. Outcomes differed across districts. In the 6th District, banks failed at lower rates than in the 8th District, particularly during the banking crisis in the fall of 1930. The pattern suggests that discount lending reduced failure rates during periods of panic. Historical evidence and statistical analysis corroborates this conclusion.

---

Even if the Federal Reserve had tried to alleviate the banking crisis, no clear evidence exists that it could have helped depository institutions. Two schools of thought exist on this issue. One school believes the principal causes of banking crises were withdrawals of deposits, illiquidity of assets, and the Federal Reserve’s reluctance to act. The Fed could have alleviated banking problems by acting as a lender of last resort (Friedman and Schwartz, 1963; Elmus Wicker, 1996). The second school concludes that banks failed because the economy contracted. Asset prices fell. Loan default rates rose. Banks became insolvent, continuing a process of liquidation and consolidation in the banking industry that began during the 1920s. In such circumstances, the Fed could not aid banks by injecting liquidity into the banking system (Temin, 1976; Charles Calomiris and Joseph Mason, 2003)...

[...]

St. Louis was a staunch advocate of non-intervention. Atlanta was a leading advocate of assisting banks in need. The St. Louis and Atlanta Feds applied their different policies to the portions of Mississippi lying within their jurisdictions. The adoption of these policies preceded the onset of the depression, and had little to do with circumstances in Mississippi, which was a small and peripheral portion of each Federal Reserve district, and much to do with the philosophies and experiences of the leadership of the two banks. Thus, the application of Federal Reserve policies to Mississippi possessed the characteristics of an exogenous policy experiment...

[...]

Compounding over the 73 days of the fall ’30 crisis reveals that the panic increased the cumulative hazard for each bank by 11.0%. The fall ’30 crisis, in other words, accounts for approximately one third of the total cumulative hazard experienced by banks in Mississippi between July 1929 and March 1933. Similar calculations reveal the effect of the Atlanta Fed’s expansionary policy during the fall ’30 crisis. Cumulative hazard in the 6th District was 10.2% lower than cumulative hazard in the 8th District. In other words, in the 8th District, where the St. Louis Fed followed the real bills doctrine, the crisis in the fall of 1930 raised cumulative hazard by 11.0%, while in the 6th District, where the Atlanta Fed followed Bagehot’s Law, the crisis increased cumulative hazard by only 0.8%...

'The Assassins' Gate': Occupational Hazards - New York Times

Fareed Zakaria on George Packer's The Assassins' Gate:

'The Assassins' Gate': Occupational Hazards - New York Times: FAREED ZAKARIA: IN "The Assassins' Gate," his chronicle of the Iraq war, George Packer tells the tale of Drew Erdmann, a young American official in Baghdad. Erdmann, a recent Harvard Ph.D. in history, finds himself rereading Marc Bloch's classic firsthand account of the fall of France in 1940, "Strange Defeat." He was particularly drawn to a few lines. "The ABC of our profession," Bloch wrote, "is to avoid . . . large abstract terms in order to try to discover behind them the only concrete realities, which are human beings." The story of America in Iraq is one of abstract ideas and concrete realities. "Between them," Packer says, "lies a distance even greater than the 8,000 miles from Washington to Baghdad."

Packer begins his absorbing account with... neoconservatives, most prominently Paul Wolfowitz, had long believed that ousting Saddam Hussein would pave the way for a grand reordering of the Middle East, pushing it... toward modernity and democracy... particularly good for Israel's security.... "They were supremely confident," Packer writes, "all they needed was a mission."

But they wouldn't have had one without 9/11.... After 9/11, Bush - and many Americans, including many liberals - were searching for a use of the nation's power that mixed force with idealism and promised to reorder the Middle East. In Iraq they found it.... Packer provides page after page of vivid description of the haphazard, poorly planned and almost criminally executed occupation of Iraq. In reading him we see the staggering gap between abstract ideas and concrete reality.

Hard as it is to believe, the Bush administration took on the largest foreign policy project in a generation with little planning or forethought. It occupied a foreign country of 25 million people in the heart of the Middle East pretty much on the fly.... "Swaddled in abstract ideas . . . indifferent to accountability," those in positions of highest responsibility for Iraq "turned a difficult undertaking into a needlessly deadly one," he writes. "When things went wrong, they found other people to blame."

Packer recounts the prewar discussions in the State Department's "Future of Iraq Project"... the need for large-scale forces to maintain security. One would think that this Hobbesian message - that order is the first requisite of civilization - would appeal to conservatives. In fact all of this careful planning and thinking was ignored or dismissed....

The State Department was regarded as the enemy, so what chance was there of working with other countries? The larger problem was that Defense Secretary Donald Rumsfeld (and probably Dick Cheney) doggedly believed nation-building was a bad idea.... Rumsfeld's spokesman, Larry Di Rita, went to Kuwait in April 2003 and told the American officials waiting there that the State Department had messed up Bosnia and Kosovo and that the Bush administration intended to hand over power to Iraqis and leave within three months. So the Army's original battle plan for 500,000 troops got whittled down to 160,000.... [Tommy] Franks's predecessor, Anthony Zinni, inquired into the status of "Desert Crossing," his elaborate postwar plan that covered the sealing of borders, securing of weapons sites, provision of order and so on. He was told that it had been discarded because its assumptions were "too negative."

As the looting began and went unchecked, the occupation lost its aura of authority and began spiraling downward. Iraq's first czar, Jay Garner, was quickly replaced.... L. Paul Bremer... an intelligent man but his previous administrative experience was confined to running the American Embassy in The Netherlands... his two catastrophic decisions were probably made in Washington - disbanding the Iraqi Army and de-Baathification.... In one day, Bremer had upended the social structure of the country. And he did this without having in place a new ruling cadre that could take over....

Packer describes an occupation that was focused more on rewarding confederates than gaining success.... Garner received instructions from Feith and Wolfowitz to be nice to... Ahmad Chalab.... State Department officials were barred from high posts.... Senior jobs went to Feith's former law partner and to the brother of Ari Fleischer, Bush's press secretary. Friendly American firms like Halliburton were favored... something that has infected conservatism.... The result, in government, journalism and think tanks alike, is a profusion of second-raters whose chief virtue is that they are undeniably "sound."...

[S]tarting around May 2004, Washington began reversing course wholesale.... Where is Iraq today? The continuing violence in the Sunni areas has kept most Americans from recognizing what is actually happening in the country. America's blunders forced Washington, hastily and with little planning, to hand over power to... the Kurds and the Shiite religious parties.... In the north, the Kurds run a relatively benign form of one-party democracy. In the south... Shiite religious groups... have imposed their rule.... "Inside the Green Zone, long hours of negotiation about the role of Islam and women's rights... outside a harsh social code enforced by vigilante rule." And in the center, of course, is a war zone.

Let's be clear: Iraq today is a much better, even more liberal, place [today].... But Iraq is also plainly not what so many had hoped it would be - a model and inspiration.... For every day of elections, there are months of chaos, crime and corruption....

Was all this inevitable?... That seems to be the conventional wisdom.... [But] what to make of Afghanistan?.... Two million Afghan refugees have voted with their feet and returned to their country.... The United States allied itself with forces on the ground that could keep order. It handed over the political process to the international community.... It partnered with NATO.... [T]he Afghan National Army is being trained by the United States - and France....

"The Iraq war was always winnable," Packer writes, "it still is. For this very reason, the recklessness of its authors is hard to forgive." But it is not just recklessness.... Above all... the fatal cost of arrogance...

Impeach George W. Bush. Impeach Richard Cheney. Do it now.

Fafblog on the Plame Case

As is so often true these days, only Fafblog can approach today's news and press on the appropriate level. It is as true as it ever was that Fafblog is the world's only source for Fafblog:

Fafblog! the whole worlds only source for Fafblog.: If Only Corruption Came With Cliff Notes!

Michael Kinsley points us to a compelling flaw in the rationale behind the Fitzgerald investigation today: Michael Kinsley doesn't understand it.

True, the Plame scandal is simple enough to be summarized in one sentence(1), but the devil is in the details. There are names and people and places - names like "Niger", which sounds very much like Nigeria and yet is not Nigeria - and people like "Scooter", which is the name of the Vice President's chief of staff and yet is also the name of a muppet. Will the muppet be indicted? If so, will the muppet himself be charged alone, or are the puppeteers who operate his mouth and limbs also under investigation? Was he voiced by Jim Henson, and if so, how will the Justice Department prosecute the dead? Sorting out these intricate questions of "who" and "what" would take a reporter, and Mr. Kinsley doesn't appear to know any of those.

Mr. Kinsley is also troubled by the impossible paradox of press freedom the Plame scandal presents. Should reporter-source privilege be an implied contract in which a journalist protects her source's identity in exchange for reliable information, or should it be an absolutist right wantonly abused by state officials to disinform the populace, crush their critics, and commit crimes from beyond the veil of a shield law? Mr. Kinsley can't quite decide.

The Medium Lobster could answer these questions, but that isn't the point. The point is that he shouldn't have to. Scandals should be accessible and easy to follow for all of us - even for someone like Mr. Kinsley, who was an editor of The New Republic and remains easily distracted by shiny things. America is meant to have a government of the people - and its scandals should be scandals of the people, too. Outing CIA agents, silencing war critics, covering for the false pretext of a false war - it's all too cerebral to have the kind of mass entertainment value that is the raison d'être of the American criminal justice system. Where's the heart, the soul, the semen-stained dress?

Don't worry, Mr. Kinsley - we'll work on getting you a proper, decent scandal with a proper, decent blowjob. After that there will be a big car chase and many flashing lights.

(1) "White House staffers leaked a covert CIA agent's name to the press in an attempt to discredit a critic of the flawed intelligence used to support the Iraq War."

The Wall Street Journal Defends Libby

The Wall Street Journal says that perjury that successfully covers up felonies should not be prosecuted:

WSJ.com - Obstruction for What?: Patrick Fitzgerald's investigation took nearly two years, sent a reporter to jail, cost millions of dollars and preoccupied some of the White House's senior officials. The fruit it has now borne is the five-count indictment of I. Lewis "Scooter" Libby, the vice president's Chief of Staff -- not for leaking the name of Valerie Plame to Robert Novak, which started this entire "scandal," but for contradictions between his testimony and the testimony of two or three reporters about what he told them, when he told them, and what words he used....

Mr. Fitzgerald has been dogged in pursuing his investigation, and he gave every appearance of being a reasonable and tough prosecutor in laying out the charges yesterday. But he has thrust himself into what was, at bottom, a policy dispute between an elected administration and critics of the president's approach to the war on terror, who included parts of the permanent bureaucracy of the State Department and CIA. Unless Mr. Fitzgerald can prove beyond a reasonable doubt that Mr. Libby was lying, and doing so for some nefarious purpose, this indictment looks like a case of criminalizing politics.

The "and doing so for some nefarious purpose" is in there because the Wall Street Journal knows full well that the evidence that Libby perjured and obstructed justice is very strong. Either Libby is guilty or:

1. An Under Secretary of State
2. A senior officer of the Central Intelligence Agency
3. The Vice President of the United States
4. Libby's own notes of his meeting with the Vice President.
5. A briefer from the Central Intelligence Agency.
6. Libby's then-principal deputy.
7. Judith Miller.
8. Tim Russert.
9. The White House Press Secretary.
10. The Counsel to the Vice President.
11. The Assistant to the Vice President for Public Affairs.
12. "White House Officlal A".
13. Matthew Cooper.

are lying. Libby's story is contradicted not just by a few journalists, but by his own notes and more than a half-dozen senior administration officials as well.

Hence the Wall Street Journal's declaration that if the obstruction of justice is successful--if it keeps the prosecutor from being able to prove the underlying offense beyond a reasonable doubt--it should not be prosecuted.

It's Nice When Smart People Give Me Lots of Pointers to Interesting Things...

Daniel Gross is on a roll, posting a great many things of interest:

Daniel Gross: October 23, 2005 - October 29, 2005 Archives: PRIUS ENVY: When discussing the Prius and the potential of hybrid cars, critics--generally U.S. car makers--generally focus on the fact that the gas savings don't make up for the higher price people have to pay for the hybrids. That may be true in the short-term. But gas isn't the only operating cost associated with a car. If a car breaks down, or needs repairs frequently, that adds to the operating costs. There's the cost of maintenance, and the cost of your time spent taking it to and from the dealer. Lets say your time is worth $100 an hour, and driving a hybrid saves you 15 hours a year in time--fewer trips to the gas station, fewer trips to the dealer, etc.--then the investment would pay of in two years, regardless of how much you save on gas.

And guess which car requires the fewest trips to the mechanic?

Karen Lundegaard reports on the Consumer Reports reliability survey in the Wall Street Journal: "Of the top 31 most reliable vehicles, 15 were from Toyota and Lexus and eight were from Honda. The most reliable 2005 model? The Toyota Prius hybrid car, with only 4% of drivers having to take the vehicle into the dealership for service."

STEEL MAGNOLIAS: The Russians are invading Mississippi! And they're bringing several hundred million dollars! Peter Marsh reports in the Financial Times: "In a project that will be widely watched in the global steel industry, Severstal, the large Russian steelmaker, is taking a majority stake in an $880m venture in the US to make steel sheet for automotive bodies..."

INFLATION WATCH: It's a good thing that inflation is contained to the food and energy sectors, and not seeping into the larger economy. Otherwise there would be real inflation. So what to make of the strong quarterly reports of railroads Norfolk Southern and CSX. Daniel Machalaba reports:... "Norfolk Southern Corp. and CSX Corp. reported gains in third-quarter profit, buoyed by rising freight rates that helped offset higher costs from more-expensive fuel and from hurricane disruptions.... Earlier this week, railroad company Burlington Northern Santa Fe Corp. reported a large third-quarter profit gain. 'After years of price declines, they are finally able to get across-the-board rate increases', said Anthony Hatch, an independent transportation analyst in New York."... Both companies said they are capitalizing on strong demand and tight supply of rail transport to make rate increases stick.

MOST PROFITABLE, NOW BIGGEST: Toyota provides proof that you don't have to give away your cars to build volume. David Ibison and James Mackintosh report in the Financial Times: "Toyota Motor is poised to become the world's largest carmaker, ousting General Motors of the US from the top spot, according to a new business plan to be released in December. The plan is expected to state that Toyota aims to make more than 9.2m vehicles in the year to March 2007 - a figure that should allow it to surpass GM if the US carmaker continues to suffer from falling sales and is forced to cut production further. GM made 9.1m vehicles last year, and last week predicted a fall of about 20,000 units this year."...

GASBAGS: This is rich stuff. Carl Hulse of the New York Times reports on the brilliant new strategy of Republican Congressional leaders to reduce oil prices: begging. "WASHINGTON, Oct. 25 - After forcing through two pieces of legislation with significant benefits for the oil industry this year, House Republican leaders on Tuesday called for oil companies to return the favor by building new refineries and taking other steps to increase fuel supply and lower gas prices. 'It is time to invest in America', said Speaker J. Dennis Hastert, who said that in a period of soaring industry profits, 'we expect oil companies to do their part to help ease the pain American families are feeling from high energy prices'.... 'If you couple that with the fact that we are seeing record profits by the oil companies', said Representative Eric Cantor, Republican of Virginia and chief deputy to Mr. Blunt, 'there are questions being raised by our constituents across America wondering how such a situation could exist'."

Earth to Rep. Cantor: it's called the free market. And it's how the American system works. Indeed, as Holly Yeager reports in the Financial Times, House Speaker Dennis Hastert stepped a bit on his colleague's line by holding up the oil companies' massive profits as a ringing affirmation of all that makes this country great....

LACK OF DEPTH: Caroline Daniel and Christopher Swann of the Financial Times make a good point about the void left by the appointment of Ben Bernanke. "'When Ben Bernanke clears out his desk, he will leave unfinished work: as chairman of the Council of Economic Advisers, he will not sign off on the Economic Report of the President, the annual tome that charts US economic progress. The administration will miss not only his signature but also his role as a useful but relatively low-profile defender of George W. Bush's economic policies. This will mean there is one less voice out there.... It is crucial to have a solid economic voice in the White House', says a former administration economist. Mr Bernanke's departure for the Federal Reserve points to a lack of strong and influential economists across the administration, the person says. 'Of the new people who have now been finally confirmed at the Treasury, none is trained as an economist. There is no one in the White House now, with the exception of the two young CEA nominees who are not yet confirmed, who has a good understanding of economics....' Few analysts expect Mr Bush to appoint a powerful CEA chairman to replace Mr Bernanke...

NEW ECONOMY/OLD ECONOMY: Sometimes the new economy looks a lot like the old economy. One of the reasons Amazon.com and other online retailers were supposed to crush bricks-and-mortar retailers was that their hyper-efficient, asset-light operations would run at significantly higher operating margins. Oops. Amazon.com's... third-quarter results... had operating income of $95 million on sales of $1.86 billion, or about 5.1 percent. That's not bad.... But it's down from the previous year. And as... competition continues to increase, the margin seems to be slipping....

WAL-MART WOES Great piece of reporting by Steven Greenhouse and Michael Barbaro on Wal-Mart's scrooge-like attitude toward employee benefits in the New York Times....

LEE SCOTT KENNEDY: Wal-Mart CEO Lee Scott channels Ted Kennedy, advocating a higher minimum wage out of enlightened self-interest. He finally realizes there's a connection between the minimum wage failing to rise over the past ten years and Wal-Mart's stock failing to rise over the past five years. Ann Zimmerman reports:... "Mr. Scott, noting that minimum wage hasn't changed in almost a decade, described Wal-Mart's core customer base as finding it increasingly difficult to afford basic necessities between paychecks. 'We simply believe it is time for Congress to take a look at the minimm wage and other legislation that can help working families'."

VALUE PRICING: Well, that didn't last long. Several weeks ago, the Big Three said they'd stop the ruinous practice of offering gimmicks like 0% financing, massive rebates, and employee discounts to cover for the fact that buyers weren't willing to pay anywhere near sticker price. Instead, they'd just change the sticker price.... But sales are off again, so they're going back to the well....

BLUE MOON ALERT! Useful and interesting content on the Wall Street Journal editorial page. Writer John Schnapp chronicles GM's woes, and casts a wary eye on the folks exercising oversight over management. "Inadequate corporate governance. A company like GM badly needs a board with at least a core group of directors able to advise and evaluate management from their own successful turnaround experiences. The central GM directors have not. George Fisher... left Eastman Kodak after having been unable to halt its downward spiral. Eckhard Pfeiffer drove Compaq into a ditch. Percy Barnevik virtually destroyed engineering giant ABB.... Karen Katen is a vice-chairman of Pfizer, whose share price collapse has paralleled GM's.... The only GM director who had reinvigorated a sickly company, A.G. Lafley of Proctor & Gamble, quietly withdrew from its board in April."...

ALL THE TEA IN CHINA: You mean to tell me that an until-recently totalitarian Communist dictatorship that has comparatively little experience in free markets and has an insolvent banking system may be fudging its numbers? Don't tell Tom Friedman. Richard McGregor writes in the Financial Times. "'The Chinese economy expanded 9.4 per cent year-on-year, basically the same as in the first and second quarters, despite the fact there has been a major deterioration in the external contribution from the second to the third quarter that should have chopped GDP growth substantially', [Jim Walker] said in a research note....

OWNERSHIP SOCIETY: A piece of stunningly bad news, from Louis Uchitelle's piece in the Sunday New York Times: “Thus far this year, the median weekly wage earned by blacks fell by 5 percent, to $523, adjusted for inflation, according to an analysis of Bureau of Labor Statistics data. Whites as a group are also experiencing a drop in their median weekly wage, but for them the decline this year is less than 1 percent, to $677, adjusted for inflation.”...

The Perjury of I. Lewis Libby

Well, that was an interesting Friday afternoon...

The extent of I. Lewis Libby's perjury is truly bats--- mindblowing. Here are the people who say that his story is simply not true:

1. An Under Secretary of State
2. A senior officer of the Central Intelligence Agency
3. The Vice President of the United States
4. Libby's own notes of his meeting with the Vice President.
5. A briefer from the Central Intelligence Agency.
6. Libby's then-principal deputy.
7. Judith Miller.
8. Tim Russert.
9. The White House Press Secretary.
10. The Counsel to the Vice President.
11. The Assistant to the Vice President for Public Affairs.
12. "White House Officlal A".
13. Matthew Cooper.

Recollections differ. Memories are fallible. People forget. But I cannot see how any conceivable jury could fail to find Libby guilty on all counts, if the witnesses testify as the indictment suggests they will.

So what did Libby think he was doing? There are two possible answers. Answer 1: Libby is certifiable. Answer 2: Libby is erecting a perjury firebreak to keep Patrick Fitzgerald from knowing that he, Cheney, Rove, and possibly others knew very well that Valerie Plame Wilson was a covert operative and thought that blowing her cover would be a nice way to warn the CIA not to leak information that contradicted what Cheney and company had said.

In a normal case, right now Fitzgerald would be offering Libby the choice between spending decades in prison or giving up Rove or Cheney or somebody even more interesting. If Libby doesn't want to sing, he spends decades in prison. If Libby cannot sing--if Libby is in fact the prime mover--than Libby has tough luck and spends decades in prison. If Libby tries to give up Rove or Cheney but just has one-on-one conversations to relate, than once again Libby has tough luck and spends decades in prison: no prosecutor would think that he can convict on the word of a confessed perjurer without corroborating evidence. Only if Libby wants to sing and can point Fitzgerald to corroborating evidence that gives Fitzgerald a conviction of somebody more interesting would he be able to avoid spending a long time in prison.

In the present circumstances, things are complicated by the existence of the presidential pardon power.

So I want to ask a real lawyer: What kinds of discussions among whom about the exercise of the presidential pardon power rise to the level of conspiracy to obstruct justice?

Oil Shocks and Inflation

Mark Thoma channels Bharat Trehan:

Economist's View: Oil Price Shocks and Inflation: This FRBSF Economic Letter looks at oil prices and inflation and finds that oil price shocks are often assigned too much responsibility for the high inflation of the 1970s because the effects of faulty monetary policy and drifting inflationary expectations are underestimated....

Oil Price Shocks and Inflation, by Bharat Trehan, Research Adviser, SF Fed: Oil prices have risen sharply over the last year, leading to concerns that we could see a repeat of the 1970s, when rising oil prices were accompanied by severe recessions and surging inflation. ... This Letter ... argue[s] that oil shocks are sometimes assigned too large a role in the run-up in inflation during the 1970s because analysts tend to ignore the part played by inflation expectations and by monetary policy during this period. The implication is that the recent oil shock should not lead to as much inflation as the 1970s would suggest. Financial markets provide confirming evidence. ... there is little evidence to suggest that markets are expecting substantially higher inflation as a result of the run-up in oil prices since the beginning of the year. As discussed ..., this could be because the markets are expecting the Fed to respond vigorously to the run-up in oil prices. But a look at the fed funds futures markets reveals that markets are not expecting very large policy moves. ... Thus, financial market expectations do not appear to be out of line with the statistical analysis. Markets do not expect the recent substantial rise in oil prices to lead to a substantial increase in inflation, and they expect this result to occur without the kind of funds rate increases one saw in the 1970s...

Jim Hamilton is quoted making similar points. Alan Greenspan views the degree of pass through as an area of considerable uncertainty, but if this research holds up, it implies less pass through of oil shocks to core inflation than commonly assumed, and hence less need for tightening of interest rates to prevent an outbreak of inflation.

It is, I think (or so I tell my classes), important to recognize that there are three things going on in the early 1970s:

1. A tripling of oil prices
2. The erosion of the Federal Reserve's credibility as an inflation fighter
3. A large productivity slowdown, as the rate of labor productivity growth in the American economy falls from 2.5% per year to 1.0% per year and stays there until 1995.

The stagflation of the 1970s is often blamed on (1) along. But I think--and have argued--that (2) and (3) are important factors. See http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.

Uncovered Interest Rate Parity

Jim Hamilton Menzie Chinn writes about interest differentials and exchange rate movements:

Econbrowser: Whither the dollar?: What the interest differentials say. One of my long term interests is in the predictability of exchange rates... myself, Yin-Wong Cheung and Antonio Garcia Pascual.... We compared several popular models, including the Dornbusch and Frankel sticky price monetary model, a model based upon productivity differentials, interest rate parity (essentially the forward rate), and a specification incorporating many of these channels -- sometimes called BEERs (for behavioral equilibrium exchange rate models). All of these were compared against a random walk characterization of the exchange rate.

We found that... there was little evidence of outpredicting a random walk, although at long horizons, interest differentials did the best.... [T]he interest parity relationship, even at the long horizon, is not a strong one (the adjusted R-squared from the regression of 5 year changes on 5 year interest rates is 0.05). At the short horizon (one month, 3 months), don't even try using this for G-5 currencies -- the forex traders make plenty of money betting against this relationship (it's called the carry trade).

One last caveat in using interest rates. The past couple of years have seen what some considered aberrant behavior in long term interest rates. Several papers (Chinn and Frankel; Warnock and Warnock) have discussed this. So it may prove even more perilous than usual to rely on long term interest rates to infer dollar movements...

This is one of the most puzzling puzzles in macroeconomics: that foreign-exchange speculators are not very good at linking domestic money and bond markets to the foreign exchange market. Not enough money seems to be engaged in betting that a currencie with a high nominal interest rates will not decline in value fast enough to make investing in its securities unprofitable. Why not? It's an easy thing to do.

The Traditions of the Military

We do have some officers:

TPMCafe || Military Leaders Back McCain-Graham : By Anne-Marie Slaughter: This letter, from 28 distinguished retired military leaders, was posted on Sen. John McCain's website, dated Oct. 3, 2005.

Dear Senator McCain:

We strongly support your proposed amendments to the Defense Department Authorization bill concerning detainee policy, including requiring all interrogations of detainees in DOD custody to conform to the U.S. Army's Field Manual on Intelligence Interrogation (FM 34-52), and prohibiting the use of torture and cruel, inhuman and degrading treatment by any U.S. government agency.

The abuse of prisoners hurts America's cause in the war on terror, endangers U.S. service members who might be captured by the enemy, and is anathema to the values Americans have held dear for generations. For many years, those values have been embodied in the Army Field Manual. The Manual applies the wisdom and experience gained by military interrogators in conflicts against both regular and irregular foes. It authorizes techniques that have proven effective in extracting life-saving information from the most hardened enemy prisoners. It also recognizes that torture and cruel treatment are ineffective methods, because they induce prisoners to say what their interrogators want to hear, even if it is not true, while bringing discredit upon the United States.

It is now apparent that the abuse of prisoners in Abu Ghraib, Guantánamo and elsewhere took place in part because our men and women in uniform were given ambiguous instructions, which in some cases authorized treatment that went beyond what was allowed by the Army Field Manual. Administration officials confused matters further by declaring that U.S. personnel are not bound by longstanding prohibitions of cruel treatment when interrogating non-U.S. citizens on foreign soil. As a result, we suddenly had one set of rules for interrogating prisoners of war, and another for "enemy combatants"; one set for Guantánamo, and another for Iraq; one set for our military, and another for the CIA. Our service members were denied clear guidance, and left to take the blame when things went wrong. They deserve better than that.

The United States should have one standard for interrogating enemy prisoners that is effective, lawful, and humane. Fortunately, America already has the gold standard in the Army Field Manual. Had the Manual been followed across the board, we would have been spared the pain of the prisoner abuse scandal. It should be followed consistently from now on. And when agencies other than DOD detain and interrogate prisoners, there should be no legal loopholes permitting cruel or degrading treatment.

The amendments proposed by Senator McCain would achieve these goals while preserving our nation's ability to fight the war on terror. They reflect the experience and highest traditions of the United States military. We urge the Congress to support this effort.

Sincerely,

Gen. Joseph Hoar, USMC (ret.)
Gen. John Shalikashvili, USA (ret.)
Gen. Donn A. Starry, USA (ret.)
Lt. Gen. Ron Adams, USA (ret.)
Lt. Gen. Robert G. Gard, Jr., USA (ret.)
Lt. Gen. Jay M. Garner, USA (ret.)
Vice Adm. Lee F. Gunn, USN (ret.)
Lt. Gen. Claudia J. Kennedy, USA (ret.)
Vice Adm. Al Konetzni, USN (ret.)
Lt. Gen. Charles Otstott, USA (ret.)
Vice Adm. Jack Shanahan, USN (ret.)
Maj. Gen. Eugene Fox, USA (ret.)
Maj. Gen. John L. Fugh, USA (ret.)
Rear Adm. Donald J. Guter, USN (ret.)
Maj. Gen. Fred E. Haynes, USMC (ret.)
Rear Adm. John D. Hutson, USN (ret.)
Maj. Gen. Melvyn Montano, ANG (ret.)
Maj. Gen. Robert H. Scales, USA (ret.)
Maj. Gen. Michael J. Scotti, USA (ret.)
Brig. Gen. David M. Brahms, USMC (ret.)
Brig. Gen. James Cullen, USA (ret.)
Brig. Gen. Evelyn P. Foote, USA (ret.)
Brig. Gen. David R. Irvine, USA (ret.)
Brig. Gen. Richard O'Meara, USA (ret.)
Brig. Gen. John K. Schmitt, USA (ret.)
Brig. Gen. Stephen N. Xenakis, USA (ret.)
Ambassador/Former Vietnam POW Douglas "Pete" Peterson, USAF (ret.)
Former Vietnam POW Commander Frederick C. Baldock, USN (ret.)
Former Vietnam POW Commander Phillip N. Butler, USN (ret.)

NYT, please don't let Jodi Wilgoren write about evolution anymore

P.Z. Myers gets hives by reading the _New York Times_:

NYT, please don't let Jodi Wilgoren write about evolution anymore: She's hurting the children.

Look at how she reports on the rebuke of Kansas's science standards by the NAS and NSTA.

Two leading science organizations have denied the Kansas Board of Education permission to use their copyrighted materials as part of the state's proposed new science standards because of the standards' critical approach to evolution.

We like critical approaches to science, at least when they're intelligently done. Her very first sentence put me on edge.... As expected, buried deeper in the article, we discover the real reason:

In the statement and in letters to the state board, the groups opposed the standards because they would single out evolution as a controversial theory and change the definition of science itself so that it is not restricted to the study of natural phenomena. A third organization, the American Association for the Advancement of Science, echoed those concerns in a news release supporting the copyright denial, saying, "Students are ill served by any effort in science classrooms to blur the distinction between science and other ways of knowing, including those concerned with the supernatural."

I guess they're just following the new strategy of Mike Behe and the Discovery Institute: use such a vague and sloppy definition of science that astrology can fit under it.

But of course, Jodi Wilgoren doesn't care. She doesn't know anything.

Some Dare Call It Treason...

A correspondent reminds me that it is time once again to surf over to Donald Luskin's website and to once again lay down a marker that you check everything he says before you trust it. But I don't have the heart to do it. It's just too depressing.

So let me grab one thing from my archives: Donald Luskin's declaration that the doings of the Bushies in the Valerie Plame Wilson case are "tantamount to... treason":

Donald Luskin on Paul Krugman and Valerie Plame on NRO Financial: Paul Krugman, America's most dangerous liberal pundit, has made a statement in his Times column today which... [is] an extraordinarily serious allegation, tantamount to accusing Bush administration officials of treason: "...Bush administration officials have exposed the identity of a covert operative."

Hold on to that thought in light of Patrick Fitzgerald's statement that Bush administration officials have exposed the identity of a covert operative:

Fitzgerald News Conference - New York Times: October 28, 2005 TranscriptValerie Wilson was a CIA officer. In July 2003, the fact that Valerie Wilson was a CIA officer was classified. Not only was it classified, but it was not widely known outside the intelligence community. Valerie Wilson's friends, neighbors, college classmates had no idea she had another life. The fact that she was a CIA officer was not well- known, for her protection or for the benefit of all us. It's important that a CIA officer's identity be protected, that it be protected not just for the officer, but for the nation's security.

Valerie Wilson's cover was blown in July 2003. The first sign of that cover being blown was when Mr. Novak published a column on July 14th, 2003. But Mr. Novak was not the first reporter to be told that Wilson's wife, Valerie Wilson, Ambassador Wilson's wife Valerie, worked at the CIA. Several other reporters were told. In fact, Mr. Libby was the first official known to have told a reporter when he talked to Judith Miller in June of 2003 about Valerie Wilson....

Now, something needs to be borne in mind about a criminal investigation.... Investigators do not set out to investigate the statute, they set out to gather the facts. It's critical that when an investigation is conducted by prosecutors, agents and a grand jury they learn who, what, when, where and why. And then they decide, based upon accurate facts.... It was known that a CIA officer's identity was blown, it was known that there was a leak. We needed to figure out how that happened, who did it, why, whether a crime was committed, whether we could prove it, whether we should prove it. And given that national security was at stake, it was especially important that we find out accurate facts.

There's another thing about a grand jury investigation. One of the obligations of the prosecutors and the grand juries is to keep the information obtained in the investigation secret, not to share it with the public.... [I]f information is gathered about people and they're not charged with a crime, we don't hold up that information for the public to look at.... But as important as it is for the grand jury to follow the rules and follow the safeguards to make sure information doesn't get out, it's equally important that the witnesses who come before a grand jury, especially the witnesses who come before a grand jury who may be under investigation, tell the complete truth. It's especially important in the national security area....

That brings us to the fall of 2003....And to be frank, Mr. Libby gave the FBI a compelling story.... [I]f only it were true. It is not true.... The indictment alleges that Mr. Libby learned the information about Valerie Wilson at least three times in June of 2003 from government officials.... [A]t least four people within the government told Mr. Libby about Valerie Wilson.... Mr. Libby, the indictment alleges, was telling Mr. Fleischer something on Monday that he claims to have learned on Thursday.... Mr. Libby testified that he told the reporters he did not even know if Mr. Wilson had a wife....

[But] Mr. Libby discussed this information about Valerie Wilson at least four times prior to July 14th, 2003: on three occasions with Judith Miller of the New York Times and on one occasion with Matthew Cooper of Time magazine... June 23rd of 2003... July 8th.... At the end of the day what appears is that Mr. Libby's story that he was at the tail end of a chain of phone calls, passing on from one reporter what he heard from another, was not true. It was false. He was at the beginning of the chain of phone calls, the first official to disclose this information outside the government to a reporter. And then he lied about it afterwards, under oath and repeatedly....

[W]hy is this a leak investigation that doesn't result in a charge?... If you saw a baseball game and you saw a pitcher wind up and throw a fastball and hit a batter right smack in the head, and it really, really hurt them, you'd want to know why the pitcher did that. And you'd wonder whether or not the person just reared back and decided, I've got bad blood with this batter. He hit two home runs off me. I'm just going to hit him in the head as hard as I can.... And what you'd want to do is have as much information as you could. You'd want to know: What happened in the dugout? Was this guy complaining about the person he threw at? Did he talk to anyone else? What was he thinking? How does he react? All those things you'd want to know. And then you'd make a decision as to whether this person should be banned....

In this case, it's a lot more serious than baseball. And the damage wasn't to one person. It wasn't just Valerie Wilson. It was done to all of us. And as you sit back, you want to learn: Why was this information going out? Why were people taking this information about Valerie Wilson and giving it to reporters? Why did Mr. Libby say what he did? Why did he tell Judith Miller three times? Why did he tell the press secretary on Monday? Why did he tell Mr. Cooper? And was this something where he intended to cause whatever damage was caused?... [W]hat we have when someone charges obstruction of justice, the umpire gets sand thrown in his eyes. He's trying to figure what happened and somebody blocked their view.... [T]he harm in an obstruction investigation is it prevents us from making the fine judgments we want to make.

I also want to take away from the notion that somehow we should take an obstruction charge less seriously than a leak charge. This is a very serious matter and compromising national security information is a very serious matter. But the need to get to the bottom of what happened and whether national security was compromised by inadvertence, by recklessness, by maliciousness is extremely important. We need to know the truth. And anyone who would go into a grand jury and lie, obstruct and impede the investigation has committed a serious crime.... [I]f what we allege in the indictment is true, then what is charged is a very, very serious crime... [given] the public interest in finding out what happened here...

Paul Krugman Is Mellow Today

He praises Ben Bernanke. He even praises Alan Greenspan (somewhat):

Bernanke and the Bubble By PAUL KRUGMAN: By Bush administration standards, the choice of Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve was just weird. For one thing, Mr. Bernanke is actually an expert in monetary policy, as opposed to, say, Arabian horses.... Bernanke's partisanship... is so low-key that his co-author on a textbook didn't know he was a registered Republican. The academic work on which his professional reputation rests is apolitical. Moreover, that work is all about how the Fed can influence demand - there's not a hint in his work of support for the right-wing supply-side doctrine....(1) [H]e's a policy activist who advocates aggressive government moves to jump-start stalled economies. For example, a few years back Mr. Bernanke called on Japan to show "Rooseveltian resolve"... supported a proposal by yours truly that the Bank of Japan try to get Japan's economy moving by... announcing its intention to push inflation up to 3 or 4 percent per year....

It's even hard to imagine him doing what Mr. Greenspan did: throwing his prestige... behind... tax cuts.... Has President Bush been so damaged by scandals and public disapproval that he has no choice but to appoint qualified, principled people to important positions? O.K., seriously, many economists and investors feared that Mr. Bush would try to place a highly partisan figure in charge of the Fed. And ... there was widespread concern that Mr. Bush would try to select a John Snow type - a businessman whose only qualification is loyalty....

So should we all feel confident.... Alas, no.... Mr. Greenspan, for all his flaws, has repeatedly shown his ability to divine from fragmentary and sometimes contradictory data which way the economic wind is blowing. As an academic, Mr. Bernanke never had the occasion to make that kind of judgment. We'll just have to see whether he can develop an economic weather sense on the job....

[But] my main concern is that the economy may well face a day of reckoning soon after Mr. Bernanke takes office. And while he is surely the best politically possible man for the job (all the other candidates I would have been happy with are independents or Democrats), coping with that day of reckoning... may be beyond anyone's talents... two unsustainable trends: a huge surge in house prices and a vast inflow of funds from Asia. Sooner or later, both trends will end, possibly abruptly....

When all is said and done, the Fed controls only one thing: the short-term interest rate. And it will be a long time before we have competent, public-spirited people controlling taxes, spending and other instruments of economic policy.

Paul Krugman worries about the problems that Bernanke will have to face, and about the fact that he will be virtually the only grownup in the economy's control room for a while. I worry too. Why, I remember last summer nearly getting out the flamethrower when a reporter referred to the Fed Chairship as a "plum job." It carries a healthy (although not absurd) salary. But it also carries great responsibility. And it does not carry the power that should come with that much responsibility.

From what I hear, it does seem likely that Krugman is right when he speculates that the reaction to Harriet Miers saved us from a Harriet Miers-like Fed appointment. All the whispering over the summer about how the establishment consensus candidates--Hubbard, Feldstein, Bernanke, Kohn, Ferguson--were good but not great sounded and sounds as though it was meant to prepare the ground for somebody else.

---

(1) I would say that Bernanke has the standard economist's attitude toward supply-side factors: taxes carry excess burdens, the ruling principle is to broaden the base and lower the rates, budgets should not be grossly unbalanced, and public finance ought to be an empirical, technocratic discipline rather than one of religious zealotry. He does, however, occasionally talk about financial crises and the chains of bankruptcy and disintermediation that they generate as "supply-side" factors. I understand what he means, but I do still find it a little jarring.

Perhaps the Ultimate Platonic Dialogue

By Nathaniel Daw:

Quentin Tarantino's REPUBLIC DOGS: Socrates: My humble little idea goes something like this. [He is suddenly extremely loud and violent. Roars:] Justice is only the will of the stronger. What do you think about that, a--hole? [Slaps Thrasymachus across the face with his gun]

Thrasymachus: Uh, uh, uh ...

Socrates: Come on... come on, you wanna try and disprove my theory, you weak little s---? Yeah? Yeah? S---, I think I feel a proof coming on. [Shoots him.] Why, thank you Thrasymachus, you've certainly opened my eyes.

Narrator: Thrasymachus. Alcibiades. Aristotle. Socrates -- are Quentin Tarantino's Republic Dogs.

How Do Computers Do What They Do?

The Twelve-Year-Old wants to learn more about computers. Is there anything better to read than Charles Petzold (1999), Code: The Hidden Language of Computer Hardware and Software (Redmond: Microsoft Press: 073560505X)?

Here's what I wrote about Code half a decade ago:

In some sense, this is the book that I have been looking for for twenty-five years--the book that will enable me to understand how a computer does what it does. And--given the centrality of computers in our age--it has been a long wait. But now it is over. Charles Petzold (1999), Code: The Hidden Language of Computer Hardware and Software does a much better job than anything else I have ever seen in explaining computers--what they really are, and how they really work.

Have you ever wondered just how your computers really work? I mean, really, really work. Not as in "an electrical signal from memory tells the processor the number to be added," but what the electrical signal is, and how it accomplishes the magic of switching on the circuits that add while switching off the other circuits that would do other things with the number. I have. I have wondered this a lot over the past decades.

Yet somehow over the past several decades my hunger for an explanation has never been properly met. I have listened to people explain how two switches wired in series are an "AND"--only if both switches are closed will the lightbulb light. I have listened to people explain how IP is a packet-based communications protocol and TCP is a connection-based protocol yet the connection-based protocal can ride on top of the packet-based protocol. Somehow these explanations did not satisfy. One seemed like answering "how does a car work?" by telling how in the presence of oxygen carbon-hydrogen bonds are broken and carbon dioxide and water are created. The other seemed like anwering "how does a car work" by telling how if you step on the accelerator the car moves forward.

Charles Petzold is different. He has hit the sweet spot exactly. Enough detail to satisfy anyone. Yet the detail is quickly built up as he ascends to higher and higher levels of explanation. It remains satisfying, but it also hangs together in a big picture.

In fact, my only complaint is that the book isn't long enough. It is mostly a hardware book (unless you want to count Morse Code and the interpretation of flashing light bulbs as "software." By my count there are twenty chapters on hardware, and five on software. In my view only five chapters on software--one on ASCII, one on operating systems, one on floating-point arithmetic, one on high-level languages, and one on GUIs--is about ten too few. (Moreover, at one key place in his explanation (but only one) he waves his hands. He argues that it is possible to use the operation codes stored in memory to control which circuits in the processor are active. But he doesn't show how it is done.)

Charles Petzold's explanatory strategy is to start with the telegraph: with how opening and closing a switch can send an electrical signal down a wire. And he wants to build up, step by step, from that point to end with our modern computers. At the end he hopes that the reader can look back--from the graphical user interface to the high-level language software constructions that generate it, from the high-level language software constructions to the machine-language code that underlies it, from the machine-language code to the electrical signals that load, store, and add bits into the computer's processor and into the computer's memory.

But it doesn't stop there. It goes further down into how to construct an accumulator or a memory bank from logic gates. And then it goes down to how to build logic gates--either out of transistors or telegraph relays. And then deeper down, into how the electrons actually move through a transistor or through a relay and a wire.

And at the end I could look back and say, yes, I understand how this machine works in a way that I didn't understand it before. Before I understood electricity and maybe an AND gate, and I (maybe) understood high-level languages (to some degree). But the whole vast intermediate realm was fuzzy. Now it is much clearer. I can go from the loop back to the conditional jump back to the way that what is stored in memory is fed into the processor back to the circuits that set the program counter back to the logic gates, and finally back to the doped silicon that makes up the circuit.

So I recommend this book to everyone. It is a true joy to read. And I at least could feel my mind expanding as I read it.

A Very Good First Weblog Post

Mathematician vs. Philosopher has a very good first weblog post:

Mathematician vs. Philosopher: So this is the inaugural post for Mathematician vs. Philosopher. Eventually, this site will blossom into a formidable team blog, where the uneducated masses will come to dip their dirty heads into our trough of knowledge and irreverent commentary -- supping until they are filled full of our unique brand of highly-informed and magnificently-recorded insolence.

But that's eventually. Presently, the site is more like a drunken street person -- staggering about in all directions and yelling in an agitated fashion, but not making a lot of sense, nor looking terribly fabulous for the effort. And is that lady over on that corner a little bit frightened? Yes, I think she is.... [S]it back and watch your respect for us plummet.

Somebody Needs to Be the Institutional Advocate for Sound Fiscal Policy

We are live in the Financial Times:

FT.com / Comment & analysis / Comment - Fiscal stability should be Fed's new mantra : Many -- including myself -- will spend the next three months praising the monetary stewardship of the Greenspan Fed.... Mr Greenspan... and his team managed the extraordinary feat of monetary policy fine-tuning: their policies proved superb at preserving macroeconomic stability and at nurturing rapid long-run economic growth.... [T]here is no doubt the Greenspan Fed hit a grand slam.... But...

[T]he Greenspan Fed has fallen down on part of its job. It did warn that effective budget balance is necessary to controlling inflation in the long run, but its warnings were too soft. Mr Bernanke thus faces a difficult problem. In the absence of other institutions that will do so, the Fed itself needs to preach the gospel that monetary stability ultimately rests on fiscal balance. This is not how the Fed usually perceives its role, but it is difficult to see how it can avoid taking on this burden while ensuring effective price stability.

The Asian Century Won't Begin Until 2040 or so

Pranab Bardhan warns that the Asian twenty-first century--the twenty-first century that is China's and India's--will begin in 2040 at the earliest:

China, India Superpower? Not so Fast!: Pranab Bardhan: BERKELEY: The media, particularly the financial press, are all agog over the rise of China and India in the international economy. After a long period of relative stagnation, these two countries, nearly two-fifths of the world population, have seen their incomes grow at remarkably high rates over the last two decades. Journalists have referred to their economic reforms and integration into the world economy in all kinds of colorful metaphors.... While there is no doubt about the great potential of these two economies in the rest of this century, severe structural and institutional problems will hobble them for years to come. At this point, the hype about the Indian economy seems patently premature, and the risks on the horizon for the Chinese polity – and hence for economic stability – highly underestimated.

Both China and India are still desperately poor countries. Of the total of 2.3 billion people in these two countries, nearly 1.5 billion earn less than US$2 a day.... Of course, the lifting of hundreds of millions of people above poverty in China has been historic....

India is as yet a minor player in world trade, contributing less than one percent of world exports. (China's share is about 6 percent.)

What about the hordes of Indian software engineers, call-center operators, and back-room programmers supposedly hollowing out white-collar jobs in rich countries? The total number of workers in all possible forms of IT-related jobs in India comes to less than a million workers – one-quarter of one percent of the Indian labor force. For all its Nobel Prizes and brilliant scholars and professionals, India is the largest single-country contributor to the pool of illiterate people in the world. Lifting them out of poverty and dead-end menial jobs will remain a Herculean task for decades to come.

Even in China, now considered the manufacturing workshop of the world (though China's share in the worldwide manufacturing value-added is below 9 percent, less than half that of Japan or the United States), less than one-fifth of its labor force is employed in manufacturing, mining, and construction combined.... Nearly half of the country's labor force remains in agriculture (about 60 percent in India). As per acre productivity growth has stagnated, reabsorbing the hundreds of millions of peasants will remain a challenge in the foreseeable future for both countries. Domestic private enterprise in China... is relatively weak... Chinese banks are burdened with "bad" loans... capital is used much less efficiently in China than in India.... Commercial regulatory structures in both countries are still slow and heavy-handed....

China's authoritarian system of government will likely be a major economic liability.... China is far behind India in the ability to politically manage conflicts...

Are There No Oracle Databases? Are There No PERL Programmers?

Why doesn't Land's End care enough about saving money to not send three copies of its Christmas catalog to one single-famly house? Removing redundant rows in the database table should be straightforward...

In other junk mail news, we congratulate PetMeds on successfully cross-referencing the name of America's Silliest Dog^TM with our first names. We acknowledge that we do give her heartworm prevention and tick repellent. The answer to why we don't also give her glucosamine is that we do--but that PetMeds' glucosamine price does not match Target's price for human-quality glucosamine.

Arbitrage!

Jeff Weintraub Has a Weblog!

A not-unrepresentative sample:

Jeff Weintraub: To: Members of PoliSci. 181-601 (Modern Political Thought) From: Jeff Weintraub Re: Montesquieu in Damascus: In case you're interested, this recent New York Times op-ed piece about Syrian politics happens to have a bearing on Montesquieu's comparative analysis of regimes and on some of the practical implications of his approach, so you might find it useful to consider in connection with reading and thinking about Montesquieu's Spirit of the Laws. (If not, fine. This is optional.)

The author of this piece, Joshua Landis, is an intelligent and well informed analyst of Syrian society & politics. I don't always agree with his arguments, but what he has to say is always worth taking seriously.... I want to draw attention to the theoretical logic underlying Landis's analysis of Syrian politics--which should be familiar to you from your reading of Montesquieu...

[...]

Landis believes that undermining the Syrian regime or pressuring it very hard to change would be a bad idea.... [I]f it breaks down, the result will not be a more "democratic" regime, but instead chaos and civil war. And, in the end, if this regime is overthrown it will almost certainly be replaced by another despotic regime that will be even worse.... Why? Fundamentally, Landis argues that the character of Syrian... political culture renders these outcomes inevitable.... Here's the heart of his analysis.

Mr. Assad's regime... even its most hard-bitten enemies here do not want to see it collapse. Why? Because authoritarian culture extends into the deepest corners of Syrian life, into families, classrooms and mosques. Damascus's small liberal opposition groups readily confess that they are not prepared to govern... they fear the deep religious animosities and ethnic hatreds that could so easily tear the country apart if the government falls.... The religious tolerance enforced by the government has made Syria one of the safest countries in the region. Washington is asking Mr. Assad to jeopardize this domestic peace. Worse, if Mr. Assad's government collapsed, chances are the ethnic turmoil that would result would bring to power militant Sunnis who would actively aid the jihadists in Iraq.

What is Landis arguing here? In Montesquieu's terms, his argument is that the structure and, above all, the mores of Syrian society make a stable despotic regime, like that of the Ba'ath Party, the best alternative that is realistically available. In particular, according to Landis, what are missing from Syrian society are precisely the kinds of mores that would be required to make a regime of democratic republicanism work--that is, the mores of genuine citizenship. The dominant mores diffused through Syrian society, Landis argues, are not republican but "authoritarian." Furthermore, Syrian society as a whole does not have the fundamental sense of solidarity... for republican self-government to be workable. And so on....

NOC NOC

Glaukon: NOC NOC.

Thrasymakhos: Who's there?

Glaukon: Not "knock knock." "NOC NOC." Non-Official Cover.

Thrasymakhos: CIA. Spies. Secret agents.

Glaukon: Victoria Wilson AKA Valerie Flame AKA Valerie Wilson AKA Valerie Plame AKA Valerie Plame Wilson.

Thrasymakhos: Do you understand it?

Glaukon: No. Does anybody?

Thrasymakhos: Tom Maguire might. I doubt it.

Glaukon: Well, you don't claim to understand it.

Thrasymakhos: Indeed not. But my not-understanding is at a very elevated and sophisticated level.

Glaukon: Do tell: what do you not understand?

Thrasymakhos: I do not understand why Scooter Libby (or whoever was Novak's source) did not take a dive in the fall of 2003. From the moment the CIA asked for an investigation, it was clear that this could be big trouble--for the administration was guilty as hell. At that moment Scooter Libby should have stood up and said: "I did it. I was pushing back against Wilson's lies and I forgot that his wife's status at the CIA was secret. I'm guilty." He would then resign, go to work for the campaign, get pardoned if there were to be any jail time--no criminal intent, Bush would say--and come back into the administration in early 2005. If you're guilty--especially if you're guilty--that's the dominant strategy. It gets you a sterling reputation as a stand-up guy. It wins you eternal gratitude from all the other guilty people who now escape scrutiny.

Glaukon: Sounds like the role Nixon had assigned to John Dean.

Thrasymakhos: Exactly.

Glaukon: Dean didn't take it.

Thrasymakhos: Dean is a patriot. That's why he didn't take it. Why didn't Libby (or whoever) take it? I don't know.

Glaukon: What else do you not understand?

Thrasymakhos: Perjury. This right-wing claim that if you can't prove that they're guilty of a more serious fundamental crime, you shouldn't indict on perjury or obstruction of justice. Almost invariably the point of committing perjury or obstructing justice is to muddy the waters so you can't be convicted of the more serious fundamental crime of which you are, in fact, guilty...

"Almost invariably"?

Thrasymakhos: The exception is Clinton. He lied not to try to cover up some crime but because he knew his adversaries would leak what he said, and he was scared of his wife. But, as I was saying, refusing to prosecute perjurers who are in fact guilty of a serious fundamental crime just because their perjury keeps you from proving their guilt--that just rewards the competent perjurers.

Glaukon: I wondered how you were going to draw a distinction that allowed you to advocate the keelhauling of Republicans for actions--lying to federal investigators--for which Democrats like Bill Clinton got off scot-free.

Thrasymakhos: Focusing on the seriousness of the underlying act--trying to hide one's pathetic little affairs with interns from one's wife vs. harming the national security--works well, doesn't it?

Glaukon: Yes, it does. I am lost in admiration.

Thrasymakhos: I am a trained professional.

Glaukon: Yes you are. What else do you not-understand?

Thrasymakhos: Alger Hiss.

Glaukon: Alger Hiss?

Thrasymakhos: Yes. Alger Hiss was convicted not of espionage but perjury. On today's right-wing line of argument, charges should have been dropped once it became clear they couldn't prove espionage. Doesn't anyone on today's right remember Alger Hiss? Everyone who was anyone on the right was there: J. Edgar Hoover, Richard M. Nixon, Joe McCarthy, William F. Buckley, Whittaker Chambers...

Glaukon: No.

Thrasymakhos: No?

Glaukon: No. William F. Buckley remembers that Alger Hiss was convicted not of espionage but of perjury. Perhaps a few of Buckley's epigones remember. (But they are keeping very quiet.) Nobody else. What else do you not-understand?

Thrasymakhos: The pointless, boastful lying in the fall of 2003. Cheney: "I don't even know who Joe Wilson is!" Bush: "Gee. I really hope they catch those leakers!" When all the while both of them knew that Cheney had launched the leaking campaign and that Rove, Libby, and company were in it up to their necks. It didn't gain them anything. And now it makes them look like the sleazy liars that they are--and makes them look so in a soundbite simple enough for the media to understand it. That I really don't understand.

Glaukon: You don't have much experience with fratboys, do you?

Thrasymakhos: I'm afraid not.

Glaukon: So are they guilty?

Thrasymakhos: Of course. From Cheney's perspective, that's the whole point. You want to tell the CIA to back off and shut up. What better way than to signal that you can and will leak information that will destroy the organization if the CIA continues its campaign of opposition-to-the-White-House-via leak?

Tiny Revolution Reports: "My God, They Really Are Insane"

I'm not going to check to see if this is true:

A Tiny Revolution: My God, They Really Are Insane : I usually don't visit the fever swamps of America's right because it makes my head hurt. But Sifu Tweety at the Poorman just lured me to National Review Online to witness Jonah Goldberg expressing this forlorn hope:

Byron, Andy, someone: Is it possible that Wilson will be indicted too, or is that pure pie-in-the-sky talk? Because that would sure help a lot of bitter pills go down.

Now, that's good bat-shit crazy. But Goldberg apparently received this bat-shittier response from NRO's Stephen Spruiell:

Wilson was never obligated to keep his trip a secret, although if leaking his wife's name is a crime he should be indicted for ensuring it would happen when he wrote his op-ed.

I agree! Also, if stabbing Nicole Simpson to death is a crime, she should be indicted for ensuring it would happen with all her slutting around.

Why Oh Why Can't We Have a Better Press Corps?

I really cannot stand it any more.

A correspondent sends me Victor Canto on Ben Bernanke at National Review:

Victor A. Canto on Ben Bernanke and the Price Rule on NRO Financial: In the cases where central banks have performed well, an explicit price-rule mandate has been in effect. The domestic version of this rule targets domestic inflation, and the international rule targets the exchange rate.... In October of 1979, then-Fed chairman Paul Volker changed the central bank’s operating procedure. The Fed abandoned its targeting of monetary aggregates, and switched, in my view, to a domestic price rule or an inflation-targeting apparatus. The result was nothing short of spectacular. The inflation rate abruptly declined and more than two decades of relative price stability followed...

Ummm. No. Here's from David E. Lindsey, Athanasios Orphanides, and Robert H. Rasche (2005), "The Reform of October 1979: How It Happened and Why" (Washington: Federal Reserve Board Finance and Economics Discussion Series: Working Paper 2005-2):

Volcker’s nomination enjoyed wide support across the political spectrum, and his confirmation hearing on July 30 [1979] was relatively uneventful. At the hearing Volcker reiterated his well-publicized views in favor of curbing inflation and stressed that “if we’re going to have price stability” it was “indispensable” to bring down the growth of monetary aggregates....

October 6, 1979, Paul Volcker led a change in Federal Reserve operating procedures, and issued a press release:

In characterizing the essence of the new technique, the release noted....

Actions taken are:... 3. A change in the method used to conduct monetary policy to support the objective of containing growth in the monetary aggregates over the remainder of this year within the ranges previously adopted by the Federal Reserve. These ranges are consistent with moderate growth in the aggregates over the months ahead. This action involves placing greater emphasis in day-to-day